South Africa sitting on a ticking time bomb

Institute of Race Relations CEO John Endres warned that South Africa is sitting on a ticking time bomb, and the only way to defuse it is economic growth.

Endres shared his views during a question-and-answer session at the second annual BizNews Conference, which was held in Hermanus.

He said South Africa’s high youth unemployment rate, which sat at 46.1% in the first quarter of the year, is of grave concern.

Of the 10.5 million people aged between 15 and 34 who were available and willing to work in the first quarter, only 4.8 million were unemployed.

The youth unemployment rate has stubbornly remained above the 40% mark since the third quarter of 2020, peaking at 49.3% in the middle of 2021.

Endres added that it is equally concerning that approximately 75% of unemployed people have been in this category for over a year.

“The longer a person has been out of the job market, the harder it is to get back into employment,” he said.

“This is a huge ticking time bomb and a tremendous problem for South Africa, and there is no way to solve it except for fast economic growth.”

He added that most of South Africa’s problems, including rising debt, budget deficits, and unemployment, will be addressed through economic growth.

Endres’ views align with those of renowned economist Dawie Roodt, who said South Africa is heading for a serious financial crisis.

He said South Africa’s national government debt-to-GDP ratio is around 77%, and 85% of you add the debt from state-owned enterprises and local authorities.

Even more concerning is that the country’s debt is rising at an annual rate of around 2% to 3% of GDP, which should raise alarm bells.

“We are heading for a serious financial crisis because South Africa’s debt levels are around R6.5 trillion. That means every South African owes R100,000 more than they think,” he said.

Roodt explained that South Africa is spending money on things that will not result in economic growth, and it does so by incurring debt.

“South Africa is borrowing long-term money, and the Minister of Finance is spending it on short-term current expenditure, essentially destroying capital,” he said.

He stated that capital formation in South Africa is approximately 15% of the country’s GDP. This needs to be increased to 25%.

7.9 million personal income taxpayers fund 28 million grant recipients

Roodt explained that South Africa is in an unsustainable financial situation due to the structure of the economy and tax base.

The 2025 Budget revealed that South Africa’s 7.9 million personal income taxpayers fund 28 million grant recipients.

However, these taxpayers also include many government employees. This means that approximately 30 million South Africans rely on a state income.

The biggest revenue stream for the state is personal income tax. Here, 978,140 South Africans, or 1.5% of the population, pay 60.9% of all personal income tax.

Even more concerning is that only 235,542 South Africans, or 0.4% of the population, pay 33% of all personal income tax.

South Africa’s latest tax statistics further reveal that only 1,051 companies pay 72.3% of all company income tax in the country.

In other words, companies with taxable income greater than R100 million constituted 0.1% of the total number but contributed 72.2% of taxable income and 72.3% of assessed tax.

South Africa is already over the Laffer curve with these two sets of taxes, which means that further tax increases will not produce additional tax revenue.

“The state’s finances are in very deep trouble and we are heading for a financial crisis in South Africa,” Roodt said.

He said the only way South Africa can fix its disastrous financial situation is through economic growth. “There is nothing else we can do,” he said.

The way to achieve this is by protecting private property rights, encouraging free trade, and having sound money.

“When you do these three things, I can guarantee you that the South African economy will grow,” Roodt said.

South Africa’s economic indicators