SOUTH AFRICA

a dire state, with basic equipment often not available as a result of mismanagement and corruption. Long-standing discontent among platinum miners in North West province came to a head in August 2012 when a group at the Lonmin mine near Marikana went on strike and killed two policemen in the ensuing confrontation. The police responded by opening re on the miners, killing 34. The industrial action then intensied and spread to other mines beyond those producing platinum. Malema, having earlier been expelled by the ANC, exploited the situation and called for President Zumas resignation. The Government in turn accused Malema of inciting violence and in September he was charged with money laundering offences. Zuma appointed a judicial commission of enquiry to investigate the events at Marikana, but there was speculation that the way in which he handled the crisis might weaken his bid to secure re-election at the December ANC congress. While the inequalities between the races had lessened since 1994, South Africa remained one of the most unequal societies in the world. Around 10% of black Africans had by 2012 joined the middle class, and a few had become very wealthy indeed. However, although black Africans constituted almost 80% of

Economy
the population, their income remained only 40% of the countrys total. Social spending had increased greatly, to over R50,000m. per year, and by 2012 as many as 15m. people (27% of the population) were receiving social grants, more people than were in formal employment. Over 20m. people lived in poverty, more than a decade earlier. Despite the construction by the State of over 2m. new houses since 1994, many millions continued to live in squatter settlements. Although over 1m. HIV-positive people were receiving antiretroviral drugs, hundreds were still dying from HIV/AIDS every day. The countrys land reform programme had stalled due to bureaucratic impediments, and there were few examples of successful redistribution of land. Ongoing township protests suggested increasing discontent among the poor, who saw the new elite exploiting opportunities for personal enrichment, and resented the continuing legacy of apartheid and the failure of the post-1994 order to address the countrys socio-economic problems effectively. With so much government attention focused on the ANCs forthcoming congress in December 2012, many wondered whether South Africas aspirant constitutional democracy could survive in the face of the severe challenges the country faced.

Economy

LINDA VAN BUREN

Revised for this edition by OBI IHEME

INTRODUCTION The global economic crisis of 2008 and 2009 took its toll on the South African economy. The value of the South African rand fell by 16.6% in the rst quarter of 2008 alone and by 27.6% in the year as a whole. Meanwhile, annual ination rose to 11.6% in 2008. In a microeconomic context, South African households felt the effects of higher ination, rising electricity tariffs andespecially surprising in a country accustomed to an abundance of electricitypower rationing. Unplanned emergency maintenance to the power infrastructure in January 2008, coupled with a decline in stocks of coal, led to power cuts that were extensive enough to disrupt both production and exports, especially of mineral products. This reduction in mineral exports widened both the trade and current account decits, in the latter case causing the depreciation of the rand. In addition, the power rationing caused many manufacturers to curtail their output, and this too had an adverse effect on the trade and current account balances. However, there was a signicant economic recovery in 2010, with real gross domestic product (GDP) growth of 2.8% being recorded. The recovery was bolstered by strong international prices for South Africas export commodities, by lower global interest rates and by faster world-wide growth. Also, after ve consecutive quarters of decline, gross xed capital formation (GFCF) exhibited positive growth in both the second and the third quarters of 2010, with growth projected at 3.9% in 2011 and at 6.8% in 2013. As the economic recovery continued into 2011, the Economist Intelligence Unit (EIU) estimated that real GDP grew by 3.1% in that year and projected a deceleration in the growth rate to 2.8% in 2012, mainly due to decreasing domestic demand for goods and services, and the effects of the global economic crisis, which were weakening demand for South Africas minerals and other exports. However, the growth rate is forecast to rise to as high as 4.1% in 2016, as both domestic and international demand are bolstered by an expected improvement in economic conditions. Ination was projected by the EIU to be 5.5% in 2012higher than in the previous period, but still within the South African Reserve Banks annual target band of 3%6%. This higher ination was caused mainly by a weaker rand, rising electricity rates and increases in wages, especially in the public sector. However, the EIU expects ination to fall to between 4% and 5% by 2016, as South African growth begins to decelerate, world-wide commodity prices come down, and investments in infrastructure yield economic efciencies. Meanwhile, the depreciation of the rand was forecast to continue during 2012, owing to the persistent current account decitwhich was projected to reach 4.8% of GDPand higher ination. The rst quarter of 2012 saw real GDP growth slow to 2.1% from the previous corresponding period, due mainly to a contraction of 1.2% in the industrial sector, and despite the fact that the services sector grew by 3.3%. Particularly acute was a shrinkage in the mining sectorwhich accounted for 9.8% of GDP in 2011of 9.9%, largely as the result of a six-week strike in the platinum sub-sector, which, with a 27% share of the mining sector as a whole, is the largest sub-sector. Reduced demand for mined commodities from traditional European customers due to the eurozone economic crisis also contributed greatly to the mining sectors poor performance compared with the rst quarter of 2011. On the other hand, services, which contributed 67% of GDP in 2011, grew from the previous period by an estimated 2.5%, and government services by 4.1%. Economic policy is expected to remain the same in the foreseeable future, given that the key members of the powerful ruling African National Congress (ANC) will most probably retain their currents posts. The main challenge confronting the South African economy is the high rate of unemployment, which rose from 21.9% of the labour force in 2008 to 24.9% in 2010. The unemployment rate was negatively affected by the global recession, and 1m. workers lost their jobs in the rst three quarters of 2009 alone. The unemployment rate was not expected to return to 2008 levels before 2015. South Africas employment rate is the lowest in the G20 group of leading industrial nations and is almost 20 percentage points below the G20 median. A reduction in the level of unemployment could be one of the best ways of countering the countrys high crime rate. Both the Government and the private sector have introduced job creation schemes and initiatives such as Black Economic Empowerment, as well as various training and skills programmes. However, at the end of any training course a worker still needs to nd employment, and their chances are limited if growth remains moderate. 1141

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NATURAL RESOURCES South Africas diverse climate permits the cultivation of a wide range of crops, but despite improvements in farming methods and conservation techniques, it remains a relatively poor cropraising country. This situation also imposes limits on animal husbandry, for which South Africa is better suited, although even here the carrying capacity of the land is fairly low by international standards. Nevertheless, owing to a high degree of specialization, experience and advanced methods, along with considerable capital investment, certain branches of farming, such as the fruit and wool sectors, continue to make a substantial contribution to the economy and to exports. It is in mineral deposits, though, that South Africas greatest wealth lies. The discovery, rst of diamonds and then, more importantly, of gold, during the latter part of the 19th century formed the basis of the countrys modern economic development. A huge complex of heavy and light industry, based initially on the gold-mining sector, grew up in the interior, although South Africas share in the volume of world gold production (excluding the former USSR) declined from 70% in 1980 to 20% in 2000, owing to a fall in the average grade of ore mined and to increases in output in other parts of the world. Nevertheless, at the start of the 21st century South Africa remained the worlds largest gold producer, supplying one-fth of the global total. By 2010 the country had been overtaken by the Peoples Republic of China, but was still the worlds second largest gold producer and was home to seven of the 13 biggest gold mines, measured by volume output. South Africa has two of the 10 largest gold-mining companies in the world, measured by capitalization in US dollar terms: AngloGold Ashanti (formerly Anglo American Corpn), which ranks fourth, and Gold Fields of South Africa, which ranks ninth. The country also has abundant deposits of many other important minerals. South Africa has the worlds largest proven reserves not only of gold but also of platinum group metals, manganese, vanadium, vermiculite, chrome and alumino-silicates. The production of minerals other than gold accounts for 50% of the total value of mining output in most years; more than 50 different minerals are commercially exploited. There are huge reserves of coal 30,408m. metric tons, the eighth largest in the worldwith a pit-head price that is probably the lowest in the world, which is why the power rationing of 2008 came as such a surprise. The countrys iron ore reserves rank ninth in the world. South Africa possesses about three-quarters of the worlds reserves of manganese ore, more than two-thirds of the worlds chromium, more than one-half of global reserves of platinum group metals in general and more than one-quarter of its zirconium group minerals, plus a signicant proportion of the worlds titanium minerals and uorspar. In addition, South Africa is a major producer of copper, lead, zinc, antimony and uranium. South Africas long coastline has few natural harbours, but close to its shores are some of the richest shing areas in the world. The catch includes Southern African anchovy, Cape hakes, Southern African pilchard, Cape horse mackerel and Whiteheads round herring. Demand for Cape hakes in southern European markets grew signicantly in 2006, after European hake stocks became depleted and the European Union (EU), in December 2005, implemented strict quotas on the shing of this species in European waters. South Africas total marine sh catch was 623,900 metric tons in 2010, according to FAO.

Economy
(black), 10% as white, 9% as Coloured (of mixed race) and 2% as Asian. Ofcial mid-2011 estimates put the population at 50,586,757, of whom 79.5% were African, 9.0% were white, 9.0% were Coloured and 2.5% were Asian. Also present were an estimated 5m. illegal immigrants, of whom 3m. were Zimbabweans. NATIONAL INCOME Despite an improvement in the racial distribution of personal income from the 1990s onwards, income remains very unevenly distributed in South Africa. It was estimated in 1988 that the 13% of South Africans who were white received about 54% of total personal income, while the 76% of the population classied as Africans received only 36% of the wealth. The income tax threshold is set at a level that requires only 4m. South Africans to be registered as income tax payers; however, other, more regressive taxes, such as value-added tax (VAT), take in a much wider tax base. The contribution to national income of the three main productive sectorsmanufacturing, mining and agriculturehas changed markedly over the years. The most drastic structural change in the economy has been the sharp decline in the proportion of the population engaged in agriculture, hunting, forestry and shing; from 28% at the 1970 census, the number employed in the sector had fallen to some 639,000 in 2010, 4.9% of the economically active population. In 2011 manufacturing contributed 13.4% of GDP, mining and quarrying contributed 9.8%, and agriculture, shing and forestry contributed only 2.4%. The services sector accounted for 67.0%, the highest such proportion in Africa. INVESTMENT AND SAVING Since the discovery of diamonds and gold in the 19th century, foreign investment has played a vital role in developing these industries and the wider economy. In 2011 foreign direct investment (FDI) was strongest in the information technology and electronics sector, followed by the metals and automotive sector, the tourism sector, the clothing and textiles sector and the chemicals sector. The global economic recession led to large capital outows as investors withdrew from emerging market economies (EMEs), including South Africa. However, according to the IMF, nancing through FDI had been relatively low in South Africa during 200009, at about 1% of total nancing, compared with the overall average for EMEs, at about 3%. GFCF grew by at least 8% per year in 200305; this declined during the global economic recession, and the forecast was for GFCF growth of 3.9% in 2011 and 6.8% in 2013. The level of debt rose steadily after 2000. Preliminary gures for 2009/10 indicated that South Africas foreign debt was equivalent to 4.2% of GDP, and this was forecast to increase slightly, to 4.3%, in 2010/11. The countrys national government net debt was expected to rise from R526,000m. in 2009 to more than R1,300,000m. in 2013/14. However, the IMF in September 2010 described this debt level as manageable. TOURISM The tourism sector showed strong growth in 2006, with 8.5m. tourist arrivals in that year. There were 9.2m. tourist arrivals in 2007, an increase of 8.2%; the number of arrivals also grew, but at a slower rate, in 2008 (9.7m.) and 2009 (10.1m.). Another peak occurred when South Africa hosted the Federation Internationale de Football Association (FIFA) World Cup between 11 June and 11 July 2010. Of the 1.4m. tourist arrivals in June July 2010, 309,554 indicated that the purpose of their visit was to watch the World Cup. In a bid to boost tourism and ease movement of visitors to South Africa and Mozambique, the countries respective Ministers of Tourism announced in 2011 that they would begin issuing a single visitors visa for the two nations. MANUFACTURING INDUSTRY Unlike its counterparts in the rest of Africa, South Africas manufacturing industry is the largest of the productive sectors of the national economy, measured in terms of contribution to www.europaworld.com

POPULATION The chief characteristic of South Africas population, and the one that dominates its society, is the great racial, linguistic and cultural heterogeneity of its people, with Africans, Asians, Europeans and mixed-race citizens making up the population of the Rainbow Nation. South Africas total population as recorded in the October 2001 national census was 44,819,778. A census was held in October 2011; however, nal results are not yet available. In the censuses people are no longer ofcially classied according to race, as they were during apartheid, but, in order to gain some idea of the gures involved, in the 2001 census South Africans were invited to classify themselves. The result was that 79% of those enumerated described themselves as African 1142

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GDP (13.4% in 2011). In 2011 the sector employed 1.85m. workers, or about 13.3% of the employed labour force. Growth in manufacturing output weakened in 2008, owing to the cumulative effects of the global economic downturn, past monetary tightening and power shortages. In 2009/10 manufacturing output contracted by 12%, and mining output declined by 7%. The IMF observed in 2010 that both manufacturing and mining seemed to have bottomed out. In 2011 both sectors recorded growth: manufacturing output expanded by 2.4% and mining by 0.2%. Industry is heavily concentrated in four industrial areas: Gauteng, Western Cape, DurbanPinetown and Port Elizabeth-Uitenhage. More than 50% of the countrys industry is now located in Gauteng alone, and the tendency has been for this concentration to increase at the expense of the ports and the rural areas. However, in the future, limitations in the availability of water in Gauteng may shift the main growth focus to other manufacturing locations (see below). Furthermore, the sector will continue to be hampered until at least 2013 by power shortages, with intermittent halts in production. Manufacturing growth slowed in April 2012 for the second consecutive month, which reected a decrease in demand from European countries, South Africas main trading partners. South Africas BusinessDay newspaper reported that the purchasing managers index, which is widely accepted as an accurate measure of the sectors performance, decreased in April by 1.4 points to 53.7 points. Furthermore, the global consultancy Deloitte believes that a skills shortage, which is made worse by emigration, as well as high labour costs, are hindering the manufacturing sectors good performance. Metal Products and Engineering This eld comprises the largest sector of industry (including basic metals, metal products, machinery and transport equipment), employing about 470,000 workers in 2011. The steel industry is the most important branch of this sector, with production of crude steel valued at some R14,000m. per year. ArcelorMittal South Africa produces around 6.4m. metric tons of liquid steel per year, and is the largest steel producer in Africa. It has four locations: two in Gauteng province, one in KwaZulu/Natal province, and one, at Saldanha, in Western Cape. With favourable costs of location, raw materials and labour, and with an efcient scale of production, South African steel is among the cheapest in the world. The country also produces manganese, aluminium and platinum-group metals. The Chief Economist of the Steel and Engineering Industries Federation of South Africa, Henk Langenhoven, believes that, despite the sectors cost increases and sales price decreases, the growth in xed capital formation from 1.6% in 2010 to a forecast 5.0% in 2012 portends the improved performance of public sector investments. The motor industry is another important branch of the engineering sector. The vast majority of new cars contain at least 66% local content by weight, thereby qualifying for special tariff rates as locally manufactured models. In common with this industry in other developing countries, vehicle manufacturing faces the problem of rising costs with increasing local content, because of the lack of those economies of scale that are enjoyed in the major producing countries. With its potential market size of over 50m. people, South Africa would offer better opportunities to achieve economies of scale if incomes were more evenly distributed and a larger proportion of the population could afford to buy basic luxuries such as motor vehicles. In June 2009 a total of 21,315 new passenger cars were sold in South Africa. This gure was 17.5% lower than in June 2008 but was 12.9% higher than in May 2009. In 2004 Volkswagen announced that a new R750m. production line was to be installed at its South African plant at Uitenhage in the Eastern Cape. In 2008 Volkswagen South Africa won a R12,000m. centre of excellence contract to supply diesel particulate lters to the entire Volkswagen group all over the world for a ve-year period.

Economy
of the apartheid era created suitable conditions for South African Breweries (SAB) to become, in a short space of time, the second largest brewing company in the world. SAB embarked on a period of rapid expansion, taking over existing breweries elsewhere in Africa before expanding into Asia, with a major investment in India, and also into the USA, with the acquisition of a 64% stake in the US brewer Miller from Philip Morris for US $5,600m. in May 2002; the conglomerate that resulted was renamed SABMiller, headquartered in the United Kingdom. In 2010 SABMiller had primary brewing and beverage operations in six continents; in Africa it had brewing operations in 10 countries and seven breweries in South Africa. The countrys wine industry was established in the 17th century by Protestant immigrants from France. The industry experienced a rapid growth in exports in the postapartheid era, and its reputation for quality continues. South Africa is the ninth largest wine exporter in the world, exporting over 350m. litres per year. The Department of Trade and Industry has created a R5,800m. incentive scheme called the Manufacturing Competitiveness Enhancement Programme, which is designed to increase the competitiveness of manufacturing businesses, and has identied the food-processing industry as a priority for South Africas economy. Clothing and Textiles The clothing industry, which was well established before the Second World War, by the 2000s supplied 90% of local demand and employed more than 100,000 workers. The textile industry (other than clothing) was essentially a post-war development; it met 60% of the countrys textile needs. Textiles, wearing apparel and footwear contributed about 8% of the value of manufacturing output in 2009. The South African textile industry faces the challenge of lowering its costs in order to compete with low-cost Asian competitors. In mid-2012 the Southern African Clothing and Textile Workers Union was preparing to launch strike action, after talks broke down with the Apparel Manufacturers of South Africa following the unions claim that employers had reneged on a deal to create more jobs in the sector by paying new workers 30% less than established employees. Chemicals South Africas chemical industry employed about 115,000 workers in 2011, and chemical manufactures contribute about 4% of GDP. The industry had an early beginning, with the manufacture of explosives for the gold mines; the Modderfontein factory, near Johannesburg, is now one of the worlds largest privately owned explosives factories. Production of fertilizers is also a signicant branch of this industry. However, the most important development in the second half of the 20th century was the establishment by the state-owned South African Coal, Oil and Gas Corpn (SASOL) of its rst oil-fromcoal plant (SASOL 1), which began production in the northern part of the then Orange Free State (later Free State) in 1955. Based on cheap, low-grade coal with a high ash content, this establishment was, until the commissioning of SASOL 2 and SASOL 3, the largest plant of its kind in the world. Besides producing a small but signicant percentage of South Africas petrol requirements, SASOLs development of synthetic fuel production led to the establishment of a huge petrochemicals complex capable of manufacturing about 110 products, some of which, like coal-tar products, were only by-products of a coalusing process. SASOL was privatized in 1979. The three SASOL plants in full production provide about 40% of South Africas fuel requirements. In June 2009 SASOL opened a new R70m. fuels application centre in Cape Town, aimed at testing the companys range of fuels on vehicle emissions and performance.

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AGRICULTURE Agricultures role as a source of income in the South African economy is a declining one, despite major successes in some sub-sectors. Maize is the staple food of the African population and the most important single item in South African farming; this New World crop was introduced into South Africa during the colonial period. There was a 31-year record harvest of 1143

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12.8m. metric tons in 2010. The countrys annual maize demand is about 8m.9m. tons. Sorghum production uctuates: it amounted to 276,500 tons in 2009, a large increase compared with output of 96,000 tons in 2006 but below the record 373,000 tons achieved in 2004. Output of 196,500 tons was recorded in 2010. In 2006 the South African Government rejected an application from a US company to grow genetically modied sorghum in the country. Wool, although prone to wide uctuations in price, is one of South Africas most important agricultural exports (along with maize, fruit and cane sugar). The country grows a wide range of cash crops, fruits and vegetables both for domestic consumption and for the export market. The low overall productivity of farming, relative to other sectors, was also reected in the fact that the sector contributed only 2.4% of GDP in 2011, owing principally to poor crop yields obtained by large numbers of inefcient African subsistence farmers in the former homelands. However, even commercial farms, which were relatively efcient, obtained comparatively low yields by international standards. The ruling ANC has introduced a new policy that will allow the Government to expropriate agricultural land not in production and obtained illegally or unethically, in a bid to make amends for the forced removal of people from land under the apartheid-era Land Act of 1913. Nevertheless, the agriculture sector is also receiving new investment. South African seed company Pannar Seed is set to merge with Pioneer Hi-Bred International, a subsidiary of USbased DuPont in a deal (the nancial terms of which are not yet disclosed) that will provide technology and research investment, enabling South Africa to remain a continental leader in this sector.

Economy
Africa ranked only fth in the world in terms of natural roughdiamond production. The largest of South Africas seven diamond mines is Venetia, in Limpopo Province, operated by De Beers. Trivalence Mining Corpns 2,082-ha, open-pit kimberlite concession at Palmietgat, about 70 miles (113 km) north of Pretoria, entered production in 2000 and consisted of six kimberlite pipes. According to the US Geological Survey, South African diamond production totalled 15.3m. carats in 2007, declining to 12.9m. carats in 2008 and more than halving to 6.1m. carats in 2009. South Africa ranked sixth in the world in terms of coal production in 2009 (with 250.6m. metric tons), ninth in the world in terms of proven recoverable reserves at the end of 2008 (30,156m. tons) and fth in the world in terms of export volume in 2009 (73.8m. short tons). Almost all of South Africas reserves are of anthracite and bituminous coal, with little or no lignite. The life of its reserves is assessed at 119 years. About 50% of South Africas 26 major collieries are underground and 50% open-pit. There are also numerous smaller collieries. Major coal-mining companies include BHP Billiton, Anglo American Coal and Xstrata Coal. Anglo Coal also owns 27% of the Richards Bay Coal Terminal, through which its export coal leaves the country. South Africa is the continents leading producer of iron ore; exports to China are of particular importance. Kumba Iron Ore, owned by Anglo American, operates the Sishen, Thabazimbi and Kolomela iron-ore mines. Sishen, with reserves of 2,455m. metric tons, is one of the largest open-pit mines in the world and has a projected life span of 27 years. Thabazimbi produces 2.6m. tons per annum and sells exclusively to the ArcelorMittal steel group. Kolomela commenced production in mid-2012; annual output was expected to reach 9m. tons in 2013. A railway line from the high-grade deposits of the Sishen area, in the Northern Cape, carries iron ore to Saldanha Bay. South Africa has proven petroleum reserves of just 29.4m. metric tons. SASOL produces 155,000 barrels per day (b/d) at its oil-from-coal plant (see above), but domestic consumption of oil is more than three times that level. Imports of petroleum cost South Africa US $14,769.4m. in 2010 and comprised 18.4% of the total import bill. The Petroleum Oil and Gas Corpn of South Africa directs exploration for petroleum and natural gas and operates the worlds largest commercial gas-to-liquids plant, at Mossel Bay, with a capacity of 45,000 b/d. In 2003 the Government approved the Minerals and Petroleum Resources Development Act, providing a structured framework for oil and gas exploration. Petroleum exploration continues, with particular interest in waters off the west coast of South Africa. Large-scale strikes were likely to continue to have a negative effect on the mining sector in 2012; the strike action was due to continuing demands by the Congress of South African Trade Unions for employers to increase workers salaries and to safeguard their jobs. Additional factors were high costs and reduced demand. In June 2012 Royal Bafokeng Platinum and Aquarius Platinum announced that it was signicantly downgrading its production. TRANSPORT AND COMMUNICATIONS South Africa has an extensive and modern transport and communications network. In transport, apart from air and roads, the umbrella organization is the parastatal Transnet Ltd. In 2011 Transnet comprised the national ports authority, a port and cargo terminal operations managing division, a freight rail division, a rolling-stock maintenance division, and a fuel and gas pipeline division. The largest section was Transnet Freight Rail, which in 2011 employed 25,000 workers; it operated 80% of the rail network of the entire African continent and was active in 17 African countries. Domestically, Transnet Freight Rail oversees a rail network which covered 31,400 route-km in 2000 (about one-third of all the railway track length in sub-Saharan Africa). Some 87% of the South African rail network is electried. Transnet turned a prot, before tax, interest and depreciation, of R15,800m. in the year to 31 March 2011. Transnet is custodian of six commercial ports: Durban, Richards Bay, East London, Port Elizabeth, Cape Town and www.europaworld.com

MINING Despite having given way to manufacturing as the leading sector, mining is still of great importance in external trade. The sector contributed 9.8% of GDP in 2011. South Africa is the worlds second largest gold producer, after China, which overtook it in 2008 after South Africa had held the top spot for over a century, from 1905. Since 1945 new gold mines in the Free State, Far West Rand, Klerksdorp and Evander areas not only replaced output from the worked-out mines on the old Rand but also greatly increased total production. In the absence of new discoveries, however, gold output was expected to continue the decline that began in the early 1970s, after a record 1,000 metric tons was mined in 1970. This was largely a result of a policy by the industry of lowering the grade of ore mined as the price rose. (Unless there is a compensating increase in tonnage milled, output falls when the average grade of ore mined is lowered.) Of the 48 gold-mining companies in South Africa in 1994, only 11 were still operating in 2004, most having been merged into one of four major companies: AngloGold Ashanti, Gold Fields, Harmony Gold or Durban Roodeport Deep. The global nancial turbulence propelled the gold price to US $964 per oz in July 2008, an increase of 47% in a single year. By July 2009 the global gold price had settled back to about $930 per oz, but one year later, after uncertainties about the high debt levels of Greece and other countries in the eurozone, the precious metals price trajectory was upward again, reaching $1,483 per oz in July 2011. In South Africa the gold sub-sectors role as an employer uctuated along similar lines. The output of other minerals rapidly gained in importance after 1945. Gold accounted for about 80% of South Africas mineral production in 1946 but for only 50% by 1993 and 27% by 2006. A great expansion took place in the output of uranium, platinum, palladium, nickel, copper, coal, antimony, diamonds, vanadium, asbestos, iron ore, uorspar, chromium, manganese and limestone, to name only the most important. South Africas platinum group mines employed more than 100,000 workers in 2010. Power interruptions and temporary platinum mine closures in South Africa in the rst half of 2008 drove the global platinum price up and led to pronounced price volatility. The platinum price reached a record US $2,276 per oz in March 2008. It subsequently decreased, but recovered to $1,715 in July 2011. Diamonds were traditionally the countrys second most important export commodity after gold, but by the 1980s they had been overtaken by coal, and by 2001 South 1144

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Saldanha Bay. In 2011 a new deep-water port was under construction at Ngqura, 7 km from Port Elizabeth. Transnets container terminals are situated at Durban, Cape Town and Port Elizabeth, and Durban also has a dedicated car terminal. Transnet Port Terminals handled 15.8m. metric tons of bulk and break-bulk cargo in 2009, with 46% of it at Richards Bay (mostly bulk cargo); Durban predominates in break-bulk cargo. The ratio of exports to imports for this cargo, by volume, is about three-to-one in favour of exports (however, the value of imports exceeds the value of exportssee below). The entrance channel to the port of Durban is being widened from 110 m to 220 m, and its depth is to be a minimum of 16 m. In addition, the countrys ports handled 3.7m. 20-foot equivalent units (TEUs) of container freight in 2007. Of the total, Durban handled 67%, followed by Cape Town with 21% and Port Elizabeth with 11%. Although Richards Bay handles more bulk and break-bulk cargo, Durban is still the countrys largest port in terms of ship arrivals. Of the 13,152 vessels that called at South African ports in 2007, 4,608, or 35%, arrived at Durban, followed by 23% at Cape Town. In 2011 the countrys 10 major airports, including its seven international airports, were under the management of the Airports Co South Africa (ACSA) Ltd, which was 100% owned by the Government but was, nevertheless, operating the airports on a commercial basis. The new greeneld site King Shaka International Airport near Durban opened in May 2010. The new airport has a runway 3,700 m long, capable of handling the latest new-generation large aircraft such as the A380 Airbus. The Ilembe consortium was the principal contractor. The cost was initially assessed at R2,500m., and ACSA, for its part, had a budget of R5,200m.; the nal cost was an estimated R7,900m. The main gateway airport is O. R. Tambo International Airport (ORTIA) in Johannesburg. The other ve international airports, besides Tambo and King Shaka, are Cape Town International Airport (CTIA); Pilanesberg International, which serves the resort of Sun City; Port Elizabeth International; Bloemfontein International; and Upington International, which only provides international services for cargo. The three national airports are East London, George and Kimberley. ACSA built a new terminal at ORTIA which opened in April 2009, upgraded Bloemfontein Airport in 2007 and 2008 at a cost of R35m, and expanded and upgraded George Airport, serving the Garden Route, at a cost of R39m. (completed in April 2007). CTIA and East London airports were both given new and upgraded terminals in time for the 2010 FIFA World Cup. Upington, a small airport with a very long runway in the north of the country, has been singled out as a cargo hub to serve the rest of Africa and is to become a specialist airport for the parking and storage of mothballed aircraft from all over the world. The national carrier is South African Airways (SAA), one of the worlds oldest airlines, founded in 1934. The airline sector was deregulated in 1990, and SAA is now exposed to competition from private sector carriers, both on domestic and on international routes. In March 2007 SAA announced that, following several years of continued losses, it was embarking on a deep and fundamental restructuring, to be managed by Seabury Airline Planning Group of the USA. SAA posted a net prot of R581m. for the year ending 31 March 2010, up from R398m. the previous year. More than 20 private sector airlines provided about 70 routes to 546 towns in South Africa in 2011. Freight Dynamics, formerly Autonet, oversees an extensive road network, with more than 500,000 km of classied roads. While this gure includes some motorways, less than 25% of all roads were paved in 2005. In 2009, according to the International Road Federation, there were 5.4m. registered passenger motor vehicles, 2.3m. lorries and vans, 328,158 buses and coaches, and 362,400 motorcycles and mopeds. Private long-distance road haulage was for many years restricted by government legislation designed to protect the railways. The illegal haulage of freight by road is an ongoing problem. The telecommunications network is fairly extensively developed, with an estimated 4.1m. telephone landlines in use in 2011. The use of mobile cellular telephones increased dramatically from the late 1990s; between 1998 and 2008 the number of mobile subscribers increased from 3.3m. to 45m., for a penetration rate of 92%. By 2011 the number of mobile

Economy
subscribers had risen to 64m. In 2008 there were also 106.3 internet hosts per 10,000 inhabitants; the number of users rose from 3.6m. in total in that year to 17.5m. in 2008, of whom 8m. accessed the internet via computers and 9.5m. accessed it via mobile telephones. The Transnet Group is currently investing R33,000m. into its Transnet Port Terminals business unit, with most of the investment going to the Durban and Richards Bay commodity terminals. Transnet states that Durbans container gross crane moves per houran important marker of efciency will increase by 52% after the investment. POWER AND WATER Electricity The government-owned Electricity Supply Commission (ESKOM) produces 95% of South Africas electricity and claims to be one of the lowest-cost generators of electricity in the world. In addition to generating, transmitting and distributing electricity in South Africa, ESKOM wholly owns ESKOM Enterprises, which supplies electricity elsewhere in Africa, as far away as Uganda, Nigeria and Mali. ESKOMs highly diversied network of 22 power stations in South Africa was capable of producing 237,430 GWh in 2011, most of it from its 13 coal-red generators. In fact, ESKOM is the worlds largest single buyer of coal, burning a projected 124.7m. metric tons of coal in 2011. The abundance of domestic resources means that coal is likely to remain the countrys main power source until the 2020s, by which time the coal-red stations will be due for decommissioning. However, concerns that the country is too dependent on coal, as well as increasing environmental issues, have prompted the Government to investigate alternative energy supplies. The remaining 11% of ESKOMs output currently comes from its mix of nuclear, pumped-storage, hydroelectric and petroleum-red gas-turbine power stations. In 1976 ESKOM commissioned the building of the 1,800-MW Koeberg nuclear power station at Duynefontein, between Cape Town and Saldanha Bay, by a French consortium. The 900-MW pressurized water reactor (PWR) Koeberg I was commissioned in 1984, followed by the 900-MW PWR Koeberg II in 1985. The Koeberg reactors have remained the only nuclear reactors in Africa. In 2004 the Mbeki Government gave its support to a 10year project to develop a new pebble-bed modular reactor (PBMR) at Koeberg, by Pebble Bed Modular Reactor (Pty) Ltd of South Africa, in co-operation with France, the United Kingdom and the USA. In July 2009 the Minister of Public Enterprises, Barbara Hogan, reconrmed the commitment of Jacob Zumas Government to the project. Environmental groups, however, have long opposed the scheme. In September the demonstration power plant was postponed indenitely, and in February 2010 the Government halted funding for the programme. If the project does go ahead, the PBMR would not enter production before 2020. Some peak-load power is provided by the hydroelectric stations of the Orange River Project; ESKOM also entered into an agreement in 1998 to buy 900 MW of power from the Cahora Bassa dam in Mozambique, an amount which increased to 2,000 MW by 2007. ESKOM also returned three renovated generating plants to service, adding 3,600 MW to the national grid in 2009 and 2010. These plants absence from the national grid accounted in part for the power rationing that began in January 2008. In addition, open-cycle gas-turbine technology was to be introduced at the Atlantis and Mossel Bay stations. Plans to privatize ESKOM were put on hold in mid-2004. Two new coal-red plants, at Medupi in Lephalale and at Kusile (formerly Bravo) near Witbank, were each to produce 4,500 MW and were to cost at least R80,000m. Medupi was scheduled to come on stream in 2012, followed by Kusile in 2013. The Government extended a R60,000m. loan, disbursed in tranches, to ESKOM to fund its expansion plans and to help alleviate the need for costly power rationing in the country from early 2008 onwards. In June 2012 it was reported that ESKOM, in order to aid its investment planning and stabilize prices, had applied for xed price increases over a veyear period, although the actual amounts were undisclosed. ESKOM stated that the 29.2% increase in energy costs in March 2012 was largely the result of higher coal prices.

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Water Water supply is increasingly becoming a problem for the future location of industry. The Vaal river, which is the main source of water supply for the large concentration of manufacturing industry and mining in Gauteng and the northern Free State, is nearing the limit of its capacity. Even with planned increases in supply to the Vaal from the Tugela basin in KwaZulu/Natal, it is unlikely that this river will meet future requirements for much longer. It is likely, therefore, that KwaZulu/Natal, with its much greater water supply, will have a higher rate of growth of industry than Gauteng in the future. In March 1988 South Africa and Lesotho signed the nal protocols for the Lesotho Highlands Water Project (LHWP); the arrangements were reconrmed in the mid-1990s after South Africas change of leadership. The rst water deliveries owed in 1997, and South Africa made the rst annual royalty payment, of R110m., in that year. In February 2006 90% of all households in South Africa were within 200m of a piped water source. South Africa needs an estimated R537,000m. of investment in water infrastructure over the next 10 years, although its budgeted amount is only 44% of that, according to the Chief Operations Ofcer of the Ministry of Water and Environmental Affairs, Trevor Balzer. This shortfall threatens the continued access to water of both households and businesses. FOREIGN TRADE South Africa is highly dependent on international trade, especially on exports from its mining sector and imports of essential goods and commodities. According to IMF assessments, the value of merchandise imports rose from US $81,862m. in 2010 to $100,442m. in 2011, signalling a continuing recovery from the weaker domestic demand for imports during the economic recession. The value of visible exports also grew, from $85,700m. in 2010 to $102,858m. in 2011. The surplus on the visible trade balance decreased from $3,838m. in 2010 to $2,416m. in 2011. Of total exports in 2010, just under 10%, or $7,100m., was contributed by gold, compared with $6,300m. in 2009 and $5,900m. in 2008. The current account of the balance of payments remained in decit in 2011, at $13,683m., compared with $10,117m. in 2010 and $11,327m. in 2009. The current account was last in surplus in 2003 and has been in decit most years since 1995. Indeed, the IMF forecast in 2009 a continued widening of the current account decit every year until at least 2015. However, the current account decits have been small enough not to place undue pressure on the overall balance of payments in most years, and the overall balance has continually carried a surplus, albeit a small one. The overall balance showed an estimated surplus of $4,708m. in 2011, up from $3,796m. in 2010. The EIU forecast a current account decit in 2012 equivalent to 4.8% of GDP, as well as a decrease in export volume. This was due to weakening demand in South Africas most important markets, namely the members of the Organisation for Economic Co-operation and Development, and lower commodity prices. However, a projected increase in exports during 201316 was expected to lower the current account decit; it was forecast to be 4.4% of GDP in 2013 and to decline further, to 3.8% of GDP, by 2015. The country remains heavily dependent on manufacturing, on agriculture and especially on mining to pay for imports. South Africa is a member of the Southern African Development Community (SADC). FINANCE The South African currency is the rand, issued by the South African Reserve Bank. Its exchange rate uctuates against a basket of currencies; the rate was R6.68 = US $1 in July 2011, compared with R7.71 = $1 a year earlier, an annual depreciation of 12.3%. The rand was forecast by the EIU to fall within the range of R7.5R8.5 = $1 in 2012, and gradually to depreciate during 201216, largely as a result of the continuing current account decit and increased ination. At 31 May 2012 the rate was R8.53 = $1.

Economy
Public nance is conducted along orthodox lines, although there has been a steady trend for public spending to grow as a proportion of GDP, despite repeated attempts to prevent further increases in real terms. From 1994 economies in outlays on defence expenditure have been more than offset by large increases in social expenditure on housing, health and education for the African population, which, together with the weak performance of the economy, led to stagnating revenues and spiralling decits. The 2011/12 budget, presented to parliament by Minister of Finance Pravin Gordhan in February 2011, appealed for total revenue of R729,858m. and for total expenditure of R888,338m., leaving a budget decit of R158,480m., equivalent to about 5.4% of GDP. The 2012/13 budget was also expected to be in decit given the anticipated large investments by the Government in social welfare, infrastructure and in salary increases for public sector workers. These pressures were particularly acute given that President Zuma was widely expected to stand for re-election in 2014. Nevertheless, the EIU still anticipated that over the next few years the National Treasury would curb expenditure as much as it could, and would hold the budget decit to around 3.1% of GDP in 2015/16 and to 2.4% in 2016/17. ECONOMIC OUTLOOK Job creation, economic growth and higher investment are critical priorities for South Africa in the coming years. When Zuma assumed the presidency in May 2009, he and his team of economic planners were confronted by the challenge of nding a way to increase the countrys wealth and to redistribute it in a way that was effective, without deterring private sector investors, whose funds were badly needed. Progress on this front was debated during the Mbeki years (19992008) and continues to be debated today. The achievements that had been made in job creation were negated by the 200809 global recession, when 1m. South African jobs were lost, an estimated 900,000 of them in the manufacturing sector. Through all means possible, the Zuma Government will have to create sustainable jobs in even larger numbers. New investment, both by local companies and by foreign enterprises, would be an essential element of any strategy to achieve that goal. Even with apartheid laws no longer in place, a bitter legacy of that system remains in the extreme polarization of incomes. In some respects, the South African economy can boast of spectacular global successes, in terms of diamond- and gold-mining, minerals and brewing. Yet, far more needs to be done to create business opportunities inside South Africa. Former Minister of Finance Trevor Manuel acknowledged this need in the 2009 budget, by raising the threshold for VAT collection from R300,000 to R1m. With a market of 50m. potential consumers, sales of products such as motor vehicles and household goods could be much larger, if every South African household had the means to buy them, a situation that was unrealizable in the 2000s. Even a modest achievement towards lifting more households above the poverty level would provide an impetus not only to badly needed investment but also to the job creation that such investment could bring. However, the persistent fundamental problems affecting the economy, such as skills shortages and the effect of HIV/AIDS on the labour market, prevent high growth in the South African sectors that rely heavily on labour, such as mining and manufacturing. As mentioned earlier, real GDP was expected to grow by just 2.8% in 2012, due to lower consumer and international spending. However, in 2013 it was forecast to rise by 3.8% as the result of an improvement in world-wide economic conditions. None the less, in addition to skills shortages, inefcient government agencies, corruption, crime and high unemployment were expected signicantly to slow down economic growth in 2014, with the EIU forecasting a GDP growth rate of 3.2% for that year. However, the commencement of operations of the Governments infrastructural investments, namely new transportation networks and power stations, was projected to help to boost GDP growth to about 3.7% in 2015 and 4.1% in 2016.

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