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South Africa has an oligarchy problem, which is causing poor economic growth

Wim Naudé
By Wim Naudé
18 Dec 2024
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Our economy is built around the interests of a narrow set of oligarchic industries – mining, finance, and the agro-industry, primarily.

South Africa seems to have an economic growth problem. For most of the past 50 years, achieving economic growth has been challenging. As Figure 1 shows, for most of the decades since the 1970s, per capita GDP growth has been negative. In the country’s modern history, the 2000s until Jacob Zuma’s presidency was the golden period. And it wasn’t much of a golden period, with a paltry 2.6% annual growth on average.

Source of data: World Bank Development Indicators



Much has been written about the country’s poor growth performance. The mainstream explanation is that it is broadly the result of poor governance: the State Capture scandal, government inefficiency and crumbling public infrastructure are most often blamed. Of course, another favoured explanation is that South Africa’s education system fails to deliver appropriately skilled labour for growth.

These are all real problems. But they are not the main problem – in fact, they are all symptoms of an economy built around the interests of a narrow set of oligarchic industries – mining, finance, and the agro-industry, primarily. South Africa, in fact, has an oligarchy problem.

To see how this causes low growth, whose benefits accrue to a privileged few, consider that economic growth is the outcome of technological innovation and the accumulation of labour and capital. Use more labour or capital, or make them work smarter using technology, and GDP has to increase. This is standard economic growth mechanics. In South Africa, technological innovation and labour accumulation have not driven economic growth over the past two decades, given the dismal rates of productivity growth and high unemployment. The slight growth since 2000 has thus been due to the remaining factor: capital intensification.

In fact, intensifying capital deepening through mechanisation and other tools that reduce the labour share has been facilitated by low and declining real interest rates in South Africa. At the same time as the decline in real interest rates, the rand significantly depreciated against the dollar and other hard currencies. Figure 2 below shows these two trends over the past decades.

Source of data: World Bank Development Indicators



The exchange rate depreciation provides an incentive for exporting – it raises South Africa’s competitiveness. The combination of low interest rates and a depreciated exchange rate is excellent news for capital-intensive, resource-based industries such as mining and agriculture. Thus, the vast majority of the country’s meagre economic growth is due to mining and agricultural products being exported. The financial industry greatly benefits from facilitating the money flows associated with the capitalisation and mechanisation of mining and agriculture and their international transactions.

Of course, the problem is that this growth model is independent of the economic prosperity of ordinary South Africans. These sectors are insulated against the deterioration in real wages and the entrenchment of poverty. Indeed, if ordinary South Africans became richer, consumed more, and required more investment in local infrastructure, it would push up interest rates, appreciate the rand, and hurt the business model of South Africa Inc – the interests of the mines, big farming, and the bankers.  

This is why, despite economic growth stagnating in South Africa, the share prices and market capitalisation of Big Capital, perversely, keep growing. In 2003, the JSE had a market capitalisation of about R344-billion. Currently, it is about R20-trillion. That is a 61-fold increase. The JSE is dominated by 49 companies (“Big Business”) whose market capitalisation is worth about R4.7-trillion. These financial giants include FirstRand, Standard Bank Group, Capitec Bank, Gold Fields, AngloGold Ashanti and Sanlam. And these giants are swimming in profits, unlike most South Africans who struggle to make ends meet. If only the top 49 companies on the JSE were to be liquidated, then given that about 30 million people in South Africa live below the most recent upper-bound poverty line of R1,558 per month (as calculated by Stats SA), everybody in poverty could be lifted out of poverty for almost 10 years.

South Africa clearly needs to address its oligarchy problem. The first step is to tax away their windfall profits and invest them in infrastructure. Interest rates should be raised, which would also strengthen the rand, and strict exchange controls on financial outflows should be imposed. Like Indonesia and Chile, the country should also restrict the export of critical raw materials, such as iridium, reserving it for domestic beneficiation and value creation. These measures are only the first steps needed to ultimately realign the interest of the big corporations with the welfare of all South Africans. DM

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