South Africa’s moment of truth

The rest of 2026 will show whether the South African government’s reform agenda has been executed sufficiently to boost fixed investment and sustainably improve economic growth. 

This moment of truth is made clearer by the US-Israeli war on Iran, which has disrupted some of the cyclical tailwinds that have bolstered South Africa’s economic performance over the past year. 

These tailwinds, such as soaring precious metals prices and declining interest rates, were never going to last forever, and, as such, the economic future of South Africa cannot depend on cyclical factors. 

For sustained economic growth in the long run, the economy has to be supported by significantly greater levels of fixed investment, the Centre for Risk Analysis (CRA) said in a recent research note. 

This investment in infrastructure, machinery, and equipment is crucial for making a country’s workforce more productive and increasing economic output. 

In fast-growing economies, fixed investment as a share of GDP is between 25% and 30%. In some emerging market economies, it is even higher. 

For the past decade, South Africa’s fixed investment levels have been stuck between 13% and 15% as a share of GDP, resulting in lacklustre economic growth. 

The lack of spending on infrastructure is particularly noticeable, with the country suffering from load-shedding, logistics bottlenecks, and sporadic water shortages. 

Reforms in the electricity and logistics sectors, coupled with reduced regulatory red tape, are expected to boost private companies’ fixed investment in South Africa. 

These reforms have been slow and steady, with the CRA saying the government lacks the urgency the situation requires. 

While South Africa’s economic growth improved in 2025 to 1.1% from 0.5% in the prior year, it was primarily driven by household expenditure and a precious metals boom.

Household spending surged by 3.6% in 2025, contributing 2.4 percentage points to growth. At the same time, fixed investment fell by 2.2% year-on-year, dragging growth down by 0.3 percentage points. 

The problem and moment of truth

While growth supported by consumer spending is not a problem in itself, it is unsustainable over the long run, as cyclical factors can shift and reduce disposable income. 

Since 2024, backed by lower fuel prices, lower inflation, and reduced interest rates, South African households have driven the country’s economic growth. 

But the CRA warned that this growth has not been driven by production and investment, making it unsustainable in the long run. 

“Household consumption is especially sensitive to external variables such as fuel and electricity prices, transport costs, and municipal rates,” the CRA said. 

“With external pressures increasing and very likely depressing spending, South Africa is at substantial risk of returning to below 1% growth – especially because fixed investment is not growing.” 

Soaring international oil prices since the US-Israeli war on Iran kicked off on 28 February will see fuel inflation rise and push prices higher across the South African economy. 

These increases, of R3.06 per litre of petrol and R7.51 per litre of diesel, will be enough to take inflation above 4%. 

This is coupled with rising electricity prices, which will increase from 1 April. Nersa approved an average 8.76% increase in electricity tariffs for direct Eskom customers. 

From 1 July 2026, the tariff for municipal bulk purchasers will increase by 9.01%. The fuel and electricity price increases will feed through to higher prices across sectors, pushing inflation above the Reserve Bank’s 3% target. 

“In our assessment, interest rates will be maintained at the current level for the time being. Any cuts in 2026 are highly unlikely, and increases this year cannot be ruled out,” the CRA said. 

As a result, household spending is unlikely to continue growing at the same rate it did in 2025, putting pressure on broader economic growth in South Africa. 

South Africa is also set to lose out on additional revenue from a precious metals boom, with gold and platinum prices plunging since the war in Iran began. 

Additional revenue from these sources was estimated at R30 billion to R40 billion for the current financial year. This is now likely to be much less. 

The CRA said South Africa now has to rely on its reform progress to drive investment and economic growth, with it being a key moment of truth for the country. 

“Now, with international market and investor sentiment ebbing, 2026 will show whether South Africa’s policy and legislative ‘reforms’ have done enough to shift fixed investment onto a higher track,” the CRA said. 

For sustained growth, this will have to be the case, as the country cannot depend on commodity prices and household spending alone.