South African companies are experiencing a resurgence in consumer demand due to the stabilization of power supply and easing inflation. Major firms have reported double-digit profit increases, signalling a recovery in the economy. Experts anticipate steady growth, driven by consumption and necessary reforms, amidst global trade uncertainties.
South African firms have reported a rebound in consumer demand, aided by the resolution of power shortages and a decrease in inflation rates. Notable companies, including Discovery Ltd., Shoprite Holdings Ltd., and Harmony Gold Mining Co., have reported profit increases exceeding 10%. Nedbank Group Ltd. also surpassed profit expectations, reflecting a broader recovery in Africa’s most industrialized economy.
For years, companies have addressed the deficiencies of the state power utility, Eskom, investing significantly to maintain operations amidst electricity crises. A consistent power supply has bolstered consumer confidence, catalyzing demand across various sectors, including automotive and insurance. Additionally, new regulations enabling access to retirement funds have further fueled this demand.
David Shapiro, chief global equity strategist at Sasfin Securities, noted that improved electricity availability has alleviated pressure on manufacturing firms, reducing costs and increasing productive hours. He observed a more stable operating environment, an encouraging sign as the economy sought recovery from a low base.
Eskom has undertaken substantial repairs to its coal-powered plants, which generate nearly all of South Africa’s electricity, ensuring a more reliable power supply. The International Monetary Fund projects a 1.5% growth in the economy for this year, a significant improvement compared to the less than 1% average growth recorded over the past decade.
The economy experienced a modest increase of 0.6% in 2024, the slowest growth rate since the peak of the COVID-19 pandemic. However, there were signs of improvement in the fourth quarter, with a 0.6% expansion following three months of contraction, as household consumption—which constitutes around two-thirds of GDP—grew by 1%.
Yvonne Mhango, an economist with Bloomberg Economics, predicts that South Africa’s economic growth will likely accelerate in 2025, driven by rising consumption which may, in turn, enhance investment and industrial activity, especially due to reforms in energy and rail sectors.
In contrast, Nedbank’s CEO, Jason Quinn, expressed concerns that international tensions, such as the trade war instigated by former U.S. President Donald Trump, could negatively impact South Africa’s economy. Trump has also made statements regarding land confiscation in South Africa, despite the fact that no private land has been taken since the ending of apartheid in 1994.
The benchmark index for South Africa, FTSE/JSE Africa All Shares Index, has risen by 3.3% this year, although it experienced a 0.8% decrease later in the day. This reflects the volatile nature of the market amidst changing economic conditions.
In summary, South African firms are witnessing a revival in consumer demand, bolstered by improved electricity supply and lower inflation. Notable companies have reported substantial profit growth, and the economy is projected to expand, driven largely by consumer spending. Despite potential global trade challenges, the outlook remains cautiously optimistic for South Africa’s economic recovery and growth in the coming years.
Original Source: financialpost.com
