Our operating context

In early 2023, global economic performance exceeded expectations, mainly led by the post-pandemic recovery. Despite the continued challenges of elevated inflation, sharply higher global interest rates, some turbulence in the banking sector and geopolitical conflicts, the global economy has managed to avert a recession.

World real gross domestic product (GDP) growth increased from an annual rate of 1.8% quarter on quarter in the fourth quarter of 2022 to 2.4% in the first quarter of 2023. Aside from an appreciation to 2.9% in the second quarter, the moderate economic growth pace recorded in the first three quarters continued for the rest of 2023. Strong momentum in the US, with increased economic activity in Japan, India and Brazil provided the necessary support to the world economy. After a 3.1% increase in 2022, world real GDP moderated to expand by 2.7% in 2023.

Global GDP: 2.7% (2022: 3.1%)

Real GDP growth rate (%)

Source: S&P Global, February 2024, Exxaro analysis March 2024.

Despite unprecedented rolling loadshedding, South Africa's real GDP grew by 0.9% year on year in the first six months of 2023. This modest upside reflected higher investment in machinery and other equipment and a better-than-anticipated response to loadshedding. However, GDP decreased by 0.2% in the third quarter of 2023, followed by an expansion of 0.1% in the fourth quarter. For the year as a whole, the economy expanded by 0.6%, down significantly from 1.9% in 2022. The ongoing constraints of inadequate electricity and logistics supply (and, the continuous trend of broader infrastructure failure) have limited the local economy's future productive potential.

ESG is a fundamental component of our Sustainable Growth and Impact strategy. This is a business and social imperative driven by our strategy and in line with global drivers, such as urgent climate action; increased risk of liability for greenwashing; resource depletion (natural and finite resources); greater focus on ESG due diligence; sustainable supply chains and social equity and inclusion; increasing ESG regulatory requirements; converging ESG reporting standards; significant shift towards digitalisation and leveraging artificial intelligence (AI) to reveal ESG insights; growing stakeholder ESG expectations; international focus on ESG reporting transparency and comparability; and pressures of economic inequality and unemployment.

Social impact is an outcome of our Sustainable Growth and Impact strategy and addresses material social and compliance matters from a business imperative perspective.

Global geopolitical tensions in 2023 continued to impact supply-demand pricing dynamics for key Exxaro commodities. The implications of the Russia-Ukraine conflict and subsequent sanctions, the continuing US-China and China-Australia tensions, and the Israel-Hamas war were evident. The European Union's ban on coal imports from Russia and the easing of Chinese import restrictions on Australian coal significantly impacted supply-demand balance, trade flows and seaborne thermal coal pricing.

US dollar strength was more resilient in 2023. The persistent underlying price pressures prolonged the tight and restrictive global financial conditions, added financial stresses to developing and emerging countries, and prompted concerns of a wider economic slowdown and recession. The US dollar's position as the dominant global reserve currency and the fact that US dollar assets are regarded as safe havens, benefited the currency in these global uncertain economic and financial conditions.

During 2023, the South African rand lost significant value against major global currencies. This is attributable to intensified loadshedding with the perceived risk of a potential grid collapse, the country's grey listing by the Financial Action Task Force, widening current account and fiscal deficits, US dollar strength, global recessionary risk and widespread geopolitical tensions. The USD/ZAR exchange rate is anticipated to be supported in 2024 by an expected improvement in both global economic sentiment and investor confidence.

Throughout 2023, global inflation continued its downward path, driven by tightening, cooling demand, supply chain resilience, declining commodity prices and the reversal of many of the inflationary forces from the COVID-19 pandemic (lockdowns, supply disruptions, extraordinary fiscal and monetary stimuli, and shifts in the composition of consumer spending).

In 2023, South Africa's headline inflation averaged 6% and is expected to remain above the mid-point of the South African Reserve Bank's inflation target range of 3% to 6% during 2024. The repurchase rate increased by a cumulative 125 basis points during 2023, and together with the 325 basis points increase recorded during 2022, policy interest rates remained restrictive and affected both global investment sentiment and economic activity.