Running Head: SOUTH AFRICA ECONOMY 1

introduction to macroeconomics

South Africa (project)

ECON SPRING 2017sec:110

Rayan ALhumaidi 201300503 , Raja AlHajri 201601287, Abdullah Alholami 201602560

SOUTH AFRICA ECONOMY 13

South African Economy

Abstract

Over the last thirty years, the economic performance of South Africa during this period is

impressive. Since the end of Apartheid in 1994 and the inauguration of Nelson Mandela as the

first black president, the per capita income has grown tremendously as well as the number of

South African brought out of poverty. The transformation of South Africa has directly impacted

the lives of its people, its relations with other countries, and the economic lives the rest of Africa.

In this article, I am going to look at the various key indicators of the South African economy

from 1988 to 2017. The article will carry an in-depth analysis of the economic growth rate, real

GDP Growth Rate, real GDP, and Real GDP per person of South Africa. Additionally, the paper

will examine the inflation and unemployment rates among citizens of South Africa as well the

effects it has on the economic growth. The first section will introduce an overview of South

Africa as a country focusing on the economic, political, and social factors. The paper will define

the key terms which are essential to the understanding of the economy. The subsequent section

will highlight the main economic sectors followed by a discussion of the relevant indicators.

Introduction

Officially known as the Republic of South Africa (RSA), South Africa is found in the

southernmost part of the African continent. The Indian Ocean and the Atlantic Ocean border the

country to the east and south respectively while Namibia border South Africa to the west.

Zimbabwe and Botswana are South African neighbors to the north. The country has fifty-six

million people with Cape Town, Bloemfontein, and Pretoria as its capital cities. It has eleven

SOUTH AFRICA ECONOMY 13

official languages recognized in the constitution. South Africa is the second largest economy in

Africa after Nigeria. Since its independence from the Boers in 1994, the African National

Congress (ANC) is the party which is steering the economy ever since (Ross, 2008). Even

though ANC lost the four major metropolitan cities of Johannesburg, Pretoria, Cape Town and

the Nelson Mandela Township in 2016 election, it has the majority of the support from rural

areas. The loss of the cities and poor economic policies by the government saw its credit ratings

downgraded to junk. For example, the government of South Africa saw its debt rise; thus,

increasing the deficit of its current account, the difference between revenues for exports and

imports.

Main Economic Sectors.

Economic Growth Rate

Yea

r

Economic

growth rate

(%)

Real GDP

growth

rate (%)

Real GDP

(Billion

dollars)

Real

GDP per

person

($)

Inflation

rate (%)

Unemployment

Rate (%)

1988 4.2 4 118 3180 15.1 -

1989 2.4 2.2 115 3470 17.2 -

1990 -0.3 -0.1 120 3300 15.5 -

1991 -1.0 -0.9 116 3290 15.7 25.4

1992 -2.1 -2 140 3060 14.6 24.9

1993 1.2 1.2 152 2950 13 24.7

1998 0.5 5.1 137 2870 9.5 23.5

SOUTH AFRICA ECONOMY 13

2009 -1.5 -0.5 297 5800 7.5 24.7

2010 3 1.4 375 6160 6.4 14.9

2011 3.3 1.5 416 6970 6.5 25.1

2012 2.2 1.6 396 7540 5.3 25.7

2013 2.5 1.7 366 7340 6.1 26.1

2014 1.7 1.8 351 6750 5.8 26.4

2015 1.7 1.9 317 6070 5.0 26.8

2016 1.3 0 295 5480 7.0 27

2017 0

1988 1989 1990 1991 1992 1993 1998 2009 2010 2011 2012 2013 2014 2015 2016

-3

-2

-1

0

1

2

3

4

5

Economic growth rate (%)Economic growth rate (%)

Economic Growth Rate is the measure of how fast or slow an economy is growing over a

one year period. It is calculated by observing the change in the Gross Domestic Product from one

year to another. It is usually represented in percentage form where the GDP of year one is

subtracted from the GDP of year two, then divided by the GDP of year one (Gillis & Perkins &

Roemer & Snodgrass, 1992). According to the World Bank, in 1988, the growth rate stood at

SOUTH AFRICA ECONOMY 13

4.2% followed by a 2.4% in 1989. From 1990 to 1992, the South African economy grew

negatively averaging -0.3, -1.0, -2.1% (World Bank, 2018). In 1993, the economy rebounded to

1.2% and expanding steadily in the subsequent years until 2008. However, in 1998, there was 0.5

economic growth. The year 2009 recorded the first negative economic growth of -1.5% in fifteen

years. From 2010, 2011, 2012, 2013, 2014 and 2015 saw the South African economy grow at an

average growth of 3%, 3.3%, 2.2%, 2.5%, 1.7%, 1.7%, and 1.3% respectively. In 2016, the

economy slumped to zero percent growth.

SOUTH AFRICA ECONOMY 13

Real Economic Growth Rate.

1988 1989 1990 1991 1992 1993 1998 2009 2010 2011 2012 2013 2014 2015 2016

-3

-2

-1

0

1

2

3

4

5

6

Real GDP growth rate (%)

Real GDP growth rate (%)

The Real Economic Growth Rate is the measure of the economic growth based on the

Gross Domestic Product in a one year period after adjusting for inflation (Ray, 1998). The real

GDP growth in 1988 stood at 4% followed by a drop of 1.8% to 2.2%. 1990 to 1992 period

occasioned the real GDP growth of South Africa at -0.1%, -0.9%, and -2%. According to the

World Bank report on South Africa’s real GDP growth, 1993 to 2008 indicated a positive growth

of between a low 1.2% and high of 5.1%. The real Growth Rate in 2009 was -0.5. It rose in the

next six years to average a 1.7% real Growth Rate before falling to zero in 2016 (World Bank,

2018).

SOUTH AFRICA ECONOMY 13

Real Gross Domestic Product

1988 1989 1990 1991 1992 1993 1998 2009 2010 2011 2012 2013 2014 2015 20160

50

100

150

200

250

300

350

400

450

Real GDP (Billion dollars)

Real GDP (Billion dollars)

The Real Gross Domestic Product is the measure of all the goods and services an

economy produces in a one year period after deducting the inflation (Ray, 1998). The real GDP

indicates the purchasing power of the people of South Africa. The report by World Bank shows

in 1988 the GDP stood at 118 billion dollars. From 1989 to 1997, the GDP fluctuated between $

115 billion and $ 152 billion. In 1998, the South African GDP dropped to $137 billion. It rose

steadily from a low of $ 136 billion in 1999 to a high of $ 297 billion in 2009. In 2010, it jumped

to $ 375 billion followed by $ 416 billion in 2011. The GDP dropped to $ 396 billion in 2012,

and dropping further in 2013, 2014, 2015 and 2016 to $ 366, $ 351, $ 317, $ 295 billion dollars

respectively (World Bank, 2018).

SOUTH AFRICA ECONOMY 13

Real GDP per person

1988 1989 1990 1991 1992 1993 1998 2009 2010 2011 2012 2013 2014 2015 20160

1000

2000

3000

4000

5000

6000

7000

8000

Real GDP per person ($)Real GDP per person ($)

Real GDP per person is the measure of a country’s output in terms of Gross Domestic

Product divided by the total number of people residing in that country. The per capita GDP

depicts the level of productivity of a country. Additionally, per capita is essential in determining

the standards of living of a certain country (Ray, 1998). The World Bank relies on two methods

to determine the real per capita income. The first is the Atlas method and the Purchasing Power

Parity (PPP). The Atlas method showed the per capita income in South Africa stood at $ 3,180 in

1988. From 1989 to 2003, the per capita income dropped from a high of $ 3,470 to $ 2,870. The

productivity of South Africa rose to $ 3,660 in 2004, $ 4,900 in 2005, $ 5,530 in 2006, $ 5, 820

in 2007, $ 5, 910 in 2008. In 2009, the level of per capita dropped to $ 5, 800. The next three

years saw a drastic increase in the amount GPD per person in South Africa from $ 6, 160 in

2010, $ 6, 970 in 2011, $ 7, 540. In 2013, the per capita income according to the Atlas method

shifted to $ 7, 340. 2014, 2015 and 2016 was the greatest drop in the level of productivity from $

6, 750 to $ 6, 070 and a further fall of over five hundred dollars to $ 5, 480. The Purchasing

Power Parity (PPP) method was first used in 1990 indicating that the PPP of South Africans

SOUTH AFRICA ECONOMY 13

stood at $ 6, 040. Under the PPP method, South Africans purchasing power rose steadily from a

low of $ 5,900 in 1992 to a high of $ 12, 830 in 2016 (World Bank, 2018).

Inflation Rate

1988 1989 1990 1991 1992 1993 1998 2009 2010 2011 2012 2013 2014 2015 20160

2

4

6

8

10

12

14

16

18

20

Inflation rate (%)Inflation rate (%)

The inflation rate is the measure of the rise or fall of prices of the various goods and

services produced in a country. Inflation rate determines the purchasing power of a currency

(Ray, 1998). Inflation as a GDP deflator stood at 15.1% in 1988 increasing to 17.2%. The

inflation rate eased to 15.5% in 1990, 15.7% in 1991, 14.6% in 1992, 13% in 1993, and 9.5% in

1994. The following year it rose to 10.2%. The next four years illustrated the increase in the

power of the South African rand due to drop in inflation from 7.9% to 7.1%. 8.8%, 7.6%, 12.2%,

5.8%, 6.5%, 5.4% were the inflation rate from 2000 to 2005. The subsequent years indicated a

rise in inflation from 5.4% to 8.8% in 2008. It dropped again in 2009 to 7.5%, 6.4% in 2010,

6.5% in 2011 and a further 1.2% drop to 5.3%. Although the rate of inflation rose in 2013 to

6.1%, it dropped to 5.8% in 2014 and 5.0% in 2015. The inflation rate rose with a two

percentage point to 7.0% in 2016 in the previous year (World Bank, 2018).

SOUTH AFRICA ECONOMY 13

Unemployment Rate

1988 1989 1990 1991 1992 1993 1998 2009 2010 2011 2012 2013 2014 2015 20160

5

10

15

20

25

30

Unemployment Rate (%) Unemployment Rate (%) - - -

Unemployment Rate is the percentage of those eligible to work, but lack the job

necessary to use their skills. Unemployment is a lagging indicator as opposed to anticipating

indicator due to its ability to rise and fall based on the prevailing economic conditions (Ray,

1998). In 1991, the unemployment rate was 25.4% of the total population. The rate of

unemployment dropped to 22.4% before rising to 25.9% in 1993. The two subsequent years saw

a drop in unemployment rates to 20% and 16% respectively. However, the eight-year period

from 1996 to 2003 indicated a rise in the rates of unemployment from 21% to 27.1%. The

beginning of 2004 to the end of 2009, the number of unemployed South Africans went down

from 24.7% to 23.5%. Since 2009, the level of unemployment is rising steadily from 24.7% to

27.3% in 2017 (World Bank, 2018).

SOUTH AFRICA ECONOMY 13

Discussion

Since the democratization of South Africa from the Boers, the economy of the country

underwent substantial transformations to the current state. South Africa average a 3.3% per

annum growth between the periods of 1994 to 2015. From 1988 to 1993, the rate of economic

growth stood at 1.8% (World Bank, 2018). Nevertheless, the volatility of the world economy

impacted the South African adversely during the period of thirty years. In 1989, the economy

was healthy. Nonetheless, the negative growth of the economy between 1990 and 1994 was due

to international pressure for the colonialist, the Boers, to give power to the native, black

majority. The election of the first black president rallied the economy to grow for the five years.

The economy slowed to zero in 1998 due to the announcement of Nelson Mandela to retire at the

end of his term. The growth rate increased the next ten years till 2009 with the fastest growth

record being between 2004 and 2007. It improved the next five years before slumping again in

2015.

The Gross Domestic Product (GDP) of South Africa was 81% larger in 2016 relative to

1989. The GDP is increasing from a low of $116 billion to $ 456 period due the robust mining

sectors, the manufacturing sector, and the banking sector. Additionally, the increased purchasing

power of South African allowed more money spend than before independence. However,

external shocks such as East Asian crisis, the dot.com crisis, the September 11 attacks and the

global financial crisis of 2008. The corruption scandals that plagued the former South African

president, Jacob Zuma reduced the investment in the country; thus, affecting its GDP (Fine,

2018).

The per capita income of South Africa increased from $ 3,400 in 1989 to $7, 300 due to

the opening up of the economy to accommodate the black South African who is the majority in

SOUTH AFRICA ECONOMY 13

the country. The end of segregation allowed students who didn’t have access to school to be

enrolled for the first time. Additionally, the various programs initiated by the first ruling party

made the economy inclusive. Nevertheless, both Atlas and Purchasing Power Parity (PPP)

highlight the upward trend of the per capita income from 1988 to 2016 because of the

diversification of the economy. The inflation rate is determined by the balance of the South

African current account. The period from 1988 to 1994, the inflation rates were rising due to

foreign investors keeping away from investing in the various sectors of the South African

economy. Many investors were afraid of South Africa turning into a lawless state as political

pressure for independence mounted. After 1994, the government through the central bank

embarked on measures to level inflation from 19994 to 2016 (Fine, 2018). The level of

unemployment shows an upward and downward trend owing to both internal and external

pressure such as political and social factors. The lack of skills among the black South African

especially the youth is the main factor of contributing to the high unemployment rate.

Conclusion.

The independence of South Africa from the minority rule opened the various sectors of

the economy. Prior to independence, South Africa had low GDP, high inflation rates, and an

economy which wasn’t growing. The prudent fiscal management of the new government resulted

in an increase in the GDP of South Africa five times to the current position. Moreover, the

inclusion of more South Africans before increased their purchasing power; hence, their per capita

income. Nevertheless, the country has critical challenges such as high unemployment rate and

the incidence of poverty.

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References

Fine, B. (2018). The political economy of South Africa: From minerals-energy complex to

industrialization. Routledge.

Gillis, M., Perkins, D. H., Roemer, M., & Snodgrass, D. R. (1992). Economics of

development (No. Ed. 3). WW Norton & Company, Inc..

Ray, D. (1998). Development economics. Princeton University Press.

Ross, R. (2008). A concise history of South Africa. Cambridge University Press.

The World Bank Report on the various economic indicators, 2018. Accessed on April, 9th 2018.

http://databank.worldbank.org/data/home.aspx