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Is South Africa experiencing an economic crisis?

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About South Africa

As the most developed country and second largest economy of the African continent, South Africa is much more exposed to the global financial system than its other African counterparts. South Africa offers a market of 53 million people to world trade. The country has a wealth of natural resources, including coal, platinum, coal, gold, iron ore, manganese, nickel, uranium, and chromium.

Gold mining and exploration companies like AngloGold Ashanti Ltd. (AU), Gold Fields Ltd. (GFI), Harmony Gold Mining Company Limited (HMY) are listed on, and trade heavily on, the New York Stock Exchange.

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Moreover, US exchange-traded funds like the VanEck Vectors TR Gold Miners ETF (GDX) and the VanEck Vectors Junior Gold Miners ETF (GDXJ) are also invested in South Africa (7.83% and 1.1% allocation, respectively). The iShares MSCI South Africa ETF (EZA) primarily invests in the performance of the South African equity market.

South Africa is also part of the BRICS group of countries, which includes Brazil, Russia, India, China, and South Africa.

South Africa growth

From 2002 to 2008, South Africa grew at an average of 4.5% year-on-year. However, inadequacies on the part of South Africa’s government to address key structural issues and global conditions have subdued growth in the country in recent years. In October 2014, South Africa’s finance minister, Nhlanhla Nene, slashed this year’s growth forecast for the economy to 1.4%, down from a previously forecast figure of 2.7%.

Key economic issues in South Africa

Since the Great Recession (2008–09), growth in South Africa has been sluggish. Part of the slowdown in South Africa’s economy has been blamed on global recessionary conditions and the country’s reliance on external capital.

  • High unemployment rate (currently over 25%)
  • Low-skilled labor force
  • Over-regulation
  • High government borrowing
  • High corruption and crime rates
  • Deteriorating infrastructure
  • Rising income inequality

Moreover, the country’s immediate economic future also looks austere, with unemployment and income inequality expected to continue to rise.

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