Goldman Sachs shows SA is better, but not best

Published Nov 7, 2013

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The recent release of a Goldman Sachs report, entitled: “Two Decades of Freedom – A 20-year review of South Africa”, has caused a buzz across the news and public commentary. And so it should. It’s a pragmatic and high level look at where we’ve come from and where we’re going, and while everything it says was available before, it is in the way this information is presented that makes it such an eye opener. Here I share some of my changing findings from the report, looking first at general economic factors.

Since 1980, interest rates and inflation have been on a downward trend, challenging the view that central banks have to pick one or the other. Alongside these decreases, economic growth has shown a strong upward trend in this period. Gross gold and foreign exchange reserves have risen from $3.1 billion in 1994 to $47.9bn in 2013. Tax revenues have increased from R113.8bn in 1994 to R813.8bn in 2012.

The mining sector contributes only 5.5 percent to the South African gross domestic product (GDP), a major change from the 15.2 percent in 1986. Banking and real estate is the largest industry in the economy, contributing 23.9 percent of GDP. This trend is a major concern as it results in a situation of structural unemployment; where jobs are vacant and available, but the unemployed do not have the necessary skills.

Regarding South Africans themselves, the population grew by 27.6 percent in just 15 years between 1996 and 2011, adding an extra 11.2 million people to the nation.

In terms of wealth, 85 percent of black Africans remain poor (after-tax income of less than R1 400 a month), while 87 percent of whites remain middle to upper class (after-tax income of more than R1 400 a month). The percentage of the population living below the poverty line has decreased from 40 percent to 31 percent, but inequality is higher than it has ever been before.

Over the longer-term scale, the government has done well to deliver services. Access to electricity increased from 58.2 percent to 84.7 percent between 1996 and 2011, and around 80 percent of people who visited public clinics during the period of the study were satisfied or very satisfied with the service they received.

Labour relations continue to be South Africa’s number one challenge. Over the five-year period of 1995 to 1999, 35 500 working days were lost due to industrial strike action. Between 2008 and 2012, this number was 28.8155 million – over 800 times higher.

Between 2001 and 2011, average wage inflation in the mining sector was 11 percent a year and in the economy as a whole average wage increases have exceeded inflation in every year since 1994, apart from in 1999 and 2005.

Of the labour force, 51 percent has not completed matric.

South Africa does, however, show strength and opportunity in its equities market. Total equity market capitalisation is twice the size of its GDP, making it the third largest in the world by this ratio. Prices of equities on the JSE are correlated to US growth, but the value of the rand is more correlated to Chinese growth due to the influence of the trade in commodities.

On the international platform, China’s foreign direct investment in South Africa grew from R340 million in 2005 to R50bn last year, which is important in the context that at 7.5 percent growth, China adds to its GDP an economy the size of South Africa every three-and-a-half months.

The bottom line is that South Africa, on almost all accounts, is better off than it was in 1994, which we should be grateful for, but it is not as healthy as it could be.

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