The sudden reversal of the proposed 0,5% VAT increase this past week in South Africa is a small but significant victory for the bulk of the consumers in the country. However, it reveals a stunning lack of cognizance by the ruling administration and particularly the Finance Ministry as to the financial burden the government has placed on the average citizen over the past decade.
Benchmarking the current South African Debt Landscape
The current national debt for South Africa stands at 2025/26 fiscal year, stands at an eye-watering USD 300.2 billion (approximately ZAR 5.27 trillion) as of December 2024, with the national debt-to-GDP ratio reported at 75.1% in September 2024, up from 74.6% in the previous quarter. However, projections suggest the debt is set to rise, with estimates forecasting it to reach ZAR 6.3 trillion (approximately USD 359 billion) by 2027.
Importantly to note here is that these numbers, exclude additional debt, which has been run up by South African State-Owned Enterprises (SOE’s), such as the national energy provider Eskom, and by individual municipalities, whose debt is registered separately from national government.
This adds an additional debt burden of around R550 billion in total, across all SOE’s, with the government guarantees for SOE debt sitting at around R460 billion.
The national treasury’s single largest budget item in the now scrapped budget was debt repayment, taking up a hefty 22% of the total budget. The current amount required to service the national debt is ZAR 380 Billion a year – more than R1 billion a day required simply to pay off debt.
What Exactly Does R380 Billion Look Like in Real Life?
One of the problems with these numbers is that most people simply do not have a reference point for the magnitude of this debt. So, to place a perspective on this amount, let’s take a look and see what R380 billion could accomplish in South Africa today at current prices. South African infrastructure needs urgent attention by the government, and the picture painted below is a stark reminder of just what irresponsible spending and waste in spending are costing South African citizens.
Cost Breakdown of Needed Infrastructure:
- Schools x 3,000: ZAR 63,2 billion.
- Public Hospitals x 50: ZAR 63,9 billion.
- Major Water Supply Dams x 5: ZAR 90 billion.
- Four lane Highway x 2000 km: ZAR 93.5 billion.
- Houses x 100,000): ZAR 63,5 billion
TOTAL COST: ZAR 374,1 billion
Forecasts for South Africa Grim
2025 World Bank report, “Driving Inclusive Growth in South Africa,” outlines a strategic roadmap to address South Africa’s economic challenges.
Despite being Africa’s second-largest economy with strengths in mining, agriculture, manufacturing, and a robust financial sector, South Africa faces stagnant growth, high unemployment (30%), youth unemployment exceeding 60%, and persistent inequality. Real GDP per capita in 2023 was lower than in 2007, underscoring a flawed growth trajectory.
The manufacturing and mining sectors both saw a contraction in output in 2024 with major export industries such as motor manufacturers seeing export numbers dive.
It is not a pretty picture by any means, and the South African economy could even be facing a contraction in at least one quarter of this year with GDP growth projections, now indicating only around 1% growth anticipated on the high-end and 0,5% at the lower end.
Where Are the Growth Opportunity Builders?
The report identifies two primary drivers for transformation are named as – enhancing market competition and improving institutional efficiency.
The current limited market dynamism, with low firm entry and exit rates, will stifle innovation and job creation, particularly for small firms and low-skill workers.
Overly complex regulations, including Black Economic Empowerment policies, burden businesses and public administration, and the ongoing corruption and inefficiency are all obstacles to growth and need to be dealt with in a meaningful way if rapid progress can be made.
Successful global examples—China, Vietnam, Poland, India, and Sweden—demonstrate that aligning political and economic incentives can drive rapid growth through competitive markets and streamlined institutions.
Four priority policy areas are proposed:
- Public Spending Efficiency: Redirect spending toward capital investment and job creation by professionalizing public administration, using digital tools, and incentivizing subnational governments.
- Business-Friendly Infrastructure: Secure electricity through grid access for private party renewables and improve municipal revenue collection. In addition, open rail and port networks to private entities to create competition and drive down logistics costs that are hindering growth.
- Urban Development: Enhance mobility with affordable transport vouchers and promote planned urban densification for equitable access to opportunities via improved public transport networks.
- Private Sector Dynamism: Lower barriers for green and digital industries and support small firms through venture capital and mobile money.
The report emphasizes Feasible, Impactful, and Timely (FIT) actions, such as centralizing capital project management, expanding public-private partnerships, and streamlining regulations. These require minimal legal changes and financing, aligning with South Africa’s fiscal constraints.
Implications and Realistic Actions
Implications: South Africa’s economic stagnation risks further inequality and social unrest unless reforms prioritize competition and efficiency. The political window post-2024 elections offers a chance to align elite interests with growth, but resistance from entrenched groups, like state-owned enterprise workers, may complicate reforms. Global trends toward green and digital economies necessitate rapid adaptation to maintain competitiveness.
Suggestions for South African Administration:
- Centralize Project Oversight: Establish a gateway for capital projects to enhance coordination and accountability, reducing delays and costs.
- Incentivize Municipal Performance: Link National Treasury grants to measurable outcomes in electricity distribution and public transport, scaling successful pilots like Operation Vulindlela.
- Streamline Regulations: Simplify tax regimes and relax Black Economic Empowerment conditions to ease market entry for small firms and investors.
Suggestions for Companies:
- Engage in Public-Private Partnerships: Collaborate on infrastructure and social sector projects, leveraging models from Western Cape and Gauteng to improve service delivery.
- Invest in Green and Digital Sectors: Capitalize on government incentives for renewables and digital finance to drive innovation and job creation.
- Support Start-Ups: Partner with venture capital firms to fund innovative small businesses, enhancing financial inclusion via mobile money platforms.
These actions align with the report’s call for pragmatic, impactful reforms that could see a better use of tax funds and purposeful investments into areas that will support and grow the economy and produce a better investment-friendly environment.
