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Why South Africa Deserves Our Optimism

By Kenny Fihla, Group Chief Executive Officer at Absa

I was asked to give an honest assessment of where South Africa stands today. A simple question in phrasing, but one also so complex in its implication, and the kind the country has been wrestling with for years now, partly because as South Africans we have become accustomed to holding contradictory realities in our minds all at once: be it institutional fatigue alongside reform momentum, or deep scepticism alongside a persistent belief that the country is still capable of much more.

And while everyone’s perspective is shaped by their own lived reality, South Africa deserves a degree of optimism about its future.

The country has often struggled less with identifying the reforms required for growth than with sustaining the institutional coordination and execution needed to carry them through. And while progress has clearly been uneven, particularly across different sectors of the economy, there was at least growing evidence heading into this year that some of the country’s larger structural reforms were starting to move beyond intention and into practical effect.

We recently marked a full year without load shedding; logistics performance started stabilising after prolonged deterioration across rail and ports, resulting in record shipping volumes; and the South African Reserve Bank and National Treasury moved towards a lower inflation target in what was one of the most significant macro policy reforms in recent memory. None of this suggested the country’s deeper structural challenges had suddenly vanished, but together they were just some of the developments that contributed to the country’s first credit rating upgrade in twenty years.

Then came February 28.

The attack on Iran set off a chain of events that threw into disarray the global economic environment, mainly through the disruption of trade flows around the Strait of Hormuz, one of the world’s most critical energy and shipping corridors – creating exactly the kind of stagflationary pressure that becomes especially difficult for emerging markets like South Africa to absorb. The effects have been felt swiftly and broadly enough that there is little need to catalogue them individually, but the real question is what this means for an investment outlook that was only just on the upswing.

Investors will naturally become more cautious, particularly around sectors perceived to carry higher levels of leverage or uncertainty, while capital naturally gravitates towards areas where there is visible reform progress and stronger balance sheet resilience. We can already see some of this investment hesitation in our own portfolios at Absa, where a number of delayed drawdown facilities have been approved, suggesting that companies still want to invest but are becoming more cautious about taking the final step of fully committing capital in the current environment. At the same time, there is still strong appetite for high-quality South African investment opportunities. Absa’s own recent offshore debt capital market issuance, for example, was six times oversubscribed, which speaks to the fact that capital is still available and interest in South Africa remains significant when the underlying investment case is strong enough.

With that comes the recognition that many of the country’s hard limits on growth are now simply too large and too complex to be solved through the state or private sector acting independently of one another. The progress seen in electricity over recent years is one example of this, where private sector investment into renewable energy and independent power generation started feeding directly into the stabilisation of the broader energy system at a time when Eskom could not realistically have financed or delivered that transition on its own.

Similar models are now starting to emerge across logistics infrastructure, whether through private sector participation at the Durban container terminal, investment into rail capacity alongside Transnet’s existing network, or broader collaboration around freight and export infrastructure more generally. What matters in all of these cases is not just private participation for its own sake, but the creation of practical partnerships capable of improving the country’s productive capacity in ways neither side would likely achieve as effectively alone.

Much of this comes down to competitiveness: recognising that South Africa is competing for investment in a highly contested global environment, and yet we still have not fully grasped the urgency of positioning ourselves accordingly.

It may be difficult to think optimistically about growth in the current environment, but the past few years have shown that South Africa is still capable of moving in the right direction.

By Kenny Fihla, Group Chief Executive Officer at Absa

I was asked to give an honest assessment of where South Africa stands today. A simple question in phrasing, but one also so complex in its implication, and the kind the country has been wrestling with for years now, partly because as South Africans we have become accustomed to holding contradictory realities in our minds all at once: be it institutional fatigue alongside reform momentum, or deep scepticism alongside a persistent belief that the country is still capable of much more.

And while everyone’s perspective is shaped by their own lived reality, South Africa deserves a degree of optimism about its future.

The country has often struggled less with identifying the reforms required for growth than with sustaining the institutional coordination and execution needed to carry them through. And while progress has clearly been uneven, particularly across different sectors of the economy, there was at least growing evidence heading into this year that some of the country’s larger structural reforms were starting to move beyond intention and into practical effect.

We recently marked a full year without load shedding; logistics performance started stabilising after prolonged deterioration across rail and ports, resulting in record shipping volumes; and the South African Reserve Bank and National Treasury moved towards a lower inflation target in what was one of the most significant macro policy reforms in recent memory. None of this suggested the country’s deeper structural challenges had suddenly vanished, but together they were just some of the developments that contributed to the country’s first credit rating upgrade in twenty years.

Then came February 28.

The attack on Iran set off a chain of events that threw into disarray the global economic environment, mainly through the disruption of trade flows around the Strait of Hormuz, one of the world’s most critical energy and shipping corridors – creating exactly the kind of stagflationary pressure that becomes especially difficult for emerging markets like South Africa to absorb. The effects have been felt swiftly and broadly enough that there is little need to catalogue them individually, but the real question is what this means for an investment outlook that was only just on the upswing.

Investors will naturally become more cautious, particularly around sectors perceived to carry higher levels of leverage or uncertainty, while capital naturally gravitates towards areas where there is visible reform progress and stronger balance sheet resilience. We can already see some of this investment hesitation in our own portfolios at Absa, where a number of delayed drawdown facilities have been approved, suggesting that companies still want to invest but are becoming more cautious about taking the final step of fully committing capital in the current environment. At the same time, there is still strong appetite for high-quality South African investment opportunities. Absa’s own recent offshore debt capital market issuance, for example, was six times oversubscribed, which speaks to the fact that capital is still available and interest in South Africa remains significant when the underlying investment case is strong enough.

With that comes the recognition that many of the country’s hard limits on growth are now simply too large and too complex to be solved through the state or private sector acting independently of one another. The progress seen in electricity over recent years is one example of this, where private sector investment into renewable energy and independent power generation started feeding directly into the stabilisation of the broader energy system at a time when Eskom could not realistically have financed or delivered that transition on its own.

Similar models are now starting to emerge across logistics infrastructure, whether through private sector participation at the Durban container terminal, investment into rail capacity alongside Transnet’s existing network, or broader collaboration around freight and export infrastructure more generally. What matters in all of these cases is not just private participation for its own sake, but the creation of practical partnerships capable of improving the country’s productive capacity in ways neither side would likely achieve as effectively alone.

Much of this comes down to competitiveness: recognising that South Africa is competing for investment in a highly contested global environment, and yet we still have not fully grasped the urgency of positioning ourselves accordingly.

It may be difficult to think optimistically about growth in the current environment, but the past few years have shown that South Africa is still capable of moving in the right direction.