The wealth of a Nation – South Africa

THE WEALTH OF A NATION – SOUTH AFRICA

In the delivery of this week’s Medium Term Budget Policy Statement the Finance Minister, Mr Enoch Godongwana, made some revisions to the South Africa GDP growth forecasts.  Whilst he mentioned that the National Treasury had made some upward revisions in their predictions of GDP growth for future years, there was a concerning downward revision of the economic growth forecast for the current year from the 1.3% projected in February to 1.1%.  In this month’s Financial View, we look at why either number is just not good enough.

Gross Domestic Product (GDP) is a crucial indicator of a nation’s economic health, reflecting the total value of goods and services produced over a specific period.  When measured on an annual basis South Africa’s GDP was calculated as $406bn by the World Bank in 2022.  This marked us as the 37^th largest economy in the world and the second largest in Africa (Egypt are ahead of us).  The headline number however hides a more worrying fact.  A lot of the countries above us on the total GDP table, also have far lower population sizes than us.  Therefore GDP per capita, is often a better economic measurement as it measures the average South African’s share of the economy by taking the total economy dividing it by the country’s population.  Here we are ranked 104^th in the world by the International Monetary Fund.  At the end of the 2000s, we were ranked 46^th in the world on the same metric.  We have had a dramatic fall over the past two decades as South African citizens have been getting poorer due to economic growth being tepid and with growth often not exceeding population growth.     

South Africa’s economic history has often shown periods of good times and periods of bad times.  The chart below shows the annual change in the size of our economy.  When GDP growth, as represented by the blue line, is positive it reflects that our economy has grown.  Below zero and the country has been in a recession such as in 2008 in the Global Financial Crisis and 2020 during the Covid pandemic.

South Africa’s economy has had a storied journey.  In the 1960s we saw a period of rapid growth driven in a large part by the gold industry – those were the days when the CBD of Johannesburg was the financial capital of the whole continent.  By the 1980s the South African economy was in the doldrums as economic sanctions and internal strife brought most businesses to a halt.  Following the rise of democracy, we saw a lot of optimism and we had the hey days of the Rainbow Nation.  That positivity was stopped in its tracks with the “lost decade” of the Zuma years where the economy barely moved and now, more recently we have headed through the “New Dawn” and the introduction of the “GNU” of the Ramaphosa years.  As mentioned, this has been a storied journey, and the periods of high economic growth are remembered fondly and those with low growth and we all start to frown.

South Africa’s population was 62 million people in the last census of October 2023.  This meant that our population had grown by 10.3 million people since the previous census of 2011, or a 1.8% p.a. average increase.  And that highlights the current problem with our economy.  For us to be better off we need the economy to grow by more than 1.8% and since 2014 there have only been two years where our GDP grew by more than our population – 2021 & 2022, and those were both years where the economy was recovering from the Covid-19 crash and in effect was just clawing back losses.

Our economic growth has been restricted because of a number of factors; each one could warrant an individual article:

• Corruption
• Cadre deployment
• Loadshedding
• Port and transport network failures
• High unemployment
• Labour policies
• Inefficient public services
• Debt spiral in the National Budget

There are some easy fixes in the list above and in the early days of the GNU we still retain some optimism that things will get done.  South Africa’s economic history is a tale of highs and lows. Despite periods of growth, the nation faces significant challenges that have resulted in a declining GDP per capita.  Addressing these issues requires comprehensive reforms, doing things properly, including investment in education, infrastructure, and policies aimed at reducing inequality.  Only through such measures can South Africa hope to improve the economic well-being of its citizens and ensure a more prosperous future.  It would l be fantastic if we get to that point where foreigners are looking at South Africa as a country to come work and/or invest in because of the opportunities and because it is seen to be prosperous. 

Interestingly enough, Adrian Gore the CEO of Discovery and part of Operation Vulindlela believes that South Africa can easily reach a point of 3% GDP growth which will mean we will be on average getting wealthier.  His easy fixes:

• Expediting reforms
• Improving operational performance at Eskom and Transnet
• Mobilizing private sector investment
• Focusing on well-defined areas of the economy, such as energy, crime, logistics, and transportation infrastructure
• Creating a positive narrative

The government and business need roil up their sleeves and to work together to implement these policies and achieve these goals to reach our GDP objective.