In general, we're all a lot more positive about Africa these days. Article after article after article talks about Africa's vast untapped consumer market, a growing middle class (incomes between $2 and $20 per day) now able to afford more -- life insurance, Danone yogurt, basmati rice (imported from India),Heineken-brewed cassava beer and cosmetics from Avon, all paid for with mobile banking.
The following chart (from an IMF report) neatly summarizes the trends in the African economy.
So. What about South Africa. Let's look at some numbers.
Total GDP = $562.2 billion, #26 in the world. Next largest sub-Saharan economy is Nigeria (#31, $418.4 billion)
GDP per capita = $11,100 (just a bit above Columbia's GDP per capita of $10,400). This is very deceptive, though, because South Africa's income is distributed very unequally.
The Gini index measures income inequality, with a value of 0 meaning perfect equality and 100 denoting perfect inequality. South Africa's value is 65.0. To put this into perspective, the Gini index for Haiti is 59.2.
GDP growth (2011) is at 3.1%. Could be worse, but 2010 was 2.9% and 2009 was a negative 1.5% A recent Economist article addressed GDP growth, pointing out that other African countries -- Nigeria, Kenya, Ghana -- are faster-growing than South Africa. Nigerian GDP grew 7.2% in 2011, Kenyan GDP by 5%. GDP in Rwanda grew by almost 9% in 2011. A recent (very complicated) IMF report predicts that South African GDP will grow by 2.7% (at best) in 2012.
Looking at South Africa overall. The numbers above -- GDP and GDP growth -- are not dismal. True, the South African economy could be growing faster, especially when you compare it to the rest of sub-Saharan Africa -- but you have to bear in mind that it's harder to show a high percentage of growth if your economy is already developed.
What can we predict for South Africa?
There are some issues here that I think make South Africa the next Russia. In the early 1990s, most of us were optimistic about Russia's future -- optimism that now seems to have been, at best, premature. At the same time, roughly, with the end of apartheid in South Africa, there was the same sense of optimism, even excitement.
First, there's the economics. The South African economy is dependent on natural resources -- 18% of GDP is mining-related, as is 50% of the value of exports. This is just slightly lower than Russia, where 25% of GDP is oil or natural gas. For both countries, that injects a fair degree of volatility -- and volatility determined by external forces. See below for 2012 gold price fluctuations:
It's true that these fluctuations really disguise the steady upward trend over the past 35 years:
But. Gold's been at or above $900 an ounce since around 2008. The Global Financial Crisis™ dates from about then. When we see an economic recovery (which might not be soon), what will happen to the price of gold? Economic recovery or not, though, it's not common sense to think that gold prices will remain high forever.
Investment, foreign. Despite WalMart's recent purchase of retailer MassMart, investment in South Africa has contracted -- so says an Economist writer. Others disagree. The most recent report on global FDI (from the UN Conference on Trade and Development), points to FDI growth, but also characterizes South Africa's FDI growth as "below expectations."
Employment issues. Unemployment is bouncing around the 25% point. Not good. Moreover, this isn't just a temporary slow-down. South Africa has very restrictive labor laws, pushed through by politically powerful unions, that discourage hiring. In addition, as the IMF economists believe, there is a structural problem, in that wage rates have fallen behind actual labor productivity.
South African President Jacob Zuma's popularity has been sinking -- and he is up for reelection next year. Labor union support's going to be essential, though. Last week, Zuma arrested one of his main political opponents, Julius Malema, on charges of (drum roll, please)....corruption. President Zuma seems a bit worried. I'd be worried too, if my chief supporters, the labor unions, had just finished a violent labor strike that left 34 workers dead.
Have they yet gotten a handle on HIV ? According to the World Health Organization (WHO), South Africa's HIV infection numbers are the highest in the world. The best number I could dig up was between 17% to 18% infection of adults between 15 and 49 (Africa overall is just under 5%). However, there is evidence that the rate of new infections is decreasing and about 90% of pregnant women receive antiretroviral treatment (to prevent mother-to-child transmission). Moreover, about 55% of adults needing antiretroviral treatment are receiving it (but, unfortunately, only about a third of children).
Edited to add: The comparable issue is Russia is, of course, alcohol abuse.
One other point of vulnerability is political. All indications are that the ruling ANC party has, in all practical terms, established a one-party state. Numerous observers are pessimistic about South Africa's long term political stability. For example, there appears to be no orderly process for leadership succession. Growing income inequalities (as mentioned above) breed discontent and unrest, but, as discussed above also, wage levels already outstrip productivity.
A recent IMF report on South Africa put it quite delicately:
South Africa faces the immediate challenge of...making firm progress on reforms that promote the long-run inclusive growth needed for maintaining social cohesion.So, what do we conclude from this? Is South Africa one of the economies of the future? Is South Africa going to be left behind countries such as Nigeria or Ghana? Is South Africa going to just slide slowly downhill?
Remember, I am a pessimist by nature. We'll see. I do suspect that events in the next year or two will clarify the future for South Africa (especially the upcoming presidential election).
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