South Africa’s secret weapon

South Africa has an immense demographic dividend, with its working population growing at the same rate as its total population. 

However, while this is a tailwind, with a stagnant economy unable to absorb a growing number of working-aged individuals, problems may arise. 

This is feedback from Allan Gray’s chief investment officer, Duncan Artus, who explained how South Africa can benefit from the demographic tailwind. 

Often termed the demographic dividend, the tailwind refers to the accelerated growth that can occur when a country experiences a growing workforce. 

A larger proportion of the population being of working age can boost economic growth through increased savings, increased labour force participation, and investment in human capital. 

Artus explained that the tailwind is a common factor among emerging markets that have grown strongly in recent decades, as a growing workforce is central to strong economic growth, with exceptional productivity growth. 

Speaking at Allan Gray’s The Times investment update for the first quarter of 2025, Artus tried to end his presentation with some positivity regarding South Africa’s future. 

“This is my last slide because a lot of the questions are negative on South Africa, but we have one good thing going for us in the country versus the developed world,” Artus said. 

“We have a growing population and, crucially, we have a growing young population that is able to work and grow the economy.” 

In contrast, the population in many developed countries, particularly in Western Europe and Japan, are shrinking as their replacement rate is below 2.1. 

More worryingly for these countries is that their workforce is shrinking even faster than their total population, resulting in a rapid decline in ‘producers’.

This is a major problem for countries like Germany and Japan, which have extensive pension systems and elderly support programmes that require state funding. 

With an increase in people being paid pensions and receiving elderly care due to ageing populations, increasing pressure is being placed on these systems. 

At the same time, the workforce, and thus tax base, of these countries is shrinking, presenting a significant fiscal crisis. 

South Africa is on the opposite side of the equation in this regard, with a young population that is growing. This should, in theory, produce a tailwind for the local economy. 

South Africa’s unemployment problem

However, Artus warned that this tailwind is at risk of being wasted in an economy that has not meaningfully grown in the past decade. 

“We have a lot of young people and we have a lot of young people in the workforce, but we do not have an expanding labour force participation rate,” Artus said. 

“As our chairman, Ian Liddle, says, ‘It does not help if you have got a lot of young people that do not have a job’.”

This creates a problem of its own, with a young population that is at risk of becoming dissatisfied and willing to participate in extreme governance changes. 

Political and economic analyst Dr Frans Cronje explained that the easiest way to take energy away from radical and populist politics in South Africa is to grow the economy. 

Cronje explained during a PSG Think Big webinar that South Africans are an incredibly moderate population, but without economic growth, populism may continue to grow. 

Data indicates that around seven to eight South Africans of ten all share the same moderate values, such as a desire for increased security, free markets, and a free and open society. 

However, this may shift if the living standards of South Africans continue to stagnate and, in some cases, decline. 

Over the past decade, the country has only managed to grow at an annual rate of 0.8% compared to a population growth rate of 1.6%.

This means that, on average, South Africans have gotten steadily poorer over the past decade, leading to increased dissatisfaction. 

The good thing is that, along with the demographic tailwind, South Africa’s economy is poised for rapid growth if the right policies are adopted. 

Cronje explained that if the country can improve its fixed investment rate by ten percentage points to 25% of GDP, South Africa could easily grow at 4% per annum. 

If the country can achieve this growth rate and sustain it for the next twenty years, then unemployment will drop to 10% and the energy behind most populist politics will be dismissed.