South Africa Essay Research Paper South AfricaSouth

South Africa Essay, Research Paper

South Africa

South Africa

Like many African countries, South Africa has taken sometime to develop into a major player on the world market. This process is now on the up swing as the country is doing well financially in 1999.

During the 1960s the South African economy expanded at an annual average rate of 5.5 percent and experienced average inflation of 2.4 percent. This compared with annual growth of 5.0 percent in Industrialized Organization for Economic Corporation and Development (OECD) countries and inflation of 2.9 percent. The 1970s were turbulent years internationally and the domestic economy grew by only 3.2 per cent. Economic performance was beginning to deteriorate, but a strong gold price shielded policy makers (mostly those with gold) from this reality. In the second half of the 1980s growth had slumped to 1.5 percent, inflation had started to soar (to 15.7 percent on average) and the exchange rate to deteriorate. At the same time annual OECD growth had risen to 3.5 percent.

South Africa’s economic performance in the 1980s and the early 1990s was severely limited by a poor political environment and the deteriorating terms of trade.

The terms of trade – defined as the ratio of export prices to import prices – have always been important in an economy as open as South Africa’s. The terms of trade were steady in the 1960s and rose strongly in the 1970s with the surge in the gold price, but have been on a declining trend since 1981.

The second factor to accelerate economic decline in the 1980s was the political environment. Four decades of apartheid racial policies had heightened conflict between the white government and the disenfranchised majority, as well as between business and labor, as avenues for political expression were sought. Apartheid also created numerous lines of bureaucracy, increasing inefficiencies as well as boosting government consumption expenditure to the detriment of the private sector. A casualty was fixed investment spending, which declined from an average of 24 percent of Gross Domestic Product (GDP), in the 1960s to recent levels of fewer than 15 percent.

The rising conflict led to growing international isolation. By 1986 most countries had imposed trade and some form of financial sanctions. Although these hampered economic growth, exporters were able to avoid most of these restrictions. A more serious development was the withdrawal of foreign credit lines during 1985. Without these credit lines, the country was essentially cut off from the rest of the world. With a Gross National Product (GNP) per capita of $2, 670, South Africa is still in a similar range to countries such as Chile, Mexico, Hungary, Thailand, and Malaysia.

Since the middle of 1993 the South African economy has experienced an upturn in economic activity, having endured a severe recession from 1989 to 1993. Economic activity increased sharply during the second half of 1993 and has continued to rise in 1994. The initial recovery of economic activity was assisted by favorable weather conditions, which led to a sharp increase in agricultural output. The agricultural sector experienced a devastating drought during the 1991/92 season. However, the subsequent recovery in agricultural production during the 1992/93 as well as the 1993/94 season has made a significant contribution to overall GDP estimates. In the first half of 1994 the upturn in activity was negatively affected by exceptional circumstances linked to the major political change in the country. However, the success of the April 1994 elections and the subsequent establishment of the government of national unity (GNU) have removed important obstacles to growth, restoring legitimacy to the governing process and creating a more conducive environment for both domestic as well as foreign investment. By this time all financial and trade sanctions against South Africa have been lifted, allowing the country to establish many new trade and financial links, while numerous international companies have re-established business links. The ongoing reintegration of the South African economy with the economies of the rest of the world is resulting in a rapidly changing and vibrant business environment.

Within this changing economic environment the government developed the Reconstruction and Development Program (RDP) which will provide numerous and important economic opportunities. The RDP outlines a long-term development strategy for the country with the focus on growth through development. To achieve this the RDP seeks to address basic needs (such as housing, electricity, sanitation, water, nutrition and primary health care) by focussing on economic policies that would best encourage the provision of these needs. Such policies include increasing public sector investment (in labor-intensive endeavors), fostering private sector industrial initiatives (which would advance both industrial performance and meet basic needs) and promoting human resource development (to improve labor productivity). The government intends redirecting expenditure towards redistribute limited-cost projects such as school feeding schemes, rural water provision, public works programs and the provision of municipal services.

While the primary focus of the program is on meeting basic needs, it also emphasizes the need for maintaining sound econom