We believe the fundamental outlook for South Africa has improved in view of the election outcome because it sets the stage for fiscal consolidation. The government’s target for fiscal year 2023–2024 was seen as optimistic when it was presented in February. However, the government was already delivering on this target just before the election—without the same terms-of-trade tailwind as last year’s—contributing to better-than-expected fiscal data recently.
Another key area of focus for the new government will likely be electricity production, led by troubled state utility Eskom. Recent load shedding has been lower than expected due to a combination of favorable seasonality, a lack of major weather shocks, fewer breakdowns, and the completion of some planned maintenance. We expect the coalition to move forward with its restructuring program for Eskom.
Over the coming months, we expect the market-friendly political outcome to filter through to healthier business confidence, which historically has a strong correlation to investment. It will be important to monitor the staying power of this new coalition, given some of their ideological differences and the untested nature of coalition politics and governance in South Africa, but if it holds into the medium term, we see the potential for both stronger growth and a better fiscal trajectory.
