Two things South Africa needs to cut to save its economy
Decisive policy shifts, including the abolition of Black Economic Empowerment (BEE) and a significant reduction in the public service wage bill, could address South Africa’s persistent economic stagnation and alarmingly high unemployment rates.
These are the views of renowned political economist, author and chairman of the South African Institute of International Affairs, Moeletsi Mbeki.
In a wide-ranging interview with BusinessTech, Mbeki argues that the ruling African National Congress (ANC) has historically prioritised the interests of the African middle class.
He said that there are “a number of policies that are very destructive to the South African economy” that have hampered broader economic growth and boosted unemployment.
According to Economic Research Southern Africa, the country has now endured 15 years of extremely weak economic growth.
The 2010s were the worst decade since WWII, with the economy growing by only 16% – in stark contrast to the preceding decade, when output grew by 39%, nearly two and a half times as fast.
As such, unemployment has skyrocketed. The current unemployment rate is 31.9%, while the expanded unemployment rate is 41.9%.
Meanwhile, unemployment among the youth job seekers has climbed from 36.8% in 2014 to 45.5% in 2024.
Drop BEE
Mbeki argues that South Africa’s large public sector wage bill stems from the ANC’s focus on advancing the African middle class—its primary support base.
This is through policies like BEE, preferential procurement, and employment equity, and ever-increasing inflated public service salaries.
A central point of Mbeki’s critique is the policy of BEE, which he says “transfers resources in existing companies to a small political elite within the ANC”.
He contends that BEE “does not create new wealth or new entrepreneurs” but rather incentivises becoming “parasitic on the existing companies and at the same time to become parasitic on the state.”
He states that the current BEE framework “disincentivises investment,” especially for foreign investors who are often required to cede a large chunk of their equity to black political elites.
For Mbeki, getting rid of the policy would be a “quick win” that would incentivise investment and signal a serious commitment to economic growth.
However, he remains skeptical about the GNU’s capacity to enact such a change, stating, “I don’t think the DA and the others have the muscle to compel the ANC to change that policy”.
Slash the massive public sector wage bill
In addition to overhauling BEE, Mbeki emphasises the critical need to cut down South Africa’s massive public service wage bill.
The public sector wage bill alone is R721 billion a year, almost twice the figure that it was around ten years ago.
Simply put, over 30% of the budget is used to satisfy the immediate employment demands of less than 4% of the population.
According to the National Treasury, this is the third-largest public sector wage bill globally as a proportion of GDP.
Mbeki contrasts this sharply with similar middle-income countries like Chile, Thailand, and Indonesia, where public sector salaries account for only “6% or 7% of GDP.”
He argues that this excessive expenditure drains resources that could otherwise be reinvested in the economy, like in infrastructure.
“When resources are being transferred from the private sector through the tax system, it means that the private sector does not have the surplus to reinvest in developing the economy,” he said.
If the wage bill were slashed in half transferred to investment, South Africa’s investment level could rise to “25% of GDP, which will be where it was in the early 2000s. Then the economy will start to grow.”
He believes that the current situation, where the “middle class screams off the profit from the private sector and turns that into its own salaries,” is unsustainable and detrimental to long-term economic prosperity.
Looking ahead
Despite the formation of the GNU, Mbeki remains unconvinced that the fundamental policy shifts required for economic revival will occur.
While the DA has voiced disagreements on issues like the VAT, Mbeki notes that “up to now, the DA has not brought about any real change in the policies of the ANC”.
He concludes that unless there is a significant departure from the policies favoring the African middle class, South Africa’s economy will likely continue its trajectory of stagnation.
For Mbeki, scrapping BEE and drastically reducing the public service wage bill are not merely desirable, but essential “quick wins” if the country hopes to reignite its economy and create meaningful employment.
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