Ultimately, there is no solution to South Africa’s socio-economic crises without high economic growth, sustained over the long term. This fact is repeated daily from across the political spectrum. But it is about as helpful as saying that there is no solution to a drought without water. The real questions are: what kind of growth is needed? How will it be achieved? And why has there not been any growth in the first place?
The message from the latest State of the Nation address is that economic reforms are finally beginning to bear fruit, and South Africans should begin to see the benefits soon. But weekly headlines point to the closure of factories, fuel-price inflation shocks as a result of the Persian Gulf War, and increasing violent crime and instability.
Imagine you had put yourself in a coma during the 1990s. You were hoping to wake up and see all the progress that had been made over the past thirty years. You will be devastated to learn that key indicators still paint a miserable picture:
- An unemployment rate of 43.1%, the highest of any country
- 37.9% of South Africans are still below the lower-bound poverty line
- A before-tax Gini coefficient of 0.66, the most unequal of any country
- A carbon intensity of 0.56kg of CO2 per $ of GDP, the 9th highest of any country
- Average GDP growth of less than 1% per year over the past decade.
So, what’s wrong with the South African economy? Any diagnosis needs to begin with a look at the patient’s history. And the economy has been in poor shape for a long time. Its health started to break down from the late 1970s onwards. Profitability of companies in the manufacturing sector fell from 40% in the 1950s to below 15% in the 1980s, partly because only a minority of the population could afford to buy anything other than basic goods. The 1980s to early 1990s saw a number of recessions, and investment in fixed assets (such as factories) fell as low as 1% of GDP, compared to 16% in the 1970s.
Surrender to neoliberalism
Following the democratic transition, in 1996, the Reconstruction and Development Plan (RDP) was abandoned, and the Growth, Employment and Redistribution (Gear) programme was adopted. Gear represented a more total surrender to the dominant economic thinking. It emphasised that the state needed to step back from the economy, integrate with global markets, and let the private sector work its magic. Taxes and trade tariffs were reduced or eliminated, and restrictions on cross-border movements of capital were relaxed. Key state-owned enterprises (SOEs) were either privatised or corporatised (made to run like private companies, despite being state-owned).
The ‘winners’ of these reforms were mostly in the finance sector. The period of liberalisation from the late 1990s led to a wave of corporate restructuring, as many of the large apartheid-era corporations decided to invest in foreign adventures or financial markets instead of real production. The financial services sector ballooned, nearly doubling its share of employment and contribution to GDP between 1994 and 2008.
These processes connected South Africa to the global financial system, but left it vulnerable to capital flight. As a result, key instruments, such as the exchange rate and interest rate, were directed towards attracting foreign finance rather than supporting internal investment. For example, high interest rates and a strong currency make it more appealing to buy South African bonds as a foreign investor. But from the perspective of a local manufacturer, high interest rates make their loans more expensive, and a strong currency makes it more difficult to export at a competitive price.
This period also saw high prices for many of the commodities South African mining companies exported. This was another double-edged sword. On the one hand, the profits of mining companies provided the state with extra tax income and foreign currency. On the other hand, South Africa’s powerful mining companies were not interested in lower prices for local industries. Smelters, refiners, and manufacturers in South Africa had to pay more for their minerals, just like everyone else. This made it challenging to build downstream industries.
Deindustrialisation
These factors, combined with strong competition from China, devastated many local industries. Areas like Cape Town’s Salt River, where Amandla! is based, went from being a key clothing and textile industry hub, to a veritable ghost town. Former factories have been turned into vacant offices, low-cost housing, or shops selling the very Chinese imports that closed them down.
South Africa’s export diversity and ‘economic complexity’ declined significantly between 1994 and 2015. The country’s productive structure remained centred on a few large corporations in commodities, instead of developing new capacities in new areas. One of the main consequences of this is that, when economic growth happens, the benefits primarily go to shareholders of a few top companies.
After the 2008 global financial crisis and the start of the Zuma administration, public sector spending grew at a slower rate. The public sector headcount (number of employees) remained roughly the same during this period, while the population continued to increase. Worsening terms of trade (the end of the commodities boom), and the ‘capture’ of key institutions like the South African Revenue Service, meant that tax income took a major knock. This resulted in a growing budget deficit. Consequently, the country’s debt began to grow while the economy did not. After 2011, GDP growth fell to below 3%, and after 2013, below 2%, until Covid-19.
This trajectory of deindustrialisation continued. In 2005, there were 1.7 million people working in manufacturing, out of a total labour force of 16 million. Today, there are 1.5 million in manufacturing, out of a labour force of 25 million. 2025 alone has seen notices of retrenchments or closure at firms like the Goodyear plant in Kariega, ArcelorMittal’s long steel production in Newcastle, Aspen Pharmacare, Ford, and Transalloys—the country’s last remaining manganese smelter.
Can the Ramaphosa project fix the economy?
In 2019, the Ramaphosa administration set two primary tasks for itself. The first was to “close the jaws of the hippopotamus”. This was how then-Finance Minister Tito Mboweni described the task of closing the budget deficit by undertaking massive cuts to public sector spending. The 2020 budget, delivered shortly before Covid-19, proposed austerity measures of R156.1 billion over the following three years, primarily targeting the public sector wage bill. Although disrupted by pandemic response measures, this continued to be implemented the following year, sparking a long dispute with public sector unions.
Importantly, the Treasury settled this dispute by agreeing to limited wage increases while imposing a hiring freeze across government departments. The result has been a major cut to the public sector headcount, as vacancies were not filled. In effect, many public sector departments were left having to serve far more people, with far fewer employees.
As for the hippopotamus, expectations of stabilising the debt levels have been thwarted again and again due to lower-than-expected growth. The 2026 Budget states again that this year will be the year of debt stabilisation. But this came before Israel pushed the United States into war with Iran, causing fuel prices to go up at least 20% (at the time of writing). Inflation will soon follow, eroding not only economic growth but also government spending.
The other key task the Ramaphosa administration set itself was to undertake a range of structural reforms first outlined in a 2019 Treasury document titled Economic transformation, inclusive growth, and competitiveness: Towards an Economic Strategy for South Africa. This laid the basis for the Covid-19 Economic Reconstruction and Recovery Plan, the Operation Vulindlela initiative under the Presidency, and the soon-to-be-released Growth and Inclusion (GAIN) strategy. This gives effect to the Medium-Term Development Plan released in 2024.
The primary focus of this is on the state undertaking reforms to restore profitability and accumulation in the economy, while ensuring stability to anchor investment expectations. A key measure is to resolve infrastructure challenges without incurring extra spending for the state. In practice, this means the introduction of competition to SOEs in network industries (industries built on large, interconnected infrastructure networks, such as electricity, rail transport, and water). It also involves the creation of mechanisms to attract private capital to invest in public infrastructure through blended finance arrangements. Further measures include the easing of regulations, particularly for SMMEs, and support for export industries.
If these measures are able to resolve blockages in network industries, then they will naturally result in some increase in growth. Freight volumes will pick up, and loadshedding will remain suspended. But whether they will result in sufficient growth to address mass unemployment, poverty and inequality is a different matter.
Firstly, industrial policy remains focused on maximising manufacturing contribution to GDP through supporting export industries. But most of the supported sub-sectors continue to be capital-intensive rather than labour-intensive, with limited attention paid to local linkages. Plans for “green industrialisation” seem presently limited to supporting the export of critical minerals and the decarbonisation of existing industries, rather than developing new industries. There is no plan for disciplining mining companies and supporting downstream producers in the service of a coherent developmental vision. And without it, it is highly likely that South Africa’s economy will remain focused on a commodities-related core, with growth having little effect on unemployment or poverty.
The leaked September 2025 draft of the Gain strategy describes it as “pull up” (as opposed to trickle down). Growth will combat unemployment and increase wage income, creating space for expanding social protections, education and health. However, this is putting the cart before the horse. Years of austerity have slashed public sector employment and budgets. This has had disastrous impacts on service delivery, undermining growth, worsening healthcare and education outcomes, and also undermining efforts to combat crime. Improving these factors must occur in tandem with growth, and this will require significant investment in restoring the public service—something current government policy has no appetite for.
This policy orientation also further subjects development to financial sector interests, through its focus on enabling and de-risking private investment in infrastructure. But private capital will only invest if it can achieve a suitable return on its investment. This can lead either to the deeper commodification of public infrastructure (as seen in the e-Toll programme) or to expensive profit guarantees from the state. Much of the investment that South Africa truly needs is in infrastructure and public services that are not necessarily profitable to build or operate.
Without addressing these fundamental constraints, the current strategy is likely to deliver a limited degree of growth. And the benefits will primarily flow to the finance and mining sectors, and to a few isolated secondary sectors of the economy.
What is needed to achieve meaningful growth?
As Duma Gqubule and Neil Coleman point out in a recent Daily Maverick article, the scale of South Africa’s unemployment crisis is so severe that economic growth would need to reach 4.6% annually until 2035, just in order to keep up with the growth of the labour force. Simply enabling economic growth within the current economic structure will not be enough. Instead, true structural (and societal) transformation is required to reshape the economy and link growth to job creation and improvements in the lives of ordinary South Africans.
Economic policy must target job creation and the alleviation of poverty as primary objectives, alongside the traditional objective of growing the GDP. Industrial policy should not simply look at protecting or enabling existing sectors, but at creating new labour-intensive industrial sectors that can drive both growth and structural transformation.
To meet the scale of the socio-economic crisis, industrial policy should also be integrated with social policy that meets people’s basic needs. It is very unlikely that economic development alone will create enough jobs. Public employment programmes need to be part of the mix. So, a push to fill the public housing backlog of 2+ million houses could incorporate public works programmes in construction. Strong localisation measures could be put in place to ensure that local cement, steel, glass and electrical equipment industries are supported.
Industrial policy can enable these industries to benefit from this guaranteed demand by providing support. It could also encourage their connection to export markets to ensure that these industries are sustainable once the public housing programme winds down. The case of Ethiopia demonstrates this potential. They pushed (as in the RDP) to construct hundreds of thousands of houses, clinics and education facilities between 2005 and 2012. This allowed the country to go from being a cement importer to a major regional exporter until national energy shortages crippled the industry a few years later.
Successful economic and industrial policy will also need to confront major political-economic obstacles. These include the power of mining capital and other upstream producers to control prices, South Africa’s vulnerability to capital outflows, and the Treasury’s adherence to fiscal consolidation. These are rooted in the interests of powerful political blocs. So they will not be overcome by making submissions to parliamentarians or negotiating on policy in Nedlac. That will require a progressive political programme with a degree of unity, analytical clarity, popular organisation, and mass mobilisation that do not currently exist. That’s a difficult but necessary task for economic liberation. Economic liberation is a necessary condition for beginning to solve South Africa’s social crisis.
Jaco Oelofsen is a Programme Officer at the Alternative Information and Development Centre.
