South Africa’s economy has been caught in a prolonged low‑growth cycle for nearly two decades. Once among the most advanced emerging markets, the country entered 2026 still grappling with weak investment, high unemployment and deep structural constraints, while facing rising global uncertainty and geopolitical risk.
These issues were unpacked in a recent Coface webinar, “How can South Africa break free from the persistent trap of economic stagnation in a world defined by uncertainty, structural constraints, and rising geopolitical tensions?”, hosted by Coface South Africa and led by Abdul Vally, CEO South Africa and Aroni Chaudhuri, Chief Africa Economist at Coface. The discussion explored why South Africa fell behind its peers, what has changed recently, and what will ultimately determine whether the country can shift from fragile recovery to sustainable growth.
From early promise to prolonged underperformance
South Africa entered the early 2000s in a strong position. It was deeply integrated into global trade and financial markets, benefited from low public debt, and enjoyed robust growth driven by the global commodity super‑cycle.
Following the global financial crisis, the end of the commodity super‑cycle after 2014, and later the COVID‑19 shock, South Africa’s growth trajectory diverged sharply from that of comparable emerging markets. While peers in Asia and Latin America recovered, South Africa’s GDP per capita continued to stagnate and in some cases decline relative to its 2007 level.
“South Africa is an outlier,” Chaudhuri noted. “It’s one of the very few countries globally where GDP per capita has declined compared to levels 20 years earlier. That tells us something fundamental has not been working.”
The collapse of investment and the energy constraint
At the heart of South Africa’s underperformance lies a sustained decline in capital accumulation. Investment levels were not sufficient to replace ageing infrastructure, leading to a shrinking capital stock and reduced productive capacity.
Chaudhuri identified the electricity system as a central deterrent to private investment. Persistent power shortages increased operational risk, raised costs, and discouraged long‑term fixed capital expenditure, particularly in energy‑intensive sectors.
“If you have a fundamental system like energy that is not functioning properly, it discourages investment across the economy,” he said. “That’s one of the main reasons capital accumulation kept deteriorating.”
Although mining and manufacturing remain core to South Africa’s economic structure, both sectors suffered from falling global demand after 2014 and mounting domestic constraints. The result was a prolonged decline in investment that never fully recovered.
Labour market distortions and spatial barriers
While South Africa’s demographics should, in theory, have supported growth through labour supply, this did not materialise. The country’s labour market remains constrained by high unemployment and low participation.
According to Chaudhuri, this problem goes beyond job creation alone.
High transport costs, long commuting times, and unequal infrastructure investment continue to limit worker mobility. Even when jobs are created, many potential workers are unable to access them economically.
“If it costs too much, or takes too long to reach a job, the rational decision for some people is to exit the labour market altogether,” Chaudhuri said.
De‑industrialisation has compounded the problem, as manufacturing jobs declined faster than workers could be absorbed into service‑sector roles, often due to skills mismatches.
Public debt, fiscal efficiency and the limits of spending
The webinar also addressed South Africa’s deteriorating public finances. Government debt rose sharply as growth slowed and fiscal spending became less efficient.
“When South Africa was growing, public expenditure was efficient, the fiscal multiplier was high,” Chaudhuri explained. “But as growth weakened and structural problems persisted, the fiscal multiplier fell close to zero. Public spending stopped generating growth.”
Much of the fiscal expansion in recent years was directed toward wage spending rather than infrastructure investment, further reducing its effectiveness. While recent consolidation and sovereign credit upgrades helped lower borrowing costs, Chaudhuri stressed that stabilising debt alone would not restore growth.
“Healthy public finances are important, but they’re not enough. Public spending needs to become productive again and that depends on fixing the underlying economic structure.”
Geopolitical risk and the middle east conflict
Global developments formed another critical part of the discussion. Rising geopolitical tensions, particularly the conflict in the Middle East, were identified as significant risk factors for South Africa’s near‑term outlook.
South Africa remains highly exposed to oil price shocks due to its dependence on imported fuel and limited refining capacity. Higher oil prices are likely to be inflationary and could weigh on consumer‑driven growth, which has been a key support for the economy in recent years.
Shipping disruptions and rerouting around Middle Eastern choke points have also contributed to congestion at South African ports, adding further pressure to logistics and trade.
Despite these risks, Chaudhuri highlighted important buffers such as South Africa’s flexible exchange rate, strong financial markets and credible monetary policy framework, that help absorb external shocks.
Signs of progress and what comes next
While the challenges remain significant, the webinar also acknowledged areas of progress. Recent improvements in electricity supply stability, early reforms within state‑owned enterprises, and renewed investigative action against corruption were seen as important signals.
Abdul Vally, who moderated the session, echoed this cautious optimism.
“We’re still an incredible country with deep strengths, but we have fundamental issues to fix,” he said. “Energy, labour, infrastructure and confidence must all move in the right direction together.”
The core message: stay informed, stay adaptive
In closing, Chaudhuri emphasised that while uncertainty is unavoidable, information and adaptability remain critical tools for businesses and decision‑makers.
“The most practical advice I can give is to stay informed,” he concluded. “Understand where the risks lie, understand the forces at play in your industry, and be realistic about what you’re facing. That’s the starting point for navigating uncertainty.”
As South Africa navigates a complex mix of structural reform, global volatility and emerging opportunity, the path forward will depend on sustained credibility, policy follow‑through and the ability to convert small gains into long‑term momentum.
