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South African Economy

By UN classification South Africa is a middle-income country with an abundant supply of resources, well-developed financial, legal, communications, energy, and transport sectors, a stock exchange that ranks among the top twenty in the world, and a modern infrastructure supporting an efficient distribution of goods to major urban centres throughout the entire region. South Africa is ranked 25th in the world in terms of GDP (PPP) as of 2007.

Advanced development is significantly localised around four areas: Cape Town, Port Elizabeth, Durban, and Pretoria/Johannesburg. Beyond these four economic centres, development is marginal and poverty is still prevalent despite government efforts. Consequently the vast majority of South Africans are poor. However, key marginal areas have experienced rapid growth recently. Such areas include Mossel Bay to Plettenberg Bay; Rustenburg area; Nelspruit area; Bloemfontein; Cape West Coast; and the KwaZulu-Natal North Coast.

Unemployment is extremely high and income inequality is approximately equal to Brazil. During 1995–2003, the number of formal jobs decreased and informal jobs increased; overall unemployment worsened. The average South African household income decreased considerably between 1995 and 2000. As for racial inequality, Statistics South Africa reported that in 1995 the average white household earned four times as much as the average black household. In 2000 the average white household was earning six times more than the average black household. The affirmative action policies have seen a rise in black economic wealth and an emerging black middle class.Other problems are crime, corruption, and HIV/AIDS. South Africa suffers from relatively heavy overall regulation burden compared to developed countries. State ownership and interference impose high barriers to entry in many areas. Restrictive labour regulations have contributed to the unemployment malaise.

The 1994 government inherited an economy wracked by long years of internal conflict and external sanctions. Governments refrained from resorting to economic populism. Inflation was brought down, public finances were stabilised, and some foreign capital was attracted. However, growth was still subpar. At the start of 2000, then President Thabo Mbeki vowed to promote economic growth and foreign investment by relaxing restrictive labour laws, stepping up the pace of privatisation, and cutting unneeded governmental spending. His policies face strong opposition from organised labour. From 2004 onward economic growth picked up significantly; both employment and capital formation increased.

South Africa is the largest energy producer and consumer on the continent. South Africa is a popular tourist destination, and a substantial amount of revenue comes from tourism. Among the main attractions are the diverse and picturesque culture, the game reserves and the highly regarded local wines.

The South African rand (ZAR), is the most actively traded emerging market currency in the world. It has joined an elite club of fifteen currencies, the Continuous linked settlement (CLS), where forex transactions are settled immediately, lowering the risks of transacting across time zones. The rand was the best-performing currency against the United States dollar (USD) between 2002 and 2005, according to the Bloomberg Currency Scorecard.

The volatility of the rand has affected economic activity, falling sharply during 2001 and hitting a historic low of 13.85 ZAR to the USD, raising fears of inflation, and causing the Reserve Bank to increase interest rates. The rand has since recovered, trading at 7.13 ZAR to the dollar as of January 2008. However, as exporters are put under considerable pressure from a stronger domestic currency, many call for government intervention to help soften the rand.

Refugees from poorer neighbouring countries include many immigrants from the Democratic Republic of the Congo, Mozambique, Zimbabwe, Malawi and others, representing a large portion of the informal sector. With high unemployment levels amongst poorer South Africans, xenophobia is prevalent and many people born in South Africa feel resentful of immigrants who are seen to be depriving the native population of jobs, a feeling which has been given credibility by the fact that many South African employers have employed migrants from other countries for lower pay than South African citizens, especially in the construction, tourism, agriculture and domestic service industries. Illegal immigrants are also heavily involved in informal trading. However, many immigrants to South Africa continue to live in poor conditions, and the South African immigration policy has become increasingly restrictive since 1994.

Principal international trading partners of South Africa—besides other African countries—include Germany, the United States, China, Japan, the United Kingdom and Spain.Chief exports include corn, diamonds, fruits, gold, metals and minerals, sugar, and wool. Machinery and transportation equipment make up more than one-third of the value of the country’s imports. Other imports include chemicals, manufactured goods, and petroleum.

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