South Africa's Economic Growth Deteriorates Significantly Amid State Capture and Corruption

South Africa's economic growth has deteriorated significantly over the past two decades, with the country experiencing a remarkable decline in productivity and investment growth. A new report by the Bureau for Economic Research (BER) cites the impact of state capture and corruption as major contributors to this decline, leading to a collapse in productivity growth and stagnant private sector investment. The report highlights the need for reforms to state-owned enterprises and a clear monetary and fiscal policy to support growth.

Key Takeaways:

• South Africa's economic growth has deteriorated significantly since 2005, with a remarkable decline in productivity and investment growth.
• The collapse in productivity growth is attributed to inefficient state-owned enterprises, which consumed a large share of savings without benefit to the economy.
• Private sector investment has remained stagnant in real terms at around R500 billion a year, far too little to support meaningful expansion of the capital stock.
• The 1994 policy choices, including the restructuring of state-owned enterprises, opening up of the economy, and fiscal and monetary policies focused on sustainability and lower inflation, hold lessons for 2025.
• The report suggests that restructuring state-owned enterprises should be a priority to support private sector investment growth and bring linked benefits to buoy growth.
• Clear monetary and fiscal policy would also support growth, with the inflation targeting framework bringing certainty to monetary policy and fiscal policy recently turning a corner to achieve a small primary surplus.
• Potential GDP growth declined from around 2% a year to zero over the period 2015-2019, with real GDP growth averaging just 1.0% and per capita GDP contracting by 2.7%.
• Power shortages (load-shedding) have significantly constrained South Africa's economic performance and have likely structurally reduced its potential growth rate.

Statistics:

• The total capital stock grew by an average of 0.4% between 2022 and 2024 (BER).
• Between 2015 and 2019, real GDP growth averaged just 1.0% and per capita GDP contracted by 2.7% (BER).
• Potential GDP growth declined from around 2% a year to zero over the period 2015-2019 (BER).
• Private sector investment has remained stagnant in real terms at around R500 billion a year (BER).
• South Africa's growth trajectory has deteriorated significantly over recent years, with the country experiencing its third recession in a decade (Dawie Roodt, Efficient Group Economist).

Sources:

• Bureau for Economic Research (BER)
• Dr Eliphas Ndou, Unisa Economist
• Dawie Roodt, Efficient Group Economist
• Walsh et al. (2021)