South Africa Economic Structure

By: EconomyWatch Content   Date: 8 April 2010

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South Africa’s economic structure is expected to flourish because of the FIFA World Cup in June and July 2010. The South African economy is expected to grow 2.3% in 2010, well below the expected rate of 3.9%. The country’s monetary and fiscal policies are contributing to keep it on a steady course of recovery. After South Africa’s Finance Minister announced budget deficits and ignored demands to scrap inflation targeting, the Rand (ZAR) rallied to its strongest in recent times. According to Bloomberg, the Rand appreciated by as much as 1.4% to R7.5678 to the US dollar. This proved to be good news for investors and the markets. The budget is expected to reduce unemployment and poverty, and make South Africa an attractive destination for foreign investors.

South Africa Economic Structure: Inflation

According to experts, the Reserve Bank of South Africa is expected to target the rate of inflation between 3% and 6%. Contrary to the expectations of the labor unions, the country’s monetary policies have been conservative, and largely aimed at preventing misallocation of resources, which a middle income country like South Africa can ill afford.

 

If the inflation is not managed properly in the country, it will depreciate the currency and increase the taxable components in an income. On the demand side, inflation contributes to the rise in poverty rates and reduces the spending power of consumers. In the global imports space, any firm, economy or business will import goods from other emerging nations since South Africa has higher inflation rates than its emerging counterparts. Such a situation will badly hurt South Africa’s regional competitiveness.

South Africa Economic Structure: Budget

South Africa’s budget balance swing from a surplus of 1% of DP in 2007-08 to 7.3% in the space of two years. The increase in spending has helped mitigate the reduction in demand during the economic recession. The South African Finance Minister, however, announced a lower budget deficit of 6.2% of GDP through March 2011.

 

The public debt is also expected to rise from 23% of the GDP in 2008-09 to 40% of the GDP in 2013, and will only stabilize in 2015. The projections are lower than that for other countries, where the debt-GDP ratios typically exceed 70%. The medium-term outlook for South Africa remains positive with lower levels of deficit and debt, and the nation is poised for a strong economic rebound. 


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