South Africa has fallen off: A failure in leadership and thinking.

Introduction.

South Africa was once the dominant economy on the African continent, accounting for more than a fifth of Africa’s real income in 2005. Two decades later, the country has not merely underperformed—it has steadily drifted toward economic irrelevance on the global stage. In 2005, South Africa ranked as the 27th largest economy in the world. Today it sits around 40th, having been overtaken by countries such as Pakistan, Israel and Malaysia amongst many others.

Over the past twenty years, South Africa has grown at an average rate of 2.2% per year, well below the 4.5% average growth of emerging economies and the 3.2% average growth of the global economy. The consequences of this gap are substantial. Had South Africa matched the growth rate of its emerging market peers, the economy would today be 70% larger. Even keeping pace with the global average would have made it 25% larger.

In practical terms, this represents between R1,9 trillion to R4,9 trillion in additional economic output. At the lower end, the economy would rival that of Norway; at the higher end, it would rank above Israel. This article examines how South Africa’s policy choices compare with those of its major trading partner that are emerging economies such as China, India and Brazil so to understand why it has fallen behind.

The management of the source of our money compared to other emerging markets.

At the most fundamental level, the supply of money in the South African economy is determined by the actions of the South African Reserve Bank (SARB). As the country’s central bank, the SARB is responsible for regulating the creation of rands within the financial system. It does this primarily through the management of credit conditions in the economy, using the policy interest rate and other monetary instruments to influence the willingness of commercial banks to extend loans. In practice, the SARB does not directly control the quantity of money in circulation; instead, it regulates the supply of credit by targeting the inflation rate. Through its inflation-targeting framework, the central bank seeks to stabilise the purchasing power of the currency by adjusting interest rates in response to price pressures.

Figure 1.

_{This graph compares inflation trends since 2005 across South Africa, Brazil, Russia, India, China and Kenya, highlighting differences in price stability among major emerging economies. While several countries experienced periods of higher inflation volatility, South Africa’s inflation has generally remained within a relatively stable range due to its inflation-targeting monetary policy framework. Source: MacroTrends}

Since the early 2000s, South Africa has operated under an inflation-targeting regime, where the central bank uses monetary policy to maintain price stability. Over time, the target has evolved, and the current framework aims for inflation of 3% with a tolerance band of ±1 percentage point. The outcomes of this policy stance can be observed in the behaviour of inflation over the past two decades. Since roughly 2005, South African inflation has generally remained within or near the target band, with periodic deviations during global shocks such as commodity price surges and the COVID-19 pandemic. From the perspective of price stability alone, the monetary policy framework has therefore largely succeeded in anchoring inflation expectations and maintaining moderate levels of inflation.

However, when compared with other emerging market economies such as China, India, and Brazil, an important institutional difference emerges. In South Africa, the central bank’s role is narrowly focused on maintaining price stability, while the expansion of credit to the productive sectors of the economy is largely mediated through private commercial banks. In contrast, several other emerging economies operate with more development-oriented financial architectures. In China, the People's Bank of China works in tandem with large state-owned banks that channel credit toward strategic sectors and state-owned enterprises. Similarly, in India, the Reserve Bank of India oversees a financial system in which public sector banks play a significant role in directing credit toward infrastructure, industry, and priority sectors. Brazil’s financial architecture also incorporates development finance institutions such as the Brazilian Development Bank (BNDES), which provides long-term funding to support industrial development and investment.

These institutional differences become particularly visible during periods of economic crisis. During the COVID-19 pandemic, the South African government introduced relief measures aimed at supporting households and businesses in financial distress. As part of this effort, approximately R200 billion was made available through the banking system to provide credit relief to firms and consumers. However, uptake was extremely limited. According to the South African Small Business Institute, only R13 billion of this facility was ultimately disbursed, reaching roughly 10,000 firms, as commercial banks applied stringent lending criteria despite the presence of state guarantees.

In contrast, Brazil adopted a more direct approach. Through the Brazilian State owned bank BNDES, over R398 billion  (R$ 105 billion) in pandemic-related support was extended, reaching more than 250,000 companies and helping to protect millions of jobs. The difference reflects a deeper institutional divergence. In South Africa, the state relies heavily on profit-driven private financial institutions to transmit developmental policy objectives. However, commercial banks ultimately allocate capital based on risk and profitability considerations, meaning their incentives do not always align with broader public goals.

The result is a system that is effective at maintaining macroeconomic stability but less capable of directing credit toward productive investment. Compared to emerging economies with stronger state-directed financial institutions, South Africa’s model places a far greater burden on market-based intermediation, with significant implications for investment, industrial expansion, and long-term growth.

The management of the public purse compared to other emerging markets.

While the supply of money in the economy is largely shaped by the central bank, the direction of public spending and the management of public debt fall under the authority of South Africa’s National Treasury of South Africa. Through the annual budget and the Medium-Term Budget Policy Statement, the Treasury determines how state resources are allocated across the economy and sets the fiscal framework that guides government policy over the medium term.

In recent years, fiscal policy has increasingly prioritised macroeconomic stability through debt containment. A central objective of Treasury’s strategy has been to stabilise public debt by generating a primary budget surplus, meaning that government revenue exceeds non-interest expenditure. Achieving this objective requires significant restraint on government spending, particularly in areas that account for large shares of the budget such as the public sector wage bill.

Figure 2.

_{This graph compares government debt-to-GDP ratios since 2005 across South Africa, Brazil, Russia, India, China and Kenya, illustrating how fiscal positions have evolved among major emerging economies. While some countries maintained relatively stable or moderate debt levels, South Africa’s ratio has risen sharply over the past decade, reflecting slower growth and persistent fiscal pressures. Source: MacroTrends}

The Medium-Term Budget Policy Statement outlines a gradual effort to contain or reduce the size of the public service relative to the economy. Public sector compensation currently represents one of the largest components of government expenditure, accounting for roughly one-third of consolidated spending. Over the medium term, fiscal consolidation measures are expected to slow the growth of the public workforce and limit hiring across sectors such as education, healthcare, and policing. In practice, this means fewer teachers, nurses, doctors, and police officers entering the public service than would otherwise be the case if staffing levels expanded in line with population growth and service delivery demands. The fiscal framework therefore reflects a deliberate policy choice: stabilising public debt and preserving investor confidence takes precedence over expanding the capacity of the state to deliver services directly.

Figure 3

_{This graph compares gross capital formation as a percentage of GDP since 2005 across South Africa, Brazil, Russia, India, China and Kenya, highlighting differences in investment levels among emerging economies. While countries such as China and India have sustained high investment rates to support growth and industrial expansion, South Africa’s declining investment share illustrates one of the structural constraints behind its slower economic growth: Source YCharts.}

At the same time, South Africa has experienced a significant decline in investment over the past decade. Gross fixed capital formation as a share of GDP has fallen from levels above 20% of GDP in the late 2000s to roughly the mid-teens in recent years. This decline reflects both reduced public sector investment and weak private sector capital formation. In contrast, several emerging market peers have maintained much higher levels of investment. For example, investment in China consistently exceeds 40% of GDP, reflecting a state-led development model that actively directs capital toward infrastructure and industrial expansion. India has also sustained investment levels above 30% of GDP, supported by a mix of public infrastructure spending and state-backed financial institutions. Even in Brazil—an economy facing its own fiscal challenges—public development finance institutions such as the Brazilian Development Bank have historically played a role in supporting long-term investment.

South Africa’s fiscal framework differs from these models in a crucial respect. Rather than expanding direct state investment to stimulate economic development, fiscal policy increasingly emphasises creating space for private sector participation in key sectors such as infrastructure, logistics, energy, and telecommunications. This reflects a broader policy philosophy within the country’s economic strategy: the belief that innovation, efficiency, and development outcomes can be optimised by transferring greater responsibility for economic activity from the state to profit-seeking private actors.

The implications of this philosophy are significant. When state capacity is constrained by fiscal consolidation while private investment remains cautious, the economy risks entering a cycle of low public investment, weak private sector confidence, and slow economic growth. Compared with other emerging markets that combine fiscal policy with active development institutions and sustained public investment, South Africa’s current approach places far greater reliance on the market to drive economic transformation.

The outcomes.

The interaction between South Africa’s monetary and fiscal policy frameworks has produced a puzzling economic outcome. Over the past two decades, the country has adopted a set of policies regarded in the mainstream as pro-growth and market friendly: inflation targeting administered by the South African Reserve Bank, fiscal consolidation overseen by the National Treasury of South Africa, and a growing reliance on the private sector to drive investment and job creation. In theory, such policies are intended to create macroeconomic stability, encourage investor confidence, and ultimately stimulate economic growth and employment.

Figure 4

_{This graph compares real GDP growth rates since 2005 across South Africa, Brazil, Russia, India, China and Kenya, illustrating the divergence in economic performance among emerging economies. While several of these countries sustained higher growth trajectories over the past two decades, South Africa’s growth has steadily slowed, contributing to its declining relative position in the global economy. Source: MacroTrends}

Yet the outcomes suggest a different reality. Since the global financial crisis, South Africa’s average GDP growth rate has steadily declined, frequently hovering near or below 1–2% in the past decade. At the same time, unemployment has risen to among the highest levels in the world, exceeding 30% of the labour force. The country therefore finds itself in a paradox: policies designed to promote growth and employment have coincided with persistently weak growth and rising joblessness.

Rather than fundamentally revising this framework, policymakers have largely interpreted the problem (anaemic growth and joblessness) as one of insufficient reform or incomplete implementation, leading to a continued emphasis on fiscal restraint and market-led development. The underlying assumption is that, once macroeconomic stability is firmly entrenched, private sector investment will expand and absorb labour.

Figure 5

_{This graph compares unemployment rates since 2005 across South Africa, Brazil, Russia, India, China, and Kenya, highlighting the differing labor market dynamics among emerging economies. While several of these countries have managed to reduce or stabilize unemployment over the past two decades, South Africa has consistently faced high and persistent unemployment, underscoring structural challenges in its labor market and its impact on economic resilience. Source: MacroTrends}

A comparison with other emerging economies raises further questions. Countries such as China and India have sustained significantly higher growth rates while maintaining much lower unemployment, supported by higher levels of investment and more active state involvement in directing credit and infrastructure development. Even economies with comparable institutional structures, such as Brazil, have historically relied more heavily on development finance institutions to stimulate investment during downturns. South Africa’s experience therefore highlights a central puzzle: macroeconomic stability alone has not translated into sustained growth or employment creation.

Reforms.

If South Africa is to reverse its low-growth trajectory, reforms must move beyond incremental adjustments and confront the structural weaknesses that undermine the state’s capacity to guide development. While the current reform agenda is largely characterised by fiscal austerity and the increasing privatisation of public functions, a more fundamental starting point is required. Before the state can assume a more active developmental role through greater public investment, an expanded mandate for the South African Reserve Bank, or the strengthening of development finance institutions in line with its emerging market peers—it must first restore the integrity and effectiveness of its own institutions.

This requires prioritising two foundational reforms above all else: the eradication of corruption through decisive legal consequences for the misuse of public resources, and the establishment of capable, efficient governance supported by transparent and optimised procurement systems. Without these conditions, any expansion of the state’s role risks amplifying inefficiency and misallocation of capital. These initial reforms are therefore not optional they are the necessary preconditions for revitalising the South African economy and building a credible platform for sustainable, investment-led growth.

1.      The first priority is governance. South Africa must adopt a far more uncompromising stance against corruption, particularly in the management of public resources. Strengthening public procurement systems and introducing severe legal (emphasis on severe) and financial penalties for corruption and crime would be a necessary step toward restoring institutional credibility. Without eliminating the systemic leakage of state resources, any attempt to expand public investment or development financing will struggle to gain growth and public legitimacy.

2.      Second, the state must seek a greater return from existing public investment. This requires improving administrative competence and enforcing strict accountability across public institutions and state-owned enterprises. In practice, this may require confronting entrenched inefficiencies within parts of the public sector, including reforming labour arrangements where rigidities prevent institutions from delivering services effectively. While trade unions play an important role in protecting workers, their influence cannot come at the expense of institutional performance and developmental outcomes.

3.      Third, once governance and institutional capacity are strengthened, fiscal policy could gradually redirect a larger share of government expenditure toward productive investment in infrastructure, industry, and technology. In this context, the South African Reserve Bank could play a more deliberate role in supporting development finance institutions by facilitating credit conditions that enable long-term investment.

4.      Finally, South Africa should seek to reduce its structural reliance on external capital flows. A significant share of government debt is currently held by foreign investors, leaving the economy vulnerable to sudden shifts in global financial sentiment. Countries such as India have maintained tighter controls over foreign participation in sovereign debt markets, thereby limiting exposure to external shocks. Reducing the proportion of debt held by foreigners could strengthen the resilience of the domestic financial system and lessen the influence of short-term investor sentiment on national economic policy.

Figure 6

_{This graph illustrates the share of government debt held by foreign investors across South Africa, Brazil, Russia, India, China, and Kenya. Countries with higher foreign ownership of debt, such as South Africa and Brazil, are more exposed to shifts in global financial sentiment, making their economies vulnerable to sudden capital outflows and currency volatility. In contrast, India has maintained a deliberate policy of limiting foreign participation in its debt markets, reducing susceptibility to external shocks and fostering greater macroeconomic stability. This comparison highlights how strategic debt management can serve as a buffer against global market turbulence}. _{Source: SARB; MacroTrends}

Conclusion.

Economic growth is never accidental; it demands foresight, discipline, and courageous leadership. Yet South Africa drifts behind while its peers’ advance. Whether through complacency or allegiance to narrow elite interests, the country is being steered toward poorer economic health. The nation’s leaders must either awaken to this responsibility or admit they lack the resolve to compete globally.