Did the South African economy triple since 1994?

Did the South African economy triple since 1994 as the president said in a political speech on the weekend? Many South Africans who suffer financially due to weak economic growth will say this is a lie, but it could actually be true although it must be viewed in context.

Reza Ismail, head of bonds at Prescient Investment Management, says the president’s claim is broadly accurate. “The issue with Gross Domestic Product (GDP) comparisons across time is that there must be a reference point for prices.”

For example, if a country is producing 100 widgets (nothing else) at R5 each in a given year, its annual GDP is 100 x R5 = R500. If in the next year, the country again produces 100 widgets, but inflation averages 10% pushing the widget price up to R5.50, the GDP figure moves to 100 x 5.5 = R 550, although the economy has produced the same number of widgets.

The correct thing to do would be to adjust for the average level of prices by stripping out the 10.0% inflation, he says.

“The South African economy had a GDP of R 0.28 trillion in 1994, at 1994 prices. If we scale this up with average inflation (6.8% per annum) since 1994 to now, then at current prices the economy would have a GDP of approximately R2.0 trillion. Our actual GDP is around R5.6 trillion, which is approximately 2.8 times bigger than what would have been the case from just the change in average prices.

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Did South Africa’s economy grow since 1994?

Frank Blackmore, lead economist at KPMG, says this question can be interpreted in a number of ways, but the two most common are to consider GDP growth in real terms by taking out the effect of inflation or to consider GDP growth in nominal terms by including the effect of inflation.

“GDP has grown from 2 389 241 million in 1994 to 4 626 933 million in 2023 or 93.7% over this period. Therefore, GDP has not even doubled in real terms over this period, as this amounts to an average annual growth rate of 2.2% per year in real terms. 

“In nominal terms GDP has grown from 545 093 million in 1994 to 6 970 163 million in 2023 or 1178% over this period. This means GDP is just over 12 times larger in nominal terms over this period, mostly due to inflation of approximately 6.7%. This amounts to an average annual growth rate of 8.9% per year in nominal terms. 

“Irrespective of this growth rate of GDP, it should be recognised that the number of South Africans also increased over this period of time, so you must consider that when considering whether the growth in GDP has been good or not.

“The largest increase in wealth was under Mbeki, it peaked under Zuma and decreased since.”  

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‘A misleading statement’, although president is correct

Jee-A Van Der Linde, senior economist at Oxford Economics Africa, says the president is more or less correct, but it is a misleading statement.

“At the end of 2023, the South African economy (in nominal US$ terms) was closer to 2.5 times bigger than in 1994. In real GDP terms, the South African economy is slightly less than twice the size of 1994.

“If you look at GDP per capita, South Africans’ wealth on average is about 1.5 times more than it was in 1994. It is also worth pointing out that since 2007, real GDP per capita has stagnated.”

Patrick Buthelezi, economist at Sanlam Investments, says whether the president was right depends on the specific metric he or his speechwriter was referencing.

“In nominal terms, the size of the economy was R545 billion in 1994 and rose to R6.97 trillion in 2023, reflecting a notable 1178.8% growth over the timeframe. However, incorporating the impact of inflation (reflective of the cost of living) and population growth, GDP figures rose from R2.389 trillion in 1994 to R4.627 trillion in 2023, signifying a 93.7% growth across the period. When factoring in population growth, GDP growth from 1994 to 2023 stands at 28%.” 

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It is true that the economy tripled since 1994, but…

Prof Bonke Dumisa, an independent economic analyst, says it is true that the South African economy increased threefold over the past three decades, but this must be viewed relatively.

“The economy cannot be viewed in isolation from our population growth rates which have also significantly increased since 1994.

“We also have to consider that the post-apartheid ANC government now had to spread the benefits of a growing economy to 100% of the South African population, compared to the apartheid era regimes which just catered for about only 20% of the population.

“It is because of these factors that I have listed and more that many people are in disbelief that our economy has grown that much in the last 30 years.”