South Africa’s business environment and corporate dividends in 2024
While the overall performance of the South African economy in 2024 is expected to improve somewhat from the previous year, the lackluster economic activity from 2023 (in the post-Covid-19 era) has had a detrimental impact on business activity. Despite the marked improvement in electricity supply from March 2024, uncertainty has persisted regarding the ability of Eskom to sustain adequate electricity supply, especially during the second quarter of the year. Other challenges have remained, such as the country’s logistical issues, elevated interest rates, and muted demand. Against this backdrop, the performance of the country’s private enterprises has continued to deteriorate. Overall average turnover by industries increased by 2.2% and 2.5%, respectively, during 2021 and 2022. However, it deteriorated to 0.9% in 2023, while it contracted by 0.5% during H1-2024 (Q1-2024: -5.3%; Q2-2024: 4.2%).
The paper by Driver et al. 2023 highlights that firms in South Africa are influenced by a mix of traditional factors such as profitability and cash flow, but they also must navigate the uncertainties of the local economy, such as political instability, regulatory changes, and exchange rate volatility. These factors can lead to conservative dividend policies, as firms may prioritize retaining earnings to buffer against potential economic shocks. However, the researchers also found that some firms, particularly those with strong ties to international markets, tend to follow a more aggressive dividend payout strategy, signaling confidence in their financial stability.
Meanwhile, as the country's economic performance is anticipated to strengthen from H2-2024, we expect a corresponding improvement in corporate profitability. This, in turn, is likely to result in an increase in dividend payments.
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