South Africa’s peaceful political transition is known as one of the most remarkable political feats of the past century. The ruling 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 in which the 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 Bay. The country plans to hold its next general election in May 2019.
Due to consistent and sound budgetary policies, South Africa has been able to tap into international bond markets with reasonable sovereign risk spreads. The latest Open Budget Index prepared by the International Budget Partnership ranks South Africa top among the countries surveyed, and South Africa has been committed to fiscal sustainability. Nevertheless, low growth, weak revenue collections, and expenditure pressures have been keeping fiscal deficits higher than forecasted. This has resulted in several downgrades of South Africa’s credit rating.
The South African economy grew by 1.3% in 2017. The World Bank estimates 2018 growth at 1%, picking up to 1.3% in 2019. Given population growth, gross domestic product (GDP) per capita growth has been stagnant or low since 2014, leaving little room to reduce poverty. Commodity prices remain important for South Africa, a major importer of raw materials. Strengthening investment, including foreign direct investment, will be critical to propel growth and create jobs.
Key Development Challenges
South Africa has made considerable strides toward improving the wellbeing of its citizens since its transition to democracy in the mid-1990s, but progress is slowing. Based on a poverty line of $1.90 per day at Purchasing Power Parity (PPP), poverty fell from 33.8% in 1996 to 16.9% by 2008. Factors driving this included social safety nets and free access to basic services, real income growth, as well as decelerating inflationary pressure on households, the expansion of credit, and growth in publicly-provided formal housing. Yet progress has slowed in recent years due to structural challenges and weak global growth since the global financial crisis of 2008. Poverty increased slightly, estimated at 19% in 2018. High unemployment remains a key challenge, standing at 27.2% in the second quarter of 2018. The unemployment rate is even higher among youths, at around 50%.
South Africa remains a dual economy with one of the highest inequality rates in the world, perpetuating both inequality and exclusion. According to Statistics South Africa, the Gini coefficient measuring relative wealth reached 0.65 in 2014 based on expenditure data (excluding taxes), and 0.69 based on income data (including salaries, wages, and social grants). The poorest 20% of the South African population consume less than 3% of total expenditure, while the wealthiest 20% consume 65%.
Last Updated: Oct 31, 2018
