Over the course of this year, an estimated 4-billion people across the world will be heading to the polls. It is unprecedented that so many countries hold elections in one year. Here at home, we cast our votes towards the end of this month in an election whose outcome is hard to predict.
Despite this surge in democratic activity worldwide, it takes place in a time of division and polarisation worsened by ongoing conflicts such as those in Ukraine and the Middle East, underscoring the challenges of our time.
The fiscal strains faced by many nations have nurtured a rise of nationalism — we could call it crude nationalism — as economic constraints emphasise societal divisions. This complex landscape has demanded our attention and strategic response as leaders in the financial sector. Geopolitical tensions have never been higher in recent times. The two wars have turned friends into foes. Many countries find themselves having to choose sides. Fence-sitting in the form of a non-allied stance is hard to sustain.
Against this backdrop, the higher purpose of growing businesses and economies to create prosperity for all has never been more urgent.
For European mainstays such as Germany, and most emerging market economies, growth prospects have been hampered by the first full blown war on the “Old Continent” in almost 80 years, stubbornly high inflation and interest rates, and a confidence crisis.
The Chinese economy has cooled quite significantly from the lofty heights of a decade ago. The outlier is the US, where growth continues to surprise on the upside, despite a polarising political climate in that country.
In the case of South Africa, we’ve struggled to get the economy motoring for more than a decade, expanding only by 0.6% last year. This year, the National Treasury forecasts that the economy will grow by 1.2%, lower than the population growth rate and far from the goal stated in the National Development Plan of mid-single digit GDP growth rates. This undermines the progress the country has been making to improve the standard of living for all.
When you add this to an unemployment rate of 33%, high inflation and high interest rates, you understand that as a nation we are facing a serious challenge
When you add this to an unemployment rate of 33%, high inflation and high interest rates, you understand that as a nation we are facing a serious challenge.
Recent history has shown that South Africans can come together in times of emergency. Government and the private sector have joined hands in a partnership aimed at bolstering our economy so that it is better able to meet the needs of all citizens. As business, in the areas of power, crime and critical network infrastructure such as ports, roads and rail, we’ve partnered with the state to overcome impediments to the country’s growth.
In recent times, we’ve seen an improvement in electricity supply, with the country going more than four weeks without any load-shedding and an improvement in both ports and rail performance. This is encouraging and will have an impact on the growth outlook for the year.
The South African Reserve Bank, in the monetary policy review for April, expects constraints to growth associated with network industries to remain evident in the near term, but “...expectations are that the worst is behind us, as reforms in both the energy and the logistics sectors gather pace”.
No matter the outcome of the South African election, Standard Bank, along with the Banking Association of South Africa, where I’ve recently stepped down as chair, will work with the elected government of the day to enhance inclusive economic growth and job creation. This requires effective, stable governance; policy continuity and coherence; and respect for the rule of law.
A commitment to structural reforms in the economy is unavoidable if we are to escape the low-growth trap. As we stand today, the slow GDP growth is driving our country’s fiscal position perilously close to a crisis.
We’ve had to tap into the Gold and Foreign Exchange Contingency Reserve Account — as far as I can remember, for the first time since the dawn of democracy. Yet, at R354.5bn this fiscal year and R1,267bn over the medium-term expenditure framework, debt service costs are still the fastest growing item of expenditure. While I do not wish to signal unwarranted alarm about this development, and I consider myself an eternal optimist, it does not inspire confidence.
The sovereign debt-banking crisis nexus has been analysed and written about the world over. Financial regulations oblige banks to hold government bonds. We do not have a choice. So, a deteriorating fiscal position generates anxiety among bankers and investors. Banks’ holdings of government securities increased to about 10.8% of the sector’s total assets in 2023, according to some estimates. This leaves banks vulnerable to government’s deteriorating fiscal position.
Despite what I’ve said, South Africa has reason to be optimistic about the months after the election. Domestic and international inflation is expected to ease; the public-private sector partnerships to fix the country’s economic infrastructure should bring about improved energy security and ease logistical backlogs; and the outcome of the election should provide greater political certainty.
• Fuzile is Standard Bank South Africa CEO
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