top of page

Rejuvenating South Africa's economy - A financial sector perspective

Copyright © 2021

Inclusive Society Institute

50 Long Street

Cape Town, 8001

South Africa

Registration: 235-515 NPO

All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without permission in writing from the Inclusive Society Institute


Views expressed in this report do not necessarily represent the views of the Inclusive Society Institute or those of their respective Board or Council members. All records and findings included in this report, originate from

a panel discussion on developing a new economic blueprint for South Africa,

which took place in March 2021

Author: Mariaan Webb, Creamer Media Writer

Edited by: Daryl Swanepoel


Abbreviations & acronyms


Identifying weaknesses

  • Policy uncertainty

  • Broad-based black economic empowerment

  • Education

  • Fiscal crisis

  • Incompetence and corruption limiting State capacity

  • Institutional weakness

  • Labour and skills

  • Lack of competition

Interventions for fostering growth



Abbreviations & acronyms

AfCFTA African Continental Free Trade Area

BBBEE broad-based black economic empowerment

ISI Inclusive Society Institute

IMF International Monetary Fund

IPP independent power producer

MP Member of Parliament

NDP National Development Plan

OECD Organisation for Economic Cooperation and Development

PGM platinum-group metals

SABC South African Broadcasting Corporation

SEZ special economic zone

SoE State-owned enterprise

Stats SA Statistics South Africa

UN United Nations


This report is a summary of themes from discussions held by the Inclusive Society Institute (ISI) with the financial sector on the reasons behind South Africa’s depressed growth performance, but more importantly to gather innovative thought and a new perspective for placing the country on a path of sustainable and inclusive growth.

The dialogue forms part of the ISI’s comprehensive research to develop a new growth-centred economic blueprint for South Africa, assessing the current performance of the National Development Plan (NDP) and presenting fresh ideas.

The first phase of the research involved studying previously distressed economies that have turned themselves around within a short space of time, with a focus on Japan, South Korea, and Germany.

The second phase delves into South Africa’s policies, highlighting strengths, weaknesses, and interventions that could catapult the sluggish economy onto a higher growth path. Owing to the impact of the Covid-19 pandemic, South Africa’s economy contracted by 7% in 2020 (Stats SA, 2021a). This severe contraction is estimated to have pushed about two-million people into poverty, as defined by those living below the poverty line for upper-middle income countries of $5.50 a day (World Bank, 2021). It is projected that the economy’s annual growth will be 3.10% in 2021 and 2% in 2022 (IMF, 2021).

The ISI believes South Africa requires at least 4% to 5% economic growth to effectively begin to reduce the country’s entrenched high levels of unemployment, inequality, and poverty.

Participants, both local and international contributors, were asked to identify the weaknesses in South Africa’s economic policies and to offer ideas about where the country’s focus and priorities should be.

Identifying weaknesses

South Africa has severe and deep-seated structural weaknesses. The unemployment

rate has risen to 32.50% (narrow definition) in the fourth quarter of 2020 – the highest

in at least 13 years (Stats SA, 2021b). Per capita growth has been declining since its peak of 2014 to a level last seen in 2005 (Stats SA, 2021c). South Africa is also one of the

most unequal countries in the world, reporting a per capita expenditure Gini coefficient of

0.65 in 2015. The top 10% of the population spend nearly eight times more than the bottom

40% (Stats SA, 2020).

The Covid-19 pandemic exacerbated existing shortcomings, exposing the economy’s major weaknesses, including, among others, stagnant growth, inequality, rising national debt

and severe electricity challenges.

Despite substantial social spending, government outcomes remain poor – whether that be

in education, health, or social grants. Several participants mentioned South Africa’s unsustainable debt situation, which will require higher growth to address it. More foreign investment will be needed for economic growth and to restore fiscal soundness.

Observations were made about policy formulation, implementation and communication

across different sectors, such as improving education outcomes, dealing with land reform,

and restructuring State-owned enterprises, including power utility Eskom.

The country is also only just beginning to address a decade of State capture, run-down and

repurposed State capacity, and related institutional weaknesses.

Policy uncertainty

Policy certainty is critical to driving investment in any economy. South Africa is ultimately competing for global investment, but uncertainty is undermining its drive to attract investors and thereby its prospects for growth. Concerns have been raised about policy certainty in

energy, mining, and land reform. Investors are uncertain that laws will not change, and this makes the investment climate uncompetitive.

Policy implementation paralysis, especially related to the NDP, policy communication and

policy discord are hampering progress.

The NDP, which serves as an overarching policy blueprint for the country and aims to eradicate poverty, inequality, and unemployment by 2030, was effectively shelved under the previous administration. While widely regarded as a well-written document, the NDP is considered too broad and the time in which reform is expected too long. Although strong in certain areas, particularly its broad economic plan, the NDP lacks specifics when it comes to certain sectors, for example financial services. It acknowledges the need for financial inclusion and refers to access to capital, but lacks substance on how this should be implemented. Targets are also no longer attainable and need to be recalibrated.

Some other emerging economies have had substantial success with development plans

that have a shorter timeframe than the long-term planning period of the NDP. Malaysia,

for instance, practices a system of centralised economic development planning with

five-yearly development plans (OECD, 2016). Policy plans should also be supported by

effective participation of citizenship (OECD, 2017). The NDP has been ineffective in communicating its plans to the public and does not encourage a system of accountability.

In the past ten years, various sector-focused policies have also been developed and launched with much fanfare, but a few years down the line, not much has happened. One example is Eskom – despite government hiring financial adviser Lazard in 2018 to draft a plan to shore up the struggling utility’s balance sheet, it remains a real risk to the sovereign (Reuters, 2018).

This begs the question: Why should an investor, without an emotional attachment to South Africa, believe what the South African government is saying about implementing what they

set out to do?

A failure to conduct economic-impact studies when a new policy is drafted or considered for implementation is seen as a negative. For example, the National Health Insurance Bill, which proposes a fund to achieve universal health care coverage, has been published without an accompanying financing paper (ISI, 2020). On the other hand, where policies have succeeded, they are not necessarily deployed more widely or scaled up.

Broad-based black economic empowerment

The broad-based black economic-empowerment (BBBEE) policy, which aims to increase

the participation of black people in the management, ownership, and control of South

Africa’s economy, is seen by many as a disincentive to foreign investors. Although investors express support for the BBBEE objectives, there is frustration with the way the policy has

been implemented and with the codes through which compliance is measured. A study,

funded by the European Union, has found that the policy, primarily effected through the

BBBEE Codes of Good Practice, has become “convoluted and complex, often frustrating businesses rather than encouraging transformative practices”. The frustrations experienced in implementing BBBEE range from “too many ambiguous and often-changing rules (making reference to the Codes that have undergone multiple changes in recent years), to trying

to stay focused on business imperatives while attending to the intricacies of BBBEE compliance” (Samaai-Abader, 2020).

In its current form, the policy has become an additional cost to industry and has also resulted

in rent-seeking rather than productive business activity. There is a view that black economic empowerment has made a few politically connected people exceptionally wealthy while failing to improve income distribution for the majority of South Africans.


Education is one of the biggest problems in South Africa. Beset by infrastructure shortcomings, overcrowded classrooms, a lack of teacher capacity and relatively poor learning outcomes, which are exacerbated by systemic inequalities, the education system does not equip young people with the right skills to enter the labour market.

After initial improvements in learning outcomes – notably between 2003 and 2011 – gains

have plateaued, as evidenced by the country’s performance in international assessments

(Spaull, 2019). South Africa, for instance, underperforms in the Progress in International

Reading Literacy Study and the Trends in International Mathematics and Science Study.

Failure to deal decisively with education challenges will consign future generations to

poverty and perpetuate the legacy of Apartheid (Spaull, 2019). A more skilled workforce

will require improvements in the education system.

Fiscal crisis

At the heart of South Africa’s economic woes is a fiscal crisis, with the country on the edge of a proverbial fiscal cliff. South Africa’s fiscal cliff is the point where government expenditure on social grants, compensation to civil servants and interest on government debt exceeds total government revenue (Rossouw & Joubert, 2020). Having increased too rapidly in recent years, these items now practically account for almost all government revenue.

Public-service compensation absorbed 47% of revenue in 2020/21, while debt-service costs – the fastest-rising item of government spending – consumed 19.20% of tax revenue. (National Treasury, 2021). Reducing the proportion of the Budget spent on salaries and debt-servicing will enable government to focus on priorities such as healthcare, education, and service delivery.

With a diminishing base of 7.10-million individual taxpayers, of which less than 307 912

earn more than R1-million a year (National Treasury, 2020), personal income tax is only

enough to fund about 80% of the civil servant bill and debt serving.

Incompetence and corruption limiting State capacity

The political environment is not conducive to growing the economy. Political leadership in

a number of government positions lacks competency. This is highlighted by the use of consultants and outsourcing rather than the building of capable and competent State machinery. If there were a conducive political environment, incompetent government employees would leave their positions to make way for those who can do the job. Evidence emerging from the Zondo Commission of Inquiry into Allegations of State Capture points to a serious lack of competence and a high incidence of corruption at State institutions and State-owned enterprises (SoEs), including at Transnet, Eskom, Denel, the South African Broadcasting Corporation (SABC) and law enforcement agencies (Zondo Commission, 2021a).

Institutional weakness

Political risk is rising globally, particularly since the onset of the Covid-19 pandemic.

Dealing with political risk in an emerging market requires strong institutions, many of which have been significantly eroded in South Africa in the past decade. For example, failure to insulate the SABC from vested political interests has left the public broadcaster in a crippled state, hobbled by financial bankruptcy and dependent on government bailouts (Ndlovu, M, 2019).

Institutional weakness and cadre deployment enabled State capture to flourish. Had certain checks and balances been in place, many problems related to State capture may have been avoided (Zondo Commission, 2021b).

There is also concern that Parliament acts as nothing more than a rubberstamp for what comes from the executive – another example of how institutional weakness affects the country’s ability to perform. Parliament’s oversight failures have been laid bare at the Zondo Commission of Inquiry, with testimonies of how administrative proceedings were used to sidestep oversight. Former African National Congress Member of Parliament (MP) Zukiswa Rantho testified in early 2021 about MPs being more loyal to the ruling party than doing what is right (TimesLive, 2021).

Labour and skills

South Africa has a fairly sophisticated formal sector, but suffers from extensive

unemployment. Only 16. 40-million out of a labour force of 23.10-million have managed to find employment. The 6.70-million-strong cohort of unemployed people is compounded by a

further 2.90-million who have given up looking for a job and 12.70-million who are not economically active (Stats SA, 2021).

Exacerbating unemployment is a mismatch between labour demand and supply, with the

labour force retaining a large number of low and unskilled people. A nonalignment between

the skills that graduates are being equipped with and those which are required by the economy is contributing to the unemployment crisis. South Africa has been suffering from a chronic shortage of skills for many years, notably in the engineering and information and communication technology fields, but government has only recently moved to plug the skills gap through importing skilled labour. Although the move to assist foreign workers with critical skills to gain work permits is welcomed, concerns have been raised about how long it took government to reach this point.

Lack of competition

The economy is bedevilled by high concentration, little competition, and anticompetitive behaviour. One participant mentioned that South Africa is a country of fives: Five big banks,

five big retailers and five big construction companies.

Big players have been accused of questionable collaboration. Collusion, for instance, has occurred in the construction, banking and telecommunication industries. The Competition Commission in 2013 fined 15 construction firms a collective R1. 46-billion for collusive

tendering (Engineering News, 2013) and in 2017 referred cases of collusion against several international banks for alleged price fixing and market allocation (Engineering News, 2017).

A lack of competition holds back innovation, keeps prices high, and denies many people access to services and opportunities to start businesses.

Interventions for fostering growth

Several sectors were identified as ripe for potential policy improvements, ranging from power utility Eskom and independent power producers, to SoEs, skills development and beneficiation of platinum-group metals (PGMs) and other minerals. Alleviating small business regulatory compliance, improving the ease of doing business, rethinking BBBEE and acknowledging the cost of crime were also mentioned.


South Africa needs to celebrate its successes and seek to replicate these in other areas.

Some of its successes include a vibrant democracy, a free media and free expression, an independent judiciary, a constitutionally protected South African Reserve Bank and the way inflation is contained with sound monetary policy. The turnaround of the South African

Revenue Service since the State capture period is also worth nothing, allowing for improved

tax collections efforts.

Another positive is the country’s demographic dividend, although opportunities may be

somewhat limited by South Africa’s already having had its urban transition. Projected to 2030, South Africa could benefit from a major demographic dividend, as the proportion of working people in the total population increases. Although it should also be noted that too sharp a population growth rate without the necessary concomitant growth in GDP can result in too

many people looking for jobs, which can be a risk to the economy and fiscus. The bigger pool

of possible employment seekers could, however, create opportunities for new businesses.

There is also potential for increased trade with the rest of the continent through the

African Continental Free Trade Area (AfCFTA), which creates a single continental market

for goods and services in Africa. AfCFTA is the world’s biggest free trade area, measured

by the number of countries participating. The pact connects 1.30-billion people across

55 countries (World Bank, 2020).

AfCFTA is considered a game-changer for the continent. It will help reduce trading challenges, such as different regulations from one African country to another. By facilitating the movement of goods and services among African countries, AfCFTA will create opportunities to accelerate intra-Africa trade, grow local businesses, create jobs, and increase infrastructure development on the continent (Williams, 2019).

It has been noted that, although the Ramaphosa administration is taking measures to redress policy implementation paralysis, progress is slow. To get the economy on a sustainable growth trajectory, policy uncertainty and implementation paralysis must be addressed. Strengthening institutions is also critical going forward.

Linking the NDP to an active citizenship will also be of benefit to the country. Getting

people involved in every level of society – from rural area to towns and cities, nationwide – will assist in addressing accountability failures and set the stage for sustained and inclusive economic growth.

Although South Africa is facing serious challenges there are opportunities to rejuvenate the economy and hope prevails.


Engineering News. 2013. Construction companies fined R1.46bn for collusion, June 24, 2013. [Online]. Available at: [accessed April 23, 2021].

Engineering News. 2017. Commission asks tribunal to fine banks over alleged collusion,

February 15, 2017. [Online]. Available at: [accessed

April 23, 2021].

Inclusive Society Institute. 2020. Roundtable report on the National Health Insurance,

February 20, 2020. [Online]. Available at:

docs/a4_programme_roundtable_profiles_lowres_withnotes [accessed April 23, 2021].

International Monetary Fund. 2021. World Economic Outlook, April 2021. [Online]. Available at [accessed April 23, 2021].

National Treasury. 2020. Budget Review, February 26, 2020. [Online]. Available at:

[accessed April 23, 2021].

National Treasury. 2021. Budget Review, February 24, 2021. [Online]. Available at:

[accessed April 23, 2021].

Ndlovu, M. 2019. Why the SABC should not be tossed to the wolves, The Conversation, September 29, 2019. [Online]. Available at:

not-be-tossed-to-the-wolves/92902/ [accessed April 23, 2021].

Organisation for Economic Cooperation and Development (OECD), 2016. OECD economic surveys: Malaysia economic assessment, November 2016. [Online]. Available at [accessed

April 23, 2021].

Organisation for Economic Cooperation and Development (OECD), 2017. Citizen participation in policy making, Government at a glance, 2017. [Online]. Available at: [accessed April 23, 2021].

Reuters, 2018. Lazard report on Eskom asset sale options due within days – Eskom

chairman, 2018. [Online]. Available at:

lazard-idUSL8N1WO3MT [accessed April 23, 2021].

Rossouw, J. & Joubert, F. 2020. Warnings about SA’s push towards the fiscal cliff went

unheeded for years, Business Day, September 6, 2020. [Online]. Available at:

the-fiscal-cliff-went-unheeded-for-years/ [accessed April 23, 2021].

Samaai-Abader, F. 2020. EU investors’ responses to broad-based black economic-

empowerment: A skills enhancement model, October 2020. [Online]. Available at:

BBBEE-Final-Oct-2020.pdf [accessed April 23, 2021].

South African Revenue Service (SARS). 2020. 2020 Tax Statistics, December 2020. [Online].

Available at: [accessed April 23, 2021].

Spaull, N. 2019. Priorities for education reform – background note for Minister of Finance, January 19, 2019. [Online]. Available at:

for-education-reform-background-note-for-minister-of-finance-19-01-2019/ [accessed

April 23, 2021].

Statistics South Africa (Stats SA). 2020. How unequal is South Africa? February 4, 2020. [Online]. Available at: [accessed April 23, 2021].

Statistics South Africa (Stats SA). 2021a. Gross domestic product, fourth quarter 2020, March 30, 2021. [Online]. Available at [accessed April 23, 2021].

Statistics South Africa (Stats SA). 2021b. Quarterly Labour Force Survey, Quarter 4:2020, February 23, 2021. [Online]. Available at [accessed April 23, 2021].

Statistics South Africa (Stats SA). 2021c. GDP: Quantifying SA’s economic performance

in 2020, March 9, 2021. [Online]. Available at:

[accessed April 23, 2021].

TimesLive. 2021. Former Eskom inquiry chair throws the ANC under the bus at Zondo commission, February 2, 2021. [Online]. Available at:

2021-02-02-former-eskom-inquiry-chair-throws-the-anc-under-the-bus-at-zondo-commission/ [accessed April 23, 2021].

United Nations (UN). 2018. World Urbanisation Prospects, 2018. [Online]. Available at: [accessed April 23, 2021].

Williams, P. 2019. African Continental Free Trade Area (AfCFTA): The dream of our

founding fathers coming to life, South African Government, July 19, 2019. [Online].

Available at: [accessed April23, 2021].

World Bank. 2020. The African Continental Free Trade Area (AfCTFA), July 27, 2020. [Online].

Available at: [accessed April 23, 2021].

World Bank. 2021. The World Bank in South Africa, 2021. [Online]. Available at [accessed April 23, 2021].

Zondo Commission. 2021a. Transcript from Commission of Inquiry into State Capture

Corruption and Fraud in the Public Sector including Organs of State, February 18, 2021. [Online]. Available at: [accessed April 23, 2021].

Zondo Commission. 2021b. Transcript from Commission of Inquiry into State Capture

Corruption and Fraud in the Public Sector including Organs of State, February 5, 2021. [Online]. Available at: [accessed April 23, 2021].

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

This report has been published by the Inclusive Society Institute

The Inclusive Society Institute (ISI) is an autonomous and independent institution that functions independently from any other entity. It is founded for the purpose of supporting and further deepening multi-party democracy. The ISI’s work is motivated by its desire to achieve non-racialism, non-sexism, social justice and cohesion, economic development and equality in South Africa, through a value system that embodies the social and national democratic principles associated with a developmental state. It recognises that a well-functioning democracy requires well-functioning political formations that are suitably equipped and capacitated. It further acknowledges that South Africa is inextricably linked to the ever transforming and interdependent global world, which necessitates international and multilateral cooperation. As such, the ISI also seeks to achieve its ideals at a global level through cooperation with like-minded parties and organs of civil society who share its basic values. In South Africa, ISI’s ideological positioning is aligned with that of the current ruling party and others in broader society with similar ideals.

Phone: +27 (0) 21 201 1589



bottom of page