SARB Governor Lesetja Kganyago warns of structural problems in South Africa

South Africa’s economy is growing extremely slowly despite increased output, pointing to structural problems holding the country back.

South African Reserve Bank (SARB) Governor Lesetja Kganyago recently spoke to CNBC at the International Monetary Fund’s Springs Meetings.

He said South Africa’s economy only grew by 0.6% last year despite closing the output gap. “What that tells us is that the problems of this growth are structural in nature,” he said.

According to the SARB’s forecasts, South Africa’s economic growth is set to average just over 1% over the next two years.

“Clearly, the structural changes need to be implemented to get this economy growing again,” the Governor said.

He explained that South Africa’s economy needs to raise its potential growth rate to see meaningful improvements in the future.

The SARB predicts 1.2% GDP growth for South Africa in 2024 and has pointed to supply-side problems being the reason for the country’s low growth in 2023. 

In its March Monetary Policy Statement, the SARB said electricity load-shedding was worse than in previous years. Port and rail problems also emerged as binding constraints on output.

“Our forecasts indicate a modest growth acceleration from this year as these supply-side constraints relax,” the SARB said. 

“In particular, we expect the load-shedding burden will ease somewhat. While we estimate electricity shortages took 1.5 percentage points off GDP last year, we think this will moderate to 0.6 percentage points this year and 0.2 percentage points in 2025.”

The SARB estimates that electricity shortages took 1.5 percentage points off GDP last year. It expects this to moderate to 0.6 percentage points this year and 0.2 percentage points in 2025.

“Overall, we see growth at 1.2% this year, improving to 1.6% by 2026. These projections are better than the 2023 outcome but below longer-run averages, which are around 2%.”

The SARB’s concerns are shared by the National Treasury, which predicts 1.3% GDP growth in 2024.

In the February 2024 Budget, the National Treasury said GDP growth had averaged only 0.8% since 2012, and this rate is insufficient to address high levels of unemployment and poverty.

“Long-term growth is highly dependent on improving capacity in energy, freight rail and ports and on continuing to reduce structural barriers to economic activity,” it said.

“The economic growth strategy prioritises macroeconomic stability, structural reforms and improvements in state capability to raise growth rates sustainably.”