South Africa finishes bottom of the class

South Africa’s economic growth rate over the past decade has been among the worst in the world, ranking on par with countries that suffered major disasters and war. 

Considering South Africa has had relative peace inside its borders and amongst its neighbours, with stable macroeconomic policy, this outcome is worse than 90% of other economies. 

In terms of inflation, the country has not fared much better, with it averaging an annual headline inflation rate of 5% for the past ten years. 

While not a catastrophe, this is a higher average rate than 70% of other countries and results in South Africa’s price level being 60% higher than it was in 2015. In other words, something that cost R60 ten years ago now costs R100. 

This is feedback from Reserve Bank Governor Lesetja Kganyago, who said that South Africa is finishing at the bottom of the class for growth and inflation. 

In a speech at the National School of Government on 12 August, Kganyago said that South Africa is not getting the report card any country wants. 

“As you know, economic growth in South Africa has been weak, averaging a mere 0.8% annually over the past ten years,” Kganyago said. 

“This growth performance is worse than that of 87% of other economies. The country’s growth was worse than 90% of economies in 2024.”

The handful of countries that have performed worse than South Africa over the past decade have been those that suffered major disasters, such as war or macroeconomic collapse. 

“Given that we have had peace and basic macroeconomic stability, South Africa’s growth is extremely disappointing,” Kganyago said. 

“What about inflation? Here again, we underperform. Our average inflation rate over the past ten years is 4.9%. This is not a catastrophe. Venezuela and Zimbabwe have excessive inflation rates of 9,000% and 251%, respectively.”

However, Kganyago explained that in comparison to other countries, our inflation rate is elevated, with South Africa’s price level being more than 60% higher than it was in 2015. 

This makes the country’s economy highly uncompetitive in global markets, with the cost of producing goods increasing relatively quickly compared to other countries. 

“In a nutshell, we are in the bottom 10% of the class for growth and the bottom 30% for inflation. This is not the kind of country report you want.”

Slow growth equals a financial crisis

South Africa’s slow economic growth has begun manifesting itself in the country’s fiscal accounts, with lacklustre growth worsening the government’s financial health. 

Tax revenue is highly dependent on economic growth, as it is the only way to sustainably raise the government’s income without raising tax rates and putting pressure on taxpayers. 

Slow economic growth limits any increase in revenue and worsens the state’s debt ratio as a share of GDP, creating a double whammy for the country’s fiscal accounts. 

In South Africa, the impacts of slow economic growth have been compounded by increased government spending, further deteriorating its financial health. 

Without faster growth and flat tax revenue, increased spending forces the state to raise debt to fund its expenditure programmes. 

This has left the South African government with a significant financial burden, with debt as a share of GDP rising above 76% in the past financial year. 

The upshot of this is that the government has much more debt to service, and with elevated interest rates, this results in significant interest expenditure. 

In the current financial year, the state is expected to spend over R1 billion a day servicing its debt, crowding out investment in infrastructure, healthcare, and education. 

By the 2027/28 financial year, if interest expenditure grows at the rate the National Treasury has forecast, debt-servicing costs will consume more of the government’s budget than social grants. 

Thus, some economists say that South Africa’s economic growth challenges are manifesting themself as a financial crisis. 

While the National Treasury’s policy of fiscal consolidation is bearing fruit, it will take years before the country’s debt burden is meaningfully reduced. 

The only real solution to South Africa’s slow-motion crisis is faster economic growth, which will resolve the country’s financial headwinds through increased tax revenue without raising rates.