South Africa was sub-Saharan Africa’s largest economy until 2013, but has now been overtaken by Nigeria. Nevertheless, South Africa outperforms most regional peers on measures of per capita income, creditworthiness and business climate. Because it relies heavily on minerals—which account for over 60% of exports—it is vulnerable to swings in commodity prices. Political instability, civil unrest and income inequality pose risks to the long term outlook.
The economy was buoyed by the run up in global commodity prices but labour disputes, energy shortages and slump in commodity prices have since stymied growth. South Africa was a big beneficiary of the international commodities boom of the 2000s. But weaker emerging market demand has since dragged on commodity prices and South African exports. Domestically, persistent labour disputes, high unemployment and chronic energy shortages are weighing on consumption and investment. Growth slowed to 1.5% in 2014 and is expected to remain below 2% in 2015. The continuing slump in commodity prices and bottlenecks will constrain growth.
The future is buoyed by favourable demographics as South Africa’s youthful population and regional importance bode well for the long term outlook. Still, large external imbalances, heavy reliance on commodities and an unsettled political environment pose downside risks. Most concerning is the emergence of a nationalist movement fronted by Julius Malema who advocates nationalisation of key industries and white-owned land, not dissimilar to Zimbabwe’s Robert Mugabe. The odds of Malema coming into power are low, but if this occurred, the economy would suffer.
South African per capita income rose strongly during the global commodity boom. But the sharp correction in global commodity prices and weak growth will weigh on incomes over the coming years.
The World Bank’s ease of doing business gauge — which attempts to measure regulation and red tape relevant to a domestic small to mid-sized firm — ranks South Africa’s business climate 41 out of 189 economies. South Africa outperforms the regional average on most gauges of doing business, but getting electricity remains a challenge
South Africa scores in the top half of countries on all dimensions of governance, except political stability.
South Africa was Australia’s 29th largest trading partner in 2014. Export receipts from South Africa reached US$660m in the first six months of 2015, up 13% from 2014 led by stronger cattle and coal exports. Australia’s main exports to South Africa include coal, meat, machinery and parts. Imports reached US$550m, up 46%, driven by cars and precious metals. BMW and Mercedes are some of the luxury car producers that have assembly plants in South Africa. South Africa is the largest producer of platinum and second largest producer of palladium, after Russia; both metals are used in catalytic converters. The country also produces significant amounts of gold.
Australia exported A$370m of services in 2014, most of which were professional, business and transport services for mining. South Africa isn’t a major source of tourists, accounting for just 4% of all arrivals in 2014.
Bilateral investment between South Africa and Australia lags behind solid trade relations. Australian investment in South Africa is centred on mining in the north-east. Rio Tinto extracts titanium dioxide and pig iron. BHP Billiton mines aluminium and coal.
Department of Foreign Affairs
Australian Industry Group