South African Economy 

Economic Overview

South Africa is a nation of over 55 million persons located at the Southernmost point of continental Africa. As of 2016, the nation had a gross domestic product of 294.8 billion dollars, which is a significant drop from the 416.4 billion figures in 2010 (World Bank, 2017). In 2017, the World Bank (2017) projects that the economy will grow at a rate of 1.1 percent, which is a marginal increase over the previous year; projections for the next two years show marginal increments. The country’s Central Bank reports a bleaker forecast of 0.5 percent (Graham). The country also has a high unemployment rate of 27.7 percent as of this year (Trading Economics, 2017a). 

These statistics indicate that South Africa is facing headwinds in its journey to economic prosperity. The country has an ever-increasing population, but the economy is unable to keep up. This year, the South African Reserve bank had to change the base lending rates to 6.75 percent, which represents a drop of 25 basis points (Graham, 2017). These changes were necessary to avert an economic recession from happening. While monetary policies are useful in controlling economic growth, they do not seem to be working for South Africa (Holmes, 2014; Graham, 2017). This indicates that there are other factors within the economy, beyond the influence of monetary control, that need addressing. These problems originate from the use of poor fiscal and economic policies as well as unfavorable political interference. 

Economic Growth

South Africa rose to prominence during the apartheid era that was characterized by racial divisions similar to the era of segregation in the US. During the period of white rule in South Africa, the country faced numerous sanctions that left it increasingly isolated from the rest of Africa and the world. The country was endowed with vast mineral resources such as from coal, iron ore, and gold. Furthermore, the regional climate made agriculture viable (Maynard, 2016). This lack of trading partners forced South Africa to turn to local manufacturing which thrived due to the lack of external competition. Also, since money flow in and out of the country was restricted, the nation developed a remarkable banking culture and system. The problem with this growth phase was that most of the skilled and technical labor was made up of white individuals. The disparity extended to all areas of the socioeconomic sphere such as education, health, transport, electricity, security, and water. The unequal distribution of wealth meant that Africans in South Africa wallowed in a perpetual cycle of poverty while their Caucasian counterparts thrived. Even though South Africa eventually abolished apartheid, the successive governments have failed to adequately undo the decades of socioeconomic disproportionality (Maynard, 2016). 

Economic Challenges

This section will examine some of the economic issues that plague South Africa. They include unemployment, a slowdown in China’s growth, overreliance on natural resources, a weak currency, and a ballooning wage bill. 

China is one of South Africa’s biggest export markets. A such, it is no surprise that when demand for imports slowed down in China, South Africa’s economy experienced difficulties (Luke, 2016). As noted earlier, South Africa’s unemployment remains high at 27.7 percent. Notably, that is the overall unemployment rate. When one looks at the youth unemployment statistics, the figure mentioned above doubles (Trading Economics, 2017a). The country is unable to produce enough jobs for its youth, and few of them have the requisite skills for work that demands skilled labor (Luke, 2016). 

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Furthermore, South Africa like many other African nations relies on income from its natural resources. Approximately fifty percent of the country’s revenues come from the mining sector alone. This means that as commodity prices slump, South Africa’s revenues dip (Luke, 2016). A resultant ripple effect is that mining companies are forced to cut jobs. For instance, in 2015, Anglo America (a coal mining company) indicated that it would retrench over 85,000 workers to save costs due to low coal prices (Kottasova, 2015). However, even when commodity prices were high, the mining sector was plagued with demands for higher wages, widespread strikes, and reduced productivity. These issues continue to pile pressure on the mining industry as they exist to date (Luke, 2016). 

Also, South Africa’s credit rating and currency are on a continuous decline. Fitch Ratings placed the country’s credit at junk status following the President’s dismissal of his finance minister. Even though South Africa continues to attract significant investment, the trend could reverse if the problems continue to persist since they will erode investor confidence (Graham, 2017). In such a scenario, the country will be unable to obtain much-needed funding from external and internal sources. South Africa may even experience capital flight. A weak currency should be a good thing for South Africa’s exports. However, since the country is still a net importer with a negative current account, the gains made are quickly eroded and negated (Trading Economics, 2017b).

Furthermore, South Africa is being plagued by an ever-growing public wage bill that is diverting much-needed funds from developmental expenditure to recurrent expenditure. Between 2005 and 2015, the amount paid to civil servants shot up by 80 percent. There are no signs of the wage rise abating since the government agreed to increase pay by seven percent between 2015 and 2018 (Luke, 2016). 

Political Challenges

South Africa faces many problems that arise from political interference and poor policymaking. The nation’s tourism sector is one of its primary revenue sources. However, a recently enacted law that limits the entry of foreigners in the country has seen the number of tourists visiting the country drop due to bureaucracy. Moreover, parastatals such as Eskom and South African Airways are mismanaged meaning that they operate poorly and below potential. For instance, between 2014 and 2015, Eskom had to conduct a nationwide load shedding exercise due to its inability to supply enough electricity. This cost the South African economy up to 7.2 billion dollars a month. On the other hand, South African Airlines requires periodic grants just to stay afloat (Luke, 2016). Moreover, President Zuma has made numerous questionable decisions such as firing a well-respected economist, Nhlanhla Nene, from the finance docket and appointing a loyalist with inferior qualifications. That action prompted rating agencies to further downgrade South Africa’s economic growth (Sampson, 2016). 

Another common problem within South African political circles is the issue of corruption, scandals, cronyism, and nepotism. Off late, there has been growing sentiment among South Africans that the ruling class has been working towards enriching themselves (Luke, 2015).  In 2016, the president was ordered by a Constitutional Court to refund public money that he had used in building himself a palatial home (Muvunyi, 2016). The situation is not helped by the rampant infighting that exists within the ANC, which is the ruling party in South Africa (Luke, 2015). These quarrels make it hard for politicians to focus on their jobs. Recently, the president survived another impeachment motion.  

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Additionally, comments by political populists and nationalists like Julius Malema provoke antipathy towards businesses owners (who are predominantly white) and foreign investors who he blames for the loss of South Africa’s wealth. Even the previous president, Thabo Mbeki, decried the rise of race-based politics (Luke, 2015). 

Possible Solutions

South Africa needs a more inclusive growth. All persons and regions should have an equitable share of available resources. Also, the leaders should promote access to education to boost their skilled labor statistics so that they can improve economic growth and job creation. The country also needs a “do-no-harm approach” towards the development of policies. Moreover, wage growth should be proportional to the economy’s ability and not dictated by union demands. Lastly, South Africa should act fast to address the scandals and instances of corruption within its ranks to prevent an erosion of public confidence. 

Conclusion

South Africa is facing headwinds in its journey to economic prosperity. The country has an ever-increasing population, but the economy is unable to keep up. The country rose to prominence during the apartheid era where it developed local industries to sustain domestic demand. That period came to an end and ushered in a new era of racial equality in the country. Sadly, successive governments have not been able to eradicate the social problems and inequalities that existed even during apartheid. South Africa is still plagued by high unemployment, an overreliance on natural resources, a weak currency, and a ballooning wage bill. These problems are not helped by the political inefficiencies that have resulted in the mismanagement of public resources, corruption, and cronyism. Therefore, the nation needs significant changes to culture and policy.