The strategic reforms that could transform South Africa's economy
The key is to break the strangleholds that Eskom and Transnet have on our electricity, ports and railways.
Introducing real competition into electricity generation and the operation of ports and railways is the key to unlocking real growth in South Africa's stagnant economy.
So said Deputy Finance Minister Ashor Sarupen at a seminar organised by the In Transformation Initiative last week, where Jakkie Cilliers, head of the African Futures unit at the Institute for Security Studies (ISS), presented the unit's latest report, co-written with Alize le Roux, which forecasts SA's growth trajectory to 2043.
The seminar pondered why, despite the creation of a government of national unity (GNU) last June and the virtual end of load shedding, the South African economy only grew by a miserly 0.1% in the first quarter of 2025.
Cilliers said South Africa was caught in a 'classic upper middle income growth trap'. From 1990 until 2025, South Africa's economy had grown by an average of 2.3% a year, and on its current path, without significant reforms, he forecast it would grow at an average 2.4% annually from now until 2043. That would expand GDP from about $402-billion in 2025 to about $628-billion in 2043, in constant 2017 US dollars.
This 'slow but steady growth' would not be enough to dent poverty. It would barely keep pace with the population, which the unit forecast would expand from about 65.5 million in 2025 to about 77 million in 2043.
Cilliers said annual GDP per capita would therefore rise from $12,600 in 2025 to about $14,700 in 2043 — with South Africa falling behind the rest of the world (except Africa) where he forecast average annual GDP per capita would climb from $20,300 in 2025 to $28,500 in 2043.
He noted that on its current development trajectory it would take South Africa until 2037 to return to the peak GDP per capita of $13,800 that it reached in 2013.
South Africa had been stagnating for years, with steady deindustrialisation, weak investment, and a growing dependence on social grants undermining growth, particularly during the Jacob Zuma presidency, Cilliers said.
Cilliers noted that 740,000 South Africans entered the labour market every year, and because of slow growth and a very capital-intensive economy the number of unemployed people increased annually.
In 2023, the International Labor Organization (ILO) found that South Africa had the highest unemployment rate globally after only Eswatini. Because being part of the informal sector is considered 'work' by the organisation, South Africa's relatively small informal sector contributed to this high percentage. In South Africa, only about 18% of the labour force is employed in the informal sector.
Cilliers noted that about 62% of South Africans were now living below the World Bank's poverty datum line for upper middle income countries, of $6.85 per person a day. On South Africa's current economic path, that percentage would decline 'modestly' to 58% in 2043, though the absolute number of people living below that poverty datum line would increase, from some 40.9 million in 2025 to 44.4 million in 2043 (because the overall population would rise).
Cilliers said South Africa should now be reaping a 'demographic dividend' because its ratio of working age population – aged 15 to 64 — to its dependent population (children and elderly) had now reached 2.1. In the African Futures calculations, the demographic dividend should kick in when the ratio of working people to dependents reached 1.7. he said,
Economic growth stunted by poor human capital
But South Africa was not earning this dividend largely because economic growth was being stunted by poor human capital, mainly an unhealthy population, many of whom were still afflicted by HIV/Aids and tuberculosis and low-quality education.
The question, he said, was why South Africa did so poorly on social capital, education and health, given the very high levels of expenditure on those services.
'And the only answer that you can come up with is government inefficiency, the poor use of existing funds. And the question is, how do we escape the middle-income trap?' Cilliers asked.
He said the African Futures team had modelled the effects of reforms in eight different sectors on South Africa's economic development. These were demographics and health; agriculture; education; manufacturing; infrastructure and 'leapfrogging' (i.e. bypassing older technologies); free trade; financial flows; and governance.
They found that the largest return was from increased manufacturing, followed by freer trade and then better governance. So, for instance, all eight sectors combined would increase GDP per capita in 2043 by about 33%, from the $ 14,750 on the current path to $19,650.
Of this, increased manufacturing would contribute about $930; freer trade (with the full implementation of the African Continental Free Trade Agreement) would contribute about $900; and better governance about $800.
The combined impact of those eight reforms would decrease the percentage of South Africans living below the $6.85 a day poverty rate to 50% by 2043, down from 62% in 2023. This would represent 6.1 million fewer poor people than if the economy remained on its current path, though still leaving South Africa with a large poverty burden, Cilliers said.
The African Futures team had compiled a laundry list of recommendations, starting with the need to strengthen governance and accountability through evidence-based policies, curtailing corruption and increasing accountability and inclusivity.
Deputy Finance Minister Sarupen, of the DA, said much of Cilliers' analysis resonated with assessments by the Treasury's own economic policy team and the work being done by the government's Operation Vulindlela and by various parties in the GNU.
He agreed that merely 60% growth in the size of the economy over the next two decades 'will not get us out of the trap that we're in' and that South Africa was in danger of falling from upper middle to lower middle income status.
Structural constraints
The low growth was driven by structural constraints, weak productivity, low investment in capital, higher inequality and an underperforming formal labour market. The Treasury was 'acutely aware of this'.
But he said the government had to prioritise its reforms to tackle the problem because of the many competing demands of a massive amount of social ills and a very strong active civil society.
He noted that South Africa had a system of fairly autonomous government ministries that made it harder to pursue coherent policies.
Cilliers had identified manufacturing and freer trade as South Africa's best paths forward. Sarupen noted that cheap reliable energy with stability of pricing and supply underpinned manufacturing and industrialisation .
'And one of the drivers of our de-industrialisation has been excessive pricing and inefficiency of supply that really hurts manufacturing in South Africa,' he said.
He noted that while prices in the rest of the economy had risen 196% since 2009, Eskom's prices had increased by 403%. So Eskom was driving inflation and deterring investment.
Sarupen added that part of the reason GDP growth had been so low over the past year, despite an end to load shedding, was because companies had sunk so much money into load-shedding-proof themselves over the past few years that they had not spent enough on actual business expansion and employment.
Sarupen also noted that free trade — another key reform advocated by Cilliers — 'requires you to be able to actually move goods and services cheaply and easily around, so the logistics reforms need a lot of depth and need to maximise competition.
'And so in the reform process that we're undergoing we need to be careful to not just bring the private sector into Transnet's monopoly structure. But rather how do we create competition, across multiple ports for example.'
Likewise, South Africa had to maximise competition in railway freight lines.
He agreed with Cilliers that crime had to be tackled much better as it was discouraging investment as well as acting as a deterrent to economic activity inside South Africa because, for example, citizens were fearful of using public transport to go to work.
Rule of law
He said the rule of law was the foundation of all other economic reforms, followed by macroeconomic stability, and then better education and health, and only after that global competitiveness and industrial masterplans.
Sarupen did note though that South Africa's foundation of macroeconomic stability was 'probably one of our saving graces'.
He also said that the government had to reduce debt. He noted that about 90% of South Africa's debt was denominated in rands, and about 75% of that was purchased by domestic markets. Rand debt was generally better than debt in foreign currency but the scale of government borrowing, about R300 to R400-billion a year, was crowding out the amount of capital that could be invested in business ventures and therefore growth.
He added that the relatively high premium of about 11% on a 10-year South African Government Bond was discouraging businesses from investing in riskier ventures.
He noted that many of the investments in this year's controversial national Budget were important — such as in public transport. He said, for example, that while a lower income worker in Vietnam earned a similar wage to a lower income worker in South Africa, the Vietnamese worker spent about 10% of his or her income on transport, the South African workers spent around 50%.
'People are going to work to earn money to be able to go to work,' he said. And this was diverting money away from workers buying goods and services, which was essential for economic growth. DM
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
IOL News
2 hours ago
- IOL News
The national dialogue must include the concerns of the Indian minority
Indian South Africans are descendants of indentured labourers. To build a just and cohesive future, the writer says South Africa must engage with every community's story, not only in the past tense, but in the living reality of today's challenges. Image: South African History Online PRESIDENT Cyril Ramaphosa's announcement of a National Dialogue is a powerful call to action. It is not a mere event or ceremonial gathering, it is a participatory, unfolding process that will stretch from grassroots consultations to a National Convention, aiming to reset our democratic compact and imagine a shared South African future. As the first phase begins on August 15, it is vital that the concerns of all communities are placed firmly on the agenda. This includes the Indian minority, whose contributions and challenges remain under-recognised in national discourse. The National Dialogue promises to be inclusive, representative, and future-focused. Civil society, political parties, traditional and religious leaders, workers, youth, and other key voices are to be engaged in conversations that will culminate in a second National Convention. There, a common vision and programme of action will be adopted. An Eminent Persons Group will help guide this historic initiative, ensuring it is more than rhetoric, it must be renewed in action. Yet, if this dialogue is truly to reflect the diversity of our nation, it must acknowledge the unique experiences and present-day realities of Indian South Africans. The prognosis for this community, which has been rooted in South African soil since 1860, is shaped by a history of marginalisation, contemporary economic pressures, and a search for identity within a changing socio-political landscape. Video Player is loading. Play Video Play Unmute Current Time 0:00 / Duration -:- Loaded : 0% Stream Type LIVE Seek to live, currently behind live LIVE Remaining Time - 0:00 This is a modal window. Beginning of dialog window. Escape will cancel and close the window. Text Color White Black Red Green Blue Yellow Magenta Cyan Transparency Opaque Semi-Transparent Background Color Black White Red Green Blue Yellow Magenta Cyan Transparency Opaque Semi-Transparent Transparent Window Color Black White Red Green Blue Yellow Magenta Cyan Transparency Transparent Semi-Transparent Opaque Font Size 50% 75% 100% 125% 150% 175% 200% 300% 400% Text Edge Style None Raised Depressed Uniform Dropshadow Font Family Proportional Sans-Serif Monospace Sans-Serif Proportional Serif Monospace Serif Casual Script Small Caps Reset restore all settings to the default values Done Close Modal Dialog End of dialog window. Advertisement Next Stay Close ✕ Ad Loading Indian South Africans are descendants of indentured labourers and free migrants who came to work in the sugar cane fields of Natal, later becoming traders, workers, and professionals despite the systematic discrimination of colonialism and apartheid. From forced removals under the Group Areas Act to limited political representation under white rule, their history is one of struggle and resilience. Post-apartheid freedom offered formal equality, but the legacy of exclusion persists. Indian South Africans remain a small minority navigating between integration and the preservation of cultural identity. This balancing act is complicated by rising economic inequality, political fragmentation, and at times, resurgent xenophobia and racial scapegoating. Economically, the Indian community often occupies a middle-tier status, better off than many, but still vulnerable. Many small businesses, particularly in logistics, trade, and manufacturing, are threatened by infrastructure failures, load-shedding, and water shortages. While affirmative action is vital for redressing historical wrongs, it can create new forms of exclusion when not applied sensitively. The perception of Indian South Africans as a "privileged" group masks the deep inequalities within the community itself. In recent years, skilled professionals have increasingly sought stability abroad, while working-class Indians remain in under-resourced townships like Chatsworth, Phoenix, and Lenasia, grappling with drugs, unemployment, and crime. These townships are also increasingly diverse, as African and Indian communities live side by side, an opportunity for unity, but also a potential flashpoint if tensions are not addressed through inclusive dialogue. The Indian identity in South Africa is multifaceted, comprising Hindu, Muslim, and Christian faiths, and languages like Tamil, Hindi, and Gujarati. This internal diversity enriches the cultural landscape of the nation. Indian festivals, places of worship, and traditional practices remain vibrant, even as the younger generation increasingly blends identities and adopts cosmopolitan lifestyles. To build a just and cohesive future, South Africa must engage with every community's story, not only in the past tense, but in the living reality of today's challenges. For Indian South Africans, this means: recognising historical contributions and present vulnerabilities; ensuring meaningful political representation in both local and national processes; supporting economic resilience through inclusive growth strategies; protecting cultural expression while promoting intercultural solidarity; addressing township neglect, crime, and substance abuse with tailored, community - driven interventions. The National Dialogue provides a rare moment of reflection and reimagining. If we are to emerge stronger from the crises of our time - inequality, political division, climate shocks, and social fragmentation, we must build a South Africa where every community sees itself in the national mirror. Indian South Africans, while a minority, are not marginal to the national story. Their inclusion in this dialogue is not a favour; it is a necessity for a credible, durable, and democratic social compact. Let us speak not just of unity, but of justice, rooted in recognition, responsibility, and renewal. Jerald Vedan Image: Supplied
eNCA
2 hours ago
- eNCA
700,000 new credit individuals added in Q1
JOHANNESBURG - South Africans' love for credit shows no sign of slowing down. Research firm Eighty20 reveals that there were 700,000 new credit individuals in the first quarter of this year. That's a 27 percent increase from 2024. And total debt taken on by these new individuals? A whopping R4.8-billion. So, why are more people taking on credit in an underperforming economy? Eighty20 Managing Director, Andrew Fulton, said credit is important for a credit rating.
eNCA
2 hours ago
- eNCA
World Bank and IMF climate snub 'worrying', says COP29 presidency
BONN - The hosts of the most recent UN climate talks are worried international lenders are retreating from their commitments to help boost funding for developing countries' response to global warming. Major development banks have agreed to boost climate spending and are seen as crucial in the effort to dramatically increase finance to help poorer countries build resilience to impacts and invest in renewable energy. But anxiety has grown as the Trump administration has slashed foreign aid and discouraged US-based development lenders such as the World Bank and the International Monetary Fund from focussing on climate finance. Developing nations, excluding China, will need an estimated $1.3 trillion a year by 2035 in financial assistance to transition to renewable energy and climate-proof their economies from increasing weather extremes. Nowhere near this amount has been committed. At last year's UN COP29 summit in Azerbaijan, rich nations agreed to increase climate finance to $300 billion a year by 2035, an amount decried as woefully inadequate. Azerbaijan and Brazil, which is hosting this year's COP30 conference, have launched an initiative to reduce the shortfall, with the expectation of "significant" contributions from international lenders. But so far only two -- the African Development Bank and the Inter-American Development Bank -- have responded to a call to engage the initiative with ideas, said COP29 president Mukhtar Babayev. "We call on their shareholders to urgently help us to address these concerns," he told climate negotiators at a high-level summit in the German city of Bonn this week. "We fear that a complex and volatile global environment is distracting" many of those expected to play a big role in bridging the climate finance gap, he added. - A 'worrisome trend' - His team travelled to Washington in April for the IMF and World Bank's spring meetings hoping to find the same enthusiasm for climate lending they had encountered a year earlier. But instead they found institutions "very much reluctant now to talk about climate at all", said Azerbaijan's top climate negotiator Yalchin Rafiyev. This was a "worrisome trend", he said, given expectations these lenders would extend the finance needed in the absence of other sources. "They're very much needed," he said. The World Bank is directing 45 percent of its total lending to climate, as part of an action plan in place until June 2026, with the public portion of that spilt 50/50 between emissions reductions and building resilience. The United States, the World Bank's biggest shareholder, has pushed in a different direction. On the sidelines of the April spring meetings, US Treasury Secretary Scott Bessent urged the bank to focus on "dependable technologies" rather than "distortionary climate finance targets." This could mean investing in gas and other fossil fuel-based energy production, he said. Under the Paris Agreement, wealthy developed countries -- those most responsible for global warming to date -- are obliged to pay climate finance to poorer nations. Other countries, most notably China, make voluntary contributions. - Money matters - Finance is a source of long-running tensions at UN climate negotiations. Donors have consistently failed to deliver on past finance pledges, and have committed well below what experts agree developing nations need to cope with the climate crisis. The issue flared up again this week in Bonn, with nations at odds over whether to debate financial commitments from rich countries during the formal meetings. European nations have also pared back their foreign aid spending in recent months, raising fears that budgets for climate finance could also face a haircut. At COP29, multilateral development banks (MDBs) led by the World Bank Group estimated they could provide $120 billion annually in climate financing to low and middle income countries, and mobilise another $65 billion from the private sector by 2030. Their estimate for high income countries was $50 billion, with another $65 billion mobilised from the private sector. Rob Moore, of policy think tank E3G, said these lenders are the largest providers of international public finance to developing countries. "Whilst they are facing difficult political headwinds in some quarters, they would be doing both themselves and their clients a disservice by disengaging on climate change," he said. The World Bank in particular has done "a huge amount of work" to align its lending with global climate goals. "If they choose to step back this would be at their own detriment, and other banks like the regionally based MDBs would likely play a bigger role in shaping the economy of the future," he said. The World Bank declined to comment on the record.
