The Coffee Table Economics (CTE) with Anchor note by Casey Sprake is distributed intermittently. It is a collection of Casey’s thoughts and perspectives on key economic factors, socio-political events, and the multiple dynamics shaping markets globally and in South Africa (SA).
Executive summary
In this week’s edition, we highlight the following:
- Fuelling progress: How diverse drivers of innovation shape economies around the world. Innovation is a fundamental catalyst for economic advancement, propelled by a multifaceted interplay of factors that differ significantly across nations. While the rewards of innovation are universally advantageous, each country’s distinct economic framework, policy landscape, cultural ethos, and resource endowments uniquely shape its approach to fostering and prioritising innovation.
- The Big Five: How five nations drive half of Africa’s economic power. Africa’s combined GDP stands at US$2.8trn in 2024, generated by the collective productivity of its 1.4bn people. However, this economic output is unevenly distributed, with just five countries—SA, Egypt, Algeria, Nigeria, and Ethiopia—accounting for half of the continent’s GDP. Known as the “Big Five,” these economies produce US$1.4trn, a sum that matches the output of the other 48 African nations combined
- A dose of economic reality for SA amid fiscal slippage. On 30 October, SA’s Minister of Finance Enoch Godongwana delivered the 2024 Medium Budget Policy Statement (MTBPS). The 2024 MTBPS was presented amid a moderately improved economic outlook and the establishment of the Government of National Unity (GNU), which has pledged its commitment to prudent fiscal policy aimed at stabilising debt. Notably, this formed the GNU’s first comprehensive fiscal policy statement just over 100 days into its tenure.
Fuelling progress: How diverse drivers of innovation shape economies around the world
Innovation is a fundamental catalyst for economic advancement, propelled by a multifaceted interplay of factors that differ significantly across nations. While the rewards of innovation are universally advantageous, each country’s distinct economic framework, policy landscape, cultural ethos, and resource endowments uniquely shape its approach to fostering and prioritising innovation. Factors such as government policies, access to education and capital, and cultural attitudes toward entrepreneurship play crucial roles in shaping innovation ecosystems. One of the most powerful drivers of innovation is government policy, which can either support or hinder the growth of innovative industries. Countries like the US and South Korea invest heavily in research and development (R&D) through public funding and incentives for private investment.
The US, for example, has a well-established network of public-private partnerships (PPPs) and strong intellectual property protections that encourage tech firms and startups to innovate. South Korea, meanwhile, has prioritised investment in technology industries, enabling it to lead globally in electronics and telecommunications. Conversely, countries with restrictive regulations or inadequate intellectual property laws may discourage innovation by limiting potential returns on investment or restricting competition.
Education systems prioritising science, technology, engineering, and mathematics (STEM) are often better positioned to foster innovation. Countries like Germany emphasise vocational training and apprenticeships, which equip workers with specialised skills that support industries such as automotive engineering and manufacturing. By contrast, countries with underfunded or outdated education systems may struggle to build an innovative workforce, as skills needed to compete in global markets may be lacking. India, for example, has made strides in the tech sector partly due to its strong emphasis on STEM education. However, disparities in access to quality education continue to limit its innovation potential. Innovation thrives in cultures that value entrepreneurship and risk-taking. In Silicon Valley, the global centre of technological innovation in Northern California, there is a well-established culture of taking risks, where failure is often seen as a learning opportunity. This perspective encourages entrepreneurs to pursue ambitious ideas without fear of stigma if they fail. In contrast, countries where failure carries a significant social stigma may see fewer people willing to take the necessary risks for disruptive innovation. Japan, for instance, has a highly skilled workforce and cutting-edge technology but is sometimes seen as cautious in its entrepreneurial risk, with many preferring stability over potential failure.
The availability of capital is also essential in fostering innovation. In countries with advanced financial markets, such as the US or the UK, entrepreneurs have easier access to venture capital and funding, which helps bring new ideas to market. This contrasts with developing countries where financial systems may be less mature, and access to funding is often limited. Some countries have mitigated this gap by creating government-backed funding initiatives or special economic zones. For example, Israel’s government offers tax incentives and funding for tech startups, which has helped it become a leader in cybersecurity and agricultural technology. Moreover, innovation often emerges as a response to resource limitations or specific national challenges. For example, Israel’s advancements in water conservation technologies are driven by its arid climate and scarcity of freshwater resources. Similarly, Finland has pioneered innovations in forestry and sustainable resource management due to its abundant forests and emphasis on environmental sustainability. Resource constraints can thus act as a catalyst for innovation, pushing nations to develop unique solutions that address domestic needs and find application in global markets.
The Global Innovation Index (GII) 2024, published by the World Intellectual Property Organization (WIPO), ranks 133 economies based on their innovation capabilities and performance, shedding light on the shifting landscape of global innovation leadership. This year’s report emphasises the growing influence of emerging economies increasingly competing with established innovation leaders. The GII evaluates each economy across seven foundational pillars of innovation, encompassing 78 indicators. For the fourteenth consecutive year, Switzerland has retained its position as the world’s most innovative country, while the US has held steady in third place. The US ranked highest in Market Sophistication (#1) and Business Sophistication (#2), although its overall standing was impacted by a lower Infrastructure score (#30). A significant focus of the 2024 report is on “innovation overperformers” — countries whose innovation output surpasses expectations given their development level. India, Moldova, and Vietnam lead in this category, each showing a strong performance over the past 14 years.
Additionally, the GII 2024 offers valuable insights into current global innovation trends. The report highlights that progress in green technologies lags behind the average growth rate of the past decade, with a particular need to reduce supercomputers’ energy consumption. Regarding technology adoption, there has been a notable increase in the penetration of 5G, robotics, and electric vehicles (EVs). However, the socioeconomic impact of innovation is mixed, with lingering effects from the COVID-19 pandemic. For instance, poverty levels remain elevated compared to 2018, and life expectancy has plateaued at 2015 levels.
The bottom line
At the end of the day, innovation is driven by a combination of policies, education, culture, capital, and resources, each of which is shaped by a country’s unique economic and social context. While some nations have robust infrastructures that naturally support innovation, others need to implement targeted policies to foster an innovative environment. Ultimately, the diversity in drivers and approaches to innovation contributes to each country’s economic growth and creates a dynamic global ecosystem that benefits from the unique contributions of each economy.
The Big Five: How five nations drive half of Africa’s economic power
Africa’s combined GDP stands at US$2.8trn in 2024, generated by the collective productivity of its 1.4bn people. However, this economic output is unevenly distributed, with just five countries—SA, Egypt, Algeria, Nigeria, and Ethiopia—accounting for half of the continent’s GDP. Known as the “Big Five,” these economies produce US$1.4trn, which matches the output of the other 48 African nations combined. Together, these five countries hold 569mn people, or about 44% of the continent’s population, underscoring the concentrated nature of economic power within Africa. Several factors explain why these five countries contribute so significantly to Africa’s economy. Each of the Big Five has distinct industries, geographic advantages, or resource endowments that set it apart from smaller economies on the continent.
South Africa, for example, has a diversified economy anchored by strong financial and manufacturing sectors. The country’s mining industry, which focuses on valuable resources like platinum group metals (PGMs), gold, and chromium, also plays a vital role, contributing around 8% to the national GDP. This mining wealth has bolstered SA’s exports and supported a high level of industrialisation and infrastructure development, giving the country a substantial economic edge.
Egypt, in contrast, leverages its strategic control of the Suez Canal, one of the world’s busiest maritime routes, to generate consistent revenue. The canal allows Egypt to collect transit fees from ships passing between Europe and Asia, making it a critical component of the nation’s income. Additionally, tourism is a significant economic driver in Egypt, with its ancient cultural sites drawing millions of visitors annually. Together, the Suez Canal and tourism ensure a steady inflow of foreign currency, strengthening Egypt’s position in the Big Five.
Although each country’s focus differs, energy resources form the backbone of Nigeria’s and Algeria’s economies. Algeria is one of the world’s largest natural gas exporters, a role that has given it strong economic ties with Europe and the Middle East. On the other hand, Nigeria is one of Africa’s top oil producers, relying heavily on crude oil exports to support its economy. While both countries are subject to the price volatility of the global energy market, their abundant natural resources have enabled them to build economies larger than most African nations.
Ethiopia’s economy stands out within the Big Five for its emphasis on agriculture. Unlike the energy-driven economies of Nigeria and Algeria, Ethiopia’s growth relies on the cultivation of coffee and other agricultural products. Coffee, in particular, is a key export, connecting Ethiopia to global trade networks and providing jobs for millions of Ethiopians. Although Ethiopia’s economy is less diversified than the other Big Five, its focus on agriculture has allowed it to grow considerably, especially in rural areas.
The Big Five countries’ economic prominence reflects their unique resource advantages and strategic positions within Africa and the world. These nations benefit from abundant natural resources, such as minerals in SA, oil and gas in Nigeria and Algeria, and agricultural land in Ethiopia. Additionally, their strategic geographic locations (such as Egypt’s control of the Suez Canal) enhance their access to international trade routes, giving them economic leverage that many smaller African economies lack.
The bottom line
This concentration of economic power within five countries demonstrates Africa’s challenges and opportunities for economic development. While the Big Five are critical drivers of continental growth, they also highlight the disparity in resource distribution, infrastructure, and economic opportunity faced by many smaller African economies. Regional development and investment in emerging economies will be essential for Africa to achieve more balanced economic growth. Meanwhile, the Big Five will likely continue to play a leading role in shaping the future of Africa’s economy.
A dose of economic reality for SA amid fiscal slippage
On 30 October, SA’s Minister of Finance Enoch Godongwana delivered the 2024 MTBPS. The MTBPS plays an important role by providing a mid-year review of fiscal performance around the targets set in the February Budget, noting any reallocations or adjustments to spending that have become necessary since the Budget was approved. Additionally, it recalibrates the Medium Term Expenditure Framework (MTEF), offering insight into shifting priorities and their impact on fiscal planning. The 2024 MTBPS was presented amid a moderately improved economic outlook and the establishment of the GNU, which has pledged its commitment to prudent fiscal policy aimed at stabilising debt. Notably, this formed the GNU’s first comprehensive fiscal policy statement just over 100 days into its tenure.
As anticipated, the government remains committed to achieving debt-stabilising primary budget surpluses, with the National Treasury (NT) set to release a discussion document on potential alternative long-term fiscal anchors in March 2025. While some fiscal slippage occurred compared to the 2024 Budget forecasts, it was largely in line with near-term expectations, though it exceeded projections slightly over the medium term. Notably, the MTBPS underscored a strong focus on growth and fiscal reforms. Although spending risks remain, including potential support for state-owned enterprises (SOEs, such as Transnet) and municipalities, the NT has emphasised that it typically avoids direct bailouts for sub-national governments, opting for alternative support measures instead. Whilst the NT acknowledged that the issue of SOE bailouts persists, no additional funds have been allocated in the budget to address this. State-owned companies continue to face financial strain; despite some notable operational improvements, such as those at Eskom, most large SOEs still report net losses and fail to meet performance targets. Many remain unable to fund their operational and debt commitments fully. The medium-term fiscal strategy focuses on limiting further financial support to SOEs while addressing the debt obligations of Eskom and the South African National Roads Agency Limited (SANRAL) to allow for critical investments in electricity and road infrastructure.
Overall, the fiscal strategy remains steady, yet the extent of slippage, though moderate, is disappointing. The combination of revenue shortfalls and a sharp rise in expenditures has resulted in a wider deficit in the 2024 MTBPS compared to the February Budget Review. Nevertheless, despite this larger fiscal deficit, the deficit trajectory shows improvement over the MTEF. The primary surplus for the main budget is expected to grow over the medium term to support debt stabilisation by 2025/2026, with the main budget deficit projected to decline from 4.7% of GDP in 2024/2025 to 3.4% by 2027/2028. According to the 2024 MTBPS projections, gross loan debt is anticipated to increase from R5.62trn in 2024/2025 to R6.82trn by 2027/2028, influenced by the budget deficit and variations in interest, inflation, and exchange rates. Gross loan debt as a share of GDP is projected to stabilise at 75.5% in 2025/2026.
The bottom line
Looking ahead, the major risks are largely unchanged since the 2023 MTBPS, including lower revenue growth due to anaemic economic growth, a higher-than-anticipated public-service wage settlement, and increased borrowing costs driven by a prolonged high-risk premium. Persistent deficits and accumulating liabilities in other areas of the public sector, such as SOEs, present risks that may lead to increased demands for budgetary support. Overall, the MTBPS serves as a reality check for those with unwavering optimism regarding the GNU. Debt projections have risen modestly, reflecting lower tax collections and increased spending. While the figures themselves are not overly concerning and the budget appears credible, there is nevertheless a growing concern about how this may impact the positive reform narrative fostered since the inception of the GNU.
