In July, the government of national unity (GNU) turned one. Having navigated potential policy and budgetary impasses, the national political situation has stabilised relative to what otherwise may have been.
This stability, along with relative dollar weakening over the last 12 months, has boosted the rand. For its part the JSE — representing corporate SA sentiment and SA Inc — has performed exceptionally well. From June 2024 to June 2025 the JSE all share index gained more than 27%.
However, despite some more positive corporate and market sentiment towards SA, the effect has yet to be seen on the real economic growth, investment and job creation fronts. GNU sentiment is not enough for SA to break free from its established 1% growth ceiling.
Poor domestic investment
GDP grew only 0.5% in 2024. In the first quarter of 2025 GDP shifted the needle by only 0.1%, improving to 0.8% quarter-on-quarter in the second quarter of 2025. Based on the economy’s performance from 2012-2023 (averaging 0.8%), and movement in 2024, the best case for overall growth in 2025 is 1%, and 1.2% in 2026.
GNU sentiment is not enough for SA to break free from its established 1% growth ceiling.
Policy impediments to domestic investment will continue to act as a cap on SA’s growth potential. The Expropriation Act, possible implementation of National Health Insurance, and a harsher version of the Employment Equity Act, disincentivise business growth and capital formation.
Gross fixed capital formation (GFCF), already extremely low by international standards, continues to decline. It decreased by 1.4% quarter on quarter in Q2 2025, by 1.5% in Q1 2025, and by 0.5% in Q4 2024. Year-on-year GFCF decreased by 3.2% in Q2 2025, by 3% in Q1 2025 and by 2.4% in Q4 2024.
Because GFCF represents investments in heavy plant, machinery and equipment, brick and mortar assets and infrastructure, a pick-up in this indicator indicates real confidence in the economy, and in the economy’s prospects. Should fixed investment pick up consistently a higher growth case becomes far more plausible for SA.
Along with the policy inhibitors, SA’s business infrastructure space remains constrained. Underperforming ports, unreliable and broken railway networks and onerous legislative requirements undermine domestic growth and dissuade international investors from taking SA seriously as a growth market. The effects of crime and corruption weigh further against the country’s investment case.
Fixed inflation target will help
On the inflation front, from 6% in 2023 the average inflation rate came down to 4.4% in 2024. Thus far in 2025 inflation has remained near the lower end of the SA Reserve Bank’s target band of 3%-6%. A fixed inflation target, as has now been regularly floated by the Bank, will aid in managing inflation expectations over the medium to long term.
Despite relatively lower inflation providing consumers and businesses with some breathing room, continually increasing administered prices (prices set by government, such as electricity, water and property rates) are likely to increase further. Indebted and under-pressure municipalities and Eskom will look for additional routes to recoup costs from residents and businesses.
SA’s economic potential remains virtually unmatched, but the realisation thereof is an entirely different matter.
On the reform front, stability has returned to Eskom and Transnet. Both entities remain severely indebted. While overtures have been made towards private sector investment and policy reform this is yet to materialise in a substantive way. Along with these basic macroeconomic levers of electricity and logistics, the GNU, provincial and municipal governments must prioritise the endemic problem of crime. On domestic and international fronts, crime is regularly highlighted as a major issue impacting the decisions of businesses and investors to establish a presence or expand in SA.
Infrastructure breakdowns
In our briefings to the government and business audiences in the US, Europe and Latin America earlier this year, the conversations were dominated by concerns regarding SA’s crime and service delivery challenges. Along with crime, basic service delivery issues, especially water infrastructure breakdowns, will also dominate most citizens’ concerns over the short to medium term.
A final growth pain for SA in 2025, and into the next four years, is the effect of the second administration of US President Donald Trump. Rising uncertainties in global trade, with the “new normal” of a universal US 10% tariff rate and reciprocal tariffs at varying levels, will affect global goods flows. The 30% reciprocal tariff on SA could well be raised further.
Thus far SA has benefited from increased positive interest as some investors raise their risk assessment of the US. But this will be short-lived if domestic policy reforms do not happen. Should the US maintain relatively high tariffs on Chinese goods, those will be diverted to other markets. That could have an especially negative effect on domestic producers and manufacturers. SA exporters can seek to develop alternative export markets — to be able to do so, they will need reliable domestic trade and policy infrastructure.
SA’s economic potential remains virtually unmatched, but the realisation thereof is an entirely different matter. The Madlanga commission has served as another pressure point on the ANC. The revelations emerging from it will likely occupy much of the party leadership’s attention for the short-term, placing reforms and governance on the back burner.
This opens substantial opportunities for pro-growth parties to push their messaging and credentials in the lead-up to the next local government elections. Should the ANC’s decline continue, the GNU hold for its full term and pro-investment reforms gain steady traction, SA has a strong growth case over the next 10-20 years.
• Hattingh is executive director of the Centre for Risk Analysis.
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