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Lately, it seems as though there is a dark cloud hanging over South Africa. From the Covid-19 pandemic to looting, strikes, the rapid increase of petrol prices, and the shortage of oil due to the Russia-Ukraine war, it hasn’t been easy for South Africans to remain positive and hopeful.
Often, when all the attention lies on the bad, we tend to forget about the good. However, this article aims to remind South Africans and the rest of the world, about the good things our economy has to offer and the major contributing sectors to our economy.
South Africa is one of the biggest producers of commodities. Along with gold and diamonds, South Africa contains reserves of platinum, chromium, copper, uranium, silver, titanium, and beryllium. Since South Africa is one of the biggest commodity producers, many countries rely on us for minerals such as platinum, chromium, and coal. One of the main reasons coal is produced is for export purposes to countries such as East Asia and Europe as well as for the generation of electricity.
Higher commodity prices have given South Africa’s economy a boost by contributing towards post-pandemic recovery and giving it enough room to handle fiscal constraints. This is because there had been a strong tax collection that was driven by higher earnings by the mining industry in favour of the current commodities cycle. It has also been confirmed that commodity prices are likely to remain high for the remainder of the year, thus helping our balance of payment in the long term.
South Africa is an agricultural net exporter. The agricultural sector consists of corporate and private farms, with the latter being extensive and intensive crop farms, thus making it one of the most diverse sectors. South African agricultural exports are maize, wine, grapes, wool, avocados, nuts, apples, pears, pineapples, and citrus.
The commercial farming sector is one of the most well-developed. According to statistics, the commercial farming sector was the best-performing sector in 2020. Over the past 10 years, agriculture and agro-processing exports have made up 11% of the country’s total exports, higher than the decade before when it was around 9% of the country’s total exports. Notably, South Africa’s agricultural produce is exported to the African market, European market and Asian market thereby contributing immensely to economic growth.
South Africa is well known for its exceptional tourist attractions and infrastructure, as well as its variety of accommodations tourists can choose from. It ranges from five-star hotels, luxury game lodges, welcoming country houses, hotels, bed and breakfasts (B&B), and camping and self-catering accommodations. In 2019, travel and tourism contributed about 8.6% of the nation’s GDP and contributes up to 9.2% of total employment in South Africa. However, the Covid pandemic had a negative bearing on tourism. Current indications point to the tourism sector recovery due to the Tourism Sector Recovery plan approved by the government in 2021.
Despite a rocky start in the year and the continuous market volatility, the JSE has fared well relative to its peers. The table below illustrates the JSE Top 40 performance compared to other global markets:
|JSE Top 40||-11,49%|
|MSCI Emerging Markets||-27,16%|
|Source: Markets Insider, October 2022|
Please note that the JSE Top 40 performance is in ZAR, thus susceptible to currency conventions. The solid performance of the JSE can be attributed to the following sectors: basic material, financial, software, and computer services largely dominated by Naspers.
The JSE plays a pivotal role in linking investors and public companies, thus allowing companies to raise much-needed capital for business development and infrastructural development. The JSE serves as a lagging economic indicator of economic conditions in South Africa, thus aiding portfolio managers, wealth managers and financial practitioners to make informed investment decisions.
South Africa’s 10-year benchmark yields remain elevated and highest behind Brazil, thus attracting international inflows into the economy. These inflows to the country are based on South Africa’s political stability, credible judiciary system, upholding of the rule of law, and above all protection of property rights. The table below shows South Africa’s 10-year bonds yield in comparison to peers.
|10 Year Government Bonds||% Yield|
|Source: Trading Economics 20/10/2022|
South Africa’s economy has returned to pre-pandemic levels this year which should be enough to restore hope in its citizens and people around the world. As much as there is still room for growth and improvement, the economy has shown promising signs of recovery and thereafter expansion.