Economic situation Great potential, slow growth

South Africa displays all the typical characteristics of an emerging economy. On the one hand, the country is seen as a pioneer on the continent, with its highly developed economy, a world-class financial sector, a wealth of raw materials, some excellent academic facilities and an independent and reliable legal system. On the other hand, very little progress is being made on social development.

Key economic sectors such as energy, water and infrastructure are dominated by state-owned enterprises that operate inefficiently, are highly indebted, and susceptible to corruption. President Cyril Ramaphosa's government has set itself the goal of opening the economy to a greater extent for private investors.

Over the past ten years, economic development in South Africa has been low. In 2020, the economy shrank by 6 per cent as a result of the COVID-19 crisis. In 2021, it recovered, with a growth rate of 4.7 per cent. In the following two years, the rate was 1.9 per cent and 0.6 per cent, respectively, which was about as low as before the pandemic. According to International Monetary Fund (IMF) projections, the growth rate for 2024 and 2025 will only be about one per cent.

If the economic indicators remain unchanged, the country will not be able to permanently resolve its social problems (see also à Social situation). Private companies in particular are reluctant to invest. They are put off by uncertainties about the government's economic policy, the country's skills shortage, frequent industrial action and high crime levels. Potential investors hope that the new multi-party government that assumed office in June 2024 will provide a more predictable business environment, reduce red tape and take systematic action against corruption.

Skills shortage

Under the apartheid regime, people from the disadvantaged sections of the population did not generally receive any form of vocational training that actually met the needs of the modern labour market. The skilled labour shortage is now holding back the ambitious growth plans of the government and the corporate sector.

Job seekers are also facing competition from millions of migrant workers from neighbouring countries, who hope to find income opportunities in South Africa. This has resulted in an increase in social tensions. In the past few years, anti-immigrant violence has broken out repeatedly.

Energy crisis

Another development constraint is the shortage of energy. While the power supply has improved significantly in the recent past, consumers still have to expect load-shedding blackouts that last several hours.

These power outages not only harm the economy, they also have a negative impact on water supply, information technologies, education and health, among others. For many companies, they mean higher operating costs, as they require expensive diesel generators in order to keep their business running.

Development potential

South Africa has great development potential. The best prospects for economic growth are in manufacturing, mining, tourism and solar and wind energy. South Africa has vast deposits of raw materials needed for electric vehicles and (green) hydrogen production.

However, it is the country's people who constitute its greatest potential, albeit a potential that has not yet been sufficiently harnessed. Through its constitution, South Africa has created the necessary preconditions for equality of opportunity as regards access to education and to material and natural resources. This provides a basis for society to develop successfully along democratic and pluralistic lines.

to the overview page on South Africa

As at: 27/11/2024