SA economic outlook positive, but key risks threaten economic growth

South Africa’s economic outlook for February and March was positive, but several key risks, which include energy disruptions, water shortages and extreme weather, threaten economic growth.

According to Lullu Krugel, chief economist at PwC South Africa, business leaders are concerned about several key domestic risks to the economic outlook, while much of the current economic analysis on South Africa focuses on global uncertainties.

“They say disruption to electricity, jet fuel and gas supplies, water shortages and extreme weather can have a negative effect on economic activity, increase production cost and reduce food security, and therefore it is imperative for local businesses to assess their risk exposure to these elements and take steps to mitigate the risks.”

The World Economic Forum (WEF) Global Risks Report 2025 identified energy supply shortages, unemployment, water supply shortages, poverty and inequality and an economic downturn as South Africa’s top risks in 2025 and 2026.

Globally, the biggest risks are state-based armed conflict, extreme weather and geoeconomic confrontation.

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Energy disruptions are not over and can still affect economic growth

Energy disruptions include pressure on electricity, jet fuel and gas supplies. PwC says that despite the suspension of load shedding a year ago, business leaders still considered energy supply shortages a major risk for 2025 and 2026 when surveyed in September and October 2024.

Beyond electricity, energy concerns extend to jet fuel and gas shortages, with increased dependency on imports. PwC says disruption caused by diverse energy supply challenges highlights the need for robust energy strategies and action plans to ensure business resilience.

“South African companies facing electricity and gas shortages need an energy action plan. Since load shedding began, many have reduced dependence on public power and imported hydrocarbons. A comprehensive energy strategy includes energy efficiency measures, renewable energy investments, and alternative fuel generators.

“An energy audit is crucial to identify efficiency opportunities and cost savings, ensuring reduced reliance on traditional energy sources.”

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Water has become a problem as predicted and can diminish economic growth

In addition, businesses need water strategies as half of water systems perform poorly or are in a critical condition.

Nino Manus, water management leader at PwC South Africa, says South Africa is challenged by a deteriorating water supply due to several factors, including over-consumption, ageing infrastructure, inadequate maintenance, pollution and extreme weather.

“Businesses must understand the risk of water shortages to their operations and take appropriate action to reduce this risk. This could include recapturing and reusing water and installing backup water systems on the municipal feed, as well as rainwater and greywater harvesting.

“It is also important to consider collaborative mechanisms that businesses can leverage to help municipalities address the infrastructure challenges in their geography.”

Nearly half of South Africa’s municipal water supply systems performed poorly or at a critical condition in 2023 due to multiple reasons. These systems are experiencing increasing levels of water consumed that does not earn any income.

Operational risks, financial strain and supply chain disruptions are some of the adverse effects that the country’s businesses and other organisations experience as a result. PwC says conducting a water risk and usage baseline assessment is crucial for developing a water strategy.

“Collaborating with the public sector can address infrastructure and related service delivery challenges. Improved natural capital management could result in water and biodiversity making a larger contribution to the country’s labour productivity.”

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The risk of extreme weather

PwC also warns that businesses must prepare for the physical impacts of extreme weather events, such as droughts, floods, hailstorms, heat waves, and wildfires, which have already caused significant economic disruptions in recent years.

“These occurrences affect businesses across all industries by reducing water supply, damaging infrastructure and increasing operational costs. South African companies must identify risks, assess vulnerabilities and plan adaptations to mitigate these effects and ensure resilience,” Krugel says.