The hopes and challenges of a rainbow nation
By Robert Ruttmann
Fourteen years after the system of apartheid gave way to a freely elected black-majority government, South Africa is enjoying its longest period of economic growth ever: 96 months and counting.
The economy has grown by approximately 5 percent per year in the past four years, adding half a million jobs last year. Successful fiscal adjustment has been one of the major achievements of the post-apartheid government. From being at the brink of a debt crisis in the early 1990s, South Africa’s balanced budget is now held up as the model for responsible fiscal management in Africa. But sociopolitical reforms are also taking effect. People in informal settlements are gaining access to running water and electricity, an efficient constitutional court and a free press watch over the young democracy, and previously disenfranchised South Africans are gaining access to education and opportunity, resulting in the expansion of a new black middle class that has grown to 2.6 million South Africans.
As the country prepares to host the Soccer World Cup in 2010, the government has bold ambitions: to halve poverty and unemployment by 2014, which it aims to achieve by raising average growth rates from the current 5 percent to 6 percent from 2010 – 2014. Flushed with optimism, the country that used to be an international pariah state has become a guiding example for other young democracies in Africa.
Growth drivers are shifting
On the one hand, inflation has been creeping up again over the last two years, even breaching the central bank’s 3 percent to 6 percent target band in March 2007. On the other hand, debt to income levels reached precariously high levels of 80 percent in 2007, up from 50 percent in 2003, indicating that consumers are increasingly relying on credit facilities to fund their expenditures. These increases in household debt and inflation have prompted the South African Reserve Bank to raise its interest rates by 4 percent to the current 11 percent in an effort to moderate consumer spending. As consumer spending moderates due to the tighter monetary policy, we expect a surge in infrastructure investment to replace consumer spending as the primary driver of economic growth. This shift has already begun, triggered by the announcement that South Africa would host the Soccer World Cup in 2010.
World Cup leads to infrastructure boom
The South African private sector is also involved. Making up 70 percent of total fixed capital investment, private companies are unloading some of the large amounts of cash they have on their balance sheets. This synchronized effort has given way to the country’s first ever coordinated upswing in infrastructure investment, with total infrastructure investment growth forecast between 10 percent and 15 percent per year between 2008 and 2014. The private and public sectors are also coordinating their efforts through publicprivate partnerships. The largest and most prominent example is the building of the 23- billion-rand Gautrain high-speed commuter rail system, a project in which the public and private sectors jointly finance the costs. Similar projects are already underway, as roads, ports, airports, power stations and sports stadia are built at a furious pace ahead of the starting whistle of the Soccer World Cup 2010.
Solid prospects with risks
Another serious concern is crime. More than 18’000 people were murdered last year and 50’000 raped, giving South Africa one of the highest crime rates worldwide. Speaking to local South Africans, it seems most people have a story to tell on the pervasiveness of crime in South Africa, usually involving a home invasion or a carjacking. Equally disconcerting is the HIV/AIDS crisis, which has struck 5.5 million South Africans and continues to kill close to 1000 South Africans per day. The government has come under heavy criticism for its management of the epidemic. For too long, the official response ranged from denial of the problem to the promotion of traditional remedies like eating beetroot, garlic, lemon juice or the African potato, in efforts to combat the disease. Under much pressure, the government has made antiretroviral treatments available to 250’000 people, a figure many observers argue to be too little and too late as the number of new AIDS infections show few signs of slowing down.
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Source: Robert Ruttmann, Credit Suisse, March 31, 2008.
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