South Africa’s economy began to slow down between 2017 and 2019 before seeing negative growth in 2020. Growth resumed slowly in the second half of 2021, but the government imposed heavy economic control. Those measures led to a sharp decline in economic growth rates.
South Africa’s economy turned fragile despite the fact it enjoyed highly developed economy and well-developed infrastructure. In addition, it is one of the largest exporters of gold and platinum. The country has reserves of iron ore, manganese, chromium, copper, uranium, silver, beryllium, titanium and other natural resources, and has well-established financial, legal, telecommunications, energy and transport sectors and the largest stock exchange in the continent.
Unemployment and corruption rates in the formal sector seem very high compared to other African countries. The economy in South Africa suffers from a real crisis in light of high unemployment rates, and the failure of all government attempts to create new jobs. Where the government lacks ideas and vision, the crisis is likely to deepen and worsen.
Over the last three years, South Africa has recorded the highest per capita income tax rate of 45 percent, and the highest corporate tax rate of 28 percent. Other taxes include value-added taxes and capital gains. The total tax burden is equal to 29.1 percent of gross domestic income. Government spending amounted to 32.6 percent of gross domestic product (GDP), and the budget deficit averaged 7.2 percent of GDP. Public debt increased by 77.1 percent of GDP.
Structural reasons
South Africa’s deepening economic crisis can be traced back to a set of structural reasons rooted in the nature of the country’s economic and political structure since the political transition in 1994, as follows:
1. Congress Party Dominance: The African National Congress (ANC) party has dominated politics in South Africa since the end of the apartheid in 1994. Corruption scandals forced President Jacob Zuma, who served 2 terms, to resign in 2018. He was replaced by Cyril Ramaphosa, who rose to the helm in a 5-year term but started where his predecessor left off. The judiciary pursued him in a corruption process, a dilemma that prompted the ANC to postpone the meetings of its Central Committee several times, most recently on 5 January 2023. Corruption remains an obstacle in building a strong and cohesive economy.
2. Public sector corruption: In addition to the failure of the government of President Ramaphosa to create solutions to the most important issues of unemployment, the public and private sectors are not motivated to solve issues related to the economic crisis. The public sector is entrenched in the network of interests of party cadres which pushed the country to the brink of bankruptcy. The private sector continues to uphold the old boys’ club model that has continued to limit black management to less than 30 percent of the total, with corruption networks across the country hampering government efforts to improve South Africa’s economy.
3. Pattern of education and incompetence: The essence of the problem lies in the old education system, which did not succeed in transforming itself from the pre-apartheid model- which educated society to produce compatible bureaucrats- to a modern educational system aimed at graduating tech-savvy industrialists. The results have been economically disastrous. According to rating agency Moody’s, out of 30 emerging market economies, South Africa had the largest share of workers not conforming to minimum efficiency standards with more than 50 percent and the lowest levels of productivity. According to the Boston Consulting Group, the Organisation for Economic Cooperation and Development (OECD) predicts that unemployment will not fall below the 30 percent threshold before the end of 2023.
The government has failed in a number of issues due to the inability to fight direct corruption to move youth employment programs and push the private public sectors to work. This is related to for several reasons, most notably the failure of government measures taken to ensure that unemployed youth receive sufficient training to gain more basic skills in ICT, low funding for vocational training programs, the lack of quality technical and vocational education and training, and the poor relationship between the public and private sectors in order to qualify cadres.
4. Lack of transparency: Courts suffer from nepotism, lack of competencies and transparency, and a policy of impunity. South Africa has seven preferential trade agreements, the trade-weighted average tariff rate is 6.4 percent, and there are 176 non-tariff measures in effect. However, non-transparent laws continue to impede private investment, and foreign investment faces additional constraints that result in its ineffective contribution to the economy.
Insufficient efforts
In January 2023, the National Union of Workers of South Africa launched a digital platform to gather millions of unemployed workers, the National Unemployed Workers Union (NUWU), as a new pressure card in order to train and hone the skills of economically marginalized workers by dismantling and breaking the restrictive government measures depriving a large segment of employment of competition in the labor market. The unemployment rate in the second quarter of 2021 was among the highest rates in the world, this has been linked to high corruption in the public and private sectors and high crime rate in the country. All these contributed to the government’s inability to use its investment capital to create new jobs and develop those institutions that have become less competitive and efficient.
The ANC economic policy is primarily aimed at sustaining growth and achieving a degree of self-sufficiency in the economic and industrial sectors, whether raw materials or manufactured. However, this approach has led to high inflation rates, and as a result, investment opportunities in many areas have declined. Economic policy is in great controversy between two categories: the first favors market capture, and the second favors an export-led industrial policy.
Thus, structural factors stand behind the economic crisis in South Africa, while the government does not have a vision to get out of this impasse. The exacerbation of external crises and challenges that followed the outbreak of the coronavirus epidemic and the Ukrainian crisis indicate that the situation may be heading for the worse. This will undoubtedly cast a shadow on the dominance of the ruling party, which is facing one of the largest economic crises since the establishment of the new regime in the early 1990s.
