South Africa Economic Outlook
- Economic growth decelerated to 0.3% in 2016 although it is expected to rebound to 1.1% in 2017 and higher in later years.
- Growth prospects will be driven by moderately stronger global growth, more favourable weather conditions, reliable electricity supply, less volatile labour relations, recovering business and consumer confidence, and stabilising commodity prices.
- The industrialisation strategy is geared towards promoting entrepreneurship, which will also help to generate employment.
Economic growth at 0.3% in 2016, is expected to rebound from 2017 onwards as several limiting factors are receding, creating an opportunity for a new growth cycle. Key structural bottlenecks are being addressed including power shortages. Eskom has moved from an electricity shortage of 3 000 MW, which precipitated a series of power outages in 2015, to a surplus of 3 000 MW in 2016. Moreover, the government remains committed to working with the private sector, labour and civil society to promote inclusive growth and economic transformation. Economic growth is expected to increase to 1.1% in 2017.
The real effective exchange rate of the rand appreciated by 23.6% between January and December 2016. Although this resulted in deterioration in the competitiveness of local producers in foreign markets, at its most recent levels the currency was still 9% below its average value of the past 15 years in real terms. Inflation breached the monetary policy target range, reaching 6.4% in 2016. Driven by higher food prices, rising world oil prices, and domestic fuel prices, headline inflation is expected to breach the policy target range again in 2017 reaching 6.1%. Monetary policy has been tightened to curtail inflation and inflationary expectations from rising amid monetary policy tightening by the US Federal Reserve. The monetary authorities increased the policy interest rate to 7% in March 2016. Due to higher interest rates and subdued investor confidence, growth in the demand for credit by the private sector fell to 5.11% in December 2016 from 10.17% in December 2015.
National government revenue increased by 11.6% in fiscal year 2015/16 reaching R1.069 trillion or 26.1% of GDP. The increase was driven by higher receipts in most major tax categories, particularly taxes on property, international trade and transactions, and non-tax revenue.
Unemployment remains a major social challenge with youth unemployment among the highest on the continent. Commendable progress was made in addressing absolute poverty in the past decade primarily through extensive social safety net programmes. Nonetheless, the government continues to face challenges to effectively deliver basic economic and social services in rural areas and the townships.
South Africa’s industrialisation and employment-generation strategy aims to encourage entrepreneurship. Nonetheless, success has been limited due to inadequate technical and business management skills; lack of experienced mentoring of entrepreneurs; barriers to business entry, and lack of access to finance.