Three provinces drive South Africa’s economic growth

Gauteng, the Western Cape, and KwaZulu Natal have consistently grown their economies faster than the national average.

On the other end of the scale, the Northern Cape, North West, and the Free State have been a drag on the country’s economic activity. 

The difference in economic prosperity will likely widen in the coming years as South Africa’s economic growth is very uneven. 

Old Mutual Wealth investment strategist Izak Odendaal said South Africa is on the cusp of an economic revival if the new government can accelerate the implementation of existing reforms. 

“There needn’t be too much reinvention of the wheel as many important reforms were already underway before the election and just need to be cemented,” he said.  

Notably, Operation Vulindlela, the joint initiative between the Treasury and the Presidency set up in 2020, will continue tackling a focused list of obstacles that impede economic growth.

Fiscal consolidation has also been underway for some time and should continue, though the method could shift significantly under the new coalition. 

The retention of Enoch Godongwana as finance minister is a good starting point. There is already some evidence of progress, as the government posted a small primary budget surplus in the 2023/24 fiscal year. 

This means tax revenue exceeded non-interest spending for the first time in 15 years. This is a key step towards bending the trajectory of public debt, which stood at R5.2 trillion (75% of GDP) at the end of the first quarter.

In other words, while politics could be messy and uncertain, economic policy is still likely to move in the right direction, if gradually and unevenly so. 

Odendaal said this will raise the economy’s medium-term growth profile but may result in some sectors and areas of the country remaining stagnant. 

The main effect will be increased migration to South Africa’s major metros, which will put more pressure on already overwhelmed electricity, water, and sanitation infrastructure. 

Gauteng has already experienced severe water shortages due to population pressures as people flood the province searching for economic opportunities. 

In its 30-year macroeconomic review of South Africa, the Bureau of Economic Research (BER) outlined the country’s poor economic growth and how unevenly distributed economic activity is in South Africa. 

Of the country’s nine provinces, Gauteng contributes the most to South Africa’s economy, adding more to its GDP than the Western Cape and KwaZulu Natal combined. 

At the end of 2022, South Africa’s smallest province had a GDP of R2.3 trillion, compared to KwaZulu Natal’s R1.1 trillion and the Western Cape’s R973 billion. 

Since the dawn of democracy, these three provinces have outperformed the rest and even the country’s annual growth rate. 

South Africa has grown at a compound annual rate of 2.3%, while Gauteng has managed 2.7%, the Western Cape 2.6%, and KZN 2.5%. 

Conversely, the country’s three smallest provinces combined contribute less to South Africa’s GDP than the Western Cape. 

The North West’s GDP in 2022 stood at R424 billion, the Free State’s at R327 billion, and the Northern Cape at R146 billion. These provinces are the only three to average below 2% growth since 1994. 

The average GDP per capita across South Africa’s provinces makes this difference even more stark. 

Individuals in Gauteng have an average GDP per capita of R143,430 per annum, while those in poorer provinces such as the Eastern Cape and Limpopo average around R81,760 per annum.