South Africa flag South Africa: Economic and Political Overview

The economic context of South Africa

Economic Indicators

For the latest updates on the key economic responses from governments to address the economic impact of the COVID-19 pandemic, please consult the IMF's policy tracking platform Policy Responses to COVID-19.

South Africa has a highly developed economy and advanced economic infrastructure, making the country the leading African economy and home to around three-quarters of the largest African companies. The national government has been investing in significant policy improvements to restore macroeconomic stability in the country. Even though the government stated that boosting economic growth, cutting unemployment and avoiding downgrades by credit-rating agencies constituted the economic key priorities, South Africa still faces rising public debt, inefficient state-owned enterprises, and spending pressures, which have reduced the country’s global competitiveness. After experiencing a sharp decline due to the COVID-19 pandemic, the South African economy bounced back in 2021 (+5% - IMF) driven by exports and household consumption (also thanks to government social transfers and a drawdown of savings, as part of the Economic Reconstruction and Recovery Plan). Sustained high prices and a strong commodity demand will continue to boost exports and government revenues until mid-2022, with the IMF forecasting a growth of 2.2% this year, before slowing to 1.4% in 2022.

South Africa was recently replaced by Nigeria as Sub-Saharan Africa’s largest economy, but the country continues to be a regional leader. South Africa's response to the Covid-19 outbreak has been a standout in the region. However, the effects of the crisis are clearly visible. Government debt reached 68.8% of GDP in 2021 and is expected to increase to 72.3% this year and 74.9% in 2023 (IMF). The difficulties of public companies (such as the state-owned power company Eskom) are compounded by the problems of private companies caused by the pandemic. Although the government is investing in aid programmes, the financial situation of the companies represents a risk to public finances. The country's budget deficit declined to 4.8% in 2021, with the IMF forecasting a deficit increase of 5.1% for 2022 and 5.2% in 2023. Headline inflation, driven by rising food costs and record-high fuel prices, reached 4.4% in 2021 and should stabilize around 4.5% this year and the next.

South Africa's unemployment rate increased to 33.5% in 2021 due to the negative economic impact of the COVID-19 pandemic. The IMF estimates that the rate will increase further in 2022 (34.4%) and 2023 (36.2%). Moreover, unemployment rates are much higher among the young population and the black majority of South Africans, further increasing inequality in a country considered one of the most unequal in the world, where nearly half the adult population lives in poverty: according to the Pietermaritzburg Economic Justice & Dignity group, approximately 30.4 million people live below the upper-bound poverty line of ZAR 1,268. The group estimates that 13.8 million people live below the food poverty line.

 
Main Indicators 201920202021 (e)2022 (e)2023 (e)
GDP (billions USD) 387.85335.34e415.32435.21453.60
GDP (Constant Prices, Annual % Change) 0.1-6.44.61.91.4
GDP per Capita (USD) 6,5995,6256,8617,0827,270
General Government Balance (in % of GDP) -3.9-5.2e-4.8-5.1-5.2
General Government Gross Debt (in % of GDP) 56.369.4e68.872.374.9
Inflation Rate (%) 4.13.3e4.44.54.5
Unemployment Rate (% of the Labour Force) 28.729.2e33.534.436.2
Current Account (billions USD) -10.606.5711.94-3.76-6.34
Current Account (in % of GDP) -2.72.0e2.9-0.9-1.4

Source: IMF – World Economic Outlook Database, October 2021

Note: (e) Estimated Data

Main Sectors of Industry

South Africa is rich in mineral resources. The country is the world's largest producer and exporter of gold, platinum, chrome and manganese, the second-largest palladium producer and the fourth-largest producer of diamonds - with mining rents accounting for around 1.4% of GDP (World Bank, latest available data). Platinum and coal are now both larger contributors to mining output than gold, as the country produces 80% of the world's platinum and has 60% of the world's coal reserves. Coal plays a vital role as an energy source and contributes significantly to the economy, both through the generation of export revenue and employment. Important oil and gas reserves are thought to be situated off-coast, in the Indian Ocean. South Africa has diverse manufacturing industries and is a world leader in several specialised sectors, including railway rolling stock, synthetic fuels, mining equipment and machinery. The industrial sector employs nearly one-fourth of the workforce (22%) and represents 25.2% of the country's GDP (with manufacturing representing 12% alone).

Agriculture represents a small part of the country's GDP (2.4%) and employs 5% of the workforce, a relatively low ratio compared to other African countries. South Africa's agricultural economy is highly diversified and market-oriented. The country is the world's seventh-largest producer of wine and the continent's largest corn and sugar producer. Grains and cereals - such as maize, wheat, barley and soya beans - are the county's most important crops. As such, the country produces all major grains - with the exception of rice. The “2021-2030 Agricultural outlook projections report” produced by The Bureau for Food and Agricultural Policy (BFAP) asserts that the country’s real agricultural GDP could grow by 14% by 2030, with gross production value increasing by almost 2 billion USD.

The services sector employs 72.3% of the workforce and represents 61.4% of the country's GDP. The major sectors of the economy are finance, real estate and business services, followed by general government services. South Africa has a sophisticated financial structure with an active stock exchange that ranks among the world's top 20 in terms of market capitalisation. Nevertheless, the tourism sector has been particularly affected by the COVID-19 pandemic, especially after the discovery of the “Omicron” mutation of the virus in the country, which caused the imposition of travel bans to South Africa from many countries.

 
Breakdown of Economic Activity By Sector Agriculture Industry Services
Employment By Sector (in % of Total Employment) 5.3 22.3 72.4
Value Added (in % of GDP) 2.4 25.2 61.4
Value Added (Annual % Change) 13.1 -12.0 -5.4

Source: World Bank, Latest Available Data. Because of rounding, the sum of the percentages may be smaller/greater than 100%.

 

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Indicator of Economic Freedom

Definition:

The Economic freedom index measure ten components of economic freedom, grouped into four broad categories or pillars of economic freedom: Rule of Law (property rights, freedom from corruption); Limited Government (fiscal freedom, government spending); Regulatory Efficiency (business freedom, labour freedom, monetary freedom); and Open Markets (trade freedom, investment freedom, financial freedom). Each of the freedoms within these four broad categories is individually scored on a scale of 0 to 100. A country’s overall economic freedom score is a simple average of its scores on the 10 individual freedoms.}}

Score:
59,7/100
World Rank:
99
Regional Rank:
9

Economic freedom in the world (interactive map)
Source: Index of Economic Freedom, Heritage Foundation

 

Business environment ranking

Definition:

The business rankings model measures the quality or attractiveness of the business environment in the 82 countries covered by The Economist Intelligence Unit’s Country Forecast reports. It examines ten separate criteria or categories, covering the political environment, the macroeconomic environment, market opportunities, policy towards free enterprise and competition, policy towards foreign investment, foreign trade and exchange controls, taxes, financing, the labour market and infrastructure.

Score:
6.04/10
World Rank:
51/82

Source: The Economist Intelligence Unit - Business Environment Rankings 2020-2024

 

Country Risk

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Latest Update: June 2022

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