A small sector is having a big impact on the economy’s overall performance from quarter to quarter. And given how volatile and unreliable the data on that sector has been lately, it’s hard not to wonder about the accuracy of the overall figures.
The sector — agriculture — accounts for hardly more than 2% of GDP yet its woes hammered economic growth in the third quarter of last year; its recovery turned growth around in the fourth quarter. Stats SA has now revised agriculture’s third quarter decline from 29% to just under 20%, and it’s hard to know just how seriously to take those numbers or the 17% increase that’s now reported for the fourth quarter.
That matters because the sector has been driving swings in GDP, which is now estimated to have contracted by 0.1% in the third quarter, not 0.3% as earlier estimated, and to have turned to growth of 0.6% in the fourth quarter.
But whatever the precise numbers, it’s clear the economy’s severe underperformance continues. The fourth-quarter figure was below market expectations, and growth came from just three sectors — a turnaround in agriculture while growth in the retail and finance sectors was thanks largely to consumers’ withdrawing their “two-pot” savings. Activity in all the other sectors contracted.
As sobering is that for 2024 as a whole, the economy posted growth of just 0.6%. That is down from 0.7% in 2023 — despite 2024 being the year load-shedding ended, after reaching record levels in 2023. And that’s real, inflation-adjusted growth. In unadjusted nominal or money terms, Citi’s economists point out that growth hit a low (excluding the Covid year) of 4.4% in 2024. No wonder the government struggled to raise the revenue it budgeted for, given that this depends on nominal GDP growth.
SA has a population growing at 1.5% and is struggling to get growth of even 1%, so living standards keep going backwards. Last year had been expected to be a better one, with the budget a year earlier forecasting 1.3% growth for 2024. But it turns out that ending load-shedding makes little difference, suggesting the economy’s problems go far deeper than electricity — or even logistics, which is now seen as the big constraint.
The government’s current strategy focuses on the Operation Vulindlela reforms, in energy, logistics, visas, telecoms and water. Those are key constraints that must be addressed. Laudable progress is being made, even if too slowly.
The recent World Bank report on SA’s economy also highlights more difficult underlying issues that must be addressed. SA’s markets lack dynamism and that includes its labour market. It needs to reduce the protection that incumbents enjoy, says the bank, and make it easier for foreign and domestic investors as well as for young workers to enter markets.
In other words, stop protecting state-owned enterprises and cut the complex rules and regulations that make it hard for low-skill workers to get jobs. In addition, says the bank, the government’s interventions in markets through black empowerment, local content and collective bargaining policies “have become so cumbersome that they smother the implementation capacity of the public administration, especially local officials, and open spaces for corruption”.
The bank’s analysis is sobering; the numbers even more so. Policymakers need to face some hard truths if they want to improve life for SA’s citizens.
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