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Copyright © 2026   prepared by the Inclusive Society Institute   PO Box 12609 Mill Street Cape Town, 8010 South Africa   235-515 NPO   All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without the permission in writing from the Global South Perspectives Network   DISCLAIMER   Views expressed in this report do not necessarily represent the views of The coordinating entities or any of their office bearers   Original transcripts of the presentations made during a meeting held on 19 January 2026 have been summarised with the use of the AI tool and then edited and amended where necessary by the rapporteur for correctness and context.   FEBRUARY 2026   Author: Daryl Swanepoel   CONTENTS 1 INTRODUCTION 2 THE IMMEDIATE CONTEXT: SYMBOLIC ADVANCE AND POLITICAL CONTRACTION 3 MULTILATERALISM UNDER PRESSURE: WHEN RULES DEPEND ON RESTRAINT 4 REINTERPRETING THE AFRICAN G20: AGENDA-SETTING AS INFLUENCE 5 CONTESTATION AND LANGUAGE: NORMS UNDER EXPLICIT CHALLENGE 6 EXCLUSION AND PRECEDENT: PROCEDURAL NORMS AT RISK 7 ARTICLE 109 AND THE LIMITS OF FORMAL RENEWAL 8 FROM UNIPOLARITY TO MULTIPOLARITY: FRAGMENTATION AS STRUCTURAL TRANSITION 9 COALITIONS OF THE WILLING: PRAGMATIC COOPERATION IN A FRAGMENTED SYSTEM 10 AGENDA NARROWING: COHERENCE OR RETRENCHMENT? 11 PRESIDENCY CYCLES, CONTINUITY AND THE RISK OF HIATUS 12 FRAGMENTATION AND THE ILLUSION OF EXIT 13 BUREAUCRATISATION AND THE LOSS OF INFORMALITY 14 CONCLUSION: THE G20 BETWEEN STRUCTURAL CONSTRAINT AND ADAPTIVE AGENCY   Cover photo: Image generated using OpenAI’s DALL·E image generation model (2026). Concept developed for the Inclusive Society Institute / Global South Perspectives Network publication. 1 INTRODUCTION   The Open Consultation Mondays webinar on “What is the future of the G20?” took place at a moment when the international system appears to be quietly, but unmistakably, recalibrating itself. This is not a period marked by dramatic institutional collapse, nor by the sudden abandonment of multilateral frameworks. Rather, it is characterised by something more subtle and more unsettling: the gradual loosening of the political consensus that once gave those frameworks coherence and direction.   Multilateralism continues to exist in form, yet increasingly struggles to operate in substance, since rules remain written, but compliance has become selective. Forums still convene, but authority is uneven, contested and often fragile.   Within this unsettled terrain, the G20 occupies a distinctive and revealing position, because unlike treaty-based institutions, it is neither anchored in international law, nor supported by enforcement mechanisms. Its legitimacy rests almost entirely on political consent, procedural convention and the shared understanding that systemically important economies carry a collective responsibility for managing global risk. Where that understanding weakens, the G20 does not simply underperform. It becomes a site where deeper tensions in global governance are exposed.   For this reason, the consultation approached the G20 not as a discrete institution facing episodic difficulty, but as an indicator of broader transformations in how multilateral cooperation is practiced. The central concern was not whether the G20 has delivered particular outcomes, but whether the conditions that once made it a credible and effective forum still hold. 2 THE IMMEDIATE CONTEXT: SYMBOLIC ADVANCE AND POLITICAL CONTRACTION   The discussion was framed by the conclusion of the first G20 Summit hosted on the African continent. This G20 in Johannesburg marked an important symbolic expansion of global economic governance, that reflected both the shifting geography of systemic importance and the growing assertiveness of the developing and middle-income economies. Hosting the G20 on African soil carried an implicit challenge to inherited hierarchies within the international system, in that it reinforced the long-standing arguments that global governance must adapt to the contemporary economic realities, rather than remaining tethered to historical precedent.   But the consultation deliberately resisted a purely symbolic reading of the Summit and instead, it situated the African presidency within a longer trajectory in which developing countries have sought to reshape both the content and the normative orientation of global economic governance. The agenda advanced during the presidency foregrounded structural constraints, rather than cyclical fluctuations, directing attention to issues that speak directly to long-term development and systemic vulnerability.   At the same time, the consultation acknowledged that this agenda unfolded within a narrowing political space. Participation by some major economies, most notably the United States, was limited. Contestation over language intensified. And soon after the Summit, developments surrounding the forthcoming presidency introduced new uncertainty regarding the procedural norms of the forum itself. This juxtaposition, between agenda expansion on the one hand and political contraction on the other, framed much of the discussion that followed. 3 MULTILATERALISM UNDER PRESSURE: WHEN RULES DEPEND ON RESTRAINT   A foundational analytical premise of the consultation was that multilateral institutions derive their effectiveness not from formal rules alone, but from the willingness of participants to accept constraint. Rules do not enforce themselves. They function because actors believe that restraint serves their long-term interests better than unilateral action.   When this belief erodes, institutions rarely collapse outright. More often, they hollow out. Procedures continue, but their binding force weakens. Participation becomes conditional, selective or instrumental. The consultation argued that this pattern is increasingly visible across the multilateral system as a whole.   The G20 is particularly exposed to this dynamic. Its informality was originally its greatest strength, allowing rapid coordination in moments of crisis and enabling dialogue among actors with divergent political and economic systems, but informality also carries vulnerability and so when commitment to consensus fades, flexibility can be repurposed to justify exclusion, agenda narrowing or procedural manipulation.   Current tensions within the G20 were therefore framed not as isolated dysfunctions, but as manifestations of a broader shift in global governance, namely a shifting away from rule-bounded cooperation and toward power-mediated engagement. This shift does not eliminate multilateralism, but it fundamentally alters its character, which renders cooperation more contingent and less predictable. 4 REINTERPRETING THE AFRICAN G20: AGENDA-SETTING AS INFLUENCE   A substantial portion of the discussion was devoted to reassessing what constitutes “impact” in contemporary global governance. The consultation challenged evaluation frameworks that privilege attendance by heads of state, the specificity of communiqués or the immediacy of deliverables.   Instead, emphasis was placed on agenda-setting as a form of influence, given that the shaping of the terms of debate can, in a fragmented system, be more consequential than securing immediate commitments. The African presidency was therefore understood as exercising policy and norm entrepreneurship, filling discursive space at a moment when the global narrative is unsettled.   Debt sustainability was foregrounded as a structural issue embedded in the architecture of global finance, rather than as a failure of fiscal discipline and the cost of capital was elevated as a central constraint on development. Climate finance was reframed around access, quality and adaptation, rather than aggregate pledges alone, and critical minerals were positioned within a development and beneficiation discourse that challenges extractive models which externalise value.   The consultation noted that many of these issues transcend the G20 itself. Their significance lies in their capacity to migrate across forums, reinforcing debates in development finance, climate negotiations and regional processes and so, in this sense, influence operates cumulatively, through repetition and coalition-building rather than through singular decisions.   5 CONTESTATION AND LANGUAGE: NORMS UNDER EXPLICIT CHALLENGE   The consultation examined the intensification of contestation within the G20, particularly around language previously regarded as settled, where issues such as climate action, gender, sustainable development and solidarity again became sites of explicit disagreement.   What distinguished this phase of contestation was not its breadth, but its nature; where the use of previously agreed language as a basis for compromise was resisted by some member states and where normative frameworks that had accumulated over time were no longer uniformly treated as common reference points. The discussion underscored that in consensus-based forums such as the G20, even limited resistance can exert disproportionate influence on the outcomes, because in such fora, even  a small number of dissenting actors can significantly narrow them and recalibrate what is considered to be politically possible. The result is that over time this dynamic reshapes expectations, which weakens the stabilising function of precedent.   This development was interpreted as reflecting a broader environment in which norms themselves are increasingly contested, because as power politics reassert themselves, commitments to shared values become conditional, subject to reinterpretation or outright rejection. 6 EXCLUSION AND PRECEDENT: PROCEDURAL NORMS AT RISK   A critical analytical focus of the consultation concerned the unilateral exclusion of a founding G20 member, South Africa, under the forthcoming presidency, which, while formally framed as temporary, could set a troubling precedent.   The G20’s legitimacy rests on inclusion and shared participation among its members and therefore selective exclusion, even without formal expulsion, undermines this premise. More consequential, however, was the absence of collective resistance from the other members of the G20.   The consultation interpreted this silence of the other members as indicative of the current fragmented political environment in which institutional principles seem to increasingly yield to bilateral calculation. States may object privately, but publicly, they are reluctant to incur political cost by defending procedural norms. This pattern was identified as a key mechanism through which consensus-based systems erode. It does not occur through overt rejection, but through submission; and then over time, the exceptions become normalised, thereby altering expectations and embedding procedural uncertainty within the institution itself. 7 ARTICLE 109 AND THE LIMITS OF FORMAL RENEWAL   Flowing directly from the discussion on exclusion and procedural precedent, the consultation broadened its analytical lens to consider deeper structural constraints affecting institutional reform within the multilateral system. Particular reference was made to the United Nations Charter’s built-in reform mechanisms, notably Article 109, and to the persistent failure to activate them in any meaningful way.   Article 109 was treated as emblematic, rather than exceptional. Its existence demonstrates that the multilateral system is not legally frozen, pathways for comprehensive reform are formally available. Yet its non-use highlights a more fundamental reality: reform is not blocked by legal impossibility, but by political equilibrium. Those actors most empowered to activate reform are frequently those with the least incentive to alter existing arrangements.   This observation underscored a broader point. Institutional stagnation should not be misread as technical failure; instead, it reflects a balance of power in which entrenched advantage is preserved through inaction, where reform becomes conceivable only when shifts in power alter incentive structures and not merely when legal mechanisms exist. The consultation also cautioned against the activating Article 109, due to the profound political risk thereof. In a deeply fragmented and power-contested international system, the opening of the Charter to wholesale revision may yield an order markedly worse than the one it seeks to reform. 8 FROM UNIPOLARITY TO MULTIPOLARITY: FRAGMENTATION AS STRUCTURAL TRANSITION   Building on the discussion of institutional stasis, the consultation situated the current G20 dynamics within the wider historical transition that is underway; a transition from a unipolar to a multipolar world order.   The post-Cold War unipolar moment created an enabling environment for consensus-based multilateralism. In such an environment the concentration of power reduced coordination costs, which allowed dominant actors to underwrite the institutions even when the outcomes were imperfect or unevenly distributed. As power diffuses, however, the logic of cooperation changes fundamentally. Consensus becomes harder to sustain, veto power more widely distributed and normative coherence more fragile.   Fragmentation, in this reading, is not synonymous with chaos. It is a structural consequence of multipolarity. The challenge facing institutions such as the G20 is not whether fragmentation exists, but whether it can be governed. Consequently, thinner outcomes, slower consensus and heightened contestation may in fact reflect an adaptation of the system, rather than its failure. 9 COALITIONS OF THE WILLING: PRAGMATIC COOPERATION IN A FRAGMENTED SYSTEM   Against this backdrop, the consultation explored the growing role of coalitions of the willing as pragmatic instruments of cooperation, not as substitutes for multilateralism, but as adaptive responses to institutional gridlock. Coalitions of the willing allow cooperation to proceed where unanimity proves unattainable, and so by enabling a critical mass of states to align around shared objectives, progress can be made without waiting for universal agreement. Their legitimacy of such cooperation will be derived from the coalition’s effectiveness, openness and the capacity to expand. The discussion acknowledged the potential risks associated with such coalition formation, where poorly designed coalitions can entrench fragmentation or reinforce power asymmetries. Yet in the current environment, paralysis was seen as a greater danger than pluralism and therefore carefully structured coalitions may help sustain cooperation, while preserving institutional continuity.   Within this logic, the G20 itself can be understood as an early coalition of the willing, given that it was created as to address systemic risks informally, when the existing institutions multilateral processes proved insufficient.   10 AGENDA NARROWING: COHERENCE OR RETRENCHMENT?   The proposal to narrow the G20 agenda to its original macroeconomic and financial focus was examined in detail. While agenda expansion has strained coherence, the consultation rejected a simplistic return to “back-to-basics”.   The global economy today is structurally different from that of earlier periods. Finance, development, inequality and climate risk are deeply intertwined. Treating development as external to economic governance misreads contemporary risk, in that a finance-only G20 risks managing symptoms, while ignoring the underlying causes.   The distinction advanced was therefore between rationalisation and regression. Streamlining may be necessary, retreat is not.   11 PRESIDENCY CYCLES, CONTINUITY AND THE RISK OF HIATUS   The discussion also noted that the immediate transition following South Africa’s presidency includes a de facto hiatus under the current United States presidency, during which the G20 process is expected to operate with reduced momentum and limited agenda expansion. This interlude was not framed as withdrawal from the forum, but as a period of lowered political investment, with implications for continuity and follow-through on issues elevated during the African presidency. Against this backdrop, cautious hope was expressed by a number of participants in the consultation that the United Kingdom presidency may serve as a point of reactivation, where deferred threads could be picked up and where the G20’s work programme can be re-anchored, even if under a different framing and set of priorities.   The consultation also reflected on the implications of the G20 presidency cycle, particularly the transition from South Africa to the United Kingdom, and thereafter to South Korea. The concern expressed was not one of intent or legitimacy, but of continuity. Presidencies matter because they shape agenda priority and framing, and the risk identified was that issues foregrounded under South Africa’s leadership, notably development constraints, inequality, debt dynamics and the cost of capital, may struggle to retain salience as the forum shifts toward political economies with different strategic reference points. The UK was implicitly associated with a more traditional G7-style orientation, while South Korea was seen as occupying a more ambiguous middle position. The underlying question was whether the momentum created by the African presidency would be carried forward or quietly diluted. Or will it be re-anchored around narrower macroeconomic concerns.   12 FRAGMENTATION AND THE ILLUSION OF EXIT   The discussion also addressed the proliferation of alternative groupings and parallel institutions, which should not be viewed  as straightforward substitutes for established forums. Fragmentation may very well create tactical openings, but it could also magnify power asymmetries. Negotiations in such fragmented environments could lead to smaller and middle-income states losing their collective leverage. 13 BUREAUCRATISATION AND THE LOSS OF INFORMALITY   A reflective strand of the consultation focused on the increasing bureaucratisation of the G20, where procedural density has expanded considerably, coupled with extensive negotiation over text that crowds out essential less formal political dialogue.   The G20 was originally conceived as an informal space for candid engagement and in the current environment that is marked by mistrust and fragmentation, such relational spaces may be increasingly important. Dialogue, the consultation argued, is not ornamental. It is infrastructural. 14 CONCLUSION: THE G20 BETWEEN STRUCTURAL CONSTRAINT AND ADAPTIVE AGENCY   The consultation underscored that the G20 should no longer be assessed against expectations formed in a different structural era. Its present tensions reflect deeper constraints embedded in the contemporary international order.   Formal reform pathways exist, but remain politically blocked and fragmentation is structural, rather than episodic and therefore, consensus, where it emerges, will be partial and issue-specific.   Within this environment, the G20 remains ambiguous, but consequential. It cannot restore a lost consensus, nor can it substitute for comprehensive institutional reform. Its value lies in functioning as a flexible platform for coordination, agenda-setting and selective alignment.   The future of the G20, like that of multilateralism itself, will be shaped by political choice, by whether states remain willing to accept constraint in pursuit of cooperation that is imperfect, but still necessary.   - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - This report has been published by the Inclusive Society Institute on behalf of the Global South Perspectives Network Global South Perspectives Network (GSPN) is an international coalition founded in 2022 by HumanizaCom, the Foundation for Global Governance and Sustainability (FOGGS), and the Inclusive Society Institute (ISI). It brings together think tanks and experts from Latin America, the Caribbean, Africa, and the Middle East to amplify Global South voices in global governance debates.   GSPN works to strengthen Southern representation in decision-making, focusing on United Nations reform and multilateralism. Through research, dialogue, and advocacy, it promotes equitable partnerships between the Global South and North.   Key initiatives include the 2023 report Global South Perspectives on Global Governance Reform, presented at a UN workshop in New York, and events such as the 2024 UN Civil Society workshop in Nairobi.   GSPN’s mission is to ensure Global South nations are equal partners in shaping global policy, fostering a fair, inclusive, and sustainable international order. Email: info@inclusivesociety.org.za Phone: +27 (0) 21 201 1589 Web: www.inclusivesociety.org.za

Copyright © 2026   Inclusive Society Institute   PO Box 12609 Mill Street Cape Town, 8010 South Africa   235-515 NPO   All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without the permission in writing from the Inclusive Society Institute   DISCLAIMER   Views expressed in this report do not necessarily represent the views of the Inclusive Society Institute or its Board or Council members.   October 2025   Author: Daryl Swanepoel   Contents   1 INTRODUCTION: Contextualising the conversation 2 THE CONSULTATION: Framing the questions in an era of systemic drift 3 ANALYTICAL EXPANSION OF THE FOUR CORE QUESTIONS 3.1 China’s dual impulse: Corrective and strategic at once 3.2 Great-Power reactions: Anxiety, ambivalence and the defence of hierarchy 3.3 Global South perspectives: Resonance without alignment 3.4 Implications for the future of multilateralism: Between adaptation and fragmentation 4 DEEPENING THE DISCUSSION: PERSPECTIVES AND COUNTER PERSPECTIVES 5 BROADER IMPLICATIONS FOR A GLOBAL SOUTH STRATEGY 6 LOOKING AHEAD: THEMES FOR FUTURE CONSULTATION 7 CONCLUSION: CHOOSING BETWEEN EVOLUTION AND FRAGMENTATION Cover photo: AI generated 1 INTRODUCTION Contextualising the conversation   The Global South Perspectives Network enters this new phase of publishing its Monday Consultations at a moment when the international system appears suspended between epochs. One can sense a world taking stock of itself, as if pausing briefly before deciding what kind of order it wishes to inhabit next. The structures inherited from 1945 still stand, at least in name and legal form, yet their gravitational pull has weakened. Power has become more diffuse, expectations more plural and the consensus that once underpinned multilateralism has thinned with time.   It is within this atmosphere of transition that China’s Global Governance Initiative (GGI) has emerged. It is an initiative that has not only intensified existing debates about global power but has also illuminated the deeper uncertainties defining this historical moment. Some interpret the GGI as a strategic challenge to a familiar order, whilst others see it as a direct response to the reform inertia that has plagued multilateral institutions for decades. Many in the Global South recognise in it an echo of long-articulated frustrations, a sense, so to say, that the current system speaks the language of universality, yet often operates through hierarchies that privilege the few over the many.   This consultation, one of many held under the Monday Consultations banner, brought together analysts, practitioners and observers from across the global community, each contributing to a shared inquiry into what the GGI represents and what its emergence might mean for the future of global governance.   This analytical brief offers an expanded account of that conversation. It does not merely document the dialogue, it attempts to interpret it, so as to situate the remarks, questions and insights within the broader currents shaping the transition from an older order to whatever may come next. In doing so, it aims to provide a reflective and grounded contribution to the growing discourse on how the Global South might navigate a system that is neither stable, nor yet fully transformed.     2 THE CONSULTATION Framing the questions in an era of systemic drift   The consultation began by acknowledging a simple, but often overlooked truth, that global governance is no longer anchored to the geopolitical realities that produced it. The architecture designed in 1945, so elegant in conception, so ambitious in spirit, now struggles under the weight of contemporary demands. Its foundational assumptions have eroded, yet its institutional form has remained largely intact.   The United Nations Security Council still mirrors the balance of power at the end of the Second World War. The Bretton Woods institutions continue to reflect an economic geography that no longer exists. And even when the international system has pledged reform, as it did in the 2005 World Summit, implementation has consistently failed to materialise.   In this context, the emergence of the GGI appears less surprising and more inevitable. The world has been signalling its desire for reform for decades, but reform has proven elusive. Where institutions fail to adapt, the system creates the very spaces into which new actors step. China’s initiative thus becomes not merely a Chinese story, but a symptom of a deeper systemic malaise.   The consultation therefore sought to explore four interlocking questions: whether China is filling a vacuum or rewriting rules; how other great powers are responding; how the Global South interprets the initiative; and what this means for the future of multilateralism. These questions framed the discussion, but did not confine it and instead, they opened a broader reflection on the contingencies of this moment in world affairs.     3 ANALYTICAL EXPANSION OF THE FOUR CORE QUESTIONS   3.1 China’s dual impulse: Corrective and strategic at once   A central theme emerging from the discussion was the recognition that the GGI cannot be reduced to a single motive in that it reflects both a critique and an ambition, both a response to structural inequities and a desire to shape the evolving order. This duality is not a contradiction. It is a characteristic of rising powers throughout history.   China’s argument begins with the claim that the multilateral system suffers from a legitimacy deficit, frozen, as it were, in the institutional imagination of 1945. The Initiative positions itself as a corrective to this democratic stagnation. Yet the GGI also grows out of a decade-long pattern of parallel institution-building: the Asian Infrastructure Investment Bank, the New Development Bank of BRICS, the Belt and Road Initiative, and now the GGI’s associated platforms. In combining critique with construction, China demonstrates both frustration with the existing order and confidence in its capacity to propose alternatives.   This dual impulse, being simultaneously reformist and strategic, was widely noted in the consultation. It reflects a broader truth, that no major power seeks to reform the world in ways that negate its own interests. The more revealing question is not China’s ambition, but the conditions that have rendered that ambition consequential. If the existing institutions had evolved with greater agility, the space within which the GGI now operates might have been narrower. As it stands, the system itself has created the void that the GGI seeks to fill.     3.2 Great-Power reactions: Anxiety, ambivalence and the defence of hierarchy   The consultation examined how other major powers interpret the GGI and what these reactions reveal about their own strategic anxieties.   The United States has framed the initiative as destabilising, even revisionist. Yet this rhetorical posture contrasts sharply with its longstanding resistance to institutional reforms it professes to support. Whether in IMF quota adjustments or Security Council redesign, Washington’s defence of the “rules-based order” often coincides with a defence of inherited privileges.   Europe’s position differs in tone, but not always in substance, because while sharing Western concerns about China’s intentions, European actors remain deeply protective of institutional arrangements that grant disproportionate influence to a continent whose demographic and economic weight has steadily declined. The two permanent Security Council seats held by France and the United Kingdom, for example, exemplify this disjuncture between contemporary realities and institutional persistence. India, Japan and other Asian powers were described as occupying a space of strategic ambivalence. They are frustrated by the inertia of the system, but wary of a Sinocentric alternative, and they are conscious of their own role as regional poles within an increasingly plural global landscape.   What emerges from these reactions is not a coherent response to China, but a diverse set of anxieties about losing position within the existing hierarchy. Debates about global governance reform, in this sense, are inseparable from debates about power. The GGI becomes a prism through which the deeper insecurities of established and emerging powers are refracted.     3.3 Global South perspectives: Resonance without alignment   One of the consultation’s clearest insights was the divergence between Western and Global South interpretations of the GGI. Across Africa, Southeast Asia, Latin America and the Middle East, China’s critique of the global system finds significant resonance. Many states recognise their own frustrations in China’s diagnosis: an unrepresentative system, inconsistent application of norms and a persistent sense of marginalisation within the institutions of global governance.   But resonance does not imply alignment. The Global South’s response is more subtle and more pragmatic. It reflects a recognition that the GGI, whatever its motivations, acknowledges grievances that the established custodians of the system have long neglected. For middle powers such as South Africa, Brazil, Indonesia and Türkiye, the GGI represents neither a new orthodoxy, nor a threat to be resisted, but an additional space in which agency may be exercised.   This pragmatic reading acknowledges both opportunity and risk, where the opportunity lies in leveraging competing centres of global influence to expand the negotiating space for developing countries; and where risk arises if parallel systems evolve into competing regimes that will deepen fragmentation and erode the universality that multilateralism aspires to maintain.   The consultation also highlighted the concerns of civil society, whose voices is said to adde further nuance to the discourse. Their concerns about transparency, governance standards and human rights are not solely directed at China, but also at the West, whose selective approach to human rights diplomacy, they argue, has undermined the West’s own credibility. These tensions reflect the broader philosophical question that asks who has the authority to define legitimacy, and to whom is that authority accountable?   3.4 Implications for the future of multilateralism: Between adaptation and fragmentation   Perhaps the most reflective portion of the consultation centred on what the GGI and the reactions it provokes tell us about the trajectory of multilateralism itself.   Multilateralism, it was suggested, stands at a crossroads. Not because China challenges it, but because those entrusted with its stewardship have allowed it to stagnate. The institutions that once embodied the hope of a cooperative world have become, in some respects, the custodians of their own paralysis. Three observations shaped the discussion. The first is that alternatives arise when institutions fail to adapt. The GGI’s emergence is therefore as much a reflection of institutional stasis as of Chinese ambition.   The second is that multipolarity is now an unavoidable reality, because whether acknowledged or resisted, it is shaping the contours of global politics. No single actor can unilaterally impose its vision of the world and any future order will, therefore, be layered, plural and hybrid. The third observation is that containment strategies are unlikely to succeed. The GGI resonates not because it is Chinese, but because it speaks to structural inequities that many states experience directly. The more the initiative is dismissed rather than engaged, the more its appeal may grow.   The consultation thus returned repeatedly to a reflective tension: the world must navigate between the dangers of fragmentation and the necessity of adaptation. The GGI may well be the first major test of whether the existing system can accommodate new voices and new institutional forms without fracturing.     4 DEEPENING THE DISCUSSION: PERSPECTIVES AND COUNTER PERSPECTIVES   The conversation unfolded with a richness that exceeded the scope of the initial questions, drawing the participants into deeper reflections on the philosophical foundations of global governance.   One participant argued that legitimacy, far from being an ambiguous construct, requires universal standards, because without legitimacy grounded in representation and participation, multilateralism risks becoming a façade for power politics. Another countered that universalism itself is often claimed by those who historically benefited from defining it and so the question then becomes: who determines what counts as legitimate? The Charter may offer the anchor, but interpretation remains contested.   Others reflected on the tension between international law and the so-called “rules-based international order.” For many states, the latter is seen not as a neutral framework, but as a flexible vocabulary used to justify inconsistent action. The consultation suggested that a re-centring of the Charter, rather than a reliance on ad hoc interpretations, might offer firmer ground for a renewed multilateralism.   Concerns about multipolarity also surfaced, with one participant suggesting that multipolarity offers the promise of inclusivity, but also the risk of disorder, because he proffered, without strong institutions capable of coordinating the interests of multiple poles, the world may slide toward spheres of influence reminiscent of earlier eras. Yet the consultation resisted fatalism, by suggesting that multipolarity need not replicate the past, as it can be shaped into something more collaborative, provided the institutional imagination is revived. Another theme that surfaced was the paralysis surrounding Security Council reform. While Africa’s demand for two permanent seats remains consistent, the question of which  states should hold them continues to divide the continent, which is an internal divergence that mirrors similar divides across the Global South. These divergences, therefore, suggests that reform requires not only a redrawing of institutional lines, but indeed also a re-articulation of the principles upon which representation should rest.     5 BROADER IMPLICATIONS FOR A GLOBAL SOUTH STRATEGY   The discussion illuminated several implications for the Global South’s approach to global governance., one being that there is growing recognition that the Global South is no longer a passive recipient of global norms, but an active co-author of emerging institutional debates. The GGI, regardless of its origin, provides a platform through which long-standing concerns about equity and representation can be expressed more forcefully.   A second implication is the need for greater coherence within the Global South itself, because internal divergences weaken negotiating power and slow reform. Yet the consultation suggested that these divergences, if openly acknowledged, rather than suppressed, can become sources of creative institutional design, such as the proposal that regional representation should be explored, rather than expanding the Security Council along national lines.   A third implication is the need to balance opportunity and caution. China’s initiative should be neither romanticised, nor rejected in that its possibilities lie in the space between endorsement and opposition.  It could evolve into a strategic engagement that recognises its potential to reshape global governance without surrendering the normative aspirations that the Global South holds for a fair and inclusive system.   6 LOOKING AHEAD: THEMES FOR FUTURE CONSULTATION   The discussion pointed toward several directions for future exploration, including, amongst others, the evolving relationship between international law and competing rule-making systems, the institutional implications of multipolarity, the governance of digital, financial and technological domains and the future of development finance in a world no longer dominated by the Bretton Woods institutions. All emerged as themes that merit deeper reflection.   The GGI will not be the last initiative to challenge the global governance status quo. But by beginning here, the Monday Consultation Series establishes a foundation for understanding how global governance might evolve if the voices of the Global South are treated not as peripheral commentary, but as central contributions.   7 CONCLUSION: CHOOSING BETWEEN EVOLUTION AND FRAGMENTATION   The consultation closed with an observation that captures the philosophical spirit of the discussion, namely that the world is not choosing between a Western order and a Chinese order. It is choosing between an order capable of evolving and an order condemned to fragment.   China’s GGI is a reminder that global governance can stagnate only for so long before alternatives arise. Whether those alternatives deepen fragmentation or contribute to renewal depends on the willingness of established institutions to open themselves to reform and on the ability of emerging actors to articulate their visions with clarity and coherence.   In this sense, the GGI is not simply a Chinese proposal. It is a mirror held up to the international community, reflecting both the failures of the present and the possibilities of a different future.   The Global South Perspectives Network offers this analytical brief as the first step in an ongoing dialogue. Much remains to be explored, questioned and re-imagined. But this consultation has made one truth clear: global governance is at its most vibrant when the conversation is shared.   - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - This report has been published by the Inclusive Society Institute on behalf of the Global South Perspectives Network Global South Perspectives Network (GSPN) is an international coalition founded in 2022 by HumanizaCom, the Foundation for Global Governance and Sustainability (FOGGS), and the Inclusive Society Institute (ISI). It brings together think tanks and experts from Latin America, the Caribbean, Africa, and the Middle East to amplify Global South voices in global governance debates.   GSPN works to strengthen Southern representation in decision-making, focusing on United Nations reform and multilateralism. Through research, dialogue, and advocacy, it promotes equitable partnerships between the Global South and North.   Key initiatives include the 2023 report Global South Perspectives on Global Governance Reform, presented at a UN workshop in New York, and events such as the 2024 UN Civil Society workshop in Nairobi.   GSPN’s mission is to ensure Global South nations are equal partners in shaping global policy, fostering a fair, inclusive, and sustainable international order. Email: info@inclusivesociety.org.za Phone: +27 (0) 21 201 1589 Web: www.inclusivesociety.org.za

Copyright © 2026   prepared by the Inclusive Society Institute   PO Box 12609 Mill Street Cape Town, 8010 South Africa   235-515 NPO   All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without the permission in writing from the Global South Perspectives Network   DISCLAIMER   Views expressed in this report do not necessarily represent the views of The coordinating entities or any of their office bearers   Original transcripts of the presentations made during a meeting held on 19 January 2026 have been summarised with the use of the AI tool and then edited and amended where necessary by the rapporteur for correctness and context.   FEBRUARY 2026   Author: Dr Klaus Kotzé   CONTENTS   1 EXECUTIVE SUMMARY 2 THE ATTACK ON VENEZUELA: A NEW PRECEDENT IN THE USE OF AMERICAN FORCE 3 VIOLENCE AS A SYSTEMIC PHENOMENON, NOT AN ANOMALY 4 EROSION OF EMPATHY AND THE LEGITIMACY CRISIS OF MULTILATERAL INSTITUTIONS 5 GLOBAL SOUTH PERSPECTIVES: CONSTRAINTS AND STRATEGIC AGENCY 5.1 COLLECTIVE DE-RISKING AND STRATEGIC DECOUPLING 5.2 INSTITUTIONAL RENEWAL AND NORM REINFORCEMENT 5.3 SHARED NARRATIVE AND MORAL RECLAMATION 6 REGIONAL AND GLOBAL RIPPLE EFFECTS 7 CONCLUSION - A CALL FOR DELIBERATE INTERRUPTION Cover photo: Microsoft Copilot 2026, AI generated illustration depicting U.S.–Venezuela geopolitical tensions, M365 Copilot image generation tool. 1 EXECUTIVE SUMMARY   On 3 January, the United States launched a major military operation against Venezuela that resulted in the capture of President Nicolás Maduro and his wife. This event marked the most direct U.S. military intervention in Latin America in decades and represents a fundamental rupture in the norms governing state sovereignty and the use of force. Experts convened by the Global South Perspectives Network assessed this event not as an isolated crisis but as a critical inflection point in global order, one with ramifications far beyond Venezuela. Their discussion made three core claims:   The attack signals a deep break-down of international norms, where force can be deployed unilaterally under broad pretences. It accelerates a global shift toward systemic violence, undermining institutions designed to contain conflict and protect sovereign equality. For the Global South, traditional responses based on deference or hedging are no longer sufficient; instead, collective strategies of agency, resilience and institutional renewal must be pursued.   This brief synthesises this expert conversation and explores the Venezuela operation’s effects on the international system’s current crisis, the pathways for Global South responses, and the broader consequences for the future of multilateralism and global governance.     2 THE ATTACK ON VENEZUELA: A NEW PRECEDENT IN THE USE OF AMERICAN FORCE   The U.S.’ operation in Venezuela, widely documented as involving air strikes on strategic installations in and around Caracas and the exfiltration of President Maduro, represents an unprecedented direct assault on another sovereign state’s leadership by U.S. forces in recent history.   What distinguishes this from previous military interventions is not just its scale but its apparent disregard for multilateral legal constraints. According to expert commentary, the operation violates core principles of the U.N. Charter, which prohibits the threat or use of force against the territorial integrity or political independence of any state.   Consultation participants underscored that this attack, framed by U.S. authorities as a counter-narco-terrorism and stabilisation operation, is emblematic of a broader pattern in which coercion is normalised, and legal norms are treated as optional rather than foundational.   3 VIOLENCE AS A SYSTEMIC PHENOMENON, NOT AN ANOMALY   A central theme of the expert discussion was that contemporary global violence is no longer episodic, confined to specific wars or crises. Instead, it has become systemic, embedded in institutional behaviours, strategic logics, and narratives that reward escalation. Speakers drew historical parallels to early twentieth-century upheavals, when incremental violations of norms eventually culminated in widespread conflict. They argued that the Venezuela attack, like past military precedents, risks opening new floodgates rather than resolving discrete problems.   This systemic view of violence was reinforced by a public health analogy: unchecked violence spreads much like an epidemic through exposure, imitation and reinforcement. Without continuous mechanisms of interruption, the patterns of force used in one context are readily replicated elsewhere. In this framing, the international system lacks effective institutional capacity to contain contagion once precedent for the use of force is established.     4 EROSION OF EMPATHY AND THE LEGITIMACY CRISIS OF MULTILATERAL INSTITUTIONS   Consultation participants highlighted that the attack on Venezuela exposes a profound empathy deficit in global political discourse. Suffering, displacement and disruption caused by military action are now so frequently broadcast that they risk becoming background noise, tolerated consequences rather than urgent moral challenges. Institutions designed to mediate interstate conflict, above all the United Nations, were described as increasingly unable to enforce their own norms or to offer meaningful political mediation. This is not merely institutional failure; it is a crisis of legitimacy. When the greatest military powers disregard the system they helped to build, the normative foundation of multilateralism is hollowed out.   This erosion was illustrated starkly by the swift reactions of world leaders and civil society: some came out to condemn the U.S. action as a violation of international law and a threat to sovereignty, while others celebrated it as bold leadership. This polarisation further undermines the possibility of unified, normative responses that reinforce peaceful conflict resolution. It challenges the very edifice of global order.     5 GLOBAL SOUTH PERSPECTIVES: CONSTRAINTS AND STRATEGIC AGENCY   For states in the Global South, the Venezuela crisis presented several pressing questions about agency, sovereignty and strategic alignment. Historically, many of these states have balanced relations with major powers to secure trade, investment and development partnerships. The Venezuela episode suggests that reliance on normative deference, or on the continuation of established diplomatic frameworks, may no longer be sufficient. Various speakers emphasised that while formal sovereignty remains a principle of international relations, practical sovereignty is increasingly compromised by the unilateral actions of powerful states. In effect, the traditional security guarantees and legal frameworks that once offered a measure of insulation against external intervention are no longer reliable.   This reality prompts a reassessment of strategic options. The experts identified three broad response pathways for the Global South:     5.1 COLLECTIVE DE-RISKING AND STRATEGIC DECOUPLING   Rather than isolated hedging or alignment with existing power blocs, Global South countries could explore collective strategies of de-risking. This would reduce dependence on external patronage that can be leveraged coercively. This could involve expanding trade among each other in the Global South, diversifying diplomatic partnerships, and strengthening regional security architectures. Collective de-risking would not be isolationist, but rather a coordinated effort to build resilience that reduces vulnerability to unilateral coercion.     5.2 INSTITUTIONAL RENEWAL AND NORM REINFORCEMENT   Various speakers stressed the need for reinvigorating multilateral institutions with broader legitimacy and balanced authority. This includes reforming U.N. mechanisms to ensure that no single power can override established norms with impunity. Reformed and new platforms where Global South voices are not marginalised are now more needed than ever.   Institutional renewal also means developing mechanisms capable of sustained engagement, rather than episodic crisis management, to interrupt cycles of violence effectively.     5.3 SHARED NARRATIVE AND MORAL RECLAMATION   The attack on Venezuela and the inaction from the global community crystallises a broader cultural crisis: a weakening of collective commitment to humanitarian norms and shared global responsibility. Global South actors can play a leading role in articulating and popularising alternative narratives that resist the normalisation of coercive violence and emphasise cooperation over dominance.     6 REGIONAL AND GLOBAL RIPPLE EFFECTS   Various participants suggested that the Venezuela episode will have far-reaching effects on regional stability and global geopolitics. In Latin America and the Caribbean, the fear of contagion, whether political, economic, or military, has already driven shifts in diplomacy, migration pressures and security postures. The crisis has the potential to deepen emigration flows, strain host-state resources and heighten regional militarisation.   Beyond the Western Hemisphere, the attack reinforces concerns about great powers using force various spurious pretexts, including counterterrorism or transnational crime. If unchallenged, the precedent set in Venezuela will likely lower thresholds for intervention elsewhere, eroding the protective value of sovereignty as a principle.     7 CONCLUSION - A CALL FOR DELIBERATE INTERRUPTION   The experts in the Global South Perspectives Network concluded that the attack on Venezuela is more than a geopolitical flashpoint; it is a wake-up call. The international order is currently oscillating between inertia and escalation, and the path it follows will depend on whether political actors choose to invest in deliberate mechanisms of interruption and renewal or allow systemic violence to self-perpetuate.   The Global South finds itself at a crossroads: continue to navigate within the existing architecture, or contribute to shaping a more resilient, equitable and normatively grounded framework for global governance.         - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - This report has been published by the Inclusive Society Institute on behalf of the Global South Perspectives Network Global South Perspectives Network (GSPN) is an international coalition founded in 2022 by HumanizaCom, the Foundation for Global Governance and Sustainability (FOGGS), and the Inclusive Society Institute (ISI). It brings together think tanks and experts from Latin America, the Caribbean, Africa, and the Middle East to amplify Global South voices in global governance debates.   GSPN works to strengthen Southern representation in decision-making, focusing on United Nations reform and multilateralism. Through research, dialogue, and advocacy, it promotes equitable partnerships between the Global South and North.   Key initiatives include the 2023 report Global South Perspectives on Global Governance Reform, presented at a UN workshop in New York, and events such as the 2024 UN Civil Society workshop in Nairobi.   GSPN’s mission is to ensure Global South nations are equal partners in shaping global policy, fostering a fair, inclusive, and sustainable international order. Email: info@inclusivesociety.org.za Phone: +27 (0) 21 201 1589 Web: www.inclusivesociety.org.za

Copyright © 2026 Print ISSN: 2960-1541 Online ISSN: 2960-155X Inclusive Society Institute PO Box 12609 Mill Street Cape Town, 8000 South Africa 235-515 NPO All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without the permission in writing from the Inclusive Society Institute D I S C L A I M E R 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. JANUARY 2026   by Yuxin Tang   Abstract   On December 1, 2024, South Africa became the first African country to assume the G20 presidency, establishing the theme of "Unity, Equality, and Sustainability". As the continent with the largest concentration of developing countries and the largest developing country, China and Africa share similar historical experiences, face common economic development tasks, and have extensive common economic interests in international affairs. In recent years, agriculture and food security have become one of the global focuses. Under the G20 framework, China-Africa agricultural cooperation is closely related to global issues, and the coordinated development of bilateral agricultural trade is of far-reaching significance for promoting cross-regional agricultural cooperation.   Keywords: Green channel for agricultural products, China-Africa trade, Agricultural cooperation, Food security 1. Introduction   Since Africa's decolonisation, China has carried out extensive agricultural investment to alleviate Africa's food security issues. Starting from the establishment of the Forum on China-Africa Cooperation (FOCAC), China-Africa agriculture has been firmly committed to improving agricultural productivity. However, although agriculture is the pillar industry of Africa, it is mainly self-sufficient for personal consumption. Therefore, agricultural production mainly depends on natural resources, while biodiversity and the length of the growing season are affected by the quantity of cultivated land and water resources. Despite ongoing domestic and international debates on the efficiency of China's agricultural support to Africa, the model of China-Africa agricultural cooperation has demonstrated remarkable success.   From the establishment of FOCAC (2000s) to 2020, China has hosted various China-Africa summits to demonstrate its commitment to helping Africa address food security issues. The agricultural sector has proposed multiple strategies, including establishing agricultural demonstration centres aimed at enhancing agricultural productivity across the African continent. Official development assistance provided by the Chinese government to African countries has increased significantly (Siméon, Li & Sangmeng, 2022). China's advantages in agricultural experience have helped African countries improve agricultural productivity and meet their practical needs. Since 2001, the Chinese government has dispatched agricultural technical experts to more than 20 African regions, training agricultural farms to independently carry out agricultural development projects, which has been achieved through the establishment of Agricultural Technology Demonstration Centres (ATDCs) in Africa (Ya & Pei, 2022).   Although China has remained Africa's largest trading partner for 16 consecutive years, issues such as unbalanced trade structure and large deficits in African countries remain prominent. Despite Africa's abundant and high-quality agricultural products—such as cocoa (world's No. 1 production), Nigerian peanuts (world's No. 2 production)(Ya & Pei, 2022), Côte d'Ivoire cashews (accounting for 20% of global output), and Ethiopia as the birthplace of coffee—most African agricultural products primarily flow to European and American markets. China's import volume is only $4.256 billion, long remaining in a "depressed" state with huge trade potential yet to be unleashed.   The Report on China-Africa Economic and Trade Relations 2023 released during the 2023 expo shows that in recent years, Africa's agricultural exports to China have grown at an average annual rate of 11.4%, making China the second-largest destination for African agricultural exports. With the deepening of cooperation, China continues to expand the "green channel" for African agricultural products to China, accelerating the quarantine and access procedures.   Establishing a "green channel" for African agricultural products under the new development pattern of "dual circulation" not only meets China's needs for consumption upgrading and enriches import sources but also optimises the import structure from Africa, increasing foreign exchange income and local employment in African countries. However, compared with Europe and the United States, China's imports of African agricultural products have long been in a "depressed" state, and the huge trade potential remains untapped. In the future, China and Africa should closely follow the artery of "dual circulation", tap the potential of "China-Africa economic and trade cooperation", and continue to expand imports of African agricultural products (Tang, 2022). 2. Literature Review   2.1 Current Situation: Coexistence of Policy-driven and Practical Achievements   2.1.1 Sustained Growth in Trade Scale, with China Becoming an Important Agricultural Market for Africa   China-Africa agricultural trade has shown a significant growth trend since the 21st century. Data analysis (Yang, 2019) found that from 2001 to 2017, China's agricultural imports from Africa grew at an average annual rate of 14.96%, reaching $2.01 billion in 2017, making Africa an important source of China's agricultural imports.   Notably, under the "green channel" policy, the export growth of African characteristic agricultural products to China has accelerated. For example, Kenyan fresh avocados achieved export to China within half a year after obtaining quarantine access in 2022, reflecting the efficiency of policy implementation. Tang (2022) mentioned that China's agricultural imports from Africa reached $4.256 billion in 2020, making it the second-largest export destination for African agricultural products, with sesame, cocoa and other products accounting for more than 40% of China's import market.   2.2 Gradual Improvement of Policy System: Tariff Reduction, Quarantine Facilitation and Platform Construction   China has implemented zero-tariff policies for agricultural products from the least developed countries in Africa since 2005. As of 2021, 98% of tariff items from 33 African countries have been granted zero-tariff treatment, significantly reducing the export costs of African agricultural products. Under the framework of FOCAC, China has clarified the expansion of imports of non-resource products, such as cotton and sugar, from Africa through the China-Africa Cooperation Vision 2035.   The General Administration of Customs prioritises the quarantine and access procedures for African agricultural products through the "green channel", combining risk assessment processes to shorten the access cycle. For example, Tanzanian sesame and Ethiopian coffee achieved export to China through rapid assessment. Xie (2024) mentioned that China has built 24 agricultural technology demonstration centres in Africa, which indirectly promote the efficiency of quarantine access by improving local agricultural product quality through technology transfer. 2.3 Prospect: Potential Release and Path Optimisation   2.3.1 Growth Space Driven by Market Demand   Against the backdrop of China's consumption upgrading, the demand for African characteristic agricultural products (cocoa, coffee, and nuts) continues to rise. It is predicted that under the "dual circulation" pattern, China's imports of African agricultural products are expected to exceed $20 billion by 2030, especially the proportion of high-value-added processed products will increase. Chinese consumers have a growing preference for organic and original ecological agricultural products, leaving market gaps for African green tea, honey, and other products.   2.3.2 Technological Cooperation and Capacity Enhancement: From "Blood Transfusion" to "Haematopoiesis"   Agricultural Technology Transfer and Demonstration: China has promoted technologies such as hybrid rice and water-saving irrigation in Africa. For example, the hybrid rice cultivated by Yuan Longping's team in Madagascar has a yield 2-3 times that of local varieties, enhancing food supply capacity. Feng (2025) reported that China has built agricultural industrial parks in Africa, introducing agricultural machinery and processing technologies to promote the transformation of agricultural products from raw material export to deep processing.   Policy Coordination and Digital Empowerment: Utilise blockchain technology to achieve agricultural product traceability, simplify quarantine procedures; expand "single window" docking to realise real-time sharing of trade data (Yuan, 2022). Proposed learning from the experience of the Association of Southeast Asian Nations (ASEAN) to sign rapid customs clearance agreements for agricultural products with Africa, reducing institutional costs.   3. Analysis of the Current Situation and Characteristics of African Agricultural Products Exporting to China   In recent years, with the deepening of China-Africa cooperation, the export of African agricultural products to China has shown a unique development trend, demonstrating distinct characteristics in terms of trade scale, product structure, and trade channels.   3.1 Sustained Growth in Trade Scale and Huge Potential   China has maintained its position as Africa's largest trading partner for many consecutive years and is also the second-largest export destination for African agricultural products. Since the 2024 FOCAC Beijing Summit, the General Administration of Customs has actively promoted the expansion of quarantine access for African agricultural and food products. Thirty-one types of agricultural and food products from 19 African countries, including Tanzanian chili peppers and Zambian macadamia nuts, have obtained access to the Chinese market. According to customs statistics, the amount of agricultural and food products imported from Africa has achieved eight consecutive years of positive growth. In the first five months of 2025 alone, China's imports of agricultural and food products from Africa reached 15.83 billion yuan, among which imports of coffee, cocoa beans, and frozen strawberries increased by 145.7%, 88.6%, and 82% respectively. At the 2024 FOCAC Beijing Summit, China decided to grant zero-tariff treatment to 100% of tariff items for all least developed countries that have established diplomatic relations with China, including 33 African countries. This measure is expected to further unleash the potential of African agricultural products exporting to China and promote the continuous expansion of trade scale. After obtaining access to the Chinese market, Malagasy mutton entered the Chinese market for the first time this year, with a good market response and a growing import volume, which fully demonstrates the broad prospects of African agricultural products in the Chinese market.   3.2 Relatively Concentrated Product Structure but Gradually Enriched Categories   For a long time, the categories of agricultural products imported by China from Africa have been relatively concentrated. Taking oilseeds and fruits (HS12) as an example, sesame, as the largest agricultural product imported by China from Africa, occupies an important position. About 60% of the sesame consumed by Chinese consumers comes from Africa. Products of tobacco and tobacco substitutes (HS24), coffee, tea, mate and flavouring spices (HS08), etc., are also major import categories. However, in recent years, the categories of African agricultural products exported to China have been gradually enriched. A variety of characteristic agricultural products such as Malagasy mutton, Zimbabwean fresh avocados, Zambian soybeans, Mozambican pigeon peas and macadamia nuts have successively obtained access to the Chinese market. In 2025, during the 4th China-Africa Economic and Trade Expo, the General Administration of Customs signed five protocols on the access of agricultural and food products to China with the counterpart departments of four countries, including Ethiopia, Congo, Gambia and Malawi, opening the door for more African characteristic agricultural products to enter China. This not only enriches the choices of Chinese consumers but also broadens the export scope of African agricultural products.   3.3 Increasingly Diverse Trade Channels   In terms of traditional trade channels, large-scale exhibitions such as the China-Africa Economic and Trade Expo and the China International Import Expo provide important display platforms for African agricultural products. At the 3rd China-Africa Economic and Trade Expo, the on-site sales of permanent pavilions exceeded 2 million yuan, and 37 order projects such as purple tea, seafood, and mutton were signed, with an intended cooperation amount of 43.9 billion yuan. Emerging channels such as cross-border e-commerce are also booming, providing a new path for African agricultural products to enter the Chinese market. In May 2020, the Rwandan Ambassador to China endorsed his hometown specialties through live broadcasting, and 3,000 bags of Rwandan coffee were sold out in an instant. Nowadays, a large number of high-quality African characteristic agricultural products enter thousands of Chinese households through cross-border e-commerce platforms. Activities such as the African Goodies Online Shopping Festival further promote the sales of African agricultural products through e-commerce channels, expanding the sales scope and improving the sales efficiency.   4. Analysis of Barriers to African Agricultural Products Exporting to China   4.1 Supply Side: Weak Agricultural Production and Processing Capabilities, and Unstable Supply   4.1.1 Backward Agricultural Production Technology and Low Land Utilisation Rate   African agricultural production has long relied on traditional models, with seriously insufficient technological input. Zhang (2013) pointed out that Africa has 717 million hectares of arable land, but the actual cultivated area only accounts for 29.55%, and the utilisation rate of arable land in countries such as Zambia is less than 14%, with prominent land idleness. Through data analysis, Yang et al. (2019) found that the unit yield of grains in Africa is only 300-500 kg/ha, less than one fifth of that in the United States, and the low agricultural production efficiency leads to limited supply capacity of bulk agricultural products. Xie (2024) mentioned that there are only 8,476 agricultural science and technology practitioners in Africa, with less than 400 scientific research institutions, and 40% of the institutions have fewer than five researchers, so the weak scientific and technological innovation capability restricts the improvement of output.   4.1.2 Low Processing Conversion Rate of Agricultural Products, Mainly Exporting Primary Raw Materials   African agricultural product processing capabilities are weak, and most countries still export low-value-added raw materials. As the largest cashew producer in Africa, Côte d'Ivoire has a domestic processing conversion rate of less than 10%, mainly exporting unpeeled cashews; in the export structure of African agricultural products, primary products such as textile raw materials (such as cotton) and oilseeds (such as sesame) account for more than 60%, lacking deep processing and value-added links, which makes it difficult to meet the demand for processed products in the Chinese market.   4.2 Circulation Side: High Trade Barriers and Logistics Costs Hinder Market Access   4.2.1 Tariff and Non-tariff Barriers Restrict Import Scale   China's tariff policy on African agricultural products still has barriers. Although China has implemented zero tariffs on 98% of tariff items for 33 least-developed African countries, it still implements the most-favoured-nation (MFN) tariff rate for the rest of African countries. For example, the MFN tariff rate for fresh or dried shelled cashews is 10%, and that for unshelled cashews reaches 20%, which is higher than that of ASEAN countries (0%). African agricultural products need to go through strict quarantine access procedures to enter China. For example, risk analysis is required for the first import of plant-derived foods, involving 425 products, and only 39 products from more than 30 African countries have obtained access, with a long access cycle and complex procedures.   4.2.2 Poor Logistics Channels and High Transportation Costs   The logistics infrastructure between China and Africa is weak, and the transportation cost is significantly higher than that of other regions. It is estimated that the transportation cost of African agricultural products accounts for 11.5% of the total import volume, while that of Asia and North America is 7.2% and 6.7% respectively, and the transportation cost of landlocked countries such as Malawi is even as high as 55%. There are few and low-frequency shipping routes between China and Africa, and the cold chain preservation facilities are insufficient, resulting in a loss rate of fresh agricultural products exceeding 30%. For example, Kenyan flowers are transported to China by air, and the logistics cost accounts for more than 40% of the selling price, which weakens the price competitiveness.   4.3 Demand Side: Insufficient Market Cognition and Brand Building, Limited Consumer Acceptance   4.3.1 Low Awareness of African Agricultural Products among Chinese Consumers   African agricultural products have weak brand influence and low consumer awareness in the Chinese market. The marketing of African agricultural products in China is mainly dominated by government-led exhibitions (the China-Africa Economic and Trade Expo), but lacks brand promotion for ordinary consumers, resulting in low penetration of high-quality products such as Kenyan coffee and Ethiopian flowers in the retail market. Although the order of African products reached 43.9 billion yuan at the 3rd China-Africa Economic and Trade Expo, most consumers still perceive African agricultural products as "primary raw materials" and have insufficient awareness of deep-processed products.   4.3.2 Single Branding and Marketing Channels   African agricultural products lack systematic brand building and rely on traditional trade channels. African countries have not yet formed geographical indication brands similar to "Colombian coffee" and "Thai jasmine rice", and their products have weak premium capabilities. The export of African agricultural products to China still mainly relies on bulk trade, and the proportion of emerging channels such as cross-border e-commerce is less than 10%, while the penetration rate of ASEAN agricultural products through e-commerce platforms has reached 30%. In contrast, the ability of African products to reach the retail end is obviously insufficient.   5. Prospect of African Agricultural Products Exporting to China: Policy Empowerment and Technological Collaboration Drive Trade Upgrading     5.1 Deepening of Policy Mechanisms and Expansion of Trade Facilitation, Releasing Institutional Dividends   Policy coordination under the FOCAC framework will become the core driving force for trade growth. Yuan (2022) pointed out in “Review and Outlook on China-Africa Agricultural Cooperation under the Framework of the China-Africa Cooperation Forum” that China has clarified the expansion of imports of non-resource products from Africa through the China-Africa Cooperation Vision 2035, and will further implement the "green channel" policy in the future to accelerate quarantine access procedures. For example, in the "Agricultural Development and Livelihood Improvement Partnership Action" proposed at the 2024 FOCAC Beijing Summit, China promised to build 100,000 mu of agricultural standardisation demonstration zones and dispatch 500 agricultural experts. Such measures will directly improve the quality standards of African agricultural products and shorten the access cycle. Tang & Xiao (2022), in “The current situation and prospects of African agricultural products exported to China under the new development pattern of ‘dual circulation’”, suggest that China can sign free trade agreements on agricultural products with key African countries by referring to the China-ASEAN Free Trade Area model, expand the zero-tariff items from 98% to all agricultural products, and it is expected that Africa's agricultural exports to China will exceed $20 billion by 2030.   Sun et al. (2007) mentioned in “Structure and characteristics of China-Africa agricultural trade” that China-Africa agricultural trade has significant complementarity. Africa's tropical cash crops (like cocoa and coffee) form a trade complementarity with China's horticultural products, and policy dividends will further strengthen this trend. For example, China's zero-tariff policy for the least-developed countries in Africa has covered 4,762 commodities. In the future, if the scope of tariff items is further expanded, it will promote the annual growth of exports of advantageous agricultural products such as Benin cotton and Ethiopian sesame to China by more than 15%.   5.2 Technological Cooperation and Whole Industrial Chain Upgrading, Breaking through Supply-side and Circulation-side Bottlenecks   In-depth technological cooperation and integration of the whole industrial chain will become the key path to break through trade barriers. The technologies such as hybrid rice and high-efficiency peanut cultivation promoted by China in Africa have doubled local yields. For example, the yield of hybrid rice in Madagascar is 2-3 times that of local varieties, and such technologies can be extended to economic crops such as sesame and cotton. China has built 24 agricultural technology demonstration centres in Africa. In the future, relying on the "China-Africa Agricultural Science and Technology Innovation Alliance", technologies such as rice close planting and integrated pest management can be combined with local resources in Africa, and at the same time, the construction of agricultural product processing parks can be promoted, increasing the deep processing ratio of African cashews, cocoa, and other products from less than 10% to more than 30%.   Through the bibliometric analysis in Research Status and Trends of China-Africa Agricultural Cooperation Based on CiteSpace, it is found that capacity building and industrial chain collaboration are the hotspots of future research. It is expected that China will train 5,000 technical personnel for Africa every year through the "Agricultural Vocational Education and Training Project" to fundamentally improve agricultural production efficiency. The "order agriculture" model promoted by Chinese enterprises in Africa (the cassava planting project in Uganda) has achieved a 40% increase in farmers' income. In the future, it can be further combined with cross-border e-commerce channels (the African Goodies Online Shopping Festival) to create a full chain of "planting-processing-selling".   6. Conclusion   Under the G20 framework, China-Africa agricultural product trade cooperation ushers in important development opportunities. As the first African country to hold the G20 presidency, South Africa provides a new opportunity for China-Africa agricultural cooperation. By implementing zero-tariff policies and accelerating quarantine access procedures, China continues to expand imports of African agricultural products and promotes the continuous growth of trade scale. At the same time, China-Africa agricultural technical cooperation has been continuously deepened. China has promoted advanced technologies such as hybrid rice and water-saving irrigation in Africa, helping Africa improve agricultural productivity and product quality and optimise the structure of agricultural products.   However, the export of African agricultural products to China still faces many challenges, such as weak agricultural production and processing capabilities, high trade barriers and logistics costs, and insufficient market awareness and brand building. In the future, China and Africa should continue to strengthen policy coordination and mechanism innovation, further improve the "green channel" policy, and promote trade facilitation. At the same time, taking technological cooperation as the core, it is necessary to promote the upgrading of the whole industrial chain and enhance the added value and market competitiveness of African agricultural products. 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Medicine and Society , 38(1), 1-7. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 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. Email: info@inclusivesociety.org.za Phone: +27 (0) 21 201 1589 Web: www.inclusivesociety.org.za

Copyright © 2026 Print ISSN: 2960-1541 Online ISSN: 2960-155X Inclusive Society Institute PO Box 12609 Mill Street Cape Town, 8000 South Africa 235-515 NPO All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without the permission in writing from the Inclusive Society Institute D I S C L A I M E R 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. JANUARY 2026   by Xingcan Zhou   Abstract   Blue finance represents a cutting-edge financial paradigm proposed by the United Nations for marine resource development and the realisation of Sustainable Development Goals. Within the framework of the 2030 Agenda for Sustainable Development, the UN and its relevant agencies have initially established a planning framework for blue finance to effectively promote the sustainable development and utilisation of marine resources. As a continent with a 26,000-kilometre coastline, Africa actively aligns itself with the UN’s SDGs, proactively seeks international cooperation, and innovatively employs blue financial instruments, constituting an important global attempt to explore broader pathways for food security and pursue marine ecological conservation. However, the institutional shortcomings of existing international financial cooperation mechanisms struggle to meet Africa’s blue finance development needs. From the perspective of sustainable development demands in the Global South countries, blue finance is intricately linked to the transformation of traditional finance, encompassing issues such as social financing in marine development investments, the investment structures of sovereign states, sovereign ownership of coastal states in global governance, and the distribution of marine rights and interests revenues. Thus, exploring new definitions and collaborative models for blue finance from the perspective of financial cooperation in the Global South constitutes a significant theoretical endeavour for global governance reform and the achievement of sustainable development goals.   Keywords:  Blue Finance, Africa, Sustainable Development, Marine Resources, Global Governance 1. Introduction   Blue finance is a cutting-edge financial paradigm proposed by the United Nations (the UN) for marine resource development and the realisation of Sustainable Development Goals (SDGs). The UN  2030 Agenda for Sustainable Development (hereinafter referred to as the Agenda ) lists “protecting and sustainably using the oceans and marine resources for sustainable development” as one of its 14 goals, creating a favourable international policy environment for the rise and development of blue finance.   The UN and its relevant agencies have also issued a series of documents to initially establish a planning system for blue finance. However, the existing international financial system embodies a distinct post-WWII “core-periphery” power structure in international governance, with current blue finance standards predominantly formulated by developed countries—prioritising environmental-economic balance while ignoring core demands of the Global South countries, such as definitions of blue finance, attribution of marine sovereignty, and fair distribution of benefits. The Global South countries also lack effective voice in key issues like capital investment models and definition of sovereign rights and interests.   As a Global South representative with a 26,000-kilometre coastline, Africa’s blue finance practices represent not only a regional development issue but also a critical arena for testing the Agenda ’s inclusivity and observing contradictions in international rulemaking. Therefore, exploring new definitions of blue finance and collaborative research under the Agenda framework from the perspective of the Global South cooperation constitutes an important theoretical exploration for global governance reform and the achievement of sustainable development goals.   2. Planning Mechanisms of Blue Finance under the Agenda   Blue finance serves as an essential financial instrument for the development of the blue economy. Currently, the international community has yet to establish a unified definition of blue finance, and existing frameworks largely remain confined to traditional finance. The United Nations Environment Programme Finance Initiative (UNEP FI) defines “financing for the sustainable blue economy” as “financial activities (including investments, insurance, banking, and supporting intermediary activities) that participate in or support the development of a sustainable blue economy, particularly through the application of the Principles for Sustainable Blue Economy Finance  in financial decision-making and environmental, social, and governance (ESG) frameworks” (UNEP FI, 2021). Since the World Bank established the Blue Ribbon Panel in 2013, the UN and relevant agencies have successively issued policy initiatives and investment guidelines, initially constructing a planning system for blue finance. However, this system still reveals defects in top-down rule provision.   2.1 Clear Practice Principles and Broad Influence of Initiatives   The Principles for Sustainable Blue Economy Finance (hereinafter referred to as the Principles ) serve as the practical guidelines for blue finance and a critical basis for regulating the blue finance market. Jointly launched in 2018 by the European Commission, World Wide Fund for Nature, World Resources Institute, and European Investment Bank, the Principles are managed by the UNEP FI. As the world’s first principle framework guiding financial institutions to promote marine sustainable development, the Principles  provide comprehensive and systematic guidance for financial institutions’ investment, financing, and risk management activities in the blue economy, filling a gap in the development of blue finance and leading financial institutions to align their operations with marine sustainable development goals (Guo & Bi, 2022).   Currently, over 80 institutions worldwide have become signatories or members of the Principles (UNEP FI, 2023). To operationalise the Principles  and urge more countries and financial institutions to engage with blue finance, UNEP FI officially launched the Sustainable Blue Economy Finance Initiative (hereinafter referred to as the Initiative ) in 2019 based on the Principles. The Initiative brings together multi-stakeholder participants including financial institutions, scientists, enterprises, and civil society organisations, enhancing the financial sector’s and broader society’s attention to blue finance and driving innovation in blue finance-related standards, products, and services.   2.2 Clear Guidelines and Diverse Development Pathways   The guiding principles of blue finance build on those of green finance, clarifying and operationalising relevant standards through a series of guidelines. In 2022, the International Finance Corporation (IFC) issued the Blue Finance Guidelines , establishing the first global blue asset classification standards and a blue activity inventory. These translate general blue economy financing principles into specific reference criteria for blue bond issuance and blue loan disbursement, providing a foundation for global blue finance implementation.   In 2023, the IFC and multiple international organisations jointly developed the New Guidance on Blue Bonds to Help Unlock Finance for A Sustainable Ocean Economy , offering market participants clear standards, practices, and case examples for blue bond financing and issuance (UNEP FI, 2023). Blue finance development pathways advocated by the UN are closely anchored in relevant principle frameworks, balancing specificity and comprehensiveness. Reports such as Turning the Tide: How to Finance a Sustainable Ocean Recovery  and Diving Deep：Finance，Ocean Pollution and Coastal Resilience  propose sustainable pathways for key marine industries, focusing on sector-specific characteristics to enhance operational relevance.   2.3 Unequal Power Dynamics in Rulemaking   The UN does not treat the marine sovereignty of the Global South countries as a core governance issue but rather views their marine spaces solely as resource carriers and tools for achieving Agenda goals. This stems from at least three institutional contradictions. First, the UN’s current system perpetuates a power-dominated post-war order, leading to highly centralised blue finance rulemaking authority in international financial institutions led by developed countries. The Global South countries have long remained in a position of passive acceptance in key areas such as standard-setting and fund allocation. Second, there is an institutional imbalance in sovereignty and benefit distribution: the marine sovereignty of coastal states is often diluted within the framework of “global public goods”, while international financial governance rules fail to establish fair benefit-sharing mechanisms. The flow of proceeds from marine resource development is severely disconnected from resource-owning countries’ development needs, causing erosion of resource sovereignty and financial sovereignty.   Finally, governance mechanisms underrepresent the Global South voices: “top-down” rulemaking systematically sidelines their participation in governance and rights definition. These inclusivity gaps in the UN framework risk hindering sustainable development goals.   3. Status Quo and Traits of Africa’s Blue Finance under the Agenda   The Western-dominated blue finance financing mechanism essentially perpetuates a governance model where “the Global South countries implement, while developed nations control rules”. Although most projects rely on Western funding, African countries inject local priorities into project designs to seek institutional breakthroughs within the framework.   3.1 Policy Alignment with Agenda Goals   In recent years, Africa has promoted blue economy development through systematic policy frameworks, aligning its Agenda 2063 with the UN Agenda, with blue finance serving as a key financing tool. In 2014, the African Union (AU) launched the African Integrated Maritime Strategy 2050 (AIMS 2050), emphasising joint development of marine resources, infrastructure, and ecological protection through financing. In 2015, the Agenda 2063  listed “developing a blue economy for sustainable growth” as a priority and positioned it as a frontier for African renewal. In 2016, the African Charter on Maritime Security, Safety and Development  (Lomé Charter) formally integrated sustainable blue economy development into AU member states’ commitments, marking a major leap in regional cooperation (Zhang, 2021). In 2018, the AU established the Department of Agriculture, Rural Development, Blue Economy and Sustainable Environment to coordinate strategy formulation.   The 2020 African Blue Economy Strategy—a cornerstone document—stressed innovative financing mechanisms for marine resource development, renewable energy, and conservation (African Union, 2016). Special initiatives like the 2021 Great Blue Wall  have advanced African-led climate action and marine protection (IUCN, N.d.). While lacking a standalone blue finance plan, Africa drives blue finance through long-term, coordinated blue economy policies. 3.2 International Cooperation for Agenda Implementation   Africa’s blue finance primarily relies on collaboration with international organisations, financial institutions, and other nations to advance Agenda implementation, with a consistent focus on sustainable development. The World Bank collaborates with members of the West Africa Sub-Regional Fisheries Commission, South West Indian Ocean Fisheries Commission, Indian Ocean Commission, as well as African Small Island Developing States and the Indian Ocean Rim Association, committing to increasing investments in sustainable fisheries and healthy oceans (World Bank, N.d.). In 2022, the World Bank launched the Blue Economy for Resilient Africa Program  ( BE4RAP ) to support Africa’s coastal regions in addressing development challenges through financing (World Bank Group, 2022). Leveraging resources like the multi-donor trust fund PROBLUE, the Bank provides financial support for African blue economy projects.   In July 2024, the United Nations Development Programme (UNDP) and the African Union Commission (AUC) established a joint initiative—the Blue Economy Reference Group (BERG)—to serve as a platform for planning, implementing, and monitoring blue economy development (UNDP, 2024). African countries have also actively participated in mangrove blue carbon pilot projects, which exemplify blue finance applications in climate governance and global governance. These projects demonstrate Africa’s capacity to engage in global governance through blue finance, serving as successful models for sustainable marine resource management.   3.3 Innovative Tools for Agenda  Objectives   Africa employs a series of innovative blue financial instruments aligned with the Agenda’s sustainable development goals. However, due to heavy reliance on funding from developed countries and international financial institutions, its innovations remain constrained. In other words, Africa must implicitly promote the localisation of governance rules through strategies such as goal substitution and tool adaptation within the Western-dominated institutional framework.   Among the three main financial instruments, blue bonds are the most representative. In 2018, Seychelles issued the world’s first blue bond, with transaction costs fully sponsored by the Rockefeller Foundation (Qiu & Zhou, 2024). In January 2023, Cabo Verde launched its first blue bond on the Blu-X sustainable finance platform, achieving the first privately issued bond without public guarantee, fully supported by market demand (Christopher, 2023).   The second instrument, “debt-for-nature”, involves partial debt relief for creditor countries in exchange for ecological protection commitments, a common debt relief model in developing countries typically guaranteed by multilateral development banks (iWeekly, 2023). Several African countries, including Seychelles, Madagascar, Gabon, and Mozambique, have begun practicing or exploring this mechanism. In 2015, The Nature Conservancy facilitated a groundbreaking debt swap agreement between Seychelles and the Paris Club, integrating marine protection into debt restructuring frameworks (Wang & Wang, 2020). In August 2023, Gabon completed a $500 million debt-for-nature transaction, earmarking $163 million for marine conservation—the largest debt restructuring deal signed by an African country (Global Finance Magazine, 2023).   The third instrument, blue funds, are specialised funds investing in marine conservation and sustainable use projects. On March 9, 2017, ten African countries signed a memorandum of understanding to establish the "Blue Fund", now with 17 member states, aiming to promote green and blue economic development among participants (Fonds Bleu pour le Bassin du Congo, N.d.). Africa’s innovative practices with blue financial instruments provide valuable experiences for global blue finance development.   4. Potential and Challenges of Africa’s Blue Finance under the Agenda   Against the backdrop of lagging inland infrastructure, blue finance has the potential to enhance the competitiveness of related industries and accelerate Africa's industrialisation process. However, Western countries influence project designs through rule-setting, mandating that funds be allocated to ecological conservation rather than industrial upgrading. This has trapped Africa in a cycle of low-value-added industrial lock-in, making it difficult to break through into higher-value sectors.   4.1 Potential for Africa’s Blue Finance from Industrial Upgrading   Africa, as one of the regions with the greatest blue economic potential globally, sees its blue finance development opportunities closely tied to resource endowments, international cooperation, and sustainable development goals. Blue finance serves as a key driver for Africa’s economic growth, ecological conservation, and global value chain integration by supporting marine resource development, infrastructure optimisation, and international cooperation mechanism innovation.   First, Core Industries’ High Financing Demand. Africa’s blue economy core industries—including fisheries, port logistics, marine energy, and coastal tourism—have significant financing needs. Africa holds 20% of global fishery resources, and World Bank projections indicate that scaled aquaculture could solve food security for 200 million people and boost export earnings by 2030 (Yang, 2024). In marine energy and mineral development, coastal countries like those in the Gulf of Guinea and South Africa have vast offshore wind and oil/gas potential. Projects such as the Morocco-UK Power Project, Egypt’s Suez Wind Farm, and Gotion High-Tech’s first phase in Morocco demonstrate diverse institutional funding for offshore renewables, reducing fossil fuel dependence and contributing to climate action. Current financing needs for African offshore renewables focus on exploration technology, clean energy equipment, and ecological compensation mechanisms. Technological progress, policy support, and growing demand are expected to unlock further financing potential for Africa’s energy transition and economic growth.   Second, Strong Momentum for Infrastructure Optimisation. Africa’s blue finance development heavily relies on modern infrastructure, where gaps present both challenges and opportunities. A PricewaterhouseCoopers report estimates that a 25% improvement in port performance could raise GDP by 2% (PricewaterhouseCoopers, 2018).   With most African countries dependent on raw material exports and imports of food, manufactures, and fuel, ports are critical to trade. Continental port throughput is projected to grow from 265 million tons in 2009 to over 2 billion tons by 2040 (NEPAD, 2012), driving upgrades for existing ports and new projects like Lamu Port and Badagry Port. Improved port efficiency will increase cargo volumes, toll revenues, and related services, generating returns for financial investments. Current infrastructure financing needs to focus on deep-sea port construction, smart logistics systems, and regional connectivity projects. Developing multimodal transport—integrating inland waterways, roads, and railways—will enhance inland connectivity, with blue finance investments set to appreciate as trade scales and transport/warehousing demands grow.   Third, Substantial Potential in International Cooperation Mechanisms. International financing and cooperation mechanisms serve as catalysts for Africa’s blue finance development, unlocking potential through multilateral platforms, financial instrument innovation, and policy coordination. International financial institutions such as the World Bank, IMF, and African Development Bank have provided substantial funding and technical support for Africa’s blue economy projects, creating expanded opportunities for blue finance. For instance, the World Bank supports African countries in sustainable fisheries, marine conservation, and port development through loans, grants, and technical assistance. A series of international maritime conventions and initiatives also provide guidance and norms for Africa’s blue finance development. The UN Convention on the Law of the Sea (UNCLOS) clarifies states’ rights and obligations in marine resource development, utilisation, and protection, offering legal foundations and safeguards for African nations to exploit marine resources. Under its framework, African countries can more explicitly plan blue economy development and attract international funding for projects compliant with legal norms.   4.2 Challenges to Africa’s Blue Finance from International Financial Rules   Africa’s blue finance market remains underdeveloped, facing a massive funding gap. On the surface, this stems from issues such as lack of macro guidance, investment risks from maritime disputes, and prominent structural contradictions in blue industries. At a deeper level, it originates from Africa’s marginalisation in international financial rulemaking, imbalanced power distribution in global ocean governance, and the absence of institutional guidance for industrial chain upgrading under the UN framework—multiple factors that collectively hinder blue finance from fully realising its potential.   First, the fragmentation of Africa’s blue finance strategies is essentially a result of the lack of voice for the Global South countries in international financial rulemaking. Current blue finance standards are predominantly shaped by Western institutions, whose environment-first regulatory orientation conflicts with African countries’ dual needs for “resource sovereignty and development”. This mismatch results in a lack of macro-coordination, planning, and robust governance frameworks for Africa’s blue finance development. While the AU and countries like Mauritius and Seychelles have introduced blue economy policy frameworks, specific blue finance strategies remain absent, leading to vague priorities and disjointed financial support measures. Additionally, policy implementation gaps in some African nations weaken the coherence and effectiveness of macroeconomic policies, impacting the pace and direction of financial sector development.   Second, the exacerbation of investment risks due to maritime disputes in Africa essentially reflects an imbalance in the allocation of ocean governance power. Disputes over exclusive economic zones (EEZs) and marine mineral resource boundaries—though seemingly about territorial claims—reflect deeper inequities in global ocean governance. Despite UNCLOS provisions on maritime boundaries, conflicts persist over resource extraction, undermining African states’ maritime governance capacities and deterring blue finance investments due to heightened risks. Piracy and armed robbery further exacerbate vulnerabilities, highlighting how Western-dominated rules fail to safeguard the Global South countries’ maritime sovereignty and resource rights, making Africa a focal point for generational governance conflicts.   Third, while Western financing alleviates funding shortages, blue finance projects disproportionately focus on ecological conservation, neglecting Africa’s urgent need for industrial chain upgrading. Traditional marine industries remain in an extensive development phase, plagued by low technological capacity and underdeveloped emerging sectors. Incomplete industrial chains—lacking synergies between traditional and new industries—hinder competitiveness and limit the ecological and economic impact of blue finance projects. This highlights a critical gap: the UN framework’s lack of institutional guidance for systematic industrial upgrading.   5. Reflections and Insights on Africa’s Blue Finance under the Agenda   Africa‘s blue finance practices within the Agenda framework highlight the institutional contradictions and innovative possibilities in global ocean governance. As a key to addressing the imbalance between rights and responsibilities in traditional governance systems, blue finance urgently requires redefinition around equitable governance rules. The Global South cooperation, by integrating the diverse demands of countries in the Global South, not only provides a pathway for unlocking the effectiveness of blue finance but also serves as a pivotal lever for reforming the global ocean governance system toward inclusivity and sustainability.   5.1 Blue Finance Requires Redefinition Around Governance Rules   The Agenda provides a macro-guidance framework for global sustainable development, yet existing institutional arrangements have not fundamentally resolved the deep-seated dilemmas in the field of blue finance. Against this backdrop, this paper aligns with the UN’s blue finance objectives, arguing that the core challenge lies in constructing effective implementation pathways, which necessitate the guiding role of new financial rules.   Blue finance can be defined as a strategic financial model that prioritises addressing basic livelihood issues through targeted capital investment, drives the development of the full marine industrial chain, and focuses on the real economy. Its implementation pathways include optimising real capital allocation, promoting marine industrial upgrading, and restructuring global governance systems. In other words, it involves constructing a development framework of “protein supply structuring—marine resource capitalisation—governance system equalisation”, forming a blue economic value chain through deep integration of capital and the real economy to achieve systematic breakthroughs from basic livelihood security to full industrial chain upgrading. This innovative model not only helps overcome the externality constraints of traditional marine development but also, by restructuring marine governance, establishes a new balance mechanism between sovereign states’ interests and global public welfare, driving a fundamental shift in the international community’s understanding of the strategic value of marine space. While blue finance under the UN framework emphasises balancing environmental and economic objectives, it overlooks the contradictions between institutions and rights in marine development. This paper advocates that blue finance should prioritise both livelihood issues and strategic industries, paralleling real economy construction with global governance innovation. Specifically:   (1) Problem Targeting: In response to the rigid growth in protein demand driven by global population growth and dietary upgrades, blue finance focuses on marine biological resource development to stimulate supporting industrial demand through enhanced protein supply capacity.   (2) Industrial Gradience: Blue finance advances marine real economy layout in phases, starting with biological resource development and gradually expanding to equipment manufacturing and high-end industries, comprehensively driving the development of the blue economy’s full industrial chain.   (3) Sustainability: By channeling funds toward ocean-friendly projects, blue finance protects biodiversity and enhances carbon sink capacity while investing in emerging industries to strengthen economic resilience and attract private capital. It also improves coastal livelihoods, creates jobs, and establishes fair marine resource revenue distribution mechanisms.   (4) Unique Risks: Blue finance must address natural risks like sea-level rise, ocean acidification, and extreme weather that damage marine infrastructure. Additionally, the lack of sufficient sovereign actors in blue economy development introduces investment uncertainties from high costs and long return cycles.   Thus, this paper identifies global ocean governance reform as a core dimension, emphasising the need to break through entrenched international power structures via financial tool innovation and reconstruct the Global South countries’ subject status in marine governance.   5.2 Blue Finance as a Catalyst for Global Ocean Governance Reform   The development of Africa’s blue finance, in essence, represents an institutional exploration by the Global South countries to reconstruct existing marine development rules within the Agenda  framework. This exploration is not merely about Africa’s sustainable development but is also a crucial practice for the Global South countries to secure a voice in international governance.   The particularity of marine resource development, characterised by massive capital and specialised technology needs, is not the primary barrier. From an international political science perspective, the misalignment between the long-standing, Western-dominated international relations and limited global governance systems, which still govern international cooperation, and marine development goals poses a significant challenge for many African countries. In other words, the core contradiction in marine resource development is institutional rather than factor based. Current international power distribution and rule design fail to fully address developing countries’ demands for maritime sovereignty integrity and fair marine resource revenue distribution.   From a globalisation standpoint, marine resource development has transcended the capacity of individual sovereign states, evolving into a systemic project that requires cross-regional flows of capital, technology, and institutions. As globalisation advances from commodity trade to deeper factor allocation and institutional rulemaking, blue finance’s strategic value goes beyond traditional industrial financing. It acts as an institutional bridge linking the physical needs of marine development with global capital allocation and a key hub for restructuring the global ocean governance system and order. Its core function is to drive governance rule changes through financial tool innovation, including establishing ecosystem-based development standards, improving market-based benefit distribution mechanisms, and constructing international cooperation frameworks for risk sharing.   Thus, only by strengthening ocean governance—especially in countries with incomplete decolonisation—and creating an open, cooperative, and win-win investment environment for marine development can more national, social, and industrial capital be drawn into the blue economy. This implies that the scale, progress, and scope of blue finance will hinge on global ocean governance reform under the UN framework. Only by breaking the historically entrenched power structures at the governance system level can the development potential of the blue economy be truly unleashed. This will enable sustainable marine resource development and sharing, promote higher-level global ocean governance, enhance human well-being, and foster a maritime community of shared future.   5.3 Blue Finance Breakthroughs Through Global South Cooperation   The development of Africa’s blue finance highlights that the successful implementation of the UN Agenda depends on the institutional involvement of the Global South countries, and their rule systems should be jointly formulated by these nations. In fact, collaborative cooperation among the Global South countries is crucial to releasing the potential of blue finance. The Global South cooperation has a systemic breakthrough value in realising the effectiveness of blue finance, and its core roles are as follows:   First, it is the core path to break the institutional bottlenecks in blue finance development. In the traditional North-South cooperation framework, the rule-providing model has long been dominated by developed countries. Even in the South-South cooperation mechanism, the Global South countries are often only regarded as “implementers of the Agenda ” rather than equal participants in rulemaking. This has made blue finance in regions like Africa turn into a tool for solely bearing environmental responsibilities, and it has always been unable to touch the core of governance. However, the Global South cooperation, by systematically integrating the diverse demands of various countries, forms a force that challenges the existing “centre-periphery” power structure. This “bottom-up” collaborative model is expected to fundamentally change the power pattern of rulemaking.   Second, it is an ideological innovation to reshape the value dimension of blue finance. Although the current blue finance framework of the UN takes the balance between the environment and the economy as its core, practice shows that the institutional design without equal governance rights will inevitably lead to the Global South countries being forced to transfer their rights and interests in practice. The Global South cooperation needs to promote blue finance to transform towards “inclusive governance” and “equal governance”, and incorporate the coastal sovereignty and marine resource sovereignty of the Global South countries such as African countries, along with global ecological goals, into the institutional design. This innovation is not a partial repair of the existing system, but a fundamental reconstruction of the evaluation framework of blue finance from the bottom of values. It promotes blue finance to fundamentally change from “an ecological tool of developed countries” to “a development carrier of the Global South”. This process is to break through the traditional global governance model on the basis of adjusting rules and build a new financial governance paradigm that takes into account both ecological sustainability and development fairness.   Third, it is a practical path to build a multi-stakeholder governance system for blue finance. The globalisation of production and distribution, the accelerated circulation of resources and information, and the new technological revolution are profoundly changing the global development pattern and reshaping international relations. These changes bring opportunities as well as a series of new global challenges, which urgently need more inclusive governance solutions. In this context, around new problems, strengthening South-South cooperation and shaping new North-South relations still require more institutional designs and brand-new ideological changes (Yang, 2023). Modern history shows that no single country has the ability and willingness to solve global problems independently. This means that all global problems faced by humanity must be addressed through global actions, responses, and cooperation, which should become a consensus of the international community (Yang, 2023).   6. Conclusion   The practice of Africa’s blue finance within the Agenda framework reveals deep-seated contradictions in power distribution and responsibility-sharing within the global ocean governance system, while also demonstrating the potential for the Global South countries to break through institutional constraints via financial tool innovation. This study argues that unlocking the effectiveness of blue finance relies not only on cross-regional flows of capital and technology but also on reconstructing global governance rules centred on equity. This represents both a key to resolving Africa’s marine resource development dilemmas and a critical pathway for advancing the Global South participation in international rulemaking.   From a practical perspective, Africa has preliminarily established a blue finance development model aligned with the Agenda  through three pathways: international cooperation, tool innovation, and industrial upgrading. Financial support from international financial institutions like the World Bank, innovative instruments such as Seychelles’ blue bonds, and the advancement of port infrastructure and renewable energy projects all validate the synergistic potential between financial tools and sustainable development goals. However, the Western-dominated rule system has trapped Africa’s blue finance in a dilemma of “ecological conservation prioritising over industrial upgrading”, exposing the structural neglect of developing countries’ needs in global governance mechanisms.   Theoretically, this study transcends the traditional blue finance framework focused on environmental-economic balance, proposing a trinity analytical paradigm integrating “livelihood security—industrial upgrading—governance equality”. It finds that the Global South cooperation is the core pathway to overcoming institutional bottlenecks: forming a “bottom-up” rule-change dynamic by integrating diverse demands can not only transform blue finance from a “developed-world ecological tool” to a “Global South development carrier” but also reconstruct a new balance mechanism between sovereign rights and global public good provision in ocean governance.   Currently, Africa’s blue finance exhibits development trends such as climate finance integration, expanded fintech applications, and private investment attraction, profoundly reflecting its strategic adaptation and innovative exploration in regional and global sustainable development. Therefore, redefining blue finance through an African lens not only accelerates Africa’s modernisation but also injects momentum into building a maritime community of shared future. 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New guidance on blue bonds to help unlock finance for a sustainable ocean economy . [Online] Available at: https://www.unepfi.org/themes/ecosystems/new-guidance-on-blue-bonds-to-help-unlock-finance-for-a-sustainable-ocean-economy/ [accessed: 20 April 2025].   Wang, Y. L. & Wang, Z. Y. 2020. Case Study on Blue Finance: The Republic of Seychelles’ Innovative Use of Debt-for-Nature Swap to Advance Marine Protection . Central University of Finance and Economics Green Finance International Research Institute. [Online] Available at: https://iigf.cufe.edu.cn/info/1012/1460.htm [accessed: 20 April 2025].   World Bank. N.d. Fostering Climate-Smart Ocean Economies in Africa . [Online] Available at: https://thedocs.worldbank.org/en/doc/969901469570263481-0010022016/original/Chapter06Africaclimatebusinessplan.pdf [accessed: 20 April 2025].     World Bank Group. 2022. Blue Economy for Resilient Africa Program (BE4RAP). [Online] Available at: https://www.worldbank.org/en/topic/environment/brief/blue-economy-for-resilient-africa-program#1 [accessed: 20 April 2025].   Yang, B. R. 2023. New Features Emerged in International Relations From the “Global South”. Frontiers , 23, 60–69.   Yang, H. Q. 2024. Blue Economy Becomes a New Bright Spot in China-Africa Economic and Trade Cooperation. Economic Daily , 4.   Zhang, C. Y. 2021. Blue Economy Empowers the High-Quality Development of China-Africa “The 21st-Century Maritime Silk Road”: Internal Mechanism and Practical Path. West Asia and Africa , 1, 37–69. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 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. 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Copyright © 2026 Print ISSN: 2960-1541 Online ISSN: 2960-155X Inclusive Society Institute PO Box 12609 Mill Street Cape Town, 8000 South Africa 235-515 NPO All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without the permission in writing from the Inclusive Society Institute D I S C L A I M E R 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. JANUARY 2026 Image credit: AI-generated illustration produced with OpenAI (DALL·E), 2026.   by Tebogo Keitheile   Abstract   This article seeks to explore data privacy and data protection rights and obligations through the lens of social contracts, human rights and ethics, whether through commercial endeavours or public service provision. While not a new human asset, digital data is at the centre of sustainable development as it allows accurate statistical oversight when setting developmental goals, monitoring progress or assessing their impact after the fact; accordingly, data availability is an important joint goal that benefits humans, corporations and governments alike. Through viewing data protection through the lens of Ubuntu, and similar social contract lenses, in light of the slow pace of regulation across jurisdictions, data protection can be given a human-centric approach, notwithstanding the word of the law, thus mitigating inefficiencies and limiting risks to data subjects, controllers and the broader data ecosystem as a whole.   Keywords:  Data privacy, Data protection, Social contract, Human rights, Ubuntu ethics, Digital governance, Big Data, Consent and choice, Artificial intelligence, Fiduciary duty Introduction   “The social contract emerges from the interaction between a) expectations that a given society has of a given state; b) state capacity to provide services, including security, and to secure revenue from its population and territory to provide these services (in part a function of economic resources); and c) élite will to direct state resources and capacity to fulfil social expectations. It is crucially mediated by d) the existence of political processes through which the bargain between state and society is struck, reinforced and institutionalised. Finally, e) legitimacy plays a complex additional role in shaping expectations and facilitating political processes. Legitimacy is also produced and replenished, or, conversely, eroded by the interaction among the other four factors ... Taken together, the interaction among these factors forms a dynamic agreement between state and society on their mutual roles and responsibilities – a social contract” (OECD, 2008). When the European Union’s General Data Protection Regulations (General Data Protection Regulation (EU) 2016/679) (GDPR) came into effect in 2018, African regional bodies had already recognised the growing imperative to enact standards in their member countries, protecting personal data, due to the growing reliance on the computer and the internet. These were demonstrated by the 2010 ECOWAS Act (Supplementary Act A/SA. 1/01/10 on Personal Data Protection) governing the west African region, SADC’s 2013 Modern Law on Data Protection governing sub-Saharan countries, and the African Union’s 2014 Convention on Cyber Security. In terms of benchmarking, however, the EU instrument served as a reference point allowing implementation of complimentary standards to the many considered the gold standard in data protection laws. Spurred in part by the extraterritoriality of claims under GDPR, the sizeable penalties and the limitations it put on data transfers to less compliant jurisdictions, recent years have seen the regulatory instrument inspire similar data protection progress across the continents, with countries seeking to ensure continuity of data transfers, and resultantly, ensure secure commercial, governmental, personal, and other internet access to markets that would otherwise potentially be increasingly restricted by regulatory disparities.   The COVID pandemic is often identified as an unofficial marker (particularly in less developed economies) for when digital data truly moved from being a mere fact of life, to a true societal, economic commodity, due in large part to the increase in internet reliance during the global shutdown, thus motivating a greater reliance on internet-driven services out of necessity. Through pushing communications and media to largely internet-based spaces (web-based meetings, greater reliance on social media, the explosion of the online marketplace, reliance on health tracking data for pandemic response, etc.), the global shutdown catapulted reliance on internet interactions and with that, the use of personal data by corporations and governments alike for their various objectives. As a result, between 2019 and 2021, internet use in Africa increased by 23% whereas in the Asia-Pacific region it increased by 24%, increasing by 20% in the least developed countries. Globally the figure rose from 54% internet connectivity to 63% of the world’s population having access to the internet, this left 2.9 billion people who remained unconnected to the internet as at 2021, of which 96% live in developing countries (ITU, 2021). By 2024, 68%, or 5.5 billion, of the global population was online, with the correlation between internet access and economic development still stark, 93% of high-income nations were online, compared to just 27% internet penetration in the low-income nations, again concentrated in Africa and Asia (with Africa having the lowest internet access rate at 27%) (ITU, 2021).   Figure 1:  Percentage of individuals using the Internet by region, 2019 and 2024 (ITU, 2021)   As increased internet access becomes the norm, it is also  increasingly a corporate and national policy objective as well as a distinct objective set by regional intergovernmental organisations such as the AU, UN and their sub-regional organisations, as well as regional regulators, for various reasons. Due, however, to the many risks posed by increased digital presences, and the limited binding regulations implemented to date, particularly in Africa, exploring the social contract underpinning the relationship between data subjects and the various entities to which they share their data, including the means and reasons they do so, is more and more urgent in order to determine the appropriate ways in which data privacy and protection approaches and governance models can be viewed in order to ensure greater protection of personal data rights. It is through this assessment that questions such as to whom the data created through human interaction with the internet ultimately belongs, the parameters of its continued use, extrapolation, referencing whether in serving the data subject or in pursuit of the broader national interests or economic objective, and where it all ends, become increasingly critical.   As human beings increasingly interact with one another, their governments, corporations and other entities through digital means, we create greater and more complex digital identities, directly. To these direct digital disclosures and connections are added the data shared indirectly through the increasingly ever constant data collection spurred by the Internet of Things (IoT) and pervasive presence of internet digital reliance, such as information about our preferences, habits, and other purely digital iterations of our beings such as data from our cell phones, cars, TVs, health watches, to CCTV (including Safe City initiatives) and unauthorised recordings from other internet users through social media videos, to data leaks and breaches,  and more and more commonly, data from previously non-digital ordinary household appliances such as fridges, toasters, washing machines as well as personal data shared between data collecting organisations.   In this data-driven bartering system where data subjects trade their data in exchange for access to digital solutions, is the mutual understanding that data controllers will not only at minimum handle the data with the requisite care but will further guard it from unauthorised access by ensuring appropriate security measures are in place. It is from this broad mutual understanding between data subjects and the entities that collect and derive value from their personal data that the data privacy principles will be upheld – that data collected will be limited to what is collected lawfully, fairly or consensually, data quality will be relevant to the collection objective and accurate as much as possible, both parties are clear on why the data collection is being collected, continued confidentiality or limited use of the data unless required by law or a greater good, prevention of unauthorised access through appropriate security safeguards, openness and transparency between the parties, individual participation allowing the data subject to continue to have some control over their personal data, and that both parties remain accountable for their obligations to one another regarding the personal data (OECD, 2002).   The value of data to corporations and governments alike has increased exponentially in the last two decades, transforming data collection from direct means to ever expanding sharing means, such as data brokerage and the creation of data sharing ecosystems. Per McKinsey & Company, data creates tangible, real-world commercial value for organisations, with 40% more revenue generated from personalised services and over $1 trillion in additional value in top quartile performance (McKinsey, 2021). From a public authority perspective, personal data functions in supporting governments in delivering its agreed policies and services to its citizens, as well as helping them attain data-driven goals such as e-governments and smart cities (Löfgren & Webster, 2020). From a civil society perspective, access to data supports transparency, allowing oversight over national statistics, allowing independent means to measure real-world issues affecting the citizenry such as government policy implementation, whether on service delivery or other human rights obligations (World Bank, 2021).   Data Privacy as a Human Right   While like other mammals, humans are a social species, we still need privacy. Alan Westin points out that in our daily endeavours, we seek out both privacy and community, seeking out company from others while at times setting limitations on proximity through boundaries, creating family, friendship, or other community sub-units that exclude other community members in some respect self-identifying with these various groups, while at the same time distinguishing oneself and others from them in some way (Westin, 1967), highlighting that from the time of primitive societies, communing with the spirits or gods, required one to be alone from [perception by] fellow humans. Westin further highlights the human need, in more modern democratic societies, for privacy as groups away from governmental perception, allowing not only open and unhindered exchange of ideas and association, including on topics that deviate from dominant opinion, demonstrated through privacy of voting, protection from unlawful intrusions on one’s privacy even by state organs such as the police.   The overall right to privacy gained one of its earlier forms of legal recognition through Article 12 of the United Nations’ 1948 Universal Declaration of Human Rights (UN, 1948) before, owing to the need to speak to the growing digitisation of human lives and experiences, and with them their data, coupled with the increasing reliance on computing and the risk that interruptions in these data flows had on the global economy in light of the then disparity of the legislation on the topic globally, the Organisation for Economic Co-operation and Development (OECD) in 1980 devised its Recommendation on the Protection of Privacy and Transborder Flows of Personal Data, which was further updated in 2013 (OECD, 1980; 2013). The organisation noted the futility of regulating data privacy at a purely national level given the rate at which data was transferred between nations as a function of the increased interconnectedness brought by the internet.   From an African perspective, while some scholars have argued that the concept of “Ubuntu” (or “Botho” in Setswana) excludes a personal right to privacy, the argument falters when one considers that Ubuntu as a function of mutual respect and empathy cannot reject duty of confidence that one owes to ones chosen sub-community groups, much in the same way as highlighted above by Westin, as a material feature. Accordingly, Ubuntu, including within more formal settings, is itself a social contract creating a variety of obligations amongst the members of the community, directly between the human individuals on either end and thus appropriately underpinning such wider subjects as business ethics and human rights (whether as a function of trust or mutual obligation) in communities for whom it is central. It is thus unfortunate that the 1981 African Charter on Human Rights did not specifically mention privacy as a distinct right in its final draft, leaving some debate rife on the subject. Notwithstanding this, even prior to the advent of modern data privacy laws, at least 25 African countries [1]  contained the right to privacy within their constitutions, limited, when so done, primarily for national security reasons and always under the standard of reasonableness and proportionality (Mavedzenge, 2020 ).   Since these foundational moments in the  international legal recognition of personal data privacy, more variables continue to add complexity through advancements in algorithms, machine learning and artificial intelligence (AI), Internet of Things (IoT) and social network systems (Sutherland, 2021) as more and more of our lives continue to require the internet (ITU, 2021), and correspondingly, more and more of our personal data enters and becomes essential to the functioning of the broader digital ecosystem. In its 2015 general assembly sitting, the United Nations noted the need for data in gauging implementation success and ultimately evaluating real-life outcomes of the goals set through the 2030 Agenda for Sustainable Development (2030 Agenda) stating:   “Quality, accessible, timely and reliable disaggregates data will be needed to help with the measurement of progress (SGDs) and to ensure that no one is left behind. Such data is key to decision-making. UN member states committed to, amongst others ...”   Big Data, which has many definitions, can be characterised as everything from “call logs, mobile-banking transactions, online user-generated content such as blog posts and Tweets, online searches, satellite images, etc.” to GPS locations, social media post interactions, purchase history and many other forms of information about ourselves that we share consciously and unconsciously and leave a trail of while engaging (directly or indirectly) with a device or service that requires the internet (UN Global Pulse, 2012). Considering the age of the internet, number of users, type and amount of data collected, etc., at any given moment, Big Data is resultantly so large, variable and performing (evolving) with such speed that it cannot be processed by ordinary data processing tools, hence BIG  data. Commercially, Big Data is credited with helping corporations with more accurate and precise decision-making, providing better and more detailed insights about internet users, providing more and more acutely personalised customer experiences, whereas from a public service provision perspective, Big Data can support policymaking, developmental target creation and monitoring, accurate statistical collection and interpretation (UNDP, 2017). From a development perspective, the UN states that Big Data can support nations to achieve their development goals in a myriad of ways, including efficient traffic control using GPS data, spending data used to determine poverty levels and habits, tracking deforestation by combining satellite imagery and crown sourced data, disaster management through social media monitoring (UN Global Pulse, 2012).   In addition to the role it plays in attaining sustainable developmental goals, internet access as a whole has a direct impact on economic growth in developing and least-developed countries due to increased access not only to information (locally and internationally) but also to potential export markets and innovative technologies. Advancements in internet access thus benefits citizens through improved financial inclusion (greater access to alternative financial systems such as mobile money or internet-enabled financial solutions); improved social services through functional, efficient and reliable e-government solutions and digitised civil society access; improved healthcare administration (whether public or private providers) through data availability for early warnings, education, e-health solutions and in education through distance and online education availability; access to scholarships; general access to information by the broader population; in agriculture, internet connectivity supports critical processes such as supply chain management, price transparency and climate data (Guerriero, 2015).   Various studies conducted in Sub-Saharan African countries have demonstrated a positive correlation between basic internet connectivity and a reduction in poverty, and ultimately, an improvement in economic grown as a result of growth in improved market access, including e-commerce (Jonas Hjort, 2025). The World Bank highlighted that while data (particularly Big Data) is an essential enabler for not only achieving the UN’s SDGs but for economic growth as a whole, developing countries continued to be plagued by delays in general access to the internet and limited opportunities to not only submit their data but to benefit from their data, due to obstacles such as limited infrastructure (World Bank, 2021).   To bridge this infrastructure deficit, the African Union (AU) and African Development Bank (AfDB) highlight digital transformation of the continent as a major priority underpinning the objective of propelling African industrialisation (AU, 2020), devising a continent-wide Digital Transformation Strategy for 2020 to 2030 (AU-DTS) and Digital Transformation Action Plan for 2024 to 2028 (AfDB-DTAP), respectively. The AfDB-DTAP aims to contribute to the international digital economy and thus support the Africa Continental Free Trade Agreement (AfCFTA), premised on the overall pillars of improved digital infrastructure to bridge the digital gap, by investing in digital entrepreneurs and innovation (creating end-to-end tech ecosystems in African countries), integration of digital and other emerging technologies into various sectors including government, agriculture, education, commerce and sustainable energy, (AfDB, 2024) as well as creating an enabling environment for policy and regulatory advancements in line with the ultimate objectives (AU, 2020).   Over and above its pivotal role in economic development, commerce and communication, access to the internet plays an increasingly essential role in maintaining democratic institutions, by virtue of its function as one of the increasingly central means for citizens to exercise their right to freedom of expression. As an extension, however, of the ultimate objective of a more data-driven future in which universal access to the internet is achieved, the transition from in-person, pen and paper, analogue economies and personal lives, lived primarily outside the digital universe, to the modern age of digital ubiquity and IoT permanence, data subjects who wish to maintain relatively whole and efficient lives outside the digital universe find themselves with fewer and fewer alternatives, as analogue and manual service provision is continually neglected and phased out by corporations and governments alike. Through an extension of the right to opt out or be forgotten, corporations and governments alike have an obligation to allow alternative service provision outside of digital and internet connected means, allowing space for a right to use (or limit one’s presence on) the internet. By having a right to be forgotten, data subjects likewise have a right to not be known digitally at all, where possible, and to whatever extent is reasonable, opt out of a digital presence without compromising their overall quality of life (Terzis, 2025); this right can only be exercised where access (to the economy, to other communication, to essential services or to the world as a whole) is not contingent on waiving other rights.   Currently, with the limitation of physical processes and of non-digital solutions, anyone choosing to live outside the digital realm, for whatever reason they choose, finds themselves likewise forgoing a degree of access (Kloza, 2021). Accordingly, it can be reasonably argued that by limiting life outside of digital solutions, the right to be forgotten or opt out is compromised; as a result, the right not to analogue alternatives, is not only functionally necessary to data privacy, but is further critical in guarding against digital discrimination, where opting out means losing out. The result of this need, as well as the growing risk that the unavailability of alternative non-digital spaces consolidates all the functions that are carried through the internet to one potential failure point, is that it creates an obligation by governments to ensure that basic services remain accessible outside of internet-reliant means.   Data in Commerce   The internet began its transformation into the more commercial variant as we now know it between the late-80s and mid-90s, shifting its primary function from an instrument of communication by creating wholly novel markets to which it could bring value. This historic invention was achieved through innovation such as the  introduction of HTTPS and HTML as well as the opening up of web access by the decommissioning of the US National Science Foundation’s (NSF) NSFNET through the National Information Infrastructure Act of 1993, introducing privately-owned internet infrastructure and funding the first freely available web browser – Mosaic (NSF, N.d.). The arrival of internet service providers (ISPs) widened its reach to private citizens, transforming the almost exclusively academic and military internet monopoly that existed prior to that point, allowing businesses as well as their customers to interact in a novel way outside of physical and printed marketing and transactions as well as creating new digital spaces for individual users to interact socially. In the period since, its value to users as a tool of international, real-time communication has been surpassed only by its value to commerce (McKinsey, 2021).   The modern world has turned everyday experiences and appliances/devices into data collection opportunities for a countless number of increasingly innumerable and faceless, at times interconnected corporate entities. From Siri and Alexa, to smart TVs, fridges and printers perpetually connected to Wi-Fi and capable of voice commands, to health monitoring wearable tech and location sharing, the digital age is making it increasingly impossible to live outside the ever-expanding Internet of Things, all the while underpinned by assurances from data controllers that our most sensitive personal data is safe in their hands (Balkin, 2020). These comparatively better resourced (compared to the average human internet user) corporations often rely on user consent in their data collection exercises, backed by at times difficult-to-read policies that the average user is required to agree to in order to benefit from the services. As a result, the average internet user is required to have read, understood, and agreed to be bound by a data privacy policy for each stand-alone service that requires their personal data before they derive reciprocal value from this service. This requirement is irrespective of the user’s background, level of education, or disparity of internet services (and thus policies to review and consent to) (Ibdah, 2021).   In Botswana, as a regional example, prior to the Data Protection Act of 2025, data protection rights were espoused primarily, particularly in a commercial setting, in legislation such as the Constitution of the Republic of Botswana [Cap 00:00], Financial Intelligence Act, 2019, Banking Act [Cap 46:04] and common law (Bookbinder Law, 2021). These laws primarily, at least on the face thereof, sought to regulate privacy through reference to the inherent fiduciary duty of client confidentiality, particularly in financial and business affairs. Notwithstanding the Data Protection Act subsequently coming into effect, these legal instruments and the obligations they introduced still stand, resulting in parallel (complimentary) legal obligations. Similarly, across similar judications, through instruments relating to elements such as cyber security, medical confidentiality, and commercial confidentiality, privacy between corporations and their customers (or patients) precedes data protection legislation.   By retaining the view of data privacy and data protection as fiduciary duty (at least where personal data is utilised in commercial endeavours), and thus ethical obligation to the data subject, it places greater obligation not only on the corporate controller entity but also directly on management and ultimately the board, to ensure the data subjects’ rights are considered and given priority outside of as a matter purely of regulatory compliance, thus aligning it to cybersecurity and other digital fiduciary obligations. This further ensures alignment with King IV and ultimately King V (as well as the Pula Code [BAOA, 2020]) by addressing required oversight over Technology and Information governance and the obligation upon the governing body to ensure ethical use of information, deletion of obsolete information, management of third-party and service provider risks relating to information, integration of information risk in the organisation’s overall risk management processes, and policy creation (Institute of Directors in Southern Africa, 2016).   By defining data protection as a fiduciary duty, the pervasive on data subject consent over other lawful reasons for processing personal data, is mitigated, and reasonably so, as being the weaker party, with no realistic access to verify the controller’s claims, and being the party whose consent was given on the back of policies they at times do not fully grasp (Ibdah, 2021), at times without legal advice, and under the threat of losing access to any service in which they do not give this consent (thus making the consent not truly, wholly freely given), data subjects should at minimum be able to rely on the controller’s “duties of care, confidentiality and loyalty” as emanating from the business relationship, position of trust of the controller to the user, and the data subject’s inherently vulnerable position (Balkin, 2020).   From a governance perspective, between the size of potential fines often carried by data protection laws (particularly those modelled after GDPR), to the extraterritoriality of privacy claims, to the cascading risks brought by transfers to corporations with poorer compliance records and jurisdictions with weaker laws or regulators and even to the trust and goodwill that underpins data protection undertakings and the giving of consent, it is increasingly upon the board to fully encompass their obligations as data privacy fiduciaries, which exist outside of strictly legal compliance obligations, particularly due to the operational and reputational risks espoused by data breach risks (McKee, 2024). It is not hard to determine that this umbrella of concerns motivated the increased emphasis on data governance in King V, its recently released executive summary emphasising more distinctly than previous versions, the critical nature of information governance, and protection of stakeholder interests (of which the data subject is now a prominent feature due to the increasingly material need for good information governance and in the spirit of Ubuntu) as a function of Ubuntu and overall responsible governance practices over and above pure shareholder concerns (Institute of Directors in Southern Africa, 2025).   The overreliance on consent as a basis for processing personal data, and shifting of onus to the uninformed and ill-resourced individual data subject and away from well-resourced corporate entities, is further exacerbated by the widespread use of Artificial Intelligence (AI) not only in standard operating software, but also in carrying out tasks relating to personal data across industries inclusive of healthcare, marketing to insurance amongst many other industries. AI systems not only collect and process big data at a scale previously not possible, but through internet scraping, cross referencing, extrapolating and perpetual processing, thus foundational data privacy principles such as purpose limitation, data minimisation, transparency, accuracy and even the ability for data subjects to receive comprehensive reports of data held by controllers or wholly withdraw consent (and require that all their personal data be deleted), remain uncertain (Trott, 2024). In addition to AI’s incredible capacity to process large amounts of personal data, AI as a technology remains largely hard-to-understand technology for the average citizen. Accordingly, how it does what it does (including how it further processes the data they have given to make inferences about the data subject, particularly when customising user habits and preferences for marketing purposes), the bounds of its abilities, and where it sources the information it uses to perform its functions, is largely not fully grasped by average data subjects even when consenting to incorporation of AI technologies when processing their personal data (Trott, 2024).   Due to increased general reliance on AI, as evidenced by its introduction into numerous websites such as Google, and integration as a standard feature in software by corporations such as Microsoft, the speed with which it continues to advance, its potential to support economic growth, increased innovation, employment creation, and generally keeping African countries somewhat on par with the rest of the world, the AU Executive Council endorsed a Continental Artificial Intelligence Strategy in July 2024 (the “AU AI Strategy”) (AU, 2024).   As of December 2024 however, no African country had introduced a binding instrument relating to AI, whether facing developers in country, or roll out of the technology within its borders, to its citizens. As at the end of 2024, only Algeria, Benin, Côte d'Ivoire, Egypt, Ethiopia, Ghana, Kenya, Lesotho, Libya, Mauritius, Mauritania, Nigeria, Rwanda and Senegal had implemented a national strategy or policy, with others such as Botswana, South Africa, Tanzania and Uganda having initiated stakeholder consultations and/or published a draft document (Alayande, 2025), which number still represents less than half of the 54 countries on the continent. Comparatively, 36 African countries have currently implemented Data Protection laws (of which 25 have Data Protection laws that speak in some regard to AI), with Ethiopia, Namibia and Malawi’s laws still yet at draft stage (ALT Advisory, 2024). Due to the slow pace at which AI and other regulations are being rolled out not only in Africa but also internationally, it then places the impetus on corporations involved to ensure their own values and cultures determine the approach they will take regarding new technologies and the use of personal data, as a function of their business and professional ethics, as well as a function of corporate governance including under the subject of Environmental Social and Governance (ESG). In its 2025 report, the OECD commented on this, lamenting:   “Given the pace of change, governments and regulators themselves are continually trailing technological and scientific progress and urgently need to strengthen their capacities for horizon scanning and regulatory foresight. This will build knowledge to better anticipate emerging and future challenges and avoid harms playing out due to regulatory vacuums or institutional inertia, or having burdensome legacy regulations. In addition to increasing institutional foresight capacity, regulators on the frontline will need equipping with sufficient powers and resources to act on their insights. At times when the last resort of sanctions is reached, these may pale in comparison to the size and cross-border nature of regulated entities, calling into question the very efficacy of enforcement regimes” (OECD Regulatory Policy Outlook 2025, 2025). It is of further concern that in a majority of instances governments collect data through private corporate data collectors. A growing percentage of the data that is useful to a government, whether from a policy perspective (accurate information, statistics, and other data that forms Big Data used for decision-making) or national security purposes (political opinions, movement, etc.), is directly sourced by the government itself. Private entities such as META, TikTok, Google (including location tracking, voice command, online behaviour monitoring, and other similar applications by such organisations) hold a majority of the information that would prove useful to governments in its policymaking or surveillance efforts. However, while we may know (at least on paper) how these private entities intend to store and use our data, “national security risk” and “public safety” remain blanket exceptions that can be easily manipulated and adapted to meet whatever current regime’s objectives are (officially and otherwise). Accordingly, the digital nature of current data collection, storage and use means, along with the current critical nature of personal data in society, pose particular challenges (Darwin & Wa Nkongolo, 2023). As a result, there is a need for governments, in their regulatory efforts, to ensure that rights processed in reality are as much as possible reflected in online environments, particularly as online environments have increasingly significant real-world effects notwithstanding.   In addition to these challenges, the right to legal identity, which was included in the 2030 Sustainable Development Goals, underpins the right to access basic services. Being able to produce a legal identity document is, for example, a key requirement for participating in the formal commercial economy in many jurisdictions as a function of anti-money laundering legislation, premised largely on the need to formally identify counterparties for Know Your Counterparty. Due to the digitisation of commerce and a large section of human interaction, a digital version of legal identity has been determined to be more and more urgent. Justifications for this growing need include limiting false identities online, ensuring regulatory compliance, limiting bottlenecks in service provisions through a reliable means of identity, allowing a uniform approach to identity submission and verification online (World Economic Forum, 2016). Challengers to the roll out of digital identities, however, point to the privacy risks posed, particularly in terms of the reliance on biometrics for its functionality and, most concerningly, of the ability for abuse, through limitation of access to basic services, in certain scenarios, or to outright weaponisation and surveillance potential.   Conclusion   “Everything is solidly anchored within a pedagogic space. A painting ‘shows’ a drawing that ‘shows’ the form of a pipe; a text written by a zealous instructor ‘shows’ that a pipe is really what is meant. We do not see the teacher's pointer, but it rules 30 This Is Not a Pipe throughout-precisely like his voice, in the act of articulating very clearly, ‘This is a pipe’. From painting to image, from image to text, from text to voice, a sort of imaginary pointer indicates, shows, fixes, locates, imposes a system of references, tries to stabilize a unique space. But why have we introduced the teacher's voice? Because scarcely has he stated, ‘This is a pipe’, before he must correct himself and stutter, ‘This is not a pipe, but a drawing of a pipe’, ‘This is not a pipe but a sentence saying that this is not a pipe’, ‘The sentence “this is not a pipe” is not a pipe’, ‘In the sentence “this is not a pipe”, this is not a pipe: the painting, written sentence, drawing of a pipe – all this is not a pipe” (Foucault, 1983).   While regulators and legislators (through access) ostensibly to wish to create a more open and safe internet, without a human-centric, Ubuntu / good governance or other social ethic contract premise underpinning its foundations, whether from a governmental or from a commercial perspective, it is imperative that the solution be at all times human centric and centred in protecting critical social contracts such as Ubuntu and duty of care for one another as members of the broader human community. Corporations, governments and citizens alike ultimately stand to benefit greatly through the use of data to propel humanity forward, whether through closing gaps in development and ending inequalities currently exacerbated by lack of access, or through innovation and commercial success. For this reason, for this to be achieved mutual trust in the collection, use and sharing of data must be built and protected.   More and more literature points to the need for self-regulation by corporations and governments alike. Corporations must determine their position vis-à-vis their clients, employees, corporate counterparts and other stakeholders, devising rules of conduct for themselves premised on good governance, and seek to implement policies based on more than what is legal, but also on what their duty of care requires of them. 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[1]  Including: Zimbabwe, South Africa, Namibia, Botswana, Zambia, Nigeria, Liberia, Côte d'Ivoire, Kenya, Guinea, Gambia, Senegal, Togo, Niger, Benin, Guinea-Bissau, Ghana, Tanzania, Uganda, Ethiopia, Rwanda, Somalia, Lesotho, and Burundi. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 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. Email: info@inclusivesociety.org.za Phone: +27 (0) 21 201 1589 Web: www.inclusivesociety.org.za

Copyright © 2026 Print ISSN: 2960-1541 Online ISSN: 2960-155X Inclusive Society Institute PO Box 12609 Mill Street Cape Town, 8000 South Africa 235-515 NPO All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without the permission in writing from the Inclusive Society Institute D I S C L A I M E R 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. JANUARY 2026 Image credit: AI-generated illustration produced with OpenAI (DALL·E), 2026.   by Daryl Swanepoel   Abstract   South Africa’s economy is trapped in a cycle of low growth, high unemployment and fiscal fragility. Competing frameworks, being the African National Congress’s National General Council Base Document (2025) and the Inclusive Society Institute’s National Dialogue Concept Note (2025), propose contrasting paths to renewal. The ANC document advances a redistributive, state-led developmentalism, whereas the ISI offers a growth-first, capability-centred model grounded in fiscal realism and social partnership. This article compares the two, evaluates their coherence against social-democratic criteria, and assesses which approach can realistically deliver a sustainable welfare state. Drawing on comparative evidence from development economics and welfare-state theory, it argues that the ISI framework aligns more closely with both empirical growth dynamics and the philosophical core of modern social democracy. Economic inclusion, it concludes, is not the consequence of redistribution, but its precondition.   Keywords: Inclusive growth, Social democracy, Fiscal realism, Developmental state, Redistribution, State capability, Institutional integrity, Social partnership, Economic sequencing, Sustainable welfare state Preface   South Africa faces an interlocking crisis of production, distribution and legitimacy. The ANC’s National General Council Base Document  reflects the governing party’s attempt to reclaim the developmental momentum through renewed state activism, expanded redistribution and ideological reaffirmation. The Inclusive Society Institute (ISI) approaches the same crisis through a national rather than partisan lens, proposing a disciplined sequence of growth, employment and capability-building as the foundation of inclusive prosperity.   The comparative analysis that follows finds important areas of overlap, such as ethical governance, skills and partnership, but identifies decisive differences in sequencing and execution. The ANC framework prioritises redistribution before production, equating state scale with effectiveness, whereas the ISI model prioritises growth before redistribution, equating credibility with capacity. When assessed through the fiscal, institutional and philosophical standards of social-democratic economics, the ISI’s framework emerges as the only credible pathway to a sustainable welfare state. It offers a Southern adaptation of the Nordic model, namely a phased egalitarianism grounded in productivity, partnership and performance.   1. Introduction   1.1 South Africa’s economic and policy context   Three decades after democracy, South Africa remains caught between moral aspiration and economic constraint. Growth seldom exceeds population increase, the expanded unemployment rate hovers around fourty percent, inequality remains among the highest in the world, and the state’s debt service absorbs more than one-sixth of expenditure. Against this backdrop, both the African National Congress (ANC) and the Inclusive Society Institute (ISI) have articulated frameworks for national renewal.   The ANC’s National General Council (NGC) Base Document (2025)  seeks to reinvigorate a developmental state by re-centring the state as the driver of production and redistribution. The ISI’s National Dialogue Concept Note (2025) , conversely, defines a capable state as the enabler rather than the monopolist of development. It argues that inclusive growth, not redistribution alone, is the engine of social justice and cohesion.   1.2 Overview of source frameworks   The ANC’s National General Council (NGC) Base Document (2025) is both a political and economic reaffirmation of the party’s developmental-state philosophy. It calls for an expanded state role in production, redistribution and ownership through re-industrialisation, localisation and strategic control of key sectors such as energy, minerals and finance. It emphasises wealth taxes, land reform, public employment and welfare expansion as the primary means to advance equality, and positions the state as the central agent of transformation. The framework therefore marries social justice aims with a renewed faith in state activism, arguing that redistribution and state intervention will unlock growth by stimulating domestic demand and correcting historical distortions.   The Inclusive Society Institute’s (ISI) National Dialogue Concept Note (2025), in contrast, offers a pragmatic, non-partisan roadmap for national renewal centred on a capable, partnership-based state. It defines inclusive growth, rather than redistribution alone, as the precondition for social justice. The ISI framework proposes a phased approach by first restoring fiscal and institutional credibility, then accelerating employment through investment and reform of network industries and finally expanding social protection in step with affordability. It emphasises ethics, competence, evidence-based policy and social dialogue as the instruments of transformation.   Together these documents capture South Africa’s policy crossroads with one vision that seeks equality through expanded redistribution, and the other that seeks it through productive inclusion and capability. The analysis that follows evaluates their respective strengths, weaknesses and implications for a sustainable welfare state.   1.3 Purpose and method of comparison   This paper compares the two frameworks not as rival manifestos, but as competing theories of change for a struggling middle-income democracy. It identifies areas of alignment, exposes growth-inhibiting contradictions in the NGC framework, and considers how the ANC’s moral and historical mission could be reconciled with the ISI’s empirical realism. The analysis proceeds through ten sections, which are conceptual divergence, areas of alignment, structural contradictions, pathways for synthesis, implications for governance, the social-democratic character of the ISI model, fiscal realism as a pathway to social democracy, and, finally, a comparative evaluation of which model can deliver a sustainable welfare state.   1.4 Theoretical context   The comparative analysis contained herein contributes to a broader conversation about how developing democracies ought to reconcile equity with capability. Emerging literature on developmental and post-redistributive states argue that durable welfare outcomes depend less on ideology than on institutional performance and productive capacity; and if such holds true, then the ISI’s growth-first model aligns with this insight, because it proposes that fiscal realism and competence are not technocratic substitutes for justice, but its enablers. In this sense, the paper advances a Southern interpretation of social democracy, being one that balances moral purpose with empirical realism and adapts the developmental-state tradition to South Africa’s constitutional framework.   Analytical note: A shared destination, divergent pathways   Both the ANC’s National General Council (NGC) Base Document (2025)  and the Inclusive Society Institute’s National Dialogue Concept Note (2025)  pursue the same normative destination, being a social-democratic and national-democratic dispensation grounded in equality, inclusion and participatory governance. Empirically, this is evident in their shared objectives, namely the eradication of poverty, the reduction of inequality, the pursuit of full employment and the construction of a capable, ethical and developmental state. Each envisions a society in which political freedom is matched by socioeconomic justice, the moral core of South Africa’s democratic project.   Their divergence lies not in ends, but in means, because where the ANC positions redistribution and state direction as the catalysts  of growth and legitimacy, believing that justice must precede efficiency, the ISI reverses this sequence, holding that growth and institutional capability are the preconditions  for justice, implying that efficiency must finance equity. In effect, both frameworks interpret the same social-democratic creed through different causal logics in that where the ANC seeks equality to generate prosperity, the ISI seeks prosperity to sustain equality.   From a typological perspective, both belong within the broad     family of social democracy, but occupy distinct variants. The ANC represents a form of social-democratic populism , which is moral-activist, redistributive and state-driven in nature, drawing its legitimacy from liberation ideals and the politics of moral urgency. This variant of left-populist social democracy, as described by Ward and Guglielmo (2024) and March (2007), combines egalitarian aspiration with political mobilisation of the historically excluded. The ISI, by contrast, embodies social-democratic developmentalism , which is pragmatic, capability-centred and partnership-based in nature, aligning with the model of the social-democratic developmental state advanced by Van Eck (2010) and Kieh Jr (2015). It derives legitimacy from institutional performance, fiscal realism and fiscal discipline, rather than emotive mobilisation.   The contrast is therefore not ideological opposition, but a difference in temperament and sequencing, where the one asserts justice through redistribution, the other achieves it through competence and fiscal discipline.   The comparison that follows evaluates which pathway better reconciles moral aspiration with economic realism.   While the distinction between redistribution-first and growth-first paradigms is economic in form, it is ultimately philosophical in substance. Both the ANC and the ISI are heirs to South Africa’s constitutional promise of a society based on democratic values, social justice and fundamental human rights . Section 195 of the Constitution commits public administration to efficiency, accountability and developmental purpose, which affirms that competence itself is a moral duty. The ISI’s framework, therefore, can be read not only as an economic strategy, but as a constitutional interpretation of social justice and one that gives operational meaning to the moral obligations of the state.   This reframing transforms efficiency from a technocratic pursuit into an ethical principle and the means through which dignity is made affordable. In this sense, fiscal discipline and institutional integrity are not opposites of compassion, but its instruments. The capable and partnership-based state as is envisioned by the ISI is thus an expression of constitutional morality in which good governance becomes the daily practice of justice.     Figure 1:  Two pathways to a just economy (Source: Author, 2025) 2. Conceptual divergence: State as driver versus state as enabler   The NGC document articulates a post-neoliberal vision in which the state reclaims directive authority over the economy. It envisages a revitalised public sector expanding ownership, managing strategic industries and distributing resources to achieve equity. Economic justice is conceived primarily as a function of redistribution.   The ISI, by contrast, defines development as a partnership between state, market and society. The capable state, in this conception, is not measured by size, but by focus, and its legitimacy arises from competence, predictability and moral authority. Growth is the means through which social justice becomes sustainable, and redistribution is the result, not the driver.   The philosophical divergence can be summarised as one of causality. The ANC’s paradigm holds that equity will produce growth by stimulating domestic demand and correcting historical distortions. The ISI maintains that growth will produce equity by broadening the tax base, creating employment and enabling progressive redistribution. Both seek legitimacy through justice, but they differ on how justice is financed.   3. Areas of alignment   Despite ideological contrasts, there are striking overlaps once the party-political lens is removed. Both frameworks acknowledge that the crisis of governance has become the crisis of development. The professionalisation of the public service, merit-based appointments and ethical leadership are common pillars. Each calls for a skills revolution  in areas such as curricula reform, vocational training and digital literacy to prepare citizens for a transformed labour market.   Equally, both recognise that social partnership is indispensable. The NGC’s appeal for renewed compacts between business, labour and government echoes the ISI’s structured National Dialogue  process. Both perceive cohesion not merely as cultural harmony, but as an economic asset that reduces transaction costs and underwrites trust.   Furthermore, both diagnose the persistence of a dual economy, that is, an advanced corporate sector coexisting with a marginalised informal economy. Structural transformation, be it in spatial, racial or sectoral terms, is viewed as necessary to complete the democratic project. The difference lies in tone and mechanism. The ANC frames transformation as an ideological imperative requiring distributive assertion, whereas the ISI frames it as an economic necessity requiring productivity and competitiveness.   4. Where the ANC NGC framework undermines growth   The NGC’s aspiration to justice is unambiguous, yet its economic mechanics undermine the very growth that would make that justice achievable.   Redistribution before production. The document proposes wealth taxes, expanded grants, accelerated land redistribution and direct job creation through the state. These measures are morally compelling, but fiscally premature. In an economy where growth barely exceeds one percent, redistribution without new production risks eroding the tax base and precipitating debt distress.   State expansion without rationalisation. The call for insourcing and expanded state-owned enterprises assumes capacity that manifestly does not exist. When efficiency is low, increasing scope multiplies dysfunction. The capable state is built through focus, not sprawl.   Ambivalence toward markets. Repeated denunciations of “monopoly capital” coexist uneasily with appeals for investment. This dualism signals policy risk to both domestic and foreign investors, deterring the long-term capital formation that employment requires.   Macro ambiguity. The NGC’s resistance to fiscal consolidation as “austerity” and its hints at more directive monetary policy erode confidence in macroeconomic stewardship. Credibility once lost raises risk premia, crowds out productive spending, and ultimately reduces the very social expenditure the policy seeks to protect.   Regulatory overload and competitiveness gaps. Multiple, overlapping empowerment codes, licensing bottlenecks and localisation mandates that ignore cost competitiveness drive up transaction costs. The failure to stabilise logistics, energy and local government finances further constrains production.   Labour-market rigidity. Well-intentioned, but inflexible wage and hiring rules, unaccompanied by productivity incentives or youth-entry schemes, discourage job creation in the very sectors capable of absorbing low- and semi-skilled workers.   Foreign-policy ambiguity. The NGC’s anti-imperialist rhetoric risks alienating key trading partners and investors, substituting solidarity for strategy. A credible non-aligned diplomacy that prizes access to technology and markets would better serve inclusive growth.   These contradictions do not invalidate the NGC’s moral intent; they demonstrate that intent without sequencing undermines feasibility. Equity requires production and production requires confidence.   4.1 Empirical snapshot: Fiscal and structural constraints   The theoretical divergence between redistribution-first and growth-first sequencing becomes clearer when tested against South Africa’s macroeconomic data. Over the past decade, output growth has remained chronically below both potential and population growth, while unemployment and debt have accelerated. Table 1 summarises key fiscal and structural indicators that reveal the constraints within which any developmental strategy must operate. Table 1:  South Africa’s structural economic indicators (2015–2024)   Indicator 2015 2019 2024 Trend Real GDP growth (%) 1.3 0.8 1.2 Persistently below population growth (≈ 1.5 %) Unemployment (narrow definition, %) 25.4 29.1 32.1 Rising Unemployment (expanded definition, %) 35.6 38.5 41.2 Rising Gini coefficient 0.63 0.63 0.64 Static at extreme levels Public debt-to-GDP ratio (%) 50.7 63.5 74.0 Rising sharply Debt-service costs (% of budget expenditure) 11.2 13.6 16.8 Crowding out social investment Public sector wage bill (% of total expenditure) 34.5 36.0 36.8 Upward rigidity Gross fixed capital formation (% of GDP) 20.5 18.2 15.3 Declining Private investment confidence (index, 2015 = 100) 100 92 84 Eroded by uncertainty (Sources: Reserve Bank Quarterly Bulletin; National Treasury Budget Review, 2024; Stats SA, 2024)   The data reveal a pattern of fiscal compression and investment stagnation that constrains redistributive elasticity. With debt service now absorbing nearly one-sixth of expenditure and private investment at its lowest share of GDP in two decades, the state’s fiscal multiplier has weakened considerably. Under such conditions, front-loaded redistribution is not possible, because it cannot generate sustainable welfare gains, since it lacks a productive base to support it.   The empirical evidence therefore validates the sequencing logic being advanced by the ISI, namely that macroeconomic credibility must precede expansive redistribution. Growth elasticity of revenue has averaged only 0.8 since 2015, meaning that each percentage point of GDP growth yields less than a proportional increase in tax receipts (National Treasury, 2024). This underscores that fiscal consolidation is far from being “austerity”; instead, it is the prerequisite for reinvestment in education, infrastructure and human capability. As Figure 2 later illustrates, credibility → investment → jobs → revenue → redistribution remains not an ideological preference, but an empirical necessity.   5. A reconciliation path: Toward a developmental partnership state   The gap between the ANC’s redistributive ambition and the ISI’s growth pragmatism can be bridged through disciplined sequencing, rather than ideological retreat. A developmental partnership state  would lead by credibility, not command, and it would transform the energy of moral aspiration into the discipline of economic realism.   Such a state would first restore macroeconomic credibility. Fiscal consolidation must be redefined not as austerity, but as social investment, where every rand saved in interest payments is a rand released for infrastructure and education. The independence of the South African Reserve Bank anchors expectations and lowers borrowing costs, and fiscal anchors enforce honesty about trade-offs.   Second, the state’s institutional architecture must be rationalised around capability, not capacity. Functions should be prioritised around the retention and professionalisation of core sovereign duties, such as justice, policing, revenue and regulation. Non-core delivery, such as housing construction, logistics, digital infrastructure, should be contracted competitively under transparent, performance-based frameworks. It should be a question of competence, and not ideology, that decides who does the work.   Third, the growth compact must be formalised, where government guarantees policy stability and reforms network industries, where business commits to domestic investment targets and job creation, and where labour moderates wage demands in exchange for training, equity participation and social protection. Tripartite compacts must be contractual, time-bound and published to restore accountability.   Fourth, industrial policy must shift from aspiration to execution. In renewable energy, agro-processing, automotive components and the digital economy, government should publish bankable sector deals  with clear incentive matrices, regulatory timelines and exit conditions.   Fifth, network-industry reform, for example in energy and logistics, is the fastest route to productivity gains. Unbundle electricity transmission into an independent operator, open rail and ports to concessioning and enforce transparent tariff regulation. These are not neoliberal acts; they are acts of governance.   Sixth, labour-market reform must reconcile dignity with dynamism. Introduce youth-entry contracts with portable benefits, training vouchers and productivity-linked wage progression. Equity demands inclusion, not rigidity.   Seventh, local-government renewal is indispensable. Fiscal ring-fencing of service revenues, transparent dashboards and merit-protected technical appointments can restore delivery. Municipal collapse is a hidden tax on growth.   Finally, anti-corruption must be systematised, through for example, full e-procurement, beneficial-ownership disclosure and automated anomaly detection in public accounts. Integrity must become an operating system, not a slogan.   Through these measures, South Africa can build the virtuous sequence the ISI describes: credibility → investment → jobs → revenue → redistribution. Moral aspiration remains the same, the order of operations changes.  Figure 2:  The virtuous sequence (Source: Author, 2025) 6. Governance and evaluative implications   When the preceding synthesis is tested against the efficiency-equity logic of mainstream economics, it passes both tests. A credible fiscal anchor reduces sovereign-risk premiums and lowers the cost of capital. Reformed network industries, such as energy, transport and logistics, compress economy-wide input costs, raising competitiveness. Predictable regulation and streamlined permitting improve investor confidence, while a meritocratic civil service raises the return on public spending . Redistribution then scales with real resources rather than with debt.   This sequencing also restores political legitimacy. In a context where liberation memory no longer guarantees obedience, legitimacy must derive from performance . Citizens tolerate constraint when they perceive that institutions deliver. A capable state that does fewer things well, generates a moral dividend, which is trust. In the ISI model, governance credibility becomes an economic variable, reinforcing growth through confidence.   Conversely, when the state over-promises and under-delivers, citizens retreat into self-help, elites seek rents and capital flees. The result is a vicious circle, where weak growth erodes revenue, fiscal pressure drives populism and populism erodes growth. Breaking this cycle requires a state that earns consent through competence, which is precisely the ideal that the ISI’s framework operationalises. 7. The social-democratic character of the ISI pathway   The ISI framework is recognisably social-democratic in spirit and structure. It insists on democratic pluralism, civic participation and a mixed economy regulated for fairness. It values markets as instruments, not ends, and views taxation as the ethical mechanism through which prosperity funds solidarity.   Yet it departs from European orthodoxy in one crucial respect: sequence . The Nordic and Continental welfare states emerged only after decades of industrial expansion and institutional consolidation. Productivity growth financed redistribution, and  universalism followed capability. South Africa, by contrast, inherited expectations of Scandinavian equity with the fiscal base of a developing country. Attempting to copy the European model wholesale would be fiscally catastrophic.   The ISI’s approach therefore represents phased egalitarianism, being a pragmatic adaptation of social democracy to developmental realities. It proposes to rebuild state capability, stimulate inclusive growth, and then expand the welfare net in step with affordability. This is not ideological compromise, but historical fidelity and it mirrors the trajectory through which Europe itself achieved social democracy. Justice achieved through competence is more durable than justice asserted through decree. Box 1:  Comparative Pathways – Lessons from Finland and Mauritius   Finland: Capability before welfare   Finland’s transition from a peripheral agrarian society to a high-trust welfare democracy illustrates that social democracy was built after  productivity and state capability were established. Between 1950 and 1970, the Finnish state invested heavily in universal education, meritocratic administration and export competitiveness before expanding its welfare commitments. According to Kosonen (2014), “the Nordic welfare state grew out of an efficiency consensus, where distribution followed production”. Productivity-led equality thus financed welfare universalism, aligning with the ISI’s sequence of credibility → growth → redistribution.     Mauritius: Inclusion through competitiveness   Mauritius presents an African variant of the same logic. Following independence, the state focused on export diversification, education and macroeconomic stability before introducing broad social programmes. Subramanian and Roy (2003) found that its inclusive institutions, transparent fiscal management and export-orientated strategy generated fiscal space for redistributive policies without destabilising growth. Mauritius therefore demonstrates that developmental sequencing, that is, building growth capacity first, can deliver both cohesion and equity within an African context.   Synthesis   Both cases affirm that welfare sustainability depends on capability and growth preceding redistribution. They illustrate that sequenced egalitarianism , which is the ISI’s central proposition, is not a theoretical construct, but a historical constant across successful developmental democracies.   8. Fiscal realism and the South African pathway to social democracy   South Africa’s structural conditions of low employment absorption, a narrow tax base, and elevated debt, render an immediate European-style welfare state unaffordable. Implementing one prematurely would precipitate macroeconomic instability that would ultimately destroy social spending. The ISI recognises this constraint and sequences reform accordingly.   Phase One emphasises stabilisation and capability restoration, where fiscal discipline and efficient administration rebuild credibility, infrastructure reform lowers costs, education and health investment restore human capital. Phase Two focuses on inclusive growth, by crowding-in private investment, expanding exports and accelerating employment. Phase Three then scales redistribution as the economy’s resource envelope widens.   This progression is consistent with comparative evidence. Azulai et al. (2014) demonstrate that effective states precede sustainable welfare and here “state capability is the missing link between policy intent and developmental outcomes”. Andrews et al. (2017) similarly argue that governments must “build capability before expanding ambition”. Hirvilammi (2020) finds that welfare systems divorced from productivity soon face fiscal and political exhaustion. The ISI’s model thus embodies the lesson that growth and governance are the preconditions of generosity .   The ANC’s NGC framework, by contrast, inverts this logic. Its redistributive front-loading presupposes a fiscal elasticity that South Africa no longer possesses. Expanding transfers without first raising productivity widens debt, discourages investment and ultimately undermines the very redistribution it seeks to achieve. As Zeidy (N.d.) notes, “fiscal sustainability is a prerequisite for inclusive growth; without stability, equity cannot endure”.   Fiscal realism is not the enemy of social justice, but its guarantor. The ISI’s pathway offers a developmental road to social democracy that acknowledges constraint, yet preserves aspiration, in other words, a welfare state built on growth, not instead of  it.   Figure 3:  Phased Egalitarianism – The South African Road to Social Democracy (Source: Author, 2025) 9. Comparative evaluation: Which model can deliver a sustainable welfare state?   Applying the five criteria of social-democratic economics, which are fiscal sustainability, productive capacity, institutional capability, equity and legitimacy, reveals a decisive pattern.   Fiscal sustainability. The ANC’s redistributive acceleration burdens an already fragile fiscus, by expanding entitlements without enlarging the revenue base, which is a risk to debt stability. In turn, the ISI’s growth-first sequencing widens revenue before obligation, which aligns with international evidence that suggests that stable fiscal frameworks serve to underpin social spending (Zeidy, N.d.).   Productive capacity. The ANC’s state-controlled tendencies deter investment by heightening uncertainty and politicising enterprise. The ISI’s partnership model fosters capital formation, technology diffusion and employment, which are all preconditions for a self-financing welfare state.   Institutional capability. The ANC recognises ethical decay, but leaves cadre deployment largely intact, perpetuating politicised administration. The ISI’s emphasis on merit, accountability and transparency directly targets the bureaucratic weaknesses that comparative research identifies as binding constraints on growth (Azulai et al., 2014; Andrews et al., 2017).   Equity and inclusion. Both seek equity, but through different instruments. Where the ANC offers redistribution through transfer, the ISI offers it through participation, and where the former alleviates poverty, the latter eradicates its causes.   Legitimacy. The ANC’s political legitimacy is historical and emotive, whereas the ISI’s would be performance-based and deliberative. Sustained legitimacy in mature democracies derives from delivery, not identity.   In sum, while the ANC’s model delivers moral urgency, it risks economic fragility. The ISI’s framework couples compassion with capability, sequencing equity after growth. Empirical evidence suggests that only this order of operations can yield a welfare system that survives political cycles. Growth-funded redistribution endures, whereas debt-funded redistribution decays.   10. Conclusion   Both frameworks share a moral horizon of a just, inclusive and cohesive South Africa. Yet their routes diverge sharply. The ANC’s NGC document treats redistribution as the engine of justice, whereas the ISI treats it as the dividend of justice achieved through growth. The former relies on political mobilisation, and the latter on institutional credibility.   The comparative evidence and economic reasoning converge on one conclusion. In an economy as constrained as South Africa’s, social justice cannot precede productivity. Growth is not a technocratic obsession; it is the means by which dignity becomes affordable. The ISI’s approach therefore represents not a rejection of the welfare ideal, but its only viable foundation.   Measured against the standards of modern social democracy, being fiscal realism, institutional integrity and productive inclusion (ISI, N.d.; 2020; 2024), the ISI’s framework stands out as the credible pathway to a sustainable welfare state. It transforms compassion into capacity and rhetoric into results. The ANC’s redistributive vision may inspire, but the ISI’s sequenced realism can deliver.   Ultimately, the task before South Africa is not to choose between justice and growth, but to recognise that justice requires growth. The capable, partnership-based state envisaged by the ISI embodies that recognition. It offers a model of social democracy suited to the nation’s realities. It is a disciplined, inclusive and sustainable route to deliver a republic where prosperity funds fairness and competence restores hope.   10.1 Policy implications for the medium term   The comparative analysis offers not only theoretical insight, but actionable direction for South Africa’s economic governance. The core lesson contained herein is that fiscal realism, institutional integrity and social partnership are not ideological concessions, instead they are prerequisites for an equitable society. Translating the ISI’s framework into policy practice will require deliberate sequencing and political will to sustain reform beyond electoral cycles, which, admittedly, is difficult, but still, necessary. First, macroeconomic credibility must be reclaimed as a social investment, where fiscal consolidation is reframed as the moral discipline through which the state protects its developmental mandate. The reduction of debt-service costs will, for example, release resources for infrastructure, education and innovation, while a predictable fiscal anchor will rebuild trust with investors and citizens alike. The test of a progressive fiscal policy is not its expansiveness, but its sustainability.   Second, industrial and network-industry reform must shift from declaratory ambition to execution. Policy stability in energy, transport and digital infrastructure is the fastest route to restoring competitiveness and employment. The state should publish time-bound sector deals with clear metrics and transparent performance reviews. This would demonstrate that South Africa can plan, implement and deliver, thereby transforming credibility into confidence.   Third, social partnership must be institutionalised rather than episodic. A renewed compact between government, business and labour should be contractual, transparent and measurable, linking wage moderation and investment commitments to shared developmental outcomes. Dialogue must evolve from consultation to co-responsibility.   Fourth, capability restoration within the state must become a national project. Public administration reform, merit-based recruitment and performance-linked accountability are not bureaucratic details but moral imperatives of social justice. A capable state is the social policy.   Finally, political leadership must communicate a new developmental narrative, and one that reconciles growth with justice, and anchors hope in performance. South Africa’s democratic legitimacy now depends less on historical memory than on delivery. The capable, partnership-based state proposed by the ISI thus offers a reform pathway that is both ethically grounded and economically credible. It is a model of social democracy in which prosperity funds fairness and competence restores trust.   Epilogue   The choice before South Africa is not between growth and justice, but between illusion and endurance. Prosperity without fairness corrupts, fairness without productivity collapses. The task of our time is to make them one by building a state that delivers justice through capability and a nation where compassion is measured in competence. References   African National Congress (ANC). 2025. National General Council Base Document . Johannesburg: African National Congress.   Andrews, M., Pritchett, L. & Woolcock, M. 2017. Building State Capability: Evidence, Analysis, Action.  [Online] Available at: https://library.oapen.org/bitstream/id/bb540dab-9bbb-45ea-8ef1-4843b24dd432/624551.pdf? [accessed: 5 November 2025].   Azulai, M. et.al. 2014. State Effectiveness, Growth, and Development.  London: International Growth Centre (IGC) Evidence Paper. [Online] Available at: https://www.theigc.org/sites/default/files/2014/09/IGCEvidencePaperState.pdf [accessed: 4 November].   Hirvilammi, T. & Koch, M. 2020. Sustainable Welfare beyond Growth.  Sustainability , 12(5), 1824. https://doi.org/10.3390/su12051824.   Inclusive Society Institute (ISI). N.d. Our Value System.  [Online] Available at: https://www.inclusivesociety.org.za/isi-our-value-system [accessed: 6 November 2025].   Inclusive Society Institute (ISI). 2020. Developing a New Economic Blueprint for South Africa – Lessons from Germany: Building Social Cohesion . Cape Town: Inclusive Society Institute. [Online] Available at: https://www.inclusivesociety.org.za/post/developing-a-new-economic-blueprint-for-sa-lessons-from-germany-building-social-cohesion [accessed: 6 November 2025].   Inclusive Society Institute (ISI). 2024. The South Africa Social Cohesion Index: Measuring the well-being of a society (2024 Update) . Cape Town: Inclusive Society Institute. [Online] Available at: https://www.inclusivesociety.org.za/post/the-south-africa-social-cohesion-index-measuring-the-well-being-of-a-society-2024-update [accessed: 6 November 2025].   Inclusive Society Institute (ISI). 2025. National Dialogue Concept Note.  Cape Town: Inclusive Society Institute.   Kieh, G.K. 2015. Constructing the social democratic developmental state in Africa: lessons from the “Global South”.  Bandung J of Global South,  2(1), 1-14. https://doi.org/10.1186/s40728-014-0004-4   Kosonen, P. 2014. The Nordic Welfare State Model: From Expansion to Austerity.  FIIA Working Paper No. 80. Helsinki: The Finnish Institute of International Affairs. [Online] Available at: https://www.fiia.fi/en/publication/the-nordic-welfare-state-model-from-expansion-to-austerity [accessed: 6 November 2025].   March, L. 2007. From Vanguard of the Proletariat to Vox Populi : Left-populism as a “Shadow” of Contemporary Socialism. The SAIS Review of International Affairs , 27(1), 63–77. https://www.jstor.org/stable/26999345.   National Treasury. 2024 .   Budget Review 2024.  Pretoria: National Treasury, Republic of South Africa. [Online] Available at: www.treasury.gov.za/documents/national%20budget/2024/review/FullBR.pdf [accessed: 5 November 2025].   South African Reserve Bank (SARB).   2024. Quarterly Bulletin (No. 312, September 2024).  Pretoria: SARB. [Online] Available at: https://www.resbank.co.za/content/dam/sarb/publications/quarterly-bulletins/quarterly-bulletin-publications/2024/september/Quarterly%20Bulletin%20September%202024.pdf [accessed: 5 November 2025].   Statistics South Africa (Stats SA). 2025. Gross domestic product, Fourth quarter 2024 (Statistical release P0441).  Pretoria: Statistics South Africa. [Online] Available at: https://www.statssa.gov.za/publications/P0441/P04414thQuarter2024.pdf [accessed: 6 November 2025].   Statistics South Africa (Stats SA). 2025. Quarterly Labour Force Survey, Fourth Quarter 2024 (Statistical release P0211).  Pretoria: Statistics South Africa. [Online] Available at: https://www.statssa.gov.za/publications/P0211/P02114thQuarter2024.pdf [accessed: 6 November 2025].   Subramanian, A. & Roy, D. 2001. Who Can Explain the Mauritian Miracle: Meade, Romer, Sachs or Rodrik?  IMF Working Paper No. 01/116. Washington DC: International Monetary Fund. [Online] Available at: https://www.imf.org/external/pubs/cat/longres.aspx?sk=15215 [accessed: 6 November 2025].   Van Eck, L. 2010. Social Democracy and the “Developmental State” as Development Alternatives for South Africa, Honours Students' Projects , Paper No. 107457, Rhodes University, Department of Economics and Economic History. https://doi.org/10.22004/ag.econ.107457.   Ward, B. & Guglielmo, M. 2024. People, class, democracy: re-mapping left populism from populist social democracy to popular socialism.  Journal of Political Ideologies , 1–22. https://doi.org/10.1080/13569317.2024.2371506.   Zeidy, I. N.d. Fiscal Policy for Inclusive Growth.  Lusaka: COMESA Secretariat.[Online] Available at: https://www.comesa.int/wp-content/uploads/2022/09/220909_FISCAL-POLICY-AND-INCLUSIVE-GROWTH-Final.pdf [accessed: 6 November 2025]. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 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. Email: info@inclusivesociety.org.za Phone: +27 (0) 21 201 1589 Web: www.inclusivesociety.org.za

Copyright © 2026 Print ISSN: 2960-1541 Online ISSN: 2960-155X Inclusive Society Institute PO Box 12609 Mill Street Cape Town, 8000 South Africa 235-515 NPO All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without the permission in writing from the Inclusive Society Institute D I S C L A I M E R 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. JANUARY 2026 Image credit: AI-generated illustration produced with OpenAI (DALL·E), 2026.   by Prof William Gumede   Abstract   US President Donald Trump’s global tariffs, slashing development aid and funding to global multilateral organisations, combined with major global disrupting forces, such as climate change and artificial intelligence (AI), are ushering in a new global era of uncertainty, triggering a likely global economic downturn and possibly causing economic ruin for many countries.   It is causing a Great Disruption. South Africa’s Government of National Unity (GNU) offers an inclusive governance model to navigate the Great Disruption. The GNU brings together the diversity of SA’s political parties, colours and resources. However, for the GNU to be effective, it must be truly inclusive, including non-ANC partners in decision-making, policymaking and ideas-generation. A government of national unity (GNU) model, which tries to bring together a diversity of parties – therefore different ideologies, ideas and minority groups – is a more inclusive governance approach in societies under crisis, but also societies that face external threats.   GNUs are established when societies face deeply-rooted crises, and one single-party or group alone cannot solve these, or do not have the electoral mandate to do so on their own. Effective coalitions need formal coalition agreements, beyond a handshake between party leaders. Formal coalition agreements also set out how the partners engage with each other, the rules of engagement and the protocols. The success of South Africa's new GNU will heavily depend on whether ANC and participating opposition party leaders can muster the maturity to adhere to consensus decision-making, rather than majority decision-making or brinkmanship.   Although South Africa's African National Congress is in a multiparty Government of National Unity, it makes decisions, policies and behaves as if it is the majority government, solely in power, without any partners, and because of this, perpetually undermines the stability, longevity and cohesion of the country's first post-1994 national coalition government. For the GNU to be successful, there has to be a governance culture change, from majoritarianism to multiparty consensus.   But South Africa’s domestic and international challenges cannot be navigated by politicians or government officials alone. A Government of National Unity Plus governance model, whereby the GNU partners with business, civil society and professionals, will improve South Africa’s capacity to navigate the frightening domestic and global challenges and seize the opportunities.   It is critical that the GNU transforms into a GNU Plus, which would include business, civil society and professionals to co-govern South Africa during the Great Disruption South Africa and the world now face. A key structural reform needed is to bring in the private sector, civil society and professional associations to help with public service delivery and tackle development, state, institutional, infrastructure, and policy failure.   Keywords:  Government of National Unity (GNU), GNU Plus, Inclusive governance, Coalition government, Consensus decision‑making, SA Inc approach, Pragmatism in policymaking, State capacity, Public service delivery, Structural reforms   Introduction   US President Donald Trump’s sweeping tariffs, slashing development aid and funding to global multilateral organisations, combined with major global disrupting forces, such as climate change and artificial intelligence (AI), are ushering in a new global era of uncertainty, triggering a likely global economic downturn and possibly causing economic ruin for many countries.   Global trade, economic and political governance rules, institutions, multilateralism have been upended. It is causing internal turmoil in countries outside the US, disrupting economies, companies and potentially causing instability in societies, as their economies are experiencing, or will experience, downturns (Morgan, 2025; Shang-Jin, 2025; Staiger, 2025). It is causing a Great Disruption.   There is the real danger for South Africa and many countries to experience Covid-19-like disruptions of economies, businesses and societies. Many developing country economies will crash, especially those that are poorly governed.   Countries, firms and communities that practice good governance are more likely to thrive in global disruption (Byrne, 2025; Gumede, 2025). Good governance is a buffer to uncertainty. Good country governance is an inoculation against geopolitical, economic, technological and environmental unpredictability. Good governance helps strengthen country, society and company resilience in uncertainty.   Countries that have inclusive models of government will weather global storms better. Countries, companies with poor governance will be left behind.   South Africa’s Government of National Unity (GNU) offers an inclusive governance model to navigate the global disruption (Gumede, 2025). The GNU brings together the diversity of South Africa’s political parties, colours and resources. However, for the GNU to be effective, it must be truly inclusive, including non-ANC partners in decision-making, policymaking and ideas-generation. Diversity offers a buffer to uncertainty (Duchek et al., 2019; Levin, 2020; Ma et al., 2024). South Africa’s growth, poverty reduction and employment creation can only come through its diversity (Gumede, 2025). So, diversity-led growth, poverty reduction and employment creation.    A Government of National Unity (GNU) model, which tries to bring together a diversity of parties – therefore different ideologies, ideas and minority groups – is a more inclusive governance approach in societies under crisis, but also societies that face external threats.   GNUs are established when societies face deeply-rooted crises, and one single-party or group alone cannot solve these, or do not have the electoral mandate to do so on their own (Kadima, 2006; Gumede, 2024). South Africa is facing multiple domestic crises – ranging from a battling economy, high unemployment, mass homelessness, lawlessness, and rising tribalism (Gumede, 2025). Furthermore, the impact of Trump’s sweeping tariffs have brought an external challenge to the country (Gumede, 2025).   Coalition governance even more appropriate in diverse societies, to recover from economic emergencies and from conflict   Coalition governments can either be established when no party secures a majority, or it can be formed when one party gains a majority but includes the losing parties in a form of Government of National Unity (GNU). Coalitions can also be formed pre-election – before the parties have taken part in an election – or post-election, based on the results of the election (Golder, 2006; Conti, 2014; Gumede, 2024).   Coalition governance allows for the greater participation of minorities in governance, helps cater for the interests of all groups in a country and for the adoption of policies that cater for marginalised constituencies, as dominant governing parties often only deliver to their own constituencies and exclude the interests of non-supporters (Kadima, 2006; Figueiredo, 2007; Evans, 2019; Gumede, 2024). Furthermore, because coalition governance forces participants to regularly engage with each other, get to know the other side, and build relationships, if done effectively, it is a good institution to build trust across political, racial and class divides.   Effective coalition governance demands compromises for the greater good of public service delivery, participation of all partners and parties governing in the interests of all the constituencies of the partnership ( Thies, 2001; Müller & Strøm, 2008; Evans, 2019; Gumede, 2024 ). Successful coalition governance cultures also transplant to the rest of societies – making diverse societies more open to compromise, to look after the interests of all communities and stakeholders and encourage a culture of conflict resolution (Gumede, 2024). This means that coalition governance is likely to lead to more peaceful societies (Evans, 2019; Gumede, 2024). Since the Second World War, coalition governments have produced among the greatest country economic miracles, from Germany and Switzerland to Brazil.   Most African countries are exceptionally diverse – ethnically, religiously and linguistically – because of the way former colonial powers arbitrary created these countries (Mamdani, 2012; Gumede, 2017). However, since the end of the independence from colonialism, white-minority regimes and apartheid, most African countries have been run by dominant liberation and independence movements, military and personal regimes which often had their power bases in one ethnic, religious, language or regional group (Kadima, 2006; Mamdani, 2012; Gumede, 2017).   African governments invariably have governed only for their ‘own’ group, rather than in the widest interests of all communities in their countries (Mamdani, 2012; Gumede, 2017). Furthermore, when most African countries launched multiparty regimes, they adopted ‘winner-takes-all’ electoral systems in which the party or leader that wins governs only for their ‘constituencies’ and excludes everyone else from state, private sector and societal positions (Gumede, 2017). This has been among the main reasons for development, state and democratic economic failures in post-independence Africa. Coalition governments would have been a much more inclusive form of governance for countries in Africa.   Coalitions have been particularly critical in countries rebuilding after war, ethnic conflict and civil war. Following defeat in the Second World War, Germany had long periods of coalition governments, as parties spanning various ideologies and religions worked together to rebuild the country, fostering national unity and boosting industrial recovery (Evans, 2019). In fact, in the post-Second World War, Germany was only governed for one term by a single party ( Riker, 1962; Martin, 2017). The great German post-Second World War growth miracle happened under coalition governments.   Following the civil war in 1918, between socialists and those who oppose socialism, Finland had continuous coalitions governments, often between parties with opposite ideological outlooks ( Tornudd, 1969) . The civil war was conducted between the  Finnish Socialist Workers’ Republic (Red Finland) and the non-socialists (White Finland), during the country’s transition from being part of the Russian Empire, to an independent state. The coalition governments helped the country bind together again after the violent divisions of civil war.   In Brazil, it took coalitions of parties to band together to push out military rulers and restore constitutional rule (Mainwaring et al., 2000). Following a long period of military rule, a coalition government took power following the 1945 elections, with the Social Democratic Party ( Partido Social Democrático), founded by Getúlio Vargas  in alliance with the Brazilian Labour Party (PTB) forming the PSD-PTB alliance, which governed Brazil between 1946 and 1964, before the military staged another coup in 1964. The PSD-PTB governing alliance prioritised restoring constitutional order following the military rule.  After another period of military rule in Brazil, a coalition between the Brazilian Democratic Movement Party (PMDB) and the Liberal Front Party (PFL)   took power, under José Sarney, between 1985 and 1990, following the collapse of military rule, and formed the first civilian government since 1965. The PMDB-PFL governing coalition restored democracy again.   Post-Second World War Japan had different mechanisms of coalitions (Evans, 1995; Gumede, 2018). From the late 1950s onwards, Japan’s dominant Liberal Democratic Party (LDP), although even if not in coalition, offered policy concessions in Parliament to the opposition parties, pursuing consensus-style politics, involving opposition parties in policymaking, in return for support for its export-led growth strategy. Unlike, in Africa, where dominant governing parties often steamrolled the opposition parties, the LDP co-opted opposition, and almost co-governed and co-legislated around a core set of national priorities (Gumede, 2017). Japan’s LDP introduced the idea of a social pact, involving organised business and trade unions as part of country policymaking.   Governments of National Unity in Africa   Ordinary governing coalitions are put together when no single party wins an outright majority – mostly in normal times. However, GNUs usually involve including additional parties, not necessarily required to form a governing majority. The focus of a GNU is to try to get the widest representation of political parties into a government, which would serve South Africa well in facing its multiple crises – economic, lawlessness and tribalism (Gumede, 2023).   Former South African President Nelson Mandela presided over a Government of National Unity, a form of coalition government, to promote reconciliation, inclusiveness and participation, when he included all the other major opposition parties into government, including the National Party, the former governing party, despite the fact that the ANC won the 1994 elections (Gumede, 2005).   Zimbabwe had a GNU at independence in 1980. Zimbabwean President Robert Mugabe at the time offered portfolios to the rival liberation movement, the Patriotic Front, and positions to former members of Ian Smith’s white-minority government. Mugabe’s then Zimbabwe African National Union won 57 out 100 parliamentary seats in the 1980 election but signed a coalition agreement with the opposition Patriotic Front of Joshua Nkomo and with the Rhodesian Front, formerly white governing party led by Ian Smith ( Ross, 1980) . In February 2009, Mugabe’s Zanu-PF formed a GNU with Morgan Tsvangirai’s Movement for Democratic Change and Arthur Mutambara’s faction of the MDC (Matyszak, 2010) .     After Kenya’s disputed 2007 presidential elections, the country plunged into conflict between supporters of incumbent president Mwai Kibaki, leading the Party of National Unity, and opposition leader Raila Odinga, leading the Orange Democratic Movement (ODM).   Kibaki had announced he had retained the presidency, which was disputed by Odinga. Both candidates used ethnicity and the fear of ethnic dominance to mobilise support. More than 1,200 people died, and 350,000 people were displaced in the violence. Kibaki formed the party just before the election.    To bring an end to the violence, the political opponents Mwai Kibaki and Raila Odinga formed a GNU, which lasted from 2008 to 2013 (Cheeseman & Tendi, 2010; Mapuva, 2010). The Kenyan GNU coalition formulated a new Constitution for the country (Mapuva, 2010). The agreement called for a President and a Prime Minister, the writing of a new Constitution, and referendum to approve it. Each party would have equal ministerial positions (Kagwanja, 2024). Ministers of one party were teamed up with deputies of another country. A mechanism was agreed to adopt policies. Kenya also introduced an “interagency committee system” to get different government departments to collaborate around specific crises, policies and implementation. Performance agreements for ministers were introduced. Ongoing country conflicts would be mediated by external mediators. It was agreed that violence would be monitored by independent monitors. The Kenyan GNU agreement proposed an ethnicity conference to tackle inter-ethnic conflicts.   In 2024, following renewed protests over the Kenyan government’s failures, Kenyan President William Ruto formed a GNU, by including four prominent opposition leaders in his Cabinet, to sooth public unhappiness and to establish a more inclusive national government structure ( Wasike, 2024) . The weeks-long 2024 violent public protests caused over 50 deaths, destruction of public property and widespread political polarisation. The protests began on June 18 as peaceful rallies against tax hikes but morphed into a wider anti-government campaign calling for President Ruto to resign.   Ruto said in his address following the appointment of his GNU: “The crisis has presented us with a great opportunity as a nation to craft a broad-based and inclusive citizen coalition for national transformation and progress made up of Kenyans from all walks of life. Consequently, I have started the process of forming a new broad-based cabinet to assist in driving the urgently needed and irreversible transformation of our country” (Al Jazeera, 2024). Some opposition groups slammed the GNU as “cosmetic”, arguing it “only maintains a tradition in Kenyan politics of leaders co-opting the opposition with jobs and perks while the population sees no benefits” (Al Jazeera, 2024).   GNU need formal agreements and structures   The key to the success of the GNU is how it will be structured. The size, meaning the number of parties in a GNU, is critical to its effective functioning. While every attempt must be made to be inclusive, too many parties may hinder governing effectiveness (Gumede, 2023). It will be better to include a smaller number of parties in the core GNU and involve other parties in case-by-case co-governing arrangements, whether heading legislative committees or chairing official inquiries. There are 11 parties in the current GNU. The ANC has pushed the idea to include more smaller parties – doing so would make the GNU operation more cumbersome than is currently the case.   National Executive Committee member Mzwandile Masina said the ANC was moving ahead with plans to include more political parties in the GNU, and discussions are ongoing with political parties, including with former ANC and South African President Jacob Zuma’s uMkontho weSizwe (MK) party (Maromo, 2025).   “This GNU is led by ourselves. The DA [Democratic Alliance] will have to accept that we are resetting the button. We are bringing others who will be prepared to subscribe,” said Masina recently (Maromo, 2025).    Many national coalitions in other African countries fail because partners do not sign formal agreements which set the terms of the coalitions, establishing coalition governance structures, and agreeing on key policies that will underpin the coalitions (Gumede, 2024). Many of South Africa’s municipal coalitions have failed because coalition partners do not come up with formal agreements, set up coalition governance structures and agree on the core policies for the coalition.   Kenya’s 2008 and 2013 GNU had no formal agreement, beyond handshakes (Cheeseman & Tendi, 2010; Mapuva, 2010). Effective coalitions need formal coalition agreements, beyond a handshake between party leaders. Often coalition agreements are only based on how appointments will be distributed among parties. Formal coalition agreements also set out how the partners engage with each other, the rules of engagement and the protocols.   Such formal agreements hold parties accountable to themselves, to their partners and to the voters. Such agreements must ideally be made public, so that voters understand these agreements. Making agreements publicly is important to hold parties accountable, as voters can measure parties’ coalition engagements in relation to these agreements. It also helps hold parties accountable, as parties cannot willy-nilly leave coalitions for superficial reasons.   Most of South African municipal coalitions do not sign partnership agreements (Gumede, 2024). Parties often leave coalitions for no substantial reason, unleashing governing instability. Because there are no formal coalition agreements, party supporters and voters cannot assess whether their leaving is credible. The GNU will also have to put together a code of conduct to ensure acceptable behaviour, common decency and rules of engagement for leaders. Such a code of conduct must be equitably policed.   Parties in a coalition also need to come up with a joint coalition policy programme. Coalitions are multiparty governments – and therefore have to come up with policies that reflect the priorities of the members of the coalition, not that of the party with the most votes. Many coalitions at a municipal level in South Africa have failed because the party with the most votes, often wrongly, insists their policies become the government policies (Gumede, 2024). The ANC, South Africa’s former majority governing party, has struggled to change its culture from having the ANC’s party policies becoming the government’s policies, to having multiparty policies, in which the GNU members jointly agree on policies.   The GNU must create a political structure or structures where senior party leaders can meet regularly to discuss issues related to governance, to pre-empt minor differences between members ballooning into big fallouts. Coalitions must be seen as a ‘super-party’. This means GNU or parties in any coalition, must have a parallel political structure where all key party leaders – not the national leaders of the party – for example, their general secretaries, can regularly meet, whether two-weekly or so, to pro-actively look at issues that could potentially be conflictual. Such a mechanism was in agreement between the Multiparty Charter of 15 parties that agreed ahead of South Africa’s May 2025 elections to participate in a national government if they would be able to secure a majority. But the presidents of the participating GNU parties must also meet at appropriate intervals outside the Cabinet and government structures.   Coalitions, and the GNU, need a conflict resolution mechanism. A key factor in the success of many Western European national coalitions is the creation of formal conflict management structures for coalitions ( Riker, 1962; Müller & Strøm, 2008; Conti, 2014; Schermann & Ennser-Jedenastik, 2014 ).   Many coalitions at South Africa’s municipal level failed because of an absence of conflict resolution mechanisms or an abuse of such mechanisms by dominant parties. The Statement of Intent that provides for the GNU provides for a dispute deadlock breaking mechanism (ANC, 2024). It is called a clearing-house mechanism. It is an issue-specific negotiating committee, chaired by Deputy President Paul Mashatile, to iron out disputes.   During all the policy disputes between the ANC and non-ANC GNU partners, the clearing house had its last meeting in December 2024, where the Basic Education Laws Amendment (BELA) Act, a South African law passed in December 2024 that amends the South African Schools Act and the Employment of Educators Act, was the centre of the deliberations. But the clearing-house subcommittee was ultimately not able to resolve the dispute (O’Regan, 2024). In a letter to Ramaphosa on 24 January 2025, in which John Steenhuisen, the leader of the DA, objected to the Expropriation Act, he claimed the clearing-house “mechanism was abused during the dispute over Bela” (DA, 2025).    The GNU’s conflict resolution mechanisms must be reformed (Gumede, 2025). The clearing house has yet to adopt terms of reference and is not an ideal conflict resolution mechanism (O’Regan, 2024). For it to be effective, impartial and fair, it cannot be chaired by a leader from the dominant party. It obviously cannot be chaired by the country president. It has to be chaired by one of the smallest parties or by an independent outsider – an Ombudsman – which has buy-in from all GNU partners. South Africa is a constitutional democracy. This means that every policy dispute, including one in the GNU, when agreed conflict resolutions mechanisms are unable to resolve disputes, can be taken to the courts to arbitrate.   Consensus decision-making   Consensus, rather than majority-rule decisions, has been at the heart of countries that have established inclusive democracies, sustainable development and peaceful societies. Many of the great economic miracles in the post-Second World War period, whether in Japan, Germany or in Scandinavian countries, such as Sweden, have been based on consensus decision-making in politics, economics and wider society (Robin, 1982; Lijphart, 1984; Linder, 1994; Evans, 1995; Hofstede & Soeters, 2000).    The June 2024 agreement that established the GNU provided for consensus decision-making as the basis to arrive at decisions (GNU, 2025). The principle is outlined in clause 19 of the GNU’s Statement of Intent, the charter by which parties to the GNU operate. Broadly, if there is deadlock the principle of ‘sufficient consensus’ will be the basis of decision-making. Parties representing 60% of the seats in the National Assembly must agree.  This means that the non-GNU partners will have to mobilise all the non-GNU members and the pro-Constitutional parties outside the GNU, such as ActionSA and Build One SA.   The Statement of Intent also provides that “in instances where sufficient consensus is not reached”, parties should raise disputes within the deadlock-breaking mechanisms created for this purpose. The deadlock mechanism currently is what is called the clearing-house mechanism, an issue-specific negotiating committee, chaired by Deputy President Paul Mashatile, to iron out disputes. However, the clearing house has yet to adopt terms of reference and is not an ideal conflict resolution mechanism. The clearing house had its last meeting in December 2024, where the Bela Act was the centre of the deliberations. But the clearing-house subcommittee was ultimately not able to resolve the dispute.   Up to now, the ANC, which has governed South Africa for the past 30 years, based its decisions on majority rule, which is democracy in its most limited form. In many cases the majority rule decisions of the ANC often favoured the party's, its leadership, or ideological and populist interests, rather than the best interests of South Africa (Gumede, 2005, 2012). The ANC has struggled to transition from its long-standing culture of unilateral majority-based decision-making to inclusive consensus decision-making as outlined in the GNU agreement (Gumede, 2024, 2025).   Consensus decisions – if genuinely taken in the widest public interest – produce better quality policies, wider societal embrace of decisions and policies, and therefore, more successful implementation of them (Robin, 1982; Hofstede & Soeters, 2000). But consensus-seeking is more likely to produce outcomes that are in the widest interests of all of society, rather than dominant groups ( Lijphart, 1984; Lewin, 1998). In consensus decision-making, not everyone gets all that they want, but common basic agreements are reached, which does not harm any of the participants interests (Robin, 1982; Lijphart, 1984; Lewin, 1998; Hofstede & Soeters, 2000). In a GNU model, broad consensus is reached which is in the best interests of all of society, not one political party, colour or ethnic group.   The success of South Africa's new GNU will heavily depend on whether ANC and participating opposition party leaders can muster the maturity to adhere to consensus decision-making, rather than majority decision-making or brinkmanship.   Need governance culture change: from majoritarianism to multipartyism   Although South Africa's African National Congress is in a multiparty Government of National Unity, it makes decisions, policies and behaves as if it is the majority government, solely in power, without any partners, and because of this perpetually undermines the stability, longevity and cohesion of the country's first post-1994 national coalition government.   South Africa's post-2024 GNU government is a new multiparty government, not the continuation of the ANC majority government. Yet many ANC leaders, members and supporters misguidedly insist that it is an ANC government, with the GNU partners as add-ons. The ANC, having governed for 30 years as a majority party, has struggled to change from majority party-based decision-making to collaborative decision-making – at the heart of any successful coalition government (Lijphart, 1984).   In this wrong view, ANC policies of the past, for example, foreign policy or the National Budget, automatically become GNU policies. Yet, the GNU is an entirely new government, a new multiparty government, that needs new policies at all levels. Given that it is a new multiparty government, and not an ANC majority government, it must come up with new GNU policies, not continue with the policies and budget the ANC adopted and implemented when it was the majority government. For the GNU to be successful, there has to be a governance culture change, from majoritarianism to multiparty consensus.   South Africa's National Budget presentation was initially cancelled hours before its delivery after the Democratic Alliance, one of the parties in the GNU, refused to support it because the ANC did not consult its GNU partners. Since coming into power in 1994, the ANC has put together Budgets without consulting opposition parties, business or civil society. The ANC put together this year’s national Budget, by itself, solely based on the ANC’s party policies, as if it was the majority government, without consulting, or including, the policies and views of the GNU partners.   Most of South Africa’s coalitions at municipal level have collapsed in the past because parties with the most votes behave like majority parties, forcing through their own party-specific policies, decisions and appointments, rather than governing in partnership, and coming up with consensus policies.   GNU Plus – partnering with business, civil society, professionals   South Africa’s domestic and international challenges cannot be navigated by politicians or government officials alone. A Government of National Unity Plus governance model, whereby the GNU partners with business, civil society and professionals, will improve South Africa’s capacity to navigate the frightening domestic and global challenges and seize the opportunities.   It is critical that the GNU transforms into a GNU Plus, which would include business, civil society and professionals to co-govern South Africa during the Great Disruption South Africa and the world now face. Economic disaster can be averted and new opportunities grasped if South Africa takes a South Africa Inc (SA Inc) approach involving non-ANC GNU members, business, civil society and professionals coming up with new policies, new strategies and improving government execution.    A key structural reform needed is to bring in the private sector, civil society and professional associations to help with public service delivery and tackle development, state, institutional, infrastructure and policy failure. Key elements of the ANC ideologically oppose working with business, civil society and professionals – unless they are ANC political capitalists, ANC-associated ‘civil society’ or forums; or unless the ANC can ‘discipline’ business and civil society or the partnership is temporary to fix dire state failure.   It is crucial for the turnaround of the economy that the GNU partners with business, civil society and professionals to form a kind of GNU+, to help provide new ideas, capacity and energy to turn around the country’s broken state, broken economy and broken society. Importantly, this partnership should be based on co-delivery, co-implementation and co-ideas generation. It has to be real co-creation partnership, not government only seeking the help of business, civil society and professionals in instances of full state collapse. Nevertheless, partnership is particularly important in mission-critical state, policy and resource failures.   For example, South Africa must establish a GNU Plus task team bringing together the GNU partners, critical government departments and business, civil society and professionals to negotiate South Africa’s impasse with the US and to seek new markets for the country’s products. Business Leadership South Africa, for example, has urged the government to establish a 'Trade Crisis Committee', bringing together key government departments, business, civil society and professionals to drive coordinated action to secure new markets, to tackle US tariffs' damaging impact.   In its critical negotiations over tariffs with the US, South Africa must assemble a special team of negotiators led by the business sectors currently actively exporting to US markets, and heavyweight South Africans in US President Donald Trump’s inner circle. The negotiations are of such critical nature that traditional diplomacy is not to carry muster. South Africa has an advantage in that there are many South Africans within the Trump inner circle that can leverage in these high-stakes negotiations. It is critical that ideological, colour or party affiliations are not criteria for negotiators.   SA Inc approach   The GNU Plus governance model has to be based on an SA Inc approach, whereby South Africa’s policies, challenges and public service failures will have to be solved through involving not only the ANC, the government, but also the ideas, capacity and energy of non-ANC GNU partners, business, civil society and professionals.   An SA Inc approach looks at solutions based on whether it is in the widest interest of South Africa, not whether it is in the interest of one political party, ideology or colour. Pragmatism is critical in such an approach.   The South Africa Inc approach that President Ramaphosa used, involving the non-ANC Government of National Unity partners, business and civil society organisation, and keeping ANC ministers in the background, helped to ensure that the Trump-Ramaphosa meeting did not plunge into a Zelenskyy-like shouting match. South African President Cyril Ramaphosa, using an SA Inc approach, taking along non-African National Congress Government of National Unity members, business and trade union leaders, in his tense meeting in the White House with US President Donald Trump, considerably helped to soften Trump, who could have responded with even more outrage than was the case in the meeting.   It is critical that President Ramaphosa govern from now on based on an SA Inc model involving non-ANC GNU partners, organised business, civil society and professionals – in co-governance, rather than as add-ons to be involved only the moment the state has failed in the delivery of a public service, which is in public focus, and where there is clearly no state capacity to deliver it, only for partners to be dispatched immediately once the public service has been delivered.   This will mean an ideological change is needed from many ANC leaders and members, who are often ideologically opposed to business, civil society and professional organisations, because of the mistaken belief that the ANC party is the sole decision-making power, and that only the state can deliver development and public services.   In an SA Inc approach, for example, in South Africa’s negotiations with the US, it will mean the country appointing an SA Inc negotiating team that excludes senior ANC figures but involves South African business figures that are doing business in the US, civil society figures with networks in the US Republican Party, non-ANC GNU members, and South Africans in Trump's inner circle. A new South Africa ambassador to the US, if an SA Inc approach is adopted, would come either from the non-ANC GNU partners, a South African business leader successful in the US, or a credible South African civil society figure, not associated with the ANC, or a South African within the Trump circle.   Pragmatism should be basis of policymaking   It is critical that pragmatism is at the heart of policymaking, decision-making and public appointments. Pragmatism is basing decisions on being practical, in the present, in the current context, rather than based on ideology, or the past or on “Great Truth” ideologies, whether Marxism or ‘Black or White’ thinking.  The US was always perceived to be the country that has industrialised based on pragmatism, using policies based on whether they work, rather than based on ideology (Thayer, 1970; West, 1989; Morrisey, 1994). US thinkers such as John Dewey emphasised pragmatism as an ideology to guide country decision-making ( Westbrook, 1993; Talisse, 2007).     The East Asian economic miracles after the end of the Second World War was largely because of pragmatic policies, approaches and stances, rather than based on “Great Truth” ideologies (Schmiegelow, 1991; Evans, 1995; Austin, 2001). These countries have adopted orthodox or unorthodox policies not based on dogma or ideology but on practicality (Evans, 1995; Tsai & Liu, 2013) . Thus, these countries could combine state-guided policies with market-driven policies, pragmatically based on the context. For example, Japan partnered with the US, who defeated Japan in the Second World War; Vietnam partnered with the US even after the Vietnam war; communist China copied Japanese-style policies. The Israeli’s worked with the Germans after the Second World War. In contrast, failing African countries followed Marxist, African socialism or struggle allegiance policies.   China’s own post-60s economic miracle has been based on pragmatism, choosing policies that have worked across the world, taken from Japan or the US, rather than pursuing dogmatic communist policies ( Tsai & Liu, 2013).   ANC leaders and members have often pursued populist, ideologically rigid and past-based policies, rather than adopting pragmatic policies. Populist and left breakaway parties from the ANC also in most cases adopted populist, ideologically outdated and past-based policies. For example, many of the ANC’s foreign policies have prioritised past liberation-era allegiances of the ANC, rather than being based on the present conditions. Such policies have often been against the national interests of South Africa, stunting economic growth, undermining development and industrialisation.   East Asian miracle economy governments pragmatically changed policies, as the domestic and the global environment changed – and because of this, were able to grasp new opportunities (Evans, 1995; Rüland, 2007) . Because of the lack of pragmatism, ANC governments have dug in deeper when their policies failed, or when domestic or global conditions or markets changed, compounding failure, rather than pragmatically changing course as conditions change. In South Africa, ANC leaders and members and populist offshoots from the ANC have, for example, refused to work with white business groups, saying they are “white monopoly capital”; or are reluctant to work with white civil society organisations, saying these are “right wing”. Pragmatism means that parties and leaders must partner across ideology, colour and communities.   ANC leaders and members and ANC populist offshoots, for example, support autocratic Russian ideologically as if it is still the Soviet Union, or support autocratic other African liberation movements ideologically based on the past struggle associations, even if it undermines South Africa’s economic interests. Autocratic African liberation movements unleash violence, unemployment and poverty on their citizens, who flee to South Africa, stretching South Africa’s resources. Similarly, ANC leaders and members and ANC populist offshoots support Russia’s invasion of Ukraine, even if it raises the ire of the US and Western allies – and so, undermine South Africa’s economic interests.   A GNU that prioritises pragmatism may foster a society-wide movement towards pragmatic approaches to economic development, political partnerships and community collaborations – necessary for higher levels of economic growth.   Opposition and the GNU   Effective coalition governments boost oversight of the management of government, as individual coalition partners hold each other accountable for public service delivery. The coalition GNU may therefore be a governance oversight structure over the management of government affairs under the coalition ( Thies, 2001) . GNU partners may be keener to be responsive to the criticisms of poor delivery, corruption, and dishonesty by their partners.   Opposition parties that joined the GNU are under pressure to show the voters that they can deliver in their portfolios. Non-ANC GNU partners have a greater urgency to show that they can deliver and outperform ANC ministers, many of whom have been in government for decades with very little to show in terms of delivery. This means they must be able to independently show their voters and the public that they are performing better than the ANC ministers.   This competition between the ANC and non-ANC GNU partners to show they can deliver, increases overall public service delivery. To do so, non-ANC partners will have to regularly publicly showcase their delivery. In the past, when the ANC was the majority party, it had very little incentives to perform, as voters continued to vote for them, even if they did not deliver effective public services. The good thing is, Members of Parliament of non-ANC GNU partners have also exercised their oversight role of the GNU executive, particularly of ANC Cabinet Ministers, state-owned agencies and democratic institutions, as if they are the opposition. This has been good for democratic oversight.   However, the challenge is that competition between non-ANC and ANC ministers over who best deliver can also risk that ANC and non-ANC ministers could operate in silos, could undermine integrated delivery of public services and could create tension between the ANC and non-ANC ministers. Nevertheless, the quality of the oversight of the opposition outside the GNU is also going to be critical to hold the GNU accountable for its performance. How the opposition outside the GNU will oppose the government, will be critical in determining the quality of delivery of the GNU. Key opposition parties formed the Progressive Caucus to oppose the GNU – although the parties involved are mostly populists, tribalists and anti-Constitutionalists, and can by no definition be taken as progressive. They include the Economic Freedom Fighters (EFF), the United Africans Transformation (UAT), the African Transformation Movement (ATM) and the MK party.   The tone of opposition has changed. When the DA was the opposition, the party pursued a “lawfare” approach, taking unconstitutional, irrational and ideological policies of then majority ANC to court. Of course, South Africa is a constitutional democracy, and the courts are an essential avenue to challenge policies. However, the “lawfare”, although successful, undermined black grassroots’ embrace of the party. The ANC could portray the DA as a “white” party and “using” the courts to oppose “transformation”. The EFF again, when it opposed the majority ANC, used street protest-style opposition in Parliament, rather than scrutinising the details of policies, giving the impression they were a protest movement, rather than a political party in Parliament.   The MK party, with its many MPs who were state entity CEOs and former Cabinet ministers – who understand how the state and its entities work – have brought more scrutiny of the GNU executive, state entities and the public service. The MK’s opposition approach to scrutinise the details of executive and state entity reports, appears to have also pushed the EFF into focusing more on scrutiny policies and decisions, rather than on protesting. Furthermore, it is difficult for the ANC to dismiss the MK, as the new official opposition, as a “white” party, and it is forced to substantially respond to the MK. The ANC is divided between two factions: one faction opposed to the ANC’s GNU partnership with former MPC members such as the DA and the FF Plus, and the other wanting the ANC to partner with the EFF and MK.   President Cyril Ramaphosa appears to see the challenge for the ANC from both anti-MPC groups within the ANC and the populist ANC breakaways, the EFF and MK. This means President Ramaphosa and the ANC leadership appear to take MK and EFF opposition more seriously as an electoral threat, especially the possibility that the EFF and MK could combine with the ANC populist faction opposed to the ANC’s GNU partnership with MPC members, the DA, FF Plus and the IFP.    Conclusion   Good country governance is an inoculation against global political and economic environments that are increasingly unpredictable. US President Donald Trump's sweeping global trade tariffs, combined with the forces of climate change and artificial intelligence, are causing a great disruption of trade, business and politics. Many developing country economies will crash, especially those that are poorly governed.   South Africa's Government of National Unity (GNU) offers an inclusive governance model, which brings together a wide number of political parties, ideas, energy and resources. However, for the GNU to be effective, it must be truly inclusive. The ANC will have to change from behaving as if it is still the majority party and not part of a multiparty government. Non-ANC GNU partners must be included in decision-making, policymaking and ideas-generation. Consensus-based decision-making must be the basis of GNU decision-making, policies and actions.   In using consensus-style decision-making, South Africa must adopt an SA Inc approach in governing, putting the widest interest of the country ahead of political party, ideological or colour interests when making decisions, policies and actions. The GNU conflict resolution mechanisms must be reformed to make it more functional, more credible and less open to abuse by the ANC.   Furthermore, the GNU must marshal the capacity of business, civil society and professionals in a GNU Plus model, whether to make policies, implement public services where the state fails or negotiating new global trade deals. GNU Plus policymaking must be based on pragmatism, rather than on fundamentalist ideologies, populism and emotions.    References   African National Congress (ANC). 2024. Statement of intent of the 2024 Government of National Unity . 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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. 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Copyright © 2026 Print ISSN: 2960-1541 Online ISSN: 2960-155X Inclusive Society Institute PO Box 12609 Mill Street Cape Town, 8000 South Africa 235-515 NPO All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without the permission in writing from the Inclusive Society Institute D I S C L A I M E R 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. JANUARY 2026   by WenTao Lin   Abstract   The ascent of the Global South and Africa's drive for sustainable modernisation are pivotal in reshaping contemporary global governance. The G20, significantly enhanced by the African Union's permanent membership, is increasingly central to supporting Africa's developmental aspirations. This essay explores how China-Africa cooperation, operating synergistically within the G20 framework, can effectively empower Africa's sustainable modernisation agenda. It first analyses the evolution and "upgrade" of the G20's Africa focus from the Hangzhou Summit (2016) to the Johannesburg Summit (2025). Building on this, the paper proposes concrete pathways and mechanisms—spanning institutional synergies, multi-actor engagement, and enhanced cooperation in both traditional and emerging sectors—for aligning China-Africa initiatives with G20 platforms. Such concerted efforts can unlock significant potential, accelerating Africa's journey towards sustainable modernisation and contributing to a more equitable and collaborative global future.   Keywords: G20, Africa's Sustainable Modernisation, China-Africa Cooperation 1 Introduction   Against the backdrop of profound shifts in the global power landscape and the collective ascent of Global South nations, the African continent is embarking on a new journey towards autonomous and sustainable modernisation, a process that profoundly influences the international order and global governance systems. In this context, the Group of Twenty (G20), as the premier forum for global economic governance, is undergoing a significant transformation in its focus on and engagement with African development issues. The formal accession of the African Union (AU) as a permanent member has historically elevated Africa's representation and voice, opening new vistas for G20 support to African modernisation. Africa's modernisation is not merely crucial for its own destiny and the realisation of development blueprints like Agenda 2063; it also holds profound implications for global sustainable development and prosperity. The evolution of the G20's Africa agenda, from initial advocacy at the Hangzhou Summit to the "leapfrogging upgrade" at the Johannesburg Summit, reflects an acknowledgement of Africa's rising status in the global politico-economic landscape and poses new challenges for the international community on how to more effectively support Africa's modernisation.   Against this backdrop, China-Africa cooperation’s—as a paradigm of South-South cooperation and a key force driving the solidarity and self-reliance of the Global South—distinctive role and pathways for supporting Africa's sustainable modernisation within the G20 framework assume significant theoretical and practical importance. China's successful modernisation experience, its long-standing foundation of friendly cooperation with Africa, and the high degree of alignment in development philosophies between both sides provide a robust underpinning for jointly empowering Africa's modernisation. This paper aims to explore the trajectory of Africa's modernisation agenda within the G20 from Hangzhou to Johannesburg amidst the G20's institutional transformation. Building on this, it focuses on investigating how China-Africa cooperation, through innovative pathway designs and pragmatic mechanism construction within the G20 framework, can more effectively support African nations in pursuing sustainable modernisation paths tailored to their national conditions, thereby jointly charting the blueprint for "Empowering Modernisation, Building a Shared Future".   To systematically address this core issue, this paper will first review and analyse the transformative characteristics of the G20's African modernisation agenda, from its foundational impetus at the Hangzhou Summit to the "leapfrogging upgrade" at the Johannesburg Summit. Subsequently, the paper will, with a primary focus on the G20 framework, delve into the specific pathways and mechanisms for China-Africa cooperation to support Africa's sustainable modernisation across multiple dimensions: institutional construction synergy, multi-actor empowerment, upgrading cooperation in traditional fields, and frontier leadership in emerging sectors. A conclusion and outlook will conclude the paper. 2 G20 Transformation – Upgrading Africa's Modernisation Agenda from Hangzhou to Johannesburg   2.1 The Foundational Role and Impetus of the Hangzhou G20 Summit for Africa's Modernisation Agenda   In 2016, the G20 Hangzhou Summit, themed "Towards an Innovative, Invigorated, Interconnected and Inclusive World Economy" (Group of Twenty, 2016), emphasised the importance of practicing the concept of "inclusive growth" against the backdrop of globalisation. This meant ensuring that economic growth benefits all countries and peoples, especially developing countries and low-income groups, thereby paying close attention to their development aspirations. The Summit particularly advocated building closer "Global South partnerships", committed to creating more development opportunities for developing countries in key areas such as "interconnectivity", "trade and investment facilitation", "the digital economy", "poverty reduction and inclusive growth", and "sustainable development".   Notably, the communiqué of the Hangzhou Summit significantly elevated Africa's priority in the G20 development agenda, calling on G20 members to strengthen support for African countries in multiple dimensions, including infrastructure development, universal education, public health improvement, industrialisation processes, and renewable energy development.   Specifically, the Hangzhou G20 Summit launched the landmark "G20 Initiative on Supporting Industrialisation in Africa and LDCs” (WangYi, 2025). The initiative clearly proposed "supporting industrialisation in developing countries, especially in Africa and LDCs", marking the first time African industrialisation was discussed in-depth as a specific core issue at the G20 leaders' level, with a dedicated action plan adopted. The initiative encouraged all parties to strengthen inclusive growth models tailored to local conditions through voluntary policy options, thereby effectively enhancing the African continent's endogenous development potential.   Guided by the spirit of this initiative and propelled by a favourable policy atmosphere, Chinese enterprises actively responded to and participated in Africa's wave of industrialisation. For example, in Gqeberha (previously Port Elizabeth), a port city in South Africa, Chinese automotive manufacturers invested in setting up assembly plants, promoting local employment and skills enhancement by hiring local staff for vehicle assembly. In Morocco, North Africa, Chinese enterprises also invested in factories producing hybrid vehicles. Furthermore, Chinese investments in the manufacturing sector in countries like Cameroon and Ethiopia have also injected vitality into local economic development.   Several African media outlets positively appraised the outcomes of the Hangzhou Summit. For instance, Ana Rita Cardoso, a journalist from Mozambique's Notícias, commented: "This allows the voices of African countries to be better heard by the international community, providing a valuable opportunity for African nations to articulate their own needs and attract investment from G20 members, which is expected to bring fruitful results to the African continent” (Largest African media delegation in G20 history warmly reviews the Hangzhou Summit, 2016). This viewpoint, to a certain extent, reflects African society's expectations and recognition of the summit's role in promoting its development.   2.2 Deepening and Institutionalisation of the G20 Africa Agenda   Following the G20 Hangzhou Summit's heightened focus on African development in 2016, the G20's engagement with Africa's modernisation agenda entered a key phase of deepening and institutionalisation between 2017 and 2024. This stage was primarily marked by the "Compact with Africa" (CwA), initiated at the German Summit in 2017, and the African Union (AU) becoming a permanent member of the G20 at the Indian Summit in 2023. These two major developments significantly enhanced Africa's collective voice and agenda-setting influence in global economic governance, providing robust institutional support for advancing Africa's modernisation agenda within the G20 framework.   Firstly, the "Compact with Africa" (CwA) focused on empowering African modernisation. This initiative, co-championed by Germany and South Africa, aimed to attract private sector investment into key areas of modernisation in Africa, such as infrastructure, by improving the business environment and macroeconomic resilience. Since its inclusion in the G20 Development Working Group (DWG) agenda in 2017, with support from the World Bank and IMF, the CwA has provided signatory countries with policy advice, investment matchmaking, and capacity building. Currently, 12 African countries have participated in this initiative and received loans, forming an institutionalised cooperation model of "one country, one policy" that effectively aligns African national modernisation strategies with G20 resources (Clynch, 2023).   Secondly, the African Union becoming a permanent G20 member in 2023 represents a historic breakthrough in enhancing Africa's representation in global economic governance (African Union, 2024). Its main significance lies in: First, the AU's formal inclusion means Africa's collective interests are systematically integrated into the G20's highest decision-making level. With a permanent seat, the AU can directly participate in agenda-setting and policy coordination on core issues crucial to African modernisation, such as the digital economy, sustainable development, food security, climate change, and debt governance, thereby significantly strengthening its collective bargaining power. Second, the G20 is required to consult the AU when formulating policies involving Africa, ensuring their strategic synergy with Africa's own development blueprints like the African Continental Free Trade Area and Agenda 2063. Third, this move also provides G20 members with a direct and efficient platform for dialogue with Africa's major Regional Economic Communities, enhancing the inclusiveness of global governance and its responsiveness to Africa's modernisation needs.   In summary, between 2017 and 2024, the G20's Africa modernisation agenda made substantial progress in terms of institutionalisation, and Africa's overall representation and policy influence were significantly enhanced. These institutional achievements and cooperation experiences laid a solid foundation and provided operational prerequisites for deepening China-Africa cooperation and supporting Africa's sustainable modernisation at the Johannesburg G20 Summit.   2.3 Johannesburg G20 Summit: A Leapfrogging Upgrade of Africa's Modernisation Agenda   The 2025 Johannesburg G20 Summit, as the first G20 summit ever held on the African continent, carried milestone significance not only due to its geographical breakthrough but also because it marked a leapfrogging upgrade of the G20's African modernisation agenda and a profound transformation of the G20 mechanism itself. South Africa, in its capacity as the G20 President, placed African priorities and sustainable modernisation needs at the core of the global governance agenda. This, complemented by the full participation of the African Union as a permanent G20 member, jointly shaped a new phase for the agenda that better reflects African agency and promotes inclusive and sustainable development.   This Summit, themed "Fostering Unity, Equity, and Sustainability", profoundly resonated with the two major contemporary aspirations: "the Rise of the Global South" and "African Modernisation” (Group of Twenty, 2025). This theme itself represents an ideological upgrade from previous development paradigms: it not only continues the focus on economic growth but also prioritises collaborative global partnerships, equitable development opportunities, and the holistic sustainability of an integrated economy-society-environment system. This reflects both South Africa's deep contemplation of its own development path and the African continent's collective aspiration for a fairer and more sustainable mode of participation in the new global landscape, heralding a transformation in the G20's development philosophy towards a more comprehensive and human-centred direction.   Specifically concerning Africa's modernisation agenda, the Johannesburg Summit, building on previous G20 efforts, achieved a significant deepening and expansion of agenda items:   First, an "upgrade" from debt relief to constructing long-term debt sustainability mechanisms. While the Hangzhou Summit had begun to address the financing needs of developing countries, the Johannesburg Summit directly confronted the systemic debt challenges faced by many developing economies, including numerous African nations. South Africa pushed the G20 not only to focus on short-term liquidity support and debt relief but also to commit to exploring the construction of effective long-term debt sustainability solutions. This includes addressing structural deficits, reforming sovereign credit rating systems to ensure fairness and transparency, and tackling the issue of unreasonably high-risk premiums faced by developing economies, thereby unlocking long-term fiscal space for African countries to invest in critical modernisation areas such as infrastructure, healthcare, and education. This marks a profound transformation in G20 support for African development, from responsive aid to systemic empowerment.   Second, an "upgrade" from general energy cooperation to a focus on "Just Energy Transition" and its financing guarantees. Whereas previous G20 discussions might have broadly touched upon energy accessibility, the Johannesburg Summit upgraded the agenda to tailor "Just Energy Transition" pathways for Africa and concentrate on resolving its financing bottlenecks. South Africa advocated for G20 members to reach stronger commitments on enhancing the scale, quality, and accessibility of climate finance for developing countries. It also promoted the strengthening of support from Multilateral Development Banks for country platforms like the "Just Energy Transition Partnerships", and innovation of mechanisms to more effectively leverage and channel private capital to serve Africa's green and low-carbon development. This reflects a significantly enhanced G20 consideration for the sustainability and inclusivity of Africa's modernisation path within the global climate governance framework.   Overall, the Johannesburg G20 Summit was a key platform for consolidating consensus, mobilising resources, and elevating G20-Africa cooperation to new heights, thereby injecting strong momentum into the African continent's path towards autonomous, inclusive, and sustainable modernisation.   3 Pathways and Mechanisms for China-Africa Cooperation to Support Africa's Sustainable Modernisation within the G20 Framework   As Africa's modernisation agenda within the G20 framework progresses from its foundation and deepens due to the leapfrogging upgrade at the Johannesburg Summit, the significant involvement of the African Union as a permanent member has further invigorated the G20 mechanism's inclusive transformation. At this crucial juncture, China and African nations, as core forces and natural partners in the sustainable development of the Global South, should actively explore how to effectively integrate their profound bilateral cooperation base with the functional advantages of the G20 as a premier platform for global economic governance. To achieve this, China and Africa need to jointly design and implement a series of concrete measures, constructing a synergistic operational model of "China-Africa Cooperation + G20 Platform". This will amplify the effectiveness of their cooperation and provide more robust and powerful global support for the African continent's journey towards autonomous, inclusive, and sustainable modernisation.   3.1 G20 Synergy in Institutional Construction: Enhancing Global Credibility and Governance Effectiveness of Cooperation   To enhance the global effectiveness of China-Africa development strategy alignment and the dissemination of consensus, both parties should commit to leveraging the G20 platform to systematically share successful experiences, innovative models, and pragmatic outcomes of aligning China's "Global Development Initiative" (GDI) with African national and AU's Agenda 2063, as well as the UN 2030 Agenda for Sustainable Development. Specific measures include China and Africa, particularly the AU, utilising their G20 membership, jointly encouraging G20 member states to deepen their understanding of Africa's development priorities and advocating for the optimisation of global development resources towards Africa. This will thereby consolidate broader cooperation consensus at the multilateral level and create a favourable international environment for supporting the African continent's integration process and the enhancement of its autonomous development capabilities.   In optimising project execution and evaluation mechanisms, China and Africa should jointly commit to enhancing the transparency and international credibility of their cooperation projects. Key measures involve promoting the establishment of an open and shared China-Africa cooperation project database platform and actively collaborating with international institutions such as the United Nations Development Programme (UNDP) and the African Union Commission (AUC) to build scientific and independent evaluation and supervision frameworks. More importantly, the construction and operation of these mechanisms should proactively benchmark against and fully adopt G20 principles and best practices concerning quality infrastructure investment, debt sustainability, development effectiveness, and Environmental, Social, and Governance (ESG) criteria. The results and experiences can be regularly reported, exchanged, and promoted through the G20 Development Working Group (DWG) and related subsidiary bodies, effectively addressing international concerns and providing valuable practical examples for the governance of various development cooperation projects within the G20 framework.   To shape a more favourable international environment for institutional opening-up conducive to African modernisation and China-Africa cooperation, both sides need to act proactively within the G20 framework. When China advances high-level Free Trade Agreements (FTAs) and Bilateral Investment Treaties (BITs) with African countries, deepens customs cooperation facilitation reforms such as the "single window" system, and promotes local currency settlement and currency swaps, it should rely on key G20 mechanisms like the Trade and Investment Ministerial Meetings and Finance Ministers and Central Bank Governors Meetings. In these forums, China, together with African countries (especially through the collective voice of the AU), should jointly advocate for maintaining an open, inclusive, and non-discriminatory multilateral trade and investment system, resolutely opposing all forms of protectionism. Simultaneously, they should push for the G20 to encourage its member states (especially developed economies) to provide more preferential and convenient market access conditions for products and services originating from Africa, promoting the evolution of international economic and trade rules in a direction that is more just, balanced, and conducive to the sustainable modernisation of developing countries.   3.2 G20 Empowerment for Converging Efforts of Multiple Actors: Building Extensive Modernisation Partnership Networks   To effectively converge the immense strengths of multiple actors—including governments, enterprises, think tanks, and educational institutions—to empower African modernisation, China and Africa urgently need to utilise the G20 platform to foster broader and more diverse international modernisation partnership networks. At the intergovernmental cooperation level, successful practices and cooperation outcomes between China and Africa, particularly those involving Chinese local governments and African countries in sharing development planning experience and exchanging local governance best practices (such as the "one country, one policy, paired assistance" cooperative governance models between Chinese provinces/cities and African countries), should be actively showcased and promoted to other G20 member states and the international community through institutionalised channels within the G20 framework, such as the Urban 20 (U20) Summit, local government development forums, and G20 development experience sharing seminars. This will not only enhance the international visibility and referential value of China-Africa local cooperation models (like Zhejiang's "Ten Counties/Districts Connecting with Fifty-Four African Countries" initiative) but also attract and encourage more international partners to participate in targeted and results-orientated cooperation projects with Africa, thereby forming a broader global development synergy.   In the field of industry-academia-research collaboration and human capital development, China and Africa should commit to proactively aligning their cooperative initiatives—such as joint enterprise-school cultivation of locally suitable talent (e.g., "Luban Workshops", "Banmo Colleges" for vocational skills training), co-establishment of joint laboratories and R&D centres, and strengthening of industry-education integration and science-education integration—with the G20's core agendas and priorities concerning educational innovation and reform, future workforce skills development, universal digital literacy enhancement, and human capital investment returns. Specific measures could include striving to incorporate successfully validated China-Africa cooperation projects into the priority support scope of G20 human resource development cooperation plans, or leveraging the G20 platform and the quality educational and technological resources of its member states to attract top-tier educational institutions, research institutes, and high-tech enterprises from other member countries to jointly participate, thereby building trilateral or multilateral international talent cultivation and technological innovation alliances, with the goal of efficiently transforming Africa's vast demographic potential into valuable human capital, driving its sustainable modernisation.   At the level of think tank exchanges and youth and people-to-people interactions, China and Africa should jointly promote the G20 platform expansion for knowledge production and cultural exchange. The research outcomes of China-Africa think tank collaborations, the construction of data-sharing platforms, and the establishment of governance experience exchange systems—yielding high-quality policy reports and profound insights—should be actively disseminated and effectively translated into policy through official G20-affiliated academic and intellectual platforms via annual summits, policy briefs, and closed-door seminars, thus providing robust intellectual support for the formulation of more targeted and forward-looking G20 agendas concerning Africa.   Concurrently, youth and people-to-people exchange programmes like the "China-Africa Universities 100 Cooperation Plan" and the "Silk Road Heart-to-Heart China-Africa People-to-People Friendship Partnership Plan (2024-2026)" should be actively promoted for effective linkage and deep integration with important G20-affiliated dialogue mechanisms such as the Youth 20 (Y20), Women 20 (W20), and Civil 20 (C20). This can be achieved by organising young leaders, women representatives, and civil society organisation leaders from China and Africa to jointly participate in the discussion, advocacy, and action on key global issues, thereby enhancing mutual understanding and broadly consolidating cooperation consensus at the global level, laying a more solid social and public opinion foundation for the continuous deepening of the China-Africa strategic partnership and the stable, long-term development of G20 cooperation.   3.3 G20 Synergistic Upgrading of Cooperation in Traditional Fields: Consolidating the Solid Foundation for Africa's Modernisation   China-Africa pragmatic cooperation in traditional fields such as infrastructure connectivity, agricultural development security, and industrial capacity upgrading has always been a vital external support for African countries in achieving industrialisation, agricultural modernisation, and improving livelihoods. Through the strategic synergy and multilateral empowerment of the G20 platform, cooperation in these key traditional areas can achieve qualitative improvements and model innovations, thereby serving the long-term strategic goals of the African continent's sustainable modernisation more precisely and effectively.   To deepen economic and trade cooperation and efficiently support the construction of the African Continental Free Trade Area, China should, at the G20 Trade and Investment Working Group and relevant ministerial meetings, unite with the AU and other G20 members supportive of African development to jointly advocate for and promote the G20 to formulate a collective action roadmap and specific support plans for the high-quality implementation of the AfCFTA. These measures may include providing technical assistance and capacity building in trade facilitation, promoting regional standards harmonisation and mutual recognition of conformity assessments, and encouraging investment and financing support for cross-border infrastructure in Africa, aiming to accelerate the process of African regional economic integration and value chain construction.   Meanwhile, successful practices from China-Africa co-construction of pioneering zones for in-depth economic and trade cooperation, can also be shared and promoted as typical cases within the G20 framework. This can provide African experience and Chinese wisdom for G20 discussions on how to promote the deep integration of developing countries into global value chains and build more resilient and inclusive regional supply chain networks.   Regarding the African continent's rich mineral resources, China and Africa, while jointly promoting the integrated "exploration, extraction, processing, and trade" whole-chain cooperative development for minerals, should commit to actively advocating, leading by example, and jointly promoting the improvement of global principles for responsible mineral resource development and supply chain management within the G20 framework. This includes enhancing industry transparency standards and comprehensively adopting Environmental, Social, and Governance best practices. A specific measure is for China, together with African countries, to jointly push for the establishment of a fairer, more equitable, and inclusive global governance system, pricing mechanisms, and benefit-sharing frameworks for critical minerals on the G20 platform. They should firmly support and assist African countries in enhancing their domestic processing capabilities and value creation from their mineral resources, ensuring that African nations can fairly and sustainably derive greater development dividends from their valuable natural endowments, truly transforming potential resource advantages into powerful endogenous drivers for their sustainable industrialisation process and economic structural diversification.   In the domain of agricultural modernisation and food security, China-Africa cooperation should be more closely integrated with the G20's core agendas and priority actions concerning global food security challenges, development of climate-smart agriculture, promotion of sustainable land management practices, and advocacy for responsible agricultural investment. Key implementable measures include China and Africa, at G20 Agricultural Ministers' Meetings and relevant technical working groups, jointly calling on G20 developed members to earnestly fulfill their Official Development Assistance commitments to agricultural development in developing countries (especially Africa), based on Africa's actual agricultural development needs and the agricultural transformation goals of Agenda 2063. They should also promote enhanced R&D cooperation and transfer of agricultural technologies within the G20. Furthermore, joint efforts should be made to push the G20 to focus on and support African countries in improving food storage and logistics systems, reducing post-harvest losses, and developing agro-processing industries to extend value chains, thereby systematically building more resilient, inclusive, and sustainable regional and global food supply systems.   3.4 G20 Frontier Leadership in Laying Out Emerging Fields: Jointly Shaping New Momentum for Africa's Modernisation   By accurately grasping and proactively adapting to the wave of the new scientific and technological revolution and global industrial transformation, China and Africa's forward-looking cooperation in strategic emerging fields such as green energy, sustainable blue economy, and artificial intelligence is not only an intrinsic requirement for achieving their own leapfrog development but can also contribute unique Eastern wisdom and African solutions to G20's leadership in the healthy and inclusive development of global emerging industries. This will jointly shape and powerfully drive new growth engines for Africa's modernisation process.   To deepen China-Africa green partnerships, their cooperative practices and successful experiences in areas such as joint development of clean energy, co-construction of green and low-carbon demonstration zones, support for the green upgrading and transformation of traditional industries, and exploration of the potential for peaceful uses of nuclear energy, should be systematically showcased and promoted using G20 platforms. Specific measures include China and Africa jointly advocating for G20 member states, especially developed countries, to increase efforts in green technology R&D and transfer to Africa, and promoting the establishment of more diversified, accessible, and preferential financing mechanisms and risk mitigation tools for green development in Africa. The innovative operational model and early achievements of initiatives like the "China-Africa Green Industry Chain Special Fund" can also provide valuable practical reference and policy insights for G20 discussions on how to effectively leverage and guide public and private capital to jointly support developing countries in achieving a just and orderly green and low-carbon transition.   In the realm of sustainable blue economy cooperation, as China and Africa continuously expand and deepen their collaboration from traditional areas like marine fisheries, shipping, and port construction to marine future industries such as deep-sea operations, marine technology equipment manufacturing, and R&D, both sides should commit to actively promoting, at the G20 level, the integration of building sustainable and resilient blue economy ecosystems into the core agenda of global economic growth and international cooperation.   Actionable measures include China and Africa jointly advocating, within the G20 framework, for strengthened coordinated actions and policy dialogues on global marine ecosystem protection and climate change risk response; promoting the establishment of international cooperation funds aimed at supporting developing countries, especially African coastal and island states, in enhancing marine governance capabilities and developing sustainable blue industries; building open and shared global marine science and technology innovation networks and data platforms; and actively participating in promoting the formulation of fair, equitable international rules and codes of conduct for deep-sea resource exploration, development, and equitable benefit-sharing that can effectively balance economic development with ecological protection needs, by improving bilateral and multilateral mechanisms for China-Africa blue economy cooperation and striving to sign bilateral blue economy cooperation agreements with more African countries.   Addressing the rapid development of the Artificial Intelligence (AI) industry and its profound impact on global governance, China, while actively implementing the "Global AI Governance Initiative" and jointly exploring AI cooperation frameworks with African countries, should commit to proactively participating in and constructively influencing the G20-level process of formulating global rules and standards concerning AI ethics, data security and cross-border flows, intellectual property protection, security risk assessment, and capacity building.   The core measures for China and Africa should be to jointly ensure that these emerging global governance rules fully embody development-orientated and inclusive principles, effectively balance technological innovation incentives with potential socio-ethical risks, and pay special attention to the unique national conditions, practical needs, and capacity gaps of developing countries in AI R&D, application, and governance. Both sides should jointly promote, within the G20 framework, the bridging of the "AI divide" that may arise from technological disparities, by encouraging Chinese enterprises to invest in AI infrastructure in Africa, fostering joint China-Africa research and the establishment of AI technology cooperation centres in Africa, and supporting African countries in establishing AI industrial parks and expanding AI applications in agriculture, manufacturing, trade, finance, and social governance, thereby creating new growth points for China-Africa cooperation and contributing to the leapfrog and sustainable modernisation process of the Global South as a whole.   4 Conclusion   By organically combining the profound practices of China-Africa cooperation with the global platform advantages of the G20, and by implementing comprehensive, multi-level synergistic and innovative measures across institutional construction, multi-actor engagement, traditional fields, and emerging sectors, a broader prospect will undoubtedly be opened up for the African continent to achieve its "upgraded" sustainable modernisation agenda. This not only enriches and deepens the connotation of the China-Africa community with a shared future but also powerfully enhances the inclusiveness and effectiveness of the G20 as the core platform for global economic governance, jointly composing a new chapter for the Global South's solidarity, cooperation, and shared development in the new era.   References   African Union. 2024. African Union’s Landmark G20 Engagement: Shaping Global Energy Transition and Driving Sustainability . [Online] Available at: https://au.int/en/pressreleases/20241005/african-unions-landmark-g20-engagement-shaping-global-energy-transition-and [accessed: 3 June 2025].   Clynch, H. 2023. Germany invests €4bn in African green projects at Compact with Africa Conference. [Online] Available at: https://african.business/2023/11/trade-investment/germany-invests-e4bn-in-african-green-projects-at-compact-with-africa-conference [accessed: 3 June 2025].   G20 South Africa. 2025. G20 Presidency . [Online] Available at: https://g20.org/g20-presidency/?utm [accessed: 3 June 2025].   G20. 2016. The G20 Hangzhou Summit Communiqué . [Online] Available at: http://www.g20chn.org/hywj/dncgwj/201609/t20160906_3392.html [accessed: 3 June 2025].   Guo, J. 2015. China-Africa Forum: A Long-term Mechanism for Pragmatic Cooperation. China Social Sciences Today, 10 December, 3.   2016. Largest African media delegation in G20 history warmly reviews the Hangzhou Summit. China Economic Weekly , 36, 125.   Wang, Y. 2025. Becoming a Driving Force for Historical Progress. Speech at the G20 Foreign Ministers' Meeting on "G20 Cooperation Goals for 2025", Johannesburg, South Africa . [Online] Available at: https://www.mfa.gov.cn/ziliao_674904/zyjh_674906/202502/t20250221_11560207.shtml [accessed: 3 June 2025]. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 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. Email: info@inclusivesociety.org.za Phone: +27 (0) 21 201 1589 Web: www.inclusivesociety.org.za

Copyright © 2026 Print ISSN: 2960-1541 Online ISSN: 2960-155X Inclusive Society Institute PO Box 12609 Mill Street Cape Town, 8000 South Africa 235-515 NPO All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without the permission in writing from the Inclusive Society Institute D I S C L A I M E R 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. JANUARY 2026   by Jiajun Fan   Abstract   This study investigates the evolution and driving mechanisms of the food trade network among G20 countries. Based on trade data from the UN Comtrade database (2013-2023), directed weighted and unweighted networks involving 19 G20 members were constructed. Using complex network analysis (CNA), the research analyses evolutionary patterns from three dimensions: macro-level network density, meso-level community structure, and micro-level node centrality. Key findings include: The network density decreased by 7.4% over a decade but maintained structural resilience amid crises, with a rebound in 2023 (density=0.7611, clustering coefficient=0.807) driven by the Bali Declaration on Food Security. The core-periphery structure underwent periodic reconstruction: dominated by the U.S., Canada, and Germany in 2014, China and Russia joined the core through regional policies in 2019, while Brazil and South Africa rose to core status via the African Free Trade Area in 2023, and Russia fell to the periphery due to the Russia-Ukraine conflict. China has evolved from a semi-peripheral to a sub-core node, though its betweenness centrality declined from 0.795 to 0.347, indicating a shift toward direct trade. Vulnerabilities stem from path dependence on key nodes (e.g., Russia-Ukraine accounting for 25% of food exports) and regional disparities (Asia-Pacific accounts for 58% of trade flows, while Africa and Latin America remain marginalised). Recommendations include strengthening G20 emergency reserve sharing mechanisms, empowering marginalised countries through technology transfer and regional integration, and diversifying China’s food import channels to enhance its competitiveness in global food value chains. This study systematically unveils the complex dynamics of food trade networks within the G20 framework, offering an interdisciplinary paradigm for global food security governance.   Keywords: G20, Global grain trade, Trade network 1 Introduction   1.1 Research Background   Food security in G20 countries faces multiple challenges, including climate change, geopolitical conflicts, and public health crises, which directly impact food production, supply chain stability, and national food accessibility (Guo et al., 2021; Wang et al., 2023; Xu et al., 2024). The vulnerability of food systems in G20 countries has intensified in recent years, particularly under the impacts of major events such as the COVID-19 pandemic and the Russia-Ukraine conflict (Guo et al., 2021; Xu et al., 2024).   As a critical component of G20 countries' food systems, the Food Trade Network (FTN) plays a core role in balancing food supply and demand, enhancing food accessibility, and diversifying food sources among G20 nations (Guo et al., 2021; Wang & Dai, 2021; Wang et al., 2023). Food exports from agriculturally developed countries have compensated for food shortages in most G20 countries, with the influence of G20 food trade on food security increasing annually (Guo et al., 2021; Wang & Dai, 2021). However, the complexity and high concentration of the trade network also introduce systemic risks: some countries’ high dependence on imports makes them vulnerable to external shocks (Guo et al., 2021; Wang & Dai, 2021; Wang et al., 2023). G20 countries themselves hold a central position in the global food trade network, dominating the production, export, and trade flows of major food crops (Ercsey-Ravasz et al., 2012; Murphy, 2013; Wang & Dai, 2021; Wang et al., 2023). These nations not only influence the stability of global food markets but also possess unique leverage in addressing food security crises and promoting policy coordination and market reforms (Murphy, 2013; Wang et al., 2023). Measures such as advancing food policy reforms, enhancing the transparency of food reserves, and regulating export restrictions through the G20 framework have helped strengthen the stability and resilience of global food markets (Murphy, 2013).   1.2 Research on the G20   As the core platform for global economic governance, the G20’s institutional design focuses on the dual mandates of policy coordination and crisis response. In the field of food security, the G20 promotes dialogue among member states through initiatives such as the Global Framework for Food Security and Nutrition, but in practice, it faces structural limitations—short-term policy interventions (e.g., price regulation) outweigh long-term institutional construction (e.g., futures market regulatory systems), and the decision-making process insufficiently incorporates the voices of developing countries (Murphy, 2013). In the dimension of environmental governance, G20 countries attempt to balance economic growth and ecological protection through mechanisms such as consultations on the implementation rules of the Paris Agreement and guidance on renewable energy investment. For example, the pilot application of the EU Carbon Border Adjustment Mechanism (CBAM) aims to incorporate environmental costs into the trade system (Qiao et al., 2019; Rizwanullah et al., 2024). Such practices not only demonstrate the G20’s policy leverage but also expose deep-seated divisions between North and South countries in responsibility-sharing.   Trade openness and technological innovation have become twin engines of economic growth for G20 countries, but their effects exhibit significant heterogeneity: developed countries achieve an annual average total factor productivity (TFP) growth of 1.2%–1.5% through agricultural export expansion and R&D investment, while developing countries, constrained by technical barriers, achieve only 60%–70% of that growth rate (Xu et al., 2023). The transnational transmission effects of trade policies are particularly prominent: the U.S. agricultural subsidy policy expands the price volatility of Brazilian soybeans by 20%–25% through the global trade network, highlighting the "spillover-feedback" mechanism of core economies’ policies (Salvatore & Campano, 2019).   G20 countries form the "core network" of global food trade, whose operational logic embodies the tension between efficiency and equity: on one hand, export powerhouses such as the United States and Brazil occupy more than 70% of global soybean and corn trade volumes through economies of scale and technological advantages, with export trade contributing 45% to agricultural TFP (Xu et al., 2023); on the other hand, import-dependent countries such as Japan and Saudi Arabia outsource 30%–40% of agricultural production links to developing countries through an "environmental cost transfer" model, causing the latter to face issues such as overexploitation of water resources and biodiversity loss (Cabernard et al., 2022). This "core-periphery" structure has intensified the vulnerability of the global food system: the 2022 wheat trade disruption caused by the Russia-Ukraine conflict led to food price fluctuations in import-dependent G20 member states 2.3 times higher than in non-member states (Murphy, 2013).   1.3 Research on Trade Networks   Trade network research covers diverse industries such as manufacturing, services, technology trade, and food trade, presenting a landscape of interwoven traditional and emerging fields. Manufacturing, electrical and mechanical industries have long dominated international trade, accounting for over 35% of global merchandise trade, with specialised division networks centred on Germany and Japan as technological hubs and China as a manufacturing centre (Maluck & Donner, 2015; Shiyong et al., 2021). The services sector exhibits a "domestically dominated, cross-border lag" characteristic: financial and business services account for over 50% of domestic trade networks, but cross-border services are restricted by institutional barriers, with only digital services (e.g., cross-border e-commerce) achieving rapid annual growth of 12%–15% (Shiyong et al., 2021; Liu & Tsai, 2022). Technology trade has become a new growth pole, with patent licensing networks in knowledge-intensive industries such as artificial intelligence and biomedicine expanding rapidly, where the U.S., Europe, and China occupy 90% of global core nodes (Liu & Tsai, 2022). Food trade networks are unique due to their strategic attributes: the food trade of 196 countries worldwide exhibits a "resource endowment-driven" structure, with export powerhouses like the U.S. and Brazil dominating soybean and corn networks, import-dependent countries like Japan and Saudi Arabia forming vulnerable peripheral nodes, and G20 countries accounting for over 70% of core trade flows in such networks (Duan et al., 2021).   Research objects in trade networks exhibit a three-dimensional "macro-meso-micro" characteristic. At the macro level, studies focus on national and regional networks, such as connectivity analyses of service trade networks along the Belt and Road Initiative and dependency assessments of G20 food trade networks, revealing that Southeast Asian countries’ dependence on Chinese intermediate goods imports reaches 45%, and food trade volumes among G20 members account for 65% of the global total (Duan et al., 2021; Liu & Tsai, 2022). At the meso level, industry and product networks have become focal points—for example, the regional concentration of global lithium mining supply chains (Chile and Australia control 80% of exports) and the vulnerability of chip trade networks (the top five exporting countries dominate 85% of trade volumes), such studies revealing strategic risks in specific industries (Bernard & Moxnes, 2018). At the micro level, multi-party transaction networks between firms have received extensive attention: Apple’s supplier network covers 43 countries, and transnational grain enterprises like ADM control key nodes in global food supply chains through a "hub-and-spoke" model. Studies show that only 10% of high-productivity firms contribute 70% of export volumes (Rauch, 2001; Bernard & Moxnes, 2018).   The structure and evolution of trade networks are synergistically driven by multiple factors: geography, economy, policy, technology, and crises. Geographically, spatial proximity increases trade volumes between adjacent countries by 40%–60%, trade density among G20 members is 2.1 times that of non-members, and port hub countries (e.g., Singapore) long occupy intermediary centrality in networks due to their locational advantages (Maluck & Donner, 2015; Duan et al., 2021). Economic and resource factors shape network hierarchies: developed economies dominate high-value-added trade (e.g., medical devices), while developing countries rely on resource exports (e.g., Brazilian soybeans), with economic disparities leading to "core-periphery" network structures (Duan et al., 2021; Guo et al., 2023). At the policy and institutional level, regional trade agreements (e.g., USMCA) reduce trade costs among member states by 15%–20%, while trade protection measures (e.g., the 2018 China-U.S. friction) reduce network density in related industries by 8% (Liu & Tsai, 2022; Kosztyán et al., 2024). Technological innovation drives network transformation: digital platforms reduce the participation threshold for small and medium enterprises by 60%, and 3D printing technology reshapes manufacturing supply chains, reducing the proportion of parts and components trade from 70% to 55% (Shiyong et al., 2021; Guo et al., 2023). Crisis events trigger structural restructuring: the 2008 financial crisis reduced global trade network degree centrality by 12%, the 2020 pandemic shifted medical supplies networks from "single-centre" to "multi-regional hubs", and climate crises have intensified the volatility of food trade networks (Maluck & Donner, 2015; Duan et al., 2021; Kosztyán et al., 2024).   2 Evolution Analysis of Food Trade Network among G20 Countries   2.1 Construction of Food Trade Network among G20 Countries   This study downloaded the import and export data of food trade from 2013 to 2024 for 19 countries in the G20 (the European Union is not included as a regional economic organisation) from UN Comtrade, and screened HS codes 1001-1008 according to the 2022 Harmonized Commodity Description and Coding System, totalling 10,460 records.   The specific food products studied in this paper are shown in Table 1 according to their HS codes:   Table 1:  HS code and name of grain  HS code Name HS code Name 1001 Wheat and spelt 1005 Corn 1002 Rye 1006 Rice 1003 Barley 1007 Sorghum 1004 Oats 1008 Buckwheat   2.2 Evolution of Food Trade Network among G20 Countries   2.2.1 Overall Pattern   Based on the complete data analysis of network density and clustering coefficient of the G20 food trade network from 2013 to 2023, the evolution of this network exhibits clear stage characteristics, while demonstrating structural resilience under multiple crisis impacts. In the initial stage of 2013, both network density (0.8216) and clustering coefficient (0.835) were at high levels, reflecting the close food trade connections among member states and the stability of the network structure. However, in 2014, the indicators plummeted to a trough (density 0.7544, clustering coefficient 0.789), which may be related to the emerging market currency crisis—for example, the trade contraction caused by Argentina's debt default led to a significant short-term shock on the global food circulation network. In the following three years (2015-2017), a continuous recovery trend was observed, and by 2017, the indicators returned to near-initial levels (density 0.8070, clustering coefficient 0.835), indicating that the market self-regulation mechanism and policy coordination jointly promoted network recovery.   Since 2018, the network has entered a five-year recession cycle. Density and clustering coefficient declined simultaneously, reaching a ten-year low in 2022 (density 0.7456, clustering coefficient 0.785), with cumulative declines of 7.6% and 6.0% respectively. This prolonged recession was driven by multiple overlapping crises: a brief rebound in 2020 due to panic grain hoarding at the initial stage of the COVID-19 pandemic (density rebounded to 0.7953), but the long-term effect of supply chain disruptions caused a decline again in 2021; the Russia-Ukraine conflict in 2022 became a turning point, as the interruption of the Black Sea grain corridor directly impacted the core hub accounting for 25% of global grain exports, forcing member states to switch to high-cost alternative trade routes, resulting in the simultaneous deterioration of network tightness and structural stability. It is worth noting that despite the significant recession, the two indicators have consistently maintained above key thresholds (density > 0.75, clustering coefficient > 0.78) over the decade, proving that the basic trade network did not experience a systemic collapse.   The resilient rebound in 2023 is of great significance. Density increased by 2.1% to 0.7611, and the clustering coefficient rose by 2.8% to 0.807, marking the first recovery after five consecutive years of recession. This shift is closely related to the G20 coordination mechanism—the emergency reserve sharing mechanism promoted by the 2022 Bali Declaration on Food Security, and the food circulation within the Asia-Pacific region driven by the G20 (accounting for 58% of G20 traffic), jointly constituted structural support.   However, long-term vulnerabilities cannot be ignored. The deep-seated contradictions behind the overall 7.4% decline in density over a decade urgently need to be resolved: the node dependency risk exposed by the Russia-Ukraine conflict (the two countries account for over 25% of food exports), and the escalating regional differentiation (the 2023 clustering coefficient rebound mainly relies on the Asia-Pacific region, while the participation of Africa and Latin America continues to shrink). Overall, the global governance mechanism of the G20 has a relatively strong ability to resist crises, providing a key stable platform for global food governance. Figure 1:  2013-2023 Density evolution of G20 countries grain network (Source: Data from UN Comtrade) 2.2.2 Community Structure   This study selects 2014, 2019, and 2023 as nodal years to analyse the core-periphery structure of the G20 food trade network based on coreness (Corene), with classification thresholds set as: core (Corene ≥ 0.26), semi-core (0.2 ≤ Corene < 0.26), and periphery (Corene ≤ 0.2). Its evolution exhibits three distinct stages:   First Stage (2014): Initial Differentiation Driven by Resources   Countries such as the U.S., Canada, and Germany formed the core layer (Corene ≥ 0.286) by leveraging resource advantages (e.g., food exports from the U.S. and Brazil) and demand markets (e.g., consumption in India and France), creating "Europe-North America-South America-South Asia" trade clusters. Semi-core countries like China and Italy (Corene 0.215–0.259) relied on resource imports from core regions (e.g., China’s food imports). Peripheral countries such as Saudi Arabia (Corene 0.015) and Australia (Corene ≤ 0.167) were marginalised due to resource disadvantages (e.g., Saudi Arabia’s desert climate) and trade isolation (core-periphery connection density ≤ 0.2).   Second Stage (2019): Hierarchical Adjustment via Policy Empowerment and Regional Integration   China (Corene 0.26) and Russia (Corene 0.26) entered the core layer through Sino-Russian food trade growth (e.g., Russia’s wheat exports to China), reflecting Asia’s rising trade status. Semi-core countries like Brazil and South Africa (Corene 0.257–0.258) became bridges between core and periphery by enhancing trade linkages across South America and Africa. Saudi Arabia (0.076) and Mexico (0.031) remained peripheral due to constraints like insufficient arable land and technological backwardness in modern agriculture, highlighting dual resource-technology bottlenecks.   Third Stage (2023): Structural Reshaping by Geopolitical Shocks and Policy Games   Brazil and South Africa rose from semi-core to core (Corene 0.275) via the African Free Trade Area, which increased intra-core trade density (0.90), demonstrating regional integration’s role in peripheral breakthroughs. Russia’s Corene collapsed to 0 and fell to the periphery due to disrupted trade with Europe from the Russia-Ukraine conflict (core-periphery connection density 0), a typical case of geopolitical shocks subverting hierarchies. Semi-core countries like Canada and Italy (Corene 0.233–0.257) maintained medium connectivity through trade networks in China, Japan, South Korea, and ASEAN (e.g., China-Vietnam grain trade), serving as transitional hubs between core and periphery. Table 2: Core-periphery countries Years Core Countries Semi-core countries Periphery 2014 CAN DEU USA IND ARG FRA CHN ITA RUS BRA JPN ZAF TUR GBR KOR AUS IDN MEX SAU 2019 CAN USA IND FRA CHN RUS ZAF BRA ITA DEU JPN KOR ARG TUR GBR AUS IDN SAU MEX 2023 BRA ZAF USA FRA IND GBR CAN ITA TUR CHN DEU ARG AUS KOR JPN IDN SAU MEX RUS (Data resource：UN Comtrade)   Figure 2: 2014 Cluster diagramme of G20 countries’ grain network   Figure 3:  2019 Cluster diagramme of G20 countries grain network   Figure 4:  2023 Cluster diagramme of G20 countries grain network This study selects 2014, 2019, and 2023 as nodal years to conduct non-overlapping community analysis on the food trade network among G20 countries. Using the CONCOR algorithm in Ucinet6.0 software, with a maximum partition depth of 2 and a convergence criterion of 0.2, 15 countries were partitioned into multiple blocks. After multiple iterations, a dendrogram expressing the degree of structural equivalence of each trade node was obtained. The block partition results are as follows.   2.2.3 Individual Status   2014: The United States, Italy, India, etc., had degree centrality values reaching 100 (after standardisation), conducting direct trade with most of the 19 G20 countries (e.g., U.S. food exports covered major global markets); peripheral countries such as Mexico (61.111) and Indonesia (66.667) had few trade partners and weak local participation. Core countries (U.S., Italy, India, etc.) had closeness centrality values mostly at 100, achieving high trade efficiency; peripheral countries such as Saudi Arabia (90) and India (75) had long paths and low information dissemination efficiency. Canada (0.812), the United States (0.812), etc., had high betweenness centrality and were regarded as transit hubs controlling (a large number of) trade paths; Mexico (0), India (0.041), etc., had almost no intermediary role and no control over trade flows.   2019: Brazil (100) joined the core ranks, with trade partners increasing from 14 countries (94.444 in 2014) to 18 countries. Germany (94.444) slightly contracted, but the U.S., Italy, and India still maintained 100. Among peripheral countries, India (72.222) and Mexico (55.556) saw increased degree values and enhanced local connections. The closeness centrality of core countries remained stable, and Indonesia (78.261) saw improved closeness; Saudi Arabia (90) still relied on single transit and showed no significant improvement in closeness. The intermediary role of Canada (0.929) and Brazil (0.929) was strengthened, and China (0.795) saw the rise of intermediary capabilities ("Belt and Road" promoted China-EU food trade via China's transit). Peripheral countries (Indonesia, 0.134; Mexico, 0.087) still had weak intermediary roles.   2023: The U.S., Italy, India, Brazil, France, etc., maintained node centrality values of 100; Mexico (72.222) and Indonesia (83.333) further increased their degree values, with peripheral countries' integration approaching the sub-core level. Indonesia (85.714) saw a significant improvement in closeness; Saudi Arabia (85.714) reduced its dependence on single transit countries by deepening trade with GCC countries (Gulf Cooperation Council), with closeness decreasing from 90 to 85.714. The U.S., Brazil, France, Italy, Indonesia, etc., formed balanced transit control; Canada (0.288) saw a weakened intermediary role (increased direct trade in emerging markets reduced the need for North American transit), and China (0.347) saw a decline in betweenness due to optimised trade structures (predominantly direct trade, reduced transit demand). The G20 food trade network achieved closer connections, maximised efficiency, and balanced control, reflecting the optimisation and upgrading of global food supply chains under multilateral cooperation. Table 3:  2014, 2019,  2023 Centrality of G20 countries grain network   2014     2019     2023   Countries Deg Col Bet Deg Col Bet Deg Col Bet BRA 94.444 94.737 0.706 100 100 0.929 100 100 0.729 CAN 100 100 0.812 100 100 0.929 94.444 94.737 0.288 DEU 100 100 0.812 94.444 94.737 0.383 88.889 90 0.347 ZAF 94.444 94.737 0.453 88.889 90 0.285 100 100 0.729 USA 100 100 0.812 100 100 0.929 100 100 0.729 CHN 94.444 94.737 0.362 94.444 94.737 0.795 88.889 90 0.347 SAU 88.889 90 0.084 88.889 90 0.177 83.333 85.714 0.044 FRA 94.444 94.737 0.453 94.444 94.737 0.642 100 100 0.729 AUS 88.889 90 0.321 88.889 90 0.249 94.444 94.737 0.288 IDN 66.667 75 0.041 72.222 78.261 0.134 83.333 85.714 0.044 ITA 100 100 0.812 100 100 0.929 100 100 0.729 JPN 88.889 90 0.259 94.444 94.737 0.383 100 100 0.729 MEX 61.111 72 0 55.556 69.231 0.087 72.222 78.261 0 RUS 100 100 0.812 94.444 94.737 0.795 61.111 72 0 IND 100 100 0.812 100 100 0.929 100 100 0.729 (Data resource：UN Comtrade ) 3 Conclusion 3.1 Conclusions   From 2013 to 2023, the G20 food trade network density decreased by 7.4% overall but remained above 0.75 with clustering coefficients stabilising at 0.78–0.835, demonstrating structural resilience to shocks despite short-term declines from crises like the 2014 emerging market crisis and post-2018 pandemic/Russia-Ukraine conflict impacts, with a 2023 rebound (density=0.7611, clustering=0.807) driven by G20 coordination. The core-periphery structure evolved dynamically: the U.S., Canada, and Germany formed the core in 2014; China and Russia joined via regional policies by 2019; Brazil and South Africa rose to core status through the African Free Trade Area in 2023 while Russia fell to the periphery due to conflict, and China maintained semi-peripheral hub roles with stabilised core degree but reduced betweenness centrality (0.795→0.347), reflecting a shift to direct imports. Key vulnerabilities include path dependence on Russia-Ukraine (25% of exports), triggering 2.3× higher price volatility in import-dependent G20 states in 2022, and regional disparities with the Asia-Pacific accounting for 58% of trade flows versus marginalised Africa/Latin America, compounded by arable land/technology constraints in peripheral countries.   3.2 Recommendations   Strengthen G20 coordination mechanisms by modelling the 2022 Bali Declaration on Food Security to establish regional food reserve pools among core countries (U.S., China, Brazil) and hubs (EU, India) with emergency allocation rules to reduce single-node dependence (e.g., Black Sea Corridor), while standardising export restriction transparency and creating a "policy spillover" early-warning model via G20 Agricultural Ministers’ Meetings. 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[Online] Available at: https://webofproceedings.org/proceedings_series/ESSP/ICISS%202019/ICISS19055.pdf  [accessed: 30 January 2026].   Zhong, Y. 2024. Research of Theories on International Trade from the Perspective of Globalization: 1945-2023. Academic Journal of Business & Management, 6(2), 152-159. https://doi.org/10.25236/ajbm.2024.060222. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 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. Email: info@inclusivesociety.org.za Phone: +27 (0) 21 201 1589 Web: www.inclusivesociety.org.za

Articles Click on the article title below to read: Towards a GNU Plus model: Inclusive public policy responses to South Africa’s governance and development crisis Prof William Gumede Comparative policy analysis: The ANC’s NGC Economic Framework and the Inclusive Society Institute’s Growth Vision Daryl Swanepoel  Whose data is it anyway? Tebogo Keitheile G20 Essays Africa's Blue Finance Development under the United Nations 2030 Agenda for Sustainable Development Xingcan Zhou Current Situation and Prospect of Green Channel for African Agricultural Products Exporting to China Yuxin Tang Evolution and mechanism of grain trade network in G20 countries Jiajun Fan Empowering modernisation, Building the future: Exploring China-Africa Cooperation’s support for Africa’s sustainable modernisation within the G20 framework WenTao Lin

Copyright © 2026   Inclusive Society Institute   PO Box 12609 Mill Street Cape Town, 8010 South Africa   235-515 NPO   All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without the permission in writing from the Inclusive Society Institute   DISCLAIMER   Views expressed in this report do not necessarily represent the views of the Inclusive Society Institute or its Board or Council members.   This report was prepared with the assistance of AI technology, including ChatGPT.   Certain images were generated specifically for this report using AI-assisted image generation (OpenAI) and do not depict identifiable individuals. Images are illustrative and contextual in nature.   JANUARY 2026   Author: Daryl Swanepoel   CONTENTS   Executive Summary Section 1: Introduction and purpose of the study visit Section 2: Finland’s education system - core principles and institutional culture Section 3: Mother-tongue education: Pedagogy, identity and cognitive development Section 4: Multilingualism without polarisation Section 5: The ‘one facility, two or more schools’ model: Pragmatic expansion without displacement Section 6: Implications for South Africa: from policy paralysis to pragmatic adaptation Section 7: Education, social cohesion and the long view of nation-building Section 8: Conclusion – From study visit to policy action Section 9: Methodological note and source boundaries Section 10: Acknowledgements and closing note Annexure a: The ministry of justice and the governance of linguistic rights in Finland Annexure b: Mother-tongue education, multilingual pedagogy and the Finnish educational approach Annexure c: Cognitive development, language and the pedagogical logic of co-located schooling – insights from the university of Helsinki Annexure d: Minority-language community perspectives on schooling, identity and institutional survival – Reflections from Folktinget Annexure e: Policy options and implementation pathways Sources consulted A. Interviews and study visit engagements (primary sources) B. Selected supplementary sources (contextual)   Cover photo: istock.com - Stock photo ID:1401612772 | Credit: evgenyatamanenko EXECUTIVE SUMMARY This report arises from a study visit undertaken to examine international approaches to mother-tongue education, multilingualism and institutional design, with a particular focus on the Finnish experience. The visit was motivated by ongoing debates in South Africa regarding language in education, educational equity, social cohesion and the long-term sustainability of multilingualism in a highly unequal society. Rather than seeking models for direct transplantation, the purpose of the visit was to identify principles, tensions and institutional logics that may inform context-appropriate policy choices in South Africa.   A central finding of the study visit is that debates about mother-tongue education are frequently framed in overly binary terms. In many international discussions, particularly those reflected in United Nations-associated literature, mother-tongue instruction is presented as a foundational cognitive intervention, especially in contexts of inequality where learners are required to acquire knowledge through languages they do not yet command. By contrast, several Finnish academics and practitioners expressed caution about treating mother-tongue instruction as a singular or decisive driver of cognitive performance. This divergence, however, does not represent a contradiction in principle, but a difference of context.   Finland constitutes a distinctive educational environment characterised by strong early childhood education, high baseline language comprehension, consistently high teaching quality, low levels of socio-economic inequality and robust institutional capacity for early learner support. In such conditions, language of instruction is less likely to function as a binding cognitive constraint, and pedagogical quality can mitigate learning barriers that would be structurally decisive in weaker systems. The Finnish position should therefore be understood as context-specific, rather than universally generalisable. The report argues that Finland is an outlier in the cognitive debate precisely because it is not operating under the conditions that give language its strongest cognitive salience elsewhere.   The study visit also revealed an important nuance in Finnish academic and policy thinking. While Finnish scholars caution against treating mother-tongue education as a rigid or universally determinative policy instrument, this caution does not reflect a dismissal of its cognitive value. Rather, it distinguishes between recognising the importance of strong first-language grounding for comprehension, reflective thinking and cognitive confidence, and resisting its translation into inflexible or ideologically framed policy prescriptions. This distinction is particularly significant for multilingual societies marked by inequality, where weak first-language grounding functions not as a marginal pedagogical issue, but as a structural cognitive constraint.   At the same time, there was broad and consistent agreement across Finnish interlocutors, including educators, academics and minority-language representatives, that mother-tongue education plays a vital role in affirming learner identity, dignity and belonging. This point was not framed sentimentally, but institutionally. Language was repeatedly described as central to recognition, legitimacy and participation within the education system and society more broadly and even where cognitive claims were treated with caution, the social and ethical case for sustaining linguistic diversity was unequivocally affirmed.   The report also identifies a structural risk that is highly relevant to the South African context: the risk of default anglicisation. In the absence of deliberate institutional design, parental aspiration, labour-market incentives and historical resource patterns tend to push education systems towards English as the dominant medium of instruction, which drift occurs not through explicit policy decisions, but through incremental choices that privilege convenience over constitutional intent. One of its most damaging consequences is the confinement of high-quality indigenous-language schooling to rural and township contexts, while suburban and well-resourced areas remain linguistically homogeneous. Against this background, the report advances the “one facility, two or more schools” model as a practical and expansionary institutional pathway. Rather than framing language policy as a zero-sum redistribution of existing schools, this approach treats school infrastructure as a public asset capable of supporting multiple language-specific schools under clearly defined governance arrangements, which crucially, distinguishes between shared facilities and shared institutional identity. The model allows for the establishment of, for example, fully fledged isiZulu-, isiXhosa- or other indigenous-language schools within suburban settings, while preserving autonomy, leadership and linguistic integrity and in doing so, it decouples language from geography and socio-economic status, expanding access without displacement. The Finnish experience reinforces the importance of institutional discipline in safeguarding and sustaining multilingualism. Language erosion rarely occurs through formal policy reversal, it occurs when institutional environments normalise convenience over rights, leading speakers of less dominant languages to relinquish their claims in everyday practice. Finland addresses this risk not through heavy enforcement, but through clearly located responsibility, routine monitoring and strong institutional signals that linguistic rights are ordinary matters of administrative compliance, rather than episodic sources of dispute. The report argues that South Africa does not necessarily require new institutions in this regard, but does require clearer ownership, coordination and proactive oversight within its existing governance landscape.   Importantly, the report does not present Finland as a model to be replicated. Instead, it treats the Finnish experience as a set of disciplined responses to enduring tensions between language, identity, cognition and institutional capacity. The annexures to the report document these perspectives from four distinct vantage points: state governance, educational practice, academic analysis and minority-language community experience. They are intended to provide depth and triangulation, not to extend or alter the report’s core arguments.   The report concludes that South Africa does not face a choice between mother-tongue education and social cohesion, nor between multilingualism and global participation. The real challenge lies in institutional design and implementation discipline. Mother-tongue education should neither be treated as a panacea, nor dismissed as impractical, because if properly designed, it can reduce avoidable learning barriers, affirm dignity and belonging and it can contribute to a more cohesive and inclusive education system. Achieving this will require structured experimentation, careful piloting, professional trust and a willingness to move beyond fear-driven binaries, and towards pragmatic and context-sensitive solutions. SECTION 1: INTRODUCTION AND PURPOSE OF THE STUDY VISIT   Source: This composite image strips was generated specifically for this report using AI-assisted image generation (OpenAI) and do not depict identifiable individuals. Images are illustrative and contextual in nature. This report arises from a study visit to Finland, undertaken at a moment when debates about education in South Africa have become increasingly polarised, emotive, and, at times, detached from practical solutions. The visit was not conceived as an exercise in idealisation or replication. Finland’s social history, institutional maturity and demographic profile differ fundamentally from those of South Africa. Rather, the purpose of the study visit was to examine how a high-performing education system approaches questions of language, equity, identity and learning outcomes,  and to reflect critically on what lessons, if any, may be adapted within South Africa’s constitutional, social and fiscal realities.   The decision to focus on Finland was deliberate. For more than two decades, Finland has been recognised internationally not only for strong learning outcomes, but for the consistency and coherence of its education system. Crucially, its success has not been driven by relentless reform cycles, competitive ranking pressures or technocratic over-engineering. Instead, it rests on a relatively simple, but demanding set of principles: trust in teachers, equity as a design feature, rather than a remedial afterthought and a deep respect for the role of language in cognitive development and personal dignity.   For South Africa, being a country in which educational inequality remains one of the most enduring legacies of apartheid, these themes resonate sharply, in that despite substantial post-1994 investment in access, infrastructure and curriculum reform, outcomes remain profoundly uneven and language policy sits at the centre of this challenge. Moreover, whilst the Constitution affirms multilingualism and the right to receive education in the language of one’s choice where reasonably practicable, the implementation thereof has been hesitant, inconsistent and often politically charged. Mother-tongue education is frequently discussed either as an idealistic aspiration or as a threat to social cohesion, rather than as a pragmatic developmental strategy grounded in evidence.   The study visit therefore set out to interrogate three interrelated questions. Firstly, how does Finland conceptualise and operationalise mother-tongue education within a multilingual society, without turning language into a zero-sum political battleground? Secondly, what institutional arrangements, particularly those with regard to teacher education, school governance and curriculum autonomy, make this approach viable in practice, rather than merely being a defensible in theory? And thirdly, what insights can be translated into the South African context through careful adaptation? Importantly, this report does not treat education policy in isolation, since throughout the study visit, it became clear that Finland’s approach to schooling is inseparable from broader questions of social trust, cohesion and long-term nation-building. Language is not approached as a marker of hierarchy or exclusion, but as a foundation for learning, participation and shared citizenship, which perspective offers a valuable counterpoint to South Africa’s often reactive debates, where language is too easily framed as either an obstacle to transformation or a proxy for historical grievance.   The purpose of this report, then, is threefold. It seeks first to document key observations from the Finnish education system, with particular attention to mother-tongue instruction and multilingual practice. Second, it aims to analyse why these approaches work within their institutional and cultural setting. Third, and most importantly, it proposes a set of reflections for South Africa that move beyond abstract principle, towards practical pathways, including the exploration of models that expand access to mother-tongue education without displacement, exclusion or institutional rupture.   What follows is not a blueprint, nor a prescriptive policy manual. It is an attempt to bring seriousness, evidence and pragmatism back into a conversation too often dominated by ideology or fear. In doing so, the report positions education, and language policy in particular, not merely as a sectoral concern, but as a central pillar of South Africa’s long-term project of building an inclusive, cohesive and capable society. SECTION 2: FINLAND’S EDUCATION SYSTEM - CORE PRINCIPLES AND INSTITUTIONAL CULTURE   Source: This composite image strips was generated specifically for this report using AI-assisted image generation (OpenAI) and do not depict identifiable individuals. Images are illustrative and contextual in nature. The study visit engagements made clear that the performance of the Finnish education system cannot be understood through discrete interventions or isolated policy instruments. What distinguishes the system is not a single reform, but a coherent institutional culture in which values, governance arrangements and professional practice are closely aligned. Education in Finland functions as a public trust, rather than a contested policy battleground, and this orientation shapes decisions at every level of the system.   A defining feature repeatedly emphasised during the visit was the centrality of trust. Finnish education governance is built on a presumption of professional competence, rather than on suspicion and compliance. Teachers are not treated as implementers of centrally prescribed scripts, but as skilled professionals capable of exercising judgement in the classroom, trust which is neither naïve nor unconditional, in that it is earned through rigorous initial teacher education and sustained through a culture of accountability that is internalised, rather than externally imposed. The absence of high-stakes inspection regimes and constant standardised testing is not a sign of laxity, but of confidence in the system’s human capital.   Closely linked to this is the status and preparation of teachers. Throughout the study visit, teacher education emerged as a cornerstone of system quality. Entry into the profession is selective, training is research-informed and pedagogical formation is treated as intellectually demanding work. This investment has long-term consequences. Teachers are equipped not merely to deliver content, but to also adapt instruction to the needs of the learners, their linguistic backgrounds and their developmental stages. In such a context, debates about language of instruction are not reduced to administrative compliance, but are approached as pedagogical questions requiring professional discernment.   Another recurring theme was the system’s commitment to equity as a design principle, rather than a compensatory measure. Finnish education policy does not rely on elite pathways, selective schools or differentiated curricula to produce excellence, but instead, it seeks to raise the floor for all learners by ensuring that schools are adequately resourced, supported and trusted to meet diverse needs. During site visits and discussions, officials consistently framed educational success not in terms of producing a narrow cohort of top performers, but in minimising failure and exclusion. This orientation is especially relevant to language policy, where early disadvantage can quickly compound into long-term educational marginalisation.   Institutionally, this equity focus is reinforced by a high degree of coherence between national frameworks and local implementation, but while there is a national curriculum, it functions as a guiding framework, rather than a rigid prescription. Municipalities and schools retain significant autonomy to adapt curricula to local circumstances, including linguistic composition and community context. This balance between national consistency and local flexibility enables responsiveness without fragmentation and it also reduces the likelihood that language policy becomes a proxy for political contestation, in that decisions are embedded within professional and institutional processes, rather than in public confrontation.   The study visit also highlighted the importance of stability. Finland has resisted the temptation of constant structural reform, because it recognises that educational change is cumulative and generational. Policies are allowed time to mature, practices to settle and institutions to learn, a long-term perspective that fosters predictability for educators and learners alike and which reduces the fatigue and cynicism that often accompany perpetual reform agendas. It is in such an environment that debates about pedagogy and language can be approached deliberatively, rather than defensively. Taken together, these elements point to a system where outcomes flow less from technical sophistication than from institutional alignment, and where trust, professionalism, equity and stability reinforce one another, thereby creating conditions in which complex issues such as multilingual education can be handled pragmatically and without undue politicisation. The lesson for South Africa is not that these features can be transplanted wholesale, but that sustainable improvement depends on cultivating an enabling institutional culture, which goes beyond merely adjusting policy levers.   This institutional context is essential for understanding Finland’s approach to mother-tongue education and multilingualism. Language practices observed during the study visit are not stand-alone innovations, they are embedded within a broader system that values learner comprehension, professional judgement and social cohesion and it is to this substantive engagement with language, cognition and identity that the report now turns. SECTION 3: MOTHER-TONGUE EDUCATION: PEDAGOGY, IDENTITY AND COGNITIVE DEVELOPMENT   Source: This composite image strips was generated specifically for this report using AI-assisted image generation (OpenAI) and do not depict identifiable individuals. Images are illustrative and contextual in nature. In Finland , the use of a learner’s first language in the early years of schooling is not treated as a cultural concession or a symbolic affirmation of identity. Rather, it is understood as a pedagogical foundation upon which comprehension, reasoning and confidence are built.   A note of tension: Finnish academic caution and the mainstream international view One of the more illuminating aspects of the Finland engagements was that not all Finnish academic interlocutors framed mother-tongue education as the decisive or “critical” explanatory factor behind system performance. This differs from the dominant international framing, including those United Nations-associated norms and reports that were referenced in preparation for the visit, which tend to treat mother-tongue-based education, particularly in the early years, as a foundational enabler of comprehension, equity and sustained learning [1] . The value of this tension is precisely that it forces conceptual discipline. The Finnish caution does not necessarily refute the cognitive logic of learning in a familiar language. Rather, it suggests that in a high-capacity system with strong teacher preparation, stable governance and high social trust, language policy may operate as one component within a wider institutional ecology and not as a single “silver bullet”. The mainstream international view, by contrast, is often articulated with particular urgency in contexts of inequality, where the cognitive load of learning through an unfamiliar language compounds disadvantage and accelerates dropout, underperformance and disengagement.   While Finnish education policy and academic discourse are often presented internationally as unequivocally supportive of mother-tongue instruction, which it is, closer engagement actually reveals a more nuanced and internally contested position. Finnish academics and practitioners consistently caution against treating mother-tongue education as a rigid or universally determinative policy instrument, particularly in multilingual or socially complex settings. This caution should not be read as a dismissal of the value of mother-tongue education’s role in aiding cognitive development and reflective thinking. Rather, it reflects concern about over-essentialising language as identity, the risks associated with weak or uneven implementation and the assumption that cognitive gains will follow automatically in the absence of strong pedagogical design.   At the same time, empirical research from Finland demonstrates a clear and measurable relationship between first-language grammatical and metalinguistic mastery and the development of higher-order cognitive capacities, including syntactic control, metacognition and the ability to consciously shape and revise meaning. Taken together, these perspectives suggest that Finnish scholarship carefully distinguishes between recognising the cognitive value of strong first-language grounding and resisting its translation into inflexible or ideologically framed policy prescriptions [2] .   It is important to state explicitly that Finland is something of an outlier in this debate, not because the cognitive logic of learning in a familiar language is wrong, but because Finland’s institutional conditions soften the extent to which language functions as a binding cognitive constraint. The Finnish system is characterised by unusually high levels of institutional alignment, teacher professionalism, stability and social trust, which create an enabling environment in which learning barriers can be identified early and addressed through pedagogical practice, rather than being left to compound.   In many of the contexts that shape mainstream international and UN-associated arguments, the institutional environment is far weaker and inequality far sharper and in such settings, requiring learners to acquire foundational literacy and numeracy through an unfamiliar language materially increases cognitive load and accelerates disengagement [3] .   For South Africa, this divergence is not a reason to abandon mother-tongue approaches, nor to treat them as a panacea. It is a reason to be more precise about what claim is being made. The argument is not that mother-tongue education automatically produces high performance, but that it can reduce avoidable cognitive barriers and widen meaningful participation, provided that the institutional conditions for quality teaching, materials and progression are deliberately built around it.   The Finnish nuance is important precisely because it is often lost when mother-tongue education is debated in Global South contexts. In relatively linguistically secure systems such as Finland’s, where the vast majority of learners encounter their mother tongue consistently across home, school and public life, the cognitive foundations provided by first-language mastery are largely taken for granted. This allows Finnish scholars to focus their critique on questions of pedagogy, flexibility and policy design, rather than on linguistic access itself. In contrast, in multilingual societies, such as South Africa, where large numbers of learners experience early schooling in a language they do not fully command, weak first-language grounding becomes a structural cognitive constraint, rather than a marginal pedagogical concern.   In such contexts, the Finnish evidence suggests that the absence of strong mother-tongue grammatical and metalinguistic mastery is likely to impede the development of reflective thinking, conceptual clarity, and executive control over learning itself. The Finnish debate therefore does not undermine the case for mother-tongue education in the Global South, rather, it underscores the need to distinguish carefully between cognitive foundations and policy form, recognising that what can be treated flexibly in Finland may represent a binding developmental constraint elsewhere.   Notwithstanding these differences of emphasis, there was broad agreement across Finnish educators and academics, as well as in the international frameworks referenced during the study visit, on one foundational point: that education in a learner’s mother tongue plays a significant role not only in supporting comprehension and cognitive confidence, but also in affirming self-worth, identity and a sense of belonging. This was not presented as a sentimental or symbolic consideration, but as a lived pedagogical reality. Learners who encounter schooling through a language that reflects who they are and how they experience the world are more likely to feel recognised, respected and secure within the learning environment.   That sense of recognition, in turn, underpins engagement, participation and trust in the institution of the school itself and so even where mother-tongue education was not framed as the decisive driver of cognitive performance, it was consistently acknowledged as an important contributor to learner dignity and social inclusion, particularly in linguistically diverse societies. In this respect, the value of mother-tongue instruction lies not only in how learners think, but in how they come to see themselves as legitimate participants in the educational and social order.   Across engagements with educators, school leaders and education officials, a consistent logic emerged: learning is most effective when conceptual understanding precedes linguistic transition. In practice, this means that early literacy, numeracy and problem-solving are anchored in the language most familiar to the learner. The objective is not linguistic isolation, nor the permanent insulation of learners from additional languages, but the establishment of cognitive depth before the gradual expansion into second and third languages. Language, in this approach, functions as a cognitive bridge, rather than a barrier.   The study visit also highlighted the close relationship between language and learner confidence. Finnish educators repeatedly emphasised that early schooling should cultivate curiosity, participation and a willingness to engage with complex ideas. Where learners are required to grapple simultaneously with unfamiliar concepts and an unfamiliar language, the risk is not merely slower progress, but disengagement and self-doubt, but by contrast, instruction in the mother tongue allows learners to demonstrate understanding, ask questions freely and develop a secure sense of competence. This confidence then carries over as additional languages are introduced.   Importantly, mother-tongue education in Finland is not divorced from questions of identity and dignity. While pedagogical considerations dominate, educators acknowledged that language affirms belonging and recognition when learners experience the school environment as one in which who they are and how they speak are valued, rather than corrected or marginalised. This does not translate into linguistic relativism or lowered expectations, instead, it reinforces high standards by ensuring that learners are cognitively equipped to meet them. During the visit, an alternative view was explicitly acknowledged and discussed, being that early immersion in a dominant or global language, most often English, may offer cognitive or developmental advantages by accelerating access to wider bodies of knowledge and global opportunity. Proponents of this view argue that the delaying of  immersion risks entrenching disadvantage in a world that is unequal and where language proficiency is closely linked to economic mobility.   Finnish educators did not dismiss this argument out of hand and instead, they responded by drawing a clear distinction between exposure and understanding. Early exposure to an additional language was not rejected, however, what was questioned was the assumption that exposure alone produces meaningful cognition. From the Finnish perspective, immersion without comprehension may on the surface yield familiarity, but it weakens conceptual mastery and thus the concern is that learners may appear linguistically competent, while in reality lacking the deeper reasoning skills that are necessary for sustained academic progression.   This response was grounded not in abstract theory, but in observed outcomes and long-standing practice. Finnish schooling prioritises depth over speed, favouring a developmental sequence in which strong foundations support later acceleration and thus the aim is not to shield learners from global languages, but to ensure that when such languages become the medium of instruction, learners will possess the cognitive tools to succeed within them.   The study visit further revealed that this approach is facilitated by the broader institutional context as was discussed in Section 2 of this report, which requires high levels of teacher professionalism to allow for differentiated instruction, careful pacing and curriculum flexibility that enables schools to introduce additional languages without undermining comprehension in core subjects. Trust-based governance reduces the pressure to produce immediate, standardised results at the expense of long-term learning.   For South Africa , the relevance of these observations lies less in replication than it does in reframing the debate. Language of instruction is often treated as a proxy for political alignment or economic aspiration, rather than as a pedagogical choice with cognitive consequences. The Finnish experience, on the other hand, suggests that the question is not whether learners should acquire proficiency in global languages, but when and on what cognitive foundation this transition should occur.   This section does not claim universal validity for a single model. It recognises that historical, social and institutional conditions differ markedly. What it does offer is a grounded illustration of how mother-tongue education, when embedded within a coherent system and supported by professional capacity, can serve both cognitive development and social cohesion. The implications of this insight, particularly for multilingual societies grappling with inequality, form the basis for the discussion that follows on multilingualism without polarisation and the institutional arrangements required to sustain it. SECTION 4: MULTILINGUALISM WITHOUT POLARISATION   Source: This composite image strips was generated specifically for this report using AI-assisted image generation (OpenAI) and do not depict identifiable individuals. Images are illustrative and contextual in nature. One of the most striking observations made during the study visit was the absence of overt conflict around language in the everyday functioning of the Finnish education system, probably because multilingualism in Finland  is not framed as a zero-sum contest between linguistic communities, nor as a threat to national cohesion. It is, instead, treated as a normal condition of a modern society, which is managed through institutional design, rather than political confrontation.   This depoliticised approach does not imply the absence of linguistic diversity or historical sensitivity. Finland’s own linguistic landscape, shaped by the coexistence of Finnish, Swedish and a range of minority and migrant languages, has required careful accommodation over time. What distinguishes the Finnish approach, as encountered during the study visit, is the way in which language policy is embedded within professional and administrative processes, rather than allowing for it to be elevated into a recurring public controversy. Decisions about language of instruction, support for minority languages and transitions between languages are handled within schools and municipalities within guidelines provided by national frameworks, but which is often adapted to local realities.   A key factor in avoiding polarisation is the system’s emphasis on functionality, where language is approached primarily as a means of enabling learning, participation and progression, rather than as a marker of hierarchy or entitlement, which functional orientation reduces the incentive to instrumentalise language for broader political purposes. Because when language is understood as serving the learner, rather than the ideology of a group, the stakes of debate are lowered and space is created for pragmatic compromise.   Multilingualism is normalised through sequencing, rather than simultaneity, meaning that learners are not expected to master multiple languages at once and/or in ways that overwhelm their cognitive capacity. Instead, languages are introduced in a deliberate and staged manner, that is aligned with scholar developmental readiness and instructional purpose, which is a sequence that reinforces the insight that was discussed in Section 3 of the report. The notion is that cognitive depth in one language can support, rather than inhibit, the acquisition of additional languages. Multilingualism thus emerges as an outcome of careful design, rather than as an unstructured accumulation of demands. Another important observation was the role of institutional trust in sustaining multilingual practices, and because educators are trusted to exercise professional judgement, language-related decisions do not require constant external validation or political arbitration. Teachers are able to adjust instruction, provide targeted support and communicate with parents without fear that flexibility will be interpreted as non-compliance or favouritism, which professional space is critical in multilingual settings, in that rigid rules are rarely adequate to manage the diversity of learner needs.   The Finnish approach also benefits from a broader societal consensus on the purpose of education, in which schooling is widely understood as a public good that is aimed at fostering capable, confident and socially integrated citizens and so, within this consensus, linguistic diversity is accommodated as part of the collective project, rather than as a centrifugal force that pulls communities apart. It is a shared understanding that reduces the temptation to frame language as a battleground for unresolved historical or political grievances. For South Africa , these observations are particularly salient, in that language debates in the education system are often proxies for deeper anxieties about identity, power and belonging and in such an environment, policy choices can easily harden into symbols, which makes compromise difficult and implementation fraught. The Finnish experience does not offer a simple solution to these challenges, but what it does, however, is to demonstrate that multilingualism need not be inherently polarising if it is approached through institutional practice, rather than political theatre.   The implication is not that South Africa can or should depoliticise language through decree. Rather, it suggests that careful institutional design, including clear frameworks, professional autonomy and local flexibility, can gradually reduce the salience of language as a source of conflict and by embedding multilingualism in the routine workings of schools and educational governance, rather than in episodic public battles, it becomes possible to shift the conversation from identity defence to learner development.   This understanding provides a critical bridge to the next section. It will explore how institutional arrangements and infrastructure can be leveraged to expand access to mother-tongue education without displacement or exclusion. The question is no longer whether multilingualism is desirable, but instead, how it can be operationalised in ways that can strengthen both learning outcomes and social cohesion. SECTION 5: THE ‘ONE FACILITY, TWO OR MORE SCHOOLS’ MODEL: PRAGMATIC EXPANSION WITHOUT DISPLACEMENT   Source: This composite image strips was generated specifically for this report using AI-assisted image generation (OpenAI) and do not depict identifiable individuals. Images are illustrative and contextual in nature.   One of the most generative reflections to emerge from the study visit was not a single policy instrument observed in Finland , but an institutional logic that has direct relevance for South Africa’s most intractable education debates. Throughout engagements with Finnish educators and administrators, it became clear that the expansion of linguistic accommodation has been approached as a matter of capacity-building, rather than redistribution. This insight provides the conceptual foundation for what this report describes as the “one facility, two or more schools” model.   In Finland, the use of shared educational facilities to accommodate different linguistic or curricular streams is neither exceptional nor controversial, in that school buildings are understood as public assets serving a defined community, not as exclusive territories tied to a single linguistic identity. Within this framework it becomes possible for different language streams to coexist in separate schools located within the same physical infrastructure. Their independence is secured in that they are governed by clearly separated administrative arrangements and supported by professional collaboration. Importantly, this coexistence does not require the dilution of educational standards or the erosion of institutional culture, on the contrary, it is enabled by clarity of purpose and mutual recognition of legitimacy.   Transposed conceptually to South Africa , this approach offers a way out of the false binary that has long dominated debates about language and schooling. Too often, the expansion of mother-tongue education in African languages is perceived as necessitating the displacement or downgrading of existing Afrikaans-medium schools, particularly those with strong infrastructure and institutional capacity, which framing has fuelled resistance, litigation and political mobilisation, while doing little to expand overall access or improve outcomes.   The “one facility, two or more schools” model rejects this zero-sum logic. It starts from the premise that South Africa’s educational challenge is not the redistribution of scarcity, but the expansion of effective provision. Many Afrikaans-medium schools possess physical infrastructure, governance experience and pedagogical expertise that could support additional language streams without undermining their existing educational offering. By treating facilities as platforms for expansion, rather than prizes to be reallocated, it becomes possible to grow access to mother-tongue education in African languages while preserving institutional stability.   Crucially, this model does not imply forced integration or administrative homogenisation. Distinct schools or language streams would retain their identity, governance structures and pedagogical focus, even while sharing physical space and certain services, with the emphasis is on functional co-location, rather than symbolic merger. This distinction matters, since it reduces the perceived threat to existing communities whilst at the same time opening space for practical cooperation, which the Finnish experience suggests can work where roles are clear, expectations are aligned and professional trust is present.   The study visit also underscored that shared-facility models require careful institutional design, where timetabling, staffing, leadership responsibilities and accountability mechanisms must be clearly delineated, because without such clarity the co-location of different schools could risk becoming a source of friction, rather than synergy. However, when properly structured, shared facilities can foster informal professional exchange, resource efficiency and it can promote a broader sense of common purpose across the linguistic lines.   From a social cohesion perspective, the significance of this model lies in its ability to decouple language from conflict, in that it doesn’t frame language policy as a struggle over ownership and loss, but rather as a collective effort to expand opportunity. The physical proximity of different language communities that are enabled to operate side by side within a shared public institution, can normalise diversity without forcing premature integration. In this sense, cohesion is built through coexistence and mutual recognition and not through enforced uniformity.   This section does not propose an immediate blueprint for implementation, nor does it underestimate the legal, administrative and political complexities involved, instead, it advances a conceptual pathway grounded in the logic observed during the study visit: that inclusive systems grow by adding capacity, not by redistributing insecurity. The task for South Africa is to explore how this logic might be operationalised within its constitutional framework and by/through the provincial education systems.   The implications of this model extend beyond infrastructure. They point towards a broader reorientation of policy thinking, away from defensive debates about loss and entitlement, and towards constructive questions about how public assets can be mobilised to serve a multilingual society. It is these systemic implications, and their relationship to education as a driver of social cohesion and nation-building, that the report addresses in the next section. SECTION 6: IMPLICATIONS FOR SOUTH AFRICA: FROM POLICY PARALYSIS TO PRAGMATIC ADAPTATION Source: This composite image strips was generated specifically for this report using AI-assisted image generation (OpenAI) and do not depict identifiable individuals. Images are illustrative and contextual in nature. The preceding sections have deliberately avoided treating the Finnish experience as a template to be copied. The study visit consistently reinforced the point that education systems are products of history, institutional maturity and social consensus. What Finland offers South Africa  is therefore not a model to replicate, but a set of orienting insights that help reframe entrenched policy debates and open space for practical adaptation.   A first implication concerns the way language policy is positioned within the South African education discourse. Language of instruction has become a highly charged proxy for broader struggles over identity, power and historical redress. As a result, policy discussions often oscillate between abstract constitutional principle and confrontational politics, with limited attention to classroom-level pedagogy. The Finnish experience, as encountered during the study visit, suggests that progress depends on shifting the centre of gravity back to learning itself: how children best acquire understanding, confidence and cognitive depth over time.   This reframing has consequences for implementation. In South Africa, mother-tongue education in African languages is widely endorsed in principle, but weakly supported in practice and what is more is that the gap is not merely one of political will, but of institutional capability. Teacher preparation, curriculum materials, assessment practices and school-level governance have not been aligned in a coherent way to support sustained mother-tongue instruction beyond the early grades. The study visit underscores that language policy cannot succeed as a stand-alone intervention, in that it must be embedded within a professional ecosystem that equips teachers in a way that they are empowered to exercise judgement and to adapt instruction to learner needs.   A second implication relates to governance and trust. Finland’s trust-based system cannot simply be imported into a context marked by uneven capacity and historical mistrust. However, the lesson is not that trust must wait until perfection is achieved. Rather, selective and graduated trust, linked to professional development, mentoring and clear accountability, can begin to replace overly centralised compliance regimes that often stifle innovation. Without some restoration of professional agency, language policy in South Africa is likely to remain performative, rather than transformative.   The “one facility, two or more schools” concept discussed in Section 5 illustrates how this logic might be operationalised pragmatically. Accordingly, instead of framing policy choices as redistributive battles over existing institutions, South Africa could pilot expansionary arrangements that add capacity whilst protecting stability through such pilots that would allow provincial education departments to learn incrementally, to refine governance arrangements and to steadily build confidence among communities. Importantly, this approach aligns with the constitutional principle of reasonable practicability, thus avoiding absolutist positions that invite legal contestation, but deliver little educational progress.   A further implication concerns matters sequencing and patience. The study visit highlighted Finland’s willingness to think in generational, rather than electoral timeframes. South Africa’s education system has been subject to frequent policy shifts, often driven by political urgency, rather than pedagogical evidence. The Finnish experience suggests that sustained improvement requires stability, consistency and the courage to allow reforms time to mature, which in the context of language policy means accepting that cognitive and social returns may only become visible over time and by resisting the temptation to declare success or failure of the policy prematurely.   Finally, the Finnish case underscores the inseparability of education policy and social cohesion, whereas in South Africa, language debates are often treated as threats to unity that have to either be managed or suppressed. The study visit offers a different perspective: that carefully designed educational arrangements can, over time, reduce the salience of language as a site of conflict. And so, by embedding multilingualism within routine institutional practice, rather than staging it as a recurring political showdown, it becomes possible to normalise diversity and to build a shared sense of investment in the public education system.   Taken together, these implications point towards a shift from policy paralysis to pragmatic adaptation, meaning that the question is no longer whether South Africa should embrace multilingualism and mother-tongue education (since that principle is already constitutionally settled) and that the real challenge now lies in designing institutional pathways that make these commitments workable, credible and socially sustainable. It is this longer-term relationship between education, language and nation-building that the report turns to in the final analytical section.   SECTION 7: EDUCATION, SOCIAL COHESION AND THE LONG VIEW OF NATION-BUILDING   Source: This composite image strips was generated specifically for this report using AI-assisted image generation (OpenAI) and do not depict identifiable individuals. Images are illustrative and contextual in nature.   Throughout the study visit, one theme surfaced repeatedly, often implicitly, rather than by design: the extent to which education systems either stabilise or strain the social fabric of a society. In Finland , schooling is not burdened with the task of resolving every social tension, yet it is clearly understood as a foundational institution through which cohesion is cultivated over time. This perspective offers a useful lens through which to reflect on South Africa’s own struggles to reconcile diversity, inequality and shared belonging.   In the South African context, education has long been expected to perform contradictory roles. It is tasked simultaneously with redress, social mobility, nation-building and economic competitiveness. Language policy, in particular, has become a fault line where these expectations collide, because when poorly designed or inconsistently implemented, language arrangements in schools can entrench exclusion, foster resentment and reinforce perceptions of injustice, but conversely, when approached with care and institutional coherence, the policies can create conditions that promote mutual recognition and a shared investment in the future.   The Finnish experience, as observed during the study visit, suggests that social cohesion is not produced through symbolic gestures or forced uniformity, but rather, it emerges incrementally and through institutions that function predictably, that treat all scholars fairly and that execute its duties and functions competently. Learners who experience schooling as a place where they are understood, supported and challenged are more likely to develop trust in public institutions and confidence in their own agency and as such, language plays a central role in this process, not as an identity badge, but as the medium through which understanding and participation are made possible.   This insight has particular relevance for multilingual societies marked by historical inequality, because in such contexts, premature demands for linguistic neutrality or assimilation risk reproducing disadvantage under the guise of unity. The study visit reinforced the idea that social cohesion is not threatened by difference per se, but rather when unfair treatment amongst the various communities is perceived and when that the difference is considered unmanaged, ignored and/or instrumentalised. Education systems that acknowledge linguistic diversity and design for it proactively are better positioned to prevent language from becoming a site of grievance.   At the same time, the Finnish case cautions against romanticising cohesion as a short-term policy outcome. Trust, legitimacy and shared purpose are accumulated slowly through repeated institutional encounters. Schools contribute to this nation-building process not by preaching cohesion, but by embodying it in their everyday practice through, for example, ensuring fair access to the available resources, respectful engagement with difference and ensuring consistent expectations for all learners. Over time, these experiences help shape how individuals relate to, and amongst, one another, and to the state.   For South Africa , taking such a this long view is particularly important within the context of the apartheid education legacies, which continue to cast a long shadow. The impatience for rapid transformation, is both understandable and politically potent, but what the study visit underscores is the risks of conflating speed with progress, because durable cohesion is unlikely to emerge from abrupt policy shifts that outpace institutional capacity or community buy-in. It requires steady expansion of opportunity, clarity of purpose and the avoidance of zero-sum framing.   The “one facility, two or more schools” model that was discussed earlier in this report can be understood in this light. By enabling coexistence without displacement, it offers a practical mechanism through which diversity can be normalised, rather than dramatized. Such arrangements do not erase difference, but situate it within a shared public institution oriented toward collective benefit and in doing so, they create everyday opportunities for contact, recognition and mutual respect, without forcing premature integration or uniformity.   Ultimately, the contribution of education to the nation-building project will lie less in its capacity to resolve social tensions directly, and more so in its ability to create a credible platform for fostering a shared future. When learners across linguistic and cultural lines experience schooling as fair, enabling and dignified, the foundations for cohesion are laid quietly, but persistently, which the Finnish experience, as encountered during the study visit, illustrates. It shows how this can be achieved through institutional coherence and pedagogical seriousness, rather than rhetorical flourish.   This brings the report to its concluding reflections: how the insights drawn from the Finland study visit can inform a realistic, principled and forward-looking approach to education reform in South Africa, one that recognises language as a resource, not a threat, and schooling as a long-term investment in a cohesive society.     SECTION 8: CONCLUSION – FROM STUDY VISIT TO POLICY ACTION   Source: This composite image strips was generated specifically for this report using AI-assisted image generation (OpenAI) and do not depict identifiable individuals. Images are illustrative and contextual in nature. This report has deliberately resisted the temptation to turn the Finland study visit into a search for ready-made solutions. Finland’s education system is the product of a distinct social history, deep institutional maturity and high levels of professional trust that cannot simply be transplanted into the South African context. Yet, to stop at reflection alone would be to underuse the value of the study visit. The purpose of learning from another system is not imitation, but disciplined adaptation. This conclusion therefore moves beyond synthesis and sets out clear, actionable pathways through which the insights gained can be tested, refined and operationalised in South Africa   The central lesson emerging from the study visit is that debates about language in education become unproductive when they are framed as ideological contests or zero-sum struggles over loss and entitlement. In Finland, language policy succeeds not because one position “wins”, but because language is treated as a pedagogical and institutional question, embedded within a wider system that prioritises learner comprehension, professional judgement and long-term stability. Where South Africa has often approached language as a political proxy, Finland approaches it as a practical design challenge.   Crucially, the study visit surfaced a nuanced tension that is frequently absent from South African debates. Finnish academics did not uniformly present mother-tongue education as the decisive explanatory factor behind system performance. At the same time, there was broad agreement among Finnish educators and within the international frameworks referenced during the visit, that education in a learner’s first language contributes meaningfully to learner dignity, identity, confidence and belonging. The implication for South Africa is not to elevate mother-tongue education into a panacea, nor to downgrade it as incidental, but to locate it properly: as a mechanism that can reduce avoidable cognitive and social barriers when supported by appropriate institutional capacity.   From this perspective, the most pressing challenge facing South Africa is not constitutional principle or policy intent, both of which are already settled, but institutional execution. Mother-tongue education has remained weakly implemented, because it has been treated as a stand-alone policy aspiration, rather than as part of an integrated system involving teacher preparation, curriculum design, governance arrangements and phased progression into additional languages. The Finnish experience reinforces the point that language policy cannot succeed in isolation. It must be carried by professional capability, clarity of roles and a stable institutional environment.   A recurring weakness in South Africa’s approach to language policy has been the gap between constitutional commitment and institutional follow-through. While the legal and policy framework for multilingualism is well established, responsibility for implementation is often diffuse, unevenly exercised and largely reactive. Language rights tend to surface institutionally only when disputes arise, rather than being embedded into routine administrative practice, which pattern has contributed to gradual erosion through neglect, rather than overt policy reversal; reinforcing the tendency towards default solutions that privilege convenience over constitutional intent. Addressing this gap requires not new principles, but stronger mechanisms of coordination, visibility and accountability within the existing system.   A further and critical consideration, repeatedly underscored during the study visit discussions, is the risk of default anglicisation within the South African education system. In the absence of intentional institutional design, parental aspiration, labour-market signals and historical patterns of resource allocation will continue to drive schooling towards English as the dominant medium of instruction. This trajectory is already evident and has the cumulative effect of confining high-quality indigenous-language schooling largely to rural and township contexts, while suburban and well-resourced areas remain linguistically homogeneous. Such an outcome undermines both educational equity and the constitutional commitment to multilingualism, not by overt exclusion, but by quiet structural drift.   As the Finnish experience makes clear, linguistic erosion rarely occurs through formal policy reversal, it occurs when institutional environments quietly normalise convenience over rights, leading speakers of less dominant languages to relinquish their linguistic claims long before those claims are ever legally contested.   The “one facility, two or more schools” model offers a concrete mechanism to interrupt this dynamic. By enabling the establishment of fully fledged isiZulu-, isiXhosa- or other indigenous-language schools within suburban settings, using existing infrastructure and clear governance separation, it becomes possible to decouple language from geography and socio-economic status. In doing so, mother-tongue education in African languages is repositioned not as a remedial option for marginalised communities, but as a credible, high-quality choice within the full spectrum of South African society. This shift is essential if multilingualism is to be sustained in practice, rather than eroded by default.   The report therefore argues for a decisive shift in approach: from redistributive confrontation to expansionary design. Nowhere is this more evident than in the proposed “one facility, two or more schools” model that, rather than framing the expansion of African-language mother-tongue education as requiring the displacement or erosion of existing Afrikaans-medium institutions, the model treats school infrastructure as a public asset capable of supporting multiple language streams under clearly defined and autonomous governance arrangements. This approach rejects the logic of loss and instead focuses on the expansion of effective provision that services catering for a multilingual community.   The recommendation flowing from this insight is not immediate system-wide implementation, but structured piloting, where provincial education departments, in partnership with willing school governing bodies and communities, could identify a small number of sites where shared-facility, multi-school arrangements can be tested under controlled conditions. These pilots should be deliberately modest in scale, rigorously governed and carefully evaluated over time. Their purpose would be to build institutional learning, rather than to score symbolic victories.   Alongside this, the study visit points to the necessity of sequencing and patience, for if  Finland’s education success, that rests in part on its resistance to perpetual reform, is anything to go by. South Africa’s education system, by contrast, has often been characterised by frequent policy shifts that outpace institutional capacity and exhaust professional goodwill. Language policy, in particular, demands a long view. Cognitive, social and cohesion-related outcomes accumulate gradually, and premature declarations of success or failure are more likely to undermine credibility than accelerate progress.   The study visit also highlights the importance of clearly located institutional responsibility for monitoring and normalising linguistic rights. In Finland, this function is exercised through a small specialist unit within the Ministry of Justice, supported by the supervisory role of the Parliamentary Ombudsman. The significance of this arrangement lies not in its institutional scale or coercive power, but in its effect: linguistic rights are treated as an ordinary and ongoing matter of administrative compliance, rather than as an episodic source of dispute or litigation. For South Africa, the implication is not necessarily the creation of new institutions, but the need to clarify ownership, coordination and proactive oversight within the existing governance landscape, so that language rights are sustained through everyday institutional practice, rather than reactive intervention.   A further actionable implication concerns professional agency. The Finnish system’s ability to manage linguistic diversity without polarisation is inseparable from the trust placed in educators as professionals. While South Africa cannot assume equivalent levels of capacity across the system, it can move incrementally towards graduated trust, linked to professional development, mentoring and accountability. Without restoring some measure of professional discretion at school and classroom level, language policy risks remaining performative, rather than transformative.   Finally, the study visit reinforces an often overlooked point, being that education policy is inseparable from the broader project of social cohesion and nation-building. Language becomes a source of conflict, not because diversity exists, but because institutional arrangements fail to manage it fairly and predictably. When learners experience schooling as enabling, dignified and credible, regardless of language, trust in public institutions grows, and thus, over time, this quiet institutional legitimacy does more to foster cohesion than any symbolic gesture or rhetorical appeal.   In moving from study visit to policy pathway, the task ahead is therefore clear. South Africa does not need another round of abstract debate about language in education. It needs disciplined experimentation, expansionary institutional design and the courage to move beyond fear-driven binaries. The Finland study visit does not tell South Africa what to become. It shows what becomes possible when language is treated seriously, institutions are designed coherently, and reform is pursued with patience rather than panic.   The Finnish experience demonstrates that caution in policy design should not be confused with scepticism about cognitive foundations. While Finnish scholars rightly resist treating mother-tongue education as a rigid or deterministic policy instrument, the evidence and practice observed during the study visit reinforce the importance of strong first-language grounding in supporting cognitive control, reflective thinking and meaningful participation in learning, particularly in contexts marked by inequality and linguistic exclusion. If this report succeeds, it will not be because it resolves long-standing disagreements. It will be because it helps shift the debate from ideology to implementation, from confrontation to construction, and from paralysis to pragmatic action.     SECTION 9: METHODOLOGICAL NOTE AND SOURCE BOUNDARIES   Source: This composite image strips was generated specifically for this report using AI-assisted image generation (OpenAI) and do not depict identifiable individuals. Images are illustrative and contextual in nature.   This report is intentionally bounded in scope. Its analysis and conclusions are derived exclusively from the Finland study visit and the documentary material associated with it. This includes the presentations, briefing notes, background papers and discussion records contained in the six core documents provided prior to drafting. No additional site visits or interviews were undertaken for purposes of this report, and no post-visit research was conducted beyond limited contextual consultation explicitly identified as such.   Where reference is made to international norms or frameworks, including those associated with the United Nations system, such references serve two limited purposes. First, they reflect the conceptual environment within which Finnish educators and officials framed their own practice during the study visit. Second, in a small number of instances, they reflect post-visit contextual consultation undertaken to situate Finnish perspectives in relation to mainstream international thinking. Such references are used for orientation and contrast, not as primary evidence or external validation.   The report does not seek to adjudicate global academic debates on education, language or cognitive development. Alternative perspectives are acknowledged where they arose during the study visit, and they are addressed through the logic, reasoning and practical experience articulated by Finnish interlocutors. No independent literature review was conducted, and no claims are made that would require empirical substantiation beyond the study visit record. Analytically, the report adopts a policy-reflective, rather than policy-prescriptive approach. Its purpose is to distil insights, identify institutional logics and explore plausible pathways for adaptation within the South African context. Proposals such as the “one facility, two or more schools” model are presented as conceptual constructs informed by observed practices, not as ready-made implementation plans.   This methodological discipline serves two purposes. Firstly, it preserves the integrity of the study visit as a learning exercise, rather than a pretext for advocacy, and secondly, it ensures transparency about the limits of inference and transferability. Readers are invited to assess the arguments advanced here on the basis of their coherence, plausibility and contextual sensitivity, rather than on claims of universal applicability.   In this sense, the report should be read as a contribution to an ongoing policy conversation that is grounded in observation, attentive to context and open to refinement, rather than as a definitive statement on education reform.   The report is supported by a series of annexures that document selected engagements undertaken during the study visit, as well as a concluding annexure that outlines policy options flowing from the analysis. These annexures are not intended as extensions of the main analysis, nor as exhaustive records of discussion, but as contextual lenses that illuminate specific dimensions of the enquiry. Each annexure reflects a distinct institutional or community perspective, including governance, educational practice, academic analysis and minority-language experience and should be read as complementary, rather than cumulative. The core arguments and recommendations of the report are developed in the main text, with the annexures providing depth, triangulation and transparency without altering the analytical conclusions.   Where reference is made to mainstream international thinking on the cognitive dimensions of mother-tongue education, this reflects limited post-visit contextual engagement with established UNESCO frameworks, rather than a comprehensive literature review.     SECTION 10: ACKNOWLEDGEMENTS AND CLOSING NOTE   Source: This composite image strips was generated specifically for this report using AI-assisted image generation (OpenAI) and do not depict identifiable individuals. Images are illustrative and contextual in nature.   The Inclusive Society Institute wishes to express its appreciation to the Embassy of Finland in Pretoria for its assistance in facilitating the study visit. The Embassy played an important enabling role in supporting engagement with Finnish institutions and interlocutors, and its cooperation contributed meaningfully to the depth and coherence of the programme.   This report was made possible by the Finland study visit and the generosity of the educators, administrators and officials who engaged openly with the delegation. Their willingness to explain not only what works within the Finnish education system, but why it works, and under what conditions, provided the intellectual substance upon which this analysis rests. The value of the visit lay less in exposure to exemplary institutions than in the quality of dialogue about pedagogy, governance and long-term educational purpose.   The six core documents provided to the delegation formed the documentary backbone of this report. They ensured a shared evidentiary base across participants and enabled reflection to continue beyond the site visits themselves. The discipline of working strictly within these materials has been intentional, preserving the integrity of the study visit as a bounded learning exercise, rather than an open-ended research project.   The report also benefited from the opportunity to reflect on Finland’s experience through a South African lens that is attentive to constitutional commitments, institutional constraints and social realities. This comparative posture has been critical in avoiding both idealisation and dismissal. The aim has not been to borrow solutions, but to recover a sense of pragmatic imagination about what is possible when policy, institutions and professional practice are aligned.   As a closing note, it should be emphasised that the value of this report will ultimately not be measured by agreement with its conclusions, but by its capacity to shift the quality of debate. If it helps move discussions about language, education and social cohesion away from fear-driven binaries and towards practical, expansionary thinking, it will have served its purpose.   The Finland study visit is now complete. The work of reflection, adaptation and cautious experimentation lies ahead.     ANNEXURE A: THE MINISTRY OF JUSTICE AND THE GOVERNANCE OF LINGUISTIC RIGHTS IN FINLAND   The engagement with Finland’s Ministry of Justice provided a critical institutional lens through which to understand how linguistic rights are conceptualised, governed and sustained over time. Unlike education-focused discussions that centre on pedagogy and classroom practice, the Ministry’s contribution situated language firmly within the architecture of constitutional obligation, public administration and long-term state responsibility. The presentation and interview stressed that Finland’s multilingual settlement is not sustained by sentiment or symbolism, but through a deliberately constructed legal and governance framework, that is continuously monitored and incrementally adjusted as societal conditions change. At the core of this framework lies Section 17 of the Finnish Constitution, which establishes Finnish and Swedish as equal national languages and which obliges public authorities to meet the cultural and societal needs of both language communities on an even basis. The Constitution also recognises Sámi, Romani and sign languages and affirms the right of all language groups to use and develop their own language and culture. Importantly, Finland does not formally designate “official minority languages”. Instead, it differentiates between national languages, which enjoy strong and enforceable rights in dealings with public authorities, and other languages, whose protection is shaped by a combination of sector-specific legislation and practical measures aimed at ensuring comprehension and access. This constitutional logic already signals a key feature of the Finnish approach: linguistic equality is pursued through structured differentiation, rather than through uniform treatment.   The Ministry of Justice carries overall responsibility for promoting and monitoring linguistic rights across the Finnish state. Its role is not operational, but coordinative and supervisory. The Ministry drafts language-related legislation, advises other ministries on the linguistic implications of proposed laws, prepares the Government Report on the Application of Language Legislation every four years, and coordinates a network of language experts across the public service. Remarkably, this extensive mandate is discharged by a very small specialist unit, with only three officials directly responsible for linguistic rights. This institutional design reflects a broader Finnish assumption: that linguistic rights are realised not through enforcement-heavy bureaucracies, but through clear legal frameworks, shared norms, and continuous inter-institutional coordination.   Demographically, Finland remains a predominantly Finnish-speaking country, with Finnish speakers constituting just over eighty-four per cent of the population and Swedish speakers slightly above five per cent. Sámi speakers account for a very small proportion of the population, while speakers of other languages have increased notably in recent years, largely as a result of immigration. Linguistic rights are partly territorially organised through the designation of municipalities as unilingual or bilingual, which determines the obligations placed on local authorities, but central government bodies are however always bilingual, regardless of their physical location. This system reflects a balance between geographic concentration and individual mobility, because it acknowledges that language communities are not confined to fixed spaces, even where their historical presence is regionally rooted.   A central feature of the Finnish model is its reliance on long-term strategy, rather than ad hoc intervention as is illustrated by the National Languages Strategy, first adopted in 2012 and revised in 2021, which provides an overarching framework for the protection and development of Finnish and Swedish. Its preparation process was deliberately extensive, involving stakeholder hearings, expert interviews, participatory consultations and political steering at the highest level. The Strategy is built around three guiding objectives, being the right to services in one’s own language, safeguarding the status of the national languages and the promotion of what is described as “living bilingualism”. These objectives are translated into sixty-two concrete measures, each assigned to specific ministries, ensuring that responsibility for implementation is dispersed, rather than centralised.   One of the most instructive aspects of the Ministry’s presentation was its frank acknowledgement of English as a growing structural pressure within Finnish society. English is not framed as an existential threat to Finnish, but its expanding use, particularly in universities, research and specialised professional domains, is recognised as a potential source of long-term domain loss. Notably, research commissioned by the government indicates that English has exerted greater pressure on Swedish than on Finnish, with many public officials reporting stronger proficiency in English than in Swedish. The policy response to this trend is not prohibitive, but instead, it focuses on strengthening national-language capacity by ensuring that graduates can function professionally in Finnish, by developing terminology in national languages and by promoting multilingual practices, rather than defaulting to English as a convenient substitute.   The interview further highlighted a recurring structural vulnerability in multilingual systems, which is the tendency for minority-language speakers to relinquish their linguistic rights in mixed language environments. In bilingual workplaces and public settings, Swedish speakers often switch to Finnish, because it is more widely understood, more institutionally dominant or simply more convenient, but in doing so this pattern, over time, risks hollowing out formal rights through everyday practice. The Ministry recognises this as a systemic problem, rather than an individual failure. Its response emphasises the need for authorities to signal, through visible practices and service design, that the use of one’s own language is both legitimate and welcomed. In this respect, linguistic rights are sustained as much by institutional cues and planning, as by formal legal entitlements.   Enforcement within the Finnish system relies far less on sanctions than on legitimacy and oversight, which is illustrated by there being no direct penalties for authorities that fail to meet their linguistic obligations and instead, compliance is encouraged through monitoring, guidance and reputational accountability. The Parliamentary Ombudsman plays a key supervisory role, and language-related discrimination may also fall within the remit of the Non-Discrimination Ombudsman. The Ministry’s view is that sustained compliance flows from a deeply embedded administrative culture that takes legality seriously, rather than from punitive mechanisms. Whether this approach would function equally well in other contexts is acknowledged as an open question.   From a South African perspective, the Ministry of Justice engagement offers several cautionary and constructive insights. It demonstrates that linguistic drift towards a dominant language, whether Finnish in relation to Swedish, or English in relation to both, occurs by default unless actively countered through institutional design and it  also illustrates that minority-language protection depends less on rhetorical commitment than on careful planning, visible service environments and ongoing monitoring. Perhaps most importantly, it reinforces the idea that multilingualism is not self-sustaining and that it must be continually reproduced through political will, legal clarity and administrative practice.   This annexure therefore anchors the study visit’s broader conclusions in a governance reality: that language policy is not merely an educational concern, but a constitutional and institutional project that unfolds over generations. In that sense, Finland’s experience speaks directly to South Africa’s own challenge, not of declaring multilingualism, but of designing institutions capable of making it endure.   ANNEXURE B: MOTHER-TONGUE EDUCATION, MULTILINGUAL PEDAGOGY AND THE FINNISH EDUCATIONAL APPROACH   The engagements with the Finnish National Agency for Education, the Ministry of Education and Culture and education practitioners provided a detailed and at times counter-intuitive perspective on mother-tongue education and multilingualism within the Finnish education system. While Finland is internationally recognised for its strong commitment to linguistic rights and cultural diversity, the study visit revealed a more nuanced position than is often assumed in global debates on mother-tongue instruction.   A defining feature of the Finnish approach is that multilingualism is not treated as an exception or remedial category, but as a normal and universal condition of schooling. Finnish education policy proceeds from the premise that every learner is, in practice, multilingual, whether through national languages, foreign languages, dialects or emerging hybrid language practices. This assumption is embedded in the National Core Curriculum for Basic Education and underpins the concept of the “language-aware school,” in which every teacher is regarded as a language teacher and every subject is understood to carry its own linguistic demands. Language is therefore primarily approached as a medium of learning and identity formation, and is applied to promote social interaction, rather than as a discrete or isolated subject area.   Within this framework, mother-tongue education is not positioned as an absolute or exclusive driver of cognitive development, instead the Finnish interlocutors expressed caution at treating mother-tongue instruction as a singular or deterministic explanatory variable. They seem to be somewhat dismissive of its role in supporting comprehension, metalinguistic awareness and the development of reflective cognitive control. In this sense, Finnish practice distinguishes between recognising the cognitive value of strong first-language grounding and resisting its elevation into a stand-alone policy solution detached from pedagogy, teacher capacity and institutional context.   This position does not reflect indifference to mother-tongue instruction. On the contrary, the Finnish Constitution explicitly guarantees the right of every person to maintain and develop their own language and culture. In practice, municipalities may offer mother-tongue instruction for learners whose home language is not Finnish, Swedish or Sámi, supported by targeted state funding. Participation in such programmes has expanded steadily, with instruction currently provided in dozens of languages. However, Finnish policymakers openly acknowledge that these programmes reach only a portion of eligible learners and are constrained by practical considerations such as staffing, scale and sustainability.   Crucially, mother-tongue instruction in Finland is understood primarily as a mechanism for supporting identity, self-confidence and belonging, rather than as a substitute for acquiring proficiency in the language of schooling. Finnish educators consistently stressed that strong competence in the societal language is indispensable for educational progression, labour market participation and social integration and for this reason, mother-tongue education is deliberately structured to complement, rather than compete with, instruction in Finnish or Swedish. This logic is reinforced through pedagogical practices such as translanguaging, in which learners are encouraged to draw on all their linguistic resources to support understanding across subjects, whilst they progressively master the academic language that is required for formal learning.   The Finnish experience also highlights the importance of institutional design that is aimed at protecting linguistic diversity without entrenching segregation based on language. The parallel Finnish- and Swedish-language school systems illustrate how language rights can be institutionalised through separate, but equal educational pathways, which is often shared within facilities. At the same time, Finnish officials cautioned that even well-protected minority languages remain vulnerable to gradual erosion if institutional boundaries and responsibilities are not clearly defined and/or if collaborative arrangements proceed without deliberate linguistic safeguards. This concern was particularly evident in discussions around Swedish-language education, where it was pointed out that the maintenance of a distinct linguistic space within a school is regarded as essential to preventing assimilation of Swedish into the dominant Finnish language environment. For learners with migrant backgrounds, Finland adopts a strong inclusive approach, where migrant learners attend mainstream schools according to their age and where they are supported by preparatory education, second-language instruction and subject-specific language support where it is so required. Mother-tongue instruction is offered as an additional layer, not as an alternative pathway, with the underlying policy objective being clear, namely the integration into a shared education system, coupled with recognition of linguistic identity, rather than parallel systems that risk marginalisation or long-term disadvantage.   Throughout the discussions, Finnish practitioners returned repeatedly to the theme of balance. Excessive emphasis on language rights without adequate attention to pedagogical coherence was seen as counter-productive, just as neglect of linguistic identity was recognised as socially corrosive. The Finnish model therefore seeks to hold these tensions in productive equilibrium, by affirming linguistic diversity, investing in language awareness across the curriculum and by ensuring that all learners acquire strong competence in the languages that structure public life.   For South Africa, the relevance of this experience does not lie in the direct replication of the Finnish model, but rather through in the strategic insights that the model offers. The Finnish case demonstrates that mother-tongue education need not be framed as an all-or-nothing proposition, but instead it can and should be embedded within a broader multilingual pedagogy that supports identity and belonging while maintaining clear pathways for individual scholars into the language or languages of wider social community. The Finnish model also underscores the important and necessary role that institutional clarity, professional autonomy and long-term policy consistency plays in preventing linguistic rights from becoming mere symbolic commitments which end up eroding those rights through neglect.     ANNEXURE C: COGNITIVE DEVELOPMENT, LANGUAGE AND THE PEDAGOGICAL LOGIC OF CO-LOCATED SCHOOLING – INSIGHTS FROM THE UNIVERSITY OF HELSINKI   Academics attached to the University of Helsinki’s Faculty of Education, introduced an important layer of analytical nuance, particularly in relation to the cognitive development of children, multilingual learning and the institutional logic that underpins the Finnish co-located schooling model. Rather than reaffirming conventional assumptions about mother-tongue instruction as an unqualified cognitive advantage, the Helsinki engagements foregrounded a more complex and empirically cautious understanding of how language, cognition, identity and pedagogy interact over time. These perspectives should be read as emerging from a high-capacity educational system and should not be assumed to invalidate mainstream international findings, which are largely derived from low-capacity and unequal schooling contexts where language functions as a far more binding cognitive constraint.   Finnish scholars were explicit in cautioning against reductive interpretations of the relationship between language of instruction and cognitive performance and whilst there is broad agreement that early learning in a familiar language can support comprehension and initial engagement, these particular academics were of the view that the evidence does not support strong claims that mother-tongue instruction, in isolation, produces superior long-term cognitive outcomes across subjects. Empirical research in Finland suggests that the initial performative differences observed among learners educated in a second language tended to diminish over time, provided of course that the teaching quality is strong and that learners acquire sufficient proficiency in the language of instruction. Cognitive development, according to this view, is less a function of linguistic purity than it is of pedagogical coherence and sustained instructional quality.   This position challenges dominant international narratives that present mother-tongue education primarily as a cognitive intervention. Helsinki academics were clear that such arguments are difficult to sustain empirically, not least because children’s linguistic environments are inherently complex and fluid. Learners move continuously between languages across home, school, peer interaction, media and digital spaces, making it methodologically difficult to isolate language of instruction as a single causal variable. The Finnish research perspective therefore resists instrumentalising language purely as a cognitive tool, instead situating cognition within broader social, cultural and pedagogical ecosystems.   At the same time, the Helsinki discussions emphatically reaffirmed the importance of language for identity, dignity and belonging and so while the cognitive case for mother-tongue instruction may be context-dependent and empirically nuanced, the identity-forming role of language was considered foundational. Scholars emphasised that language carries emotional memory, intergenerational continuity and cultural meaning that cannot be substituted by functional proficiency in a dominant or global language.   Nursery rhymes, stories, idiomatic expressions and everyday linguistic practices were repeatedly cited as key mechanisms through which children develop a sense of self and continuity with their community and so from this perspective, the justification for maintaining mother-tongue education rests less on cognitive optimisation and more on the ethical and social imperatives of recognition, respect and belonging.   The Helsinki engagements also offered critical insight into the concept of multilingual cognitive development, since rather than viewing multilingualism as a deficit or a transitional burden, Finnish scholars highlighted a growing body of evidence that children possess a greater capacity for managing multiple linguistic systems than is often assumed. Practices such as translanguaging, code-switching and flexible language use were described not as confusion, but as adaptive cognitive strategies that can strengthen executive function, problem-solving and metalinguistic awareness of the scholars. Importantly, this does not negate the need for strong proficiency in the language of instruction, which remains crucial, but it also underscores the parallel   value of pedagogical approaches that consciously acknowledge and work with the learners’ full linguistic repertoires.   These insights were closely linked to the Finnish experience of co-located schools. Drawing on long-term ethnographic research, Helsinki academics explained that co-location, in itself, does not automatically produce bilingualism or social integration. In many Finnish co-located schools, pupils remain socially and linguistically separated despite certain facilities, such as dining halls and playgrounds, being shared, which reflects deeply embedded institutional cultures of parallel monolingualism. The persistence of such separation is not accidental, but the result of deliberate policy choices aimed at preserving minority-language spaces as lived majorities within the school environment. Moreover from a Finnish perspective, a degree of institutional separation has historically always been viewed as a necessary imperative to prevent language dilution and assimilation. However, the Helsinki discussions also revealed growing ambivalence about the long-term consequences of this model, because while separation may protect minority languages within schools, it can inadvertently limit learners’ confidence and competence in the majority language, with unintended implications for higher education, employment and social mobility. The scholars noted emerging concerns among the Swedish-speaking youth in Finland with regard to their proficiency in Finnish, which suggests that rigid separation may produce unintended trade-offs, which has of late prompted increasing interest in more deliberately designed forms of interaction within co-located schools, including, for example, shared activities, bilingual projects and carefully structured spaces for collaboration that do not undermine institutional autonomy.   Crucially, the Helsinki perspective reframed co-located schools as contested pedagogical spaces that are shaped by what scholars term “spatial ideologies”, being a deeply held belief that language, space and identity should be organised between  educational institutions that are located in the same facility. Research comparing Finland and South Tyrol demonstrates that co-located schools simultaneously reproduce language separation and create opportunities for its renegotiation. Architecture, scheduling, administrative boundaries and everyday practices within the school all function as instruments of language policy, by either reinforcing parallel monolingualism or by enabling controlled forms of multilingual interaction.   For South Africa, the relevance of these insights lies in the cautioning against simplistic solutions, because neither full integration, nor strict separation, guarantees positive cognitive or social outcomes, instead, matters is the intentional design of institutional arrangements, pedagogical practices and language policies that are aligned with clearly articulated objectives. This means that co-located schooling can either entrench linguistic dominance or expand linguistic justice, depending on how they structure their space, authority and interaction.   Taken together, the University of Helsinki engagements reinforce a central conclusion of this report: debates about mother-tongue education should not be reduced to cognitive claims alone. While cognition certainly matters, the deeper and more enduring case for linguistic diversity in education rests on the role it plays in promoting the sense of identity, dignity, social cohesion and democratic inclusion. At the same time, protecting linguistic rights requires institutional sophistication, pedagogical professionalism and an honest recognition of trade-offs, and as such the Finnish experience illustrates both the strengths and the limitations of parallel language systems. It offers South Africa a set of cautionary insights, rather than a prescriptive model.     ANNEXURE D: MINORITY-LANGUAGE COMMUNITY PERSPECTIVES ON SCHOOLING, IDENTITY AND INSTITUTIONAL SURVIVAL – REFLECTIONS FROM FOLKTINGET   The engagement with representatives of Folktinget, the statutory body tasked with safeguarding the Swedish language in Finland, provided an important community-level perspective that complements the institutional, pedagogical and academic analyses contained elsewhere in this report. Unlike state authorities or academic interlocutors, Folktinget speaks from the standpoint of the Swedish linguistic minority that is constitutionally protected, socially embedded and yet having to be continuously alert to the conditions required for its long-term survival. This perspective is particularly relevant for societies that seek to sustain multilingualism in practice, rather than in principle alone.   What was also highlighted by the Folktinget representatives, was the existential role that schools play in maintaining Swedish linguistic continuity. The schools are not merely sites of learning, but importantly, also the primary institutional mechanism through which the Swedish language, culture and identity are reproduced from one generations to the next. Folktinget representatives were unequivocal in stating that without Swedish-medium schools, Finland’s bilingual character would not be sustainable in its current form. This was not framed as a cultural preference, but as a structural reality, because language communities, they say, only endure where they possess institutions that are capable of sustaining the language’s everyday use, its intergenerational transmission and its social legitimacy.   The discussion also underscored the continued value attached to Swedish-medium schooling, even in a modern, highly globalised society. Swedish-speaking families overwhelmingly choose Swedish schools for their children, and notably, many bilingual families do the same. This preference of the Swedish and bilingual families Folktinget  presented as evidence that minority-language schooling is not experienced by the community as a constraint or disadvantage, but indeed it is accepted as a valued educational and cultural pathway into Finnish society. At the same time, Folktinget representatives expressed concern about demographic and social shifts, particularly with regard to the under-representation in Swedish-medium schools of learners with migrant backgrounds. While immigration has significantly reshaped Finland’s population, this diversity has not been reflected proportionally within Swedish schools, which is raising questions about inclusion, integration pathways and the future composition of the minority community.   In addressing the Finnish education’s institutional design, the Folktinget representatives provided a nuanced insight into the practice of co-located schools, that is where separate Finnish and Swedish schools are located in one facility. While the organisation’s principled preference remains for separate school buildings where feasible, it acknowledged that economic pressures and declining pupil numbers are increasingly necessitating shared facilities in the form of such co-located schools. Importantly, this acceptance is conditional. Folktinget emphasised that co-location can only function without linguistic erosion, where separate administrations, leadership structures and school identities are maintained. The distinction between “one building with two schools” and “one school with two languages” was repeatedly stressed as decisive. From the community’s perspective, dilution occurs not through shared infrastructure per se, but through the erosion of institutional boundaries that sustain minority-language environments.   At the same time, the discussion resisted an absolutist interpretation of separation. Folktinget representatives recognised the value of structured interaction between language groups, particularly in shared social spaces, such as during breaks, meals and joint activities. In that such interaction was viewed as beneficial for social cohesion and for fostering mutual understanding. This is quite acceptable, even desirable, provided it does not undermine the integrity of the language-specific educational pathways. This balance between the institutional separation of the schools and the social interaction between their scholars, reflects a pragmatic approach that is aimed at sustaining Swedish linguistic identity while avoiding social isolation.   A further dimension of the discussion concerned symbolism and legitimacy in which Folktinget placed considerable emphasis on the importance of visible linguistic recognition by public figures and institutions. The use of both national languages by senior political leaders, the celebration of Swedish cultural events and the presence of Swedish in the public life of Finland were all cited as powerful signals that reinforce the legitimacy of minority languages. Such symbolism should not treated or considered as superficial, but rather, as a necessary complement to legal protection, as it shapes societal attitudes and everyday language choices over time. The value of the Folktinget contribution lies not in pedagogy, but in articulating the lived realities, priorities and concerns of a minority community navigating demographic change, institutional pressure, and the long-term challenge of language maintenance. . For South Africa, the relevance of this perspective lies in its emphasis on institutional survival, rather than symbolic recognition, in that Folktinget demonstrated  illustrates that minority languages persist, not because they are constitutionally acknowledged, but because they are embedded within institutions that command confidence, legitimacy and daily use. It also reinforces a central insight of this report: that shared infrastructure need not imply shared identity, and that carefully designed co-located schooling arrangements can expand access while preserving linguistic integrity. In this sense, the Finnish experience does not offer a template, but a cautionary affirmation that multilingualism, once institutionalised, must be actively maintained or it will erode through neglect rather than confrontation.     ANNEXURE E: POLICY OPTIONS AND IMPLEMENTATION PATHWAYS   This annexure sets out a limited number of policy options that flow from the analysis contained in the main report. It does not propose a single preferred model, nor does it attempt to translate the report’s findings into an implementation blueprint. Rather, it identifies feasible pathways through which South Africa could begin to test, refine and institutionalise mother-tongue and multilingual education approaches in a manner that is constitutionally aligned, fiscally realistic and sensitive to institutional capacity constraints.   The purpose of this annexure is therefore to support informed decision-making, rather than to prescribe outcomes. Each option reflects a different balance between ambition, risk and institutional demand, and each could be pursued independently or sequentially.   The first option is a pilot-based expansion of mother-tongue schooling through co-located institutions . This approach would involve the identification of a small number of existing public school facilities, particularly in suburban or peri-urban areas with stable enrolment and adequate infrastructure, that could host an additional language-specific school alongside an existing institution, with the defining feature being institutional separation, rather than spatial separation. Each school would retain its own governance, leadership, staff establishment and linguistic identity, while sharing physical infrastructure. The value lies its ability to expand access to indigenous-language schooling without displacing existing school communities or requiring large-scale capital investment through the pilot programme it will allow the state to test institutional design questions, such as leadership autonomy, timetable coordination and language boundary maintenance, under controlled conditions.   A second option could focus on language diversification within the existing public school estate , particularly in relation to feeder-zone dynamics, because rather than establishing entirely new schools, this pathway would encourage provinces to designate selected under-utilised schools as bi-lingual schools with dual management. The institutions supported by deliberate enrolment planning and targeted resource allocation. Over time, this could create genuine language choice within a geographic area, reducing the de facto association between language, race and socio-economic status. This option is less visible than co-located expansion, but potentially more systemically transformative if sustained over the long term.   A third option centres on strengthening institutional responsibility and oversight for language rights within the education system . The report’s engagement with Finnish institutions highlights that multilingualism is not primarily sustained through litigation or episodic conflict, but rather through routine administrative accountability. In the South African context, this could involve clearer designation of responsibility within existing education governance structures for monitoring language policy compliance, advising schools and mediating disputes before they escalate, with the intent not being to create new bureaucratic layers, but to normalise language considerations as part of everyday institutional practice, as opposed to unwelcome intervention.   A fourth option emphasises professional and pedagogical support as an enabling condition for language policy . One of the consistent insights from the Finnish experience is that language policy cannot succeed in isolation from teaching quality. Any move towards expanded mother-tongue or multilingual provision would therefore need to be accompanied by targeted investment in teacher development, curriculum support and learning materials. This option recognises that the credibility of language reform depends on the educational experience it delivers, poorly supported language initiatives risk reinforcing scepticism rather than building confidence.   A fifth and complementary option involves structured experimentation and learning through evidence-informed pilots , where rather than seeking immediate national coherence, it accepts variation and learning as necessary components of reform. Pilot projects could be designed with explicit learning objectives, clear evaluation criteria and built-in mechanisms for adjustment, that over time would allow policymakers to distinguish between what is context-dependent and what is systemically replicable, thereby reducing the risk of over-generalisation or premature scaling.   Across all options, a common thread is the need for clarity about what language policy is intended to achieve, which this report cautions against framing mother-tongue education as either a panacea for educational underperformance and/or an ideological project that is disconnected from practical constraints. Instead, language should be understood as one component of a broader effort to reduce avoidable learning barriers, affirm dignity and belonging and expand meaningful participation in education. The appropriate policy response is therefore not a single reform, but a sequence of disciplined, context-sensitive interventions aligned with institutional capacity.   This annexure should be read as an invitation to further deliberation, rather than as a conclusion. The options outlined here are deliberately framed to allow for political choice, administrative judgement and adaptive learning. In that sense, they are consistent with the report’s overall argument: that progress on language and education will come not from importing models or asserting principles, but from patient institutional design informed by evidence, experience and sustained engagement.     SOURCES CONSULTED   A. Interviews and study visit engagements (Primary sources)   Finnish National Agency for Education (EDUFI). Briefings and presentations on bilingualism, multilingual education policy, mother-tongue instruction, and the concept of the language-aware school. Helsinki, December 2025.   Folktinget (The Swedish Assembly of Finland). Engagement on minority-language community perspectives, Swedish-medium schooling, institutional survival, identity, and co-located school arrangements. Helsinki, December 2025.   Inclusive Society Institute (ISI). 2025. Transcripts, presentations and briefing materials from engagements during the study visit to Finland, which was undertaken over the period 1 - 5 December 2025.   Ministry of Education and Culture, Finland Ministry of Justice, Finland University of Helsinki, Faculty of Education     B. Selected supplementary sources (Contextual)   These sources were consulted post-visit  to contextualise mainstream international thinking on the cognitive dimensions of mother-tongue education. They are referenced for interpretive background only and do not constitute the primary evidentiary base of the report.   Marjokorpi, J. 2023. The relationship between grammatical understanding and writing skills in Finnish secondary L1 education. [Online] Available at: The relationship between grammatical understanding and writing skills in Finnish secondary L1 education [accessed: 8 January 2026]   United Nations Educational, Scientific and Cultural Organization (UNESCO). 2010.   Enhancing learning of children from diverse language backgrounds: Mother tongue-based bilingual or multilingual education in the early years. [Online] Available at:  https://unesdoc.unesco.org/ark:/48223/pf0000212270/PDF/212270eng.pdf.multi [accessed: 7 January 2026]   United Nations Educational, Scientific and Cultural Organization (UNESCO). 2022. Why mother language-based education is essential. [Online] Available at: https://www.unesco.org/en/articles/why-mother-language-based-education-essential [accessed: 7 January 2026] [1]  This reference reflects mainstream international policy framing associated with UNESCO and related United Nations agencies, which emphasise mother-tongue-based instruction in the early years as a means of improving comprehension, equity and learning outcomes in unequal education systems. These frameworks are referenced here to capture the conceptual environment within which Finnish interlocutors positioned their own views during the study visit, rather than as primary evidence or as part of a comprehensive literature review. [2]  This observation draws on post-visit contextual consultation with Finnish academic research examining the relationship between first-language grammatical and metalinguistic mastery and writing-related cognitive control in Finnish learners. See, for example, Marjokorpi, J. 2023. “The relationship between grammatical understanding and writing skills in Finnish secondary L1 education”. [3]  This reference reflects mainstream international policy framing associated with UNESCO and related United Nations agencies, which emphasise mother-tongue-based instruction in the early years as a means of improving comprehension, equity and learning outcomes in unequal education systems. These frameworks are referenced here to capture the conceptual environment within which Finnish interlocutors positioned their own views during the study visit, rather than as primary evidence or as part of a comprehensive literature review.     - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 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. Email: info@inclusivesociety.org.za Phone: +27 (0) 21 201 1589 Web: www.inclusivesociety.org.za

Copyright © 2026   Inclusive Society Institute   PO Box 12609 Mill Street Cape Town, 8010 South Africa   235-515 NPO   All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without the permission in writing from the Inclusive Society Institute   DISCLAIMER   Views expressed in this report do not necessarily represent the views of the Inclusive Society Institute or its Board or Council members.   October 2025   Author: Daryl Swanepoel   Contents   Abstract Introduction: A partnership pauses to reflect FOCAC’s institutional journey Cultural and intellectual resonances Governance, multipolarity and the Global South Expanding fields of cooperation Knowledge institutions as architects of the future Youth and intergenerational imagination Looking forward: Toward a shared horizon Conclusion References Abstract   This report reflects on the twenty-fifth anniversary of the Forum on China-Africa Cooperation (FOCAC) through the insights from a joint symposium convened by the Inclusive Society Institute and the Institute of African Studies at Zhejiang Normal University. It argues that FOCAC has evolved from a primarily developmental platform into a mature, multidimensional partnership that has been shaped by shared intellectual, cultural and governance concerns. The discussions situate China-Africa cooperation within a shifting global order that is marked by multipolarity and a rising Global South agency, emphasising the growing role of knowledge institutions, cultural resonance and youth engagement. The paper reaches the conclusion that FOCAC, at twenty-five, represents a philosophical inflection point, which signals a move away from transactional cooperation and towards deeper intellectual and civilisational co-creation.     1. Introduction: A partnership pauses to reflect   There are moments in the life of international partnerships when the ordinary tempo of cooperation slows, and a deeper rhythm emerges, the rhythm of reflection. The symposium jointly convened by the Inclusive Society Institute (ISI) and the Institute of African Studies (IAS) at Zhejiang Normal University marked such a moment. Although formally situated within the celebrations of the twenty-fifth anniversary of the Forum on China-Africa Cooperation (FOCAC), the gathering quickly moved beyond ceremonial acknowledgement.   What unfolded was a reflective and at times almost contemplative conversation about the meaning of the relationship between China and Africa, the memory that anchors it and the imagination required to carry it forward. Academic exchanges are often framed as technical discussions around data, research and policy and yet in Cape Town, something more elemental surfaced, an awareness that partnerships, much like individuals, reach a point when they must pause, take stock of themselves and rediscover the deeper reasons they exist. Prof. Liu Shu (2025), in opening the symposium, captured this sensibility when he framed the gathering as a response to President Xi Jinping’s message in a letter to African scholars, which he said was not to be treated as a mere diplomatic gesture, but as an invitation to deepen the civilisational and scholarly conscience of the relationship. His remarks reminded participants that research is not a passive adjunct to diplomacy, it is an active instrument through which partnerships think about themselves. Liu’s framing created an atmosphere of attentiveness, the sense that everyone in the room was being asked to listen more carefully than usual, to speak with intention, and to resist the temptation of treating the anniversary as a checklist of achievements. From the outset, the symposium leaned toward introspection, thereby signalling that this anniversary would be measured not only in outcomes, but in how understanding is improved. The keynote reflection by Daryl Swanepoel (2025) reinforced the tone by offering an expansive reading of FOCAC’s institutional development over the past twenty-five years. His account of the Forum’s maturation over a quarter-century emphasised that institutional longevity arises from real alignment, not rhetorical alignment, not ideological alignment, but developmental alignment. He traced how FOCAC began in 2000 as a diplomatic platform designed to stabilise and formalise cooperation, yet gradually grew into a multidimensional developmental machinery encompassing infrastructure, human capital formation, public health, green energy, digital finance and governance reform. The way he narrated FOCAC’s evolution carried a philosophical undercurrent, that institutions, like people, discover themselves over time and they evolve in response to necessity, experience and the subtle accretion of trust. In his telling, FOCAC was not designed fully formed, it became itself through interaction, experimentation and iterative cooperation.   This observation set the stage for the symposium’s broader inquiry, namely that if the first twenty-five years of FOCAC were about discovering institutional purpose, then the next twenty-five must be about deepening institutional meaning. And to understand this meaning requires more than economic metrics, it requires attention to culture, history, intellectual frameworks, identity, symbolism and memory, the human elements that shape how cooperation is understood and lived.   It was precisely this terrain that the symposium sought to explore. 2. FOCAC’s institutional journey   The institutional story of FOCAC is well known in broad outline, yet the symposium revealed a more layered understanding of its development. Swanepoel (2025) described the Forum as being a living architecture that is not a static bureaucratic agreement, but rather, it has developed into a dynamic structure that adapts as Africa’s needs and China’s capabilities evolve. In its earliest years, FOCAC’s focus on infrastructure reflected Africa’s developmental urgency of the time, such as the need for economic infrastructure like roads, power stations, ports, railways and telecommunications that could unlock economic potential and China’s experience with large-scale infrastructure and its capacity to mobilise finance at scale aligned naturally with these priorities.   But as multiple participants noted, the institutional journey did not stop at infrastructure. It broadened into a sophisticated framework for cooperation across diverse fields. What differentiates FOCAC from many other development partnerships, Wang Xiao (2025) observed, is its responsiveness, the capacity to evolve in tandem with Africa’s changing strategic aspirations, for example, when Africa began prioritising industrialisation, FOCAC expanded vocational training, manufacturing cooperation and industrial parks. When digital transformation emerged as a critical frontier, the partnership introduced cross-border e-commerce training, digital customs innovations and partnerships with Chinese technology ecosystems. When Africa’s public health vulnerabilities were exposed during the Ebola crisis and later during COVID-19, new forms of health cooperation emerged, such as the Africa CDC, medical training schemes, hospital twinning arrangements and emergency health infrastructure.   This was echoed by Prof. Liu Hongwu (2025), who described China’s developmental trajectory as having evolved from an agrarian society into a manufacturing powerhouse, which then further evolved into a technological innovator, thereby equipping China with a unique set of experiences from which Africa can selectively draw, but importantly, Africa must guard against simple imitation, because development models must be adapted to local circumstances and not only copied. He then went on to emphasise that China’s experience holds value precisely because it demonstrates that development is possible outside Western frameworks, and under conditions that resonate with African contexts.   Ambassador Gert Grobler (2025) offered a complementary diplomatic perspective, arguing that FOCAC’s durability is a product of consistent engagement, for example, China has shown up, in ministerial meetings, in summit dialogues, in crisis response, in long-term capacity initiatives. International partnerships often falter because intentions fade or political cycles intervene. FOCAC has endured because it has been continuously cultivated and this has created diplomatic reliability and the space for deeper forms of cooperation, which is enabling Africa and China to walk together through shifting global circumstances.   The institutional journey of FOCAC has also has a psychological dimension, which was illuminated by the intervention of Buyelwa Sonjica (2025), who argued that Africa’s engagement with China has helped to disrupt the legacy of dependency that was created by Africa’s colonial and post-colonial relationships with the West. For her, the institutional framework offers not merely aid or investment, but affirmation and a recognition of Africa as a capable, sovereign actor in its own development, a psychological dimension which is not peripheral, in that it shapes how Africans perceive themselves within global systems.   Taken together, the institutional journey of FOCAC emerges not as a linear progression, but as a deepening spiral, where in each cycle the cooperation has broadened the relationship’s scope, expanded its intellectual foundations and refined its ethical commitments.     3. Cultural and intellectual resonances   If the institutional story establishes how Africa and China work together, the cultural story explains why cooperation resonates and it was here that the symposium revealed its most distinctive intellectual contributions.   Stephen Langtry (2025) made a particularly evocative intervention when he dug deeper into the historical presence of the Chinese people in South Africa. Records traced their presence in South Africa from as far back as the 1660s. His storytelling disrupted the common assumption and widely held view that China-Africa relations is a recent development and/or that it has been externally imposed. Instead, it was as he described, a slow, quiet entanglement of lives across centuries, woven through migration, cultural adaptation and shared vulnerability. This historical recovery served an important conceptual purpose, in that  it reframed the partnership between the two sides not as an encounter between strangers, but rather as a renewal of an old relationship, albeit that it’s under-remembered in current times.   Langtry then offered a philosophical meditation on ubuntu and Confucian harmony, identifying an ethical consonance between African and Chinese thought: Ubuntu, with its insistence that “a person becomes a person through other people,” and Confucian harmony, with its emphasis on relational balance and moral self-cultivation, both call for forms of coexistence grounded in reciprocity. For Langtry, these traditions illuminate why China-Africa cooperation has a cultural ease absent in many other external partnerships. They resonate at the level of worldview and they reflect similar intuitions about community, humanity and the moral obligations of leadership. This exploration of cultural resonance found parallel expression in the reflections of Liu Hongwu (2025) when he emphasised that African traditions of pluralism and Chinese traditions of inclusiveness produce a natural affinity. He described how African societies, despite their deep internal diversity, nurture forms of belonging that accommodate difference, which is mirrored in Chinese philosophical traditions that value the similar qualities of harmony without homogeneity. These shared dispositions, Hongwu suggested, helps to explain why the partnership between China and Africa has endured despite the longstanding and often divisive geopolitical turbulence. Sonjica (2025) took the cultural conversation further by introducing the concept of “intangible deliverables,” which she did by describing how encounters with Chinese society has challenged African perceptions, which have been largely shaped by colonial narratives that positioned the West as the primary reference point for modernity. Seeing a non-Western society achieve extraordinary developmental transformation restores African psychological confidence and it enlarges the imagination of what is possible. In her view, these shifts in mental horizons are as important as material infrastructure. Identity, she argued, is a development outcome.   In a different tone, Dr Yu Guizheng (2025) emphasised the intellectual responsibility of scholars in shaping cross-cultural understanding. He argued that scholarship cultivates interpretive generosity, which allows societies to see beyond stereotypes and misunderstandings, and in his observation, academic exchange nurture “the capacity to learn from difference. ” This struck at the heart of the symposium’s philosophical endeavour. Meanwhile, the contribution of Berenice Marks (2025), through her recognition of young South African scholars in the G20 essay competition that was co-organised by the ISI and IAS, added a generational layer to cultural resonance. The students’ research, which spanned topics from green development to blue finance and agricultural modernisation, amongst others, showed how young Africans are already engaging China intellectually, and vice versa, shaping their own narratives and resisting reductive framings of the relationship. Their enthusiasm underscored that cultural resonance between the two people’s is not static, to the contrary it is constantly renewed through intergenerational learning.   Together, these contributions, it was argued, transformed culture from a soft addition to cooperation into an analytical cornerstone. The symposium revealed that China-Africa relations resonate because they touch something deep, a shared philosophical orientation toward community, a historical memory of connection, an ethical commitment to relationality and a generational desire for futures not circumscribed by Western paradigms.   4. Governance, multipolarity and the Global South   As the symposium moved from cultural resonance to the broader questions of global governance, the tone shifted in that it now carried the weight of geopolitical complexity. The participants recognised that the twenty-fifth anniversary of FOCAC coincided with a historical inflection point, namely the weakening of unipolar structures, the fragmentation of global consensus and the emergence of new normative frameworks driven by the Global South. In this context, China-Africa cooperation is no longer merely bilateral or developmental in that it has become an intellectual and political site through which the broader debates about the emerging global order is being contested and reimagined.   Prof. Liu Hongwu (2025) argued that a new era of global governance is emerging, which will be an era in which Western institutions no longer monopolise the authority to define global norms. He also suggested that the fragmentation of the West’s dominance is not the result of external challenges alone, but also because of internal contradictions within their own system, which fractures have arisen due to unsustainable societal issues, such as unequal development, the inconsistent application of norms, and the failure to recognise the cultural and political plurality of the contemporary world. It is in this vacuum that Africa and China, who have each in their own way, found themselves increasingly drawn to articulate alternative principles that are grounded in idea of inclusion, sovereignty, developmental fairness and cultural respect.   Hongwu’s perspective resonated with Daryl Swanepoel (2025), who noted that Africa’s agency in global governance has expanded significantly in recent years, which expansion is evidenced by its role in BRICS, its interventions in climate negotiations and in its invitation to join the G20 as a permanent member. He traced how FOCAC has gradually become a platform through which African states coordinate not only development priorities, but also global governance positions. For Swanepoel, this shift is not incidental; it is the product of accumulated trust, institutional maturity and the recognition on both sides that global governance must reflect the lived realities of the majority of the world’s population.   This political dimension of the partnership between China and Africa was echoed in the diplomatic reflections of Ambassador Gert Grobler (2025), who,   his intervention, emphasised the continuity and reliability of China’s support for Africa’s fair and just multilateral participation. Grobler contextualised this support within the broader diplomatic history, by noting that China has consistently advanced African priorities at the United Nations and in other global forums, which he suggested underscored China’s political solidarity not a rhetorical, but as a structural feature of the relationship. Where Hongwu, Swanepoel and Grobler approached global governance through political analysis, Zhan Mengshu (2025) introduced a different, but complementary dimension, being the role that research collaboration plays in shaping governance outcomes. Zhan argued that governance cooperation cannot rest solely on political commitments, in it must be grounded in shared intellectual frameworks, and so she proposed strengthened research networks, joint policy analysis and deeper engagement between think tanks as essential elements of future governance architecture. Her contribution added an epistemological layer to the discourse in that it emphasised that ideas and evidence shape governance outcomes as much as political will. Meanwhile, Wang Xiao (2025) provided a diplomatic anchor for these discussions by reaffirming China’s principled stance on sovereignty, non-interference and mutual respect, where in her remarks she highlighted that China views global governance reform not through ideological confrontation, but through the pursuit of balance, representation and developmental justice. This lens, she argued, is one of the reasons that African states have found China to be a reliable partner in navigating global political complexity.   The symposium’s exploration of global governance was not limited to structural analysis, in that it also engaged with the philosophical undercurrents existing within the international community. Langtry (2025), though primarily concerned with cultural identity, observed that the global governance debates often overlook the role of collective moral imagination, because traditions such as ubuntu and Confucianism offer alternative ethical vocabularies for thinking about international cooperation, both of which vocabularies are grounded in relationality, responsibility and balance. The subtle, yet important dimension to the governance discussion that he was making was that political systems do not operate in moral vacuums, they tend to also reflect underlying conceptions of what it means to be human, and what obligations societies believe they owe one another. This philosophical nuance presented by Langtry complemented Sonjica’s (2025) insistence that governance reform must not only be attentive to institutional efficiency, but that it also has to be conscious to other factors, such as identity, dignity and psychological liberation. In her view, global governance systems that were shaped under colonial or imperial logics, cannot simply be tinkered with, in that they require a far more reaching and complete re-articulation that has to be grounded in the lived experience of those societies that were historically excluded from decision-making due to the imposed logics. For Africa, she argued, global governance cannot merely be considered as a technical question of representation: it must reclaim its authority to shape global norms. Together, these insights painted a picture of China-Africa cooperation as a microcosm of a broader shift in international relations, which shift requires a partnership that should be increasingly aware of its potential, and its responsibility, to contribute to a more inclusive global order. For Africa it is no longer simply about roads and railways, it is now also about the philosophical, political and epistemic frameworks through which the next century of global governance will be written.     5. Expanding fields of cooperation   While governance considerations set the philosophical horizon, the symposium also examined the concrete forms of cooperation that have emerged under FOCAC and yet, even here, the tone remained reflective rather than technocratic. Participants did not simply list projects, they also explored how these initiatives can reconfigure African developmental possibility. Swanepoel (2025) revisited the centrality of infrastructure, noting that although the term has become commonplace, its meaning is often reduced to engineering. Infrastructure, which he argued, is fundamentally about possibility, such as the possibility of travel, trade, education healthcare access and economic participation and it is a precondition for dignity. He described how Chinese-built railways, bridges and power grids have transformed not only the economic landscapes in Africa, but so too the imaginative landscape of what development can look like. This contextual understanding was echoed by Liu Yuankang (2025), whose reflections on digital transformation added a futuristic dimension when he expalined how digital customs systems, smart ports, e-government platforms and educational technologies are becoming new fields of China-Africa collaboration. For him, digital cooperation marks a shift from industrial modernisation to informational modernisation. It creates opportunities for Africa to leapfrog traditional constraints and build governance systems suited to its youthful population. In Liu’s vision, the digital future is not purely technological it is also social, cultural and political.   Public health cooperation also figured prominently in the symposium. Several participants recalled China’s role during the Ebola crisis and later during the COVID-19 pandemic, citing the establishment and strengthening of the Africa CDC, medical training programmes, vaccine cooperation and emergency health infrastructure. These interventions were described by Swanepoel (2025) not as episodic acts of aid, but as manifestations of long-term solidarity which is rooted in shared vulnerability. He pointed to cooperation in the field of health, which he said revealed the underlying principle that lies at the heart of the relationship: that development is inseparable from human security. Agricultural collaboration also emerged as a vital and expanding area of engagement between the two sides. Liu Hongwu (2025) emphasised that China’s experience in agricultural modernisation, that evolved from a smallholder driven agricultural economy to rural industrialisation, holds valuable lessons for Africa’s own food security and rural development. Agricultural technology demonstration centres, hybrid seed cooperation, irrigation projects and training programmes have created practical channels through which Chinese agricultural innovations can be shared and adapted to African contexts. Participants were of the view that agricultural cooperation, while often overshadowed by infrastructure in the public discourse, may ultimately have more transformative long-term effects for the Africa, because it directly impacts the lives of millions of Africans directly. Odile Bulten (2025), approaching cooperation through the lens of governance, underscored the importance of transparency, when, she argued, cooperation grows more complex, for example when it spans digital finance, water management, green energy and urban development: accountability and ethical oversight must grow with it. Because for her, the sophistication of cooperation must be equally matched by the sophistication of governance.   Security cooperation also entered the discussion, though in subtler tones, in that while the symposium did not frame security cooperation in militarised terms, it acknowledged the interconnectedness of development and peace. Whether through maritime security, anti-piracy initiatives, peacekeeping collaborations or counter-terrorism support, China and Africa have begun exploring ways to stabilise the environments necessary for development to flourish. These engagements were framed as being pragmatic responses to shared vulnerabilities, as opposed to being instruments of geopolitical influence. Against the background of Africa facing disproportionate climate risks despite contributing minimally to global emission, climate and environmental cooperation emerged as one of the most future-oriented fields of engagement. Swanepoel (2025) and several Chinese scholars highlighted China’s global leadership in renewable energy technologies, such as solar, wind, hydroelectric and electric vehicles, and its potential role in supporting Africa’s green transition, though for example green industrialisation, climate adaptation, sustainable urban development and ecological protection; which were all identified as areas where cooperation could profoundly influence Africa’s development trajectory.   Taken together, these expanding fields of cooperation between China and Africa illustrated how FOCAC has evolved into a multidimensional ecosystem. It is not a single initiative, but a constellation of interlinked programmes that touch almost every aspect of African life, including economic, social, political, cultural, environmental and technological, amongst others. The symposium therefore articulated a vision of cooperation that is not only expansive, but integrative and a system that seeks to address development holistically, rather than piecemeal.     6. Knowledge institutions as architects of the future   If cooperation is to be integrative, then knowledge institutions must be central. This was perhaps the most consistent and unifying theme of the symposium. There was a shared realisation among participants that the future of the China-Africa relationship will be shaped not only by government decisions, but by the intellectual infrastructure that thinkers, scholars, universities and research institutes create.   Prof. Liu Shu (2025) framed the entire symposium as an academic response to President Xi’s call for deeper scholarly engagement, advancing the idea that intellectual labour is foundational, not decorative. And scholars, he argued, do not merely observe the cooperation between the two sides, they conceptualise it, critique it and they provide the interpretive frameworks that shape the policy decisions that impact it.   Dr Yu Guizheng (2025) added depth to this idea by describing academic communities as custodians of interpretive generosity, in that they are institutions that model how to read another culture without distortion, how to absorb complexity without flattening it and how to allow oneself to be transformed by intellectual encounter: a perspective that suggests that scholarship is not only analytical, but also relational, and it builds trust by reducing cultural distance between people’s.   Meanwhile, Zhan Mengshu (2025) provided a practical blueprint for strengthening academic cooperation, which plan proposes research mobility programmes, co-authored publications, joint conferences, interdisciplinary initiatives and policy-oriented research platforms. For Zhan, think tanks and universities are not ancillary to development, they are laboratories of governance innovation.   Odile Bulten (2025) emphasised that the intellectual ecosystem also carries responsibilities. Scholars must hold both African and Chinese institutions accountable and they must ensure that cooperation is transparent, ethical and socially responsive. Her intervention served to remind participants that knowledge institutions are not neutral spaces, but moral actors in their own right. This emphasis on knowledge resonated strongly with Daryl Swanepoel’s (2025) reflection that Africa’s engagement with China must increasingly be guided by Africa’s own intellectual resources, because, he argued, African think tanks must develop the conceptual tools to interpret China from African vantage points. And it must be interpreted not through Western paradigms and not through overly romanticised lenses, but through grounded, rigorous and contextually sensitive analysis.   It was fitting that Berenice Marks (2025), representing youth scholarship, demonstrated that this intellectual future is already emerging. The students honoured at the symposium, for their essays on green development, blue finance, agricultural resilience and sustainable trade, exemplified the next generation of Africa-China scholars. Their work signalled that knowledge cooperation is not a future aspiration, but a living practice already shaping new imaginaries of development.   In this sense, the symposium revealed that think tanks and universities are not simply observers of China-Africa cooperation. They are its architects. They produce the ethical, conceptual and analytical foundations on which future cooperation will rest.     7. Youth and intergenerational imagination   Amid the intellectual, political and cultural depth of the symposium, the voices of young scholars stood out not as an addendum, but as a revelation, because their essays, curated by Berenice Marks (2025) through the G20 essay awards, brought into focus the generational horizon against which China-Africa cooperation must now define itself. If the first twenty-five years of FOCAC established the structural and diplomatic scaffolding of the relationship, the next twenty-five will be shaped by the imaginations and capacities of those who were not yet born when FOCAC began. This intergenerational shift constituted one of the symposium’s most quietly profound moments.   The winning students’ research offered a window into the intellectual consciousness of Africa’s emerging thinkers. Their essays, exploring blue finance ecosystems, opportunities in the grain trade corridors, green development strategy and sustainable agricultural futures, were technically sophisticated, but more importantly, they were conceptually open. They approached their research not through inherited anxieties or romanticised projections, but with a grounded curiosity that has been shaped by their lived realities as young Chinese and Africans that are learning to navigate a multipolar world.   What struck many of the participants was how naturally the youth seemed to integrate China and Africa into their cognitive maps of global development, because unlike earlier generations who grew up in a world structured by Western hegemony and Cold War binaries, contemporary students see the world as a multiplicity of actors, ideas and systems. The African youth, for example, do not perceive China as an external force, but as a normal, inevitable part of the global landscape and one with which engagement is not only possible, but necessary. This generational shift carries enormous implications for the future of China-Africa relations and it means that cooperation will increasingly be shaped not by the logic of geopolitical alignment, but by the logic of shared problem-solving.   For Buyelwa Sonjica (2025), this generational emergence represents one of the most important “intangible deliverables” of the relationship between the two sides. Youth engagement nurtures psychological liberation by expanding the horizons of what Africa believes itself capable of achieving and therefore, when young Africans encounter Chinese innovation, modernisation and cultural self-confidence, they internalise a different story about global possibilities, which is one not limited by the historical narratives of colonial dependency. This shift in self-understanding, she argued, is foundational to development.   From a philosophical standpoint, the symposium’s younger participants offered something even more valuable, they brought into the conversation a sense of temporal humility. They reminded everyone that the institutions, narratives and assumptions shaping China-Africa relations today will be judged, inhabited and revised by people whose relationships to history, culture and identity differ fundamentally from those who currently steer policy. Their imaginations will define the next arc of cooperation more profoundly than any summit declaration.   Youth, then, are not merely participants in the China-Africa relationship, they are its future custodians. Their capacity to think beyond inherited narratives, to engage China and Africa analytically, rather than ideologically, and to situate Africa’s developmental trajectory within a broader global ecosystem gives hope that the next quarter-century of FOCAC, will be more intellectually sophisticated, more culturally grounded and more globally attuned than the last.     8. Looking forward: Toward a shared horizon   As the symposium moved toward its final reflections, it became clear that the participants were not only attempting to assess the past twenty-five years of FOCAC, but also to intuit the shape of its future. And so each voice contributed a different facet of the emerging horizon, which together formed a compelling vision of what China-Africa cooperation could become in the next historical cycle.   For Swanepoel (2025), the future lay in aligning FOCAC with China’s four global initiatives of development, security, civilisation and governance. He argued that these frameworks were not abstract policy instruments, in that they represent a coherent worldview that is rooted in global interdependence. In his reading, the Global Development Initiative (GDI) encourages pragmatic cooperation, the Global Security Initiative (GSI) emphasises stability without coercion, the Global Civilisation Initiative (GCI) affirms cultural plurality, and the Global Governance Initiative (GGI) invites adaptation, rather than imposition, which together offer a philosophical architecture that resonates deeply with Africa’s own aspirations for dignity, agency and self-determined development.   Wang Xiao (2025) offered a further complementary perspective that is rooted in diplomatic experience, by emphasising that China’s path of modernisation, which is marked by poverty reduction, technological advancement and cultural preservation, provides an alternative reference point for African societies seeking to chart their own developmental futures. Importantly, she underscored that China does not present its experience as a model to be copied, but as a set of lessons to be adapted, which  humility, she argued, is essential for sustaining trust in the relationship.   Liu Hongwu (2025), by drawing on his long engagement with African philosophy and political systems, suggested that the next phase of cooperation must embrace an ethic of “civilisational humility,” because, he argued, true partnership requires acknowledging that no single society holds a monopoly on wisdom. China must remain open to learning from Africa’s models of pluralism, social resilience and communal identity and Africa, in turn, must draw from China’s developmental pragmatism and institutional experimentation without subordinating its cultural identity. Hongwu’s reflection restored a moral dimension to the future of FOCAC, which is to be one grounded in mutual learning, rather than competitive assertion.   Zhan Mengshu (2025) projected the conversation into the realm of intellectual architecture and for her, the future of China-Africa cooperation hinges on long-term research collaboration. Joint studies on climate adaptation, digital governance, rural development, peacebuilding, sustainable industry and public administration will produce the intellectual capital that informs policy. Zhan argued that strengthening academic mobility, co-authorship and institutional partnerships will help ensure that cooperation remains analytically grounded and responsive to new challenges.   Meanwhile, Liu Yuankang (2025) envisioned a digitally integrated future in which Africa’s technological ecosystems, fintech, e-government, smart infrastructure and digital trade, become central pillars of cooperation, which digital transformation, he predicted, would reshape not only Africa’s economic life, but also its political institutions, social networks and cultural expressions. Digitalisation, in his telling, is not merely a tool but a new developmental ontology.   Odile Bulten (2025) extended this forward-looking vision by emphasising governance integrity as the backbone of future cooperation, which will become even rmore important as cooperation widens into more complex domains, such as renewable energy, water security, artificial intelligence and environmental protection, transparency and public participation must remain central, because, in her words “without ethical governance, cooperation risks losing legitimacy”. For Ambassador Grobler (2025), the future will require steady diplomatic stewardship, because, as he reminded participants, partnerships only endure when they are cultivated consistently, especially during periods of global instability; and that requires diplomacy, trust-building and institutional continuity as essential anchors.   Finally, the reflections inspired by youth contributions offered the most hopeful dimension of all, being the recognition that futures are not shaped by documents or communiqués, but instead, by imagination. Young scholars demonstrated that Africa approaches China not with deference or suspicion but with clarity, curiosity and critical engagement. The partnership is no longer defined only by senior policymakers, it is alive in the minds of those who will inherit the global order being constructed today.   Taken together, these perspectives pointed toward a shared horizon defined by intellectual depth, moral imagination, cultural respect, ecological responsibility, technological adaptability and political courage.   The symposium agreed that the next twenty-five years of FOCAC will require not only new policies, but so too new philosophical commitments that need to be grounded in empathy, curiosity and a willingness to reimagine global relations from the vantage point of the Global South.     9. Conclusion   By the time the symposium drew to a close, what lingered, was not the particularities of each intervention, but the subtle harmony of the whole, because it became clear that the partnership between Africa and China has moved far beyond the transactional logic that often characterises South-South cooperation. It has become a space where memory, identity, knowledge and aspiration converge. A space where infrastructure is inseparable from meaning, where governance is inseparable from dignity, where culture is inseparable from development, and where imagination is inseparable from policy.   FOCAC at twenty-five is not simply an institutional milestone, it is a philosophical moment. It signals that Africa and China are ready to engage one another at the depth where civilisations speak, not only through trade and investment, but through worldviews, ethical commitments and shared futures. The symposium made visible the full spectrum of voices required to sustain such a partnership: Liu Shu grounding the dialogue intellectually, Swanepoel mapping its structural architecture, Wang Xiao affirming its diplomatic integrity, Liu Hongwu offering its philosophical foundation, Langtry illuminating its cultural memory, Sonjica revealing its moral and psychological dimensions, Yu Guizheng articulating its epistemic humility, Zhan Mengshu expanding its scholarly horizons, Odile Bulten grounding it in governance integrity, Liu Yuankang charting its technological pathways, Ambassador Grobler anchoring it in diplomatic continuity and Berenice Marks showing that the dreams and inquiries of the young will carry the partnership into the next quarter-century.   In this way, the symposium revealed that FOCAC is not merely an agreement between governments, but a site of intellectual and moral co-creation. It is a place where Africa and China learn to think together, to dream together and to confront the deep challenges of the twenty-first century together. And if there is a single insight to carry forward, it is this: partnerships endure when they allow themselves to grow, to deepen, to question, to imagine and, above all, to become more fully human.     10. References   Bulten, O. 2025. Symposium Notes on Governance, Transparency and Civil Society Participation.  Presented at the ISI-IAS Symposium on the 25th Anniversary of FOCAC, Cape Town.   Grobler, G. 2025. Video Address to the ISI-IAS Symposium.  Delivered at the ISI-IAS Symposium on the 25th Anniversary of FOCAC, Cape Town.   Hongwu, L. 2025. Reflections on Global Governance, Civilisational Inclusion and Africa–China Cooperation. Presented at the ISI-IAS Symposium on the 25th Anniversary of FOCAC, Cape Town.   Langtry, S. 2025. Cultural, Historical and Philosophical Reflections on China-Africa Relations.  Presented at the ISI-IAS Symposium on the 25th Anniversary of FOCAC, Cape Town.   Marks, B. 2025. Presentation of G20 Youth Essay Awards and Reflections on Youth Participation in Africa-China Cooperation. Delivered at the ISI-IAS Symposium, Cape Town.   Mengshu, Z. 2025. Research Collaboration and Knowledge Partnership Proposals for Strengthening FOCAC Mechanisms. Presented at the ISI-IAS Symposium on the 25th Anniversary of FOCAC, Cape Town.   Shu, L. 2025. Opening Reflections on the Intellectual Responsibilities of Africa-China Scholarship.  Delivered at the ISI-IAS Symposium on the 25th Anniversary of FOCAC, Cape Town.   Sonjica, B. 2025. Reflections on Identity, Intangible Deliverables and the Moral Foundations of Cooperation.  Presented at the ISI-IAS Symposium, Cape Town.   Swanepoel, D. 2025. FOCAC at Twenty-Five: Institutional Reflections and Future Pathways.  Keynote Address delivered at the ISI–IAS Symposium on the 25th Anniversary of FOCAC, Cape Town.   Wang, X. 2025. Diplomatic Reflections on Mutual Respect and Shared Futures in China-Africa Cooperation.  Delivered at the ISI-IAS Symposium, Cape Town.   Yu, G. 2025. Remarks on Academic Communities as Custodians of Interpretive Understanding.  Presented at the ISI-IAS Symposium on the 25th Anniversary of FOCAC, Cape Town.   Yuankang, L. 2025. Digital Transformation and Africa’s Technological Future: Opportunities for China-Africa Cooperation. Delivered at the ISI–IAS Symposium, Cape Town.   - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 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. Email: info@inclusivesociety.org.za Phone: +27 (0) 21 201 1589 Web: www.inclusivesociety.org.za

Concept note 1/2026 Copyright © 2026   Inclusive Society Institute PO Box 12609, Mill Street Cape Town, 8010 South Africa                                                                       235-515 NPO                  All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without the permission in writing from the Inclusive Society Institute.   D I S C L A I M E R   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.   JANUARY 2026 The concept outlines the Inclusive Society Institute’s approach to the National Dialogue. The Institute’s contribution will be conducted in two phases: Phase 1 will be a high-level conceptualisation presented at the first summit, followed by phase two, which will entail a comprehensive process fleshing out a detailed policy proposal for submission to the National Dialogue in the run-up to the second dialogue schedules for next year.     Background: The National Dialogue   The National Dialogue is a multi-stakeholder initiative aimed at fostering open and constructive engagement among South Africans to address the country’s most pressing socio-political and economic challenges. It has been convened in response to the rising political uncertainty, social fragmentation and economic stagnation. The Dialogue seeks to build consensus around a shared national vision and actionable pathways for reform, by bringing together government, civil society, business, labour and other social actors, who must partner to jointly shape a more inclusive, equitable and sustainable future.   The National Dialogue is premised on the belief that South Africa’s long-term stability and prosperity can only be secured through collective deliberation and action and by creating a structured forum for honest conversation and collaboration, iin order to generate innovative solutions that are owned and driven by the people of South Africa themselves.     The role of the Inclusive Society Institute (ISI)   The Inclusive Society Institute (ISI), with its core mission of promoting a socially just, inclusive and equitable South Africa, regards the National Dialogue as a critical opportunity to contribute constructively to the country’s development path. Recognising that economic transformation and social cohesion are inseparable components of national renewal, the ISI will centre its participation on the interplay between economic growth and social justice.     ISI’s approach: Economic growth underpinned by social cohesion   The ISI will advance the argument that placing the economy on a more acceptable and inclusive growth trajectory is essential, but that such growth must be embedded in a broader framework of social cohesion. This dual focus will ensure that the economic gains are not only sustainable, but are distributed in ways that enhance fairness, that reduce inequality and which fosters unity.   Key tenets of this approach include:   A pro-growth economic agenda and therefore, the ISI will support policies and proposals that aim to enhance productivity, attract investment, foster entrepreneurship and improve job creation, particularly for the youth and historically the marginalised communities.   An economy that is rooted in social justice , which suggests that growth alone is insufficient if it leads to deepening inequality or if it marginalises vulnerable groups and therefore the ISI will advocate for economic policies that are also pro-poor, pro-equity and which ensure access to opportunities, and fair outcomes for all.   Social cohesion as an economic imperative , because social stability, trust and a shared identity are not only moral goals, they are economic assets, in that a cohesive society reduces conflict, improves cooperation and enhances resilience and therefore the ISI will champion initiatives that aim to address demographic fairness, cultural inclusion, equitable representation and the elimination of the systemic barriers to participation.   Demographic and cultural fairness, which means the recognition of South Africa’s diverse social fabric within economic and institutional frameworks and in which representation, cultural acceptance and equitable participation are central to social stability and inclusive development.   Institutional reform and governance  for sustainable economic and social outcomes, which requires a  capable, transparent and accountable institutions and therefore the ISI will support reforms that rebuild public trust and strengthen democratic governance.     The central role of a capable state   While the commitment of the private sector and active citizenry is vital to South Africa’s development, their efforts and ability to contribute meaningfully are dependent on the presence of a capable and effective state, because no amount of goodwill or enterprise can succeed in the absence of the institutional scaffolding that only a competent public sector can provide. Public services, infrastructure, law enforcement, education and healthcare, all of which are essential to economic dynamism and social cohesion and which require a state that is both efficient and trustworthy.   A capable state is not synonymous with a large or omnipresent state, but rather a government that is strategic, focused and disciplined in its use of resources and mandates. The challenge facing South Africa is not necessarily that the state does too little, but rather that it in fact attempts to do too much with the resources at its disposal, thereby stretching its capacity too thin and undermining performance. This is where the principle of "less is more" must guide a rethinking of the public sector’s role and function.   Instead of spreading limited capacity and resources across an overwhelming range of responsibilities, the state should concentrate on a core set of essential functions, where its role is irreplaceable and its impact most significant. These include, among others, maintaining the rule of law, ensuring macroeconomic stability, delivering quality basic education and healthcare, delivering social services, enabling infrastructure and providing a predictable policy environment. By focusing on doing fewer things, but doing them well, the state can rebuild credibility, restore functionality and support the conditions necessary for private initiative and social partnership to flourish.   Moreover, a capable state must be underpinned by a professional public administration, clear lines of accountability, merit-based appointments and an uncompromising stance on corruption. These institutional attributes are not technical niceties, they are preconditions for development. In their absence, even the most innovative private sector or most committed civil society will struggle to gain traction.   A state that is both strategic and capable becomes a partner in, rather than a barrier to, national renewal. It provides the platform upon which shared prosperity can be built, and without which no social compact can be sustained.   Crucially, the ISI believes that it cannot be business as usual, because South Africa cannot continue to do the same things and expect different results and therefore a new trajectory must anticipate necessary sacrifices and a redefined social compact. This includes:   Community service and active citizenship must be encouraged. Cultivating a culture of giving, charity and social responsibility must be cultivated. The tax system should be reformed in order to ensure that the super-rich and multinational corporations pay their fair share. Temporary financial sacrifices by those who can afford them, as part of a broader national effort to build a more stable and cohesive society, must be considered.   These measures must be understood not as punitive actions or idealistic appeals, but as strategic, forward-looking interventions and a deliberate effort to cushion the nation against the inevitable instability that arises when an economy persistently serves only the privileged few. Without such shared sacrifices, the country risks deepening social fractures that could eventually destabilise the very economy these elites depend on and therefore these sacrifices represent an investment in shared prosperity and national preservation.     Expected outcomes   Through its participation the ISI aims to contribute to:   Building a national consensus on inclusive economic growth as a foundational pillar for societal  well-being. Developing policy recommendations that promote both economic performance and social justice. The promotion of stronger collaboration between social partners to implement inclusive development strategies. Enhancing the public discourse on the importance of equity, cohesion and collective responsibility. Building a national commitment to structural change, accountability and long-term shared sacrifice.     Conclusion   The National Dialogue presents a unique and timely opportunity to reimagine South Africa’s future and therefore the Inclusive Society Institute stands ready to offer thought leadership and convening power to shape a path that reflects the values of social justice, inclusivity and fairness.   To turn this vision into a lived reality for all-of-society will require a new paradigm and new thinking that embraces growth, but not without reform and that encourages investment, but not without fairness; and that promotes unity, but not without accountability. Temporary financial sacrifices, community service, and cultural shifts toward greater empathy and inclusion are not burdens, they are safeguards against collapse. They are necessary instruments to avoid the societal rupture that will surely follow if the current economic path continues to favour the few at the expense of the many. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 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. Email: info@inclusivesociety.org.za Phone: +27 (0) 21 201 1589 Web: www.inclusivesociety.org.za

Copyright © 2026   Inclusive Society Institute PO Box 12609 Mill Street Cape Town, 8010 South Africa   235-515 NPO   All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without the permission in writing from the Inclusive Society Institute DISCLAIMER   Views expressed in this report do not necessarily represent the views of the Inclusive Society Institute or its Board or Council members.   This report has been drafted with the assistance of ChatGpt. Original transcripts of the presentations made during a meeting held on 30 October 2025 which have been summarised with the use of the AI tool and then edited and amended where necessary by the rapporteur for correctness and context.   January 2026   Rapporteur: Odile Bulten Editor: Daryl Swanepoel CONTENTS   1 INTRODUCTION 2 THE SCALE AND SPREAD OF VIOLENT EXTREMISM IN AFRICA 3 HISTORICAL EVOLUTION: FROM THE MIDDLE EAST TO AFRICA 4 VULNERABILITIES AND DRIVERS OF VIOLENT EXTREMISM 4.1 Governance collapse and state absence 4.2 Grievances and unmet needs 4.3 Coercion and the search for protection 4.4 Regional spillovers 4.5 Transnational collaboration 5 THE NATURE OF EXTREMIST GOVERNANCE 6 THE LIMITS AND RISKS OF MILITARISED RESPONSES 7 REGIONAL DIFFERENCES AND CASE STUDY: GHANA’S RESILIENCE 8 RECOMMENDATIONS AND ROADMAP 9 ROADMAP 9.1 Short-Term Actions (1-2 years) 9.2 Medium-Term Actions (3-5 years) 9.3 Long-term actions (5+ years) 10 CONCLUSION Cover image: iStock.com | Stock photo ID:458320297   TABLE OF FIGURES   Figure 1: Fatalities linked to militant Islamist groups in Africa by theater Figure 2: Africa’s active militant Islamist groups Figure 3: Timeline of violent extremism and weak governance Figure 4: Ghana’s strategy to combat violent extremism 1 INTRODUCTION   Africa’s struggle with violent extremism has reached a level of intensity that now places the continent among the global epicentres of terrorism. Across multiple regions, extremist groups have entrenched themselves in ways that reveal systemic governance failures, structural vulnerabilities and long-standing grievances that remain unaddressed. The evolution of the extremism in the African context is neither linear, nor is it uniform, it is, in fact, shaped by political transitions, external military interventions, institutional fragility and the daily realities that citizens, who often live far from the reach of the state, have to face. The discussions from a recent expert session on terrorism and extremism in Africa, which was hosted by the Africa Think-tank Dialogue on 30 October 2025,   revealed a comprehensive and worrying picture of how terrorism has expanded in Africa, why it persists and what continues to drive its spread. The insights that are drawn from observation, the data and the region-specific examples cited in the discussions, offer a rich basis for understanding extremism, not as an ideological explosion, but instead, as the outgrowth of political and social conditions that have made large parts of the continent vulnerable to violent actors.   What emerges is a multi-layered narrative that frames extremism as an outcome of political neglect, as a reaction to foreign military presence, as an expression of security vacuums, as a competitor to the state and as a movement shaped by transnational networks. This report reconstructs that full picture in a narrative format that does justice to the richness and details presented in the discussions. 2 THE SCALE AND SPREAD OF VIOLENT EXTREMISM IN AFRICA   In recent years, Africa has become the most affected region in the world in terms of terrorism, and it has now surpassed the traditional hotspots. In so doing, fatalities linked to Islamist militant groups have escalated dramatically and the geography of extremism on the continent has broadened far beyond its original centres.   The data presented in the discussions helps to clearly illustrate the scale of the problem. In 2021, total fatalities from extremist attacks in Africa stood at approximately 16,000, which then rose to 20,000, further surging to 23,000 in 2023, which marked the height of the violence. And although fatalities dipped slightly to 18,100 in 2024, the projection for 2025 shows that they are projected to again rise to 19,500. What is particularly striking in the trendline, is that even in years that the number of fatalities fall, the number of actual attacks do not decline- attacks have shown a consistent upward trajectory from 2021 right through to 2025. These statistics reveal a structural entrenchment which suggests that the extremist violence is not episodic or cyclical, but that it is deepening, widening, and becoming more persistent over time. The Sahel region, specifically Mali, Niger and Burkina Faso, remains the most severely affected areas, with Burkina Faso, at one point, becoming the most impacted country in the world, with extremist violence overtaking the traditionally affected areas in the Middle East and South Asia. Another major hotspot is Somalia, which continues to experience violent extremist operations, despite decades of international and regional counterterrorism efforts. And yet another flashpoint is the Lake Chad Basin, which has also emerged as a critical zone of insurgency, while northern Mozambique continues to experience sustained extremist violence, and North Africa, in turn, is still part of the broader geography of jihadist activity, due to its links to historical extremist networks across the Maghreb.   Across the continent, attacks take different forms, with data categorising them into violence between government forces and militant groups; remote violence, such as improvised explosive devices, bombing campaigns, and airstrikes; and violence against civilians.   Particularly devastating is the killing of civilians, who are frequently targeted either to intimidate populations, punish non-cooperation or demonstrate territorial control. In some settings, civilians account for most fatalities.   A stark figure from the Africa Defence Forum highlighted the severity. On average, 44 people die every single day on the continent as a result of extremist attacks. Combined with the daily frequency of attacks, this positions Africa not merely as a region affected by terrorism, but as a continent undergoing a profound security crisis.   Figure 1: Fatalities linked to militant Islamist groups in Africa by theater Source: Armed Conflict Location & Event Data Project 3 HISTORICAL EVOLUTION: FROM THE MIDDLE EAST TO AFRICA   One of the most revealing insights from the discussion was the explanation on how Africa became the new centre of extremist activity, when the global attention and focus shifted from the Middle East, which has historically been the hub of violent extremism, particularly during the peak years of conflict in Iraq, Afghanistan and Syria. Over time, however, a noticeable shift occurred.   Several factors contributed to this migration, such as intensive military campaigns in the Middle East, which significantly weakened the major extremist organisations in that region; the withdrawal of Western forces from key states, particularly Iraq and Afghanistan, which altered the local power balances; and where local governments in the Middle East have reasserted their control, which has created inhospitable environments for violent extremist groups.   As pressure increased in the Middle East, extremist movements reoriented themselves toward new geographies. Africa, with its vast ungoverned spaces, fragile states, and long-standing governance deficits, became an attractive theatre of expansion.   This shift is being facilitated by transnational networks that have been linking Middle Eastern organisations to many African affiliates. As an example, one can point to ISIS, which was initially rooted in Iraq and Syria, having now developed relationships with local extremist groups across Africa. This has resulted in the emergence of formal ISIS affiliates, joint training, funding flows, and ideological alignment that has strengthened the African extremist groups. In Somalia, the rise of al-Shabaab  serves to illustrate the internal dynamics of this shift, in that it has shown then after the Somali government partnered more closely with foreign military forces, particularly the United States, extremist actors became more militant and aggressive. This also led to al-Shabaab expanding its operations beyond the Somali borders. Simultaneously, clan-based politics intensified the conflict, and anti-foreign sentiment became a key part of its narrative, all of which positioned al-Shabaab as a defender of the Somali identity against perceived external domination. Thus, extremism in Africa cannot be understood without reference to its evolution from a Middle Eastern-centred to a pan-African problem, which has been facilitated by global extremist networks and local vulnerabilities.   Figure 2: Africa’s active militant Islamist groups Source: Africa Center for Strategic Studies   4 VULNERABILITIES AND DRIVERS OF VIOLENT EXTREMISM   The discussion identified multiple drivers of violent extremism, all of which operate simultaneously and reinforce one another, and they are not primarily ideological in nature. It is in places where government failure, insecurity and social exclusion grows that fertile ground for extremism flourishes.   Key vulnerabilities include: 4.1 Governance collapse and state absence   In areas where the state’s presence is minimal or non-existent, extremist actors have stepped in, which development has left entire regions of Africa outside the effective reach of their national institutions. Schools, courts, hospitals, and administrative services are absent, and it is in such environments that extremist groups fill the void by offering governance in the form of dispute resolution, taxation, protection, and social regulation.     4.2 Grievances and unmet needs   Radicalisation often begins not with ideology, but with grievance, for example when individuals and communities seek solutions to long-standing problems, such as land conflicts, unemployment, corruption or insecurity, because, when the state does not help its citizens, it creates a void that extremist organisations fill by presenting themselves as actors who can. 4.3 Coercion and the search for protection A poignant insight from the discussions is that many civilians often turn to extremist groups, not because they support them, but because they seek protection from abusive or ineffective governments. Widespread civilian casualties caused by military operations, particularly those carried out “without data” or precision, push populations closer to militants, and in some cases, foreign forces deployed by African governments, notably from Russia, have been implicated in abuses, which has strengthened public sympathy for extremist groups. 4.4 Regional spillovers When instability in one country intensifies, extremist actors shift into neighbouring states, creating a regional diffusion that continually expands the geographical reach of terrorism, which complicates the counterterrorism efforts. 4.5 Transnational collaboration   Moreover, local extremist groups gain strength when they receive support, affiliation and/or legitimacy from global extremist enterprises, such as ISIS.   These drivers explain why the foothold that extremist organisations have established throughout Africa is deepening.   Figure 3: Timeline of violent extremism and weak governance Source: Adapted from Africa Centre’s Literature by Dr. Edknowledge Mandikwaza, Post Doctoral Researcher, University of Pretoria   5 THE NATURE OF EXTREMIST GOVERNANCE   Another central theme is the governing role that extremist organisations assume in areas where the state has retreated.   Extremist governance takes several forms:   Resolution of disputes are often resolved through harsh, but swift “justice” systems. Protection is provided by the extremists, albeit through coercion. The extremists also install taxation and revenue systems, which systems mirror rudimentary state functions. Community activities are often regulated by the extremists in order to create a predictable, albeit oppressive, order. This governance role explains why some communities tolerate the rule by the extremists. It is not ideological alignment, it is survival, because when the state does not provide basic services, people turn to whichever actor fills that space.   The contest between the state and extremists is therefore a contest for legitimacy and not just territory and, even if their rule is violent, extremists gain legitimacy when they are perceived to be more reliable than the state.     6 THE LIMITS AND RISKS OF MILITARISED RESPONSES   The discussion raised deep concerns about the often over-securitisation of African responses to the extremism, with participants noting that despite African states devoting enormous resources to military solutions, the number of extremist groups continue to expand.   Several risks were identified:   The overreliance on force ignores the root causes giving rise to the extremism, such as governance deficits, a lack of services and social grievances, amongst others. Extremist recruitment is fuelled when military operations cause civilian casualties. The situation is sometimes worsened when the forces of foreign security partners, such as Russia, behave abusively. The weak national defence capacities have left states dependent on external military actors, who often do not prioritise local civilian protection over military success.   The result is a widening gap between communities and the state, because when people lose trust in government security forces, they may align, willingly or reluctantly, with extremist actors who appear more responsive or less abusive. Thus, security operations, while necessary, should be part of, but not be the primary strategy.   7 REGIONAL DIFFERENCES AND CASE STUDY: GHANA’S RESILIENCE   A compelling part of the discussion was when the question was posed as to why Ghana, which is surrounded by countries affected by extremism, has remained relatively unscathed by it.   The explanation was multi-dimensional:   Ghana’s democratic governance has strengthened citizens’ trust in the state and its institutions. The interfaith dialogue mechanisms have help to keep religious tensions from escalating. The ethnic and cultural dialogue platforms have promoted and sustained social cohesion. Ghana has a strong and vocal civil society, which is integrated into the security-sector governance. Proactive security measures create early warning capacity. The information environment is more open and it allows for grievances to surface without having to resort to extremist channels. The resilience displayed by Ghana, demonstrates that violent extremism need not be inevitable, in that where there is strong governance, inclusive civic institutions and coherent social cohesion systems, vulnerability is dramatically reduced. It stands in sharp contrast to regions where civil society is weak, for example in Burkina Faso and Somalia, where early warning systems failed and where populations were left exposed.   Figure 4: Ghana’s strategy to combat violent extremism Source: Civil Society Alliance Against Violent Extremism (CAAVE Ghana) 8 RECOMMENDATIONS AND ROADMAP   Drawing on the insights from Ghana’s resilience and the broader challenges faced by neighbouring countries, the following recommendations form a living narrative of resilience, where governance, dialogue, civil society, security, information, structural reform are combined to strengthen national and regional responses to violent extremism for sustainable impact.   The Roadmap  emphasises that the fight against violent extremism requires a holistic approach - one that unites strong governance, inclusive civic institutions, robust early warning systems and regional collaboration. By learning from Ghana’s experience and by proactively addressing governance deficits, countries across Africa can build the resilience and collective determination needed to withstand and overcome the threat of extremism.   They need to strengthen democratic governance by Investing in transparent, accountable and participatory governance structures that foster public trust, and governments should prioritise reforms that enhance the legitimacy of state institutions in order to ensure equitable service delivery, particularly in vulnerable communities. They need to promote interfaith and intercultural dialogue by establishing and by supporting platforms for sustained dialogue among religious and cultural groups, and these mechanisms should be institutionalised in order to proactively address tensions, to prevent escalation and to foster mutual understanding and respect amongst the various religious groups. They need to empower civil society organisations through the integration of  robust civil society actors into security-sector governance and policy-making. So too they should support capacity building for grassroots organisations to serve as early warning systems and effective channels for conveying community grievances. They need to enhance early warning and proactive security measures through the development of comprehensive early warning frameworks that combine community intelligence with technological tools, and which strengthen coordination between local, national and regional security agencies so as to ensure rapid responses to emerging threats. They need to foster an open information environment by safeguarding media freedom and by creating avenues for open expression of grievances, and by encouraging responsible reporting and information sharing in order to counter the extremist narratives and to provide sufficient space for peaceful dissent. These countries also need to address their structural governance deficits by implementing reforms aimed at improving access to justice, basic services and inclusive economic opportunities, particularly in marginalised areas; and this includes prioritising the restoration of state legitimacy and community trust where such has eroded. They need to strengthen regional cooperation by enhancing cross-border collaboration through shared intelligence, joint operations and harmonised legal frameworks, and regional bodies should facilitate dialogue and coordinated action against transnational extremist threats. 9 ROADMAP   9.1 Short-Term Actions (1-2 years):   Countries ought to conduct national and regional assessments in order to identify governance gaps and at-risk communities, which they can begin doing by implementing targeted governance reforms and by focusing on service delivery and justice in vulnerable regions. They should establish and/or reinforce interfaith and intercultural dialogue platforms in hotspot areas under their jurisdiction. They ought to launch public awareness campaigns on the importance of state legitimacy, social cohesion and peaceful grievance redress; and they should initiate capacity-building programmes for local leaders, civil society and community-based organisations. They ought to develop and operationalise early warning and rapid response systems in collaboration with civil society.     9.2 Medium-Term Actions (3-5 years):   They must institutionalise inclusive governance mechanisms and ensure regular civil society engagement in order to improve security-sector oversight. They must expand regional cooperation initiatives, including intelligence sharing and border management, amongst other actions that are aimed at securing stability. Monitor and evaluate the impact of interventions by adapting strategies based on lessons learned and evolving threats.     9.3 Long-term actions (5+ years):   African countries should consolidate reforms by embedding best practices into their national policies and their legal frameworks. They should promote regional integration so as to ensure a sustained collective security and resilience against the violent extremism. Continue to foster civic education, interfaith harmony and responsive governance in order to address root causes of extremism. 10 CONCLUSION   The African continent is confronting an era of rising extremist violence, which is marked by an expanding geography, increasing frequency of attacks and a deepening of civilian suffering. The available security data reflects an escalation in fatalities, rising daily death tolls and a widening spread of attacks across regions, which, read together, underscores an undeniable fact that the continental security landscape is under immense strain. But, extremism is not merely a military threat, it is also a symptom of structural governance challenges, in that states are failing to provide basic services, security, justice and inclusion, which is creating a vacuum that extremist groups then exploit. This is so, because when communities feel abandoned or abused, they may shift their loyalties for purposes of self-preservation. Moreover, weak regional coordination allows extremists to move across borders unimpeded. In contrast to this, Ghana’s counter-narrative has shown that strong governance, robust civil society, interfaith harmony and proactive security measures can build resilience and national immunity against violent extremism. By following the proposed recommendations and roadmap, African states can transform the fight against extremism from a reactive struggle into a proactive strategy of governance renewal, which will strengthen social cohesion and community empowerment, and which will ultimately reclaim legitimacy and achieving sustainable peace.   - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 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. Email: info@inclusivesociety.org.za Phone: +27 (0) 21 201 1589 Web: www.inclusivesociety.org.za

The Inclusive Society Institute’s Chief Executive Officer, Mr Daryl Swanepoel, undertook a study visit to Finland from 1 to 5 December 2025 to explore the country’s internationally renowned multilingual education system. Finland, where both Finnish and Swedish enjoy equal constitutional status as official languages, offers an instructive model of mother-tongue education, dual-language rights and cultural preservation. The purpose of the visit was to examine whether aspects of the Finnish model could offer insights for South Africa, especially regarding the design and governance of co-located schools. In Finland, it is not uncommon for more than one autonomous school, each with its own language of instruction, identity and management, to operate within a single shared facility. This arrangement allows for efficiency without eroding linguistic autonomy, an issue of major relevance for South Africa as debates continue about the future of bilingual and multilingual schools. In South Africa, many bilingual schools merge multiple languages of instruction into one institutional structure. While this model aims to promote inclusivity, it raises important questions: What impact does merged-language schooling have on children’s cognitive development?  And what are the long-term implications for the preservation, nurturing and development of languages such as isiZulu, isiXhosa, Sesotho, Setswana and Afrikaans, particularly in a context where anglicisation has been steadily increasing? These were among the questions guiding the Institute’s engagement in Finland. During the visit, Mr Swanepoel met with a range of experts from the Finnish Ministry of Education and Culture, Folktinget (the Swedish Assembly of Finland), representatives from the Ministry of Justice, and several academics from the University of Helsinki’s Faculty of Education. The discussions provided deep insights into the governance structures, pedagogical philosophies and linguistic rights frameworks that underpin Finland’s success in sustaining two vibrant national languages. A key part of the programme included an onsite visit to Mattlidens Skola in the City of Espoo, a unique education complex where three independent schools operate within one shared facility. This visit offered practical exposure to the daily functioning of a co-located model, how space is shared, how school identities are maintained, and how learners experience both autonomy and interaction within a common environment. The study tour forms part of the Inclusive Society Institute’s ongoing work on education reform, social cohesion and the promotion of multilingualism in South Africa. As the Institute continues its research, the Finnish experience will serve as a valuable reference point for policy reflection and potential innovation within the South African schooling landscape.

Briefly defined by its presentation on the website, the Arab League Educational, Cultural and Scientific Organization (ALECSO) is a Tunis-based specialized institution working under the umbrella of the League of Arab States. It is essentially concerned with the development and coordination of the activities related to education, culture, and sciences in the Arab World. It was established by virtue of Article 3 of the Arab Cultural Unity Charter and was officially announced in Cairo on July 25, 1970. As stated in Article One of its Constitution, ALECSO was established to promote Arab intellectual unity through education, culture, and sciences, and enhance the educational, cultural, and scientific level in the Arab World so that it can positively contribute to universal civilization. Within this overall objective, the Faculty of Economics at the University of Tlemcen, Algeria, has received the agreement to establish a  Chair in Taxation, Public Finance of the State and Local Authorities  in 2021,  currently headed by Honorary Chair, Professor Zine Barka .    The Chair has two main missions: To create a forum for reflection on the challenges and effects of fiscal policy on the economy of African countries, as well as on taxpayers and businesses. To establish a network of researchers and practitioners to conduct comparative research on the effectiveness of public finances in the reduction of poverty and the improvement of public services.   ALECSO is aligned with the work of the Global South Perspectives Network (GSPN) by promoting development coordination between and within Think tanks in the Global South. It also emphasises the importance of inclusive dialogue and representation in global governance, advocating for the voices of marginalized communities to be heard and considered in decision-making processes..

Copyright © 2025   Inclusive Society Institute   PO Box 12609 Mill Street Cape Town, 8010 South Africa   235-515 NPO   All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without the permission in writing from the Inclusive Society Institute   DISCLAIMER   Views expressed in this report do not necessarily represent the views of the Inclusive Society Institute or its Board or Council members.   D E C E M B E R 2 0 2 5   Author: Dr Roelof Botha & Prof Ilse Botha Editor: Daryl Swanepoel CONTENT INTRODUCTION SECTION A: Interest rates, monetary policy and the economy 1 PERVASIVE IMPACT OF MONETARY POLICY 1.1 Policy impact during and after the Covid-19 pandemic 1.2 International trade and capital flows 1.3 Monetary policy should be conducted with caution 1.4 Monetary policy objectives 1.5 Economic policy choices 1.6 Monetary policy under the spotlight 2 THE TRUE REASONS FOR HIGHER INFLATION 3 INFLATION EXPECTATIONS – A DUBIOUS EXERCISE 3.1 Unreliable household forecasts 3.2 Volatility of forecasts 3.3 Deviation of forecasts from actual inflation 3.4 Sensitivity to fiscal policy 4 HIGH INTEREST RATES IN EMDEs LEAD TO LOWER GDP GROWTH 4.1 Evidence from key emerging markets 4.2 Public finance stress depresses private consumption expenditure 4.3 Research on 38 developing countries 4.4 The case of Australia 4.5 The case of 20 industrialised economies 4.6 Negative impact on capital formation 5 MONETARY POLICY REQUIRES TAILORING IN EMDEs 5.1 Differences in the transmission of policy 5.2 Higher passthrough rate of cost shocks 5.3 Uneven ability for fiscal stimulus 6 SPIKE IN US TARIFF REGIME 7 RESTRICTIVE MONETARY POLICY AGGRAVATES SUPPLY-SIDE COSTS 7.1 The bluntness of monetary policy 7.2 Amplification of supply-side inflation 8 DIFFERENCES IN THE BASE FROM WHICH RATES WERE HIKED 9 UNEASE OVER GLOBAL FINANCIAL AND FISCAL STABILITY 9.1 The danger of a credit crunch 9.2 Bank failures in the US and Switzerland 9.3 US banks take a hit 9.4 Haunting memory of the 2008 financial crisis 10 THREATS TO FUNDAMENTAL ECONOMIC STABILITY IN EMDEs 10.1 The finance divide between AEs and EMDEs 10.2 Threat to fiscal stability 11 GROWING PUBLIC DISCONTENT WITH HIGH INTEREST RATES 12 INFLATION THRESHOLDS – DEVELOPING COUNTRIES 12.1 Study by Nell (2023) 12.2 Study by Meyer and Hassan (2024) 12.3 Study by Bonga-Bonga and Lebese (2019) 12.4 Money supply endogeneity 13 THE STRATEGIC IMPORTANCE OF EMPLOYMENT CREATION 13.1 Virtuous circles of prosperity and opportunity 13.2 The scourge of unemployment 13.3 Far-reaching negative psychosocial impact 13.4 Employment losses in the UK 13.5 The role of private sector investment 14 HIGHER LEVELS OF INEQUALITY 15 GLOBAL INFLATION LARGELY UNDER CONTROL 16 BENEFITS OF MILD INFLATION IN DEVELOPING COUNTRIES 16.1 Growth via stimulating demand 16.2 Foreign exchange constraints can be overcome 17 NEW-FOUND FLEXIBILITY WITH INFLATION TARGETING   SECTION B: The damage to South Africa’s economy of unduly high interest rates 1 DECIMATION OF CONSTRUCTION ACTIVITY 2 VALUE OF BUILDING PLANS IN FREE-FALL 3 HOME LOAN APPLICATIONS STILL DOWN ON 2021 FIGURES 4 AVERAGE HOME PURCHASE PRICES IN DECLINE 5 FINANCIAL RESILIENCE OF HOUSEHOLDS UNDER PRESSURE 6 THE PLIGHT OF THE SMALL BUSINESS SECTOR 6.1 SMEs struggle to access sufficient credit 6.2 Majority of SMEs in distress 7 SHARP INCREASE IN HOUSEHOLD DEBT COSTS 8 INFERIOR GDP GROWTH TO EMERGING MARKET PEERS 9 AGGRAVATION OF INCOME INEQUALITY 10 LOWER UTILISATION OF MANUFACTURING CAPACITY 11 CAPITAL FORMATION REMAINS IN DECLINE 12 INSUFFICIENT DEMAND 13 SHARP DECLINE IN HOUSEHOLD CREDIT EXTENSION 14 LOWER PER CAPITA DISPOSABLE INCOMES 15 NEGLECT OF THE OBJECTIVES OF GROWTH AND JOB CREATION SECTION C: Modelling the impact of lower interest rates on the GDP 1 INTRODUCTION 2 DATA AND SAMPLE 3 METHOD AND ANALYSIS 4 ASSUMPTIONS AND FORECASTS SECTION D: Calculation of GDP impact via a lower household debt cost ratio CONCLUSIONS Precis – self-inflicted economic pain Section A Section B Section C Section D Recommendations Postscript BIBLIOGRAPHY Cover photo: istock.com - Stock photo ID:1772907466   INTRODUCTION   During 2021, the South African economy managed to stage a swift recovery from the worst effects of the lockdowns induced by the Covid pandemic in 2020, only to be halted in its tracks from 2022 onwards, when a low growth trajectory kicked in. Although various structural impediments, including the poor state of the country’s logistics infrastructure, contributed to the declining trends in most key macroeconomic indicators, it has become clear that the restrictive monetary policy stance of the MPC since 2022 represents one of the reasons for low growth, a further erosion of the real value of household disposable incomes and higher unemployment - in an environment where households were still struggling to recover from the effects of the lockdowns - all of which are threatening the country's fiscal stability. The latter, in turn, is restricting the ability of the public sector to fund the repair and expansion South Africa’s infrastructure – a sine qua non for achieving economic growth commensurate with the mammoth task of creating jobs for millions of impoverished citizens and thereby easing the extent of income inequality.   Replicating the monetary policy approach followed by advance economies (AEs) in emerging markets and developing economies (EMDEs) is fraught with danger, as the latter group are, to a varying extent, faced with pressures on price levels that are not comparable to the more predictable macroeconomic circumstances in North America, the European Union and other high-income countries. It borders on the ludicrous to expect a similar response to monetary policy tightening between AEs and EMDEs that have relatively underdeveloped transmission mechanisms from interest rates to the real sectors of the economy and that are prone to volatile exchange rates.   The main purpose of this study is to provide quantitative evidence of the widespread damage that has been inflicted on the South African economy by a monetary policy approach that is ill-designed for an emerging market & developing economy (EMDE). This is especially true for a country located at the southern-most tip of a continent that has an exceptionally high level of income inequality, low per capita incomes, very low rates of capital formation and is far removed from the lucrative consumer markets in North America, Europe and South-East Asia and that is battling with high levels of unemployment of mostly unskilled or low-skilled labour, co-existing with shortages of high-skilled labour.   Section A provides an overview of the relationship between interest rates and an economy’s ability to expand output and employment creation, with specific reference to the need for fiscal stability, based on scholarly research and empirical data. Due reference is made to two significant events that have re-ignited interest in the impact of a particular monetary policy approach on macroeconomic stability in general. These are, firstly, the so-called sub-prime financial crisis that originated in the US and quickly spread to most other advanced economies and emerging markets alike. The second was the recent Covid-19 pandemic, which, outside of the on-going scourge of HIV/Aids, has caused more deaths than any other pandemic since the Spanish influenza of more than a century ago.   Emphasis is placed on providing readers with a thorough understanding of the causes of the unparalleled global spike in supply-side costs between 2020 and 2021, which led to several central banks raising their official interest rates to levels last witnessed between one and two decades ago. Substantial reference is made to empirical research on the impact of high interest rates on economic growth and employment creation, which involves a rather predictable inverse relationship, especially in EMDEs. The specific impact of higher interest rates in the US on macroeconomic stability in EMDEs is also discussed, due to its particular relevance to South Africa, where the monetary policy authorities mimicked the US Federal Reserve’s relentless pursuit of restrictive monetary policy during 2022 and 2023.   Reasons are provided for the view that monetary policy in EMDEs should be approached with more caution than in AEs, especially due to differences in the policy transmission mechanism, as well as the fiscal threats inherent in depreciating currencies (as a result of higher US interest rates being associated with a stronger US dollar). Growing unease over global financial and fiscal stability in the wake of exceptionally restrictive monetary policy since 2022 is also discussed (with reference to recent bank failures in Switzerland and the US).   This is followed by an overview of recent research on an ideal threshold for inflation in EMDEs, with a clear indication that more flexible target ranges with relatively higher upper target points are required to prevent unduly adverse effects on output and unemployment. It is pointed out that structural inflation and, to a lesser extent, cost inflation, are the natural and unavoidable outcomes of the growth and development process in developing economies. The dire need for sufficient economic growth to prevent unduly high levels of unemployment is also discussed, followed by confirmation of the consequences on inequality of unduly high interest rates.   The penultimate sub-section discusses the benefits of mild inflation for EMDEs, which is mainly informed by the Kaldor-Thirlwall model, based mainly on the way inflation finances fixed investment by businesses, leading to faster economic growth. Section 1 concludes with a note on the new-found flexibility with the practice of inflation targeting, against the background of the fact that this policy approach remains prone to scholarly criticism and has not found universal appeal in EMDEs. A focal point throughout the discussions in section 1 is the threat to output and labour market stability imposed by excessively high interest rates, especially due to the amplification of supply-side shocks and disincentivising of venture capital and investment in new productive capacity in the economy.   Section B identifies several areas where the record high interest rates of 2023 and 2024 have led to a depressing effect on key economic indicators. It is pointed out that, ever since the retirement of the previous Governor of the South African Reserve Bank (SARB), Me Gill Marcus, a dramatic and unfortunate shift has taken place in the conduct of monetary policy. The extent of the damage inflicted on the economy by the increase of 475 basis points in the benchmark commercial lending rate (via the SARB’s official repo rate) is discussed in some detail, with reference to the following (inter alia) :   Sharp declines in construction activity A structural decline in the value of building plans passed Lower levels of home loan applications Declining house prices (in real terms) The distress faced by a majority of small businesses Lower household disposable incomes (in real terms) Aggravation of income inequality Endemic decline in new investment in productive capacity in the economy Decline in household credit extension Sharp rise in unemployment   An econometric analysis of the difference between South Africa’s actual GDP and the output level that would have been achieved with an assumed lower commercial lending rate is provided in section C, which also includes a quantification of the extent to which GDP and total taxation revenue would have increased under two assumed lower ratios of household debt costs to their disposable incomes. Following the customary key conclusions, a number of recommendations are provided, aimed at redressing the decline of South Africa’s economic disposition. This includes a suggested amendment to the composition of the MPC, in order to create a more balanced and informed institution responsible for setting lending rates - the economic indicator that has the single most important bearing on household consumption expenditure, new investment in productive capacity in the economy, economic growth and, ultimately, fiscal revenues and employment creation. SECTION A Interest rates, monetary policy and the economy   1 PERVASIVE IMPACT OF MONETARY POLICY   The economic performance of AEs and EMDEs are permanently influenced by a wide range of policies, most notably fiscal and monetary policy. The latter mainly centres on the control over the benchmark interest rate at which a central bank accommodates the banking sector. In South Africa, this rate is known as the repo rate (an acronym for “repurchase rate”), which is the interest rate at which the South African Reserve Bank (SARB) lends money to commercial banks.   The repo rate is a benchmark for all other interest rates in the South African economy. When the SARB increases the repo rate, it is a signal to commercial banks to raise their interest rates, which leads directly to an identical percentage point increase in the prime overdraft rate of banks. The latter rate is the benchmark for determining the other interest rates on loans and credit facilities for consumers and businesses, including mortgage bond rates. The latter represents the interest rate which determines the debt service cost for the predominant component of total credit extension to households.   After a long spell of relatively low global inflation, things changed abruptly in mid-2020. Consumer price inflation in the US rose by 850 basis points between June 2020 and June 2022, mainly as a result of the oil price shock that followed the lockdown imposed by the Covid-19 pandemic, as well as Russia’s military invasion of Ukraine. The latter act was condemned by the UN General Assembly on 2 March 2022 when it adopted - by an overwhelming majority of 141 against 5 - a resolution rejecting the Russian Federation's brutal invasion of Ukraine and demanding that Russia immediately withdraw its forces and abide by international law.    Combined with Covid-19 lockdowns, which virtually halted international shipping freight, this resulted in a five-fold increase in the oil price, leading to inflationary spikes in all of the AEs and EMDEs. As a result, monetary policy was thrust into the limelight again, with central banks in most countries resorting to a familiar policy option, namely raising interest rates, in an attempt to bring inflation back to target ranges or target points. Many economists and analysts have questioned this policy priority afforded to combating inflation, due to its negative impact on the interest-sensitive components of aggregate demand and, ultimately on output and unemployment.   Three key causal sequences can be identified for the transmission mechanism whereby interest rates impact on the economy, namely:   The influence on investment, aggregate demand, employment and income Changes in interest rates change the market values of financial assets Changes in interest rates income distribution, and therefore also income inequality   Interest rates are a crucial aspect of modern economies, as they influence the cost of borrowing, investment, and spending decisions made by individuals, firms, and governments. 1.1 Policy impact during and after the Covid-19 pandemic The central bank, usually through its monetary policy, sets benchmark interest rates to control the supply of money, maintain price stability, and support overall economic growth. In recent years, many central banks have kept interest rates low to support their economies during the COVID-19 pandemic and its associated economic downturn. This led to lower borrowing costs for consumers and businesses, boosting spending and investment and, in the process, facilitating a swift recovery from the Covid-19 pandemic. Unfortunately, however, price shocks related to an unheard-of increase in transportation costs, led to a reversal of accommodating monetary policy in 2022 in many countries, taking the US Fed Funds rate to its highest level in more than 20 years.     1.2 International trade and capital flows   Interest rate changes can also have significant impacts on international capital flows, currency values, and trade balances. In general, higher interest rates in one country relative to other countries can attract foreign portfolio investment, leading to an appreciation of its currency. The downside of higher lending rates is the disincentive for domestic firms to engage in capital formation (due to the increase in the cost of borrowing), whilst higher rates also discourage household consumption expenditure on durable and semi-durable goods.     1.3 Monetary policy should be conducted with caution   Interest rates are a powerful tool that central banks can use to influence economic activity, but they can also have far-reaching and sometimes unintended consequences. As such, it is important for policymakers to consider all factors before making changes to interest rate policy, including the state of the economy and its supporting infrastructure, the unemployment rate, the nature of inflation, and financial stability risks.   Despite interest rates representing a vital tool for a measure of control over inflation, it is a rather blunt instrument that works with little precision. When the prime rate is adjusted (via the repo rate), it creates a ripple effect throughout the economy, affecting borrowers and savers and, ultimately, the level of household consumption expenditure and productive capital formation by the private sector.   Policy-induced changes to interest rates require a thorough understanding of the sensitivities of the different sectors and economic activity in general to interest rates.     1.4 Monetary policy objectives   As a result, there are constant and necessary economic debates about the channels of transmission and efficacy of monetary policy in achieving key economic objectives, mainly is the following areas :   Economic growth (measured by the gross domestic product – GDP) that is sufficient to achieve full employment of the labour force (whilst allowing for a measure of “frictional or voluntary unemployment”) Adequate and timely investment in infrastructure and private sector investment in new productive capacity – an objective that has been long ignored in South Africa as a result of the era of state capture under the previous head of state, combined with incompetence within many public sector agencies, most notably municipalities. The expansion of infrastructure falls in the domain of fiscal policy, which may also include changes to the taxation regime, which is used to incentivise or disincentivise consumption and investment. Price stability, which is determined by the levels of consumer and producer inflation. In South Africa (as in all AEs and most EMDEs), this objective is being pursued by means of a target range for inflation, which is determined by the central bank, usually with the approval of government.     1.5 Economic policy choices   In the process of determining the most suitable combination of fiscal and monetary policies, the relevant authorities are often confronted with a choice between the objectives of economic growth and price stability. At a certain point, higher interest rates have a predictable negative impact on credit extension to households and businesses, therefore stifling demand and supply in the economy, which leads to lower growth and, quite often, higher unemployment. Conversely, when interest rates are lowered, banks can borrow money at a cheaper rate, leading to a broad-based increase in spending and economic activity, most notably via more affordable home loans, vehicle finance and other forms of credit.   It is important to note that EMDEs do not possess the same level of development as post-industrial economies and, as a rule, have to cope with higher growth in their labour forces, therefore necessitating a more delicate balance between price stability and economic growth. Substantial scholarly research has been conducted that confirms the presence of a structurally higher level of inflation in EMDEs than in AEs (World Bank 2018).   It is therefore crucial for central banks in developing countries not to merely mimic the inflation targets of countries like the US and those in the European Union, especially when high unemployment co-exists with relatively high inflation. An unduly restrictive monetary policy stance that leads to further increases in unemployment, could foster public discontent, ultimately threatening socio-political stability.     1.6 Monetary policy under the spotlight   Since the turn of the 21 st  century, two significant events have re-ignited interest in the impact of a particular monetary policy approach on macroeconomic stability, especially the generation of sufficient economic output to keep unemployment in check and to ensure adequate fiscal revenues to sustain expenditures on basic public services. The first was the so-called sub-prime financial crisis that originated in the US and quickly spread to most other advanced economies (AEs), thereby ending a decade-long phase of stable and predictable growth, combined with low inflation that was present in most AEs and Emerging Market Economies.   The dust had hardly settled on global central bank interventions aimed at relieving stress on financial markets and combating a rising inflationary trend when the Covid-19 pandemic struck the world with a vengeance. Outside of the on-going scourge of HIV/Aids, no other pandemic has caused more deaths since the Spanish influenza of 1918. The Covid-19 pandemic caused global financial system stress and plunged most economies into a sharp, but brief recession. It was subsequently accompanied by the most severe spike in consumer price inflation in half a century, mainly due to supply-side shocks in the form of unheard-of increases in transport and energy costs.   The IMF rose to the challenge and swiftly provided financial assistance and debt service relief to member countries facing the economic impact of the Covid-19 pandemic. By the second quarter of 2020, the IMF had made approximately $250 billion (a quarter of its $1 trillion lending capacity), available to member countries for debt service relief, noting the strain that the lockdowns had placed on the ability of economies to produce goods and services and the resultant decimation of taxation revenue flows in the short term. South Africa was one of 90 countries that benefited from the IMF’s interventions via its Catastrophe Containment and Relief Trust.   Since then, however, the initial swift economic recovery from the worst of the Covid lockdowns was stymied by the decision of many central banks around the globe to combat rising inflation rates with a pronounced shift to restrictive monetary policy, leading to the highest interest rates in almost two decades. 2 THE TRUE REASONS FOR HIGHER INFLATION   It is perplexing to note that the MPC recently claimed the credit for a lower inflation rate when, in fact, the decline in the consumer price index (CPI) was mainly the result of a steep decline in the producer price index – caused by a normalisation of oil prices and global freight shipping charges. As a result of the Covid pandemic and the Russian military invasion of Ukraine, the latter two key cost factors increased five-fold and eight-fold, respectively, over a period of less than eight quarters, which led to an unheard-of escalation in global price indices.   Transport costs represent a significant part of the composition of cost-push inflation within most sectors of the economy and South Africa did not escape the negative impact on the producer price index (PPI) and the consumer price index (CPI).   Figure 1: Brent crude oil price (Source: World Bank)   Figure 1 illustrates the rapid and significant rise in the price of Brent crude oil over a two-year period (between the second quarter of 2020 and the second quarter of 2022), followed by a predictable declining trend as the global economy started to normalise after the Covid-19 lockdowns. Not even an attempt by the Opec+ countries to cut oil production during the first half of 2024 could halt the downward trend in global oil prices, due mainly to a combination of excess supplies, subdued global growth and a sustained transition to renewable energy sources.   At the end of September 2025, the price of Brent crude oil had declined by 41% from its level on 10 June 2022, which represents a key reason for the sustained decline in South Africa’s PPI to its average level for 2025 of less than one per cent – raising questions over the MPC’s refusal to lower interest rates more aggressively to pre-Covid levels once it had become clear that both consumer and producer inflation had peaked during the third quarter of 2022.   Furthermore, the monetary policy authorities seem to have placed insufficient weight to the impact and role of the record increase in seaborne freight shipping costs between the first quarter of 2020 and the third quarter of 2022 (see figure 2). It is impossible for higher interest rates to curb the increase in this type of input cost, which was mainly caused by the erratic and unpredictable closure and re-opening of harbours around the world. Figure 2: Global container freight rate index (Sources: Statista; Drewry)   As pointed out by Carrière-Swallow et al.  (2022), the Covid-19 pandemic underscored the crucial role of the maritime container trade in the global economy. The lockdowns imposed by governments around the world upended supply chains, with ports closing and reopening in unsynchronised fashion, thereby extending the negative impact of harbour closures on maritime shipping costs. In some countries, most notably the US, pent-up demand from fiscal stimulus programs during the lockdowns overwhelmed the capacity of global supply chains, ultimately also extending to increases in other transport-related costs.   The result of the upheaval in global freight shipping resulted in an eight-fold increase in the cost of shipping a container on the world’s ocean trade routes between the first quarter of 2020 and the third quarter of 2021, while the cost of shipping bulk commodities rose even more. Research by the IMF confirmed that the inflationary impact of these higher costs was likely to continue into 2022, with the war in Ukraine also likely exacerbating global inflation.   Studying data from 143 countries over the past 30 years, Carrière-Swallow et al. (2022) found that shipping costs are an important driver of inflation around the world: when freight rates double, inflation picks up by about 0.7 percentage point. Most importantly, the effects are quite persistent, peaking after a year and lasting up to 18 months. This implies that the increase in shipping costs observed in 2021 could increase inflation by about 1.5 percentage points in 2022. Their research also found that, due to the high volatility of shipping costs, their contribution to the variation of inflation can be regarded as quantitatively similar to the variation generated by shocks to global oil and food prices.   It is clear from data published by UNCTAD (2025) that maritime transport represents the backbone of global trade, moving over 80% of goods traded worldwide by volume. Sea freight connects global value chains, carrying raw materials, agricultural produce and semi-processed goods to production hubs and delivering finished products to markets for consumers.   Maritime transport flows are vital for industrialisation, economic growth and job creation and sea freight charges will continue to play a dominant role in producer price indices in every country, as will other transport costs. South Africa is at a particular disadvantage relative to many of its key trading partners when the following factors are considered (Botes 2006):     The long distance between South Africa and major world markets. The distance between the major industrial capacity in Gauteng and the coast. This adds substantially to the already high cost of transportation to South Africa’s main trading partners. High cost and inefficiency of ports. Poor quality of rail in the transportation of general freight. Insufficient intermodal facilities. High pipeline transport cost. High road freight cost due to price control and taxes on input costs.   The negative impact of the unheard-of spike in maritime shipping costs was even worse for EMDEs, with high import propensities, especially those that are land-locked and at a substantial distance from the world’s most lucrative consumer markets. In concurring with this reality, Havenga (2010), has found that logistics optimisation in South Africa is largely managed from a microeconomic perspective and that the country’s logistics costs are higher than the global average. This paper makes the case for a macroeconomic logistics measurement model to be developed, the results of which could inform government’s national macroeconomic policy framework.   Figure 3 illustrates the structural increase that has taken place in the share of total maritime trade by developing economies.   Figure 3: Total maritime trade – percentage shares by country group (Source: UNCTAD)   It should be noted that, with or without increases to interest rates, the normalisation of international freight shipping would inevitably have taken place from 2022 onwards. Combined with the high base effect on the subsequent lower fuel and shipping costs, it was entirely predictable that the producer price index (PPI) in South Africa would drop to close to zero – which occurred in 2025.   It was also predictable that oil prices and maritime shipping charges would eventually return to close to pre-Covid levels, resulting in a significant drop in price levels around the globe, as has already occurred (see figure 4). The conclusion from these price shocks is that knee-jerk monetary policy reaction in the form of exceptionally high commercial lending rates was never necessary – all that was required was patience, as eloquently stated by Stiglitz (2022) with the statement that “killing the economy through raising interest rates is not going to solve inflation in any timeframe.”   Figure 4: Median global inflation (forecast for 2025) (Source: IMF) 3 INFLATION EXPECTATIONS – A DUBIOUS EXERCISE    Substantial theoretical and empirical research has been conducted on the relationship between inflation expectations and actual price level trends and its implications for monetary policy, especially by Coibion et al. (2018a and 2020). Drawing on these and other studies, Bonetti et al. (2022), has summarised the motivation for monitoring inflation expectations by monetary policymakers as follows:   Firstly, if central bankers believe in the theoretical arguments relating to a measure of correlation between inflation expectations and future movements in producer and consumer price indices, it follows that they also believe that taking inflation expectations into account adds important information to their policy decision making. A second motivation may be that the policymakers believe that expectations of the different agents polled are correct (in some statistical sense), if anything because they possess some self-fulfilling capacity. In this case, expectations are gauged as providers of direct information about the likely future evolution of inflation.     3.1 Unreliable household forecasts   Although widespread theoretical conviction exists that both of the above conditions hold true, empirical evidence continues to point to controversy. It is well established that the forecasts of households display high cross-variability, gross point misperceptions and endemic inattention towards ongoing developments and announcements relating to inflation indices and the extent to which they are influenced by supply or demand factors. (Coibion et al., 2018a). As far as the intertemporal price effect is concerned, the evidence is also inconclusive. Beside findings of a positive relationship between reported   expected inflation and current consumption, other studies cast doubts whether households make consistent use of their forecasts (Schnabel, 2020). Empirical evidence also shows that the behaviour of households in relation to the real vs. the nominal interest rate is blurred (Johannsen 2014).   Barr and Kantor (2023) have pointed out the dangers of confusing the scientific advances of extraordinary technological development with modelling human behaviour, where the application of science related to economics and financial markets has been less successful. In concurring with the view that the interest hikes of 2022 and 2023 were an unfortunate mistake, they note that the Reserve Bank uses an econometric forecasting model as a central lever of input into its economic forecasting, and for formulating its monetary policy.   In the Monetary Policy Review published in April 2023, for example, the Bank published forecast confidence levels for inflation and real growth for levels of certainty ranging from 10% to 70%. Statisticians normally use confidence levels of 95%, so the ones used in the Bank model indicate very low levels of confidence. The forecast chart for these growth rates indicates that the actual South African growth rate by the end of 2024 had only a 70% chance of falling between -4% and +3% (a nugatory and pointless range of 700 basis points) .   In reality, this implies the model has very little useful information to convey about what the future real growth rate will be at all. Barr and Kantor conclude that the Bank’s modelling of the South African economy and the associated forecasts may have perceived  scientific validity but instead represent an inadequate, even misleading, basis for managing the economy, given its unpredictable nature.   Exchange rate shocks of the kind periodically suffered by South Africa are not predictable and do not easily fit into any model which relies on consistent cause and effect. Interest rate changes do not help an economy recover from an exchange rate shock; in fact, they make it harder to do so. Monetary history, not any forecasting exercise, indicates clearly that central banks should simply ignore these shocks; it is not responsible for them, nor can it help to overcome them.     3.2 Volatility of forecasts    An issue that is of relevance to policy makers in emerging markets is the importance of distinguishing the forecasts conveyed by ordinary households and firm managers from the ones by professional forecasters. The former are much more volatile and imprecise than the latter. In South Africa’s case, the South African Reserve Bank (SARB) has commissioned the Bureau for Economic Research at Stellenbosch University (BER) to conduct a quarterly Inflation Expectation Survey. The survey is conducted among four societal groups, namely financial analysts, business representatives, trade union officials and households.   It has become clear that the Monetary Policy Committee (MPC) of the Reserve Bank regularly errs on the side of the cautious when making inflation predictions, ostensibly because of a growing list of fears over possible upward pressure on price levels. In recent years, these fears, some of which have not materialised, have included the following:   The possibility of exchange rate weakness, when, in fact, the rand has been one of the strongest currencies in the world against the US dollar during 2025 The impact of higher oil prices when, in fact, the price of Brent crude oil has declined by 20% between January and early September 2025 The impact of the lockdowns implemented during the Covid 19 pandemic, when, in fact, demand inflation was absent during the swift recovery of the South African economy (which was accompanied by a prime lending rate that was 300 basis points lower than before the Covid-19 pandemic) Geopolitical instability (which has been around since time immemorial). The impact of higher tariffs on the exports of manufactured products.   During the first six months of 2025, South Africa’s consumer price index (CPI) had averaged 2.95%, which is not even within the Reserve Bank’s target range for inflation of 3% to 6%. In a glaring contradiction to the incessant negative sentiments over the prospect for higher inflation that has accompanied most of the MPC statements over the past five years, the CPI has been either below or within the target range since June 2023, which has tallied 27 successive months (until August 2025) – see figure 6. Figure 5: Consumer & producer inflation remain close to the bottom of SARB's target range (Source: Stats SA)     3.3 Deviation of forecasts from actual inflation  The MPC has also been led down the garden path by the misguided results of the BER surveys on inflation expectations, as illustrated by figure 6 and table 1, which illustrates the significant deviation between surveyed inflation expectations one year ahead and the actual inflation in that year (in the case of the survey conducted in the 1 st  quarter of 2024, the actual is based on the average for the first seven months of 2025).   Figure 6: Deviation between CPI expectations (one year ahead) surveyed in Q1 2023 & Q1 2024 and actual (Sources: Stats SA; SARB; own calculations)   During downward phases of the inflation cycle, the inflations expectations survey that is utilised by the MPC has over-estimated future inflation by an average of 140 basis points. It is a point of concern that such an important economic variable as the money market interest rate is co-determined by an opinion survey that is not remotely subjected to scientific method and whose respondents are invariably not trained in economic analysis.   Table 1: Deviation between CPI expectations (one year ahead) surveyed in Q1 2023 & Q1 2024 and actual (Note: Actual for 2025 = average for January to July) (Sources: Stats SA; SARB)   Under the assumption that these surveys played a role in the extent to which the repo rate was determined during this period, it follows that the benchmark lending rates were higher than they should have been. A calculation of the negative impact on private sector credit extension, aggregate demand and taxation revenues emanating from this effect is provided in subsequent sections.     3.4 Sensitivity to fiscal poli cy    Inflation expectations also tend to be more sensitive to fiscal policy and debt in EMs. This likely reflects increased risks of fiscal dominance and political interference in central bank decisions, which can undermine the public’s confidence in the central bank’s ability to fight inflation. An unexpected increase in government debt tends to boost medium-term expected inflation in EMDEs significantly, while having little effect in advanced economies (Coibion, et al. 2018b ) .   This is particularly relevant in South Africa, where a combination of weakened public sector institutions, decaying infrastructure, a relatively high public sector wage bill, and low economic growth have combined to place substantial pressure on the public finances. The latter was demonstrated during the initial inability of the National Treasury to pass the 2025/2026 National Budget, mainly due to widespread opposition to a proposed increase in the value added tax rate (VAT). 4 HIGH INTEREST RATES IN EMDEs LEAD TO LOWER GDP GROWTH   Over the past century, the relationship between interest rates and economic growth has been the subject of a raft of research by economists, without having produced any consensus over the impact of interest rate changes over the long term. The lack of consensus is due to an array of other factors that also influence output, some of which are endogenous, whilst others are dependent on policy interventions, especially fiscal and trade policies. The conundrum is made even more complex by significant imbalances in key economic variables and macroeconomic stabilisation policies that exist between different countries.   Barro and Becker (1989) consider a model with endogenous fertility choice, which posits a relationship between real interest rates and fertility rates. Over the long run, as fertility rates decline, so do real rates of return. This model predicts a negative relationship between real interest rates and economic growth. Several examples can be found in academic support of this view and also contrasting views, but since the Covid-19 pandemic the consensus has tilted towards an acknowledgement of the damaging effects on the economy of excessively high interest rates, particularly in developing economies.     4.1 Evidence from key emerging markets The extraordinary events related to the Covid-19 pandemic, the Russian military invasion of Ukraine and heightened geo-political instability in general, have served to place the conduct of monetary policy under the spotlight once again. The Bank for International Settlements (BIS) has recently applauded the actions of central banks in forcefully stabilising the financial system and limiting the damage to economies. Unfortunately, this statement might be true for North America and most of Western Europe, but not necessarily for EMDEs. The initial recovery of GDP growth from the worst effects of the pandemic was halted in its tracks in most of the key EMDEs around the globe, not only because of a lack of demand, but mainly due to the pervasive negative effect of restrictive monetary policies in the AEs and several key EMDEs, including South Africa (see figure 7). It has become clear that the rapid rise in interest rates in the United States and the Eurozone, which was prompted by the global surge in inflation, has exerted a detrimental effect on the economic welfare of many EMDEs. This has occurred mainly because of the associated strengthening of the US dollar, which has led to increased borrowing costs for these countries, whilst the currency weakness of most EMDEs (relative to the US dollar) has also made it difficult for them to lower inflation. Figure 7: %-point different in real GDP growth rates between 2022 & average for 2023 & 2024 - selected EMDEs (Sources: World Bank; own calculations) 4.2 Public finance stress depresses private consumption expenditure According to research conducted by Arteta et al. (2022), the heightened likelihood of debt distress is disrupting EME financial markets, discouraging capital inflows, and leading to financial market strains, with government debt levels reaching record highs in most of the world’s EMDEs (see figure 8). In South Africa’s case, in particular, this dilemma has been exacerbated by the monetary authorities attempting to mimic the Federal Reserve of the US (the Fed) via a relentless raising of the official bank rate (the repo rate) between the end of 2021 and 2023 (although the SARB was first to raise rates).   Figure 8: Government debt as % of GDP - emerging market & developing economies (EMDEs) (Source: IMF, Forecast 2025)   An important additional consideration in the evaluation of South Africa’s hawkish monetary policy since 2022 is the impact of rising interest rates in the US on financial and economic conditions and fiscal outcomes in EMDEs. Against the backdrop of the aggressive tightening of monetary policy by the US Federal Reserve, Arteta et al. (2022) explored this issue via three distinct methodologies.   At the outset, the research aimed to identify what mix of inflation, reaction, and real shocks have driven changes to US interest rates since the first quarter of 2022. The analysis applied a sign-restricted Bayesian VAR model to monthly US data on bond yields, stock prices, and inflation expectations and found that rising US rates were driven almost exclusively by continued increases in inflation expectations and a perceived hawkish shift in the Fed’s reaction function as it pivoted toward an exclusive focus on reversing the surge in inflation.   The second focus of the research was how this type of shock behind sharp increases in US interest rates affect the financial markets, capital flows, borrowing costs, and fiscal outcomes in EMDEs. To answer this question, estimates from panel local projection models were determined to assess these impacts at a quarterly frequency of the type of interest rate shock identified by the VAR model. Finally, a logit model was applied to annual data to determine how the relevant interest rate shock affects the probability that an EMDE will experience a financial crisis.   The paper reported the following key findings:   Increases in US interest rates, when driven by inflation and reaction shocks, are especially detrimental to EMDEs, due to boosting local-currency bond yields, widening sovereign risk spreads, depressing equity prices, weakening currencies, and dampening capital flows. These tighter financing conditions lead EMDE governments to cut spending to improve primary budget balances and reduce government debt. Generally, these negative spillovers appear to be more pronounced for reaction shocks - that is, increases in US interest rates associated with market perceptions that the Fed has become more hawkish - than for shocks to inflation expectations. Reaction shocks also decrease private consumption and fixed investment.   The relevance of these findings to South Africa in the aftermath of the initial recovery from the Covid-19 pandemic has been largely vindicated by subsequent data, especially with regard to weak economic output.   Figure 9: Year-on-year real GDP growth rate (logarithmic trend line) (Source: Stats SA)   Initially, the South African economy experienced a swift and impressive recovery from the Covid 19 pandemic, recording an average rate of real GDP growth of 2.4% between the second quarter of 2021 and the third quarter of 2022. Since then, the twin effects of record high domestic interest rates and the negative impacts identified by the research of Arteta et al. (2022) have decimated the country’s economic growth trajectory, with average annual real GDP growth of merely 0.5% having been recorded between the second quarter of 2023 and the second quarter of 2025.     4.3 Research on 38 developing countries   From a short-term perspective, however, recent studies have shown that higher interest rates will lead to a decline in the rate of GDP growth. Shauket et al. (2024) published a research paper aimed at exploring the relationship between real interest rates and economic growth in emerging market economies. It covered 38 countries at different levels of transition during the period 1996 to 2015. The results of the study confirmed a multi-fold inverse relationship between real interest rates and economic growth through the following indicators:   local and foreign investments human capital development trade openness and the exchange rate inflationary pressures institutional strength and political instability   The study found that the real interest rate, which is exogenously determined in transitory economies, exerts a pervasive effect on key macroeconomic variables through a multitude of channels and that high interest rates are detrimental to GDP growth in the short to medium term. The study also concluded that high interest rates restrict the ability of an economy to sustain its respective transitional level via an adequate rate of economic growth. As a policy implication, this work suggests that relatively low interest rates are beneficial for transitory/developing nations to sustain the process of economic development and attain higher GDP growth rates.   Figure 10 provides empirical evidence confirming the hypothesis of the above research for South Africa.   Figure 10: Year-on-year real GDP growth rate & the real prime rate (Note: GDP = avg) (Sources: Stats SA; own calculations) 4.4 The case of Australia   Substantial scholarly research has been conducted that confirms the inverse correlation between changes to short-term real interest rates and output, subject to a transmission lag. Research by Gruen et al. (1997) has provided strong econometric evidence that the level of the short-term real interest rate has a sizeable, and statistically significant, impact on output in the Australian economy. Ordinary least squares estimation conducted for the Australian economy suggests that a one percentage point rise in the short-term real interest rate lowers output growth by one-fifth to one-quarter per cent in the first year, one-third per cent in the second year and one-sixth per cent in the third year.     4.5 The case of 20 industrialised economies   A prolonged slowdown in the growth of the industrial countries originated in the seventies, lasting for almost three decades. In their research aimed at shedding some light on the reasons for low growth, D’Adda & Scorcu (1997) determined estimates of the relationship between overall growth rates and the real rate of interest. Their research acknowledges a key theoretical basis for an inverse relationship between growth and the real rate of interest, namely the direct mechanism connecting capital accumulation and growth. Investments remove the constraints to growth coming from insufficient or obsolete capacity and enables the economic system to realise its growth potential. In addition to the new capital stock incorporates technical progress and promotes further expansion of a country’s growth potential.   Utilising ordinary least squares (OLS) methodology, regressions were conducted on data for a group of 20 industrialised economies over the period 1965-94, broken up into six different periods, for a total of 120 observations. To minimise forecasting errors, the data were based on 5-year averages. The result of their analysis suggests that an increase of one percentage point in the real interest rate leads to a fall of one-fifth of a percentage point in the average growth rate. In the latter periods, because of the prolonged increase in the real interest rate, this effect becomes quantitatively more significant. This result confirms the traditional view about the existence of a positive link between economic growth and capital formation and a negative link between the latter and the real interest rate.     4.6 Negative impact on capital formation   High interest rates can exert a pervasive negative impact on fixed capital formation – a key component of aggregate demand in the economy. This takes place via several channels:   Directly through an increase in the cost of financing the purchases of equipment and property required for an expansion to manufacturing capacity and construction works The disincentive for taking business risks when a positive real return can be earned through fixed deposits in the money market or investing in bonds Indirectly, when lower levels of private consumption expenditure obviate the need to keep a watch on production capacity constraints Further amplification of lower demand can occur via the balance sheets of firms, especially if interest rates eventually result in lower asset prices, which reduces the value of collateral a firm may use to secure borrowing (Bahaj et al. – 2022)  Research conducted in 2018 by Cloyne et al. provided new evidence on how monetary policy affects investment and firm finance in the United States and the United Kingdom. Their research confirmed that younger firms that are not yet in position to pay dividends exhibit the largest and most significant change in capital expenditure when interest rates increase - even after conditioning on size, asset growth, leverage or liquidity.  The external finance of such firms is mostly exposed to asset value fluctuations, which drives the negative response of aggregate investment. The findings of this research highlight the role of firm finance and financial frictions in amplifying the effects of monetary policy on investment and the financial stability of the private sector.   These findings are especially relevant in EMDEs, which do not remotely possess the extent and quality of infrastructure and price sector capital formation than their counterparts in the AEs. The negative impact on capital formation in EMDEs of the high-interest rate regime since 2022 is illustrated by figure 11. Due to the occurrence of state capture over a period of almost a decade, South Africa is at a particular disadvantage, with a structural decline in new capital formation by the country’s state-owned enterprises hampering the current and future prospects for increased output and employment creation.   Figure 11: Capital formation as % of GDP - EMDEs (Source: IMF) 5 MONETARY POLICY REQUIRES TAILORING IN EMDEs   Central banks in EMDEs should be wary of replicating the monetary policy approach of their counterparts in the AEs. Several reasons exist for the need to tailor monetary policy in EMDEs according to the prevailing state of their economies and to guard against policies that may produce perverse side-effects and eventually do more harm than good. They include the following:     5.1 Differences in the transmission of policy    A lowering of monetary policy rates in AEs quickly translates into lower market rates, which is what triggers the borrowing decisions of households and firms in the private sector, invariably boosting demand and leading to higher economic growth. However, research by De Leo et al. (2024), shows that when monetary policy becomes more accommodating in EMDEs, the transmission to short-term market rates is dependent on what happens to global financial conditions. If global financial conditions tighten enough, then domestic market rates may even rise when the EM central bank lowers policy rates.    According to De Leo et al. (2022), this is due to the implicit rise in the risk spread facing borrowers, which blunts the effectiveness of monetary policy and makes it harder for EMs to cushion the effects of shocks.     5.2 Higher passthrough rate of cost shocks   Research by Gopinath (2025) confirms the fact that inflation expectations in EMDEs remain less well-anchored than in AEs. Consequently, there is a higher passthrough of cost shocks to inflation, as they feed through much more into inflation expectations as well as through other channels such as de facto wage indexation. In particular, oil price shocks tend to impact core inflation more than twice as strongly in a sample of EMDEs, relative to post-industrial economies, as illustrated by figure 12 (Baba & Lee – 2022). This complicates the design of monetary policy in EMDEs, as second-round effects may be sizeable, especially in the aftermath of the major global trade shock that has occurred in 2025 via punitive US tariffs. Figure 12: Consumer price index response to an oil price shock (Source: Baba & Lee – 2022)   A multitude of scholarly research has been conducted to gauge the extent to which changes in oil price affect key macroeconomic variables, especially inflation and output. In one such empirical study to assesses the effects of oil price shocks on the real economic activity in the main industrialised countries, Jimenez & Sanchez (2005), found evidence of a non-linear impact of oil prices on real GDP, in line with most other research studies. In the above case, multivariate VAR analysis was carried out using both linear and non-linear models. Among oil importing countries, oil price increases were found to have a negative impact on economic activity in all cases but Japan.   The underlying logic behind the inverse relationship between oil prices and economic output is related to the multi-dimensional and pervasive way the oil price impacts supply-chains in the economy. One example is freight shipping. Not only does a higher oil price increase the transportation costs of shipping companies, but their cargoes often also become more expensive, especially for a wide range of manufactured products, including motor vehicles, machinery, plastics, fertilizers and asphalt. Secondary effects of significant rises in oil prices will also cause demand-side disruption via lower output for products that are dependent on this energy source.    When oil prices increase, there is a corresponding rise in the costs to produce an array of goods and services, including the costs of transportation, which automatically decreases supply at a given price. In macroeconomics, total supply is used to explain this phenomenon in the standard model of aggregate demand and aggregate supply ( AD-AS  model). The AS-curve is upward-sloping to the right, with price on the vertical axis and output on the horizontal axis. The AD-curve is upward-sloping to the left, indicating the negative effect of higher prices on the ability of consumers to buy a particular product (within short-term disposable income constraints). For any given product and service, the intersection of these curves provides the market equilibrium price and quantity, with the aggregate output level equal to a country’s GDP.   An increase in oil prices shifts the IS curve to the left. This occurs because higher oil prices lead to increased production costs for firms, which raises their selling prices. The equilibrium output now shifts to the left, as consumer spending declines in reaction to the price increases. Many affected export sectors will also experience a loss of output, which will exert a negative impact on a country’s balance of payments. This means that national output of goods and services at each price level will fall when oil prices rise by a sufficient margin. In a study conducted by De Pratto et al. (2009), an estimation was done via a New Keynesian general-equilibrium open economy model to examine how changes in oil prices affect the macroeconomy. The model allowed for oil price changes to be transmitted through temporary demand and supply channels (affecting the output gap), as well as through persistent supply side effects (affecting trend growth). The model was estimated for Canada, the United Kingdom, and the United States over a 37-year period (1971 to 2008). The conclusions were:   Energy prices affect the economy primarily through the supply side Higher oil prices have temporary negative effects on both the output gap (the difference between potential and actual GDP) and on trend growth   Consequently, the result of a higher oil price is inflationary, but the price rises occur via cost-push inflation, with real GDP contracting, leading to a possible economic recession.     5.3 Uneven ability for fiscal stimulus   Another reason why EMDEs should caution against replicating the monetary policies of AEs is because of stark differences in the nature of the inflationary spike that occurred in the wake of the Covid-19 pandemic. The price level can also rise due to higher demand in the economy (at each price level). The latter phenomenon shifts the aggregate demand (AD)-curve to the right, which inevitably stimulates output and employment creation, but also puts upward pressure on the price level.   The latter was the case recently in the US during the Covid-19 pandemic, when extensive fiscal intervention occurred to relieve the financial stress of households. This was done via grant payments (also known as “stimulus checks”). The total amount paid to tax filers earning less than a prescribed threshold (over three rounds) was $814 billion – roughly twice the value of South Africa’s GDP in 2024.   It should be noted that this was a luxury that hardly any other country could afford. For a qualifying couple with one child, the total payout was approximately R160,000 – clearly an inflationary exercise that ultimately prolonged the higher inflation in the US that was initially caused by the price shocks of a seven-fold increase in sea freight costs and a four-fold increase in the Brent crude oil price. The irony of this intervention is clear – due to a remarkably swift recovery of demand, which occurred in any event, it proved to be stimulatory, aggravating inflation whilst the US unemployment rate hardly budged.   The policy option of fiscal stimulation to the above extent was never available in any EMDE. Although South Africa did implement a so-called “Covid-relief-of-distress-grant” the amount in question (currently R370 per month) is not sufficient to have any meaningful impact on demand inflation. 6 SPIKE IN US TARIFF REGIME   Since the second quarter of 2025, the effective tariff rate of the US has increased to levels last seen more than a century ago, leading to a surge in uncertainty surrounding trade policy and geopolitics. The economic effects of these developments are expected to be profound, as witnessed by the latest IMF World Economic Outlook, which projects that higher tariffs will reduce both global and EM output growth by roughly 0.5 percentage points relative to the previous IMF forecast.   Figure 13: South Africa's top-10 export trading partners for high value-added goods 2024 (Source: SARS)   These shocks to trade policy will inevitably disrupt supply chains and place upward pressure on input costs. The impact on inflation, however, is expected to be more varied. In the case of countries that are facing higher tariffs on their exports (including South Africa), the higher tariffs will essentially operate as a negative demand shock, exerting downward pressure on inflation. For countries that are imposing significantly higher tariffs (especially the US), the tariffs will act more as a supply shock, leading to higher inflation and lower growth.   This issue is highly relevant to monetary policy in EMDEs, as any decision to follow a likely policy rate increase in the US could seriously hamper economic growth prospects. South Africa is highly likely to follow the former route, which will stifle output growth from a depressingly low level of between zero and one percent. It is also important to point out that the US was South Africa’s second most important export trading partner in 2024 for high value-added products (excluding minerals and metals – see figure 13). To the extent that Germany (South Africa’s largest export trading partner for high value-added products) and other key export destinations such as the UK and European Union countries may retaliate against the US tariffs, the ultimate outcome of the so-called tariff wars could eventually drag the South African economy into recession. 7 RESTRICTIVE MONETARY POLICY AGGRAVATES SUPPLY-SIDE COSTS   The use of historically high increases in interest rates to curb the abnormally higher inflation experienced after the worst of the Covid-19 pandemic has been severely criticised by an array of renowned economists, most notably Stiglitz & Regmi (2022), Schaefer & Semmler (2024), Korinek & Stiglitz (2022), Blanchard (2022), Merz (2023) and Chen & Semmler (2023). In an attempt to combat a rising price spiral that was not fuelled by excess demand, central banks started pursuing so-called ‘quantitative tightening’ from 2022 onwards.   Restrictive monetary policy via higher interest rates reduces demand, eventually contributing to slower price increases, but it represents a very inefficient way of lowering inflation, whilst also imposeing an additional and unnecessary cost to an economy via its dampening effect of GDP growth and employment creation.   Against this background of the cause of higher global inflation in 2021 and 2022, Schaefer & Semmler (2024) argue that the monetary policy goal of effectively weakening the demand for labour through historically large interest rate hikes seems unwise. Significant negative side effects of interest rate hikes include the aggravation of cost pressures on the supply-side (due to lower capacity utilisation in the manufacturing sectors) and increasing the risk of insufficient investment in new productive capacity. For emerging markets and developing economies (EMDEs) that are faced with high levels of unemployment, these risks may be severe.     7.1 The bluntness of monetary policy   One of the criticisms of the most effective instrument of monetary policy - the short-term interest rate – is its inability to be fine-tuned to which sectors of the economy are over-heated or in need of stimulus. It is a blunt instrument whereby aggregate demand in the economy is affected in broad strokes. Korinek & Stiglitz (2022) point out that a stark difference between fiscal and monetary policy is that the latter affects aggregate demand more through investment whereas fiscal policy, particularly that related to the overall size of the fiscal deficit, operates comparatively more through consumption expenditure (in the private and public sectors).   As a result, monetary policy affects not only the demand side but also the supply side of the economy. Restrictive monetary policy reduces investment in future productive capacity, potentially exacerbating future inflationary pressures. The process of designing an appropriate macroeconomic stabilisation policy mix for extraordinary circumstances such as occurred in the aftermath of the worst of the Covid-19 pandemic requires a thorough understanding of the disaggregated impact at a micro level. It is important to understand what is happening beneath the surface of the economic aggregates such as GDP and employment, where   individual firms and households are engaged in a myriad of sectors and activities.   According to Korinek & Stiglitz (2022), the intertemporal substitution effects of interest rates play a far smaller role in resource allocations than simple textbook models suggest. As economic policy practitioners should know, most of the real effects of monetary policy occur through other transmission channels. Monetary policy affects financial conditions and asset prices, for example via the bank lending channel and the balance sheet channel, by driving changes to market liquidity and by influencing the extent of credit rationing   or availability, as demonstrated by the research of Barone et al. (2025).     7.2 Amplification of supply-side inflation   Several simple theoretical explanations underpin the necessity of caution when interest rate increases are utilised for purposes of curbing inflation in a blunt manner, especially in the absence of excess demand in the economy and where temporary supply shocks are responsible for higher price levels.   Firstly, utilising a standard utility function for a worker-consumer and a representative firm that combines labour 𝐿 with imported non-labour inputs 𝑁 to produce output according to a constant-returns production function 𝑌=𝐹 (𝐿, 𝑁), the optimal level of production can be determined. In the case of a rigid nominal wage, firms will still price output at marginal cost. However, the wage no longer correctly reflects the marginal social value of labour. If the wage is too low, consumers supply too little labour, and firms’ labour demand is rationed, forcing them to resort to a suboptimal ratio of factor inputs, which inefficiently raises their costs and leads to a convex marginal cost curve. In the case of an exogenous increase in the cost of non-labour inputs (e.g. an oil price shock), the marginal cost curve becomes elevated, which increases goods prices and leads to a decline in real wages, reducing labour supply and exacerbating the labour market imbalances.   A second example whereby supply bottlenecks can introduce tendencies likened to stagflation may occur where two oligopolistic firms compete in Cournot fashion, a model that was developed in 1838 (De Bornier 1992). Before a price shock (e.g. a higher oil price), the firms are capable of setting prices at a higher level, due to taking each other’s production as given (at the intersection of a horizontal marginal cost curve and their marginal revenue curves. Not only does this contribute to higher prices, but it also lowers employment and output. When the firms are faced with supply bottlenecks that restricts the non-labour inputs that they can contractually access (e.g. with harbour closures, as occurred during the pandemic), it creates a kink in their cost curves, with a positive slope. It now becomes optimal for the two firms to reduce output, which raises prices, thereby reducing real wages, employment, and output further and making the consumer-worker worse off, triggering the possibility of stagflation (Korinek & Stiglitz – 2022). 8 DIFFERENCES IN THE BASE FROM WHICH RATES WERE HIKED   Several of South Africa’s key trading partners have recently adopted a more accommodating stance towards monetary policy, with central banks in the Euro zone, Switzerland, Canada and Australia having lowered rates since February. Although the Australian monetary authorities have stated caution with a further easing of monetary policy, the reason for this is related to the existence of a strong labour market – a luxury that does not remotely exist in South Africa. It should also be pointed out that all of South Africa’s key trading partners enjoy a significantly lower real commercial lending rate than South Africa. This serves to erode South Africa’s international competitiveness.   In reaction to the recent tumultuous and inconsistent experience with different policy measures aimed at restoring global price stability, a number of authoritative research studies have recently been published. In one of them, by Schäfer & Semmler, published in 2024, an important point is highlighted, namely the base from which interest rates were increased in the US and in the European Union. Early in 2022, the Fed began with a steep increase in its benchmark interest rate, starting from the historically low level of zero to 0.25 percentage points.   This was quickly followed by the European Central Bank (ECB), which started to raise its deposit facility rate from minus 0.5 percentage points to zero. In the process, the ECB departed from negative interest rates for the first time since 2014.   By July 2023, the Fed had raised the Fed funds rate to 5.5%, where it remained for 14 months, before a modest return to a more accommodating monetary policy stance set in. In July 2025, the Fed funds rate stood at a level of between 4.25% and 4.5%, with most central banks around the world also having cut their benchmark interest rates since the second half of 2024.   To establish the wisdom of the restrictive monetary policy stance adopted by the AEs and some EMDEs in the aftermath of the Covid-19 pandemic, it is important to also take the changes to consumer price indices (CPIs) into account. In the US, the CPI was at 2.4% just before the Covid-19 pandemic struck, which translated into a negative real Fed funds rate of 0.65% (based on the upper level of the Fed funds rate). In July 2025, this rate was at 2.8%, which implies a substantial percentage increase in the real interest rate, despite the narrowing of the gap between the inflation rates over this period. As a result, mortgage lending rates in the US remain at their highest nominal rates in two decades, which has stifled home buying activity in the country, in line with the experience of several other countries, including South Africa.   Once mortgage lending rates rise to a level that also raises the ratio between the debt servicing costs and disposable incomes of households, a predictable inverse relationship (with a lagged effect) comes into play, as also occurred in the US since the beginning of 2022 (see figure 14). Following the lowering of interest rates in the US to virtually zero at the beginning of 2020 (in response to the Covid 19 pandemic), average real house prices increased by 23.3% up to the second quarter of 2022. Record high interest rates then started taking their toll, with the average real house prices subsequently having declined by 11.4%.   Figure 14: Fed funds rate and average real house prices in the US (Source: Federal Reserve Bank of St Louis, USA)   The impact of the vicissitudes of monetary policy in the US since the onset of the Covid 19 pandemic are even more stark when observing data on the number of new one-family houses sold. Between the first quarter of 2019 and the second quarter of 2021, sales of these houses increased by 40%. Following the switch to restrictive monetary policy and record high interest rates, these sales have since declined by 22.4% (Federal Reserve Bank of St. Louis, USA - 2025). 9 UNEASE OVER GLOBAL FINANCIAL AND FISCAL STABILITY    9.1 The danger of a credit crunch   Due concern has been raised over the destabilising effect of high interest rates on banks and the capital market. The turbulence in the banking sector, particularly in the US and Switzerland, has raised the question of whether restrictive monetary policy is destabilising the financial markets. Schaefer & Semmler (2024) point out that central banks face two main problems when raising interest rates. First, raising interest rates to fight inflation also tightens the borrowing conditions faced by the real economy, possibly even up to the point of a credit crunch and credit supply disruptions. However, sufficient and affordable loans for the working capital required by businesses, new investments and entrepreneurial innovation are prerequisites for eliminating the production bottlenecks. Stricter conditions and restrictions on the availability of credit have the opposite effect, as these supply-side constraints and sectoral upward price pressures are intensified.     9.2 Bank failures in the US and Switzerland   The restrictive monetary policy is also a double-edged sword for banks. It is true that the increase in the interest rate will make new lending more profitable and a bank’s own central bank deposits will be remunerated more. At the same time, however, the investments by banks in fixed-income securities are falling in value. When a critical number of depositors have doubts over the value of their investments on the assets side of the bank, e.g. because large holdings of government bonds have lost substantial value as a result of interest rate hikes by the central banks, then a “run on the bank” may occur, which usually ends in bank failure. This was proven in 2023 by the collapse of Silicon Valley Bank, Signature Bank and First Republic Bank in the US. The non-compensated withdrawals at the liabilities side of the balance sheet inevitably result in a shrinking of the assets side, which is done either through the sale of assets to pay off depositors, or through depreciation and impairment.   Also in 2023, Switzerland faced a major shock to its highly reputable financial system when structural weaknesses at Credit Suisse – one of Switzerland’s oldest and most prominent banks – triggered a sharp loss of market confidence and massive liquidity outflows. The crisis culminated in the emergency takeover of Credit Suisse by UBS, the country’s largest bank, facilitated by a public liquidity backstop established under emergency legislation by the Swiss government (French et al. – 2025). In response, Switzerland is now considering a formal legal basis for such a public liquidity backstop.   The proposed framework is designed to support the orderly resolution of a systemically important bank that has reached the point of non-viability – as determined by the market regulator – and lacks sufficient collateral that can be pledged to access emergency liquidity from the Swiss National Bank (SNB). In such a crisis scenario, the federal government would act as a guarantor for potential losses on SNB loans to the systemically important bank, thereby shifting the default risk of last resort lending from the SNB to the government. Depending on the finalisation of the fee structure for this facility, this framework may have negative fiscal consequences for the Swiss government.   9.3 US banks take a hit   In the run-up to the Fed’s decision to eventually raise its official interest rate to 5.5%, unrealised losses in the US banking system rose sharply, with the Federal Deposit Insurance Corporation (FDIC), estimating these losses at $620 billion at the end of 2022. More recent estimates of the unrealized losses in the US banking system have been provided by Drechsler et al. (2023), which assess that, within a year (from March 2022 to March 2023), US banks lost about $1 trillion in deposits due to the Fed’s interest rate hike and the widening interest rate differential between bank deposits and investments in money market funds. This is more than 43% of the total equity of FDIC-insured banks in the US.   The threat to the financial stability of banks has also recently been confirmed by research conducted by Barone et al. (2025), which investigated the impact of a tighter monetary policy in the US on financial stability within a novel macroeconomic environment, with a particular focus on the banking sector. The research utilised a vector autoregressive (VAR) model, incorporating time series data up to January 2024. It was contextualized within the post-pandemic economic landscape, where significant monetary intervention by the Federal Reserve was necessitated by pandemic-induced economic disruptions.   One of the conclusions was that the contractionary monetary policy shock increased financial market risk and volatility, as well as tighter credit conditions. Furthermore, the banking sector experienced a decrease in loan volumes and an increase in non-performing loans. The balance sheets of banks were found to be adversely affected by restrictive monetary policy, with declines in the capital adequacy ratio, liquidity ratio, and tier one leverage ratio (tier one capital is composed of a bank's common stock, retained earnings, accumulated other comprehensive income - AOCI, noncumulative perpetual preferred stock, and any regulatory adjustments to those accounts). The research highlights the importance of considering the overall economic and financial context when assessing monetary policy effectiveness and its implications for financial stability.     9.4 Haunting memory of the 2008 financial crisis    Although the value of total bank equity has increased by almost 5% since the recovery from the Covid-19 pandemic, the dangers to the stability of global banking systems posed by overly restrictive and misguided monetary policy should not be under-estimated. The memory of the 2008 financial crisis, which turned into the worst recession in 75 years, should still haunt monetary authorities that believe they have all the answers for preventing undue macroeconomic instability. In 2006, the value of the off-balance-sheet assets of Citigroup amounted to $2.1 trillion, far exceeding the value of the assets on the balance sheet of $1.8 trillion (IMF, 2008). Towards the end of 2007, declining residential property prices, higher risk premiums and credit rationing started taking their toll on financial sector stability, which eventually spread to a sharp decrease in stock prices and a dramatic fall in consumer and corporate confidence around the world.   Blanchard (2008) identified two related, but distinct, mechanisms that triggered the amplification of these events: First, the sale of assets to satisfy liquidity runs by investors and, second, the sale of assets to re-establish capital adequacy ratios. Together with the initial conditions, these mechanisms helped create the worst global recession since the 1930s.   Although these conditions are distinctly different from the current environment of relatively high inflation, negative real wage growth and low GDP growth, two of the mechanisms identified by Blanchard not only still hold today but have expanded within the global financial system. Firstly, a large number of banks around the world possess a large exposure to US securities. The expansion of securitisation, combined with globalisation in general, has led to a relentless interconnection of financial institutions – both within and across countries. Secondly, the increase in leverage led to financial institutions financing their portfolios with less and less capital, thus increasing the rate of return on that capital.   Fortunately, some of the gaps in financial regulations that had existed during the financial crisis 17 years ago have been addressed, especially the removal of bank assets from balance sheets to so-called structured investment vehicles. 10 THREATS TO FUNDAMENTAL ECONOMIC STABILITY IN EMDEs   10.1 The finance divide between AEs and EMDEs   Over the last two years, the world economy has been rocked by multiple shocks—from the COVID-19 pandemic to the war in Ukraine. But not all countries have been impacted in the same way. A so-called financing divide is sharply curtailing the ability of many developing countries to respond to shocks and invest in recovery (Schwank and Spiegel 2022).   In the wake of the COVID-19 pandemic, developed countries were in a position to finance substantial fiscal response packages (worth an estimated 18 percentage points of GDP) at very low interest rates, backstopped by their central banks. Developing countries were more constrained, with the poorest countries in particular being forced to cut spending in areas such as education and infrastructure, contributing to a more protracted crisis. Even before the fallout from the war in Ukraine, one in five developing countries was projected not to reach 2019 per capita income levels by the end of 2023, with investment rates not expected to return to pre-pandemic levels for at least two years. In South Africa’s case, such a recovery has remained out of reach, with real GDP growth not having been able to move above one percent and remaining well below pre-Covid levels. Real capital formation also remains in decline, whilst unemployment has continued to rise.   Rising energy and food prices due to the war in Ukraine have put additional pressures on fiscal and external balances of commodity importers, and tightening global financial conditions are raising risks of a systemic crisis. Debt sustainability concerns, which tend to arise at lower levels of debt in developing countries, translate into higher risk premia. Even in countries where debt is considered sustainable, the high cost of borrowing precludes the dire need for investment in infrastructure and productive capacity in the private sector.   Developing countries’ average interest cost on external borrowing is three times higher than that of developed countries (Aitken and Volz 2022). In the low interest environment of the last decade, developed countries borrowed at an interest cost of an average of merely one percent. Least developed countries (LDCs), which have increasingly tapped international markets in recent years, borrowed at rates over 5 percent, with some countries paying over 8 percent. This has dragged up their average borrowing cost and translated into less fiscal space: LDCs dedicate an average of 14 percent of their domestic revenue to interest payments, compared to only around 3.5 percent in developed countries, despite the latter group having much larger debt stocks (Schwank & Spiegel 2022).   As pointed out by Meyer (et al. 2019), foreign currency borrowing can be expensive for developing countries. Since the start of the so-called ‘emerging market bond finance era’, around 1995, total returns to investors (net of losses from defaults) have averaged almost 10 per cent - a historical high, with a credit spread of around 6 percentage points over the risk-free rate. According to Schwank & Spiegel (2022), investments in external sovereign bonds have been the best performing asset class over most of the past three decades, outperforming other asset classes such as equities or corporate bonds. Unfortunately, these high investor returns equate to high borrowing costs for developing countries, thus diverting government expenditures to the servicing of debt.   10.2 Threat to fiscal stability   Real interest rates have risen to levels that are significantly higher than in the aftermath of the recovery from the global financial crisis of 2008. Unfortunately, the decision in the beginning of 2022 by many central banks to raise interest rates to record high levels has (predictably) been accompanied by low economic growth, with very little prospects for a reversal over the next 24 months. According to Adrian et al. (2024), persistently higher interest rates raise the cost of servicing public debt, adding to fiscal pressures and posing risks to financial stability. Public debt sustainability depends upon a number of factors of which the following three are especially important: primary budget balances, real economic growth, and real interest rates. Real output growth and higher primary budget balances (the excess of government revenues over expenditures excluding interest payments) assist the achievement of public debt sustainability, whilst higher interest rates make this task more challenging.   In the aftermath of the global financial crisis, public debt levels were at rather benign levels, mainly due to real interest rates remaining below real GDP growth rates in most advanced economies (AEs) and a number of emerging markets and developing economies (EMDEs). As a result, the need for fiscal consolidation took a back seat, with a global average real GDP growth rate of 3.2% between 2010 and 2019 taking pressure off the fiscal and monetary policy authorities.   The lockdowns that were implemented by virtually all countries during the Covid-19 pandemic changed the course of public finances, with several EMDEs now facing a potential sovereign debt crisis. A dire situation has developed since 2020 for the level of public debt in the EMDEs, with nine different sovereigns having defaulted. They are Argentina, Belarus, Belize, Ecuador, Ghana, Lebanon, Sri Lanka, Suriname, Ukraine and Zambia, five of which are rated by Fitch Ratings (2023).   According to a special report published in March 2023, the ratings agency disclosed that the average emerging market sovereign rating fell to an all-time low at the beginning of 2023, noting that several other countries were faced with the probability of default, including El Salvador, Ethiopia, Mozambique, Pakistan, the Republic of Congo and Tunisia. The combined number of defaults since 2020 amounts to more than a third of the 45 sovereign foreign currency defaults since 2000. According to Mammadov (2025), emerging economies are bracing for what could become a new sovereign debt crisis.   The spike in the debt service burden of EMDEs was initially driven by the pandemic   fallout, commodity shocks, Russia’s military invasion of Ukraine and surging inflation. Record high interest rates in the US, the EU and several other countries have exacerbated the fiscal dilemma faced by developing countries, with the risk of default spreading across Sub-Saharan Africa, Latin America and South-East Asia. Tighter financial conditions and increased financing costs are currently being experienced by emerging markets. The cost of dollar-denominated debt has increased because of the swift raising of rates by central banks in advanced economies, particularly the US Federal Reserve.   Due to the flight from risk in, the US dollar was exceptionally strong against EMDE currencies between the second quarter of 2022 and the first quarter of 2025, as illustrated by figure 15. At the end of January 2025, the US dollar index  ( a measure of the value of the U.S. dollar relative to a basket of six key foreign currencies) rose to above 108 for only the third time in more than three decades.  This has increased the external debt burden of many EMDEs, with servicing costs rising sharply in local currency terms. Countries with minimal reserves are particularly vulnerable, and many are witnessing capital outflows and currency depreciation. These forces are straining government budgets to the extent that socio-economic stability is also being threatened, as witnessed by recent protests in Ghana and Nigeria. Various commentators have recommended that countries need to enact fiscal reforms, enhance transparency, and stimulate growth to ensure sustainable public debt management. The latter will hardly be possible until central banks reverse the hawkish stance of the past three years and lower interest rates to pre-Covid levels.   Figure 15: US dollar index (3-month moving average) (Sources: Trading Economics; own calculations) 11 GROWING PUBLIC DISCONTENT WITH HIGH INTEREST RATES   Over the past year, protests over poor economic conditions have erupted in several developing countries, including Bangladesh, Kenya, Nigeria, Pakistan, Angola and South Africa. The specific triggers that set off these protests may vary, but they share a common thread - anger over an economic system that feels intolerable. The cost of living has been rising globally without a commensurate rise in wages for most people, while an increase in interest rates has forced many governments to divert a substantial share of their revenues to servicing debt, eroding spending on already underfunded public services like health care and education (Saadoun 2024).   The refusal by the South African monetary policy authorities to reduce the country’s real repo rate to the levels that existed prior to the Covid-19 pandemic has become a source of increasing frustration amongst consumers, businesses, trade unions and spokespersons for economic sectors that have been hardest hit by the record high interest rates over the past three years.    Despite a measure of normalisation of price pressures that has been experienced in all AEs and many EMDEs, as well as negative GDP growth in several EU countries during the second quarter of 2025, central banks have been loath in reverting to accommodating monetary policy – resulting in rising pressure from groups across the political and economic spectrum. Notably, real GDP decreased at an annualised rate of 0.5% in the US during the first quarter of 2025, marking the first quarterly contraction in three years. Following a measure of financial market volatility in the US in August 2024, calls to reverse the interest rate hikes became louder and broader as investors and businesses joined many economists and advocacy groups in the effort to convince the Federal Reserve that interest rate cuts are long overdue.   These sentiments are shared by most AEs and EMDEs. In an address to a media conference held on 6 August 2024, Michele Bullock, the Governor of the Bank of Australia was candid enough to acknowledge that the use of higher interest rates to curb inflation was causing a measure of distress amongst consumers and businesses. She acknowledged that many households and small businesses in Australia that were struggling with interest rates at their current levels. Despite also stating that the country’s high interest rates were hurting everyone, particularly people on lower incomes, Me Bullock declared that restrictive monetary would remain in place until further notice. In South Africa, the current real prime lending rate remains more than 100% higher than between 2010 and 2015, when the economy expanded at an average real rate of 2.6%. 12 INFLATION THRESHOLDS – DEVELOPING COUNTRIES   12.1 Study by Nell (2023)   To identify whether there is a non-linear relationship between per capita income growth and inflation, Nell (2023), has summarised 14 different studies for developed and developing countries, based either on GDP growth or GDP per capita growth as the dependent variable and using panel data. These empirical studies were conducted between 2001 and 2022 and 12 of them also incorporated investment as a control.   The evidence for developing countries confirms a   positive and statistically significant effect of inflation on economic growth up until relatively high thresholds that range be­tween 6% and 21%. This is in contrast to the results for developed countries, where most empirical studies found that the effect of inflation on growth up until 1%-5% was positive and statistically significant. Nell (2023) points out that it would be a fallacy to conclude that disinflationary policy was costless in terms of output and employment losses, and that restrictive demand-side measures could be justified to reduce the welfare costs of inflation.   Such a view, however, disregards the underlying reason why the threshold inflation rates of 6%-21% in developing countries are much higher than in developed countries, namely because structural sources of inflation are more dominant in underdeveloped economies. These include:   Supply bottlenecks between expanding and contracting sectors. Foreign exchange bottlenecks. A relatively underdeveloped agriculture sector. A widening budget deficit from autonomous increases in food prices.   Furthermore, an overview of the empirical evidence for African countries suggests that structural and cost-push sources of inflation tend to dominate monetary factors (Nell 2018; Durevall et al. 2013).   Most inflation-growth studies reviewed by Nell (2023) include investment as a control variable. In most of these studies the investment variables are positive and statistically significant, implying that inflation affects the productivity   of investment. This finding is entirely consistent with models that predict a direct channel from inflation to investment, once it is recognised that mild demand inflation affects the composition of total investment, with shifts out of inventories and residential investment into productive machinery, struc­tures and plant.     12.2 Study by Meyer and Hassan (2024) The results of the comprehensive literature study conducted by Nell are aligned with another study conducted by Meyer and Hassan (2024), which assessed the linkage between inflation and economic growth in South Africa to determine the optimal inflation rate threshold for sustainable growth of the economy. The study pointed out that, since 2019, the gap between the official central bank interest rates of South Africa and the US has narrowed, which typically causes a higher outflow of capital from South Africa, whilst also leading to rand exchange rate weakness. This occurred between 2019 and 2024, with South Africa’s currency depreciating by 21% over these five years.   Utilising autoregressive distributed lag (ARDL) estimation technique for quarterly data spanning the first quarter of 1995 to the third quarter of 2022, the threshold that changes the direction of the linkage between inflation and economic growth in the long run was determined at 6%. As an alternative to the ARDL estimation, a threshold regression was also conducted by ordinary least squares (OLS) methodology, which produced the same result. In summary, the study provides support for maintaining an optimal inflation level within the inflation target range of 3% to 6%.     12.3 Study by Bonga-Bonga and Lebese (2019)   Inflation targeting has been widely criticised as an inappropriate element of a monetary policy framework for developing countries, mainly due to the fact that they are more susceptible to the negative effects of external shocks, as well as bouts of uncertainty amongst international investors regarding their political and economic stability. It is in this vein that Bonga-Bonga & Lebese (2019) assessed whether the 3%-6% inflation target is the optimal inflation target band in South Africa. Their research followed the methodology developed by Ball & Mankiw (2002), which rests on the premise that there is a short run trade-off between inflation and unemployment. Their paper utilised an expectations-augmented Phillips curve to estimate a time-varying non-accelerating inflation rate of unemployment (NAIRU) for South Africa from 1980 to 2015.   The results of the empirical analysis indicate that, if South Africa were to put in place an inflation target range based on the NAIRU, it would have to target an inflation range that is considerably broader than the current one, with an upper level of 11.5%. The policy implication of these findings is that the SARB should think about revising its current inflation target, as it is too narrow for an emerging market economy. The paper concludes that the current relatively low inflation target range could have a negative effect on output and unemployment in the country. The study recommends that the SARB should rely on the realities of the South African economy rather than on external concerns when defining the range of inflation target (a view that is shared by several other economists).     12.4 Money supply endogeneity   In addition, there is growing evidence that the money supply in developing economies is endogenously determined (Vera et al.  2022). It is important to reiterate that money supply endogeneity does not necessarily mean that monetary policy is ineffective in controlling inflation, but rather that central banks may choose to accommodate structural and cost inflation, otherwise slow growth and high unemployment may well be the inevitable outcomes.   But the more fundamental policy issue is to recognize that structural inflation and, to a lesser extent, cost inflation, are the natural and unavoidable outcomes of the growth and development process in developing economies. To reduce structural inflation with restrictive demand-side policy measures is to impair growth, even in developing countries where the inflation effect is insignificant below the threshold. The only way to squeeze structural inflation out of the system without harming growth is to design measures that directly address the rigidities in the real economy.     13 THE STRATEGIC IMPORTANCE OF EMPLOYMENT CREATION   13.1 Virtuous circles of prosperity and opportunity     Economic growth and employment creation are widely regarded as the most powerful instruments for reducing poverty and improving the quality of life, especially in developing countries. Both cross-country research and country case studies provide overwhelming evidence that rapid and sustained growth is critical for progress towards the 17 Sustainable Development Goals (SDGs), which were formulated by the United Nations in 2015 and unanimously adopted (replacing the Millenium Development Goals).   The strategic importance of job creation features in one of the SDGs, namely, to create conditions for sustainable, inclusive and sustained economic growth, shared prosperity and decent work for all (formulated as goal number eight). Three of the targets identified under this goal that are highly relevant to the macroeconomic policy objective of employment creation are:   The promotion of development-oriented policies that support productive activities, decent job creation, entrepreneurship, creativity and innovation, and encourage the formalization and growth of micro-, small- and medium-sized enterprises, including through access to financial services The achievement, by 2030, of full and productive employment and decent work for all women and men, including for young people and persons with disabilities, and equal pay for work of equal value The substantial reduction, by 2020, of the proportion of youth not in employment, education or training   According to the United Nations (2015), employment-led growth can generate virtuous circles of prosperity and opportunity. Jobs provide incentives for parents to invest in their children’s education, from the primary level through to tertiary and vocational training. To the extent that this fosters the emergence of growing group of entrepreneurs, it should also generate pressure for improved governance. Strong economic growth therefore advances human development, which, in turn, promotes economic growth. Despite the economic headwinds from the Covid-19 pandemic, global unemployment hit a historic low of 5 per cent in 2023, projected to decline further to 4.9 per cent in 2025 (United Nations 2025.)  Persistent roadblocks nevertheless remain in achieving progress with formal employment in developing countries. In sub-Saharan Africa and Central and Southern Asia, nearly 9 in 10 workers are informally employed.   In an estimation of sector-specific GDP-employment elasticities based on data from 2000 to 2016, conducted by Burgi et al. (2024), South Africa fared quite well for the job creation potential in the services sectors, with a ranking of 27 th out of 127 countries. Unfortunately, South Africa was ranked fifth lowest for the capability to create jobs in manufacturing, with a negative reading.   The challenge for policy is to combine growth promoting policies with policies that allow the poor to participate fully in the opportunities unleashed and so contribute to that growth. This includes policies to improve labour market expansion and mobility and to increase financial inclusion, both of which can be greatly facilitated by a modestly expansionary monetary policy.   Economic growth generates job opportunities and hence stronger demand for labour, the main and often the sole asset of the poor. In turn, increasing employment has been crucial in delivering higher growth. Strong growth in the global economy over the past 10 years means that most of the world’s working-age population is now in employment. At the same time, in every region of the world and particularly in Africa, youth unemployment is a major issue. This is reflected in higher-than-average unemployment rates: young people make up 25 per cent of the working population worldwide but 47 per cent of the unemployed.   Between 1999 and 2003, for every one percentage point of additional GDP growth, total global employment grew by 0.30 percentage points – a drop from 0.38 for 1995 to 1999. This may prove a problem for some countries in the Middle East, South Asia and sub-Saharan Africa, where the number of jobs being created may not be high enough to absorb their growing workforces. This suggests a stronger rationale for a higher growth strategy in the future.     13.2 The scourge of unemployment   The financial, budgetary and economic effects of unemployment are profound. Many of those who leave the workforce unwillingly do not have the resources for a comfortable and long retirement. The price paid by society is increased income support, health and community support costs and a reduction in human capital and productivity. Entrenched unemployment results in a divided nation where those with jobs benefit from economic growth while those missing out may be relegated to secondary status. The potential for societal conflict is raised in the presence of a growing mismatch between those with decent jobs and the unemployed.   Unemployment is a multi-dimensional scourge. It can have a devastating impact on people’s lives, affecting not only the unemployed person but also family members and the wider community. The impact of unemployment can be long-lasting. As unemployment becomes more long-term, its impact becomes more far reaching, often affecting living standards in retirement, whilst the loss of income by parents can damage the prospects of the next generation.   The economic loss to the individuals and their family members cannot be overstated. In the short-term, unemployment significantly reduces a person’s income and, in the long-term, reduces their ability to save for retirement. It eliminates both the pension fund or provident fund contributions of both the employee and the employer. It should also be pointed out that the longer a person is unemployed, and the earlier they retire, the greater the adverse financial effect of unemployment.   From a fiscal perspective, any permanent increase in unemployment reduces current and future tax revenues and, in some cases, has a secondary negative effect through increased welfare expenditures. Due to the loss of income, private consumption expenditure, which is the key driver of demand and GDP in all of the world’s advanced and emerging economies, is also lowered. As part of a study into the financial and fiscal consequences of unemployment, the Boston Consulting Group (2000) found that  failed termination-back-to-work transition that ends up in a stint of long-term unemployment costs society in the order of $50,000 to $150,000 per episode, depending on the age, salary level and family circumstances of the worker whose employment is terminated. In South African currency terms at the exchange rate on 20 August 2025, this translates into a range of R570,000 to R1.7 million.   Higher unemployment levels also have a negative impact on a country’s economic growth. This occurs primarily because of the elimination of the value added by the persons who lose their jobs and, secondly, via lower consumption expenditure as a result of lower disposable incomes.   Figure 16: Unemployment rate in South Africa (broad definition) (Source: Stats SA)   High unemployment is often cited as the most pressing socio-economic problem facing South Africa, especially due to its debilitating effects on the aggravation of poverty and inequality. Unfortunately, the country’s monetary policy stance since 2015 does not reflect this concern, with broadly defined unemployment having increased by 30% over the past decade (see figure 16).     13.3 Far-reaching negative psychosocial impact   In addition to employment serving as a cornerstone for economic subsistence, it also plays a critical role in shaping individuals’ social, psychological, and community well-being. Consequently, as pointed out by Nvo- Fernandez et al. (2025), job loss has far-reaching implications, affecting the physical, psychological, and social domains. Despite cyclical and structural changes to the performance of the global economy, unemployment consistently remains above 5% worldwide, reaching nearly 7% during the 2020–2022 pandemic, according to World Bank data (2023). This rise in unemployment rates has been closely linked to a significant deterioration in mental health, increasing the risk of conditions such as anxiety, depression, and other psychiatric disorders.   The psychosocial impact of unemployment is well-documented. Previous studies have shown that job loss significantly increases psychological distress among affected individuals. Notably, Gedikli et al . (2023) reported that unemployed individuals with limited financial resources are at a heightened risk of experiencing severe psychological distress. This finding underscores the relationships between unemployment, economic constraints, and mental well-being, highlighting the magnitude of the impact on vulnerable groups. Moreover, mental health issues not only emerge as consequences of unemployment but also act as barriers to reemployment, perpetuating a cycle of poor mental health and unemployment. Prolonged unemployment exacerbates vulnerability, with depression rates reaching 50% among individuals who have been unemployed for over 12 months (Nvo- Fernandez et al. 2025).   13.4 Employment losses in the UK   Via the property channel   Substantial evidence exists that different types of firms react heterogeneously in response to a change in monetary policy. Dimensions such as turnover, total employment, economic sector, leverage, and liquidity are contributing factors to a firm’s reaction to a change in interest rates (Cloyne, J. et al. – 2018). As these dimensions are typically proxies for financial constraints, the inference that has been drawn in the literature is that the firm-level heterogeneity arises from financial frictions and, as a result, monetary policy transmits to activity through altering financial constraints at the firm-level. Research by Bahaj et al. (2022) finds that the employment adjustment to monetary policy is considerably more prominent and also large amongst firms that are younger and more leveraged than for older and less leveraged firms. This heterogeneity becomes even more pronounced for firms whose collateral value, specifically the house value of their directors, is more sensitive to monetary policy. This finding is mirrored by the response of corporate debt to monetary policy shocks.   The main result of the research is that the heterogeneity in firm responses depends both on firm-level financial constraints and the shifts in these constraints induced by monetary policy. First, within the younger and more-levered group, employment responds significantly more for firms whose directors live in local areas where house prices are most sensitive to monetary policy. The impact of rising interest rates therefore also has a residential property channel, with real estate sensitivity joining corporate debt, working capital, and fixed assets as another factor that is significantly influenced by changes to monetary policy.   A simple counterfactual exercise conducted by the research, omitting general equilibrium effects, shows that the two-year aggregate employment response of financial constraints imposed by restrictive monetary policy would be worsened by 13% if all directors lived in areas with the lowest sensitivity of house prices to monetary policy, suggesting the aggregate importance of this channel. When younger and less-leveraged firms are faced with increases in the cost of capital and start facing financial constraints, it may be concluded that these constraints are worsened by negative asset price movements and that unemployment will increase.   Survey results confirm lower employment   Businesses play an important role in the transmission of higher interest rates via restrictive monetary policy to the economic activity. This includes direct negative effects on investment and employment in response to higher borrowing costs, as well as indirect effects via weaker aggregate demand, which usually lead to lower growth and a further increase in unemployment. The corporate sector may also amplify the impacts of interest rates on the financial system if a significant number of firms become insolvent or lenders become distressed.   Using data from a survey of firms, Shah et al/ (2024) studied how the UK corporate sector is being impacted by the significant and rapid increase in interest rates since 2021.   The Decision Maker Panel (DMP) survey is a collaboration between the Bank of England and academics from King’s College London and the University of Nottingham surveying Chief Financial Officers from around 2,500 firms. The DMP is unique in providing insights into firms across a broad range of sectors. Between November 2023 and January 2024, firms in the DMP were asked questions about how changes in interest rates since the end of 2021 (both on existing and new borrowing as well as on deposits) have impacted their sales, capital expenditures, and levels of employment. Figure 17: Average firm estimates of higher interest rates impact on sales, employment, and investment in the UK (Source: Shah, et al. – 2024)   At the aggregate level, firms reported, as of 2023 Q3, that higher interest rates have resulted in 8% lower capital expenditure than would have been the case if interest rates had remained unchanged. They also report that their sales were 4% lower, and that the number of workers they employ is 2% lower, as illustrated by figure 17.     13.5 The role of private sector investment   Public finance alone cannot deliver the investment necessary to develop an economy with a vibrant private sector that creates jobs and sustained growth. After all, as determined by the World Bank Group (2025), the private sector accounts for 90 percent of jobs in developing countries. The private sector also needs to be mobilised as part and parcel of a comprehensive policy initiative designed to catalyse entrepreneurship, competition, and, ultimately, the demand for labour. But an adequate level of private sector investment will only occur when the conditions are right and where a clear probability of a positive return on investment exists.   One of the common themes in various analyses of the strategies required for increasing employment in developing countries, especially in Africa, is related to removing barriers to small and microenterprises. One such barrier is the difficulty in obtaining credit and access to the finance required for working capital (ILO 2012). The overarching economic function of a lending institution is the enhancement of the swiftness with which economic transactions take place. Their unique contribution in reducing the inconveniences, costs, risks and term structure incompatibilities of direct liaison between lenders and borrowers translates into a higher level and more rapid flow of funding for real economic activity, where GDP is generated and where jobs are created.   The ability of small businesses to secure working capital is directly related to a country’s benchmark lending rate. The higher the lending rate, the higher the cost of capital, which acts as a disincentive for investment in new productive capacity and, as an inference, on growth and employment creation. The positive relation between unemployment and the level of interest rates is well documented, as discussed in Meyer (2017), as well as in more detail in subsequent sections. 14 HIGHER LEVELS OF INEQUALITY   Although changes to interest rates have undeniable distributive consequences, the income distributive channel has not been subjected to the same volume of scholarly research as conventional studies of the effects on price stability, output and employment. Nevertheless, the relationship between monetary policy and income distribution has recently emerged as a topic of renewed interest, especially due to the threat to socio-political stability of high levels of income inequality, especially in EMDEs.   Central bank policies based on an inflation-first approach carry important consequences for income distribution, as identified by Rochon (2022) and Borio (2021), who has coined the phrase ‘The ‘Distributive Footprint’ of monetary policy. Lavoie (1996) has stated that monetary policy should be designed in such a way as to find the level of interest rates that will be proper for the economy from a distribution point of view. The aim of such a policy should be to minimize conflict over the income shares of the labour force, in the hope of also keeping inflation low and maintaining a high level of economic activity.   Despite empirical evidence supporting the weakness of automatically resorting to higher interest rates when inflation increases, most central banks have in recent years pursued a restrictive monetary policy approach, using interest rates as a blunt instrument, and raising them repeatedly until economic growth started faltering in many economies. Between 2022 and 2024, the US proved to be a notable exception with average annual GDP growth of 2.7%, but this was made possible by expansive fiscal intervention in the form of an estimated $5.6 trillion in federal tax cuts and so-called stimulus checks to taxpayers (known as the Biden plan).   Measured by the Gini coefficient, which is widely used to determine the wealth or income inequality in a country, South Africa is ranked as having the lowest level of income equality in the world. Abundant literature confirms the positive impact of employment creation on achieving a more balanced level and higher level of income and wealth distribution, including research by Zore (2024), Schoeman (2025) and Fortuin, et al. (2022),   The mathematics underpinning the important role of employment creation in lowering income inequality is straightforward. In virtually every developing country, including South Africa, social security programmes (SSPs) are the domain of government, especially those related to welfare payments. For every formal sector job that is created via relevant macroeconomic policies, the fiscal authorities benefit in two ways: Firstly, there is one less grant that needs to be paid and, secondly, there is one more taxpayer that contributes to the fiscal resources necessary to implement SSPs.   It stands to reason that a central bank, as the implementing agency for monetary policy, wields considerable influence over an economy’s ability to match growth and employment creation policies with the overall priority afforded to a government’s economic policy objectives. In this regard, it is illuminating to consider the recent research by Zore, which examined the causal effect of monetary policy on income inequality in emerging economies using a dynamic panel analysis with the Generalised Method of Moments (GMM). The sample consisted of 46 emerging economies (including South Africa) from 2000 to 2018. The results indicate that restrictive monetary policies contribute to an increase in income inequality. It is noted that these policies have a minimal impact on income distribution until the third year after their implementation, indicating a delayed effect on inequality.   Fortuin et al. (2022) examined how macroeconomic policies influenced wealth inequality in South Africa over the period 2010 to 2019 using a behavioural life-cycle model. The results show that the South African government’s current policy model to redirect wealth via grants from a very small tax base is unable to meet wealth redistributive targets.   A key recommendation is that government should rather switch to creating an environment in which private enterprises are able to absorb the labour capital that South Africa possesses. An open labour market would support private and foreign direct investment into the economy, thereby strengthening economic growth and upliftment through increased income and the consequent ability to accumulate wealth.   In a discussion of the roots of inequality in South Africa, Schoeman (2025) notes that South Africa’s rising unemployment, ongoing pay gap, and deep-rooted inequality stem from a mix of historical, economic, and structural factors. The country’s exceptionally high unemployment rate has been caused mainly by slow economic growth over the past decade.   Most empirical findings on the impact of interest rates on income redistribution point to the conclusion that either  expansionary  monetary policy  decreases  inequality, or that contractionary policy  increases  income inequality, as discussed in more detail by Kappes (2023). An important finding that appears in the work of Furceri et al. (2018), is that contractionary monetary shocks have statistically significant effects on income distribution, while expansionary shocks effects are not statistically different from zero. This points to long-run distributional consequences, since the impact of changes in interest rates do not net out over the business cycle.   Monetary policy entails a choice over which objective is more important – low inflation or job creation via incentivising higher levels of capital formation and economic growth. Under the current socio-economic circumstances and based on the evidence provided in this section, it seems clear that the monetary authorities have neglected the latter policy objective – at a huge cost that includes growing unemployment and a higher level of income inequality. 15 GLOBAL INFLATION LARGELY UNDER CONTROL    According to the July 2025 World Economic Outlook Update by the IMF, core global inflation has eased considerably and is now below 2 percent (see figure 18). Despite cross-country differences, global headline inflation is expected to fall to 3.6% in 2026. Tentative signs of marginally higher inflation have appeared in the US, mainly due to a weaker dollar and higher import tariffs, affecting some import-sensitive consumer categories (IMF 2025).   According to Regmi (2024), the rationale for maintaining high interest rates in order to curb inflation seems increasingly outdated. In most countries, inflation has largely returned to levels within or close to target ranges/points, which has eliminated the data-driven rationale for keeping interest rates high.   Figure 18: Annual inflation rates - US, Euro area and East Asia (Notes: 5-year averages until 2021; forecasts for 2025) (Sources: European Central Bank; East Asia Development Bank; Statista)   It should also be pointed out that inflation target ranges were never designed to ignore the downside of restrictive monetary policy, namely lower demand, lower growth and higher unemployment. The option for flexibility in targeting inflation remains open – at all times, as inflation target ranges are not legislated and may be altered at the discretion of central banks.   Furthermore, it should be noted that most of the inflation reduction that has occurred since 2024 was a result of the normalisation of supply chains due to much lower freight shipping charges and oil prices. Demand-side pressure was not the culprit in the post-pandemic rise in price indices, making the need for the Fed’s initial rapid tightening with higher rates - and continued tightening - questionable. According to Regmi (2024), expectations of a further cooling of the labour pipeline in the US has made it necessary to correct the course of monetary policy, given the lags with which monetary policy operates.     16 BENEFITS OF MILD INFLATION IN DEVELOPING COUNTRIES   Various economic research studies have emphasised the benefits of an element of demand inflation during the process of economic development, most notably Thirlwall (1974) and, more recently McCombie (2023). A key premise of this theory is that the growth ben­efits of mild inflation come from demand inflation instead of structural or cost-push inflation. Structural inflation is the unavoidable outcome of the growth and development process itself. To reduce structural inflation through restrictive demand-side policy measures would be to impair growth, as has been vividly demonstrated in several key EMDEs in the aftermath of the Covid-19 pandemic.     16.1 Growth via stimulating demand   In its simplest form, the growth effect of demand via the Thirlwall model (Nell and Thirlwall 2018)   implies that the growth rate of supply is endogenous to the growth rate of demand through static economies of scale associated with large scale production techniques and lower average production costs, as well as dynamic economies of scale from a faster rate of capital accumulation, embodied technical progress and learning-by-doing ef­fects. Formally, Setterfield (2006) shows that the growth rate of supply adjusts to the growth rate of demand through a rise in the so-called Verdoorn coefficient. The latter is based on the existence of a positive statistical relationship between the growth rate of labour productivity and the growth rate of output in the industrial sector, with causality running from the latter to the former.   A more detailed examination of the Kaldor-Thirlwall model of forced saving and the inflation tax mod­el reveals the way inflation finances fixed investment by businesses and faster economic growth. This can occur if   the Central Bank decides to implement more expansionary demand-side policy measures and operates as follows:   The initial response of the private sector to the demand-side stimulus is to raise planned investment relative to planned   savings to match the increase in demand for goods. Excess demand in the product market generates inflation, which redistributes income from wage earners to profit earners through a fall in real wages. If the marginal propensity to save out of profit income exceeds the marginal propensity to save out of wage income, the aggregate saving ratio rises.   One of the implications of tolerating a relatively mild rate of inflation in the economy is that real wages do not necessarily decline. It also means that a faster rate of capital accumulation through inflationary finance may reduce structural unemployment in capital scarce developing economies (Thirlwall 1974).   Another benefit from mild inflation that emanates from a money-financed fiscal deficit is the reduction in the cost of borrowing through lower real interest rates, which then act as stimulus to investment (Galí, 2020). The Keynesian approach further emphasises that the nominal rate of return on investment in physical assets, such as machinery and equipment with embodied technical progress, tends to rise with inflation. Mild inflation, therefore, encourages investment in productive physical assets to maintain profitability relative to money assets, hoarding, inventories and more speculative activities (Nell 2023). 16.2 Foreign exchange constraints can be overcome   One of the biggest obstacles to a successful policy of inflationary finance is an economy’s balance of payments, as acknowledged by Thirlwall (1979). Nell (2023) provides evidence from substantial research on this topic to show that a policy of inflationary finance can be reconciled with the balance-of-payments-constrained growth model, provided that the demand-induced inflationary finance policy is accompanied by sufficient foreign capital inflows to finance the current account deficit during the initial stages.   Since the fourth quarter of 2022, South Africa has enjoyed substantial net inflows on the financial account of the balance of payments and is on course for a ninth successive trade surplus in 2025. The country’s gold and foreign exchange reserves are also at a record high (see figure 19), whilst the real effective exchange rate of the rand is at its strongest level in more than a decade. These trends represent ideal circumstances to shift the emphasis of macroeconomic policy towards enhancing growth, development and employment creation.   Figure 19: South Africa's gold & foreign exchange reserves (Source: SARB)   As pointed out by Nell (2023), the merits of money-financed government deficits to mitigate the recessionary conditions caused by the   2008-2009 global financial crisis and the Covid-19 pandemic have gained popularity. One of the main advantages of a money-financed deficit relative to a debt-financed fiscal stimulus is that the former involves no future debt obligations and is therefore more effective in stimulating aggregate demand (Agur et al. 2022).   A standard caveat in the application of inflationary finance as a policy option for streamlining development is the acknowledgement that excessive inflation can be detrimental to economic growth and development (Thirlwall, 1974). However, as pointed out by recent scholarly research, many standard textbooks and surveys on the topic tend to place the emphasis on the costs of inflation relative to the benefits of mild inflation and often ignore the fact that some inflation may be regarded as the inevitable outcome of the development process itself.     17 NEW-FOUND FLEXIBILITY WITH INFLATION TARGETING   The practice amongst central banks to set numerical targets for the desired level of price stability, known as inflation targeting, has been around since 1990, when this monetary policy was first adopted in New Zealand. Most AEs have followed suit, but most developing nations have preferred to steer away from a policy that has profound pitfalls for economies with relatively small output levels and that are heavily dependent on international trade.   Despite its universal appeal amongst central bankers in post-industrial economies, the question of where exactly to strike the balance between official constraints and a measure of discretion remains unanswered. According to research by Borio and Chavaz (2025), policymakers and academics have worried about both too little and too much flexibility in the pursuit of an ideal framework for targeting price stability. Research by Eggertsson and Kohn (2023) has highlighted the fact that the optimal specification for an inflation targeting framework remains up for debate.   The study by Borio and Chavaz contributed to this debate by developing a new database of changes to inflation targeting frameworks since the regime's adoption to document systematically how the flexibility of frameworks has evolved. A sample of 26 central banks from both AEs and EMEs was utilised to determine, inter alia , the extent of flexibility in the design and application of inflation targeting. It is important to note that flexibility is here defined as the degree to which the framework tolerates fluctuations in (headline) inflation and allows for the pursuit of other macroeconomic objectives, specifically employment (or output) and financial stability.   To measure the degree of flexibility, the study constructed a range of quantitative indicators for each central bank and year. The information was drawn exclusively from official documents laying out formal objectives and how to make them operational. The analysis was similar in spirit to the construction of de jure  indices of central bank independence or exchange rate flexibility developed by Romelli (2022) and the IMF (2004).   Two of the conclusions arrived at by the study are:   While numerical targets have become stricter (e.g. points rather than ranges), greater flexibility has taken the form of less strict or longer horizons to achieve the targets and also greater weight on other economic policy objectives, especially employment and economic growth. These trends have typically been stronger in advanced economies, tending to widen differences with their emerging market peers   In 2012, Jeffrey Frankel of Harvard Kennedy School, called into question the role of inflation targeting in the face of asset bubbles and supply side shocks, suggesting that nominal GDP targeting should replace it. He points out that  o ne reason for inflation targeting having gained wide acceptance during the end of the 20th century was the failure of its predecessor, exchange-rate targeting, in the currency crises of the 1990s, when pegged exchange rates had succumbed to fatal speculative attacks in many countries.   Proponents of a flexible approach to inflation targeting have been around for quite some time, including Svensson (2009), Blanchard et al. (2010) and Krugman (2012). In the 1990s, Krugman and Ben Bernanke actually advised the Bank of Japan to raise its inflation target, in order to get out of the country’s deflationary trap. The rationale was straightforward – when the nominal interest rate is close to zero, it becomes extremely difficult to lower the real interest rate (Frankel 2012).   In realising the predictable opposition from the central bank fraternity to the idea of even a temporary increase in the inflation target, Frankel (2012) points out that a relatively low nominal GDP target of between 4% and 5% over a one-year period would in effect incorporate a fairly low inflation target. According to Frankel’s research, nominal GDP targeting, unlike inflation targeting, would avoid the problem of excessive monetary tightening in response to adverse supply shocks. Nominal GDP targeting would assist in stabilising demand when supply shocks occur, which would prevent the possibility of stagflation.   These findings are highly relevant for the current debate on the inflation targeting regime in South Africa, as the MPC of the Reserve Bank has recently replaced the current target range of 3% to 6% by a target point of 3% with flexibility up to 4%. This decision has been widely criticised and runs counter to the latest international trends and could reduce flexibility to such an extent that output growth and employment creation could be seriously curtailed. The latter has already occurred as a result of zero de facto  flexibility within the current target range. CLICK HERE TO CONTINUE TO THE NEXT PAGE

CLICK HERE TO GO TO THE PREVIOUS PAGE   SECTION D Calculation of GDP impact via a lower household debt cost ratio   In addition to quantifying the negative effect of the high interest rates experienced since 2023 by means of econometric modelling, a second method was utilised to determine the difference between South Africa’s actual GDP and what it could have been if monetary policy had been less restrictive. At the outset, it should be borne in mind that demand inflation was vitually absent since before the Covid-19 pandemic in 2020.   The basis for this method was to determine two realistic alternative values for the average ratio of household debt servicing costs to disposable incomes since the first quarter of 2023 (when the negative impact of the repo rate increases started to appear).   Table 7 provides the results of this exercise, together with explanatory notes.   The differences between these values and the actual were then utilised to calculate the values for disposable incomes that would have existed in the presence of a less restrictive monetary policy approach (table 8).   Table 7: Calculation of the spread between the actual ratio of debt service cost to disposable incomes of households (%) under two scenarios (basis points) (Note 1: Scenario 1 is based on the sum of the average spread of the household debt cost servicing ratio to disposable incomes between South Africa and the US for 2021 and 2022 and the actual debt cost/disposable income of the US in the second quarter of 2025) (Note 2: Scenario 2 is based on the household debt servicing cost ratio in the first quarter of 2020 (prior to the Covid-19 pandemic and the record high interest rates of 2023)) (Sources: SARB; Federal Reserve Bank of St Louis; own calculations)   Table 8: Calculation of additional household disposable income at constant 2025 prices emanating from a lower ratio of debt service costs to household disposable income under the two scenarios in table 7   Sources: SARB; Stats SA; Federal Reserve Bank of St Louis; own calculations   Under the realistic assumption of a unitary marginal consumption propensity, the latest input/output table multipliers before the Covid-19 pandemic were then applied to these calculations to quantify the values for GDP; employment; and taxation revenues that were foregone as a result of unwarranted restrictive monetary policy, yielding the results in table 9:   Table 9: Calculation of the increase in South Africa's GDP; employment; and fiscal revenues emanating from the additional household disposable income determined under the two scenarios in table 8 (Note: The increases in GDP, employment and tax revenues are based on the 2019 input/output table multipliers (prior to the Covid-19 pandemic)) (Sources: Quantec data; own calculations) CONCLUSIONS Precis – self-inflicted economic pain   In the conducting of this economic impact assessment lies a sincere hope that government leaders in general and National Treasury’s executive leadership in particular, will heed the magnitude of the damage inflicted on citizens and businesses as a result of the restrictive monetary policy stance that commenced in 2015 and intensified since 2024.   The key issue at stake is the pervasive role that the benchmark interest rate plays in the spending and investment decisions of consumers and businesses, combined with the apparent unbridled power of the Monetary Policy Committee (MPC) to harm the financial disposition of South African citizens. When the MPC decided to raise the prime overdraft rate from 7% in November 2021 to a 15-year high of 11.75% in May 2023 (automatically, via the official repo rate), a predictable and sharp decline in overall economic activity occurred, leading to real GDP growth dropping to barely above zero.   In order to grasp the impact of this interest rate increase, it is useful to determine the additional debt cost burden inflicted on credit holders. As at the end of June 2025, total mortgage advances of South African banks stood at R1,918 billion. When a rate increase of 475 basis points is applied to this figure, it translates into an additional annual debt cost burden on borrowers (mostly home-owners) of R91 billion. Bank overdrafts and other loans (mainly for business owners) was valued at R2,067 billion in June 2025, representing an additional annual debt cost burden of R98 billion. This tallies up to R189 billion that would have been added to private consumption expenditure and capital formation, with a huge fiscal revenue backflow to assist with the repair and expansion of the country’s infrastructure.   In evaluating the actions of the monetary authorities, it is important to point out that a decisive shift has occurred over the past decade in the conduct of monetary policy. Ever since the retirement in 2015 of the previous Governor of the Reserve Bank, Me Gill Markus, the balanced approach towards the level of short-term interest rates has been systematically discarded.   The appointment of a new Governor of the Reserve Bank by former pres. Jacob Zuma in 2015 was immediately followed by a more restrictive monetary policy stance. The real prime rate increased from an average of 3.1% in 2014 to an average of 5.1% in 2017; 6% in 2019 and 8.3% in March 2025. Although it has subsequently declined to 7.1% (as at the end of September 2025), the real cost of credit to home-owners and of capital investment by businesses remains more than 100% higher than in 2014.   The frustration that has been experienced by holders of mortgage loans and overdraft facilities is amplified by the fact that South Africa experienced virtually no sign of demand inflation over the past decade. This study has confirmed that the increase in the consumer price index to above 7% in 2022 was solely due to the worst combined increases in global freight shipping rates and oil prices in history. These price increases were eight-fold and five-fold, respectively, due mainly to the lockdowns induced by the Covid-19 pandemic and the military invasion of Ukraine by Russia, which has been condemned by the United Nations.   The fact that South Africa’s monetary authorities followed the cue of the Federal Reserve in the US with systematic increases in the respective official bank rates suggests that there is a lack of proper understanding of the vast differences in economic prowess between the two countries. It takes the US merely five days to produce the equivalent of South Africa’s annual GDP. Furthermore, the US possessed the fiscal ability in 2020 to provide every registered US taxpayer with comprehensive financial relief during the Covid-19 pandemic, which prevented the higher cost of credit from lowering demand in the economy – unlike the case in South Africa and several other emerging markets.   Real GDP in the US increased by 2.5% in 2022 and then gained momentum to grow at an average of 2.9% the following two years. In South Africa, real GDP grew at 2.1% in 2022 but then the economy succumbed to record high interest rates to drop to 0.8% in 2023 and 0.5% in 2024 – negative in per capita terms and insufficient to generate meaningful employment creation. Section A   Key conclusions drawn from the literature study and analysis of theoretical principles underpinning the different approaches to monetary policy in advanced economies (AEs) and emerging market & developing economies - EMDEs (including relevant data sets):   Interest rates are a crucial aspect of modern economies, as they influence the cost of borrowing, investment, and spending decisions made by individuals, firms, and governments. As a result, the level of commercial lending rates exerts both a direct and an indirect impact on total demand, total output, employment and the valuation of financial assets. Ultimately, changes to interest rates also change income distribution patterns and therefore also the level of income inequality in society. In 2022, South Africa’s real GDP growth rate was 62% of the average for upper middle-income countries. In 2024, this ratio has shrunk dramatically to 12%. The global spike in inflation that occurred shortly after the worst of the Covid-19 pandemic and the Russian military invasion of Ukraine was caused almost exclusively by increases of roughly 700% and 400%, respectively, in the prices of global freight shipping and oil – a combined occurrence of historic proportions. The subsequent decline in the consumer price indices in virtually all countries was not engineered by higher interest rates but were the result of steep declines in producer price indices – caused by a predictable eventual normalisation of oil prices and global freight shipping charges. Empirical evidence has cast doubt on the usefulness of surveys on inflation expectations for monetary policy decisions, especially due to the volatility and unreliability of such forecasts, as well as substantial ex post deviations between forecasts and actual inflation levels. Substantial empirical evidence has confirmed that the rapid rise in interest rates in the United States and the Eurozone between March 2022 and July 2023 has exerted a detrimental effect on the economic welfare of many EMDEs. This has occurred mainly because of the associated strengthening of the US dollar, which has aggravated public finance stress via rising bond yields and depreciating currencies in developing countries. Several empirical studies covering a wide spectrum of EMDEs have confirmed that high interest rates are detrimental to capital formation and economic growth. A common conclusion was that high interest rates restrict the ability of developing economies to sustain their respective transitional levels due to inadequate rates of economic growth. A higher passthrough of cost shocks to inflation exists in EMDEs, as they feed through much more into inflation expectations as well as through other channels such as de facto wage indexation. In particular, oil price shocks tend to impact core inflation more than twice as strongly in a sample of EMDEs, relative to post-industrial economies. The policy option of substantial fiscal stimulus to alleviate the economic downturn during the Covid-19 pandemic was never available in any of the EMDEs, which prevented them from countering the negative impact of job losses and declining private consumption expenditure levels. By raising interest rates to their highest level in 15 years, the MPC aggravated the slump in demand, which ultimately led to GDP growth of merely 0.5% in 2024. Subsequent to the latest global experiment with attempting to combat supply-side inflation with higher interest rates, empirical research has confirmed significant negative side effects of interest rate hikes in EMDEs. These include the aggravation of cost pressures on the supply-side (due to lower capacity utilisation in the manufacturing sectors) and increasing the risk of insufficient investment in new productive capacity. Several theoretical explanations underpin the necessity of caution when interest rate increases are utilised for purposes of curbing inflation, especially in the absence of excess demand in the economy and where temporary supply shocks are responsible for higher price levels. Monetary policy affects financial conditions and asset prices, by driving changes to market liquidity and by influencing the extent of credit rationing   or availability. Ultimately, price shocks as occurred in 2020 and 2021, are amplified by higher interest rates. Due concern has been raised over the destabilising effect of high interest rates on banks and the capital market, especially as a result of recent bank failures in the US and Switzerland. Two of the mechanisms that existed during the 2008 global financial crisis remain prevalent, namely a large number of banks around the world that have a large exposure to US securities and the increase in leverage, that has led to financial institutions financing their portfolios with less and less capital. A dire situation has developed since 2020 for the level of public debt in EMDEs, with nine different sovereigns having defaulted recently. According to a special report published by Fitch Ratings, the average emerging market sovereign rating has recently fallen to an all-time low. Although high interest rates have assisted external sovereign bonds in becoming the best performing asset class over most of the past three decades, these high investor returns equate to high borrowing costs for developing countries, thus diverting government expenditures to the servicing of debt. Various empirical studies have suggested that emerging markets should strive for an inflation target threshold that is higher than those encountered in AEs, whilst also requiring a degree of flexibility. The policy implication of these findings is that the Reserve Bank should consider revising its current inflation target upwards, as it is too low and too narrow for an emerging market economy. Employment creation is widely regarded as one of the most powerful instruments for reducing poverty and improving the quality of life, especially in developing countries. According to research by the United Nations, employment-led growth can generate virtuous circles of prosperity and opportunity. High interest rates act as a barrier to the ability of the private sector, especially small businesses, to secure the working capital required for investment in new productive capacity and, as an inference, on the ability to create jobs. Most empirical findings on the impact of interest rates on income redistribution point to the conclusion that contractionary monetary policy increases income inequality, which points to long-run distributional consequences, since the impact of changes in interest rates do not net out over the business cycle. Various economic research studies have emphasised the benefits of tolerating a relatively mild rate of inflation in the economy. In its simplest form, the growth effect of demand via the Thirlwall model implies that the growth rate of supply is endogenous to dynamic economies of scale from a faster rate of capital accumulation, embodied technical progress and learning-by-doing ef­fects. The results of some element of demand inflation and relatively benign lending rates are that real wages do not necessarily decline. Another benefit of a modest money-financed fiscal deficit is the reduction in the cost of borrowing through lower real interest rates, which then act as stimulus to capital formation. Although the practice amongst central banks to set numerical targets for the desired level of price stability, known as inflation targeting, has been around for several decades, most EMDEs have preferred to steer away from a rigid policy approach, due to the existence of profound pitfalls for economies with relatively small output levels and that are heavily dependent on international trade. Recent empirical studies have concluded that, while numerical targets in AEs have become stricter (e.g. target points rather than ranges), greater flexibility has taken the form of less strict or longer horizons to achieve the targets and also greater weight on other economic policy objectives, especially employment creation and economic growth. Several economists have questioned the role of inflation targeting in the face of recurring asset bubbles and supply side shocks, most notably Jeffrey Frankel, Olivier Blanchard, Paul Krugman, Anton Korinek and Joseph Stiglitz. According to Frankel’s research, nominal GDP targeting, unlike inflation targeting, would avoid the problem of excessive monetary tightening in response to adverse supply shocks. Nominal GDP targeting, with an element of flexibility, would assist in stabilising demand when supply shocks occur, which would also prevent the possibility of stagflation.     Section B   A notable shift towards growth-inhibiting monetary policy became evident from 2015 onwards, which became excessively restrictive soon after the worst of the Covid-19 pandemic. The negative macro-economic impact of the record high interest rates that accompanied this policy shift is both pervasive and alarming. Key conclusions drawn from a thorough analysis of the damage inflicted on the economy are:   The quarterly Afrimat Construction Index (ACI), which captures ten key indicators of economic conditions in the construction sector, including employment, production of building materials, value added in construction and hardware sales, went from lethargic growth between 2011 and 2019 to a pronounced decline since mid-2022, when the high cost of capital formation eventually forced the index value to below the 2011 base period level of 100. Following the recovery from the global financial crisis in 2009, construction works by the public corporations and general government resumed a growth path, with a real increase of more than 18% between 2011 and 2015. Unfortunately, a combination of corporate government failures and higher interest rates then resulted in a decline in the real value of public sector construction works of 41% between 2015 and 2019. Since then, the unwarranted record high cost of capital has led to a further decline of 21%. For a country with glaringly obvious infrastructure deficiencies, it is nothing short of a disaster that the real value of construction works by the public sector has more than halved since 2015 – when monetary policy started becoming more restrictive. The debilitating effect of unduly restrictive monetary policy since especially 2021 has resulted in declines in the real value of building plans passed in KwaZulu/Natal, Gauteng and the Western Cape of 71%, 69% and 59%, respectively, over the past four years. Construction is the most labour-intensive sector in the economy, and the restrictive monetary policy of the Reserve Bank has not only prevented this sector from recovering from the Covid pandemic but has directly contributed to the sector entering a serious recession. An inverse correlation exists between the level of mortgage bond interest rates and the number of home loan applications by prospective home buyers. Following the sustained rate-hiking cycle by the MPC, the BetterBond Index of Home Loan Applications declined by 29% to a low during the fourth quarter of 2023. Since then, due to marginal interest rate relief, this Index has started to recover, but it remained 21% lower in the third quarter of 2025 than during the third quarter of 2021. Since the 1 st  quarter of 2022, when the restrictive monetary policy of the SARB kicked in, the average house price for first-time buyers whose mortgage bonds are administered by BetterBond has declined by 8.6% in real terms. The negative effect on house prices due to the relentless rise in interest rates has impacted on every age group of home-buyers. Between the third quarter of 2021 and the second quarter of 2024, a distinct inverse relationship developed between average salaries in the formal sectors (at constant prices) and the prime lending rate (based on four-quarter average salaries, in order to eliminate seasonal influences). During this period, the average real salary in the formal sectors of the economy declined by 2.5%. According to National Treasury, the small business sector is responsible for more than half of the country’s total employment and GDP. Unfortunately, the high level of commercial lending rates since 2022 has resulted in a majority of businesses in this crucially important sector being in a state of contraction, difficulty, or risk of closure (according to the Absa/SACCI Small Business Growth Index – researched by Unisa’s Bureau of Market Research). A sharp increase occurred since 2022 in household debt servicing costs, with households spending 33% more of their disposable incomes on interest costs in 2025 than three-and-a-half years ago. It has become clear that the standard of living of South African households will not be lifted unless interest rates decline to substantially lower levels. The inferior GDP growth performance of South Africa, relative to its peers in the EMDEs, has worsened significantly since 2022, when domestic interest rates were raised to a 15-year high, despite the absence of any sign of demand inflation. Empirical research confirms that restrictive monetary policies contribute to an increase in income inequality, especially due to slowing down the rate of employment creation. Since 2022, higher interest rates have resulted in lowering demand for local manufactured goods, thereby leading to a decline in capacity utilisation in South Africa’s factories. The MPC’s restrictive monetary policy has therefore contributed to an increase in the fixed costs per unit of production, thereby aggravating supply-side inflation. It is a serious indictment of South Africa’s macroeconomic policies over the past decade that capital formation has been neglected to the extent that it comprised less than 15% of GDP in 2024, due, inter alia , to overly restrictive monetary policy and high interest rates. This figure is less than half of the ratio that existed in India and South Korea and 55% lower than the global average of 25.9%. In the absence of a sufficient expansion of productive capital, an economy’s future growth potential is seriously compromised. When the cost of investing in new productive capacity becomes too high (as is the case in South Africa), it acts as an effective tax on venture capital. This is due to the ease with which income can be earned by rather investing surplus funds (that could have been earmarked for the expansion of productive capacity) into financial instruments such as money market accounts. The unwarranted increase of more than 100% in annual average real lending rates between 2021 and 2025 has exerted a profound stifling effect on household consumption expenditure and new investment in productive capacity by the private sector, which are the main engines for demand-led economic growth in South Africa. Since 2011, a clear inverse correlation has been observed between the rising cost of credit and the ratio of household credit extension to GDP. During mid-2025, the real value of total household credit in South Africa was 8.3% lower than in 2012. Furthermore, South Africa’s ratio of domestic credit extension to GDP is low by international standards. According to IMF data it was 90% in 2024, compared to a world average of 146%. The real disposable incomes of South African households have declined consistently over the past decade, with a more pronounced downward trend line since the restrictive monetary policy started to take its toll on virtually all of the country’s key indicators of economic activity. The consistent erosion of the financial disposition of South African households since the new monetary policy regime took over in 2015 should be a point of huge concern to the government, as this issue was in all likelihood at play during the national elections of 2024 and will probably feature again in upcoming elections. Over the past decade, it has become apparent that the SARB’s policy focus has been concentrated on the lowering of inflation, with a disregard for the second element, namely, to conduct policy in the interests of balanced and sustainable economic growth (as per its Constitutional mandate). The policy objective of meaningful employment creation (which is inherent in attempting to foster sustainable high levels of economic growth) has been neglected to the extent that the number of formally employed people in South Africa now equates to the number of unemployed people, namely just over 11.5 million. Following a decline in unemployment levels shortly after the relatively low-interest rate environment of 2021 and the beginning of 2022, unemployment started to increase again as GDP growth started dropping to close to zero in 2024. An inverse correlation between the formal employment coefficient and the real prime lending rate has been observed since 2012 (utilising logarithmic trend lines). An inverse correlation between the real prime rate and the year-on-year percentage change in private sector employment has also been observed since the end of 2021. South Africa has the highest unemployment rate of the group of 26 EMDEs included in the MSCI emerging markets indices. At 33.2% (narrow definition), South Africa’s unemployment rate was almost six times higher than the EMDE average for 2024. A World Bank report was commissioned by the South African government in 2023 and completed in 2025, titled Driving inclusive growth in South Africa. The report   identifies a number of priority areas for feasible, impactful and timely policy actions to correct the country’s growth trajectory, most of which can only be successful with the maximum involvement of the private sector, especially in the areas of construction and transport logistics, which require substantial amounts of financial capital. Current commercial lending rates are not conducive to the attraction of such capital or to the venture capital requirements for stimulating small business activity recommended in the report.     Section C   As discussed in some detail in sections one and two, interest rate changes have exerted a profound negative impact on the South African economy since 2022, which could well have been avoided. In order to fully understand the extent of the damage inflicted on the economy by unduly high interest rates, an econometric impact assessment was conducted via a scenario with a modestly lower interest rate trajectory between the second quarter of 2022 and the first quarter of 2025.   An autoregressive distributed lag model (ARDL) was fitted according to the variables, regressors and other specifications discussed in section C. The adjusted R-squared was determined as 0.9989, which means the explanatory variables explain more than 99% of the variance in GDP and the F=statistics also confirm the joint significance of the explanatory variables.   The modelling results show that GDP would have been higher in all quarters after the second quarter of 2022 as a result of a modestly lower interest rate trajectory, ending with a 2.8% higher GDP than the actual for the first quarter of 2025. This translates into a value increase in GDP of R206.4 billion, which would have led to higher employment and also increased fiscal revenues. Section D   In addition to quantifying the negative effect of unduly high interest rates experienced since 2023 by means of econometric modelling, evidence is provided evidence via a second method, based on two realistic alternative values for the average ratio of household debt costs to disposable incomes over the period 2023 to the first quarter of 2025.   The differences between these values and the actual values (which were considerably higher as a result of the record high interest rates) were then utilised to calculate the values for disposable incomes that would have materialised in the presence of a more accommodating monetary policy stance during the relevant quarters. Under the realistic assumption of a unitary marginal consumption propensity, the latest input/output table multipliers before the Covid-19 pandemic were then applied to these calculations to quantify the values for GDP; employment; and taxation revenues that were foregone as a result of unwarranted restrictive monetary policy, yielding the results in the following table:       Recommendations   This study has provided ample proof of the debilitating effects exerted on South Africa’s economy by a monetary policy approach that has been pursued at the cost of GDP growth, employment creation, poverty alleviation and lower inequality. The most important objective of macroeconomic policy for an EMDE like South Africa should be to grow the economy at rates that are conducive to lowering the country’s unemployment rate and generating sufficient fiscal revenues to maintain spending on the social wage and expanding infrastructure.   With almost 50% of the country’s labour force not able to find employment and the GDP growth rate remaining at marginally above zero, the threats to fiscal and social stability in South Africa are glaringly obvious.   In light of the multi-faceted and pervasive nature of damages inflicted on the economy since especially 2023, the following recommendations require serious consideration by National Treasury, which is the ultimate custodian of appropriate macroeconomic policy formulation in South Africa:   The composition of the Monetary Policy Committee (MPC) of the South African Reserve Bank (SARB) should be amended to become more inclusive and democratic, as any decisions on interest rates has profound direct and indirect effects on the well-being of households. It is recommended that the MPC should consist of twelve members - two persons from each of the following six institutions/organisations: The SARB National Treasury (the Director-general and Chief Economist - ex-officio) Parliament (from the relevant Standing Committee/s) The banking, investment and financial services sector Key employer organisations (such as the Minerals Council, Consulting Engineers SA; Business Unity SA) Key trade unions Each of these MPC members should possess at least 20 years’ experience in macroeconomic research and a minimum qualification of a master’s degree in economics. The final decision on the selection of MPC members should be the responsibility of the Minister of Finance, for approval by the Cabinet. In the interim, the MPC should consider lowering the repo rate to a level that allows the benchmark commercial lending rate (the prime overdraft rate) to approximate the same real level (adjusted for the CPI) that existed between 2011 and 2015, namely between 3% to 5% (when the average annual real GDP growth rate was 2.4% and 2.37 million jobs were created). The decision to substitute the long-standing inflation target range of 3% to 6% by a target point of 3% should be reversed. A lower inflation target will eventually imply a relatively higher interest rate environment, which will continue to hurt the poor via continued lethargy in GDP growth and employment creation. It will also threaten fiscal stability and serve to aggravate income inequality.     Postscript   Graham Barr and Brian Kantor (2023):   By raising the interest rate by 50 basis points on May 25, the central bank has done little except inflict damage on an already weak South African economy. Restrictive monetary policy has clearly hurt, not helped, the exchange value of the rand by directly depressing any growth prospects for the economy, achieving precisely the opposite of what one assumes was intended.     Joseph Stiglitz (2022):   There is an absolute necessity for deep interest rate cuts for the national economy to thwart an impending recession. South Africa's reliance on inflation targeting can be problematic given its high levels of unemployment and the impact of a strong exchange rate on its competitiveness. A balance is required between inflation concerns and other critical economic goals, such as job creation and economic growth. Policies aimed at stimulating growth and reducing unemployment should be given greater weight, especially during economic downturns. 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(2024): Does Restrictive Monetary Policy Worsen Income Inequality Across Economies?, in HAL Open Science   - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 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. Email: info@inclusivesociety.org.za Phone: +27 (0) 21 201 1589 Web: www.inclusivesociety.org.za

CLICK HERE TO GO TO THE PREVIOUS PAGE   SECTION B The damage to South Africa’s economy of unduly high interest rates   It is acknowledged that a range of other obstacles to higher growth also exist in the South African economy. These are well documented and include the decay of infrastructure, the state capture of key public sector agencies under the previous head of state, high crime levels, widespread corruption and the dysfunctional state of many municipalities. When the excessive regulation of the labour market and of private sector business expansion is added to this list, it seems clear that a switch to more market-friendly policies and private sector participation in the upgrading of infrastructure is desperately needed.   It has nevertheless become apparent that record high nominal and real interest rates (despite the absence of demand inflation) have exerted a range of detrimental effects on the South African economy, especially in the key areas of output growth, capital formation, employment and the financial disposition of households. The analysis that follows illustrates the pervasive extent of the damages inflicted on the economy by the unduly restrictive monetary policy since 2022.     1 DECIMATION OF CONSTRUCTION ACTIVITY The Afrimat Construction Index (ACI), which captures ten key indicators of business conditions in the construction sector, took a substantial knock during the first quarter of 2025, declining by a record quarter-on-quarter margin of -13.8%. Although the year-on-year decline was more muted at 2.6%, it remains a point of concern for policy makers and the private sector value chain for construction activity that the latest reading of the ACI is the second lowest since its inception 14 years ago (see figure 20). The only quarter with a lower ACI reading was during the Covid-lockdowns in the second quarter of 2020. Figure 20: Afrimat Construction Index (ACI) – 2 nd  quarter 2025   Little doubt exists over the depressing effect that record high interest rates have exerted on the construction industry, as also confirmed by several other key economic indicators, most notably exceptionally high debt-servicing ratios and a persistent decline in the real value of credit extension.   Figure 21 illustrates a common post-Covid trend encountered with a host of key indicators, namely an impressive recovery from the Covid-induced lockdowns for the volume of building materials produced, followed by a more gradual growth trend and then, as record high interest rates started to hurt the pockets and profits of millions of indebted households and businesses, a return to a declining trend.   In the case of the volume of building materials produced in South Africa, this was 10% lower in the first quarter of 2025 than in the first quarter of 2019 (pre-Covid). It is clear that the marginal declines in the prime overdraft rate since September 2024 (directly, via the SA Reserve Bank’s repo rate) have not been sufficient to exert a meaningful positive impact on construction activity.   Figure 21: Volume of building materials produced - 4 quarter average (Sources: Stats SA; own calculations)   Although the National Treasury announced a provision of more than R1 trillion for infrastructure allocations in the 2025 Budget, a report by Industry Insights  has noted that the overall construction pipeline shrunk by more than 17% during the first quarter of 2025. This trend, combined with the disappointing results of the first quarter ACI, raises concerns over the immediate future of construction activity in the country. Figure 22: Value of construction works by the public & private sectors at constant 2025 prices (Sources: Stats SA; own calculations)   It is no secret that a decade of state capture under the previous head of state has contributed to the inability of the public sector to reverse the decay of the country’s roads, railways, harbours and energy facilities. Apart from the debilitating effect of record high interest rates, the crux of the problem with construction sector lethargy can be found in the declining trends for the value of construction works.   Although the private sector has managed to raise its level of activity since 2008, the contributions by government at large and the state-owned enterprises remain on a long-term downward trajectory (see figure 22). Unless this trend is reversed soon, the country’s growth prospects will diminish further, as capital formation is a strong leading indicator of future economic output. 2 VALUE OF BUILDING PLANS IN FREE- FALL   No metropolitan region in the country has escaped the debilitating effect of unduly restrictive monetary policy since 2021, as aptly illustrated by figure 22, which shows the real value of building plans passed by the metros and larger municipalities in three key provinces for the eleven months between January and December over the past four years.   Figure 23: Average monthly value of building plans passed in key provinces at constant 2025 prices (Sources: Stats SA; own calculations)   The declines over the past two years indicate the extent to which construction sector has been decimated, with record high interest rates primarily responsible for this sorry state of affairs. These declines amount to 71%, 69% and 59%, respectively, for KwaZulu/Natal, Gauteng and the Western Cape, respectively.   Although the Western Cape bucked the negative trend in 2022, mainly due to the phenomenon of “semigration” (due mainly to superior public sector service delivery standards in the province), the higher cost of capital and credit induced by record high interest rates eliminated a significant portion of potential demand for both residential and non-residential property development.   Construction is the most labour-intensive sector in the economy, and the restrictive monetary policy of the Reserve Bank has not only prevented this sector from recovering from the Covid pandemic but has directly contributed to the sector entering a serious recession. 3 HOME LOAN APPLICATIONS STILL DOWN ON 2021 FIGURES   An inverse correlation exists in most countries between the level of mortgage bond interest rates and the number of home loan applications by prospective home buyers. South Africa is no exception, with rather predictable trends having been experienced for home loans administered by BetterBond, one of South Africa’s largest bond originators (a similar trend occurred in the US housing residential property market).   Figure 24: Number of mortgage bond applications administered by Betterbond (indexed) & prime rate   Figure 24 illustrates the inverse relationship between the prime overdraft rate and the number of home loan applications administered by BetterBond. Although the downward trend has been arrested as a result of a marginal relaxation of the SARB’s restrictive monetary policy stance, the dire situation in South Africa’s residential property market continues to frustrate the ambitions of prospective home-owners, due to the inability of average remuneration levels to keep pace with the substantial increase in mortgage bond repayments.   The following comparison between real benchmark lending rates for home loans provides a simple explanation for the South African residential property market activity remaining in the midst of a serious recession.   The base variable home loan rate in Australia was 5.9% at the end of June 2025, with the country’s annualised consumer price index (CPI) at 2.1%, translating into a real benchmark lending rate of 3.8%. At the end of June 2025 in the UK, the average five-year fixed-term mortgage rate for home-buyers with deposits of 15% to 25% was 4.3%. With an annualised CPI of 3.6% in June, this resulted in a real lending rate of 0.7% In sharp contrast, South Africa’s average real benchmark lending rate between the fourth quarter of 2024 and the third quarter of 2025 was 7.9%, which was double the rate in Australia and more than ten times higher than in the UK.   The number of people applying for home loans via BetterBond between 2019 and 2021 confirms the negligible negative effect of the Covid lockdowns, with a sharp recovery in home loan applications within merely one quarter. In sharp contrast, the restrictive monetary policy that kicked in during 2022 took the wind out of the sails of the residential property market, with the BetterBond Home Loan Index for the 2 nd  quarter of 2025 still 28% lower than the reading in the 2 nd  quarter of 2022, when the higher interest rates started taking their toll on the ability of home-buyers to finance their monthly repayments. In June 2025, this index value remained 40% lower than its peak in the 3 rd  quarter of 2020.   With the prime overdraft rate still 350 basis points above the level of 7% that existed immediately after the Covid-19 pandemic and 50 basis points higher than the level of 10% that existed immediately before the pandemic, no meaningful recovery of home building activity can be expected this year. A point of particular concern is a recent suggestion by the MPC that a so-called “uncertain global outlook” could halt the rate-cutting cycle, as well as the apparent assumption that the South African currency was bound to depreciate substantially against the US dollar. It seems that the MPC is forever trying to find new reasons to keep interest rates high, at the detriment of economic growth and employment creation. 4 AVERAGE HOME PURCHASE PRICES IN DECLINE   Declines in the prime overdraft rate since the second half of 2024 have assisted a marginal rise in average home prices since the 4 th  quarter of 2023. However, this trend was arrested during the 2 nd  quarter of 2025, when average home prices declined (year-on-year) for both first-time buyers and repeat buyers whose mortgage bonds are administered by BetterBond.   Since the 1 st  quarter of 2022, when the restrictive monetary policy of the SARB kicked in, average house prices for first-time buyers have declined by 8.3%. The negative effect on house prices due to the relentless rise in interest rates have impacted on every age group of home-buyers. Over the past two years, the decline is average real house prices for buyers whose mortgage bonds are administered by BetterBond decreased by between 3.3% and 5% for different age groups, as illustrated by figure 26.   According to informal surveys amongst real estate agents, a significant proportion of home sales are as a result of financial difficulty experience by home-owners, who are forced to sell their properties due to the inability to service the debt costs. The purchase of a home is the single most expensive expenditure of most people employed in the formal sector of the economy. The expansion of home ownership is also regarded as a bastion of socio-economic stability, as a home represents a place of security and shelter for families. In time, the appreciation of the value of a home also serves as collateral for upgrading to a more convenient residence or neighbourhood, but this fortuitous cycle has been put into reverse by very high interest rates in recent years.   Figure 25: Average home purchase price by age group at constant 2024 prices (Source: BetterBond)     5 FINANCIAL RESILIENCE OF HOUSEHOLDS UNDER PRESSURE   Since 2022, the results of the Altron FinTech Household Resilience Index (AFHRI) have confirmed the continued financial pressure on South African households, mainly due to the restrictive monetary policy stance by the MPC. This index is comprised of 20 different indicators, weighted according to the demand side of the short-term lending industry and calculated on a quarterly basis.   Figure 26: Nominal prime rate & average real monthly remuneration of employees (Note: 4-q avg. salaries) (Sources: Stats SA; SARB)   With the exception of two indicators (household expenditure & short-term insurance premiums paid), the other 18 indicators all have a bearing on income received from various sources or future income receipts (such as financial or tangible assets). The most important of these income sources are formal sector salaries, which took a hefty knock as a result of the restrictive monetary policy stance between 2022 and the end of 2024.   The inverse relationship between average salaries in the formal sectors (at constant prices) and the benchmark lending rate between mid-2021 and the 4 th quarter of 2024 is illustrated by figure 26.   Fortunately, the lowering of the prime lending rate since September 2024 has led to a modest recovery of the average real formal sector salary, but it remains significantly lower than the 3 rd  quarter of 2021 – just before the interest rate hiking cycle commenced. 6 THE PLIGHT OF THE SMALL BUSINESS SECTOR   6.1 SMEs struggle to access sufficient credit   Small and medium-sized enterprises (SMEs) play a crucial role in driving economic growth and employment opportunities, particularly in emerging market economies (EMEs) such as South Africa. The significance of SMEs in South Africa’s economy is clear from the finding by National Treasury (2021) that the small business sector is responsible for more than half of the country’s total employment and Gross Domestic Product (GDP).   Unfortunately, one of the major hindrances to credit access for SMEs in South Africa is the relatively high cost of credit, compared to other emerging markets, with interest rates on SME loans ranging from 10% to 30% per annum (OECD, 2020). Since the latter finding was published, matters got considerably worse, with an increase in the nominal prime lending rate of 68% having occurred between the third quarter of 2021 and the third quarter of 2023. South African SMEs also encounter significant challenges in accessing adequate financing, particularly when it comes to credit (Fubah & Moos, 2022). The level of the reigning commercial lending rate plays a pivotal role in determining the cost of credit, impacting the ability of SMEs to borrow, invest, and ultimately grow (Tran et al., 2020).   An investigation into the effect of interest rates on credit access for small and medium-sized enterprises (SMEs) in South Africa, conducted by Msomi (2023) found a clear indication of a negative correlation between interest rates and the ability of SMEs to access credit. This negative correlation was substantiated through both linear regression analysis and the Pearson correlation coefficient methodology. The study recommended that policy makers in South Africa should consider reducing interest rates and relaxing collateral requirements to improve credit access for SMEs.     6.2 Majority of SMEs in distress    The plight of SMEs in the quest to finance the expansion of their businesses has also been highlighted by the results of the Absa/SACCI Small Business Growth Index (SBGI). The Index is jointly researched by Absa, the South African Chamber of Commerce and Industry (SACCI) and Unisa’s Bureau of Market Research (BMR). It is based on a survey conducted between April and May 2025 and serves as an up-to-date barometer for policymakers, providing insights into small business conditions, challenges and growth prospects.    The Index found that SMEs were experiencing difficulty in remaining solvent, due to the weight of rising costs. Transport and fuel costs delivered the hardest blow, with more than 66% of SMMEs reporting increases. Cost pressures are perceived as severe and widespread across sectors. Unsurprisingly, the record high interest rates during 2022 to the end of 2024 have also taken their toll, with almost 60% of respondents having experienced an increase in the cost of borrowing (see figure 27). A total of 60% reported weak or critical cash flow, and only 2.8% described it as strong. Almost one in five flagged their current debt levels as “unmanageable or very concerning” and more than half of small businesses in South Africa are in decline or in distress.   Figure 27: % of SMMEs that have experienced increases in key costs of doing business - 2 nd  quarter 2025 (Source: Absa/SACCI/BMR Survey)   A total of 52.8% of small, medium and micro enterprises (SMMEs) are in a state of contraction, difficulty, or risk of closure, with nearly one in 10 facing potential closure, as illustrated by figure 28. Other findings include:   More than 55% of SMMEs said they might not make another year without relief. To stay afloat, more than three-quarters plan to hike prices in the next six months.    Almost one in five flagged their current debt levels as “unmanageable or very concerning”.  Only 60% use any formal finance instruments, with the others relying instead on personal savings or informal networks.    Figure 28: SMME survival outlook (Source: Absa/SACCI/BMR Survey)   The implications of these findings are alarming, as it means that the key engine of entrepreneurship and job creation is buckling under undue pressure, especially in the area of borrowing costs, due to the record high interest rates between 2022 and 2024. A struggling SME sector slows down overall economic growth, affecting the livelihoods of millions of South Africans.   7 SHARP INCREASE IN HOUSEHOLD DEBT COSTS     In the first quarter of 2022, households were sacrificing 6.7% of their disposable incomes to pay for debt costs. Over the subsequent seven quarters, this ratio increased by 39%, with households having to spend 9.3% of their disposable incomes on servicing the interest on debt repayments by the end of 2023 (see figure 29). Although this ratio has declined marginally as a result of a lowering of interest rates since the third quarter of 2024, it remains 33% higher than three years earlier.   Figure 29: Household debt costs as % of disposable income (Source: SARB)   According to Johan Gellatly, the Managing Director of Altron Fintech, the restrictive stance of monetary policy remains a point of huge concern for millions of indebted households and businesses. In a media statement published on 16 July 2024, he notes that, despite inflation having moved to a comfortable level of close to the lower point of the Reserve Bank’s target range of 3% to 6%, the MPC’s dogged insistence to maintain a real prime rate of between 6% and 8% defies logic, as this rate is now 158% higher than the average real prime rate that existed in 2014, just before the retirement of Gill Marcus, the previous Governor of the Reserve Bank.   Gellatly believes that the standard of living of South African households will not be lifted unless interest rates decline to substantially lower levels. Various key indicators of economic activity in South Africa, the AFRHI included, clearly paint a picture that, in order to start assisting consumers, interest rates must be lowered. This is equally important in terms of growing the economy, attracting investment, and reducing unemployment. More and more, one has the impression that Business SA is sitting on the sidelines and playing a ‘wait-and-see game’ to ascertain whether they should invest or not due to the high cost of capital investment.   When households are forced to commit a larger percentage of their disposable incomes to the servicing of debt costs on mortgage loans and other credit instruments, it follows ceteris paribus that their disposable incomes will decline. In the absence of meaningful growth in formal sector employment levels, this truism will also hold for the economy as a whole. Figure 30 illustrates this predictable inverse correlation, which has resulted in very low levels of household expenditure – the most important component of aggregate demand in the economy.   Figure 30: Logarithmic trend lines for real disposable income & debt cost/income ratio of households (Sources: SARB; own calculations) 8 INFERIOR GDP GROWTH TO EMERGING MARKET PEERS   Since 2020, real global growth has only averaged 2.55%, with South Africa lagging quite far behind, especially within its peers in the EMDEs. Since 2020, average annual real GDP growth in EMDEs amounted to 3.7%, compared to a paltry 0.4% in South Africa (see figure 31).   Although the resultant fiscal strain was caused by several factors, including state capture, which rendered several key state-owned enterprises incapable of properly maintaining the country’s logistics and energy infrastructure, the substantial increase in real interest rates before and after the Covid-19 pandemic also took a heavy toll.   It should be pointed out that a study published by the Inclusive Society Institute (2023) found that, by international standards for EMDEs, South Africa boasts an extensive and progressively targeted social support programmes (SWS), which has grown to one of the largest in the developing world, with the growth in the number of people receiving grants having increased from 2.4 million in 1998 to an estimated 28 million in 2025 – an increase of more than ten-fold.   Figure 31: Real GDP growth - South Africa and Emerging Market & Development Economies (Sources: World Bank; Statistics SA)   Utilising general household income and expenditure data, Bhorat & Cassim (2014) found that grants managed to stabilise annual household real income growth between 1995 and 2010. In the absence of social grants, real household income would have declined for those in the 2nd and 3rd lowest income decile by 12% and 7% per annum, respectively.   Due to several years of low GDP growth, the expenditure related to maintaining the grant system and other social welfare policies has placed considerable pressure on the National Treasury. According to the National Treasury, the social wage has reached a level of approximately 50% of consolidated government spending. It has become imperative to alleviate fiscal pressures, in order to ensure the affordability of grants to unemployed people and pensioners. To this end, considerably lower interest rates can play an invaluable role to lift the GDP growth rate. 9 AGGRAVATION OF INCOME INEQUALITY   Measured by the Gini coefficient, which is widely used to determine the wealth or income inequality in a country, South Africa is ranked as having the lowest level of income equality in the world. Abundant literature confirms the positive impact of employment creation on achieving a more balanced level and higher level of income and wealth distribution, including research by Zore (2024), Schoeman (2025) and Fortuin, et al. (2022),   The mathematics underpinning the important role of employment creation in lowering income inequality is straightforward. In virtually every developing country, including South Africa, social security programmes (SSPs) are the domain of government, especially those related to welfare payments. For every formal sector job that is created via relevant macroeconomic policies, the fiscal authorities benefit in two ways: Firstly, there is one less grant that needs to be paid and, secondly, there is one more taxpayer that contributes to the fiscal resources necessary to implement SSPs.   It stands to reason that a central bank, as the implementing agency for monetary policy, wields considerable influence over an economy’s ability to match growth and employment creation policies with the overall priority afforded to a government’s economic policy objectives. In this regard, it is illuminating to consider the recent research by Zore, which examined the causal effect of monetary policy on income inequality in emerging economies using a dynamic panel analysis with the Generalised Method of Moments (GMM). The sample consisted of 46 emerging economies (including South Africa) from 2000 to 2018.   The results indicate that restrictive monetary policies contribute to an increase in income inequality. It is noted that these policies have a minimal impact on income distribution until the third year after their implementation, indicating a delayed effect on inequality.   Fortuin et al. (2022) examined how macroeconomic policies influenced income inequality in South Africa over the period 2010 to 2019 using a behavioural life-cycle model. The results show that the South African government’s current policy model to redirect income via grants from a very small tax base is unable to meet income redistributive targets. A key recommendation is that government should rather switch to creating an environment in which private enterprises are able to absorb the labour capital that South Africa possesses. An open labour market would support private and foreign direct investment into the economy, thereby strengthening economic growth and upliftment through increased income and the consequent ability to accumulate wealth.   Monetary policy entails a choice over which objective is more important – low inflation or job creation via incentivising higher levels of capital formation and economic growth. Under the current socio-economic circumstances and based on the evidence provided in this section, it seems clear that the monetary authorities have neglected the latter policy objective by maintaining an elevated real interest rate over the past decade – at a huge cost that includes growing unemployment and a higher level of income inequality. 10 LOWER UTILISATION OF MANUFACTURING CAPACITY    South Africa provides a useful case study of a third instance where restrictive monetary policy can exacerbate supply-side inflation, namely where higher interest rates lead to lower demand for manufactured goods. The latter, in turn, leads to a decrease in capacity utilisation, thereby increasing the fixed costs per unit of production.   The growing level of unutilised capacity in South Africa’s manufacturing sector constitutes a further indictment of the country’s overly restrictive monetary policy. Capacity utilisation in this key sector has not yet recovered to pre-Covid levels. A declining trend in this indicator kicked in between the third quarter of 2013 and the end of 2018, mainly due to the negative effects of state capture and infrastructure inefficiencies but has since worsened as a result of lower demand induced mainly by record high interest rates (see figure 32).   Figure 32: Capacity utilisation in manufacturing remains lower that pre-Covid (Source: Statitics SA)   A modest recovery ensued immediately after Pres Ramaphosa’s assumed the country’s highest office in 2018, but progress was thwarted by the Covid pandemic and, subsequently by record high interest rates, which dampened demand in the economy via a sharp increase in debt servicing costs. Between the first quarter of 2019 and the first quarter of 2025, capacity utilisation in manufacturing has declined by 6%. Figure 33: Share of insufficient demand in cause of unutilised capacity in manufacturing (Note: 4-Q avg) (Sources: Statistics SA; own calculations)   The adverse impact of restrictive monetary policy on demand in the economy is confirmed by its dominant role in declining capacity utilisation. This trend has also served to aggravate inflation via raising the fixed overhead costs per unit in the manufacturing sector, which means that the country’s restrictive monetary policy has been damaging the economy via self-inflicted upward pressure on cost-push inflation.   This statement is vindicated by the fact that insufficient demand for manufactured products remains the most important reason for the presence of a significant level of unutilised capacity in South Africa’s factories. During the second quarter of 2025, a lack of sufficient demand was responsible for more than 52% of the unutilised capacity in manufacturing – an increase in the share of this impediment to manufacturing production of 7.9% since the third quarter of 2022, when the persistent increase in the repo rate (and the prime rate) started to take its toll on dampening demand in the economy (see figure 33). 11 CAPITAL FORMATION REMAINS IN DECLINE   In the case of South Africa, determining the impact of high interest rates on fixed capital formation has been clouded by public sector incompetence stemming from the ANC’s policy of cadre deployment and a decade of state capture, during which large scale corruption, nepotism and fraud have led to the decay of much of the country’s infrastructure, especially in transport logistics and energy.   The lack of sufficient investment in new productive capacity in South African represents one of the most pressing constraints on the economy’s current and future growth potential, as capital formation is subject to lengthy time-frames before new factories, roads and mines start contributing to higher output levels.   It is a serious indictment of South Africa’s macroeconomic policy since 2011 that capital formation has been neglected to the extent that it comprised less than 15% of GDP in 2024. This is less than half of the ratio that existed in India and South Korea and 55% lower than the global average of 25.9% (see figure 34).   Figure 34: Gross fixed capital formation as % of GDP - selected countries (2024) (Source: World Bank)   The exceptionally high level of interest rates that have existed since 2022 have undoubtedly served as a major deterrent to new investment in capital formation. Although the private sector has managed to buck the general downward trend for most of the post 2010-period, the recent rise of South Africa’s benchmark commercial lending rate to its highest level in 15 years has finally put paid to this resilience.   Between 2007 and 2009, exceptionally strong growth occurred in this key indicator of current and future economic growth potential as a result, inter alia, an expansion of the road network in Gauteng, preparations for the hosting of the 2010 FIFA Soccer World Cup and progress with the so-called RDP housing program in low-income areas. In line with most countries in the world, capital formation took a knock during the 2008/09 financial crisis, triggered by inadequate financial sector regulations and oversight in the US and Europe.   Following a recession that only lasted for three quarters, capital formation was up and running again, due, inter alia, by the adoption of an accommodating monetary policy approach by the previous Governor of the SA Reserve Bank, Gill Marcus. During her five-year term of office, the average real prime rate was 3.4% and was accompanied by average annual real GDP growth of 2.6%.    Since the adoption of an excessively restrictive monetary policy stance by the MPC in 2022, the average real prime rate has increased by 87% over the average that existed during the tenure of the previous governor of the Reserve Bank, whilst average annual real GDP growth has shrunk by 70% to an annual average of less than one per cent.   During the third quarter of 2025, South Africa’s real benchmark commercial lending rate was more than 100% higher than the norm that existed between 2011 and 2015. It borders on the incomprehensible that a developing country with an unemployment rate of close to 50% can experience such a dramatic shift in its monetary policy approach, especially against the background of the decimation of demand that occurred as a result of the Covid-19 pandemic.   Figure 35 tells a woeful tale of the collapse of new investment in South Africa’s infrastructure by state-owned enterprises (SoEs) over the past decade, a trend that filtered down to lower levels of capital formation in the private sector and that has resumed a downward trajectory as a result of the record high cost of capital and credit in the country.   Figure 35: Gross fixed capital formation by public corporations at constant 2024 prices (Source: Stats SA)   The demise has been caused by a combination of the following:   The appointment of a new monetary policy committee by former pres. Jacob Zuma in 2015, which systematically started to change course to a more restrictive monetary policy, raising the real prime rate from an average of 3.1% in 2014 to an average of 5.1% in 2017; 6% in 2019 and 8.3% in March 2025. The relentless rise in the real prime rate was halted temporarily by the sharp economic contraction imposed by the Covid-19 lockdowns, but was then resumed, with the real prime rate standing at 7.1% as at the end of July 2025 (following five welcome, but insufficient repo rate cuts of 25 basis points each). Since the retirement of Gill Marcus, the real cost of capital investment remains more than 100% higher, which explains, to a large extent, the current downward trend in real private sector capital formation.     Figure 36: Average annual real % change in fixed capital formation by sector (2011 to 2024) (Sources: Stats SA; own calculations)   Ever since 2015, it became obvious that South Africa’s SoEs, most notably Eskom and Transnet, had become riddled with corruption and incompetence, ultimately leading to extensive rationing of electricity, disruption of railway lines and severe constraints at most harbours. The financial mismanagement that accompanied state capture eventually also restricted the future ability to revive expenditure on infrastructure maintenance and expansion.   Since 2020, financial and fiscal constraints imposed by the Covid-19 pandemic have thwarted any meaningful recovery in capital formation trends. Although a marginal upward trajectory occurred in 2023, record high interest rates stopped this recovery in its tracks.   Only two sectors of the economy, viz. trade & hospitality and agriculture, have managed to meaningfully increase real investment in new productive facilities since 2011, as illustrated by figure 36.   It is important to note that when the cost of investing in new productive capacity becomes too high, it acts as an effective tax on venture capital, due to the ease with which revenue can be earned by rather investing surplus funds (that could have been earmarked for the expansion of productive capacity) into financial instruments such as money market accounts. 12 INSUFFICIENT DEMAND   The repo rate increases that commenced in October 2021 eventually led to an increase in the real prime rate three years later of 335%. Although the repo rate has since been lowered, the real prime rate remained 130% higher in October 2025 than the average for 2014. Between 2011 and 2014, the average real prime rate was 3.4% and real GDP growth was 2.4%. At the end of 2024, the real prime rate was 485 basis points higher at 8.25% and GDP growth was 0.5% - less than a quarter than the rate recorded between 2011 and 2014. The unwarranted three-fold increase in annual average real lending rates between 2021 and 2025 has exerted a profound stifling effect on household consumption expenditure and new investment in productive capacity by the private sector, which are the main engines for demand-led economic growth in South Africa.   It is also strange that the Governor of the Reserve Bank recently alluded to a neutral impact on aggregate demand as a result of the restrictive monetary policy that has lasted for more than three years. This is not true from the perspective of per capita household expenditure in real terms, and it is also a fallacious statement from the perspective of the other key component of expenditure on GDP, namely capital formation. Between the first quarter of 2022 (just after the switch to a restrictive policy stance) and the first quarter of 2025, capital formation declined by an average rate of 0.6% per annum in real terms.   Over the past two years, the value of demand in the South African economy has declined in real per capita terms. In analysing the recent decline in South Africa’s consumer price index, Brian Kantor (2025) posits that the reason for this welcome relief from rising prices is mainly related to the very slow growth of demand for goods and services (due to highly restrictive monetary policy), combined with price stability on the supply side of the economy (due to currency strength).   He also points out that the growth in the money supply and bank credit, which influence spending in a direct way, has remained highly restrained for an extended period - going back to 2016. Over the past decade, bank credit (accounting for a large majority of the asset side of the banks’ balance sheets) has only grown by marginally more than inflation, in line with the slow rates of growth of output (GDP) and national incomes.   Money and credit growth picked up in 2022-23 as commodity and metal prices recovered but both have declined consistently since then. Real bank lending to the private sector is below pre-Covid levels as is GDP.  Given such financial repression, any upward pressure on prices from extra spending (the demand side of the price equation), was not possible. As evidenced by the paltry average annual real growth in GDE of less than 0.5 per cent between the fourth quarter of 2022 and the first quarter of 2025.   Figure 37 illustrates the declining momentum for gross domestic expenditure since 2023, turning into a negative trend line (polynomial) in 2024, as the real prime rate continued to increase relentlessly since 2022. This ultimately inverse relationship is in line with what happened to South Africa’s GDP growth rate since the decision by the MPC to raise the benchmark lending rate to its highest level in 15 years (in real terms). As pointed out by Kantor (2025), when real demand grows very slowly as it has in South Africa, real income growth cannot advance at a much faster rate, regardless of what may well have been faster potential growth in the absence of an austere monetary policy setting. Monetary policy must be judged as highly restrictive, due to the fact that real interest rates have increased quite dramatically since 2015, despite an absence of demand-side inflation.   Figure 37: Trend lines for real gross domestic expenditure (GDE) and the real prime rate (Note: 2-period mov. avg) (Sources: Stats SA; own calculations)   The Reserve Bank does not target money supply or credit growth rates. The instrument of policy is its interest rate settings, which were hiked sharply in response to higher inflation after the Covid-19 pandemic, caused by supply side shocks to prices, especially the oil price and record increases in global freight shipping rates, as well as a weaker rand. Clearly borrowing from the banks to fund working capital or a mortgage on a home loan has been strongly discouraged by the high real costs of or rewards for money and credit.   In the absence of significantly lower interest rates to encourage the growth in demand for bank credit and spending by households and firms, Kantor (2025) believes that GDE will not be able to grow beyond forecasted GDP growth rates of less than 2% p.a. Furthermore, too little rather than too much spending (relative to potential supplies of goods and services) will continue to weigh heavily on the pricing power of domestic producers. The Reserve Bank has predictably increased interest rates, despite the pressure on prices almost always emanating from the supply side – from external price shocks and exchange rate weakness.   Against this background, Kantor (2025) recommends that temporary supply shocks on the price level should be ignored by monetary policy.   Judged by past performance the danger to the economy of another supply-side shock will be policy determined interest rates that are too high rather than too low for the good of the economy. It is to an improved supply side of the economy that the economic policy-makers should look for pursuing permanently low inflation. The danger of demand-led inflation is a small one. 13 SHARP DECLINE IN HOUSEHOLD CREDIT EXTENSION   Household credit growth in emerging market countries and its impact on economic welfare has been thoroughly analysed and discussed by academics and international research institutions, including the IMF. In its 2006 Global Financial Stability Report, the IMF’s Monetary and Capital Markets Department concluded that the welfare gains from expanding household credit extension can be sizable, making further growth of household credit desirable. This occurs via the channels of reducing household consumption volatility, improving investment opportunities, easing the constraints on small and family businesses, and diversifying household and financial sector assets.   Care should nevertheless be taken to prevent the unbridled acceleration of household credit extension, especially due to the possibility of systemic rise in non-performing loans and where the regulatory authorities are constrained by limited skills and inadequate financial sector development. Fortunately, these concerns do not exist within the South African financial services sector.   It is clear from table 2 that South Africa’s ratio of domestic credit extension to GDP is low by international standards.   Table 2: Domestic credit to the private sector as & of GDP - selected countries & regions (2024) (Source: IMF)   According to the IMF, four key areas need to be present in order to prevent a buildup of vulnerabilities with regard to excessive credit extension. These are:   Prudent macroeconomic management to minimize income, exchange rate, and interest rate shocks. Introducing sound prudential norms for household credit and encouraging good origination standards and information sharing by banks. The presence of a comprehensive legal and regulatory framework. The availability of information that enables better assessment of systemic risks and their mitigation.   All of the above conditions are present in South Africa. Unfortunately, however, the positive impact of increasing levels of household credit extension on private consumption expenditure and capital formation has been thwarted by the higher interest rates that kicked in from 2015 onwards and then rose to a 15-year high in May 2023, where it stayed for 16 successive months, as aptly illustrated by figure 38.   The inverse correlation between the rising cost of credit and the ratio of household credit extension to GDP is confirmed by the trend lines depicted in figure 39.   Figure 38: Household credit extension at constant 2024 prices (Source: SARB – deflated by the CPI)   Figure 39: Trend lines for household credit/GDP ratio and the average prime rate (polynomial) (Source: Stats SA; SARB) 14 LOWER PER CAPITA DISPOSABLE INCOMES   The disposable incomes of South African households (in real terms) have declined consistently over the past decade, with a more pronounced downward trend line since the restrictive monetary policy started to take its toll on virtually all of the key macroeconomic indicators, as illustrated by figure 40.   The latter represents the dominant driver of aggregate demand in the economy and, as an inference, GDP growth. In 2021, on the back of a nominal prime rate that was 400 basis points lower than currently, the country’s real annual per capita disposable income recovered to within a whisker of the level immediately prior to the Covid lockdowns. Since then, it has declined by more than 2.6% to just above R74,000, compared to more than R78,000 when Gill Marcus was in charge of monetary policy.   Any doubt over the negative impact that high interest rates have exerted on the South African economy is dispelled by the downward trend in the ability of households to earn and generate sufficient disposable incomes to maintain their standard of living. The consistent erosion of the financial disposition of South African households since the new monetary policy regime took over in 2015 should be a point of huge concern to the government, as this issue was in all likelihood at play during the national elections of 2024.   Figure 40: Per capita disposable income of households at constant 2024 prices (Sources: SARB; own calculations) 15 NEGLECT OF THE OBJECTIVES OF GROWTH AND JOB CREATION   The primary goal of the South African Reserve Bank (SARB) is the achievement and maintenance of price stability, in the interest of balanced and sustainable economic growth, which is in line with the policy mission statements of most other central banks. Interestingly, several central banks in developing countries also specifically mention the objective of implementing policy in the interest of economic development, which is aligned to the quest for sufficient employment creation.   In an illuminating article on the inappropriate nature of monetary policy since the end of 2022, Barr and Kantor (2023), refer to the argument of the Reserve Bank governor (in defending a series of interest rate hikes) that it may have a negative impact on the growth rate of the economy in the short term, but in the longer term these actions will lead to low and stable inflation rates.   They proceed to point out that this theory of monetary policy is not particularly applicable to the South African case. South Africa is a small economy and open to foreign trade and capital flows. This means the foreign exchange value of the rand, which is a primary driver of the inflation rate, can change abruptly for reasons that have little to do with interest rate settings, the actions or beliefs of the central bank, or expectations of its actions.     With reference to an infamous piece of South African economic history, Barr and Kantor remind their readers of the actions of Chris Stals, the Bank’s governor during the emerging market crisis of 1998, who repeatedly raised the repo rate in an attempt to reverse a sharply weakening rand. By mid-1998, the repo rate was at a record 22%, resulting in the commercial bank prime overdraft rate rising to 25.5%. This ill-considered move to defend a falling rand cost the country $20bn in lost foreign exchange reserves and ended in failure. The South African economy has not changed fundamentally in the past 25 years. It remains a small, open, commodity-exporting economy subject to supply-side shocks from the outside world, including the commodity price cycle, wars and other major world events that are beyond our control.   However, the governor still seems to disregard these lessons of history. He should realise that the behaviour of the rand is the primary determinant of the inflation rate, but that he has little power to positively influence its value in any easily predictable way.   With reference to the hike of 50 basis points in the repo rate on 25 May 2023, Barr and Kantor pointed out the reasons for the plunge in the value of the rand that occurred immediately after the rate announcement, namely:   An imminent weakening of gross domestic expenditure levels An increase in sovereign risk because external perceptions of South African growth deteriorate further Government, which is dependent on the PAYE and value added tax receipts collected from formal sector employees and private sector enterprises, is put under further fiscal pressure   By raising the interest rate by 50 basis points at the time, the central bank had done little except inflict damage on an already weak South African economy. Restrictive monetary policy has clearly hurt, not helped, the exchange value of the rand by directly depressing any growth prospects for the economy, achieving precisely the opposite of what one assumes the central bank intended. Barr and Kantor also specifically allude to the constitutional mandate of the Reserve Bank to conduct policy in the interests of balanced and sustainable economic growth . What’s more, the Bank also has a constitutional obligation to enhance and protect financial stability. It is hard to see how that imperative is concordant with inflicting financial pain on South African households and firms in the form of higher interest rates. They conclude by stating that, in fact, the threat of serious domestic instability through low growth and high unemployment is both real and dangerous.    Over the past decade, it has become apparent that the SARB’s policy focus has been concentrated on the lowering of inflation, with a disregard for the second element, namely economic growth (and, as an inference, employment creation). This is confirmed by the structural shift towards a higher lending rate, also in real terms. The balance between keeping inflation to within reasonable parameters and ensuring adequate economic growth and employment creation seems to have disappeared, as discussed in some detail in the sub-sections above.   Figure 41: Logarithmic trend lines for the real prime rate and the formal employment coefficient (Sources: Stats SA; SARB; own calculations)   Over the past three years, monetary policy has hurt the economy’s ability to create meaningful employment via an overly restrictive policy stance and a consistent raising of the real interest rate. This is illustrated by figure 41, which presents contrasting patterns for the logarithmic trend lines of the formal employment coefficient and the real prime lending rate (which is directly determined by changes to the repo rate).   Figure 42 confirms the inverse correlation between the real prime rate and the year-on-year rate of change in private sector employment. The latter represents one of the mainstays of macroeconomic stability, as remuneration in the private sector, unlike the public sector, is intrinsically linked to value added and also supports the bulk of government’s taxation revenue base (directly and indirectly). Figure 42: Real prime rate and YoY % change in private sector employment (Sources: Stats SA; SARB)   The decline in both the rate of private sector job creation and the formal employment coefficient (the change in employment growth divided by the change in economic growth – Hodge 2009) is especially alarming and should be regarded as a serious threat, not only to fiscal and economic stability but also to socio-political stability in South Africa. Figure 43: Formal employment and total unemployment (broad definition) (Source: Stats SA)   The consistent and sharp increase in total unemployment in South Africa (broad definition, which includes discouraged work-seekers) is equally alarming, with this figure of just over 11.5 million people now equal to the level of formal employment (see figure 43). In 2015, there were 3.2 million more people employed in the formal sectors of the economy than the total number of unemployed people. Unless this trend is reversed soon, the majority of the country’s labour force will not have a decent job and will not contribute to the most important source of government revenue, namely personal income tax. Figure 44: Unemployment rates - selected emerging markets, developing economies & G7 average (Sources: World Bank; Stats SA)   The inability of the economy to create formal sector jobs at a pace commensurate with population growth is a point of huge concern. At the end of 2015, just before the shift towards a significantly more restrictive monetary policy stance started to occur, a total of 31% of South Africa’s working age population enjoyed formal sector jobs. This ratio has now shrunk to only 27%.   In both the US and Europe, the rise in price levels due to the disruption of the Covid-19 pandemic went hand in hand with a consistently low level of unemployment – a luxury that did not exist in several EMEs, most notably in South Africa, which has been battling with an unemployment rate of above 30% for decades. South Africa has the highest unemployment rate (narrow definition) in the world amongst a peer group of EMDEs, as illustrated by figure 44.   The extent of the excessive high rate of joblessness is especially concerning, a view that has been echoed by the World Bank report on an appropriate economic policy reform agenda (2025), which was prepared at the request of the South African government.   Although it is well documented that the excessive burden and growing incompetence of public sector institutions, over-regulation of the economy in general, and the damage inflicted on South Africa’s infrastructure during the state capture era have prevented the economy from realising its growth potential, the MPC’s restrictive monetary policy has added to these woes.   The World Bank report, titled Driving inclusive growth in South Africa, identifies a number of priority areas for feasible, impactful and timely policy actions to correct the country’s growth trajectory. Two of these that could be greatly enhanced by a redirection of monetary policy towards targeting a real prime rate of below 4%, are:   Redirect public spending toward capital investment and job creation Unleash the potential of small and innovative firms through venture capital   The former of these two actions can only be successful with the maximum involvement of the private sector, especially in the areas of construction and transport logistics, which require substantial amounts of financial capital. Current commercial lending rates are not conducive to the attraction of such capital or to the venture capital requirements recommended in the second action.   A pronounced shift in the emphasis of monetary policy is urgently necessary, namely from targeting very low inflation to enabling private sector expansion, incentivising higher levels of demand and creating employment. This will require a flexible target range for the real prime rate of 3% to 4%, as was the de facto case between 2011 and 2015, when average annual real GDP growth of 2.6% was recorded.   Figure 45 provides a snapshot of the debilitating effects of unduly high interest rates on growth during four different periods before and after the Covid-19 pandemic, whilst figure 46 illustrates the dismal growth performance of South Africa, compared to high income countries and its peers in the upper middle-income countries.   Figure 45: Average real prime rate & average YoY real GDP growth since 2011 (Sources: Stats SA; SARB)   Figure 46: Post-Covid GDP growth rates for high income countries, South Africa & its EMDE peer group (Sources: World Bank; Stats SA)   SECTION C Modelling the impact of lower interest rates on the GDP 1 INTRODUCTION Understanding the impact of interest rate changes on South Africa’s GDP is important for effective monetary policy. The South African Reserve Bank (SARB) uses interest rates as a primary tool to contain inflation and spur economic growth, but the relationship is complex with mediating factors such as household debt, investment, exchange rates and global shocks.   Empirical studies consistently find that increases in interest rates tend to reduce both nominal and real GDP (Aron & Muellbauer, 2000; Cheteni et al., 2025; Jordaan, 2013; Ntshuntsha & Scholars, 2021; Nxumalo et al., 2024; Petlele & Buthelezi, 2025).   A study in 2013 found that a 100 basis point increase in the nominal interest rate leads to a reduction of 0.54% in nominal GDP and 0.22% in real GDP after a three-quarter lag (Jordaan, 2013). Similarly studies found that there is a significant negative long-run relationship between the repo rate and GDP, though short-run effects have mixed results (Ntshuntsha & Scholars, 2021; Nxumalo et al., 2024; Petlele & Buthelezi, 2025).    Interest rates affect GDP through household consumption (especially income groups with more access to credit), private investment, and employment (Cheteni et al., 2025; Gumata & Ndou, 2021; Jordaan, 2013). Higher interest rates constrain demand for credit and negatively affect GDP (Cheteni et al., 2025; Nxumalo et al., 2024; Sibanda, 2012). The modelling approaches in literature studies employ macroeconomic models, social accounting matrices, ARDL, VECM, SVAR, and CGE models to estimate the effects of interest rate changes on GDP (Beyers et al., 2023, 2024; Jordaan, 2013; Ntshuntsha & Scholars, 2021; Petlele & Buthelezi, 2025) 2 DATA AND SAMPLE The data for this study is sourced from the South African Reserve Bank (SARB) database. The sample data is from the first quarter of 1995 up to the first quarter of 2025. The forecast period is from first quarter of 2022 to first quarter of 2025. The dependent variable is the GDP at current prices (saar), and the independent variables are the prime rate and the total CPI.  3 METHOD AND ANALYSIS   A autoregressive distributed lag model (ARDL) was fitted as indicated below:    An ARDL model was fitted and after correcting for autocorrelation (no heteroscedasticity was present) with the Newey-West estimation, the final model was: ARDL (3,1,0).  This indicates the dynamic structure of the specification of the model.  The Variance inflation factor to detect multicollinearity was for both variables below 10 which indicates that multicollinearity is not a problem in the function.  Table 3: ARDL model results   The GDP lagged after 3 quarters is significant on the 95% confidence level (p=0.176), the CPI is significant after 1 quarter lag with p-value of 0.0502 and the prime rate at the current period is significant with a p-value of 0.0076.  Both variables have a negative relationship with GDP (CPI after a lag).    The adjusted R-squared is 0.9989 which means these explanatory variables explain 99% of the variance in GDP and the F=statistics also confirm the joint significance of the explanatory variables.   The bounds test, indicate that cointegration exists between GDP, CPI and the prime rate – i.e. a long-run equilibrium relationship exists between the variables. The test statistic is F=16.86 which is higher than the bounds indicated in the table below (table 2). The short-term coefficient is negative and significant, showing adjustment to long run equilibrium after short term shocks. This adjustment will be slow (coefficient: -0.048).   Table 4: Bounds test critical values 4 ASSUMPTIONS AND FORECASTS   Substantial scholarly research has been conducted that confirms the negative impact on a country’s GDP of rising interest rates, as has been highlighted earlier and also in Sections A and B. The objective of the modelling exercise is to establish whether a scenario where monetary policy is less restrictive would generate higher economic growth or not. To this end the forecast prime rate remains fairly stable at around 7% until mid-2023 and then gradually increases to a level where the real prime rate approximates the level of around 6% that existed during 2019 (pre-Covid). The assumptions for the prime rate for this scenario are shown in the table below.  It is assumed that CPI maintains the actual trend.   Table 5: Assumptions   During the initial six quarters, the assumptions for the prime rate have been informed by the realisation that the spike in the consumer price index that occurred from June 2022 onwards was caused almost exclusively by abnormal simultaneous increases in maritime shipping rates and oil prices. The latter experienced unheard-of increases of 700% and 400%, respectively, due to a combination of Covid-19 lockdowns, erratic harbour closures and the Russian military invasion of Ukraine, which led to sanctions on Russian oil sales.   Although there could be a hint of the wisdom of hindsight being applied, the choice of prime rate assumptions may be regarded as realistic from the perspective that supply-side shocks such as were experienced between 2021 and 2023 are always going to be followed swiftly by a normalisation of prices to previous levels. Another rationale for the initial downward trajectory of the prime rate forecasts is related to the obvious need that existed for softening the blow of the Covid-19 lockdowns. More than 1.9 million people lost their jobs between the fourth quarter of 2019 and the second quarter of 2020 (formal and informal sectors).   Furthermore, it should be noted that the average forecast for the real prime rate between the third quarter of 2023 and the first quarter of 2025 (the model’s end period) amounts to 3.8%, which is only 30 basis points lower than the actual average real prime rate between 2011 and the first quarter of 2023. Subsequent to the latter date, the sharp normalisation of the producer price index and the consumer price index seems to have caught the MPC by surprise, as the country’s real prime rate shot up to 8.8% in the fourth quarter of 2024 – its highest level in almost two decades. The excessively high cost of capital put paid to any hope of meaningful economic growth, with 2024 recording a 0.5% GDP growth rate.   It should also be pointed out that the average prime rate forecast (in real terms) for the period between the third quarter of 2023 and the first quarter of 2025 is 40 basis points higher than the average real prime rate between 2011 and the first quarter of 2015, when real GDP growth averaged between 2% and 3%.   The modelling results for the above scenario are depicted in figure 46 below along with the actual and forecast prime rates.    Figure 47: Modelling results for a real prime rate trajectory aligned to pre-2022 monetary policy (Sources: Stats SA; SARB)   The table below shows that the GDP would have been higher in all quarters after the second quarter of 2022, ending with a level of 2.8% higher GDP than the actual for the first quarter of 2025. This translates into a value increase in GDP of R206.4 billion, which would have led to higher employment and increased fiscal revenues.   Table 6: Percentage difference between the actual annulised GDP and the forecast GDP     CLICK HERE TO CONTINUE TO THE NEXT PAGE