The Institute for Security Studies released its “Looking Ahead 2043” report on Tuesday, saying strong leadership is key to South Africa's long-term stability. (Photo: Per Anders Pettersson/Getty Images)
Despite a number of strategic plans and policy frameworks aimed at boosting South Africa's economic growth and reducing unemployment and inequality, the government continues to struggle to translate its intentions into measurable action.
This is according to a key finding of the Long Term Outlook 2043 report published on Tuesday by the Institute for Security Studies (ISS).
From employment policies to industry-specific reforms, the country is in a tailspin: its leadership and governing institutions lack the capacity and accountability needed to enact meaningful change that will benefit its people.
But there is “rekindled hope” that a national unity government can be a positive force to steer the country onto the path of growth and accountability.
The study outlines a country-wide “business as usual” scenario as well as eight sectoral scenarios with significant reforms.
“This report quantifies what is possible if the coalition government can actually unite behind a pro-growth strategy and effectively implement the urgent growth reforms our country needs,” said Alizée Le Roux, senior researcher in Africa's Future and Innovation at ISS.
“The report leverages extensive data modelling to demonstrate the tangible benefits of coordinated implementation, policy implementation and not just their development.”
According to the report, South Africa needs accountable and competent leadership based on evidence-based policies to drive sustainable growth.
But even with optimistic projections, which include a combined scenario of an 11% improvement in employment in 2043 compared with projections for the current trajectory and business as usual scenarios, persistent inequality and unemployment are likely to persist for at least the next generation.
“If the current trajectory continues, we project South Africa will achieve growth rates of around 2.4 percent by 2043,” said ISS's Jackie Cilliers, but when multiple scenarios are combined, “GDP growth would reach around 4.6 percent.”
“The National Development Plan completed in 2012 set a growth target of 5.4 percent average growth. We have never come close to that target,” Cilliers said.
The key to reducing inequality and unemployment lies in stimulating rapid economic growth, especially through labour-intensive sectors, the report said.
To achieve this, governments will need to foster more flexible labor markets, support a dynamic informal economy, and build strong partnerships with the private sector to unlock domestic and foreign investment.
Regarding more flexible labour markets, Cilliers said: “This is often seen as an ideological issue, but it's simple economics.”
However, excessive market power – or the concentration of ownership and control – and insufficient regulation of anti-competitive trade practices continue to hinder broader economic participation, the report said.
Moreover, economic reforms will only be successful if they are supported by a stable macroeconomic environment, which means keeping inflation low and ensuring sustainable fiscal policy.
South Africa's business confidence remains fragile and low credit risk ratings from major rating agencies, such as Standard & Poor's, Moody's and Fitch, remain a significant disincentive to foreign direct investment.
Addressing this required reforming state-owned enterprises and ensuring transparency in network industries that remain heavily burdened by corruption and mismanagement.
Sillier said South Africa must pursue export-led growth, particularly within Africa, adding that the African Continental Free Trade Area offered an unparalleled opportunity to expand its economic reach.
Reducing high investment costs, improving cross-border trade infrastructure and joining the Pan-African Payments and Settlements System could enable South African businesses to trade more efficiently across the continent, according to the report.
But governments also need to address market access barriers, including outdated tariffs and poor infrastructure.
Cilliers said the only way forward was to shift from race-based politics to class-based policies that prioritise the needs of the poor, the unemployed and previously disadvantaged.
Without a concerted effort to promote national coherence and accountability, the country stands at risk of losing another generation to poverty, unemployment and inequality.
According to the report, South Africa will not achieve prosperity unless it first restores the rule of law and ensures public safety. Professionalizing the police, improving coordination between security agencies and restoring an independent judiciary are important steps to creating a safe and stable environment for economic growth.
Among the various sectors analysed for their potential to create jobs, manufacturing, particularly light manufacturing, emerged as a front-runner.
Cilliers said a proponent of this approach, Professor Anthony Black, argues that South Africa has what it needs to revitalise its manufacturing base, including a large pool of semi-skilled labour and developed infrastructure.
But the country needs to shift incentives toward jobs rather than capital investment, reform labor regulations, and experiment with special economic zones for light manufacturing. If successful, this could significantly boost employment and reduce extreme inequality.
Education and health are also areas where reform is essential for long-term growth. The report notes that the impact of HIV/AIDS and a poorly functioning education system weigh heavily on the country's development prospects.
The Development Enterprise Center, a policy research and advocacy think tank, has outlined comprehensive reforms to education, including tackling corruption in the sector, improving teacher performance and increasing accountability by reinstating annual national assessment tests.
However, without decisive action to address the dominance of the South African Democratic Teachers Union and corruption in education institutions, the country’s human capital will continue to stagnate.
The report says South Africa's health system is equally important to economic growth: the country has long sought universal health coverage, but a focus solely on the national health insurance has led to broader health reform being neglected.
This includes addressing financing, governance and workforce issues. The continued deterioration of health services exacerbates the problems facing South Africa and further limits its ability to achieve meaningful long-term growth.
The report found that agriculture offered great potential for labour-intensive growth, particularly in agro-processing. Climate change posed risks, particularly in the Western Cape, but untapped opportunities in the Eastern Cape.
To harness this potential, South Africa needs a Consolidated Fund to finance rural development, climate-smart agricultural practices and reforms away from subsistence farming – but this area faces politically sensitive land reform issues, with calls for individual land ownership to replace the communal land system in the former homelands.
Tourism is a big growth sector for South Africa, accounting for 8.2% of GDP in 2023. The country is already a popular international tourist destination, but its potential is limited by restrictive visa policies, security concerns and little investment in infrastructure.
The unity government has set an ambitious goal of increasing tourist numbers to 15 million by 2030, but achieving this target will require significant policy changes and investments.
The informal economy is another key element in South Africa's fight against unemployment, according to the report. Expanding informal activity through changes to municipal bylaws, improved access to markets and regulatory reforms to support small businesses could create millions of jobs.
There are already calls to prioritise such reforms to address the issue of informal businesses being excluded from the economy.
The report notes that South Africa's energy future lies in a transition from coal to renewables. The country's current reliance on coal, which accounts for 95% of its energy production in 2023, will be gradually reduced, but the path to decarbonization is complex.
Introducing a carbon tax, encouraging green investment and preparing for the European Union's Carbon Border Adjustment Mechanism are all steps towards building a sustainable energy future.