South African Economic Stimulus Plan Is Great News for Investors

In February 2018, Cyril Ramaphosa was elected President of South Africa, inspiring confidence and optimism that rippled across the globe. Ramaphosa’s predecessor, Jacob Zuma, had been dogged by allegations of corruption and scandal throughout his almost decade-long reign as President, and the country was overjoyed to be free from the grasp of his wayward policies.

With a resume that boasts both business and political credentials, Cyril Ramaphosa’s new role as President was particularly “hailed by the business community” thanks, in part, to his more pragmatic economic stance.

Now, less than a year after holding the position, Ramaphosa is living up to all the hype. The President recently announced his plans for a South African economic stimulus and recovery plan. In anticipation of faster economic growth, job creation, and market-friendly policies, we’re sensing a lot of excitement from residents, business owners, and investors alike.

Understanding the South African Economic Stimulus Plan

According to Ramaphosa, the new stimulus and recovery plan, which was revealed in September 2018, consists of financial and non-financial measures intended to:

  1. Ignite economic activity
  2. Restore investor confidence
  3. Create new jobs
  4. Address urgent challenges that affect vulnerable groups of people, including rural economies, women, and youth

According to the President’s announcement, the economic stimulus plan centers on “a R400 billion infrastructure fund aimed at attracting investment from the private sector. Government also plans to re-prioritise about R50 billion within its existing budget to spend on measures that will, it is hoped, spur economic growth and create jobs.”

Although many countries’ recovery plans rely heavily on raising or borrowing funds, the South African economic stimulus plan centers on effectively re-allocating money to make a bigger impact on key growth areas to drive the economy. Citibank economist Gina Schoeman rates the stimulus plan an eight out of 10 and “says the reallocation of the existing budget as opposed to introducing more debt to fund the stimulus package is a ‘positive move’.”

What Businesses Will Love About the Plan

As part of the South African economic stimulus plan, the country hopes to reduce travel barriers to boost tourism and improve business travel. With a growing number of countries looking to open offices in South Africa (especially as their entry point into the African continent), these improvements will have a hugely positive impact on the international companies who conduct business in the country.

While South Africa already has favorable international trade arrangements thanks to both its inclusion in BRICS and key legislation with top countries like the United States, the new recovery plan will continue to support legislation that boosts exports and reduces the costs of conducting business, making the industry more competitive.

Lastly, the plan outlines how some of the reprioritized funding will be used to ignite economic activity, especially in townships and rural areas by providing “finance to either scale up existing projects or provide start-up capital for new projects.” These decisions make clear the President’s intent to nurture business as a way to increase jobs and improve South Africa’s overall economic health.

Economic Stimulus Great for Real Estate Investors

South Africa Finance Minister Nhlanhla Nene says that although some are “skeptical” of the new stimulus and recovery plan, “the reception from the business sector [in South Africa] and in New York has been positive.” And it’s not too hard to see why.

Although large South African cities such as Cape Town, Johannesburg, and Durban have already experienced recent growth in their real estate markets—particularly within the luxury real estate market—investments in business, infrastructure, and tourism can only drive real estate prices further upward, creating prime opportunities for savvy investors.

According to Ramaphosa, the South African economic stimulus and recovery plan “prioritises infrastructure spending as a critical driver of economic activity. Infrastructure expansion and maintenance has the potential to create jobs on a large scale, attract investment, and lay a foundation for sustainable economic expansion.” With growth expected in the coming years, this is an excellent time for investors who seek to break into the South African market and get the most out of their investment, especially as we near the end of the current stock market cycle.

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