Experts say no way SA can achieve economic growth of 3% this year

In his State of the Nation Address last week, President Cyril Ramaphosa said that South Africa must lift its economic growth to above 3% to create a virtuous cycle of investment, growth and jobs. The 3% target is also part of the Medium-Term Development Plan being finalised by cabinet.

The World Bank said last week in its latest economic update it expects South Africa’s gross domestic product (GDP) to increase by 1.8% in 2025 and gradually increase to 2% by 2027.

However, the World Bank warned that a 2% GDP growth rate is insufficient to significantly reduce poverty and unemployment.

Prof Bonke Dumisa, an independent economic analyst, says it is true that South Africa may need an economic growth rate of more than 3% to achieve most of the things that the president mentioned in his State of the Nation Address (Sona).

“But the reality is that while the South African economy may grow above 1% this year, it will be nearly impossible for it to grow above 2% in 2025. The over 300 days of no electricity load shedding since 26 March last year and the fact that the temporary load shedding during the past weekend was very short, gives us hope that the absence of load shedding will help the economy to grow more.”

However, he says, the repeated negative growths in agriculture over the past few quarters were a significant drag on South Africa’s overall economic growth rate. “Furthermore, the very negative bullying tactics by US president Donald Trump and his rich friends based on lies means South Africa may have to divert funds from some important service delivery areas to fill the gaps left by the highly malicious actions of Trump and his rich friends.”

ALSO READ: Medium-Term Development Plan: No borrowing limit but 3% economic growth

Difference between wanting and achieving 3% economic growth

Maarten Ackerman, chief economist at Citadel Investment Services, points out that there is a big difference between wanting economic growth of 3% and actually achieving it. He says 3% growth is the level that we need to really start addressing our structural issues, social pressure, high unemployment and that will go a long way in addressing the strain on the budget.

“However, it is one thing to wish for 3% growth, talking about it, making promises about it like the president did since the inception of the government of national unity (GNU). Even last week in the Monetary Policy Statement the South African Reserve Bank (Sarb) had a scenario that showed if we get the 3% growth a lot of our challenges will be resolved.

“Given the global challenges that are building, such as the trade headwinds, we will be better guarded against that as well. While there is nothing wrong with wishing for 3% growth, the reality is unfortunately that where we are right now, we will probably not achieve that very soon.”

He says there are still too much in terms of the structural issues keeping us away from much faster growth. “We unpacked that many times before. Despite the fact that we have less load shedding these days, we are not really sure whether Eskom in its current form will be able to keep the lights on for an economy running at a 3% growth rate. Eskom is barely doing it with an economy that is growing under 1%.”

ALSO READ: IMF welcomes SA’s reform efforts but says more is needed

Even if Eskom is fixed, what about rail system and ports?

In addition, Ackerman says there are still problems with the rail network and ports. “Although government is putting in the right policy reforms, those things do not happen overnight and therefore our view at Citadel is that if we keep doing the good work, this kind of 3% growth number will probably only be achieved over the next two to three years if not longer.

“I think the reality is that we must face our own challenges and then on top of that the global challenges playing out. Last year in the Medium Term Budget Statement (MTBPS) the minister mentioned a number of about 1.7 or 1.8, which I think is much more realistic.

“Therefore, we must prepare for growth under 2% for the next couple of years, keep on doing the hard work and the right work and then that 3% might start to surface in a couple of years from now.”

ALSO READ: Dismal manufacturing PMI shows no contribution to economic growth

Budget will have to explain how SA will get to 3% economic growth

Prof. Raymond Parsons, economist at the NWU Business School, says the 3% GDP growth target for South Africa is seen as eventually doable if all the reforms outlined in the GNU’s Medium Term Development Plan are fully implemented from now on.

“Much higher inclusive job-rich growth is based on that strong assumption, if expectations are to be realised. This also resonates with the research recently done by the Sarb that shows if structural reforms were accelerated, a 3% growth rate could be reached by 2027. Otherwise, if the key reforms are not sufficiently speeded up, the Sarb growth projection is for only about 2% by 2027.”

Parsons says following on the new 3% target, the growth assumption in the forthcoming budget next week now becomes pivotal. “The Budget itself will also now play an important role in shaping prospects for realising the 3% growth target.”