• Economic growth suffered in 2012 from social unrest and the euro crisis but is expected to accelerate moderately in 2013 and 2014 thanks to improved global demand and accommodating macroeconomic policies.

  • The unemployment rate remained above 25% in the final months of 2012. South Africa continues to face the triple challenge of chronic high unemployment, poverty and inequality amid a slow and volatile domestic and global economic environment. The National Development Plan needs to be implemented to address structural bottlenecks to job creation.

  • Despite a rich natural resource endowment, the country’s extractive industry continues to operate below potential due to the lack of technological progress and policy uncertainty. The African National Congress (ANC) conference is considered to have at least partially alleviated the latter by ruling out outright nationalisation.

Overview

2012 was one of the most turbulent years since 1994 as labour unrest in the mining sector crippled production. In addition, the country’s major trading partner, the euro area, slid into recession. Nevertheless, fixed investment accelerated in 2012. Economic growth picked up in 2012 but fell short of forecasts as export volumes barely expanded and consumer demand slowed. Economic growth is expected to benefit from expanded infrastructure investment and an increase in electrical capacity. That said, strong recovery will depend on the resolution of global challenges and on alleviating structural constraints.

Inflation stayed within the South African Reserve Bank’s (SARB) 3-6% target range, although it briefly surpassed the upper limit. SARB made a 50 basis-point cut in the repo rate, the interest rate at which commercial banks can borrow money from the Reserve Bank. However, it is expected to remain unchanged for most of 2013 as the Bank balances weak growth prospects and inflationary pressures.

The rand has weakened and is expected to remain under pressure. National government debt increased to nearly 39% of the gross domestic product (GDP) in 2011-12. Bond yields trended down in 2012 but fiscal room continued to be constrained by the international economic slowdown, the impact of social unrest and large increases in the public sector wage bill that could affect the government’s plan to increase infrastructure investment.

Ten people died during a wild-cat strike at the Marikana platinum mine on 10 August and the police shot dead 34 mineworkers on 16 August. Crime rates are falling, the goal of universal access to primary education was achieved, health indicators are improving and gender disparities are being addressed. However, in 2011, less than one in six households had adequate access to food, less than one in six individuals belonged to a medical aid scheme, unemployment stood close to 25% and one in three adult South Africans still had no access to a formal financial institution. In December 2012, Jacob Zuma, the South African president, was re-elected as the head of the ANC, which is expected to win the 2014 elections.

Policy makers have identified the need to manage natural resources to maximise development and employment. There are a number of reasons for the underperformance of the minerals sector: policy uncertainty, electricity shortages, infrastructure bottlenecks, water scarcity and skills shortages. If these impediments were addressed, the mining sector could grow by 3-4% annually until 2020, creating at least 300 000 jobs. In 2012, the government unveiled a 15-year infrastructure development plan to upgrade roads, ports and access to utilities, as well as to exploit coal and other mineral deposits.

Figure 1: Real GDP growth 2013 (South)

Table 1: Macroeconomic indicators

 2011201220132014
Real GDP growth3.52.52.83.5
Real GDP per capita growth2.822.33.1
CPI inflation55.65.75.5
Budget balance % GDP-4.2-4.7-4.5-4
Current account % GDP-3.4-5.9-5.6-5.3

Recent Developments & Prospects

Table 2: GDP by Sector (percentage of GDP)

 20072012
Agriculture, forestry & fishing--
Agriculture, hunting, forestry, fishing32.5
Construction3.23.8
Electricity, gas and water2.32.8
Electricity, water and sanitation--
Extractions--
Finance, insurance and social solidarity--
Finance, real estate and business services9.29.3
General government services--
Gross domestic product at basic prices / factor cost100100
Manufacturing1712.8
Mining8.89.8
Other services6.15.8
Public Administration & Personal Services--
Public Administration, Education, Health & Social Work, Community, Social & Personal Services14.516.5
Public administration, education, health & social work, community, social & personal services--
Social services--
Transport, storage and communication22.621.3
Transportation, communication & information--
Wholesale and retail trade, hotels and restaurants13.315.4
Wholesale, retail trade and real estate ownership--

The economic recovery lost momentum in 2012 as South Africa’s major trading partner, the euro area, slid into recession and violent labour unrest in the mining sector crippled production. While many of the jobs lost to the recession appear to have been regained, overall employment remains lower than at its peak on the eve of the recession: 13.6 million people were employed in the fourth quarter of 2012, compared to 14.0 million in the fourth quarter of 2008. The unemployment rate dropped slightly to 24.9% towards the end of 2012; but the number of discouraged workers – persons of legal employment age who are not actively seeking employment or who do not find employment after long-term unemployment – stood at 2.2 million, up from 1.67 million in 2009.

The automotive sector performed strongly in 2012, with new vehicle sales rising by 9.2% to 623 914 units and exports growing by 3.5% to 277 844 units. The new Automotive Production and Development Programme will encourage fresh investment. Agricultural production boomed in 2012, notably the production of horticulture and animal products. However, the primary sector, which makes direct use of natural resources, suffered as a whole as mining production decreased by 7.5% in 2012.

The outlook is bleak in 2013 as Anglo American Platinum announced that it was planning to close two mines, lay off 14 000 workers and cut down on investment. With social action spreading to agriculture, growth in the sector is expected to slow in 2013. Output growth slowed in the service sector, while the industrial sector was the only one to have seen its growth accelerate. Manufacturing grew by 2% despite weak export markets, led notably by the robust domestic performance of the automotive sector.

Strikes over pay adjustments began in August at Lonmin’s Marikana platinum mine and spread to other segments of the mining industry, specifically gold, iron ore and coal. The deaths of 10 people during the strike on 10 August and the killing of 34 mineworkers by the police on 16 August were widely reported in international media. Truck drivers and agricultural wage earners followed for a short period.

Mining output and employment have declined directly because of the strikes. Wage agreements in the platinum sector ranged from 11% to 22% and an exceptional ZAR 2 000 (South African rand) bonus. Coal miners obtained a 5% increase while gold miners enjoyed 8.5% to 11%. In addition, output losses have occurred in other sectors along the supply chain, with thousands of jobs at risk as a result of backward linkage effects (i.e., when the growth of one industry leads to the growth of the industries that supply its inputs) and supply disruptions, which impact tax revenues. Following the ANC conference, the government has ruled out nationalising the mines but has brought in fresh mining legislation that grants the mining minister new prerogatives.

Despite low interest rates and high growth rates in unsecured loans, the growth of private consumption is estimated to have slowed to 2.7% in 2012. Retail trade sales have grown heftily, whilst expenditure on passenger car sales and other services has been slowing. Consumer spending is projected to moderate further in 2013 because of the high level of consumer indebtedness, the income and employment outlook and the impact on household budgets of price increases in electricity, fuel and transport.

Fixed investment by the private sector had started to recover from the recession in 2011; it accelerated further in 2012 but remained below pre-crisis levels in real terms. Although the ANC elective conference ruled out nationalising mines, investment may come under pressure in 2013 due to the damage done to business confidence by the strikes and spare production capacity in several industries. By contrast, public sector investment is expected to remain vigorous, although it may continue to be affected by delays in infrastructure development and financing challenges.

Export volumes barely expanded in 2012, held back by weak global demand and strikes on platinum exports. Export volumes are expected to rebound in 2013 thanks to a modest recovery of the world economy, assuming there is no repeat of the 2012 strikes. By contrast, import demand is expected to remain fairly strong due to the input requirements of the public sector capital expenditure programme. Consequently, the current account is projected to widen further and the rand to remain under pressure.

Economic growth is expected to accelerate moderately to 2.8% and 3.5% in 2013 and 2014, respectively. Buoyed by improved sentiment about emerging markets, corporate profitability and the housing market in the US, global financial markets are signalling a moderate improvement in the world economic outlook, despite unresolved fiscal challenges in the US and the euro area. Domestic growth is forecast to remain constrained by structural bottlenecks whilst wage settlements and the exchange rate will continue to exercise pressure on prices, limiting the ability of the Reserve Bank to stimulate demand. The forecasts assume that labour unrest, which injects uncertainty in a relatively benign outlook, tempers in 2013.

Unlocking the country’s potential would require bold political commitment to the New Growth Path and National Development Plan for 2030. Meanwhile, the risks of prolonged labour conflicts in mining and agriculture are expected to hold back domestic and foreign investment in 2013 and 2014. The risk to this outlook, however, is that several European countries may experience deeper and more prolonged recessions than anticipated. Even the continent’s economic powerhouses are being dragged downward. The massive fiscal imbalances in the US could combine with the euro crisis to damage demand for South African exports. These imbalances could also impact investment flows, especially if they lead to an abrupt tightening of the fiscal stance, which would cause a sharp growth slowdown and negative spill over effects.

On the domestic front, limited electricity capacity could act as a bottleneck and housing price dynamics could depress aggregate demand if households continue deleveraging. If unrest in the mining sector becomes prolonged and spills over to other economic sectors, it could worsen the fiscal situation, narrow the government’s fiscal space to conduct counter-cyclical policy and compromise the planned investments in energy and transport.

Macroeconomic Policy

Fiscal Policy

South Africa’s fiscal position deteriorated slightly in the 2011-12 fiscal year but still remains strong. The government budget deficit increased marginally from 4.1% of GDP in 2010-11 to 4.2% of GDP in 2011-12. Elevated budget deficits were the result of the government’s counter-cyclical measures in support of growth and employment. As a result, national government expenditure increased and amounted to 29.9% of GDP (ZAR 889 billion) as compared with 29.0% during the previous fiscal year. On the other hand, total national government revenue amounted to ZAR 740 billion or 27.9% of GDP during the 2011-12 fiscal year as compared with 27.5% during the previous year.

Almost all components of revenue outperformed the originally budgeted and revised projections because of the recovery in income tax payable by companies. The budget deficit is projected to rise to 4.7% of GDP in 2012-13 before falling to 4.5% in 2013-14. The primary deficit increased from 1.7% of GDP in the 2010-11 fiscal year to 2.7% in 2011-12 (see Table 3). Over the medium term, the government will realign its fiscal policy stance in the context of stabilising spending growth and building the fiscal space whilst ensuring growth, equity and employment.

The wage bill remains the largest component of current spending, accounting for 38.7% of non-interest spending in the 2011-12 fiscal year up from 35.7% in 2008-09. Contingent liabilities are expected to increase from ZAR 310.8 billion in 2011-12 to ZAR 338.9 billion in 2012-13, driven by public infrastructure investment needs. Public sector spending on infrastructure reached 7.8% of GDP in mid-2012 and is set to continue increasing in the medium term owing to the government’s commitment to infrastructure investment and job creation. Government plans to invest over ZAR 840 billion in infrastructure over the medium term and ZAR 3.2 trillion over the next decade. A narrow fiscal window is available to government over the next three years given moderate economic growth prospects and elevated levels of public debt. Fiscal policy will therefore remain moderately expansionary. 

Tax revenue remains the single most important source of government revenue in South Africa constituting 97.5% of total revenue during the 2011-12 fiscal year. The bulk of revenues are generated by personal income tax, company income tax and value added tax, which accounted for 34%, 23.7% and 25.8%, respectively of the total tax revenue in the 2011-12 fiscal year. Local government revenues come primarily from grants from central government funds and municipal utility and other charges. The central government collected tax revenues of ZAR 740 billion in the 2011-12 fiscal year. In 2011-12, government revenue was 27.9% of GDP and is expected to decrease slightly to 28.1% of GDP in the 2012-13 fiscal year.

Table 3: Public Finances (percentage of GDP)

 200920102011201220132014
Total revenue and grants27.227.527.928.12827.8
Tax revenue26.82727.327.527.427.2
Oil revenue------
Grants000000
Total expenditure and net lending (a)33.531.632.232.832.631.9
Current expenditure312929.930.530.129.4
Excluding interest28.626.628.328.227.927.5
Wages and salaries10.211.211.611.411.110.7
Interest2.32.41.52.32.21.9
Primary balance-4-1.7-2.7-2.4-2.3-2.1
Overall balance-6.3-4.1-4.2-4.7-4.5-4

Monetary Policy

The primary objective of monetary policy in South Africa is to achieve and maintain price stability. A 50 basis-point cut in the repo rate in July 2012 brought the policy rate to 5.0%, its lowest level in more than 40 years, and provided additional stimulus to the economy. SARB left the repo rate unchanged for the third consecutive period in its January 2013 meeting. In spite of this, the growth outlook has deteriorated in response to both domestic and global developments.

Despite an historically low interest rate, demand for credit from the private sector remains subdued. At the same time, growth in broad money supply declined from 8.3 to 7.8% from July to August 2012.

South Africa pursues a freely floating exchange rate system. To minimise the adverse impact of excess short-term capital flows and currency volatility, SARB intervenes in the foreign exchange market by relaxing exchange controls and accelerating the accumulation of foreign exchange reserves. The latter reached an all-time high of USD 51.4 billion in August 2011 and remained at about the same level (USD 50 billion) in August 2012. Nevertheless, SARB uses reserve accumulation as an instrument to manage international liquidity, instead of as an active exchange rate policy.

Monetary policy ensured price stability with inflation remaining within the policy target range of 3-6% in the first half of 2012. Core inflation, however, increased significantly to 4.9% in December 2012, well above the long-term average of 4.0%. Year-on-year headline inflation edged to 5.7% in December 2012 after having remained at 5.6% year-on-year in November. This was driven by the prices of petrol, electricity, education and food.

Food inflation, which was moderate in the first half of 2012, accelerated again as international grain prices spiraled higher in the wake of climate-related setbacks to production. With rising inflation, the average headline rate increased to 5.6% in 2012 from 5.0% in 2011. Inflation is expected to average 5.7% in 2013 and 5.5% in 2014. However, given the gloomy outlook for growth compounded by low macroeconomic indicators and a weak global economic recovery, monetary policy will likely remain expansionary for 2013.

The rand has weakened since early 2012 due to economic volatility in the euro area, its major trading partner. The currency was at a 3-and-a-half year low during the first week of October 2012 due to negative investor sentiments following prolonged labour unrest in the mining and transport sector. The strikes raised concerns over further deterioration in economic growth and government fiscal targets. FDI fell to ZAR 5.7 billion in the second quarter of 2012 from ZAR 7.7 billion in the previous quarter, whilst portfolio inflows declined to ZAR 48 billion from ZAR 50 billion during the same period.

Economic Cooperation, Regional Integration & Trade

South Africa is a member of various regional and sub-regional groupings including the Common Monetary Area, Southern Africa Customs Union, Southern African Development Community (SADC) and African Union. South Africa also houses both the African Parliament and the New Partnership for Africa's Development (NEPAD) secretariat. Furthermore, the government has taken an active role in negotiations to accelerate economic integration among the tripartite group – SADC, East African Community and Common Market for Eastern and Southern Africa – covering 26 countries that account for 56% of the continent’s population and 58% of its GDP.

South Africa dominates the region economically, accounting for 41% of SADC’s total trade and about 63% of its GDP. It has the requisite economic capability and levels of diversification to drive economic integration in a manner that is mutually beneficial to the region. However, the country faces high levels of poverty, inequality and unemployment despite strong economic performance over the past decade.

According to South Africa’s Industrial Policy Action Plan 2012-13 to 2014-15, trade and competition policies have become more strategically aligned with industrial policy. Tariff setting is informed by sectoral analysis and priorities. Import tariffs have been reduced significantly; tax on international trade and transactions accounted for 4.5% of tax revenue in fiscal year 2011-12, compared to 4.8% in fiscal year 2006-07. However, according to the Global Competitiveness Report 2012-13, South Africa still ranks 79th out of 144 countries in trade tariffs as a per cent of duty, implying a relatively higher trade tariff burden.

The deficit on the trade account of the balance of payments increased significantly from ZAR 42.0 billion in the first quarter of 2012 to ZAR 75.7 billion in the second. The trade deficit deteriorated to 1.9% of GDP in the first half of 2012 due to increased import demand, slowing exports and deteriorating terms of trade. The deficit on the current account of the balance of payments rose from 4.9% GDP in the first quarter of 2012 to 6.4% in the second. The current account deficit has widened sharply over the past year and is expected to average 5.9% of GDP in 2012, up from 3.4% in 2011. The larger imbalance reflected the simultaneous deterioration in the trade and services accounts over the period.

Table 4: Current Account (percentage of GDP)

 2004200920102011201220132014
Trade balance-0.10.110.60.3-0.5-1
Exports of goods (f.o.b.)21.923.123.525.626.826.325.8
Imports of goods (f.o.b.)222322.52526.526.826.8
Services-0.2-1-1.2-1.2-2.8-2.2-1.6
Factor income-2-2.2-2-2.3-2.6-2.1-2
Current transfers-0.8-0.9-0.6-0.5-0.8-0.7-0.7
Current account balance-3-4-2.8-3.4-5.9-5.6-5.3

Debt Policy

Domestic debt of national government increased substantially from ZAR 884 billion during fiscal year 2010-11 to ZAR 1.06 trillion during fiscal year 2011-12. Domestic debt accounts for 90% of total gross loan debt. Due to the liquid and efficient nature of the domestic money and capital markets, the primary source of funding for the budget deficit remains domestic borrowing through a combination of Treasury bills, fixed-income and inflation-linked bonds.

Public foreign debt marginally decreased from 3.8% of GDP in 2011 to 3.7% in 2012 while total foreign debt rose to 29.2% of GDP at the end of the 2011-12 fiscal year, up from 27% of GDP the previous fiscal year. The ratio of foreign debt to export earnings increased from 93.8% at the end of fiscal year 2010/11 to 96.4% at the end of the following year. The country’s outstanding foreign debt increased from USD 50.9 billion at the end of 2011 to USD 53.3 billion at the end of fiscal year 2011-12. The increase in foreign debt was mainly due to increased borrowing from international capital markets by the national government, the domestic banking sector and foreign borrowing by parastatals to fund infrastructure investments.

The National Treasury assesses debt sustainability in terms of the risk benchmark range of 20-25% of GDP for the foreign loan component, and a risk benchmark of 70:30 for fixed to non-fixed (or floating) debt for the domestic component. Other risk factors include currency compositions of the debt, contingent liabilities and the sovereign rating by credit rating agencies.

Moody’s has downgraded South Africa’s sovereign credit rating by one notch, as well as the foreign deposit ratings of major development finance institutions, commercial banks and one utility company, Eskom, from A3 to Baa1. Nonetheless, Moody’s revised ratings remain at par with ratings from other major rating agencies and are unlikely to upset the country’s access to international credit markets. The government articulates its debt management strategy as part of its broader fiscal sustainability policies and sets its net borrowing targets, including detailed projections of domestic and foreign as well as short-term and long-term components, over a three-year timeframe.

The total gross loan debt of the national government rose from ZAR 982 billion on 31 March 2011 to ZAR 1.2 trillion at the end of fiscal year 2011-12. However, debt burden indicators do not signal any significant risk of debt servicing difficulties. Foreign debt is less than 10% of total public debt whilst the government is able to raise public and publicly guaranteed debt in local currency with relative ease.

Figure 2: Stock of total external debt and debt service 2013

Economic & Political Governance

Private Sector

South Africa’s private business regulatory climate is regarded as one of the most conducive in the southern Africa region. The World Bank report, Doing Business 2013, ranks the country as the 39th easiest in which to do business globally: only 19 days and five procedures are required to start a new business, and 23 days and six procedures are needed to register property. Business exit regulations are also relatively simple. However, both historical and new barriers to growth and microenterprise formalisation are still considerable, exacerbating unemployment.

According to the Global Competitiveness Report 2012-2013, the five greatest obstacles to doing business in South Africa are: i) an inadequately educated labour force; ii) restrictive labour regulations; iii) inefficient government bureaucracy; iv) inadequate supply of infrastructure; and v) corruption. The same report ranks South Africa 113th out of 144 countries in labour market efficiency. South Africa performs particularly poorly in labour-employer relations, flexibility of wage determination, hiring and firing practices and pay and productivity.

In 2012, South Africa consolidated three small business financing enterprises into one entity, the South African Enterprise Finance Agency, a new subsidiary of the Industrial Development Corporation. The agency will provide both direct and indirect financing to small- and micro-businesses. In addition, the government has implemented various reforms since late 2011 to support private sector development.

South Africa improved in product market regulations, ranking 32nd in goods market efficiency out of 144 countries in the Global Competitiveness Report 2012-2013 as compared to 40th out of 139 countries in 2010-11. Cross-border trading remains one of the most difficult in the region with the country ranking 144th out of 183 countries, according to Doing Business 2012. South Africa ranks first in the southern Africa region in protecting investors (e.g. ease of shareholding, extent of direct liability).

Financial Sector

South Africa’s financial system is very stable thanks to an efficient regulatory infrastructure, well-developed financial markets and sound financial institutions. The country ranked 3rd out of 144 countries in financial market development and first in both legal rights in the financial sector and in securities exchanges regulation, according to the Global Competitiveness Report 2012-2013.

Domestic banks are already capitalised above Basel III levels, a new global regulatory standard. South African banks are currently operating with an average capital adequacy ratio of 15% (12% for Tier 1 capital), well above the minimum prudential capital adequacy requirement of 10%. In June 2012, the SARB proposed a minimum Tier 1 capital adequacy ratio of 6.5% and a total capital adequacy of 10% by January 2015, although banks had already exceeded this target. In spite of this, they do not presently meet all of the new global liquidity standards. Due to sluggish economic recovery, the ratio of non-performing loans reached 5% of gross loans in mid-2012.

The financial sector performed well in 2012. The operating profits of banks increased by 30% in 2011 to ZAR 49 billion, whereas bad debt was reduced by ZAR 20 billion. Following the 50 basis-point cut in the policy rate in July 2012, prime lending declined to 8.5% whilst the average savings rate of five major banks on 1-year deposits was 4.0%, implying an interest rate spread of 4.5%. The loan-to-deposit ratio of the banking sector has improved from 100% in March 2008 to 93% in June 2011, providing a significant buffer against liquidity pressure. In mid-2012, South African banks held over ZAR 500 billion in savings instead of investing in productive activities, earning the lowest return in 30 years. This was attributed largely to the global economic slowdown, subdued domestic economic activities and lower investor confidence.

In spite of impressive financial sector development, a significant portion of the South African population is still excluded from access to financial services. In 2012, about 32% of adult South Africans had no access to a formal financial institution.

Public Sector Management, Institutions & Reform

The South African legal system provides effective protection of property and contract rights; both are respected and enforced. The country ranks 20th and 27th out of 144 countries on intellectual property protection and property rights, respectively, according to the Global Competitiveness Report 2012-13. South Africa also performs relatively well on contract enforcement, ranking 81st out of 183 countries surveyed by Doing Business 2012. The country also has a vibrant and independent judiciary system ranking 27th in the Global Competitiveness Report 2012-13.

Private ownership of property is guaranteed in the constitution. Both foreign and domestic investors are allowed to participate in all sectors without any discrimination. South Africa scored 73 out of 100 in law enforcement, particularly in conflicts of interest, safeguards and professionalism of the legal system according to the Global Integrity Report 2010. The legal system is very efficient in settling disputes.

In contrast, local governments continue to face challenges in delivering basic services to communities due to a lack of skills and limited institutional and revenue management capacity. The country has witnessed numerous, often violent protests over poor service delivery for the past 5 years. A recent report by the Auditor General found that only 13 out of 343 municipalities in South Africa were fully cleared by audits in the 2011-12 fiscal year.

South Africa is ranked 69th out of 176 in Transparency International’s 2012 Corruption Perception Index, down from 54th out of 178 countries in 2010. South Africa is now ranked well below Botswana, Cape Verde, Mauritius, Rwanda, Seychelles, Namibia, Ghana and Lesotho most of which ranked below 60. However, it remains one of the nine least corrupt countries in Africa.

To improve financial management and combat fraud and corruption, in 2012, the Treasury issued new regulations, which require departments to submit annual tender programs, limit variations to orders and disclose all directives. It also appointed a Chief Procurement Officer who will have overall responsibility for monitoring procurement across government. The trade union, the Congress of South African Trade Unions (COSATU), launched the first independent Corruption Watch to monitor and expose corruption hot spots in the country.

Natural Resource Management & Environment

The government has made significant achievements in developing a robust framework for addressing climate change impacts and challenges. Through the recently adopted National Climate Change Response Policy adopted in November 2011, work is underway to mainstream climate change adaptation, mitigation and disaster risk management priorities into key economic sectors. The policy envisages cutting CO2 emission by 34% over the next decade by introducing emission caps for major polluters. On mitigation, the government is assessing the potential for reducing carbon dioxide, a study that will culminate into a list of priority interventions that each sector/department would adopt. On adaptation, the government is identifying priority measures for incorporation into sectoral plans.

A national Monitoring and Evaluation system is being set up for data collection, monitoring and reporting. It will: detail up-to-date emissions in a greenhouse gas inventory; develop indicators for measuring the transition to low carbon development and a climate resilient economy; and analyse the impact of mitigation and adaptation measures.

South Africa made some progress in the Millennium Development Goal (MDG) environmental indicators, including halving the proportion of people without access to a sustainable water source. However, it is unlikely that the country will achieve MDG 7. South Africa is lagging behind in CO2 emission levels, overexploitation of fish stocks, access to basic sanitation and in reducing the number of people living in informal dwellings. About 12.1% of South African households lived in informal dwellings in 2011.

Political Context

President Jacob Zuma easily won re-election to the ANC leadership at the ruling party’s elective congress in December. His victory cemented the ruling coalition of the ANC, COSATU and the South Africa Communist Party. Zuma’s main opponent at the congress was his deputy, Kgalema Motlanthe, who is expected to be replaced after the 2014 elections as vice president by the unionist-turned-business-tycoon, Cyril Ramaphosa. Ramaphosa was elected at the congress and is likely to be deployed as a “de facto prime minister”.

In reporting on the government’s action plan for 2013 and progress made since his last address, Zuma focused on education, health, the fight against crime, employment, rural development and land reform. He reemphasized that the New Growth Path and National Development Plan for 2030 is the country’s blueprint.

Opposition parties have been putting their houses in order whilst keeping pressure on the government. In November, the Democratic Alliance (DA), the largest opposition party, held its federal congress where it retained its leader, Helen Zille. The party elected new officers to lead heading into the 2014 elections. Earlier, the DA and other opposition parties had filed a motion of no confidence against the president at the National Assembly. When the ANC objected, the parties went to court. The ANC later agreed to debate the motion in early 2013.

Social Context & Human Development

Building Human Resources

South Africa has made substantial progress in the prevention of malnutrition, mother-to-child transmission of HIV (MTCT), immunisation coverage and access to free health care facilities. Yet the national incidence of severe malnutrition averaged 7.8% and studies from government indicate a rise in child mortality. Malnutrition is an underlying cause of death in 64% of children under the age of five. At 53 deaths per thousand live births, under-five mortality in 2011 remains far higher than the 2015 target of 20 or less per thousand live births.

Malnutrition in South Africa is aggravated by inadequate access to food. In 2011, 14.6% of households in South Africa did not have enough to eat. Health coverage is relatively high but only 16.1% of South Africans belonged to a medical aid scheme in 2011. To address this, South Africa rolled out 10 pilot National Health Insurance schemes in 2012.

South Africa achieved universal access to primary education for children under 13 years old, including those in early childhood development programs. School attendance for those aged 7-13 reached 98.4% for boys and 98.8% for girls in 2009, whilst the functional illiteracy rate fell from 27.9% in 2002 to 18.1% in 2011. Youth functional illiteracy fell to less than 10% in 2009. The adult literacy rate is generally high, at 91.9% in 2011. However, the quality of education in historically black schools remains poor. (Blacks make up 79.2 of the population, compared to 8.9% for whites and 2.5% for Indians.)

In mid-2011, approximately 752 869 students were enrolled at higher education institutions; almost two-thirds of them were black African. The Green Paper for Post-School Education and Training launched in early 2012 envisages addressing the current skills mismatch by producing graduates who are able to grow the economy and create jobs. Enrolment at Further Education and Training Colleges was at 1.6% in 2011. In total, over 14 million learners attended school in 2011.

South Africa has scaled up implementation of national HIV and AIDS initiatives, including an increase in antiretroviral (ARV) therapy provision and the introduction of a dual therapy policy in 2008 for the prevention of MTCT. The national MTCT HIV rate fell to 2.7% in 2011 from 8.5% in 2009. However, despite having the largest ARV treatment programme in the world, in 2011 the country had not yet achieved universal access for those who need it. Only 1.7 million out of 5.3 million HIV-positive people had access to ARV treatment in 2011. As a result, the country is unlikely to achieve the MDG of halting and reversing the spread of HIV and tuberculosis by 2015.

Poverty Reduction, Social Protection & Labour

For those that qualify, the government provides a comprehensive safety net programme that combines income support with a social wage package. It includes clinic-based free primary health care, compulsory education for 7 to 13 year olds, subsidised housing, electricity, water, sanitation, waste removal and free public transportation. In 2010, the “no fee” school policy was extended from the poorest 40% of learners to the poorest 60%. As a result, 8.1 million learners in 20 000 schools had access to free education. In 2011, 60% of schools were designated “no fee” schools.

Social spending comprised an estimated 58% of government expenditure in 2012. Government spends 3.4% of GDP on social welfare grants that support about 15.2 million South Africans, up from 2.5 million in 1998. The grants have been expanded in recent years by raising the threshold for the child support grant to a child’s 18th birthday, and equalising the eligibility age for the old age grant to 60 for both men and women. The percentage of individuals that benefited from social grants has increased from 12.9% in 2002 to 29.6% in 2011.

The average value of the “social wage” for a family of four in 2012-13 was about ZAR 3 940 per month. Over 10.4 million children in South Africa received a child support grant in 2011. Children on the grant account for 70% of all people on social welfare whilst the grant itself accounts for 36% of total grant expenditure.

Active government intervention in poverty alleviation has led to a decline in the proportion of people experiencing absolute poverty. This is both in terms of the proportion of the population living on between USD 1-2.50 per day, as well as the poverty gap ratio, which has also declined. Based on this measure, South Africa has effectively more than halved the population living below the poverty line, thus achieving the first MDG.

The government failed to reduce the chronically high level of unemployment, which has been stuck at 25% for a good part of the 2000s. The main cause remains the mismatch between the skills produced by the educational system and the structure of the economy. Private businesses blame rigidities in labour market regulations for high unemployment but other stakeholders, including government and the International Labour Organization (ILO), do not agree that South African labour laws are overly restrictive.

Under the national development plan, South Africa’s objective is to create 5 million jobs by 2020 and 11 million jobs by 2030, overhaul the educational system and build a capable developmental state. Expenditure priorities are aligned with the country’s development strategies. Accordingly, expansion in infrastructure investment is one of the central priorities of the 2012 budget.

South Africa’s Active Labour Market Policies strive to shift the unemployed from passive benefit systems to paid jobs. The expanded public works programme is expected to create 1.5 million jobs by 2014. In June 2011, the government launched a ZAR 9 billion jobs fund aimed at creating 150 000 new jobs over the next three years, primarily through assistance to innovative private sector labour-intensive projects.

Gender Equality

According to the United Nations Development Programme's Human Development Index 2011, South Africa’s Gender Inequality Index is 0.49 placing it 94th out of 187 countries, well below several African countries.

Contraceptive prevalence for married women aged 15-49 was 60%, whilst births attended by skilled health personnel was 91%. South Africa achieved gender parity in primary school in 2009. The country has also made tremendous progress in girls’ participation in secondary school with the ratio of female to male secondary enrolment reaching 104.8% in 2009. About 63.3% of women aged 25 years and older had at least secondary education.

In June 2012, out of the total unemployed labour force of 4.47 million, 2.23 million were women and 2.24 million were men. However, overall women’s unemployment remains significantly higher than that of men and higher than the national average of 25%. In June 2012, the unemployment rate among women was 27.5% whilst 22.2% of men were unemployed.

Labour force participation for women was 47% in 2009 compared to 68% for men in 2010. The share of women in non-agricultural wage employment has also increased in recent years from 44% in 2005 to 45% in 2010. However, whilst poverty has been halved, the proportion of females living below the poverty line remains high when compared to males.

South Africa’s success in bringing about gender equality has perhaps been most visible in the area of politics and decision-making. In the national parliament, 42.3% of members and 39% of cabinet ministers were women in 2012. Although this proportion increased from 25.4 to 42.4%, respectively in provincial legislatures and stands at about 40% in local government, more needs to be done to improve the lives of rural black women. The recent increase in women’s political representation was due primarily to the ANC’s decision to increase the quota of women in the party list from 33-50%.

Thematic analysis: Structural transformation and natural resources

The economy of post-apartheid South Africa began undergoing structural change in the mid-1990s. This followed years of economic sanctions and international isolation that finally began to take their toll in the 1980s, worsening in the early 1990s. As investment dried up and the country suffered balance of payments crises, economic growth slowed to 2.2% by the 1980s from an annual rate of 3.5% in the 1970s. 

Between 1990 when Nelson Mandela was freed after 27 years in prison, and 1993, the year before the first democratic elections that brought majority rule to the country, the economy contracted by 3.1%. In 1994, the new Mandela government began a series of reforms that would have a profound impact on the structure of the economy and labour markets. These included trade, industrial and financial sector reforms, all of which were aimed at making the country competitive as it re-integrated into the global economy.

For the first time in years, South African financial and non-financial corporations, including mining companies, could invest abroad under fewer regulations. The 1996 report of the Labour Market Commission laid the groundwork for a series of reforms, including the New Labour Relations Act, Basic Conditions of Employment Act and a Green Paper on Skills Development. The overall effect was a decline in employment and a simultaneous rise in labour productivity as fewer workers continued to produce economic output. According to the South African Reserve Bank, the average level of employment in the formal non-agricultural sector fell by 6.9% between 1989 and 1996, whilst growth in labour productivity, measured by output per worker, increased from 0.3% in 1991 to 3.0% in 1996. 

Depressed global commodity prices in the 1990s led to an overall slowdown in the production of minerals, including gold, iron ore, manganese and platinum. Investment in the sector stagnated as companies rolled back both exploration and production. Existing infrastructure was generally neglected. For the gold sub-subsector, declining ore deposits (both in quantity and quality) and the associated rise in production costs, aggravated the situation. This led eventually to mine closures or consolidations and job losses.  

The sharp rise in commodity prices in the 2000s, driven by demand from China and India, rekindled interest and investment in the sector. However, inadequate infrastructure, notably in rail transport and energy, prevented the country from taking full advantage of higher prices. Instead, the industry declined by 1.0% annually for a decade leading to a loss of the global market share. Meanwhile, the proportion of net gold exports in total merchandise exports fell from 21.8% in 1997 to 7.4% in 2008, before edging up to 11.2% in 2011. Similarly, employment in the mining sector declined from 593 000 in 2005 to 357 000 in 2012.   

Concerned by the challenges of the minerals sector and their negative effect on jobs, the government embarked on a number of initiatives. Specifically, it proposed a three-pronged strategy of forward, backward and horizontal linkages within the broader mining sector and across other sectors of the economy. The National Development Plan needs to be implemented to address structural bottlenecks to job creation.

Backward linkages will entail the promotion of local industries to expand production of mining sector goods, such as equipment, as well as technical and professional services. These will be aimed at both domestic and international markets where South African mining companies are currently operating, especially within Africa.

Policy around forward linkage is aimed primarily at value addition rather than the exportation of raw minerals. Given the energy-intensive nature of minerals beneficiation, however, and the need to promote employment through an aggressive development of small- and medium-sized enterprises, government will have to be selective in its efforts to ensure adequate energy for the overall economy. Beneficiation will also have to consider issues of cost to ensure that it is not done at the expense of the country’s international competitiveness. 

Policy and interventions related to horizontal linkages will focus on human resource development, research and development, and infrastructure development. All three will be designed to support both forward and backward linkages. The biggest challenge will be to develop adequate human resources to support any interventions, either by the public or the private sector. 

South Africa currently suffers from severe skills shortages and whilst 2011 data shows an increase in the proportion of South Africans with post-secondary education (from 7.1% in 1996 to 11.8% in 2011), disparities across groups remain. Whilst the share of blacks with higher education more than doubled from 3.6% in 1996 to 8.3% in 2011, it was considerably lower than the 36.5% and 21.6% for whites and Indians, respectively. Accelerating progress and ensuring equity in human resource development will thus have to be a key ingredient in the government’s overall strategy for transforming the minerals sector for national development.  

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