Investment Banker Says Uncertainty Imperils South Africa’s Deals

Political and Economic Challenges Dampen M&A Activity

Fractures within South Africa’s government and global macroeconomic uncertainty are significantly impacting dealmaking in Africa’s largest economy, according to a leading investment banker. Yasmin Masithela, CEO of Absa Group’s corporate and investment banking unit, warns that political instability and budget disputes are eroding business confidence despite strong corporate cash reserves.

Coalition Government Strains Affect Market Sentiment

The African National Congress (ANC) formed a coalition government with nine rival parties, including the Democratic Alliance (DA), after losing its majority in last year’s elections. However, tensions have escalated over budget proposals to increase the value-added tax rate, with the DA arguing the measures fail to stimulate economic growth.

“We always knew that the first budget would be the biggest test of the GNU,” Masithela said, referring to the Government of National Unity. “The protracted process and lack of clarity has made corporates more reluctant to do deals.”

Deal Pipeline Dries Up Amid Uncertainty

Masithela reports a notable decline in major transactions: “There are hardly any infrastructure deals in the market. We’re not seeing big M&A or infrastructure deals in our South African pipelines.” This stagnation persists even as companies maintain near-record cash reserves.

Global Factors Compound Domestic Challenges

Investor sentiment has further weakened due to concerns about US trade policies under President Donald Trump. Additionally, corporate clients are delaying financing decisions, seeking greater certainty about business conditions before committing to major moves.

Regional Growth Opportunities Offer Hope

While South Africa faces challenges, Absa CIB anticipates mid-single-digit earnings growth this year, down from 6% in 2024. The bank expects stronger performance in other African markets including Ghana, Kenya, and Nigeria.

“I’m actually quite optimistic,” Masithela said. “The markets we’re in are positioned to benefit from growth.”

Renewables Sector Presents Strategic Focus

Absa plans to leverage its renewable energy expertise across Africa, particularly in Zambia. “We started renewables in South Africa and are now seeing that journey in other parts of Africa,” Masithela explained, highlighting the bank’s experience managing sovereign risk in emerging markets.

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