Property rights, free trade, and sound money will free up local markets
If you want to stand out from the financial advising crowd, or offer exemplary risk advice to your commercial and personal lines clients, then you need to have a clear understanding of how the world works. A recent webinar, titled ‘South Africa and the Global Stage: What lies ahead in 2025?’ turned out to be an excellent scene-setter for the coming 12 months. The event was hosted by global life and health reinsurer, RGA, who invited Dawie Roodt, Chief Economist at Efficient Group, to share some insights.
Three ways to grow an economy
Roodt believes there are three things that are essential to grow an economy: the protection of private property rights; free trade between economic agents; and sound money, or in simpler terms, low inflation. His early-2025 assessment of South Africa Inc was framed through these growth lenses. On property rights, the economists observed that, “The President has just signed an Expropriation Bill allowing the state to steal private property.”
This decision flies in the face of one of government’s primary roles, being to protect the individual and his or her assets. “In the case of South Africa, private property rights are not being properly protected, and the protection of private property rights is being deteriorated,” Roodt said. He acknowledged that the land ownership debate was complex but reasoned there were other ways for government to achieve its transformation objectives without chasing investment from our shores. The basic principle is that private property rights must be protected.
Roodt offered a number of local state-led interventions to illustrate that free trade was being eroded. For example, laws around minimum wages prevent an individual from negotiating fees in an open labour market. “The state has determined that you are not allowed to sell your labour at a price that you choose,” he said. There are many other examples of state interference in the domestic economy, each diverting from positive, free trade economic outcomes. PS, the ‘free trade between economic agents’ requirement should not be conflated with the trade tariff ‘wars’ being waged by incoming United States (US) President, Donald Trump.
Administered prices driving inflation
On the question of sound money, the economist noted that the South African Reserve Bank (SARB) was doing a great job under difficult circumstances. “Inflation is currently around 3% but the underlying inflationary pressures in the economy are still far too high, largely due to administered prices,” Roodt said. Administered prices are set by the state or its agents rather than the market forces of supply and demand. For example, electricity prices are tightly regulated under the state-owned monopoly Eskom, contributing significantly to inflation.
To fully understand economics, you must look beyond macroeconomic factors like debt, interest rates, and inflation to focus on people and the trends guiding individual decision making. Roodt explored three key trends, starting with demographics. He said that early concerns that rapid population growth would collapse society proved false; instead, technological improvements ‘lifted’ outcomes across society’s basic needs, lifting mortality rates and increasing wealth. As countries became wealthier, population growth went into decline, explaining why Japan, South Korea and many countries across Europe today face ageing and declining populations.
The second major trend is technology. Mention tech, and most members of the audience immediately turn to artificial intelligence (AI) and the global financial market boom led by the US’ Magnificent Seven shares. But technology is having far-reaching impact in the healthcare and other sectors too. Just think about the long-term impact of weight loss drugs on mortality, and how further improvements in mortality could accelerate the aforementioned ageing and declining population crisis.
An age of services and technology
“The nature of economic activity is changing,” said Roodt, as he introduced a third global trend. He mentioned that the agriculture, manufacturing, and mining sectors were gradually losing ground to services and other tertiary industries. “If you want to participate in the modern part of the economy, you have to have very special skills,” he said. Alas, South Africa is not producing people that can prosper in this evolving marketplace. The good news is that widespread tech adoption is weakening the state’s grip on economic levers, for the most part. Government might seize your house or farm but cannot get their hands on your intellectual property, kept safe in the cloud.
Returning to the global economy, the economist put China, India, Russia, and Europe under the spotlight. Roodt commented that Russia’s economy had received a boost from its three-year-long war with Ukraine but warned that inflation was becoming a major challenge. He said that Trump would likely succeed in orchestrating a ceasefire to the conflict, and that Ukraine may end up ceding more of its territory in a negotiated settlement. “The Chinese economy is not doing that well at the moment either,” Roodt said. As growth contracts, China could resume its sabre-rattling around Taiwan, perhaps bringing another military conflict to the global stage.
India stood out as the economy most likely to outperform over the coming years thanks to its strong population growth, young population, and an economy that is very much concentrated in the services industry. This emerging market (EM) can achieve next level growth by addressing state inefficiencies and reducing red tape. Roodt was, however, scathing about prospects in Europe. “The European economies are dead in the water,” he said. “Nothing is happening in Europe; population growth is negative, and economic growth is low or negative.” Europe is not the place to go if you are in search of growth.
How Mr. Tariff is helping the US
In contrast, the “US economy is growing like there is no tomorrow.” The plus points include a sound labour market; inflation trending lower; opportunities for further interest rate cuts; and the dollar as the world’s reserve currency. The economist christened the incumbent US President ‘Mr. Tariff’, identifying him as a businessman and dealmaker rather than an ideologue. Early indicators are that tariff threats are being used to achieve concessions, and that this ‘bargaining tool’ is not the only one the President will use.
Land control proposals affecting Canada, Greenland, and Gaza were described as: “all of a sudden, a completely way out wacko idea has become mainstream.” Roodt expressed concerns that Trump’s deportation drive could impact the labour market, creating artificial skills shortages that might drive wage inflation. And further tax cuts could be disruptive too, affecting the country’s ability to reduce its high debt. “If you cut taxes further, your fiscal deficit will widen up and your debt-to-GDP ratio will worsen,” he explained. The Department of Government Efficiency (DOGE) initiative resonated with the free market disciple, who labelled the old, heavy-handed state as “ a major obstacle to economic growth.”
Oh boy. There was so much to cover in this 90-minute presentation that your writer has burned through his word count without even touching on South Africa. So, to conclude, he offers some thoughts on our beautiful country. Roodt criticised the ‘good story to tell’ narrative in the 2025 State of the Nation Address (SONA) as nonsense. “South Africa has been falling behind compared to the rest of the world,” he said. “On a per capita basis, we are today poorer than 15 years ago.”
Poor returns from critical spending
The economist said that the applause for having 28 million citizens on some or other social grant was misplaced, and bemoaned that the country’s two million civil servants were mostly overpaid and underworked. Another issue is that South Africa gets poor returns from its expenditure. “We spend more on education than most countries, in absolute and relative terms, but the quality of our education is not only bad, but often the worst in the world,” Roodt said. The bang-for-buck on healthcare and infrastructure is missing too. Local municipalities and state-owned enterprises (SOEs) were lambasted for corruption, inefficiency, and shocking outcomes.
“Our outstanding debt-to-GDP ratio is approaching 75% of GDP, meaning that each South African citizen owes around R80000 more than he or she thinks they do … that is the per capita share of our state debt,” Roodt said, promising to delve deeper into the country’s finances in his post-National Budget analysis. “The improvement of the financial markets and slightly more efficient government under the GNU will contribute to stronger economic growth, but I cannot see the economy growing at faster than 1.5% in 2025,” Roodt concluded.
An inefficient and corrupt state
He labelled the Expropriation Act, the National Health Insurance Act, and the inefficient and corrupt state as major drags on SA’s economic prospects and warned that our narrow taxpayer base would be unable to carry the can for much longer. If you increase taxes into this economic maelstrom, you will get less out.
Writer’s thoughts:
To give sound financial or risk advice, you need to understand financial markets and the broader economic forces shaping them. How are you preparing your clients for the risks and opportunities stemming from SA’s recent legislation? Please comment below, interact with us on X at @fanews_online or email us your thoughts [email protected].
