Economy of South Africa
South Africa has the largest economy on the continent, by quite some way, with Nigeria in a distant second place based on GDP. The country’s economy can be divided loosely into two sectors, namely a formal developed sector, based largely on agriculture, manufacturing and commodities mining, and a more informal sector, based mainly on informal trade and services. This has resulted in an uneven distribution of wealth and income. South Africa has membership of the two main continental bodies, namely the Southern African Development Community (SADC) and the African Union (AU).
On emerging from the apartheid system, South Africa’s economy was in disarray, and went into recession. However, a period of relative stability ensued, which resulted in several years of growth. This was halted by the global recession of the last two years. Because South Africa trades heavily with overseas partners, the economy did not entirely escape the effects of the international recession, and GDP contracted by 1.8% in 2009. The economic downturn experienced by the rest of the world led to a decrease in South African exports, which was accompanied by slower domestic demand. A growth rate of 2.4% is expected for 2010, fueled by increased international demand and the 2010 FIFA World Cup. Growth is expected to recover to 3.3% in 2011. Of course, lower exports in 2009 meant that commodities such as gold and platinum were traded in relatively lower volumes. A sudden change in climate also had a negative impact on farming. However, the construction sector showed good progress, based on infrastructure spending ahead of the 2010 FIFA World Cup.
The South African economy is based heavily on mining, and the country is one of the world’s biggest producers of gold, coal, and diamonds. There are also extensive resources of chromium, manganese, and platinum. The agricultural sector is old and well established, and could potentially secure self-sufficiency for the country in the foreseeable future. The main areas of farming include livestock, sugar cane, maize and wine. Fruit is also a significant export product.
Inflation is not a popular word in South Africa. The apartheid system (which made very little sense economically) led to a situation of double-digit inflation, which persisted for decades. It was only from 2004 to the onset of the global financial downturn that the inflation rate was under 5%. At the same time the economy enjoyed good growth. The South African government tries to maintain inflation within a target range of 3-6%, but has not been altogether successful in doing so. South African economic policy needs to strike a balance between growth and sustainability, while maintaing inflation in the targeted range.
Unemployment is said to be on the decrease, but is difficult to calculate accurately, due to the informal nature of some parts of the South African economy. It is therefore likely to be higher than official estimates, and has been pegged at anything from 20 to 40%. Then there is also the spectre of HIV, together with inadequate telecommunications and transport infrastructure. Many people in South Africa live in poverty, a legacy of the fundamentally flawed apartheid system.
Such are the problems that face South Africa today. However, a strong and wise macro-economic approach has led to a situation in which South Africa is the economic forerunner of the continent and serves as an example to other African states on how to counter the effects of the volatile global trading environment. While many people recognise that there are problems in South Africa, there is a firm belief that in time these problems can be solved. Although there are certainly structural challenges, mainly an inadequate transport and energy infrastructure, leading to increased production costs and limited growth potential, there is the hope that these issues can be alleviated in the near future. Public service delivery has also served to hamper growth and investment in the past, particularly in a time of economic recession. This has led to civil unrest in some parts of the country, mainly in the form of peaceful protests. It remains to be seen how government responds to this situation. The current President of South Africa, President Jacob Zuma, who was voted into office in April 2009, has the task of achieving a balance between maintaining policies that are amenable to business and investment and addressing poverty and unemployment at the same time.
Concerning the collection of revenue by the government, the number of registered taxpayers has increased in recent times. Even so, the recession of 2009 saw a decrease in official revenues, while the informal sector of the economy is very difficult to regulate for taxation purposes. Perhaps it is only through voter satisfaction with service delivery that the tax base will be fully utilised.
In conclusion, it needs to be said that the South Africa ecnomomy remains the economic powerhouse on the continent. With well established mining and agricultural sectors, as well as a significant manufacturing sector, South Africa is an obvious choice for investors and entrepreneurs considering moving into Africa.