South Africa’s economy is stagnating. From 2012 to 2023, the average annual growth rate was just 0.8%. In 2024 it declined to 0.5%. In the first quarter of 2025 it slowed to a barely perceptible 0.1%, according to figures released by Stats SA on Tuesday.
President Cyril Ramaphosa announced his intention to raise growth to 3% by the end of 2025, but this target is already out of reach. Independent forecasts put the likely figure closer to 1%. That would mark 14 years of near-zero growth. In a country with mass unemployment, high public debt, and widespread poverty, this is not a stable or sustainable trajectory.
The government has chosen infrastructure investment as its primary lever to lift the growth rate. It is certainly true that South Africa’s infrastructure is in a dire state. Electricity supply has been unreliable for more than a decade. Rail and port bottlenecks have strangled exports. Roads are potholed and water systems are failing.
Addressing these deficits is clearly necessary, and public investment here is overdue. But the belief that infrastructure spending alone will restart the economy is mistaken.
The impact of improved infrastructure on growth is real but limited. It could lift the growth rate closer to 2%. That would be a welcome improvement, but it would fall far short of what is needed to meaningfully reduce unemployment and lift millions out of poverty. Economic growth in emerging markets typically requires sustained growth rates above 4%. South Africa is nowhere close.
If infrastructure is not enough, why has it become the centrepiece of the government’s economic strategy? The answer lies in political convenience.
It is far easier to persuade politicians to spend more money than to implement difficult reforms. Infrastructure spending generates visible ribbon-cutting moments, makes politicians popular with voters, and helps oil the machinery of patronage.
In contrast, addressing the deeper constraints on growth requires political courage and a willingness to confront vested interests. Two areas, in particular, demand urgent attention: crime and policy.
South Africa’s crime epidemic is an economic threat. It is caused by many deficiencies: the rule of law is weak. The police are understaffed and poorly trained. Conviction rates are low. The courts are overburdened, and justice is often delayed or denied.
Investors, both foreign and domestic, are understandably wary. Capital does not flow into environments where contracts cannot be enforced and where business operations must contend with extortion, theft, and threats to personal safety.
Runs into resistance
Fixing this is not merely a matter of resourcing the police. It means rooting out corruption, professionalising law enforcement, and restoring trust in public institutions. But this is where reform runs into resistance.
Elements within the ruling party are themselves enmeshed in corrupt networks or maintain alliances with criminal interests. There is an inherent conflict of interest that makes the political will to act unreliable at best. As President Ramaphosa memorably wrote in a letter to ANC members in 2020: “Today, the ANC and its leaders stand accused of corruption. The ANC may not stand alone in the dock, but it does stand as Accused No 1.” This remains the case today, five years later.
The second barrier to growth is policy. South Africa has accumulated a thorny thicket of laws and regulations that choke investment.
These include race-based procurement and employment laws as well as race-based licensing requirements (referred to as “third-wave BEE”). Add to that rules that undermine property rights such as the new Expropriation Act, BEE rules that force businesses to render a share of their company ownership to empowerment partners chosen for their racial identity and their political connections to the ANC, and mining and water legislation that expropriated mineral and water rights without compensation under the guise of custodianship.
All these rules place onerous, uncertain, and often arbitrary burdens on potential investors. They do not merely add red tape. They signal hostility to private enterprise. They tell investors that their assets are insecure, their autonomy is conditional, and their success is dependent on political favour.
The cumulative effect is to depress fixed investment, which has fallen to around 15% of GDP, a level consistent with an economic growth rate of around 1%.
South Africa’s fixed investment rate is far below the global average of 26%, and well below the 30%-plus typical of fast-growing emerging markets. Since the formation of the Government of National Unity, gross fixed capital formation in South Africa has changed by +0.2% in Q3 2024, -0.5% in Q4 2024, and -1.7% in Q1 2024. Investors remain skittish.
Although more fixed investment is desperately needed, removing the crime and policy barriers that keep it away is politically difficult because they are tied to the ANC’s ideological identity and patronage networks.
Scrutiny
Will the necessary reforms be enacted? Perhaps. The government has promised more infrastructure investment, and the intense international scrutiny that followed President Ramaphosa’s recent meeting with US President Donald Trump may force the government to act on crime.
On policy, reform is lagging, but electoral pressure could yet compel change. Support for race-based policies is visibly eroding. Recent IRR survey results show that voters do not back the Expropriation Act or BEE.
81.7% of respondents want public procurement to be placed on a value-for-money basis, rather than buying more from black-owned companies even if it means paying more and getting less value for the same money, as is currently the case. 68.1% oppose the Expropriation Act somewhat or strongly. 83.7% agree that the different races need each other for progress and there should be full opportunity for people of all colours. 84% agree that appointments should be based on merit rather than race.
Even some former defenders of these policies are now hedging their positions. Earlier this week, News24 ran an article with the headline “BEE policies have failed”, written by Qaanitah Hunter, a journalist who supports the ANC’s programme of racial transformation. Some months earlier, her publication had asked: “Is it time for BEE to end?” It is becoming increasingly obvious that the answer is “yes”.
True, ANC leaders including President Ramaphosa, Gwede Mantashe, the mining minister, and Nomakhosazana Meth, the labour minister, continue to double down. But their posture looks more defensive than determined. The centre of gravity is shifting, slowly but surely.
Will not suffice
To grow the economy at the rate South Africa needs, all three areas – infrastructure, crime, and policy – must be tackled together. One without the others will not suffice.
The IRR will continue to make the case for What SA Can Be, and to campaign for the reforms that can unlock investment, create jobs, and give South Africans the future they deserve.
Our Blueprint for Growth series of papers describe how to create an investment-friendly climate and cost-effective governance that can lead to a better life for all South Africans. Our #WhatSACanBe pledge gives those who want to see South Africa succeed an easy way to show their support. We encourage you to sign it and share it.
[Image: mavm]
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