No GNU magic in GDP numbers

10 March 2025: Why isn’t South Africa’s economy growing? What’s going wrong in Gauteng? What is the ANC proposing to do about it? What will the effect of Donald Trump’s tariff wars be?

No GNU magic in GDP numbers

South Africa’s economy grew at a meagre 0.6% in 2024, according to the latest data released last week by Statistics South Africa. While fourth-quarter growth of 0.6% was an improvement on the 0.1% contraction in gross domestic product (GDP) recorded in the third quarter, the 2024 growth picture confirms the country’s low-growth status quo. In 2023, the economy had grown by only 0.7%.

With the population growing twice as fast as the economy — at 1.3% per year — GDP per capita will once again have declined last year. According to the World Bank, real GDP per capita was an inflation-adjusted US$6,022 in South Africa in 2023. This was 8% lower than in 2007, when it was US$6,591.

Gross fixed capital formation (GFCF) as a percentage of GDP is the most important economic figure in South Africa. It refers to investments in fixed assets such as factories, heavy plant machinery and equipment, roads, transmission lines, rail, ports, and other real assets that are difficult to move out of a country. A higher rate of investment indicates confidence in a country’s future growth prospects. South Africa’s investment rate is around 15% of GDP, far below the 26% global average. In this regard, the 0.7% GFCF decline in the fourth quarter indicates that despite the positive sentiment generated following the formation of the Government of National Unity (GNU), higher levels of hard investment in South Africa are yet to be seen.

World Bank: BEE is choking growth

The World Bank has provided recommendations to improve South Africa’s current economic trajectory. In its recently published report, “Driving Inclusive Growth in South Africa”, it emphasises the importance of market competition and efficient institutions which do not burden investors, employers and employees bureaucratically or legally. While the report’s suggestions are not new, they make the important link between economic welfare and political power.

The report highlights “hard regulations, such as Black Empowerment policies, local content, and collective labor bargaining — and direct support programs to specific groups, such as grants, tax rebates, and labor training” that have “become so cumbersome that they smother the implementation capacity of the public administration, especially local officials, and open spaces for corruption”. A research paper from the Institute of Race Relations, Blueprint for Growth 2: Cut VAT & BEE, found that by adopting “maximum value for money in the [public] procurement process” instead of preferential procurement, a potential R150 billion in savings could be achieved.

To truly spark economic growth, South Africa’s politicians will need to realise that there is a trade-off between state control and economic growth. The African National Congress’s (ANC) announcements of the National Health Insurance Act, Expropriation Act and Transformation Fund run directly counter to the Bank’s recommendation of increasing market competition by scaling back complex regulations. To reverse South Africa’s economic decline of the last 15 years, the participants in South Africa’s political contest will have to heed evidence-based, pro-growth policy recommendations.

The president notices Gauteng’s problems

Occasional Johannesburg resident and president of South Africa, Cyril Ramaphosa, has noticed that the province of Gauteng is not looking at its best. Gauteng is South Africa’s most economically productive province, contributing 33.2% of the country’s entire GDP despite having only 25.1% of its population. Gauteng residents pay 48.4% of South Africa’s personal income tax, the government’s most important source of revenue — almost as much as residents of all the other provinces put together. And yet the province is going through a phase of accelerated decline, hastened by maladministration and weak governance at the provincial and local government level.

Last week, Gauteng played host to Mr Ramaphosa. As part of an oversight meeting to the province, he met  the premier of Gauteng, Panyaza Lesufi, the mayor of Johannesburg, Dada Morero, as well as  provincial executive committee members. During a meeting at the council chambers of the City of Johannesburg, Mr Ramaphosa laid out the stakes: “If Gauteng fails, South Africa cannot succeed”. During the same address, Mr Ramaphosa expressed his disappointment at the state of Johannesburg. The city is set to host the main G20 Summit in November.

Following their engagements on Thursday, Mr Lesufi apologised to the president, but not to Gauteng residents: “I committed on behalf of government that we will not have a situation that the president has identified. I apologise to the president that he had that particular experience”. While addressing the media on Friday, Mr Morero hid behind ubuntu to avoid criticism: “We are the people of ubuntu, and that is what makes us unique,” reminding the media: “Your ability to report factual information and not distort the truth is important to us”. Mr Morero’s weak defensiveness might not be enough to protect him for long in his current position.

The ANC’s weak response

On Friday, the president announced the establishment of a presidential working group focusing on Johannesburg. This is unlikely to produce much substance. With the next local government elections (LGE) approaching, the parties in government in Gauteng — and in the metros of Johannesburg, Tshwane, and Ekurhuleni — will have their work cut out convincing voters that they have what it takes to provide them with basic services including litter removal, road markings, functioning street lights and traffic lights, bylaw enforcement, and a reliable supply of water and electricity.

Occasional presidential visits to Johannesburg and other public relations blitzes are unlikely to arrest the long-term infrastructural deterioration of the three major Gauteng metros. Therefore, the ANC stares further decline in the face. From 50.2% of the vote attained in Gauteng in the 2019 provincial elections, in 2024 the party secured only 36.5%. The next biggest party, the Democratic Alliance, attained 26.7%. In Johannesburg, the ANC attained 57% in the 2011 local elections, 45% in 2016, and 34% in 2021.

Mr Ramaphosa’s visit follows shortly after the ANC’s rejigging of its provincial leadership in both the provinces of Gauteng and KwaZulu-Natal, as detailed in our 24 February Risk Alert. In as much as such interventions give the impression of action, the individuals entrusted with turning around the branches, as well as provincial governments, have not covered themselves in glory in their previous roles. As one example, the minister of small business development, Stella Ndabeni, who has few achievements to her name, has been appointed as the new chair of the party’s local government intervention team. Not much should be expected of the ANC’s ineffective deployees.

Trump announces tariff o’clock

United States (US) president Donald Trump kept his word by imposing 25% tariffs on most Canadian and Mexican imports to the US. For the world’s second-largest economy, China, Mr Trump raised the US tariff on that country to 20%. He has shown a willingness to risk higher costs for American businesses and consumers and opened the door to retaliatory tariffs from the countries he has targeted. According to the Budget Lab at Yale University, the latest tariff increases have driven US import levies to their highest average level since 1943.

Canada and China responded to the increased US tariffs by implementing phased levies on $107 billion worth of US goods and imposing a 15% tariff mainly on US agricultural shipments, respectively. Later last week, following a telephone call between Mr Trump and the Mexican president, Claudia Sheinbaum, which she described as “excellent and respectful”, the US administration paused the freshly announced tariffs on Mexican and Canadian imports covered by the United States-Mexico-Canada Agreement until 2 April. Neither the Mexican nor Canadian governments offered concessions.

Markets responded negatively to the tariff developments. In the short term, the whiplash caused by contradictory tariff announcements and pauses will increase business uncertainty and drive up the costs of goods and materials as companies stockpile to mitigate future shortages.

The Trump shocks to global trading norms have the potential to usher in a period of lower tariffs across the board as countries negotiate for concessions with Mr Trump, which would be positive for global trade and economic growth. However, the opposite could also happen. The downside scenario is that the globe is entering a time of retaliatory trade wars resulting in higher tariffs, which would dampen global economic growth and trade flows.

The latter scenario is especially concerning for small, open economies such as South Africa’s. The country’s domestic policy choices have resulted in anaemic growth averaging just 0.8% per year from 2012 to 2023 and declining living standards. As the tide of global investment and trade is potentially receding, South Africa’s weak economic shock absorbers require more attention and political will to fix.