Growth could triple if SA government reform accelerates, says think-tank

The Bureau for Economic Research (BER), an economic research unit at Stellenbosch University, has projected that economic growth could triple to 3.3% in 2025 if the South African government reform programme led by Operation Vulindlela (OV) accelerates.

OV is a project management unit of the presidency and the treasury, which was established to remove structural and policy blockages to economic growth. Its work is also supported by a government-business partnership that was renewed last week. The business partners commissioned the BER research.

In economic modelling released last Tuesday, the BER said reforms and investment in four areas - electricity, rail and ports, water, and crime and corruption – can lift growth threefold from the projected 1.1% that is expected for 2024.

"Meaningful progress in these areas will support economic growth, but delays could postpone progress, while faster implementation will accelerate growth... if implemented successfully, the anticipated improvement in business confidence and private sector investment will also play an important role in redefining South Africa's economic trajectory upward and improve the lives of all South Africans," the BER said.

It also includes in its modelling the impact of some of the other reforms OV is responsible for, including reform to the visa regime, local government reform, and South Africa's removal from the global Financial Action Task Force grey list. These will positively impact business and consumer confidence, which the BER has fed into the model.



Ambitious

However, the reform and investment targets to reach 3.3% are ambitious. For example, the BER said that by unblocking constraints such as equipment shortages, rail and ports, another 60 megatonnes (mt) of freight could be moved on rail corridors. This is ambitious as Transnet moved only 153 metric tonnes over the past financial year and has said 200mt will be difficult to achieve now.

The investment in electricity, water, ports and rail will run into trillions, much of which will be mobilised through partnerships with the private sector, which economic reform is beginning to make possible.

For the 3.3% growth to materialise by 2025, the BER assumes R23.3 billion of investment in electricity (additional 1GW equivalent), R4.7 billion investment in ports and rail, R2.3 billion water investment, for investor and consumer sentiment to return to pre-pandemic levels, an additional R30 billion of additional export capacity as a result of port and rail expansion and increased household consumption buoyed by an increase in employment and overall economic activity.

This will lead to an overall improvement in economic metrics, from unemployment to government borrowing costs, and a declining ratio of debt to gross domestic product.