South Africa is entering a period that could prove decisive for its economic future. After more than a decade of weak growth, there are tentative signs of recovery. Real GDP grew by 1.1% in 2025, up from 0.5% in 2024, while the economy expanded by a further 0.5% in the first quarter of 2026. Yet the recovery remains fragile. National Treasury expects the economy to grow by 1.6% in 2026 and reach 2% by 2028. These figures represent an improvement, but they remain well below what South Africa needs to make a meaningful impact on unemployment, poverty and inequality. In the second quarter of 2026, the official unemployment rate rose to 33.6%, up from 32.7% in the first quarter, as the number of unemployed persons grew by 345,000 to 8.5 million and employment fell by 16,000 over the quarter.reuters+2

The composition of growth is equally important. Recent expansion has been driven largely by agriculture and service industries, including finance, real estate, business services, trade and accommodation. Manufacturing, however, continues to face significant pressure. Manufacturing output fell 1.7% year-on-year in June 2026, after a revised 4.4% year-on-year decline in May, while mining production decreased by 4.0% year-on-year in June as global demand softened. This raises a fundamental question: Is South Africa beginning a durable recovery, or simply experiencing another temporary improvement within a low-growth economy?zinio

The answer will depend on whether the country can fundamentally change the drivers of economic growth.

Modest growth is not enough

South Africa’s unemployment challenge illustrates why the current pace of growth is insufficient. The official unemployment rate rose to 32.7% in the first quarter of 2026, while youth unemployment remains particularly severe. By the second quarter of 2026, the unemployment rate had climbed further to 33.6%, described by analysts as a four-year high, underscoring the nation’s need for faster economic growth.

The experience of the early 2000s demonstrates what stronger economic growth can achieve. During the period leading up to the global financial crisis, South Africa experienced several years of growth at around 3% to 5%, accompanied by a significant decline in unemployment. Growth alone does not automatically create jobs, but sustained expansion creates a much stronger environment for investment, business formation and employment.

South Africa therefore needs more than short-term improvements in GDP. It needs a sustained investment-led growth cycle that raises productivity, expands productive capacity and creates jobs.

Productivity must become a national priority

Technology will be central to this transformation. Artificial intelligence, automation and digital technologies are changing how economies produce goods and services. For South Africa, these technologies offer an opportunity to improve productivity and competitiveness. But technology cannot simply be imported and expected to transform the economy. Workers need the skills to use it. Businesses need the capacity to integrate it. And citizens need access to reliable and affordable digital infrastructure.

This means that investment in technology must go hand in hand with investment in human capital. South Africa needs stronger foundations in mathematics, science, technical education and digital skills, while broadband connectivity must be expanded to ensure that businesses and households can participate in the digital economy. Programmes such as SA Connect should therefore be viewed not merely as telecommunications initiatives, but as part of the country’s broader productivity and economic-development strategy.

From a resource economy to a production economy

South Africa’s economic transformation must also involve a renewed focus on production. The country possesses considerable mineral resources, agricultural potential, sophisticated financial institutions and access to major international markets. Yet these advantages have not consistently translated into sufficient levels of domestic production, manufacturing investment and export diversification.

The opportunity lies in moving further along value chains. Instead of exporting primarily raw materials, South Africa should increasingly seek to process those resources, manufacture higher-value products and build globally competitive industries around them. This requires a stronger manufacturing base, but also greater investment in research and development. South Africa’s gross expenditure on R&D has fallen to approximately 0.61% of GDP, well below the country’s 1.5% target for 2030.

The challenge is therefore not simply to spend more on research. South Africa must become better at converting research into commercial products, new businesses, technologies and exports. Stronger links between universities, research institutions and industry will be essential.

A changing global economy requires new markets

The global environment is becoming increasingly uncertain. Geopolitical tensions, shifting trade policies and changing supply chains are forcing countries to reconsider their economic relationships. For South Africa, this creates both risks and opportunities. Recent business surveys note that manufacturing sentiment weakened in July 2026, dragged down by weak export demand and concerns about renewed geopolitical hostilities, highlighting the vulnerability of an undiversified export base.

The country needs to diversify its export markets, but diversification should mean more than finding new destinations for existing products. South Africa must also diversify what it exports. This means developing more sophisticated, manufactured products, expanding agro-processing, strengthening automotive and component manufacturing, and developing opportunities in renewable-energy technologies, pharmaceuticals, chemicals and digital services. The strategic objective should be simple: export more value, not simply more volume.

Investment is the missing link

None of these ambitions can be achieved without significantly higher investment. Government is expected to spend approximately R1.07 trillion on infrastructure over the next three years. Yet the infrastructure financing requirement is substantially larger, meaning that public resources alone cannot meet the country’s needs. Private capital must therefore play a much greater role.

Importantly, South Africa has significant pools of capital that could potentially be mobilised. The South African Reserve Bank reported that non-financial companies held a record R1.8 trillion in bank deposits in July 2025. The accumulation of cash reflects, among other factors, uncertainty and limited investment opportunities in a low-growth environment. The challenge is therefore not simply a shortage of money. It is also a shortage of confidence, bankable projects and investable opportunities. As the Bureau for Economic Research observed in mid-August 2026, “This week’s data painted a mixed picture… the labour market weakened further, with employment falling and the unemployment rate rising to 33.6%, while both mining and manufacturing contracted in Q2,” reinforcing that the constraint is confidence and project readiness, not just money.

Government has an important role to play in addressing this constraint through predictable regulation, reliable infrastructure, efficient institutions and high-quality project preparation.

Recent reforms to the public-private partnership framework are encouraging. The simplified framework for smaller PPP projects is intended to reduce administrative barriers and accelerate infrastructure delivery. However, regulatory reform must be accompanied by rigorous project preparation. Projects must have credible demand assessments, appropriate risk allocation and clear affordability considerations if they are to attract long-term private capital. South Africa does not simply need more infrastructure spending. It needs better infrastructure investment.

Sustainability is becoming an economic imperative

The transition towards a lower-carbon economy will also shape South Africa’s next decade. The global shift towards cleaner energy is no longer only an environmental issue. It is increasingly an industrial and competitiveness issue. This is particularly important for South Africa’s automotive industry. Major export markets are tightening environmental requirements and reshaping automotive supply chains. The transition towards electric and other low-emission vehicles will therefore influence what South Africa needs to manufacture and export in the future.

Renewable energy can play a similar role. A more reliable and diversified electricity system can improve industrial competitiveness while creating opportunities for investment in new industries. South Africa should therefore seek to turn the energy transition into an industrial transition—using

its renewable-energy potential to attract investment, develop new capabilities and participate in emerging global supply chains.

The choice facing South Africa

South Africa is at a genuine economic crossroads. One path is to accept growth of around 1% to 2% as the new normal and continue with incremental reforms. This may provide periods of stability, but it is unlikely to reduce unemployment sufficiently or unlock the country’s full economic potential.

The alternative is more ambitious. South Africa must invest more aggressively in infrastructure, technology, skills and productive capacity. Government must create the conditions for businesses to invest with confidence. Companies must be prepared to invest in innovation and expansion. Universities and industry must work more closely to commercialise ideas and develop new industries.

Most importantly, the country needs to shift from managing scarcity to creating productive capacity. South Africa does not lack economic opportunities. It has natural resources, agricultural potential, sophisticated financial markets, a strategic geographic position and significant renewable-energy resources. The challenge is to convert these advantages into investment, production, exports and jobs.

The next decade will therefore not be determined by GDP growth alone. It will be determined by whether South Africa can raise productivity, mobilise investment, expand its industrial base and equip its people for a rapidly changing global economy. The crossroads is not simply a warning. It is an opportunity.

The decisions made today will determine whether the next decade becomes another period of modest growth—or the beginning of a new era of investment, productivity and economic transformation.