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South African Macroeconomics Overview 2024/2025

Occasional Paper 1/2024

Copyright © 2024

Inclusive Society Institute

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or by any means without the 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.


Dr Roelof Botha



The document commences with two sections that provide some background to pressing challenges facing the economy, followed by a more comprehensive discussion of a number of positive developments, some of which may realistically be regarded as growth drivers over the medium term. A concise reflection on key aspects of the 2024/25 National Budget is included and, where feasible, data sets and graphs have been updated.


Erosion of public sector competence


The systematic erosion of the state’s capacity at all tiers of government and the public corporations is widely regarded as one of the key obstacles to higher economic growth in South Africa.


A recent report by the Growth Lab at Harvard University has examined in detail the key reasons for the below-par performance of the South African economy. Lead-authored by development economist Ricardo Hausmann, the report, titled Growth through inclusion in South Africa, seeks to explain why South Africa’s economy has consistently failed to grow at the same pace as its peers, with adverse social consequences, especially in the crucial area of unemployment.


The report concurs with the findings of several domestic research institutions since the scourge of state capture came to the fore almost a decade ago and discusses several causes of the collapse of several state institutions. The include:


  • Ideological gridlock within several government agencies, which has prevented critical decisions on the maintenance and expansion of infrastructure to be made in time.

  • An ideological emphasis on central state planning that has effectively prevented society from contributing to supply societal needs, for example, by limiting power generation by the private sector and municipalities.

  • A dearth of requisite skills and corporate governance standards at local government level, which has rendered many municipalities dysfunctional.

  • A rise in political patronage, cadre deployment and corruption, as vividly proven by the Zondo Commission, which has restricted the productivity enhancement associated with labour specialisation.

  • Inadequate public sector spending on the maintenance of the country’s infrastructure, which has led to serious inefficiencies in the areas of energy, railways, roads and harbours, resulting in supply-chain disruptions, especially permanent electricity rationing, and ultimately lower profits for many companies. This has also impacted negatively on taxation revenue growth.


In December 2023, the Gauteng Division of the High Court in Pretoria handed down a judgment in a case brought by opposition parties in which three judges found that government was responsible for rolling blackouts, and the numerous failures that led to it. It also ruled that government (in the form of Electricity Minister Kgosientsho Ramokgopa) must take steps to stop the interruption of power to public health facilities, police stations and schools by the end of January.


Even though it will probably take several years to end electricity blackouts, the judgement has removed all doubt over the fundamental cause of the electricity crisis. The judges have declared that it was the fault of the government. The judges also explained how the lack of investment, the failure to stop State Capture at Eskom, and all the mistakes since then brought about the energy crisis.


Energy expert Chris Yelland has noted that the country’s energy availability factor (EAF) for Week 7 of 2024, was 52.8%, while the year-to-date EAF remained slightly lower than for the same period last year.


This lack of progress is especially troublesome against the background of the return to service of three 800 MW generator units (Units 1, 2 and 3) at Eskom’s Kusile power station in November 2023, and the synchronisation of Kusile Unit 4 to the grid in December 2023.


Figure 1 captures one of the causes related to the problems of decaying energy and logistics infrastructure in South Africa, namely gross underspending by the public corporations. Unfortunately, substantial and repeated losses by several of these public sector institutions (especially Eskom, Transnet, Petro SA and South African Airways) has severely limited their capacity to deliver services, whilst also threatening fiscal stability (via recurrent bailouts by National Treasury).



Inordinately restrictive monetary policy


Ever since the onset of restrictive monetary policy in South Africa at the end of 2021, the financial resilience of households has been under pressure, with a strong (and predictable) inverse correlation between higher interest rates and the Altron Fintech Household Resilience Index (AFHRI) trend. The gains that were made with the post-Covid recovery have now been wiped out by the highest interest rates in 14 years, with the current real prime overdraft rate (prime minus the consumer price index – CPI) at a level of 6.5%, which is more than double the average rate that existed during the tenure of the previous Governor of the SA Reserve Bank, Gill Marcus.


The decision by the Monetary Policy Committee (MPC) of the Reserve Bank to raise interest rates to higher levels than before Covid continues to be a thorn in the flesh of most households and businesses, as this overly hawkish policy approach is not based on any signs of demand inflation in the economy. Scrutiny of the reasons for the overall downward trend of the AFHRI and the country’s leading composite business cycle indicator, reveals the following:


  • Restrictive monetary policy by the South African Reserve Bank since the end of 2021 has raised the cost of credit (and of capital) by 68% (measured against the prime overdraft rate).

  • In February 2020 (prior to Covid) the annualised consumer price index (CPI) was 4.7% and the prime rate was 10%. In January 2024, the CPI stood at 5.3%, with clear signs that the lower level of the producer price index (PPI) of only 4% will force it down in coming months, whilst the prime rate stood at 11.75%. This means that South Africa’s real prime lending rate is now 150 basis points higher than four years ago, despite the fact that several key sectors of the economy have not yet fully recovered from the Covid pandemic.

  • Against the background of lower taxation revenues than the budget estimates, consistent increases in welfare grant payments and very high unemployment, it seems quite strange that the MPC has opted for excessively restrictive monetary policy, knowing full well that the short-term interest rate is a blunt instrument that directly affects the cost of credit and of capital. Unnecessarily high interest rates have a profound negative impact on the ability of households to maintain their standard of living and on the ability of businesses to invest in new productive capacity.

  • Authoritative economists have publicly voiced alarm over the inordinate emphasis placed by the MPC on inflation expectations, which are based on surveys with minute sample groups and are not based on any control over the methodology utilised by the survey participants or whether they have sufficient knowledge of/or experience in applied macroeconomics and forecasting.

  • One of the most valid criticisms of the MPCs ignorance of the plight of South African households is the fact that, in real terms, total household credit extension, which is valued at more than R2 trillion, has declined by 3.5% since 2017, which means that there has not been any real growth in this key macroeconomic indicator over almost a decade. History confirms that the South African economy has never been able to grow at meaningful and sustained rates unless household credit extension grows in real terms.

  • Ever since the changes to the composition of the MPC that occurred after the departure of the previous Governor, Gill Marcus, a dramatic shift towards a more restrictive monetary policy approach has been followed. This stands in defiance of the twin mandate of the Reserve Bank, which is not only aimed at curbing inflation, but also at ensuring that economic growth and employment creation are encouraged.


Figure 2 aptly illustrates the dilemma faced by South African households in the wake of the highest interest rates in more than a decade. At the end of the third quarter of 2023, the cost of servicing debt as a ratio of disposable income was higher than before Covid and was rapidly approaching double-digit territory. On the average home loan administered by BetterBond, homeowners are now paying approximately R4,000 per month more.


As a direct result, the average deposit required for a first-time home buyer increased by more than 100% between the fourth quarter of 2021 (when interest rates started to increase) and the fourth quarter of 2023, whilst the number of applications for home loans for all buyers declined by 30% over the past two years.


New record for manufacturing sales


South Africa’s manufacturing sector ended 2023 on a high note, with the 4th quarter recording a sales figure of R876 billion, representing a new quarterly record, both in nominal and real terms, as illustrated by figure 3.


It turned out to be a splendid year for the country’s factories, with each and every month recording a new year-on-year record sales performance and managing to maintain real growth of between 4% and 5%. The total manufacturing sales value for 2023 amounted to R3.3 trillion, 10% higher than the previous year (in nominal terms), and well above the average rate of inflation of 6%.



The continued resilience of the manufacturing sector is especially encouraging against the backdrop of a number of intimidating challenges, including electricity rationing, high interest rates, and capacity utilisation that has not yet fully recovered from the debilitating effects of the Covid pandemic. Although a marginal improvement in the level of capacity utilisation occurred during the 4th quarter of 2023, a lack of sufficient demand remains a deterrent to a further improvement in this key economic indicator.


Fortunately, two of the major manufacturing divisions, namely food & beverages and motor vehicles & parts, did manage to increase their capacity utilisation during 2023. Food and beverage processing represents the largest of the manufacturing divisions, accounting for more than 22% of total manufacturing sales.


It remains a boon to South Africa to enjoy a large measure of food security, with an agriculture sector that is a significant generator of foreign exchange earnings, whilst also playing a key role in the return to price stability after the supply-side shocks of 2020 to 2022.


Fiscal stability retained


The 2024/25 national budget will mainly be remembered for its novel utilisation of a portion of South Africa’s gold and foreign exchange contingency reserve account (GFECRA), commonly known simply as the forex reserves. The fact that South Africa’s forex reserves swelled from less than R100 billion a decade ago to close to R900 billion has proven to be an enormous windfall in the current macroeconomic climate of subdued growth and below-par tax revenue collections. Finance minister Godongwana plans to draw down R150 billion of these reserves over three fiscal years.


Most countries have official foreign exchange reserves (state-owned), held by their central banks, which can be used for purposes of maintaining macro-economic stability. The latter is exactly what has been implemented by National Treasury in the wake of the tax revenue shortfall experienced during the 2023/24 fiscal year. The latter may be attributed to weak prices for several of South Africa’s key commodity exports, sluggish world growth and weak domestic demand as a result of the record high interest rates that have been plaguing consumers and businesses alike.


For anyone that is concerned over this practice, it is interesting to note that the origin of the hefty amount in foreign exchange reserves currently held by the SA Reserve Bank (SARB) was a fiscal transfer to the SARB of (merely) R28 billion made by then finance minister Trevor Manual in 2003, following the decimation of the forex reserves during the emerging market currency crisis of 1998.


Capital market reaction to a country’s budget is widely regarded as the most informative barometer of its soundness in maintaining sufficient fiscal stability. National Treasury would have been most pleased by the decline in the country’s bond yield and the strengthening of the rand/US dollar exchange rate (albeit marginally) immediately after the tabling of the budget in Parliament.



Although South Africa’s bond yield remains higher than most of its key trading partners, the country’s ratio of public debt to GDP of just above 70% compares favourably to other highly diversified economies - both for high-income countries and emerging markets. The country’s ratio of government expenditure to GDP is also not out of kilter with its major trading partners (see figure 4).


Much detail is still required in the area of growth enhancing policies, but it is nevertheless encouraging to note that Mr Godongwana has echoed President Ramaphosa’s stated commitment to much closer cooperation with the private sector in fixing the mess surrounding the country’s infrastructure, especially in energy, roads, harbours and the railways.


Progress with fixing and expanding the logistics network, combined with lower levels of electricity blackouts, an improvement in export commodity prices and lower interest rates (which are imminent), could eventually provide National Treasury with a more pleasant budget task next year.


Foreign direct investment in good nick


Over the 12 months ended September 2023, gross foreign direct investment (FDI) inflows on the South African balance of payments achieved a record high average quarterly level (excluding the Naspers share swap transaction of 2021). Since the decline in FDI inflows associated with the Covid pandemic, an average quarterly inflow of R28.7 billion has been realised – an increase of 140% over the prior seven quarters (see figure 5).


The strong upward trend in gross FDI inflows is especially encouraging against the background of South Africa being placed on the so-called “grey list” by the Financial Action Task Force (FATF), which is the global money laundering and terrorist financing watchdog. The grey listing occurred in February 2023.


Fortunately, a recent report by the FATF has indicated good progress with South Africa’s efforts to be removed from the grey list. According to National Treasury, the FATF has formally re-rated 18 of South Africa’s 20 deficiencies. Of these, 14 recommendations had been fully or largely complied with, and one was rated as not being applicable to South Africa.


Following these re-ratings, South Africa is now deemed to be fully or largely compliant in 35 of the FATF’s 40 recommendations, including five of its six core recommendations. National Treasury has indicated that it hopes to conclude the necessary reforms by 2025, which will remove South Africa from the list.


Once this has been achieved and considering the resilience of the South African financial sector, including compliance with international regulatory standards for banks, further impetus in FDI inflows can realistically be expected. In the interim, the attractiveness of direct investments in the country’s on-going transition to renewable energy in the Southern African region should continue to boost the balance of payments.


Inflation declines further


Following the recent lull in the pace of retreat of the consumer price index (CPI), inflation has now returned to a downward trajectory, both in terms of consumer prices and producer prices. Although the January reading of Statistics SA’s CPI data has seen a slight uptick to 5.3%, consumer inflation is still down from 5.5% in November and 5.9% in October (see figure 6).


The producer price index (PPI), which invariably acts as a leading indicator for consumer prices, has set an even better tone, with the latest reading of 4% suggesting that inflationary trends will continue to moderate into 2024. More importantly, both the CPI and PPI are well within the Reserve Bank’s target range for inflation.


Other good news for indebted consumers, especially property owners, is the welcome decline in South Africa’s long-term bond yield, which could be indicative of an imminent turning point for mortgage bond rates. Since early October last year, the 10-year bond yield has shed more than 100 basis points – an indication that international capital markets are pricing in a lower interest rate scenario for South Africa in 2024.


Recovery of tourism sector


South Africa’s tourism industry is well on its way to a full recovery, with the number of overseas travellers in 2023 breaching the two-million mark – an increase of 42% over the number in 2022, but still below the figure of 2.6 million recorded in 2019 (pre-Covid).


Global tourism has recovered well from the negative impact of Covid lockdowns and South Africa is no exception, with the recovery rate standing at 79% of pre-Covid arrivals from overseas – marginally lower than the global average. Europe continues to dominate the South African tourism industry in terms of overseas arrivals, accounting for 64% of the total. Combined with North America, these two regions were responsible for more than 82% of all tourist arrivals from overseas in 2023.


Figure 7 depicts the overseas tourist arrivals to South Africa in 2023 for the top-ten source countries, confirming the importance of maintaining sound relations with countries that share the same fundamental governance principles related to democracy and free enterprise.


The imminent further recovery of tourism bodes well for the prospects of higher economic growth in 2024, as the sector possesses a pervasive value chain with other economic sectors, most notably accommodation, restaurants, transportation, and retail trade in clothing, ornaments, and artefacts. Tourism contributed almost 4% to South Africa’s GDP in 2019, a solid increase from the ratio of 2.6% in 2017.


The average spending of tourists visiting South Africa via air travel is estimated at around R40,000 per person and the industry was responsible for almost half-a-million jobs in 2021, despite the negative impact of the Covid pandemic. With a bit of luck, this figure will eventually recover to above the level of 777,000 recorded in 2019.


Altron-Fintech Index bottoms out


The latest reading of the Altron-Fintech Household Resilience Index (AFHRI) points to a bottoming out of a downward trend that commenced shortly after the South African Reserve Bank adopted a restrictive monetary policy stance (at the end of 2021). Since then, the prime overdraft lending rate in South Africa has risen to 11.75% - a full 175 basis points higher than the rate that existed before the Covid pandemic.


Fortunately, the results of the AFHRI for the third quarter of last year point to a marginal recovery in the financial disposition of households, with increases of 0.3% (year-on-year) and 0.8% (quarter-on-quarter). This trend is aligned to the recent marginal recovery of South Africa’s leading business cycle indicator, which increased by 0.4% Between the second and third quarters of 2023.


The improvement in the AFHRI has been driven by higher employment levels, higher real salaries in the public sector, with real household disposable income also increasing by 6.7% (quarter-on-quarter). The rise in employment has been especially encouraging, with total employment now higher than before the Covid pandemic, as illustrated by figure 8.



Even though unemployment rose marginally during the fourth quarter of 2023, a total of 800,000 new jobs were created in 2023. Total employment in the economy now stands at 16.7 million, which represents a gain of 300,000 jobs compared to the end of 2019 (pre-Covid). Other good news on labour market trends is the fact that 139,000 jobs were created in the private sector during the fourth quarter, most of which originated within the financial services sectors.


Trade surplus intact


Thanks to November 2023 recording the country’s highest monthly trade surplus of the year, with a hefty increase of more than 9% in exports, South Africa managed to record another trade surplus in 2023 – for the eighth year in succession. Data released by SARS at the end of January confirms a new record for total exports, breaking the R2-trillion mark for the second successive year. The R1-trillion level for exports was achieved in 2015 and, thanks mainly to a 31% increase in export earnings in 2021, a doubling of this level occurred in 2022.


Over the past two years, prices for several of the country’s key export commodities have been volatile and under pressure, resulting in October 2022 recording the first trade deficit in 30 months. Fortunately, total exports have managed to continue an upward trend, confirming the absence of any significant balance of payments instability.



Of late, the chances of maintaining solid export growth in 2024 have improved, with the prices of gold, coal, iron ore and platinum having increased substantially from their pre-Covid levels. Gold, which remains a major export earner for South Africa, has risen to an all-time high of marginally above $2,000 per fine ounce. At the end of February, gold was trading at a level of $200 higher than at the beginning of October last year.


Iron ore, which contributed an average of more than R8 billion per month to the value of mining sector output in 2023, may also be back in demand. Although the price has dropped from its recent highs at the end of last year, it stood at $123 per tonne at the end of February 2024, considerably higher than the most recent low of just below $100 per tonne, recorded in May 2023.


The Chinese government has recently started to implement measures designed to stimulate infrastructure development, including central bank loans to the China Construction Bank and a lowering of the official interest rate, which should encourage activity in the residential building sector during 2024.


Capital formation back on track


Capital formation seems to have decisively turned the corner after the debilitating effects of state capture and the Covid pandemic. Not only does this key demand-side indicator add value to the economy during the implementation stages, but it also facilitates future growth by virtue of expanding the country’s productive capacity in all sectors.


At a level of more than R270 billion during the 3rd quarter, gross fixed capital formation was 6% higher than a year ago (in real terms) and has been boosted by new investment in machinery and equipment. Although South Africa’s ratio of capital formation to GDP declined dramatically during the disastrous state capture era (from 17.6% to only 13.8%), it has since stabilised and is now at above 15% and rising.


Sufficient imports of machinery and equipment (as was experienced last year) are a prerequisite for economic growth, particularly in a developing country.



During 2023, imports of machinery and equipment rose dramatically to a level of R465 billion (see figure 10), representing almost a quarter of total imports, its highest share since 2016. The imports of mineral products (which is mainly represented by oil, diesel and petrol) amounted to 21% of total imports, its second highest level since 2014.


Both of these categories of imports are crucial to the expansion of productive capacity and economic growth, with the stellar performance of machinery & equipment imports also closely associated with higher investment in renewable energy by small and large businesses alike.


Strong growth in construction activity


South Africa’s construction sector seems to have turned the corner and is heading for expansion in 2024. The Afrimat Construction Index (ACI) for the 3rd quarter of 2023 recorded a quarter-on-quarter increase of 9.2% and builds on the positive ACI growth rate of 5.8% recorded in the 2nd quarter of the year (see figure 11). 


It is especially encouraging that the important indicator of job creation in construction continued to record a healthy growth rate, with 145,000 new jobs having been created since the beginning of 2023. Equally impressive is the increase of almost 10% in the volume of building materials produced in the 3rd quarter, compared to the previous quarter, with year-on-year growth also having returned to growth.



Despite the slump in the residential housing market, several key drivers of further growth in the construction sector may strengthen or emerge during 2024. They include the following:


  • Progress with public/private partnerships or outright privatisation in the area of repairing, maintaining and expanding the country’s logistics infrastructure

  • Progress with the inevitable and gradual switch to renewable energy, which is often linked to construction activities

  • New capital formation in the economy, which recorded its 7th successive double-digit growth rate during the 3rd quarter of 2023 (year-on-year)

  • A larger measure of price stability in the economy, which may lead to lower interest rates, hopefully early in 2024.


In addition to the sterling performance of wholesale sales of construction materials, new job creation, and the volume of building materials, other highlights of the latest ACI were the positive real growth in the value of building material sales, retail hardware sales and remuneration of construction workers (quarter-on-quarter). 


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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


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