Country Analysis -- Overview of South Africa’s Current Condition

Throughout the process of keeping in track with news regarding South Africa’s economy, we are able to outline a brief picture of the country’s current economic condition. Currently, South Africa is suffering from declining economic growth, with almost 25% of its population unemployed, defining the country itself as one of the largest social challenges. South Africa’s GDP has reached an all time high in 2013, yet it began plummeting in 2014 due to changes in consumption, investment, government purchases and net exports (which will be detailed in further in the report). Another predominant reason for the sluggish growth in the economy and its stagnant living standards is due to the country’s significant labor unrest in 2014, which has significantly affected output in the automotive, mining and agriculture industry- impacting its main productions and decreasing its net exports. Moreover, the slow pace of international economic growth also acts as a component in limiting South Africa’s development through decreasing investment and loans available for households, leading to decreased consumption and government purchases. 

Even though there have been slight improvements in employment, unemployment and labor relations continue to pose challenges for the country. As a result, South Africa’s National Development Plan of 2015 stipulates crucial measures for the acceleration of structural and education reforms, in the hope to overcome the obstacles inhibiting their development, enabling South Africa to boost its economic growth and living standards in the future.

South Africa is the second largest economy in Africa, which accounts for 24% of Africa’s GDP (Gross Domestic Product) in terms of the purchasing power parity. It is rich in natural resources so it is not inconceivable that South Africa is a leading producer of gold, platinum, chromium and iron. The World Bank also ranked South Africa as an upper-middle income economy.

In 2013, the GDP in South Africa was worth 350.63 billion US dollars. The GDP value of South Africa takes up 0.57 percent of the world economy’s GDP. The average GDP in South Africa from 1960 till 2013 is 116.62 USD, and it reached an all-time high of 403.89 USD Billion in 2011 and a record low of 7.36 USD Billion in 1960.

For its GDP growth rate, South Africa averaged at 3.09 percent from 1993 till 2014, with an all-time high of 7.60 percent in the fourth quarter of 1994, and a record low of -6.10 percent in the first quarter of 2009. From 2002 to 2008, the GDP growth rate of South Africa was at an average of 4.5 percent year-on-year. This expansion is the fastest one since its establishment of democracy in 1994, and the economy of South Africa was improving. Unfortunately, successive government in recent years have failed to address and alleviate the structural problems of widening gap between rich and poor, high unemployment rate, low-skilled labour force, deteriorating infrastructure, high crime and corruption rate. These problems are the vice of the sluggish growth in South Africa, resulting in a rate that is lower than the African average.

The above graph showed the inflation rate in South Africa according to its annual change on consumer price index. In South Africa, the most important categories in the consumer price index are Housing and Utilities (24.5 percent of total weight), Transport (16.4 percent) and Food and Non-Alcoholic Beverages (15.4 percent). The average inflation rate in South Africa is 9.39 percent starting from 1968 till 2015, where it reaches an all-time high of 20.90 percent in January of 1986 and a record of low of 0.20 percent in January of 2004. The most recent inflation rate in February of 2015 was recorded at 3.90 percent, which is a fresh four-year low. This is mainly due to the falling transport prices while food cost decelerated.

Year-on-year, transport prices fell by 6.3 percent after dropping 2.5 percent in January. The rise in food price (6.4 percent) is also slower than that of the previous month (6.5 percent).

For the domain of labour in South Africa, we can see that the unemployment rate decreased from 25.4 percent in the third quarter of 2014 to 24.3 percent in the fourth quarter of 2014, in which the number of unemployed people decreased by 242000 to 4.909 million. However, the labour force still decreased by 39000. This is due to the increase in number of the non-economically active group which bypassed the decrease in number of discouraged work-seekers. The average unemployment rate is 25.25 percent from 2000 to 2014, in which it reached the highest of 31.20 percent in the first quarter of 2003, as well as a record of 21.50 in the fourth quarter of 2008, accounting for the lowest unemployment rate record.

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.

News -- South Africa: An economy under threat?

GDP growth is forecasted to improve over the medium term as infrastructure constraints ease, private investment recovers and exports grow. However, recent trends such as sudden power cuts caused by labour strikes in the mining sector has led to understandable concern about the country’s growth prospects, weakening South Africa's infrastructure.

The South African economy only grew 1.5% in 2014, which is comparatively small when compared to other developed nations around the world who are adopting technological change and achieving soaring GDPs. Furthermore, unemployment rates have risen to a shocking 25% and the country has lost $25bn since 2008 because of electrical shortages, placing South Africa in a debt status.

Therefore, it is essential for the minister of South Africa to implement measures that aid the country in overcoming its debt crisis and labour shortage, hence be able to boost economic growth. These measures could include motivating workers through increased wages or non-monetary incentives and reinforcing expansionary monetary policies by the central bank to increase money supply through discount rates in order to encourage firms to increase their investment.

Read more: http://www.aljazeera.com/programmes/countingthecost/2015/03/south-africa-economy-threat-150307081926174.html

News -- South Africa takes a populist turn on land reform

Freedom’s bounty

The South African government proposes to prevent foreigners from buying farmland in South Africa as well as to restrict the size and number of farms that citizens may own. The act is supposed to right historical wrong from apartheid. Moreover, land holdings by citizens will be restricted to 12,000 hectares. The proposal will most likely unsettle South Africa’s commercial farmers, as well as foreign investors. There are also that such measure will undermine the commercial farming sector, a significant export-earner and employer.


Read more: I had a farm in Africa