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Economy of South Africa

The largest economy in Africa which
accounts for 24% of its Gross Domestic Product in terms of PPP is ranked as an upper-middle income economy by the World Bank

Ranked sixth out of the worlds seventeen mega diverse countries. Blessed with abundant natural resources and has well developed financial, legal, communications, energy and transport sectors and a stock exchange ranked among the top 20 in the world. South Africa is popular for its tourism.

Mixed economy with high rate of poverty Unemployment is high and South Africa is ranked in the top 10 countries in the world for income inequality, measured by the Gini coefficient. Income and human development
Wide income disparity widest gaps between per capita GNP versus its Human Development Index ranking 47% of South Africans live below the poverty line

Human Poverty Index

Indicator Percentage International ranking (2010) 143 80 56 68

Probability of not surviving to age 40 Adult illiteracy rate (15 years and older) People not using an improved water source Children underweight for age (aged 5 years and younger)

36 12 7 12

Major Issues with the Economy

Unemployment Income Inequality Public Sector Strikes Brain Drain Illegal Immigration Electricity Crisis Increasing Crimes Xenophobia

YEAR 1700 OCCURENCE The Dutch farmers(trekboers) began spreading to the interior regions of South Africa .

1795 1820

the British gained control of the Cape from the Dutch. British Government sent unemployed people from Britain to South Africa. almost all of the South Africa was under white domination. In 1853, the Cape Colony was granted a representative legislature by Britain.



the British settlers brought people from India to work in sugarcane fields in Natal.




the British attempted to annex the Free States, which led to the Anglo-Boer wars. The British emerged victors and whole of SA came under their control. The South African Party (SAP), which came into power, enacted laws that restricted the role of non-whites in the economy. SA declared itself a republic.




saw the South African government committed to Apartheid.


government decided to democratize the country and SAs first democratic election was held in April 1994. ANC won a majority and came into power.

Legacy of Apartheid
A system of racial segregation enforced by the Afrikaner-dominated National Party governments of South Africa between 1948 and 1994. Developed after World War II Curtailed the rights of the majority nonwhite inhabitants of South Africa to maintain white supremacy and Afrikaner minority rule

In 1950 several laws were passed: The population registration act The Group areas act The Bantu building workers act Prevention of illegal squatting act Pass laws Reservation of separate amenities act

The Consequences of Apartheid

Promotion of Bantu Self Government Act inspired divide and rule policy Division of Blacks into different groups White earned 5-15 times the income of the Blacks which exacerbated economic disparity 13 % of the land was allocated to the Blacks which constituted 80% of the population. Due to the importance of S. Africa as a mineral producing nation and its strategic location, there was very little opposition from the rest of the world which gave rise to the legacy.

In 1960, low Inflation and good annual growth led to competition with the Japanese Economy. Despite significant trade links till 1960s, the economy isolated from the international forums due to opposition. Laws barring Blacks from entering into White South Africa led to labor shortages Manufacturing and agriculture stagnated Recession due to oil embargo and oil crisis of mid 1970s
inflation crossed 10% Gold prices increased several countries stop trading with South Africa

In late 1970s and 1980s the economy experienced tremendous economic pressure
Export-import bank of US prohibited loans (1978). IMF prohibited loans(1983). International banks led by Chase Manhattan withdrew short term credits (1985). US passed Anti-apartheid act(1986). EEC imposed a ban on trade & investment.

Severe debt crisis was coupled with a period of intense drought affecting the agriculture. Average annual growth rate was 1.5% in the decade. Per capital income fell by 10%. Apartheid policy had done a great harm to the economy but finally gave way to democratization in 1990.

Post - Apartheid Era

With Sir Nelson Mandela becoming the first democratic president, ANC came to power in 1994 with a majority victory. Deprived sections became hopeful of development. Efforts were taken to bridge the income gap between races. ANC accessed that:
4.3 million families lack adequate housing 12 million people lacked access to clean drinking water 4.6 million adults were illiterate.

Comparison during Apartheid(1978)

Blacks Population Land allocation 19 million 13% White 4.5 million 87% 75% 1/400 $696 1/22

Share of National income <20% Doctors/Population Annual exp.(students) Teacher/pupil ratio 1/44,000 $45 1/60

Currently literacy is more than 90 percent for whites and about 60 percent for blacks. Employment has also increased to 70%.

Economic Policy Initiatives

Reconstruction and Development Programme (RDP)

1996 - 2000
Growth, Employment and Redistribution (GEAR) strategy

Reconstruction and Development Programme

Socio-economic policy framework implemented by the ANC Government of Nelson Mandela in 1994. Aim
To gather people and resources. To eliminate the inequalities. To build a democratic, non racial, non sexist republic.

Four Key Programs
Meet the Basic needs of every S. African Develop S. Africas HR Develop a prosperous, balanced regional economy Democratize the state and society

Special Cabinet Committee ( SCC) and Core Committee were set up. RDP fund was created to finance various programs. International and Domestic grants were also a major source of funds. The funds were to be used for improving the living standards.

Implementation was satisfactory due to inefficient government control Economic growth was 2.3% Inflation rate declined from 20% to 10% The performance was not up to the mark which culminated in the form of GEAR strategy.

Socio Economic Objective

The creation of 2.5 million jobs over a ten year period. The building of one million houses by the year 2000. The connection to the national electricity grid of 2.5 million homes by 2000. The provision of running water and sewerage to one million households. The distribution of 30 percent of agricultural land to emerging black farmers. The development of a new focus on primary health care.



4 million people given access to clean running water 900,000 units completed,1.1 million housing subsidies are allocated 1.5 million new connections 4.2 million new connections 600 new clinincs,free health care for pregnant women and children under 6


Electrification Telephones Health

Public works Land

1,500 kms of roads built 68,000 families resettled on farming land

Growth, Employment and Redistribution strategy

Introduced by finance minister Trevor Manuel in June 1996 Aim was to
6% annual growth rate Increase exports by 8% per annum Create 4 lakhs new jobs every year Control the budget deficit Check depreciation of the currency Rein the inflation Privatize several sectors of the economy

Core Elements
A expansion of trade and investment flows in southern Africa, and A commitment to the implementation of stable and coordinated policies. An appropriately structured flexibility within the collective bargaining system. A renewed focus on budget reform to strengthen the redistributive thrust of expenditure. A faster fiscal deficit reduction program to contain debt service obligation, counter inflation and free resources for investment.

Focus was shifted to fiscal discipline and liberalization 1996 - 1999

Real GDP grew by an average of 2.1% annually

In 1999 the economy recovered and grew by 2.4%

96 97 98 99 00 Gear Actual Predicte Avg d Avg 4.2 2.5 0.7 1.9 3.1 4.2 2.5 7.4 8.6 6.9 5.2 5.3 8.2 4.6 3.8 2.3 2.4 3.7 6.7

Real GDP growth Inflation Budget Deficit(% GDP)

Budget deficit and inflation declined Foreign exchange reserves increased but the increase was not substantial.

Year Broad definition Narrow definition

1993 31.2 13

1994 31.5 20

1996 35.6 21

1998 38.6 26.1

2000 36.9 25.8

GEAR failed to deliver

the promised economic and job growth significant redistribution of income socio-economic opportunities in favor of the poor.

Between 1996 and 1999 more than 400,000 formal sector jobs were lost.

GEAR brought macro economic stability at te cost of growth It increased economic disparity Privatization of public utilities was criticized

Subsequent Policy Initiatives

To eliminate inequalities along racial lines, government passed Broad Based Black Economic Empowerment Act in 2003 Objectives : To increase the number of
Blacks having ownership of enterprises Black empowered and black engendered enterprises Blacks in executive and senior management positions

The Act is broken up into 9 Subsections

Code 000: Framework for Measuring BroadBased Black Economic Empowerment Code 100: Ownership Element Code 200: Management Control Element Code 300: Employment Element Code 400: Skills Development Element Code 500: Preferential Procurement Code 600: Enterprise Development Element Code 700: Socio-Economic Development Element Code 800: Qualifying Small Enterprises

Black Business Supplier Development Programme (BBSDP): It was an 80:20 cost-sharing cash grant incentive scheme. Accelerated and Shared Growth Initiative South Africa (ASGISA) Despite the initiatives, unemployment levels among the Blacks remained high. However, the government finally realized that growth should be given importance.

Recent Economic Conditions

Real GDP growth was projected to reach 4.1 percent in 2012 and 4.4 percent in 2013. Inflation was forecast to remain within the target range of three to six percent, edging towards the upper end of the range in 2013. Fiscal policy is now taking a less expansionary turn, with the consolidated government deficit slowing to an estimated 5.4% in fiscal year 2010/11 and projected to decline further to 5.0% in fiscal year2011/12. The repo rate is expected to remain close to 5.5% throughout 2011 and to start rising moderately only towards the end of the year. China is the dominant investment partner among emerging partners with its foreign direct investment (FDI) Unemployment remained very high in 2010 even though it declined marginally in the fourth quarter of 2010 to 24% from 25.3% in the previous quarter.

2009 Real GDP growth CPI inflation -1.7

2010 2.8

2011 3.6

2012 4.3





Budget balance % GDP Current account % GDP









Government Expenditure
0% 4% 15% 9% Defence Public Order & Safety Econmic Affairs 15% 13% Housing & Community Amenities Health Education 12% Social Protection

13% 19%

Current Fiscal Policy

Fiscal Policy Fiscal policy has remained supportive relative to the precrisis structural position. With public debt at manageable levels and little sign of domestic demand pressure, the authorities fiscal plans call for fairly gradual fiscal consolidation Within the overall spending envelope, staff also saw a need to rebalance the composition of public spending to help support higher potential growth and enhance public service delivery . The 2011 Budget proposed that fiscal policy be guided by three principles: long-term public debt sustainability, countercyclicality, and intergenerational equity. the plan would leave the structural deficit at some 3 percent of GDP in 2013/14five years after the trough of the recession

Current Monetary Policy

The South African Reserve Bank conducts monetary policy within an inflation targeting framework. The banks main market operation rate is Repurchase rate (Repo rate) 1. with inflation accelerating, an unchanged policy rate implies declining real interest rates. 2. inflation in South Africa tends to be persistent. 3. core inflation remains subdued at around 3 percent (in seasonally adjusted annualized terms) for the most recent threemonth period. 4. although overall growth prospects have improved, key economic indicators employment, investment, and exportsare still well below precrisis levels. 5. the strength of the rand should continue to moderate inflationary pressure. 6. barring slippages, fiscal policy both in the near and medium term should be tighter than currently envisaged. clear evidence of a more pronounced increase in core inflation or inflation expectations before raising the policy rate.

How Fiscal and Monetary policy helped S. Africa?


What , in your opinion were the factors that led to eventual demise of the apartheid system?


Internal pressure External pressure

To what extent are south africas problems a legacy of apartheid? Could they have also been caused by external factors,over which government had little control?