S Africa DmProduct[1]

South Africa: Country Analysis Report–In-depth PESTLE Insights Published 07/2010

© Datamonitor. This brief is a licensed product and is not to be photocopied

OVERVIEW

Catalyst

This profile analyzes the political, economic, social, technological, legal and environmental structure in South Africa. Each

of the PESTLE factors is explored on four parameters: current strengths, current challenges, future prospects and future

risks.

Summary

Key findings

Good performance on governance indicators, but prevalence of violent crime is a serious concern

Since the abolition of apartheid, South Africa has made repairs to its government and infrastructure, embracing democracy

and securing foreign investment. It now holds the largest economy of the African Union member states and fares well on

governance indicators when compared to other African countries. According to the World Bank’s governance indicators

(2008), the country was ranked in the 75.4 percentile for government effectiveness, the 67.8 percentile for voice and

accountability and the 71.5 percentile for regulatory quality. Other major African countries like Egypt and Nigeria have been

ranked very low on these indicators. In 2008, Egypt’s rank on these indicators was 43.1, 14.4, and 49.3, respectively, while

Nigeria ranked 13.3, 31.3, and 29.5.

Despite good performance on governance indicators, violent crime continues to plague the society. South Africa has one of

the highest murder rates per capita in the world (outside of a war zone). Some statistics show that more than 18,000

murders happened in the 12 months to March 2010. Car-jacking is also a major concern in the country. Though news

reports suggest that heavy policing during the 2010 FIFA World Cup resulted in a significant drop in violent crime, much

remains to be done in terms of increasing security in South Africa. High crime rates could have a severe negative impact on

the country’s image as a business destination.

Continuation of investment grade rating, however, surging unemployment continues to be a challenge

South Africa has made good returns on its investment to host Africa’s first FIFA World Cup during June–July 2010. The

country invested around $4.3 billion on transport infrastructure, telecommunications and stadiums. According to South

COUNTRY ANALYSIS REPORT

South Africa

In-depth PESTLE Insights

Publication Date: July 2010

Overview



African Broadcasting Corporation, hotels and car rental services in South Africa saw a boom since the tournament started

on June 11, 2010. Besides short term gains, the tournament is expected to have a long-term positive effect on the economy

through increased investment and tourism. Government predictions suggest that the one-month tournament would add 0.4

percentage points to GDP in 2010. The World Cup will also help in re-branding the nation over the long run.

Despite positive economic developments, South Africa recorded high rates of unemployment in 2009 and early 2010.

Datamonitor estimates suggest that unemployment in South Africa stood at 24.3% in 2009. The recession in 2009 led to an

increase in unemployment and jobs were not created in substantial numbers in the first quarter of 2010 even as the country

emerged slowly from the crisis. Official results from Statistics South Africa indicate that about 25% of the working-age

population was unemployed in the first quarter of 2010. Results showed that the unemployment rose steeply especially in

the finance sector and the manufacturing and construction sectors in the first quarter. Datamonitor estimates suggest that

unemployment will decline only marginally in the next few years and remain close to 20% through 2013.

Affirmative social movements on the rise, but development is held back by the HIV/AIDS crisis

Social movements in South Africa have grown by leaps and bounds over the past few years, engaging in a range of local

and national actions including land occupations, electricity reconnections and reclamations of land and homes for those

who had been forcibly removed or evicted. These movements have joined forces with an array of international

organizations and have pledged to fight for sustainable development in the country. Furthermore, government-backed

socio-economic policies like the Growth Employment and Redistribution (GEAR) strategy have played a crucial role in

elevating the living standards of the black population.

However, South Africa is still grappling with the HIV and AIDS epidemic. The government has so far failed to address its

underlying cause or to offer adequate prevention and treatment programs. The total HIV prevalence rate in South Africa is

12% and around 20% of adults in the age group 20–64 are estimated to be HIV positive. In total, an estimated 5.6 million

South Africans were HIV positive in 2008. Estimates indicate that the cumulative total of people who succumbed to the

disease reached 2.53 million by the end of 2008. The number of people dying of AIDS each year continues to increase and

is expected to level off after 2015. The HIV/AIDS crisis will continue to threaten South Africa’s economic and social

progress unless the government takes serious health care initiatives.

Internationally recognized IT and telecoms infrastructure, but R&D investment remains low

South Africa’s IT standards have been lauded by international IT majors like IBM and the Shuttleworth Foundation. These

organizations have praised the South African government for applying IT standards that promote interoperability among

public sector computer systems, as well as for its initiatives towards open source software which permits users to utilize,

change and improve software and redistribute it in a modified or unmodified form. This would facilitate accountability and

transparency in public organizations and further ensure the speedy implementation of government projects and proposals.

However, South Africa spends considerably less on R&D. The expenditure on R&D accounted for 0.95% as a percentage

of GDP in 2007. South Africa will need to increase financial support to encourage R&D activities in the country in order to

compete with other emerging economies in Asia and Latin America which have been investing heavily in R&D.

Independent judiciary, but oligopolies continue to exist in the utility, transport, and mining industries

South Africa’s judiciary continue to be independent and of good quality. The legal environment for foreign investors is

considered to be secure. The courts are open to foreigners on exactly the same terms and conditions as South African

citizens. Moreover, trade and industrial activities are undertaken within the framework of a free enterprise economy. This

Overview



has boosted foreign investment considerably in South Africa. On the other hand, the legal framework to penalize public

office holders abusing their powers is substantial. For instance, in 1999 the Public Finance Act was ratified and in 2003, the

Prevention of Corruption and Combating of Corrupt Activities Act was approved by parliament, which made it illegal to

receive kickbacks.

Although several reforms have been made, the utility, transport, and mining industries continue to be dogged by

oligopolies. In fact, dominant companies and collusive practices have been a part of the South African legal system since

apartheid. Even though the government has made efforts to introduce competition in the market, it has faced opposition

from labor organizations to protect strategic and labor intensive industries from competition.

Significant efforts are being made to preserve the country’s biodiversity, but acid mine drainage poses an

immediate environmental challenge

South Africa, along with other environmentally conscious countries, has taken substantial steps to preserve its

environmental heritage. Prominent among such measures was the declaration signed in 2006 by representatives from 21

rapidly growing cities around the world, including four South African cities, declaring their intention to protect and reinstate

urban biodiversity. Each city has committed to identifying five vital initiatives to conserve plants, animals, and natural

resources, and to put those into practice immediately. For instance, the Durban municipality is developing a ‘green by law’

strategy to protect threatened species and a list of invasive plants. Elsewhere, Cape Town is conserving its lowlands from

rapid soil erosion.

South Africa faces a water crisis that could impede economic growth and cause several health problems. An immediate

challenge facing the country is the acid mine drainage (AMD) which is polluting a vast area from the Witwaters-rand to

Mpumalanga. AMD, which occurs when mines close and stop pumping water out of shaft, has contaminated streams and

dams on the West and East Rand that feed into the Limpopo and Vaal rivers. In 2010, environmentalists warned that if the

government and industry fail to act within two years, mine water which is acutely toxic will flow out from Johannesburg’s

Wemmer Pan and seep into the city’s streets.

PESTLE highlights

Political landscape

• South Africa is an active partner of the New Partnership for African Development (NEPAD), through which it

promotes peaceful resolution to conflicts in Africa.

• The ANC has dominated South Africa’s political landscape by forming consecutive governments since 1994.

Economic landscape

• After reaching a high of 11.5% in 2008, inflation slowed to 6.2% in 2009, mostly due to easing of food prices.

• As of July 2010, Standard & Poor's (S&P) confirmed its “BBB+/A-2” long- and short-term foreign currency and

“A+/A-1” long- and short-term local currency sovereign credit ratings for the country. S&P maintains a negative

outlook for South Africa.

Social landscape

• The health care spending stood at $22.7 billion in 2009, corresponding to 7.6% of GDP. In the previous year,

health care spending stood at $22.5 billion (equivalent to 8.1% of GDP).

Overview



• As per 2010 estimates, about 85% of the South African population comprises non-white citizens and 15% are

white citizens. In contrast, about 85% of all wealth, assets and salaries are with the white population and the

remainder is in black hands.

Technological landscape

• South Africa falls short in terms of transforming research into commercially-viable products and services. In 2009,

the country was granted only 139 patents, which is much lower than that granted to other developing nations

such as Brazil, Egypt, and Algeria.

• South Africa was ranked 62nd among 133 economies on the Network Readiness Index of the World Economic

Forum’s Global Information Technology Report (2009–10).

Legal landscape

• Under the new company act, which came into effect in April 2010, changes will be introduced to simplify the

environment for small business, boost the rights of minority shareholders, improve corporate governance, and

provide firms with an alternative to liquidation through a new business rescue process—similar to “Chapter 11”

protection.

Environmental landscape

• South Africa has developed its National Environmental Policy through a comprehensive participatory process

known as the Consultative National Environment Policy Process (CONNEPP).

• An emissions-related tax will be imposed on new passenger cars effective from September 1, 2010. This move

may add 2% to car prices on average.

Key fundamentals

Table 1: South Africa – key fundamentals

2008 2009 2010 2011 2012 2013 2014

GDP, constant 2000 prices ($ billion) 182.3 179.1 182.6 188.1 196.4 205.3 214.7

GDP growth rate (%) 3.1 -1.8 2.0 3.0 4.4 4.5 4.6

GDP, constant 2000 prices, per capita ($) 3,738.0 3,650.5 3,719.2 3,839.0 4,023.8 4,224.3 4,437.2

Inflation (%) 11.5 6.2 5.2 4.4 4.3 4.4 4.3

Exports, total as % of GDP 33.6 26.4 25.7 26.5 27.5 28.6 29.6

Imports, total as % of GDP 41.9 33.2 32.6 33.8 35.7 37.9 40.2

Mid-year population, total (million) 48.8 49.1 49.1 49.0 48.8 48.6 48.4

Unemployment rate (%) 22.9 24.3 21.4 20.1 19.5 19.2 19.1

Mobile penetration (per 100 people) 100.5 104.3 105.7 106.2 106.3 106.4 106.4

Source: Datamonitor D A T A M O N I T O R

Table of Contents



TABLE OF CONTENTS

Overview 1

Catalyst 1

Summary 1

Key facts and geographic location 9

Key facts 9

Geographical location 10

PESTLE analysis 11

Summary 11

Political analysis 12

Economic analysis 15

Social analysis 18

Technology analysis 21

Legal analysis 23

Environmental analysis 25

Political landscape 28

Summary 28

Evolution 28

Structure and policies 30

Performance 35

Outlook 35

Economic landscape 37

Summary 37

Evolution 37


Performance 42

Outlook 54

Social landscape 55

Summary 55

Evolution 55


Performance 58

Table of Contents



Outlook 61

Technological landscape 62

Summary 62

Evolution 62


Performance 63

Outlook 65

Legal landscape 66

Summary 66

Evolution 66


Performance 69

Outlook 69

Environmental landscape 70

Summary 70

Evolution 70


Performance 72

Outlook 73

APPENDIX 74

Ask the analyst 74

Datamonitor consulting 74

Disclaimer 74

Table of Contents



TABLE OF FIGURES

Figure 1: Map of South Africa 10

Figure 2: South Africa–key political events 30

Figure 3: South Africa – key political figures 31

Figure 4: South Africa National Assembly composition, 2009 33

Figure 5: South Africa’s historical GDP growth, 1991–2009 39

Figure 6: Market capitalization of the Johannesburg Securities Exchange, 2002–08 41

Figure 7: GDP and GDP growth rate in South Africa, 2002–13 43

Figure 8: GDP composition by sector, 2009 44

Figure 9: Agriculture output of South Africa, 2002–09 45

Figure 10: Industrial output of South Africa, 2002–09 46

Figure 11: Service output of South Africa, 2002–09 47

Figure 12: Current account in South Africa, 2002–08 48

Figure 13: External trade of South Africa, 2002–09 49

Figure 14: Balance of South Africa’s trade, 2001–08 50

Figure 15: Total foreign investments in South Africa, 2005–08 51

Figure 16: Consumer price index and CPI based inflation in South Africa, 2002–13 52

Figure 17: Unemployment and unemployment rate in South Africa, 2002–13 54

Figure 18: Expenditure on healthcare in South Africa, 2002–13 59

Figure 19: Public expenditure on education in South Africa, 2002–13 60

Figure 20: Growth rate of mobile and fixed line telephones in South Africa, 2002–13 64

Figure 21: Carbon dioxide emissions in South Africa, 2002–13 73

Table of Contents



TABLES

Table 1: South Africa – key fundamentals 4

Table 2: South Africa – key facts 9

Table 3: Analysis of South Africa’s political landscape 12

Table 4: Analysis of the South African economy 15

Table 5: Analysis of the South African social system 18

Table 6: Analysis of South African technology landscape 21

Table 7: Analysis of South Africa legal landscape 23

Table 8: Analysis of South African environmental landscape 25

Table 9: Mid-year population by age, 2009 56

Table 10: Patents received by USPTO, 2001–09 63

Key facts and geographic location



KEY FACTS AND GEOGRAPHIC LOCATION

Key facts

Table 2: South Africa – key facts

Country and capital

Full name Republic of South Africa

Capital city Pretoria

Government

Government type Republic

Head of state and government Jacob Zuma

Population 49.1 million (as of 2009)

Currency Rand

GDP per capita (PPP) $10,100

Internet domain .za

Demographic details

Life expectancy 49.2 years (total population)

50.1 years (men)

48.3 years (women)

Ethnic composition (2000) Black African (79%), white (9.6%), colored (8.9%) and Indian/Asian (2.5%)

Major religion (2000 census) Zion Christians (11.1%)

Pentecostal/Charismatic (8.2%)

Catholic (7.1%)

Other Christians (36%) (2001 census)

Country area 1,219,912 sq km

Language IsiZulu (23.8%), IsiXhosa (17.6%), Afrikaans (13.3%), Sepedi (9.4%),

English (8.2%), Setswana (8.2%) (2001 census)

Exports Gold, diamond, platinum, other minerals and materials, machinery and equipment.

Imports Machinery and equipments, chemicals, petroleum products and foodstuffs

Source: CIA D A T A M O N I T O R

Key facts and geographic location



Geographical location

South Africa is located at the southern tip of the African continent.

Figure 1: Map of South Africa

Source: CIA The World Factbook D A T A M O N I T O R

PESTLE analysis



PESTLE ANALYSIS

Summary

South Africa’s governance indicators are comparably better than those of most African countries. The country fares

particularly well on indicators like voice and accountability and government effectiveness. However, the state of law and

order continues to be grave, with increasing unemployment and atrocities committed to native whites and Afrikaners. South

Africa has a liberal economy and has patronized unrestricted trade and investments. In addition, the government offers

attractive incentives to foreign investors, particularly prospective investors in the mining sector. High rates of inflation and

falling industrial output are currently barricading economic growth. After the dismantlement of the regime of apartheid, the

newly elected democracy instilled several social welfare schemes to elevate the social status of the black population. This

was a measure to moderate the polarized social setup of the country.

The HIV/AIDS pandemic continues to overshadow South Africa’s social fabric. Approximately 5.7 million people (about 18%

of the 15–49 age group) are believed to be infected. Public spending on health has stagnated or fallen in real terms in the

past 10 years, reflecting both weak management and the government's insistence on regulating private healthcare. AIDS is

likely to knock off 0.5–0.9% off the country's annual average economic growth, and will most likely cause an increase in

government spending on health, social welfare and training. South Africa’s R&D spending is impressive, and its

telecommunications market is highly acclaimed. The South African government has been ensuring coordinated efforts to

preserve the environmental heritage of the country. Nevertheless, the booming housing and infrastructure construction

sector has been violating environmental regulations for decades. In addition, South Africa continues to face the challenge

of growing river pollution and sea water contamination, which has affected the number of tourists visiting the country.

PESTLE analysis



Political analysis

Overview

Since the restoration of democracy in 1994, South Africa has been under the governance of a single ruling party, leading to

continuity in government policies. South Africa’s healthy relations with international organizations and neighboring countries

have consolidated its position in the global political arena. The country performs comparably well in most governance

indicators, but it has further scope for improvement in the sphere of law and order which, with increasing unemployment

and atrocity rates towards the native whites and Afrikaners, continues to be a major issue. This has caused many educated

whites to migrate to safer destinations like Australia and New Zealand. Although the ANC won its fourth consecutive

elections in April 2009, the share of the ruling party fell for the first time since the end of apartheid in 1994. It might become

difficult for President Jacob Zuma to preserve the unity of the tripartite alliance as a result of increasing friction between the

parties.

Table 3: Analysis of South Africa’s political landscape

Current strengths Current challenges

■ Good governance compared to peers

■ Continuation of ANC policies

■ Violent crime

■ Rampant corruption

Future prospects Future risks

■ Bilateral ties with the US and the UAE

■ Participation in NEPAD

■ Divisions among the ruling alliance

■ High emigration rates


Current strengths

Good governance compared to peers

South Africa fares well on governance indicators when compared to other African countries. According to the World Bank’s

governance matters (2009), the country was ranked in the 75.4 percentile for government effectiveness, the 67.8 percentile

for voice and accountability and the 71.5 percentile for regulatory quality in 2008. Other major African countries like Egypt

and Nigeria have been ranked very low on these indicators. In 2008, Egypt’s rank on these indicators was 43.1, 14.4, and

49.3, respectively, while Nigeria ranked 13.3, 31.3, and 29.5. However, in global terms, there is much scope for

improvement.

Continuation of ANC policies

Since the restoration of democracy in 1994, South Africa has been under the governance of the African National Congress

(ANC), the anti-apartheid political party once led by Nelson Mandela. As a consequence, there has been continuity in terms

of policy implementation ever since the party came to power. Most of these policies have focused on integrating the

numerous social groups in the country and elevating the living standards of people living in the rural areas. The former

president’s market driven economic policy known as Growth, Employment and Redistribution (GEAR) played a crucial role

in making South Africa a major stakeholder in the international economy. Moreover, the Truth and Reconciliation

PESTLE analysis



Committee headed by Archbishop Desmond Tutu spearheaded measures to reinstate the country's social heritage, which

was weakened during the apartheid era. These policies are still under enforcement.

The ANC notched up its fourth successive election victory in April 2009 and Jacob Zuma was ushered in as the president.

Zuma enjoys strong support among trade unionists and the communist party, an ANC ally, as they believe he will

redistribute South Africa's wealth in favor of the poor. However, the composition of the cabinet indicates that he will, in fact,

adopt a pragmatic approach. Moderates remain in powerful positions, although left-wingers (including the ANC's trade

union and communist allies) have been rewarded for their continuous support. President Zuma is expected to continue with

the economic policies of the ANC.

Current challenges

Violent crime

Violent crime remains a serious concern in South Africa. The country has one of the highest murder rates per capita in the

world (outside of a war zone). Some statistics show that more than 18,000 murders happened in the 12 months to March

2010. Car-jacking is also a major concern in the country. Though news reports suggest that heavy policing during the 2010

FIFA World Cup resulted in a significant drop in violent crime, much remains to be done in terms of increasing security in

South Africa. High crime rates could have a severe negative impact on the country’s image as a business destination.

Rampant corruption

Corruption is a widespread problem in South Africa. In the Transparency International’s 2009 corruption perception index,

South Africa ranked 55th among 180 countries. Corruption is considered as chronic especially in the department of police

and home affairs. For example, in July 2010, South Africa’s former police chief, Jackie Selebi, was found guilty in his long-

running corruption case. The South Gauteng High Court in Johannesburg found Jackie Selebi guilty of accepting a bribe,

amounting to $157,000 from a convicted criminal. There have also been allegations against President Zuma for not taking

action against corrupt ministers. Corruption should be overcome as it hurts the business image of the country.

Future prospects

Bilateral ties with the US and the UAE

The US government praised the South African economy for its strong economic fundamentals that helped it deal with the

global economic crisis better than more developed economies. On a trip to Africa in the second half of 2009, the US

Ministry of Foreign Affairs stressed the need to strengthen bilateral trade ties with South Africa. More than 600 US

companies already operate in South Africa. The establishment of a US-South Africa business council is being

contemplated. The South African government is also contemplating ways to strengthen its relations with the UAE in areas

of mutual interest. On July 22, 2010, the South African Department of International Relations and Cooperation and the UAE

government discussed ways to boost their bilateral relations. A number of proposed agreements are currently under

negotiation between the two countries.

Participation in NEPAD

South Africa has had good relations with its neighboring countries. South Africa’s active participation in the New

Participation for Africa's Development (NEPAD) has enabled it to claim international support towards ensuring political and

economic stability throughout the region, and in the past it has supported countries like Burundi and the Republic of Congo

PESTLE analysis



in their efforts to restore political stability. This has provided South Africa with economic assurance from international

organizations like the African Union and the Commonwealth of Nations.

Future risks

Divisions among the ruling alliance

It might become difficult for President Jacob Zuma to preserve the unity of the tripartite alliance as a result of increasing

friction between the parties—the ruling African National Congress (ANC) and its partners in the Congress of South African

Trade Unions (COSATU) and the South African Communist Party (SACP). President Zuma's support for economic policy

continuity is likely to anger the left, especially COSATU, and this could result in fresh strikes.

High emigration rates

Almost a decade after the dismantling of apartheid, the still simmering political unrest is pushing whites out of South Africa.

The South African Institute of Race Relations (SAIRR) has estimated that of the four million whites resident during the

apartheid era, more than 800,000 whites have emigrated to other countries since 1995. Researchers at various universities

in South Africa have also found that not all South African emigrants are white; skilled black South Africans are found in

white collar professions in countries ranging from the US to the Persian Gulf. Political unrest played an important role in

driving up the number of mass emigrants in 2009. A continuation of trend will have long-term effects on the country’s

economic development.

PESTLE analysis



Economic analysis

Overview

The South African economy has weathered the global economic crisis relatively well; the country's banking sector was

strictly regulated by the government and therefore weathered the credit crisis reasonably well. South Africa hosted Africa’s

first FIFA World Cup during June–July 2010 and has realized good economic benefits from the tournament. Despite

positive developments, the country will continue to witness high unemployment rates and paucity of power supply in the

near term,

Table 4: Analysis of the South African economy


■ Inflation kept in check

■ Economic benefits from hosting the FIFA world cup

■ Unemployment soars high

■ Power situation remains difficult


■ Investment towards infrastructure

■ Cooperation with Russia in oil and gas

■ Negative outlook affirmed for South Africa

■ No new initiatives on privatization


Current strengths

Inflation kept in check

Inflation in South Africa has steadily come down since 2008 when it soared to a high of 11.5%, Headline inflation slowed to

6.9% year-on-year (y-o-y) in June 2009 from 8% y-o-y in May 2009. The country witnessed an inflation of 6.2% in 2009 as

a whole, mostly due to easing of food prices. According to the South African Reserve Bank’s inflation outlook, the

consumer price index (CPI) inflation is expected to average 4.5% in the third quarter of 2010. Datamonitor estimates that

inflation will stay at 5.2% in 2010, which is well within the 6% target range of the government. Inflation is expected to further

come down to 4.4% in 2011. Control of inflation bodes well for the economy.

Economic benefits from hosting the FIFA world cup

South Africa has made good returns on its investment to host Africa’s first FIFA World Cup during June–July 2010. The

country invested around $4.3 billion on transport infrastructure, telecommunications and stadiums. According to South

African Broadcasting Corporation, hotels and car rental services in South Africa saw a boom since the tournament started

on June 11, 2010. Besides short term gains, the tournament is expected to have a long-term positive effect on the economy

through increased investment and tourism. Government predictions suggest that the one-month tournament would add 0.4

percentage points to GDP in 2010. The World Cup will also help in re-branding the nation over the long run.

PESTLE analysis



Current challenges

Unemployment soars high

South Africa recorded high rates of unemployment in 2009 and early 2010 despite government efforts to create jobs.

Datamonitor estimates suggest that unemployment in South Africa stood at 24.3% in 2009. The recession in 2009 led to a

rise in unemployment and jobs could not be created in substantial numbers in the first quarter of 2010 even as the country

emerged slowly from the crisis. Latest official figures paint a dismal picture of the South African labor market. Official results

from Statistics South Africa indicate that about 25% of the working-age population was unemployed in the first quarter of

2010. Results showed that the unemployment rose steeply especially in the finance, manufacturing and construction

sectors in the first quarter. The number of employed persons fell by 171,000 in Q1 2010 to reach 12.8 million. Datamonitor

estimates suggest that unemployment will decline only marginally in the next few years and remain close to 20% through

2013.

Power situation remains difficult

South Africa’s urgent need for more electricity coupled with the lack of alternatives to coal power remain significant

challenges in the near term. The country has been facing severe power shortages since 2007. According to a report by

Statistics South Africa (published in May 2010), the total volume of electricity available for distribution in South Africa

decreased from 241,170 gigawatt-hours in 2007 to 229,599 gigawatt hours in 2009. To increase the production of power,

South Africa's state-run power utility, Eskom, was granted a loan of approximately $3.75 billion by the World Bank to build a

large coal plant. However, the World Bank faced criticism from the UK, the Netherlands, Italy, Norway and the US as the

project sparked concerns over climate change. On the whole, the power situation in South Africa is expected to remain

precarious and the government must take measures to rectify the situation.

Future prospects

Investment towards infrastructure

The infrastructure for mainstream business is already well-developed, and the best in the African region. The government

aims to further upgrade its transport and electricity infrastructure. An investment program worth $80 billion is planned for

the three year period 2010–12. Key projects include the Gauteng mass transit railway, a public-private partnership which is

scheduled to open in 2011–12. These investments in infrastructure are expected to lay the foundation for sustained long-

term growth.

Cooperation with Russia in oil and gas

The South African Ministry of Foreign Relations and Cooperation, in July 2010, expressed its interest to cooperate with

Russia in the joint production of mineral resources. As of 2009, the trade turnover between South Africa and Russia is only

$517 million. Recognizing the enormous potential of trade, the two countries intend to sign a number of bilateral

agreements which will favor mutual economic growth. The two countries currently cooperate on joint projects, for example,

the cooperation between Mechel and Bateman companies in processing nickel. South African companies are interested in

the development of deposits of oil and gas in Russia, while Russian investors are keen to access the South African market.

Trade turnover between the two countries is expected to increase in the next few years.

PESTLE analysis



Future risks

Negative outlook affirmed for South Africa

Standard & Poor's (S&P) maintains a negative outlook for South Africa despite an improvement in the national budget

deficit. As of July 2010, S&P confirmed its “BBB+/A-2” long- and short-term foreign currency and “A+/A-1” long- and short-

term local currency sovereign credit ratings for the country. South Africa's BBB+ investment grade sovereign rating from

S&P remains at risk. The current credit rating by S&P will reduce South Africa’s creditworthiness.

No new initiatives on privatization

Given the size of South Africa’s economy, it has not been able to attract relatively high FDI. The inflow of capital is

dominated by portfolio investments, which are highly volatile. Attracting higher FDI would help finance the balance of

payment deficits and also spur economic growth. Privatization could be a trigger for economic growth, although revenue

accruals through privatization were minimal during 2008. No major privatization initiatives have been made in 2009.

Moreover, the Congress of South African Trade Unions is opposed to privatization, and is of the opinion that it would lead

to even higher prices and unemployment across industries. This is a cause for concern, as South Africa is dependent on

capital inflows to finance the current account deficit.

PESTLE analysis



Social analysis

Overview

South Africa is a multiethnic country frequently referred to as the “Rainbow Nation”. This is an expression used to describe

the nation’s increasing multicultural diversity, emerging from a society which was troubled by the separatist apartheid

ideology. Its history of colonization and immigration introduced an eclectic population to South Africa which had created a

society of racially diverse origins, cultures, language and beliefs, ranging from the black origins of South Africa to cultures

from Europe, India, Malaysia, and China. South Africa has transformed itself into a progressive nation seeking unity and

integrity. The social welfare system has been reinstated and was made equitable during Nelson Mandela’s presidency. This

has ensured the development of the black population in terms of employment and education. Moreover, the government is

making cautious attempts to develop an equitable and sophisticated medical system, as healthcare is one area in which

distribution is traditionally seen as skewed. However, the government still needs to ensure the reduction of the massive

corruption rate prevalent in the country and the widespread issue of HIV/AIDS is still unsolved. Additionally, rising poverty

and burgeoning food insecurity will further jeopardize South Africa’s social fabric if remedial measures are not taken.

Table 5: Analysis of the South African social system


■ Affirmative social movements

■ Equitable social welfare system

■ Public education system needs to be improved

■ Poor performance on governance indicators


■ Proposed land reform to balance out inequality

■ HIV/AIDS pandemic

■ Poverty and income inequality


Current strengths

Affirmative social movements

Social movements in South Africa have grown by leaps and bounds over the past few years, engaging in a range of local

and national actions including land occupations, electricity reconnections and reclamations of land and homes for those

who had been forcibly removed or evicted. These movements have joined forces with an array of international

organizations and have pledged to fight for sustainable development in the country. Furthermore, government-backed

socio-economic policies like the Black Economic Empowerment program and the Growth Employment and Redistribution

(GEAR) strategy have played a crucial role in elevating the living standards of the black population.

Equitable social welfare system

Social welfare policies in South Africa, which were incorporated after the end of the apartheid, endeavored to moderate the

differences in the distribution of wealth and income among the population. The White Paper, drafted in 1997, defined social

welfare as an integrated system of generating social services, facilities and programs with an objective to promote social

development, social justice and the social functioning of people. The broad distinction of welfare delivery into social security

PESTLE analysis



and social welfare made by the White Paper in 1997 has been rewarding. This has resulted in equitable distribution,

retirement and old age benefits, community and disability benefits, and healthcare facilities in the impoverished regions of

the country.

Current challenges

Public education system needs to be improved

South Africa's public education system needs substantial improvement in many aspects including infrastructure and

teaching quality. There have been reports of low graduation rates, under-qualified teachers, and buildings and facilities that

need repair. In several schools, there is a shortage of teachers and teaching material. The system also suffers a lack of

basic facilities such as library. According to the department of basic education, only 7% of the country’s public schools have

functional libraries. A weak educational system is a key reason for the shortage of skilled workers in South Africa.

Therefore, improving the education system is deemed necessary for improving the overall competitiveness of the South

African workforce.

Poor performance on governance indicators

South Africa has performed poorly on some social parameters. According to the United Nations Development Program’s

(UNDP) Human Development report 2009, the Human Development Index (HDI) for South Africa was 0.683, which gives

the country a rank of 129 out of 182 countries. The Human Poverty Index (HPI-1) is indicative of the proportion of people

below certain threshold levels in terms of life expectancy, access to education, and standard of living. South Africa has an

HPI-1 value of 25.4% which gives a rank of 85 among 135 countries for which the index has been calculated. The country’s

performance on these indicators suggests that much needs to be improved in terms of social development.

Future prospects

Proposed land reform to balance out inequality

Years after the end of apartheid, the majority of commercial farms in South Africa still remain in white ownership. White

farmers owned more than 85% of the nation's farmland as of 2009. To redress this situation, the Ministry of Rural

Development and Land Affairs proposed a plan to facilitate and speed up the transfer of agricultural land from white land

owners to landless black citizens. This will be achieved by identifying state land to be leased out, and private land under

freehold but with a limited scope. To assist greater participation of Black citizens in agriculture, the government also

introduced the "willing seller, willing buyer" policy that forces white farmers to sell their land to the state. Under this plan, the

government aims to transfer 30% or around 25 million hectares of agricultural land to landless black South Africans by

2014. The proposed system is expected to even out the skewed distribution of land among South Africans.

Future risks

HIV/AIDS pandemic

South Africa is still grappling with the HIV and AIDS epidemic. The government has so far failed to address its underlying

cause or to offer adequate prevention and treatment programs. The total HIV prevalence rate in South Africa is 12% and

around 20% of adults in the age group 20–64 are estimated to be HIV positive. In total, an estimated 5.6 million South

Africans were HIV positive in 2008. Estimates indicate that the cumulative total of people who succumbed to the disease

reached 2.53 million by the end of 2008. The number of people dying of AIDS each year continues to increase and is

expected to level off after 2015. The HIV/AIDS crisis will continue to threaten South Africa’s economic and social progress

unless the government takes drastic health care initiatives.

PESTLE analysis



Poverty and income inequality

Statistics on poverty show that the proportion of people living in poverty in South Africa has not changed significantly since

1996. According to latest statistics, poverty rate stood at around 45% in 2009. The number of people living in poverty

increased from 17,060,571 or 40.6% of the population in 1996, to 20,551,295 or 42.9% in 2007. According to figures

released by the State Statistical Institute (StatsSA), the average African household has lost 19% of its real income since

1995. Moreover, the gap between rich and poor has widened. As per 2010 estimates, about 85% of all wealth, assets and

salaries are garnered by white citizens who make up only 15% of the total population. The government needs to take

significant measures to bring down its poverty rate and promote equality.

PESTLE analysis



Technology analysis

Overview

South Africa’s IT standards have been universally commended. Noted IT companies and foundations have lauded the

South African government for applying IT standards within public sector organizations. The government has also

encouraged the move towards open source software, where users are permitted to redistribute existing software in a

modified or unmodified form. Information and communication technology (ICT) governance will become stricter with the

advent of the King III report. The changes made in the Protection of Private Information Act and the new Companies Act

require all companies to take steps to address ICT governance and security issues and protect information and data.

Table 6: Analysis of South African technology landscape


■ Laudable IT standards

■ Policies to tighten ICT governance

■ Low investment on R&D


■ Agreement on nuclear energy cooperation

■ Universal broadband access by 2019

■ Duplication of telecommunications infrastructure


Current strengths

Laudable IT standards

South Africa’s IT standards have been lauded by international IT foundation majors like IBM and the Mark Shuttleworth

Foundation. These organizations have praised the South African government for applying IT standards that promote

interoperability among public sector computer systems, as well as for its move towards open source software. Open source

software permits users to use, change and improve the software and redistribute in a modified or unmodified form. This

would facilitate accountability and transparency in public organizations and further ensure speedy implementation of

government projects and proposals.

Policies to tighten ICT governance

Information and communication technology (ICT) governance, which was weak in South Africa until recently, will become

stricter with the advent of the King III report. The Protection of Private Information Act and the new Companies Act requires

all companies to take steps to address ICT governance and security issues. Companies must ensure that users are aware

of the ICT policies and that they understand, and accept these policies. These policies will strengthen the information

security system.

PESTLE analysis



Current challenges

Low investment on R&D

South Africa spends considerably less on R&D. The expenditure on R&D accounted for 0.95% as a percentage of GDP in

2007. Low R&D investment is a key reason for the country’s low performance on innovation output indicators. This is

indicated by the low number of patents granted to the country by the US Patent and Trademark Office. In 2009, South

Africa was granted only 139 patents, which is lower than that of other developing nations. Although South Africa received a

higher number of patents in comparison with other African countries such as Egypt and Algeria, it lags behind India (720

patents received in 2009) and Russia (204 patents). South Africa will need to increase financial support to encourage R&D

activities in the country in order to compete with other emerging economies in Asia and Latin America which have been

investing heavily in R&D.

Future prospects

Agreement on nuclear energy cooperation

The South African Ministry of Energy is in the process of facilitating cooperation with the US government in the areas of

advanced nuclear energy systems and reactor technology. In September 2009, the South African government signed a

bilateral agreement with the US Department of Energy to improve the cost, safety, and proliferation resistance of nuclear

power systems. The agreement also aims to promote nuclear science and engineering infrastructure and expertise in both

countries. One such project is South Africa's Pebble Bed Modular Reactor and America’s Next Generation Nuclear Plant.

The agreement on nuclear energy reflects South Africa’s commitment to building partnerships with nations to address

shared climate and energy challenges.

Universal broadband access by 2019

The South African government aims to bring universal access to broadband by 2019. The government has finalized its

broadband policy, which will support access to e-government services. Further, the Ministry of Communication aims at

strengthening the ICT policy framework. New legislation such as the ICASA (Independent Communications Authority of

South Africa) amendment bill is expected to strengthen the governance framework of the regulator. The government is also

planning to distribute set-top boxes to poor households. The government is in discussions with the department of rural

development and land reform to develop ICT in the food and agriculture sector. These initiatives will go a long way towards

supporting economic growth.

Future risks

Duplication of telecommunications infrastructure

Present policies allow telecom service providers to undertake the construction of telecom infrastructure facilities. According

to global telecommunications companies, this might lead to the unwanted duplication of the infrastructure across the

country. As a remedial measure, the South African government should separate telecommunications infrastructure from

telephone services. This would lead to optimal utilization of the telecommunication infrastructure and also prevent

duplication of the same facilities.

PESTLE analysis



Legal analysis

Overview

The South African legal system has an independent judiciary and complies with the provisions of the World Intellectual

Property Organization (WIPO). The promulgation of the Intellectual Property Law Amendment Act and the Counterfeit

Goods Act has further ensured South Africa’s compliances with the Trade Related Intellectual Property Rights (TRIPS)

initiative and the Uruguay round of General Agreement on Trade and Tariff (GATT). Furthermore, the amalgamation of the

new companies act has simplified the process of starting a business for foreign investors. However, South Africa’s lengthy

legal procedures and dominant oligopolies continue to hamper foreign investors in some sectors.

Table 7: Analysis of South Africa legal landscape


■ Independence of judiciary

■ Intellectual property rights

■ Oligopolies continue to impede competition


■ New company act to enhance compliance and corporate governance

■ Liberal foreign exchange controls

■ Discriminatory foreign investment practices


Current strengths

Independence of judiciary

South Africa’s judiciary continues to be independent and of good quality. The legal environment for foreign investors is

considered to be secure. The courts are open to foreigners on exactly the same terms and conditions as South African

citizens. Moreover, trade and industrial activities are undertaken within the framework of a free enterprise economy. This

has boosted foreign investment considerably in South Africa. On the other hand, the legal framework to penalize public

office holders abusing their powers is substantial. For instance, in 1999 the Public Finance act was ratified, and in 2003 the

Prevention of Corruption and Combating of Corrupt Activities Act was approved by the parliament, which made it illegal to

receive kickbacks.

Intellectual property rights

South Africa actively participates in almost all international conventions on the protection of intellectual property. Patents,

trademarks, copyrights, and industrial designs and models are legally acknowledged. South Africa was also one of the first

signatories to the Trademarks Law Treaty at the WIPO in 1994. The Companies Intellectual Property Registration Office

(CIPRO) of South Africa oversees intellectual property rights within the country. Furthermore, the Intellectual Property Law

Amendment Act and the Counterfeit Goods Act reflects the government's determination to uphold its commitments under

PESTLE analysis



the World Trade Organization (WTO) and to protect the rights of local and foreign companies. Their promulgation has

ensured compliances with the TRIPS and agreements on the Uruguay round of the GATT.

Current challenges

Oligopolies continue to impede competition

Although several reforms have been made, the utility, transport, and mining and media industries continue to be dogged by

oligopolies. In fact, dominant companies and collusive practices have been a part of the South African business landscape

since apartheid. Even though the government has made efforts to introduce competition in the market, it has suffered

longstanding pressures from labor organizations to protect strategic and labor intensive industries from competition.

Future prospects

New company act to enhance compliance and corporate governance

A new company act came into effect in April 2010. As per the new law, several changes will be introduced to simplify the

environment for small business, boost the rights of minority shareholders, and improve corporate governance. A key aspect

of the new act is a proposed rescue scheme which will provide firms with an alternative to liquidation through a new

business rescue process—similar to “Chapter 11” protection. The new law will make compliance easier for small and

medium-sized firms and also enhance corporate governance.

Liberal foreign exchange controls

Exchange controls in South Africa have effectively been abolished in relation to non-residents. The South African

government is further pursuing a policy of gradually relaxing the remaining exchange controls applicable to residents.

Exchange control was introduced in order to stem the outflow of capital from South Africa and to ensure a measure of

stability in the current market.

Future risks

Discriminatory foreign investment practices

Since 1994, both foreign portfolio and direct investments made into South Africa have increased substantially. The South

African government is conscious of its need to attract more FDI. However, investors have to contend with a high overall tax

burden, volatile currency, a heavy regulatory environment, the dominance of large industrial conglomerates in some markets

and the requirement of BEE, which are applicable to international companies if they seek government contracts. When the

ANC came to power in 1994, it recognized BEE as a major vehicle for addressing the injustice of the apartheid regime.

However, these restrictions are most likely to limit the entry of FDI in the near future.

PESTLE analysis



Environmental analysis

Overview

South Africa is renowned for its distinctive environmental heritage. The South African government has made shared

endeavors with other developing countries to ensure safer urban biodiversity. The government further stresses the

importance of sustainable development of the environment and energy. South Africa has adapted the UN Agenda 21 on

ensuring sustainable development. Furthermore, the South African judicial system has introduced heavy penalties for

violators of environmental rules and regulations. This would enable the government to earn substantial revenue and also

curtail the ever increasing violations of environmental norms. In addition, the government has signed accords with many

corporations to get funding towards expanding inspections on different industrial sectors which tend to violate

environmental norms. However, the recent acid mine drainage is a major health and safety concern.

Table 8: Analysis of South African environmental landscape


■ Coordinated efforts towards biodiversity conservation

■ Agenda towards sustainable development

■ Acid mine drainage

■ Neglect of environmental issues in infrastructure and housing construction projects


■ Heavier pollution penalties

■ Environmental partnership with Australia

■ Rising sea water contamination


Current strengths

Coordinated efforts towards biodiversity conservation

Along with other environmentally conscious countries, South Africa has taken substantial steps to preserve its

environmental heritage. Prominent among such measures was the signing of a declaration to protect and reinstate urban

biodiversity by representatives from 21 rapidly growing cities around the world, including four South African cities. Each city

has committed to identifying five vital initiatives to conserve plants, animals, and natural resources, and to further put those

into practice immediately. For instance, the Durban municipality is going ahead to develop a “green by law” strategy to

protect threatened species and a list of invasive plants. On the other hand, the city of Cape Town is conserving its lowlands

from rapid soil erosion.

Agenda towards sustainable development

South Africa has successfully taken several concrete steps to implement the UN Agenda 21 on sustainable energy and

environmental development. It actively participated in many global and regional sustainable development initiatives. Further

measures taken include reforming environmental policies and ratifying international agreement. The South African

government has decided that it would do its bit to cut greenhouse gas emissions. The government has agreed that its

carbon emissions should peak between 2020 and 2025 to bring the country in line with global efforts to curb climate

change.

PESTLE analysis



Current challenges

Acid mine drainage

South Africa faces water crisis that could impede its future economic growth and cause several health problems. An

immediate challenge facing the country is the acid mine drainage (AMD) which is polluting a vast area from the Witwaters-

rand to Mpumalanga. AMD occurs when mines close and stop pumping water out of shaft; this has contaminated streams

and dams on the West and East Rand that feed into the Limpopo and Vaal rivers. In 2010, environmentalists warned that if

the government and industry fail to act within two years, mine water which is acutely toxic will flow out from Johannesburg’s

Wemmer Pan and seep into the city’s streets.

Neglect of environmental issues in infrastructure and housing construction projects

Environmental standards have been particularly neglected with regards to infrastructure and housing construction; in South

Africa, the environment still remains third priority, after economic and social issues. The Department of Environmental

Affairs and Tourism (DEAT) has said that it is not just political commitment but also commitment from citizens required to

change the government’s outlook towards environmental conservation. In South Africa, economic development,

infrastructure and service delivery have been linked directly to biodiversity. For instance, the government has given

precedence to housing, primarily aimed at the poorest sections of the society who live in shacks. However, new housing

projects have mostly been implemented with scant regard for the environment. Moreover, the South African government

has been slow in implementing its progressive environmental policies and laws, apparently due to the lack of finance,

human resources and regulatory frameworks required to put these policies into practice. Furthermore, the manufacturing

industries have frequently neglected environmental concerns, leading to massive air and river pollution.

Future prospects

Heavier pollution penalties

The South African government has introduced various penalties for violators of environmental rules and regulations. The

National Environmental Laws Amendment Bill would give the environmental management inspectors more power to police

the offenders. There are 887 such inspectors across South Africa, investigating 664 criminal cases of non-compliance with

environmental rules and regulations. In future, the proposed amendment will allow inspectors to exercise their extensive

powers, not only with respect to the conservation of national parks, nature reserves, and endangered fauna, but also for

non-compliances related to pollution and waste and the release of lethal or offensive gases. They would also be designated

as peace officers, empowered to make arrests without warrant and issue admission of guilt fines for minor environmental

offences. With these endeavors in place, South Africa is expected to be able to conserve its environmental heritage.

Environmental partnership with Australia

In February 2010, the South African Ministry for Water and Environmental Affairs entered into a partnership with the

Australian Ministry of Trade to renew its climate change partnership. The partnership aims at climate change adaptation in

the agriculture sector and monitoring of greenhouse emissions. Further, the partnership also aims at providing cleaner coal

technologies.



Future risks

Rising sea water contamination

Durban, one of South Africa’s major tourist spots, has witnessed six of its beaches lose their Blue Flag status; Blue Flag is

an international program which certifies beaches that comply with 14 health, safety, and comfort criteria, including water

quality. Rising sea water pollution continues to threaten international tourism.

Political landscape



POLITICAL LANDSCAPE

Summary

South Africa’s political system is headed by its president, who enjoys considerable executive powers and commandeers the

country’s armed forces. Legislative powers are embodied in a bicameral legislature, which has the National Assembly as

the upper house and the National Council of Provinces as the lower house. Although members of the National Assembly

are elected through proportional representation, the National Council of Provinces selects its members from the country's

ten provinces. South Africa’s federal structure consists of nine provincial governments whose constitutions are ratified by

the constitutional court. On ratification, the provincial governments hold responsibilities for most social and developmental

activities.

Since the restoration of democracy with the dismantling of apartheid in 1994, South Africa has largely been able to maintain

political stability. The ANC has dominated South Africa’s political landscape by forming consecutive governments since

1994. Under the leadership of the anti-apartheid leader Nelson Mandela, the party claimed victory in the first democratic

elections and maintained its leadership until the last general elections, which were held in 2009. The government’s primary

focus has been on promoting social harmony and stimulating economic growth through rapid employment generation and

investment augmentation.

The 2004 general elections witnessed the victory of ANC after it secured 69.7% of the total registered votes. Party leader

Thabo Mbeki was elected for his third presidential term. However, after his resignation on September 25, 2008, Kgalema

Motlante assumed presidential charges to serve the remainder of president Mbeki’s term until 2009. President Zuma,

leader of the ANC, was officially chosen as the country's president by the newly-elected parliament in May 2009.

Evolution

Pre 1945

South Africa did not exist as a unified self governing state until 1910. However, before the discovery of precious materials

such as diamonds and gold in the late 19th century, the emergence of such a nation was impossible because the early

history of the region was marked by economic and racial strife. Mineral discoveries in the 1860s and 1880s revolutionized

the economic and political setup of the region. Mineral extractions and exports fuelled economic growth, creating both new

market opportunities and demand for labor. The native black population was largely confined to low level settlements and

their entry to urban areas was restricted. In addition, their ownership of wealth and land was limited. When the union of

South Africa was instituted in 1910, its constitutional provisions reflected a society in which whites had gained possession

over the majority of wealth and power in the country.

The rise of an industrial economy also brought about conflict between the English-speaking white population, who were

primarily mine owners and industrialists, and the Dutch-speaking white population, who were mostly restricted to peasantry

and urban industry works. The Dutch had historically competed for higher control over land and labor and for access to

great wealth. Between 1910 and 1948, the Afrikaner nationalists and politicians organized a powerful ethnic identity. The

Afrikaners were white settlers in the interior of the country and were primarily engaged in cattle farming and hunting, as

were their native African counterparts.

Political landscape



1945–2009

In 1948, the Afrikaner nationalists won control over the government and implemented apartheid, a policy that reinstated

segregationist practices and ensured Afrikaners' dominion over the political space of the country. Subsequently, after 1948

black Africans and Asians fought against the Afrikaners and white supremacy, and unanimously denied the dictum that

South Africa was a white man’s country in which other races were obliged to find economic and political autonomy within

their geographically separated communities. There were repeated protests, both peaceful and violent, by aboriginal South

Africans within the periods of official repression. Furthermore, during the 48 years of apartheid, the political boundaries

created by the Afrikaners to ensure their survival proved catastrophic for them, as well as other racial groups aiming for

supremacy. Apartheid spurred a climate of widespread intolerance which ultimately spurred economic disaster; the

appalling living standards of native Africans and ever increasing opportunities for the majority British created extreme

tensions within government bodies, and deprived South Africa of a lucrative domestic market. This had further secluded it

from other civilized states. By the end of the fourth decade of apartheid there was tremendous call for reforms from all parts

of South Africa as well as elsewhere, with the growing realization that the existing system was unendurable.

Moreover, the economic collapse emboldened political leaders from every corner of the country to take steps towards

dismantling apartheid. South Africa’s most popular anti-apartheid leader, Nelson Mandela, had a vital role in challenging

the regime of apartheid. In the mid-1980s, after nearly twenty years in prison for opposing apartheid, he assumed a central

role in dismantling it. After years of rigorous but often uneven political progress and amidst violent political unrest, South

Africa held its first multi-racial democratic elections in 1994. While both the government and opposing political parties could

claim equal success in achieving democracy, they also faced severe challenges in establishing a multi-racial society for the

future. During Mandela’s five-year term as the president, the government committed itself to reforming the social fabric of

the country. President Mandela, who was also the leader of the ANC, concentrated on national reconciliation and sought to

forge a single South African identity and a sense of purpose among the populace.

President Mandela resolved to reintroduce South Africa into the global economy by implementing a market driven

economic plan known as GEAR. In addition, in order to heal the wounds created by apartheid, the government created the

Truth and Reconciliation Committee (TRC) under the leadership of Archbishop Desmond Tutu. However, Nelson Mandela

stepped down as the president of the ANC in 1997, allowing Thabo Mbeki to assume the mantle of leadership. President

Mbeki shifted the government’s focus from reconciliation to transformation, particularly on the economic front. While

running for the third time for the ANC chair in December 2007, he was defeated by party stalwart Jacob Zuma when

members expressed unanimous dissatisfaction over Mbeki’s governing style. Despite Zuma’s victory in seeking party

presidency, Mbeki remained president until he resigned from the post on September 25, 2008. Jacob Zuma, the leader of

the ANC, was officially chosen as the country's president by the newly-elected parliament in May 2009.

Political landscape



Figure 2: South Africa–key political events

• In 1902, the treaty of Vereeniging ended the second Anglo Boer war. The Transvaal and Orange free states were made Self governing bodies.

• In 1910, Union of South Africa was formed by former British colonies of Cape and Natal and the Boer republics of Transvaal and Orange Free state.

• In 1912, Native National Congress was founded and later rechristened as the African National Congress (ANC).

• In 1913, Land Act introduced to prevent blacks from buying land outside reserves.

• In 1919, Namibia came under South African administration






• In 1948. Apartheid policy was adapted.

• In 1950, population began to be classified by race. Group Areas Act was passed to segregate Blacks and Whites. The ANC responded with campaign of civil disobedience led by anti apartheid lead Nelson Mandela.



• In 1961, South Africa was declared as a republic. Subsequently it left the Commonwealth of Nations.

• In 1964, ANC leader Nelson Mandela was sentenced to life imprisonment.

• In 1966, Prime Minister, HendrikVerwoerd was assassinated.

• In 1970, more than three million blacks were resettled in black homelands.

• In 1976, more than 600 people were killed in clashes between black protesters and security forces.






• In 1984, township revolt spread and a state of emergency was enforced.

• In 1989, FW de Clerk replaces PW Botha as president.

• In 1990, ANC was banned and Mandela was released after 27 years of imprisonment.

• In 1994, ANC won the first non racial elections. Mandela became the president and the Government of National Unity was formed and commonwealth status was restored.

• In 1996, parliament adapted new constitution.






• In 2001, 39 multi national pharmaceutical companies halted a legal battle to stop south Africa from importing generic Aids drugs

• In 2004, ruling ANC wins landslide victory and Thabo Mbeki was reelected as the president.

• In 2007, mass strike was conducted by thousands of public sector workers.

• In May 2009, Jacob Zuma, the leader of the ANC, was officially chosen as the country's president by the newly-elected parliament.





1900-30 1931-55 1956-80 1981-2000 2000 Onwards











































1900-30 1931-55 1956-80 1981-2000 2000 Onwards


Structure and policies

Key political figures

Key political figures in South Africa are:

• President: Jacob Zuma

• Deputy President: Kgalema Motlanthe

Political landscape



Figure 3: South Africa – key political figures

Jacob Zuma, leader of the ANC, was officially chosen as the country's president by the newly-

elected parliament in May 2009. Mr. Zuma was born in a Zulu family in 1942 and served the

ANC since 1959. He joined its armed wing Umkhonto we Sizwe in 1962 and was arrested the

following year. He spent ten years in prison for conspiracy to overthrow the apartheid-era

government. In 1999, he became the deputy president of South Africa under President Thabo

Mbeki. Mr Zuma's reputation hit a low when he was named in an arms-smuggling case, and

President Mbeki dismissed him from the deputy presidency in 2005. Furthermore, corruption

charges were leveled against him, and shortly afterwards he was charged with rape. He was

acquitted of the rape charge and corruption allegations were thrown out in April 2009. Jacob

Zuma led the ANC to a convincing election victory and was inaugurated as president on May

9, 2009.

Kgalema Motlanthe served as president of South Africa between 25th September 2008 and 9th

May 2009, completing the second elected term of Thabo Mbeki. He is currently the deputy

president of South Africa and ANC. Motlanthe is a former student activist, trade unionist and

member of the ANC's military wing Umkhonto we Sizwe during the struggle against South

Africa under apartheid. He is a left leaning intellectual and is considered to have a significant

role behind the success of Jacob Zuma.


Structure of the government

South Africa’s current government is headed by the president, who exercises massive executive powers and serves as the

commander in chief of the armed forces. The president is elected by the National Assembly members and his other

constitutional responsibilities include assigning cabinet portfolios and signing bills into laws.

South Africa is a multi-party, parliamentary democracy where constitutional powers are shared between the president and

the parliament. The bicameral parliament consists of two houses: the National Assembly, which is the upper house; and the

National Council of Provinces (NCOP), which is the lower house. While both houses are responsible for drafting the laws of

the constitution, the National Assembly has specific control over bills relating to monetary matters. The National Assembly

is a 400 member house, members of which are elected from a list of proportional representation. The NCOP consists of 90

members, with 10 being selected from each province. The NCOP replaced the former senate as the second house of

parliament and was created to give a greater voice to provincial interest.

Provincial governments

The federal structure of South Africa comprises nine provinces which differ according to their size of population. The nine

provincial governments are formed by the list of proportional representation. The provincial premier or executive appoints

the executive council or cabinet based on party strength. The provincial constitution, on being approved by the

constitutional court, gives the provincial government responsibilities for most affairs including education, health and welfare,

agriculture, housing, and policing.

Political landscape



Key political parties

The leading political parties of South Africa are the ANC, the African Christian Democratic Party (ACDP), Democratic

Alliance (DA) and the Freedom Front Plus (FF+).

ANC

The ANC is the dominant party in South Africa and was at the forefront of the anti-apartheid movement. The most defining

feature of the party has been its commitment to non-racial democracy. It is a nexus of diverse interests, with strongly

developed leftist and moderate traditions. Furthermore, the ANC has a long history of collective decision making and

strengthening consensus between regions.

The ANC notched up its fourth successive election victory in April 2009. Nevertheless, its share fell for the first time since

the end of apartheid in 1994, below the psychologically important 66% threshold, at which it could unilaterally alter the

constitution. Moreover, it also lost control of the Western Cape province to the DA, indicating that the party is slowly losing

its hold on the electorate.

Democratic Alliance

The DA is an official opposition party and was formed in June 2000. Its origin sprung from two political parties, namely the

Democratic Party (DP), which became the official opposition after the 1999 general elections, and the New National Party

(NNP). The partnership between the DP and the NNP was followed by a marked shift to the right by DP during the 1999

elections, when it grabbed the majority of the NNP’s conservative support base. In 2001, the NNP left the DA to join the

ANC alliance. In consequence, the DA’s efforts to strengthen its support base among the black population have not met

with much success. It had gained much of its support from the middle class white population, rather than the under-

privileged black population. After the 2004 general elections, the DA became the largest opposition party by securing

12.4% of the total registered votes.

Composition of the National Assembly

According to the Independent Electoral Commission, the ANC secured 264 seats in South Africa's 400-seat parliament

after winning 65.9% of the votes in April 2009 elections. The DA secured 16.66% of the votes and got 67 seats. The newly

formed Congress of the People Cope won 7.42% of the votes and secured 30 seats.

Political landscape



Figure 4: South Africa National Assembly composition, 2009

ANC66%

DA17%

COPE7%

IFP5%

Others5%

C


Key policies

Economic policies

South Africa weathered the economic crisis better than many countries. The IMF lauded the economy for its sound macro-

economic policies, a well-supervised financial system, and a flexible monetary regime. As per Datamonitor estimates,

economic activity in the country will quicken in the remainder of 2010 and a GDP growth of around 2% is projected for

2010.

The government is engaged in an investment program worth $80 billion over 2010–12 to upgrade the transport and

electricity infrastructure. Key projects include the Gauteng mass transit railway—a public-private partnership—that is

scheduled to open in 2011–12. Public investment is expected to boost growth over the medium term. However, the country

will continue to face high unemployment levels.

Political landscape



Social policies

South Africa has undergone radical social transition since the dismantling of apartheid and as a consequence, the

government’s social expenditure and funding has increased significantly. The country’s social policies aim at building closer

ties between multiple races existent in the country. After the collapse of apartheid, the government, under the

administration of President Nelson Mandela, focused on the social elevation of the native black population, who had

traditionally been deprived of better living standards. Furthermore, improving the education and health service system has

been the prime concern of the democratic government. However, the legacies of apartheid, which had provided insufficient

education to the majority of the population and the backlogs of deficiencies in the school system, still pose social

challenges for the incumbent governing system.

The South African government proposed a new land reform in 2010. As the majority of commercial farms in South Africa

are still under white ownership, the Ministry of Rural Development and Land Affairs proposed a plan to facilitate the transfer

of agricultural land from white landowners to landless black citizens. This will be achieved by identifying state land to be

leased out, and private land under freehold but with a limited scope. The government also introduced the "willing seller,

willing buyer" policy according to which white farmers are required to sell their land to the state at commercial value. The

government has set a target of transferring 30% (25 million hectares) of agricultural land to landless black South Africans

by 2014. The government has sought to increase social spending by progressively raising the eligibility age for child-

support grants to 18 years and by lowering the pension age for men to 60 years.

Foreign policies

South Africa, after emerging from isolation caused by apartheid, has turned into a leader in political and economic matters

in the African continent. Its foreign policies aim at promoting economic development and social prosperity throughout the

African continent, particularly in neighboring countries like Botswana, Namibia and Swaziland. Furthermore, South Africa is

an active partner of the NEPAD, through which it promotes peaceful resolutions to conflicts in Africa. South Africa has

sought for assistance from international humanitarian bodies to ensure that the plights of developing African countries are

heard at international conferences. South Africa also played a crucial role in seeking an end to various conflicts within the

African continent, including the Democratic Republic of Congo and Burundi. It had pursued effective diplomatic policies in

its efforts to ameliorate the political crisis in Zimbabwe and additionally had served as the African Union’s first president

from July 2003 to July 2004. It is also a member of the Commonwealth of Nations.

The next few years will be marked by increased economic cooperation with the US, India, Russia and the UAE, among

other countries.

On a trip to Africa in August 2009, the US Ministry of Foreign Affairs stressed the need to strengthen bilateral trade ties with

South Africa. The establishment of a US-South Africa business council is being contemplated. In July 2010, the South

African Ministry of Foreign Relations and Cooperation expressed its interest to cooperate with Russia in the joint production

of mineral resources. In the same month, the government of South Africa and the UAE discussed ways to develop bilateral

relations in mutual areas of interest.

Similarly, the South African government recognizes immense business opportunities with India. The South African Ministry

of Trade and Industry at a conference suggested that while the bilateral trade volumes between the two countries have

growth rapidly, there is untapped potential for growth in trade and investment.

Political landscape



Performance

Governance indicators

The World Bank report on governance uses voice and accountability, political stability and absence of violence,

government effectiveness, regulatory quality, rule of law, and control of corruption as indicators for 212 countries and

territories over the period 1996–2008. The study was carried out by Daniel Kaufmann and Massimo Mastruzzi of the World

Bank Institute, and Aart Kraay of the World Bank Development Economics Research Group. For any country, a percentile

rank of 0 corresponds to the lowest and 100 correspond to the highest rank.

As of 2008, South Africa had an impressive percentile rank of 67.8 on voice and accountability. The country’s ranking on

this indicator fell marginally since 2003, when it was ranked at 69.7. The voice and accountability parameter measures the

extent to which a country's citizens are able to participate in selecting their government, as well as freedom of expression,

freedom of association, and free media. South Africa has preserved its traditions of a direct democracy since 1994, in

which citizens are involved in important legislations. In comparative terms, it stands much higher than other major African

countries like Nigeria and Egypt, whose percentile ranks on this indicator were 31.3 and 14.4, respectively.

South Africa also ranked satisfactorily among other African nations on political stability and absence of violence, with a

percentile rank of 41.6 in 2008, which is much ahead of Nigeria which had a very low ranking of 3.3, and Egypt, which

posted a slightly better 23.

In terms of government effectiveness, South Africa had an impressive percentile rank of 75.4 in 2008, which was ahead of

Nigeria and Egypt, which were ranked at 13.3 and 43.1, respectively. Government effectiveness measures the quality of

public and civil services, and the degree of governmental independence from political pressures, the quality of policy

formulation and implementation, and the credibility of the government's commitment to such policies.

South Africa’s percentile ranking in terms of regulatory quality was 71.5 in 2008. Regulatory quality measures the ability of

the government to formulate and implement sound policies and regulations that permit and promote private sector

development. Successive governments in South Africa, mostly under the ANC, have cautiously embarked upon

investment-friendly policies. The performance on this parameter was higher than that of Egypt, which had a percentile

ranking of 49.3. Nigeria lagged behind with a low rank of 29.5 in the same year.

South Africa had percentile rank of 56 in the rule of law index in 2008. Rule of law measures the extent to which agents

have confidence in and abide by the rules of society, and in particular the quality of contract enforcement, the police, and

the courts, as well as the likelihood of crime and violence. At 52.6 percentile, Egypt had some proximity with South Africa

on this indicator. Nigeria had a very low ranking at just 11.5.

South Africa’s percentile ranking on the control of corruption index was 65.2 in 2008, which is marginally higher than its

2003 ranking of 64.1. Corruption is under control in most provinces of South Africa, although it has been more prevalent in

neighboring countries. Nigeria had a low percentile ranking at 17.9, whereas Egypt figured still higher at 29.5 on this index.

Outlook

South Africa fares relatively well in terms of governance indicators but crime and corruption continue to plague the nation.

The country has one of the highest murder rates per capita in the world (outside of a war zone). Some statistics show that

more than 18,000 murders happened in the 12 months to March 2010. A recent example of corruption in the government is

that of South Africa’s former police chief, Jackie Selebi, who was found guilty of accepting a huge bribe from a convicted

Political landscape



criminal. Instances of widespread crime and corruption could have a severe negative impact on the country’s image as a

business destination.

While there exists a certain level of political stability with regard to continuation of ANC policies, it might become difficult for

President Jacob Zuma to preserve the unity of the tripartite alliance as a result of increasing friction between the parties—

the ruling African National Congress (ANC) and its partners in the Congress of South African Trade Unions (COSATU) and

the South African Communist Party (SACP). President Zuma's support for economic policy continuity will continue to anger

the left, especially COSATU, and this could result in strikes.

Economic landscape



ECONOMIC LANDSCAPE

Summary

South Africa’s monetary and fiscal policies enabled the economy to post stable growth rates since the 1990s until the onset

of the global economic crisis. However, over the period, South Africa has witnessed a growth in unemployment due to the

substitution of capital for labor in most of the employment generating sector. The unemployment rate has remained

significantly high since 2002 and was recorded at 24.3% in 2009. South Africa’s actual level of unemployment is much

higher however, as labor participation rates in the formal sector are low.

The social and economic benefits derived from hosting the 2010 FIFA World Cup will continue to impact South Africa over

the long run. The country could also reap the benefits of trade liberalization with the EU, its African neighbors, and more

recently with prominent Asian countries.

Evolution

Pre 1950

South Africa’s economic structure came into shape with the arrival of Dutch settlers sent by the Dutch East India Company

in 1652 to establish a provisioning station for passing ships. Colonization increased with the arrival of French and German

citizens. Subsequently, farming was greatly encouraged for commercial purposes. This made agriculture the dominant

sector in the economy. By the end of the 18th century, British settlers gained prominence in the colony and imposed English

language on the colonists. This led to the ‘Great Trek’ which resulted in a deeper penetration of farming in the region. The

‘Great Trek’ was an eastward and northeastward migration of those farmers who were descendants of settlers from

western mainland Europe. The economy was finally transformed from being primarily agriculture based to resource

dominated when gold mines were discovered in Witwatersrand in 1886. Earlier, in 1870, diamond mines were discovered in

Kimberley. The discovery of gold and diamond mines revolutionized the economy. European investment flowed in, and by

the end of the nineteenth century it was equal to all European investment in the rest of Africa. South Africa became

significant in the world economy after it started exporting gold and diamonds to the western countries and increased its

demand for a variety of agricultural imports. The cycle of economic growth was further stimulated by the expansion of the

mining industry, and with the newly found resources international demands fuelled still higher levels of growth.

During the first half of the 20th century, government economic policies were designed to cater for local consumer demand

and to reduce the country’s dependence on the mining sector by providing incentives for farming and for establishing

manufacturing operations. In 1902, South Africa finally entered a period of industrialization. During the 1920s, to encourage

the growing manufacturing sector, the government established special state corporations to provide free electricity supply

and steel for industry use. Furthermore, it imposed tariffs to safeguard local manufacturing industries. By the end of the

1930s, the manufacturing sector began to be dominated by state owned institutions. However, throughout this period, black

entrepreneurs were discouraged as new labor laws limited the rights of black workers and thereby created a large scope for

hiring low cost labor. The manufacturing sector regained its importance and experienced new growth during and after

World War II.

1945–90

The conditions required for economic expansion were present in South Africa before the beginning of World War II. Major

cities and regional commercial centers were growing and agriculture was being consolidated into large farms with greater

Economic landscape



emphasis on commercial farming. Moreover, mine owners and shareholders of various sectors had begun to diversify their

investments into other sectors. After the war ended, local consumer demand rose significantly. Consequently, with

persistent government support and international competitors at bay, local agriculture and manufacturing sectors began to

expand rapidly. During the 1950s and the 1960s, the government increased its role in structuring the economy, particularly

in strengthening the manufacturing sector. It also initiated large scale programs to promote the commercial farming of corn

and wheat. Government investments to establish local textile, pulp and paper industries were largely made through the

state owned Industrial Development Corporation (IDC). Investments in state corporations were also generated to enhance

the production of chemicals, fertilizers and armaments.

Both agriculture and manufacturing activities grew simultaneously, but by 1970 manufacturing output surpassed mining.

However, South Africa’s economy continued to remain vulnerable to limitations like recurrent droughts, over-reliance on

gold exports and the use of cheap and diversified labor. On the other hand, while commercial farming developed into an

important source of export revenue, agricultural production fell due to major droughts between 1960 and 1966, and 1981

and 1985. Gold continued to be the main export and revenue earner during the 1980s. However, when gold prices

fluctuated in the international market, South Africa’s exchange rate and ability to import goods suffered considerably.

Manufacturing, in particular, was affected due to the downswings in the price of gold, because it relied on imported

machinery and capital. Furthermore, many industries were isolated due to rising labor militancy, especially among black

workers, which triggered disputes and slowed productivity in the late 1980s. The economy faced recession in response to

worldwide economic conditions and the long term effects of apartheid. It registered negligible or negative economic growth

in most quarters of these years. This period remained stark, with high inflation driving up costs in most sectors.

The figure below shows the evolution of the South African economy since 1980.

Economic landscape



Figure 5: South Africa’s historical GDP growth, 1991–2009

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1991 1993 1995 1997 1999 2001 2003 2005 2007 2008 2009

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1991–2010

South Africa continued to be dependent on the availability of foreign loans and decent international prices for gold. Even as

some sectors began to recover by the end of 1993, intense violence and growing political instability in the face of reform

stalled economic growth in 1994. After the dismantling of apartheid, the new government under President Mandela

demonstrated its commitment towards an open market, privatization and a favorable investment climate. Formal

employment continued to decline and disparities in the distribution of income and wealth along racial lines were significant,

despite the government’s efforts to empower the black population. However, trade liberalization progressed considerably

during the late 1990s and South Africa reduced its import weighted average tariff rate from 20% in 1994 to just 7% in 2002.

These efforts, together with South Africa’s allegiance towards WTO obligations and its instrumental role in launching the

Doha Development Round, reflected South Africa’s acceptance of free market principles. Over the same period of time, the

government took several measures to reduce fiscal deficits and increase foreign exchange reserves. The government

deficits were 1.1% of the GDP in 2002 and 2.6% in 2003. Furthermore, during the 2005 budget, the government called for a

moderate increase in public spending to promote faster growth, alleviate poverty and reduce the budget deficit. Despite

recent political unrest and uncertainty over the ruling party’s future, economic policies and goals remain largely the same.

South Africa’s economy grew by 5.2% and 5.1% in 2006 and 2007 respectively, representing stability in economic growth

for the fourth consecutive year and in 2008, the growth rate came down to 3.1%. With much weaker external demand and

Economic landscape



prices for the country’s commodity exports, the South African economy contracted by 1.8% in 2009. The economy grew by

more than 4% in the first quarter of 2010, largely due to export demand for mining and manufacturing.


Financial authorities/regulators

South African Reserve Bank

The South African Reserve Bank (SARB), established in 1921 after parliament passed the Currency and Bank Act in

August 1920, is the central bank of the Republic of South Africa. It regards the achievement and maintenance of price

stability in South Africa as its primary goal. The SARB controls credit and regulates the money in circulation primarily by

credit rationing, increasing the discount rate in times of excessive spending and lowering the discount rate in times of

business downturn and scarcity of money.

Financial Services Board

The South African Financial Services Board (FSB) is a unique, autonomous institution established by statute to supervise

the South African non-banking financial services industry in the general interest of the public. The FSB is committed to

promote and maintain a sound financial investment environment in South Africa. The FSB principally regulates the

operations of short term and long term insurers and re-insurers, retirement fund managers and portfolio managers.

Stock exchange

Johannesburg Securities Exchange

The Johannesburg Securities Exchange (JSE) was established in 1887. The JSE was licensed as an exchange under the

Securities Services Act 2004 and acts as South Africa’s premier exchange. It has operated as a market place for the

trading of financial products for nearly 120 years. Over this period of time, the JSE has evolved from a traditional floor-

based equities trading market to a modern securities exchange providing fully electronic trading, equity clearance and

settlements and financial and agricultural derivative services. The JSE is also the principal provider of financial information

to investors in South Africa. The market capitalization of the JSE has been showing a steady increase since 2000, which

has apparently been a result of an augmentation in foreign investments in South Africa’s capital market. The market

capitalization of the stock exchange came down by almost 42% to reach $483 billion in 2008 from a high of $828 billion in

2007. The market capitalization of the stock exchange reached $799 billion in 2009.

Economic landscape



Figure 6: Market capitalization of the Johannesburg Securities Exchange, 2002–08

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900.0

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Insurance

In South Africa, insurance is principally aimed at the low income market. South Africa has a well developed commercial

insurance industry and all insurers in the country fall under the supervision of the FSB. South Africa’s new insurance

framework permits wider participation in the insurance market and the graduation of insurance bodies from small,

underwritten entities to larger and more sophisticated options. The government is further considering proposals to amend

specific insurance legislation for the sake of simplicity and user-friendly legislations. Some of the prominent registered

insurers in South Africa are Life Direct Insurance, ABSA Insurance Company, and African General Insurance.

The South African insurance market generated a gross premium income of $3.7 billion in 2008, representing a compound

annual growth rate (CAGR) of 11.7% for the period spanning 2004–08. Life insurance sales proved the most lucrative for

the South African insurance market in 2008, generating total revenues of $2.8 billion, equivalent to 75.8% of the market's

overall value. The performance of the market is forecast to decelerate, with an anticipated CAGR of 5.7% for the five-year

period 2008-2013, which is expected to drive the market to a value of $4.9 billion by the end of 2013.

Key policies

South Africa follows liberal trade policies. It has been an active member of the WTO since January 1995 and US products

qualify for South Africa’s Most Favored Nation (MFN) tariff rates. South Africa also enjoys trade benefits under the African

Growth and Opportunity Act (AGOA), which allows most of its export products to enter the US market duty free. Currently,

South Africa is through with most import permits except for those on used products and products regulated by international

Economic landscape



treaties. Furthermore, it continues to comply with the reduction and simplification of tariffs within the WTO framework and

proposes active discussions with its major bodies and trading partners.

Alongside the dismantling of apartheid, South Africa also introduced a series of budgetary reforms such as the Medium

Term Expenditure Framework and the Public Finances Management Act, which particularly aimed at better reporting,

auditing and increased accountability. The programs further aimed at overhauling the existing monetary policy framework,

including inflation targeting. This resulted in an increase in transparency and predictability in the fiscal and monetary

system.

To counter the effects of the global economic crisis, the government announced a stimulus package amounting to ZAR690

billion ($83.2 billion). The government increased social spending, by progressively raising the eligibility age for child-support

grants to 18 years and by lowering the pension age for men to 60 years. To help the private sector, the government

adapted industrial incentive schemes to provide assistance from local Development Finance Institutions (DFIs).

South Africa weathered the global economic crisis better than many countries. The IMF praised the economy for its sound

macroeconomic policies, a flexible monetary regime and a well-supervised financial system. The government has planned

an investment program worth $80 billion over 2010–12 to upgrade the transport and electricity infrastructure. Key projects

include the Gauteng mass transit railway, a public-private partnership that is scheduled to open in 2011–12. Public

investment is expected to boost growth over the medium term. However, widespread unemployment and high income

inequality will continue to plague South Africa. The South African Reserve Bank (SARB) held the policy interest rate (repo)

steady at 6.5% during the Monetary Policy Committee (MPC) meeting held on July 22, 2010. As per Datamonitor

estimates, economic activity in the country will quicken in the coming months and a growth of around 2% is expected in

2010.

Performance

GDP and growth rate

The South African economy is primarily based on its well-spread infrastructural network. The post-apartheid state has

witnessed the emergence of information technology, agro-processing and electronic industries in its economy. Among the

other industries in South Africa, textiles, automobiles and fertilizers are worth mentioning. Furthermore, the machinery and

mines industries have also gained tremendous significance in the past few decades. However, economic growth had not

been able to create a dent in the endemic poverty. Economic growth in 2001 was hit by a global slowdown, with real GDP

growth rate falling from 4.1% in 2000 to 2.7% in 2001. Although agriculture was particularly affected, the aftermath of

economic recession was evident in all sectors. The outcome of slower economic growth and strained investor sentiments

led the rand to depreciate by 26% with respect to the dollar in 2001. Subsequently, the currency appeared to be stable as a

result of fresh capital inflows and the resilience of exporters which led to the restoration of investor confidence. During 2002

and 2003, economic growth rebounded to 3.6% and 3.0% respectively as the rand appreciated significantly in response to

favorable external condition and improved investor confidence.

Over the period 2004–2008, real GDP grew at an annual average rate of 4.7%. This growth had been broad based, with

the share of overall national income going to the black population rising by more than 50% in 2005 from about 40% in 1996.

South Africa’s economy grew by 5.2% and 5.1% in 2006 and 2007, respectively, representing stability in economic growth

for the fourth consecutive year. The growth rate came down to 3.1% in 2008. With much weaker external demand and

prices for the country’s commodity exports, the South African economy contracted by 1.8% in 2009. Datamonitor forecasts

Economic landscape



suggest that the economy will rebound in 2010 registering a GDP growth rate of 2% during the year. The economy is

expected to grow further reaching a growth rate of 4.5% by 2013.

Figure 7: GDP and GDP growth rate in South Africa, 2002–13

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50.0

100.0

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200.0

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2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

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(%)

GDP Real GDP growth rate


GDP composition by sector

The South African economy is dominated by the services sector, which contributed 65.8% of its total GDP in 2009. The

services sector is followed by the industry and the agriculture sector, which contributed 31.1% and 3.1% of the GDP,

respectively, in the same year. South Africa’s mining and manufacturing base has traditionally served as the principal

revenue earner in the industry sector. However, the past decade has witnessed the booming of industries like textiles,

automobiles and fertilizers.

Economic landscape



Figure 8: GDP composition by sector, 2009

Agriculture, 3.1%

Industry, 31.1%

Services, 65.8%


Agriculture

South Africa primarily has a dual agricultural economy, comprising a well developed commercial sector and a

predominantly subsistence-oriented sector in the rural prefectures. According to the National Department of Agriculture,

only about 13% of South Africa’s total surface area is arable, of which 22% can be classified as land with high potential for

cultivating a variety of crops in a given season. Government-supported irrigation programs are taking into consideration 1.3

million hectares of land to build new irrigation systems. Agriculture contributed about 3.1% to the GDP of South Africa in

2009 and about 9% of total formal employment. Agricultural output saw a growth rate of 69.7% in 2008 and later contracted

by 1.4% in 2009. Agricultural output stood at ZAR76.6 billion ($9.2 billion) in 2009.

Currently, South Africa is not just self-reliant in almost all types of agriculture products, but also a major food exporter.

However, agriculture remains susceptible to droughts, primarily due to low average rainfall and a high degree of variability

in rainfall within and between seasons. South Africa’s chief agriculture products are corn, wheat, sugarcane, fruits, beef,

mutton, and dairy products. The largest area of farmland in South Africa is planted with maize, followed by wheat, and to an

extent, sunflowers and sugarcanes. Maize is the largest locally produced field crop and the most important source of

carbohydrates for human and animal consumption. Concurrently, South Africa is the world’s 11th and 12th largest producer

of sunflower seeds and sugarcane.

Economic landscape



Figure 9: Agriculture output of South Africa, 2002–09

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Agriculture output Growth rate


Industry

The industrial sector is the second largest contributor to real GDP, after the services sector. Beginning with the light

consumption industry in the 1920s and the expansion of heavy industry with the establishment of the Iron and Steel

Corporation of South Africa (ISCOR) in 1928, the manufacturing sector in South Africa has experienced full fledged

evolution over the past 70 years. The largest industrial sector is the metal products and engineering sector dominated by

the ISCOR, which has now been privatized.

South Africa has the distinction of being the world’s largest producer of gold, platinum, manganese, chromium, vanadium,

alumino-sillicates and titanium. Moreover, it is the second largest producer of vermiculite and zirconium. The steel industry

in South Africa substantially feeds its manufacturing base and, in particular, the automotive sector. Noted companies like

Columbus Stainless Steel and Billiton’s Hillside Aluminum Smelter produce processed industrial minerals, instead of just

primary commodities. Furthermore, South Africa has an ever expanding mining industry which contributes around 50% of

its total exports. Paper and pulp, clothing and textiles, and electronics are among the other industries which have

experienced strong growth since 2002. The country’s industrial output grew at a whopping pace of 30.3% in 2007; however,

it fell to around 12% in 2008 due to the global economic downturn. Industrial output amounted to ZAR728.7 billion ($87.9

billion) in 2009; this represents a growth rate of 1.9% in 2009, down from a growth rate of 14.5% a year ago.

Economic landscape



Figure 10: Industrial output of South Africa, 2002–09

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Industry output Growth rate


Services

The services sector, spearheaded by the financial services, is one of the most lucrative in the South African economy. It

contributed 65.8% of South Africa’s total GDP in 2009. Tourism, hospitality and communication are the other chief sub-

sectors under services. The economic importance of the services sector in the South African economy has grown

considerably. As the primary employment generating sector in the country, it employs 65% of the labor force. The services

output growth rate increased from around 12.4% in 2007 to reach 5.8% in 2008. Services output reached a value of

ZAR1,578.3 billion ($190.3 billion) in 2009.

Economic landscape



Figure 11: Service output of South Africa, 2002–09

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Services output Growth rate


Fiscal situation

The government’s revenue is expected to slow down due to weaker economic growth. However, the government has not

abandoned prudence, and is confident of making up for the shortfall by domestic borrowing, which will not put any strain on

the economy. According to the Ministry of Finance, the budget deficit will ease to 6.2% of GDP in the year to March 2011

from 7.3% in 2010. The government will not have to cut expenditure or raise tax rates in the near term as the public debt to

GDP ratio was relatively low at 29.5% in 2009. However, taxes may have to be raised in the future.

Current account

South Africa’s current account had been fluctuating since 2004. The current account balance as a percentage of GDP

dropped to a low -4% in 2005, from -1.1% in 2004. It went up to -6.3% in 2006 before falling drastically to -7.1% in 2007, a

level previously observed in the early 1980s. The electricity-induced production setbacks in the early part of 2008 had a

negative impact on export volumes, but this was countered by the concurrent buoyancy of commodity prices. Rising net

service and income payments to the rest of the world, reflecting increasing foreign liabilities and higher interest and

dividend outflows, contributed to the magnitude of the deficit. The current account deficit went up marginally to reach 6.6%

of GDP in 2008. In 2009, the current account deficit narrowed significantly to reach $11.5 billion in 2009; this represents a

marked improvement over a deficit of $20.1 billion recorded in the previous year.

Economic landscape



Figure 12: Current account in South Africa, 2002–08

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Current account balance Current account balance as % of GDP


International trade

Among other African countries, South Africa has a relatively open economy. However, it has been posting a negative

balance of payments since 2002. This has mainly been due to South Africa’s heavy energy imports from Saudi Arabia and

the dominant EU import market which amounts to nearly 44% of South Africa’s total imports. At 11.1%, the US and Japan

were South Africa’s chief export markets in 2008, followed by Germany (8%), the UK (6.8%), China (6%) and the

Netherlands (5.2%).

Gold, platinum, diamonds, minerals, and machineries and equipments are the country's chief export products. Exchanges

with the rest of sub-Saharan Africa account for less than 10% of total trade. However, the level of South African exports is

50% higher than overall imports from the region. This stands testimony to South Africa’s dominant role in trade among the

member countries of the Southern African Development Community (SADC). The SADC was established in 1980 with an

aim to coordinate development projects in order to lessen economic dependence on the then existent apartheid South

Africa.

Economic landscape



Accounting for 11.2% of total imports in South Africa, Germany was South Africa’s most significant supplier in 2008. China

(which accounted for 11% of total imports in 2008), the US (7.8%), Saudi Arabia (6.2%) and Japan (5.5%) are the other

major source markets. Machinery equipment, chemicals, petroleum products, foodstuffs and scientific instruments are

South Africa’s chief import products. In 2009, exports and imports amounted to $78 billion and $98 billion, respectively. The

total trade fell from $209 billion in 2008 to $175 billion in 2009.

Figure 13: External trade of South Africa, 2002–09

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78

98

69

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209

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Exports Imports Total trade


Economic landscape



Figure 14: Balance of South Africa’s trade, 2001–08

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Balance of trade Balance of trade as % of GDP


International investment position

Foreign direct and portfolio investments

South Africa has an open investment climate and FDI has played a crucial role in the development of its economy. Since

the end of apartheid, South Africa has undertaken substantial economic reforms in order to attract more FDI, but it has

been slow in coming. However, since 2002, FDI has remained at low levels compared to other emerging market

economies. Despite an improvement in overall macroeconomic conditions and South Africa’s inherent advantages, like the

availability of natural resources and a huge market size, foreign investors have expressed little interest in acquiring,

creating or developing domestic enterprises. The annual average inflow of FDI in South Africa during 1994–2002 was less

than 1.5% of the GDP, and the government has to do a lot more to attract investment. According to the SARB, the UK is

the major source of FDI in South Africa, followed by Germany and the US. Primary recipients of such investments are the

finance and services, mining, and manufacturing sectors. The FDI in South Africa improved marginally in 2009. The stock

of FDI in the country totaled $73.7 billion in 2009, compared to $68 billion in 2008.

Economic landscape



Figure 15: Total foreign investments in South Africa, 2005–08

26.30

34.47

32.21 32.00

0.00

5.00

10.00

15.00

20.00

25.00

30.00

35.00

40.00

2005 2006 2007 2008

Year

$ b

illi

on

Total foreign investments


Credit rating

As of July 2010, Standard & Poor's (S&P) confirmed its “BBB+/A-2” long- and short-term foreign currency and “A+/A-1”

long- and short-term local currency sovereign credit ratings for South Africa. S&P maintains a negative outlook for South

Africa despite an improvement in the national budget deficit.

Monetary situation

Key monetary indicators

Inflation and Interest rates

Since 2000, the South African government has set monetary policies on the basis of inflation targeting. It has particularly

focused on a practical and optimistic approach for setting interest rates in response to expected increases in inflation

outside the target range of 3% to 6%. The inflation rate in 2002 was significantly high at 9.2%, as a result of unanimous

concerns over the currency’s softness. However, inflation rates were brought down during 2003 and 2004 by the prudent

manipulation of interest rates. High international oil prices and an acceleration in food prices contributed to an increase in

inflation to 4.7% and around 7.1% during 2006 and 2007, respectively. Inflation surged ahead in 2008, especially due to

higher oil and food prices in the first half of 2008, reaching 11.5%. However, according to Statistics South Africa, headline

inflation slowed to 6.9% y-o-y in June 2009. In 2009 as a whole, the country witnessed an inflation of 6.2%.

Economic landscape



According to the SARB’s inflation outlook, the consumer price index (CPI) inflation is expected to average 4.5% in the third

quarter of 2010, increasing moderately after that. Datamonitor forecasts suggest that inflation will hover around 5.2% in

2010.

The South African Reserve Bank (SARB) held the policy interest rate (repo) steady at 6.5% during the Monetary Policy

Committee (MPC) meeting held on July 22, 2010.

Figure 16: Consumer price index and CPI based inflation in South Africa, 2002–13

0

50

100

150

200

250

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Year

Co

nsu

me

r p

ric

e i

nd

ex

0

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6

8

10

12

14

Infla

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(%)

Consumer price index Inflation


Banking

South Africa’s political transformation, together with the relaxation of exchange controls and the liberalization of African

economies, has resulted in the country becoming an increasingly important financial center. Over the past decade, South

Africa has developed a well established banking system, which compares favorably with those in developed countries and

which sets the country ahead of many other emerging market economies. By the end of 2004, the banking sector in South

Africa found itself with a matured banking technology, a moderate rate of private indebtedness and a respectable regulatory

and legal framework. In addition, South African banks are well managed and mostly use sophisticated risk management

systems and corporate governance structures in conducting banking operations. South Africa’s banks are regulated as per

the norms of the Basel Committee on Banking Supervision. Consequently, banks comply with international sound banking

practice laws and offer a sophisticated banking system to the public.

Economic landscape



Five major banking groups control South Africa’s banking sector: Absa Group, the Standard Bank Group, the First Rand

Bank Group, Investec, and Nedcor. After the dismantling of apartheid, there were a number of small and medium scale

banks in the country. However, during the latter part of 1999, many of these faced challenges in the form of a liquidity

crunch. This led many of the small and medium scale banks to exit from the banking system. In 2007, small local banks

constituted 3.1% of the total banking sector assets, in comparison to 21.7% during 1994. This phenomenon was well

reflected in the consolidation of the broader banking sector, rather than a failure in the small and medium banking sector.

The country’s banking system has not been severely affected by the global economic crisis due to limited exposure to the

high-risk securities.

Employment

In South Africa, the service sector employs 65% of the total workforce. Financial services, tourism and transport are its

chief sub–sectors, employing the majority of workers in the sector. Service is followed by the industry sector, which

employs 26% of the total workforce. The majority of industrial workers are engaged in manufacturing and mining related

activities. At 9%, agriculture contributes the least to total employment, with the majority of agricultural workers engaged in

livestock and dairy related activities.

Employment growth has largely shown a declining trend since 2002, except for 2003, when it grew impressively at a rate of

3.4%. Overall employment growth recorded an annual average growth of 0.3% between 2002 and 2007, which is

significantly lower than most emerging economies. In addition, the average annual unemployment rate was alarming, at

around 23% between 2002 and 2008. According to labor force survey by Statistics South Africa, about 267,000 South

Africans lost their jobs during the first and second quarters of 2009. The country's official jobless rate stood at 23.6% of the

labor force in the second quarter of 2009, a slight increase from 23.5% in the first quarter. The survey also revealed that a

total of 4.1 million people were unemployed in the second quarter of 2009. Unemployment rate jumped to a high of 24.3%

in 2009. The recession in 2009 led to a rise in unemployment and jobs could not be created in substantial numbers in the

first quarter of 2010 even as the country recovered from the economic crisis. As per Datamonitor forecasts, unemployment

will reduce slightly to reach 21.4% in 2010.

Economic landscape



Figure 17: Unemployment and unemployment rate in South Africa, 2002–13

0

1

2

3

4

5

6

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Year

Nu

mb

er

of

un

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(mil

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ns

)

0

5

10

15

20

25

30

35

Ra

te o

f un

em

plo

ym

en

t (%)

Total unemployment Rate of unemployment (%)


Outlook

With strong economic fundamentals and fiscal policies in place, South Africa was relatively resilient to the global economic

crisis. The country also made good returns on its spending to host Africa’s first FIFA World Cup during June–July 2010.

According to South African Broadcasting Corporation, hotels and car rental services in South Africa saw a boom since the

start of the tournament. Aside from short term gains, the tournament is expected to have a long-term positive effect on the

economy through increased investment and tourism. The World Cup will also help in re-branding the nation over the long

run.

Furthermore, the government has planned an investment program worth $80 billion during 2010–12 with the aim of

upgrading the transport and electricity infrastructure. The next few years will also see increased trade and investment

activity between South Africa and other countries including the US, the UAE, Russia and India. Inflation has been brought

down from 11.5% in 2008 to 6.2% in 2009. Datamonitor estimates that inflation will stay at 5.2% in 2010, which is well

within the 6% target range of the government. However, high unemployment will continue to be a problem in the near term.

The South African economy is expected to grow by 2% in 2010.

Social landscape



SOCIAL LANDSCAPE

Summary

South Africa, with its low human development indicators, is placed 129th out of the 182 countries in the United Nations

Development Program’s Human Development report (2009). There has been some improvement in South Africa’s social

setup after the dismantlement of the apartheid years. While the majority of South Africa’s population falls under the working

age group, life expectancy for the total population is significantly low, and the infant mortality rate is extremely high, at 43.8

deaths per 1,000 live births. This is primarily due to the lack of quality healthcare in the impoverished regions of the

country. South Africa is also characterized to have the world’s largest number of HIV/AIDS infected population. Although

the government has made ambitious plans towards improving the healthcare system, private healthcare expenditure

dominates South Africa’s total healthcare expenditure outlay. However, government and international humanitarian agency

supported anti-retroviral treatment centers have played a significant role in reducing the spread of AIDS. In the sphere of

education, the government needs to make substantial efforts to spur the equitable distribution of education services. The

president’s lead project, started with the patronage of former president Nelson Mandela, has brought substantial changes

within the education setup by upgrading the schooling and higher education system in semi-urban and rural areas.

Evolution

The social evolution of South Africa is largely similar to that of other European colonies in the African continent. South

Africa’s transition to democracy had been peaceful, with the country making considerable progress in addressing the deep

seated inequalities of the past. The material wellbeing of the majority of the population, neglected during the apartheid era,

has witnessed some improvement. However, overall social development has been slow, with a spiraling crime rate and the

HIV/AIDS pandemic continuing to hamper growth.

Social policies have been evolving since the end of apartheid in 1994. The government has increased its focus on making a

greater number of health and educational services available to the rural population. Health facilities, particularly anti-

retroviral treatment facilities, have increased substantially in rural and suburban areas particularly affected by the AIDS

endemic. The GEAR strategies and BEE instilled by the Mandela government have played a pivotal role in elevating the

living standards of the black population.


Demographic composition

Age and gender-wise composition

South Africa’s age structure indicates that 65.9% of the population lies within the 15–64 age group. 28.6% of the population

is within the 0–14 age group, and 5.5% of the population is above 65 years. With this age structure, South Africa reflects a

demographic structure similar to most African countries, which have a significantly large working population and a low

ageing population. The birth rate on the other hand has experienced a gradual decline since 1990. Sex ratio at birth is 1.02

males per female. Life expectancy for the total population is recorded at 49.2 years; for the male population it is 50.1 years

and for female it is 48.3 years. South Africa’s infant mortality rate is extremely high, at 43.8 deaths per 1,000 live births.

Social landscape



Table 9: Mid-year population by age, 2009

Age group Female Male Total

0–4 1.9 1.9 3.9

5–9 2.1 2.1 4.3

10–14 2.3 2.4 4.7

15–19 2.5 2.5 5.1

20–24 2.4 2.4 4.8

25–29 1.9 2.0 3.9

30–34 1.5 1.6 3.1

35–39 1.3 1.3 2.6

40–44 1.3 1.1 2.4

45–49 1.2 1.0 2.2

50–54 1.1 0.8 1.9

55–59 0.9 0.7 1.6

60–64 0.7 0.5 1.2

65–69 0.5 0.4 0.9

70–74 0.4 0.3 0.7

75–79 0.3 0.2 0.4

80+ 0.3 0.1 0.4


Females comprise 51.4% and males 48.7% of the total population.

Urban/rural composition and migration

South Africa has an uneven population distribution, with the majority living in small unorganized urban settlements. In 2008,

61% of the population is classified as living in an urban environment. However, the majority of the urban population lives in

small towns. Johannesburg is the largest city, while other large cities are Pretoria, Cape Town and Durban. Cape Town has

the largest population and the highest population density as well.

Black Africans account for around 79% of the total population, with the remaining section of the population dominated by

the whites at 9.6%, colored at 8.9% and Indian Asians at 2.5%. The largest group includes Zulu, Xhosa, Northern Sotho

and Southern Sotho. About 60% of whites are descendants of the Dutch, French, Huguenot and German settlers and about

40% are of British descent. The Asians include descendants of Indian, East Indian, and Chinese indentured laborers who

were not repatriated after their brief period of service as miners.

Since 1999, one of South Africa’s main challenges has been the increasing cross border migration. In addition to the large

number of undocumented migrants entering the country, South Africa receives some 1000 new migrant asylum seeker

applications every month. Furthermore, as per 2010 estimates, the net migration rate was -3.1 migrants per 1000

population. There has been an increase in the flow of Zimbabweans and people from Botswana into South Africa in search

of better economic opportunities. However, the government views migration levels as satisfactory, as when compared to

many other countries of similar social setup.

Religious composition

South Africa’s diverse religious composition consists of Zion Christians (11.1%), Pentecostal/Charismatic (8.2%), Roman

Catholic (7.1%), Methodist (6.8%), Dutch Reformed (6.7%), Anglican (3.8%), other Christians (36%), Muslim (1.5%), others

(2.3%) and unspecified (1.4%). About 15% of the population claims no formal religious affiliation, but many of these

Social landscape



individuals practice traditional indigenous customs. Furthermore, there are some who combine traditional practices with

Christianity. In South Africa, relations between most religious groups have largely been amenable.

Education

The post-apartheid government still faces the challenge of creating an educational system that provides quality education

to all citizens of South Africa. However, the educational legacy left by the apartheid government has not been easy to

dismantle. Literacy rates among the black population remain low, and education facilities in the townships and rural areas

need to be upgraded. During the apartheid government, education for whites was free and compulsory between the ages of

seven and 16. On the other hand, attendance was not generally compulsory for blacks. In the mid-1980s, adult literacy was

close to 100% for whites and about 50% for blacks. The post-apartheid government established the National Ministry of

Education in 1994, and an educational system comprising of nine provincial sub-systems was created. In 1995, President

Mandela launched the presidential lead project on developing a culture of education, learning and teaching. The program

revised school governance structures, increasing school attendance and renovating hundreds of schools across the

country.

Schooling in South Africa comprises seven years of primary and five years of secondary education. Within secondary

education there are three years of lower secondary, followed by two years of upper secondary. In South Africa there are 21

national universities and 15 technical institutions that provide tertiary level vocational training. Universities provide

education at the bachelors, masters and doctoral levels. The University of Pretoria, the University of South Africa and the

University of Witwatersrand are some of the well known universities providing formal higher education in South Africa. On

the other hand, the Cape Peninsula University of Technology, the Central University of Technology and the Durban Institute

of Technology are specialized in providing vocational training to students.

Healthcare

Healthcare services

During South Africa’s years of apartheid, the quality of health services available to the entire population was grossly

unequal. As a consequence, heath status varied significantly between population groups. With the dismantling of apartheid

in 1994, considerable efforts have been made to revamp the healthcare sector. The focus of the healthcare system has

shifted from a curative to a preventive approach. Furthermore, the broader health objective of primary healthcare now

guides the development of health policy in South Africa. Since the new policy, priorities have been implemented and

several new clinics offering primary healthcare facilities have been built or upgraded. Moreover, the Department of Health

(DoH) has pursued the Hospital Revitalization Program (HRP), which has led to the construction of eight new publicly run

referral hospitals in prominent cities.

However, challenges posed by the HIV/AIDS epidemic reflect that performance on the key healthcare indicators has been

declining. Furthermore, South Africa’s health status performance remains poor when compared to other countries with

similar levels of economic development. Other major challenges faced by the healthcare sector include inequalities in the

level and quality of healthcare services offered in public and private sectors, and the perennial dearth of human resources,

which restricts the possibilities of improving the performance of the healthcare sector.

Social landscape



Social welfare

Social welfare policies

The New Social Welfare Policy in South Africa, enacted after the demise of the apartheid era, aimed to reduce racial

inequalities in the distribution of state wealth towards older citizens. In the past, however, the South African state expected

all individuals to fend for themselves in old age. State pension levels during the apartheid and pre-apartheid era were

inequitable and allowed older whites to enjoy proportionately more state support than their counterparts in other racial

groups. Subsequently, a white paper was drafted in 1997 for transforming the entire social welfare system. The white paper

defined social welfare as an integrated and comprehensive system of social services, facilities, programs, and social

security in order to promote social development, social justice and the social functioning of people.

Critically, the white paper identifies two branches of welfare delivery, namely social security and social welfare services.

The social security system provides benefits to individuals for the upbringing of children and for job-related securities.

Broadly, four elements are identified within the scope of the social security package, namely private saving, social

insurance, social assistance and social relief. Social welfare, on the other hand, is centered towards providing retirement

and old age benefits, disability and community benefits, and healthcare facilities in the impoverished prefectures of the

country.

More than 15 years since the end of apartheid, the majority of commercial farms in South Africa still have white ownership.

To redress this situation, the Ministry of Rural Development and Land Affairs proposed a plan to introduce a system to

facilitate and speed up the transfer of agricultural land from white land owners to landless black citizens. Under this

proposal, the government will identify state land to be leased out and private land under freehold but with a limited scope.

The government also introduced the "willing seller, willing buyer" policy that forces white farmers to sell their land to the

state at commercial value. The government has set a target of transferring 30% (25 million hectares) of agricultural land to

landless black South Africans by 2014.

Performance

Healthcare

In 2009, national healthcare expenditure stood at $22.2 billion. This was higher than in other countries with a similar level of

economic development and similar to that of some high income countries in Africa and Asia. However, the country’s

performance on healthcare indicators remains inferior to that of upper-middle income countries. One of the key challenges

facing the South African healthcare sector in terms of healthcare funding is the inefficient distribution of resources.

The primary indicator of this is the public-private sector split in healthcare funding; around 40% of total healthcare spending

takes place in the public sector, which serves around 80% of South Africa’s total population. The remaining 60% of

healthcare spending is confined to the remaining 20% of the population capable of accessing private healthcare. As a

consequence of such inequitable spending, the quality of healthcare services available in South Africa remains unequal.

Although the demand for public sector healthcare services has increased significantly, public sector healthcare expenditure

per person has been stagnant for a considerable amount of time. This has particularly been an outcome of the HIV/AIDS

epidemic. ASSA placed the number of South Africans infected with AIDS by mid-2008 at 5.63 million. However, the

prevalence of AIDS varies significantly with sex, age, race and geographical location. Despite the various anti-retroviral

treatment measures being taken, the ASSA expects that by the end of 2008, around 367,000 people will succumb to the

disease.

Social landscape



In contrast to public spending, expenditure from the private sector has witnessed an upward trend since the 1980s. This

has been a consequence of increasing premiums being charged by medical aid companies. Nevertheless, the fee hikes

have resulted in medical aid membership becoming unaffordable to a growing number of South Africans. Moreover,

medical scheme membership has declined significantly as a percentage of total population, from 17% in 1992 to 14.8% in

2005.

However, the key challenge that faces the present healthcare performance is the chronic shortage in human resources. In

2009, the Ministry of Health stated that the shortage of health professionals was a key reason that could keep the country

from reaching its goal of providing treatment for 80% of the people living with HIV/AIDS by 2011.

The government has termed this as a severe problem of brain drain, which can only be managed by increasing the

efficiency of the entire healthcare system of the country. The health care spending in South Africa stood at $22.2 billion in

2009, corresponding to 7.6% of GDP. Datamonitor forecasts suggest that expenditure on health care will increase

significantly in the next few years; health care spending is estimated to reach $28.7 billion in 2013, constituting 8.2% of

GDP.

Figure 18: Expenditure on healthcare in South Africa, 2002–13

0

5

10

15

20

25

30

35

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Year

$ b

illi

on

6.8

7

7.2

7.4

7.6

7.8

8

8.2

8.4

Pe

rce

nta

ge

(%)

Healthcare expenditure Healthcare expenditure as % of GDP


Social landscape



Income distribution

Despite the end of the apartheid era and the democratically elected government charting out ambitious plans to ensure the

equitable distribution of income, South Africa still has to make considerable attempts to accomplish its targets. The Gini

coefficient was posted at 0.65 in 2005, reflecting the high degree of inequality in the distribution of income and wealth. This

was well above comparable emerging economies such as Brazil and Vietnam, for which the Gini Coefficient had been

recorded at 0.56 in 2005 and 0.37 in 2004. As per 2010 estimates, about 85% of the South African population comprises

non-white citizens and 15% are white citizens. In contrast, about 85% of all wealth, assets and salaries are confined to

white people and the remainder is in black ones. Although some of the black population have benefited from black

empowerment policies and employment equity, they remain unskilled and vulnerable to economic disparities.

Education

The South African population has a literacy rate of 86.4%. The Department of Education is the major source of funding for

public educational institutions in the country. In addition, it also funds institutions functioning under various religious

organizations. The Education Labor Relations Council also funds the surveys conducted by state and environment

educators. Assistance has also been received from the international community, such as the United States Agency for

International Development, the EU and the Swedish International Development Agency. Spending on education as a

percentage of GDP is estimated to decline slightly in 2010 and then increase through 2013. Expenditure on education

stood at $14.6 billion in 2009, corresponding to 5% of GDP. It is forecast to increase to $18.5 billion in 2013.

Figure 19: Public expenditure on education in South Africa, 2002–13

0

2

4

6

8

10

12

14

16

18

20

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Year

$ b

illi

on

4.6

4.7

4.8

4.9

5

5.1

5.2

5.3

5.4

5.5

Pe

rcen

tag

e (%

)

Education expenditure Expenditure as % of GDP


Social landscape



Outlook

According to the United Nations Development Program, South Africa’s HDI ranking stands at 129 out of the total 182

countries ranked in 2009. Although the post-apartheid governments have taken various steps to reduce the widening

disparities between communities, income and health disparities have negated its impact. As a result, poverty is stark

among unskilled black South Africans, particularly those confined to rural and unorganized semi-urban regions. The

majority of commercial farms in South Africa are still under white ownership. The Ministry of Rural Development and Land

Affairs proposes to speed up the transfer of agricultural land from white land owners to landless black citizens. In addition,

under the "willing seller, willing buyer" policy, white farmers will be required to sell their land to the state at commercial

value. The government has set a target of transferring 30% (25 million hectares) of agricultural land to landless black South

Africans by 2014.

South Africa’s health initiatives aim at moderating the spread of the AIDS epidemic. However, the total HIV prevalence rate

in South Africa is 12% and around 20% of adults in the age group 20–64 are estimated to be HIV positive. Estimates

indicate that the cumulative total of people who succumbed to AIDS reached 2.53 million by the end of 2008. The number

of people dying of AIDS each year continues to increase and is expected to level off only after 2015. In the light of these

figures, South Africa’s strategic plan on HIV/AIDS which aims at providing treatment to 80% of patients by 2011 appears

far-fetched.




TECHNOLOGICAL LANDSCAPE

Summary

Technological innovation in South Africa is supported by significant R&D expenditure. South Africa’s gross spending on

R&D has doubled between 1997 and 2005 but remains low in comparison with developed economies. The country has

complied with the provisions of the WIPO and IPR laws. Moreover, patents and trademarks are well recognized and

implemented to preserve business interests. The telecommunications sector is one of the fastest growing in the economy.

Furthermore, South Africa’s mobile communication system is the fourth largest in the world, in terms of number of users.

However, bandwidth service remains limited and expensive in South Africa, when compared to many other countries of

similar economic structure. The government has expressed its willingness to moderate bandwidth cost and increase its

accessibility in due course.

Evolution


South Africa has laid great emphasis on R&D for developing world-class technologies. The Ministry of Science and

Technology was created in 2004, leading to the development of the National Research and Development Strategy (NRDS).

The NRDS focuses on generating and enhancing innovation, strengthening science, engineering and technology, human

resources, and creating an effective government science and technology system.

South Africa’s telecommunications policies are at crossroads. The path towards national economic growth and equitable

development within the ICT sector has been fraught with troubles. However, the South African government has indicated its

commitment to promote the technology sector in order to stimulate economic growth. As part of this strategy, the

government has been engaged in limited telecommunications deregulation activities for a number of years since granting

wireless operator licenses in 1993 and implementing the provisions of the Telecommunications Act in 1996.

Intellectual property

South Africa has well established IPR laws and is a member of most of the international conventions related to the

protection of intellectual property. Patents, trademarks, copyrights and industrial designs are legally recognized in South

Africa, which was one of the first signatories to the Trademarks Law Treaty of the WIPO in 1994. The Companies and

Intellectual Property Registration Office (CIPRO) of South Africa oversees issues related to intellectual property rights

within the country.

The Intellectual Property Laws Amendment Act and the Counterfeit Goods Act reflect South Africa’s determination to

uphold its commitments under the WTO and to protect the rights of local and foreign companies operating in the country.

The act’s promulgation ensures allegiance with the Trade Related Intellectual Property Rights (TRIPS) initiative of the

Uruguay round of the General Agreement on Trade and Tariff (GATT). The act further complies with the TRIPS agreement

by amending the Patents Act. Amendments to the Patents Act removed uncertainties over payment of renewal fees for

patents, assessment of damages, and the principal of privilege regarding communications to and by patent agents. The

number of patents granted to South Africa by the US Patent Trademark Office (USPTO) increased from 116 in 2007 to 139

in 2009. The number of patents in the country compares well with emerging markets like Brazil but is far below the number

of patents granted to developed economies.




Table 10: Patents received by USPTO, 2001–09

Year South Africa Brazil Germany Japan US

2002 123 112 11,957 36,339 97,125

2003 131 180 12,140 37,248 98,590

2004 115 161 11,367 37,032 94,129

2005 108 98 9,575 31,834 82,586

2006 127 148 10,889 39,411 102,267

2007 116 118 10,012 35,942 93,691

2008 124 133 10,086 36,679 92,001

2009 139 148 10,353 38,066 95,037


Research and development

South Africa’s R&D funding from abroad is high at 10.7% of total R&D funding in 2008. This is supposedly due to South

Africa’s special position and competence as a major international medical research hub, especially related to HIV/AIDS.

However, in other areas, South Africa’s integration in international R&D activities is quite moderate. The intention to

strengthen R&D capacity at tertiary institutions is in line with the national plan for higher education.

The key challenge for the development of research activities in South Africa is a significant shortage of human resources,

which is partly a legacy of the apartheid regime. Two areas are emerging as concerns for innovation performance: the first

is the supply of design, engineering and related managerial and technical expertise and the demand for such resources

generated by the increased rate of investments in the economy; the second is the capacity of university research to

expand, given the ageing of the research population and the weaknesses in human resources.

Performance

Telecoms

South Africa was ranked 62nd among 133 economies on the Network Readiness Index of the World Economic Forum’s

Global Information Technology Report (2009–10). In South Africa, telecommunications is one of the fastest growing sectors

of the economy, reflecting the robust growth of mobile telephony in the country. The communications sector, along with

transport and storage, accounts for almost 10% of the country’s GDP. South Africa has the most developed

telecommunications network in Africa. The network is 99.9% digital and includes the latest fixed line wireless and satellite

communication systems. In 2009, the growth rate of the mobile market stood at 4.3% and it is forecast to decline further to

1.4% by 2010. The fixed line market is expected to continue to contract through 2013.

The fixed line monopoly of Telekom collapsed with the licensing of Neotel as South Africa’s second national operator.

Telekom is a listed company in which the government has the largest shareholding. On the other hand, Neotel was

licensed to provide the entire range of telecoms services, with the exception of full mobility.

South Africa is the fourth fastest growing mobile communication market in the world. The country’s three cellular network

operators, namely Vodacom, MTN and Cell C, provide services to over 39 million subscribers, or nearly 80% of the total

population. Furthermore, the arrival of Virgin Mobile, a virtual network service provider that operates in partnership with Cell

C, has helped in augmenting competition in the mobile telephony market. South African mobile companies are making

inroads into Africa and the Middle East, with MTN leading with over 20 operations in these markets.




Wider access to ADSL broadband and 3G has boosted internet connectivity, with the South African internet access market

growing by 10.4% in 2009 to reach a volume of 3.6 million subscribers. Bandwidth remains limited and expensive in South

Africa, but the government has committed to increasing accessibility and bringing down cost.

Figure 20: Growth rate of mobile and fixed line telephones in South Africa, 2002–13

-10.0

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Year

Gro

wth

rate

(%

)

Mobile phones growth Fixed line growth


Opportunity sectors

South Africa has a number of emerging opportunities in the intensive technology industries, and is known as the gateway to

other African markets. The country plays a significant role in supplying energy, relief aid, transport, communication and

investment in the continent. The financial, utility, and manufacturing sectors are the primary opportunity-creating sectors for

ICT services.

R&D expenditure

South Africa’s gross domestic expenditure on R&D is low compared to that of developed economies. According to a

national survey undertaken by the Centre for Science, Technology and Innovation Indicators of the Human Sciences

Research Council (HSRC), South Africa spent around ZAR18.6 billion ($2.2 billion) on R&D in 2008, compared to ZAR16.5

billion ($2.0 billion) in 2007.

With strong, innovative business enterprises, the share of the business sector in R&D is similar to or higher than some

OECD countries with higher R&D intensity, such as Italy, Spain and Canada.



Outlook

South Africa’s technological landscape is marked by positive initiatives recently undertaken by the government. Information

and communication technology (ICT) governance is expected to become more regulated with the advent of the King III

report. The Protection of Private Information Act and the new Companies Act require all companies to take steps to

address ICT governance and security concerns. Companies are required to ensure that users are aware of the ICT policies

and that they understand, and accept these policies. Efficient implementation of these policies is expected to strengthen the

information security system.

In addition, the South African government aims to bring universal access to broadband by 2019. The government has

finalized its broadband policy, which is expected to support access to e-government services. The Ministry of

Communication has outlined legislations which aim at strengthening the ICT policy framework. For example, the Icasa

Amendment Bill is expected to strengthen the governance framework of the regulator. In 2009, the South African

government also signed a bilateral agreement with the US Department of Energy to cooperate in the area of nuclear power.

The two countries will work to improve the cost, safety, and proliferation-resistance of nuclear power systems. However,

low spending on R&D is a stumbling block to the country’s technological progress.

Legal landscape



LEGAL LANDSCAPE

Summary

The overwhelming political dominance of the ANC has the potential to challenge even the judiciary, especially in the light of

government interventions in the appointments of senior judges. The Supreme Court is the highest appellate division in

South Africa, which supervises the functioning of both local and provincial courts. Investment and trade regulations have

largely been relaxed, and foreign investments are essentially being treated as domestic investments. However, some

borrowing restrictions continue to impede foreign investments.

Evolution

South African law is based on Roman Dutch law as applied in the Netherlands in the seventeenth century. However, in

practice it was found to be inadequate or inappropriate in some areas of modern mercantile and commercial law. South

African courts then tended to rely upon English law. Therefore, many facets of South Africa’s current commercial laws, and

more specifically company laws, are similar to that of the UK. The sources of South African law today are the constitution,

common law and customary usage, case law and statutory law.


Judicial system

Structure of the system

South Africa has a unified and independent judicial system. The Constitutional Court is the highest court for interpreting and

deciding constitutional issues. The Supreme Court of Appeal, on the other hand, is the highest court for dealing with non-

constitutional matters. The Supreme Court has a supreme appellate division which supervises the functioning of local and

provincial level courts. On the other hand provincial and local court bodies have both original and appellate jurisdictions.

The court of appeals, based in Bloemfontein, the judicial capital of South Africa, normally consists of the chief justice and a

variable number of appellate judges. Judges for various courts in South Africa are appointed by state presidents.

Legislation affecting business

Business entities are mandated to follow the respective laws of the constitutional court while doing business. Foreign

investments are treated as essentially as domestic investments and receive national treatment for various investment

incentives such as export initiative programs, tax allowances and trade regulations. However, borrowing restrictions

brought in by exchange control authorities continue to spur differences between domestic and foreign investors. For

business and investment purposes, a non-resident who owns more than 75% of a company is known as an affected

person. Although virtually all sectors have been made open for foreign investments, in a few sectors ceilings have been

placed on the permitted extent of foreign investment. For instance, South Africa limits foreign investments in the banking,

insurance and the broadcasting industry.

Structure for doing business

As the leading economy in Africa and with a well developed infrastructure and established trade links with the developed

world, South Africa is a suitable base for generating investments, as there are few restrictions on investments and no

permits are required. In addition, government agencies are reasonably helpful and efficient when dealing with investors.

Legal landscape



Income from an investment must be paid to the investor and the proceeds from any sale of assets in South Africa must be

transferred abroad by a non-resident seller.

Tax regulations

The South African government has not raised tax rates in its latest 2010–11 budget.

Individual income tax

Individual income tax is imposed on worldwide income from all individuals. The rules determining the taxable income of

corporate tax payers also apply to individuals. Among other things, additional rules apply for the taxation of fringe benefits

and the deduction of an employee’s tax. Personal income taxes are levied at progressive rates, categorized in six income

brackets. The highest marginal tax rate is 40% and applies to incomes exceeding ZAR490,000 ($59,079.3). The marginal

rate of 18% applies to incomes up to ZAR122,000 ($14,709.5).

Corporate tax

The South African government enforces a basic corporate tax rate of 28% to the worldwide income of South African

companies, including subsidiaries of foreign companies operating in South Africa. Small business corporations pay

corporate tax at rates between 0% and 28%.

Capital tax

Individuals are subjected to two types of capital taxes in South Africa. South African residents who donate personal

property are liable to pay donation taxes on the total value of the property donated. Estate duty is payable on value of

estates of individuals who die while residing in South Africa. The rate of both estate duty and donation taxes are fixed at

20%. Estate duty is only payable on estates whose value exceeds $35.2 million. However, no estate duty would be payable

on the first death if the estate is left to the surviving spouse. Furthermore, donations tax does not apply to the first $100,700

value worth donations made.

Withholding tax

Dividends

South Africa presently does not levy a withholding tax on payments of dividends to non-residents. However, a withholding

tax at the rate of 10% is being imposed on dividends from 2010. Dividends are presently subject to secondary tax on

companies (STC) in the hands of companies declaring dividends at the rate of 10%.

Interest

Withholding taxes are levied on interest if the non-resident is conducting business in South Africa through a permanent

establishment; interest income is attributable to that permanent establishment.

Royalties

All non-residents in South Africa are liable to a 12% withholding tax on royalties. However, the tax rate can be reduced

under an applicable tax treaty.

Legal landscape



Entertainers and sportspersons

A final withholding tax at the rate of 15% is withheld on gross payments to non-resident entertainers and sportspersons

who earn income in South Africa.

Value added tax

In South Africa, value added tax (VAT) is charged on the supply of goods or services made by a vendor in the course of

doing business, and on importation of goods and services. The tax is levied at two rates: a standard rate of 14%, and zero

rates. Among other items, the zero rates apply to: the international transport of passengers or goods and the insurance or

arrangement of those services; services rendered directly to non-residents that are not registered for South African VAT

purposes; export of goods; and various food stuffs. Additionally, some goods are exempt from VAT, including the lending of

money, financial services, educational services, the letting of residential accommodation, local commutation of passengers

by flight or air, and the provision of retirement or medical benefits.

Other taxes

From September 1, 2010 onwards, an emissions-related tax will be imposed on new passenger cars, adding 2% to car

prices. The tax may later be extended to commercial vehicles. A new mining royalty tax regime has been introduced on

March 1, 2010.

Labor laws

The Labor Relations Act (LRA) defines the rights of workers and employers and sets out procedures for dispute resolution.

It contains a section dealing with collective employment matters which aims to aid collective bargaining procedures by

introducing a dispute resolving mechanism dependant on compulsory arbitration. It pledges the creation of a unique work

system where workers will have the freedom to consult with their employers, share information and make joint efforts in

decision making. The basic conditions of South Africa’s Employment Act provides for a 45-hour work week, and extends

other minimum employment rights and benefits relating to working hours, overtime, leave, and remuneration. In addition,

the Employment Equity Act requires that companies with 50 or more employees must develop employment equity plans.

This plan further allows consultation between employers and employees to remove discrimination and ensure a diverse and

representative labor force.

Trade regulations

South Africa has a relatively open economy, with total exports accounting for 33.6% of GDP in 2008. In its settlement in the

Uruguay round, South Africa has committed to bind 98% of all commodity lines at the WTO, reduce the number of tariff

lines to six, rationalize the 12,000 commodity lines and has undertaken to replace restrictions on agricultural products with

tariffs. According to the World Bank, South Africa is less restrictive than an average sub-Saharan African country or middle

income country.

Although South Africa is classified as a developed, rather than a developing economy, the Uruguay round gave the country

extra time to comply with the requirements. South Africa has reduced average tariffs on textiles and clothing by 15–40%

from 2000. In addition, in November 2007 the South African government scrapped all tariffs on imported steel. Specific

excise duties apply on luxury goods including spirits, beer, cigarettes, tobacco, and new cars, (including imported and local

items under these categories). On the other hand, most tariffs in South Africa are calculated on an ad valorem basis. There

are some specific duties based on weight, number of items, or volume of food, beverages, oils and textile products. The

payment of VAT on imports is similar to the payment of custom duties.

Legal landscape



Corporate governance

The King Report on corporate governance released in 1994 stirred unprecedented interest in corporate governance in

South Africa. The concept of corporate governance originated out of an agency problem spurred when the ownership of

companies was being separated from the control thereof. The King Report prohibited owners of a company to take active

part in the management activities. Hence, the responsibility for control and management shifted to the directors of the

company, who began to be referred to as agents. However, the problem created by this situation was that directors began

to abuse their control function to their own advantage and to the detriment of the owners. Corporate governance was

consequently introduced to ensure that the agents of the owners of the companies manage companies in a way that would

serve the interest of the shareholders. This responsibility of directors to shareholders implies four functions, namely

direction, executive action, supervision and accountability. The corporate governance laws in South Africa further held

directors responsible for determining the strategic direction of the company, as well as for making decisions that would

steer the company in that direction. A new company act came into effect in April 2010. The new law is aimed at making

compliance easier for small and medium-sized firms and at enhancing corporate governance for larger business entities.

Performance

Effectiveness of the legal system

South Africa is regarded as the 72nd freest economy by the Wall Street Journal’s 2010 index of economic freedom. Its

overall score is one point lower than the previous year, reflecting low scores in five of the 10 economic freedoms. However,

South Africa is ranked 4th among 46 countries in the sub-Saharan region and its overall score is significantly higher than the

world average. South Africa is a relatively free economy, as its legal environment is free from political interference and

threats of expropriation. However, slow judicial procedures, race laws and obscure trade regulations impede foreign

investment. Stringent employment regulation hinders overall productivity growth and employment opportunity. In addition,

corruption sometimes acts as a deterrent to inward investment. South Africa ranks 55th out of the 180 countries ranked in

the 2009 corruption perceptions index survey by Transparency international. Bureaucratic corruption, particularly in the

police and the Department of Home Affairs, is endemic. South Africa is not a signatory of the OECD Convention on

Combating Bribery, but has recently signed a memorandum with the UN Convention on corruption.

Outlook

The South African government needs to overhaul the present methods of legal enforcement. Many laws which still follow

the English and Dutch legacies need alteration, as investors often find them complex and lengthy. To improve this situation,

the government has introduced a new company act which came into effect in April 2010. As per the new law, several

changes will be introduced to simplify the environment for small business, boost the rights of minority shareholders, and

improve corporate governance. A key aspect of the new act is a proposed rescue scheme which will provide firms with an

alternative to liquidation through a new business rescue process—similar to “Chapter 11” protection. The new law will make

compliance easier for small and medium-sized firms and also enhance corporate governance. On the other hand, some

sectors such as the utility, transport, and mining industries continue to be dogged by oligopolies. Despite government

efforts to introduce competition in the market, it has suffered longstanding pressures from labor organizations to protect

strategic and labor intensive industries from competition.




ENVIRONMENTAL LANDSCAPE

Summary

South Africa has one of the world’s richest biological heritages, and has been at the forefront in formulating and

implementing environmental legislation. The Department of Environmental Affairs and Tourism has the authority to manage

the formulation, development and implementation of environmental policies. South Africa’s new environmental policies

particularly focus on win–win solutions to promote parallel economic and environmental gains, specifically for communities

which were once underprivileged. The country is also party to a large number of environmental agreements, ranging from

air pollution to ozone layer depletion. Although South Africa is an industrializing economy, its government complies with the

norms of the Kyoto Protocol to check greenhouse gas (GHG) emissions. The South African government has further

initiated measures to ensure future energy efficiency. For instance, the government allows subsidies to industries which

patronize the use of renewable energy.

South Africa's newly overhauled environmental legislations form the regulatory framework in the country. In particular, the

growing mining sector is now required to compete on an equal footing with other active sectors to moderate the demand for

usage of the country’s water, land and mineral resources. On the other hand, local and regional communities near industrial

clusters have started demanding environmental safety assurances from industries. It is due to these coordinated efforts that

South Africa has been successful in stabilizing carbon dioxide emissions.

Evolution

South Africa is considered a key leader among developing countries on issues such as climate change, conservation, and

the conservation of biodiversity. The leading role was consolidated at the international level when South Africa was

selected to host the World Summit on Sustainable Development in 2002. South Africa addresses most of its environmental

issues through Strategic Environmental Assessment (SEA), which has evolved as an acceptable and widely used

instrument for integrating environmental issues into the formulation of plans and programs. Several SEAs have been

undertaken in South Africa or are currently being developed. SEAs have ensured that environmental issues are addressed

from an early stage in the process of formulating plans and programs. The policies formed after the end of apartheid have

benefited South Africa by ensuring that economic development is within sustainable limits and by identifying the

opportunities and constraints the environment places on developments. A number of policies have further addressed the

need for SEA. Since 1994, SEA has been applied in conjunction with several environmental processes, which are as

follows:

• Environment Implementation Plans (EIP) and the Environment Management Plan (EMP) in 1998.

• Land Development Objectives (LDOs) required in terms of Development Facilitation Act of 1995.

• Integrated Development Plans required in terms of the local government transition Act 1993.





Environmental regulations

In terms of its biological heritage, South Africa is regarded as one of the richest nations in the world. The Department of

Environmental Affairs and Tourism has an overarching vision of a prosperous and equitable society living with its sprawling

natural resources. The department manages the formulation, development and implementation of environment policies.

The South African government leads protection of environment by setting examples from other environmentally and energy

rich countries as missions.

At the regional level, provincial agencies are the major players in ensuring environment conservation. In addition,

independent statuary organizations such as national parks and the South African National Biodiversity Institute are valuable

partners in the country’s total conservation efforts. The South African government has further undertaken tangible steps to

implement the United Nations Agenda 21 on sustainable development. These include reforming environmental policies,

ratifying international agreements, and participating in many global and regional conventions on forming sustainable

development initiatives.

Policy

South Africa has developed the National Environmental Policy through a comprehensive participatory process known as

the Consultative National Environment Process (CONNEPP). The CONNEPP proposes to give all South Africans equal

opportunity to contribute to developing the new environmental policy. The International Development Research Centre

(IDRC), the Danish Cooperation for Environment and Development (DANCED), and the South African Department for

Environment Affairs and Tourism co-funded the entire process of formulating and implementing the new environment

policy. The new environment policy focuses on win-win solutions to promote economic and environmental gains,

particularly for communities which were earlier impoverished. The policy primarily seeks to address environment concerns

and sustainability in decision making processes. It also indulges in matters relating to spatial development planning and

management of resources and activities. Broadly, it aims to promote growth that does not degrade the environment and

also promotes environmentally sustainable development.

Participation in global efforts/agreements/pacts

South Africa is party to a large number of environmental agreements on air pollution, water contamination, hazardous

industrial waste and ozone layer depletion. It is committed to meeting the International Union for Conservation of Nature

(IUCN) target of 10% of land area being under protection.

The South African government observes the Kyoto Protocol as an important first step towards a global emission reduction

regime that will stabilize GHG emissions. The protocol provides the necessary architecture for all future agreements and

conventions on climate change.

Copenhagen conference on climate change

The United Nations Framework Convention on Climate Change (UNFCCC) sets an overall framework for intergovernmental

efforts to tackle the challenge posed by climate change. It recognizes that the climate system is a shared resource whose

stability can be affected by industrial and other emissions of carbon dioxide and other greenhouse gases. The convention

has a universal membership, with 192 countries including South Africa having ratified the convention. No deal could be

clinched in Copenhagen, however, talks on a binding international climate change pact continue in 2010. The 2011

Copenhagen conference on climate change will be held in South Africa.




Energy efficiency strategy

South Africa’s Energy Efficiency Strategy of 2005 enumerates a set of viable energy efficiency measures, including

efficiency standards and labels. The strategy further mentions that future energy rules are to be laid out in sectoral

implementation plans. Eskom, South Africa’s national electricity producer is hitherto the most active utility service provider

in the country. It is also the most active institution in the area of energy efficiency. The utility offers energy audits for

companies and distributes millions of fluorescent light bulbs to underprivileged households as a replacement for

incandescent light bulbs.

Renewable energy subsidies

South Africa’s 2003 white paper on renewable energy aims to remove barriers to the further promotion of renewable

energies, through a variety of initiatives. These include:

• promoting financial and fiscal instruments for redirecting national funds to renewable energies;

• developing effective legislation in order to manage the growth of renewable energy;

• promoting the research and development of renewable energy projects;

• raising public awareness;

• establishing technology support centers to assist in maintenance of the new energy infrastructure.

Performance

Environmental impact

South Africa was ranked 115th among 163 countries on the Environment protection Index (2010). The country had an EPI

score of 50.8. Changing social conscience and expectations have resulted in more stringent environment laws in South

Africa. However, since the country is undergoing a stage of rapid industrialization, its environmental laws are not as strict

as that of the US and the UK. The South African government has recognized many limitations of the prevailing environment

legislation and is taking steps to resolve the situation. The mining sector has begun to witness the impact of policy

transformations in the South African environmental legislation, which is moving in the direction of international

environmental legislation. For instance, the National Water Act No. 36 of 1998 applies the principal of 'polluter pays', where

the polluter is entitled to bear the cost of the pollution. The mining sector is being required to compete on an equal legal

footing with other interests when it comes to demands placed on the use of the country’s water, land or mineral resources.

On the other hand, local communities demand a high level of environmental performance from their industrial neighbors

and also seek assurance that they are not being exposed to environmental hazards. Companies are being motivated to

improve their environmental performance by the prospect of enhancing their competitive position. In their attempts to

improve environmental performance, many companies are exercising their rights, both as purchasers and as vendors, by

demanding that all companies within their supply chain must seek to moderate their environment impact. However, the

level of CO2 emissions stood at 477.8 million metric tons, an increase of 3.3% over the previous year. Datamonitor

forecasts suggest that CO2 emissions will continue to increase in volume terms from 2010 through 2013.




Figure 21: Carbon dioxide emissions in South Africa, 2002–13

0.00

100.00

200.00

300.00

400.00

500.00

600.00

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Year

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lum

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ic t

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-4

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Volume Growth rate


Outlook

The South African government decided to do its bit to cut greenhouse gas emissions. South Africa is one of the top per

capita carbon emitters in the world, as it relies on coal for the generation of 90% of its power. The government’s agreement

has significant implications for electricity utility Eskom, especially because it has a huge generation expansion plan. There

are also fears that consumers could end up paying more in the form of carbon tax, with the adoption of greener

technologies. In an attempt to curb emissions, the government has introduced an emissions-related tax on new passenger

cars effective from September 1, 2010. The tax may later be extended to commercial vehicles. This move is expected to

make fuel-efficient versions more attractive and help South Africa reduce emissions.

South Africa currently faces a water crisis that could impede economic growth. An immediate concern facing the country is

the acid mine drainage (AMD) which is polluting a vast area from the Witwaters-rand to Mpumalanga. In 2010,

environmentalists warned that if the government and industry fail to act within two years, mine water which is acutely toxic

will flow out from Johannesburg’s Wemmer Pan and seep into the city’s streets and gardens. This could cause several

health problems.

APPENDIX



APPENDIX

Ask the analyst

Datamonitor’s Country Analysis Practice consists of a team of economists, analysts and researchers, all with expertise in

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