South Africa continues to face major economic challenges, with below-average GDP growth forecast for the coming years. Projections for 2024 indicate growth of just 1%, and 1.4% from 2024 to 2026, well below the 4% target set by the World Bank for emerging and developing economies.
These unencouraging figures for economic growth suggest an increase in unemployment, already at high levels, over the next three years. Young people are particularly affected by the lack of employment opportunities, while households are struggling to cope financially due to rising inflation, set at 5.1% year-on-year.
Faced with these bleak prospects in the short and medium term, significant reforms are necessary to reverse the trend. To achieve better long-term results, it is essential to build an inclusive and diversified economy.
As a priority, energy and logistics supply constraints must be addressed. Due to the increase in public debt, the government cannot commit significant resources to cover these deficits. However, reforms allowing the private sector to intervene more could be put in place. A first step was taken with the increase in the electricity self-consumption threshold, which should make it possible to add 11 gigawatts of capacity in the short term. However, more efforts are needed, as evidenced by the decline in the country’s manufacturing, mining and construction sectors in the third quarter of 2023, with energy shortages cited as a major factor.
It is crucial to facilitate public-private partnerships for larger-scale projects that significantly reduce the gap between energy supply and demand, in order to fill the gap in the short and medium term. Initiatives such as electricity generation by municipalities through waste-to-energy projects, in collaboration with countries like Malaysia, could be explored to reduce the growing problem of landfills in some parts of the country.
Regarding logistics, investments in improving port, road and rail infrastructure should be prioritized to facilitate foreign trade. In addition to existing trade agreements with Asia, Europe, North America and Latin America, South Africa is also expected to leverage the African Continental Free Trade Area agreement to increase its intraregional exports.
Public and private investments to improve logistics infrastructure could reverse the recent contraction in foreign trade, mainly due to delays at ports and inadequate rail infrastructure. Sectors such as agriculture could benefit from these improvements, as evidenced by the recent decline in fruit exports by 500,000 tonnes in 2023 due to delays at the Cape Town port.
Investing in economic diversification will lead to better long-term results. It is crucial to identify local industries with strong development potential and invest to make them grow. South Africa has an economic diversification index of 108.1 in 2021, well below the most diversified economies such as the United States, China and Germany.
It is imperative to invest more in sectors beyond natural resources and services. Economic diversification should be viewed in terms of facilitated expansion, aligned with national needs and leveraging available skills and resources.
Import substitution can also be an aspect of economic diversification. By identifying the country’s top 50 imports over the past five to ten years, it is possible to promote local production of these goods through targeted investments. These products could also be exported to the region, thereby strengthening intra-African trade.
Finally, to encourage long-term GDP growth, it is essential to further embrace technology and innovation across all economic sectors. Effective use of relevant technologies will make the economy more efficient and effective, thereby contributing to sustainable and inclusive growth.
In conclusion, South Africa faces significant challenges to its economic growth, but appropriate reforms and strategic investments in key sectors could pave the way for future prosperity. By diversifying its economy, improving its infrastructure and fostering innovation, the country can hope for a stronger and more inclusive economic future.