South Africa-The Post-Apartheid Economic Miracle: The South African Economy, Which Just before the End of the Apartheid Regime Was Ailing Badly, Has Astonished the World with Its Robust Growth over the Past Decade. This Has Been Done against a Background of Greater Challenge Than Faced by the Former Regime
Siddiqi, Moin, African Business
Within the span of a decade, South Africa has revitalised its previously sanctions-gripped apartheid economy, restructured state institutions to improve the delivery of public services and established a competent macroeconomic policy framework. The International Monetary Fund (IMF) describes South Africa's socio-economic gains since democratisation as simply 'remarkable'.
Recent growth performance has been robust and the near-term outlook is broadly favourable, with economic activity supported by prudent policies and a positive environment for exporters. Consequently, the rainbow nation is enjoying its longest expansion on record, largely thanks to rising consumer spending, improving investment and a recovery in the manufacturing sector despite the strength of the rand.
Recent data confirms that South Africa achieved 28 consecutive quarters of positive growth, its longest business cycle upswing in 60 years. Rand Merchant Bank commented: "This economy is going great guns. It confirms what many have felt and data like the business confidence index has been indicating for some time."
According to the IMF, gross domestic product (GDP) grew in real terms from an annual average of 0.8% during the final decade of apartheid to a respectable annualised 3% average growth in the past 10 years. The nation's revival is all the more impressive when set against a background of socio-political stability.
Economists are generally upbeat about the sustainability of South Africa's recent growth. Riaan le Roux of Old Mutual reckons: "Another year of 4%-plus growth is very possible in 2006, as long as things do not go wrong globally or inflation pressures do not force the Reserve Bank to tighten policy aggressively."
Last year's growth was estimated at between 4.4-5%, the highest since 1984. Encouragingly, GDP per capita is now slowly rising because the economy is finally on a structurally higher growth path with the annual growth rate since 2002 averaging at 4%.
Despite these advances however, huge challenges remain. Unemployment still affects nearly 26% of the workforce and the acute income and wealth disparities inherited from the apartheid era still persist. The HIV/Aids epidemic is also inflicting untold human suffering and uncounted economic costs. About one in every six adults is thought to be HIV/Aids positive, and life expectancy is markedly declining.
The authorities have undertaken long-term programmes to tackle the country's dire social problems which, if left unsolved, could undermine the country's growth prospects through an adverse impact on labour productivity.
Powerful growth momentum
The Medium-Term Budget Policy Statement, presented last October, aims to overcome mass unemployment and abject poverty by injecting a powerful growth momentum. It projects annual growth of 4.5% over the next five years before expanding to 6% between 2010 and 2014.
Finance Minister Trevor Manuel explained his policy as "a focus clearly on accelerating growth ... [which] makes a redistribution of wealth and income possible through the process of development and not at its expense". He added that "several infrastructure sectors are critical for long-term growth and lowering the costs of doing business".
Government plans to invest about R200bn ($31.4bn) over the next five years on infrastructure projects, as well as improving public services at municipal level--notably in the education and health sectors. But robust growth requires progress on important areas including reducing skills shortages, tackling market efficiencies, improving infrastructure, stimulating technological innovations, raising the overall savings rate, as well as improving the climate for private sector investment.
After decades of isolation, the economy appears well positioned to achieve long-term growth targets. …