Growth in the 21st century

Unlocking sustainable development in South Africa. 

(This note is based on ERSA Policy Paper 37, which contains detailed references)

From 1994, South Africa, like most of the world, trusted that economic expansion would naturally lead to progress in other areas. Until 2009, socio-economic redress and economic growth were prioritised, with limited recognition of the environment beyond guardrails to minimise destruction. By the late 2000s, climate concerns gained greater prominence as an understanding of their negative impacts on the economy and society emerged. In the aftermath of the COVID-19 pandemic, the focus shifted to harnessing green growth and using it as a conduit for foreign support to decarbonise the electricity sector and ensure a just energy transition.

While seemingly bold new plans were announced (often including wildly optimistic targets), they were essentially a tweaking and rebranding of old ideas. The primacy of South Africa’s carbon-intensive growth model remained unchallenged. Growth was targeted via the protection and/or localisation of capital-intensive industries.

Despite a promising start, social and economic progress stalled after the late 2000s. As growth slowed, poverty was increasingly targeted via fiscal transfers. This did not lead to economic inclusion, and the fiscal space to deal with other policy priorities, like climate change, was severely eroded. Halfway through the third decade of the 21^st century, South Africa had failed to achieve sustainable development during a period of relatively benign climatic conditions.

Climate change and environmental degradation complicate policymaking. Global temperatures are projected to rise between 2.6 and 3.1 degrees Celsius above pre-industrial levels by the end of the century. This trajectory is unprecedentedly risky:  humanity has no experience in dealing with this speed or scale of climatic changes. Slower periods of climate change in the past have triggered mass extinction events. Climate change is also accelerating. Temperatures are rising faster and impacting the climate and natural environment earlier and more severely than scientists predicted. What is clear is that current levels of climate change will significantly disrupt how, where, and how well most people live by the end of the century.

The physical impacts of climate change include acute (e.g. extreme events) and chronic (e.g. permanently shorter rainy season) outcomes. Slowing down climate change to more manageable levels (by reducing greenhouse gas (GHG) emissions, or ‘mitigation’) will require profound social, economic and technological change – referred to as ‘transition impacts’.

Physical and transition impacts sit on a continuum. Higher transition impacts lead to lower physical impacts, and vice versa. Physical impacts can be dealt with either by building resilience to reduce the social, environmental, and economic costs associated with physical impacts – referred to as ‘adaptation’ – or costs can be incurred after the fact to recover from climate disasters (‘recovery’).

Given that some additional climate change is inevitable, more resources will be spent on climate change in future. Funding only recovery will be the most expensive option by several multiples. Also, investing in adaptation will reduce the total cost, while investing in both mitigation and adaptation will minimise costs.¹

Physical impacts. South Africa is highly exposed to climate change. Its biodiversity and key sectors—agriculture, tourism, and mining—are at risk, while much of the country faces water stress. Between 1931 and 2015, South Africa warmed 2°C, double the global average, driving, amongst others, more extreme weather, shifting climate zones, frequent veld fires, and erratic water availability. Marine and land habitats already strained by overuse, land-use change, and invasive species are struggling to adapt. Ecosystem resilience ranks 110th of 180 countries, and 70% of final demand depends on at least one ecosystem service. Climate change cut per capita GDP growth by 11% from 1961 to 2010.

These impacts intensify inequality. The poor and powerless are most affected due to limited resources and an inability to influence decision-making. Women and the young are particularly vulnerable given their traditional roles in caregiving, subsistence agriculture, and securing ecosystem services (like water and firewood). Climate change will also worsen already poor education and health outcomes.

Climate migration will add pressure. Sub-Saharan Africa includes some of the countries most vulnerable to climate change, and tens of millions of climate migrants are expected, largely moving within the continent. South Africa is the most popular destination for migrant workers in Africa, and irregular migration is rising.

Crucially, the economic and social systems most affected by climate change also underpin the country’s ability to respond. Declines in equality, education, governance and innovation have dropped South Africa’s climate readiness ranking from 71st of 187 countries in 1995 to 95th in 2022.

Transition risks. While South Africa’s total, per capita and cumulative GHG emissions are high compared to the global average, they pale in comparison to those of the worst emitters. However, the carbon intensity of South Africa’s economy is significantly worse than those of its main trading partners. Only five countries have more carbon-intensive economies (i.e. Venezuela, Libya, Turkmenistan, Mongolia, and North Korea).

Conservatively estimated, transition impacts could reduce the value of the largest companies on the JSE by eight per cent. Companies in some sectors could suffer much larger reductions (87% for Upstream Energy, 51% for Chemicals, Plastic and Rubber Materials, 26% for Mining and Mineral products, and 24% for Manufactured Products).

New growth model. South Africa’s current carbon-intensive growth model, built around protecting or localising capital-intensive industries (even if they are low-carbon), has not succeeded. Current social, economic, and environmental systems will struggle to endure climate change. Luckily, there is increasing evidence that a “growth model for the 21^st Century”² built around low-carbon and climate-resilient economies will lead to faster growth and inclusive development. Key elements of this model include creating productivity-enhancing synergies between natural, social and economic systems; generating efficiencies and returns to scale in new transformative green technologies long since exhausted in carbon-intensive technologies; and recycling savings in climate-related recovery costs into additional development-enhancing mitigation and adaptation activities.

A climate change-driven growth model is well-suited to alleviating some of South Africa’s main growth constraints.

South Africa is plagued by low investment, and the situation has worsened since 2008. The last time South Africa came close to the National Development Plan investment target of 30% of GDP was in 1976 (when it reached 29%). The rapid deployment of grid-scale renewable energy in South Africa has shown how green technologies can stimulate investment if a conducive regulatory environment is created.

The renewable energy revolution in South Africa is also well on its way to solving an electricity supply crisis that has lasted almost three decades and has acted as a brake to economic growth.

Investment in infrastructure, natural capital and social systems to build resilience will reduce unproductive disaster recovery expenditure and safeguard the ecosystem services underpinning economic growth.  This is a prerequisite to improving South Africa’s deteriorating fiscal position.

Coordinated public transport and just urban transition investments can overcome the chronic spatial and economic exclusion that exacerbates South Africa’s unemployment crisis and reduces growth.

Increased community participation and decision-making are key to effective adaptation and a just transition. This will increase accountability and address governance issues at the local government level, which, in turn, should lead to better-targeted and implemented municipal spending and increased service delivery. 

Avoiding the significant negative externalities linked to South Africa’s carbon-intensive growth model, such as water use and air pollution, would free up significant resources to support development. The economic cost of delaying the decommissioning of old coal-fired power stations in South Africa to the 2030s, for example, could lead to increased health costs and lost productivity of more than R1 trillion.

The reduced transport costs and increased employment, food security and improved ecosystems services that will stem from coordinated and effective adaptation and mitigation initiatives (including the use of nature-based solutions) will put more money in the pockets of the poor, which would not only directly lower poverty and decrease inequality, but it would also enable them to spend more on health and education – increasing their prospects in the longer term.

Climate change is a systemic problem that requires a systemic solution. Stabilising climate change will require a complete reorganisation of how and where economic activity happens. Often framed as the ‘challenge of our time’, in South Africa, it is also a generational opportunity. A growth model based on positive feedback loops between environmental, climate, economic and social systems can finally deliver the sustainable development promised in 1994.

¹ OECD/UNDP. (2025). Investing in Climate for Growth and Development: The Case for Enhanced NDCs. OECD Publishing. https://doi.org/10.1787/16b7cbc7-en

² Stern, N. (2024) ‘A Growth Story for the 21st Century: building sustainable, resilient, and equitable development’, in. Lionel Robbins Lectures 2024: March 2024, LSE: Grantham Research Institute on Climate Change and the Environment. Available at: https://www.lse.ac.uk/granthaminstitute/publication/lionel_robbins2024/