South African companies report a recovery in consumer demand driven by improved power supply and lower inflation. Notable earnings growth was shared by firms such as Discovery and Shoprite, contributing to a more positive economic outlook. Continued reforms and stable electricity supply are expected to further stimulate investment and consumer spending.
Recent earnings reports from South African firms indicate a resurgence in consumer demand, attributed to the alleviation of severe power shortages and a decline in inflation rates. Notable companies such as Discovery Ltd., Shoprite Holdings Ltd., and Harmony Gold Mining Co. have all reported significant profits, marking a double-digit increase. Additionally, Nedbank Group Ltd. surpassed profit expectations, showcasing a favorable trend in business performance.
For years, South African businesses have mitigated the inefficiencies of the state power utility by investing heavily to maintain operations. The revival of a stable electricity supply has subconsciously rejuvenated consumer confidence, driving up demand across various sectors including automotive and insurance industries. Furthermore, regulatory changes enabling consumers to access portions of their retirement savings have also stimulated spending.
David Shapiro, chief global equity strategist at Sasfin Securities, noted that “the improved power supply has taken a lot of burden off manufacturing companies as it’s lowered costs and allowed more productive hours.” This has shifted the economic landscape towards a more favorable dynamic, despite operating from a lower baseline.
Significant repairs to Eskom Holdings SOC Ltd.’s coal-fired power plants have ensured continued electricity availability, allowing the economy to stabilize following a decade of slow growth. The International Monetary Fund forecasts a 1.5% economic expansion this year, marking progress after years of stagnation.
Despite a modest economic growth of 0.6% in 2024, there are emerging signs of improvement, particularly in the fourth quarter where growth was again recorded. Household consumption, accounting for about two-thirds of the GDP, grew by 1% in this timeframe, underscoring the increasing consumer spending tendency.
Yvonne Mhango, an Africa economist, opined that “South Africa’s growth will likely accelerate in 2025 — led by consumption.” She added that rising demand is expected to foster increased investment and industrial activity, particularly due to reforms in energy and rail sectors.
Nonetheless, external factors such as the global trade tensions instigated by former U.S. President Donald Trump pose potential risks to South Africa. Nedbank’s CEO Jason Quinn commented on the inflection of trade dynamics, which may undermine local economic stability. Meanwhile, South Africa’s FTSE/JSE Africa All Shares Index has recorded a gain of 3.3% this year but saw a slight drop of 0.8% recently.
In summary, South African firms are experiencing a revival in consumer demand, largely due to improved power supply and regulatory changes. Although challenges remain from global trade tensions, the overall economic outlook is positive, suggesting potential for growth in the upcoming years. Key players in various industries are reporting significant profit increases, reflecting a stable and recovering economy.
Original Source: financialpost.com
