Dawie Roodt’s bad news for South Africa

South Africa is unlikely to reach its target of 3% economic growth in the coming years as, despite the formation of a new government, the policy of the state remains broadly the same as it has been over the past decade. 

This is feedback from Efficient Group chief economist Dawie Roodt, who outlined why South Africans should not expect a significantly improved outcome from the same set of policies. 

Roodt’s comments come on the back of the launch of Phase 2 of the government’s partnership with businesses to revive the local economy. 

Phase 2 would aim to unlock R23 billion in private sector investment in the energy sector, boost renewable generation capacity to 4 GW, and construct 1,000 kilometres of new transmission lines.

It will also seek to attract around R28 billion in investment in rail infrastructure, he said, to improve the amount of freight moved by Transnet to 193 million tons.

This phase would focus on boosting economic growth to around 3% in the next few years by accelerating reforms in key sectors. 

Research from Business Unity South Africa (BUSA) shows that if reforms within the electricity and logistics sectors are accelerated and private investment picks up, GDP growth could reach 3% by the end of 2025. 

Discovery CEO and vice president of BUSA Adrian Gore said 3% GDP growth would completely change the country’s outlook. 

Gore told Daily Investor in an interview that optimism is vital for any economy to grow and plays a key role in shifting the narrative around the country. 

He explained that it is vital for the economy to grow, even at just 2% to 3% – the growth does not have to be dramatic. Even that level of growth will feel different to everyone compared to the stagnation of the past decade. 

South Africa also has a very strong job coefficient. This means that when the economy grows, even at a relatively low level, jobs are created. 

Gore said that for every percentage point of economic growth, the South African economy increases employment by between 0.5% and 0.7%. Economic growth of 3% could create 1 million additional jobs by 2030. 

This level of economic growth will also boost sentiment in South Africa and from foreigners towards the country.

“These targets are a massive stretch, but we believe we can get there,” Gore said. 

Other business leaders, including Standard Bank CEO Sim Tshbalala, said GDP growth of over 2% would fundamentally change the investment landscape in South Africa. 

He explained that company’s will allocate money towards countries that are growing and offer the highest potential return on investment. If South Africa can grow more rapidly, it can regain its place among these countries. 

3% GDP growth won’t happen with the ANC

In a recent interview, Roodt explained that while South Africa has a new government, not much has fundamentally changed regarding the country’s economic policies. 

“We have a new government, but still the same dominant political force – the ANC. The policies are still the same, and the ideology is still broadly the same,” Roodt said. 

These are the same policies and ideologies that have driven South Africa’s poor economic outcomes over the past decade, with the country averaging less than 1% GDP growth in that time. 

“We are going to continue doing the same thing and expect a different outcome? I doubt that will happen. No, we are not going to see 3% economic growth any time soon.” 

“What is needed is a government with a different ideology and, of course, with different economic policies that can stimulate growth.” 

Roodt explained that the optimism seen in South Africa’s financial markets is merely the result of relief that the election outcome was not even worse for the country. 

There was a strong possibility that the ANC would partner with other left-leaning political parties, which would result in further economic decline. 

Thus, South African assets are in a much better position than they were pre-election, but the rally will be difficult to sustain without economic growth. 

Roodt said this will spill over into the local economy and drive down inflation while boosting household wealth. 

However, while sentiment is improving, fixed investment will only pick up as a result of improved economic growth. The money flooding into South Africa is termed ‘hot money’ and can be left at the click of a button. 

“Overall, the improvements will be on the margin. It may result in improved economic growth of 1.5%, but South Africa needs much, much higher levels of growth.”