SA’s economy is a ‘no-growth zone’- and the jobs crisis is just the start

Although the JSE’s All Share was, as of this morning, up more than 100% since the year that Covid-19 killed millions and hit global economies hard, and the rand has lost incredible ground against the dollar in recent history, South Africa won’t hit enough economic growth to fulfill the business and government partnership of a million jobs this year.

This, says Dr Azar Jammine, director and chief economist at Econometrix, is because there are simply too many physical and structural impediments. Citing issues such as logjams at ports, inadequate education, high levels of crime, and continuing spatial inequalities, he says the growth target is “not happening,” and South Africa is also not currently a good investment destination, despite the local currency looking attractive from a dollar perspective.

Jammine explains that investors will not get enough return on their money, even though the rand has weakened considerably over time because there simply isn’t gross domestic product (GDP) growth.

While overall GDP figures for 2024 are not yet available, Statistics South Africa data shows that growth measured by production, increased by 0.6% in the fourth quarter of 2024, following a decrease of 0.1% in the third quarter of 2024.

However, Old Mutual chief economist, Johann Els, anticipates GDP growth of 2% this year, and states that South Africa is becoming a more attractive investment destination, although there needs to be continued positive sentiment before there are continued positive investment inflows.

Statistics from the Reserve Bank also point to South Africa’s decline as an investment destination, with the third quarter seeing capital outflows of R3.2 billion, a sharp contrast to the R16.6 billion inflows recorded in the previous quarter.

Andrew Bahlmann, CE of Corporate and Advisory and Deal Leaders International explains that international investment is currently influenced by many factors, such as global uncertainty over US President Donald Trump’s tariff position, ongoing geopolitical tensions, as well as some investors potentially waiting for clearer policy direction and more decisive economic reforms in South Africa before committing long-term capital. He adds that there may have been profit taking because of the JSE’s gains.

Jammine says that gross fixed capital formation, the value of investments in fixed assets from both local and international sources, has dropped “horribly” from 24% of GDP in 2014 to 14% as of last year.

Els also notes that GDP growth of around 2% is not great but is “far better than anything we've seen in recent years in South Africa”. Such growth will help life confidence, which will help bring in foreign capital and creating a virtuous cycle of increased economic growth.

Bahlmann says money coming into the country, especially through foreign direct investment, is vital for South Africa’s long-term economic growth and job creation. Beyond capital, it brings skills transfer, technological advancements and greater integration into global supply chains, he says.

“Industries such as manufacturing, renewable energy and technology stand to benefit significantly if the country can maintain its appeal to investors. Ensuring a stable, pro-business environment with clear policy direction will be critical in sustaining investment momentum – and there are hints that President Ramaphosa clearly understands this,” Bahlmann says.

Casey Sprake, economist at Anchor Capital, says that, beyond the threat of tariffs from Trump, the US’ role as a major investor in South Africa presents an even greater potential point of leverage. “US financial flows into South Africa play a critical role in shaping the country’s economic stability, capital markets, and investor sentiment, she says.

Trump’s Make America Great Again political position has seen him withdraw financial support for various projects in South Africa, including for HIV/Aids, and has put the African Growth and Opportunity Act (AGOA) under threat.

Sprake adds that studies by the Department of Public Works estimate that AGOA has created approximately 350 000 direct and 1.3 million indirect jobs across sub-Saharan Africa, with South Africa accounting for 62,395 of these jobs – equivalent to 0.4% of the country’s employed population.

“AGOA’s true impact extends beyond just its relevance to trade and overall GDP; a significant contribution lies in employment,” she says.

Currently, says Jammine, the country is not creating employment, there's no incentive to invest, and the economy was never going to reach the stretch target of 3% economic growth. “People may have human rights, but they don't have dignity and decent delivery of services.”

IOL