Businesses must demonstrate resilience amid local systemic challenges to attract foreign investment. (Waldo Swiegers/Bloomberg via Getty Images)
The diverse 2025 outlook for South Africa’s trading and investment partners means that local companies looking for financing will have to up their game and demonstrate their reliability and ability to expand their export markets.
This is according to auditing firm PwC’s latest South African economic outlook report, which forecasts that global economic growth will decline from 2.8% this year to 2.6% in 2025.
The economic and geopolitical developments in the world’s largest economies, including the US, China, UK, the euro zone and India, have a direct impact on the decision-making by business executives in these countries, PwC South Africa chief economist Lullu Krugel said.
“This in turn impacts their decisions around trade with, and investment in, South Africa,” Krugel said.
South Africa’s largest sources of foreign investment — the US, UK and Germany — are entering 2025 with mixed fortunes, with modest growth forecasts across key developed countries.
A PwC survey in October found that 74% of US executives agreed that the outcome of the country’s November election could significantly change how they do business. Half of those polled expected to make more foreign investments under the new administration of Donald Trump.
While there is “great uncertainty” regarding the future of the US economy, and fears of an economic dip, PWC does not foresee a recession and expects the economy to grow by 1.8% in 2025 from 2.5% this year.
“For South Africa, positive growth in the world’s largest economy provides a measure of stability. When the US economy does not perform well, the US dollar strengthens, and emerging markets’ currencies trade weaker. This, in turn, results in inflationary effects on the cost of imports, with these price effects passed on to consumers,” PwC noted.
Trump has suggested imposing a 10% to 20% universal tariff on imports, aiming to create a more competitive pricing environment for US-based suppliers of commodities.
“Metals and ores, including platinum, aluminium and ferro alloys, sourced from countries like South Africa, and used as manufacturing inputs in the US, are amongst the key risk categories for increased import tariffs,” the PwC report said.
In the euro zone, real GDP growth is forecast at 1.2% in 2025 as countries face diverse economic challenges.
According to the PwC report, the challenges South Africa’s trade partners are facing require local companies to “shine their shoes and put their best foot forward to attract or stimulate foreign investment interest that could be less forthcoming than before”.
Potential investors want South African companies to demonstrate a track record of commercial sustainability across the systemic crises the country has experienced, such as load-shedding and transport issues; that they are well-positioned to maintain their performance into the future and have capabilities that can be exported to other territories.
India holds potential for South Africa due to the countries’ diverse and rapidly expanding economic relationship, PwC South Africa public sector assurance services leader Raj Dhanlal said.
“As the Asian country progressed from a developing nation to an economic powerhouse, the market provided abundant and unexplored opportunities for South African businesses,” Dhanlal said.
“India’s economy is growing at a fast pace and its membership, along with South Africa, of the Brics grouping underscores the vast potential that these two regional powerhouses share to cooperate in commerce and investment.”
China, the world’s second-largest economy and South Africa’s largest trading partner, is expected to see slower economic growth of 4.5% next year from 4.8% in 2024, although high-tech manufacturing continues to perform well.
“For South African companies, opportunities in Asia are tied into the hunger for commodities to feed, clothe and transport a combined 2.9 billion people in India and China. Both economies also have a ferocious appetite for commodities that are also used in their massive manufacturing industries, including minerals, metals and agricultural products,” PwC noted.
“Under the banner of an expanded Brics grouping, China and India remain the largest prizes for companies in other emerging markets seeking to expand their current footprint.”
The report also noted a shift towards “slowbalisation” over the past decade, where countries focus on national resilience by onshoring or nearshoring production — the outsourcing of services to a nearby country.
Global trade entered the new slowbalisation phase in the late-2010s by “onshoring or nearshoring certain sectors of the economy and friend-shoring some other sectors by gradually aligning supply chains to countries sharing similar economic, political and institutional systems”, PwC South Africa lead economist for macro analysis Christie Viljoen said.
“This kind of trade realignment could be impactful on local economic activity. South Africa is a small and trade-dependent economy exposed to global geopolitical forces beyond its control.”
For example, South Africa’s increased dependence on Mozambique to supply port and energy services speaks to the trend of nearshoring.
South Africa exported 66% more chromium ore by value to the country last year for shipping to China and other Asian buyers via the Port of Maputo, and imported 17% more electricity from the Cahora Bassa Dam hydroelectric power plant to aid in reducing load-shedding.