South Africa

The South African defence budget for financial year (FY) 2016/2017 was expected to reach some 47.2 billion South African Rand -ZAR- (approximately 3.6 billion US dollars) equivalent to around 1.05% of the country’s Gross Domestic Product (GDP), significantly increased compared to FY 2015/2016, when the country spent some ZAR 45 billion (approximately 3.4 billion US dollars). According to South Africa’s authorities, the defence budget was to be further increased in FY 2017-18 and FY 2018-2019 to 48.7 (3.7 billion US dollars) and 50.7 billion ZAR (3.84 billion US dollars) respectively. In the foreseeable future, according to recommendations from various sides defence spending should aim to reach 2% of the country’s GDP.

Since the end of the apartheid regime in 1994, South Africa’s economy has been rejuvenated, as prompt and enabling macroeconomic reforms have created the appropriate socioeconomic environment for this. In the decade prior to 1994, economic growth averaged less than 1% per year, something that changed after 1994 as economy developed by 4% on average. South Africa's real Gross Domestic Product (GDP) rose by 3.7% in 2002, 3.1% in 2003, 4.9% in 2004, 5% in 2005, 5.4% in 2006 - the highest since 1981 - and 5.1% in 2007. The aforementioned situation was later reversed, as South Africa’s economy started to slow down in the second half of 2008, due to the global financial crisis' impact on commodity prices and demand. In 2009, the country’s GDP fell nearly 2%.

In the first quarter of 2010 the country’s economy has shown signs of recovery. It is indicative that the seasonally adjusted real GDP at market prices for the first quarter of 2010 increased by a rate of 4.6%, compared to the fourth quarter of 2009. Since 2010, the country’s economy has been growing at an average rate of 2.15%. In the second quarter of 2016 GDP growth rate was 3.3% and the main contributor were manufacturing and mining industries. Manufacturing output increased by 8.8% while mining output grew by 11.8%, largely as a result of higher production of platinum group metals. According to a report provided by the World Bank, in 2017 GDP will further increase by 2.4%.
 
The economy of South Africa was historically built on primary and secondary industries, such as mining and manufacturing. In recent decades growth has shifted to the tertiary industries. It is indicative that in 2016, according to estimates, the agriculture sector contributed some 2.2% of the total GDP, while industry accounted for 29.1% and services for 68.7%.    
 
Being a G-20 member state, South Africa is considered to be a low-risk investment destination. The country’s authorities aim to further reinforce the country’s investment climate, by providing incentives for potential investors. Nevertheless, there are still some issues that need to be tackled in order for the country to be a more attractive investment destination. One of these is corruption. Despite the fact that the country is, according to Transparency International’s Corruption Perception index, one of the least corrupt in Africa, corruption is still an issue when trying to set up and operate a company in South Africa. This somewhat moderate investment climate, is also reflected in several international indicators measuring the openness of a country’s economic and business environment. The African state ranked 74th out of 190 countries in the World Bank’s Doing Business report 2017, 81st out of 180 countries in the 2017 Heritage Foundation’s Index of Economic Freedom and 54th out of 128 in the 2016 Global Innovation Index.

Year

Measure/Indicator

Rank

Website Address

2017

Doing Business report

(74 out of 190)

www.doingbusiness.org/

2017

Index of Economic Freedom

(81 out of 180)

www.heritage.org

2016

Global Innovation Index

(54 out of 128)

www.globalinnovationindex.org

In the period April-December 2015, South Africa attracted 64.3 billion South African Rands (4.8 billion US dollars) in Foreign Direct Investment (FDI).

One of the most important sectors of the local economy is trade. Since the end of apartheid, foreign trade in South Africa has increased, particularly as several sanctions imposed by other states were lifted. Currently, South Africa is the EU's largest trading partner in Africa, while trade relations with the European Union are governed by the Trade, Development and Co-operation Agreement (TDCA). South Africa mainly exports parts and accessories for the automotive industry, mining products such as gold, diamonds, platinum, as well as crude and refined petroleum. In August 2016, export volume increased by 0.3% on a year-on-year basis. On the other hand, imports decreased by 4.1% compared to August 2015.  

Despite the fact that the South African economy has made significant steps of development, it still faces some challenges, the most important of which are unemployment, poverty, and inequality. Official unemployment is roughly 27% of the workforce (3rd quarter of 2016), and runs significantly higher among black youth.