In a timeous event, the Morningstar investment conference taking place in Sandton today, saw a number of key perspectives provided on South African economy and potential. At the current junction in South Africa’s economy, with less than a 1% GDP growth rate, it is also important to understand the context of how the country arrived there and what needs to change to start a process of shifting it back into a growth gear.
Going back to the period around 2006-2008, South Africa had achieved quite a remarkable situation with a 10-year average GDP growth of over 4%, while also reducing the country’s debt to GDP ration of only 26%. The country also had achieved an A-grade international credit rating, ensuring that there was almost zero barriers to attracting investment in the country.
A lot of this was due to the diligent actions taken by then minister of finance, Trevor Manual, who had pursued a path of debt reduction, while the country was actively attracting vast amounts of investment that saw the economy growing at a steady pace.
Alongside economic growth came the growth of over half a million new jobs per year that helped drive retail growth among other sectors such as housing and construction, that in turn built up additional revenues for government to build and expand the country’s infrastructure.
The Journey into Risk, and a Rubbish Credit Rating
Fast-forward 15 years and South Africa now sits with a 10-year average GDP growth of less than 1% while the population growth sits at over 2% with around 600 000 new labour market entrants each year with many having little hope of securing a job.
What Happened? The Leadership shift in the government, to a cabal with questionable ethics, alongside a reversal of key economic policies created a diminishing of investment attractiveness while piling on state debt and reducing efficiencies and accountability.
Today South Africa sits with a 75% debt to GDP ratio and a non-investment grade of BB- with a positive outlook. This rating reflects South Africa’s as a speculative investment grade status, often referred to as “junk” status, but the positive outlook suggests potential for improvement.
What Factors Need to Change to Create Correction and Growth:
Kevin Lings, of Stanlib, provided the conference with a not-so-rosy outline of where the country is and what needs to change in order for a positive momentum to be created.
- Infrastructure:
- The current decline in the general infrastructure in the country according to Lings “Has become a binding constraint on economic growth”. This is no longer simply about fixing a few things, but has reached a point where it is systematically reducing investment by existing businesses, that Lings are sitting on a cash pile of over R1,5 trillion that is being banked rather than invested.
- Debt Levels:
- South Africa has run out of money and can’t afford any more debt. Having moved from a 26% debt to GDP remarkable to 76% of GDP. And according to Lings, should this go any higher, it is going to bankrupt South Africa. The current interest alone costs $1.2 billion a day every day, Monday to Sunday. That’s just the interest cost, not the debt, not the capital. That is simply unaffordable and in dangerous territory.
- Inefficiency:
- Inefficiency is costing the economy more than it can afford. Lings quips that “Government has become massively inefficient and I’m talking inefficiency on at a high level of inefficiency, this is world class inefficiency”. He points to the fact that the number of solved murder cases by the South African police has dropped from around 31% 15-years ago to a dismal 12,4% in 2024. Who wants to invest in a country where apart from the other challenges, the high murder rate is met by complete incompetence by the police services?
- Over Regulation:
- This has become a factor that is strangling current businesses and makes for a most unattractive landscape for businesses to operate in. Standard Bank, according to Lings, now employs more than 3000 staff whose only task is to deal with compliance to local government regulations. South Africa currently ranks the most highly regulated business environment on the African Continent,.
- Labor Productivity:
- South African labour is producing less per person employed per year on an ongoing basis. International investment Organization data, indicates that over the last decade the labour productivity growth for the country is negative, meaning less is produced while salaries are increasing.
- Political Priorities:
- Lings points out that while the government is very busy producing new legislation and passing new bills, none of these create any incentive for further investment in the country. The recently passed expropriation bill and BEE legislation do nothing to inspire further investment. Lings points out that “Which business I ask you, which business says, look, South Africa has a new shiny expropriation act – I need to invest there?”
Where Is there Growth in the Economy:
The main area of growth in South Africa over the past ten years has been in retail spending, while mining, construction and manufacturing has been on a steady decline for over a decade. However the retail growth has more recently been a false market growth that was driven predominantly by the recently introduced two-pot pension scheme that allowed consumers to withdraw a third of their pensions.
This move, while providing a welcome catalyst to the economy is however one that has a finite time of impact after which it becomes problematic and long-term could be a destructive force with people unable to afford retirement while pension funds ability to invest further in the economy is constrained.
The “pension-fund party” can only last a short period of time, and rather than encouraging consumers to spend money they should be saving, there should be more focus on real economic growth.
According to TransUnion’s Q2 2025 Consumer Pulse Study, as many as 39% of households expect to miss a bill or loan payment in the near future, indicating that there is real economic stress that is likely to constrain further retail growth.
The other shortfall is that much of what is being bought by consumers adds little to the wider economy as much of what is being consumed is imported and not manufactured locally.
What can be done?
A major pivot in priorities will be essential for any GDP growth turn-around and will need to begin by re-prioritising infrastructure investments alongside a more disciplined approach to creating efficiencies and prioritising business friendly policies.
A greater focus on debt discipline and fiscal accountability is a non-negotiable and despite a decade long accountability drive in government this has failed to produce the required result and this has to now become a key focus if any progress on economic growth in the country is to be made.
The question that everyone want’s answered is: Is South Africa heading towards a failed state status or not? The answer is not clear at this point. There seems to be sufficient potential to rectify the economy, however a lot is going to depend on the government pivoting away from a destructive pathway and really reigning in waste and prioritising business friendly policies instead of those they currently broadcast, and promote that are counter-intuitive to good economic development policy.
