EDITORIAL: The year of high hopes and harsh realities

When we look back many years hence, 2024 might be remembered as the year that SA turned around — or as the year of high hopes that were subsequently dashed. We certainly have to hope it is the former. The year’s upside surprises — particularly the end of load-shedding and the government of national unity (GNU) — have provided good reason for hope.

The rand’s rollercoaster ride in 2024 tells some of the story; government bond yields tells it even more strikingly. Going into the year’s end, the rand was trading at about R17.88 to the dollar, not bad considering that it started the year at R18.68. Of course, it swung wildly in between, hitting R19.30 in late February and going over R19 again in April, on the eve of SA’s May general election.

The market was bracing for the worst-case scenario of an ANC in bed with the EFF and/or MK party. In the event, the ANC lost much more ground to MK than almost anyone had expected, with its share of the vote falling to 40%. But instead of the worst case, the GNU quickly came together.

Positive sentiment surged. SA came back onto international investors’ radar screens as a bastion of emerging market democracy and stability, one with the potential for growth-boosting reforms. The rand strengthened to trade in the mid-R17 range to the dollar. SA’s country risk premium narrowed, while the 10-year bond yield fell to 8.7% after peaking at more than 11% in April when investors were gearing up for doomsday.

The post-GNU euphoria might not have been as great as it was without the fact that the lights were on — and have stayed on since Eskom suspended load-shedding in late March. That has boosted the national mood. Finally, some tangible evidence that President Cyril Ramaphosa’s long-promised energy reforms are having an impact. So too are lesser-known turnarounds in areas such as water licensing.

Reforms in logistics are also getting under way, albeit ultra slow. But the GNU has fast-tracked some key changes, such as skilled work visa reforms. Operation Vulindlela had helped to put it in place, but it needed a willing minister to sign off. Nor is it just the new GNU ministers that have brought new energy; there are some good new ANC ministers, too. And there is the prospect that reforms will gain pace and growth will pick up over the medium term. Best-case scenario: SA’s growth rate could lift to more than 3% if all promised reforms materialise.

Importantly too, while the outlook for SA’s public finances and public debt didn’t improve between the February and October budgets, it didn’t get too much worse either, despite below-forecast growth and tax collections. The GNU has cemented the government’s commitment to stabilising debt and to investing in infrastructure with the help of the private sector.

All of this has helped to set a more positive tone from the three major ratings agencies, with S&P Global upping SA’s outlook from stable to positive on the potential for better growth and fiscal outcomes. Business sentiment hit a nine-year high, thanks to a surge in overseas tourists, improved precious metals prices, and a belief that the GNU’s market-friendly policies might work.

However, the latest negative GDP numbers came as a sobering reminder that all this positivity and potential have yet to translate into actual growth. The year could still end with growth of well under 1%, yet again. Reforms take time, but SA still has a long way to go, and much work remains to be done to make the reform process happen and get growth going. The state itself needs to become more competent, efficient and investment friendly. The dire state of municipalities is proof of that.

Nor is the external environment particularly friendly. With the US gearing up for an isolationist Trump administration, and China struggling to grow, SA can’t expect much global help for its economy. The GNU optimism needs to be tempered too, given its loud critics inside and outside the ANC, and the tensions within over issues such as the Basic Education Laws Amendment Bill.

As economists say, there are upside risks, and hopefully things will head closer to the best-case scenario. But there are many downside risks too that need to be carefully managed.

We wish all our readers a peaceful and restful holiday season and a happy and healthy 2025.