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Why is the South African economy not growing?

The 0.6% GDP increase of the second quarter of 2023 and the 0.4% in the first quarter are part of the dismal performance that has been the defining feature of our economy since at least 2010.

Our economy has averaged less than 2% since 2010, and there seems to be no economic miracle in sight.

Why have we accepted this economic stagnation, and devastation, for this long? Why are we not angry? And why are we not trying everything, every day, to reboot this economy, to take our unemployment to single digits – whatever the cost and sacrifice?

Why are we not having active policy responses, like the developed countries of the north, who refuse to be bound by conventional macroeconomic niceties when their economies are threatened by low national outputs and rising unemployment?

How have we allowed our country to be comfortable with these staggering levels of unemployment? Is it because we don’t think we deserve more? Or is it because we have come to accept our country as a welfare state, and are not worried by a possible revolt from our people because they are used to long-suffering and surviving on very little?

According to our economists, the South African economy is consumer-driven, with 64% of our GDP attributed to consumers’ final consumption.

This means our economy rises and falls on household spending, which declined by 0.3% in the second quarter of 2023, signalling consumer income is under strain, along with the economy.


The reasons given by our experts for this dismal performance of our economy are vast.

From crippling power cuts to logistical challenges at Transnet, volatile commodity prices, structural rigidities in the labour market, crime, and corruption – the reasons are endless and frankly, lazy, and annoying.

One can pick up a business article of any year, including the early 2000s when we had good growth numbers, and the stories are the same – with slight variations of why we’re not getting higher growth to boost employment. There are too many excuses and not enough bold, forward-thinking movements.

Despite all these challenges, which are said to weigh heavily on our economy, prices of food and energy have been persistently high, causing inflationary worries, and triggering a reaction from the Reserve Bank’s Monetary Policy Committee (MPC).

While the economy has not produced jobs, and wages essentially flatlined, the MPC felt the need to cool off the rising prices by taking away even more spending power from consumers to manage inflation.

Given that our economy is largely dependent on consumer spending, raising interest rates has been counterproductive.

Unfortunately, the Reserve Bank has no other tool to manage rising prices, irrespective of the cause of such price increases, except interest rates.

We are caught between our self-imposed inflationary targeting, which takes away much-needed consumer spending for our growth, and a need to protect the value of the little money we have on hand by keeping inflation in check. It’s a Catch-22.


Since the economic boom of the 1990s and the reign of then-chair of the US Federal Reserve, Alan Greenspan, monetary policy has always been deemed enough to correct the economic fluctuations to re-balance the economy at any particular time.

There have been a few shocks in between Black Mondays and Black Fridays, but monetary policy has always been enough to weather these storms.

That is, until the year 2008, when global output collapsed and, save for another planet to boost our demand, there was not much monetary policy could do to save us.

Unfortunately, this time, the bell is tolling for us alone, as many countries have fully recovered. Our monetary policy has not even been tested to its maximum effectiveness in boosting growth.

Ideally, our repo rates should be approaching zero, which would leave more money in the hands of consumers to spend and boost our economy. Whether this will be enough is uncertain, but it will shift our household spending-dependent economy by a good margin.

The first move therefore has to be the decoupling of imported inflation from locally generated inflation, so that if it’s international oil that is at the core of our inflationary pressures, we respond like the other countries when the gallon at the pump is unbearable, because of international quantity control.

We need to focus on expanding our own oil-generating capacity (we have Sasol), and explore new wells, even in the deep blue sea. If we don’t, we will whip ourselves to a pulp with interest rates and accompanying poverty – all because of an international crisis that is not of our own creation.

Of course, once interest rates are too low, you might face a liquidity trap where investment is discouraged, and people choose to keep their money in hand. And once bank reserves are also too low, then there is a risk of bank default.

So, conventional tools reach a point where they become ineffective, and we must look for more bold actions to revive our economy.

Resting on our laurels and hoping for global economy to save us is madness.


The logic of rebooting our economy is quite simple, and goes back to the old-fashioned textbook picture of macro-economics.

In basic economics, investment plus government spending must equal savings plus tax revenue (I+G = S+T), leaving the net exports aside for now.

Naturally, money invested comes from savings, and money spent by government must come from taxes.

We have an economy that does not have enough household spend, and therefore is at a low savings level for new investments.

The answers to the problem must ultimately be about finding a way to augment both consumption and savings or investment. Normally, when consumers have enough to spend and save, we can raise investment and boost the economy. But we seem unwilling to give consumers this reprieve so that the banker to the government can explore more options and fill the investment void.

The Reserve Bank has weapons in its quiver to pull the economy out of this deep, dark hole it has been in for over a decade. The main aim is to increase money supply into the hands of consumers and investors.

This can be done through open market operations, where private companies sell their debt instruments while looking to raise capital for new investments.

The Reserve Bank needs to be out there purchasing debt instruments owned by financial institutions, boosting housing markets through buying long-term bonds, and any other instruments that result in credit easing for the consumers and capital for investors.

Long story short, we need more money in the hands of consumers, who constitute 64% of our GDP spend – and we need new investments.

The banker to the government can therefore help provide liquidity in these markets, and help companies looking for capital to invest in new infrastructure, boosting our economies.

When all else fails, the Reserve Bank can go one step further and jump into the equity markets and actively purchase shares of stocks in the open market, again to provide liquidity in these markets where companies are trying raise capital for expansion and new investments.

In fact, this is how the economy was saved and resuscitated during the 2008 economic recession. We need to boost both investor spend and consumer consumption to give the economy the life injection it needs.

What is unacceptable is doing nothing. We have to begin to take ourselves seriously.

The global economy won’t save us, BRICS is unlikely to save us; each country is busy dealing with its own economic challenges. We are the only ones who look to the sky for a global rise in commodity demands and prices, for the oil threatening wars to end, and for our electricity problems to go away.

Correcting all these problems is no guarantee for our growth. What guarantees our growth is trying, again and again, never giving up, and never accepting that economic hardship is our fate. Even lowering of taxes to again increase consumer spending is an option worth exploring.

It is only when we reboot our own economy, when we show confidence by reinvesting in our own economy, that much-needed foreign investments will flow into our shores.

If South African Reserve Bank governor Lesetja Kganyago thinks his only job is inflation targeting, and does not lose sleep over this prolonged stagnation of our economy, then it’s time to let him go.

In any case, he belongs to the age of turbulence like his idols.





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