Overview of the South African Economy
South Africa is a country located in the Southern tip of Africa. The country is the 25th largest in the world by area the 24th largest by population with 51 a population of million, (Central Intelligence Agency-CIA, 2013). It is Africa’s most prosperous economy and the World Bank ranks it as an upper-middle class income economy. Lately, various global economy agencies such as the Organisation for Economic Co-operation and Development (OECD) and the World Bank consider South Africa as a newly industrialised country (CIA, 2013). The country is now part of a team of countries that form BRIC (Brazil, Russia, India, and China). These are all fast growing economies with a high quality of life although they still face numerous challenges such as massive unemployment and inequality (Roux, 2005).
The economy of South Africa is the largest in Africa with a total Gross Domestic Product (Purchasing power Parity) of $578, 640 billion making it the 28th largest economy in the world (CIA, 2013). The GDP (PPP) nominal is $11, 302 and places South Africa at the 11th position in the world. In terms of the GDP nominal, South Africa registers an economy worth $390,919 billion in total and a per capita of $7,635 placing the country at the 6th position in the world (CIA, 2013). This paper presents an analysis on the economic status of South Africa as explained in an article titled Economic and Business Outlook for South Africa In 2012 and draws from statistics an information from other sources in order to present wholesome and factual analysis of the economy of South Africa.
The article Economic and Business Outlook for South Africa In 2012 was prepared by the Business Unity South Africa (BUSA). BUSA is an organization that represents South African business on economic policies and macro environment issues that affect South Africa at the national and International levels (BUSA, 2011). In this article, the organisation sought to present an outlook of the South African economy and how prepared it was to handle deteriorating global economy and in particular the effects the European debt crisis. The assessment of the South African economy was done revolving around four cardinal areas that can present an economic overview of any country in the world. These are (1) The global economic. (2) South Africa’s domestic macroeconomic dynamics and business environment. (3) South Africa’s global competitiveness (BUSA, 2011).
Global competitiveness outlook
South Africa is part of a global community and its economy affects and is affected by what goes on in the global community. Although the global economic meltdown has had severe effects on some economies, the South African economy has managed to stay on its feet. The Business Unity South Africa (2011) attributes this to prudent fiscal and monetary policies.
The most significant global economic issues in the last five years have been on the Eurozone crisis. The effects of the crisis have slowed down trade with countries such as South Africa which does significant trade with Europe. South Africa is a strong trading partner with the United Kingdom (UK) with whom it does 4.3% of its trade and Germany at 11.2% of its international trade (Jones, 2002). The decline of economies in Europe has compelled Germany which is one of the strongest economies in Europe to focus on bailing out struggling economies such as Greece and Portugal. This has hampered trade with Germany as it focuses its efforts on bailing out countries in Eurozone. This is because the decline in the economic status of Europe poses a more severe effect on its economic growth and sustainability (BUSA, 2011). This being the case the all several regions reliant on trading with Europe have been compelled to revise their economic growth targets.
South Africa has recorded an increment in the amount and value of goods exported. This is an indicator of increased economic cooperation and sets precedence for sustainable economic growth. South Africa’s leading exports are gold, platinum, diamonds, a variety of precious metals and minerals, equipment and machinery. Its main trading partners are China 13.7%, Japan 8.7%, US 10.1%, Germany 7.3%, UK 7.1% and India 4.3%.In 2012 the total value of exports was $101 billion (CIA, 2013).
South Africa has continued to import several goods to boost its economy and sustain its growing population. Some of the country’s leading imports are chemicals, machinery and equipment, scientific instruments, petroleum products and food stuff. The country imports mainly from China 13.4%, US 7%, Germany 13.4%, Japan 4.7%, Saudi Arabia 5.3% , the UK and Iran at 4.3% each among other countries. In 2012 South Africa imported goods worth $106 billion (CIA, 2013).
The above statistics show that South Africa is a net importing country and it is bound to be affected more adversely by economic shocks in the global economy. Sub-Saharan Africa was compelled to lower its economic growth targets from 5.8% to 5.3% according to the World Bank. South Africa which accounts for three quarters of the region’s growth was set to grow at an average of 3% in 2013 (BUSA, 2011). The country managed to reduce its public debt between the years 2005 and 2008 but the effects of the global recession in 2008-2009 increased South Arica’s public debt which is indicated in the graph below as a percentage of the GDP.
Domestic Economic outlook
The diversity of the South African economy has been the driving factor to its economic prosperity. This has been aided greatly by a stable political environment that has ensured smooth transition of power (Jones, 2002). South Africa has a world-class legal framework that governs legislations on labour, commerce and maritime issues. The legal framework is also very protective of issues such as trademarks, patents and copyrights that are at the root of all strong economies in the world. According to Roux, (2005), the dispute resolution mechanism regarding intellectual property in South Africa conforms to international standards has served as a great incentive to the vibrant business community in South Africa. The country also has advanced infrastructure that supports the efficient distribution of goods in the country and the greater South African region.
South Africa’s economy is best reflected in the growth of GDP over several years. According to BUSA (2011) the country registered increments in economic growth in 62 straight quarters between 1993 and 2007. In 2007 the economy grew by 5.1% and due to the adverse effects of the 2008-2009 global economic crisis, the GDP plummeted to a 3.1% growth rate. The economy of South Africa is largely driven by domestic consumption. It is projected that the economy of South Africa will grow at average of 2.7%, 3.5% and 3.8% in 2013, 2014 and 2015 respectively (BUSA, 2011).
Figures from the National Treasury indicate that the total government spending will be in excess of R1.1 trillion in 2013 which is double the amount spent in 2002/2003. The foreign direct investment increased to US$4.5 billion from US$1.2 billion in 2010.
Some of the sectors of the South African economy are doing particularly well with the Agriculture, fishing and forestry sectors all expanding by more than 10% in the fourth quarter of 2012. The manufacturing industry grew by 5% due to strategic developments in the petroleum, rubber and plastics products, chemical products, iron and steel among others (BUSA, 2011).
The finances, real estates and business services sector also grew by 2.9% due to increased activities by local commercial banks. The wholesale, retail and the automobile industry grew by 1.5% while the accommodation, catering, transport and communications sector grew by 1.9%. However, there was a negative growth in the mining and quarrying sector which reflected a 9.3% decline (BUSA, 2011).. The decline in this sector can be attributed to low production if gold and diamond mining which have been adversely affected by trade activism as evidenced by the recent bloody Marikana Miners’ Strike. Other sectors of the economy that have registered negative economic growth are the electricity, water and gas industries which recorded a growth decline of 2.2% as a result of declining consumption due to increasing global campaigns for a environmental sustainability.
Challenges facing the South African Economy
The biggest challenge facing the South African economy according to BUSA (2011) is unemployment. The article states that it is the single most destructive issue since it is counteracts economic growth by increasing insecurity as people resort to crime and other social evils such as drug use. The International Monetary Fund (IMF) places the unemployment rate of South Africa at 24.4% for the year 2012. This represents a slight reduction from the 24.9% rate witnessed in 2011.
South Africa also faces a challenge in the number of people living below the poverty line (less than $1.25 which statistics indicating that a quarter of the population lives in squalid conditions. The inflation rates of the country are still high with the South African Reserve Bank (SARB) stating that though prices of consumer goods have been relatively steady, the inflation rate remains relatively high at 5.4%. Economic analysts and policy makers need to revaluate how they can bring down the cost of most consumer goods in order to ensure that they meet the needs of the low-class which provides crucial labour in South Africa’s key industries and the economically pivotal mining industry (Pollin, 2006). Moreover, they need to address the rising cases of unrest in the mining industry which are negatively affecting the mining industry. Overall the growth and sustainability of the South African economy is a shining star that ought to be emulated by developing economies in the rest of Africa, Asia and South America.
South Africa | Latest Data | Forecast | News. (N.D.). Trading Economics | 300.000 Indicators From 196 Countries. Retrieved May 20, 2013, from http://www.tradingeconomics.com/south-africa/gdp-growth
Business Unity South Africa (BUSA) (2011). Economic And Business Outlook For South Africa In 2012. Retrieved 20th May 2013
Pollin, R. (2006). An employment-targeted economic program for South Africa. W.p: Edward Elgar.
Central Intelligence Agency (CIA) (2013) South Africa. Retrived 20 may 2013 from: https://www.cia.gov/library/publications/the-world-factbook/geos/sf.html
Roux, A. (2005). Everyone's guide to the South African economy. Cape Town: Zebra Press.
Jones, S. (2002). The decline of the South African economy. Cheltenham [u.a.: Elgar in asssociation with UNISA, University of South Africa.