The year started with many uncertainties — some old, some new — which could result in different macroeconomic scenarios playing out for South Africa in 2023.
In a recent PwC report the consultancy firms unpacked five key macroeconomic variables (the exchange rate, consumer price inflation, interest rates, economic growth and the unemployment rate) during 2023 as well as the short-term outlook for climate action.
The South African rand is forecast to average R16.90/$ this year under our baseline scenario, compared to a mean of R16.37/$ in 2022. The rand is very volatile and highly influenced by external factors, the report states and could be further undermined by political divisions in the US, and local policy developments.
“Globally, the political and economic ripple effects of decades-high inflation and increased energy costs will add to household financial stress and could stoke social discontent and political instability in many countries. This, in turn, reduces appetite for emerging market assets like the rand,” the PwC report said.
Despite producer price inflation peaking at 18% year-on-year in July last year, and following declines in the subsequent months, it is now seen as being on a downwards trend. With easing supply chain cost pressures in mind, as well as the impact of recently tighter monetary policy, PwC expects consumer price inflation to moderate from 7% in the last quarter of 2022 to around 5% in the last quarter of this year. “Alongside this, interest rate hikes are also nearing an end, with a possibility of the repo rate starting to decline from the fourth quarter of 2023.
Economic growth slowed last year to an estimated 2% and is expected to continue lower in 2023 to just 1.7%. Growth was below potential in 2022 due to mainly ongoing load shedding and is expected to continue to underperform in 2023, due to the expected regular implementation of rolling blackouts, PwC said.
On a positive note, behavioural change has seen the South African public adapt to and mitigate the impact of load shedding. For example, in 2022, the country imported more than R5 billion worth of solar panels, up from around R4bn in the preceding year.
According to Christie Viljoen, PwC South Africa senior economist, many large companies and wealthy households have been able to adapt to load shedding by acquiring off-grid power solutions like solar power or diesel generators. While this has made the economy more resilient to the energy challenges, it does not capture the economic pain experienced by, for example, small businesses, non-governmental organisations , and the majority of households who cannot afford off-grid alternatives.
“While small businesses have a smaller overall impact on GDP compared to large corporations, they play a large role in employment, food security and community stability. These small businesses are seeing production downtime, increased supply chain costs, reduced operating hours, and increased security risks due to the lights going out,” Viljoen, said.
South Africa’s total non-agricultural employment increased by a net 1.2 million, reaching 15.8 million in the third quarter of last year. This in turn, was the country’s highest non-farm employment number since the outbreak of Covid-19. However, South Africa’s official and youth unemployment rates will remain among the highest in the world in 2023, with associated social risks explored in the PwC report.
“Rebuilding social cohesion is essential to South Africa’s economic development,” the report said. Also, the expected growth in employment over the next decade (at an average of 1.2% per annum) will be slower than the anticipated labour force growth rate (1.5% ). As a result, following last year’s labour market recovery, the unemployment rate is estimated to have reached a turning point in 2022-2023, and will slowly rise in the years ahead.
As noted in the PwC report, “South Africa’s just energy transition: moving from planning to action in 2023.”
This year is anticipated to be a period of much greater climate action in South Africa. The government recently launched its Just Energy Transition Investment Plan (JET IP) at COP27 for an initial period of five years (2023-2027). In the immediate future, arrangements for JET IP implementation will start in February, 2023. The implementation plan will be a product of efforts across government, civil society, trade unions and the private sector.
The plan will include relevant timelines and will rely on existing South African institutions and systems – augmented by adopting both local and international best practice across various disciplines.
Lullu Krugel, PwC Africa environmental, social and governance (ESG) leader, says: “From our interactions with government and business leaders at COP27, it is clear that evidence of decarbonisation is a powerful differentiator for businesses in an environment where having a CO2 emissions’ target is merely a license to operate.
“Leading organisations are generating value by reimagining how their capabilities will be deployed in a post-carbon world and appealing to sustainability-aware consumers, investors, staff and other stakeholders via sustainable transformations. Climate resilience is a powerful source of protection for South African companies against disruption and value loss,” Krugel, said.
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