Can South Africa’s new government drag the country out of its economic rut?
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A rainbow government for the rainbow nation: At the end of June, South Africa formed its first coalition government since the end of apartheid, with the incumbent ANC party allying with the centrist Democratic Party (CA) and several small political groupings. Overall, the outcome is growth-positive. The ANC had lost its way in the past decade, with South Africa suffering from severe power outages, rampant corruption, high crime rates and sagging economic growth; the inclusion of the pro-market DA—which already governs several municipalities as well as the Western Cape region—could boost reform momentum. That said, there is a downside risk: Infighting between the coalition partners could lead to the collapse of the government, with a new healthcare system and black empowerment laws potential flashpoints.
The economy is yet to convince our analysts: Our Consensus is currently for South Africa’s economic indicators to remain underwhelming in the coming years. GDP growth is seen averaging less than 2% out to 2028, and will be broadly static in per-capita terms. In addition, the fiscal deficit is projected at over 4% of GDP, and the public debt to GDP ratio at over 70%—high by emerging market standards. And while joblessness should come down, the unemployment rate is still forecast to remain among the world’s highest.
The government needs to make significant economic reforms: Putting the country on a sustainably higher growth trajectory would require the government to make deep structural changes to the economy. Power supply needs to be made more readily available, and parastatal companies such as Eskom—the ailing utility firm—put on a sound financial footing. Educational attainment for the masses needs boosting, and reform to the labor market undertaken to pare back the double-digit unemployment rate. The government also needs to take steps to improve the transport and logistics sector, such as by limiting theft and sabotage and improving the performance of the state-run Transnet. If the new coalition makes headway in these areas, our panelists might be persuaded to upgrade their forecasts.
Insight from our analyst network
On the GDP outlook, EIU analysts said:
“Provided that urgent but long-delayed reforms, such as parastatal restructuring, gather momentum in the post-election period and are not waylaid by political infighting, we expect growth to quicken to 3% a year on average in 202528, boosting job creation. Fresh private investment in power supply, logistics and digital technology will underpin the acceleration in growth.”
Oxford Economics’ Jee-A van der Linde commented on the new government:
“The formation of a multi-party government in which no party holds a majority is a huge shift in South Africa’s political landscape. Although the government of national unity is arguably too cumbersome, healthy interdepartmental competition might lead to more accountability and transparency. That said, the ANC appears reluctant to relinquish its grip and will find it challenging to share power.”
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