South Africa: unlocking the door to faster growth
| Author | Robert Burgess/Thomas Harjes |
| Position | IMF Policy Development and Review and African Departments |
| Pages | 360-361 |
Page 360
South Africa has made progress on many fronts since the end of apartheid-including in revitalizing its economy.
In a little over a decade, the government has overhauled the institutions of economic management and established a prudent and stable macroeconomic policy framework. Fiscal discipline was quickly established and has been maintained, debt has been reduced, and public finances have been strengthened significantly (see chart). An effective inflationtargeting regime is helping to bring inflation firmly under control, and the buildup of a solid cushion of international reserves has enhanced the economy's ability to withstand external shocks. As a result, South Africa's sovereign credit rating has risen steadily, and interest rates have fallen.
After years of isolation, the economy has become much more open and increasingly well integrated with overseas markets. South Africa substantially liberalized its trade regime in the 1990s and became a founding member of the World Trade Organization in 1995. Trade flows have expanded rapidly, with the ratio of trade to GDP increasing from roughly one-third in 1992 to about one-half since 2000. The structure of trade has also become more diversified, manufacturing has expanded, and the reliance on primary commodity exports has declined. Exchange controls have been gradually liberalized, and investment both into and from South Africa has increased.
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Consequently, the economy is enjoying its longest expansion on record. Economic growth has increased from an annual average of 0.8 percent during the final decade of apartheid to an annual average of 3 percent over the past 10 years. Recent economic performance has been even more impressive, with growth expected to exceed 4 percent this year (see table). These achievements are all the more remarkable given that this progress took place during a period of unprecedented political and social transformation.
Despite these advances, however, huge difficulties remain. The HIV/AIDS epidemic is exacting a heavy social and economic toll. Roughly one out of every six adults is HIVpositive, and life expectancy is falling. Unemployment is still high at nearly 26 percent of the workforce. Poverty also remains widespread, and the acute income and wealth disparities inherited from the apartheid era are still evident.
While recent growth has been impressive by South...
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