The following is the text of a speech I made today at the Institute of Economic Affairs in London.
Good afternoon, ladies and gentlemen − I last spoke to you eight months ago, just after South Africa had emerged from its 2024 elections on 29 May. I discussed South Africa’s “precarious opportunity”: the rare chance to set the country on the path of economic growth and progress after a decade-and-a-half of stagnation and regression.
Now is a good time to take stock and see where South Africa stands. I will start with a short overview of where the country is coming from and what has brought us to the point at which we today find ourselves.
After South Africa’s democratic transition in 1994, the African National Congress (ANC) won clear majorities in every election for 30 years.
During the first half of the democratic era, the country started hesitantly on the path of economic growth but began to embrace it with growing enthusiasm over time.
By 2007 GDP growth was exceeding 5% per annum, the number of people with jobs had almost doubled, public debt had halved from 50% to 25% of GDP, and the country’s rate of gross fixed capital formation was finally beginning to lift, reaching almost 22% of GDP in 2008. The ANC was rewarded with growing majorities in the elections, rising from 63% under Nelson Mandela in 1994 to almost 70% under Thabo Mbeki in 2004. We call this South Africa’s first age.
But things began to take a downward turn from 2008.
In the decade-and-a-half since then, growth has averaged barely more than 1% per year. GDP per capita has dropped in real terms, public debt has exploded and unemployment, already at eyewatering levels at the beginning of this period, has climbed even further. This is South Africa’s second age.
The quarterly labour statistics released last week show that unemployment – using a measure which includes those who have given up looking for work – remained unchanged at an incomprehensible 41.9% in the fourth quarter of 2024.
This has not remained without political consequences. The ANC gave up 3-5 percentage points in every election from 2004 to 2019, gradually slipping towards the 50% mark.
In the last election the slide turned into a landslide: the ANC plummeted from 57% in 2019 to 40% in 2024. This marks the beginning of South Africa’s third age.
The 2024 election broke the ANC’s long-standing hegemony. It meant that for the first time in 30 years, the party could not have things its own way. It could choose to govern as a minority government dependent on the goodwill of other parties to supply majorities on a case-by-case basis. Or it could enter a coalition with other parties to create a stable majority that gave it a predictable basis for action.
The ANC decided on the second course of action. It created a Government of National Unity (GNU) as a multi-party experiment involving the pro-market Democratic Alliance and a further eight parties, brought in primarily to create the impression of inclusiveness and dilute the influence of the DA.
The question at the time was whether this dramatic change represented a gateway to economic liberalisation. Would the GNU embrace market-friendly policies or entrench state-led stagnation? At this stage, the signs are not promising. The ANC has dominated the GNU and made essentially no accommodations to its coalition partners. For the ANC, this might look like a satisfactory outcome in the short term, but it carries grave risks for the party in the medium to long term. Here is why.
Over the previous decades of ANC rule, South Africa had witnessed a rapid decline in economic freedom, a growing economic malaise, and escalating levels of governance failure. Plainly, this was not at all what ordinary South African voters wanted.
In survey after survey, they made it clear that their top priority was job creation, followed by better government services and more effective crime fighting. Given a choice between economic growth and more welfare, large majorities of survey respondents chose economic growth and jobs.
However, the ANC remained committed to the National Democratic Revolution (NDR), a guiding framework under which it seeks long-term state control over the economy. It has retained this commitment even as it shed administrative capabilities and lost its electoral majority.
Cadre deployment and regulatory overreach still threaten reform efforts, as does a raft of old and new NDR policies that choke growth and innovation.
To name one example, Black Economic Empowerment (BEE) represents a significant barrier to growth. It has incentivised corruption and discouraged investment, while failing to uplift the poor. It has also involved keeping alive the long-discredited racial categories created by the architects of apartheid decades earlier, as expressed in over 140 racially indexed laws that remain on the South African statute books today.
To illustrate the bureaucratic madness of racial discrimination in employment, allow me to share with you an excerpt from an employment equity plan at the Department of Correctional Services from some years ago, as quoted in a Constitutional Court case (Solidarity v Department of Correctional Services [2016] ZACC 18).
The plan specifies the exact numbers of persons – by race and by sex – to be appointed at different levels of seniority within the organisation. For example, at levels 13-16, the plan demands the following appointments: “At level 13 African Males stand at 63 with a gap of -9 which indicates no African male should be appointed. 24 African Females, 4 Coloured Females and 1 Indian Female need to be appointed at this level. At level 14 only 3 African Females and 1 White Female needs to be appointed. At level 15 only 2 African Females and 1 African Male can be appointed.”
Instead of continuing with such dehumanising policies, the IRR recommends scrapping racial discrimination entirely and replacing BEE with EED (Economic Empowerment for the Disadvantaged): a plan for effective, broad-based, merit-driven economic empowerment.
A further example of a job-killing policy is the Expropriation Act which President Ramaphosa recently signed into law. Contrary to popular conception, the Act governs more than just land expropriations. It covers expropriation of all types of property, including tangible and intangible assets like company shares, pension savings, coin collections, buildings, patents and so forth.
The Act allows for any asset to be expropriated for less than market value, stipulating instead that compensation must be “just and equitable” – a slippery guideline, as a leading jurist warned – while taking into account a series of other conditions that cannot be properly quantified.
Why does this matter? Because one of the key reasons for South Africa’s low economic growth is its low fixed investment rate. Measured by an indicator called Gross Fixed Capital Formation, this should be at a level of around 30%, according to the government’s own plans, but it has averaged just 15% from 2014 to 2023. The global average is 26%.
Without the investments in factories, machinery and infrastructure which this indicator represents, the economy is limited in its ability to make goods and ship them to customers inside the country and abroad. It is very important for the country’s economic prospects that gross fixed capital formation should rise.
But when property rights are weakened through legislation such as the Expropriation Act, there is no prospect of generating more fixed investment in the economy. That means economic growth will remain low and unemployment will remain high.
Can this be changed? Can South Africa be put on a higher growth path? At the IRR, we believe the answer is yes and are setting out in detail how to do it.
We have published a series of eight Blueprint for Growth papers that provide concrete detail. We do not relent in pointing out the harmful effects of legislation such as the Expropriation Act. This year, we will be putting forward several pieces of draft legislation that describe better alternatives to existing laws, such as a Right To Own Bill as an alternative to the Expropriation Act.
We are launching a campaign through which we describe – together with ordinary South Africans – #WhatSACanBe. We are placing large volumes of compelling arguments in the public domain to explain the benefits of economic growth and build support for it. And we are beginning to see the impact, as pro-growth language is increasingly being reflected in political discourse.
As an example, in a moment of high political drama, yesterday the finance minister’s Budget speech was cancelled at the last minute, something that has never before happened in South Africa’s democratic history. The DA refused to support a proposed 2-point increase in the rate of Value Added Tax and justified its opposition with reference to the need for economic growth.
This is potentially an important political development. Up to this point the ANC’s partners in the GNU have not brought much influence to bear, and the ANC has concluded that it could effectively continue governing on its own terms and without taking much heed of its partners’ needs. The Budget impasse has shown the ANC that it is in fact no longer a majority party and must therefore take into account the priorities of its partners, at least occasionally.
The DA in particular has been in the process of turning into a coalition doormat, unable to secure Cabinet positions in proportion to its vote share, and unable to make any dent in two pieces of legislation that it had vehemently opposed while in opposition, an education amendment that strips authority from school governing bodies to place it in the hands of provincial education ministers, and the aforementioned Expropriation Act.
If the Budget impasse lets the DA rediscover some of its gumption, and shows the ANC that it must proceed more circumspectly while placing greater emphasis on economic growth, then good things could materialise in the years ahead.
I will provide a short overview of the reforms we believe to be necessary to get growth going. They are explored in greater detail in the Blueprint for Growth papers.
Firstly, substantial reforms are needed to improve the investment climate. This requires a credible and sustained commitment to property rights. It means removing threats to property rights originating from the state – such as the Expropriation Act – and from private actors, in other words criminals. Crime costs South Africa an estimated 10% of GDP annually. Investors do not want to live in a country where their lives and property are under constant threat. Decentralised, depoliticised policing, together with private-sector security solutions, is key to restoring law and order.
Secondly, fiscal policy has to be adjusted to South Africa’s governance reality. Research by IRR fellow Gabriel Crouse shows that over the past 30 years, the size of the state has consistently grown while the quality of the state has consistently declined. This development is untenable. Our Blueprint for Growth paper “Slash Waste, Cut Taxes” describes how to drop the VAT rate from 15% to 11.5% without increasing the deficit or reducing state activity, just by getting more value for money in public procurement. Our fourth paper, “In Service of the Public”, explains how to reform the public administration, while the fifth, “Reinforcing Growth Through Infrastructure” sets out how to get the crumbling infrastructure back on track. State-owned entities such as power utility Eskom, rail monopolist Transnet, and others are collapsing – private-sector involvement, even privatisation in some instances, is essential.
Thirdly, the labour market has to be liberalised and skills need to be massively improved. Race-based hiring rules divert the attention of employers from getting the right person for the job, while labour laws, union privileges and an extremely high national minimum wage make it more difficult for work seekers – young people especially – to find jobs.
The South African education system, despite being comparatively well resourced, is producing abysmal outcomes and needs urgent reform. It requires providing greater choice in education, for example through a school voucher system, and allowing for greater private sector involvement in education, including tertiary education.
Broadly, we argue that if the GNU liberalises labour laws, strengthens property rights, and cuts red tape, it can break the cycle of stagnation. If not – if reform stalls – it will become an ineffective caretaker government presiding over further decline, rather than a catalyst for growth.
All of this is important for the global free-market community. It is a test case for economic liberalisation in emerging markets, particularly Africa. South Africa, after all, is a country with a moderate, pro-growth population struggling under the suffocating yoke of the NDR. The ingredients for free-market success in SA are there, despite fierce opposition from an entrenched ideological political elite. But victory is possible.
The IEA and the IRR share a common mission: advancing free enterprise, limited government, and prosperity. This is a rare opportunity to shift a nation toward economic freedom, and one that we should not let go to waste.
The fight for free markets is global and I realise that the UK faces its own growth challenges. I hope that the IEA and the IRR will both be successful in helping their countries adopt solutions that will place them on higher growth tracks and look forward to future collaboration between our organisations.
[Images: Supplied – Dr John Endres outside the Institute of Economic Affairs in London, and addressing members of the IEA]
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