south african economy

8/14/2019 South African Economy

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VershaSingh Slide 3-8VipulKumar Singh Slide 9-14Ashwini Slide 15-21what is R.O.W

Shallu Tomar Slide 21-26PriyankShah Slide 27-32Pankaj chaudhary Slide 33-37

Sukruti Nayak Slide 38-41Puneet Singh Chimni Slide 42-46

Slides for eco presntationSlides for eco presntationtomm.tomm.



Presented by:

Ashwini Parida Pankaj chaudhary

Priyank Shah Puneet Singh Chimni

Shalu Tomar Sukruti Nayak Versha Singh

Vipul Kumar Singh

South African EconomySouth African Economy



qOld Name – DZONGA AFRIKA

qqOnly Country In The World With 3 Capitals

- PRETORIA (Executive) - BLOEMFONTEIN (Judicial)

- CAPE TOWN (Legislative)

qLargest City – JOHANNESBURG

qqOfficial Languages – Zulu ,Xhosa , Africans and English

qqGDP (as of 2008) - $277 Billion

qqMajor Industries: Agriculture, mining , manufacturing , chemicals.

Introduction to factsIntroduction to facts



“Expecting a second phase of growthdue to tourism industry.”

- Financial times

Analysts blamed the government’s shift in policy for the slow change.

IntroductionIntroduction



Growth :

GDP Growth – 5.6%

(2008)Continuous Growth

since 1998Boom In Tourism

Sector Growth in business.

Problems :

Poverty (50% belowPoverty Line)

Unemployment Rate (25%)Disparity & RacialDiscrimination continues(100,000 displaced in2008)

Deadly HIV Virus (20% Of

South Africans have HIV)Very High Crime Rates

(World Crime Capital)




Steps and measuresØFirst multi-racial election(ANC)

ØPolicy initiatives-RDB-GEAR

ØForeign investment

Bridging the economic gap between white and non-white section of population.




% , ,F BLACKS WHITES INDIANS AND COLOREDS, ,F BLACKS WHITES INDIANS AND COLOREDS N 2001N 2001



Background and HistoryBackground and History



Ø 1828 – Ordinance guaranteeing equal civil rights was passed but in 1834 it was opposed. Two republics Orange free state and

Transvaal were established.Ø 1853 – Cape Colony was granted a representative legislature by

BritainØ

1860 - Discovery of Diamonds along river Vaal.Ø 1872 – Self governance to Cape Colony.Ø 1900 – Anglo-Boer war lead to full British controlØ 1910 – Union of SA came into being

- SAP came to power and enacted laws like - The Masters and Servants Act, - Native Poll Tax Act, the Land ActØ 1912 – ANC was established in BloemfonteinØ 1914 - NP was formed by conservative whitesØ 1924 – NP in alliance with labourparty came to powerØ 1931 – SA became self governing dominion under British crown

South Africa in and post British Era.South Africa in and post British Era.



Ø1933 – NP and SAP merged to form United party

Ø1936 – Blacks were thrown out of Cape Colony-Defranchised.

Ø1943 – ANC Youth league was formed

Ø1948 --NP came to power and implemented Apartheid.

Ø1961 – SA declared itself a republic.

Ø1994 – First time democratic election was held and ANC came topower with N.Mandela as president and wrote newconstitution which was end of “Apartheid”.

ØANC came to power for second and third democratic elections in1999 and 2004 with Thabo Mbeki as president.

ContinuedContinued....



Apartheid EraApartheid Era



FFECTS OF APARTHEID FFECTS OF APARTHEID

WITHIN THE COUNTRYØIlliteracy rate

ØSlow growth

ØUnskilled and shortage of labor

ØPoor technology

ØEconomic disparity

BY REST OF THE WORLD

ØOpposition from rest of the world

ØS.A. isolated at international forums

ØProblems with foreign investors

ØSignificant trade links with common wealth states

Ø



CONOMY UNDER APARTHEID CONOMY UNDER APARTHEID

ØIn 1950’s - avg. annual growth at 4%ØLabour Shortages, Poor Technology & Economic Disparity

ØIn 1960’s - avg. annual growth of 6%

ØIsolation & Opposition at all International Events

ØIn 1970’s - Manufacturing & Agricultural sector got stagnated,Financial & Service Sector showed growth

Ø1970’s Oil Crisis leads to Price Hike (Inflation touches 10%)

Ø1973 - OPEC instituted an oil embargo on S. Africa

ØFrom 1978-1985, S. Africa gets prohibited by EXIM Bank & IMF

ØComprehensive Anti-Apartheid Act by USAØSevere Debt Crisis

Ø1980’s - avg. annual growth crawls to 1.5%

ØPer Capita Income falls by 10%



Early Reaction:◦ Little Opposition from R.O.W

◦ Mineral Producing Nation.

◦ Received loans from Canada, America, Europe &

Japan. Later Reaction:

◦ Export-Import Bank prohibited loans(1978)

◦ IMF prohibited loans(1983).

◦ Anti-Apartheid Act, US (1986).

◦ Ban Imposed by EEC(1986).

◦ Chase Manhattan withdrew short term credits

◦ Growth rate dipped to 1.6%.

◦

REACTION OF R.O.WREACTION OF R.O.W



econstruction and Development econstruction and DevelopmentProgrammerogramme

RDP was a South Africansocioeconomic policy framework, implemented by theAfrican National Congress (ANC) government of Nelson Mandela in 1994

The chief aim of RDP was to address the immensesocioeconomic problems brought about by thepredecessors of ANC, under the Apartheid regime.

RDP specifically aimed to alleviate poverty and addressthe massive shortfalls in social services across thecountry.



econstruction and Development econstruction and Development( …)rogramme Contd( …)rogramme Contd

The RDP attempted to combine measures to boost theeconomy, such as contained fiscal spending, sustainedor lowered taxes, reduction of government debt, andtrade liberalization

The RDP White Paper outlined the following sixprinciples :

1.The RDP would be an integrated, well coordinated and

sustainable programme

2. The RDP would be people-driven

1.



econstruction and Development econstruction and Development( …)rogramme Contd( …)rogramme Contd

3. The RDP would attempt to play a role in ending the endemicviolence within South Africa

4. There would be commitment of all parties to the RDP whichwould further encourage the grand project of nation-building

5. The RDP would link growth, development, reconstruction,redistribution and reconciliation into a "unified programme”through a broad infrastructure programme

6. “Democratisation” meaning that the people most affected byeconomic policy would participate in decision-making



enefits of RDP enefits of RDP

Proponents of the RDP argue that the programme

oversaw many major advances in dealing withSouth Africa's most severe social problems:

Housing : Between 1994 and the middle of 1996,over 6,00,000 cheap houses eligible forgovernment subsidies had been built

accommodating 3 million South Africans whowere without proper housing Clean water : By the beginning of 1996, standpipes

had been installed within 200 metres of thedwellings of about 7,00,000 rural people

Electrification: Between 1994 and May 1996 around

1 million homes had been connected to thenational grid, while the proportion of ruralhomes with electricity grew from 12 percent to 32percent



( …)enefits of RDP Contd( …)enefits of RDP Contd

Land Reform: By 1996 some 29,000 families hadbeen settled on 2,550 square kilometres of land.Authorities claimed that 250,000 people had"received land" within three years.

Healthcare: Between April 1994 and the end of 1996, around 500 new clinics gave an additional

five million people access to primary health care.Under the polio-hepatitis vaccination programmethat began in 1996, eight million children wereimmunised within two years

Public works: A community-based public worksprogramme provided employment over three

years, to 240,000 people on road-buildingschemes and the installation of sewage, sanitationfacilities and water supplies.



riticisms Of RDP riticisms Of RDP For the first two years after the ANC came to power,

the economy grew at a rate of only 2.3 percent The problem of unemployment could not be solved and

the situation became much worse over the years A growing currency account deficit and currency

depreciation created further problems for the

government Despite better accessibility of housing and healthcare

facilities, the quality of housing and the standard of healthcare facilities was not upto the mark

Thus in order to achieve a higher economic growth, low

deficits, stable exchange rate, and more jobs, thegovernment announced a new policy in 1996 calledthe “GEAR” policy



ear Policy and its aim ear Policy and its aim

The Growth, Employment And Redistribution policyalso known as gear policy was introduced in 1996.

The chief architect of this policy was then financeminister of South Africa Trevor Manuel

The main aim of this policy was to increase Adapt 6%annually ,increase exports by 8% per annum and4,00,000 jobs by 2000.

The government also aimed at to control deficit ,check depreciation of the currency and rein in inflation.

The ANC government decided to privatize several sectorsof economy despite resistance within the governmentitself.



ore elements of Gear ore elements of Gearpolicyolicy Faster fiscal deficit reduction program to contain debt

service counter inflation and free resources forinvestment

A consistent monetary policy to prevent resurgence of inflation.

Tax incentives to stimulate new investment in competitiveand labor absorbing projects

An expansionary infrastructure program to address serviceof deficiencies and backlogs

An expansion of trade and investment flows in southernAfrica.

Focus on job creation rather on decreasing inequalities.



EAR Assumptions and Fiscal EAR Assumptions and Fiscal olicy Mechanismsolicy Mechanisms

At the center of the GEAR strategy was deficit reduction Policy was based on the following assumptions:

1)Crowding out was an important phenomenon in SouthAfrica

2)Deficit reduction would result in a fall in the interest rate

3)A lower interest rate would stimulate higher privateinvestment

4)A lower interest rate and higher investment would cause anappreciation of the currency and a slight deterioration of net exports

GEAR envisioned government expenditure to be limited to19% of projected GDP over the period from 1996-2000



:ailure of GEAR effect:ailure of GEAR effect§ With the implementation of GEAR policy the government seem to

have shift its focus from social welfare to fiscal discipline.

§ GDP under the GEAR effect grew by the unexpected rate of 2.1%less than the population rate.

§ It was explained that the reason being lack of growth of monetary policies.

§

§

§

§

FDI showed slow progress and contributed less to the growth.

Budgetary deficit reduced from 4.6% of GDP to 2.4%,but theinflation still soaring high at 5% from 7.6%.

Microeconomic stability at expense of growth. With no growth theeradication of poverty was impossible or income disparities.

Year ’95 ’96 ‘97 ’99 ‘00inflation 8.8% 7.4% 8.9% 5.2% 5.3%

Unemployment

31.2% 31.5% 35.6% 38.6% 36.9%



roblems which need roblems which need:o be dealt:o be dealt

Land allocation & Income inequalities



:ini coefficient:ini coefficient



unemployment &nemployment &

povertyoverty

Serialno.

Particulars 2001 2002 2003 2004 200-5 200-6

1. Real GDP

growth %

2.7 3.6 2.8 3.7 4.3 4.5

3. National debt,% of GDP

41.4 37.1 35.7 35.8 35.1 32.8

5. Current a/c balance

0.1 0.7 -1.5 -3.2 -3.7 -4.9

6. Unemployment( % )

- 30.5 - 26.2 26.7 25.6



:conomic indicators:conomic indicators unemployment &nemployment &

povertyovertySerialno.

Particulars 2004 2005 2006 2007 2008

1. Real GDP

growth %

3.7 4.3 4.5 5.1 3.1

2. National debt,% of GDP

35.8 35.1 32.8 28.5 27.3

3. Unemployment

( % )

26.2 26.7 25.6 24.3 23



:anking of growth constraints:anking of growth constraints



he Black Economic Empowerment he Black Economic Empowerment:ct 2003:ct 2003

ØThe Act came into effect in April 2004.ØThe Document said “Unless further steps are taken to increase the

effective participation of the majority of South Africans in the economy, the stability and prosperity of the economy in the future may beundermined to the detriment of all South

Africans, irrespective of race”

ØThis resulted in establishment of Black Economic Empowerment Advisory Council (BEEAC)



Contd…Contd…

ØGovernment also launched a Black Business

Supplier Development program (BBSDP)Ø

ØThe BBSDP was an 80:20 cost sharing cashgrant incentive scheme, which offered support

to black owned enterprises in South Africa.Ø

ØIn 2005, The Government assisted 577 Black owned business with grants of around annualRand 29 million



:ain Objectives of BBSDP:ain Objectives of BBSDP

ØA Substantial increase in the number of black people who had ownership and control of existing and new enterprises

ØA significant increase in the number of black

empowered and blank engendered enterprisesØA significant increase in the number of black

people in executive & senior managementpositions

ØThe ministry of trade & industry issued thecodes of good practice



Code 100Code 100 – Ownership Scorecard (required that blacks – Ownership Scorecard (required that blacks

should own 25% stake in the company)should own 25% stake in the company)Code 200Code 200 – Management Scorecard (This was concerned – Management Scorecard (This was concerned

with the black representation at senior executive levelswith the black representation at senior executive levels

i.e. 40% in the top mgmt & 50% in the board)i.e. 40% in the top mgmt & 50% in the board)

Code 300Code 300 – Employment Equity Scorecard (dealt with – Employment Equity Scorecard (dealt with

the representation of blacks at all management levels)the representation of blacks at all management levels)Code 400Code 400 – It required companies to spend 3% of their – It required companies to spend 3% of their

payrolls to spend on improving skills of blackspayrolls to spend on improving skills of blacks

Similarly there wereSimilarly there were Code 500, Code 600 & Code 700Code 500, Code 600 & Code 700

referred to as Preferential procurement, Enterprisereferred to as Preferential procurement, Enterprise

development & Socio economic developmentdevelopment & Socio economic development



…ONTD…ONTD

ØIn 2005, Accelerated & Shared GrowthInitiative (ASGISA)

Ø

ØThe Primary Goal of ASGISA was to halve

the unemployment and poverty by 2014Ø

ØUnder ASGISA, the government targeted agrowth rate of 4.5 % between 2005 & 2009,

And above 6 % between 2010 & 2014.Ø



resent Conditionresent Condition

South Africa is unique in many ways

Disparity in infrastructure and prosperity levels

Extreme disparity in income and wealth

Though South African Economy grew by morethan 5% in 2005 and 2006, still theunemployment rates were very high.



&OALS ACHIEVED UNDER RDP BETWEEN 1994 &OALS ACHIEVED UNDER RDP BETWEEN 19942008008

S.NO

PARTICULAR 1994 2002 2003 2004 2005 2008

1. Real GDP growth % 2.7 3.6 2.8 3.7 4.3 4.5

2. CPI 5.7 9.2 5.8 1.4 3.9 5.4

3. National debt, % of GDP

41.4 37.1 35.7 35.8 35.1 32.8

4. Exchange rates( in rands ) 12.13 8.64 6.64 5.64 6.33 7

5. Current a/c balance 0.1 0.7 -1.5 -3.2 -3.7 -4.9

6. Unemployment ( % ) - 30.5 - 26.2 26.7 25.6



INI coefficientINI coefficient

It is a measure of inequality of a distribution The GINI coefficient worsened between 1994 to 2002.

South Africa became the most unequal country in terms of income distribution, surpassing Brazil.

Although Brazil is headed in the right direction to reducethe inequality in the society, South Africa is headed in thewrong direction.



REASONS FOR THEREASONS FOR THECONTINUED PROBLEMS:CONTINUED PROBLEMS:

People migrating to the First World (Brain Drain)

State ownership and interference - imposing high barriers to entryin many areas ( Too much of Red Tapism )

Restrictive Labour Regulations

An estimated 5.2 million people were living with HIV and AIDS in

South Africa in 2008- almost 10% of all young people wereinfected, hence average life expectancy is predicted to fallfurther.

Rank Country People living with Prevalence Rate



y p gHIV/AIDS

1 South Africa 53,00,000 21.5%

2 India 51,00,000 0.9%

3 Nigeria 36,00,000 5.4%

4 Zimbabwe 18,00,000 24.6%

5 Tanzania 16,00,000 8.8%

6 Ethiopia 15,00,000 4.4%

7 Mozambique 13,00,000 12.2%

8 Kenya 12,00,000 6.7%

9 Congo 11,00,000 0.6%



Taxes Tariffs Fiscal Deficit

Inflation curbed In 2006/07, South Africa posted its first-

ever budget surplus of 0.3%

Economic Growth Consumer Inflation

URRENT GROWTH SCENARIO



GDP Growth In South AfricaGDP Growth In South Africa



Solutionsolutions

First priority is to reduce

poverty and create New Jobs Govt. has promised to halve the

unemployment and povertyrates by 2015

Reduce Inequality, moreopportunities for everyone.

Encourage more FDI.

Eg. Fifa world cup in 2010



THANK YOUTHANK YOU

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