Dawie Roodt’s three simple rules to grow South Africa’s economy

Economist Dawie Roodt said these three steps will guarantee economic growth in South Africa: protecting private ownership rights, encouraging and protecting free trade, and achieving low inflation.

As part of the recent Efficient Expedition, Roodt, the chief economist of the Efficient Group, set out his three steps to growing South Africa’s economy.

He said the government should forget about creating jobs for now and focus on building the economy, as a strong economy will lead to job growth.

South Africa’s economic growth has been muted over the past few years. Excluding the post-Covid boom in 2022, the country’s economy has grown by less than 2% for over a decade.

In 2023, South Africa’s GDP growth was only 0.6%, one of the worst years for economic growth in recent history.

Many experts had high hopes for South Africa’s GDP growth at the start of this year. For example, the World Bank expected economic growth to double to 1.2%.

However, despite some green shoots having appeared in 2024 so far, many of these expectations have since been revised downward.

In the Medium-Term Budget Policy Statement (MTBPS) presented at the end of October, Finance Minister Enoch Godongwana revealed that the National Treasury has also revised its GDP growth projection downward.

In the February Budget, the government projected growth of 1.3%. However, it now expected growth of 1.1%. Over the medium term, the Treasury projects economic growth to average 1.8%. 

“This underscores the need for higher inclusive growth to meet the aspiration of a better life for all,” the minister said.

He explained that the MTBPS would lay out the government’s strategy to grow the economy and is anchored on four pillars:

• Maintaining macroeconomic stability
• Implementing structural reforms
• Supporting growth-enhancing infrastructure
• Building state capability

Standard Bank chief economist Elna Moolman said it was encouraging that the MTBPS placed significant emphasis on growth and fiscal reforms, with new interventions to accelerate infrastructure spending clearly a priority for the government. 

“On balance, this is a growth-supportive fiscal statement, and there might indeed be some upside risk to the medium-term fiscal forecasts from Treasury’s somewhat conservative economic growth estimates that remain below 2% throughout the forecast period,” she said.

Roodt said only three basic starting points are needed to kickstart South Africa’s economy, which are outlined below.

Private ownership rights

Roodt said the first and most important step is to protect people’s right to private ownership.

He said this should not be limited to just property rights but should also be broadly defined to include the right to your life, labour and movement.  

Roodt has previously explained that in South Africa, private property rights are not fully protected, partly by design and by incompetence. 

For example, the looming threat of expropriation without compensation does not give certainty regarding the government’s approach to private property. 

Furthermore, the lack of safety and security in South Africa shows that the government is unable to protect these rights. 

Free trade

Roodt said the second step, and one that follows from the protection of private ownership rights, is to encourage and protect free trade 

“Free trade is creating value out of nothing because, after free trade, both parties are better off,” he explained.

“Free trade is critically important, but free trade won’t be possible if you don’t protect private ownership.”

South Africa’s government has come under fire in recent years for the significant amount of red tape surrounding so many trade processes in the country.

Several industry experts have called on the government to cut through the red tape by relaxing certain restrictions that prevent free trade.

DRDGOLD CEO Niël Pretorius recently added his voice to the chorus of business leaders saying that South Africa’s regulatory environment is too burdensome for companies and prevents investment in the country.

Pretorius told BusinessTimes that applying for water licences “is like setting fire to tax”, as the gold producer took a R300 million hit from administrative delays. 

The company specialises in recovering residue metal from tailings retreatment and is 50.1% owned by Sibanye-Stillwater. 

“If you look at it in isolation, there is R300 million worth of revenue lost to this economy, of which a significant proportion would have been income tax. It is like setting fire to tax.”

Low inflation

The third step on Roodt’s list is achieving a low inflation rate, which he explained would affect how resources are allocated in South Africa.

“Low or high inflation undermines the allocation process of resources in the economy. That’s why it’s critically important to have low inflation,” he said.

Low inflation means the rand’s value is protected and, in some cases, enhanced. This is key to providing certainty for foreign individuals looking to invest in the country.

Without a stable currency, it is unlikely that South Africa can become an attractive destination for foreign investors as the return on investment cannot be guaranteed. 

Roodt said there are several reasons why South Africa has high inflation, including administrative costs passed down by the government, high electricity prices, and a high petrol price.

“We must create a more competitive macroeconomic environment by, amongst other things, getting rid of these administrative costs,” he said.

“Do these three things and I guarantee you, economic growth will take place.”

“However, the first and most important step is that we should start feeling good about South Africa.”