South Africa's private sector is growing. That barely qualifies as progress

MARGINAL GROWTH is not the point. The real question is what is holding South Africa's private sector back-and what is keeping it from falling further.

SOUTH AFRICA'S private sector grew by the thinnest of margins in July, with the S&P Global composite PMI slipping to 50.3 from 50.5 in June. The 50-mark separates expansion from contraction, and at 50.3 the country is barely on the right side. The headline invites the same reaction it has provoked for years: a mixture of faint approval and deeper scepticism. The trouble is that the marginality of the growth is not the story. The story is what lies beneath it.

The PMI's internals reveal a private sector being pulled in opposite directions. New orders contracted for a third consecutive month, as weak consumer spending, political protests and cheaper imports weighed on sales. Employment growth slowed to a six-month low. Firms are hiring less because demand is subdued and supply chains remain disrupted. By the same token, input-cost inflation fell to a four-month low, easing below its long-run average thanks to lower fuel prices and softer wage growth. Output prices rose at their weakest pace in five months. The private sector is growing, but only because its cost pressures have relaxed more than its revenue prospects have improved.

That is a precarious basis for recovery. It depends on the very factors that have recently been reversed.

Consumer inflation jumped to 5% in June, the highest reading in two years, according to Stats South Africa. The South African Reserve Bank raised its repo rate by 25 basis points to 7% in May-its first increase since 2023-and warned that overlapping shocks could trigger second-round effects pushing wages and price expectations higher. The bank lowered its growth forecast for 2026 to 1.2% from 1.4%. The OECD, a club of mostly rich countries, projects similar weakness: 1.2% growth this year, 1.6% next. Inflation is reaccelerating while growth is being marked down. That is the worst combination a central bank could face.

To be sure, South Africa has made progress where it matters most. Load shedding-the rolling blackouts that defined the country's economic life for more than a decade-ended in May 2025. Eskom, the state-owned utility, has maintained a 98.9% energy-supply rate in the last financial year, compared to 9% two years earlier. That structural improvement is real and should be credited. Businesses can plan again. Investment decisions are no longer hostage to unpredictable outages.

Yet the power crisis has mutated rather than disappeared. Eskom reports that illegal connections and cable theft-"non-technical losses"-now account for 8% of its power supply, costing the utility 17.5 billion rand ($1.1 billion) in lost revenue. What was once a national grid problem has become a local one, with organised criminal gangs operating as ghost utilities in informal settlements. The outages are now unplanned rather than scheduled, which is in some ways worse: businesses cannot plan around them. Eskom's chief executive, Mr Dan Marokane, said the country has "a stable electricity platform to operate and grow from". That may be true in aggregate. It is less true in the townships and informal settlements where the lights still go out, for reasons that have less to do with engineering and more to do with law enforcement.

The external picture is harder still. South Africa is a net importer of petroleum, and oil prices have been fluctuating around $100 a barrel as the Strait of Hormuz remains largely closed due to the Middle East crisis. The SARB governor, Mr Lesetja Kganyago, noted that global growth forecasts have been marked down and inflation forecasts revised higher. Fuel inflation jumped by more than 11% in a single month in April. South Africa did not cause the Middle East conflict, but it is paying for it.

The American tariff adds a further drag. South Africa faces a 30% reciprocal tariff on its exports to the US, imposed in August 2025 after the country failed to secure a trade deal before the deadline set by President Trump. The government has promised measures to support exporters, but the tariff remains. Export demand did rise in July's PMI for a second straight month, which is encouraging-but the survey does not specify which markets drove the increase. The tariff has not yet shown up as a collapse in the survey data, but that is partly because exporters were already cautious and partly because South Africa's trade with the US, while significant, does not dominate the composite index. The real question is whether the tariff will trigger a longer-term reallocation of supply chains that proves harder to reverse.

What explains the divergence between firms that are expanding and the broader economy's 1.2% growth? Part of the answer is composition. Services is where domestic consumption shows up most directly, and it is also where pricing power allows firms to pass through cost increases. Goods-producing sectors have a harder time, and they are more exposed to supply-chain disruption. The PMI's composite figure smooths over that difference.

Part of the answer is that South Africa's growth potential has been so depressed for so long that any movement above stagnation looks like news. The composite PMI has averaged just 49.5 since 2013, meaning the private sector has been in contraction more often than not for more than a decade. By that standard, 50.3 is a good number. By the standard of an economy that needs to grow at 3-4% to absorb its young labour force, it is barely enough.

The Government of National Unity coalition adds a background political drag. AfriBarometer polling in March 2026 found voters split on whether the coalition is solving the country's problems, and the ANC remains dependent on partners whose priorities do not always align with economic reform. Coalition arithmetic is not itself growth-killing, but it is growth-delaying. Reforms in energy, logistics and labour markets are moving ahead, but slowly. The exit from the FATF gray list, achieved in October 2025, is one reform that should reduce transaction costs and unlock investment. Whether it will do so at scale remains to be seen.

The danger is not immediate collapse. It is a slower process: growth that is just enough to prevent crisis but not enough to reduce structural unemployment, inflation that keeps the SARB from cutting rates, and a private sector that is cost-conscious but not investing. The policy task is to remove the remaining constraints-logistics bottlenecks, red tape, and the institutional weakness that allows electricity theft to flourish-without falling back into subsidy dependency or fiscal fantasy.

South Africa's private sector is not growing because it has found a new source of dynamism. It is growing because one major constraint has receded while others are still being negotiated. The question for the government is whether it can turn that fragile margin into something more durable, before the next shock arrives.