SOUTH AFRICA: ECONOMY OVERVIEW
While much of the world staggered in the wake of the global financial meltdown, South Africa has managed to stay on its feet – largely due to its prudent fiscal and monetary policies.
The country is politically stable and has a well capitalised banking system, abundant natural resources, well developed regulatory systems as well as research and development capabilities, and an established manufacturing base.
Ranked by the World Bank as an “upper middle-income country”, South Africa is the largest economy in Africa – and it remains rich with promise. It was admitted to the BRIC group of countries of Brazil, Russia, India and China (known as BRICS) in 2011.
With a world-class and progressive legal framework, South African legislation governing commerce, labour and maritime issues is particularly strong, and laws on competition policy, copyright, patents, trademarks and disputes conform to international norms and standards. The country’s modern infrastructure supports the efficient distribution of goods throughout the southern African region.
The economy has a marked duality, with a sophisticated financial and industrial economy having grown alongside an underdeveloped informal economy. It is this “second economy” which presents both potential and a developmental challenge.
In its 2012-13 Global Competitiveness report, the World Economic Forum ranked South Africa second in the world for the accountability of its private institutions, and third for its financial market development, “indicating high confidence in South Africa’s financial markets at a time when trust is returning only slowly in many other parts of the world”. The country’s securities exchange, the JSE, is ranked among the top 20 in the world in terms of size.
Diversity and growth
South Africa’s success in reforming its economic policies is probably best reflected by its GDP figures, which reflected an unprecedented 62 quarters of uninterrupted economic growth between 1993 and 2007, when GDP rose by 5.1%. With South Africa’s increased integration into the global market, there was no escaping the impact of the 2008-09 global economic crisis, and GDP contracted to 3.1%.
While the economy continues to grow – driven largely by domestic consumption – growth is at a slower rate than previously forecast. It is projected to grow at 2.7% in 2013, 3.5% in 2014 and 3.8% in 2015.
According to figures from the National Treasury, total government spending will reach R1.1- trillion in 2013. This represents a doubling in expenditure since 2002/3 in real terms.
To ensure that there is a similar improvement in service-delivery outcomes, the government is putting in measures to strengthen the efficiency of public spending and to root out corruption.
Under its inflation-targeting policy, implemented by the South African Reserve Bank (SARB), prices have been fairly steady. In January 2013, the annual consumer inflation rate was 5.4%, dipping from December 2012’s 5.7%. Stable and low inflation protects living standards, especially of working families and low-income households.
South Africa has a diverse economy, with key sectors roughly contributing to GDP* as follows:
- Agriculture: 2.2%
- Mining: 10%
- Manufacturing: 12.3%
- Electricity and water: 2.6%
- Construction: 3.9%
- Wholesale, retail and motor trade: 16.2%
- Transport, storage and communication: 9%
- Finance, real estate and business services: 21.2%
- Government services: 16.7%
- Personal services: 5.9%
* Note: Percentages based on 2012 GDP data from Statistics SA.
The country’s outlook is affected both by national concerns, such as unrest in and pressure on the mining industry, as well as international sluggishness, with Europe as one of South Africa’s chief export destinations.
However, trade and industrial policies encourage local firms to explore new areas of growth based on improved competitiveness. China, India and Brazil offer significant opportunities. Infrastructure, mining, finance and retail developments across Africa are helping to fuel a growth trajectory in which South Africa can participate.
As the National Treasury is at pains to point out, development is not just the pursuit of growth – it is also about creating a more equitable future. The South African government is determined to address its key challenges through the economic integration of its previously disadvantaged majority.
Unemployment, at a rate of 25%, remains the most challenging of South Africa’s hurdles: it is at the top of government priorities and at the heart of its economic policies.
The New Growth Plan, launched in November 2010, builds on plans to restructure the economy to ensure more inclusive and sustainable growth – and sets a target of creating five million new jobs by 2020. The road map to do this is provided by the Industrial Policy Action Plan, which proposes multisectoral interventions across agriculture, mining, manufacturing, tourism and other high-level services to create substantial employment.
- Download the New Growth Plan [PDF]
South Africa’s dream of growing an inclusive economy by drawing on the energies of its people is given voice through the National Development Plan 2030, launched in August 2012.
The proposed interventions aim to eliminate poverty and reduce inequality by 2030 by expanding economic opportunity for all by:
- Investing in and improving infrastructure, as well as supporting industries such as mining and agriculture;
- Diversifying exports;
- Strengthening links to faster-growing economies;
- Enacting reforms to lower the cost of doing business;
- Reducing constraints to growth in various sectors;
- Moving to more efficient and climate-friendly production systems; and
- Encouraging entrepreneurship and innovation.
- Download the National Development Plan 2030 [PDF]
- Read more: ‘Jobs at heart of SA’s development plan’ and ‘South Africa’s plan for a better future’
One of the most important elements of the New Growth Plan is a green economy, and the potential the creation of a lower-carbon economy has as a potential job generator as well as a spur for industrial development.
President Jacob Zuma has committed South Africa to slowing its growth in greenhouse gas emissions by 34% in 2020, and by 42% by 2025. By May 2012, the government had approved 19 wind, solar and hydropower proposals worth R73-million to help boost clean energy.
In 2011, the government entered into the Green Economic Accord, which aims to create 300 000 jobs in the next 10 years through investment in the green economy. In 2012, the Treasury allocated R800-million over two years to the Green Fund, which aims to provide finance for high-quality, high-impact, job-creating green economy projects around the country.
Over the past decade, substantial increases in government social service spending have helped reduce poverty, but now the government has begun to place a greater emphasis on infrastructure, employment and economic growth.
In a massive public-sector investment, South Africa has spent R642-billion on infrastructure development in the past thee years – and plans to spend more than R827-billion over the next three years to improve access to export markets and reduce costs in the economy.
Money will be spent on improving the energy sector to double electricity generation, on transport and logistics, hospitals and clinics, and on education infrastructure as an investment in human capital.
The overall investment environment remains encouraging. A G20 country, South Africa is considered a low-risk investment destination for investors looking for a foothold into Africa. As the continent’s largest African investor, South Africa sends more than 25% of its manufactured products into the continent.
Through investment incentives and industrial financing interventions, the government actively seeks to encourage commercial activity and attract foreign capital. South Africa earned around R42-billion in foreign direct investment in 2011, which was more than four times the amount in 2010.
Principal international trading partners of South Africa (besides other African countries) include: China, the United States, Germany, Japan, and the United Kingdom.
Chief exports are metals and minerals. Machinery and transportation equipment make up more than one-third of the value of the country’s imports. Other imports include automobiles, chemicals, manufactured goods, and petroleum.
- South Africa is the highest-ranked African country and third-placed among the BRICS economies in the World Economic Forum’s (WEF’s) 2012 Global Competitiveness Index, ranking 52nd out of 144 countries surveyed while placing third overall for financial market development.
- South Africa is ranked 35th out of 183 countries for ease of doing business according to Doing Business 2012, a joint publication of the World Bank and the International Finance Corporation.
- In January 2013, Fitch, the ratings agency, cut South Africa’s sovereign credit rating by one notch to BBB. It said it had revised its outlook because of subdued growth prospects, which it believed would affect public spending and exacerbate social and political tensions.
Fitch has the country on a stable outlook, and acknowledges South Africa’s sound banking system and its “deep local bond market”. The country also outscores the BBB range median on all six of the World Bank’s governance indicators.
Unrest in the mining sector also led to downgrades late in 2012 from Moody’s (Baa1) and Standard & Poor’s (BBB).
In response to the rating agencies, the National Treasury has emphasised the resilient nature of its fiscal policy, and its disciplined spending, which is focused on infrastructure to support and enhance the country’s productivity. It said it was working with all parties to address the issues around the strikes.
Reviewed: 28 February 2013
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