Seven months after the ANC formed a government of neoliberal unity with nine other parties, South Africa still does not have a plan to increase GDP growth and reduce unemployment. The more things change, the more they remain the same. The GNU feels like an ANC government and is implementing the party’s failed policies that got us into the current economic crisis. Despite political theatrics over issues such as the Expropriation Act, the reality is that the ANC and the DA agree on macroeconomic policy.
During the state of the nation address on February 6, President Cyril Ramaphosa will repeat what he has said in his nine previous speeches over seven years, with changes only to the ordering and emphasis of what must be done. When he presents his budget on February 19, finance minister Enoch Godongwana will present the same dish of austerity and structural reforms that the Treasury has served without success every year since 2012. And if the government implements the same failed economic policies the results will be the same.
From 2009 to 2023, GDP grew by 1.2% a year. By comparison, 155 emerging markets cruised to 4.4% annual GDP growth without much effort during the same period, which included the global financial crisis and the Covid pandemic. Emerging and developing Asia (30 countries) grew by 6.3% a year. From the fourth quarter of 2008 to the third quarter of 2024, the South African labour force grew by 8.5-million people. But the economy created only 2.2-million jobs and the number of unemployed soared by 6.3-million to 12.2-million.
South Africa is an unviable country that has unemployment of 41.9% for people of all races, 70.7% for youth, 50.1% for African women and 46% for Africans. There are a million unemployed people who have tertiary qualifications. For 2024, PwC and Nedbank have forecast 0.5% GDP growth. For 2025, the two companies have forecast GDP growth of 0.8% and 1.4% respectively. Therefore, by the end of 2025, GDP per capita, an imperfect measure of average living standards, will be lower than it was in 2007. South Africa’s chronically low GDP growth over such a long period is unique for a developing country that is not at war.
If we continue like this, Jacob Zuma will return at the age of 87 as the godfather of a new coalition government
On Thursday, Reserve Bank governor Lesetja Kganyago reduced the repo rate by 25 basis points. Since September 2024, the bank has cut rates by 75 basis points and the prime lending rate has fallen to 11%. With inflation at 3%, South Africa has a punitive real (after inflation) prime lending rate of 8%, which is one of the highest in the world. Economists expect one last rate cut at the Bank’s next monetary policy committee meeting in March, but there is no reason the Bank can't announce aggressive rate cuts to stimulate the economy.
The Bank has forecast GDP growth of 1.8% in 2025 and 1.8% in 2026. But such forecasts are based on implausible increases in household consumption expenditure. Consumers will not suddenly splash out because of minuscule declines in inflation and interest rates. The Bank has forecast that the annual inflation rate will decline to 3.9% in 2025 from 4.4% in 2024. If economist are right, the repo rate will decline to 7.25% from 8.25%.
The Treasury has said it will release a discussion document with the 2025 budget about introducing a fiscal rule, a mad neoliberal plan that could result in a law that entrenches austerity. In December, Godongwana told me that he does not support a fiscal rule “because we will breach it” and joked that his officials might be planting such ideas at the IMF. Of all the daft ideas invented by economists, fiscal rules are probably the worst. However, in practice, South Africa does have a fiscal rule: a primary budget surplus target of about 2% of GDP.
In recent years, economists have questioned the credibility of the budget. The Treasury has failed to budget for foreseeable spending items such as public sector wage increases and the continuation of programmes such as the social relief of distress (SRD) grant and the presidential employment stimulus. The Treasury classified cash payments to Eskom as debt redemption and not government spending. Budgets are based on an incorrect assumption that Eskom, Transnet and local governments can self-finance their huge infrastructure requirements. The Treasury budgets for something only if it breaks or if it is forced to.
The biggest decision in the 2025 budget is how to respond to a landmark judgment that forces the Treasury to eliminate bureaucratic barriers that prevented more than 10-million people from accessing the SRD grant. The judgment found in favour of the Institute for Economic Justice and #PaytheGrants on every major issue and ruled that the SRD grant was not temporary. In four months, the Treasury must develop a plan to improve the value of the monthly grant, which has been increased to only R370 from R350 in 2020.
This means that access to the grant will be increased to about 18-million people from 7.5-million. If the value of the grant is immediately increased to R450 to account for inflation and is paid to 18-million people, the government’s SRD spending will increase to R97.2bn from R33.7bn during 2024/25, an increase of R63.5bn. Godongwana must also decide whether to provide debt relief to Transnet, whose borrowings have soared to R150bn, which results in interest payments of more than R1bn a month.
If debt relief is provided on a similar basis to Eskom, the Treasury would have to fork out R90bn over three years. Again, the Treasury may decide to make these cash payments “below the line” which may affect the credibility of primary budget surpluses. Finally, there has been political opposition within the ANC and its alliance partners to the Treasury’s decision to cut R13.8bn from public employment programmes. A Cosatu intervention prevented the Treasury from retrenching Community Works Programme participants who are older than 55.
The GNU must do the right thing and not appeal the judgment. It must provide debt relief for Transnet and cancel the budget cuts for public employment programmes. But the Treasury could also cancel the SRD grant to avoid having to pay the money. It could appeal the judgment to kick the can down the road. The irrational commitment to a primary budget surplus target, whatever the collateral damage to an economy that is on its knees, is the equivalent of a political suicide pact that will harm the ANC and the DA, the two largest parties in the GNU.
On the current trajectory, GDP per capita will continue to decline and unemployment will soar by more than 500,000 people a year until the 2029 election. By then there will have been 21 years of declining average living standards. If we continue like this, Jacob Zuma will return at the age of 87 as the godfather of a new coalition government.
• Gqubule is an economist
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