South Africa’s growth problem starts with its firms

When they can’t scale, the economy can’t grow This economic note was published in Currency News on 19 March 2026 According to the OECD’s 2025 Economic Survey of South Africa, our economy-wide product market regulation is more restrictive than China, Brazil, Indonesia, Mexico, Türkiye, or any OECD country. South Africa is far from international best practice in 13 of the 15 indicators that make up the index.

Data Source: OECD. 2025. OECD Economic Surveys: South Africa 2025 This alone should be cause for alarm. But its implications run much deeper than the budget, interest rates, and the big-ticket structural reforms of Operation Vulindlela that tend to dominate the public discourse. As The Economist recently noted: ‘To understand why countries grow, look at their firms. But South Africa presents an interesting puzzle. Using firm-level data, a 2025 research paper by Justin Visagie, Ivan Turok, and Andrew Nell found that our firm churn is comparable to many developed countries. Yet, this constant entry and exit is not translating into economic growth as Joseph Schumpeter’s theory of creative destruction would predict. Why not? Because South Africa lacks a functioning firm pipeline – one in which small firms grow into medium-sized firms, new entrants scale into significant competitors, and workers transition from low-productivity to high-productivity employment. What Visagie, Turok, and Nell find is not creative destruction but, as they term it, “simple reshuffling”. As a result, we get a “missing middle”. Research presented at ERSA’s and the SARB’s recent Growth Conference provided some clarity on the puzzle. Instead of this functioning firm pipeline, industries in South Africa tend to be characterised by small groups of large, productive incumbents alongside a vast number of small firms entering and exiting without ever scaling or adding significant value. The pattern appears consistently across sectors. In manufacturing, the top 20 firms account for over 30%