Why South Africa’s economy needs to grow by at least 5%

South Africa’s economy needs to start expanding, and by a much higher rate, if it hopes to make any dent in poverty, says local economist Dawie Roodt.

Projections for South Africa’s economy have gone from bad to worse with the South African Reserve Bank (Sarb) last week predicting 0% growth for 2016.

This comes after the International Monetary Fund (IMF) cut its 2016 growth forecast for South Africa from 0.6% to 0.1%.

The IMF further said South Africa’s economy is failing to cope with population growth of 1.7% while the country’s unemployment rate is hovering around 26.7%, the highest in eight years.

Subsequently, Roodt said urgent action is needed to kick-start the economy and get it growing at 5%, the lowest rate at which real change could be implemented.

“We need to grow the economy at 1.6%, let’s call it 2%, just to keep track with population growth. Keep in mind that we also have productivity growth between 0.5% and 1% annually, which means we need to grow the economy by 3% just to maintain employment levels,” explained Roodt.

“We also have something like 8 million people without jobs. If we want to reduce that by say half a million per year, we need to grow an additional 2%,” said Roodt.

“So, even if we growth the economy by 2% that’s just not enough. We need to get at 5%,” he added.

South Africa’s annual GDP growth rates last expanded over 5% annually between 2005-2007, according to World Bank data.

Since the 2008-2009 financial crisis and amid crippling power shortages, South Africa’s economy has struggled to grow more than an annual GDP growth rate of 3%.

In 2015, South Africa grew by just 1.3%, according to World Bank data.

For 2016, fears of a recession are abound as Stats SA announced in June that South Africa recorded a negative growth rate of -1.2% in the first quarter of 2016.

Political leadership is desperately needed in a time of low or no growth, said Roodt.

“Hopefully, we’re going to get some action from government. I am very concerned about the quality of South Africa’s political leadership. We’ve got a destructive government,” Roodt told Fin24.

“Everybody’s got an ideological base somewhere but the South African government’s ideological base is a confused one,” he said.

Scandals like President Jacob Zuma’s multi-million rand Nkandla homestead are also “small change compared to the damages being caused” to the economy, said Roodt.


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Why South Africa’s economy needs to grow by at least 5%