Economic growth and jobs on tap if government pulls the right policy levers
The big news in the run-up to this fortnightly opinion piece was that South Africa’s stuttering economy had produced a mere 0.1% growth in the first quarter of 2025. This pedestrian performance coincided with what many market commentators referred to as the African National Congress (ANC) ‘doubling down’ on policies that discourage foreign investors from going ‘all in’ on the southern tip of Africa.
Fast-tracking transformation
Government continues to advance policies aimed at fast-tracking the transformation of the economy despite a decade-long backslide in GDP growth and jobless numbers. Business and opinion leaders have warned that the inflexible mix of Black Economic Empowerment (BEE), the Expropriation Act, ownership rules in mining, and radical sector-specific Employment Equity (EE) targets is counter-productive. For example, BEE rewards political insiders while doing little to broaden genuine economic participation.
The back-and-forth over whether government will soften its BEE rules to allow Elon Musk’s Starlink to gain a foothold in the country has made things worse. The resulting uncertainty sends mixed signals to investors about government’s approach. At least President Cyril Ramaphosa has been consistent. He offered little beyond his familiar defence of the policy, insisting that inclusive ownership remains central to South Africa’s economic future. Few will miss the irony that Ramaphosa himself was handsomely rewarded through the BEE construct.
Before throwing your weight behind BEE as a vehicle for transformation, you might consider the following rebuttal. Professor William Gumede of the Wits School of Governance recently estimated that R1 trillion had been transferred through BEE deals since 1994, with the bulk of that flowing to fewer than 100 politically connected individuals. Quoted in a Daily Investor article, published 30 May 2025, he contended that the policy has failed to reduce inequality, poverty or unemployment. Instead, it has entrenched a narrow elite.
A key indicator of socioeconomic prospects
Government’s dogged approach to its transformation agenda has had tangible socioeconomic consequences, as exposed during a recent PSG Think Big webinar featuring Dr Frans Cronjé, economic and political analyst and chair of the Social Research Foundation.
Alishia Seckam, who moderated the discussion, kicked off by saying that South Africa’s fixed investment was pegged at 15% of GDP, while GDP growth was stumbling along at less than 1% annually. Cronjé responded that the fixed investment number was a key indicator of a country’s future prospects. “Emerging markets are generally attracting foreign investment levels of around 25% of GDP or even higher,” he said, explaining why the average economic growth across the EM bloc was four times that of South Africa.
Readers with longer memories will recall that South Africa grew at around 5% per annum between 2004 and 2007, a period coinciding with the peak of post-1994 foreign investment flows. “We averaged over 5% GDP growth for four consecutive years, and on the back of that we doubled the number of people in employment [and caused] a vast lift in basic living standards,” Cronjé said. By 2008, the country’s debt to GDP ratio had dropped to around 23% compared to 75% today.
If government wishes to return to the golden age of growth and manageable debt servicing costs, it must implement a supportive economic policy that is moderate, pragmatic and somewhat centrist. This is not your writer’s first dance with macroeconomic policy. One of his recent articles was informed by the no-nonsense views of Efficient Group chief economist, Dawie Roodt.
Three economic growth choke points
As written up in ‘Property rights, free trade and sound money will free up local markets’, Roodt sets out three principles for fostering economic growth as free trade, sound monetary policy, and the protection of private property rights. Two out of three is not bad, but not when two of the measures are deep in negative territory.
Roodt singled out criminal activities, excessive land taxes and expropriation policies as a significant drag on domestic economic policies. In similar fashion, he bemoaned import tariffs, labour legislation and local content rules as a major drag on free trade. Free trade was summed up as the unhindered buying and selling of goods, services and labour.
Refocussing on the Think Big webinar, Cronjé offered an alternative three-point plan to reinvigorate foreign investment, saying that plenty of countries had achieved a turnaround in this critical measure. His fixes centre around energy transition, removing taxes on inbound capital and protecting property rights.
“South Africa has more than enough installed energy generating capacity in the defunct coal fleet to support a GDP growth rate of 4% to 5% over the next decade,” Cronjé said. His advice to local policymakers was to play the ‘unique circumstances and young democracy card’ to pressure the global green lobby to “let South Africa handle our transition to clean energy on our own terms.”
On the taxation of capital, Cronjé warned that foreign firms weighed up the risks attaching to BEE requirements differently to their domestic counterparts. He explained that fixed investment and tax revenue were the real building blocks of empowerment, and that these measures were correlated with employment and exports. In other words, empowerment and transformation can be achieved through macroeconomic measures rather than narrow race-based criteria.
If government focuses on macroeconomic levers like job creation and export growth rather than the current, narrow BEE rules it will remove most of the obstacles to attracting foreign investment.
Expropriation sends the wrong message
The presenter argued that negative perceptions of the Expropriation Act could be addressed by introducing a market value compensation clause for expropriated assets, though he refrained from commenting on the inclusion of transformation alongside public interest as a justification for state intervention.
If government adopts Cronjé’s three-point plan, South Africa should see an immediate improvement in foreign investor interest; and if foreign capital flows in at closer to 25% of GDP, citizens can look forward to 4% or 5% GDP growth. Finally, by rinsing and repeating the methodology for 20 years, the country could reduce unemployment to 10% and cut a significant slice from its debt.
Seckam then steered the conversation towards South Africa’s relationship with the world’s largest economy, referring pointedly to the 21 May 2025 meeting between US President Donald Trump and Ramaphosa and his motley accompaniment of businessmen, professional golfers and trade unionists. Your writer loved the soap opera that ensued, penning his thoughts in ‘The crosses, farm killings, and false narratives at the heart of the Ramaphosa-Trump exchange’.
Rather than give in to the drama, Cronjé hinted that America could play an integral part in closing South Africa’s foreign investment gap. “There is a strong strategic interest in America lifting its levels of fixed investment in Africa, and South Africa is eminently investable for them,” he said. The so-called rainbow nation offers a free and open society, liquid capital market and a stable democracy alongside cost of living and infrastructure metrics that make it the envy of the rest of the continent.
Unlocking the Trump-Musk bonus level
Cronjé threw down a challenge to government to leverage its strategic position on the Indo-Pacific sea route, and the fact both Trump and Musk spend too much time thinking about the country, to carve out a mutually beneficial bilateral investment treaty with the US. Such a deal could “lift the rate of fixed investment to a point that it moves the dial on economic growth and job creation.”
The goal should be to set concrete terms with the Western superpower in areas like agriculture, coal refining, infrastructure, and mining etc. The presenter was adamant that engaging in trade with the US did not mean sacrificing relationships with China and Russia, both of which have significant sway on the continent. But he warned against complacency, singling out Namibia with its deep water port at Walvis Bay and Angola as possible fallback positions for US-Africa trade should relations with South Africa sour further.
Cronjé closed with a message of pragmatic optimism, saying that South Africa’s chronic underperformance on growth and job creation was not irreversible. He argued that the country’s shortcomings were not born out of structural flaws or deep ideological divides, but rather from poor policy choices. Sensible pro-growth policymaking overlaid on the country’s democratic institutions, natural resources and world-class financial sector infrastructure have the potential to open the floodgates of foreign investor capital.
A message of pragmatic optimism
“It is not difficult to trade this [hand] to a point where GDP growth is 4% [from which point] we knock unemployment back to 10% over 20 years,” Cronjé concluded. “The most powerful countervailing force in favour of the country’s success is the common sense of the great majority of its citizens.”
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