GDP growth has averaged just 1.8% since 2008, less than half the rate of the previous five years. And job-creation has failed to keep up with the growth in the labour force, leaving one in every four South Africans - and one in two young people - unemployed.
For much of the past 20 years, South Africa's growth formula has been based largely on increasing domestic consumption. This has seen millions of people entering the consumer class, along with rapid growth in service industries such as retail and banking. GDP growth has also been fuelled by significant increases in public spending, ranging from social grants to public sector wages.
In the first decade of this century, favourable global tailwinds - including buoyant commodity prices and increased capital flows into emerging markets - made this sustainable. But now those tailwinds have turned into headwinds.
The limits to our consumption-driven formula are plain to see. Domestic household debt, which increased from 22% of disposable income in 2000 to 35% in 2013, is arguably already above healthy levels. Public consumption faces similar constraints: South Africa has maintained a national budget deficit level of between 4.5% and 5.3% of GDP since 2010, and the low-growth environment is putting further pressure on the fiscus.
At the same time, investment levels are lower than in many of South Africa's peer nations. Foreign direct investment into South Africa averaged 1.6% of GDP between 2009 and 2014, compared to 3.9% in Malaysia, 2.6% in Indonesia, and 2.4% in Russia. There are also signs that domestic private investment is slowing: South Africa's business savings rates have increased steadily, bringing corporate deposits to nearly R700bn in the second quarter of 2015. Public infrastructure investments peaked at 5.2% of GDP in 2014/15, but are projected to decline to 4.7% in 2016/17 - well below the National Development Plan's aspiration of 10% of GDP.
In a report recently published by the McKinsey Global Institute, we argue that if South Africa is to reignite growth and job-creation, it will need to switch to a formula based on the twin pillars of exports and investment. The first pillar means rejuvenating a set export-oriented industries in which South Africa can compete on the global stage, grow fast, and create large numbers of new jobs.
The second entails not just increasing investment, particularly from the private sector, but also generating greater economic value for each rand invested. These pillars must rest on a foundation that includes infrastructure to support growth - particularly power generation - and a broad base of technical and vocational skills.
Our analysis suggests that, by 2030, this new growth formula should enable South Africa to add 1.1 percentage points to its GDP growth rate over and above consensus forecasts, and create 3.4 million new jobs. Our report, entitled 'South Africa's big five: bold priorities for inclusive growth', highlights five interrelated opportunities:
At a time when growth has slowed, these opportunities represent a chance for private and public sector leaders - 'South Africa Inc.' - to reimagine the country's economic future. For one thing, the 'big five' would transform South Africa into a more outward-looking economy, with a much more active role in Africa's economic renaissance. Moreover, the country would focus its collective energy on accelerating the sectors with the greatest growth potential.
Manufacturing provides a vivid example of what the new growth formula would look like in action. The sector's overall share of GDP has fallen sharply, from 24% in 1990 to 13% in 2014, as South Africa has struggled to compete with low-cost nations. Yet the story is very different in advanced manufacturing, including automotive, machinery, appliances and chemicals. Exports of engines and turbines, for instance, have grown at 8% a year over the past decade, and exports of mining and construction machinery at 10% a year.
These advanced manufacturing industries already make up nearly half South Africa's manufacturing exports. A concerted drive by business and government could turn them into a globally competitive manufacturing hub - one that could create 1.5 million jobs by 2030.
Greater focus on exports also underpins two others of the 'big five' - services and agriculture. The fast-growing African markets on our doorstep have a rising consumer class and a vibrant business sector. We calculate that South Africa could grow its exports of financial, construction and other services to sub-Saharan Africa 12-fold, from R10bn in 2012 to R120bn in 2030, generating as many as 460,000 domestic jobs in the process. Likewise, South Africa's total agricultural exports could triple to R212bn by 2030, creating 490,000 new jobs.
South Africa will only unlock these export opportunities if it pays attention to the second pillar of the new growth formula: increasing and optimising investments. Export-oriented firms must improve economies of scale and boost innovation through increased investment in capital equipment and R&D.
Yet today South Africa's private sector lags well behind peers such as Malaysia and Mexico in gross capital formulation, indicating significant room for increased spending. Government can support increased private investment - and exports - by strengthening the design of special economic zones, backing trade agreements and strengthening trade facilitation throughout sub-Saharan Africa.
Private investment will also play a key role in building the infrastructure required to support this export-led growth. One major opportunity is natural gas, which could provide around 20GW of power generation capacity by 2030, enough to avoid a projected power gap that would emerge by 2025 as ageing coal-fired plants are decommissioned and electricity demand rises. Yet the investments required in gas are huge: an estimated R600bn to R1 trillion would be needed by 2030 to drill wells and to build pipelines, LNG facilities, and power plants. This would make private sector capital critical; to attract it, government would need to create certainty about regulations and demand.
In the public sector, increased absolute levels of infrastructure investment are unlikely in the near future - yet South Africa can make each rand go further if government and business partner to boost infrastructure productivity. Our analysis suggests that savings of as much as R1.4 trillion could be realised from three strategies: making maximum use of assets already on the ground; optimising the project portfolio to prioritise projects with greatest impact; and strengthening management practices to streamline delivery. This in turn will boost the capabilities of South Africa's construction sector, enabling it to play a much greater role in infrastructure development right across Africa.
Last but not least, South Africa's new growth formula must rest on the foundation of a smarter, demand-focused approach to developing skills. The majority of the new jobs created by export-led, investment-intensive growth will require technical- and trade-based skills - yet South Africa's education system as currently configured can produce only a fraction of those needed. We estimate that 40-60% of South African youth will need to graduate from vocational programmes by 2030 - up from just 8% today.
We don't pretend that changing South Africa's growth formula - or its growth trajectory - will be easy. But the country has potent economic strengths, and real opportunities to translate those into accelerated, export-led growth. With bold steps from business and government, South Africa can restart its growth engine - and create millions of new jobs for its people.
