SA is teetering on the edge of revival — or at least that’s the story we are clinging to for 2025. The ghosts of state capture’s immense corruption still hover, but the winds of change are blowing stronger than ever.
Let’s be clear: President Cyril Ramaphosa, about seven months into his second term after being swept to power on promises to reinvigorate the economy and put millions of people into jobs, didn’t exactly have a hard act to follow. Under the disastrous stewardship of his convicted predecessor, Jacob Zuma, SA had reached a level where it could hardly fall any lower without being labelled a failed state.
Yet here we are, more than five years after Ramaphosa was elevated to power in the glow of national goodwill, with the economy hardly growing, the official unemployment among the highest in the world, and poverty so entrenched that many business leaders have warned anger could boil over into social unrest.
That is not to say that Ramaphosa, who has established a reputation as a consensus builder, has been idle. Recent economic indicators paint a picture of cautious optimism. Inflation is trending down at about 3%, a dramatic drop from well over 7% just two years ago thanks to swift and decisive action from the Reserve Bank to contain the stealthy thief that steals from poor households.
According to the Bank, inflation is forecast to stay below 4% until midyear.
Granted, GDP contracted in the third quarter of 2024 as unfavourable weather conditions and rising raw material costs combined with inefficient rail and port infrastructure and weak global demand to send the agriculture and mining sectors tumbling.
Still, the outlook is positive, though economists are cautious, predicting that the economy will grow by just over 2% in 2025, up from just 0.5% in 2024. This growth is expected to be driven by stronger consumer spending, fixed investment and better export performance.
On the fiscal front, it is good to see that finance minister Enoch Godongwana is staying the course on stabilising SA finances. In his medium-term budget policy statement last year he flaunted his achievement of a primary surplus for the first time in more than a decade.
Translation: SA is earning more money than it is spending on all items except interest payments on its debt.
Perhaps one of the biggest achievements of the past year has been the resolution of the energy crisis. It has been nearly 300 days without load-shedding, a result of deliberate work by people at Eskom rather an inexplicable miracle. But let’s not get too excited — this is still a country where simply keeping the lights on is considered a major achievement.
All of these have lifted the mood in corporate boardrooms, pushing the SA Chamber of Commerce & Industry business confidence index to its highest since 2015, and raising the likelihood of business leaders putting money into the economy, hiring more unemployed South Africans and boosting economic activity.
That is certainly what we’d hope for. However, given the raw, cold data about gross fixed capital formation (GFCF), one of the cornerstones of Ramaphosa’s plan to lift the economy via private sector-led recovery is not paying off as expected. Despite his efforts to attract investment through initiatives such as the annual investment conference, the data shows that GFCF has experienced fluctuations and even declines in recent years.
For instance, in the first quarter of 2024 GFCF, which shows inventory replacement and spending on fixed assets such as buildings and machinery, fell by 1.8%, contributing negatively to GDP growth.
Although there was a slight increase of 0.3% in the third quarter, the overall level of real GFCF in the first three quarters was still 4.4% lower than in the same period of 2023. The role of the private sector in boosting GFCF is crucial, especially given SA’s weak finances.
Domestic capital spending has barely changed since the late 1980s, languishing at about 20% of GDP. In comparison, emerging Asian countries have seen a steady increase in investment over the same period, from 25% to almost 40%, helping them rack up decades of growth that propelled some of them into the ranks of the advanced economies.
Then there is the state itself. Chris Schutte, the retiring boss of SA biggest poultry producer, has been consistent in his scathing attacks on the Lekwa Municipality, which has blighted businesses and citizens by failing to revamp its water supply infrastructure.
The Lekwa management catastrophe is emblematic of wider decay plaguing local government in SA, which is increasingly devoid of the qualified engineers and financial experts needed to construct essential infrastructure and manage billions of rand in budgets.
The establishment of the government of national unity (GNU), which includes 10 political parties, was commendable. But its stability can’t be taken for granted. The National Health Insurance Act and Basic Education Laws Amendment Act have exposed fault lines within the coalition. Such internal tensions could undermine its ability to deliver on its promises.
The challenges are formidable, but the structural reforms and economic policies in place offer a glimmer of hope. With lower inflation, reduced interest rates and improvements in energy and logistics, SA might just be on the path to a more stable and prosperous future.
This publication will continue to deliver quality journalism and analysis on these important themes and others. To our readers, thank you for supporting Business Day in 2024. Your feedback and engagement enriched our conversations and perspectives. We look forward to serving you better in 2025.
• Motsoeneng is Business Day’s acting editor.
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