Essay on Analysis of South Africa as a Developing Economy

South Africa is the latest developing world economy to be categorized as ‘newly-industrialized,’ having achieved the status in 2010. Brazil, China, India, and Russia joined the list earlier, in 2006. Newly-industrialized countries experience a much faster rate of growth over short periods than other developing economies because of the sustained growth of their export sectors (OECD 1).

This article explores the question of whether South Africa is an attractive investment destination. To show this is the case, we will consider the characteristics of the South African market, carry out a SWOT analysis, and look at the viability of investing in specific sectors.

Background

South Africa is the 26th largest country worldwide land area with 1.2 million square kilometers. Population estimates in 2018 put the number at 55.38 million. Eighty percent of this (population) are indigenous Africans, while nine percent descend from Boers, eight percent descend from the British, and three percent are of Asiatic origin. The country united as a rainbow nation in 1994 after abolishing previously institutionalized segregation. Despite these political reforms and early progress, the quality of life reduced without regard to the status quo, leading to resultant effects such as ‘brain drain’; although this has been on the reverse in recent times (Diseko).

SWOT Analysis

The analysis below seeks to identify the internal strengths and weaknesses of South Africa’s economy as well as the opportunities and threats that face it. It is significant in enabling potential investors to weigh the merits and demerits of investing in the country. In determining whether South Africa serves as an attractive investment economy, economic pointers in trade and trade policy, the financial, legal, and socio-cultural perspective will apply.

South Africa’s economy is ranked first in Africa for technological advancement, productivity development, and diversity; it is one of the three largest domestic markets in Africa and ranks 27th in the world and has the most robust economy in Africa. Exports from South Africa make up 0.5% of the global export market – only thirty-six countries in the world export more goods in quantity and kind. In Africa alone, her manufacturing industry produces up to fifty-seven percent of goods.

Moreover, South Africa boasts a world-class financial sector – Johannesburg Securities Exchange is ranked as the 19th largest and most stable market globally. The fiscal policy operating in South Africa ranks as the third most transparent globally. Additionally, South Africa has the strongest investor protection policy, making it the most potential gateway to the African economy.

In terms of Trade and Trade Policy, the legislative environment developed in South Africa led to reduced effects of racial discrimination, such as internal conflict, and global sanctions. However, many skilled professionals emigrated the country in search of better standards of living, resulting in brain drain. Fortunately, introduction of better working mechanisms is providing the country with the necessary expertise to revive economic development (Diseko).

Legislation has also failed to address the labor market issue. The current rate of unemployment, of twenty-five percent, continues to hurt the economy (Bhorat and Haroon). Since 1994, the South African government has shown reluctance in the liberalization of market controls. The effect has been an increase in the volatility of the foreign capital flow, which tends to repel foreign investors (OECD 5)

South Africa enjoys dominance as the gateway to the African continent in various aspects. For instance, South Africa (tied with Kenya) is ranked second in investor attractiveness in Africa (World Bank). Availability of key economic inputs and structured strategies of doing business put South Africa at the fifth position out of forty-eight countries according to the World Bank’s ranking. Additionally, South Africa’s membership to regional trade blocks such as SADC and BRICS spearhead the countries’ economic strength. Free trade areas and reduced tariffs for member states insulate the economy against seasonal market fluctuations and recessions.

As a parliamentary democratic state, South Africa often faces periods of uncertainty during the election periods. The negative implication is the issuance of travel advisories against visiting South Africa by foreign countries. This ban leads to economic fluctuations and weakening of the South African currency. Stunted regional integration, especially in the SADC regional bloc, has resulted in weak trade links and productive channels. In line with the approvals of the (OECD 11), South Africa should take the lead role in bringing down regulatory barriers and fostering healthy competitiveness while contributing to the development of neighboring economies (OECD, 11).

Analysis of Prospects

Several economic opportunities in various sectors of the South African economy are a great attraction to foreign investors. Government policies that favor both local and foreign investors act as catalytic components in the growth of the economy. For instance, Special Economic Zones (SEZs) receive a preferential corporate tax of 15% among other incentives (Perkins).

Furthermore, demand for exported goods such as non-ferrous metal in the non-African global market in the United States, Japan, and the European Union has been growing. Demand for textiles, agricultural products, and other goods is getting diversified to attain vision 2030 National Development Plan (World Bank). With over eight advanced seaports, the country offers an attractive destination and transport scheme for resources from other African countries, e.g., natural gas reserves in Mozambique and Tanzania.

In conclusion, a myriad of opportunities for both local and foreign investors makes South Africa an excellent prospect for business. The manufacturing, agricultural, and finance sectors show remarkable improvement and continue to act as attractive and investor-friendly avenues. Improved policies that the government is currently establishing will further strengthen the economic market.

Table 1: SWOT analysis of the South African economic market

Works Cited

Bhorat, Haroon. “Unemployment in South Africa: descriptors and determinants.” Development Policy Research Unit, University of Cape Town, South Africa. Photocopy (2008):

Diseko, Lebo. “South Africa’s Brain-Drain Generation Returning Home.” CNN, Web.archive.org, 18 Nov. 2010, https://web.archive.org/web/20101216061534/http://articles.cnn.com/2010-11-18/world/south.africa.migration_1_south-africans-violent-crime-job-seekers?_s=PM:WORLD.

OECD (2017), OECD Economic Surveys: South Africa 2017, OECD Publishing, Paris. http://dx.doi.org/10.1787/eco_surverys-zaf-2017-en

Perkins, Peter, Johann Fedderke, and John Luiz. “An analysis of economic infrastructure investment in South Africa.” South African Journal of Economics

“South Africa Economic Update: Increasing South Africa’s Tertiary Enrollment Requires Rebalancing Resources.” World Bank, World Bank Group, 22 Jan. 2019, https://www.worldbank.org/en/country/southafrica/publication/south-africa-economic-update-increasing-south-africas-tertiary-enrollment-requires-rebalancing-resources.

“South Africa Economic Snapshot.” OECD, OECD, South Africa, 2017, http://www.oecd.org/economy/south-africa-economic-snapshot/.