South Africa’s economy is ending the year on a sour note and the outlook for 2024 is dim. Any growth that emerges next year will be off an extremely low base.

There are indications that the economy may have slid into a recession in the final half of 2023 after a tepid expansion in the first. One bright spot was a 3.9% rise in mining production year on year in October, but confidence and other indicators have been sagging. The economy contracted 0.2% in Q3 and, if it shrinks again in Q4, that will mean a recession.

Here are five key economic factors to watch in 2024:

1. Power supplies

The economy cannot grow at a meaningful rate without reliable power supplies. It’s as simple as that. The only reason that the rolling blackouts needed to keep the grid from collapse have not reached higher stages has been the scramble by households and businesses to install rooftop solar panels.

Eskom’s data show that 4.4GW of rooftop solar had been installed by June 2023 – more than four times the March 2022 level. This, of course, adds to costs for households and businesses, many of which also rely on expensive and polluting diesel when the lights go off. And there is no light at the end of this tunnel in 2024, aside from private sector initiatives for self-generation. The government’s pledges to end or reduce “load shedding”, as it is called, are simply not credible.

2, Logistics

To install solar energy, you need solar panels, and these need to be imported. That is becoming more arduous as Transnet’s woes go from bad to worse. Backlogs have been growing at South Africa’s ports, hampering key exports while delaying crucial imports, including items retailers were hoping to hawk during the Christmas season. Exacerbating South Africa’s own goals are new risks to global supply chains, as the Panama Canal has literally been evaporating as a consequence of a scorching drought linked to the El Niño weather system, while shipping through the Suez Canal has been disrupted by piracy.

Read more in Daily Maverick: Transnet’s financial crunch intensifies after losing millions in revenue due to Durban port inefficiencies

Meanwhile, criminal syndicates are still robbing the dilapidated railways of copper cable, disrupting rail traffic. Miners such as Kumba Iron Ore have cut production; they cannot get their product by rail to ports, because they are now being snagged. Cabinet has approved a plan to break Transnet’s logistics monopoly in South Africa and promote private sector participation, but it is doubtful such plans will make a material impact in 2024.

3. Inflation and interest rates

The South African Reserve Bank has been keeping its key repo rate steady at 8.25% and the prime rate for consumers at 11.75% since July. But this holding pattern followed 10 increases, which raised rates by a cumulative 475 basis points. Consumer confidence ends 2023 at a more than two-decade low for the festive season, and that bodes ill for consumption and demand in 2024. And the central bank is keeping an eagle eye on inflation, as it keeps on hovering near the top of its 3% to 6% target range. Food inflation also remains a concern.

The SA Reserve Bank must also dance to the tune of global monetary policy, as relatively high interest rates support the rand exchange rate. The US Federal Reserve has signalled that three rate cuts are coming in 2024, which will give the SA Reserve Bank room to begin trimming rates as well

4. Global growth

South Africa’s wider economy also moves to a global beat, though in terms of growth its glacial pace is typically many steps behind. And for the year ahead, things are looking bleak. The Organisation for Economic Co-operation and Development’s latest forecast is for a slowing global economic expansion of 2.7% next year from 2.9% in 2023. The International Monetary Fund projects that growth will slow 2.9% in 2024, well below the recent historical (2000-19) average of 3.8%. This will further cool demand for important South African exports.

Read more in Daily Maverick: To save the world, the global financial system will have to change

The prices of platinum group metals, for example, have collapsed in a heap from the record levels they scaled two years ago, raising the grim prospect of a wave of layoffs in this crucial mining sector. The mining industry threw Treasury a revenue lifeline when prices were red hot. That revenue stream has now dried up and the commodity price outlook – gold is a notable exception – remains poor. China’s economic recovery, key for commodity demand, has been faltering but there have at least been a few green shoots of late. When it rains on the global economy, South Africa gets a deluge.

5. El Niño

Speaking of rain, South Africa’s summer season in the maize belt has been reasonably wet so far despite the emergence of El Niño, which typically heralds drought in these parts. But as the drought afflicting the Panama Canal shows, it can bare its fangs – sharpened by climate change linked to fossil fuel use – in devastating ways.

The 2014-2016 event blazed a path of misery across South Africa and its neighbours, leaving a parched landscape and dangerously low dam levels in its wake as it hammered the staple maize and other crops while decimating livestock herds and game. Throughout 2023, global temperature records have been shattered, pointing to the direction El Niño may take in South Africa as 2024 progresses. If it really heats things up, expect South Africa’s struggling economy to cool further. DM