South Africa: Country Analysis Report–In-depth PESTLE Insights Published 07/2010
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OVERVIEW
Catalyst
This profile analyzes the political, economic, social, technological, legal and environmental structure in South Africa. Each
of the PESTLE factors is explored on four parameters: current strengths, current challenges, future prospects and future
risks.
Summary
Key findings
Good performance on governance indicators, but prevalence of violent crime is a serious concern
Since the abolition of apartheid, South Africa has made repairs to its government and infrastructure, embracing democracy
and securing foreign investment. It now holds the largest economy of the African Union member states and fares well on
governance indicators when compared to other African countries. According to the World Bank’s governance indicators
(2008), the country was ranked in the 75.4 percentile for government effectiveness, the 67.8 percentile for voice and
accountability and the 71.5 percentile for regulatory quality. Other major African countries like Egypt and Nigeria have been
ranked very low on these indicators. In 2008, Egypt’s rank on these indicators was 43.1, 14.4, and 49.3, respectively, while
Nigeria ranked 13.3, 31.3, and 29.5.
Despite good performance on governance indicators, violent crime continues to plague the society. South Africa has one of
the highest murder rates per capita in the world (outside of a war zone). Some statistics show that more than 18,000
murders happened in the 12 months to March 2010. Car-jacking is also a major concern in the country. Though news
reports suggest that heavy policing during the 2010 FIFA World Cup resulted in a significant drop in violent crime, much
remains to be done in terms of increasing security in South Africa. High crime rates could have a severe negative impact on
the country’s image as a business destination.
Continuation of investment grade rating, however, surging unemployment continues to be a challenge
South Africa has made good returns on its investment to host Africa’s first FIFA World Cup during June–July 2010. The
country invested around $4.3 billion on transport infrastructure, telecommunications and stadiums. According to South
COUNTRY ANALYSIS REPORT
South Africa
In-depth PESTLE Insights
Publication Date: July 2010
Overview
South Africa: Country Analysis Report–In-depth PESTLE Insights Published 07/2010
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African Broadcasting Corporation, hotels and car rental services in South Africa saw a boom since the tournament started
on June 11, 2010. Besides short term gains, the tournament is expected to have a long-term positive effect on the economy
through increased investment and tourism. Government predictions suggest that the one-month tournament would add 0.4
percentage points to GDP in 2010. The World Cup will also help in re-branding the nation over the long run.
Despite positive economic developments, South Africa recorded high rates of unemployment in 2009 and early 2010.
Datamonitor estimates suggest that unemployment in South Africa stood at 24.3% in 2009. The recession in 2009 led to an
increase in unemployment and jobs were not created in substantial numbers in the first quarter of 2010 even as the country
emerged slowly from the crisis. Official results from Statistics South Africa indicate that about 25% of the working-age
population was unemployed in the first quarter of 2010. Results showed that the unemployment rose steeply especially in
the finance sector and the manufacturing and construction sectors in the first quarter. Datamonitor estimates suggest that
unemployment will decline only marginally in the next few years and remain close to 20% through 2013.
Affirmative social movements on the rise, but development is held back by the HIV/AIDS crisis
Social movements in South Africa have grown by leaps and bounds over the past few years, engaging in a range of local
and national actions including land occupations, electricity reconnections and reclamations of land and homes for those
who had been forcibly removed or evicted. These movements have joined forces with an array of international
organizations and have pledged to fight for sustainable development in the country. Furthermore, government-backed
socio-economic policies like the Growth Employment and Redistribution (GEAR) strategy have played a crucial role in
elevating the living standards of the black population.
However, South Africa is still grappling with the HIV and AIDS epidemic. The government has so far failed to address its
underlying cause or to offer adequate prevention and treatment programs. The total HIV prevalence rate in South Africa is
12% and around 20% of adults in the age group 20–64 are estimated to be HIV positive. In total, an estimated 5.6 million
South Africans were HIV positive in 2008. Estimates indicate that the cumulative total of people who succumbed to the
disease reached 2.53 million by the end of 2008. The number of people dying of AIDS each year continues to increase and
is expected to level off after 2015. The HIV/AIDS crisis will continue to threaten South Africa’s economic and social
progress unless the government takes serious health care initiatives.
Internationally recognized IT and telecoms infrastructure, but R&D investment remains low
South Africa’s IT standards have been lauded by international IT majors like IBM and the Shuttleworth Foundation. These
organizations have praised the South African government for applying IT standards that promote interoperability among
public sector computer systems, as well as for its initiatives towards open source software which permits users to utilize,
change and improve software and redistribute it in a modified or unmodified form. This would facilitate accountability and
transparency in public organizations and further ensure the speedy implementation of government projects and proposals.
However, South Africa spends considerably less on R&D. The expenditure on R&D accounted for 0.95% as a percentage
of GDP in 2007. South Africa will need to increase financial support to encourage R&D activities in the country in order to
compete with other emerging economies in Asia and Latin America which have been investing heavily in R&D.
Independent judiciary, but oligopolies continue to exist in the utility, transport, and mining industries
South Africa’s judiciary continue to be independent and of good quality. The legal environment for foreign investors is
considered to be secure. The courts are open to foreigners on exactly the same terms and conditions as South African
citizens. Moreover, trade and industrial activities are undertaken within the framework of a free enterprise economy. This
Overview
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has boosted foreign investment considerably in South Africa. On the other hand, the legal framework to penalize public
office holders abusing their powers is substantial. For instance, in 1999 the Public Finance Act was ratified and in 2003, the
Prevention of Corruption and Combating of Corrupt Activities Act was approved by parliament, which made it illegal to
receive kickbacks.
Although several reforms have been made, the utility, transport, and mining industries continue to be dogged by
oligopolies. In fact, dominant companies and collusive practices have been a part of the South African legal system since
apartheid. Even though the government has made efforts to introduce competition in the market, it has faced opposition
from labor organizations to protect strategic and labor intensive industries from competition.
Significant efforts are being made to preserve the country’s biodiversity, but acid mine drainage poses an
immediate environmental challenge
South Africa, along with other environmentally conscious countries, has taken substantial steps to preserve its
environmental heritage. Prominent among such measures was the declaration signed in 2006 by representatives from 21
rapidly growing cities around the world, including four South African cities, declaring their intention to protect and reinstate
urban biodiversity. Each city has committed to identifying five vital initiatives to conserve plants, animals, and natural
resources, and to put those into practice immediately. For instance, the Durban municipality is developing a ‘green by law’
strategy to protect threatened species and a list of invasive plants. Elsewhere, Cape Town is conserving its lowlands from
rapid soil erosion.
South Africa faces a water crisis that could impede economic growth and cause several health problems. An immediate
challenge facing the country is the acid mine drainage (AMD) which is polluting a vast area from the Witwaters-rand to
Mpumalanga. AMD, which occurs when mines close and stop pumping water out of shaft, has contaminated streams and
dams on the West and East Rand that feed into the Limpopo and Vaal rivers. In 2010, environmentalists warned that if the
government and industry fail to act within two years, mine water which is acutely toxic will flow out from Johannesburg’s
Wemmer Pan and seep into the city’s streets.
PESTLE highlights
Political landscape
• South Africa is an active partner of the New Partnership for African Development (NEPAD), through which it
promotes peaceful resolution to conflicts in Africa.
• The ANC has dominated South Africa’s political landscape by forming consecutive governments since 1994.
Economic landscape
• After reaching a high of 11.5% in 2008, inflation slowed to 6.2% in 2009, mostly due to easing of food prices.
• As of July 2010, Standard & Poor's (S&P) confirmed its “BBB+/A-2” long- and short-term foreign currency and
“A+/A-1” long- and short-term local currency sovereign credit ratings for the country. S&P maintains a negative
outlook for South Africa.
Social landscape
• The health care spending stood at $22.7 billion in 2009, corresponding to 7.6% of GDP. In the previous year,
health care spending stood at $22.5 billion (equivalent to 8.1% of GDP).
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• As per 2010 estimates, about 85% of the South African population comprises non-white citizens and 15% are
white citizens. In contrast, about 85% of all wealth, assets and salaries are with the white population and the
remainder is in black hands.
Technological landscape
• South Africa falls short in terms of transforming research into commercially-viable products and services. In 2009,
the country was granted only 139 patents, which is much lower than that granted to other developing nations
such as Brazil, Egypt, and Algeria.
• South Africa was ranked 62nd among 133 economies on the Network Readiness Index of the World Economic
Forum’s Global Information Technology Report (2009–10).
Legal landscape
• Under the new company act, which came into effect in April 2010, changes will be introduced to simplify the
environment for small business, boost the rights of minority shareholders, improve corporate governance, and
provide firms with an alternative to liquidation through a new business rescue process—similar to “Chapter 11”
protection.
Environmental landscape
• South Africa has developed its National Environmental Policy through a comprehensive participatory process
known as the Consultative National Environment Policy Process (CONNEPP).
• An emissions-related tax will be imposed on new passenger cars effective from September 1, 2010. This move
may add 2% to car prices on average.
Key fundamentals
Table 1: South Africa – key fundamentals
2008 2009 2010 2011 2012 2013 2014
GDP, constant 2000 prices ($ billion) 182.3 179.1 182.6 188.1 196.4 205.3 214.7
GDP growth rate (%) 3.1 -1.8 2.0 3.0 4.4 4.5 4.6
GDP, constant 2000 prices, per capita ($) 3,738.0 3,650.5 3,719.2 3,839.0 4,023.8 4,224.3 4,437.2
Inflation (%) 11.5 6.2 5.2 4.4 4.3 4.4 4.3
Exports, total as % of GDP 33.6 26.4 25.7 26.5 27.5 28.6 29.6
Imports, total as % of GDP 41.9 33.2 32.6 33.8 35.7 37.9 40.2
Mid-year population, total (million) 48.8 49.1 49.1 49.0 48.8 48.6 48.4
Unemployment rate (%) 22.9 24.3 21.4 20.1 19.5 19.2 19.1
Mobile penetration (per 100 people) 100.5 104.3 105.7 106.2 106.3 106.4 106.4
Source: Datamonitor D A T A M O N I T O R
Table of Contents
South Africa: Country Analysis Report–In-depth PESTLE Insights Published 07/2010
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TABLE OF CONTENTS
Overview 1
Catalyst 1
Summary 1
Key facts and geographic location 9
Key facts 9
Geographical location 10
PESTLE analysis 11
Summary 11
Political analysis 12
Economic analysis 15
Social analysis 18
Technology analysis 21
Legal analysis 23
Environmental analysis 25
Political landscape 28
Summary 28
Evolution 28
Structure and policies 30
Performance 35
Outlook 35
Economic landscape 37
Summary 37
Evolution 37
Structure and policies 40
Performance 42
Outlook 54
Social landscape 55
Summary 55
Evolution 55
Structure and policies 55
Performance 58
Table of Contents
South Africa: Country Analysis Report–In-depth PESTLE Insights Published 07/2010
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Outlook 61
Technological landscape 62
Summary 62
Evolution 62
Structure and policies 62
Performance 63
Outlook 65
Legal landscape 66
Summary 66
Evolution 66
Structure and policies 66
Performance 69
Outlook 69
Environmental landscape 70
Summary 70
Evolution 70
Structure and policies 71
Performance 72
Outlook 73
APPENDIX 74
Ask the analyst 74
Datamonitor consulting 74
Disclaimer 74
Table of Contents
South Africa: Country Analysis Report–In-depth PESTLE Insights Published 07/2010
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TABLE OF FIGURES
Figure 1: Map of South Africa 10
Figure 2: South Africa–key political events 30
Figure 3: South Africa – key political figures 31
Figure 4: South Africa National Assembly composition, 2009 33
Figure 5: South Africa’s historical GDP growth, 1991–2009 39
Figure 6: Market capitalization of the Johannesburg Securities Exchange, 2002–08 41
Figure 7: GDP and GDP growth rate in South Africa, 2002–13 43
Figure 8: GDP composition by sector, 2009 44
Figure 9: Agriculture output of South Africa, 2002–09 45
Figure 10: Industrial output of South Africa, 2002–09 46
Figure 11: Service output of South Africa, 2002–09 47
Figure 12: Current account in South Africa, 2002–08 48
Figure 13: External trade of South Africa, 2002–09 49
Figure 14: Balance of South Africa’s trade, 2001–08 50
Figure 15: Total foreign investments in South Africa, 2005–08 51
Figure 16: Consumer price index and CPI based inflation in South Africa, 2002–13 52
Figure 17: Unemployment and unemployment rate in South Africa, 2002–13 54
Figure 18: Expenditure on healthcare in South Africa, 2002–13 59
Figure 19: Public expenditure on education in South Africa, 2002–13 60
Figure 20: Growth rate of mobile and fixed line telephones in South Africa, 2002–13 64
Figure 21: Carbon dioxide emissions in South Africa, 2002–13 73
Table of Contents
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TABLES
Table 1: South Africa – key fundamentals 4
Table 2: South Africa – key facts 9
Table 3: Analysis of South Africa’s political landscape 12
Table 4: Analysis of the South African economy 15
Table 5: Analysis of the South African social system 18
Table 6: Analysis of South African technology landscape 21
Table 7: Analysis of South Africa legal landscape 23
Table 8: Analysis of South African environmental landscape 25
Table 9: Mid-year population by age, 2009 56
Table 10: Patents received by USPTO, 2001–09 63
Key facts and geographic location
South Africa: Country Analysis Report–In-depth PESTLE Insights Published 07/2010
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KEY FACTS AND GEOGRAPHIC LOCATION
Key facts
Table 2: South Africa – key facts
Country and capital
Full name Republic of South Africa
Capital city Pretoria
Government
Government type Republic
Head of state and government Jacob Zuma
Population 49.1 million (as of 2009)
Currency Rand
GDP per capita (PPP) $10,100
Internet domain .za
Demographic details
Life expectancy 49.2 years (total population)
50.1 years (men)
48.3 years (women)
Ethnic composition (2000) Black African (79%), white (9.6%), colored (8.9%) and Indian/Asian (2.5%)
Major religion (2000 census) Zion Christians (11.1%)
Pentecostal/Charismatic (8.2%)
Catholic (7.1%)
Other Christians (36%) (2001 census)
Country area 1,219,912 sq km
Language IsiZulu (23.8%), IsiXhosa (17.6%), Afrikaans (13.3%), Sepedi (9.4%),
English (8.2%), Setswana (8.2%) (2001 census)
Exports Gold, diamond, platinum, other minerals and materials, machinery and equipment.
Imports Machinery and equipments, chemicals, petroleum products and foodstuffs
Source: CIA D A T A M O N I T O R
Key facts and geographic location
South Africa: Country Analysis Report–In-depth PESTLE Insights Published 07/2010
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Geographical location
South Africa is located at the southern tip of the African continent.
Figure 1: Map of South Africa
Source: CIA The World Factbook D A T A M O N I T O R
PESTLE analysis
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PESTLE ANALYSIS
Summary
South Africa’s governance indicators are comparably better than those of most African countries. The country fares
particularly well on indicators like voice and accountability and government effectiveness. However, the state of law and
order continues to be grave, with increasing unemployment and atrocities committed to native whites and Afrikaners. South
Africa has a liberal economy and has patronized unrestricted trade and investments. In addition, the government offers
attractive incentives to foreign investors, particularly prospective investors in the mining sector. High rates of inflation and
falling industrial output are currently barricading economic growth. After the dismantlement of the regime of apartheid, the
newly elected democracy instilled several social welfare schemes to elevate the social status of the black population. This
was a measure to moderate the polarized social setup of the country.
The HIV/AIDS pandemic continues to overshadow South Africa’s social fabric. Approximately 5.7 million people (about 18%
of the 15–49 age group) are believed to be infected. Public spending on health has stagnated or fallen in real terms in the
past 10 years, reflecting both weak management and the government's insistence on regulating private healthcare. AIDS is
likely to knock off 0.5–0.9% off the country's annual average economic growth, and will most likely cause an increase in
government spending on health, social welfare and training. South Africa’s R&D spending is impressive, and its
telecommunications market is highly acclaimed. The South African government has been ensuring coordinated efforts to
preserve the environmental heritage of the country. Nevertheless, the booming housing and infrastructure construction
sector has been violating environmental regulations for decades. In addition, South Africa continues to face the challenge
of growing river pollution and sea water contamination, which has affected the number of tourists visiting the country.
PESTLE analysis
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Political analysis
Overview
Since the restoration of democracy in 1994, South Africa has been under the governance of a single ruling party, leading to
continuity in government policies. South Africa’s healthy relations with international organizations and neighboring countries
have consolidated its position in the global political arena. The country performs comparably well in most governance
indicators, but it has further scope for improvement in the sphere of law and order which, with increasing unemployment
and atrocity rates towards the native whites and Afrikaners, continues to be a major issue. This has caused many educated
whites to migrate to safer destinations like Australia and New Zealand. Although the ANC won its fourth consecutive
elections in April 2009, the share of the ruling party fell for the first time since the end of apartheid in 1994. It might become
difficult for President Jacob Zuma to preserve the unity of the tripartite alliance as a result of increasing friction between the
parties.
Table 3: Analysis of South Africa’s political landscape
Current strengths Current challenges
■ Good governance compared to peers
■ Continuation of ANC policies
■ Violent crime
■ Rampant corruption
Future prospects Future risks
■ Bilateral ties with the US and the UAE
■ Participation in NEPAD
■ Divisions among the ruling alliance
■ High emigration rates
Source: Datamonitor D A T A M O N I T O R
Current strengths
Good governance compared to peers
South Africa fares well on governance indicators when compared to other African countries. According to the World Bank’s
governance matters (2009), the country was ranked in the 75.4 percentile for government effectiveness, the 67.8 percentile
for voice and accountability and the 71.5 percentile for regulatory quality in 2008. Other major African countries like Egypt
and Nigeria have been ranked very low on these indicators. In 2008, Egypt’s rank on these indicators was 43.1, 14.4, and
49.3, respectively, while Nigeria ranked 13.3, 31.3, and 29.5. However, in global terms, there is much scope for
improvement.
Continuation of ANC policies
Since the restoration of democracy in 1994, South Africa has been under the governance of the African National Congress
(ANC), the anti-apartheid political party once led by Nelson Mandela. As a consequence, there has been continuity in terms
of policy implementation ever since the party came to power. Most of these policies have focused on integrating the
numerous social groups in the country and elevating the living standards of people living in the rural areas. The former
president’s market driven economic policy known as Growth, Employment and Redistribution (GEAR) played a crucial role
in making South Africa a major stakeholder in the international economy. Moreover, the Truth and Reconciliation
PESTLE analysis
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Committee headed by Archbishop Desmond Tutu spearheaded measures to reinstate the country's social heritage, which
was weakened during the apartheid era. These policies are still under enforcement.
The ANC notched up its fourth successive election victory in April 2009 and Jacob Zuma was ushered in as the president.
Zuma enjoys strong support among trade unionists and the communist party, an ANC ally, as they believe he will
redistribute South Africa's wealth in favor of the poor. However, the composition of the cabinet indicates that he will, in fact,
adopt a pragmatic approach. Moderates remain in powerful positions, although left-wingers (including the ANC's trade
union and communist allies) have been rewarded for their continuous support. President Zuma is expected to continue with
the economic policies of the ANC.
Current challenges
Violent crime
Violent crime remains a serious concern in South Africa. The country has one of the highest murder rates per capita in the
world (outside of a war zone). Some statistics show that more than 18,000 murders happened in the 12 months to March
2010. Car-jacking is also a major concern in the country. Though news reports suggest that heavy policing during the 2010
FIFA World Cup resulted in a significant drop in violent crime, much remains to be done in terms of increasing security in
South Africa. High crime rates could have a severe negative impact on the country’s image as a business destination.
Rampant corruption
Corruption is a widespread problem in South Africa. In the Transparency International’s 2009 corruption perception index,
South Africa ranked 55th among 180 countries. Corruption is considered as chronic especially in the department of police
and home affairs. For example, in July 2010, South Africa’s former police chief, Jackie Selebi, was found guilty in his long-
running corruption case. The South Gauteng High Court in Johannesburg found Jackie Selebi guilty of accepting a bribe,
amounting to $157,000 from a convicted criminal. There have also been allegations against President Zuma for not taking
action against corrupt ministers. Corruption should be overcome as it hurts the business image of the country.
Future prospects
Bilateral ties with the US and the UAE
The US government praised the South African economy for its strong economic fundamentals that helped it deal with the
global economic crisis better than more developed economies. On a trip to Africa in the second half of 2009, the US
Ministry of Foreign Affairs stressed the need to strengthen bilateral trade ties with South Africa. More than 600 US
companies already operate in South Africa. The establishment of a US-South Africa business council is being
contemplated. The South African government is also contemplating ways to strengthen its relations with the UAE in areas
of mutual interest. On July 22, 2010, the South African Department of International Relations and Cooperation and the UAE
government discussed ways to boost their bilateral relations. A number of proposed agreements are currently under
negotiation between the two countries.
Participation in NEPAD
South Africa has had good relations with its neighboring countries. South Africa’s active participation in the New
Participation for Africa's Development (NEPAD) has enabled it to claim international support towards ensuring political and
economic stability throughout the region, and in the past it has supported countries like Burundi and the Republic of Congo
PESTLE analysis
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in their efforts to restore political stability. This has provided South Africa with economic assurance from international
organizations like the African Union and the Commonwealth of Nations.
Future risks
Divisions among the ruling alliance
It might become difficult for President Jacob Zuma to preserve the unity of the tripartite alliance as a result of increasing
friction between the parties—the ruling African National Congress (ANC) and its partners in the Congress of South African
Trade Unions (COSATU) and the South African Communist Party (SACP). President Zuma's support for economic policy
continuity is likely to anger the left, especially COSATU, and this could result in fresh strikes.
High emigration rates
Almost a decade after the dismantling of apartheid, the still simmering political unrest is pushing whites out of South Africa.
The South African Institute of Race Relations (SAIRR) has estimated that of the four million whites resident during the
apartheid era, more than 800,000 whites have emigrated to other countries since 1995. Researchers at various universities
in South Africa have also found that not all South African emigrants are white; skilled black South Africans are found in
white collar professions in countries ranging from the US to the Persian Gulf. Political unrest played an important role in
driving up the number of mass emigrants in 2009. A continuation of trend will have long-term effects on the country’s
economic development.
PESTLE analysis
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Economic analysis
Overview
The South African economy has weathered the global economic crisis relatively well; the country's banking sector was
strictly regulated by the government and therefore weathered the credit crisis reasonably well. South Africa hosted Africa’s
first FIFA World Cup during June–July 2010 and has realized good economic benefits from the tournament. Despite
positive developments, the country will continue to witness high unemployment rates and paucity of power supply in the
near term,
Table 4: Analysis of the South African economy
Current strengths Current challenges
■ Inflation kept in check
■ Economic benefits from hosting the FIFA world cup
■ Unemployment soars high
■ Power situation remains difficult
Future prospects Future risks
■ Investment towards infrastructure
■ Cooperation with Russia in oil and gas
■ Negative outlook affirmed for South Africa
■ No new initiatives on privatization
Source: Datamonitor D A T A M O N I T O R
Current strengths
Inflation kept in check
Inflation in South Africa has steadily come down since 2008 when it soared to a high of 11.5%, Headline inflation slowed to
6.9% year-on-year (y-o-y) in June 2009 from 8% y-o-y in May 2009. The country witnessed an inflation of 6.2% in 2009 as
a whole, mostly due to easing of food prices. According to the South African Reserve Bank’s inflation outlook, the
consumer price index (CPI) inflation is expected to average 4.5% in the third quarter of 2010. Datamonitor estimates that
inflation will stay at 5.2% in 2010, which is well within the 6% target range of the government. Inflation is expected to further
come down to 4.4% in 2011. Control of inflation bodes well for the economy.
Economic benefits from hosting the FIFA world cup
South Africa has made good returns on its investment to host Africa’s first FIFA World Cup during June–July 2010. The
country invested around $4.3 billion on transport infrastructure, telecommunications and stadiums. According to South
African Broadcasting Corporation, hotels and car rental services in South Africa saw a boom since the tournament started
on June 11, 2010. Besides short term gains, the tournament is expected to have a long-term positive effect on the economy
through increased investment and tourism. Government predictions suggest that the one-month tournament would add 0.4
percentage points to GDP in 2010. The World Cup will also help in re-branding the nation over the long run.
PESTLE analysis
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Current challenges
Unemployment soars high
South Africa recorded high rates of unemployment in 2009 and early 2010 despite government efforts to create jobs.
Datamonitor estimates suggest that unemployment in South Africa stood at 24.3% in 2009. The recession in 2009 led to a
rise in unemployment and jobs could not be created in substantial numbers in the first quarter of 2010 even as the country
emerged slowly from the crisis. Latest official figures paint a dismal picture of the South African labor market. Official results
from Statistics South Africa indicate that about 25% of the working-age population was unemployed in the first quarter of
2010. Results showed that the unemployment rose steeply especially in the finance, manufacturing and construction
sectors in the first quarter. The number of employed persons fell by 171,000 in Q1 2010 to reach 12.8 million. Datamonitor
estimates suggest that unemployment will decline only marginally in the next few years and remain close to 20% through
2013.
Power situation remains difficult
South Africa’s urgent need for more electricity coupled with the lack of alternatives to coal power remain significant
challenges in the near term. The country has been facing severe power shortages since 2007. According to a report by
Statistics South Africa (published in May 2010), the total volume of electricity available for distribution in South Africa
decreased from 241,170 gigawatt-hours in 2007 to 229,599 gigawatt hours in 2009. To increase the production of power,
South Africa's state-run power utility, Eskom, was granted a loan of approximately $3.75 billion by the World Bank to build a
large coal plant. However, the World Bank faced criticism from the UK, the Netherlands, Italy, Norway and the US as the
project sparked concerns over climate change. On the whole, the power situation in South Africa is expected to remain
precarious and the government must take measures to rectify the situation.
Future prospects
Investment towards infrastructure
The infrastructure for mainstream business is already well-developed, and the best in the African region. The government
aims to further upgrade its transport and electricity infrastructure. An investment program worth $80 billion is planned for
the three year period 2010–12. Key projects include the Gauteng mass transit railway, a public-private partnership which is
scheduled to open in 2011–12. These investments in infrastructure are expected to lay the foundation for sustained long-
term growth.
Cooperation with Russia in oil and gas
The South African Ministry of Foreign Relations and Cooperation, in July 2010, expressed its interest to cooperate with
Russia in the joint production of mineral resources. As of 2009, the trade turnover between South Africa and Russia is only
$517 million. Recognizing the enormous potential of trade, the two countries intend to sign a number of bilateral
agreements which will favor mutual economic growth. The two countries currently cooperate on joint projects, for example,
the cooperation between Mechel and Bateman companies in processing nickel. South African companies are interested in
the development of deposits of oil and gas in Russia, while Russian investors are keen to access the South African market.
Trade turnover between the two countries is expected to increase in the next few years.
PESTLE analysis
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Future risks
Negative outlook affirmed for South Africa
Standard & Poor's (S&P) maintains a negative outlook for South Africa despite an improvement in the national budget
deficit. As of July 2010, S&P confirmed its “BBB+/A-2” long- and short-term foreign currency and “A+/A-1” long- and short-
term local currency sovereign credit ratings for the country. South Africa's BBB+ investment grade sovereign rating from
S&P remains at risk. The current credit rating by S&P will reduce South Africa’s creditworthiness.
No new initiatives on privatization
Given the size of South Africa’s economy, it has not been able to attract relatively high FDI. The inflow of capital is
dominated by portfolio investments, which are highly volatile. Attracting higher FDI would help finance the balance of
payment deficits and also spur economic growth. Privatization could be a trigger for economic growth, although revenue
accruals through privatization were minimal during 2008. No major privatization initiatives have been made in 2009.
Moreover, the Congress of South African Trade Unions is opposed to privatization, and is of the opinion that it would lead
to even higher prices and unemployment across industries. This is a cause for concern, as South Africa is dependent on
capital inflows to finance the current account deficit.
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Social analysis
Overview
South Africa is a multiethnic country frequently referred to as the “Rainbow Nation”. This is an expression used to describe
the nation’s increasing multicultural diversity, emerging from a society which was troubled by the separatist apartheid
ideology. Its history of colonization and immigration introduced an eclectic population to South Africa which had created a
society of racially diverse origins, cultures, language and beliefs, ranging from the black origins of South Africa to cultures
from Europe, India, Malaysia, and China. South Africa has transformed itself into a progressive nation seeking unity and
integrity. The social welfare system has been reinstated and was made equitable during Nelson Mandela’s presidency. This
has ensured the development of the black population in terms of employment and education. Moreover, the government is
making cautious attempts to develop an equitable and sophisticated medical system, as healthcare is one area in which
distribution is traditionally seen as skewed. However, the government still needs to ensure the reduction of the massive
corruption rate prevalent in the country and the widespread issue of HIV/AIDS is still unsolved. Additionally, rising poverty
and burgeoning food insecurity will further jeopardize South Africa’s social fabric if remedial measures are not taken.
Table 5: Analysis of the South African social system
Current strengths Current challenges
■ Affirmative social movements
■ Equitable social welfare system
■ Public education system needs to be improved
■ Poor performance on governance indicators
Future prospects Future risks
■ Proposed land reform to balance out inequality
■ HIV/AIDS pandemic
■ Poverty and income inequality
Source: Datamonitor D A T A M O N I T O R
Current strengths
Affirmative social movements
Social movements in South Africa have grown by leaps and bounds over the past few years, engaging in a range of local
and national actions including land occupations, electricity reconnections and reclamations of land and homes for those
who had been forcibly removed or evicted. These movements have joined forces with an array of international
organizations and have pledged to fight for sustainable development in the country. Furthermore, government-backed
socio-economic policies like the Black Economic Empowerment program and the Growth Employment and Redistribution
(GEAR) strategy have played a crucial role in elevating the living standards of the black population.
Equitable social welfare system
Social welfare policies in South Africa, which were incorporated after the end of the apartheid, endeavored to moderate the
differences in the distribution of wealth and income among the population. The White Paper, drafted in 1997, defined social
welfare as an integrated system of generating social services, facilities and programs with an objective to promote social
development, social justice and the social functioning of people. The broad distinction of welfare delivery into social security
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and social welfare made by the White Paper in 1997 has been rewarding. This has resulted in equitable distribution,
retirement and old age benefits, community and disability benefits, and healthcare facilities in the impoverished regions of
the country.
Current challenges
Public education system needs to be improved
South Africa's public education system needs substantial improvement in many aspects including infrastructure and
teaching quality. There have been reports of low graduation rates, under-qualified teachers, and buildings and facilities that
need repair. In several schools, there is a shortage of teachers and teaching material. The system also suffers a lack of
basic facilities such as library. According to the department of basic education, only 7% of the country’s public schools have
functional libraries. A weak educational system is a key reason for the shortage of skilled workers in South Africa.
Therefore, improving the education system is deemed necessary for improving the overall competitiveness of the South
African workforce.
Poor performance on governance indicators
South Africa has performed poorly on some social parameters. According to the United Nations Development Program’s
(UNDP) Human Development report 2009, the Human Development Index (HDI) for South Africa was 0.683, which gives
the country a rank of 129 out of 182 countries. The Human Poverty Index (HPI-1) is indicative of the proportion of people
below certain threshold levels in terms of life expectancy, access to education, and standard of living. South Africa has an
HPI-1 value of 25.4% which gives a rank of 85 among 135 countries for which the index has been calculated. The country’s
performance on these indicators suggests that much needs to be improved in terms of social development.
Future prospects
Proposed land reform to balance out inequality
Years after the end of apartheid, the majority of commercial farms in South Africa still remain in white ownership. White
farmers owned more than 85% of the nation's farmland as of 2009. To redress this situation, the Ministry of Rural
Development and Land Affairs proposed a plan to facilitate and speed up the transfer of agricultural land from white land
owners to landless black citizens. This will be achieved by identifying state land to be leased out, and private land under
freehold but with a limited scope. To assist greater participation of Black citizens in agriculture, the government also
introduced the "willing seller, willing buyer" policy that forces white farmers to sell their land to the state. Under this plan, the
government aims to transfer 30% or around 25 million hectares of agricultural land to landless black South Africans by
2014. The proposed system is expected to even out the skewed distribution of land among South Africans.
Future risks
HIV/AIDS pandemic
South Africa is still grappling with the HIV and AIDS epidemic. The government has so far failed to address its underlying
cause or to offer adequate prevention and treatment programs. The total HIV prevalence rate in South Africa is 12% and
around 20% of adults in the age group 20–64 are estimated to be HIV positive. In total, an estimated 5.6 million South
Africans were HIV positive in 2008. Estimates indicate that the cumulative total of people who succumbed to the disease
reached 2.53 million by the end of 2008. The number of people dying of AIDS each year continues to increase and is
expected to level off after 2015. The HIV/AIDS crisis will continue to threaten South Africa’s economic and social progress
unless the government takes drastic health care initiatives.
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Poverty and income inequality
Statistics on poverty show that the proportion of people living in poverty in South Africa has not changed significantly since
1996. According to latest statistics, poverty rate stood at around 45% in 2009. The number of people living in poverty
increased from 17,060,571 or 40.6% of the population in 1996, to 20,551,295 or 42.9% in 2007. According to figures
released by the State Statistical Institute (StatsSA), the average African household has lost 19% of its real income since
1995. Moreover, the gap between rich and poor has widened. As per 2010 estimates, about 85% of all wealth, assets and
salaries are garnered by white citizens who make up only 15% of the total population. The government needs to take
significant measures to bring down its poverty rate and promote equality.
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Technology analysis
Overview
South Africa’s IT standards have been universally commended. Noted IT companies and foundations have lauded the
South African government for applying IT standards within public sector organizations. The government has also
encouraged the move towards open source software, where users are permitted to redistribute existing software in a
modified or unmodified form. Information and communication technology (ICT) governance will become stricter with the
advent of the King III report. The changes made in the Protection of Private Information Act and the new Companies Act
require all companies to take steps to address ICT governance and security issues and protect information and data.
Table 6: Analysis of South African technology landscape
Current strengths Current challenges
■ Laudable IT standards
■ Policies to tighten ICT governance
■ Low investment on R&D
Future prospects Future risks
■ Agreement on nuclear energy cooperation
■ Universal broadband access by 2019
■ Duplication of telecommunications infrastructure
Source: Datamonitor D A T A M O N I T O R
Current strengths
Laudable IT standards
South Africa’s IT standards have been lauded by international IT foundation majors like IBM and the Mark Shuttleworth
Foundation. These organizations have praised the South African government for applying IT standards that promote
interoperability among public sector computer systems, as well as for its move towards open source software. Open source
software permits users to use, change and improve the software and redistribute in a modified or unmodified form. This
would facilitate accountability and transparency in public organizations and further ensure speedy implementation of
government projects and proposals.
Policies to tighten ICT governance
Information and communication technology (ICT) governance, which was weak in South Africa until recently, will become
stricter with the advent of the King III report. The Protection of Private Information Act and the new Companies Act requires
all companies to take steps to address ICT governance and security issues. Companies must ensure that users are aware
of the ICT policies and that they understand, and accept these policies. These policies will strengthen the information
security system.
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Current challenges
Low investment on R&D
South Africa spends considerably less on R&D. The expenditure on R&D accounted for 0.95% as a percentage of GDP in
2007. Low R&D investment is a key reason for the country’s low performance on innovation output indicators. This is
indicated by the low number of patents granted to the country by the US Patent and Trademark Office. In 2009, South
Africa was granted only 139 patents, which is lower than that of other developing nations. Although South Africa received a
higher number of patents in comparison with other African countries such as Egypt and Algeria, it lags behind India (720
patents received in 2009) and Russia (204 patents). South Africa will need to increase financial support to encourage R&D
activities in the country in order to compete with other emerging economies in Asia and Latin America which have been
investing heavily in R&D.
Future prospects
Agreement on nuclear energy cooperation
The South African Ministry of Energy is in the process of facilitating cooperation with the US government in the areas of
advanced nuclear energy systems and reactor technology. In September 2009, the South African government signed a
bilateral agreement with the US Department of Energy to improve the cost, safety, and proliferation resistance of nuclear
power systems. The agreement also aims to promote nuclear science and engineering infrastructure and expertise in both
countries. One such project is South Africa's Pebble Bed Modular Reactor and America’s Next Generation Nuclear Plant.
The agreement on nuclear energy reflects South Africa’s commitment to building partnerships with nations to address
shared climate and energy challenges.
Universal broadband access by 2019
The South African government aims to bring universal access to broadband by 2019. The government has finalized its
broadband policy, which will support access to e-government services. Further, the Ministry of Communication aims at
strengthening the ICT policy framework. New legislation such as the ICASA (Independent Communications Authority of
South Africa) amendment bill is expected to strengthen the governance framework of the regulator. The government is also
planning to distribute set-top boxes to poor households. The government is in discussions with the department of rural
development and land reform to develop ICT in the food and agriculture sector. These initiatives will go a long way towards
supporting economic growth.
Future risks
Duplication of telecommunications infrastructure
Present policies allow telecom service providers to undertake the construction of telecom infrastructure facilities. According
to global telecommunications companies, this might lead to the unwanted duplication of the infrastructure across the
country. As a remedial measure, the South African government should separate telecommunications infrastructure from
telephone services. This would lead to optimal utilization of the telecommunication infrastructure and also prevent
duplication of the same facilities.
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Legal analysis
Overview
The South African legal system has an independent judiciary and complies with the provisions of the World Intellectual
Property Organization (WIPO). The promulgation of the Intellectual Property Law Amendment Act and the Counterfeit
Goods Act has further ensured South Africa’s compliances with the Trade Related Intellectual Property Rights (TRIPS)
initiative and the Uruguay round of General Agreement on Trade and Tariff (GATT). Furthermore, the amalgamation of the
new companies act has simplified the process of starting a business for foreign investors. However, South Africa’s lengthy
legal procedures and dominant oligopolies continue to hamper foreign investors in some sectors.
Table 7: Analysis of South Africa legal landscape
Current strengths Current challenges
■ Independence of judiciary
■ Intellectual property rights
■ Oligopolies continue to impede competition
Future prospects Future risks
■ New company act to enhance compliance and corporate governance
■ Liberal foreign exchange controls
■ Discriminatory foreign investment practices
Source: Datamonitor D A T A M O N I T O R
Current strengths
Independence of judiciary
South Africa’s judiciary continues to be independent and of good quality. The legal environment for foreign investors is
considered to be secure. The courts are open to foreigners on exactly the same terms and conditions as South African
citizens. Moreover, trade and industrial activities are undertaken within the framework of a free enterprise economy. This
has boosted foreign investment considerably in South Africa. On the other hand, the legal framework to penalize public
office holders abusing their powers is substantial. For instance, in 1999 the Public Finance act was ratified, and in 2003 the
Prevention of Corruption and Combating of Corrupt Activities Act was approved by the parliament, which made it illegal to
receive kickbacks.
Intellectual property rights
South Africa actively participates in almost all international conventions on the protection of intellectual property. Patents,
trademarks, copyrights, and industrial designs and models are legally acknowledged. South Africa was also one of the first
signatories to the Trademarks Law Treaty at the WIPO in 1994. The Companies Intellectual Property Registration Office
(CIPRO) of South Africa oversees intellectual property rights within the country. Furthermore, the Intellectual Property Law
Amendment Act and the Counterfeit Goods Act reflects the government's determination to uphold its commitments under
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the World Trade Organization (WTO) and to protect the rights of local and foreign companies. Their promulgation has
ensured compliances with the TRIPS and agreements on the Uruguay round of the GATT.
Current challenges
Oligopolies continue to impede competition
Although several reforms have been made, the utility, transport, and mining and media industries continue to be dogged by
oligopolies. In fact, dominant companies and collusive practices have been a part of the South African business landscape
since apartheid. Even though the government has made efforts to introduce competition in the market, it has suffered
longstanding pressures from labor organizations to protect strategic and labor intensive industries from competition.
Future prospects
New company act to enhance compliance and corporate governance
A new company act came into effect in April 2010. As per the new law, several changes will be introduced to simplify the
environment for small business, boost the rights of minority shareholders, and improve corporate governance. A key aspect
of the new act is a proposed rescue scheme which will provide firms with an alternative to liquidation through a new
business rescue process—similar to “Chapter 11” protection. The new law will make compliance easier for small and
medium-sized firms and also enhance corporate governance.
Liberal foreign exchange controls
Exchange controls in South Africa have effectively been abolished in relation to non-residents. The South African
government is further pursuing a policy of gradually relaxing the remaining exchange controls applicable to residents.
Exchange control was introduced in order to stem the outflow of capital from South Africa and to ensure a measure of
stability in the current market.
Future risks
Discriminatory foreign investment practices
Since 1994, both foreign portfolio and direct investments made into South Africa have increased substantially. The South
African government is conscious of its need to attract more FDI. However, investors have to contend with a high overall tax
burden, volatile currency, a heavy regulatory environment, the dominance of large industrial conglomerates in some markets
and the requirement of BEE, which are applicable to international companies if they seek government contracts. When the
ANC came to power in 1994, it recognized BEE as a major vehicle for addressing the injustice of the apartheid regime.
However, these restrictions are most likely to limit the entry of FDI in the near future.
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Environmental analysis
Overview
South Africa is renowned for its distinctive environmental heritage. The South African government has made shared
endeavors with other developing countries to ensure safer urban biodiversity. The government further stresses the
importance of sustainable development of the environment and energy. South Africa has adapted the UN Agenda 21 on
ensuring sustainable development. Furthermore, the South African judicial system has introduced heavy penalties for
violators of environmental rules and regulations. This would enable the government to earn substantial revenue and also
curtail the ever increasing violations of environmental norms. In addition, the government has signed accords with many
corporations to get funding towards expanding inspections on different industrial sectors which tend to violate
environmental norms. However, the recent acid mine drainage is a major health and safety concern.
Table 8: Analysis of South African environmental landscape
Current strengths Current challenges
■ Coordinated efforts towards biodiversity conservation
■ Agenda towards sustainable development
■ Acid mine drainage
■ Neglect of environmental issues in infrastructure and housing construction projects
Future prospects Future risks
■ Heavier pollution penalties
■ Environmental partnership with Australia
■ Rising sea water contamination
Source: Datamonitor D A T A M O N I T O R
Current strengths
Coordinated efforts towards biodiversity conservation
Along with other environmentally conscious countries, South Africa has taken substantial steps to preserve its
environmental heritage. Prominent among such measures was the signing of a declaration to protect and reinstate urban
biodiversity by representatives from 21 rapidly growing cities around the world, including four South African cities. Each city
has committed to identifying five vital initiatives to conserve plants, animals, and natural resources, and to further put those
into practice immediately. For instance, the Durban municipality is going ahead to develop a “green by law” strategy to
protect threatened species and a list of invasive plants. On the other hand, the city of Cape Town is conserving its lowlands
from rapid soil erosion.
Agenda towards sustainable development
South Africa has successfully taken several concrete steps to implement the UN Agenda 21 on sustainable energy and
environmental development. It actively participated in many global and regional sustainable development initiatives. Further
measures taken include reforming environmental policies and ratifying international agreement. The South African
government has decided that it would do its bit to cut greenhouse gas emissions. The government has agreed that its
carbon emissions should peak between 2020 and 2025 to bring the country in line with global efforts to curb climate
change.
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Current challenges
Acid mine drainage
South Africa faces water crisis that could impede its future economic growth and cause several health problems. An
immediate challenge facing the country is the acid mine drainage (AMD) which is polluting a vast area from the Witwaters-
rand to Mpumalanga. AMD occurs when mines close and stop pumping water out of shaft; this has contaminated streams
and dams on the West and East Rand that feed into the Limpopo and Vaal rivers. In 2010, environmentalists warned that if
the government and industry fail to act within two years, mine water which is acutely toxic will flow out from Johannesburg’s
Wemmer Pan and seep into the city’s streets.
Neglect of environmental issues in infrastructure and housing construction projects
Environmental standards have been particularly neglected with regards to infrastructure and housing construction; in South
Africa, the environment still remains third priority, after economic and social issues. The Department of Environmental
Affairs and Tourism (DEAT) has said that it is not just political commitment but also commitment from citizens required to
change the government’s outlook towards environmental conservation. In South Africa, economic development,
infrastructure and service delivery have been linked directly to biodiversity. For instance, the government has given
precedence to housing, primarily aimed at the poorest sections of the society who live in shacks. However, new housing
projects have mostly been implemented with scant regard for the environment. Moreover, the South African government
has been slow in implementing its progressive environmental policies and laws, apparently due to the lack of finance,
human resources and regulatory frameworks required to put these policies into practice. Furthermore, the manufacturing
industries have frequently neglected environmental concerns, leading to massive air and river pollution.
Future prospects
Heavier pollution penalties
The South African government has introduced various penalties for violators of environmental rules and regulations. The
National Environmental Laws Amendment Bill would give the environmental management inspectors more power to police
the offenders. There are 887 such inspectors across South Africa, investigating 664 criminal cases of non-compliance with
environmental rules and regulations. In future, the proposed amendment will allow inspectors to exercise their extensive
powers, not only with respect to the conservation of national parks, nature reserves, and endangered fauna, but also for
non-compliances related to pollution and waste and the release of lethal or offensive gases. They would also be designated
as peace officers, empowered to make arrests without warrant and issue admission of guilt fines for minor environmental
offences. With these endeavors in place, South Africa is expected to be able to conserve its environmental heritage.
Environmental partnership with Australia
In February 2010, the South African Ministry for Water and Environmental Affairs entered into a partnership with the
Australian Ministry of Trade to renew its climate change partnership. The partnership aims at climate change adaptation in
the agriculture sector and monitoring of greenhouse emissions. Further, the partnership also aims at providing cleaner coal
technologies.
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Future risks
Rising sea water contamination
Durban, one of South Africa’s major tourist spots, has witnessed six of its beaches lose their Blue Flag status; Blue Flag is
an international program which certifies beaches that comply with 14 health, safety, and comfort criteria, including water
quality. Rising sea water pollution continues to threaten international tourism.
Political landscape
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POLITICAL LANDSCAPE
Summary
South Africa’s political system is headed by its president, who enjoys considerable executive powers and commandeers the
country’s armed forces. Legislative powers are embodied in a bicameral legislature, which has the National Assembly as
the upper house and the National Council of Provinces as the lower house. Although members of the National Assembly
are elected through proportional representation, the National Council of Provinces selects its members from the country's
ten provinces. South Africa’s federal structure consists of nine provincial governments whose constitutions are ratified by
the constitutional court. On ratification, the provincial governments hold responsibilities for most social and developmental
activities.
Since the restoration of democracy with the dismantling of apartheid in 1994, South Africa has largely been able to maintain
political stability. The ANC has dominated South Africa’s political landscape by forming consecutive governments since
1994. Under the leadership of the anti-apartheid leader Nelson Mandela, the party claimed victory in the first democratic
elections and maintained its leadership until the last general elections, which were held in 2009. The government’s primary
focus has been on promoting social harmony and stimulating economic growth through rapid employment generation and
investment augmentation.
The 2004 general elections witnessed the victory of ANC after it secured 69.7% of the total registered votes. Party leader
Thabo Mbeki was elected for his third presidential term. However, after his resignation on September 25, 2008, Kgalema
Motlante assumed presidential charges to serve the remainder of president Mbeki’s term until 2009. President Zuma,
leader of the ANC, was officially chosen as the country's president by the newly-elected parliament in May 2009.
Evolution
Pre 1945
South Africa did not exist as a unified self governing state until 1910. However, before the discovery of precious materials
such as diamonds and gold in the late 19th century, the emergence of such a nation was impossible because the early
history of the region was marked by economic and racial strife. Mineral discoveries in the 1860s and 1880s revolutionized
the economic and political setup of the region. Mineral extractions and exports fuelled economic growth, creating both new
market opportunities and demand for labor. The native black population was largely confined to low level settlements and
their entry to urban areas was restricted. In addition, their ownership of wealth and land was limited. When the union of
South Africa was instituted in 1910, its constitutional provisions reflected a society in which whites had gained possession
over the majority of wealth and power in the country.
The rise of an industrial economy also brought about conflict between the English-speaking white population, who were
primarily mine owners and industrialists, and the Dutch-speaking white population, who were mostly restricted to peasantry
and urban industry works. The Dutch had historically competed for higher control over land and labor and for access to
great wealth. Between 1910 and 1948, the Afrikaner nationalists and politicians organized a powerful ethnic identity. The
Afrikaners were white settlers in the interior of the country and were primarily engaged in cattle farming and hunting, as
were their native African counterparts.
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1945–2009
In 1948, the Afrikaner nationalists won control over the government and implemented apartheid, a policy that reinstated
segregationist practices and ensured Afrikaners' dominion over the political space of the country. Subsequently, after 1948
black Africans and Asians fought against the Afrikaners and white supremacy, and unanimously denied the dictum that
South Africa was a white man’s country in which other races were obliged to find economic and political autonomy within
their geographically separated communities. There were repeated protests, both peaceful and violent, by aboriginal South
Africans within the periods of official repression. Furthermore, during the 48 years of apartheid, the political boundaries
created by the Afrikaners to ensure their survival proved catastrophic for them, as well as other racial groups aiming for
supremacy. Apartheid spurred a climate of widespread intolerance which ultimately spurred economic disaster; the
appalling living standards of native Africans and ever increasing opportunities for the majority British created extreme
tensions within government bodies, and deprived South Africa of a lucrative domestic market. This had further secluded it
from other civilized states. By the end of the fourth decade of apartheid there was tremendous call for reforms from all parts
of South Africa as well as elsewhere, with the growing realization that the existing system was unendurable.
Moreover, the economic collapse emboldened political leaders from every corner of the country to take steps towards
dismantling apartheid. South Africa’s most popular anti-apartheid leader, Nelson Mandela, had a vital role in challenging
the regime of apartheid. In the mid-1980s, after nearly twenty years in prison for opposing apartheid, he assumed a central
role in dismantling it. After years of rigorous but often uneven political progress and amidst violent political unrest, South
Africa held its first multi-racial democratic elections in 1994. While both the government and opposing political parties could
claim equal success in achieving democracy, they also faced severe challenges in establishing a multi-racial society for the
future. During Mandela’s five-year term as the president, the government committed itself to reforming the social fabric of
the country. President Mandela, who was also the leader of the ANC, concentrated on national reconciliation and sought to
forge a single South African identity and a sense of purpose among the populace.
President Mandela resolved to reintroduce South Africa into the global economy by implementing a market driven
economic plan known as GEAR. In addition, in order to heal the wounds created by apartheid, the government created the
Truth and Reconciliation Committee (TRC) under the leadership of Archbishop Desmond Tutu. However, Nelson Mandela
stepped down as the president of the ANC in 1997, allowing Thabo Mbeki to assume the mantle of leadership. President
Mbeki shifted the government’s focus from reconciliation to transformation, particularly on the economic front. While
running for the third time for the ANC chair in December 2007, he was defeated by party stalwart Jacob Zuma when
members expressed unanimous dissatisfaction over Mbeki’s governing style. Despite Zuma’s victory in seeking party
presidency, Mbeki remained president until he resigned from the post on September 25, 2008. Jacob Zuma, the leader of
the ANC, was officially chosen as the country's president by the newly-elected parliament in May 2009.
Political landscape
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Figure 2: South Africa–key political events
• In 1902, the treaty of Vereeniging ended the second Anglo Boer war. The Transvaal and Orange free states were made Self governing bodies.
• In 1910, Union of South Africa was formed by former British colonies of Cape and Natal and the Boer republics of Transvaal and Orange Free state.
• In 1912, Native National Congress was founded and later rechristened as the African National Congress (ANC).
• In 1913, Land Act introduced to prevent blacks from buying land outside reserves.
• In 1919, Namibia came under South African administration
• In 1902, the treaty of Vereeniging ended the second Anglo Boer war. The Transvaal and Orange free states were made Self governing bodies.
• In 1910, Union of South Africa was formed by former British colonies of Cape and Natal and the Boer republics of Transvaal and Orange Free state.
• In 1912, Native National Congress was founded and later rechristened as the African National Congress (ANC).
• In 1913, Land Act introduced to prevent blacks from buying land outside reserves.
• In 1919, Namibia came under South African administration
• In 1948. Apartheid policy was adapted.
• In 1950, population began to be classified by race. Group Areas Act was passed to segregate Blacks and Whites. The ANC responded with campaign of civil disobedience led by anti apartheid lead Nelson Mandela.
• In 1948. Apartheid policy was adapted.
• In 1950, population began to be classified by race. Group Areas Act was passed to segregate Blacks and Whites. The ANC responded with campaign of civil disobedience led by anti apartheid lead Nelson Mandela.
• In 1961, South Africa was declared as a republic. Subsequently it left the Commonwealth of Nations.
• In 1964, ANC leader Nelson Mandela was sentenced to life imprisonment.
• In 1966, Prime Minister, HendrikVerwoerd was assassinated.
• In 1970, more than three million blacks were resettled in black homelands.
• In 1976, more than 600 people were killed in clashes between black protesters and security forces.
• In 1961, South Africa was declared as a republic. Subsequently it left the Commonwealth of Nations.
• In 1964, ANC leader Nelson Mandela was sentenced to life imprisonment.
• In 1966, Prime Minister, HendrikVerwoerd was assassinated.
• In 1970, more than three million blacks were resettled in black homelands.
• In 1976, more than 600 people were killed in clashes between black protesters and security forces.
• In 1984, township revolt spread and a state of emergency was enforced.
• In 1989, FW de Clerk replaces PW Botha as president.
• In 1990, ANC was banned and Mandela was released after 27 years of imprisonment.
• In 1994, ANC won the first non racial elections. Mandela became the president and the Government of National Unity was formed and commonwealth status was restored.
• In 1996, parliament adapted new constitution.
• In 1984, township revolt spread and a state of emergency was enforced.
• In 1989, FW de Clerk replaces PW Botha as president.
• In 1990, ANC was banned and Mandela was released after 27 years of imprisonment.
• In 1994, ANC won the first non racial elections. Mandela became the president and the Government of National Unity was formed and commonwealth status was restored.
• In 1996, parliament adapted new constitution.
• In 2001, 39 multi national pharmaceutical companies halted a legal battle to stop south Africa from importing generic Aids drugs
• In 2004, ruling ANC wins landslide victory and Thabo Mbeki was reelected as the president.
• In 2007, mass strike was conducted by thousands of public sector workers.
• In May 2009, Jacob Zuma, the leader of the ANC, was officially chosen as the country's president by the newly-elected parliament.
• In 2001, 39 multi national pharmaceutical companies halted a legal battle to stop south Africa from importing generic Aids drugs
• In 2004, ruling ANC wins landslide victory and Thabo Mbeki was reelected as the president.
• In 2007, mass strike was conducted by thousands of public sector workers.
• In May 2009, Jacob Zuma, the leader of the ANC, was officially chosen as the country's president by the newly-elected parliament.
1900-30 1931-55 1956-80 1981-2000 2000 Onwards
• In 1902, the treaty of Vereeniging ended the second Anglo Boer war. The Transvaal and Orange free states were made Self governing bodies.
• In 1910, Union of South Africa was formed by former British colonies of Cape and Natal and the Boer republics of Transvaal and Orange Free state.
• In 1912, Native National Congress was founded and later rechristened as the African National Congress (ANC).
• In 1913, Land Act introduced to prevent blacks from buying land outside reserves.
• In 1919, Namibia came under South African administration
• In 1902, the treaty of Vereeniging ended the second Anglo Boer war. The Transvaal and Orange free states were made Self governing bodies.
• In 1910, Union of South Africa was formed by former British colonies of Cape and Natal and the Boer republics of Transvaal and Orange Free state.
• In 1912, Native National Congress was founded and later rechristened as the African National Congress (ANC).
• In 1913, Land Act introduced to prevent blacks from buying land outside reserves.
• In 1919, Namibia came under South African administration
• In 1948. Apartheid policy was adapted.
• In 1950, population began to be classified by race. Group Areas Act was passed to segregate Blacks and Whites. The ANC responded with campaign of civil disobedience led by anti apartheid lead Nelson Mandela.
• In 1948. Apartheid policy was adapted.
• In 1950, population began to be classified by race. Group Areas Act was passed to segregate Blacks and Whites. The ANC responded with campaign of civil disobedience led by anti apartheid lead Nelson Mandela.
• In 1961, South Africa was declared as a republic. Subsequently it left the Commonwealth of Nations.
• In 1964, ANC leader Nelson Mandela was sentenced to life imprisonment.
• In 1966, Prime Minister, HendrikVerwoerd was assassinated.
• In 1970, more than three million blacks were resettled in black homelands.
• In 1976, more than 600 people were killed in clashes between black protesters and security forces.
• In 1961, South Africa was declared as a republic. Subsequently it left the Commonwealth of Nations.
• In 1964, ANC leader Nelson Mandela was sentenced to life imprisonment.
• In 1966, Prime Minister, HendrikVerwoerd was assassinated.
• In 1970, more than three million blacks were resettled in black homelands.
• In 1976, more than 600 people were killed in clashes between black protesters and security forces.
• In 1984, township revolt spread and a state of emergency was enforced.
• In 1989, FW de Clerk replaces PW Botha as president.
• In 1990, ANC was banned and Mandela was released after 27 years of imprisonment.
• In 1994, ANC won the first non racial elections. Mandela became the president and the Government of National Unity was formed and commonwealth status was restored.
• In 1996, parliament adapted new constitution.
• In 1984, township revolt spread and a state of emergency was enforced.
• In 1989, FW de Clerk replaces PW Botha as president.
• In 1990, ANC was banned and Mandela was released after 27 years of imprisonment.
• In 1994, ANC won the first non racial elections. Mandela became the president and the Government of National Unity was formed and commonwealth status was restored.
• In 1996, parliament adapted new constitution.
• In 2001, 39 multi national pharmaceutical companies halted a legal battle to stop south Africa from importing generic Aids drugs
• In 2004, ruling ANC wins landslide victory and Thabo Mbeki was reelected as the president.
• In 2007, mass strike was conducted by thousands of public sector workers.
• In May 2009, Jacob Zuma, the leader of the ANC, was officially chosen as the country's president by the newly-elected parliament.
• In 2001, 39 multi national pharmaceutical companies halted a legal battle to stop south Africa from importing generic Aids drugs
• In 2004, ruling ANC wins landslide victory and Thabo Mbeki was reelected as the president.
• In 2007, mass strike was conducted by thousands of public sector workers.
• In May 2009, Jacob Zuma, the leader of the ANC, was officially chosen as the country's president by the newly-elected parliament.
1900-30 1931-55 1956-80 1981-2000 2000 Onwards
Source: Datamonitor D A T A M O N I T O R
Structure and policies
Key political figures
Key political figures in South Africa are:
• President: Jacob Zuma
• Deputy President: Kgalema Motlanthe
Political landscape
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Figure 3: South Africa – key political figures
Jacob Zuma, leader of the ANC, was officially chosen as the country's president by the newly-
elected parliament in May 2009. Mr. Zuma was born in a Zulu family in 1942 and served the
ANC since 1959. He joined its armed wing Umkhonto we Sizwe in 1962 and was arrested the
following year. He spent ten years in prison for conspiracy to overthrow the apartheid-era
government. In 1999, he became the deputy president of South Africa under President Thabo
Mbeki. Mr Zuma's reputation hit a low when he was named in an arms-smuggling case, and
President Mbeki dismissed him from the deputy presidency in 2005. Furthermore, corruption
charges were leveled against him, and shortly afterwards he was charged with rape. He was
acquitted of the rape charge and corruption allegations were thrown out in April 2009. Jacob
Zuma led the ANC to a convincing election victory and was inaugurated as president on May
9, 2009.
Kgalema Motlanthe served as president of South Africa between 25th September 2008 and 9th
May 2009, completing the second elected term of Thabo Mbeki. He is currently the deputy
president of South Africa and ANC. Motlanthe is a former student activist, trade unionist and
member of the ANC's military wing Umkhonto we Sizwe during the struggle against South
Africa under apartheid. He is a left leaning intellectual and is considered to have a significant
role behind the success of Jacob Zuma.
Source: Datamonitor D A T A M O N I T O R
Structure of the government
South Africa’s current government is headed by the president, who exercises massive executive powers and serves as the
commander in chief of the armed forces. The president is elected by the National Assembly members and his other
constitutional responsibilities include assigning cabinet portfolios and signing bills into laws.
South Africa is a multi-party, parliamentary democracy where constitutional powers are shared between the president and
the parliament. The bicameral parliament consists of two houses: the National Assembly, which is the upper house; and the
National Council of Provinces (NCOP), which is the lower house. While both houses are responsible for drafting the laws of
the constitution, the National Assembly has specific control over bills relating to monetary matters. The National Assembly
is a 400 member house, members of which are elected from a list of proportional representation. The NCOP consists of 90
members, with 10 being selected from each province. The NCOP replaced the former senate as the second house of
parliament and was created to give a greater voice to provincial interest.
Provincial governments
The federal structure of South Africa comprises nine provinces which differ according to their size of population. The nine
provincial governments are formed by the list of proportional representation. The provincial premier or executive appoints
the executive council or cabinet based on party strength. The provincial constitution, on being approved by the
constitutional court, gives the provincial government responsibilities for most affairs including education, health and welfare,
agriculture, housing, and policing.
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Key political parties
The leading political parties of South Africa are the ANC, the African Christian Democratic Party (ACDP), Democratic
Alliance (DA) and the Freedom Front Plus (FF+).
ANC
The ANC is the dominant party in South Africa and was at the forefront of the anti-apartheid movement. The most defining
feature of the party has been its commitment to non-racial democracy. It is a nexus of diverse interests, with strongly
developed leftist and moderate traditions. Furthermore, the ANC has a long history of collective decision making and
strengthening consensus between regions.
The ANC notched up its fourth successive election victory in April 2009. Nevertheless, its share fell for the first time since
the end of apartheid in 1994, below the psychologically important 66% threshold, at which it could unilaterally alter the
constitution. Moreover, it also lost control of the Western Cape province to the DA, indicating that the party is slowly losing
its hold on the electorate.
Democratic Alliance
The DA is an official opposition party and was formed in June 2000. Its origin sprung from two political parties, namely the
Democratic Party (DP), which became the official opposition after the 1999 general elections, and the New National Party
(NNP). The partnership between the DP and the NNP was followed by a marked shift to the right by DP during the 1999
elections, when it grabbed the majority of the NNP’s conservative support base. In 2001, the NNP left the DA to join the
ANC alliance. In consequence, the DA’s efforts to strengthen its support base among the black population have not met
with much success. It had gained much of its support from the middle class white population, rather than the under-
privileged black population. After the 2004 general elections, the DA became the largest opposition party by securing
12.4% of the total registered votes.
Composition of the National Assembly
According to the Independent Electoral Commission, the ANC secured 264 seats in South Africa's 400-seat parliament
after winning 65.9% of the votes in April 2009 elections. The DA secured 16.66% of the votes and got 67 seats. The newly
formed Congress of the People Cope won 7.42% of the votes and secured 30 seats.
Political landscape
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Figure 4: South Africa National Assembly composition, 2009
ANC66%
DA17%
COPE7%
IFP5%
Others5%
C
Source: Datamonitor D A T A M O N I T O R
Key policies
Economic policies
South Africa weathered the economic crisis better than many countries. The IMF lauded the economy for its sound macro-
economic policies, a well-supervised financial system, and a flexible monetary regime. As per Datamonitor estimates,
economic activity in the country will quicken in the remainder of 2010 and a GDP growth of around 2% is projected for
2010.
The government is engaged in an investment program worth $80 billion over 2010–12 to upgrade the transport and
electricity infrastructure. Key projects include the Gauteng mass transit railway—a public-private partnership—that is
scheduled to open in 2011–12. Public investment is expected to boost growth over the medium term. However, the country
will continue to face high unemployment levels.
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Social policies
South Africa has undergone radical social transition since the dismantling of apartheid and as a consequence, the
government’s social expenditure and funding has increased significantly. The country’s social policies aim at building closer
ties between multiple races existent in the country. After the collapse of apartheid, the government, under the
administration of President Nelson Mandela, focused on the social elevation of the native black population, who had
traditionally been deprived of better living standards. Furthermore, improving the education and health service system has
been the prime concern of the democratic government. However, the legacies of apartheid, which had provided insufficient
education to the majority of the population and the backlogs of deficiencies in the school system, still pose social
challenges for the incumbent governing system.
The South African government proposed a new land reform in 2010. As the majority of commercial farms in South Africa
are still under white ownership, the Ministry of Rural Development and Land Affairs proposed a plan to facilitate the transfer
of agricultural land from white landowners to landless black citizens. This will be achieved by identifying state land to be
leased out, and private land under freehold but with a limited scope. The government also introduced the "willing seller,
willing buyer" policy according to which white farmers are required to sell their land to the state at commercial value. The
government has set a target of transferring 30% (25 million hectares) of agricultural land to landless black South Africans
by 2014. The government has sought to increase social spending by progressively raising the eligibility age for child-
support grants to 18 years and by lowering the pension age for men to 60 years.
Foreign policies
South Africa, after emerging from isolation caused by apartheid, has turned into a leader in political and economic matters
in the African continent. Its foreign policies aim at promoting economic development and social prosperity throughout the
African continent, particularly in neighboring countries like Botswana, Namibia and Swaziland. Furthermore, South Africa is
an active partner of the NEPAD, through which it promotes peaceful resolutions to conflicts in Africa. South Africa has
sought for assistance from international humanitarian bodies to ensure that the plights of developing African countries are
heard at international conferences. South Africa also played a crucial role in seeking an end to various conflicts within the
African continent, including the Democratic Republic of Congo and Burundi. It had pursued effective diplomatic policies in
its efforts to ameliorate the political crisis in Zimbabwe and additionally had served as the African Union’s first president
from July 2003 to July 2004. It is also a member of the Commonwealth of Nations.
The next few years will be marked by increased economic cooperation with the US, India, Russia and the UAE, among
other countries.
On a trip to Africa in August 2009, the US Ministry of Foreign Affairs stressed the need to strengthen bilateral trade ties with
South Africa. The establishment of a US-South Africa business council is being contemplated. In July 2010, the South
African Ministry of Foreign Relations and Cooperation expressed its interest to cooperate with Russia in the joint production
of mineral resources. In the same month, the government of South Africa and the UAE discussed ways to develop bilateral
relations in mutual areas of interest.
Similarly, the South African government recognizes immense business opportunities with India. The South African Ministry
of Trade and Industry at a conference suggested that while the bilateral trade volumes between the two countries have
growth rapidly, there is untapped potential for growth in trade and investment.
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Performance
Governance indicators
The World Bank report on governance uses voice and accountability, political stability and absence of violence,
government effectiveness, regulatory quality, rule of law, and control of corruption as indicators for 212 countries and
territories over the period 1996–2008. The study was carried out by Daniel Kaufmann and Massimo Mastruzzi of the World
Bank Institute, and Aart Kraay of the World Bank Development Economics Research Group. For any country, a percentile
rank of 0 corresponds to the lowest and 100 correspond to the highest rank.
As of 2008, South Africa had an impressive percentile rank of 67.8 on voice and accountability. The country’s ranking on
this indicator fell marginally since 2003, when it was ranked at 69.7. The voice and accountability parameter measures the
extent to which a country's citizens are able to participate in selecting their government, as well as freedom of expression,
freedom of association, and free media. South Africa has preserved its traditions of a direct democracy since 1994, in
which citizens are involved in important legislations. In comparative terms, it stands much higher than other major African
countries like Nigeria and Egypt, whose percentile ranks on this indicator were 31.3 and 14.4, respectively.
South Africa also ranked satisfactorily among other African nations on political stability and absence of violence, with a
percentile rank of 41.6 in 2008, which is much ahead of Nigeria which had a very low ranking of 3.3, and Egypt, which
posted a slightly better 23.
In terms of government effectiveness, South Africa had an impressive percentile rank of 75.4 in 2008, which was ahead of
Nigeria and Egypt, which were ranked at 13.3 and 43.1, respectively. Government effectiveness measures the quality of
public and civil services, and the degree of governmental independence from political pressures, the quality of policy
formulation and implementation, and the credibility of the government's commitment to such policies.
South Africa’s percentile ranking in terms of regulatory quality was 71.5 in 2008. Regulatory quality measures the ability of
the government to formulate and implement sound policies and regulations that permit and promote private sector
development. Successive governments in South Africa, mostly under the ANC, have cautiously embarked upon
investment-friendly policies. The performance on this parameter was higher than that of Egypt, which had a percentile
ranking of 49.3. Nigeria lagged behind with a low rank of 29.5 in the same year.
South Africa had percentile rank of 56 in the rule of law index in 2008. Rule of law measures the extent to which agents
have confidence in and abide by the rules of society, and in particular the quality of contract enforcement, the police, and
the courts, as well as the likelihood of crime and violence. At 52.6 percentile, Egypt had some proximity with South Africa
on this indicator. Nigeria had a very low ranking at just 11.5.
South Africa’s percentile ranking on the control of corruption index was 65.2 in 2008, which is marginally higher than its
2003 ranking of 64.1. Corruption is under control in most provinces of South Africa, although it has been more prevalent in
neighboring countries. Nigeria had a low percentile ranking at 17.9, whereas Egypt figured still higher at 29.5 on this index.
Outlook
South Africa fares relatively well in terms of governance indicators but crime and corruption continue to plague the nation.
The country has one of the highest murder rates per capita in the world (outside of a war zone). Some statistics show that
more than 18,000 murders happened in the 12 months to March 2010. A recent example of corruption in the government is
that of South Africa’s former police chief, Jackie Selebi, who was found guilty of accepting a huge bribe from a convicted
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criminal. Instances of widespread crime and corruption could have a severe negative impact on the country’s image as a
business destination.
While there exists a certain level of political stability with regard to continuation of ANC policies, it might become difficult for
President Jacob Zuma to preserve the unity of the tripartite alliance as a result of increasing friction between the parties—
the ruling African National Congress (ANC) and its partners in the Congress of South African Trade Unions (COSATU) and
the South African Communist Party (SACP). President Zuma's support for economic policy continuity will continue to anger
the left, especially COSATU, and this could result in strikes.
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ECONOMIC LANDSCAPE
Summary
South Africa’s monetary and fiscal policies enabled the economy to post stable growth rates since the 1990s until the onset
of the global economic crisis. However, over the period, South Africa has witnessed a growth in unemployment due to the
substitution of capital for labor in most of the employment generating sector. The unemployment rate has remained
significantly high since 2002 and was recorded at 24.3% in 2009. South Africa’s actual level of unemployment is much
higher however, as labor participation rates in the formal sector are low.
The social and economic benefits derived from hosting the 2010 FIFA World Cup will continue to impact South Africa over
the long run. The country could also reap the benefits of trade liberalization with the EU, its African neighbors, and more
recently with prominent Asian countries.
Evolution
Pre 1950
South Africa’s economic structure came into shape with the arrival of Dutch settlers sent by the Dutch East India Company
in 1652 to establish a provisioning station for passing ships. Colonization increased with the arrival of French and German
citizens. Subsequently, farming was greatly encouraged for commercial purposes. This made agriculture the dominant
sector in the economy. By the end of the 18th century, British settlers gained prominence in the colony and imposed English
language on the colonists. This led to the ‘Great Trek’ which resulted in a deeper penetration of farming in the region. The
‘Great Trek’ was an eastward and northeastward migration of those farmers who were descendants of settlers from
western mainland Europe. The economy was finally transformed from being primarily agriculture based to resource
dominated when gold mines were discovered in Witwatersrand in 1886. Earlier, in 1870, diamond mines were discovered in
Kimberley. The discovery of gold and diamond mines revolutionized the economy. European investment flowed in, and by
the end of the nineteenth century it was equal to all European investment in the rest of Africa. South Africa became
significant in the world economy after it started exporting gold and diamonds to the western countries and increased its
demand for a variety of agricultural imports. The cycle of economic growth was further stimulated by the expansion of the
mining industry, and with the newly found resources international demands fuelled still higher levels of growth.
During the first half of the 20th century, government economic policies were designed to cater for local consumer demand
and to reduce the country’s dependence on the mining sector by providing incentives for farming and for establishing
manufacturing operations. In 1902, South Africa finally entered a period of industrialization. During the 1920s, to encourage
the growing manufacturing sector, the government established special state corporations to provide free electricity supply
and steel for industry use. Furthermore, it imposed tariffs to safeguard local manufacturing industries. By the end of the
1930s, the manufacturing sector began to be dominated by state owned institutions. However, throughout this period, black
entrepreneurs were discouraged as new labor laws limited the rights of black workers and thereby created a large scope for
hiring low cost labor. The manufacturing sector regained its importance and experienced new growth during and after
World War II.
1945–90
The conditions required for economic expansion were present in South Africa before the beginning of World War II. Major
cities and regional commercial centers were growing and agriculture was being consolidated into large farms with greater
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emphasis on commercial farming. Moreover, mine owners and shareholders of various sectors had begun to diversify their
investments into other sectors. After the war ended, local consumer demand rose significantly. Consequently, with
persistent government support and international competitors at bay, local agriculture and manufacturing sectors began to
expand rapidly. During the 1950s and the 1960s, the government increased its role in structuring the economy, particularly
in strengthening the manufacturing sector. It also initiated large scale programs to promote the commercial farming of corn
and wheat. Government investments to establish local textile, pulp and paper industries were largely made through the
state owned Industrial Development Corporation (IDC). Investments in state corporations were also generated to enhance
the production of chemicals, fertilizers and armaments.
Both agriculture and manufacturing activities grew simultaneously, but by 1970 manufacturing output surpassed mining.
However, South Africa’s economy continued to remain vulnerable to limitations like recurrent droughts, over-reliance on
gold exports and the use of cheap and diversified labor. On the other hand, while commercial farming developed into an
important source of export revenue, agricultural production fell due to major droughts between 1960 and 1966, and 1981
and 1985. Gold continued to be the main export and revenue earner during the 1980s. However, when gold prices
fluctuated in the international market, South Africa’s exchange rate and ability to import goods suffered considerably.
Manufacturing, in particular, was affected due to the downswings in the price of gold, because it relied on imported
machinery and capital. Furthermore, many industries were isolated due to rising labor militancy, especially among black
workers, which triggered disputes and slowed productivity in the late 1980s. The economy faced recession in response to
worldwide economic conditions and the long term effects of apartheid. It registered negligible or negative economic growth
in most quarters of these years. This period remained stark, with high inflation driving up costs in most sectors.
The figure below shows the evolution of the South African economy since 1980.
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Figure 5: South Africa’s historical GDP growth, 1991–2009
-3
-2
-1
0
1
2
3
4
5
6
1991 1993 1995 1997 1999 2001 2003 2005 2007 2008 2009
Year
Gro
wth
rate
(%
)
Source: Datamonitor D A T A M O N I T O R
1991–2010
South Africa continued to be dependent on the availability of foreign loans and decent international prices for gold. Even as
some sectors began to recover by the end of 1993, intense violence and growing political instability in the face of reform
stalled economic growth in 1994. After the dismantling of apartheid, the new government under President Mandela
demonstrated its commitment towards an open market, privatization and a favorable investment climate. Formal
employment continued to decline and disparities in the distribution of income and wealth along racial lines were significant,
despite the government’s efforts to empower the black population. However, trade liberalization progressed considerably
during the late 1990s and South Africa reduced its import weighted average tariff rate from 20% in 1994 to just 7% in 2002.
These efforts, together with South Africa’s allegiance towards WTO obligations and its instrumental role in launching the
Doha Development Round, reflected South Africa’s acceptance of free market principles. Over the same period of time, the
government took several measures to reduce fiscal deficits and increase foreign exchange reserves. The government
deficits were 1.1% of the GDP in 2002 and 2.6% in 2003. Furthermore, during the 2005 budget, the government called for a
moderate increase in public spending to promote faster growth, alleviate poverty and reduce the budget deficit. Despite
recent political unrest and uncertainty over the ruling party’s future, economic policies and goals remain largely the same.
South Africa’s economy grew by 5.2% and 5.1% in 2006 and 2007 respectively, representing stability in economic growth
for the fourth consecutive year and in 2008, the growth rate came down to 3.1%. With much weaker external demand and
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prices for the country’s commodity exports, the South African economy contracted by 1.8% in 2009. The economy grew by
more than 4% in the first quarter of 2010, largely due to export demand for mining and manufacturing.
Structure and policies
Financial authorities/regulators
South African Reserve Bank
The South African Reserve Bank (SARB), established in 1921 after parliament passed the Currency and Bank Act in
August 1920, is the central bank of the Republic of South Africa. It regards the achievement and maintenance of price
stability in South Africa as its primary goal. The SARB controls credit and regulates the money in circulation primarily by
credit rationing, increasing the discount rate in times of excessive spending and lowering the discount rate in times of
business downturn and scarcity of money.
Financial Services Board
The South African Financial Services Board (FSB) is a unique, autonomous institution established by statute to supervise
the South African non-banking financial services industry in the general interest of the public. The FSB is committed to
promote and maintain a sound financial investment environment in South Africa. The FSB principally regulates the
operations of short term and long term insurers and re-insurers, retirement fund managers and portfolio managers.
Stock exchange
Johannesburg Securities Exchange
The Johannesburg Securities Exchange (JSE) was established in 1887. The JSE was licensed as an exchange under the
Securities Services Act 2004 and acts as South Africa’s premier exchange. It has operated as a market place for the
trading of financial products for nearly 120 years. Over this period of time, the JSE has evolved from a traditional floor-
based equities trading market to a modern securities exchange providing fully electronic trading, equity clearance and
settlements and financial and agricultural derivative services. The JSE is also the principal provider of financial information
to investors in South Africa. The market capitalization of the JSE has been showing a steady increase since 2000, which
has apparently been a result of an augmentation in foreign investments in South Africa’s capital market. The market
capitalization of the stock exchange came down by almost 42% to reach $483 billion in 2008 from a high of $828 billion in
2007. The market capitalization of the stock exchange reached $799 billion in 2009.
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Figure 6: Market capitalization of the Johannesburg Securities Exchange, 2002–08
0.0
100.0
200.0
300.0
400.0
500.0
600.0
700.0
800.0
900.0
2002 2003 2004 2005 2006 2007 2008
Year
Va
lue
($
bil
lio
n)
Source: Datamonitor D A T A M O N I T O R
Insurance
In South Africa, insurance is principally aimed at the low income market. South Africa has a well developed commercial
insurance industry and all insurers in the country fall under the supervision of the FSB. South Africa’s new insurance
framework permits wider participation in the insurance market and the graduation of insurance bodies from small,
underwritten entities to larger and more sophisticated options. The government is further considering proposals to amend
specific insurance legislation for the sake of simplicity and user-friendly legislations. Some of the prominent registered
insurers in South Africa are Life Direct Insurance, ABSA Insurance Company, and African General Insurance.
The South African insurance market generated a gross premium income of $3.7 billion in 2008, representing a compound
annual growth rate (CAGR) of 11.7% for the period spanning 2004–08. Life insurance sales proved the most lucrative for
the South African insurance market in 2008, generating total revenues of $2.8 billion, equivalent to 75.8% of the market's
overall value. The performance of the market is forecast to decelerate, with an anticipated CAGR of 5.7% for the five-year
period 2008-2013, which is expected to drive the market to a value of $4.9 billion by the end of 2013.
Key policies
South Africa follows liberal trade policies. It has been an active member of the WTO since January 1995 and US products
qualify for South Africa’s Most Favored Nation (MFN) tariff rates. South Africa also enjoys trade benefits under the African
Growth and Opportunity Act (AGOA), which allows most of its export products to enter the US market duty free. Currently,
South Africa is through with most import permits except for those on used products and products regulated by international
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treaties. Furthermore, it continues to comply with the reduction and simplification of tariffs within the WTO framework and
proposes active discussions with its major bodies and trading partners.
Alongside the dismantling of apartheid, South Africa also introduced a series of budgetary reforms such as the Medium
Term Expenditure Framework and the Public Finances Management Act, which particularly aimed at better reporting,
auditing and increased accountability. The programs further aimed at overhauling the existing monetary policy framework,
including inflation targeting. This resulted in an increase in transparency and predictability in the fiscal and monetary
system.
To counter the effects of the global economic crisis, the government announced a stimulus package amounting to ZAR690
billion ($83.2 billion). The government increased social spending, by progressively raising the eligibility age for child-support
grants to 18 years and by lowering the pension age for men to 60 years. To help the private sector, the government
adapted industrial incentive schemes to provide assistance from local Development Finance Institutions (DFIs).
South Africa weathered the global economic crisis better than many countries. The IMF praised the economy for its sound
macroeconomic policies, a flexible monetary regime and a well-supervised financial system. The government has planned
an investment program worth $80 billion over 2010–12 to upgrade the transport and electricity infrastructure. Key projects
include the Gauteng mass transit railway, a public-private partnership that is scheduled to open in 2011–12. Public
investment is expected to boost growth over the medium term. However, widespread unemployment and high income
inequality will continue to plague South Africa. The South African Reserve Bank (SARB) held the policy interest rate (repo)
steady at 6.5% during the Monetary Policy Committee (MPC) meeting held on July 22, 2010. As per Datamonitor
estimates, economic activity in the country will quicken in the coming months and a growth of around 2% is expected in
2010.
Performance
GDP and growth rate
The South African economy is primarily based on its well-spread infrastructural network. The post-apartheid state has
witnessed the emergence of information technology, agro-processing and electronic industries in its economy. Among the
other industries in South Africa, textiles, automobiles and fertilizers are worth mentioning. Furthermore, the machinery and
mines industries have also gained tremendous significance in the past few decades. However, economic growth had not
been able to create a dent in the endemic poverty. Economic growth in 2001 was hit by a global slowdown, with real GDP
growth rate falling from 4.1% in 2000 to 2.7% in 2001. Although agriculture was particularly affected, the aftermath of
economic recession was evident in all sectors. The outcome of slower economic growth and strained investor sentiments
led the rand to depreciate by 26% with respect to the dollar in 2001. Subsequently, the currency appeared to be stable as a
result of fresh capital inflows and the resilience of exporters which led to the restoration of investor confidence. During 2002
and 2003, economic growth rebounded to 3.6% and 3.0% respectively as the rand appreciated significantly in response to
favorable external condition and improved investor confidence.
Over the period 2004–2008, real GDP grew at an annual average rate of 4.7%. This growth had been broad based, with
the share of overall national income going to the black population rising by more than 50% in 2005 from about 40% in 1996.
South Africa’s economy grew by 5.2% and 5.1% in 2006 and 2007, respectively, representing stability in economic growth
for the fourth consecutive year. The growth rate came down to 3.1% in 2008. With much weaker external demand and
prices for the country’s commodity exports, the South African economy contracted by 1.8% in 2009. Datamonitor forecasts
Economic landscape
South Africa: Country Analysis Report–In-depth PESTLE Insights Published 07/2010
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suggest that the economy will rebound in 2010 registering a GDP growth rate of 2% during the year. The economy is
expected to grow further reaching a growth rate of 4.5% by 2013.
Figure 7: GDP and GDP growth rate in South Africa, 2002–13
0.0
50.0
100.0
150.0
200.0
250.0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Year
$ b
illi
on
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
Gro
wth
rate
(%)
GDP Real GDP growth rate
Source: Datamonitor D A T A M O N I T O R
GDP composition by sector
The South African economy is dominated by the services sector, which contributed 65.8% of its total GDP in 2009. The
services sector is followed by the industry and the agriculture sector, which contributed 31.1% and 3.1% of the GDP,
respectively, in the same year. South Africa’s mining and manufacturing base has traditionally served as the principal
revenue earner in the industry sector. However, the past decade has witnessed the booming of industries like textiles,
automobiles and fertilizers.
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South Africa: Country Analysis Report–In-depth PESTLE Insights Published 07/2010
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Figure 8: GDP composition by sector, 2009
Agriculture, 3.1%
Industry, 31.1%
Services, 65.8%
Source: Datamonitor D A T A M O N I T O R
Agriculture
South Africa primarily has a dual agricultural economy, comprising a well developed commercial sector and a
predominantly subsistence-oriented sector in the rural prefectures. According to the National Department of Agriculture,
only about 13% of South Africa’s total surface area is arable, of which 22% can be classified as land with high potential for
cultivating a variety of crops in a given season. Government-supported irrigation programs are taking into consideration 1.3
million hectares of land to build new irrigation systems. Agriculture contributed about 3.1% to the GDP of South Africa in
2009 and about 9% of total formal employment. Agricultural output saw a growth rate of 69.7% in 2008 and later contracted
by 1.4% in 2009. Agricultural output stood at ZAR76.6 billion ($9.2 billion) in 2009.
Currently, South Africa is not just self-reliant in almost all types of agriculture products, but also a major food exporter.
However, agriculture remains susceptible to droughts, primarily due to low average rainfall and a high degree of variability
in rainfall within and between seasons. South Africa’s chief agriculture products are corn, wheat, sugarcane, fruits, beef,
mutton, and dairy products. The largest area of farmland in South Africa is planted with maize, followed by wheat, and to an
extent, sunflowers and sugarcanes. Maize is the largest locally produced field crop and the most important source of
carbohydrates for human and animal consumption. Concurrently, South Africa is the world’s 11th and 12th largest producer
of sunflower seeds and sugarcane.
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Figure 9: Agriculture output of South Africa, 2002–09
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
2002 2003 2004 2005 2006 2007 2008 2009
Year
ZA
R b
illi
on
-20.0
-10.0
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
Gro
wth
rate
(%)
Agriculture output Growth rate
Source: Datamonitor D A T A M O N I T O R
Industry
The industrial sector is the second largest contributor to real GDP, after the services sector. Beginning with the light
consumption industry in the 1920s and the expansion of heavy industry with the establishment of the Iron and Steel
Corporation of South Africa (ISCOR) in 1928, the manufacturing sector in South Africa has experienced full fledged
evolution over the past 70 years. The largest industrial sector is the metal products and engineering sector dominated by
the ISCOR, which has now been privatized.
South Africa has the distinction of being the world’s largest producer of gold, platinum, manganese, chromium, vanadium,
alumino-sillicates and titanium. Moreover, it is the second largest producer of vermiculite and zirconium. The steel industry
in South Africa substantially feeds its manufacturing base and, in particular, the automotive sector. Noted companies like
Columbus Stainless Steel and Billiton’s Hillside Aluminum Smelter produce processed industrial minerals, instead of just
primary commodities. Furthermore, South Africa has an ever expanding mining industry which contributes around 50% of
its total exports. Paper and pulp, clothing and textiles, and electronics are among the other industries which have
experienced strong growth since 2002. The country’s industrial output grew at a whopping pace of 30.3% in 2007; however,
it fell to around 12% in 2008 due to the global economic downturn. Industrial output amounted to ZAR728.7 billion ($87.9
billion) in 2009; this represents a growth rate of 1.9% in 2009, down from a growth rate of 14.5% a year ago.
Economic landscape
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Figure 10: Industrial output of South Africa, 2002–09
0.0
100.0
200.0
300.0
400.0
500.0
600.0
700.0
800.0
2002 2003 2004 2005 2006 2007 2008 2009
Year
ZA
R b
illi
on
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
Gro
wth
rate
(%)
Industry output Growth rate
Source: Datamonitor D A T A M O N I T O R
Services
The services sector, spearheaded by the financial services, is one of the most lucrative in the South African economy. It
contributed 65.8% of South Africa’s total GDP in 2009. Tourism, hospitality and communication are the other chief sub-
sectors under services. The economic importance of the services sector in the South African economy has grown
considerably. As the primary employment generating sector in the country, it employs 65% of the labor force. The services
output growth rate increased from around 12.4% in 2007 to reach 5.8% in 2008. Services output reached a value of
ZAR1,578.3 billion ($190.3 billion) in 2009.
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Figure 11: Service output of South Africa, 2002–09
0.0
200.0
400.0
600.0
800.0
1,000.0
1,200.0
1,400.0
1,600.0
1,800.0
2002 2003 2004 2005 2006 2007 2008 2009
Year
ZA
R b
illi
on
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
Gro
wth
rate
(%)
Services output Growth rate
Source: Datamonitor D A T A M O N I T O R
Fiscal situation
The government’s revenue is expected to slow down due to weaker economic growth. However, the government has not
abandoned prudence, and is confident of making up for the shortfall by domestic borrowing, which will not put any strain on
the economy. According to the Ministry of Finance, the budget deficit will ease to 6.2% of GDP in the year to March 2011
from 7.3% in 2010. The government will not have to cut expenditure or raise tax rates in the near term as the public debt to
GDP ratio was relatively low at 29.5% in 2009. However, taxes may have to be raised in the future.
Current account
South Africa’s current account had been fluctuating since 2004. The current account balance as a percentage of GDP
dropped to a low -4% in 2005, from -1.1% in 2004. It went up to -6.3% in 2006 before falling drastically to -7.1% in 2007, a
level previously observed in the early 1980s. The electricity-induced production setbacks in the early part of 2008 had a
negative impact on export volumes, but this was countered by the concurrent buoyancy of commodity prices. Rising net
service and income payments to the rest of the world, reflecting increasing foreign liabilities and higher interest and
dividend outflows, contributed to the magnitude of the deficit. The current account deficit went up marginally to reach 6.6%
of GDP in 2008. In 2009, the current account deficit narrowed significantly to reach $11.5 billion in 2009; this represents a
marked improvement over a deficit of $20.1 billion recorded in the previous year.
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Figure 12: Current account in South Africa, 2002–08
-25.00
-20.00
-15.00
-10.00
-5.00
0.00
5.00
2002 2003 2004 2005 2006 2007 2008
Year
$ b
illi
on
-8.0%
-7.0%
-6.0%
-5.0%
-4.0%
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
Pe
rce
nta
ge
Current account balance Current account balance as % of GDP
Source: Datamonitor D A T A M O N I T O R
International trade
Among other African countries, South Africa has a relatively open economy. However, it has been posting a negative
balance of payments since 2002. This has mainly been due to South Africa’s heavy energy imports from Saudi Arabia and
the dominant EU import market which amounts to nearly 44% of South Africa’s total imports. At 11.1%, the US and Japan
were South Africa’s chief export markets in 2008, followed by Germany (8%), the UK (6.8%), China (6%) and the
Netherlands (5.2%).
Gold, platinum, diamonds, minerals, and machineries and equipments are the country's chief export products. Exchanges
with the rest of sub-Saharan Africa account for less than 10% of total trade. However, the level of South African exports is
50% higher than overall imports from the region. This stands testimony to South Africa’s dominant role in trade among the
member countries of the Southern African Development Community (SADC). The SADC was established in 1980 with an
aim to coordinate development projects in order to lessen economic dependence on the then existent apartheid South
Africa.
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Accounting for 11.2% of total imports in South Africa, Germany was South Africa’s most significant supplier in 2008. China
(which accounted for 11% of total imports in 2008), the US (7.8%), Saudi Arabia (6.2%) and Japan (5.5%) are the other
major source markets. Machinery equipment, chemicals, petroleum products, foodstuffs and scientific instruments are
South Africa’s chief import products. In 2009, exports and imports amounted to $78 billion and $98 billion, respectively. The
total trade fell from $209 billion in 2008 to $175 billion in 2009.
Figure 13: External trade of South Africa, 2002–09
8393
78
98
69
92
119
137
163
188
209
175
3545
5663
70
116105
35
48
6474
93
0
50
100
150
200
250
2002 2003 2004 2005 2006 2007 2008 2009
Year
$ b
illi
on
Exports Imports Total trade
Source: Datamonitor D A T A M O N I T O R
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Figure 14: Balance of South Africa’s trade, 2001–08
-25.0
-20.0
-15.0
-10.0
-5.0
0.0
5.0
2001 2002 2003 2004 2005 2006 2007 2008
Year
$ b
illi
on
-10.0
-8.0
-6.0
-4.0
-2.0
0.0
2.0
Pe
rce
nta
ge
Balance of trade Balance of trade as % of GDP
Source: Datamonitor D A T A M O N I T O R
International investment position
Foreign direct and portfolio investments
South Africa has an open investment climate and FDI has played a crucial role in the development of its economy. Since
the end of apartheid, South Africa has undertaken substantial economic reforms in order to attract more FDI, but it has
been slow in coming. However, since 2002, FDI has remained at low levels compared to other emerging market
economies. Despite an improvement in overall macroeconomic conditions and South Africa’s inherent advantages, like the
availability of natural resources and a huge market size, foreign investors have expressed little interest in acquiring,
creating or developing domestic enterprises. The annual average inflow of FDI in South Africa during 1994–2002 was less
than 1.5% of the GDP, and the government has to do a lot more to attract investment. According to the SARB, the UK is
the major source of FDI in South Africa, followed by Germany and the US. Primary recipients of such investments are the
finance and services, mining, and manufacturing sectors. The FDI in South Africa improved marginally in 2009. The stock
of FDI in the country totaled $73.7 billion in 2009, compared to $68 billion in 2008.
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Figure 15: Total foreign investments in South Africa, 2005–08
26.30
34.47
32.21 32.00
0.00
5.00
10.00
15.00
20.00
25.00
30.00
35.00
40.00
2005 2006 2007 2008
Year
$ b
illi
on
Total foreign investments
Source: Datamonitor D A T A M O N I T O R
Credit rating
As of July 2010, Standard & Poor's (S&P) confirmed its “BBB+/A-2” long- and short-term foreign currency and “A+/A-1”
long- and short-term local currency sovereign credit ratings for South Africa. S&P maintains a negative outlook for South
Africa despite an improvement in the national budget deficit.
Monetary situation
Key monetary indicators
Inflation and Interest rates
Since 2000, the South African government has set monetary policies on the basis of inflation targeting. It has particularly
focused on a practical and optimistic approach for setting interest rates in response to expected increases in inflation
outside the target range of 3% to 6%. The inflation rate in 2002 was significantly high at 9.2%, as a result of unanimous
concerns over the currency’s softness. However, inflation rates were brought down during 2003 and 2004 by the prudent
manipulation of interest rates. High international oil prices and an acceleration in food prices contributed to an increase in
inflation to 4.7% and around 7.1% during 2006 and 2007, respectively. Inflation surged ahead in 2008, especially due to
higher oil and food prices in the first half of 2008, reaching 11.5%. However, according to Statistics South Africa, headline
inflation slowed to 6.9% y-o-y in June 2009. In 2009 as a whole, the country witnessed an inflation of 6.2%.
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According to the SARB’s inflation outlook, the consumer price index (CPI) inflation is expected to average 4.5% in the third
quarter of 2010, increasing moderately after that. Datamonitor forecasts suggest that inflation will hover around 5.2% in
2010.
The South African Reserve Bank (SARB) held the policy interest rate (repo) steady at 6.5% during the Monetary Policy
Committee (MPC) meeting held on July 22, 2010.
Figure 16: Consumer price index and CPI based inflation in South Africa, 2002–13
0
50
100
150
200
250
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Year
Co
nsu
me
r p
ric
e i
nd
ex
0
2
4
6
8
10
12
14
Infla
tion
(%)
Consumer price index Inflation
Source: Datamonitor D A T A M O N I T O R
Banking
South Africa’s political transformation, together with the relaxation of exchange controls and the liberalization of African
economies, has resulted in the country becoming an increasingly important financial center. Over the past decade, South
Africa has developed a well established banking system, which compares favorably with those in developed countries and
which sets the country ahead of many other emerging market economies. By the end of 2004, the banking sector in South
Africa found itself with a matured banking technology, a moderate rate of private indebtedness and a respectable regulatory
and legal framework. In addition, South African banks are well managed and mostly use sophisticated risk management
systems and corporate governance structures in conducting banking operations. South Africa’s banks are regulated as per
the norms of the Basel Committee on Banking Supervision. Consequently, banks comply with international sound banking
practice laws and offer a sophisticated banking system to the public.
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Five major banking groups control South Africa’s banking sector: Absa Group, the Standard Bank Group, the First Rand
Bank Group, Investec, and Nedcor. After the dismantling of apartheid, there were a number of small and medium scale
banks in the country. However, during the latter part of 1999, many of these faced challenges in the form of a liquidity
crunch. This led many of the small and medium scale banks to exit from the banking system. In 2007, small local banks
constituted 3.1% of the total banking sector assets, in comparison to 21.7% during 1994. This phenomenon was well
reflected in the consolidation of the broader banking sector, rather than a failure in the small and medium banking sector.
The country’s banking system has not been severely affected by the global economic crisis due to limited exposure to the
high-risk securities.
Employment
In South Africa, the service sector employs 65% of the total workforce. Financial services, tourism and transport are its
chief sub–sectors, employing the majority of workers in the sector. Service is followed by the industry sector, which
employs 26% of the total workforce. The majority of industrial workers are engaged in manufacturing and mining related
activities. At 9%, agriculture contributes the least to total employment, with the majority of agricultural workers engaged in
livestock and dairy related activities.
Employment growth has largely shown a declining trend since 2002, except for 2003, when it grew impressively at a rate of
3.4%. Overall employment growth recorded an annual average growth of 0.3% between 2002 and 2007, which is
significantly lower than most emerging economies. In addition, the average annual unemployment rate was alarming, at
around 23% between 2002 and 2008. According to labor force survey by Statistics South Africa, about 267,000 South
Africans lost their jobs during the first and second quarters of 2009. The country's official jobless rate stood at 23.6% of the
labor force in the second quarter of 2009, a slight increase from 23.5% in the first quarter. The survey also revealed that a
total of 4.1 million people were unemployed in the second quarter of 2009. Unemployment rate jumped to a high of 24.3%
in 2009. The recession in 2009 led to a rise in unemployment and jobs could not be created in substantial numbers in the
first quarter of 2010 even as the country recovered from the economic crisis. As per Datamonitor forecasts, unemployment
will reduce slightly to reach 21.4% in 2010.
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Figure 17: Unemployment and unemployment rate in South Africa, 2002–13
0
1
2
3
4
5
6
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Year
Nu
mb
er
of
un
em
plo
ye
d
(mil
lio
ns
)
0
5
10
15
20
25
30
35
Ra
te o
f un
em
plo
ym
en
t (%)
Total unemployment Rate of unemployment (%)
Source: Datamonitor D A T A M O N I T O R
Outlook
With strong economic fundamentals and fiscal policies in place, South Africa was relatively resilient to the global economic
crisis. The country also made good returns on its spending to host Africa’s first FIFA World Cup during June–July 2010.
According to South African Broadcasting Corporation, hotels and car rental services in South Africa saw a boom since the
start of the tournament. Aside from short term gains, the tournament is expected to have a long-term positive effect on the
economy through increased investment and tourism. The World Cup will also help in re-branding the nation over the long
run.
Furthermore, the government has planned an investment program worth $80 billion during 2010–12 with the aim of
upgrading the transport and electricity infrastructure. The next few years will also see increased trade and investment
activity between South Africa and other countries including the US, the UAE, Russia and India. Inflation has been brought
down from 11.5% in 2008 to 6.2% in 2009. Datamonitor estimates that inflation will stay at 5.2% in 2010, which is well
within the 6% target range of the government. However, high unemployment will continue to be a problem in the near term.
The South African economy is expected to grow by 2% in 2010.
Social landscape
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SOCIAL LANDSCAPE
Summary
South Africa, with its low human development indicators, is placed 129th out of the 182 countries in the United Nations
Development Program’s Human Development report (2009). There has been some improvement in South Africa’s social
setup after the dismantlement of the apartheid years. While the majority of South Africa’s population falls under the working
age group, life expectancy for the total population is significantly low, and the infant mortality rate is extremely high, at 43.8
deaths per 1,000 live births. This is primarily due to the lack of quality healthcare in the impoverished regions of the
country. South Africa is also characterized to have the world’s largest number of HIV/AIDS infected population. Although
the government has made ambitious plans towards improving the healthcare system, private healthcare expenditure
dominates South Africa’s total healthcare expenditure outlay. However, government and international humanitarian agency
supported anti-retroviral treatment centers have played a significant role in reducing the spread of AIDS. In the sphere of
education, the government needs to make substantial efforts to spur the equitable distribution of education services. The
president’s lead project, started with the patronage of former president Nelson Mandela, has brought substantial changes
within the education setup by upgrading the schooling and higher education system in semi-urban and rural areas.
Evolution
The social evolution of South Africa is largely similar to that of other European colonies in the African continent. South
Africa’s transition to democracy had been peaceful, with the country making considerable progress in addressing the deep
seated inequalities of the past. The material wellbeing of the majority of the population, neglected during the apartheid era,
has witnessed some improvement. However, overall social development has been slow, with a spiraling crime rate and the
HIV/AIDS pandemic continuing to hamper growth.
Social policies have been evolving since the end of apartheid in 1994. The government has increased its focus on making a
greater number of health and educational services available to the rural population. Health facilities, particularly anti-
retroviral treatment facilities, have increased substantially in rural and suburban areas particularly affected by the AIDS
endemic. The GEAR strategies and BEE instilled by the Mandela government have played a pivotal role in elevating the
living standards of the black population.
Structure and policies
Demographic composition
Age and gender-wise composition
South Africa’s age structure indicates that 65.9% of the population lies within the 15–64 age group. 28.6% of the population
is within the 0–14 age group, and 5.5% of the population is above 65 years. With this age structure, South Africa reflects a
demographic structure similar to most African countries, which have a significantly large working population and a low
ageing population. The birth rate on the other hand has experienced a gradual decline since 1990. Sex ratio at birth is 1.02
males per female. Life expectancy for the total population is recorded at 49.2 years; for the male population it is 50.1 years
and for female it is 48.3 years. South Africa’s infant mortality rate is extremely high, at 43.8 deaths per 1,000 live births.
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Table 9: Mid-year population by age, 2009
Age group Female Male Total
0–4 1.9 1.9 3.9
5–9 2.1 2.1 4.3
10–14 2.3 2.4 4.7
15–19 2.5 2.5 5.1
20–24 2.4 2.4 4.8
25–29 1.9 2.0 3.9
30–34 1.5 1.6 3.1
35–39 1.3 1.3 2.6
40–44 1.3 1.1 2.4
45–49 1.2 1.0 2.2
50–54 1.1 0.8 1.9
55–59 0.9 0.7 1.6
60–64 0.7 0.5 1.2
65–69 0.5 0.4 0.9
70–74 0.4 0.3 0.7
75–79 0.3 0.2 0.4
80+ 0.3 0.1 0.4
Source: Datamonitor D A T A M O N I T O R
Females comprise 51.4% and males 48.7% of the total population.
Urban/rural composition and migration
South Africa has an uneven population distribution, with the majority living in small unorganized urban settlements. In 2008,
61% of the population is classified as living in an urban environment. However, the majority of the urban population lives in
small towns. Johannesburg is the largest city, while other large cities are Pretoria, Cape Town and Durban. Cape Town has
the largest population and the highest population density as well.
Black Africans account for around 79% of the total population, with the remaining section of the population dominated by
the whites at 9.6%, colored at 8.9% and Indian Asians at 2.5%. The largest group includes Zulu, Xhosa, Northern Sotho
and Southern Sotho. About 60% of whites are descendants of the Dutch, French, Huguenot and German settlers and about
40% are of British descent. The Asians include descendants of Indian, East Indian, and Chinese indentured laborers who
were not repatriated after their brief period of service as miners.
Since 1999, one of South Africa’s main challenges has been the increasing cross border migration. In addition to the large
number of undocumented migrants entering the country, South Africa receives some 1000 new migrant asylum seeker
applications every month. Furthermore, as per 2010 estimates, the net migration rate was -3.1 migrants per 1000
population. There has been an increase in the flow of Zimbabweans and people from Botswana into South Africa in search
of better economic opportunities. However, the government views migration levels as satisfactory, as when compared to
many other countries of similar social setup.
Religious composition
South Africa’s diverse religious composition consists of Zion Christians (11.1%), Pentecostal/Charismatic (8.2%), Roman
Catholic (7.1%), Methodist (6.8%), Dutch Reformed (6.7%), Anglican (3.8%), other Christians (36%), Muslim (1.5%), others
(2.3%) and unspecified (1.4%). About 15% of the population claims no formal religious affiliation, but many of these
Social landscape
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individuals practice traditional indigenous customs. Furthermore, there are some who combine traditional practices with
Christianity. In South Africa, relations between most religious groups have largely been amenable.
Education
The post-apartheid government still faces the challenge of creating an educational system that provides quality education
to all citizens of South Africa. However, the educational legacy left by the apartheid government has not been easy to
dismantle. Literacy rates among the black population remain low, and education facilities in the townships and rural areas
need to be upgraded. During the apartheid government, education for whites was free and compulsory between the ages of
seven and 16. On the other hand, attendance was not generally compulsory for blacks. In the mid-1980s, adult literacy was
close to 100% for whites and about 50% for blacks. The post-apartheid government established the National Ministry of
Education in 1994, and an educational system comprising of nine provincial sub-systems was created. In 1995, President
Mandela launched the presidential lead project on developing a culture of education, learning and teaching. The program
revised school governance structures, increasing school attendance and renovating hundreds of schools across the
country.
Schooling in South Africa comprises seven years of primary and five years of secondary education. Within secondary
education there are three years of lower secondary, followed by two years of upper secondary. In South Africa there are 21
national universities and 15 technical institutions that provide tertiary level vocational training. Universities provide
education at the bachelors, masters and doctoral levels. The University of Pretoria, the University of South Africa and the
University of Witwatersrand are some of the well known universities providing formal higher education in South Africa. On
the other hand, the Cape Peninsula University of Technology, the Central University of Technology and the Durban Institute
of Technology are specialized in providing vocational training to students.
Healthcare
Healthcare services
During South Africa’s years of apartheid, the quality of health services available to the entire population was grossly
unequal. As a consequence, heath status varied significantly between population groups. With the dismantling of apartheid
in 1994, considerable efforts have been made to revamp the healthcare sector. The focus of the healthcare system has
shifted from a curative to a preventive approach. Furthermore, the broader health objective of primary healthcare now
guides the development of health policy in South Africa. Since the new policy, priorities have been implemented and
several new clinics offering primary healthcare facilities have been built or upgraded. Moreover, the Department of Health
(DoH) has pursued the Hospital Revitalization Program (HRP), which has led to the construction of eight new publicly run
referral hospitals in prominent cities.
However, challenges posed by the HIV/AIDS epidemic reflect that performance on the key healthcare indicators has been
declining. Furthermore, South Africa’s health status performance remains poor when compared to other countries with
similar levels of economic development. Other major challenges faced by the healthcare sector include inequalities in the
level and quality of healthcare services offered in public and private sectors, and the perennial dearth of human resources,
which restricts the possibilities of improving the performance of the healthcare sector.
Social landscape
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Social welfare
Social welfare policies
The New Social Welfare Policy in South Africa, enacted after the demise of the apartheid era, aimed to reduce racial
inequalities in the distribution of state wealth towards older citizens. In the past, however, the South African state expected
all individuals to fend for themselves in old age. State pension levels during the apartheid and pre-apartheid era were
inequitable and allowed older whites to enjoy proportionately more state support than their counterparts in other racial
groups. Subsequently, a white paper was drafted in 1997 for transforming the entire social welfare system. The white paper
defined social welfare as an integrated and comprehensive system of social services, facilities, programs, and social
security in order to promote social development, social justice and the social functioning of people.
Critically, the white paper identifies two branches of welfare delivery, namely social security and social welfare services.
The social security system provides benefits to individuals for the upbringing of children and for job-related securities.
Broadly, four elements are identified within the scope of the social security package, namely private saving, social
insurance, social assistance and social relief. Social welfare, on the other hand, is centered towards providing retirement
and old age benefits, disability and community benefits, and healthcare facilities in the impoverished prefectures of the
country.
More than 15 years since the end of apartheid, the majority of commercial farms in South Africa still have white ownership.
To redress this situation, the Ministry of Rural Development and Land Affairs proposed a plan to introduce a system to
facilitate and speed up the transfer of agricultural land from white land owners to landless black citizens. Under this
proposal, the government will identify state land to be leased out and private land under freehold but with a limited scope.
The government also introduced the "willing seller, willing buyer" policy that forces white farmers to sell their land to the
state at commercial value. The government has set a target of transferring 30% (25 million hectares) of agricultural land to
landless black South Africans by 2014.
Performance
Healthcare
In 2009, national healthcare expenditure stood at $22.2 billion. This was higher than in other countries with a similar level of
economic development and similar to that of some high income countries in Africa and Asia. However, the country’s
performance on healthcare indicators remains inferior to that of upper-middle income countries. One of the key challenges
facing the South African healthcare sector in terms of healthcare funding is the inefficient distribution of resources.
The primary indicator of this is the public-private sector split in healthcare funding; around 40% of total healthcare spending
takes place in the public sector, which serves around 80% of South Africa’s total population. The remaining 60% of
healthcare spending is confined to the remaining 20% of the population capable of accessing private healthcare. As a
consequence of such inequitable spending, the quality of healthcare services available in South Africa remains unequal.
Although the demand for public sector healthcare services has increased significantly, public sector healthcare expenditure
per person has been stagnant for a considerable amount of time. This has particularly been an outcome of the HIV/AIDS
epidemic. ASSA placed the number of South Africans infected with AIDS by mid-2008 at 5.63 million. However, the
prevalence of AIDS varies significantly with sex, age, race and geographical location. Despite the various anti-retroviral
treatment measures being taken, the ASSA expects that by the end of 2008, around 367,000 people will succumb to the
disease.
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In contrast to public spending, expenditure from the private sector has witnessed an upward trend since the 1980s. This
has been a consequence of increasing premiums being charged by medical aid companies. Nevertheless, the fee hikes
have resulted in medical aid membership becoming unaffordable to a growing number of South Africans. Moreover,
medical scheme membership has declined significantly as a percentage of total population, from 17% in 1992 to 14.8% in
2005.
However, the key challenge that faces the present healthcare performance is the chronic shortage in human resources. In
2009, the Ministry of Health stated that the shortage of health professionals was a key reason that could keep the country
from reaching its goal of providing treatment for 80% of the people living with HIV/AIDS by 2011.
The government has termed this as a severe problem of brain drain, which can only be managed by increasing the
efficiency of the entire healthcare system of the country. The health care spending in South Africa stood at $22.2 billion in
2009, corresponding to 7.6% of GDP. Datamonitor forecasts suggest that expenditure on health care will increase
significantly in the next few years; health care spending is estimated to reach $28.7 billion in 2013, constituting 8.2% of
GDP.
Figure 18: Expenditure on healthcare in South Africa, 2002–13
0
5
10
15
20
25
30
35
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Year
$ b
illi
on
6.8
7
7.2
7.4
7.6
7.8
8
8.2
8.4
Pe
rce
nta
ge
(%)
Healthcare expenditure Healthcare expenditure as % of GDP
Source: Datamonitor D A T A M O N I T O R
Social landscape
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Income distribution
Despite the end of the apartheid era and the democratically elected government charting out ambitious plans to ensure the
equitable distribution of income, South Africa still has to make considerable attempts to accomplish its targets. The Gini
coefficient was posted at 0.65 in 2005, reflecting the high degree of inequality in the distribution of income and wealth. This
was well above comparable emerging economies such as Brazil and Vietnam, for which the Gini Coefficient had been
recorded at 0.56 in 2005 and 0.37 in 2004. As per 2010 estimates, about 85% of the South African population comprises
non-white citizens and 15% are white citizens. In contrast, about 85% of all wealth, assets and salaries are confined to
white people and the remainder is in black ones. Although some of the black population have benefited from black
empowerment policies and employment equity, they remain unskilled and vulnerable to economic disparities.
Education
The South African population has a literacy rate of 86.4%. The Department of Education is the major source of funding for
public educational institutions in the country. In addition, it also funds institutions functioning under various religious
organizations. The Education Labor Relations Council also funds the surveys conducted by state and environment
educators. Assistance has also been received from the international community, such as the United States Agency for
International Development, the EU and the Swedish International Development Agency. Spending on education as a
percentage of GDP is estimated to decline slightly in 2010 and then increase through 2013. Expenditure on education
stood at $14.6 billion in 2009, corresponding to 5% of GDP. It is forecast to increase to $18.5 billion in 2013.
Figure 19: Public expenditure on education in South Africa, 2002–13
0
2
4
6
8
10
12
14
16
18
20
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Year
$ b
illi
on
4.6
4.7
4.8
4.9
5
5.1
5.2
5.3
5.4
5.5
Pe
rcen
tag
e (%
)
Education expenditure Expenditure as % of GDP
Source: Datamonitor D A T A M O N I T O R
Social landscape
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Outlook
According to the United Nations Development Program, South Africa’s HDI ranking stands at 129 out of the total 182
countries ranked in 2009. Although the post-apartheid governments have taken various steps to reduce the widening
disparities between communities, income and health disparities have negated its impact. As a result, poverty is stark
among unskilled black South Africans, particularly those confined to rural and unorganized semi-urban regions. The
majority of commercial farms in South Africa are still under white ownership. The Ministry of Rural Development and Land
Affairs proposes to speed up the transfer of agricultural land from white land owners to landless black citizens. In addition,
under the "willing seller, willing buyer" policy, white farmers will be required to sell their land to the state at commercial
value. The government has set a target of transferring 30% (25 million hectares) of agricultural land to landless black South
Africans by 2014.
South Africa’s health initiatives aim at moderating the spread of the AIDS epidemic. However, the total HIV prevalence rate
in South Africa is 12% and around 20% of adults in the age group 20–64 are estimated to be HIV positive. Estimates
indicate that the cumulative total of people who succumbed to AIDS reached 2.53 million by the end of 2008. The number
of people dying of AIDS each year continues to increase and is expected to level off only after 2015. In the light of these
figures, South Africa’s strategic plan on HIV/AIDS which aims at providing treatment to 80% of patients by 2011 appears
far-fetched.
Technological landscape
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TECHNOLOGICAL LANDSCAPE
Summary
Technological innovation in South Africa is supported by significant R&D expenditure. South Africa’s gross spending on
R&D has doubled between 1997 and 2005 but remains low in comparison with developed economies. The country has
complied with the provisions of the WIPO and IPR laws. Moreover, patents and trademarks are well recognized and
implemented to preserve business interests. The telecommunications sector is one of the fastest growing in the economy.
Furthermore, South Africa’s mobile communication system is the fourth largest in the world, in terms of number of users.
However, bandwidth service remains limited and expensive in South Africa, when compared to many other countries of
similar economic structure. The government has expressed its willingness to moderate bandwidth cost and increase its
accessibility in due course.
Evolution
Structure and policies
South Africa has laid great emphasis on R&D for developing world-class technologies. The Ministry of Science and
Technology was created in 2004, leading to the development of the National Research and Development Strategy (NRDS).
The NRDS focuses on generating and enhancing innovation, strengthening science, engineering and technology, human
resources, and creating an effective government science and technology system.
South Africa’s telecommunications policies are at crossroads. The path towards national economic growth and equitable
development within the ICT sector has been fraught with troubles. However, the South African government has indicated its
commitment to promote the technology sector in order to stimulate economic growth. As part of this strategy, the
government has been engaged in limited telecommunications deregulation activities for a number of years since granting
wireless operator licenses in 1993 and implementing the provisions of the Telecommunications Act in 1996.
Intellectual property
South Africa has well established IPR laws and is a member of most of the international conventions related to the
protection of intellectual property. Patents, trademarks, copyrights and industrial designs are legally recognized in South
Africa, which was one of the first signatories to the Trademarks Law Treaty of the WIPO in 1994. The Companies and
Intellectual Property Registration Office (CIPRO) of South Africa oversees issues related to intellectual property rights
within the country.
The Intellectual Property Laws Amendment Act and the Counterfeit Goods Act reflect South Africa’s determination to
uphold its commitments under the WTO and to protect the rights of local and foreign companies operating in the country.
The act’s promulgation ensures allegiance with the Trade Related Intellectual Property Rights (TRIPS) initiative of the
Uruguay round of the General Agreement on Trade and Tariff (GATT). The act further complies with the TRIPS agreement
by amending the Patents Act. Amendments to the Patents Act removed uncertainties over payment of renewal fees for
patents, assessment of damages, and the principal of privilege regarding communications to and by patent agents. The
number of patents granted to South Africa by the US Patent Trademark Office (USPTO) increased from 116 in 2007 to 139
in 2009. The number of patents in the country compares well with emerging markets like Brazil but is far below the number
of patents granted to developed economies.
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Table 10: Patents received by USPTO, 2001–09
Year South Africa Brazil Germany Japan US
2002 123 112 11,957 36,339 97,125
2003 131 180 12,140 37,248 98,590
2004 115 161 11,367 37,032 94,129
2005 108 98 9,575 31,834 82,586
2006 127 148 10,889 39,411 102,267
2007 116 118 10,012 35,942 93,691
2008 124 133 10,086 36,679 92,001
2009 139 148 10,353 38,066 95,037
Source: Datamonitor D A T A M O N I T O R
Research and development
South Africa’s R&D funding from abroad is high at 10.7% of total R&D funding in 2008. This is supposedly due to South
Africa’s special position and competence as a major international medical research hub, especially related to HIV/AIDS.
However, in other areas, South Africa’s integration in international R&D activities is quite moderate. The intention to
strengthen R&D capacity at tertiary institutions is in line with the national plan for higher education.
The key challenge for the development of research activities in South Africa is a significant shortage of human resources,
which is partly a legacy of the apartheid regime. Two areas are emerging as concerns for innovation performance: the first
is the supply of design, engineering and related managerial and technical expertise and the demand for such resources
generated by the increased rate of investments in the economy; the second is the capacity of university research to
expand, given the ageing of the research population and the weaknesses in human resources.
Performance
Telecoms
South Africa was ranked 62nd among 133 economies on the Network Readiness Index of the World Economic Forum’s
Global Information Technology Report (2009–10). In South Africa, telecommunications is one of the fastest growing sectors
of the economy, reflecting the robust growth of mobile telephony in the country. The communications sector, along with
transport and storage, accounts for almost 10% of the country’s GDP. South Africa has the most developed
telecommunications network in Africa. The network is 99.9% digital and includes the latest fixed line wireless and satellite
communication systems. In 2009, the growth rate of the mobile market stood at 4.3% and it is forecast to decline further to
1.4% by 2010. The fixed line market is expected to continue to contract through 2013.
The fixed line monopoly of Telekom collapsed with the licensing of Neotel as South Africa’s second national operator.
Telekom is a listed company in which the government has the largest shareholding. On the other hand, Neotel was
licensed to provide the entire range of telecoms services, with the exception of full mobility.
South Africa is the fourth fastest growing mobile communication market in the world. The country’s three cellular network
operators, namely Vodacom, MTN and Cell C, provide services to over 39 million subscribers, or nearly 80% of the total
population. Furthermore, the arrival of Virgin Mobile, a virtual network service provider that operates in partnership with Cell
C, has helped in augmenting competition in the mobile telephony market. South African mobile companies are making
inroads into Africa and the Middle East, with MTN leading with over 20 operations in these markets.
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Wider access to ADSL broadband and 3G has boosted internet connectivity, with the South African internet access market
growing by 10.4% in 2009 to reach a volume of 3.6 million subscribers. Bandwidth remains limited and expensive in South
Africa, but the government has committed to increasing accessibility and bringing down cost.
Figure 20: Growth rate of mobile and fixed line telephones in South Africa, 2002–13
-10.0
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Year
Gro
wth
rate
(%
)
Mobile phones growth Fixed line growth
Source: Datamonitor D A T A M O N I T O R
Opportunity sectors
South Africa has a number of emerging opportunities in the intensive technology industries, and is known as the gateway to
other African markets. The country plays a significant role in supplying energy, relief aid, transport, communication and
investment in the continent. The financial, utility, and manufacturing sectors are the primary opportunity-creating sectors for
ICT services.
R&D expenditure
South Africa’s gross domestic expenditure on R&D is low compared to that of developed economies. According to a
national survey undertaken by the Centre for Science, Technology and Innovation Indicators of the Human Sciences
Research Council (HSRC), South Africa spent around ZAR18.6 billion ($2.2 billion) on R&D in 2008, compared to ZAR16.5
billion ($2.0 billion) in 2007.
With strong, innovative business enterprises, the share of the business sector in R&D is similar to or higher than some
OECD countries with higher R&D intensity, such as Italy, Spain and Canada.
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Outlook
South Africa’s technological landscape is marked by positive initiatives recently undertaken by the government. Information
and communication technology (ICT) governance is expected to become more regulated with the advent of the King III
report. The Protection of Private Information Act and the new Companies Act require all companies to take steps to
address ICT governance and security concerns. Companies are required to ensure that users are aware of the ICT policies
and that they understand, and accept these policies. Efficient implementation of these policies is expected to strengthen the
information security system.
In addition, the South African government aims to bring universal access to broadband by 2019. The government has
finalized its broadband policy, which is expected to support access to e-government services. The Ministry of
Communication has outlined legislations which aim at strengthening the ICT policy framework. For example, the Icasa
Amendment Bill is expected to strengthen the governance framework of the regulator. In 2009, the South African
government also signed a bilateral agreement with the US Department of Energy to cooperate in the area of nuclear power.
The two countries will work to improve the cost, safety, and proliferation-resistance of nuclear power systems. However,
low spending on R&D is a stumbling block to the country’s technological progress.
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LEGAL LANDSCAPE
Summary
The overwhelming political dominance of the ANC has the potential to challenge even the judiciary, especially in the light of
government interventions in the appointments of senior judges. The Supreme Court is the highest appellate division in
South Africa, which supervises the functioning of both local and provincial courts. Investment and trade regulations have
largely been relaxed, and foreign investments are essentially being treated as domestic investments. However, some
borrowing restrictions continue to impede foreign investments.
Evolution
South African law is based on Roman Dutch law as applied in the Netherlands in the seventeenth century. However, in
practice it was found to be inadequate or inappropriate in some areas of modern mercantile and commercial law. South
African courts then tended to rely upon English law. Therefore, many facets of South Africa’s current commercial laws, and
more specifically company laws, are similar to that of the UK. The sources of South African law today are the constitution,
common law and customary usage, case law and statutory law.
Structure and policies
Judicial system
Structure of the system
South Africa has a unified and independent judicial system. The Constitutional Court is the highest court for interpreting and
deciding constitutional issues. The Supreme Court of Appeal, on the other hand, is the highest court for dealing with non-
constitutional matters. The Supreme Court has a supreme appellate division which supervises the functioning of local and
provincial level courts. On the other hand provincial and local court bodies have both original and appellate jurisdictions.
The court of appeals, based in Bloemfontein, the judicial capital of South Africa, normally consists of the chief justice and a
variable number of appellate judges. Judges for various courts in South Africa are appointed by state presidents.
Legislation affecting business
Business entities are mandated to follow the respective laws of the constitutional court while doing business. Foreign
investments are treated as essentially as domestic investments and receive national treatment for various investment
incentives such as export initiative programs, tax allowances and trade regulations. However, borrowing restrictions
brought in by exchange control authorities continue to spur differences between domestic and foreign investors. For
business and investment purposes, a non-resident who owns more than 75% of a company is known as an affected
person. Although virtually all sectors have been made open for foreign investments, in a few sectors ceilings have been
placed on the permitted extent of foreign investment. For instance, South Africa limits foreign investments in the banking,
insurance and the broadcasting industry.
Structure for doing business
As the leading economy in Africa and with a well developed infrastructure and established trade links with the developed
world, South Africa is a suitable base for generating investments, as there are few restrictions on investments and no
permits are required. In addition, government agencies are reasonably helpful and efficient when dealing with investors.
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Income from an investment must be paid to the investor and the proceeds from any sale of assets in South Africa must be
transferred abroad by a non-resident seller.
Tax regulations
The South African government has not raised tax rates in its latest 2010–11 budget.
Individual income tax
Individual income tax is imposed on worldwide income from all individuals. The rules determining the taxable income of
corporate tax payers also apply to individuals. Among other things, additional rules apply for the taxation of fringe benefits
and the deduction of an employee’s tax. Personal income taxes are levied at progressive rates, categorized in six income
brackets. The highest marginal tax rate is 40% and applies to incomes exceeding ZAR490,000 ($59,079.3). The marginal
rate of 18% applies to incomes up to ZAR122,000 ($14,709.5).
Corporate tax
The South African government enforces a basic corporate tax rate of 28% to the worldwide income of South African
companies, including subsidiaries of foreign companies operating in South Africa. Small business corporations pay
corporate tax at rates between 0% and 28%.
Capital tax
Individuals are subjected to two types of capital taxes in South Africa. South African residents who donate personal
property are liable to pay donation taxes on the total value of the property donated. Estate duty is payable on value of
estates of individuals who die while residing in South Africa. The rate of both estate duty and donation taxes are fixed at
20%. Estate duty is only payable on estates whose value exceeds $35.2 million. However, no estate duty would be payable
on the first death if the estate is left to the surviving spouse. Furthermore, donations tax does not apply to the first $100,700
value worth donations made.
Withholding tax
Dividends
South Africa presently does not levy a withholding tax on payments of dividends to non-residents. However, a withholding
tax at the rate of 10% is being imposed on dividends from 2010. Dividends are presently subject to secondary tax on
companies (STC) in the hands of companies declaring dividends at the rate of 10%.
Interest
Withholding taxes are levied on interest if the non-resident is conducting business in South Africa through a permanent
establishment; interest income is attributable to that permanent establishment.
Royalties
All non-residents in South Africa are liable to a 12% withholding tax on royalties. However, the tax rate can be reduced
under an applicable tax treaty.
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Entertainers and sportspersons
A final withholding tax at the rate of 15% is withheld on gross payments to non-resident entertainers and sportspersons
who earn income in South Africa.
Value added tax
In South Africa, value added tax (VAT) is charged on the supply of goods or services made by a vendor in the course of
doing business, and on importation of goods and services. The tax is levied at two rates: a standard rate of 14%, and zero
rates. Among other items, the zero rates apply to: the international transport of passengers or goods and the insurance or
arrangement of those services; services rendered directly to non-residents that are not registered for South African VAT
purposes; export of goods; and various food stuffs. Additionally, some goods are exempt from VAT, including the lending of
money, financial services, educational services, the letting of residential accommodation, local commutation of passengers
by flight or air, and the provision of retirement or medical benefits.
Other taxes
From September 1, 2010 onwards, an emissions-related tax will be imposed on new passenger cars, adding 2% to car
prices. The tax may later be extended to commercial vehicles. A new mining royalty tax regime has been introduced on
March 1, 2010.
Labor laws
The Labor Relations Act (LRA) defines the rights of workers and employers and sets out procedures for dispute resolution.
It contains a section dealing with collective employment matters which aims to aid collective bargaining procedures by
introducing a dispute resolving mechanism dependant on compulsory arbitration. It pledges the creation of a unique work
system where workers will have the freedom to consult with their employers, share information and make joint efforts in
decision making. The basic conditions of South Africa’s Employment Act provides for a 45-hour work week, and extends
other minimum employment rights and benefits relating to working hours, overtime, leave, and remuneration. In addition,
the Employment Equity Act requires that companies with 50 or more employees must develop employment equity plans.
This plan further allows consultation between employers and employees to remove discrimination and ensure a diverse and
representative labor force.
Trade regulations
South Africa has a relatively open economy, with total exports accounting for 33.6% of GDP in 2008. In its settlement in the
Uruguay round, South Africa has committed to bind 98% of all commodity lines at the WTO, reduce the number of tariff
lines to six, rationalize the 12,000 commodity lines and has undertaken to replace restrictions on agricultural products with
tariffs. According to the World Bank, South Africa is less restrictive than an average sub-Saharan African country or middle
income country.
Although South Africa is classified as a developed, rather than a developing economy, the Uruguay round gave the country
extra time to comply with the requirements. South Africa has reduced average tariffs on textiles and clothing by 15–40%
from 2000. In addition, in November 2007 the South African government scrapped all tariffs on imported steel. Specific
excise duties apply on luxury goods including spirits, beer, cigarettes, tobacco, and new cars, (including imported and local
items under these categories). On the other hand, most tariffs in South Africa are calculated on an ad valorem basis. There
are some specific duties based on weight, number of items, or volume of food, beverages, oils and textile products. The
payment of VAT on imports is similar to the payment of custom duties.
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Corporate governance
The King Report on corporate governance released in 1994 stirred unprecedented interest in corporate governance in
South Africa. The concept of corporate governance originated out of an agency problem spurred when the ownership of
companies was being separated from the control thereof. The King Report prohibited owners of a company to take active
part in the management activities. Hence, the responsibility for control and management shifted to the directors of the
company, who began to be referred to as agents. However, the problem created by this situation was that directors began
to abuse their control function to their own advantage and to the detriment of the owners. Corporate governance was
consequently introduced to ensure that the agents of the owners of the companies manage companies in a way that would
serve the interest of the shareholders. This responsibility of directors to shareholders implies four functions, namely
direction, executive action, supervision and accountability. The corporate governance laws in South Africa further held
directors responsible for determining the strategic direction of the company, as well as for making decisions that would
steer the company in that direction. A new company act came into effect in April 2010. The new law is aimed at making
compliance easier for small and medium-sized firms and at enhancing corporate governance for larger business entities.
Performance
Effectiveness of the legal system
South Africa is regarded as the 72nd freest economy by the Wall Street Journal’s 2010 index of economic freedom. Its
overall score is one point lower than the previous year, reflecting low scores in five of the 10 economic freedoms. However,
South Africa is ranked 4th among 46 countries in the sub-Saharan region and its overall score is significantly higher than the
world average. South Africa is a relatively free economy, as its legal environment is free from political interference and
threats of expropriation. However, slow judicial procedures, race laws and obscure trade regulations impede foreign
investment. Stringent employment regulation hinders overall productivity growth and employment opportunity. In addition,
corruption sometimes acts as a deterrent to inward investment. South Africa ranks 55th out of the 180 countries ranked in
the 2009 corruption perceptions index survey by Transparency international. Bureaucratic corruption, particularly in the
police and the Department of Home Affairs, is endemic. South Africa is not a signatory of the OECD Convention on
Combating Bribery, but has recently signed a memorandum with the UN Convention on corruption.
Outlook
The South African government needs to overhaul the present methods of legal enforcement. Many laws which still follow
the English and Dutch legacies need alteration, as investors often find them complex and lengthy. To improve this situation,
the government has introduced a new company act which came into effect in April 2010. As per the new law, several
changes will be introduced to simplify the environment for small business, boost the rights of minority shareholders, and
improve corporate governance. A key aspect of the new act is a proposed rescue scheme which will provide firms with an
alternative to liquidation through a new business rescue process—similar to “Chapter 11” protection. The new law will make
compliance easier for small and medium-sized firms and also enhance corporate governance. On the other hand, some
sectors such as the utility, transport, and mining industries continue to be dogged by oligopolies. Despite government
efforts to introduce competition in the market, it has suffered longstanding pressures from labor organizations to protect
strategic and labor intensive industries from competition.
Environmental landscape
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ENVIRONMENTAL LANDSCAPE
Summary
South Africa has one of the world’s richest biological heritages, and has been at the forefront in formulating and
implementing environmental legislation. The Department of Environmental Affairs and Tourism has the authority to manage
the formulation, development and implementation of environmental policies. South Africa’s new environmental policies
particularly focus on win–win solutions to promote parallel economic and environmental gains, specifically for communities
which were once underprivileged. The country is also party to a large number of environmental agreements, ranging from
air pollution to ozone layer depletion. Although South Africa is an industrializing economy, its government complies with the
norms of the Kyoto Protocol to check greenhouse gas (GHG) emissions. The South African government has further
initiated measures to ensure future energy efficiency. For instance, the government allows subsidies to industries which
patronize the use of renewable energy.
South Africa's newly overhauled environmental legislations form the regulatory framework in the country. In particular, the
growing mining sector is now required to compete on an equal footing with other active sectors to moderate the demand for
usage of the country’s water, land and mineral resources. On the other hand, local and regional communities near industrial
clusters have started demanding environmental safety assurances from industries. It is due to these coordinated efforts that
South Africa has been successful in stabilizing carbon dioxide emissions.
Evolution
South Africa is considered a key leader among developing countries on issues such as climate change, conservation, and
the conservation of biodiversity. The leading role was consolidated at the international level when South Africa was
selected to host the World Summit on Sustainable Development in 2002. South Africa addresses most of its environmental
issues through Strategic Environmental Assessment (SEA), which has evolved as an acceptable and widely used
instrument for integrating environmental issues into the formulation of plans and programs. Several SEAs have been
undertaken in South Africa or are currently being developed. SEAs have ensured that environmental issues are addressed
from an early stage in the process of formulating plans and programs. The policies formed after the end of apartheid have
benefited South Africa by ensuring that economic development is within sustainable limits and by identifying the
opportunities and constraints the environment places on developments. A number of policies have further addressed the
need for SEA. Since 1994, SEA has been applied in conjunction with several environmental processes, which are as
follows:
• Environment Implementation Plans (EIP) and the Environment Management Plan (EMP) in 1998.
• Land Development Objectives (LDOs) required in terms of Development Facilitation Act of 1995.
• Integrated Development Plans required in terms of the local government transition Act 1993.
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Structure and policies
Environmental regulations
In terms of its biological heritage, South Africa is regarded as one of the richest nations in the world. The Department of
Environmental Affairs and Tourism has an overarching vision of a prosperous and equitable society living with its sprawling
natural resources. The department manages the formulation, development and implementation of environment policies.
The South African government leads protection of environment by setting examples from other environmentally and energy
rich countries as missions.
At the regional level, provincial agencies are the major players in ensuring environment conservation. In addition,
independent statuary organizations such as national parks and the South African National Biodiversity Institute are valuable
partners in the country’s total conservation efforts. The South African government has further undertaken tangible steps to
implement the United Nations Agenda 21 on sustainable development. These include reforming environmental policies,
ratifying international agreements, and participating in many global and regional conventions on forming sustainable
development initiatives.
Policy
South Africa has developed the National Environmental Policy through a comprehensive participatory process known as
the Consultative National Environment Process (CONNEPP). The CONNEPP proposes to give all South Africans equal
opportunity to contribute to developing the new environmental policy. The International Development Research Centre
(IDRC), the Danish Cooperation for Environment and Development (DANCED), and the South African Department for
Environment Affairs and Tourism co-funded the entire process of formulating and implementing the new environment
policy. The new environment policy focuses on win-win solutions to promote economic and environmental gains,
particularly for communities which were earlier impoverished. The policy primarily seeks to address environment concerns
and sustainability in decision making processes. It also indulges in matters relating to spatial development planning and
management of resources and activities. Broadly, it aims to promote growth that does not degrade the environment and
also promotes environmentally sustainable development.
Participation in global efforts/agreements/pacts
South Africa is party to a large number of environmental agreements on air pollution, water contamination, hazardous
industrial waste and ozone layer depletion. It is committed to meeting the International Union for Conservation of Nature
(IUCN) target of 10% of land area being under protection.
The South African government observes the Kyoto Protocol as an important first step towards a global emission reduction
regime that will stabilize GHG emissions. The protocol provides the necessary architecture for all future agreements and
conventions on climate change.
Copenhagen conference on climate change
The United Nations Framework Convention on Climate Change (UNFCCC) sets an overall framework for intergovernmental
efforts to tackle the challenge posed by climate change. It recognizes that the climate system is a shared resource whose
stability can be affected by industrial and other emissions of carbon dioxide and other greenhouse gases. The convention
has a universal membership, with 192 countries including South Africa having ratified the convention. No deal could be
clinched in Copenhagen, however, talks on a binding international climate change pact continue in 2010. The 2011
Copenhagen conference on climate change will be held in South Africa.
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Energy efficiency strategy
South Africa’s Energy Efficiency Strategy of 2005 enumerates a set of viable energy efficiency measures, including
efficiency standards and labels. The strategy further mentions that future energy rules are to be laid out in sectoral
implementation plans. Eskom, South Africa’s national electricity producer is hitherto the most active utility service provider
in the country. It is also the most active institution in the area of energy efficiency. The utility offers energy audits for
companies and distributes millions of fluorescent light bulbs to underprivileged households as a replacement for
incandescent light bulbs.
Renewable energy subsidies
South Africa’s 2003 white paper on renewable energy aims to remove barriers to the further promotion of renewable
energies, through a variety of initiatives. These include:
• promoting financial and fiscal instruments for redirecting national funds to renewable energies;
• developing effective legislation in order to manage the growth of renewable energy;
• promoting the research and development of renewable energy projects;
• raising public awareness;
• establishing technology support centers to assist in maintenance of the new energy infrastructure.
Performance
Environmental impact
South Africa was ranked 115th among 163 countries on the Environment protection Index (2010). The country had an EPI
score of 50.8. Changing social conscience and expectations have resulted in more stringent environment laws in South
Africa. However, since the country is undergoing a stage of rapid industrialization, its environmental laws are not as strict
as that of the US and the UK. The South African government has recognized many limitations of the prevailing environment
legislation and is taking steps to resolve the situation. The mining sector has begun to witness the impact of policy
transformations in the South African environmental legislation, which is moving in the direction of international
environmental legislation. For instance, the National Water Act No. 36 of 1998 applies the principal of 'polluter pays', where
the polluter is entitled to bear the cost of the pollution. The mining sector is being required to compete on an equal legal
footing with other interests when it comes to demands placed on the use of the country’s water, land or mineral resources.
On the other hand, local communities demand a high level of environmental performance from their industrial neighbors
and also seek assurance that they are not being exposed to environmental hazards. Companies are being motivated to
improve their environmental performance by the prospect of enhancing their competitive position. In their attempts to
improve environmental performance, many companies are exercising their rights, both as purchasers and as vendors, by
demanding that all companies within their supply chain must seek to moderate their environment impact. However, the
level of CO2 emissions stood at 477.8 million metric tons, an increase of 3.3% over the previous year. Datamonitor
forecasts suggest that CO2 emissions will continue to increase in volume terms from 2010 through 2013.
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Figure 21: Carbon dioxide emissions in South Africa, 2002–13
0.00
100.00
200.00
300.00
400.00
500.00
600.00
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Year
Vo
lum
e (
Mil
lio
n m
etr
ic t
on
s)
-6
-4
-2
0
2
4
6
8
10
Gro
wth
(%)
Volume Growth rate
Source: Datamonitor D A T A M O N I T O R
Outlook
The South African government decided to do its bit to cut greenhouse gas emissions. South Africa is one of the top per
capita carbon emitters in the world, as it relies on coal for the generation of 90% of its power. The government’s agreement
has significant implications for electricity utility Eskom, especially because it has a huge generation expansion plan. There
are also fears that consumers could end up paying more in the form of carbon tax, with the adoption of greener
technologies. In an attempt to curb emissions, the government has introduced an emissions-related tax on new passenger
cars effective from September 1, 2010. The tax may later be extended to commercial vehicles. This move is expected to
make fuel-efficient versions more attractive and help South Africa reduce emissions.
South Africa currently faces a water crisis that could impede economic growth. An immediate concern facing the country is
the acid mine drainage (AMD) which is polluting a vast area from the Witwaters-rand to Mpumalanga. In 2010,
environmentalists warned that if the government and industry fail to act within two years, mine water which is acutely toxic
will flow out from Johannesburg’s Wemmer Pan and seep into the city’s streets and gardens. This could cause several
health problems.
APPENDIX
South Africa: Country Analysis Report–In-depth PESTLE Insights Published 07/2010
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APPENDIX
Ask the analyst
Datamonitor’s Country Analysis Practice consists of a team of economists, analysts and researchers, all with expertise in
their given fields. For any questions or comments about this report you can contact the author directly.
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