South Africa’s peaceful political transition is known as one of the most remarkable political feats of the past century. The African National Congress (ANC) has been driving the policy agenda since 1994. In August 2016 the country held the most competitive Local Government Election since 1994.The ruling African National Congress (ANC) lost majority support in four of the metropolitan cities. Political parties negotiated coalition deals that saw the ANC unseated in the cities of Johannesburg, Pretoria and Nelson Mandela Municipality.
Due to consistent and sound budgetary policies South Africa has been able to tap into international bond markets with reasonable sovereign risk spreads. The 2012 Open Budget Index prepared by the International Budget Partnership ranked South Africa second among 94 countries surveyed. In 2014 and 2015 however, South Africa’s ratings have been downgraded by most rating agencies citing poor growth prospects and rising government debt as well as high deficits on the current account.
Real GDP growth has been revised downward significantly and is now only expected to reach 0.4% in 2016, with risks to the downside. 2017 is expected to see a moderate uptick to 1.1%. This will mean that per capita GDP will have contracted for four years (2014-17). Key drivers of the forecast are continued external headwinds from the plunge in commodity prices, compounding domestic problems, including weak investment sentiment amid policy uncertainty. The ongoing weakening in growth is exacerbating already high unemployment, currently at 26%.
Key Development Challenges
South Africa remains a dual economy with one of the highest inequality rates in the world, perpetuating inequality and exclusion. With an income Gini that ranges between 0.66 to 0.70, the top decile of the population accounts for 58% of the country’s income, while the bottom decile accounts for 0.5% and the bottom half less than 8%. This makes South Africa one of the most consistently unequal countries in the world.
Life expectancy, after falling dramatically from 62 years in 1992 to 53 years in 2010, recovered to 62 years in 2014. The recent recovery was in large part due to the rapid expansion of the antiretroviral treatment programs to fight HIV/AIDS. And it is supported by declines in both adult and infant mortality. The poor are particularly vulnerable, and high HIV and AIDS infection rates, as well as TB infections, have severely strained the health system, contributing to the poor health indicators
The weak economic outlook has made the fiscal outlook more challenging. As part of the Budget Law 2016/17, the government announced an adjustment package of expenditure savings, for one-third, and tax measures, for two-third, to reduce the budget deficit from 3.9% of GDP in 2015/16 to 3.0% of GDP in 2017/18 and stabilize the gross debt burden at about 51% of GDP, helping minimize pressures on the sovereign rating.
Government Policy Priorities
The current administration is acutely aware of the immense challenges to accelerate progress and build a more inclusive society. Its vision and priorities to address them are outlined in the 2030 National Development Plan (NDP) which outlines two main strategic goals to double the GDP by 2030 and eliminate poverty, and reduce inequality, as measured by the income Gini coefficient, from 0.70 to 0.60.
To achieve these, the NDP lists several critical factors for its successful implementation; focused leadership that provides policy consistency; ownership of the plan by all formations of society, strong institutional capacity at technical and managerial levels, efficiency in all areas of government spending including management of the public service wage bill and making resources available for other priorities, and prioritization and clarity on levels of responsibility and accountability at every sphere of government as well as a common understanding of the roles of business, labor and civil society.
Last Updated: Oct 04, 2016