South Africa: economy overview
South Africa is the economic powerhouse of Africa, with a gross domestic product (GDP) four times that of its southern African neighbours and comprising around 25% of the entire continent's GDP.
The country leads the continent in industrial output (40% of total output) and mineral production (45%) and generates most of Africa's electricity (over 50%).
Its major strengths include its physical and economic infrastructure, natural mineral and metal resources, a growing manufacturing sector, and strong growth potential in the tourism, higher value-added manufacturing and service industries.
South African banking regulations rank with the best in the world. The sector has long been rated among the top 10 globally. There are 55 locally controlled banks, 12 foreign-controlled banks and five mutual banks. Some of the world's leading institutions have announced their intention to enter the local banking sector through mergers and acquisitions.
The JSE Limited is the 18th largest exchange in the world by market capitalisation (some R3.3-trillion as of September 2005). The JSE's rules and their enforcement are based on global best practice, while the JSE's automated trading, settlement, transfer and registration systems are the equal of any in the world.
Four main metropolitan areas dominate economic activity within the country: Johannesburg and its surrounds (Gauteng province), the coastal Durban/Pinetown areas (KwaZulu-Natal), the Cape Peninsula (which includes Cape Town), and the Eastern Cape's Port Elizabeth/Uitenhage area.
The financial and industrial sectors are concentrated in Gauteng province, which on its own accounts for over 30% of the country's GDP.
Economic growth
South Africa's economy has been in an upward phase of the business cycle since September 1999 - the longest period of economic expansion in the country's recorded history.
During this upswing - from September 1999 through to June 2005 - the annual economic growth rate averaged 3.5%. In the decade prior to 1994, economic growth averaged less than 1% a year.
According to the South African Reserve Bank, there is no sign of this period of expansion coming to an end. Gross domestic product (GDP) growth was running at an annualised 4.8% in the second quarter of 2005 (compared to 3.7% in 2004 and 2.8% in 2003).
Consumer inflation has been on a downward trend since 2002, when consumer prices increased to an average 9.3% following the September 11 tragedy in New York. Consumer inflation averaged 6.8% in 2003 and 4.3% in 2004 - compared to 9.8% in 1994.
At the same time, prudent fiscal management has seen South Africa's budget deficit come down from 5.1% of GDP in 1994 to 2.3% of GDP in 2004. In the first quarter of 2005, this figure fell to 1.6%, with the SA Revenue Service collecting nearly US$3.5-billion more than expected.
The source of the revenue windfall was not higher individual or corporate taxes - both have fallen since 1994 - but the performance of the econony, consumer confidence, and a dramatic increase in the number of registered taxpayers, from 2-million in 1994 to more than 5-million in 2004.
Source: IMF country report 2005
Investment ratings
South Africa was rated the most competitive economy in the sub-Saharan region and the most attractive country in Africa to invest in by the World Economic Forum's 2004 annual Global Competitiveness Index.
A decade of comprehensive institutional reform and sound economic management have also been rewarded with solid credit ratings, implying less risk for investors and cutting the cost of capital for the country's public and private sector borrowers.
In August 2005, Standard & Poor's raised South Africa's long-term foreign currency credit rating, citing the country's improved economic stability, reduced vulnerability to external shocks, a moderate debt burden, and strong and stable political institutions.
The agency upgraded SA's long-term foreign currency sovereign rating from BBB to BBB+ - equal to that of Poland and Thailand, and a notch above Mexico - and the local currency rating from A to A+.
Rival agency Fitch had South Africa on a positive ratings watch at the time, while Moody's, the third big ratings agency, upgraded SA's credit rating in January 2005.
"The upgrade reflects South Africa's strong track record of macro-economic management and improved prospects of sustainable higher GDP growth rates," Standard & Poor's said.
Challenges
The International Monetary Fund (IMF), in its 2005 annual country assessment, commends South Africa's authorities
for the remarkable economic progress achieved since democracy in 1994.
"The economy is now growing strongly, inflation has been lowered and has become more predictable, public finances have been strengthened, and the external position has improved markedly," the IMF said. "The expansion in economic activity has created additional jobs.
"Given South Africa's position in the region, the country's strong economic performance has benefited the rest of Africa."
At the same time, the IMF's directors noted that serious economic challenges remain: persistent high unemployment, poverty, large wealth disparities and a high incidence of HIV/Aids.
But they came out in support of the SA authorities' approach to these problems, with policies aimed at raising economic growth in a stable economic environment and initiatives to reduce unemployment and improve social conditions.
The IMF said this strategy could be bolstered by labour market reforms and further trade liberalisation.
Key to overcoming the challenges identified by the IMF will be the economic integration of South Africa's previously disadvantaged majority.
South Africa's economy has a marked duality, with a sophisticated financial and industrial economy having developed alongside an underdeveloped informal economy.
While SA's financial and industrial "first economy" has an established infrastructure and economic base with great potential for further growth and development, its informal "second economy" presents both untapped potential and a developmental challenge for the country.
SAinfo reporter
