South Africa could be setting itself up to fail

South Africa is expected to see economic growth in 2025, but top government and business officials may be too optimistic about what is achievable.

Earlier this week, the Bureau for Economic Research (BER) announced the launch of the Impumelelo Economic Growth Lab, an independent hub for analytical research capacity to support economic reform.

The BER said that the four areas that would bring the most significant gains in the shortest time are:

• Electricity reforms – Sustain the reduction in load-shedding by maintaining momentum on the electricity programme

• Ports and rail reforms – Increase export volumes, particularly for industries that are job creators (agriculture and mining)

• Water – Improve service delivery would increase business confidence and encourage investment

• Crime, corruption, governance, and other reforms—Improve business confidence by removing the grey list, finalising visa reforms, and improving local government governance.

The researchers believe that the fast-tracking reforms in these areas will lead to GDP growth of over 3% by 2025.

This would easily surpass the growth figures of 0.7% in 2023 and an expected 1.0% in 2024.

It would also ensure real growth as population growth, which averages about 1.5% every year, is currently outpacing economic growth.

“This adds to last week’s relatively encouraging news about SA’s economic growth prospects and potential for attracting (foreign) capital,” said the BER.

“The news from Home Affairs that it would reform the current strict visa system is also welcome in that regard.”

The over 3% growth figure was announced at the launch of Phase 2 of the Government Business Partnership earlier this week, which was attended by President Cyril Ramaphosa, Ministers, and many of South Africa’s top CEOs.

Phase 2 of the partnership seeks to increase resources sent to the electricity and logistics sector and a clear set of actions to contribute to more rapid economic growth.

“The collaborative efforts of this partnership and the progress we have made so far are well aligned with the priorities of the Government of National Unit,” said Ramaphosa.

“Together, we are advancing our bold ambition to move South Africa forward. We are witnessing renewed investor confidence, which speaks to the success of our approach.

“With a more focused and determined effort, Phase 2 will continue to tackle key challenges and contribute to momentum on transformation, economic recovery and long-term prosperity.”

That said, it is worth noting that the forecast for over 3% is not the BER’s baseline view. While theoretically attainable, it would require a laser focus on the identified issues.

“Without swift action, any delays will diminish the odds of attaining 3% growth,” said the BER.

The BER previously said that it expects GDP growth of 2.2% in 2025, which is already quite optimistic compared to other analysts and economists.

Investec believes GDP growth will reach 1.7% in 2025, while the IMF believes it will only hit 1.3%.

Investec is, however, optimistic about South Africa’s medium-term prospects, with growth of 3.1% expected for 2029.

Speaking the day after Phase 2 was launched, Sanlam CEO Paul Hanratty warned that the country should be cautious about becoming complacent and thinking its major structural issues have been solved.

Despite no load shedding for over six months, the electricity crisis is far from over. Eskom also needs to build generation capacity to deal with an increase in demand.

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