Boots on the ground – translating reforms into growth

Over the past few months, a steady stream of “good news” on South Africa’s reform front has supported a more optimistic outlook. The signs increasingly suggest SA is close to escaping the chronic post-2010 low-growth trap that has driven underperformance versus emerging market peers and pushed unemployment sharply higher. Weak GDP per-capita growth over this period implies that the broader populace has been worse off than it could have been in a world where emerging economies averaged real GDP growth of around 4.5%.

In this report we look at how South Africa can escape the low-growth trap of the past decade and a half. Stats SA’s latest GDP release showed that the economy grew by 1.1% in 2025, below Bloomberg consensus (1.3%) and the World Bank/IMF/National Treasury forecasts (1.4%). While above 2024’s rate of 0.5%, it remains below the 2.5%+ typically needed to reduce unemployment and, by extension, poverty and inequality.

Chart 1: SA 2025 GDP growth versus expectations

The same question arose last year. In 2023, South Africa faced its worst bout of energy insecurity, with loadshedding prevalent for much of the year. Yet the economy still grew (0.8%, close to 2025’s 1.1%), despite energy being unavailable for 25% (or more) of the day on many days. This highlighted the resilience of businesses and households, many of whom shifted to alternative energy sources. Logistics were also severely constrained, prompting shifts to alternative transport options. Weak growth in 2024 reinforced the view that growth rates could lag improvements in energy and logistics as confidence rebuilds. In 2024 there was virtually no loadshedding and logistics performance improved, yet growth remained elusive.

This makes the 2025 outcome particularly disappointing. After sustained reform momentum, the data still does not reflect a meaningful lift in growth. National Treasury’s 2025 growth forecast was 1.4% and was viewed as “reform neutral”. Either reform has been less growth-supportive than expected, or an additional catalyst is required to help exit the low-growth trap. This report sets out what that catalyst could be.

SA needs its own economic “boots on the ground”: reform must shift from commitments to delivery, with a clear focus on fixing the constraints that keep growth low. The next phase must prioritise action over rhetoric.

State owned enterprise (SOE) performance

One indicator of reform progress is SOE performance. Our index (Chart 2) combines energy, rail, and ports metrics, the core infrastructure for economic activity. It shows that SOEs are at their best levels since 2019 (pre-pandemic). The sharp recovery from the 2023 trough supported the idea that we should have seen faster growth.

Chart 2: SA SOE performance index

Two implications follow from this. First is the “base” question: what growth rate is consistent with SOEs operating at roughly current levels? The index does not extend back far enough to estimate this with confidence, but GDP growth in 2019 was 0.3% and averaged 1.7% between 2010 and 2019. That raises a risk: with SOEs back near 2019 performance, we may be reverting to a low growth ‘steady state’ unless the base lifts further.

If this is correct, GDP upside is limited if SOE performance merely returns to the 2019 peak. Growth averaging 1.7% is unlikely to deliver meaningful economic transformation. This is why more needs to be done to deliver structurally higher growth of 2.5% or more.

Business confidence

Business confidence is a leading indicator of growth and employment. Between 2002 and 2008, confidence was high, GDP growth averaged 4.5% and unemployment was lower. Are recent gains enough to break from the weaker post-2010 trend and return to pre-2009 levels? If confidence stays broadly in line with that of 2010 to 2019, it’s unlikely to drive a step change in growth, in the same way that SOE performance at 2019 levels may be consistent with mediocre outcomes.

Chart 3: FNB BER South African business confidence

A relative comparison helps. At 47, the latest business confidence reading ranks as the 25^th best out of a sample of 37 observations between 1999 to 2008 (i.e. current business confidence conditions are still not good enough compared to that period) whereas 47 ranks as the 5^th best reading out of a sample of 65 observations between 2010 and now (i.e. amongst the highest of the last 15 years, showing that confidence is moving in the right direction). It’s also not all doom and gloom, given that the current reading of 47 ranks 36 out of a sample of 129 observations since 1994. The key point is that further improvement is needed to return to a period like 2002 to 2008. The war with Iran is a material risk and could disrupt confidence, as seen around the ‘Liberation Day’ tariffs of a year ago, which triggered sharp declines.

Chart 4: Business confidence order ranks (closer to 1 = the better, closer sample size = worst)

The South African Chamber of Commerce and Industry (SACCI) business confidence index has also improved and broadly tracks the Bureau for Economic Research (BER) index. Unlike the BER survey, the SACCI index uses hard data. It was higher in 2025 than over the prior five years, yet GDP growth was 1.1%. Stronger equities (notably miners/commodities) and a firmer rand also supported the reading. The message is consistent: conditions look better, but another catalyst is needed to lift output. This is especially important now, as the Iran war is a major risk to business confidence.

Chart 5: SACCI and FNB BER business confidence indices

The reliance versus reliability paradox

National Treasury has worked to restore fiscal credibility through sustained consolidation. In recent years debt rose without translating into stronger growth through investment. Instead, spending flowed to support consumption, implying a weak fiscal multiplier. In principle, fiscal expansion should be matched by higher growth. While social support reduces extreme poverty, it can weigh on long-run growth if it crowds out productive investment. Better allocation of spending should improve service delivery and, over time, reduce reliance on support as incomes rise.

Four facts put this in context:

1. Debt rose from 27% of GDP in 2009 to 77% of GDP in 2025.
2. Gross fixed capital formation fell from 22.8% of GDP to around 15% of GDP in 2023 (Chart 6).
3. Social spending rose from around 15% of GDP in 2009 to nearly 24% of GDP in 2023.
4. GDP growth slowed from 4.5% in 2007 to 1.1% in 2025.

Chart 6: Gross fixed capital formation (government and private)

Chart 7: Social spending as a % of GDP

In short, government has consistently delivered social support and increased it enough to protect purchasing power. There is a crucial nuance here: social support is not inherently harmful. The argument is for building state capacity and a more resilient, labour-absorbing economy so fewer people need support. That creates room to fund growth-enhancing priorities such as infrastructure, schools, universities, hospitals and smaller enterprise finance. If executed well and with credible returns, these investments can put South Africa on a sustainably higher growth path.

Government spends a large share of the social-support budget outside the generic “social grant”. For example, it spends around 6% of GDP on education, among the highest ratios globally. The issue is not just the level of spending versus infrastructure, but the return on that spending. Critics often ask about outcomes: does the system meaningfully empower people? If yes, the allocation is efficient. If not, especially if education is not paired with investment that creates jobs, the return may be low. Similar questions apply to healthcare, which is economically enabling but where outcomes are contested. The same is true for housing: a basic right yet often undermined by poor delivery and exploitation.

For example, if investment of X lifts GDP by 2%, but spending rises to 2X with the same uplift, that is capital destruction. The extra resources could have been deployed elsewhere to increase growth. This is the cost of corruption and wasteful spending.

In short, the issue goes beyond fiscal consolidation: it is equally about the effectiveness of public spending.

In a nutshell:

1. South Africa needs to shift into the next gear of structural reform. SOEs operating at roughly 2019 levels suggest the performance base must lift further. The 2010 to 2019 period was low growth. Escaping that trap requires rapid infrastructure build-out to raise output capacity.
2. Further gains in business confidence require continued improvements in SOE delivery and infrastructure capacity. Investors (local and foreign) are already more comfortable that energy is more secure. Higher confidence supports growth and employment.
3. Credible energy security requires more generation, distribution and transmission capacity. Similar urgency is needed to expand ports and rail, getting back to the more than 226 million tonnes of freight handled at the 2017/2018 peak.
4. Fiscal consolidation should not be viewed as a negative impulse. More important is the effectiveness of government spending. While government manages spending and debt, existing allocations must be used effectively and for their intended purposes. Post-2010 fiscal expansion did not deliver better growth and employment outcomes; in this context, consolidation should not be harmful – if prudent public finance management prevails.