South Africa

Political and Economic Situation

South Africa has made considerable economic and social progress since its first democratic election in 1994, but the benefits of this improvement have not reached its entire population. Income inequalities and unemployment (~26%), especially among young people (53%), remain high. The current vision to address domestic socio-economic challenges by focusing on creating jobs and improving education and skills is outlined in the 2030 National Development Plan.

The South African economy is diversified with key economic sectors contributing to GDP: financial and business services (22%), other services (5.9%), governmental services (17%), trade (15.1%), manufacturing (13.7%), transport (9.3%), mining (8.5%), personal services, real estate, tourism (6%), construction (3.8%), electricity (2.4%) and agriculture (2.4%).

As a BRICS member state, South Africa is well integrated into the global economy as well as in the regional South African Development Community (SADC). GDP growth declined from 1.5% in 2014 to 1.3% in 2015, and was expected to weaken further to 0.7% in 2016 as a result of slowdown in China’s economy – South Africa’s biggest export partner – in addition to a fall in commodity prices, low investment, and erratic capital flows. The economy was furthermore negatively impacted by drought that continues to weigh heavily on agricultural production, whose real proportion of GDP was reduced by 16.2%. Various infrastructure gaps, notably inadequate energy supply and power outages, weak domestic demand, and anemic investment rates are among other internal constraints hindering growth.

As a result of the above environment, the Rand (ZAR) depreciated by more than 40% between December 2014 and December 2016 and inflation rates have increased from 4% in 2015 to 6.8% in 2016.

Due to continued increase in government debt, the government is facing the risk of a rating downgrade that would increase the cost of borrowing and further threaten the rand.

GDP growth (%) is however projected to recover in 2017 and to further increase in 2018, driven by upward household consumption and investment as well as consolidation in public spending, with a 5-year growth forecast of 2.3%. Improvements in electricity production should furthermore boost investor confidence.