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28 February 2023

Speaking at the AfriSam post-Budget Breakfast on 24 February, Econometrix director and chief economist Dr Azar Jammine said business resiliency was the only reason South Africa’s economy is persevering.

Despite South Africa’s economy being “not a great environment” currently, Jammine said South African business has shown typical resilience, ensuring “things are not collapsing completely”.

Speaking at the yearly post-Budget breakfast event hosted by construction materials company AfriSam on February 24, he said business resilience gave him hope, as local industry continued “muddling along” in the face of a myriad of challenges and stumbling blocks.

“. . . that is what is so important . . . [businesses] doing it despite what people see as a completely inept performance by the government, and the massive problems we have with electricity and transport . . . [with business resiliency] therein lies the hope,” stated Jammine.

Among the factors impeding economic growth in South Africa was government’s reluctance to see the private sector resolving the country’s infrastructural problems.

Not giving the private sector sufficient freedom meant impeding implementation of a lot of the well-thought-out policies that should be implemented. “Over-regulation has been one of the outcomes of this,” he said.

Other structural impediments stunting economic growth, included widespread corruption, failing State-owned entities, low investment rates relative to consumption, energy insecurity, a high cost of interconnectedness and economic policy uncertainty.

A lack of capacity to implement policy and plans led to dormancy and stagnation in rolling out capital- and labour-intensive infrastructure projects, and cadre deployment was resulting in a large portion of government human resources being in positions of power but incapable of actually conducting and executing plans and projects appropriately.

Jammine pointed out that the low quality of education in South Africa required serious attention, stating that, on average, for every 40 children entering school, 12 years later in their matric year, only one would get as much as 60% for mathematics.

Another worrying trend in South Africa was a secular decline in capital investment in the economy. “For emerging markets, like South Africa, generally, the ratio of fixed investment to gross domestic product [GDP], roughly averages around 25% to 30%,” he said.

In South Africa, the ratio of fixed investment to GDP has declined from 19% to 13%. Meanwhile, Jammine pointed out that the newly increasing trend of a rise in crime and lawlessness was bad news for a limping economy and in terms of attracting foreign investment.

“We have to get on top of that if we are going to make any inroads into improving the economy,” he said.

Dr Azar Jammine talking at the AfriSam Budget Breakfast.

However, Jammine said a “ray of hope” existed in a slight uptick in this performance over the past year. “But, it is still extremely weak and not sustainable in terms of producing higher economic growth. Going hand in hand with that has been a deterioration in the productive sectors of the economy,” he noted.

The mining sector, for instance, declined about 15% from its performance in 2010, most recently having been saved by rising commodity prices, “which has meant that mineral sales have actually done reasonably well, even though actual production has been falling”.

Another global economy pressure and cause for concern was rapidly rising inflation and interest rates. However, Jammine said South Africa was faring better than some developed countries on the inflation front, inflation having risen less than in the US, Europe and the UK.

He said there was “some hope” that the worst of the rise in inflation rates was over and that, with the fall-off in commodity prices, inflation was starting to “come off the boil”. There was, therefore, potential that the sharp rise in interest rates experienced of late, globally, might not be sustained for too much longer.

Jammine said implementation of good policy and kickstarting of large projects could immediately ease some economic pressures being faced in the South African economy.

Without wanting to come off as “a neoliberal economist”, he also said government could remove itself more and more from dictating what should happen to the economy and let the private sector take more control. “Nothing continues forever along the same lines. So there is hope. There [are] massive opportunities if we start seeing implementation [of existing policy and projects],” said Jammine.

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