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Four discernable periods Post WW2

The apartheid growth period from the late 1940’s to the late 1960’s with an average annual GDP growth rate of 4,9%

The crisis of apartheid period from the 1970’s to the early 1990’s with an average annual GDP growth rate of 2,2%

The democratic dividend period from 1994 to 2010 with an average annual GDP growth rate of 3,2%

The dysfunctional state period from the early 2010’s to the early 2020’s with an average annual GDP growth rate of 1,2%.

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Insight on the Structure of Growth

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.�

The 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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Investment is at an historic low

From 2010 to 2024, the average annual GDP growth rate fell to 1,2% per year. The period’s experiment with significant counter-cyclical fiscal policy, which saw national public debt increase from 27,8% of GDP in 2008 to 72,8% of GDP in 2022 did not play an effective role in stimulating increased levels of growth or fixed investment.

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

This constraint on public sector balance sheets, which had been severely weakened during the state capture period, provided a fundamental reason for reforms in key sectors, like electricity and rail, aimed at mobilising public and private sector investment in these sectors.

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Elements of a programme for structural change and inclusive growth

What is required to resolve the country’s structural crisis is an economic development framework that is characterised by policies that deliberately and effectively pursue both growth and redistribution.
It is not required that a choice be made between a trickle down, redistribution through growth framework, or a growth through redistribution framework, as animated much of South Africa’s economic policy debates in the early 1990’s.
Rather, both growth and redistribution policies need to be pursued and should be designed to reinforce each other so as to achieve truly inclusive growth.
Exploitative, ruthless growth would be exclusionary and would lead to even more skewed distribution of wealth and income.
Conversely, redistribution done in an economically destructive manner would undermine growth and lead to rising poverty and unemployment.

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Elements of a programme for structural change and inclusive growth

Capital investment and productivity improvements across various sectors and factors of production including people, land, mining, manufacturing and services,
a well-managed energy transition linked to the expansion of industrial capacity,
supportive macroeconomic policies aimed at the sustainable mobilisation of resources for infrastructure investment and improved service delivery, and
expanded trade with existing trading partners, emerging trading partners, and other countries on the African continent

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Land reform and urban planning

Land reform and urban planning must not only seek to overcome apartheid inequality and spatial patterns, but should be designed to be 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

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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.
Without such an energy transition, the rate of deindustrialisation in South Africa is likely to accelerate.
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.
In addition to a well-managed energy transition, South Africa’s industrialisation path need to be aligned with other 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 towards a more multi-polar world.

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Industrialisation and the manufacturing sector

Continuity and Change – a lot of good work has been done but we have been spinning our wheels (not effective and not had support of business or labour)
Emphasis needs to be on change - we need a Re-set
Re-set to a growth and jobs oriented industrial strategy which is Demand driven (link to success of other parts of government policy)
e.g. energy transition acceleration, increase demand for equipment and labour, specifically DTIC framework for framework for private sector investment in grid greater than Eskom Transmission company benefits for steel, concrete, transformer and equipment suppliers
Strong export focus – BRICS markets, trade openness citrus (EU, Botswana, others) (multilateralism and rule of law in international trade) (active non-alignment)
Doing SEZ’s in a more well-resourced and effective way.
BEE and Local procurement must be achieved as products of the growth and jobs oriented industrial strategy, not as the initial lever of the strategy

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Strategic stance of developmental states

Development states – industrial policy has been characterised in academic literature as having “embedded autonomy”
Must get the balance right –
Autonomous – in that state provide leadership in guiding the economy towards higher levels of growth and investment department
from being capture by any vested backward-looking interests
Embedded – rooted IN SA realities) Not spinning wheels, but gaining traction.
SA not homogenous society, racially fractured (broad based BEE critically important as we expand industry and capital its racial character must be transformed)

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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-led structural transformation of the South African economy if the state were to fall into a debt trap where an increasing amount of its revenues are to be used for debt service costs.

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.�

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Conclusion on the current political conjuncture

Sufficient political consensus is required that both growth and redistribution policies should define government’s economic programme so that a new structure of growth can be achieved – one characterised by inclusive and transformative growth

Given the political shock of the 2024 Elections with voting support for the ruling party falling below 50% for the first time since 1994, it is important to reflect on the current balance of political forces in the country and the extent to which political factors could assist in advancing, or retarding, economic growth and transformation.

The Statement of Intent of the 2024 Government of National Unity (GNU) outlines a number of important points of principle concerning economic policy. The GNU statement identifies its minimum progamme as including: “Rapid, inclusive and sustainable economic growth, the promotion of fixed capital investment and industrialization, job creation, transformation, livelihood support, land reform, infrastructure development, structural reforms and transformational change, fiscal sustainability, and the sustainable use of our national resources and endowments. Macro-economic management must support national development goals in a sustainable manner.”
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Rebuilding State Capacity

The GNU also offers the opportunity to rebuild state capacity as parties have agreed to the professionalisation of the public service and have agree to protect it from political interference and corruption.

The Statement of Intent of the GNU commits to: “A professional, merit-based, non-partisan, developmental public service that puts people first… Building state capacity and creating a professional, merit based, corruption-free and developmental public service…. Restructuring and improving state-owned entities to meet national development goals [and]... the parties recognize established Government and Cabinet protocols in decision-making and the formulation of the budget.”

As per the experiences of a number of successful developmental states, the role of an effective and professional public service is vital. The literature shows that developmental states that have successfully led sustained periods of structural transformation and inclusive economic growth have been characterised by a stance display a character of “embedded autonomy” in the relationship between state and private sector.

Autonomous, in that the state itself must bear responsibility for developing the country’s economic plans, and must not find itself captured by backward-looking private interests.
The additional insight, though, and one that is often missed in the debate, is that for development programmes to be carried out effectively, they also have to be well embedded, in the sense that the design and implementation of programmes has to be properly rooted in the political, social, and economic realities of the societies that they seek to grow and transform.

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Will the GNU deliver inclusive growth?

It may seem paradoxical to argue that power sharing, rather than complete control over state power, has the potential to bring improved economic outcomes – and surely it may not happen.

Nonetheless, the potential does exist for the GNU to achieve improved economic outcomes on condition that political competition improves, rather than cripples, the performance of the state.

It is helpful that the minimum programme of the GNU is forward looking, rather than setting a terrain upon simply upon which to fight ideological battles, given the sharp ideological differences among the parties to the GNU.

Deft leadership will be required to maintain the GNU’s focus on interventions aimed at lifting the performance of the South African economy by crowding-in investment, creating jobs and improving service delivery.

There will be forces trying to pull economic policy to the right – with the aim of protecting historical privilege and resisting change.
There will be forces pulling to the left – with populist slogans that are likely to be economically destructive and lead to increased levels of poverty and unemployment.

Given these risks, South Africa’s GNU will have to chart a course, at least for a number of years, where it can build sufficient political support for sound economic policies capable of driving a sustained period of inclusive growth and structural transformation.

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