Investment strategies amidst South Africa’s growth challenges 

South Africa’s economic landscape remains a hot topic, with slow GDP growth, logistical inefficiencies, and global trade uncertainties shaping the investment outlook. 

In a recent conversation with Reza Hendrickse, Portfolio Manager at PPS Investments, we explored key economic challenges, potential growth levers, and investment strategies that could help navigate these turbulent times. 

South Africa’s disappointing growth figures – South Africa’s GDP growth for 2024 came in at 0.6%, lower than many expected. While forecasts had hovered around 1% or slightly higher, the final number fell short. Compared to other emerging and developed markets, this underperformance raises concerns about structural weaknesses in the economy. 

“Historically, developed markets tend to grow slower than emerging markets due to their mature economies. However, even the United States outperformed us,” Hendrickse noted. 

The GDP figures also call into question the assumed impact of load shedding on economic performance. While power outages have long been blamed for stagnating economic growth, 2024 saw minimal load shedding, yet GDP growth remained subdued. This suggests that businesses have largely adapted by implementing alternative energy solutions such as solar, inverters, and generators. 

However, while energy independence helps, it is not enough to reignite strong economic growth. According to Hendrickse, South Africa needs to address deeper structural issues. 

Key growth levers: What needs to change? – Despite a decade of sub 1% growth, South Africa has previously demonstrated its ability to grow at 3% or more, particularly in the pre-global financial crisis (GFC) years. So, what levers could push the country back toward meaningful economic expansion? 

1. Reliable electricity supply 
   • While load shedding has subsided, power stability must be sustained. 
   • The introduction of independent power producers (IPPs) and reforms at Eskom—such as separating generation, distribution, and transmission—are positive steps. 
   • A more efficient and diversified energy sector will enhance investor confidence and business productivity. 

2. Logistics and infrastructure 
   • South Africa’s rail and port inefficiencies are holding back economic potential. 
   • Goods meant for export face delays at ports, reducing trade competitiveness. 
   • Improved logistics would enhance industrial production, support mining exports, and make South Africa a more attractive trade partner. 

3. Government efficiency and policy implementation 
   • Water management, service delivery, and bureaucratic inefficiencies remain major roadblocks. 
   • Faster decision-making and infrastructure improvements could accelerate investment and economic activity. 
   • The Bureau of Economic Research has identified that addressing just a few key inefficiencies could boost GDP growth from 2% to 3%. 

South Africa’s position on major trade routes and membership in BRICS nations should provide economic advantages. Countries like Brazil, Russia, India, and China all grew above 2% last year. “There’s no reason why South Africa should be lagging,” Hendrickse emphasised. 

Global trade disruptions: Tariffs and U.S. trade policies – While domestic challenges are significant, global trade dynamics are also evolving rapidly. The United States’ shift towards protectionism—spearheaded by potential tariff wars and aggressive trade policies—adds another layer of uncertainty. 

• The African Growth and Opportunity Act (AGOA), which grants duty-free trade benefits to South African exports, faces uncertainty. 

• While AGOA only accounts for less than 5% of total exports, its removal would still be a setback. 

• The U.S. is also scaling back foreign aid, including humanitarian support for South Africa, but at 0.1% of GDP, this impact remains limited. 

Hendrickse believes the U.S. tariff war could persist, driven by political bargaining and shifting global alliances. Countries are now rethinking traditional trade relationships, which could bring long-term changes to global economic patterns. 

Investment strategies in an uncertain economy – In an environment of sluggish local growth and global trade uncertainties, how does PPS Investments approach asset allocation? 

1. Equities: Selective overweighting 
   • PPS Investments remains overweight South African equities, given the potential for cyclical economic recovery. 
   • However, exposure has been slightly trimmed in response to global risks such as U.S. trade tensions, AI-driven market shifts, and macroeconomic uncertainty. 

2. Bonds: Tactical underweighting 
   • South African bonds surged following the Government of National Unity (GNU) formation, but PPS Investments has moved to a tactical underweight position. 
   • The recent budget reaffirmed concerns about South Africa’s fiscal health, reinforcing the cautious stance. 

3. Global diversification 
   • Global equity exposure remains neutral, balancing offshore risks with long-term opportunities. 
   • Holding higher cash reserves provides flexibility to react to emerging market shifts. 

Hendrickse highlights that macroeconomic conditions do not always correlate directly with market performance. While economic concerns exist, investors should look at long-term trends and opportunities rather than react to short-term GDP figures. 

A Cautiously optimistic outlook – Despite economic headwinds, Hendrickse remains cautiously optimistic about South Africa’s potential for a cyclical rebound. With structural reforms in power, logistics, and governance, the country could reclaim its position as a leading emerging market. 

“There are still positives in the economy, and we are encouraged by certain improvements. However, sustainable growth requires commitment to reform and investment in infrastructure,” he concluded. 

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For investors, this means maintaining a balanced, diversified approach, staying informed on global developments, and identifying sectors positioned for long-term growth. 

South Africa’s path to higher growth will depend on sustained reforms in power supply, logistics, and governance. While global trade dynamics pose additional risks, a structured investment strategy can help navigate uncertainty. 

With the right policy moves and structural improvements, South Africa has the potential to exceed its low-growth trajectory—but execution will be key.