Emerging Markets to Drive Global Growth: What It Means for SA

What happened

A recent insight from Adriaan Pask, Chief Investment Officer at PSG Wealth, highlights a significant shift in the global economy: emerging markets are projected to produce nearly two-thirds of global economic growth over the next five years. This means countries classified as emerging markets — which include South Africa, parts of Africa, Latin America, and Asia — will lead the charge in economic expansion, shifting the traditional dominance of developed economies like the US and Europe.

Why it matters

South Africa is considered one of the key emerging markets, and this forecast places the country and its peers at the centre of future global growth. For everyday South Africans, small business owners, and job seekers, this trend could bring new opportunities — but also challenges.

Emerging markets often have younger populations, growing middle classes, and increasing consumption rates. This growth translates into more demand for goods and services, potential increases in employment, and opportunities for local businesses to expand.

However, emerging markets also tend to experience higher volatility, political risks, and infrastructural challenges compared to developed markets. Understanding the balance between growth potential and inherent risks is essential.

What this means for South Africans

For South Africans, an emerging market poised for rapid growth could mean:

• More Job Opportunities: As industries expand to meet rising demand domestically and internationally, companies may hire more staff, a boost for a country grappling with high unemployment.

• Increased Foreign Investment: Global investors seeking high-growth opportunities might increase investments in South African companies, infrastructure, and markets.

• Rising Consumer Spending: Growing middle classes with more disposable income can increase demand for products and services, which benefits businesses but may also push prices higher.

• Greater Export Potential: South Africa’s goods and services could see stronger demand abroad, especially in other emerging markets, enhancing trade and business growth.

However, South Africans should also keep cautious about inflation, currency fluctuations, and political uncertainties that sometimes accompany rapid growth in emerging markets.

Impact on consumers, jobs and small businesses

Consumers may experience more varied product choices as businesses expand their offerings and attract foreign brands eager to tap into emerging markets. Yet, rising incomes and demand could lead to inflationary pressures, increasing the cost of living.

For job seekers, the expected economic growth could translate into more employment openings, especially in sectors like manufacturing, technology, retail, and services — areas likely to benefit from expanding demand both locally and through exports.

Small businesses stand to benefit significantly as the domestic market grows, providing a bigger customer base. Opportunities to enter export markets might also open, but small enterprises need to prepare by improving efficiency, quality, and digital capabilities to remain competitive.

Additionally, small businesses could see more access to funding as investors seek opportunities in emerging economies, although lending rates and access vary widely in South Africa.

Risks and limitations

While growth prospects are positive, several risks could temper this outlook. Political instability and policy uncertainty in emerging markets, including South Africa, can deter investment and economic progress.

Currency volatility is another concern. The South African rand can be quite sensitive to global events and investor sentiment, which affects import costs, inflation, and the stability of business operations.

Infrastructure challenges like inconsistent electricity supply, limited transport networks, and bureaucratic hurdles remain significant barriers to sustainable growth in South Africa.

Finally, global economic factors such as rising interest rates or geopolitical tensions can impact emerging markets heavily, sometimes leading to sudden capital outflows.

Despite these obstacles, the long-term forecast suggests emerging markets, including South Africa, will be significant players in global economic development. For South Africans, staying informed, adapting business strategies, and managing financial risks will be key to benefiting from these shifts.

(Source: PSG Wealth CIO Adriaan Pask)

Frequently asked questions

Related articles