I posted this as part of my updates of economic conditions in key global markets.
South Africa: economy overview
South Africa is the economic powerhouse of Africa, leading the continent in industrial output and mineral production and generating a large proportion of Africa’s electricity.
The country has abundant natural resources, well-developed financial, legal, communications, energy and transport sectors, a stock exchange ranked among the top 20 in the world, and a modern infrastructure supporting efficient distribution of goods throughout the southern African region.
The country’s financial systems are sophisticated and robust. The banking regulations rank with the best in the world, and the sector has long been rated among the top 10 globally.
Not only is South Africa itself an important emerging economy, it is also the gateway to other African markets. The country plays a significant role in supplying energy, relief aid, transport, communications and investment on the continent. Its well-developed road and rail links provide the platform and infrastructure for ground transportation deep into Africa.
Until the global economic crisis hit South Africa in late 2008, economic growth had been steady and unprecedented. According to Statistics South Africa, GDP rose by 2.7% in 2001, 3.7% in 2002, 3.1% in 2003, 4.9% in 2004, 5% in 2005, 5.4% in 2006, 5.1% in 2007 and 3.1% in 2008.
From the first quarter of 1993 to the second quarter of 2008, the country enjoyed a unprecedented 62 quarters of uninterrupted economic growth. But as the crisis made itself felt, GDP contracted in the third and fourth quarters of 2008, officially plunging the economy into recession. This contraction continued into the first and second quarters of 2009, with GDP growth at -6.4% and -3% respectively.
South Africa’s economy has been completely overhauled since the advent of democracy in the country in 1994. Bold macroeconomic reforms have boosted competitiveness, growing the economy, creating jobs and opening South Africa up to world markets.
Over the years these policies have built up a rock-solid macroeconomic structure. Taxes have been cut, tariffs dropped, the fiscal deficit reined in, inflation curbed and exchange controls relaxed.
Economic growth and prudent fiscal management have seen South Africa’s budget deficit (the difference between the government’s total expenditure and its total receipts, excluding borrowing) drop dramatically, from 5.1% of GDP in 1993/94 to 0.5% in 2005/06 – the second-lowest fiscal deficit in the country’s history after the 0.1% reached during the gold boom in 1980.
In 2006/07, the country posted its first ever budget surplus, of 0.3%.
Consumer inflation came in at under 5% from 2004 through 2006 before global prices pushed it up to 6.5% in 2007. In 1994 it stood at 9.8%.
Despite lower taxes across the board, the upbeat economy, improved tax compliance and a steadily improving tax and customs administration have seen government revenue surging, hitting R475.8-billion in 2006/07 – over three times the figure for 1996/97.