With the appropriate policy choices, SA does not need “miracles or fairy tales” to lift its economic growth trajectory, the Bureau for Economic Research (BER) at Stellenbosch University says.
What is needed is the sustained implementation of the existing structural reform plans being addressed by Operation Vulindlela (OV), a task team in the presidency.
“No new initiatives are required as many of the building blocks are in place. A committed pursuit of OV and a general dedication from all stakeholders to bringing down the cost of doing business in SA would improve our competitiveness. This will enhance SA’s potential for success,” the bureau said in a statement.
“Implementing these reforms can boost real GDP growth by 1.5 percentage points by 2029: 3.5% versus the 2% modelled in our baseline,” the bureau said.
The bureau’s modelling showed that compared with its baseline scenario of average real GDP growth of 1.8% between 2024 and 2029 with the rand trading at R18.40/$%, on a positive scenario, average growth in this period could be 2.9% with the rand trading at R17.58/$.
The bureau said suitable economic reforms would boost business confidence and investment and reduce the cost of doing business, create jobs, increase tax revenue and improve international competitiveness.
The Bureau for Economic Research took OV as a starting point for the structural reform measures required to lift SA’s growth trajectory. OV aims to accelerate economic growth through structural reforms. The programme focuses on key areas such as energy, digital infrastructure, transport and water to stimulate investment, improve service delivery and enhance the competitiveness of the economy.
OV also seeks to streamline regulatory processes, remove bureaucratic obstacles and promote public-private partnerships.
The bureau said significant progress had been made on some fronts (specifically on the energy front), with OV reporting that 89% of the initial identified projects in phase 1 were on track or completed. However, more work remained to be done.
“Our scenario models the successful implementation of the remaining structural reforms and continued progress within the four network industries — energy, railways, ports and infrastructure — outlined by OV.”
The bureau noted that another important focus of OV had been on the visa system to encourage tourism growth and attract skills. This would further boost sentiment and aid with much-needed export earnings but its model probably underestimated this.
Included in the fundamental assumptions made by the Bureau in its modelling were the maintenance of the constitution, the rule of law, the independence of the judiciary, the Reserve Bank and fiscal discipline. Also assumed is a reduction in policy uncertainty, which would stimulate investment and consumption.
The bureau’s positive scenario assumes the successful implementation of structural reforms in the four network industries — energy, railways, ports and infrastructure outlined in OV. Significantly better electricity outcomes are assumed. Water security concerns are addressed and the logistics network, particularly in rail and ports, are reformed with assistance from public and private sector collaboration.
The bureau said the largest driver of the improvement in the growth trajectory stemmed from fixed investment, which is four percentage points higher by 2029, underpinned by robust private fixed investment. Given the improved energy availability and access to ports and railways, exports perform much better, reaching growth of almost 5% in 2029 versus the 3% modelled in the baseline.
However, relative to the baseline, the faster investment growth (largely import-intensive) would lead to higher imports, limiting the boost to GDP growth. Higher investment and household consumption would push import growth to 6.6% by 2029 (compared with 3.6% in the baseline). This would detract from growth.
However, successfully lowering the cost of doing business would make local production more competitive and result in even faster GDP growth than forecast as production capacity expanded and the need for imports declined.
The stronger rand would contribute to lower price increases.
In terms of the model, the Reserve Bank would cut interest rates over the longer term by a cumulative 125 basis points more than in the baseline, implying the terminal rate ends at 5.75% instead of 7%.
Lower inflation and reduced interest rate outcomes would lead to a more favourable credit environment, which would boost consumer and business confidence and thereby increase household spending, business investment and overall economic activity.
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