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South Africa

South Africa

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Key Facts

  • Capital: Pretoria
  • Region: Southern Africa
  • Official languages: English
  • Independence Day: April 27, 1994
  • Area: 1,221,000 sq km
  • Population (2018): 57.8 million
  • REC membership: SADC, SACU
  • WTO membership: January 1, 1995
  • GDP (2018): US$ 368.289 billion
  • GNI per capita: US$ 5 750
  • Currency: South African rand

Economic overview

Real GDP grew at an estimated 0.7% in 2019, down from 0.8% in 2018, and is projected to rise to 1.1% in 2020 and 1.8% in 2021 amid domestic and global downside risks. Contraction in agriculture and mining drove slow growth in 2019. Agriculture contracted 4.8% and mining 1.7% in 2018. Besides erratic weather, a protracted debate about land reform weighed on agriculture. Electricity shortages and prolonged strikes contributed to the mining decline. The finance, real estate, and business services sector grew 1.8% in 2018 to contribute 0.4 percentage point to growth. Transport grew 1.6% in 2018 while manufacturing grew 1% in 2018. Manufacturing production was depressed by frequent electricity shortages, higher input prices, and weak demand amid ongoing international trade tensions.

Household and government consumption remained a key driver of growth, contributing 1.5 percentage points in 2018. Inflation was 4.7% in 2018 and 4.4% in 2019, due to lower fuel costs. From November 2017 to November 2018, the real exchange rate increased 8.1%, eroding the competitiveness of South African exports. The rand traded at 13.23 per dollar in 2018. Due to inflation targeting, the exchange rate pass-through to inflation has been limited.

The fiscal deficit remained high at an estimated 4.3% in 2019, up from 4.2% in 2018, as the country continued to face revenue shortfalls due to slow economic growth. The tax revenue-to-GDP ratio declined marginally to 25.7% in 2019 from 25.9% in 2018. The fiscal deficit is financed through domestic capital markets. National government debt was estimated at 55.6% of GDP in 2019, up from 52.7% in 2018. Foreign debt accounted for only 6.3% of GDP, ensuring sustainable debt financing. The current account deficit widened to 3.5% in 2018, as the terms of trade deteriorated, with rand prices of imports increasing more than those of exports. The current account deficit was financed primarily through foreign direct investment inflows, which grew 163% in 2018 compared with 2017.

Unemployment increased to 27.1% at end 2018 from 26.5% at end 2016. Youth unemployment increased to 54.7% at end 2018 from 51% at end 2016. Among the causes of high unemployment are low skills. South Africa’s poverty rate was 55.5%, and its inequality is among the world’s highest.

Reforms are tackling structural constraints to economic growth and job creation. One is restructuring the utility company Eskom to reduce the major risk its debt places on the treasury. Other reforms include allocating the telecommunications spectrum, removing barriers to mining investment, and reviewing visa requirements to boost tourism. The government is taking steps to improve investment, revitalizing townships and industrial parks.

South Africa’s global competitiveness ranking declined sharply – to 67 of 140 countries in 2018 from 47 in 2016. The fall was mainly due to skill shortages, health sector challenges, weak domestic product competition, and limited information and communication technology adoption. Value chain linkages between mining and manufacturing are weak since South Africa exports the bulk of its mineral resources raw. This in turn exposes the country to recurrent global commodity price shocks.

Weak global growth, global trade tensions, and commodity price volatility also pose risks to the South African economy. A high public sector wage bill, poor performance of state-owned enterprises, and social programs, including national health insurance, exert pressure on the budget. South Africa would benefit by manufacturing more for African markets.

Last updated: April 2020