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Ramaphosa Targets 3% Growth Amid South Africa’s ‘Big Four’ Challenges

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President Cyril Ramaphosa’s bold target of achieving 3% economic growth for South Africa faces significant hurdles. While the aspiration has buy-in from businesses and key partners, analysts warn that reality may fall short. Current forecasts from the International Monetary Fund (IMF) and Bureau of Economic Research (BER) suggest growth will only reach 1.5% to 2% in the near term.

The IMF projects 1.5% GDP growth in 2025, rising slightly to 1.6% in 2026, while the BER anticipates growth averaging below 2% from 2026 to 2029. Although this marks an improvement compared to the decade before the COVID-19 pandemic, it is still insufficient to meet the ambitious 3% target.

The Big Four Challenges

The BER Impumelelo Economic Growth Lab has highlighted four key barriers that must be addressed for South Africa to achieve higher growth:

  1. Electricity Shortages:
    The nation’s persistent load shedding has crippled mining, manufacturing, and construction sectors. Although progress was made in 2024, businesses require consistent and reliable electricity supply to make long-term investments.
  2. Logistics Challenges:
    Declining freight rail capacity and underperforming ports continue to undermine the economy. A robust logistics system is essential for efficient trade and business operations.
  3. Water Constraints:
    Municipal water supply failures remain a major issue, disrupting businesses and consumer confidence. Water is a critical resource for many industries, and shortages directly impact economic productivity.
  4. Governance Failures:
    Broader governance issues, including service delivery failures and South Africa’s FATF greylisting, have hindered progress. Inefficient cross-border financial transactions and poor municipal management exacerbate these problems.

Can Operation Vulindlela Deliver?

A revitalized Operation Vulindlela, a joint initiative between the National Treasury and the Presidency, is key to tackling these challenges. The BER praised the first phase of the program for significant progress in the electricity sector but warned that vague objectives and slow implementation could derail future gains.

The IMF’s October 2024 review echoed this sentiment, stating that while South Africa’s economic trajectory is positive, risks are tilted to the downside. Delayed reforms would further reduce the likelihood of achieving 3% growth.

The Economic Upside of Reform

If the government successfully addresses these “big four” challenges, the BER projects that GDP growth could rise from 2.2% to 3.3% in 2025. The benefits would include:

  • Increased household consumption (+0.6%) due to job creation and real wage growth.
  • Boosted investment (+0.6%) from improved business confidence.
  • Higher exports (+0.7%) driven by a more competitive and stable economy.

Unlikely but Not Impossible

Despite the potential upside, the BER remains cautious, noting that the required reforms and actions are unlikely to be implemented at the necessary speed. Without clear and decisive government intervention, the 3% growth target may remain a “fairy tale.”

Ramaphosa’s administration must prioritize electricity stability, efficient logistics, water security, and governance reforms to unlock South Africa’s economic potential. The stakes are high, and delays could mean missing this critical target.

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