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IOL News
a day ago
- Business
- IOL News
What's holding back South Africa's economy? Key insights from experts
Infrastructure failure and bottlenecks at ports, are among factors costing the economy billions of Rands. Image: eThekwini Municipality Failing infrastructure, systemic corruption, collapsed rule of law, state incapacity in public service and state-owned entities, erosion of local government, and high crime rates are among the key factors causing a decline in South Africa's economic growth, according to experts. This is despite the positive growth from the agricultural sector, where the Gross Value Added (GVA) expanded by 15.8% in the first quarter of 2025. Agriculture became the main driver of South Africa's overall GDP growth in Q1 2025, contributing 0.4 percentage points to the national GDP expansion of 0.1%. However, experts say that agriculture, although it has driven the country's economic growth, is volatile and dependent on factors such as weather, electricity supply, and transportation, among others. Professor William Gumede, from the Wits School of Governance, said the country's political culture has made corruption, incompetence, and misbehaviour acceptable if it is done by those who share a similar colour, party, and ideology, which has contributed to the economic decline. 'Property rights are vulnerable. The rule of law in many parts has collapsed, the lower courts are inefficient, and policing is ineffective. Corruption is systemic. State capacity in many parts of the public services, among state-owned entities, and local government has been eroded. Crime is out of control. The state cannot efficiently enforce laws, rules, or policies. Infrastructure has collapsed in many areas. Many sectors of the economy, such as public transport, mining, and construction, have become informalised. The country has been deindustrialising,' Gumede said. He added that state infrastructure development plans and forums, including the Reconstruction and Recovery Plan and initiatives such as Operation Vulindlela, have become virtual talk shops, and structures set up to play an oversight and coordination role, and provide governance over infrastructure, have not been able to do so. 'The breakdown of infrastructure drives up inflation, just as state, SOE, and policy failures do, as they drive up prices, the cost of living, cost of business, and erode savings and deter future investment. The Reserve Bank has warned that the breakdown in infrastructure threatens the stability of the financial system. 'Loadshedding, for example, has caused not only the loss of lives, but also of businesses, capital, skills, employment, and investment. It has contributed to South Africa's low-growth path, possibly taking away up to 3% of possible growth. South Africa needs around R150 billion per year just to replace the destroyed infrastructure, let alone build new infrastructure,' Gumede said. 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 He added that water provision has also plunged, with many of the water infrastructure SOEs, municipal entities, and boards having fallen into disarray. The provision of water in many of South Africa's cities and towns has deteriorated to such an extent that many citizens are without water for long periods during water outages. 'Transnet, the state-owned logistics giant responsible for South Africa's ports, rail, and pipelines, is, like Eskom, a major contributor to the country's low-growth path. Transnet has a debt burden of R136 billion. Its inefficiencies are causing bottlenecks at ports and limiting rail freight, undermining trade. It costs the economy over R1 billion per day," Gumede said. Transnet estimates it needs to invest R200 billion to restore the railways to capacity, however, Gumede said it will be a waste of money to invest in Transnet without bringing in merit-based management, cleaning up procurement by exempting the organisation from preferential procurement rules, and discarding ideological objections to having the organisation fully partner with the private sector in delivering infrastructure services. According to the Department of Public Enterprises, between 2012 and 2023, the debt levels of the largest 10 SOEs rose by R313.6 billion. The government had to bail out these SOEs with R318.1 billion during that period. In its latest Financial Stability Review, the Reserve Bank said while electricity availability appears to be gradually returning to historical trends, other critical infrastructure, such as the supply and quality of water and transport infrastructure, especially rail, port, and road networks, continues to degrade. Gumede said an external economic shock, such as a prolonged fallout with the US Donald Trump administration, will have a disproportionately debilitating impact on the South African economy. Political actors and groups who reckon South Africa can quickly pivot from the US market to alternatives, such as BRICS, have a case of wishful thinking, as a loss of the US market cannot be immediately replaced. A transition to new markets cannot be achieved overnight. Worse, SA's state trade negotiation capacity is currently possibly at its weakest, most over-ideological, least agile, and opportunity-minded, since the end of apartheid. State capacity has been eroded in state trade structures, as in other parts of the state, through cadre deployment, exclusion of minorities, and informalisation, he said. China may be South Africa's largest trading partner by volume, but it mostly takes South Africa's raw material, not manufactured products – it has trade barriers, but sends manufactured products to South Africa, which displaces local jobs. US companies manufacture in South Africa, meaning they have larger multiplier impacts, Gumede said. The International Monetary Fund ranks South Africa as the most difficult place to do business globally among 49 countries in the IMF's ease of doing business index. It argues that halving SA's restrictive business regulations relative to its emerging market peers could increase medium-run output by 9% and boost employment, Gumede said. He added that policymakers underestimate the impact of state failure, corruption, incompetence, and anti-growth policies on the economy, which reduces revenue and undermines business confidence. In the 1990s, the Johannesburg Stock Exchange had around 850 listed companies. By 2024, this had dropped to under 300, including some companies that have dual listings. He highlighted the lack of inclusive compromises on key policies, the NHI, the Expropriation Law, apparent refusal to renegotiate aspects of the Basic Education Laws Amendment (BELA) Bill to make it more inclusive, and perceived anti-American foreign policies have caused investment, capital, and skills flight as some of the factors. 'Many ANC politicians do not genuinely think growth should be at the centre of economic policy, arguing wrongly that to do so will be promoting 'neo-liberalism'. Policies that undermine growth will have to be jettisoned,' Gumede said. He said state debt levels need to be brought down, and key catalytic growth sectors will have to be prioritised. 'Manufacturing remains important; its declining trend needs to be reversed. Agriculture is critical. It is important that land reform is not populist, emotional, ideological and revenge-driven, but rather, that it focuses on securing food; fostering an agricultural, manufacturing, processing, and technology industrial hub; and fostering related artisan, technical, and research skills. This would mean partnering with the private sector to bring back artisan programmes, agricultural technical institutions – especially in the rural areas – and fostering agriculture technology,' he said. Dawie Roodt, a chief economist at the Efficient Group, said the biggest challenge in South Africa is a government that is destructive, inefficient, and is quite often corrupt. 'The government policies are broadly wrong. The Expropriation Bill, for example, is one of those policy choices that is wrong for economic growth because you must protect private property rights. There's also the inefficiency of the state. 'All good things go together in the economy. If per capita GDP goes up, then life expectancy, quality of life, and education follow suit,' Roodt said.
IOL News
05-06-2025
- Business
- IOL News
South Africa's economy faces an uphill battle as growth stagnates
South Africa's economic growth has plummeted to just 0.1% in the first quarter of 2025, following a revised 0.4% gain in late 2024, raising concerns about the country's economic future amid revised forecasts from the South African Reserve Bank Image: Leon Muller Independent Newspapers South Africa's economy remains under significant strain, with gross domestic product (GDP) growth lagging behind population increases over the past decade. According to the OECD Economic Survey: South Africa 2025, economic output grew by a mere 0.7% annually in the past ten years. This slow pace resulted in stagnating or declining GDP per capita, further deepening the country's entrenched unemployment and inequality. The OECD warned that 'economic growth has averaged only 0.7% per year over the past decade, below that of the population,' a key factor in the country's deteriorating living standards. Public debt, which stood at 31.5% of GDP in 2010, is projected to balloon to 77% by 2025, increasing debt servicing costs and limiting fiscal space for much-needed public investment. Electricity and infrastructure bottlenecks: dragging growth down One of the central themes in the OECD's report is the impact of structural constraints on productivity. 'Persistent insufficient access to electricity, and rail and port bottlenecks have weighed on activity, investment, exports and living standards over recent years,' the report noted. In 2023 alone, electricity shortages shaved 1.5 percentage points off GDP growth. Though 2024 has seen improvements in power availability due to reforms and increased independent renewable energy generation, supply remains unreliable. The OECD stressed the urgent need to 'accelerate renewable electricity generation, expand the transmission grid, and redefine the role of municipalities and Eskom in electricity distribution'. Reform momentum is building - but not fast enough While the government's Operation Vulindlela programme has shown promising results, with 74% of Phase 1 reforms completed or on track, the report made it clear that the pace and scope of reforms need to intensify. The next phase aims to address local government inefficiencies, spatial inequality, and digital transformation. Lilas Demmou and Nikki Kergozou, the lead authors of the report, said, 'It is vital to maintain the momentum of ongoing reforms to unlock South Africa's economic potential and promote inclusive growth.' The authors added that a reliable electricity sector, more competitive markets, and increased private investment are critical for sustained growth. Fiscal policy: walking a tightrope South Africa's fiscal picture remains precarious. The 2025 fiscal deficit is forecasted at 6.6% of GDP. Elevated debt servicing costs, projected at 5.2% of GDP are limiting the government's ability to fund much-needed social spending and public investment, the OECD report stated. To reverse this trend, the OECD called for 'a continued consolidation strategy' through stricter spending controls, enhanced tax compliance, and reforms to state-owned enterprises (SOEs). The report suggested expanding the tax base by reducing personal income tax expenditures, raising VAT, and improving municipal property tax collection. The authors argued for protecting infrastructure and social spending while prioritising fiscal discipline. 'Boost public investment, especially in core infrastructure such as electricity, water, and rail,' was one of the central recommendations. Employment crisis: a key drag on growth South Africa's labour market performance is among the worst globally. The employment rate stands at just 37.4%, while the unemployment rate, particularly among the youth, remains alarmingly high. The OECD noted that 'the unemployment rates for young people, at 60%, and for women, at 34%, are notably higher than for the total population'. The report outlined a multi-pronged strategy to boost employment: easing regulatory burdens on small businesses, simplifying licensing, and expanding vocational education. Urban planning reforms are also essential, as long and costly commutes exclude many from job opportunities. 'Promoting densification and reducing transport times and costs is vital to connect South Africans with jobs, calling for housing near public transport and development corridors, promoting rental housing near city centres and reforming restrictive building regulations," the report revealed. Inflation target and monetary policy On the monetary side, inflation has moderated, allowing the South African Reserve Bank (Sarb) to ease interest rates in late 2024. However, the report suggested reconsidering the inflation targeting framework. South Africa's current 3–6% band is broader and higher than those of its peers. The OECD recommended narrowing the band to better anchor inflation expectations and enhance international competitiveness. 'Reducing the inflation target and its band could more closely align inflation with that of trading partners,' the OECD proposes, adding that such a change must be 'carefully timed, coordinated across government, and clearly communicated'. Path Forward: Growth with Inclusion To raise the country's potential growth rate beyond the current 1.2%, the OECD outlines a bold yet actionable roadmap: Accelerate infrastructure investment , especially in electricity, water, and logistics. Widen the tax base to ensure fiscal sustainability. Reform labour markets to boost job creation and formal employment. Target inflation more precisely to support competitiveness. Combat corruption and enhance SOE performance to rebuild public trust and attract investment. Demmou and Kergozou said, 'Strengthening competition, reducing corruption, and boosting private-sector investment are key to enhancing economic dynamism, reducing unemployment and alleviating poverty'.
Eyewitness News
04-06-2025
- Business
- Eyewitness News
Main opposition parties reject Treasury's assertion of pro-poor budget
CAPE TOWN - The main opposition parties in Parliament have rejected the National Treasury's assertion that the national budget is pro-poor and not one of austerity. The uMkhonto weSizwe (MK) Party also slammed the National Treasury's economic growth projections, saying it consistently gets it wrong. The party told a joint meeting of the finance committees that it believes the hike in the fuel levy will also have a severe impact on growth. The meeting on Wednesday finalised its report on the fiscal framework, which underpins the budget's money bills. The MK Party's Des van Rooyen said the National Treasury is being overly optimistic on its GDP growth projection of 1.4% for this year. READ: Experts say economic momentum remains elusive after weak GDP growth Van Rooyen said the budget is being premised on the wrong variables. 'We are not speaking of a once-off prediction. We are speaking about something that is well recorded. National Treasury has been missing its targets for the past 10 years.' The Economic Freedom Fighters (EFF)'s Omphile Maotwe, meanwhile, insisted government's economic reform programme Operation Vulindlela won't lead to the desired economic growth. 'Just go look at what the public-private partnerships are doing in the State-owned entities. We are not saying we are closing them out. But there's nothing they are bringing to the table. I can assure you.' Former Transnet chief executive, Brian Molefe, now an MK Member of Parliament (MP), backed Maotwe, who also previously worked at the freight company, saying during his tenure, the company was profitable.
Zawya
30-05-2025
- Business
- Zawya
South Africa: TTOS hits 11,000 tourist milestone as digital visas gain traction
The Department of Home Affairs' new digital Trusted Tour Operator Scheme (TTOS) has attracted over 11,000 tourists from China and India since its launch in late February this year, marking a significant milestone in South Africa's push to modernise its visa processes and stimulate tourism. Minister of Home Affairs, Dr Leon Schreiber, announced the figures this week, confirming that 11,144 tourists have obtained digital visas via the TTOS platform in just three months. Daily application volumes have seen consistent growth, increasing from an average of 50 per day in March to 135 in April, and reaching 210 per day so far in May. Addressing longstanding visa challenges The initiative was designed to address longstanding visa processing challenges for travellers from two of South Africa's largest and fastest-growing tourism markets. 'These are tourists who otherwise would not have come to South Africa, given the challenges previously experienced with obtaining visas for tour groups from China and India,' the Department noted. Early indicators suggest a tangible economic benefit. Research conducted through Operation Vulindlela indicates that one job is created for every 13 tourists visiting the country, which translates to approximately 857 new jobs generated by TTOS since February. The scheme currently operates in partnership with 65 tour operators under a risk-sharing model, granting them access to a secure digital platform for submitting and receiving visa outcomes for tour groups. Where travellers from China and India previously had to navigate lengthy in-person application processes, outcomes are now delivered digitally within a matter of hours. Minister Schreiber, who conceptualised the scheme, said: 'It is important to note that TTOS is still just a small-scale proof of concept. But after three months of operation, it is already clear that it has been a resounding success. TTOS has attracted over 11,000 additional tourists in this short time, working with just 65 partners. "This amounts to almost a third of all tourists from China who visited South Africa last year. The success of TTOS demonstrates the enormous growth potential that we can unlock by rolling out a digital-only visa platform – not only for group travel from these 65 partners, but for every tourist in the world.' Next steps: ETA system on the horizon Looking ahead, the Department plans to announce a second intake of tour operators to expand the reach of TTOS and is on track to roll out a fully digital Electronic Travel Authorisation (ETA) system later this year. Minister Schreiber added: 'This is exactly what Home Affairs is building. In addition to announcing a second intake of tour operators to boost the number of group tours further attracted through TTOS, we are on track to deliver a world-class Electronic Travel Authorisation (ETA) system this year. "This system will completely digitalise and automate all tourism and short-stay visas, enabling every tourist on earth who wants to visit South Africa to instantly and securely obtain a digital visa. Not only will this eliminate fraud and inefficiency, but, as TTOS demonstrates beyond all doubt, it will amount to the single biggest reform to boost job creation in the tourism sector in decades.' The Department of Tourism has also welcomed the early success of TTOS, describing it as 'a testament to what is possible when government works hand-in-hand with the private sector to remove barriers and unlock economic potential.' The department expressed its full support for expanding the scheme and the introduction of a fully digital Electronic Travel Authorisation (ETA) system. It emphasised that digital innovations like these are essential for boosting job creation, inclusive economic growth, and ensuring South Africa remains competitive as a global tourism destination. All rights reserved. © 2022. Provided by SyndiGate Media Inc. (
SowetanLIVE
28-05-2025
- Business
- SowetanLIVE
Ramaphosa offended by GNU partner Mulder's suggestion to scrap BEE laws
President Cyril Ramaphosa did not take kindly to a suggestion by GNU partner and FF Plus leader Cornè Mulder that the country should rethink its racial redress legislation, which in his view hindered economic growth. In an oral question to the president, Mulder said the policies raised by Ramaphosa pertained to Operation Vulindlela, which he claimed would not see the light of day if the country did not abandon race-based reforms. 'We need to amend or develop a new economic policy that can make possible real growth. If we do not have economic growth, none of the programmes will be implemented nor will they be successful. The new policy needs to take a different approach regarding black economic empowerment, employment equity and expropriation without compensation,' Mulder said. Ramaphosa was startled by the assertion and gave Mulder a history lesson on the ownership of the economy during apartheid and why legislation such as BEE was necessary. 'I'm rather surprised and taken aback when I hear that policies of BEE militate against the growth of our economy. That I find quite surprising. I work from a starting point that our economy was held back over many years by the racist policies of the past. 'Those racist policies prevented a majority of South Africans to play a meaningful role in their own economy. Black people were brought in as hewers of wood and drawers of water, as labourers. They were not even seen as consumers or active players in the economic landscape of our country.' He said democracy saved the day, opening up the economy and broadening participation. 'It is right in your face. During apartheid South Africa, you'd never see a black personality being made to advertise soap or milk or anything. Today every advert you look at has got black people. This is because it has now been realised that it is black people who are the consumers and are economic players.' Those who would want black people just to play the consumer role are truly mistaken, Ramaphosa said, adding that black people must play a productive role as well.
