Rebuilding the engine of South Africa’s growth: John Endres - Biznews

John Endres

I was asked at the Cirrus Investor Conference in Swakopmund last month what lessons Singapore holds for Namibia. I answered with an analogy that applies just as much to South Africa.

Making an economy grow fast is like making a train go fast, and it depends on getting three things right: a powerful engine, a smooth track pointed in the right direction, and low friction along the way. Singapore got all three right. South Africa, on current trends, is getting all three wrong.

The engine

An economy’s engine is its productive capacity, by which I mean both physical capital – think roads, power lines, ports, trains, factories – and human capability – think skilful artisans, expert researchers and developers, keen entrepreneurs with a nose for the big commercial opportunity.

Infrastructure investment forms part of boosting an economy’s productive capacity, and so do the schools that produce employable people, the clinics that keep them healthy enough to work, and the universities that produce scientists, engineers and entrepreneurs. Countries that grow fast build these assets patiently over decades.

South Africa does not lack for spending on these items. According to the OECD, we devote 6.9% of GDP to education, the highest share among the 40 OECD and partner countries measured and well above the OECD average of 4.7%. On health, we are one of only two African countries to meet the Abuja Declaration target of allocating 15% of government expenditure to the sector.

By the crude measure of inputs, the engine is well resourced. By the measure of outputs, it is not. We pour money into education and still produce school-leavers who struggle to read for meaning. We fund a public health system that runs out of basic medicines and cannot keep medical machines running. We allocate billions to infrastructure, and projects arrive late, over budget, and sometimes unusable.

The reason lies in how public money is spent. The Auditor-General’s most recent report, covering 2024/25, found that only 36% of national and provincial departments and entities received clean audits, and those well-run entities accounted for just 12% of government expenditure. Put differently, 88% of what government spends passes through the hands of institutions with adverse audit findings. Of 136 infrastructure projects examined, 89% were flagged for poor planning, poor execution or failure to deliver the promised service even after completion.

Departments buy from favoured suppliers at inflated prices, award projects to politically connected firms that lack the capacity to deliver, and follow procurement rules that prioritise race over performance. Until that culture changes, more spending on the engine will produce the same disappointing results.

The track

An engine on its own will not get a train to its destination. It needs a track, and in policy terms the track is the direction government sets for the economy, along with the predictability of the rules that apply along the way.

Two things matter about the track. It must be smooth, which means the rules must be stable enough for people to plan and invest. It must also point in the right direction.

South Africa fails on the second count most visibly. Consider expropriation without compensation, a policy that tells every property owner and investor that their assets are, in the end, at the discretion of the state. Add preferential procurement, which the IMF has estimated adds around 20% to the cost of state goods and services, and which IRR Legal research by Gabriel Crouse puts at roughly R150 billion a year in combined licit and illicit costs. Add the National Health Insurance scheme, which proposes to nationalise healthcare spending in a country whose government cannot run the public hospitals it already owns.

Underpinning all of it sits cadre deployment, the practice of filling senior positions in the state with people chosen for party loyalty rather than competence, which is why the state delivers so poorly across the board. President Ramaphosa has defended cadre deployment repeatedly, including before the Zondo Commission, and although the ANC’s National General Council in December 2025 promised to end political interference in local government appointments, nothing in the party’s recent history suggests the promise will hold.

The track is also unreliable. North-West University’s Policy Uncertainty Index, which runs from 0 to 100 with 50 as the neutral mark and higher readings signalling greater uncertainty, stood at 77.8 in the first quarter of 2026 and has sat well above that neutral mark for years. Policies are announced, paused, amended and reissued, leaving investors who need to plan over decades to guess where the next bend will appear.

The friction

Even with a strong engine and a well-laid track, a train is slowed by friction, which for an economy means the drag that government imposes on productive activity.

South Africa has a great deal of it. Businesses looking to open, expand or import face a thicket of licences, permits and regulatory approvals that can take months to obtain. A recent OECD assessment ranks this country among the least competition-friendly regulatory setups across OECD and G20 emerging economies, and finds that the average time managers here spend dealing with government regulations almost doubled between 2007 and 2020. Every additional percentage point of managerial time spent on compliance is associated with roughly a 1% reduction in firm-level job growth.

The National Minimum Wage adds another kind of drag. It now sits at close to 80% of the country’s median wage, which is high by international standards, and it rises every year regardless of economic conditions. Figures obtained by IRR Legal from the Development Policy Research Unit suggest the NMW has destroyed roughly 430,000 jobs since 2019, including about 228,000 in 2024 alone, concentrated among low-wage workers who can least afford to lose employment. In an economy with more than ten million unemployed, legislating pay floors that price the least productive workers out of work is a perverse way to reduce poverty.

Some of the friction is hidden in prices that look like market outcomes but are not. Electricity is the clearest example. Between 2007 and 2026, Eskom’s average tariff rose by 1,172% while consumer prices rose by 174%, which means electricity prices have climbed more than six times faster than inflation over nearly two decades. This happened because government granted Eskom a monopoly, underinvested in generation for two decades, allowed the utility to collapse into dysfunction, and then authorised repeated above-inflation price increases to shore up its finances. Further Eskom increases of 8.76% and 9.19% are already approved for 2026 and 2027.

When the state fails to provide reliable services, companies and households pay again to provide those services for themselves, whether that means backup power, private security or private schooling. The parallel spending is not a mark of prosperity but a levy imposed by government failure, and it falls hardest on those who can least afford it.

The South African moment

South Africa is looking at a rare opportunity to fix these things. The Government of National Unity, whatever its flaws, is stable enough to act. The global environment is turbulent enough that any emerging market which gets the basics right will stand out. And the United States, for its own reasons, is paying more attention to South Africa than it has in years, watching closely which emerging markets remain viable partners. Private sector capacity, tested by years of difficulty, is still strong.

None of this will last indefinitely. The GNU may not survive another election cycle in its current form, global turbulence may tip the world economy into recession, and US attention is, as ever, easily lost. The African National Congress, as the dominant party in the GNU, remains committed to the policies that point the track in the wrong direction. It shows little appetite for cutting the friction that is within its control.

What is on offer

The IRR has set out the alternatives in its What SA Can Be campaign and the accompanying Blueprint for Growth papers, which describe in detail how to strengthen the engine by getting value for money in public spending, how to repoint the track toward productive activity, and how to cut the friction that holds enterprise back. The IRR’s Value for Money Bill would tighten control over public spending by making officials personally accountable for procurement decisions.

A country that wants a fast-moving train has to build a powerful engine, lay a smooth track in the right direction, and clear the friction along the way. South Africa has the people and the resources to do all three. What it lacks, for now, is the government that will.

John Endes is CEO of the Institute of Race Relations

https://www.biznews.com/rational-perspective/rebuilding-engine-sa-growth

This article was first published on the Daily Friend.