South Africa’s economic growth remains subdued, with weak investment levels and declining construction activity continuing to constrain the economy. These trends were highlighted by economist Dr. Azar Jammine at the recent AfriSam Budget Breakdown.

Late last year signalled a modest improvement in South Africa’s economic growth. While the rate remains low, the trajectory shows a clear upward shift. Even so, the country’s GDP growth continues to lag behind the global average. With the population expanding by roughly 1.5% a year, a similar 1.5% increase in GDP effectively translates into no improvement in living standards. In fact, South Africa’s living standards have declined by approximately 7% over the past eight years.

A review of sector performance across the last 15 years reveals stark contrasts within the economy. The construction sector, together with gas, electricity and water supply, has performed the worst. Construction output is down by about 15% compared with 2010 levels. This decline reflects years of weak public investment, deteriorating state infrastructure programmes and the lingering effects of state capture.

Gross fixed capital formation (GFCF)

Gross Fixed Capital Formation (GFCF) in South Africa has been weak for more than a decade and is widely viewed as one of the main constraints on economic growth.

After the 2010 FIFA World Cup infrastructure boom, investment levels began to decline as public infrastructure spending slowed and private sector confidence weakened. State-owned enterprises such as Eskom and Transnet reduced capital investment, while municipalities struggled with financial and governance challenges that delayed infrastructure projects.

As a result, GFCF as a share of GDP has fallen significantly. In the late 2000s it was around 23–24% of GDP, which is closer to the level typically associated with strong growth in emerging economies. In recent years it has hovered closer to about 14–15% of GDP. South Africa needs investment levels above 25% of GDP to achieve sustained high growth.

Recent performance has shown only modest improvement. Private sector investment has begun to recover slightly, particularly in renewable energy, mining and logistics infrastructure. The rollout of private renewable energy projects has contributed positively to fixed investment, especially after electricity market reforms allowed companies to build their own generation capacity.

Government has also placed greater emphasis on infrastructure-led growth through programmes such as the Infrastructure Fund and the Infrastructure Investment Plan. However, implementation constraints, slow project preparation, and weak municipal capacity have limited the pace at which this investment translates into higher GFCF.

In short, South Africa’s GFCF performance remains relatively low by international standards. Increasing investment in infrastructure, energy, transport and water systems is widely seen as essential if the country is to accelerate economic growth and improve productivity. Over the past decade, capital investment has been declining while consumption has been increasing, and this is unsustainable as South Africa becomes more dependent on imported goods rather than local production.

Key constraints to GFCF and GDP growth include weaknesses in the education system, rising crime levels, and excessive regulatory burdens that discourage investment.

There is a significant skills mismatch in the labour market. While graduate unemployment attracts attention, the country faces an acute shortage of technical and artisanal skills such as electricians, welders, plumbers and mechanics.

Strengthening vocational training and workplace-based learning will therefore be essential to unlocking long-term economic growth.

According to government forecasts, our economy will continue to languish at levels below 2% in the coming years.  There is an expectation that capital investment will continue to pick up.

The weakness of the construction sector highlights the broader challenge. Employment levels in construction are down by almost 5% compared with 2019 and are currently the weakest of any sector in the economy, underlining the extent to which reduced infrastructure investment has filtered through to the labour market.