The dark cloud hanging over South Africa’s head

 ·24 Apr 2024

As part of a 30-year of South Africa’s economic fundamentals, economists at the Bureau for Economic Research (BER) have painted a worrying picture of floundering economic growth in the country since the dawn of democracy.

According to the group, South Africa’s average growth has been slashed to less than a third of what it was during the country’s ‘golden years’ post-democracy. And while some of the struggles can be attributed to global black swan events, much of it rests with local conditions.

During the first fifteen years of democracy, GDP growth averaged 3.6% per year, reaching a peak of 5.6% in 2006.

The BER’s latest forecast is that the economy will grow 1.3% in 2024. This is slightly above the weak annual average growth rate of 1.1% between 2009 and 2023.

Notably, this projection is higher than that of many other economists, including the International Monetary Fund (IMF), which projects a sub-1% growth figure this year (0.9%) – which would be below the average.

“The BER’s macroeconometric model uses the expenditure approach of calculating GDP to forecast economic growth,” said Lisette IJssel de Schepper, BER Chief Economist.

“While the consumer remains the backbone of the South African economy—as it has been since 1994—and we hope to see more investment-led growth, the country often needs a better export performance to push the economy into a higher gear.”

The expenditure approach to GDP calculates growth from consumption, investment, government spending and net trade (exports minus imports).

Looking at real GPD, the BER said it is clear that there are periods of contraction and recovery associated with major global economic events, such as the Global Financial Crisis (GFC) in 2008/09 and the global Covid-19 pandemic in 2020/21.

However, after the major hit from Covid in 2020, it took South Africa’s economy three years to recover to pre-pandemic levels. It has since struggled to return to previous growth patterns.

During this time, South Africa has had to contend with multiple crises – the most apparent being the energy crisis, estimated to have wiped up to 2 percentage points from GDP. Next in line is the Transnet transport and infrastructure crisis which heavily impacted exports, and the prevailing water crisis which keeps rocking industry, businesses and residents across the country.

South Africa scraped by 2023 with a paltry 0.6% GDP growth in 2023. Without load shedding alone this could have pushed the value above 2%.

In fact, if South Africa’s growth had continued at the average of 2% since 2012 – when growth first dropped below 3% – all else being equal, the economy would have been 14% larger than it is today, the BER said.

“This might not seem substantial, but it would have allowed GDP to keep pace with population growth,” it said, adding that GDP per capita would have been 8% larger than 2012.

In reality, economic growth has not been keeping up with population growth, and GDP per capita is 5% lower than in 2012.

While South Africa has avoided recession in terms of GDP, the reality is that its people have been living in recession for over a decade.

The BER noted that household consumption has always been the biggest share of GDP, but over the years has grown to an even larger portion.

However, the decline in net trade is another notable shift in South Africa’s GDP composition over the last three decades.

“Net trade contributed 8% to GDP in 1994, but there have been numerous years since 2010 when spending on imports has exceeded export income. Last year, South Africa’s negative trade balance subtracted 2% from GDP,” the economists said.

Investment by firms, households and government (including state-owned companies) has also declined.

Investment climbed to 19% of GDP by 2008, but by 2023, it had fallen to 15% and has still not recovered from the Covid-19 induced slump, the BER said.

The economists pointed to a deterioration in confidence as being an important factor in this story, where approximately 80% of respondents to the RMB/BER Business Confidence Index (BCI) survey reported
being satisfied with prevailing business conditions during 2006 – compared to only around 32% in 2023.

Read: Dark clouds gather for South Africa as IMF cuts growth outlook

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