South Africa faces an uphill battle

Even if South Africa were to solve all of its problems locally, the weak global growth environment will make a turnaround far more difficult.

Allan Gray director Jithen Pillay recently outlined some of the factors weighing on South Africa’s growth and reform efforts.

He explained that if South Africa wants to ease its social and economic challenges, the country needs to grow its real gross domestic product (GDP) meaningfully. 

Over the past decade, South Africa’s economic performance has declined significantly, with an average annual growth rate of 0.8%.

Concerningly, GDP per capita growth has been negative or nearly zero over the past decade, excluding the post-pandemic boom in 2021 and 2022.

In its most recent economic survey of South Africa, the Organisation for Economic Co-operation and Development (OECD) attributed this low growth to several local factors.

This includes persistent insufficient access to electricity, the deterioration in the rail network and port operations, subdued investment, the high cost of doing business, a weak fiscal position and corruption.

To address this, South Africa has implemented various reforms, which have been successful to some extent.

For example, the turnaround in Eskom is one of South Africa’s most notable reform achievements. The country went from 335 days of load-shedding in 2023 to 83 in 2024 and only 13 in 2025 so far.

The OECD said this increase in electricity availability is a key factor supporting increased potential growth and activity.

However, it noted that electricity generation is still at historic lows, and it will take some time for business confidence, investment and workers’ skills to bounce back and increase potential growth.

Pillay explained that the key internal enablers that would allow South Africa to advance reforms meaningfully remain missing.

He said the Government of National Unity is tenuous, capital investment is stagnant, and infrastructure performance is subpar. 

Even more worryingly, he said that, even if South Africa solves all of its problems, the weakening global growth environment makes a turnaround much harder.

The decline in South Africa’s potential growth can be seen in the graph below, courtesy of the OECD.

South Africa’s big risks

In its survey, the OECD explained that risks to reform activity in South Africa appear to be on the downside, citing both external and domestic factors.

The organisation said that geopolitical tensions globally could lower global growth and trade and increase financial market risk aversion. 

It specifically noted risks posed by the United States’ tariff policies, with South Africa set to be hit with a 30% tariff on imports to the US starting on 1 August 2025.

The OECD warned that tariffs and the risk of further changes could result in lower exports, a depreciation in the exchange rate and higher inflation.

Pillay pointed out that the policy uncertainty these tariffs have caused is also not usually supportive of private sector capital investment.

In February this year, Oxford Economics revealed that fixed investment in South Africa is back at levels last seen in 2004, as reduced business confidence has hampered private-sector investment.

Fixed investment is one of the critical factors needed to ensure South Africa’s economy grows fast enough to support its growing population and address its unemployment crisis.

Oxford Economics explained that the slump in fixed investment over the past two decades points to the country’s broader economic decline.

It said most investments the private sector has made over the past few years have been ‘subsistence investing,’ as companies allocate capital to keep their businesses functioning rather than investing for growth.

Therefore, these investments do not lead to higher economic growth or more job opportunities.

This and South Africa’s other local struggles make the country highly vulnerable to external shocks like low global growth or a weaker trade environment.