Slow GNU reforms threaten South Africa economy
By Chris Hattingh
THE Government of National Unity (GNU) has not been able to deliver on the expectations created in the wake of its formation in June 2024. The initial hope was that the new government would introduce significant reforms that would trigger higher levels of growth.
This was reflected in the significant value appreciation of shares of companies exposed to the South African market, including in sectors such as construction, retail and food manufacturing, in the second half of 2024. In those six months, the share prices of retailers appreciated by 32%, construction companies by 48% and food producers by 29%, as reported by the Daily Investor.
By contrast, in the first half of 2025 investors switched out of these sectors to shares in companies with greater exposure to faster-growing foreign economies, including such industries as telecommunications, mining, and tobacco.
The skittish approach of investors to South Africa is reflected in the fact that they invested in quick-to-move financial assets rather than long-term fixed assets. Investment in fixed assets, as recorded in the rate of gross fixed capital formation, declined by 1.7% in the first quarter of 2025, following a 0.5% drop in the fourth quarter of 2024, according to Stats SA.
Our read is that the initial tentative optimism that greeted the GNU is now dissipating. Reforms are moving too slowly and are too limited in scope to kickstart faster economic growth. In addition, they are focused exclusively on infrastructure while neglecting policy.
In the policy space, rather than eliminating obstacles to growth, barriers are being reinforced through measures such as the Expropriation Act, the National Health Insurance Act and the amended Employment Equity Act. From 1 September, employers are forced to start complying with highly intrusive racial and gender requirements for their workforces under pain of significant penalties.
And yet, in theory, there is considerable upside potential. If South Africa were able to attract some capital even while positioned as a low-growth and hostile investment environment, it could attract exponentially more by embarking on a reform course that decisively addresses its weaknesses.
