Dr Kenneth Creamer�Wits University�7 August 2025

South Africa’s Economic Challenges and Opportunities

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FORUM OF SOUTH AFRICAN DIRECTORS-GENERAL 

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PLANNING WORKSHOP 

Economic Writer Thomas Carlyle wrote in Chartism in 1840

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“A witty statesman once said, you might prove anything by figures. We have looked into various statistic works, Statistic-Society Reports, Poor-Law Reports, Reports and Pamphlets not a few, with a sedulous eye to this question of the Working Classes and their general condition in England; we grieve to say, with as good as no result whatever…

Conclusive facts are inseparable from inconclusive except by a head that already understands and knows.”

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Overview of Presentation

• Tracing Periods of South Africa’s economic growth
• Elements of a programme for structural change and inclusive growth
• Navigating the global context
• Theory of Change based on Contextual Analysis
• Final thought on the leadership be provided by the public service

Four discernable periods Post WW2

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• The apartheid growth period up to the 1970’s based on land dispossession and super-exploitation of the black population and racist development, [global growth very high]

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• The crisis of apartheid period from the 1970’s to the early 1990’s as the apartheid form become a fetter to economic development, [global stagflation]

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• The democratic dividend period from 1994 to 2010 as the economy opened up to international trade and investment, [global commodity boom]

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• The low growth period from the early 2010’s to the early 2020’s due to impact of Great Recession, falling commodity prices and state capture, [global growth slowed]

Insights on the Structure of Growth

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South African economic growth generally follows the ups and downs of the international economic growth cycle, but diverges negatively during times of domestic crises such as in the 1980’s and 2010’s.�

A challenge is to design growth and transformation policies that will change the structure of growth so that South Africa will be able to diverge positively and achieve higher growth rates even when the global cycle is down.

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An opportunity is to implement well-designed and well-executed economic policies, that are rooted in the realities of South African economy and global economy, and which are capable of kicking off a sustained period of growth and inclusion  

South African Investment is at or near historic lows

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From 2010 to 2024, the average annual GDP growth rate fell to 1,2% per year.   Government Borrowing increased as a counter-cyclical fiscal policy was pursued, and national public debt increased from 27,8% of GDP in 2008 to 76,9% of GDP in 2024.

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Borrowing was allocated to current spending and fixed investment fell both by the state and private sector.

�The resulting lack of fiscal space, and the rising indebtedness of state-owned companies, has placed severe limitations on public services and public investment. 

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This constraint on public sector balance sheets, is one of the reasons that reforms in key sectors, like electricity and rail, now aim at mobilising public and private sector investment in these sectors. In some instances, there are also techno-economic reason for example electricity can now be produced more cost effectively in a distributed competitive market than via state-owned natural monopoly.

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Elements of a programme for structural change and inclusive growth

• investment and productivity improvements are required across various sectors and factors of production including people, land, mineral resources, manufacturing and services, and these interventions must facilitate participation by black South Africans through BBBEE instruments incentivizing broad-based inclusion
• industrial policy must be forward looking and aim at improving firm competitiveness linked to skills, digitalization, the energy transition and improved rail and ports performance, effective water provision, etc.
• expanded trade with existing trading partners, emerging trading partners, and other countries on the African continent
• supportive macroeconomic policies aimed at the sustainable mobilisation of resources for infrastructure investment and improved service delivery, and 
• all of these elements require a capable state – efficiently providing government services and capable of offering strategic guidance to growth and transformation of the economy

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Supportive macro policy

• Fiscal policy should seek to maximise resources available for improved service delivery and infrastructure investment through a combination of revenue collection, sustainable borrowing and cracking down on illicit flows. 
• It will severely weaken the state’s ability to lead structural transformation if the state is to fall more deeply into a debt trap, where an increasing amount of its revenues are to be used for debt service costs.

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• Monetary policy too must seek to promote inclusive growth through achieving sustainably lower interest rates – both short and long terms rates.
• This will not be achieved if inflation rises too high, or if excessive government borrowing leads to rising rates and a rising risk premium for investment in South Africa.�

Responding to fiscal distress

• If the goal of fiscal sustainability focuses only on containing spending, it is less likely to be achieved than if expenditure containment is combined with expenditure reprioritisation, equitable and efficient tax systems, and pro-growth programmes across the whole of government.

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• Where expenditure reviews are to be undertaken and spending cuts are needed, these cuts should be guided by a process of strategic prioritisation, so that prioritised projects receive the funds they need and those that are not prioritised are closed down or downsized.

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• The current practice of across-the-board spending cuts is resulting in a general deterioration of services and is crowding our investment in public infrastructure.

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Rising debt and debt service costs

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Land reform and urban planning should aim for increased productivity

• land reform and urban planning must not only seek to overcome apartheid inequality and spatial patterns, but should be designed to be wealth creating (securing of title deeds has the potential to increase wealth of black South Africans) and productivity enhancing:
• linked to increasing agricultural output in the rural areas, and
• reduced transport costs and the economies advanced by densified communities in urban settings
• in a dual economy, rising productivity in the rural sector helps to push up wages in that sector, as well as wages in the formal sector. 
• conversely, if productivity is falling due to infrastructure decay and decreasing investment in capital and technology this will put downward pressure on wages in both the rural and urban areas

Industrialisation and the manufacturing sector

• The manufacturing sector would receive a boost if the cost and reliability factors like electricity, logistics and security could be improved.
• A key growth engine in this industrial modernisation, would be a well-managed energy transition which should be designed to produce energy inputs for South African industry which are secure, reliable, lower carbon, and are cost competitive (the new techno-economic environment requires the restructuring for the electricity sector away from monopoly provision towards increased competition). 
• Large industrial users are able to negotiate lower per unit electricity costs, but this must be against the back-drop of broad-based low-cost electricity planning (otherwise cross subsidisation from households and other firms to the big users will be excessive and the capacity for free provision of services to indigent households will be increasingly limited)
• If there is sustained investment in the energy transition, upstream and downstream industrialisation linkages could be exploited leading to accelerated investment, growth and job creation, as per the SA Renewable Energy Masterplan (SAREM).
• Even though the National Grid will continue to be nationally owned and managed in the interests of reliable, cost-effective and fair electricity provision, balance sheet constraints need to be unlocked to accelerate investment in this key infrastructure.

Demand for steel, concrete and components linked to transmission grid investment

• The National Transmission Company South Africa (NTCSA) is tasked with mobilising public and private investment to expand and modernise the national electricity transmission grid by over 14 000km, and related transformer infrastructure, over the next decade. Although progress has been slow (74kms built in 2024).

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• Industrial policy must seek to maximise the benefits of the related increased demand for concrete, steel, pylons, transformers, batteries, electricity meters, engineering, construction, legal and financial skills, and other goods and services that this investment will stimulate.

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• An inaugural concessioning programme across seven corridors has been announced to facilitate private sector investment in building over 1 000km of South Africa’s new transmission grid (as has been done to positive effect in India and Brazil).

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Navigating the global context

• South Africa’s industrial development path need to be aligned with mega trends in the global economy including:
• the rise of digitisation and artificial intelligence technologies,
• a global rise in services sectors relative to heavy industry, and
• geopolitical shifts and uncertainty in an increasingly multi-polar world.
• The past 40 years of globalization is currently being disrupted by the neo-mercantilist policies of the United States.
• This means that economic integration and free trade, risks being replaced by a global economy characterised increasingly by nationalistic interests, antagonistic trading blocs, and the breakdown of the rules-based global trading system.
• This will impact negatively on growth and employment for South Africa and other countries, due to:
• trade restrictions on exports to the US (mainly SA automotive and citrus)
• possible global recession,
• possible redirection of trade flows into SA’s home market and displacement of SA exports in third country markets, and
• reduced fiscal space for many countries (particularly African countries hit with a trade and an aid shock).

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What does this mean for South Africa’s economic strategy?

South Africa’s economic planning should take account of these global trends as follows:

• SA should continue to seek a wider range of export opportunities with EU countries, Brazil, China, Asian, South American, Middle Eastern and African countries (while signaling to the US that SA would like to renegotiate trade relations)
• SA should advance a strategy (including industrial policy, electricity and mining policies) that takes into account the energy, digital and geo-political transitions
• These transitions are driven by fundamental technological, economic and demographic forces so they may be delayed, disrupted and politically contested, but they are likely to prove ultimately unstoppable (even by the actions of the current dispensation in the United States).

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Theory of Change based on Contextual Analysis

• Contextual analysis must inform the possibilities and limitations of our economic programme.
• Some of the important structural features of South African economy and society include:
• South Africa is highly unequal, fractured along race, gender, class, and spatial lines and exhibits the features of a ‘dual’ economy, well-off insiders versus outsiders experiencing mass unemployment and exclusion.
• South Africa is a ‘mixed’ economy, made up of sizeable public and private sectors. 
• South Africa is an ‘open’ economy, with significant international trade and investment flows. 
• To be effective, the programme of social and economic transformation should be informed by these structural characteristics and should be logically capable of achieving its objectives given the historical and material context in which we are operating.

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Consequences of a dual economy

• Due to this deeply entrenched exclusion and structural ‘dualism’, South Africa’s programme to increase employment and increase access to economic activity would need to be built on two pillars.

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• Firstly, we will need policies favouring investment promotion, capital formation and job creation in the formal, higher-productivity sector. The so-called ‘Asian-tigers’ with their strong, capable ‘developmental states’ have shown the way in this regard.  

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• Secondly, specific interventions will be required to boost economic activity in the ‘informal’, low-productivity sector. This could be done through programmes to better support and facilitate informal economic activity and for small businesses and co-operatives, as well as through public employment programmes, linked to building and maintaining economic and social infrastructure, as well as interventions to widen land ownership, and property ownership secured by title deeds, combined with measures to boost small scale farming activity.

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• Such interventions will begin to reduce inequality and dualism and will allow for a more inclusive growth pattern.

Consequences of mixed economy

• In a ‘mixed’ economy, the state and market should seek to complement, but not dominate, each other.
• Generally, if there is too much state control – economic activity may become ossified and lack dynamism and innovation.
• If there is too much market power then inequalities of income, wealth and opportunity are likely to worsen, as is damage to the environment.
• It is the state’s role to provide access to vital public services. Access to such services impacts heavily on what life opportunities people will have.
• These are sometimes described as ‘pre-distribution’ factors – factors which enable participation in economic activity from which distribution and redistribution of income can take place.

Consequences of an open economy

• The South Africa economy is described as ‘open’ in the sense that a large portion of the country’s economic activity and employment is linked to export and import activity, and South Africa’s financial sector is highly integrated with global finance even though certain exchange controls continue to apply to local individuals and companies.
• This ‘openness’ is positive in the sense that South African companies can produce more goods, and employ more people, if they produce for the global market than if they were only to produce for the domestic market. Exports also generate international currency, to fund necessary imports.
• On the other hand, ‘openness’ creates risks. For example, foreign companies may introduce cheaper products the importation of which threaten local production and jobs. ‘Open’ economies can also be negatively impacted by a variety of ‘shocks’, including war and recession.
• South Africa’s industrial policy must seek to integrate into global value chains – both for exports and imports – in a manner in which more value and employment can be undertaken in South Africa.
• For example, in the automotive sector this has meant making certain components in SA and doing assembly of some models in SA for local sales and for export, rather than simply importing fully made-up vehicles, or trying to go it alone with a South African auto brand.

Final thought on the leadership to be provided by the public service

• Remembering the quip by Thomas Carlyle - Senior public servants need to have the knowledge and experience to understand and know what needs to be done.
• There must be such an intimate knowledge of the history, realities and elasticities of our economy that we have an innate sense of what needs to be done across many policy areas in order to change the trajectory of our economy.
• In addition to the necessity of having a skilled cadre of public servants, relatively protected from political vicissitudes, the Developmental State literature speaks of a public service that is characterised by “embedded autonomy” – where public servants are able honestly to develop and implement plans for inclusive and transformative growth, which are well rooted in concrete realities of the political economy in which they are operating.
• A public service that is characterised by Embedded autonomy will allow us to avoid both types of pitfalls – ‘pie-in-the-sky schemes’ that will never work, and ‘captured schemes’ that will never lead to change for the better.