5 November 2013
As South Africa prepares to celebrate 20 years of democracy next year, it can look back at the “remarkable” progress it has made since 1994 with a large degree of satisfaction, US bank Goldman Sachs says in a comprehensive report on the country that was released on Monday.
South Africa’s economy has been solid and has performed well in the two decades since the end of apartheid – although unemployment remains its biggest challenge, the bank says.
Goldman Sachs rates social welfare support for South Africa’s poorest 16-million people as the greatest achievement of the African National Congress (ANC) government so far.
“It’s quite remarkable when you look back at 1994,” the bank’s Colin Coleman told CNBC Africa in an interview on Monday. “We had a bankrupt state, a junk investment grade status credit rating, a very small economy, and we had some very worrying fiscal ratios.
“The fiscal, monetary authorities and the government as a whole have done a tremendous job in turning that around,” Coleman said. “Today we’ve 3.3% growth rate through that 19-year period, we have a $400-billion economy, [and] a very deep financial market. We [also] have a significant rise in the consumer environment.”
The report, titled “Two Decades of Freedom: What South Africa is Doing With It, and What Now Needs to be Done”, highlights the country’s economic and social milestones since 1994, as well as the challenges that remain to be tackled.
The report identifies where South Africa has made decisive structural advances. These include:
- Macro fiscal and monetary balances have improved:
- Gross domestic product (GDP) has almost tripled from $136-billion to $385- billion.
- Inflation has fallen from an average of 14% between 1980 and 1994 to an average of 6% between 1994 and 2012.
- Gross gold and foreign reserves have risen from $3-billion in 1994 to $50-billion.
- Tax receipts of R114-billion from 1.7-million people has risen to R814-billion from 13.7 million people.
- The increase in trade with China and Africa has largely offset the decline in European trade.
- There has been a dramatic rise in the middle class in the past decade, leading to a structural boost in spending. Around 4.5-million consumers have graduated from the lower living standards measures (LSMs) of 1-4, and 10-million consumers have joined the middle to higher LSMs of 5-10.
- The beneficiaries of social grants has risen from 2.4-million to 16.1-million.
- Per unit labour productivity has improved.
- Unemployment and inequality remain South Africa’s biggest hurdles:
- Unemployment remains stagnant at 25% from 23% inherited in 1994.
- 70% of the unemployed are young people, aged between 15 and 34.
- 85% of Africans remain in the lower income categories, while 87% of white people remain in the middle- to upper-class categories.
- The current account deficit remains high at 6.5%.
- The volatility of equity and bond flows between 1995 and mid-2007 demonstrate the vulnerability of South Africa if it relies on these flows as a major source of finance. The report estimates that a correction equivalent to around 2% of GDP is required to remove the vulnerability and to restore the external balance.
- Poor savings rate and high consumer indebtedness: Household debt to disposable income has soared from 57% in 1994 to 76%.
- The contribution of mining and manufacturing to GDP has fallen to 23% from 38% in 1986.
- The mining and labour uncertainties are unsettling the market.
- Poor education and health outcomes, and an underperforming public sector.
- Computer and internet access; research and development; patents.
- Sovereign credit ratings under pressure.
Goldman Sachs outlines key areas that it believes South Africa should address to better enhance growth, attract investors and generally be a better place.
These include a special focus on the unemployed and unemployable youth and a labour pact for sustainable growth and employment; reaching balanced wage/productivity growth; defending the rise of the African middle class; building economic linkages with Africa; and creating visible economic wins from BRICS.
The report suggests that in the next 20-year period South Africa should aim to raise its annual growth rate to 5%, which would grow the economy to $1-trillion by 2030.
If achieved, such growth would cut the unemployment rate and the debt-to-GDP ratio in half and double the GDP per capita.
What is needed above all, Coleman wrote in Business Day on Monday, is a “Team SA” response: “South Africa knows what needs to be done. Endless policy debates deflect from picking the ‘low-hanging fruit’.
“We have the people, the talent, the institutions and the capital to do it,” Coleman wrote. “Now we need to raise our game. Now is the time for ‘execution excellence’. Business, labour, the government and civil society need, individually and collectively, to act, to partner and to get the basics right.
“Nelson Mandela’s dream and the lives of 52-million South Africans depend on it.”
- Download the report: Two Decades of Freedom [PDF]