Country Analysis -- Economic History

South Africa is an important hub in the global mining value chain. As a nation that is vast in mineral wealth, South Africa has remained one of the leading suppliers of diamond and gold. In fact, the historical discovery of diamond and gold deposits in 1886 led to the revolutionization of the South African economy, resulting in elevated levels of European investment in Africa as well as a higher demand for local African labor. Due to the continual expansion of the mining industry and soaring wealth worldwide, as well as Africa’s own increasing demand for agricultural imports, South Africa was drawn into the international economy through its exports of diamond and gold as a result of increasing consumer demand for trade items.

Furthermore, local consumer demands rose to a new high after World War II as the government provided increased support and intervention in the African economy, boosting the country’s GDP through increased investment and government purchases. As a consequence of enhanced government investment, the local agriculture and manufacturing industry began to expand in 1950 as more local textile, paper, chemicals and corn industries flourished. However, despite the appearance of self-sustaining economic growth after the war, South Africa’s economy continued to be susceptible to its climate changes- such as its recurrent droughts, detrimental weather changes and insufficient labor. In fact, production of agricultural goods plummeted after the major drought in mid 1950s. Due to South Africa’s heavy reliance on gold exports however, as the price of gold fluctuated during the 1980s, the country’s exchange rate and ability to import goods suffered immensely.

The economy was in recession from March 1989 through most of 1993, largely in response to worldwide economic conditions. It registered only negligible, or negative, growth in most quarters. High inflation had become chronic, driving up costs in all sectors. Living standards of the majority of South Africans either fell or remained dangerously low. Economic growth continued to depend on decent world prices for gold and on the availability of foreign loans. Even as some sectors of the economy began to recover in late 1993, intense violence and political uncertainty in the face of reform slowed overall growth through 1994.