Africa-Press – South-Africa. South Africa’s period of low economic growth over the past decade is the weakest period for the local economy on record since 1945.
This has resulted in South Africans, on average, getting steadily poorer as population growth has outpaced economic growth.
The country’s economic malaise is largely a result of the collapse of investment in productive sectors of the economy, with the government allocating more resources towards consumption rather than investment.
This has been coupled with private companies becoming increasingly unwilling to invest in the local economy amid declining confidence and political uncertainty.
There have been some positive developments over the past year, but reforms are moving too slowly to raise South Africa’s economic growth to a level where unemployment can be meaningfully reduced in the coming years.
Coronation economist Marie Antelme outlined South Africa’s economic history in a recent research note on how unemployment and poor education outcomes have crushed the country’s economic growth.
Antelme explained that South Africa’s unemployment crisis is even worse than many think, with long-term unemployment – people out of work for more than a year – rising to 76.6%.
This means that the vast majority of unemployed people in South Africa have had no job for over a year, which compounds the crisis as it meaningfully reduces the likelihood of future employment.
South Africa’s employment-to-population ratio is under 40% and is the lowest of any country in the G20, where the average is closer to 60%.
Antelme said the fundamental factor behind this unemployment crisis is the country’s prolonged period of poor economic growth since 2008.
This has been driven by various factors, including systemic corruption, mismanagement, declining service delivery, and declining business confidence.
South Africa’s economy has not always been stagnant, with it growing far more strongly after 1994 and in the mid-2000s.
Between 1995 and 2000, real GDP growth averaged 2.6%. This might seem small, but it was significantly better than the 0.2% recorded between 1990 and 1994.
From 2000 to 2009, growth was much faster at an average annual rate of 3.6%, peaking at over 5% between 2005 and 2007. During this period, the government began running budget surpluses and debt as a share of GDP declined.
This growth plummeted to just 0.7% in the decade from 2015. Antelme said that outside of the transition to democracy and the Covid-19 pandemic, this is the weakest period of growth on record since 1945.
In per capita terms, real GDP peaked in 2013 and has been falling ever since, meaning South Africans have been getting poorer, on average, for more than a decade.
Structural problems
South Africa’s economic challenges run deep and require significant reforms to address, with the country’s labour productivity effectively disappearing over the past decade.
Antelme explained that economies can only really grow in three ways. They can grow through increased investment, by adding more people to the labour force, and by combining existing capital and labour in more productive ways.
This productivity growth is vital for an economy as it enables it to grow at a pace faster than its potential labour and capital would otherwise.
In effect, productivity growth removes the constraints placed on growth by a limited number of individuals and capital.
More crucially, Antelme explained, is that when this is successful, it is reinforcing. This creates a positive flywheel that drives faster growth over the long run.
When the South African economy has grown at above 3% per annum, all three of the components have been working in tandem.
Investment has grown strongly alongside a surging workforce, with both being used in more productive ways.
From 2008 onwards, the script effectively flipped, with growth declining due to a collapse in labour productivity as individuals are no longer absorbed into the workforce.
Furthermore, productivity growth plummets as the government begins ramping up spending on consumption through salaries rather than investing capital in productive areas of the economy.
Between 2000 and 2007, investment, innovation, trade openness, and macroeconomic stability drove efficiency.
After 2010, productivity fell across key sectors as capacity collapsed and state-owned enterprises absorbed large amounts of capital without producing commensurate output.
Eskom’s capital stock doubled between 2010 and 2019, yet electricity production fell. Mining and construction also lost efficiency as energy and logistics constraints deepened.
The economy pivoted toward less-productive sectors – public administration and community services – while output in the rest of the economy contracted.
This was coupled with declining investment from the private sector as it lost confidence in the economy, with growth slowing and government mismanagement producing poorer economic outcomes.
Total capital investment ramped up steadily from 1994 to 2008, reaching a peak of 23.3% of GDP in the fourth quarter of 2008.
Since that peak, there has been a steady decline in the private sector’s overall contribution, with a trend slowing to below 10%.
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