South Africa

For South Africa, the Economic Report on Africa 2002 finds the economic outlook encouraging. The economy weathered the global slowdown better than most other emerging market economies, from Latin America to Asia. The depreciation of the rand, sound financial sector supervision and regulation, and low external borrowing contributed to the resilience of the economy. Because of improved competitiveness in the export sector, the country managed to improve its external accounts.

Macroeconomic fundamentals were robust in 2001. The Government met its key fiscal and monetary policy targets. Inflation remained within the target range and interest rates fell. These results are due to the monetary easing that saw real interest rates become competitive with those of other emerging market economies. With regard to fiscal policy developments, the Government has managed to reduce the fiscal deficit to 2.3%, well below the target rate of 3%.

This achievement has been mainly due to the impressive progress made in improving revenue collection systems. Consequently, the Government was comfortable fiscally to move towards essential public investments. Positive investment trends continued, with both private and government investments increasing. Consumer spending continued to move upward, while household debt declined. In November 2001, South Africa received a credit upgrade, further validating the soundness of its macroeconomic fundamentals.

However, the Report shows that South Africa has not been sufficiently able to transform the impressive gains made on the macroeconomic front into sustained, high economic growth. Real GDP growth has remained below 3% for the last several years. This rate of growth is too slow for robust job creation in a country where the unemployment rate remains around 20%. Unemployment poses a major development challenge. The labour market is highly segregated, with large differences in unemployment rates among unskilled and skilled labour. The skill intensity is clearly divided along ethnic lines. The situation is further exacerbated, since new jobs are created in sectors, particularly in the export and financial sectors, where specialized skills are required.

Employment losses, on the other hand, are taking place in older, formal sectors that are predominantly dependent on low- and semi-skilled intensive labour. Difficulty in finding workers with appropriate skills is becoming a major constraint to growth in South Africa.

The increased integration of South Africa into the global economy has made science and technology education an increasing priority. The move from labour-intensive to knowledge-based production depends on technologically sophisticated production in agriculture as well as in industry. South Africa is a classic example of how the development of human capabilities is a necessary precondition for accelerated growth and poverty reduction.

The key to success lies in appropriate education that reflects the demand for skilled labour. The South African Government has recognized the importance of improving educational standards and fiscal stability is opening the door to sizeable increases in social spending, particularly in education and health. These conditions should boost the economy's long-term growth potential.