Investec Wealth & Investment International has released a sobering report that quantifies the cost of 15 years of underperformance to the South African economy. Its numbers suggest that the economy is 37% smaller than it would have been had South Africa sustained annual growth of 4.5% since 2010, in line with its emerging market peers.
The average economic growth of around 1% over the past decade and a half has lagged population growth of around 1.3%. If South Africa had kept up with other emerging markets, its GDP could have been R12 trillion in 2024 instead of just R7.5 trillion, and government revenue may have been R800 billion higher than it is today.
What this means, in real terms, is that an average South African has become poorer over the past decade and a half. On a per capita basis, the rest of the world is 50% richer than the average South African. And as Investec notes, the current weak growth rate will not lift people out of poverty or address the problems of unemployment and inequality.
Post-apartheid South Africa delivered an average economic growth rate of 3% between 1994 and 2000, then experienced solid growth of 4.2% a year under President Thabo Mbeki and Trevor Manuel as Finance Minister. But the economy took a turn for the worse after Jacob Zuma ousted Mbeki and became president.
The problems of endemic state capture, poor infrastructure maintenance, and load shedding started to manifest themselves after the FIFA World Cup in 2010. During the Zuma years, the South African government piled on debt even as the economy floundered – a trend that President Cyril Ramaphosa’s administration has failed to arrest.
This is in spite of the wins we have seen over the past two years, including a dramatic reduction in the levels of load shedding as well as the formation of a Government of National Unity (GNU). It is our contention that the government is still not moving nearly fast enough on the economic reforms needed to catalyse growth of more than 3% a year. According to Thanda Sithole, senior economist at First National Bank, the country will require sustainable economic growth of 5% to make meaningful progress toward the 2023 National Development Plan targets.
In particular, even with the market-friendly Democratic Alliance (DA) as part of the GNU, the government remains ideologically wedded to policies such as National Health Insurance (NHI), expropriation without compensation, and government ownership of inefficient state monopolies.
In the absence of deregulation, re-industrialisation policy, and other growth reforms, GDP remains stagnant. South Africa’s GDP increased by a mere 0.1% in the first quarter of this year, following an increase of 0.4% in the fourth quarter of 2024. This leaves higher taxation as government’s only option to raise more funding.
Meanwhile, the state of government finances grows more precarious due to poor economic performance. Government debt has ballooned from 26% of GDP in 2009 to more than 76% today. While government says debt will stabilise at these levels, most ratings agencies see it climbing to 80% of GDP by 2027.
The Investec report is a timely reminder of the South African economy’s fragility at a time when the JSE and rand/dollar exchange rate have offered reasons to cheer. For the year-to-date, the South African rand has strengthened 5.8% versus the dollar, making it one of the best performers among emerging market currencies.
Likewise, the ALSI has delivered impressive returns of 12.17% in local currency and 17.73% in US dollars, outperforming world and emerging market indices as well as American and UK markets. While year-to-date, the ALSI has slightly lagged European stocks, it has still delivered impressive returns boosted by the gold price and weak dollar.
However, as welcome as these returns are, South African equities have underperformed developed markets over the longer run. Over the past 15 years, the S&P 500 has delivered returns of 651% in US dollars, the MSCI World Index has produced 433%, while the JSE has returned just 166% as measured in dollars.
Without structural changes and a political commitment to reform that ignite economic growth, South African assets will inevitably revert to this mediocre form. In addition, South Africa’s open economy and heavily traded currency mean it remains exposed to global headwinds like US tariffs and geopolitical shifts.
South Africa’s long-term growth constraints, policy uncertainty, and fiscal pressures make it difficult to achieve the long-term sustained returns required to preserve and grow wealth. For that reason, we believe that most clients will benefit in the long-term from externalising funds and taking advantage of the larger opportunity set in offshore markets.
“Standing still is the fastest way of moving backwards in a rapidly changing world.”
– Lauren Bacall, Hollywood Golden Age actress
Global News
- US President Donald Trump’s tax and spending bill, the so-called “Big Beautiful Bill” will add $2.42 trillion to US budget deficits over the next decade, according to a new estimate from the nonpartisan Congressional Budget Office. The CBO’s calculation, which was released on Wednesday, reflects a $3.67 trillion decrease in expected revenues and a $1.25 trillion decline in spending over the decade through 2034, relative to baseline projections. The score doesn’t account for any potential boost to the economy from the bill, which could offset some of the revenue losses.
- Elon Musk labelled the bill a “disgusting abomination,” citing concerns over its potential to increase the national deficit by $2.4 trillion and its cuts to electric vehicle subsidies, which could cost Tesla $1.2 billion annually. The conflict escalated on social media, with Musk suggesting Trump should be impeached and alleging ties to Jeffrey Epstein, while Trump accused Musk of acting out of self-interest. The feud has had significant financial repercussions, with Tesla’s stock plummeting over 14%, erasing $152 billion in market value, and Musk’s net worth dropping by $26.6 billion, though he remains the world’s wealthiest individual. This dramatic public split has not only strained their previously close relationship but also raised concerns about regulatory risks to Musk’s companies and his influence in Republican politics.
- Federal Reserve Board member Christopher Waller said on Monday that interest rate cuts remain possible later this year, despite temporary inflationary pressures from the Trump administration’s tariffs. Waller said that if tariffs remain at the lower end of the possible range and underlying inflation continues to progress towards the Fed’s 2% target, coupled with a stable job sector, rate cuts may be supported later this year. However, Waller also acknowledged the considerable uncertainty surrounding the president’s trade policy, including unpredictable shifts in tariff rates and ongoing legal challenges, which could impact the central bank’s ability to adjust monetary policy effectively.
- The US trade deficit narrowed in April by a record 55.5% to $61.6 billion, the lowest since September 2023, primarily due to a historic 16.3% drop in imports following the implementation of steep tariffs by the Trump administration. Imports of goods and services fell to $351.0 billion, with significant declines in consumer products, pharmaceuticals, industrial materials, and motor vehicles. Exports, meanwhile, rose by 3% to a record $289.4 billion, driven by increases in industrial supplies, capital goods, and services. Economists suggest that this sharp reduction in the trade gap may bolster economic growth in the second quarter, offsetting the contraction experienced in the first quarter.
- Wall Street banks, including Morgan Stanley and JPMorgan Chase & Co., are predicting that the US dollar will weaken further due to interest-rate cuts, slowing economic growth, and Trump’s trade and tax policies. Morgan Stanley forecasts that the US Dollar Index will fall about 9% to hit 91 by around this time next year, while JPMorgan Chase & Co. remains bearish on the US currency. Goldman Sachs warns that a potential change to US tax rates on foreign individuals and companies could further weaken the dollar, as investors may seek greater diversification away from US assets. The dollar fell against all its peers in the Group of 10 on Monday amid a flare-up in global trade tensions.
- The European Central Bank (ECB) announced its eighth consecutive interest rate cut on Thursday, lowering the deposit rate by 0.25 percentage points to 2%. This decision aims to stimulate economic growth amid declining inflation, which fell to 1.9% in May, and escalating trade tensions, particularly due to US tariffs on EU goods. Markets responded positively, with European stock indices, such as Germany’s DAX, reaching record highs. However, the ECB signalled caution regarding future rate cuts, emphasising the need to monitor ongoing trade developments and their impact on economic stability.
- US Global wealth surged last year, with the number of millionaires across the world hitting a record 23.4 million. The annual World Wealth Report from consulting company Capgemini, issued on Wednesday, shows the number of people with at least $1 million in investable assets grew 2.6% in 2024, driven in large part by gains in American portfolios. The US alone added 562,000 millionaires, a 7.6% increase from the year prior, as enthusiasm for AI and interest rate cuts drove huge advances in the US stock market. Ultra-high net worth individuals saw their wealth jump nearly 12% in the US.
- Technology giants, which helped drag the S&P 500 to the brink of a bear market in April, are giving the recovery in US equities some legs as of the end of last week. Nvidia, the last company to report results, closed off a better-than-expected earnings season for Big Tech last week. With Nvidia and Microsoft rallying back to the cusp of record highs, traders are betting they will lift the broader market. The S&P 500 Index is within 4% of its February record high, with much of the rebound being fuelled by easing tensions between the US and its trade partners as well as demand for AI solutions.
- Microsoft cut hundreds more jobs just weeks after its largest layoff in years, as it seeks to trim costs even as it invests billions of dollars into AI. More than 300 employees were told their positions had been eliminated on Monday, according to a Washington state notice reviewed by Bloomberg. The cuts impacted a range of positions, including software engineers, marketers, product managers, lawyers, and research scientists. The latest headcount reduction is in addition to the 6,000 job cuts announced last month.
- Tesla’s shares dropped 14% on Thursday in New York, sinking as Musk and Trump’s simmering feud devolved into a public war of words, the stock’s biggest decline since 10 March. The rout erased about $150 billion from the electric-vehicle maker’s market value. The stock fell another 2.2% as of 4:39 pm in post market trading.
- Constellation Energy will sell power from an Illinois nuclear plant to Meta Platforms as AI sends power demand soaring. The Facebook owner signed a 20-year contract to buy 1,121 megawatts in mid-2027, when a state subsidy expires, according to a statement issued on Tuesday. Constellation, the biggest US nuclear operator, and Meta didn’t provide financial details. Constellation is also considering plans to build another reactor, which already has federal approval for a second unit, which will provide Meta with additional power.
- As at Thursday’s close, the S&P 500 was 0.49% up for the week.
Local News
- South African asset prices are improving despite global uncertainty over tariff talks, with the Johannesburg stock index rising toward the 100,000-mark, bond yields at three-year lows, and the rand at a six-month high. Investor optimism is fueled by hopes that the GNU will secure support for the budget, driving the 10-year bond yield below 10% for the first time in over three years. The rand has gained 3% against the dollar over the past month, outperforming most emerging-market currencies.
- Parliament’s finance committee has approved Finance Minister Enoch Godongwana’s fiscal framework, backed by the ANC and DA. The MK party and EFF opposed the move, criticising the framework as insufficiently pro-poor. The framework, which outlines government revenue, spending, and borrowing plans, underpins Godongwana’s revised budget speech delivered on 21 May and now moves to the National Assembly for final approval. The resolution of the budget dispute has eased investor concerns, boosting the rand and government bonds, with the benchmark bond yield nearing its lowest point since April 2022.
- S&P Global Ratings has said that the outlook for the country remains positive, during its South Africa Capital Markets Conference in Johannesburg on Wednesday, expecting growth of 1.5% over the next two years. It also predicted that Africa’s real GDP is expected to increase by 4% over the next two years on the back of its ability to attract investment, representing regional outperformance versus our domestic economy going forward.
- The South African Reserve Bank has strongly advocated for lowering the inflation target from the current 3%-6% range to a fixed 3%, arguing that this shift could save the country nearly R900 billion in debt-servicing costs over the next decade. Governor Lesetja Kganyago, who has long supported this move, emphasised that aligning with global peers would improve fiscal health and reduce pressure on government spending. The Bank’s modelling suggests lower inflation would shrink debt levels, reduce interest payments, and strengthen the rand, with significant benefits for public finances as major debt instruments mature. Though the policy shift would be substantial, the Bank and economists caution that it must be introduced gradually to maintain credibility and stability.
- South Africa and US trade representatives will meet later this month to continue talks on a possible trade deal. The dialogue was opened during the recent visit by President Cyril Ramaphosa and his delegation to Trump at the White House. The 31% tariffs levied on South Africa by Trump, which were subsequently paused after a negative market reaction to Trump’s “Liberation Day,” will be a key aspect of the talks. Presidential spokesperson Vincent Magwenya said on Thursday that government was optimistic there would be a positive and mutually beneficial trade relationship arising out of the negotiations.
- The Health Funders Association (HFA), representing major medical schemes like Discovery Health, has launched the sixth legal challenge against the NHI Act, arguing it is irrational and unconstitutional. The case targets Section 33, which limits medical schemes from covering services offered by the NHI, raising concerns about reduced healthcare options and financial sustainability. Following the new legal action by the HFA, it has proposed an alternative model to NHI, a hybrid multi-fund mode, saying it offers a faster, more affordable, and less risky route to achieving universal health coverage. A hybrid multi-fund mode would allow individuals to purchase medical scheme cover to supplement the benefits offered by NHI.
- The South African Institute of Chartered Accountants has warned of the danger of “heavy-handedness” by the South African Revenue Service (SARS) in its treatment of taxpayers as it prepares to ramp up revenue collection. SARS has been allocated R7.5 billion over the next three years, with National Treasury expecting to collect an additional R20 billion to R50 billion a year from debt collection efforts. It is concerned that a focus on collections may delay refunds. SARS’ launch of its Project AmaBillions is expected to increase VAT audits.
- The recovery of the automotive sector has been driven by improved consumer sentiment, lower interest rates, and access to retirement savings through two-pot withdrawals, according to the latest TransUnion South Africa Mobility Insights Report for the first quarter of the year, issued on Tuesday. In addition, rising real wages have contributed to an upward trajectory, averaging about 34,000 monthly passenger vehicle sales in the first quarter of the year, the highest levels seen since the third quarter of 2015.
- OUTsurance is South Africa’s leading company when it comes to total shareholder returns over five years, according to the Boston Consulting Group’s 2025 Value Creators report, BusinessLIVE reported this week. The report found that OUTsurance, worth R120 billion, leads in South Africa with 38% five-year total shareholder returns. Other companies that have delivered superior returns include Harmony Gold and Gold Fields among the top local performers. It noted that, while Asia-Pacific and North America dominate the value creation rankings, companies from South Africa and the broader “Rest of World” region are struggling to keep pace. OUTsurance was one of the few bright spots.
- Shares in South Africa’s largest asset manager, Ninety One, rose after the company reported a slowdown in outflows, saying it is seeing early indications that demand is shifting towards its offering. Its share price rose the most in more than five years on Wednesday, up 7.63%. The company reported a 4% increase in assets under management in the year to end-March, although earnings were lower. A final dividend of 6.8p per share was declared, taking the total dividend when accounting for the interim payout to 12.2p.
- JSE-listed investment company Altvest Capital is defending its Bitcoin strategy as the cryptocurrency is a good hedge against the rand’s volatility, it said in its annual report on Monday. Altvest said Bitcoin also presents a low opportunity cost relative to debt financing, given that South Africa’s interest rates are now at historically moderate levels, meaning that the opportunity cost of acquiring Bitcoin through leverage is justifiable. The company bought its first tranche of Bitcoin in February, making it the first publicly listed company in Africa to adopt the cryptocurrency as a strategic treasury asset.
- As at the time of writing, the rand was 1.3% stronger against the dollar, and the ALSI was 2.2% up for the week.
Sources: Dynasty, Reuters, Bloomberg, CNN, BusinessLIVE, Business Report, IOL Business, NYT, etc.
