South Africa
Introduction
South Africa proudly celebrates the 20th anniversary of its first democratic elections this year. With the dawn of
democracy the country has moved out of almost two decades of stagnation and integrated into both the regional
and global economy.
Guided by sound fiscal and monetary policies, and with economic growth averaging about 3% over the past
decade (which included the impact of the global financial crisis), South Africa’s growth rate is, however, trending
below its potential. Higher growth could significantly impact the country’s socio-economic concerns of widening
inequality and poverty, as well as the burden of high unemployment. External factors, such as the lower
pedestrian global growth environment, less resource-intensive growth in China and softer international prices of
commodities, as well as internal factors, including industrial action resulting in production disruptions, and an
inflationary cost environment, have contributed to the slower growth trajectory.
In 2010, South Africa hosted the 2010 FIFA World Cup. This major international sporting event was an important
vehicle that promoted growth in key sectors such as tourism, infrastructure development and job creation. The
soccer tournament also enforced South Africa's international positioning on the world stage as a leading open
economy in Africa, a top travel tourism destination, with comparatively well-developed infrastructure, a relatively
sound policy environment and price competitiveness. Positive spill-overs of this event were reflected in nation
branding rankings of the country – undoubtedly building blocks to leverage further in terms of global trade,
investment and tourism linkages.
South Africa in the BRICS
Another significant nation branding milestone for South Africa was the invitation of the country to join the BRIC
(Brazil, Russia, India and China) grouping of emerging market nations, with South Africa’s inaugural participation
in 2011. Subsequently, the country hosted the 5 th BRICS (Brazil, Russia, India, China and South Africa) Leaders’
Summit in Durban in March 2013. In fact, although the BRICS countries have seen a more sober growth
performance in the past year the drivers of economic activity are increasingly resting in emerging and developing
economies, underpinned by first-tier emerging markets which are recognised as the emerging leaders in global
trade and investment activities. Similarly, robust economic activity is expected to continue, particularly in SubSaharan Africa (SSA) in resource-rich and lower income countries alike, as per capita incomes rise and
consumer demand starts to match extractive industries as a key driver of growth.
As the gradual shift in commercial activity from developed to emerging markets gain momentum, increasing
opportunities for investment in line with the urbanisation, integration, industrialisation and modernisation
requirements of emerging markets, and particularly African economies that are growing from a lower base, have
become evident. Africa is the second-fastest growing continent after Asia, with a population of more than 1 billion
persons, which is expected to double in less than 40 years. The continent showcases vast opportunities in
diverse sectors that investors from various geographies are eager to explore. This Africa Rising narrative is one
that South Africa and the continent’s leading capital city, the City of Tshwane, are particularly well-positioned to
facilitate and reap the benefits.
ECONOMIC OVERVIEW
Until April 2014, South Africa held the position of Africa’s largest economy, representing 40% of Africa’s
economic output, about 40% of its industrial output and 45% of mineral production. Following the rebasing of
Nigeria’s gross domestic product (GDP), South Africa is now the second largest economy, but still the most
sophisticated when evaluating indicators such as GDP composition, soundness of institutions, the regulatory,
legal and business environment, among other indicators, in Sub-Saharan Africa. It also accounts for about 60%
of Africa’s electricity generation and is regarded as an important springboard for corporates entering the Southern
African Development Community (SADC) and other parts of the African continent.
[image]
Figure 1: South Africa, Africa and the World (%), 1994–2015
Source: IMF World Economic Outlook, April 2014
Real GDP figures for South Africa can be seen in figure 2. From this it can be observed that the economy grew
steadily prior to the financial crisis, but more important is the quick recovery from the financial crisis from 2009 to
2010. A similar picture can be seen when observing Real GDP per capita (see figure 3). GDP per capita showed
a quick recovery and a low growth after the financial crisis indicating that South Africa is successfully weathering
the aftershocks of the financial crisis.
[image]
Figure 2: South Africa Real GDP 1994–2013
Source: South African Reserve Bank
[image]
Figure 3: South Africa Real GDP per capita 1994–2013
Source: South African Reserve Bank
The composition of the South African economy is an important consideration and provides valuable insight into
sector growth and possible future opportunities. From figure 4 it can be observed that the tertiary sector is the
largest sector, followed by the secondary sector and lastly the primary sector. When investigating the individual
sector composition of the primary sector (see figure 5) it is observed that very little real growth has taken place.
[image]
Figure 4: South Africa Real GVA by sector 1994–2013
Source: South African Reserve Bank
[image]
Figure 5: South Africa Real GVA primary sector 1994–2013
Source: South African Reserve Bank
Manufacturing is the biggest contributor to the secondary sector (see figure 6), followed by construction. Despite
the relatively small size of construction it has been the fastest growing and the most resilient industry in the
secondary sector, as can be observed by the higher growth rates compared to the other industries in the sector.
[image]
Figure 6: South Africa Real GVA for the secondary sector 1994–2013
Source: South African Reserve Bank
Figure 7 and 8 indicate the real GVA and growth of the individual industries that make up the tertiary sector. The
fastest growing industry from 1994 is the financial services sector, followed by the growth in the transport,
government and social services.
[image]
Figure 7: South Africa Real GVA for the tertiary sector 1994–2013
Source: South African Reserve Bank
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Figure 8: South Africa Real GVA growth for the tertiary sector 1994–2013
Source: South African Reserve Bank
The composition of the South African economy plays an important role in determining the type and nature of
investment that enters into the country. However, equally important is the quality of the softer issues that attract
investors. Since the first democratic election the political stability and the rule of law as indicated in the World
Governance Indicators (World Bank, 2013). In figure 9 it is observed that the political stability has steadily
increased from 1996 to 2012.
[image]
Figure 9: Political stability in South Africa 1996–2012
Source: World Bank, Worldwide Governance Indicators
The rule of law indicator also increased and then stabilised, indicating a stable social environment where the law
is respected. When compared to the SADC the rule of law is significantly better in South Africa than on average
in the SADC (see figure 10).
70.0
60.0
50.0
40.0
30.0
20.0
10.0
0.0
1996
1998
2000
2002
2004
2006
2008
2010
2012
Rule of Law SADC
Rule of Law South Africa
2 per. Mov. Avg. (Rule of Law SADC)
2 per. Mov. Avg. (Rule of Law South Africa)
Figure 10: Rule of law in South Africa 1996–2012
Figure 11 is an excerpt of variable rankings achieved by South Africa in the Global Competitiveness Index (GCI)
study. The GCI is an index of 144 countries over 12 pillars of competitiveness that ranks each country
comparatively where 1 is the best and 144 is the worst (World Economic Forum, 2014). From figure 11, it is
observed that the strength and rigour of the financial system is amongst the best in the world. South Africa is
ranked first in the study with respect to the regulation of the securities exchange and auditing and financial
reporting rigour and quality. South Africa is also ranked amongst the top 10 in the sample with respect to the
soundness of banks, financial market development, financing through loan equity, availability of financial
services, accountability and the efficiency of the legal framework in changing regulation. Furthermore, South
Africa is ranked amongst the top 20 when it comes to legally settling disputes. Overall, South Africa’s global
competitiveness is ranked at 56, which is better than 88 other countries included in the study, which includes
++9+69+6+Brazil (57), Hungary (60), Mexico (61), India (71), Botswana (74), Ukraine (76), Namibia (88), Kenya
(90), Argentina (104), Ghana (111), Côte d’Ivoire (115), Uganda (122), Zimbabwe (124), Mozambique (133) and
Angola (140).
Global Competitiveness Index
56
Financial market development
7
Regulation of securities exchanges,
1
Soundness of banks,
6
Financing through local equity market,
3
Availability of financial services
6
Accountability
2
Strength of auditing and reporting standards
1
Efficiency of legal framework in challenging regs
9
Efficiency of legal framework in settling disputes
15
0
10
20
30
40
50
Rank
Figure 11: Global competitiveness variables
Source: World Economic Forum, Global Competitiveness Index
The composition of the South African economy reflects its business sophistication as can be observed in figure
11. More than two thirds of the economy is service-based. Key sectors include the finance, insurance, real estate
and business services sector that constitute about 24% of the GDP, as well as community, social and personal
services (21% of GDP). This is followed by manufacturing (17%). Although still a major employment creator and
earner of foreign exchange, the mining and quarrying sector has declined from 10% in 2010 to 6% in 2012. Other
sectors, such as construction, constitute 3% of GDP, and energy and water as well as agriculture make the
lowest contribution at 2% each.
60
2,4%
5,6%
1 Agriculture
21,4%
2 Mining
16,9%
3 Manufacturing
4 Electricity
1,9%
5 Construction
6 Trade
3,4%
7 Transport
24,2%
8 Finance
14,0%
9 Community services
10,1%
Figure 12: Composition of South Africa’s economy (2005 constant prices), 2013
Source: South African Reserve Bank 2014
It is observed that South Africa is a majority tertiary and service driven economy, but does this composition
translate into subsequent international trade? When reviewing South Africa’s top ten commodity exports and
imports it can be observed that the overall top export commodities in rand value are ores, platinum, gold, metals,
vehicles and diamonds (see figure 13).
H2601: Iron ores and concentrates, including roasted iron…
H7110: Platinum, unwrought or in semi-manufactured…
H7108: Gold (including gold plated with platinum)…
H2701: Coal; briquettes, ovoids and similar solid fuels…
H8703: Motor cars and other motor vehicles principally…
H7202: Ferro-alloys:
H2710: Petroleum oils and oils obtained from bituminous…
H8704: Motor vehicles for the transport of goods:
H7102: Diamonds, whether or not worked, but not…
H8421: Centrifuges, including centrifugal dryers; filtering…
0
Figure 13: Top export commodities in Rand 2013
40,000,000,000
80,000,000,000
The top import commodities are petroleum, aluminium, coal, wheat, rice, cement and sugar (see figure 14).
H2709: Petroleum oils and oils obtained from bituminous…
H2710: Petroleum oils and oils obtained from bituminous…
H2711: Petroleum gases and other gaseous hydrocarbons:
H2701: Coal; briquettes, ovoids and similar solid fuels…
H2818: Artificial corundum, whether or not chemically…
H1001: Wheat and meslin:
H1006: Rice:
H2523: Portland cement, aluminous cement, slag cement,…
H3102: Mineral or chemical fertilizers, nitrogenous:
H1701: Cane or beet sugar and chemically pure sucrose, in…
0
5,000,000,000 10,000,000,00015,000,000,00020,000,000,000
Figure 14: Top import commodities in Rand 2013
Over the past 20 years, the South African government has implemented various policies and programmes to
address and correct economic imbalances of the past, and the resultant socio-economic ills. These have included
the Reconstruction and Development Programme (RDP), Growth Employment and Redistribution (GEAR) and
the Accelerated and Shared Growth Initiative of South Africa (ASGI-SA) policies, with a focus on spurring
economic growth and local employment opportunities.
The Growth Employment and Redistribution (GEAR) Policy focused on similar goals as identified in the RDP,
namely to create a competitive fast growing economy that creates sufficient job opportunities and that
redistributes income to combat income disparities created in the past. It also strives for an economy that has
properly functioning health, education and services sectors that are freely available to all and to create an
environment where people can live and work safely (RSA, 1996: 1). The GEAR Policy further proposed to
transform the South African economy through developing an outward orientated economy that actively assists
and develops industries.
The successor to the GEAR Policy is the ASGI-SA Policy that focused significantly on poverty reduction through
job creation, stating that ASGI-SA aims to reduce poverty by half in 2014 (RSA, 2007). The focus in the policy is
to develop a dynamic and inclusive economy that has a diversified industrial sector, reduced labour costs, value
added products, services and sustainable employment (RSA, 2007). Six binding constraints were identified:

The volatility and level of currency.

The cost, efficiency and capacity of the national logistics system.

Shortage of suitably skilled labour amplified by the cost effects on labour of apartheid spatial patterns.

Barriers to entry, limits to competition and limited new investment opportunities.

Regulatory environment and the burden on small and medium businesses.

Deficiencies in state organisation, capacity and leadership.
More recently, the New Growth Path (NGP) released in 2010 is a framework which is premised on the fact that
South Africa’s economy needs to be restructured, become more inclusive and dynamic, and expand at a faster
rate in order to address the triple burden of unemployment, inequality and poverty. As the first economic policy
with a sharpened focus on job creation, the plan put forward key employment creating sectors.
This framework was further elaborated upon by the comprehensive National Development Plan (NDP) 2030,
released by the National Planning Commission in November 2011. With the same objective, the plan outlines a
number of thematic focus areas that need to be addressed in order for this to be achieved, and puts forth a
roadmap towards 2030.
All the macroeconomic framework policies mention the development of the economy through poverty reduction
and development of a vibrant inclusive economy, either directly or indirectly. It is clear that the South African
government and in turn – through section 41 of the Constitution (RSA, 1996) – the City of Tshwane is dedicated
to developing an inclusive, diversified environment where industry, labour and market forces can function
efficiently and fairly to the benefit of its citizens and the South African economy.
The overarching macroeconomic goals have remained unchanged since the RDP. This does not mean that the
goals have not been met. On the contrary, significant progress has been made. The continued focus and altering
approaches indicates the dedication of government, and by association, the City of Tshwane, to the improvement
of the welfare of its citizens.