South Africa Transformation Profile
Linking to the rest of Africa
South Africa is the economic powerhouse of Sub-Saharan Africa. Since its transition to majority rule in 1994, the country has pursued a number of political, economic, and social reforms aimed at achieving a stable social democracy, ensuring a fine balance between meeting pressing social objectives and good macroeconomic management, and building a robust economy. It trades extensively within the region, and its companies have a growing presence in Africa. It also has a diversified manufacturing base that can compete in the global economy. And it boasts good transport, ICT and telecommunication infrastructure, and a well developed financial system.
South Africa’s trade structure remains unchanged from its primary and resource-based products. Except in mining, movement toward a significant amount of high-tech products has been slow.
Policy frameworks adopted since 1994 have tried to respond to the economy’s growth and development challenges.
- The Reconstruction and Development Program (1994) focused on growth with government investment playing a major role.
- The Growth, Employment, and Redistribution program (1996) emphasized increased private sector investment–led growth.
- The Accelerated and Shared Growth Initiative (2005) aimed to further the goals of the preceding policy frameworks with a higher commitment to macroeconomic stabilization policies relative to welfare policies.
- The New Growth Path framework (2010) aimed to address persistently high unemployment through the creation of decent jobs.
- The Industrial Policy Action Plan (2010) set out to diversify and grow exports, improve trade balances, build long-term industrial capacity, grow domestic technology, catalyze skills, and accelerate job creation in the next decade.
The 2014 version of the plan reinforces diversification, industrialization, and the move to a knowledge economy. It also promotes labor-absorbing industrialization to increase the participation of historically disadvantaged people and marginalized regions.
The consensus is that South Africa faces deep structural and microeconomic challenges that, separately and together, constrain growth and development. So resolving any one issue in isolation will not release the economy’s growth and job-generating potential. A multipronged approach, and a refocused industrial and innovation policy, are imperative for economic transformation.
South Africa should focus on a few growth areas with:
- Significant externalities, particularly relating to training and innovation.
- Access to rapidly growing export markets, thus providing scope for scaling up.
- An element of economic rent and not easy for competitors to reproduce.
- High local value addition and intensive use of labor.
Tourism, mining equipment, solar energy, high-quality wines, and tea and fruit meet these criteria as potential sources of growth to varying degrees.
South Africa’s trade with the rest of Africa has a huge potential. Exports of technology-intensive products to Sub-Saharan Africa range from specialized agricultural products to machinery, vehicles, and electronics. In turn, South Africa receives resource-based products such as oil, precious stones, base metals, and agricultural products. South Africa has the opportunity to further specialize in higher technology and more sophisticated products for the African market. Indeed, Southern African Development Community countries could soon become South Africa’s biggest market for manufactured goods.
Travel service exports are on the rise. Other services in which world trade is growing faster than the average and faster than South Africa’s market shares are increasing include ICTs, insurance, and finance. Call centers are a growing business, and South Africa’s location is ideal for servicing major European and Asian markets because of time zones and cultural affinities. The installation of fiber optic cables around Sub-Saharan Africa—on the eastern and western coasts—should ensure cheaper and more widely available bandwidth, which should boost South Africa’s connections with the rest of the world.
South Africa’s participation in the EU-South Africa Free Trade Agreement, the Southern African Development Community trade protocol, the renegotiated Southern African Customs Union agreement, and the U.S. African Growth and Opportunity Act have all boosted market access. That should help exports of agricultural products, such as wines and fresh fruits, on the rise since the end of apartheid.
South Africa’s growth with depth
- Transformation—2nd of 21. South Africa ranked 2nd in both 2000 (1999–2001) and 2010 (2009–11) on economic transformation, after only Mauritius.
- Growth. South Africa’s GDP grew at an average of 2.4% a year in the seven years after independence. GDP per capita grew at an average of 0.4%. In the last seven years of apartheid average GDP growth was 0.6% and GDP per capita growth was a –1.2%. Growth accelerated from 2001 to 2010, with average GDP growth moving up to 3.2% and GDP per capita to 2.1%. Two episodes— the 1998 contagion of the East Asia financial crisis and the global recession of 2009—interrupted South Africa’s longest period of economic expansion by ending 55 quarters of growth since the end of apartheid in 1994. GDP is projected to grow at 3% in 2013 and 2014.
- Diversification—2nd. South Africa’s rank did not change from 2000. The share of manufacturing in GDP fell from an average of 19% in 2000 to 17% in 2010, while the share of manufacturing and services in exports also dropped from 37% to 32%. Meanwhile, the share of the top five exports rose from 35% to 40%. So all the indicators of diversification moved in the wrong direction between 2000 and 2010. But South Africa is so diversified relative to most of the countries compared on the index that it still retained its 2nd rank.
- Export competitiveness—11th. South Africa lost three places, falling from 8th in 2000 to 11th in 2010. Its relative export intensity of production (the share of exports in GDP relative to the share for the world—not counting extractives) is below 1.0, and it fell from 0.69 in 2000 to 0.66 in 2010.
- Productivity—4th. South Africa improved its rank on productivity from 8th in 2000 to 4th in 2010. Manufacturing value added per worker (in 2005 US$) rose from $26,703 in 2000 to $36,050 in 2010, while cereal yields rose from 2,458 kilograms per hectare to 4,193.
- Technology—1st. South Africa is the clear leader when it comes to the level of technology— in both 2000 and 2010. The share of medium and high technology is around 37% in production and around 32% in exports.
- Human well-being—3rd. GDP per capita was $9,510 (PPP 2005 US$) in 2010, up from $7,617 in 2000. Despite modest improvement in human and social indicators over the last decade, high open unemployment and inequality remain serious challenges.