South Africa’s lost decade

South Africa is still trying to recover from its “lost decade”, during which the economy was in serious decline – the effects of which are felt today.

When the ANC took over from the Apartheid regime after South Africa’s first democratic elections in 1994, the economy was in shambles.

Debt service costs as a share of GDP were crippling, and economic growth rates were declining.

The economy’s annual average growth rate was 1.0% between 1985 and 1990, falling to 0.2% between 1990 and 1994.

To turn the ship around, then-President Mandela and Deputy President Thabo Mbeki focussed on creating and implementing a policy framework to reduce government debt and grow the economy. 

They gradually reduced the fiscal deficit, avoided a debt trap, and limited any real increase in recurrent government expenditure.

Many South Africans and economists underestimate just how well the ANC ran the country’s economy in the immediate aftermath of Apartheid, head of the Social Research Foundation, Dr Frans Cronje, said.

“The ANC in its first decade in power does much better at restoring economic stability and raising living standards than it was ever given credit for,” Cronje said. 

“You will continue to read, including in the business press, that the ANC has presided over an era of service delivery failure, which is plainly wrong on its facts.”

In its 30-Year Macroeconomic Overview Of South Africa, the Bureau for Economic Research (BER) said that during the first fifteen years of democracy, GDP growth averaged 3.6% per year. It reached a peak of 5.6% in 2006. 

South Africa’s economy flourished under Mbeki. The government managed to run consistent budget surpluses, and the economy grew strongly at an annual rate of 4.1%. 

However, this changed after Jacob Zuma dethroned Mbeki as President. Pravin Gordhan took over from Manuel as Finance Minister, after which government spending spiked.

South Africa’s strong GDP growth during the Mbeki era stopped, and the country’s debt rapidly increased.

The last time the country posted a budget surplus was the 2007/8 financial year, after which the government has run 16 years of budget deficits. 

The trend accelerated under President Cyril Ramaphosa’s presidency despite rhetoric from the president and finance minister pledging fiscal discipline. 

This saw South Africa achieve a weak annual average growth rate of 1.1% between 2009 and 2023.

The term “lost decade” is often used to describe this period, roughly from 2014 to the present, which has been marked by slow economic growth, high unemployment, and increased inequality.

The BER said in its report that reading real GDP in level terms highlights the contractions and periods of recovery that followed crises like the Global Financial Crash and the Covid-19 pandemic. 

This can be seen in the graph below, courtesy of the BER.

After the large decline in 2020, it took the economy three years to recover to pre-pandemic levels. 

The dotted orange line in the graph above shows the level of real GDP had South Africa grown at an annual average of 2% since 2012, the year that growth dropped below 3%.

The BER calculated that the economy would have been 14% larger than it is today. 

“This might not seem substantial, but it would have allowed GDP to keep pace with population growth,” the organisation said.

“In such a counterfactual world, GDP per capita in 2023 would have been 8% larger than in 2012. In reality, compared to 2012, it is 5% smaller.”

Standard Bank chief economist Goolam Ballim said earlier this year that President Ramaphosa has a repair job on his hands and has not acted with the urgency the situation demands. 

If implemented, many of his policies are good and will resolve many of the country’s crises.

South Africa’s economic decline and “lost decade” can be seen in the graph below.