Economy Of South Africa Economics Essay
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Published: Mon, 5 Dec 2016
South Africas economy is the largest in Africa and is 24 of its GDP in terms of PPP.A quarter of the population is unemployed and real unemployment rate is 40. South Africa has a comparative advantage in agriculture, mining and various manufacturing products. It has shifted from a primary and secondary economy to an economy driven primarily by the tertiary sector which accounts for an estimated 65% of GDP. It’s economy is reasonably diversified with key economic sectors including mining, agriculture and fishery, vehicle manufacturing and assembly, food-processing, clothing and textiles, telecommunication, energy, financial and business services, real estate, tourism, transportation, and wholesale and retail trade.
The unemployment rate is over 25%, and the poor have limited access to economic opportunities. Including this many issues such as crime, have in turn hurt investment and growth, having a negative effect on employment. Crime is considered a major constraint on investment. South Africa has struggled through the late 2000s recession, and the recovery has been largely led by private and public consumption growth, while export volumes and private investment have yet to fully recover. The long-term potential growth rate of South Africa under the current policy environment has been estimated at 3.5%.Per capita GDP growth has proved mediocre, though improving, growing by 2.2% over the 2000-09 decade.
This is a table of the trend of South Africa’s gross domestic product at market prices estimated by the International Monetary Fund:
GDP, USD bln
US Dollar Exchange in early January
Per Capita Income, % of USA
Economic overview of South Africa (Sector wise)
Mining has been the main driving force behind the history and development of Africa’s most advanced and richest economy. Large scale mining started with the discovery of a diamond on the banks of the Orange River in 1867 by Erasmus Jacobs and the subsequent discovery and exploitation of the Kimberley pipes. The Witwatersrand Gold Rush and the subsequent rapid development of the gold field are the biggest of all. Though mining’s contribution to the national GDP has fallen from 21% in 1970 to 6% in 2011, it represents 60% of exports. The mining sector accounts for up to 9% of value added.
In 2008, the country’s estimated share of world platinum production amounted to 77%; kyanite and other materials, 55%; chromium, 45%; palladium, 39%; vermiculite, 39%; vanadium, 38%; zirconium, 30%; manganese, 21%; rutile, 20%; ilmenite, 19%; gold etc. It also accounted for nearly 5% of the world’s polished diamond production. The country’s share of world reserves of platinum metals amounted to 89%; hafnium, 46%; zirconium, 27%; vanadium, 23%; manganese, 19%; rutile, 18%; fluorspar, 18%. It is world’s third largest exporter of coal.
Agriculture and food processing
The agricultural industry contributes 10% of formal employment, relatively low compared to other parts, as well as providing work for laborers and contributing 2.6% of GDP. Due to the aridity of the land, only 13.5% can be used for crop production. Agriculture sector face problems of increased foreign competition and crime. Maize production, which contributes to a 36% has also experienced negative effects due to climate change.
South Africa’s critical exports include edible fruit and nuts, beverages, preserved food, tobacco, cereals, wool , miscellaneous food, sugar, meat, milling products and starch. Important imports include: cereals, meat, soya-bean oil cake, soya-bean oil and its fractions, tobacco, palm oil and its fractions, spices, coffee, tea, and preserved food. The competitive pressures from China and India resulted in decline of exports for the food, textiles and paper sub-sectors.
The manufacturing industry contributes just 13.3% of jobs and 15% of GDP. Labor costs are low, and the cost of the transport, communications and general living is higher. The automotive industry is about 10% of South Africa’s manufacturing exports, contributes 7.5% to the country’s GDP. BMW, Ford, Volkswagen, Daimler-Chrysler, General Motors and Toyota all have production plants in South Africa and the large component manufacturers are Arvin Exhaust, Bloxwitch, Corning and Senior Flexonics. Companies producing in South Africa can take advantage of low production costs and access to new markets due to trade agreements with the European Union and the Southern African Development Community.
Telecommunications infrastructure provides efficient service to urban areas as to cellular and internet services. In 1997, Telkom, was partly privatised and entered into a strategic equity partnership with SBC, a U.S. telecommunications company. In exchange of providing certain services for 5 years, Telkom assumed an obligation to facilitate network modernisation and expansion into the unserved areas. Five companies provides service to 20 million subscribers and South Africa considered to have the 4th most advanced mobile telecommunications network worldwide.
Business process outsourcing
South Africa and particularly the Cape Town region established itself as a successful Call center and business process outsourcing destination with a highly talented pool of productive labor. The Carphone warehouse, Delta airlines and others have established inbound call centers within Cape Town as a means of utilizing Cape Town’s low labor costs and talented labor.
South Africa is a popular tourist destination, with around 860,000 arrivals per month. Revenue equaling between 1% and 3% of GDP is generated by the tourism industry. Among the main attractions are the picturesque culture, the game reserves and local wines.
The country has a sophisticated financial structure with the JSE Securities Exchange, a large and active stock exchange in terms of total market capitalization as of March 2009. The banking industry regulated by the South African Reserve Bank is dominated by four local players: Nedbank, ABSA, Standard Bank and First Rand. Banks operating in South Africa, when left with short of liquidity, need to borrow from the SARB at a fluctuating repo rate.
South Africa is affected by vast differences in incomes and wealth. The high level of overall income inequality has accentuated: the country’s Gini coefficient increased by four percentage points, and income has concentrated in the top decile. Rural poverty rates remain higher than those in urban areas, urban poverty rates are rising and rural rates seem to be falling. Between-race inequality also remains a central issue and many blacks in the country still live in poverty.
National Income Dynamics Study (NIDS) data suggests that 47% of South Africans live below the poverty line: 56% of blacks live in poverty compared to 2% of whites. Human Poverty Index ranked South Africa 85 out of 135 countries. A 2011 study published by the University of Cape Town found that nearly 40% are black, where this group had once been almost exclusively white. While only 29% of the absolute wealthiest South Africans are black, this jumps to 50% among the “entry-level”.
Current Economic scenario & Trends:
The primary objective of monetary policy in the country is to achieve and maintain price stability and balanced economic development. Price stability reduces uncertainty and therefore, provides a favourable environment for growth and employment. Moreover low inflation contributes to the protection of the purchasing power of all South Africans specially poor. The Bank has full operational autonomy. Monetary policy is set by the Bank’s Monetary Policy Committee, which conducts monetary policy within a flexible inflation-targeting framework and it allows for inflation to be out of the target range as a result of first-round effects of a supply shock. This flexibility does not relieve the Bank of its responsibility with respect to returning inflation to within the target range but allows for interest rate smoothing over the cycle.
GDP Growth Rate of South Africa
GDP % (Yearly)
Inflation Rate of South Africa
Inflation rate (consumer prices) (%)
Unemployment Rate of South Africa
Unemployment rate (%)
Unemployment rate (%)
Imports of South Africa
Imports (Billion $)
Exports of South Africa
Exports (Billion $)
Foreign Exchange rates in South Africa (Dec., 2012)
Tthe comparison of South African rand with top ten countries as per trade.
South African Rand
inv. 1.00 ZAR
Chinese Yuan Renminbi
foreign Direct investment
Foreign direct investment flows to South Africa from 43.6% in the first half of 2012 compared to the same period last year, while FDI rose by 5%. The decline in FDI to Africa’s biggest economy came amid an 8% drop in global FDI inflows because of heightened global economic uncertainty.
The report said FDI inflows to South Africa fell to $1.7-billion in the first six months of 2012 , reflecting sluggish domestic economic growth as well as a slowdown in developed economies. The IMF forecasts South African GDP growth of 2.6% this year, and recently cut its 2013 growth forecast to 3% from a July projection of 3.3%, due to its close links to struggling Europe. The IMF has also trimmed its 2012 forecast for Africa to 5% from 5.4% but raised its projection for 2013 to 5.7% from 5.3%.
SOUTH AFRICA BALANCE OF TRADE
SOUTH AFRICA INDUSTRIAL PRODUCTION
Industrial Production in South Africa increased 2.50 percent in October of 2012 over the same month in the previous year. Industrial Production in South Africa is reported by the Statistics South Africa. In South Africa, industrial production measures the output of businesses integrated in industrial sector of the economy such as manufacturing, mining, and utilities.
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