South Africa needs to invest R5.8 trillion to stop its collapse

South Africa needs to invest R5.8 trillion in the years leading up to 2030 to arrest the deterioration of its infrastructure and improve the country’s poor service delivery. 

This equates to around R725 billion a year, of which most will have to come from the private sector due to the government’s poor financial health. 

Typically, this investment would also come from public corporations, such as Eskom, Transnet, and SANRAL. However, many of these companies have also seen their balance sheets significantly deteriorate. 

This is feedback from the African Development Bank (AfDB), which outlined how South Africa can better use its financial resources in its latest Country Focus Report. 

The bank outlined the reasons why South Africa’s economy has underperformed its peers over the past 15 years and how its growth can be revived. 

For the past decade, the country’s economy has averaged an annual growth rate of 0.8% – far below the emerging market average of 4.5%. 

This has largely manifested as a financial crisis, with slow growth impacting tax revenue and exacerbating the deterioration of the state’s balance sheet when combined with elevated government spending. 

Alongside the government’s poor financial health, many of South Africa’s state-owned enterprises (SOEs) are burdened by substantial debt. 

As a result, the state is unable to invest as heavily in infrastructure as is needed to drive economic growth, stave off load-shedding and improve the efficiency of the country’s logistics sector. 

This means it has to turn to the private sector, which is sitting on over R1.4 trillion in cash waiting to be deployed into the economy.

The AfDB estimated that South Africa needs between $254 billion (R4.5 trillion) and $330 billion (R5.8 trillion) to tackle its ongoing crises. 

In particular, it stated that this money would be needed to address the country’s infrastructure and socio-economic gaps from 2022 to 2030. 

This includes investments in roads, energy, healthcare, and education, as well as the financing required to mitigate the country’s looming water crisis. 

Just to fast-track structural reforms in the electricity and logistics sectors, the country would need $12.8 billion (R228.8 billion) annually, the AfDB said. 

Where the money can come from

Given their immense financial difficulties, the money for this investment is unlikely to come from the government or public corporations. 

The AfDB said South Africa’s fiscal health remains a key concern for international institutions and global investors, with it deteriorating significantly over the past decade. 

This makes it unlikely that the state will be able to significantly crowd in investment from international institutions such as the World Bank, AfDB, and the International Monetary Fund. 

The last time the government ran a full budget surplus was the 2007/08 financial year. Since then, state spending has ramped up while growth has slowed. 

This has manifested into a looming financial crisis, with government debt soaring and tax revenue stagnating. 

This trend continued in the 2023/24 fiscal year, with the government’s full budget deficit widening to 5% of GDP from 4.4% in the prior year. 

The AfDB said this was due to the continued trend of increased public expenditure and lower tax collections, with total revenue declining to 27.1% of GDP. 

This declining revenue reflects a narrowing tax base amid reduced collections from import duties, VAT, the General Fuel Levy, and personal income tax. 

In contrast, total expenditure increased to 32.1% of GDP in 2024 due to rising debt-servicing costs and a growing public sector wage bill. 

As a result, South Africa’s debt-to-GDP ratio increased to 76.1% at the end of the 2024 fiscal year, with debt-servicing costs now amounting to over R1 billion daily. 

This is only expected to continue, with the state set to borrow R581.9 billion in 2025 from R415.7 billion in 2024, according to the AfDB.

Thus, most of the money for this investment will have to come from the private sector, which is sitting on over R1.4 trillion in cash deposits as it remains hesitant to invest in the local economy. 

With greater policy and regulatory certainty, alongside reforms to boost private participation in the economy, a substantial portion of this money should be funnelled into local investments.