ASGHAR ADELZADEH | SA has veered off the path of the developmental state

South Africa has proclaimed its commitment to becoming a developmental state. The vision has been clear: the state should actively drive industrialisation, reduce inequality and transform the structure of the economy.

Yet, three decades into democracy, the outcomes tell a different story.

Unemployment now exceeds 30%, youth unemployment is above 55%, and inequality remains among the highest in the world. Economic growth averaged just 1.3% between 2010 and 2024, below population growth.

After 1994, South Africa decisively reintegrated into the global economy. Trade liberalisation, financial opening and the gradual removal of capital controls transformed the country from a relatively closed economy into one deeply integrated into global trade and finance.

These reforms achieved important objectives. They stabilised the rand, restored investor confidence and ended apartheid-era economic isolation. But integration also reshaped the economy in ways that profoundly affected who benefited from growth.

Major South African corporations, including Anglo American, SABMiller and Old Mutual, shifted their primary listings offshore, while the JSE became increasingly concentrated around a handful of conglomerates. Corporate profit outflows surged.

A new synergy emerged between domestic and global capital. South African firms expanded internationally, while global investors captured increasing shares of domestic value. But this process also reinforced sectors weakly linked to employment creation.

This restructuring was reinforced by monetary and financial policy. The South African Reserve Bank has maintained relatively high real interest rates, prioritising price stability and investor confidence. Meanwhile, credit to households and asset markets expanded while credit to productive sectors stagnated.

The government’s macro framework prioritised fiscal discipline and investor confidence. While stabilising public finances, it constrained developmental spending.

The consequences are visible in the structure of the economy. The financial sector’s share of GDP rose from 16.8% in 1994 to 21% in 2023, while manufacturing declined from 21% to 13%. Wealth concentration deepened dramatically: the top 10% of households now hold more than 85% of financial assets, while the bottom 60% hold less than 5%.

In effect, South Africa became increasingly financialised. Growth became more capital-intensive, less employment-generating and more unequal.

Fiscal policy followed a similar logic. The government’s macro framework prioritised fiscal discipline and investor confidence. While stabilising public finances, it constrained developmental spending.

These contradictions are particularly visible in the mining and energy sectors, which continued to be dominated by a small number of highly concentrated firms.

What emerged was a pattern of enclaved accumulation: extraction without diversification, profits without reinvestment and growth without broad-based transformation.

At the same time, financial openness increased vulnerability. South Africa experienced repeated episodes of capital flight, while the rand became one of the world’s more volatile emerging-market currencies. In response, policymakers prioritised macroeconomic stability through high interest rates and defensive financial policies, further constraining industrial dynamism.

Faced with mounting social pressures, the state increasingly turned towards social grants, which expanded from 2.4-million beneficiaries in 1997 to nearly 19-million today, thus reducing extreme poverty.

But inequality remained deeply entrenched.

The state, therefore, became less a transformative developmental state than a social stabiliser, managing the consequences of inequality without altering its structural foundations.

Class formation changed in colour more than in substance.

These patterns raise a deeper question about the nature of the post-apartheid state itself.

Historically, developmental states subordinated finance to production. They directed investment towards industrialisation, employment creation and technological upgrading. In South Africa, however, macroeconomic institutions remained largely orthodox and autonomous, while industrial policy lacked the leverage required to reshape accumulation patterns.

The result is an economy characterised by persistent unemployment, weak productivity growth, extreme inequality and dependence on globally integrated corporate sectors.

South Africa achieved macroeconomic stabilisation, global integration and elite inclusion. But it did not fundamentally alter the structures of unequal and dependent development inherited from the past.

If the country is serious about pursuing a genuinely developmental path, four shifts are essential.

First, policy must be re-anchored around production and employment rather than finance-led growth and stabilisation alone.

Second, macroeconomic institutions, including the National Treasury, Reserve Bank and industrial policy structures, must be aligned around a coherent developmental mandate.

Third, South Africa must confront the structure of accumulation directly by addressing capital outflows, weak domestic reinvestment and poor linkages between mining, manufacturing and technological upgrading.

Finally, the country must align its policy tools with its developmental ambitions. South Africa continues to rely heavily on orthodox economic frameworks that assume perfect competition and full employment, minimise the role of the state and treat inequality as secondary. Yet developmental states historically relied on frameworks that recognised structural unemployment, the role of demand and distribution and the central role of state-led transformation.

None of this requires abandoning stability. But it does require redefining stability, not as an end in itself, but as a means toward transformation. A developmental state cannot be built with policies, institutions and tools designed to prevent it.

• Adelzadeh is director at Applied Development Research Solutions. This article is based on his keynote address on Friday at the Frank Dialogue on the Transformation of the Financial Sector