Optimistic outlook for South Africa

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This is a bullish case for South Africa. Yes, you read that right. The news from Africa's most complex but troubled economy has been consistently negative for years, with power outages, long-term unemployment, state corruption, crime, poor economic growth and the rand's downward trend serving as the ongoing backdrop.

In addition, the African National Congress will face national elections in May, and its vote share may fall below 50%, and there are all kinds of wild speculations about the ensuing political instability.

However, in the short to medium term – and we'd put anything beyond that aside – there's a more positive story to tell.

The first good news is that South Africa's electricity crisis, which continues to weigh on business and industry, will start to improve. Last year, there were regular power outages of 10 hours a day. Barring a disaster, this will be the lowest point.

The reason is this. In 2022, President Cyril Ramaphosa is in a desperate situation, battling both the anti-coal lobby, which opposes a shift to renewable energy, and the African National Congress (ANC), which is skeptical of the private sector. In one fell swoop, he removed restrictions on the amount of electricity generated by private generators. As a result, about 10 gigawatts of cheap solar and wind power will gradually come into production. This would both relieve demand from the private sector, which is currently self-sufficient, on national electricity supplier Eskom, and increase power supply to the grid.

“In areas where governments lack the balance sheet and ability to drive the necessary reform processes, they have no choice but to let the private sector in,” said Simon Freemantle, senior political economist at Standard Bank, who also believes South Africa The upside may be surprises.

The same factors are at play in the transportation and logistics sector, which is another debilitating crisis. Transnet, the state-owned company that operates railways and ports, is in as bad a position as Eskom. Cable and track theft is rampant in the railway sector, leaving the railways unable to move goods. Ports such as Durban, Africa's busiest port, are unable to cope. In November, 79 ships carrying about 70,000 containers were lined up off the coast. Transport backlogs have led to South Africa's coal exports falling to 50 million tonnes in 2023, the lowest level since 1993.

As with Eskom, the worst may be over. This month, Transnet finally appointed its new chief executive, Michelle Phillips. Eskom also has a new (brave) chief executive, Dan Marokane, after his predecessor Andre de Ruyter was sacked following a cyanide poisoning incident last February.

What's more, like Eskom, Transnet is moving into the private sector. Philippine company International Container Terminal Services will operate the port of Durban after striking a deal with unions to protect jobs. The Presidency says the provision of private security services on the rail network has reduced crime in the vital Northern Corridor by 65 per cent. The government is discussing allowing companies to operate their own leased locomotives on Transnet railways.

The third piece of encouraging news was last month's budget. Even though the election is only a few months away, there are no big surprises. Economists say that overall, the Treasury Department has done a good job of reining in spending. A few years ago, there was talk of a potential surge in debt. In fact, it has held steady at around 75% of output, according to Standard Bank data.

In the end, May's election result may be less dramatic than some predict, at least for those who crave stability. The ANC still inspires loyalty in rural areas and its approval rating is likely not to fall below 40% but to reach 45% or higher. The fragmentation of the opposition helped.

This means the ANC should be able to govern the country with a small junior coalition partner. There will be no Vice President Julius Malema or his radical economic freedom fighters calling the shots. In short, if investors brace themselves for a tumultuous year, they may be in for an anticlimax.

One should not be overly optimistic. A slightly brighter outlook this year may just delay the day of reckoning. As the power crisis recedes, another crisis – a water supply crisis also affected by aging infrastructure – is emerging.

More fundamentally, as the ANC's failure to address structural problems becomes increasingly apparent, its electoral relief may only be temporary. Sooner or later, politics may reach a boiling point. Just not yet.

david.pilling@ft.com