Why South Africa’s economy will finally start growing again

The Industrial Policy and Strategy Review compellingly provides context for the SA economy, but many of the recommendations and policy fixes made are less convincing NATALE LABIA* writes

Perhaps the last thing South Africa needs is another long-winded policy paper explaining what should be done to stimulate its long-since miserable economic reality. The country already has one written back in 2012 — the National Development Plan — which was meant to chart its growth up to 2030. Progress towards the goals laid out in that document has been paltry.

Surely what is needed is actually enacting policies to kick-start the economy, rather than government ministries expending yet more time and effort trying to diagnose the illness of the patient and discuss possible remedies.

Yet that is exactly what Ebrahim Patel’s Department of Trade, Industry and Competition (DTIC) has just done, unveiling its 120-page report last week, entitled the “Industrial Policy and Strategy Review”.

But before it is consigned to the pile of tomes on the same, depressing topic, the document is worth reading for a number of reasons.

First is the acknowledgement up front that “the role of industrial policy is to unleash private investment and energise the state to boost economic growth and inclusion”. This is a welcome departure from what is often held out to be Patel’s instincts of attempting to micromanage the economy through the powerful state organisms that fall under his mandate. No one wants to be reminded of his pandemic-era decisions such as banning the sale of open-toed shoes or rotisserie chickens.

Second, without shifting the blame, the paper elucidates just what a torrid last five years South Africa has endured. It mentions State Capture, and while Patel makes the caveat that the DTIC political leadership shielded its own resources from various unnamed predatory forces, he makes it clear that “State Capture strained state finances and capacity, undermined efforts to localise the production of inputs for the infrastructure programme, and sparked a crisis in public infrastructure, especially electricity and rail services.”

Yet State Capture was just the beginning of a series of cataclysmic forces that have wreaked havoc with

South Africa’s economy over the last half-decade. According to DTIC estimates, six successive shocks over the past three years have cost South Africa’s economy as much as R850-billion ($46-billion).

The shocks were listed as the global pandemic, the worst civil unrest since apartheid in July 2021, the war in Ukraine, severe flooding in KwaZulu-Natal in 2022, interminable rolling blackouts and persistent logistics constraints. According to the report, coming immediately after State Capture, these crises delayed and then shifted the focus of industrial policy. Without them, and assuming the country had simply matched growth trends seen in the decade prior to the pandemic, South Africa’s gross domestic product would have been between three percent and five percent larger in constant rand terms than it currently is. Instead, the economic growth rate has averaged a wretched 0.42% since Ramaphosa took over in 2019.

But while the report compellingly provides context for the SA economy, many of the recommendations and policy fixes made are less convincing. Despite his assertion of the importance of private sector investment, Patel clearly has not altered his view that economic growth is, in some large respect, the culmination of a series of sector-specific “masterplans” which look to fix problems inherent in parts of the economy, for example in poultry or automotive. These micro-fixes, while useful, arguably distract from getting more of the macro factors right.

Furthermore, who actually is in charge of economic policymaking? Is it the National Treasury, who seem to want to drive the process under the National Development Plat, or the DTIC? Ideological dissonance between the neoliberal instincts of the Treasury and the more dirigiste ideas of the DTIC have long been held to be a source of unnecessary tension and paralysis in economic policy making.

Finally, however, by painting an accurate picture of the torrid time that the SA economy has endured, the key takeaway from the report is a positive one. While corruption persists, State Capture is over. The effects of the war in Ukraine are fading, and hopefully, there will be no repeat of the pandemic, severe flooding or mass-scale civil unrest. Business for South Africa reported last week that rolling blackouts will be over, but for Stage 1, by the end of this year and will be a thing of the past by the end of 2025. Aside from crumbling infrastructure, this could mean that the handbrakes that have held up economic growth in the last three years have largely been lifted.

Furthermore, the report highlights the potentially transformative role that could be played by the African Continental Free Trade Agreement. While it is still uncertain that it will be implemented as envisaged, removing the trade blockages that inhibit companies from accessing the much larger continental market would be transformative for many South African businesses.

One can therefore hope that whatever the government looks like from June onwards, economic policy makers will have the instinct that less is more. Rather focus on the fundamentals like providing power and critical infrastructure and let the ever agile and resilient South African private sector invest, hire and drive growth. Amidst the doom and gloom of SA economic forecasts, there is a case to be made that following the last five years of what economic historian Adam Tooze would term a “polycrisis”, things simply cannot get much worse.

Should this be the case then regardless of what the DTIC does or does not do, this could be the year which goes down as the moment the SA economy turns the corner and starts, albeit slowly and off a low base, growing again.

(Daily Maverick)

*Natale Labia writes on the economy and finance for Daily Maverick. Partner and chief economist of a global investment firm, he writes

in his personal capacity