Despite having these advantages and serving as the leader of Africa, SA’s economy has not been doing well in the past 10 years. The annual growth of GDP since 2008 is merely 1.8% — slower than the annual growth in population (1.4%). In 2023, the number was only 0.7%, a rarely seen number for developing country. Meanwhile, SA is regarded as one of the most unequally developed country, with a 67% Gini coefficient. The unemployment rate had reached an astonishing 31.9%, with youth unemployment rate even higher (around 40%). The unemployment rate for colored race is also significantly higher than the average (35.8%), while the unemployment rate for the white is only 6.7%. SA has lost 11000 agricultural jobs last year. As a pillar of SA’s economy, the mining production also declined 0.9% in November 2024, mainly due to lower gold, iron ore, coal, and diamond production. Gold production fell 11.5%, iron ore 3.8%, coal 1.6% and diamonds 11.4%. As Trump adds tariffs to SA’s goods, the situation could even become more severe.

An even more urgent issue is the country’s fiscal situation. Currently, SA spends 389.6 billion rand to service its debts, which is around 20% of the government revenues, as much as on health and policing together. Since 2008, SA’s ratio of public debt to GDP has tripled from 24% to 75%. The reasons behind this concerning debt could be owe to both the income and expenditure. On the income side, the long-term stagnation leads to a decline in tax revenues. In 2023-2024, SA’s tax revenue is just 1.73 trillion rand, which is 56.1 billion less than expected. On the expenditure side, civil servants’ salaries, social assistance, and debt servicing account for 75.5% of government revenue, placing a heavy financial burden on the government. State-owned enterprises are operating at a loss for many years and require massive government subsidies. For example, electricity company Eskom’s operational problems have led to frequent power outages and the government have spent huge sums to keep it functioning. The poverty reduction fund distributed during Covid exacerbated fiscal pressures, while the high unemployment continues to increase the need for social spending.

The miserable fiscal situation could have multiple impacts to SA’s economy. The tight budget limited government’s investment behavior, leading to few infrastructure construction and public services, which eventually restricted the economic growth. An excessive deficit also harms the credibility of authority, as the government has the risk of bankruptcy. In March 2020, Moody’s downgraded South Africa’s sovereign credit rating from Baa3 to Ba1; in July 2024, Fitch downgraded South Africa’s sovereign credit rating from ‘BBB-‘ to ‘BB+’ and placed it in ‘junk’ status. The degrading of sovereign credit results in the rise of borrowing cost, meanwhile weakens the investor’s confidence.

Besides the obstacles brought by the stubbornly high public debts, SA’s imbalanced economic structure also dragged its economy. Firstly, SA’s economy highly relied on the extraction and export of mineral resources, particularly gold, platinum group metals and diamonds. Such singular economic structure lacks resilience, as it is susceptible to price fluctuations in the international market. Secondly, though SA is the most industrialized country in Africa, in recent years, the development of manufacturing and service industries has lagged significantly. The hollowing-out of the manufacturing and the lack of high value-added industries undermined the country’s economic competitiveness. Ironically, as Africa’s most industrialized country, SA’s electricity and logistics systems are a serious constraint on economic development. Aging equipment and mismanagement at power company Eskom have led to frequent power outages, while port congestion and inefficient rail transport have limited export capacity. Meanwhile, SA’s economy suffers from corruption. Eskom, South African Airways and Transnet have lost billions of rand in revenue over the past five years due to corruption and other issues. According to the study conducted by Transparency International’s corruption watch, 18% of the public service users paid bribe in 2023.

To bring the economy back on track, many efforts have been made by SA’s authority. Aiming to alleviate the fiscal pressure and regain credibility, the SA government plans to increase the value added tax rate by 0.5 percentage points from May 1, 2025, and by another 0.5 percentage points from April 1, 2026, to 16 percent. The measure is expected to raise an additional 42.5 billion rands over the next two financial years to fund key public services such as education, health and railways. To address the low efficiency in state-owned power enterprises, SA has promoted the Electricity Management Law to establish a competitive electricity market thus increasing energy production and private sector investment. The law removed licensing requirements for power generation projects. To improve the economic structure and employment, SA government initiated “Vulindlela Movement” since 2020, which provide financial supports to manufacturing companies that are in difficulty and implement President Youth Employment Initiatives (PYEI) in 9 provinces. Between April and June 2023, at least 135,000 earning opportunities were made available to young people through the National Pathway Management Network of the Presidential Youth Employment Initiative, according to Statistics South Africa.

However, the actions are not without cost. Increasing the tax rate could further squeeze the disposable income of citizen, which could potentially shrink the consumption, a major proponent of GDP. Meanwhile, the actions might not be as effective as the title. Corruption has systematic roots in SA, involving complicated collusion between politics, business, and interest groups. These deep-seated problems may not be addressed by creating new institutions alone. Further, the structural imbalance could not be easily resolved simply by taking fiscal and anti-corruption measures. South Africa stands at a crossroads—whether it sinks further into stagnation or rises through reform.

By Xingchen Liu