South Africa kisses R4.5 trillion goodbye

South Africa’s economy is 37% smaller than it would have been had the country tracked its emerging-market peers and sustained annual growth of 4.5% since 2010.

This is according to a report by Investec Wealth & Investment International, which shared the company’s view on South Africa’s performance.

Investec calculated that matching those expansion rates would have lifted the country’s nominal gross domestic product to almost R12 trillion last year, from R7.5 trillion.

The slow growth partly coincided with an era of endemic government corruption, known in South Africa as state capture.

Most of it took place under former President Jacob Zuma, whose successor, Cyril Ramaphosa, estimates cost the economy at least R500 billion.

The inertia caused by power outages, crime, disintegrating infrastructure, and foreign-policy missteps dragged growth down to an average of about 1% a year over the past 15 years.

“The cumulative figure of revenue foregone is scary,” Osagyefo Mazwai, investment strategist at Investec Wealth & Investment International, said in the report.

“That is material, considering the fiscal constraints facing South Africa, which demonstrates the need to ensure economic growth to boost the fiscal war chest and further enable the capacity of the state to deliver services.”

Stronger growth would have also boosted government revenue. According to the report, receipts in 2024 alone could have been around R800 billion stronger.

This additional tax revenue would have put the country in a better position to tackle critical infrastructure investments, such as in electricity transmission, ports and rail.

Instead, South Africa is grappling with high gross national debt, with the debt-to-GDP ratio expected to peak at 77% this year.

With population growth at 1.3% outstripping real economic growth, South Africans are worse off than they were in 2010.

The report stated that this suggests that economic policy has been ineffectual in addressing poverty, unemployment, and inequality.

“On a per-capita basis, the rest of the world is 50% richer than the average South African,” Mazwai said.

He added that continued growth of 1% will not lead to the envisaged goals of lifting people out of poverty and meaningfully addressing the problems of unemployment and inequality.

The way out of the current quandary is the implementation of growth-friendly reforms, he said.

South Africa’s economic growth from 1994 to 2024

South Africa held its first democratic elections in 1994, after which the new government inherited a struggling economy.

The economy’s annual average growth rate was 1.0% between 1985 and 1990, falling to 0.2% between 1990 and 1994.

President Nelson Mandela and Deputy President Thabo Mbeki stabilised the country’s finances and achieved an average economic growth rate of 3.0% between 1994 and 2000.

It created a solid foundation for future growth, which was achieved after Mbeki took over the presidency from Mandela.

Under Mbeki, with Trevor Manuel as Finance Minister, the country achieved an average economic growth rate of 4.2%.

Mbeki’s administration saw the country run consistent budget surpluses, reducing government debt and enhancing its credit rating.

However, it changed rapidly after Jacob Zuma dethroned Mbeki as ANC President and Pravin Gordhan took over from Manuel as Finance Minister.

South Africa’s strong GDP growth during the Mbeki era stopped, and the country’s debt rapidly increased.

The trend accelerated under Cyril Ramaphosa’s presidency, with many economists warning that South Africa is facing a fiscal cliff.

In 2008/09, South Africa’s gross loan debt amounted to R627 billion, or 26% of gross domestic product (GDP). Net loan debt was R526 billion, or 21.8% of GDP.

Over the next fifteen years, under Zuma and Ramaphosa, the government’s gross loan debt ballooned to R5.21 trillion, or 73.9% of GDP.

Under Nelson Mandela, South Africa’s average real GDP growth rate was 2.6%, which increased to 4.2% under Thabo Mbeki.

However, it plummeted to 1.7% under Jacob Zuma’s and declined further to 0.6% under Cyril Ramaphosa’s presidency.