country briefing: South Africa – economy

by admin on September 1, 2010

GHD Lab Spring 2011

Section 1: Economy and Business Climate of South Africa

Macroeconomic, human development, and other broad indicators

South Africa is the largest economy in Africa with a GDP of approximately $530 billion (2010 $, PPP) and the 26th largest economy in the world.[1] However, South Africa’s GDP per capita (PPP) of $10,700 ranks only 105th.[2] South Africa’s economy has experienced moderate growth over the past decade with average annual growth rates in the 3-5% range until the recent economic downturn drove the economy into a recession in late 2008 to early 2009.[3]

South Africa has a moderately large current account deficit ranging in the 3-7% of GDP levels for the last 5 years.[4] In addition, the country has a relatively high long-term interest rate (~8.5%) and fairly low inflation (~3.5% CPI).[5] In terms of human development, South Africa ranks 110th on the 2010 Human Development Index (HDI) rankings.[6] South Arica’s HDI for 2010 is 0.597. While this is below the world HDI (0.624), this is well above the Sub-Saharan Africa HDI of 0.389.

The Gini Coefficient in 2001 was 0.77 up from 0.68 in 1991.[7] South Africa has an extremely high unemployment rate (~25%) and poverty rate (~26% of people live on less than $1.25 PPP per day). [8]

Demography, geography

With over 49 million people, South Africa is the 25th largest nation in the world, population-wise.  However, it is a very young population.  The average age is about 25 years old, with almost 30% of the population under 15 years old, and only 5% above 65.  While it is ranked 97th in the world for birth rate, it is 4th in the world for crude death rates.  This has led to a negative population growth rate.[9]

The population has a very low life expectancy at birth of just 49 years, which is 215th worst out of 223.  The vast majority of the population is comprised of black Africans of various ethnicities (79%) with the remainder identifying as whites or colored.  Christianity is the dominant religion in South Africa, but there is also representation from other religions.  There is a large mix of languages spoken throughout the region, including 11 official languages (of which English is one).  There is a relatively high literacy rate of 86%, with an average of 13 years of schooling per child.[10]

Located on the southern tip of Africa, the country covers a large area of 1.2 million sq km.  The capital is Pretoria, but the largest cities in South Africa are Johannesburg (3.8 million) and Cape Town (3.5 million).[11]South Africa shares borders with Botswana, Mozambique, Namibia, Swaziland, Zimbabwe, the land-locked Lesotho, and the Atlantic and Indian oceans. The climate is relatively temperate and the land consists of a large interior plateau with mountains and coast along the edges.  Only 12% of the land is actually arable, however.[12]

Trade, Assets, and Regional and Global Economic role and relations

South Africa has many natural resources.  The main industries include mining, textiles, manufacturing and agriculture. Exports were $71.9 billion in 2009 including minerals and metals, motor vehicles and parts, and agricultural products.[13] South Africa’s major markets include China, US, Japan, Germany, UK and Sub-Saharan Africa.

There is a large tourism industry in South Arica, contributing 8% of GDP in 2006[14]. The tourism industry grew last year by 3.6% in foreign arrivals with a total of more than 9.9-million foreign arrivals to the country compared to about 9.6-million in 2008[15]. Foreign direct investment has grown substantially over the last few years.

Table 1: Year-end stock of Foreign Direct Investment in South Africa[16]

2002 2003 2004 2005 2006 2007
Rand(billion) 255.84 303.55 355.09 489.32 611.72 751.92
US$ (billion) 24.33 40.14 55.05 76.94 90.36 106.65

South Africa is a leading producer of precious metals such as gold and platinum, including the world’s fourth largest producer of diamonds.[17]

Regulatory environment

South Africa is based on a free market system, but it does regulate competition.  In 1998 the country implemented the Competition Act to minimize anti-competitive actions taken by companies such as price fixing or predatory pricing.  The Act also controls mergers both within the country and that affect the country.[18]

The tax system in South Africa is resident-based, where any resident of the country pays taxes on income earned anywhere in the world.  Personal and company income taxes make up the majority of South Africa’s tax revenues, with another third coming from indirect sources such as the VAT.[19]

South Africa has a number of Industrial Development Zones (IDZ) which have relaxed regulations in order to promote the country’s international competitiveness in the manufacturing sector.  By incentivizing exports and value-added industries, South Africa is trying to attract foreign investment.[20] There are currently four IDZs in South Africa, all located near a major port or airport.[21]

According to Trade and Industrial Policy Strategies, “…South Africa’s IPR regime reveals a rather mixed picture of the state of IPR protection in South Africa. IPR laws are considered ‘state of the art’, yet their implementation is often found wanting. In addition, whereas adequate intellectual property protection is cumbersome for domestic inventors to obtain, it is at times so ferociously defended when (mainly foreign) patent owners are involved, that technology dissemination could be hampered.”[22]Intellectual property rights are a controversial yet important factor for a country’s economic development.

Region of the country: Your project locale vs. the nation

All three projects in South Africa this year are located in Johannesburg, or “Jo’burg.”  This is the largest city in South Africa and is quite modernized.  Johannesburg was founded during a gold rush to the area in 1886.  Since then it has come a long way and was prominent in apartheid history.  While tensions between whites and blacks ran high, Johannesburg was a stronghold of white citizens.  Since then, it has become a multicultural city which has incorporated its past into its present.  Host of the 2010 World Cup, the city is home to restaurants, museums, sporting centers, and many other cultural and historical sites.[23]

The Impact of the Business Climate on Enterprises’ Roles in Delivering Healthcare

There are a number of issues central to South Africa that affect the ability of enterprises to deliver healthcare.  First off, the low median age of approximately 25 years old means there is a smaller skilled labor force capable of serving the population’s healthcare needs.  Secondly, the new National Health Insurance policy in South Africa which is paid for in part by an income tax and a payroll levy may discourage business within South Africa.[24] Finally, the specific example of loveLife shows how diseases like HIV, which have high prevalence rates in South Africa, affect an enterprises’ role.  loveLife’s current campaign is focused on reducing the spread of HIV through encouraging young people to think about their future. “The campaign recognizes that young people whose life choices are constrained and who feel isolated are at much higher risk of HIV infection.”[25] The current business climate, particularly as it relates to the extremely high and persistent unemployment rate and low levels of higher education are negatively impacting young people’s ability to proactively shape their future. To the extent that unemployment can be reduced and opportunities for education increase, higher risk behavior that could lead to HIV infection will decrease.


[1] CIA World Factbook: https://www.cia.gov/library/publications/the-world-factbook/geos/sf.html

[2] Ibid

[3] Principal Global Indicators (OECD, Eurostat, etc): http://www.principalglobalindicators.org/default.aspx

[4] Ibid

[5] Ibid

[6] International Human Development Indicators: http://hdrstats.undp.org/en/countries/profiles/ZAF.html

[7] Southern Africa Regional Poverty Network http://www.sarpn.org.za/documents/d0000990/

[8] Ibid

[9] CIA World Factbook

[10] Ibid

[11]Statistics South Africa, http://www.statssa.gov.za/Publications/P03011/P030112007.pdf

[12]CIA World Factbook

[13] US Department of State http://www.state.gov/r/pa/ei/bgn/2898.htm

[14] South Africa Info http://www.southafrica.info/business/economy/infrastructure/

[15] Ibid

[16] US Department of State http://www.state.gov/e/eeb/rls/othr/ics/2009/117149.htm

[17] Ibid

[18]http://www.southafrica.info/business/investing/regulations/competition-policy.htm

[19]South African Revenue Service, http://www.sars.gov.za/home.asp?pid=208

[20]http://www.southafrica.info/business/investing/incentives/idzguide.htm

[21]Department of Trade and Industry, South Africa: http://www.esastap.org.za/esastap/pdfs/sa_geared_growth.pdf

[22]http://www.tips.org.za/publication/intellectual-property-rights-south-africa-economic-review-policy-and-impact

[23] New York Times, http://travel.nytimes.com/2006/07/16/travel/16next.html

[24] http://www.timeslive.co.za/local/article670694.ece/Health-insurance-tax-bombshell

[25] http://www.lovelife.org.za/what/current.php

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