South Africa’s peaceful political transition was one of the most remarkable political feats of the past century. The African National Congress (ANC) has been driving the policy agenda since 1994. Fifth general elections were held in May 2014, and the ANC won majority of 62% of the vote, governs eight out of nine provinces, and President Zuma was reelected for another term.
A sustained record of macroeconomic prudence and a supportive global environment enabled South Africa’s gross domestic product (GDP) to grow at a steady pace for the decade up to the global financial shock of 2008-2009. Improvements in the public budget management system and efforts to restore the macro fundamentals by National Treasury played an essential role.
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 however, South Africa’s ratings have been downgraded by some rating agencies citing poor growth prospects mainly because of labor market instability and rising government debt as well as high deficits on the current account.
Pro-poor orientation of public spending has contributed to improved social development indicators in a range of areas. Millennium Development Goals (MDG) on primary education, gender, several health indicators and environmental sustainability are likely to be achieved. Social insurance programs currently cover around 16 million people and, at 3.5% of GDP, are more than twice the median spending among developing economies.
Key Development Challenges
Despite the notable accomplishments, South Africa’s economic transformation agenda remains incomplete. The limited progress since 1994 in lifting the living standards of the majority and reducing the income inequality has put the social contract under pressure and has grown into an open public debate. Wildcat strikes in the mining, energy, transport and farming sectors have put into question labor and business relations in the country.
South Africa remains a dual economy with one of the highest inequality rates in the world, perpetuating inequality and exclusion. With an income Gini of around 0.70 in 2008 and consumption Gini of 0.63 in 2009, 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%.
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 unresolved set of complex socio-economic challenges has locked South Africa into a low-level equilibrium of low growth, persistent poverty and widespread exclusion and unemployment. Although many of the required policy actions are known to the policy-makers, implementation of these has been hampered by a lack of broad political consensus and the “deficit in trust between business, labor and government” (NDP 2012).
Recent Economic Developments
Real GDP growth continues to flatten and is expected to slow from 1.9 percent in 2013 to around 1.5% in 2014 due to prolonged labor strife and electricity supply constraints. The slowdown has exacerbated the high unemployment and external vulnerabilities, pushing up the unemployment to 25.5% in Q2 2014 (33 percent including discouraged workers). Following the negative growth rate recorded in the first quarter of 2014, the South African economy escaped a further contraction in the second quarter as real domestic production rose at an annualized rate of 0.6%. This barely positive growth rate was extremely disappointing given the country’s development needs, and was mainly brought about by the drawn-out industrial action in the platinum-mining subsector which started on 23 January 2014 and only came to an end five months later.
Fiscal policy continues to provide support to the economic recovery: Both general government and the non-financial public corporations continued to incur more expenditure than their current revenue as they aligned their infrastructure and other programs with the targets set out in the National Development Plan (NDP). In the most recent quarter, however, general government raised its share of the borrowing requirement whereas public corporations decreased theirs.
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). Released in 2012, the report is the product of extensive nationwide consultations led by the National Planning Commission. The two main strategic goals framed by the NDP 2030 vision are to double the GDP by 2030 and eliminate poverty, and reduce inequality, as measured by the income Gini coefficient, from 0.70 to 0.60.
The NDP identified the failure to implement policies and an absence of broad partnerships as the main cause for the slow progress in eliminating poverty and reducing inequality. To achieve its two main strategic goals, 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 07, 2014