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Last Updated: Wednesday, 14 April, 2004, 08:17 GMT 09:17 UK
Risks remain for South Africa's economy
By Lucy Jones
BBC News Online business reporter

When apartheid ended in 1994, there were fears that South Africa's then Marxist-influenced ANC would take the country on a path of nationalisation and centralisation.

Mary Ramkani with her grandchildren Forgiveness, front, Agnus, right, and Happiness, back, outside her shack in the Lawley squatter settlement
Are South Africa's poor better off?
The country would soon sink into the economic abyss of many other African nations, the pessimists feared.

But this did not happen.

The country has seen modest but steady growth of 3% a year over the past decade.

The rand has survived three crises and strengthened.

And these days, investors are so confident that markets are swayed little by politics.

Maturing

Black South Africans have greater access to services like electricity, water and telephones.

Ten years ago South Africa was seen as a much riskier place to invest in
Razia Khan, Standard Chartered Bank

And they have a greater chance of becoming wealthy too as more jobs have opened up for blacks, and as they have been given shares and property as part of moves to redistribute wealth.

These enormous changes have been achieved with relatively little external borrowing.

"You could see it as a maturing of institutions. Ten years ago South Africa was seen as a much riskier place to invest in," says economist Razia Khan at Standard Chartered Bank.

Strong rand

Yet, some problems certainly remain: high unemployment rates, the population's low skills level and the HIV/Aids epidemic.

But the difficulties are matched by plenty of success stories.

Squatters make their way through a muddy street in the Imizamo Yethu squatter settlement, against a backdrop of expensive housing, in Hout Bay, near Cape Town, South Africa
More growth is needed for job creation
The rand weakened after 1994 and was hit by three crises, but its fortunes changed in 2002, when the dollar declined and commodity prices increased.

The strong rand largely accounts for the country's low inflation levels and lower interest rates.

"Now foreign investors do not have to be compensated for currency risk, as well as capital risk," economist at Absa bank Chris Hart says.

The rand's strength is also increasing productivity at local firms, he adds.

"It's cheaper to import that cutting-edge machine... and cheaper to finance it."

Some South African exporters have been hit by the rand's increased value and have been forced to shed labour.

But overall, its strength is boosting confidence in the country at home and abroad.

Car manufacturing is booming and the tourist industry, which was not hit by the 11 September attacks, is growing rapidly.

"South Africa's rampant expansion has even resulted in charges of neo-colonialism," says John Battersby, the UK representative of the International Marketing Council of South Africa.

Debate over growth

Some economists maintain, however, that South Africa could have advanced even further during the last decade.

They point out that as the population has grown at almost the same rate as the country's economy, wealth has remained much the same size.

"Three per cent is not the worst rate by African standards," says economist at the Economist Intelligence Unit David Cowan.

"But 3% is not big enough to generate jobs. It just about keeps you where you are.

"The question now is whether the government can boost the rate."

Some economists go further, saying South Africa should not be comparing itself with the rest of Africa but with members of the G8 club of rich nations which it wishes to emulate.

The emphasis has been on redistribution but that hasn't been from rich to poor but from white to black


Robert Guest
According to writer on Africa Robert Guest, democracy in South Africa, and indeed elsewhere in Africa, has not been accompanied by economic dynamism.

"It didn't happen because it wasn't a priority," he says.

"The emphasis has been on redistribution, but that hasn't been from rich to poor but from white to black.

"People say in South Africa that is the same thing, but it is not."

If companies have to pay above the odds to employ a black accountant - because only one out of 80 South African accountants are black - then growth is affected, and ultimately that has an impact on the lives of the poor, he says.

Redistribution

Black economic empowerment is a key but controversial policy of the ANC government.

A black business class has been created in record time and thousands of blacks have been hired as civil servants and appointed to boards of private and state-owned firms.

The elite has sometimes been doing rather well. We were looking for something that was much more broad based
Dr Gavin Woods, Inkatha Freedom Party
According to ANC spokesman Steyn Steed, 50bn rand in assets have been transferred to the poor over the last 10 years, via the provision of housing subsidies and land redistribution.

But critics say empowerment has simply resulted in wealth being taken from the hands of a few white people and put into the hands of a few black people.

Oligarchs

There is growing resentment at the emergence of a new elite, which includes former freedom fighters who have used their political connections to accumulate huge wealth.

"The elite has sometimes been doing rather well. We were looking for something that was much more broad-based," says opposition Inkatha Freedom Party economist Dr Gavin Woods.

One of the richest men in South Africa today is Cyril Ramaphosa, the former mining union leader and ANC general secretary.

Tokyo Sexwale
Tokyo Sexwale is part of the new black elite
After leaving politics in the mid-1990s, he made money by investing in financial services, media companies, coal mining and gold mines.

Chairman of Mvelephanda Resources, Tokyo Sexwale, who was imprisoned with Nelson Mandela, has clinched some of the biggest deals this year.

He heads the Batho Bonke consortium which is about to receive about 10% of the equity of South Africa's Absa bank.

Blacks 'getting poorer'

The wealth of these men would be more palatable to people if their own living conditions were better.

Indeed, the government has made significant achievements in extending services to the poor.

An additional 10 million people now have access to fresh water, four million to electricity; 1.5 million new homes have been built, South African officials say.

But according to at least two recent surveys, blacks are getting poorer, while whites are getting richer.

"The general consensus is that there has not been an improvement in equality," says World Bank economist advisor in South Africa, Matthew Stern.

"There is the view outside and inside the government that that BEE hasn't delivered."

Low skills level

Unemployment, which is runs at an official rate of 30%, is a chief concern, especially as it is seen as contributing to the country's high crime rate.

High jobless numbers are also the result of the population's low skill base.

The ANC has made training the workforce a priority.

"Ninety percent of South African children are in school. A supply of skilled labour is emerging," Lionel October, deputy director general of the country's Department of Trade and Industry, says.

But at the moment, an estimated 250,000 vacancies cannot be filled because of lack of qualified candidates.

Since 2000, South African employers have had to contribute 1% of an employee's salary to his or her training.

This is a radical move, South African academic Michael Samuel points out.

"Countries can't usually find the resources for such high levels of training," he says.

Aids threat

Another key concern is the rate of HIV infection which threatens to wipe out a generation.

Phumzile, who is HIV positive, inside her squatter shack in Lawley, South Africa
Aids threatens to wipe out a generation
South Africa has the highest number of HIV positive people in the world, about five million out of a population of 45 million.

No one knows what the exact cost to the country will be when it looses its youngest, fittest and most talented, but it is likely to be shattering.

"The cost to the state is going to be devastating, apart from the impact of so many deaths on the morale of the nation," Dr Woods adds.

More growth needed

So what needs to be done?

The economy has to grow by at least 5% annually for real social change to follow, officials and economists agree.

The government is pinning its hopes on empowerment as a means of achieving this growth.

Formerly white-owned companies have reported profit increases, as a result of signing up to empowerment and selling tailored services to black South Africans.

There is also appreciation at high-levels that empowerment has to be more far reaching from now on, says Matthew Stern from the World Bank.

If growth is not achieved, however, the country's economic growth rate could well become a political issue, economists say.



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