South Africa needs clearer policies, significant reforms, and bold political choices to attain the crucial 4-5% growth essential for improving our economic forecasts from their current state.
With a more favorable inflation outlook and the possibility of larger interest rate reductions, the growth forecast for next year is looking close to 1.7%. This comes as foreign investors are starting to show interest for the first time since the Covid-19 pandemic.
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Read: It’s time to place a bet on SA Inc
Recent downgrades in ratings and concerns about greylisting have kept wealthy investors away until now, but some major players are starting to assess the right time to re-enter the South African market.
This is an opportunity that must be seized. While South Africa remains on the grey list, there will be a review in February 2025, and in an unexpected development, the rating agency S&P Global has upgraded South Africa’s rating outlook from stable to positive.
Read: SA getting closer to earning its way off the grey list
In the meantime, the recent Medium-Term Budget Policy Statement presented sobering truths about government revenue and the urgent need for spending cuts and reforms.
A positive sign that has drawn the attention of both investors and rating agencies is the government of national unity (GNU) showing indications of progress.
For South Africa to fully benefit from advantageous conditions stemming from rate cuts, clarity in investment policy and pro-business reforms should follow the upcoming national elections.
Read all our MTBPS coverage here.
Currently, South Africa is set to gain an advantage from possibly further rate reductions after two modest cuts of 25 basis points in September and November, bringing the repo rate down to 7.75%.
More rate cuts would relieve pressure on consumers. The effects of decreasing inflation are already being seen through lower 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 declining interest rates as a positive for the bank. While this may reduce the endowment from a loan book perspective, it also leads to fewer defaults on credit and encourages higher deposit rates.
Although the global decline in inflation is a significant accomplishment, the International Monetary Fund (IMF) cautions that downside risks are increasing and now dominate the global outlook.
These risks include rising regional conflicts, prolonged strict monetary policies (of which South Africa is a clear example), potential spikes in financial market volatility that could impact sovereign debt markets, a deeper economic downturn in China, and the ongoing rise of protectionist measures.
A weaker rand triggered by Trump’s success in the US and its detrimental effects on imports like fuel will also require careful scrutiny.
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Nonetheless, Africa’s banking and insurance sectors are well-equipped to navigate risks and leverage opportunities, fostering financial inclusion and addressing existing gaps in solutions. In South Africa and across the continent, savings rates remain alarmingly low, and the region is vastly under-insured, especially regarding pure risk life and disability insurance.
Growth of ‘Insurtech’
According to Deloitte’s 2024/25 insurance outlook report, Africa’s youthful and growing population presents enormous market potential. Insurtech is set to increasingly harness mobile technology to offer microinsurance products to underserved communities.
It is inspiring to see Insurtech and fintech innovators like Omari making progress in this area, where improved and affordable access to solutions like reasonable digital home insurance can have a positive impact on lives in developing countries such as Zimbabwe.
PWC’s Insurance 2030 report indicates that companies focusing on customer-centric methods can reach a point where insurance evolves into a product that is purchased rather than sold. From the perspectives of insurance and banking, this significantly depends on the type of product – direct digital sales can thrive when consumers are comfortable with digital interactions and quick responses, as seen in routine monetary transactions.
Conversely, when transactions grow in size and complexity, consumers may feel uncomfortable, necessitating guidance from someone who can provide insights and reassurance – a trusted conversation with an advisor.
Our approach, therefore, involves broadly advancing digital and AI solutions for enhanced efficiency and user experience while ensuring that knowledgeable and trustworthy human advisors are available for more complex matters or customized solutions.
The emphasis should shift from specific products to how an individual’s financial journey is supported over their lifetime.
The most effective financial services firms in today’s volatile environment will continually emerge as quality advisory partners, assisting in decision-making and rewarding prudent choices that emphasize often-overlooked elements, like saving over spending.
However, maintaining business relevance in the future will be crucial as the landscape evolves.
Iain Williamson is CEO of Old Mutual Group.
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