1.8% growth won’t cut it, Minister – IRR

In presenting the Medium-Term Budget Policy Statement yesterday, Minister of Finance Enoch Godongwana said that the world economy was forecast to increase in size by 3.2% in 2024 and 2025.

By contrast, South Africa’s economy was forecast to grow by just 1.1% in 2024 and 1.8% in 2025. All these numbers are expressed in real terms, in other words excluding the effects of inflation.

While a few percentage points’ difference in a growth rate might seem trifling, in reality it makes a profound difference because of the snowballing effect of compounding.

By the end of 2025, if the expected growth rates are achieved, the global economy will be 6.5% larger than in 2023. South Africa’s economy will be just 2.9% larger.

If you play this forward – and make the simplifying assumption that the global economy continues to grow at 3.2% while South Africa’s grows at 1.8% – then the global economy will have doubled in size by 2045, about 20 years from now. South Africa’s economy will take until 2062 to double – almost 40 years.

Why does this matter? Because you will feel it in your pocket. Imagine earning double your salary while prices remain the same. You’d be much better off. And you wouldn’t want to wait 40 years for it to happen.

For South Africa, even 3.2% growth would be below what is needed. At 7% growth South Africa’s economy would double in just ten years – it would be twice its current size as soon as 2034.

That is clearly a stretch goal, but it is what the finance minister and his cabinet colleagues should be aiming for. Even if they miss it by a percentage point or two it is still far better than 2% or 3% growth, especially in an environment where the population is increasing by about 1% per year.

However, we do not see evidence that the government is thinking seriously about how to achieve this. The changes it is proposing – making government work a little better, getting the private sector to help pay for infrastructure reforms, and fiddling with regulations here and there – is not enough.

Lifting growth to a higher level requires much bolder reforms, such as:

• eliminating racial hiring and business ownership rules;
• protecting property rights by abandoning such initiatives as expropriation without compensation, prescribed assets and the National Health Insurance;
• placing public procurement on a direct value-for-money footing; and
• embracing free trade rather than distorting markets through subsidies, master plans and localisation demands.

The IRR has published a series of Blueprint for Growth papers that explain how South Africa can achieve the higher growth rates that it needs. The papers are available on the IRR website at irr.org.za and are being shared with the finance minister.

Media contacts: Makone Maja, IRR Campaign Manager Tel: 079 418 6676 Email: makone@irr.org.za 

John Endres, IRR CEO Tel: 076 480 1290 Email: john.endres@irr.org.za

Media enquiries: Michael Morris Tel: 066 302 1968 Email: michael@irr.org.za