Despite a year marred by falling commodity prices, high unemployment, ratings downgrades and a weaker rand, South Africa remains poised to grow at a faster rate than many advanced economies in 2016, outperforming Eurozone States such as France and Italy, publishing, research and consultancy firm the Oxford Business Group predicts.
Noting that the country retained several competitive advantages, such as a large manufacturing base, more than $2.5-trillion worth of metal and mineral deposits and one of the most robust financial sectors in the world, a report by the company added that inflation remained within the South African Reserve Bank’s (SARB’s) target band, at 4.8% in November.
Consumer prices were also up 0.1% month-on-month to their highest level since July.
“The SARB has managed to effectively keep a lid on price rises, despite the steady depreciation of the rand, which hit record lows in mid-December – a reaction in part to the strengthening dollar.
“Growth has, meanwhile, been more modest in recent years owing to external pressures, including declines in commodity prices and global demand, and the continued fallout of the slowing Chinese economy,” it read.
In its effort to encourage growth and help buffer against inflation, the SARB raised interest rates twice last year, lifting its benchmark rate by 25 basis points in July and November.
A similar move – which would bring interest rates to 6.5% – was expected in the first quarter of 2016, likely aimed at countering the effect of the recently announced rate hike by the US Federal Reserve.
Oxford noted that, while there were a number of bright spots in the economy, some sectors faced a more difficult outlook over the next 12 months.
Segments of the manufacturing sector, which accounted for around 13% of the country’s gross domestic product (GDP), were expected to post stronger performance in 2016.
The automotive industry, which was the largest contributor to manufacturing output, had proven particularly resilient to external headwinds, generating some R115.7-billion in export earnings in 2014.
The industry, which accounted for two-thirds of total African production, was also set to benefit from R6.9-billion worth of investments made by original-equipment manufacturers in 2014.
Moreover, exports, in particular, were set to increase in the coming year, made more competitive by the weaker rand.
According to estimates from the National Association of Automobile Manufacturers of South Africa provided towards the end of last year, the country was on track to export a record 325 000 units by the end of 2015.
“Agriculture, however, is poised for a more difficult year, as the country suffers its worst drought in 30 years. Low levels of rainfall caused by the El Niño weather pattern have seen harvests of key crops such as maize plummet by roughly one-third.
“As a result, South Africa – typically a net exporter of maize – has been forced to import almost one-million tons to cover supply shortages. This season’s harvest is expected to fall from a record high of 14.25-million tons in 2014/15 to 9.94-million in 2015/16,” said the group.
South Africa’s mining sector also faced an uphill battle in 2015, with prices for key commodities down and production stymied by labour strikes and power shortages.
Oxford remained nonetheless optimistic that some of these issues could be resolved in the coming years.
The energy sector, for example, was expected to receive a sizeable boost, as a host of new renewable-energy projects came online.