South Africa Country Risk Report

Published 28 January 2015 | Quarterly

  • 54 pages
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$1,195.00
South Africa Country Risk Report

Core Views:

  • South Africa's electricity crisis reflects structural political and economic challenges that will not be addressed under the current administration. We are revising down our near-term growth forecasts, as rolling blackouts will mitigate the positive growth impact of lower oil prices, while limited labour and product market reform will cap the longer-term growth rate below the 3% mark.

  • South Africa's ruling African National Congress party will gradually adopt more populist, leftwing policies over the next four years in an attempt to retain dwindling popular support. Policy proposals will be mainly rhetoric until the 2016 municipal elections, after which point we expect an increasing focus on genuinely distributive policies.

  • Weak growth and policy priorities ahead of next year's municipal elections mean limited fiscal consolidation by the South African government over the next two years. Persistent pressures on spending will see the authorities focus on revenue generation, in the form of further tax hikes, although this will unlikely be sufficient to prevent another sovereign downgrade.

Major Forecast Changes:

  • We have revised down our 2015 real GDP growth forecast from 2.5% to 1.9%, as we believe the ongoing electricity crisis will cause more damage to consumption and investment than we had initially anticipated.

  • We now forecast a 25 basis points rate hike by the South African Reserve Bank in 2015, as the sharp increase in utility tariffs will force monetary policymakers to demonstrate its commitment in tackling inflationary pressures. We remain below-consensus on rates, however, given the weak macro backdrop.

Key Risks To Outlook:

  • At present it is unclear how bad the electricity situation will be over the next few years. In a worst case scenario where the domestic grid collapses, we would significantly revise down our growth forecast.

Forecast Table:

Macroeconomic Forecasts (South Africa 2013-2016)
Indicator 2013 ...

Table of Contents

Executive Summary
5
Core View
5
Key Forecast Changes
5
Key Risks To Forecast
5
Chapter 1: Political Outlook
7
SWOT Analysis
7
BMI Political Risk Index
7
Domestic Politics
8
ANC Policy Being Pushed To The Left
ANC Policy Being Pushed To The Left
ANC policy is likely to shift left over the course of the next 18 months as the party attempts to fend off a challenge from populist
ANC policy is likely to shift left over the course of the next 18 months as the party attempts to fend off a challenge from populist
opponents, and to stem the loss of support owing to the electorate's frustrations with public service delivery
Table: Political Overview
8
Long-Term Political Outlook
9
Political Trials And Tribulations Over The Coming Decade
Political Trials And Tribulations Over The Coming Decade
Many issues threaten South Africa's political stability over the long term, not least the inequalities still stemming from the apartheid era
Although our core scenario envisages no major change to the political backdrop, we present a number of alternative scenarios
Chapter 2: Economic Outlook
13
SWOT Analysis
13
BMI Economic Risk Index
13
Economic Activity
14
Small Boost To Growth From Lower Oil Prices
Small Boost To Growth From Lower Oil Prices
The South African economy will benefit from lower oil prices, and we have upgraded our 2015 real GDP growth forecast to 2
5% from
2
Table: Economic Activity
14
Currency Forecast
15
ZAR: Depreciation To Continue In 2015
ZAR: Depreciation To Continue In 2015
The rand will continue to depreciate against a strong US dollar over the course of 2015
With much of the bad news about the economy
priced in, and with oil prices heading lower, the pace of the declines will be less than that seen in 2013 and 2014
Table: CURRENCY FORECAST
15
Monetary Policy
17
Rate Hold View Gaining Traction
17
The South African Reserve Bank will keep the repo rate on hold at 5
75% through 2015, even while the US Federal Reserve hikes rates
by 50 basis points
Table: Monetary Policy
17
Global Themes
18
Key Global Themes For 2015
18
We expect several global macroeconomic and market themes to play out in 2015, including the return of sovereign debt risk, the
We expect several global macroeconomic and market themes to play out in 2015, including the return of sovereign debt risk, the
continuation of emerging market currency dilemmas, and the ramifications of a new era for oil prices coming to the fore
Emerging
market reformers will be outperformers, the US will stand alone in macroeconomic terms, and China's reform drive may spell instability
market reformers will be outperformers, the US will stand alone in macroeconomic terms, and China's reform drive may spell instability
for the global economy
Chapter 3: 10-Year Forecast
23
The South African Economy To 2024
23
Underperformance Among EM Peers Ahead
23
The South African economy will grow at a slow pace of around 2
Power shortages, industrial
action and divestment in the mining sector will weigh on economic expansion, resulting in long-term economic underperformance versus
action and divestment in the mining sector will weigh on economic expansion, resulting in long-term economic underperformance versus
emerging market peers
Table: Long-Term Macroeconomic Forecasts
23
Chapter 4: Operational Risk
27
SWOT Analysis
27
Operational Risk Index
27
Operational Risk
28
Table: Operational Risk
28
Availability of Labour
29
Table: Sub-Saharan Africa - Availability Of Labour Risks
30
Table of South Africa 's Top 10 Source Countries For Migrant Workers , '000
32
Crime Risk
33
Tab le: Lab our Force By Industr y, '000
33
Table: Sub Saharan Africa Crime Risks
34
Table: Crime Statistics
35
Chapter 5: Key Sectors
39
Autos
39
Table: Autos Total Market - Historical Data And Forecasts
40
Table: Motorcycle Market - Historical Data And Forecasts
40
Food & Drink
42
Table: Food Consumption Indicators - Historical Data & Forecasts
43
Table: Mas Grocery Retail Sales By Format - Historical Data & Forecasts
44
Other Key Sectors
46
Table: Oil and Gas Sector Key Indicators
46
Table: Pharma Sector Key Indicators
46
Table: Infrastructure Sector Key Indicators
46
Table: Telecoms Sector Key Indicators
47
Table: Defence and Security Sector Key Indicators
47
Table: Freight Key Indicators
47
Chapter 6: BMI Global Assumptions
49
Global Outlook
49
New Era For Oil
49
Table: Global Assumptions
49
Table: Developed States, Real GDP GrowtH, %
50
Table: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, %
50
Table: Emerging Markets, Real GDP Growth, %
51

The South Africa Country Risk Report helps businesses with market assessment, strategic planning and decision making to promote growth and profitability in South Africa. It is an essential tool for CEOs, Chairmen, Finance Directors/CFOs, Managing Directors, Marketing/Sales Directors with commercial interests in this emerging market.

An influential new analysis of South Africa's economic, political and financial prospects through end-2019, just published by award-winning forecasters, Business Monitor International (BMI).

Key Uses

  • Forecast the pace and stability of South Africa's economic and industry growth through end-2019.
  • Identify and evaluate adverse political and economic trends, to facilitate risk mitigation.
  • Assess the critical shortcomings of the operating environment that pose hidden barriers and costs to corporate profitability.
  • Contextualise South Africa's country risks against regional peers using BMI's country comparative Risk Index system.
  • Evaluate external threats to doing business in South Africa, including currency volatility, the commodity price boom and protectionist policies.

The South Africa Country Risk Report by Business Monitor International (BMI) includes four major sections: Economic Outlook, Political Outlook, Operational Risk and Key Sector Outlook.

Economic Outlook:

How will the South Africa' economic policy-making and performance impact on corporate profitability over 2015-2019?

BMI provides our fully independent 5-year forecasts for South Africa through end-2019 for more than 50 economic and key industry indicators. We evaluate growth, and also forecast the impact of economic management.

Economic Outlook Contents

The South Africa Country Risk Report features BMI's forecasts with supporting analysis for 2015 through to end-2019, set against government views and BMI's evaluation of global and regional prospects.

Key Areas Covered:

Data:

  • Full 10-year forecasts with data - for key macroeconomic variables including GDP (real growth and per capita), population, inflation, current account balance and the exchange rate.
  • BMI's comprehensive Risk Index system - rates each country worldwide for economic and political risk, and rates the business environment, within a global and regional context.

Written Analysis:

  • Economic Activity - real GDP growth, employment, inflation, consumption (retail sales and confidence).
  • Balance of Payments - trade and investment, current and capital account.
  • Monetary Policy - interest rate trends (bank lending and deposit rates) and inflation (producer price and consumer price).
  • Exchange Rate Policy - currency controls, foreign investment flows, exchange rates and foreign exchange reserves.
  • Fiscal Policy - macroeconomic strategy and policies, government finance and tax reforms.
  • Foreign Direct Investment - approvals, inflows and climate.
  • External Debt - debt profile (short and long-term plus public and private sector obligations).
  • Global Assumptions - forecasts for each year to end-2019 covering: major commodities, growth in key regions, inflation, and interest and exchange rates, in the United States, Japan, China and the eurozone.

Key Benefits

  • Rely upon BMI's 100% independent forecast scenarios for South Africa and underlying assumptions - we take no advertising and are privately-owned.
  • Exploit the benefits of BMI's comprehensive and reliable macroeconomic database on South Africa, sourced and fully maintained by BMI from an extensive network of private sector, government and multilateral contacts.
  • Gain key insights into the current and future direction of government economic policy, which could significantly affect your company's business prospects, from BMI's team of analysts and economists.

Political Outlook:

What are the political risks to doing business in South Africa over the next 5-years?

BMI's South Africa country Risk Index evaluates the short- and medium-term threats to political stability.

Political Outlook Contents

  • SWOT Analysis for the South Africa Market - Political Strengths, Weaknesses, Opportunities and Threats facing South Africa.
  • Political Stability and Risk Assessment - BMI's Risk Index assesses explicit short- and long-term risks to political stability; latest positioning and trends for South Africa's risk are compared with regional and global averages.
  • Current Administration and Policy-making BMI assesses the threats to the continuity of economic policy, and likely changes to the business operating environment.
  • Long-Term Political Outlook BMI examines the structural risks to the stability of South Africa’s political system and the dominant public policy issues likely to affect decision-makers, and outlines scenarios for how the state could evolve in the medium to long term.

Key Benefits

  • Benchmark South Africa's risk profile against its neighbours, the global and regional average, allowing easy comparison of risks between key business markets.
  • Identify, evaluate and anticipate political and security risks to the business environment, and to your company's current operations and future plans.
  • Gain valuable insights into government and policy-making, through BMI's specialist team of analysts and economists, and their network of private and public sector sources.

Operational Risk

What are the current operational risks and difficulties associated with doing business in South Africa?

The Operational Risk section gives an evaluation of current risks and difficulties associated with operating in the market. It also provides a brief overview of the regional Operational Risk Index which benchmarks South Africa against its neighbours.

Operational Risk Contents

The chapter provides a summary of the main threats in the country, within:

  • Labour Market Risk (Education; Availability of Labour; and Labour Costs)
  • Logistics Risk (Market Size and Utilities; Quality and Extent of the Transport Governance)
  • Trade and Investment Risk (Economic Openness; Government Intervention; and Legal Risks)
  • Crime and Security Risk (Crime; Terrorism; and Interstate Conflict risks).

The report also drills down in greater depth to address key issues in one of the following segments most critical to the market:

  • Transport network, economic openness, cost and availability of labour, crime risks, bureaucratic environment, market size and utilities, and interstate conflict.
  • Assess your company’s exposure to country specific operational and business risks, using BMI’s insight on the current dangers of operating in the market.
  • Evaluate South Africa’s risk profile against its regional peers, helping you understand the market’s strengths and weaknesses in relation to other countries.

Key Sector Outlook*

Which industry sectors in South Africa will grow fastest, and where are the major investment opportunities in the market?

BMI identifies investment opportunities in South Africa's high growth industries including automotives, defence & security, food & drink, freight transport, infrastructure, oil & gas, pharmaceuticals & healthcare and telecommunications & IT.

Key Areas Covered:

  • Market Overview - Size and value of each industry, including recent sector developments and major industry key performance indicators (KPIs) that have impacted company performance.
  • 5-year Industry Forecasts - Forecasts for each year over 2015-2019, using BMI's proprietary industry modelling technique, which incorporates key domestic and international indicators - including economic growth, interest rates, exchange rate outlook, commodity prices and demographic trends - to provide fully integrated forecasts across and within each industry.
  • Demand- and Supply-Side Data/Forecasts - BMI's industry data covers both the output of each industry and the domestic demand, offering clear analysis of anticipated import/export trends, as well as capacity growth within each industry.

Key Benefits

  • Target strategic opportunities in high growth industries, which are benefiting from global mega trends, and thus offer strong investment and growth opportunities.
  • Compare the growth path of different industries to identify which are best placed to benefit from domestic and international economic prospects, and which have historically suffered from volatile growth trends - a key indicator of future risks.

*Not all Country Reports contain the Key Sector Outlook chapter. Please enquire above for more information.

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Testimonials

The sections that I find most interesting and useful are the macroeconomic data and forecasts for the country, top export destinations and economic activity. The indicators/analysis of these areas helps us orient our thinking, our assumptions and, consequently, our decisions in the commercial area.

Country Manager, DHL Express