How South Africa’s Economy Has Gained and Lost Over 25 Years

(Bloomberg) -- As South Africans go to the polls on Wednesday, they may look back on an economy transformed since the first all-race election 25 years ago.

Gross domestic product almost doubled, along with the nation’s debt load. While the country has come a long way in extending equal rights to people after half a century of segregation under apartheid rule, about a quarter of the labor force doesn’t have a job. After years of having three investment-grade credit ratings, South Africa’s debt is again assessed as junk by all but one of the major ratings companies.

These charts show the economic gains and losses over the past quarter century.

Jobless Growth

Economic growth of as much as 5 percent a year in the mid-2000s did little to reduce unemployment, poverty and inequality. Expansion slowed since 2009 in the aftermath of the global financial crisis and as policy uncertainty increased after former President Jacob Zuma came to power. South Africa has gone through two recessions in the past ten years and economic growth has failed to outpace the population’s rate of increase since 2014.

Unemployment Persists

While the ruling African National Congress has highlighted job creation as a priority in every election in the past 25 years, the unemployment rate hasn’t dipped below 20 percent since at least 2000. Out of a population of 58 million, only 16.5 million people have jobs. Economists including Investec Bank Ltd.’s Kamilla Kaplan say GDP must expand by 3 percent to 5 percent annually for joblessness to fall.

Low Confidence, Low Investment

Since 1994, business confidence in South Africa not only responded to the economic cycle, but also to political and policy moves. This has affected fixed investment, which hasn’t grown sustainably as sentiment remained lukewarm after the 2009 recession and during Zuma’s tenure.

Policy Transparency

The nation’s Reserve Bank has made monetary policy more transparent by introducing an overnight repurchase rate in 1998, which commercial lenders use to set their lending rates. The central bank started pursuing an inflation-target band two years later and it has managed to keep price growth near or inside the range of 3 percent to 6 percent since 2010. With stable leadership and its mandate enshrined in the constitution, credit-rating companies see the Reserve Bank as a pillar of institutional strength in the country.

Reserves Buffer

South Africa was almost bankrupt 25 years ago, with the central bank’s gold and foreign-exchange reserves close to zero. The central bank has built up that buffer to about $50 billion, defying calls to interfere in the market to influence the rand.

Debt Burden

South Africa’s debt levels are now higher than in 1994, despite an era of prudent fiscal management during which the nation had a surplus on its budget. Increased spending to grow the government workforce and bail out state-owned companies such as Eskom Holdings SOC Ltd. conspired with below-target revenue due to mismanagement at the tax agency and slow economic growth to cause the debt ratio to more than double since 2008.

One Non-Junk Rating

South Africa got its first investment-grade credit rating from Moody’s Investors Services in 1994. After more than a decade of being assessed as investment grade by the three major credit-ratings companies, the nation is now back where is was 25 years ago, with only Moody’s not rating its debt as junk.

What Bloomberg’s Economist Says

“The past 25 years have undoubtedly been a success both in terms of increasing per-capita income and an opening up of opportunities in terms of education and jobs for a majority of the population. But younger voters with little memory of the apartheid era may rightly feel that the economic gains have mainly been reaped by a small group, often politically connected with the ruling ANC and be frustrated by a lack of job opportunities. The combination of a rapidly growing labor force and a stagnant economy will remain one of the key challenges for the government.”

-- Mark Bohlund, economist
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