Authors

Overview

Recent Developments & Prospects

Macroeconomic Policy

Fiscal Policy

Monetary Policy

Economic Cooperation, Regional Integration & Trade

Debt Policy

Economic & Political Governance

Private Sector

Financial Sector

Public Sector Management, Institutions & Reform

Natural Resource Management & Environment

Political Context

Social Context & Human Development

Building Human Resources

Poverty Reduction, Social Protection & Labour

Gender Equality

Thematic analysis: Structural transformation and natural resources

Authors: Wolassa Lawisso Kumo, Jan Rieländer, Babatunde Omilola

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  • Labour unrest and the persistently sluggish environment in Europe and the United States impacted on growth, but the situation should improve in 2014 as the global economy improves and a cheaper rand boosts exports.
  • With almost 25% of the population (and 65% of young people) without work, unemployment is South Africa's largest social challenge. The National Development Plan of 2012 stipulates crucial measures for the acceleration of structural and education reforms.
  • South Africa is an important hub in the global mining value chain, a regional assembly hub in the global automotive value chain and a key player in the regional finance and retail value chains. It should capitalise on these links as engines of growth at home.

The labour unrest in South Africa that marked 2012 improved in 2013, proving to be less violent but more widespread, and it significantly affected output in the automotive and agricultural sectors. The slow pace of international economic growth also continued to limit South Africa's development. A year of low investment and ongoing efforts to reduce household debt have held this back further, with growth reaching 1.9% in 2013 compared with 2.5% in 2012. However, projections based on improvements to the global economy and the successful completion of major government projects (including the Medupi Power Station) suggest that growth could rise to 2.7% in 2014.

Unemployment and labour relations continue to pose challenges for the country. Unemployment remains high at 24.1% overall, and 64.8% for young people between the ages of 15 and 24. The government's newly launched employment tax incentive aims to address this challenge by encouraging private sector absorption of youth by subsidising the salaries of newly recruited workers aged between 18 and 29. However, the overall labour market remains constrained and labour unrest continued to reduce South Africa's output in 2013, especially in agriculture and manufacturing. Furthermore, output potential is constrained by a skills shortage, and calls are being made for further investment and reform of the poorly performing education system.

Broadly, the South African economy remained within the Reserve Bank's (SARB) target inflation range of 3%-6%, estimated at 5.7% in 2013. The South African rand (ZAR) remained under pressure in 2013, sliding 20% in value during the year. National government debt increased to 42.5% of gross domestic product (GDP) in 2012/13, up from 36.2% two years earlier.

In addition to functioning as an assembly hub for the automotive industry, South Africa has had some success in becoming a global supplier of components (seats and catalytic converters) capitalising on locally available skills and intermediate products. The Automotive Production Development Plan (APDP) that came into force in January 2013 is aimed at encouraging new investments in the industry, promoting use of local components and boosting annual production to 1.2 million vehicles by 2020. In the mining industry South Africa is an important global hub with deep backward vertical integration and a fully-fledged supply industry serving both South African and foreign companies that is an international player in its own right. Both South Africa's retail sector and its financial services industry are the most sophisticated on the continent and both have a significant regional presence.

Table 1: Macroeconomic indicators

 20122013(e)2014(p)2015(p)
Real GDP growth2.51.92.73
Real GDP per capita growth1.71.222.3
CPI inflation5.75.75.75.3
Budget balance % GDP-4.2-4.1-4.1-3.9
Current account balance % GDP-5.2-6.5-6.4-6.4

Source: Data from domestic authorities; estimates (e) and projections (p) based on authors’ calculations.

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