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However, this is not the full picture. Firstly, South Africa does not compare favourably with its peers. During the same period the GDP per capita of emerging markets and developing countries increased by 115% on average. Brazil, India, Indonesia and Turkey, for example, all fared much better than South Africa.

Secondly, not all South Africans shared to the same extent in the increase in GDP per capita, as is evident in a relatively high GINI coefficient of between 0,6 and 0,7, depending on how it is calculated, and an unemployment rate of approximately 40% in terms of the wider definition.

The primary importance of high economic growth for South Africa’s future, with the emphasis on the correlation between growth and employment to address poverty, is being acknowledged increasingly across ideological boundaries. Although economic growth is not the absolute answer to all South Africa’s problems, it is inconceivable that large-scale unemployment can be addressed without a drastic expansion of the economy. The differences of opinion evolve around how to achieve this.

The accompanying graph shows a sustained acceleration in economic growth from 1994 to 2007, except for the period 1998 to 2002 as a result of the then crisis in emerging markets, the millennium effect and the worldwide economic slowdown early in the previous decade. The accelerated growth followed on an international slump and a fairly severe drought in the early nineties and can therefore not be attributed only to the political transition in 1994.


To my mind, the main reason for the improvement in South Africa’s growth performance after 1994 lies in the lifting of economic sanctions and the subsequent reintegration of the South African economy with the global economy. Although the lifting of trade sanctions was important (the volume of exports plus imports did increase by 65% from 1991 to 1998), with an accompanying improvement in productivity as a result of greater global competition, it was the lifting of specifically financial sanctions that made the critical difference.

This resulted in South Africa having unrestricted access to foreign capital for the first time since 1985 and consequently being able to allow a deficit on the current account of the balance of payments. Although the five years preceding 1994 were characterised by an enforced surplus on the current account of on average 1,6% of GDP, the following five years showed an average deficit of 1,2% − a reversal of 2,8 percentage points. Since then it has increased further and is currently more than 6% of GDP.

The second marked feature of the economic growth performance since 1994 was the sustained acceleration in private sector investment from 8% of GDP in 1992 to 14% in 2008, after which it levelled off at 13% of GDP in response to the recession – see the accompanying graph. This shows that the allegation of a private sector investment strike does not hold water. The public sector only followed later but has nevertheless also shown a remarkable acceleration in capital spending since 2002.


Several factors have contributed to this trend: new business opportunities, increased competition, a predominantly business-friendly and fairly predictable policy environment up to 2007, and a reduction in the cost of capital in response to lower inflation and the consolidation of the government’s financial position.

Measures to promote the transformation of the economy, for example black economic empowerment, affirmative action and stricter labour legislation, have been accepted as imperative for stability and offset in business models, in spite of the fact that they have increased the cost of doing business.

A third distinct phenomenon over the past 20 years has been the shift in the relative importance of various economic sectors and the underlying reasons for this. It shows, for example, the difference new industries can make, with the cellphone industry contributing to an increase in the transport and communication sector’s contribution to GDP from 6,7% in 1993 to 10,1% in 2012.

It also shows the importance of competitiveness: The financial, property and business services sector, which has time and again been rated highly in global competitiveness comparisons, increased its share from 17,2% in 1993 to 24% in 2012. This is also the sector that has possibly benefited most from technological development and has been least disrupted by labour unrest. The negative side of the financial sector’s good performance is that it is partly based on a sharp rise in debt levels, especially as far as households are concerned, which is not repeatable.

These trends also emphasise the finiteness of natural resources, with the mining sector’s contribution to GDP declining from 11% to 5,5%. The contribution of the manufacturing sector, which along with mining was hardest hit by labour instability and infrastructure bottlenecks, has also decreased: in 1993 it was 19% compared with 17,2% in 2012. If the stabilising influence of food and liquor production is ruled out, the picture is much worse.

The above graph shows how the South African economy lost momentum over the past five years. This trend is certainly worrying, especially if one considers that the decade-long continued improvement in South Africa’s terms of trade has come to an end and is moving in the opposite direction. It is therefore not surprising that the government, judging by its pronouncements, is becoming concerned about the low growth and employment figures.

The risk is that it could resort to counterproductive action in an attempt to improve the growth rate, for example extending the role of government enterprises or interfering in die allocation of capital. To my mind the expectation that a social pact between the government, business sector and unions is the answer, is overoptimistic as it is based on a poor understanding of the drivers of private investment.

Although sound relations between the parties concerned will naturally have a positive effect on the business climate, this is not how businesses decide whether or not to expand their operations. Economic growth is not achieved by agreement, but by creating favourable conditions for it to occur. This is clearly illustrated by the lack of success of the Growth and Development Conference held in 2002.

The acceptance of the profit motive as the most powerful incentive for private economic activity holds the key. It will be much better for the state to align its developmental objectives with the private sector’s natural pursuit of higher profits than to expect businesses to put the profit motive aside for the sake of social objectives.

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