GROWTH NARRATIVE OP-ED: SA’s economy — are we turning the

South Africa's economic narrative has shifted dramatically over the past 18 months. After years of contraction and policy paralysis, official statements now speak of a "turning corner"—a phrase that has become the default rhetoric of policymakers eager to restore investor confidence. Yet beneath the surface of modest GDP growth and improved fiscal metrics lies a far more troubling reality: the structural impediments that have plagued Africa's most industrialised economy remain fundamentally unaddressed.

The numbers appear encouraging at first glance. South Africa's economy expanded 1.1% year-on-year in the third quarter of 2024, marking its fourth consecutive quarter of growth. The government has made tangible progress on fiscal consolidation, with the budget deficit narrowing and inflation moderating toward the central bank's target band. Power generation capacity has improved marginally following years of devastating load-shedding. For investors starved of positive signals, these metrics offer a glimmer of hope.

But this narrative obscures a critical reality: South Africa's growth remains anaemic by both historical standards and regional comparatives. The country's potential growth rate—before considering structural constraints—sits around 1.5-2%, insufficient to materially reduce unemployment or poverty levels. Worse, the composition of recent growth reveals concerning patterns. Expansion has been driven primarily by a rebound in agriculture and modest service sector recovery, not the capital-intensive, manufacturing-led investment surge that could sustainably create employment at scale.

The employment picture starkly illustrates the problem. South Africa's unemployment rate hovers near 34%, with youth unemployment exceeding 60%. Even as GDP inches upward, job creation remains anaemic. This disconnect reflects a fundamental issue: South Africa's economy has become increasingly capital-light and low-multiplier. The mining sector, historically a driver of broad-based growth, continues its long structural decline. Manufacturing—which could absorb millions of semi-skilled workers—has ceded ground to regional competitors, particularly in East Africa.

For European entrepreneurs and investors, the implications are sobering. While South Africa offers unmatched infrastructure, regulatory clarity, and access to African supply chains compared to competitors, the investment case increasingly hinges on sector selectivity rather than macro tailwinds. Consumer-facing businesses face a domestic market constrained by wage stagnation and credit-impaired households. Export-oriented manufacturers confront lingering electricity constraints and labour cost premiums relative to competitors.

The global economic backdrop compounds these vulnerabilities. Should commodity prices deteriorate or capital flows reverse—outcomes increasingly probable given geopolitical tensions and rising US rates—South Africa's shallow growth cushion evaporates quickly. The country lacks the policy flexibility to deploy counter-cyclical stimulus without triggering fiscal concerns or currency depreciation.

Yet the pessimism need not be absolute. Specific sectors—renewable energy, business process outsourcing, niche manufacturing, and financial services—offer genuine opportunities for European investors willing to navigate regulatory complexity and execute with operational discipline. The key question is no longer whether South Africa's economy is "turning a corner," but rather: which corners? For which sectors? And at what risk premium?