Shaun Jacobs
Africa-Press – South-Africa. South Africa needs to implement reform in critical areas of the economy, such as the electricity and logistics sectors, while improving local government capacity.
This should be coupled with increasing private sector participation in the economy, as the government’s financial health continues to deteriorate.
The government should also focus on making it easier to do business in South Africa and encourage small business formation and competition.
This is feedback from the African Development Bank (AfDB) in its latest Country Focus Report on South Africa for 2025.
The report outlined some of the key reasons why South Africa’s economy has stagnated over the past 15 years and illustrated the precarious position the country finds itself in.
In particular, the AfDB focused on the government’s deteriorating financial health, which is a direct consequence of the country’s economic underperformance.
South Africa’s economy has grown at an average annual rate of 0.8% over the past decade, and the government’s tax revenue has largely stagnated.
This has been coupled with increased state spending, which has translated into a significant debt burden that risks being unsustainable.
Alongside the government’s poor financial health, many of South Africa’s state-owned enterprises (SOEs) are burdened by substantial debt.
As a result, the state is unable to invest as heavily in infrastructure as is needed to drive economic growth, stave off load-shedding and improve the efficiency of the country’s logistics sector.
This means it has to turn to the private sector, which is sitting on over R1.4 trillion in cash waiting to be deployed into the economy.
Thus, the AfDB said it is critical for the government to reform key sectors of the economy to make them more attractive to private investment.
The priority areas include the electricity and logistics sector, with water increasingly being seen as a major problem for local government.
This is vital not only to unlock investment and facilitate economic growth but also to restore basic service delivery to citizens.
Coupled with this is the need to maintain the National Treasury’s focus on fiscal consolidation to rebuild the government’s finances and restore investor confidence in the country.
Make doing business easier
The AfDB explained that it is not enough to ensure the country has adequate infrastructure if the economy lacks dynamism and growth.
A key step to creating a dynamic economy that grows is increased competition, which is built upon making it easier to do business in the country.
This entails easing regulations regarding business in South Africa, where new business formation is among the lowest of the countries ranked by the Organisation for Economic Co-operation and Development (OECD).
Not only should red tape be cut, but institutions should also become much more efficient and effective in improving the enforcement of existing regulations and ensuring companies can enter new markets.
The AfDB said an overlooked part of this reform is increased labour market flexibility, as South Africa is characterised by a highly rigid labour force.
A more flexible labour market will enable companies to hire more easily and find the skills they need to operate.
Many of these recommendations echo those of the World Bank, which earlier this year called on South Africa to strengthen market competition and make its institutions more efficient.
“Today, many of South Africa’s markets lack dynamism. Firm entry and exit are a third of the average of a typical middle-income country,” the lender said.
This is one of the major driving factors behind the country’s high unemployment rate, with South Africans unable to find stable and productive jobs.
Market competition, while ensuring greater economic inclusion and enhanced household welfare, is the best way to dynamise an economy as it boosts efficiency and promotes innovation.
South Africa could rebalance its economic model by making it easier for foreign and domestic investors and young workers to enter markets and reducing the protection of incumbents.
The reduction of protection for incumbents includes state-owned enterprises, which are, for the most part, highly inefficient monopolies.
It also said that South Africa should make its institutions more efficient and supportive, rather than the excessive burden they currently impose on private businesses.
The World Bank said the burden of institutions has become excessive, not only for businesses and citizens but also for public administration.
South African policymakers have attempted, often with good intentions, to correct market or historical failures by intervening through hard regulations, such as Black Empowerment policies, local content, and collective labour bargaining.
Today, these interventions have become so cumbersome that they smother the implementation capacity of the public administration, especially local officials, and open spaces for corruption.
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