As SA emerges from its most significant general elections since the end of apartheid, the country is confronted with economic and political uncertainties that mirror wider global trends.
According to KPMG International’s second-quarter Global Economic Outlook, the global economy is expected to slow down from 2.7% in 2023 to 2.5% in 2024, with a recovery anticipated in 2025.
While inflation is projected to cool, it is likely to persist longer in many economies due to geopolitical uncertainties and changing monetary policies.
The recent drop in the value of the rand has underscored the immediate effects of political uncertainty on SA’s economy. The KPMG report indicates that a decline in currencies against the dollar typically intensifies inflationary pressures, complicating economic conditions in developing countries.
Between interest rate uncertainty and the elections, business leaders remain hesitant to engage in major investment projects.
— KPMG report
Globally, businesses and consumers are adjusting supply chains through strategies such as friend-shoring, reshoring and near-shoring to mitigate geopolitical risks, albeit at higher costs worsened by increased shipping costs and disruptions, according to the report.
In friend-shoring, countries partner with others with similar values, while reshoring brings production back to regions where the products will be sold. Near-shoring brings production back to an international location closer to the point of sale.
“Between interest rate uncertainty and the elections, business leaders remain hesitant to engage in major investment projects. Consumers are cutting back on financed goods due to elevated rates, while governments face higher financing costs as debt rolls over at higher interest rates,” the report says.
Frank Blackmore, lead economist at KPMG Southern Africa, has highlighted the challenges the country faces after the elections, noting that the formation of the government of national unity (GNU) has ushered in a period of political restructuring and potential instability. Voter dissatisfaction, fuelled by years of government mismanagement and corruption, led to lower-than-expected turnout and a fragmented political landscape, he said.
The newly appointed GNU cabinet is tasked with navigating a complex array of economic and social challenges.
Blackmore pointed out the difficulties the new administration faced, including that many cabinet members were not yet familiar with the workings of their departments.
“These new members of cabinet have hardly had time to look at what is the functioning of their ministries and departments, finding out what is working and what isn’t working, trying to align the needs of the country with the strategies of these departments, let alone trying to calculate what resources [are] required to achieve those goals over time. These things will only work themselves out as time goes by.”
The success of this diverse formation, he suggested, would be evaluated over time. “The ultimate judgment of the performance of the cabinet will only come to light over the passing of time. It is a very different environment for a lot of new faces to appear in.”
However, he remained cautiously optimistic, suggesting that the multiparty nature of the new government could lead to increased internal oversight and potentially reduce the resource mismanagement that has plagued previous administrations. This internal scrutiny might preserve government resources, allowing for more effective expenditure, he said.
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