
In order to realize the crucial 4-5% growth necessary to improve South Africa’s economic forecasts, the nation needs greater policy clarity, reform, and “bold” political decisions.
With a more favorable inflation outlook and the possibility of more substantial rate reductions, the growth forecast for next year is nearing 1.7%, signaling renewed interest from foreign investors for the first time since the beginning of the Covid-19 pandemic.
ADVERTISEMENT
CONTINUE READING BELOW
Read: It’s time to place a bet on SA Inc
Recent credit rating downgrades and the looming grey listing have kept wealthy investors at bay, but key stakeholders are now starting to consider the right time to re-enter the South African market.
This is a missed opportunity that should not be ignored. Although South Africa remains on the grey list, a review is scheduled for February 2025, and in an unexpected move, S&P Global has revised its outlook on the country’s rating from stable to positive.
Read: SA getting closer to earning its way off the grey list
Simultaneously, the recent Medium-Term Budget Policy Statement revealed alarming insights into government revenue, highlighting the urgent need for spending cuts and reforms.
A positive sign that has caught the eye of both investors and rating agencies is the progress demonstrated by the government of national unity (GNU).
For South Africa to benefit from the favorable conditions brought about by rate cuts, it is essential that investment policy clarity and pro-business reforms follow the upcoming national elections.
Read all our MTBPS coverage here.
Currently, South Africa stands to gain from potential further rate cuts after two modest reductions of 25 basis points each in September and November this year, bringing the repo rate down to 7.75%.
Additional rate cuts will provide further relief to consumers, as the effects of diminishing inflation can already be seen in declining credit default rates.
Read:
South Africa’s outlook upgrade makes Eskom bonds less risky
MPC repo rate misfire
Just a 25bp cut by Sarb
Old Mutual views the decline in interest rates as a positive development. Although it may reduce endowments from a loan portfolio perspective, it will also lead to fewer defaults on credit issuances and promote higher deposit rates.
While the worldwide decline in inflation is a significant success, the International Monetary Fund (IMF) cautions that downside risks are escalating and currently dominate the global economic outlook.
These risks encompass rising regional conflicts, sustained stringent monetary policies (with South Africa being a prime example), potential increases in financial market volatility that could adversely affect sovereign debt markets, a deeper economic downturn in China, and the continued ascent of protectionist measures.
A depreciating rand, influenced by Trump’s victory in the U.S., and its negative impacts on imports such as fuel will also require vigilant oversight.
ADVERTISEMENT:
CONTINUE READING BELOW
Read:
Rand reclaims some lost ground
Rand’s reform rally wavers as Trump’s election fuels dollar strength
Rand hits R18 to US dollar
Nonetheless, Africa’s banking and insurance sectors are well-placed to manage risks and seize opportunities, fostering financial inclusion and addressing existing solution gaps. In South Africa and across the continent, savings rates remain alarmingly low, and the region faces significant underinsurance issues, particularly regarding pure risk life and disability coverage.
Growth of ‘Insurtech’
Deloitte’s 2024/25 insurance outlook report indicates that Africa’s young and growing population presents vast market opportunities. Insurtech is set to increasingly leverage mobile technology to offer microinsurance products to underserved communities.
It is encouraging to see Insurtech and fintech innovators like Omari making progress in this realm, providing enhanced and affordable access to solutions such as reasonable digital home insurance that can make a significant difference in burgeoning nations like Zimbabwe.
PWC’s Insurance 2030 report emphasizes that firms focusing on customer-centric approaches can evolve to a point where insurance becomes a product that is bought rather than sold. From insurance and banking perspectives, success largely hinges on the type of product – direct digital sales may excel in scenarios where consumers are comfortable with digital interactions and quick feedback, such as routine monetary transactions.
However, consumers might feel uneasy when transactions become larger and more complex, requiring guidance from a knowledgeable consultant who can provide reassurance.
Therefore, our strategy centers around broadly advancing digital and AI solutions for enhanced efficiency and user experience while ensuring experienced and trusted human advisors remain readily available for complex matters or customized solutions.
The emphasis should shift from specific products to how an individual’s financial journey is supported throughout their lifecycle.
In today’s volatile landscape, the most successful financial services firms will consistently emerge as quality advisory partners, aiding in decision-making and encouraging prudent choices that prioritize often-overlooked aspects, such as saving over spending.
Maintaining relevance in the future will be vital as the environment continues to evolve.
Iain Williamson is CEO of Old Mutual Group.
For comprehensive finance and business news, follow Moneyweb on WhatsApp here.