How low business confidence affects South Africa's investment and job market

Stronger business confidence could lead to more investment, better employment figures, and improved outcomes for both households and financial markets.

Recent analysis from Investec Wealth & Investment shows that if South Africa’s economy had grown in line with its emerging market peers, at 4.5% a year since 2010, nominal gross domestic product (GDP) would now be around R11.5 trillion.

Currently, it is at R7.4 trillion, said Osagyefo Mazwai, investment strategist at Investec Wealth & Investment International, in a blog post.

Under the higher growth scenario, the National Treasury could have collected a cumulative R5 trillion more in taxes. That would have gone some way toward funding services and reducing the debt-to-GDP ratio, said Mazwai.

Investec says a stronger fiscal position would have had a positive impact on the broader population. Investec’s data shows that growth has averaged 4.5% since 2010, and the unemployment rate would be significantly lower. GDP per capita, on a purchasing power parity-adjusted basis, would also be much higher.

The analysis highlights several underlying drivers of growth, including business confidence, policy consistency, and structural reform.

Mazwai points to a statement made by Reserve Bank Governor Lesetja Kganyago in 2019, stating: “Restoring confidence is the cheapest form of stimulus.”

Data from 1994 to 2024 shows a clear relationship between business confidence and economic performance. For example, real GDP growth averaged above 4% during former president Thabo Mbeki’s second term, when business confidence was high. During the same period, the unemployment rate dropped from 28% in 2004 to 21% in 2008.

The blog notes that business confidence is both a driver and a result of GDP growth. However, Mazwai’s recommendation is for the current government to focus on boosting confidence to support economic expansion, reduce unemployment, and address inequality.

Several internal factors that influence business confidence fall within the control of the state, said Mazwai. These include the effective execution of constitutional obligations, improved service delivery across all levels of government, structural reform, reduced regulatory burden, and greater investment in education and technology, he added.

Monetary and fiscal policy also play a role, said Mazwai. Treasury has adopted a conservative fiscal stance, while the South African Reserve Bank has kept interest rates high, despite low inflation. According to Investec, this combination has led to weak fiscal multipliers, with low growth despite rising debt.

The report suggests that improved state-owned enterprise (SOE) performance, better economic decision-making, and inflation control could help lower the risk premium on South African assets. This would reduce borrowing costs and ease the cost of doing business.

Business confidence, as measured by the Bureau for Economic Research (BER), has recently stalled. This follows a period of improvement in 2024 and comes amid stagnation in the performance of Eskom and Transnet, as shown by the Energy Availability Factor and port and rail throughput.

Despite improvement from 2023 lows, SOE performance remains below levels needed to support sustained growth. Data shows a strong correlation between SOE output and business confidence since the pandemic.

Higher industrial metals prices have not translated into stronger growth due to logistics constraints. Export volumes have not matched commodity price gains, limiting the fiscal upside. During the previous commodity boom, tax revenues rose by R200 billion.

According to the report, GDP growth is closely linked to export performance and job creation. Gross fixed capital formation also remains subdued, and well below emerging market peers.

The analysis concludes that economic growth would result in broader societal and financial benefits and that policy focus should support an environment conducive to higher investment.

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