In order to secure the essential 4-5% growth required to improve our economic outlook from its current predictions, South Africa needs enhanced policy clarity, significant reforms, and bold political decisions.

With an optimistic inflation forecast and the potential for more substantial rate cuts, the growth projection for next year may approach 1.7%, as foreign investors start to show interest for the first time since the Covid-19 pandemic began.

Read: It’s time to place a bet on SA Inc

After recent ratings downgrades and the looming threat of grey listing which kept affluent investors at bay, some significant players are now beginning to see the opportune moment to re-enter the South African market.

This is an opportunity that should not be missed. Despite South Africa currently being on the grey list, a reassessment is scheduled for February 2025, and in a surprising twist, the rating agency S&P Global has upgraded the outlook on South Africa’s rating from stable to positive.

Read: SA getting closer to earning its way off the grey list

Meanwhile, the recent Medium-Term Budget Policy Statement has revealed sobering truths regarding government revenue and the urgent need for budget cuts and reforms.

A promising sign that has captured the attention of both investors and ratings agencies is the government of national unity (GNU) showing indications of progress.

In order for South Africa to benefit from favorable conditions stemming from rate cuts, there must be clear investment policies and pro-business reforms following the recent national elections.

Read all our MTBPS coverage here.

Currently, South Africa stands to gain from potential further rate cuts after two modest reductions of 25 basis points in September and November this year, which have lowered the repo rate to 7.75%.

Further rate reductions will greatly assist overburdened consumers. The benefits from decreased inflation are already apparent with a decline in credit default rates.

Read:
South Africa’s outlook upgrade makes Eskom bonds less risky
MPC repo rate misfire
Just a 25bp cut by Sarb

Old Mutual perceives the falling interest rates as a positive indicator for the bank. Although they may reduce earnings from a loan book perspective, they also lead to fewer defaults on credit issuances and promote higher deposit rates.

Despite the global decline in inflation being a notable success, the International Monetary Fund (IMF) warns that downside risks are mounting and now dominate the global economic outlook.

These risks encompass rising regional conflicts, sustained stringent monetary policies (with South Africa being a prime example), potential increases in financial market volatility adversely affecting sovereign debt markets, a further economic slowdown in China, and the ongoing rise of protectionist measures.

The weaker rand, as a consequence of Trump’s victory in the US, along with its negative impacts on imports like fuel, requires careful attention.

Read:
Rand reclaims some lost ground
Rand’s reform rally wavers as Trump’s election fuels dollar strength
Rand hits R18 to US dollar

Despite these challenges, Africa’s banking and insurance sectors are well-equipped to manage risks and seize opportunities, thereby enhancing financial inclusion and addressing existing solution deficits. In South Africa and across the continent, savings rates remain critically low, and the region is significantly under-insured, particularly in terms of basic life and disability insurance needs.

Growth of ‘Insurtech’

According to Deloitte’s 2024/25 insurance outlook report, Africa’s youthful and growing population offers vast market potential. Insurtech is set to increasingly leverage mobile technology to offer microinsurance products to underrepresented communities.

It’s encouraging to see Insurtech and fintech innovators like Omari making progress in this area, where better and affordable access to solutions such as reasonable digital home insurance can positively influence lives in developing nations like Zimbabwe.

PWC’s Insurance 2030 report emphasizes that firms focusing on customer-centric strategies can evolve to a point where insurance becomes a product that is actively chosen rather than sold. From both insurance and banking viewpoints, this largely hinges on the type of product; direct digital sales may thrive where consumers are comfortable engaging digitally and there’s prompt feedback, as seen in everyday financial transactions.

However, consumers might feel uneasy when dealing with more significant and intricate transactions, which often require guidance from trusted advisors.

Thus, our strategy involves broadening the use of digital and AI solutions to enhance efficiency and user experience while ensuring access to experienced and trustworthy human advisors for more complex issues or tailored solutions.

The emphasis should shift from specific products to how each individual’s financial journey is supported throughout their lifespan.

In today’s volatile environment, the most successful financial services firms will consistently establish themselves as quality advisory partners, aiding consumers in decision-making and encouraging prudent financial choices that value saving over spending.

Nevertheless, it will be crucial to keep businesses relevant as the landscape evolves.

Iain Williamson is CEO of Old Mutual Group.

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