In a recent webinar, Coface South Africa in collaboration with the French South African Chamber of Commerce and Industry and ENS Africa, experts Aroni Chaudhuri and Steven Powell delved into South Africa's path to 2024.
As the country braces for an election year, the discussion revolved around the anticipated repercussions of the political agenda on the economy, offering valuable insights into investment sentiment, policy direction, and budgetary decisions.
Amidst the backdrop of 2024 unfolding as an election year, Aroni Chaudhuri provided a comprehensive analysis of the current economic climate in South Africa. Essential metrics such as GDP growth, inflation rates, and the prevailing investment climate were scrutinised, providing attendees with a detailed overview of South Africa's macroeconomic structure.
However, the discussion did not shy away from addressing the pressing issues that have cast a shadow over South Africa's trajectory. Sanctions, corruption, and fraud were highlighted by Steven Powell as significant challenges that have permeated the nation's fabric, posing threats to governance, economic stability, and social cohesion alike.
Economic Overview by Aroni Chaudhuri
Commodity Prices: Back to (New) Normal as Demand Concerns Outweigh Supply Fears
Aroni Chaudhuri, Africa economist for Coface, began by delving into the evolving dynamics of commodity prices, highlighting a significant shift where concerns about demand are, for now, outweighing supply fears. Despite the peak following the conflict in Ukraine, all categories of commodity prices have receded but remain notably higher than pre-pandemic levels. Chaudhuri emphasised the continued importance of industrial metals, crucial for South Africa's exports. While prices have lowered, they still maintain a robust level due to persistent demand for metals essential for energy transition.
However, challenges persist, particularly with low steel demand, mainly attributed to China's economic performance and other client sectors facing difficulties. Agricultural commodities have also experienced fluctuations due to weather patterns globally, with drought affecting Southern Africa, including South Africa. These weather phenomena, coupled with protectionist measures in major producing countries for key commodities, contribute to the volatility and sustained higher prices in agricultural commodities.
Regarding energy commodities, Chaudhuri noted that, for now, concerns about lackluster global demand surpass supply threats. While production cuts were implemented by major oil-producing countries, countries like the US and Brazil have increased output. However, uncertainties such as conflicts in the Middle East and transportation disruptions remain, which could impact energy prices.
Inflation is Down (Almost) Everywhere but the Last Mile is Always the Hardest
Discussing inflation, Chaudhuri underscored a downward trend globally, primarily driven by receding commodity and goods prices. However, he emphasised the challenge of addressing inflation's "last mile," particularly regarding services inflation, due to lingering wage pressures amidst tight labour markets. The disinflation process is still underway, but Chaudhuri cautioned that it might not reach targets anytime soon, prolonging the need for restrictive monetary policies.
Monetary Policies: Time to Pivot?
Chaudhuri raised the question of whether it's time for a pivot in monetary policies as economic landscapes evolve. He discussed potential adaptive strategies required to navigate changing economic conditions effectively. While the Fed and the ECB will start cutting rates in the course of the year, the persistence of inflationary pressures suggests that interest rates will remain higher for an extended period, influencing economic dynamics globally, and impacting financing needs for both corporates and countries.
Global GDP Growth to Keep Decelerating in 2024
Insights were provided into the anticipated slight deceleration of global GDP growth in 2024. Chaudhuri highlighted the interconnectedness of global economic trends and their implications for South Africa's economic outlook.
South Africa: Election Results Will Influence the Capacity to Govern Efficiently
The impending elections in South Africa were discussed as pivotal in influencing the country's governance capacity. Chaudhuri provided perspectives on how election outcomes could shape policy direction and governance effectiveness, affecting the country's economic trajectory. For over a year now, polling data has consistently indicated that the ANC may not secure an absolute majority, with recent polls suggesting their support dipping below 40%. However, it is crucial to maintain perspective, as polling is not always accurate, and voter turnout can significantly impact outcomes. Analysts globally tend to agree that the ANC might not reach the desired majority. Thus, the question arises: how much support can they secure? This percentage will heavily influence their ability to enact reforms and govern effectively.
South Africa: Growth Outlook Still Somewhat Stable, but Constraints Remain Significant
Despite a relatively, stable growth outlook, South Africa faces significant constraints, particularly in addressing structural issues both on supply and demand, which severely limit the country’s growth potential. On the supply side, the energy and logistics crises continue to weigh on most industries, despite improvements lately. Reforms and emergency financing were implemented, but the effects will take time to materialise.
Regarding demand, Chaudhuri addressed the persistent challenges of sticky inflation and high unemployment in South Africa, noting their significant socio-economic impacts on households and the broader economy. Chaudhuri emphasised the need for sustained policy reforms in the medium-term to enhance economic resilience and growth potential.
South Africa: Rand to Remain Weak, Financing Needs Will Increase
Projections for the Rand to remain weak were highlighted, along with increasing financing needs. Attendees gained insights into the implications of a weaker currency for South Africa's economic resilience and fiscal sustainability amidst evolving economic dynamics.
South Africa: Public Accounts Will Remain Under Pressure
Closing the discussion, Chaudhuri emphasised the enduring pressure on South Africa's public accounts, highlighting the fiscal challenges facing the country amidst evolving economic dynamics.
Regulatory Challenges and Progress by Steven Powell
Steven Powell, Head of Forensics at ENS Africa, provided insights into South Africa's efforts to address deficiencies highlighted by the Financial Action Task Force (FATF) and emphasised the significance of recent legislative enactments in combating corruption and fraud. Powell outlined the country's journey toward compliance, noting positive developments such as President Ramaphosa signing into law, on April 3rd, the new Failure to Prevent Corrupt Activities Act (FPCA). This amendment introduces stringent measures requiring companies to establish anti-corruption compliance programs, enhancing transparency and accountability in business practices. Powell stressed the importance of companies adhering to regulations on political donations and campaign funding to mitigate corruption risks.
Sanctions Environment and Global Dynamics: Challenges and Compliance Imperatives
Powell highlighted the challenges posed by geopolitical conflicts, such as the Russia-Ukraine conflict and the Israel-Lebanon conflict, which have implications for sanctions risk. He emphasised the need for companies to stay abreast of evolving sanctions regimes globally, including those imposed by the US, the EU, the UK, and Australia. Powell highlighted the importance of robust compliance screening processes to ensure adherence to sanctions requirements and mitigate legal and reputational risks.
Addressing FATF Deficiencies: Progress and Remaining Challenges
Reflecting on South Africa's journey off the FATF greylist, Powell acknowledged past deficiencies in anti-money laundering (AML) and counter-terrorism financing (CTF) frameworks. He highlighted the country's efforts to address shortcomings, including improvements in regulatory oversight and enforcement. Powell emphasised the importance of demonstrating effectiveness through prosecutions and convictions to bolster South Africa's compliance standing.
Legislative Reforms and Enforcement Efforts: Promoting Compliance and Prosecutions
He outlined key legislative reforms aimed at bolstering South Africa's AML/CFT regime, including amendments to the Transnational Property Control Act, the General Laws Amendment Act, and the Companies Act. He emphasised the importance of enhanced disclosure requirements, beneficial ownership information, and anti-money laundering programs for businesses. Powell also highlighted ongoing efforts to strengthen enforcement through collaborations with law enforcement agencies and the judiciary.
Prosecution Progress and Whistleblower Protection: Enhancing Accountability
Powell provided updates on prosecution efforts, including high-profile cases related to corruption and fraud. He discussed challenges in prosecuting white-collar crimes and emphasised the need for improved capacity and efficiency in the legal system. Powell highlighted proposed reforms to whistleblower protection legislation and the introduction of deferred prosecution agreements to incentivise corporate cooperation and self-reporting.
Conclusion: Optimism Amidst Challenges
In conclusion, Powell expressed optimism regarding South Africa's progress in addressing FATF deficiencies and emphasised the importance of continued reforms and enforcement efforts. He underscored the significance of collaboration between government agencies, private sector entities, and international partners in promoting compliance and combating financial crimes. Despite remaining challenges, Powell conveyed confidence in South Africa's ability to overcome obstacles and restore its reputation as an attractive investment destination through sustained efforts in regulatory compliance and prosecution.
