Economic growth is achieved by creating favourable conditions for it to occur. In 1994 there were great expectations of a dramatic turnaround in South Africa’s economic performance. It was expected that the removal of trade and financial sanctions will transform the country’s economic performance. Since 1994 we did see an improved growth performance in South Africa, particularly when compared to the previous ten years. In this assignment I gave more detail about economic achievements in South Africa since 1994.
South Africa’s economy
South Africa is the most developed country in Africa and was the largest until 2014, when it was overtaken by Nigeria. The largest sector of the economy is services which accounts for around 73 percent of GDP. Manufacturing accounts for 13.9 percent, mining and quarrying for around 8.3 percent and agriculture for only 2.6 percent. Within services, the most important are finance, real estate and business services (21.6 percent); government services (17 percent); wholesale, retail and motor trade, catering and accommodation (15 percent); and transport, storage and communication (9.3 percent).
BEE policies since 1994
Since 1994 a wide range of policies ‘ including broad-based black economic empowerment (B-BBEE) and employment equity ‘ have allowed black South Africans to participate meaningfully in the economy. In the past 20 years a number of organisations and initiatives were set up to support economic transformation, by providing financial and other support to black businesses which contributed positively to the growth of the South African economy. South Africa’s 20 years of freedom have seen inflation dropping significantly, while the economy’s gross domestic product has enjoyed sustained and unprecedented growth as indicated in the following graph.
Growth in GDP
The gross domestic product (GDP) growth rate is an indication on what happened to the prices of all final goods and services produced in the economy in a particular year.
South Africa’s average real GDP growth rate for the first decade since 1994 (i.e. 1995 ‘ 2004) was 3,0%. The 3 percent average growth rate was a disappointment relative to the expectations of many. The average standards of living as reflected in real GDP per capita have increased by 33% since 1994 which seems that South Africa have done quite well. However, during the same period the GDP per capita of emerging markets and developing countries have increased by 115% on average, which is much better than South Africa.
GDP Annual Growth Rate in South Africa averaged 3.06 percent from 1994 until 2014, reaching an all time high of 7.10 percent in the fourth quarter of 2006 and a record low of -2.60 percent in the second quarter of 2009. In 2014, the country faced a five-month strike in the platinum sector and several other weeks of strike and the economy grew only 1.5 percent, down from 2.2 percent in 2013 and the lowest since 2009 when it contracted 1.5 percent. According to the budget speech, the economy is expected to grow by 2 per cent in 2015. S009, South Africa, Not all South Africans shared to the same extent in the increase in GDP per capita. The Gini coefficient is used to measure inequality.
A Gini coefficient can vary between 0 and 1. A Gini coefficient of zero expresses perfect equality, where all values are the same for example where everyone has the same income. A Gini coefficient of one expresses maximal inequality among values for example, where only one person has all the income or consumption, and all others have none.
The Gini coefficient usually ranges between 0,3 (highly equal) and 0,7 (highly unequal). South Africa’s GINI coefficient is between 0,6 and 0,7 which is an indication that South Africa has one of the most unequal distribution of personal income in the world.
Reasons for growth performance
The main reasons for the improvement in South Africa’s growth performance after 1994 were the lifting of economic and financial sanctions. The lifting in trade sanctions resulted in an increase of 65% from 1991 to 1998 in the volume of exports and imports. South Africa’s trade performance has increased progressively over the two decades with both imports and exports growing particularly rapidly in the period up to 2008. However, the growing gap between imports and exports has led to a significant and growing trade deficit, which is cause for concern. South Africa’s trade with Asia is increasingly dominated by mining and mineral exports to China, and rapidly rising imports of value-added and increasingly sophisticated consumer and electronic goods.
An important success story is the growth in South African exports to the rest of Africa as well as the fundamental changes in the trade profile of products exported into Africa compared to South African exports to the world.The services sectors have been the pillar of South Africa’s economic growth.
On the expenditure side, the largest contributions to overall GDP growth in South Africa since 1994, were
- Household consumption spending (59%)
- Government expenditure (22%)
- Fixed investments (12,7%)
On the production side, the largest contributions were
- Financial services (1,0%)
- Manufacturing (0,5%)
- Trade sector (0,5%)
- Transport sector (0,48%)
- Agriculture and electricity sectors (0,05% each)
- Mining sector (-0,03%)
The mining sector’s contribution to GDP decreased from 11% to 5,5%. This sector was the hardest hit by labour unrest like the lot of strikes that we have witnesses.
New industries made a big difference. The cell phone industry made a contribution to an increase in the transport and communication sector’s contribution to GDP.
The financial, property and business services sector has also benefited from technological development and has been least disrupted by labour unrest. The negative side of the financial sector’s good performance is that it is party based on a sharp increase in debt of especially households. South Africa’s households are highly in debt with a debt-to-disposable income ration of 74,3% in Q4 of 2013.
In 1994 only 39.8 percent of working-age adults had a job. By the third quarter of 2013, 43.3 percent of working-age adults had a job. While the employment ratio has improved slightly since 1994, it is still far short of the international norm, which is around 60 percent.
Our country needs economic growth of around 5 per cent a year to reduce unemployment and poverty.
The two main strategic goals in the 2030 National Development Plan (NDP) released in 2012, are to double the GDP by 2030 and eliminate poverty and reduce inequality as measured by the income Gini coefficient from 0,70 to 0,60.
I end off with the opinions of a well-known economist and trade and industry minister regarding future economic growth. This may be the answer to higher economic growth for South Africa.
Economist, Jac Laubscher :
‘It will be much better for the state to align its developmental objectives with the private sector’s natural pursuit of higher profits than to expect businesses to put the profit motive aside for the sake of social objectives.’
Trade and industry minister, Rob Davies:
“Predictably, challenges remain. Job creation has been disappointing and has contributed to the relatively low alleviation of poverty and inequality.’
“Nevertheless, the economy is increasingly well-positioned for another period of sustained growth. The key challenge will be to ensure that the progress made in deepening and widening industrial development is accelerated and that this translates to more job-creating and inclusive economy in the next decade.”
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