The South African Economy
From a largely agricultural and resource base the South African economy has become the industrial powerhouse of Africa accounting for 24% of the continent’s gross domestic product. South Africa accounts for most of the economic and industrial infrastructure on the continent with a first-world road, rail and port network. Over 45% of the continent’s electricity is generated in South Africa notwithstanding the fact that generating capacity has not kept pace with demand. A massive infrastructural development program is in process at present but is not expected to solve the problem for a number of years.
The growth rate of the South African economy is lagging many of the developing countries in Sub-Saharan countries that have stable governments in place. To the north, Nigeria and Egypt are the 2nd and 3rd largest economies in Africa respectively, both of which are politically unstable. All of the Sub-Saharan countries are substantially smaller than South Africa and are growing off a much lower base. South Africa is the largest member of the Southern African Development Community (SADC) and plays a leading economic role among the 15 member nations.
The World Bank rates the South African economy as an upper-middle income economy, one of only four African countries in Africa, the others being, Mauritius, Botswana and Gabon. However, the official unemployment rate is still a very high 25% and a quarter of the population live on $1.25 per day. Nevertheless, since the end of apartheid in 1994, the black middle class has grown substantially and the gross domestic product has increased from US$136 billion to US$408 billion. Per capita GDP has not increased proportionately, thus increasing the wealth gap between rich and poor to unacceptable levels. This has led to an increase in labour unrest which is hampering new investment and increasing the unemployment rate.
The largest industries, as measured by their nominal value added in the second quarter of 2012, were as follows:
• Finance, real estate and business services – 21,0 per cent;
• General government services – 16,7 per cent;
• Wholesale, retail and motor trade; catering and accommodation – 15,8 per cent; and
• Manufacturing – 11,7 per cent.
(Source – StatsSA)
The financial sector of the economy is exceptionally well managed, both at the government level and in the private banking sector. The SA banking sector is ranked in the top ten internationally by the WEF Competitiveness Report in terms of capital ratios and general soundness and the largest banks in Africa are South African. Fiscal management is also ranked highly with the national debt standing at 40% and the budget deficit at 4.5% of GDP respectively in 2013.
Although the international ramifications of the 2008 debt crisis did impact on the SA economy, the banks were largely unaffected and the government did not find it necessary to bail out any financial institutions.
The top three provinces in SA in terms of economic value are Gauteng 33.7%, KwaZulu-Natal 15.8% and the Western Cape 14.1% of GDP with the rest of the country contributing 36.4%. Gauteng, the smallest province in terms of land mass, is the industrial heartland of the country (in fact, of the entire continent). KwaZulu-Natal and the Western Cape are industrialized but agriculture and tourism play a major role as well.
South Africa has one of the fastest growing tourism sectors in the world and Cape Town is ranked as the No. 1 travel destination in the world by TripAdvisor.
Although mining has played a major role in shaping South Africa’s political and economic history, the sector only contributes about 20% of the country’s GDP at present – still a major component but on the decline as industrial development gathers pace. South Africa still has the largest gold reserves in the world but lags behind China and Australia in terms of annual production. The country is a major exporter of iron ore and coal. In fact, Richards Bay Coal Terminal is the largest coal export facility in the world.
South Africa has one of the most sophisticated real estate markets in the world with excellent property registration procedures and records. The South African Registrar of Deeds, also known as the Deeds Office, is part of the Department of Land Affairs and detailed records of property demarcation and title deeds are readily available going back to the beginning of the last century.
South Africa has one of the best Deeds Registry systems in the world providing the maximum protection of property due to the strict processes that are followed in registering a property within the Republic of South Africa.
The South African economy has grown substantially since the fall of the apartheid government in 1994 but the growth rate has declined markedly in recent years and is only expected to grow at between 2% and 3.5% in the foreseeable future. In order to make a dent in the unemployment rate, the economy needs to grow at about 6% plus. The government has introduced a number of incentive schemes to encourage investment but needs to address the current high rate of labour unrest and strikes by relaxing the inflexible labour laws.
This doesn’t wholly detract from the fact that South Africa is a vibrant economy where opportunity abounds. Sound fiscal and banking sectors, a world class infrastructure, a sophisticated private sector and the talent of its people will overcome the inherent problems in time.
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