By Iain Williamson
South Africa needs more policy certainty, reform, and “gutsy” decisions from a political perspective if it is to achieve the much needed 4-5% growth required to begin elevating our economic prospects from current forecasts.
A healthier inflation prognosis and the prospect of deeper rate cuts have laid the foundations for a growth outlook nearing 1.7% next year, with foreign investors showing signs of interest for the first time since Covid-19.
Ratings downgrades and the dreaded “greylisting” kept these deep-pocketed investors on the sidelines until now, but some of the bigger players are beginning to sharpen their pencils to work out when the best time will be to jump back into the SA market.
This is an opportunity that should not be missed. While SA remains on the greylist, this is subject to reassessment in February 2025, while in a surprise move, ratings agency S&P Global has raised the outlook on SA’s rating from stable to positive.
The recent Medium-Term Budget Policy Statement, meanwhile, highlighted sobering realities on the state of government revenue and the need for spending cuts and reform. A positive that has not gone unnoticed by these investors and ratings agencies is the Government of National Unity (GNU) showing signs of traction. It is imperative that if SA is to derive the benefits from the tailwinds of rate cuts, that prospective investment policy certainty and pro-business reforms follow in the wake of the recent national elections.
As it stands, South Africa is set to receive a boost from potentially further rate cuts following the two, minimal 25 basis points cuts in September and November this year, taking the repo rate to 7.75%. Further rate cuts will assist overburdened consumers further. The impact of lower inflation is already being seen in lower credit default rates.
Old Mutual, which is well on track to launch our bank next year, sees the falling interest rates as a positive for the bank. While they result in less endowment from a loan book perspective, they also lead to lower defaults on credit provision and encourage higher deposits.
While the global decline in inflation is a major milestone, the International Monetary Fund cautions that downside risks are rising and now dominate the global outlook. These include an escalation in regional conflicts, monetary policy remaining tight for too long (SA is a clear case in point), a possible resurgence of financial market volatility with adverse effects on sovereign debt markets, a deeper growth slowdown in China and the continued ratcheting up of protectionist policies. A weaker rand following the Trump victory in the US and its negative impact on imports like fuel will also need to be closely monitored.
However, the banking and insurance sectors in Africa are well-placed to help navigate risks and maximise opportunities, driving financial inclusion and closing existing gaps to solutions. In SA and the rest of Africa, savings rates remain too low, while the continent is also woefully under-insured in pure risk life and disability.
According to Deloitte’s 2024/25 insurance outlook report the continent’s youthful and growing population presents vast market opportunities. Insurtech will increasingly use mobile technologies to offer microinsurance products to underserved segments. It is pleasing to see Insurtech and fintech innovators like Omari make inroads in this space, where improved and affordable access to solutions like affordable digital home insurance can improve lives in emerging countries like Zimbabwe.
PWC's insurance 2030 report notes that companies that build themselves around the customer can reach the point where insurance will finally be bought rather than sold. I think from both an insurance and banking perspective, this depends on the nature of the product – direct digital sales can work where consumers are comfortable doing things digitally and there is a fast feedback loop, such as in day-to-day transacting. However, they get extremely uncomfortable when transactions are large and more complex and need to be able to speak to someone who can guide them and give them confidence – a trusted conversation with an advisor.
Our approach is, therefore, to drive digital and AI solutions more broadly to enable efficiency and a great user experience while ensuring experienced and trusted human advisors are always available when things get more complicated, or a highly tailored solution is required.
The solution is, in fact, less about products and more about how a financial journey is supported over a lifetime. The most successful financial services businesses in the current, volatile landscape will consistently show up as quality advisory partners to help make decisions and then offer rewards for making good decisions and taking care of things that were not always seen as a high priority, like prioritising saving over spending.
However, it will be critical to future-proof businesses to keep pace.
Old Mutual, with our exciting banking launch imminent, is extremely well-placed to benefit from these trends while helping close the financial inclusion and insurance penetration gaps.
Iain Williamson is the Group CEO of Old Mutual Group.
BUSINESS REPORT