Reality check for South Africa

While South Africa has seen several positive economic indicators in recent months, the economy remains unstable, and growth will likely not reach the optimistic levels some expect.

This is according to Firstsource Money economist and executive director Redge Nkosi, who recently told Newzroom Afrika that South Africa needs more than a few positive indicators to achieve a sustainable rebound.

Nkosi’s comments come after it was announced that South Africa will see a significant fuel price reduction this week.

Thanks to a stronger rand and lower oil prices, the price of petrol and diesel will decrease by up to 66 and 150 cents, respectively.

In light of these significant decreases, many are optimistic that the price reduction will feed through into other parts of the economy, leading to lower prices overall.

However, Nkosi cautioned that, while South Africa may see inflation come down, it is not as straightforward as many may expect.

“I don’t think we can quickly think that by simply having such positive indicators, then the economy is going to be a very happy one for us going forward,” he said.

He explained that many people misunderstand the impact of voluntary reforms, as those currently being implemented in South Africa, on economic growth.

“I think there are other factors which are fundamental to the growth of the economy, which I’m afraid the South African government, the Reserve Bank, Treasury and the presidency mostly do not really touch on, which are so crucial for the economy to grow,” he said.

For example, he explained that many people overestimate the impact that having a Government of National Unity (GNU) will have on the economy.

He said South Africa’s economy lacks the fundamentals that would allow it to stabilise, minimising the potential impact of a more stable government.

Instead, he said South Africa should focus on economic fundamentals that will stabilise the economy and increase its potential growth.

South Africa is not growing fast enough

Nkosi explained that one thing South Africa needs to get right is increasing public and private investment in the economy to expand job creation.

“There should be massive investment – what we call capital accumulation – in the economy, and labour accumulation in the economy, not the total factor productivity that the South African economy is focusing on,” he said.

Total factor productivity is used to measure an economy’s efficiency in converting inputs like labour and capital into outputs.

“The economy doesn’t just grow because of efficiencies. Evidence tells us that it is because of capital accumulation,” he said.

He explained that capital accumulation and labour absorption are fundamental, and unless they begin to grow, South Africa’s economic fortunes will not meaningfully improve.

Stanlib chief economist Kevin Lings previously explained that, even if South Africa’s economic growth doubles, the economy would not grow fast enough to create the number of jobs needed to absorb new entrants into its workforce.

He said South Africa’s economic growth rate would have to more than triple for the economy to merely absorb the number of new entrants into the economy every year. 

While Lings said South Africa’s economy is showing positive signs, it is simply not growing fast enough to make a meaningful dent in the country’s unemployment crisis.

“We have got to do a helluva lot more to lift the growth rate on a sustainable basis and then get that to be accompanied by a meaningful increase in formal sector employment,” he said.

He pointed out that South Africa’s economy has expanded by 3.5% in real terms over the past six years. However, over that time, the population has grown by more than 6%. 

This indicates that economic growth is not keeping pace with population growth, exacerbating South Africa’s unemployment crisis.

“This results in income per capita falling, on average, resulting in the living standards of South Africans stagnating and then falling,” Lings said.