The 2019 Annual Meetings of the African Development Bank Group will be held from 11-14 June 2019, in Malabo, Republic of Equatorial Guinea. Find out more
Real GDP growth was an estimated 0.7% in 2017/18, down from 1.3% in 2016/17. The agricultural sector grew 17.7% in 2016/17, after contracting 10.2% in 2015/16, to contribute 0.4 percentage point to GDP growth. Manufacturing contracted 0.2% in 2016/17 after growing 0.9% in 2015/16. Growth also slowed in the services sector, with growth in finance, the main subsector, slipping from 2.3% in 2015/16 to 1.9% in 2016/17, contributing 0.4 percentage point to overall growth. Household consumption remains the key driver of growth. Household and government consumption contributed 1.5 percentage point to growth in 2016/17, compared with 0.8 percentage point in 2016.
The fiscal deficit remained high at an estimated 4.0% in 2017/18, down from 4.3% in 2016/17, as the country continued to face revenue shortfalls arising from slow economic growth. To bolster domestic resources, the government introduced new tax policies, including an increase in the value added tax from 14% to 15% on 1 April 2018. Public debt reached an estimated 53.3% of GDP in 2017/18, with domestic debt accounting for over 90% of total public debt.
Inflation was an estimated 4.9% in 2017/18, down from 5.3% in 2016/17, due to lower food prices. In April and May 2018, the value of the rand depreciated against most currencies, while the dollar strengthened considerably. The real effective exchange rate of the rand appreciated by 3.3% from March 2017 to March 2018, resulting in loss of competitiveness. Gross gold and foreign reserves reached $51.1 billion in May 2018, covering about 4.4 months of imports.
Real GDP growth is projected to increase to 1.7% in 2018/19 and 2.0% in 2019/20. The drought has improved in most provinces, and prospects in the agricultural sector are favorable. However, growth in industry and services is expected to remain sluggish.
South Africa depends heavily on exports of mineral resources, and although commodity prices increased markedly in the second quarter of 2018, the outlook is on the downside, especially because of expected weakening of global growth due to ongoing trade tensions.
The government recognizes the need to improve the electricity supply. In 2018, South Africa signed long-delayed renewable energy contracts worth 55.92 billion rand with independent renewable power producers. This cleared uncertainty on the energy sector reform introduced in 2011 that permitted private participation in electricity generation. Over 80% of South Africa’s electricity comes from coal, while renewable energy accounts for only about 7% of total generation capacity. The government aims to reduce the share of coal in the energy mix to 48% by 2030.
To put in place measures for fair and equitable land reform that will increase agricultural output and build self-sufficiency in food production, the parliament endorsed in December 2018 a constitutional amendment allowing land expropriation without compensation.
While South Africa enjoys well-functioning democratic institutions, the country faces governance challenges in procuring public goods and services and in managing state-owned enterprises. The low competition in goods and services markets and skills shortages are among the key structural bottlenecks hindering growth. Structural reforms in these areas would help reignite growth and foster social inclusion. South Africa’s regional integration policy is often seen as inward looking, focusing more on domestic industrial development. It could gain from devising regional integration policies that accommodate the needs of its various neighbors, which would promote regional value chains.