South Africa - Economic Outlook

An Expert's View about Business Environment in South Africa

Posted on: 31 Oct 2011

Recent Developments
•South Africa’s economy posted an annualised quarter-on-quarter (QOQ) growth rate of 1.3% in the second quarter of 2011, after gaining 4.5% QOQ in the first quarter. The IMF expects South Africa’s GDP to keep expanding at around 4% annually over the next five years.
•South Africa’s consumer inflation surged to 5.3% year-on-year (YOY) in July 2011, the fastest in 17 months. Yet, it is still within the target range of 3-6% set by the South African Reserve Bank (SARB).
•South Africa joined the third summit of BRIC in April 2011 to become the fifth member of the prominent group of emerging economies (also including Brazil, Russia, India and China). importance of the BRICS is underscored by the fast growth of the economies, and their collective size in terms of population, GDP and geographic area.
•Chinese products are growing popular in South Africa, as reflected by the increasing share of China in South African imports.
•Hong Kong's exports to South Africa grew 14% YOY to US$546 million in the first eight months of 2011, while imports jumped 43% YOY to US$579 million in the same period.

Current Economic Situation

South Africa, the largest economy in Africa, registered a 2.8% GDP growth in 2010 on the back of global economic recovery. Stronger consumer spending, business investment and external demand helped GDP grow 3.6% YOY in the first quarter of 2011. In addition, the IMF expects that South Africa will achieve an average annual growth rate of 3.96% in the next five years. South Africa, a country best known for its precious metals and agricultural products like fruit and wine, has transformed from an agriculture- and mining-dominated economy into a sophisticated manufacturing- and services-based economy, with services comprising over 60% of the country’s GDP.

Mining and manufacturing accounted for 31% of the South African GDP in 2010. The manufacturing industries in South Africa comprise automotives, chemicals, metal and processed food. Electronics and textile products manufacturing can also be found in South Africa. Manufacturing was the best-performing industry in the first quarter of 2011, expanding by 4.8% YOY.

Among various service sectors, telecommunication has been one of the bright spots in South Africa since the government liberalised the sector in 2004. South Africa’s mobile penetration has already surpassed the 100% mark. Telecom operators, such as MTN and Telkom, have expanded to other African countries. As a major supplier of ICT-related products and services to southern Africa, South Africa is a major gateway for overseas companies tapping into the southern African market. In addition, the government launched a new campaign named the National Tourism Sector Strategy (NTSS) in March 2011, with the aim to boost the economy.

With a high rate of English proficiency and an advanced telecommunication infrastructure, South Africa is an upcoming business process outsourcing (BPO) destination. In the last five years, five of the world’s top 10 BPO firms have established BPO centres in South Africa. The South African government recently announced that it would offer various tax incentives to outsourcing companies committed to hiring a certain number of employees.

With over 50 million people, South Africa is one of the most populous countries in Africa. With a sizable population, along with a relatively high per-capita income (US$7,158, 2010) and strong private consumption (around 60% of South Africa’s GDP), South Africa is one of the most attractive consumer markets in Africa. Retail sales jumped by 9.8% YOY in April 2011 with signs of continued growth for the rest of the year. Nonetheless, the labour market has remained in the doldrums, with the official unemployment rate increasing to 23% in the second quarter of 2011. Although the World Cup 2010 generated a lot of short-term job opportunities, the unemployment rate in South Africa has shown a growing trend over the past several months. High unemployment is expected to be a persistent economic issue in South Africa in upcoming years.

South Africa’s consumer inflation climbed to 5.3% YOY in July 2011, showing the fastest growth over the past 17 months. Yet, it remains within the target range (3%-6%) of the South African Reserve Bank (SARB). However, the inflation outlook is becoming unconstructive due to the rising global food and oil prices. To cope with rising inflation, SARB will be vigilant in its monetary policy stance on inflation.

External Trade

In line with the global economic recovery, South African imports and export registered double-digit growth in 2010. Indeed, China has been an increasingly important trading partner of South Africa. The share of China in South Africa’s imports has increased from 10% in 2006 to over 14% in 2010, reflecting the increasing attractiveness of Chinese products in the country. In the first four months in 2011, imports from China amounted to US$3.8 billion, up 25.7% YOY.

Trade Policy

South Africa is a member of the World Trade Organisation (WTO). Imports originated from other WTO members, including Hong Kong and the Chinese mainland, are subject to the country's most-favoured-nation (MFN) tariff rates. In addition to import tariffs, most goods are subject to a value-added tax (VAT), where the standard rate is currently set at 14%. However, VAT on goods imported for use in manufacturing or resale by registered traders can be claimed as an input tax reduction. Payments of import duties and VAT can be deferred if the goods are put in bonded warehouses.

South Africa may initiate anti-dumping or countervailing investigation and impose duties when unfair trade allegations are substantiated. A number of China-origin products, such as iron/steel-made bolts and nuts, are currently subject to anti-dumping duties when imported into South Africa. However, there are no anti-dumping measures against Hong Kong products at present.

Most goods can be imported into South Africa without a permit, except for certain goods like foodstuffs, petroleum products, chemicals, second-hand goods, finished machinery and gold. Import permits are usually issued by the Department of Trade and Industry, and are used mainly to collect information rather than to limit trade.

South Africa has good trade links in the region and abroad. The African Growth and Opportunities Act (AGOA) of the US allows some 6,500 kinds of South African products to be exported to the US under its general system of preferences (GSP) until 2015. South Africa has also signed a free trade agreement (FTA) with the EU, which came into force in 2000. Under the FTA, 95% of South African exports to the EU receive preferential access. South Africa is also a member of the South Africa Customs Union (SACU), comprising Botswana, Lesotho, Namibia, and Swaziland. It is aimed that by 2012, 98% of SACU trade will be subject to zero-tariff.

New Member to BRICS

South Africa joined the BRIC Summit in April to become the fifth member of the exclusive emerging market group, previously comprising Brazil, Russia, India and China. Being a member of BRICS is seen as allowing South African business to gain better access to the BRIC market, which comprises more than 40% of the world’s population.

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Posted: 31 October 2011

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