Investment Decline and South Africa’s Growth Slowdown: Evidence from Bayesian Model Averaging

This study examines South Africa’s long-run growth slowdown, with particular attention to investment dynamics, using quarterly data spanning 1960Q1–2025Q3. The analysis combines Bayesian Structural Time Series (BSTS) modelling to estimate the evolution of latent trend growth with Bayesian Model Averaging (BMA) to assess the robustness of selected macroeconomic growth correlates. The BSTS results reveal a substantial long-run decline in trend growth, with particularly strong posterior evidence of deterioration following the global financial crisis. In the baseline BMA specification, investment growth emerges as the most robust contemporaneous correlate of GDP growth, with a posterior inclusion probability of 1.000, a result that remains stable across alternative prior specifications and treatment of the interest rate. However, when lagged GDP growth is introduced alongside lagged investment growth, GDP persistence dominates, while the posterior support for lagged investment declines substantially. The findings therefore qualify interpretations of investment as an independent predictor or causal driver of growth. Rather, weak investment dynamics constitute an important feature of South Africa’s prolonged low-growth environment alongside substantial persistence in economic activity. The results suggest that sustainable growth requires not merely higher investment, but improvements in the structural conditions that determine its productivity, including infrastructure reliability, logistics efficiency, institutional capacity, and policy certainty.