The economic fix: Sarupen’s roadmap to faster growth

“Every single year since 2009, on average, compounded, our country has been getting poorer,” Ashor Sarupen says in an interview with Currency. For the deputy finance minister, the time for half-measures has passed, especially when it comes to protecting struggling state-owned monopolies. “We cannot throw money into bailing out failure anymore; there must be a paradigm shift and the political will to invest in growth.”

While global growth is slowing, the International Monetary Fund’s forecast is still above 3% this year. Yet South Africa has remained stuck in an economic slow lane mostly of its own making, averaging just 0.7% over the past decade – a rate too weak to absorb the millions of new entrants into the labour market.

Sarupen’s argument is that breaking South Africa’s “economic chains” is doable only if the government stops pretending it can talk the country into prosperity and instead concentrates on the handful of structural failures that choke investment. He believes South Africa can achieve growth of 3.5%-4% over the next couple of years – a material step up that is “within our control” if reforms are correctly sequenced.

To get there, Sarupen frames the strategy as systematically dismantling the obstacles: fix the plumbing (energy and transport), slash the red tape, and finally confront the “thorny” reality of the labour market.

It comes against another crushingly modest outlook for economic growth this year and next: of just 1.6% and 1.8% respectively.

No free lunches

And forget anything as outlandish as 7%, say. Asked why we aren’t aiming at a much higher and more ambitious target, Sarupen says the moment for that has long passed.

“Seven percent growth was possible in the 90s, 2000s and mid-2010s. That was a period of free growth – the global environment enabled it – but we made our own missteps and threw it away,” he says. The world has since changed “substantially” he adds, “with trade frictions, issues around migration, reshoring, and the trend away from globally integrated supply chains”.

The problem is that without growth, everything becomes harder: stabilising debt, widening the tax base, and funding public services without resorting to politically toxic tax hikes or spending cuts.

Economists and business leaders who spoke at a Gibs panel discussion in early December echoed Sarupen’s sequencing argument. “When we do reforms, things actually work, and they do show up in economic statistics,” said RMB chief economist Isaah Mhlanga, arguing that investors are “rewarding us for the reforms that we have done” even if “we are just at the beginning phase”.

South African asset prices from bonds and the currency to its stocks soared last year, spurred by commodity prices, but also improving economic fundamentals, albeit from a low base. S&P awarded the country with a credit-rating upgrade and kept its outlook as positive, a signal of another improvement in the next year or two.

Fix the plumbing first: electricity and logistics

What does a realistic growth strategy look like? Sarupen frames it as a stack of constraints. Fix the big, mechanical failures first – electricity and logistics. Then go after the thicket of rules that makes it harder to start and expand a business. Once that is done – and the economy is moving – spend political capital on the most contentious reforms, including labour-market rigidity.

He starts where most do: electricity. Energy is not just about keeping the lights on; it’s about stability of supply and price. Load-shedding “completely destroys the economy” by forcing businesses into survival mode: companies spend capital to make themselves “load-shedding proof” rather than investing to grow.

The second (well-known) impediment is logistics – ports and freight rail: South Africa hasn’t been able to fully capitalise on commodity upswings because its logistics system cannot move enough volume. The state loses income through lower exports, and because investment follows functioning infrastructure.

“When you have a commodity price boom but cannot get product out of ports, you lose growth twice,” he says. Southern Africa depends on South African ports, but in a world of just-in-time delivery, four- to six-week delays are simply not competitive.

At Gibs, Aspen Pharmacare senior executive Stavros Nicolaou made a similar point about “dis-enablers” that require joint delivery. He said business organised “around three years ago” and isolated three initial bottlenecks: “energy security”, “logistics supply chain – road and rail”, and “safety security – crime and corruption”.

The good news is that the reform path here is at least visible. Operation Vulindlela, the Presidency-Treasury initiative, has been set up to push through structural changes in sectors including electricity and transport – and has pointed to progress such as enabling private investment in generation, the move towards a competitive electricity market, and private participation in port terminals and third-party access to railways.

The “licence raj”: product markets and red tape

Then comes Sarupen’s third restriction: “product markets” – the messy, everyday machinery of permits, licences, labelling requirements, approvals and administrative delays that stop businesses from starting, expanding or exporting.

South Africa has “recreated the licence raj”, he says: a system where multiple departments require multiple permissions with no fixed timelines and no single portal that tells a firm what it needs to comply.

In the interview, Sarupen claims international benchmarking paints South Africa as a laggard on product-market regulation and that the growth drag is meaningful, “locking up” as much as half a percentage point of GDP.

The fight to cut red tape will be “institutionally difficult”, even if it is not politically explosive. Product-market reform cuts across multiple departments – trade, agriculture, provinces, regulators – each with its own mandates, forms and gatekeepers. That fragmentation breeds what he calls “fiefdoms”: officials and agencies whose influence is tied to the processes they control.

Simplifying the system – a single portal that tells firms what licences they need, and fixed timelines for decisions – sounds technocratic. But it strips power from parts of the bureaucracy whose prestige, budgets and relevance depend on having something to oversee.

Momentum Investments chief economist Sanisha Packirisamy made a related point at the Gibs discussion, arguing that it is not only “the capacity of government” that matters but also “the willingness of government” – and that fragmented politics can fuel a “blame game” rather than delivery.

Only then: untangle labour rules

Only once energy, logistics and product markets are meaningfully improved does Sarupen move to the “thorny” stuff – labour.

“Excessive labour-market rigidity shifts the economy away from low-skilled employment,” Sarupen argues.

In his view, the crux is flexibility to hire and fire, especially for smaller firms burdened by collective bargaining extensions. But that is the kind of reform that triggers ideological trench warfare – which is why Sarupen’s sequencing matters. He is essentially arguing: get the easy wins done first, build trust through delivery, then spend political capital where it counts.

Centre for Development and Enterprise executive director Ann Bernstein recently flagged another threat, warning that “the rule of law really matters for business”, pointing out that the panel appointed to recommend the next National Prosecuting Authority head was “extremely disappointing” – a risk she sees as consequential for long-term credibility.

Bernstein also argued that South Africa’s reform problem is not only direction but pace: “One of my complaints would be the lack of ambition in South Africa and the lack of urgency.”

The risk, of course, is that South Africa stays trapped in the first half of the script: always “working on” Eskom and Transnet, always “streamlining” regulation, never quite landing the measures that change behaviour in the state or private sector.

Government cannot command growth. But as Sarupen suggests, it can stop sabotaging it – and start unblocking it, one step at a time.

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