The second phase of the government’s partnership with business has set an ambitious economic growth target of 3.3% by the end of 2025, and observers say the medium-term budget will give the clearest indication whether the goal is attainable.
President Cyril Ramaphosa launched the second phase this week, setting lofty goals for South Africa’s economic recovery.
The first phase of the partnership was followed by a six-month suspension of load-shedding so far and improvements in Transnet’s logistical bottlenecks.
In addition to the 3% growth target, the second phase calls for an increase in rail volumes to 193Mt a year, maintaining the energy availability factor (EAF) above 64%, unlocking R23bn in private sector investment and boosting renewable energy generation capacity to 4GW.
Prof Raymond Parsons of the North-West University Business School said the deepening partnership had built an improved economic mood, but to expect a 3% GDP growth rate next year was "highly ambitious" as "South Africa is still in the foothills of economic recovery".
"While recent political and economic tailwinds have strengthened South Africa’s growth prospects, we must remain realistic about what still needs to be done for the economy to break out of its low-growth trap. Most growth forecasts, including by the Reserve Bank, see GDP growth at about 1% this year and in the region of 2% in 2025."
He said a reality test of which growth forecasts would drive overarching policy would be the 2024 medium-term budget policy statement later this month. If South Africa plays its cards well and accelerates reforms, growth levels of 3% by the end of 2026 might be attainable.
Citadel chief investment officer George Herman said: "The challenge arises when these commitments need to be implemented by government departments and ministers who may not fully support them in their respective areas.
"Often, the breakdown occurs between the high-level discussions and the actual execution. This disconnect fuels scepticism about whether these targets can realistically be met in South Africa."
Momentum Investments chief economist Sanisha Packirisamy said slowing global demand, pedestrian local growth and ongoing logistics and water constraints would continue to hinder near-term prospects.
She said Operation Vulindlela had enjoyed a very successful first term, reducing red tape in energy, logistics, water, digital spectrum and visa processing. However, local government inefficiencies remained a stumbling block.
"Appetite for private sector participation on the part of government was lacking in the past, but there appears to be an increasing realisation that higher economic and jobs growth will only be possible with the increased involvement of the private sector in terms of funding and skills."
B4SA chair Martin Kingston said even though it could be argued the targets are ambitious, the economy’s underperformance over the past 15 years made meeting them doubly urgent.
Private sector investment was a primary requirement in getting the economy to the 3.3% growth rate, though Kingston stressed that the partnership should not be seen as the private sector usurping state functions but rather as co-operation towards common goals.
"There are a host of issues that are in the direct purview of Eskom [for example]. It is not for the private sector to solve these challenges ... The private sector has the skills and expertise but will not interfere in the day-to-day operations of Eskom," he said.
The Reserve Bank’s monetary policy committee said it projected the economy would grow 0.6% in each of the last two quarters of 2024, adding that "the pace of growth nonetheless remains below longer-run averages, of around 2%".
Kingston said there was no lack of commitment to bring skills, expertise, and technical knowledge to inform key policy decisions. He added that there was a high level of enthusiasm from CEOs and the president.
"The president was genuinely sincere and passionate in embracing the spirit of collaboration," he said. "And we need that from the government. We need to make sure we don’t step out of our lane and recognise and respect whose responsibility lies where."
Speaking at the Joburg Indaba this week, mineral and petroleum resources minister Gwede Mantashe encouraged the investor community to partner with the government to access promising growth and investment opportunities in the economy.
He said sustaining the EAF near 70% was a demonstration of the government’s willingness to permanently end load-shedding, addressing challenges facing intensive electricity users like mining companies.
Energy and electricity minister Kgosientsho Ramokgopa said phase 1 of the government’s partnership was characterised by collaboration, and phase 2 should be more about ambition.
"When we met with business as part of the launch of the second phase of our relationship, we said we think that our target for the 2025 calendar year on transmission should be about 1,000km. We are working with the team to see what is possible. I think we must be driven by ambition," Ramokgopa added.
KPMG South Africa lead economist Frank Blackmore said any movement towards the targets set would be an improvement on which further gains could be made and should be supported.
"Of course, many necessary components need to align to reach these goals, which will make it challenging, but any intention for desired economic and social advancement for the country would need to start by setting goals and objectives based on underlying plans of action, which is what is taking place here."
Blackmore said none of the targets could be classified as low-hanging fruit and would all require extensive time, money, and other resource investments to address.
Transnet Group CEO Michelle Phillips affirmed the government’s commitment to working with the industry through the National Logistics Crisis Committee to turn around and improve logistics sector performance.
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