In the wake of the budget speech, and as committees begin their debates, it must be clear that economies can become trapped in prolonged periods of stagnation when aggregate demand weakens and private investment retreats.
Such moments call for the state to act against the grain — countercyclically — by stabilising demand, supporting employment and helping generate new economic activity until confidence and investment recover. This is less about ideology than diagnosis.
This resonates strongly in South Africa, where labour surpluses, underutilised capacity and profound social need coexist. But in a country constrained by fiscal pressure, institutional fragility and uneven execution capability, textbook stimulus alone will not deliver the desired outcome. An orthodox Keynesian approach cannot simply be imported and expected to work.
Still, the case for a demand-supporting state remains persuasive. Persistent unemployment and inequality suppress household consumption, while low confidence weighs on private investment. Left unattended, this risks locking the economy into low investment, leading to low growth, which causes lower investment — something we have experienced for a while.
In such conditions, aggressive austerity may prove counterproductive, further weakening demand and prolonging stagnation. A carefully calibrated expansion of public investment and employment-creating expenditure becomes less a matter of preference than necessity, provided it is directed toward strengthening productive capacity and crowding in private sector participation rather than sustaining consumption without long-term return.
Yes, we have to live within our means. Debt-service costs are high, the tax base is narrow, and experience shows that poor governance results in good money being thrown after bad. So, any expansionary approach must be selective and investment-led. Targeted commitments to energy generation and transmission, freight logistics, water systems and urban infrastructure would relieve supply constraints while generating immediate economic activity — public investment can unlock private investment rather than displace it, and the multiplier is both economic and psychological.
Such a framework must also be employment-centred. South Africa’s unemployment crisis is not only a social emergency; it is a structural brake on growth itself. Low incomes depress demand and weaken domestic markets. Labour-intensive public works and infrastructure maintenance programmes, linked to climate resilience, urban renewal and basic services, can provide income support while fixing what we own and stimulating local enterprise. The objective is not permanent dependency but renewed participation and restored dignity through work.
It’s equally important to fix the roof while the sun is shining. We have too often expanded spending in periods of relative comfort and consolidated in moments of stress, pouring fuel on the flames — better to save for a rainy day. This requires institutional strengthening that protects capital budgets, improves procurement efficiency and ensures public investment translates into visible outcomes. Transparent public–private partnerships, approached pragmatically, should be part of this architecture, using public funds to catalyse rather than substitute private capital.
Keynesian policy works only when public spending results in real economic activity, and success depends on restoring effective state capacity. Strengthening project preparation, professionalising infrastructure delivery and insulating key economic institutions from undue interference is key. Without them, additional spending risks swelling debt without generating growth; with them, targeted expansion can crowd in private investment, rebuild confidence and chart a more sustainable trajectory.
South Africa need not choose between austerity and unrestrained stimulus. What is required is a disciplined, context-sensitive Keynesianism suited to a middle-income economy with limited resources and urgent developmental needs. Directed public investment, employment-focused expenditure, institutional reform and counter-cyclical fiscal management together offer a credible path out of our present drift.
Growth, stability and social cohesion are mutually reinforcing objectives — nothing can be fixed without a practical mix of boosting demand and fixing the system’s underlying problems.
• Cachalia, a businessman and management consultant, is a former DA MP and shadow public enterprises minister, and he chaired De Beers Namibia.
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