The economy of South Africa is the second-largest in Africa, behind Nigeria. South Africa accounts for 24 percent of Africa's gross domestic product (PPP), and it is ranked as an upper-middle-income economy by the World Bank – one of only four such countries in Africa (alongside Botswana, Gabon and Mauritius). Since 1996, at the end of over twelve years of international sanctions, South Africa's Gross Domestic Product has almost tripled to $400 billion, and foreign exchange reserves have increased from $3 billion to nearly $50 billion; creating a diversified economy with a growing and sizable middle class, within two decades of establishing democracy and ending apartheid. High levels of unemployment, income inequality, growing public debt, political mismanagement, low levels of education, reliable access to electricity, and crime are all serious problems that have negatively impacted the South African economy.
The country is politically stable and has a well capitalised banking system, abundant natural resources, well developed regulatory systems as well as research and development capabilities, and an established manufacturing base.
The country remains rich with promise. It was admitted to the BRIC group of countries of Brazil, Russia, India and China (now known as BRICS) in 2011.
The economy has a marked duality, with a sophisticated financial and industrial economy having grown alongside an underdeveloped informal economy. It is this second economy which presents both potential and a developmental challenge.
In its 2015-2016 Global Competitiveness Report, the World Economic Forum ranked South Africa 49th in its Global Competitiveness Index out of 140 economies, up from 56th in the previous reporting period. It ranked the country first for strength of auditing and reporting standards as well as financing through local equity market. South Africa was also ranked 12th for financial market development; it ranked 29th for market size, 33rd for business sophistication and 38th for innovation, out of 140.
In its 2014-15 Global Competitiveness Report, the World Economic Forum ranked South Africa second in the world for the accountability of its private institutions, and third for its financial market development, indicating high confidence in South Africa’s financial markets at a time when trust is returning only slowly in many other parts of the world. The country's securities exchange, the JSE, is ranked among the top 20 in the world in terms of size.
Diversity and growth
The World Bank reports that while the economy continues to grow driven largely by domestic consumption growth is at a slower rate than previously forecast. Real GDP growth is estimated at 2.0% for 2015 and the same for 2016 "due to a combination of domestic constrains and external headwinds arising from the fall in commodity prices and slowdown of the Chinese economy".
But the bank predicts a slight recovery in 2017 with real GDP growth estimated at 2.4% as new electricity supply comes on line.
According to figures from the National Treasury, total government aggregate spending will reach R1.56- trillion in 2017/18. This represents more than a doubling in expenditure since 2002/3 in real terms.
The country's outlook is affected both by national concerns, such as unrest in and pressure on the mining industry, as well as international sluggishness, with Europe as one of South Africa’s chief export destinations.
However, trade and industrial policies encourage local firms to explore new areas of growth based on improved competitiveness. China, India and Brazil offer significant opportunities. Infrastructure, mining, finance and retail developments across Africa are helping to fuel a growth trajectory in which South Africa can participate.
Three of the 10 main industry groups shrunk in size: agriculture, mining, and electricity, gas and water supply. Manufacturing has posted an uptick in growth. Agriculture, mining and manufacturing, traditionally labour intensive sectors that employ unskilled workers now account for 19% of total employment, down from about 30% in 2000; the services sector now accounts for 72% of total employment.
As the National Treasury is at pains to point out, development is not just the pursuit of growth, it is also about creating a more equitable future. The South African government is determined to address its key challenges through the economic integration of its previously disadvantaged majority.
Unemployment, at a rate of 25% (compared to an average of 11% for upper middle income countries, according to the World Bank), remains the most challenging of South Africa’s hurdles: it is at the top of government priorities and at the heart of its economic policies.
The New Growth Path, launched in November 2010, builds on plans to restructure the economy to ensure more inclusive and sustainable growth and sets a target of creating five million new jobs by 2020. The road map to do this is provided by the Industrial Policy Action Plan, which proposes multisectoral interventions across agriculture, mining, manufacturing, tourism and other high-level services to create substantial employment.
New Growth Path
South Africa’s dream is to double GDP by 2030 and eliminate poverty, and to reduce inequality, as measured by the income Gini coefficient, from 0.70 to 0.60 by 2030 through expanding economic opportunity for all by:
Strengthening links to faster-growing economies;
Enacting reforms to lower the cost of doing business;
Reducing constraints to growth in various sectors;
Moving to more efficient and climate-friendly production systems; and
Encouraging entrepreneurship and innovation.
Global foreign direct investment
Global foreign direct investment slowed by 16% to $1.23-trillion in 2014, according to the 2015 World Investment Report by the United Nations Conference on Trade and Development, released in June 2015. In line with this, the report said foreign direct investment flows into South Africa dropped by 31.2% to $5.8-billion in 2014, down from $8.3-billion in 2013.
This was off earnings of about R42-billion in foreign direct investment in 2011, which was more than four times the amount in 2010.
Principal international trading partners of South Africa (besides other African countries) include: China, the United States, Germany, Japan, and the United Kingdom.
Chief exports are metals and minerals. Machinery and transportation equipment make up more than one-third of the value of the country's imports. Other imports include automobiles, chemicals, manufactured goods, and petroleum.