South Africa’s stagnant productivity over the past 15 years, precipitated by a decline in the performance of state-owned entities, has had a dramatic impact on per capita income levels.
This is the finding of a study by Codera Analytics, which said South Africa’s poor productivity performance since 1990 has been “very concerning”, as it extends to capital stock having not grown since 2010 due to insufficient investment.
“This trend varies significantly across industries. While the capital stock has grown rapidly in the electricity and water sector, it has declined sharply in business services. Our research also shows that estimated investment multipliers for South Africa across all forms have been negative since 2010,” the Codera research paper reads.
“While this may seem surprising, it reflects the decline in investment and trend growth over this period. South Africa’s productivity has declined dramatically over this period as well, and state-owned corporation output has declined — think of falling electricity available for distribution despite investment in new power stations.
“And as we have shown, there has been no growth in the inflation‐adjusted value of the capital stock over recent decades as a consequence of low investment and high depreciation. This suggests that achieving faster economic growth in South Africa would not simply require increased investment, but also reforms that address the factors responsible for government inefficiency and falling productivity.”
According to Nedbank’s “Capital Project Listings” report released on Monday, planned fixed investment projects increased sharply last year, with the value of newly announced projects rising to R705.6bn, up 16% from 2024.
However, project announcements by the general government declined notably, with Eskom’s R320bn planned infrastructure overhaul saving the day.
‘State interventionism’
The Codera research finds a disconnect between employment and developments in the labour market and economic growth in South Africa.
“Our estimates show, for example, that the elasticity of employment to economic growth in South Africa is low across most industries, which means that employment does not rise when industries grow. There are a variety of explanations, but at bottom, our research emphasises the impact on investment and business formation from increasing state interventionism, despite a collapse of state capacity,” it says.
“Reversing this requires a shift back to meritocratic appointments across all functions of government, privatisation of failing state-owned enterprises, prosecution of the corrupt, and structural reforms that align South Africa’s policy frameworks to global best practice.”
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