South Africa’s economy turns the corner, yields hit 2-year low

South Africa’s benchmark bond yield fell below 10% for the first time in more than 2 years as the nation’s deputy president amplified growing confidence that the continent’s biggest economy is turning a corner.

“We think that by next year we could be growing about 1.5%,” Paul Mashatile said in an interview with Bloomberg Television in London.

Even that rate of expansion would outpace the last decade of mostly sub-1% growth. The country has set its sights on building infrastructure — including roads, railways, and dams — as part of a broader economic revival plan led by the new coalition government.
The positive outlook is feeding into financial markets. The rand, which dropped 0.4% against the dollar on the day, was still heading for its best quarterly performance since December 2022.

South Africa stocks are having their strongest third quarter since the taper tantrum of 2013. The FTSE/JSE Africa All Share Index is up nearly 10% over the three months, notching 13 record closing highs along the way and outpacing a rally in MSCI Inc.’s gauge of emerging-market equities.
The currency and equity rallies reflect growing confidence in South Africa’s fiscal policies, particularly as the new coalition government, which took power in June, shows a commitment to economic reform and fiscal discipline.

“We are shifting more resources to economic activity,” said Mashatile, who’s leading an investor roadshow in the UK this week. “We want to grow the economy, particularly through infrastructure investments, build new roads, dams, new railway lines.”

A government of national unity comprising 10 parties took power after the African National Congress lost its outright parliamentary majority for the first time since apartheid ended in 1994. President Cyril Ramaphosa’s new administration has identified growing the economy and creating jobs as its top priorities, and has already made some headway in tackling energy shortages and visa backlogs.
Investor optimism is also reflected in a wave of new investments. Anglo American Plc announced plans to invest $625 million in iron-ore projects, while Qatar Airways recently acquired a stake in South African airline SA Airlink Pty Ltd.

South Africa’s state-owned power utility Eskom Holdings SOC Ltd. has also managed to stabilize the power network after record blackouts that burdened the economy as recently as last year. Other risks factors remain though, including persistent corruption, violent crime and questions over the longevity of the coalition.

Goldman Sachs strategists, including Kevin Daly, have noted that South Africa’s fiscal policies are likely to remain on track, suggesting that bond yields may continue to trend lower as the coalition government focuses on restoring credibility. They recommended a shift into the longer end of the yield curve, seeing potential for further gains as market participants increasingly price in fiscal stability.