Three things that will turn the tide for South Africa
South Africa can only break out of its cycle of stagnation and poverty if it achieves sustained growth of 4% to 5% a year.
This is according to Deputy Finance Minister Ashor Sarupen who said the country must focus urgently on three basic priorities: fixing energy, logistics, and local government.
Speaking at the second BizNews Investment Conference held in Hermanus, he highlighted that for every 1% that we get GDP growth, we get a 0.4% to 0.5% corresponding employment growth.
However, since 2009, growth has averaged just 1.2% while population growth has been 1.6%. “It means that every single year since 2009, on average compounded, our country is getting poorer,” he said.
Sarupen pointed out that living standards are declining, unemployment is entrenched, and youth joblessness is a catastrophe.
The government is too indebted to spend its way out of the crisis, with 22 cents of every tax rand going to interest. Instead, South Africa must address its structural failures.
He argued that prosperity is created when countries deliberately build the conditions for growth.
“Our energy system is inefficient, our ports and freight rail choke our exports and imports, and our municipalities can no longer provide the basic services,” Sarupen said.
He stressed that these are the three things that need to be addressed to turn the tide for South Africa’s economy.
The first priority, he stressed, is fixing energy. “The energy crisis remains the most immediate threat to growth and our economy’s ability to advance,” he said.
Load shedding, high electricity prices, and Eskom’s financial troubles have left South Africa increasingly uncompetitive.
“Why would you invest in a country where you may or may not get electricity, and when you do, it’s some of the most expensive in the world?” he asked.
He said a competitive energy market must replace Eskom’s monopoly so that municipalities, private companies and individuals can generate and trade electricity.
“If we could solve the supply stability problem and the supply pricing problem, our anaemic growth could double or triple in the short term,” he said.
A growth of 4% to 5% is achievable
The second urgent priority is logistics, which is the country’s ports and railways. “Put bluntly, they’ve become a stumbling block to growth. If we don’t fix them, we will not be able to attract investment,” Sarupen said.
Four of South Africa’s major ports rank among the worst-performing in the world, while Transnet is moving barely two-thirds of the tonnage it did a decade ago.
This dysfunction has cost mining and agriculture billions in lost exports, with fruit literally rotting at harbours and coal and iron ore stuck inland.
“Such poor port performance is a national embarrassment as well as a serious economic handicap,” he said.
“The monopoly system has failed. We need private sector concession agreements to run freight lines and port terminals.” If logistics are fixed, Sarupen added, South Africa could add up to 2 percentage points to annual GDP growth.
The third priority is rebuilding municipalities, which he described as “in a crisis impeding growth and investment at every turn.”
Only 34 of 257 municipalities received clean audits in 2023, and 76% are deemed financially or institutionally distressed.
Water losses exceed 40% in many towns, while employee costs have ballooned at the expense of infrastructure.
“Who is going to invest in the country and build a factory if the municipality can’t guarantee water or electricity supply?” he asked.
Treasury has now begun pushing reforms to ringfence essential services like electricity, water, sewage, and refuse removal into utility-style business units.
“When you pay your bill, there must be transparency in the costing and supply,” Sarupen said.
This would stop revenues from being diverted into bloated staff structures or political appointments, and open the way for private operators to step in where municipalities fail.
Sarupen stressed that energy reform could add 1% to GDP, logistics another 2%, and fixing municipalities would unlock even more.
“That’s already three-fifths of the way to where we need to be to solve our problems,” he said.
Without such reforms, South Africa faces another decade of stagnation, rising poverty, and worsening instability.
However, with them, a growth of 4% to 5% is achievable. “We still have the most industrialised economy in Africa. We have abundant natural resources, a young population, and an entrepreneurial spirit waiting to be unleashed,” he said.
What’s held us back has been internal bottlenecks of our own making. We remove those, and the innate advantage of our country can shine.”
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