South Africa's Economy
South Africa's Economy
South Africa has made remarkable macro-economic strides since the crippling policies of apartheid were removed with the birth of democracy in 1994. There are many challenges still to overcome, and the South African government has launched several strategic initiatives in this regard. One of the most important of these is the Accelerated and Shared Growth Initiative for SA (Asgi-SA), launched in July 2005. Asgi-SA’s primary aim is to halve unemployment and poverty by 2014.
South Africa’s economic growth has averaged 4.5% since 1994, reaching 5.1% in 2006. Asgi-SA’s target is gross domestic product growth of 4.5% a year for 2005-2009 and 6% a year to 2014. It is true, however, that growth has not been ‘even’ and shared as broadly as possible. Planners also point out that faster growth is giving rise to new strains in the economy, with shortages of material and skilled labour. If Asgi-SA policies are successfully implemented, there will be greater scope for even faster growth.
Asgi-SA identifies six binding constraints:
- The overvaluation and volatility of South Africa’s currency.
- An inadequate national infrastructure.
- A shortage of skilled labour.
- Barriers to entry, limits to competition and limited new investment opportunities.
- A cumbersome regulatory environment.
- Deficiencies in state organisation, capacity and leadership.
- A massive investment in infrastructure.
- Targeting economic sectors with good growth potential.
- Developing the skills of South Africans, and harnessing the skills already there.
- Building up small businesses to bridge the gap between the formal and informal economies.
- Beefing up public administration.
- Creating a macro-economic environment more conducive to economic growth.
An economy grows by expanding its base of fixed capital – buildings and machinery used to generate wealth in the future and to create jobs. Since the late 1980s, South Africa tended to devote more of the GDP to consumption and the rate of investment in fixed capital declined. The Government’s mid-term Review of Development Indicators points out that fixed capital investment has been rising since 2002, and accelerating since 2004, laying the basis for strong GDP growth as long as funds are efficiently invested. Fixed capital investment reached 19.2% in 2006, and Asgi-SA’s target is to reach 25% by 2014.
The ratio of exports to GDP was 30.8% in 2006 from 23.3% in 1994. Asgi-SA’s goal is to increase this percentage substantially.
The real interest rate in South Africa has remained relatively high – 6.5% in 2006 – but the decline in nominal interest rates (interest rates before consumer inflation) has contributed to rising investment and consumption. As the economy strengthens, lower real interest rates will be achievable, without endangering the balance of payments or inflation. The inflation target is 3-6%.
Some useful economic facts and figures:
- Industrial production growth rate: 5% (2003 est)
- Electricity production: 195.6-billion kWh (2001)
- Electricity - production by source: fossil fuel: 93.5%; hydro: 1.1%; other: 0% (2001); nuclear: 5.5%
- Electricity - consumption: 181.2-billion kWh (2001)
- Electricity - exports: 6.91-billion kWh (2001)
- Electricity - imports: 6.2-billion kWh (2001)
- Agriculture - products: corn, wheat, sugarcane, fruits, vegetables; beef, poultry, mutton, wool, dairy products
- Major industries include mining (South Africa is the world’s largest producer of platinum, gold, chromium), automobile assembly, metalworking, machinery, textile, iron and steel, chemicals, fertiliser and foodstuffs.
- Exports: $36.77-billion f.o.b. (2003 est)
- Exports - commodities: gold, diamonds, platinum, other metals and minerals, machinery and equipment
- Export partners: UK 12.6%, US 12.4%, Japan 9.2%, Germany 8.1%, China 4.7%, Italy 4.4% (2003 est)
- Imports: $33.89-billion f.o.b. (2003 est)
- Imports - commodities: machinery, foodstuffs and equipment, chemicals, petroleum products, scientific instruments
- Germany 16.8%, UK 8.6%, US 8.3%, Japan 6%, China 6%, Saudi Arabia 5.3%, France 5% (2003 est)
- Debt - external: $25.9-billion (2003 est)
- Economic aid - $487.5-million (2000)
- Budget deficit before borrowing as percentage of GDP - minus 0.3% (2005/6); 0.6% (2007/8 est)
- Revenues - $37.48-billion
- Expenditures - $41.46-billion (2003)
- Real interest rate – 6.5% (2006)
- GDP: purchasing power parity - $456.7-billion (2003 est)
- GDP - 5% (2006)
- GDP: composition by sector - agriculture: 3.8%; industry: 31%; services: 65.2% (2003)
- Gross fixed capital formation as percentage of GDP – 19.2% (2006)
- Expenditure on R&D as a percentage of GDP - 0.87 (2004/5). Target: 1% by 2008
- Inflation rate (consumer prices): 5.9% (2003 est)
- Labour force: 16.35-million economically active (2003)
- Labour force: by occupation - agriculture 30%, industry 25%, services 45% (1999 est)
- Unemployment rate: 25.5% (March 2007)
GEDA (is this where Wayne got the copy sent to me??)
Development Indicators Mid-term Review: Presidency of SA
Stats SA Labour Force Survey
Trevor Manuel’s 2007 Budget speech