Is South Africa afflicted by the resource curse?

Why this research matters

South Africa’s economy, despite its extensive mineral wealth, has not achieved the growth many reasonably anticipated. Instead, it has suffered significant industrial decline, jeopardising broad-based development. This paper investigates whether South Africa’s development trajectory may have been hindered by one or more manifestations of the resource curse, with a particular focus on industrial performance.

Using a comparative analytic narrative approach, the paper tests three leading hypotheses:

1. Dutch Disease: Resource abundance led to real exchange rate appreciation, undermining export competitiveness in the manufacturing sector.
2. Institutional Quality Decline: Governance challenges, particularly since 2009, have weakened core institutions and disrupted essential infrastructure, notably energy supply.
3. The China Factor: The rise of subsidised Chinese manufacturing distorted global trade dynamics and affected domestic industrial viability.

What the research found

The study concludes that “Dutch Disease” provides a relatively compelling explanation for South Africa’s long-term manufacturing decline, but that’s clearly not the whole story. The picture is complicated by state capture and the associated hollowing out of key governance institutions.

While real exchange rate overvaluation seemed to play a role in reducing export competitiveness, governance setbacks—such as inconsistent policy implementation and infrastructure challenges—further constrained the potential for industrial recovery.

Importantly, the analysis highlights the complex structural dynamics at play. It offers constructive, evidence-based suggestions to help reposition mineral policy as a catalyst for inclusive, long-term growth.

Insights for policymakers

• A stronger institutional and regulatory environment is vital to ensure South Africa’s mineral endowment supports wider economic transformation.
• Policies aimed at improving licensing transparency, reducing trade misinvoicing, and supporting industrial linkages can enable mineral wealth to better serve national development goals.
• The Department of Mineral and Petroleum Resources plays a pivotal role and is well-placed to champion reforms that bolster investor confidence, drive transparency, and enable value-adding economic activity. Impending amendments to mineral law need to reflect these reforms.

Recommendations

To mitigate Dutch Disease effects and build a more resilient economy, the study recommends:

• That South Africa join the Extractive Industries Transparency Initiative (EITI)
• Implement a digital cadastre for mining rights administration – this was promised by mid 2025; time is running out.
• Align mining and industrial policies to support job-rich, value-adding sectors
• Tighten measures against illicit financial flows and misinvoicing in trade
• These actions could significantly enhance public trust, investor confidence, and economic diversification.