South Africa: The Weak Link In The BRICS’ Economic Engine
South Africa may have put the "S" in BRICS, but unlike the other members of the emerging nations' group, it is facing weak growth and structural disadvantages that include apartheid’s legacy and the toll of AIDS on economic reju
JOHANNESBURG - Praving Gordhan, the South African Finance Minister, is presenting the country's budget to parliament this week. He will be busy explaining how he will finance a 300-billion-rand (30 billion euros) investment program designed to modernize the railroad system and the country's port over the next seven years.
The world's number one producer of platinum and the fourth-largest gold producer, South Africa wants to export its precious metals more efficiently in a bid to jumpstart the sector on which the country has long built its economic power. South Africa was the continent's strongest economy, but it lost some ground in 2011.
In April, South Africa will celebrate its first year as a member of the BRICS team. But economic growth rates in Brazil, Russia, India and China dwarf that of South Africa. For the past five years, the average yearly growth rate has been just 2.7% and the International Monetary Fund is expecting a 2.5% GDP hike in 2012 (compared with sub-Saharan Africa's 5.5%), mostly due to the economic downturn in Europe, where more than a third of South African exports go.
Goolam Ballim, a chief economist at the South African Standard Bank, warned that the country was entering "a period of light stagflation" (weak growth coupled with high inflation and unemployment). In January, the Fitch ratings agency downgraded the country's economic outlook because "its economy can't create enough jobs."
Despite a small decrease, the unemployment rate was still at 23.9% in 2011, and even 35.4% if you take into account those who stopped looking for a job. The government pledged to spend 9 billion rands (900 millions euros) over three years to create five million jobs by 2020.
South African President Jacob Zuma, who's been repeatedly criticized for his lack of vision and inefficiency, is hoping his investment policy will create a positive shock. But in the public as well as the private sector, South Africa is piling on disadvantages.
The country is cruelly lacking qualified labor. Some 800,000 job offers for engineers and other high-level positions aren't being filled. The consequences of apartheid, during which the state spent about 10 times more on a white child's education than on that of a black one, are still felt today. Though the government now spends 20% of its budget in education, the funds are often misused.
On average, the country has three social benefit recipients for only one taxpayer and corruption is eating away at the administration. In exchange for bribes, the ruling African National Congress (ANC) leaders have made a habit of offering contracts to "friendly" companies who then overcharge for their services.
The CEO Confidence Index is at its lowest in two years. Though the successful 2010 soccer World Cup improved the country's image in investors' eyes, corruption, a high crime rate and power outages are still worrying. The debate over a potential nationalization of the country's mines, as well as a new labor code, haven't done much to ease the fears. The Congress of South African Trade Unions (Cosatu,) a major ANC ally, has refused to weaken workers rights while employers say the cost of labor in South Africa is too high.
The country also has one of the world's lowest small business creation rates. In May 2009, Trevor Manuel, then Finance Minister, said apartheid had killed entrepreneurial spirit among black people.
And then there is the "AIDS effect" on the economy. In a study published in January, the South African Institute of Race Relations showed that because of AIDS, the country only had 50.6 million people instead of 55 million. "If the 15 to 49-year-olds, the most affected age group but also the most productive, continue to die young, there will be social and economic consequences for the country."
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Photo - Derek Keats