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Increasing risk in South Africa’s business environment

By Sam Rolland, Sub-Saharan Africa director

This week I was fortunate to be invited to deliver the keynote speech at the Grain SA, the association that represents the majority of grain farmers in the country, at their annual congress in Bothaville. On the drive to Bothaville, Statistics South Africa released their GDP numbers for 2022. In the release, it was noted that of the four sectors that have expanded beyond their pre-COVID levels, agriculture had grown by over 25%, far and above the best performing sector since 2019. What I found insightful from the engagements at this congress was that despite three years of excellent harvest, the underlying tone was one of caution, and further building resilience. Perhaps a good lesson for us all.

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The stand out performance of agriculture aside, a consistent tone I have been seeing in our members is a cited increase in risk in the business operating environment. Load shedding, the cabinet reshuffle, a new minister of electricity and the greylisting are all a concern of business in the country. And while we like to think that South Africa is alone in becoming more risky, this is not necessarily the case. On Monday, the Economist Intelligence Unit (EIU) released a report on the monitoring of operational risk globally. Their report assesses and quantifies the risks to business profitability in 180 countries to 2025, based across economic, political and regulatory risks. In the latest edition, risks are prominent and global in nature. Continued monetary policy tightening, Russia’s weaponisation of commodities, and less-than-inflationary increase in wages all hold the potential to worsen the risk outlook. This is further exacerbated by further threat of droughts and heatwaves brought on by climate change, something I have spoken about at length as a major risk to Africa in our various forums.

On the positive side, the improving global macroeconomic environment is expected to ease constraints on consumer demand, and trade in goods and services will pick up, leading to diminished probability that negative events will have a significant impact on global growth. More so, South Africa still ranks in the ‘Very Low’ basket of countries. This places us in the company of much of central Europe, Australia, and the United States. It was noted in one our breakfasts last year that despite the difficult economic environment, South Africa had not experienced political unrest (like has recently been seen in Brazil), nor stringent economic lockdowns (until recently the case in China), or a country at war (Russia), or civil unrest stemming from food insecurity (Peru). So while things are challenging on the domestic front, we are not alone.