One decision cost South Africa 5 million jobs and R4.5 trillion

The replacement of Thabo Mbeki with Jacob Zuma as ANC President marked the beginning of a lost decade for South Africa’s economy, with mismanagement and corruption running rampant. 

South Africa is still trying to recover from Zuma’s decade in power, during which many state institutions were hollowed out and lost critical capacity. 

This recovery is unlikely to be as swift as the collapse and will also result in the private sector having to play a much larger role in the South African economy because of the state’s poor financial health. 

While Zuma’s ascent to power coincided with the Global Financial Crisis (GFC) and the end of a commodity supercycle, the impact on South Africa from these shocks was exaggerated by the state’s mismanagement of the economy and corruption. 

This is feedback from Econometrix chief economist Dr Azar Jammine, who explained how South Africa’s economy stagnated over the past 15 years and why it is so vulnerable to external shocks. 

Jammine explained that South Africa’s economy has underperformed other emerging market economies over the past 15 years and is increasingly being left behind by faster-growing African peers. 

While South Africa is still significantly more developed than most African economies, its continental peers are catching up rapidly by opening their markets to private investment and implementing key reforms. 

For Jammine, it is clear what kicked off this period of economic stagnation in South Africa, with all roads leading to the ANC’s fateful Polokwane elective conference in December 2017. 

“There is no question about it. The real turning point happened to occur around the GFC and the end of a commodity boom, with it being the ascent of Jacob Zuma to the Presidency,” Jammine told the State of the Nation Podcast.

“He embarked upon this programme, supported by those who voted for him, which we call state capture now. They went on a deliberate programme of decimating our institutions and especially exploiting our state-owned enterprises.” 

This was done through various procurement programmes, where contracts were directed to individuals linked to the President at the time and his cronies. 

“After three or four years, South Africa suddenly had a shortage of money for basic services, with the government borrowing to spend money it did not have,” Jammine said. 

Public debt shot up from 26% of GDP to over 78% currently, with much of the government’s expenditure going towards consumption rather than investment. 

The state now spends 22% of all its revenue on servicing its debt burden, which is up from 7% at the end of Mbeki’s presidency. 

This all combined to drag South Africa’s economic growth rate over the past 15 years to an average rate of just 1.1% per annum. Over the past decade, it has averaged less than 1% growth per year. 

In contrast, the emerging-market average for the same period has been GDP growth of 4.5% per annum. While a relatively small difference on paper, compounded over 15 years, the impact is significant. 

South Africa’s economy would be around R4.5 trillion larger and support five million more jobs if it had just grown at the emerging market average. The state’s finances would also be in a far healthier position. 

Government is getting out of the way

Various efforts by the government to undo the impact of the Zuma presidency are beginning to bear fruit, with green shoots starting to show. 

These shoots have become particularly noticeable since the inception of the Government of National Unity (GNU), which has enhanced accountability and given more business-friendly parties positions of power. 

The ANC itself has shifted its economic policies to incorporate far greater private-sector participation, as the state’s balance sheet is too weak to invest adequately. 

Crucially, the National Treasury’s policy of fiscal consolidation has been implemented and is set to stabilise the country’s debt as a share of GDP in the current financial year. 

Jammine explained that the combination of these factors has seen investor confidence in South Africa soar, resulting in capital flowing into local assets and, hopefully, into new greenfield projects. 

“The green shoots that people are seeing now stem from signs that once the GNU was formed and the ANC could not do whatever it wanted in terms of spending, there is now a discipline in place,” Jammine said. 

“This discipline has forced the National Treasury to curtail spending to what it can afford, and, suddenly, international investors are looking at South Africa with a little more interest than before.”

Jammine said the length of the war in Iran is vital for South Africa’s economic improvement to gain further momentum. If the war drags on, the country could slip further back into stagnation. 

“There has been a marked improvement in sentiment, and one is hoping that that can generate its own virtuous cycle,” Jammine said. 

The improving fiscal situation has been coupled with significant reforms in the electricity and logistics sectors, which focus on increasing private participation. 

South Africa has not experienced severe load-shedding since early 2024, and the performance of Transnet’s ports has stabilised and begun to improve. 

The private sector is also set to play a much larger role in logistics, with companies set to operate key rail corridors and specific terminals at South African ports. 

This is expected to increase efficiency and unlock billions in investment from the private sector, which is sitting on a R1.8 trillion cash pile.

These policies may not be a clear turning point with regard to economic growth, but they are certainly a turning point in terms of how investors view South Africa. 

The key is to ensure that the momentum can be sustained and reforms accelerated to encourage companies to invest in the country, kickstarting faster economic growth.