South Africa

2012

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South Africa
The South African economy is estimated to have grown by 3.1% in 2011, up from 2.9% in 2010, but growth is expected to slow to 2.8% in 2012 because of the continued weakness in the global economy and domestic structural constraints. The business regulatory environment remains conducive, although lack of capacity in the public sector and deepening divisions within the governing coalition over the governments policy direction present a downside risk in the medium term. In spite of a comprehensive approach to eradicating extreme poverty and hunger through social protection measures, poverty and inequality still remain high and the country remains one of the most unequal societies in the world.

Overview
Gross domestic product (GDP) growth is estimated to have increased to 3.1% in 2011, up from 2.9% in 2010. Growth is expected to slow to 2.8% in 2012 mainly because of domestic structural weaknesses and the fragile global economic recovery. GDP growth is expected to rise to 3.6% in 2013, subject to global recovery taking place and an orderly resolution of the Eurozone fiscal and financial crisis during 2012. The scal decit rose from 4.2% in 2010 to 4.8% in 2011 and is expected to fall to 4.4% in 2012. The Reserve Banks repo rate remained at at 5.5%, a 30-year low, throughout 2011. The average annual ination rate remained at 5.0% for 2011. It is expected to rise to 6.2% in 2012 before easing to 5.4% in 2013. Consumption registered an estimated 3.5% growth rate in 2011 while investment grew by an estimated 5.2%. Foreign direct investment (FDI) into South Africa increased to USD 4.5 billion in 2011 from USD 1.2 billion in 2010. As domestic expenditure improves with the expected increase in xed investment in 2013, South Africas import intensity is expected to rise, putting some pressure on its trade balance over the next two years. This, together with increased outows in service income and current transfers, is likely to raise the current account deficit to 3.9% in 2012 and 4.3% in 2013. Borrowing from abroad by public corporations, which hold about 21% of external public debt, to nance infrastructure improvements and development of new projects led to a signicant rise in foreign debt in scal year 2010/11 compared to the previous period. However, the debt burden indicators do not show any risk of debt servicing diculties in the immediate term. Foreign debt remains less than 10% of total public debt while the government is able to borrow locally with relative ease. Unemployment fell to 23.9% at the end of 2011, down from 25.0% in the third quarter. Over 1 million jobs were lost between the fourth quarter of 2008 and the third quarter of 2010. In a welcome development, 365 000 additional jobs were created in 2011. The governments broad strategy against unemployment is part of the New Growth Path (NGP), with an objective of creating 5 million jobs over a decade. A draft National Development Plan: Vision for 2030 drawn up by the National Planning Commission is currently undergoing public comment.

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Figure 1: Real GDP growth (Southern)

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Africa - Real GDP growth (%)

Figures for 2010 are estimates; for 2011 and later are projections.
http://dx.doi.org10.1787/888932619317

Table 1: Macroeconomic Indicators

2010 Real GDP growth Real GDP per capita growth CPI inflation Budget balance % GDP Current account % GDP 2.9 2.1 4.3 -4.2 -2.8 2011 3.1 2.4 5 -4.8 -3.1 2012 2.8 2.2 6.2 -4.4 -3.9 2013 3.6 3.1 5.4 -4.2 -4.3

Figures for 2010 are estimates; for 2011 and later are projections.
http://dx.doi.org/10.1787/888932602692

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Recent Developments & Prospects

Table 2: GDP by Sector (percentage of GDP)
2006 2011 Agriculture, forestry, fishing & hunting Mining and quarrying of which oil Manufacturing Electricity, gas and water Construction Wholesale and retail trade, hotels and restaurants of which hotels and restaurants Transport, storage and communication Finance, real estate and business services Financial intermediation, real estate services, business and other service activities General government services Public administration & defence; social security, education, health & social work Public administration, education, health Public administration, education, health & other social & personal services Other community, social & personal service activities Other services Gross domestic product at basic prices / factor cost 2.9 8.4 17.5 2.3 2.9 13.7 9.8 21.6 14.6 6.2 100 2.4 9.8 13.4 2.9 4.5 14.5 8.2 21.2 16.3 6.9 100

Figures for 2010 are estimates; for 2011 and later are projections.
http://dx.doi.org10.1787/888932621293

GDP growth is estimated to have increased to 3.1% in 2011, up from 2.9% in 2010. Growth in 2011 was held down by strikes, especially in the mining and manufacturing sectors, and the eect of the global slowdown on exports, but household expenditure, government expenditure and xed capital formation provided some support. Real GDP growth is projected to slow to 2.8% in 2012. By 2013 real GDP growth should rebound to some extent to 3.6%. This acceleration in growth assumes that a recovery of the world economy takes place in 2012 and that the European Unions (EU) sovereign debt crisis is resolved in an orderly fashion. Growth of real value added in the mining sector slowed to 0.2% in 2011 as a result of strikes, accidents, logistical problems, plant maintenance, increases in electricity taris and wage rises above the rate of ination. Production of coal, gold and manganese ore declined while output of industrial commodities and platinum weakened because of waning global demand. Dim prospects for the global economy, a strong rand (ZAF), and transport and energy constraints make for a lacklustre outlook for the mining sector. In the broad agriculture sector, real value added contracted by 0.4% in 2011 as crop yields failed to match the bumper harvest of 2010, in part as a result of ooding early in the year. The modest output gain was due to animal products and eld crops. Maize production in particular was again substantial during the 2010/11 season and reached 10.6 million tonnes but that was down from the 12.8 million tonnes in the previous season.

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By contrast, the manufacturing sector grew by 2.4% in 2011, although this was signicantly less than the 5.4% growth rate recorded in 2010. The sector got o to a strong start in the rst quarter with real value added growing by 12.8% quarter-on-quarter (annualised rate). However, activity in the sector subsequently fell victim to weakening global demand and to a loss in competitiveness linked to the appreciation of the rand in the rst half of 2011. Demand for residential and non-residential buildings declined but civil construction grew, driven by public sector investment. Overall, the construction sector increased by a mere 0.8% in 2011, a continuation of the sluggish growth of only 0.9% in 2010 (in 2009, the sector expanded by 7.8% thanks largely to infrastructure spending for the 2010 Football World Cup). Tertiary sectors grew consistently faster than overall GDP with the exception of personal services, led by trade, government and nancial activities, in spite of soft conditions in the banking sub-sector. Motor trade activity also contributed to growth, thanks to strong demand from the household sector and the car rental industry. The transport sub-sector slowed but the communications sector stayed on its steady growth path, leading to a combined 3.3% growth for the sector. Finally, general government experienced an annual growth rate of 3.9% in 2011. Consumption expenditure by households and by the general government combined registered an estimated 3.5% growth rate in 2011, while investment grew by an estimated 5.2%. Private consumption is estimated to have grown by 3.4% in 2011, led by spending on durable goods such as cars and computers, and services such as recreational and entertainment goods. Spending on services also grew, led by spending on communications while expenditure growth was slow in respect of food items, fuel and other household consumer goods, following the sharp price increases in the corresponding categories. Private consumption is projected to slow to 1.2% in 2012 but pick up in 2013 to 2.2%. Public consumption is projected to remain subdued, growing at 0.7% in 2012 and 2013. FDI increased to USD 4.5 billion in 2011 from USD 1.2 billion in 2010, with China and the United States the leading sources. In 2011 real gross capital formation was estimated to have grown by 5.2%, a sharp recovery from the 1.6% contraction in 2010. Private businesses, public corporations and general government all contributed to this rise. Private investment is estimated to have increased by 5.0%. The pace of investment was especially strong in agriculture, communications, storage and transportation. As a result of spare production capacity and insucient demand both locally and abroad private investment is projected to slow to 4.0% in 2012 before recovering sharply by 8.0% in 2013. Public gross capital formation is estimated to have grown by 5.5% in 2011. State-owned enterprises raised their investment substantially: the electricity sub-sector invested in vehicles, machinery and equipment for the Medupi, Kusile and Ingula power stations, while Transnet (transport) invested in machinery, equipment and construction for its new multi-product pipeline. In 2012, public gross capital formation is expected to slow to 4.5% and to recover in 2013, with 8.5% projected growth.

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Macroeconomic Policy
Fiscal Policy
Two years before the 2009 recession, South Africa adopted a counter-cyclical scal policy stance, which favours expanded public spending during economic slowdowns and vice versa. Fiscal policy thus became expansionary from 2009 onwards and remained so amid the continued weakness in the global economy and the fragile domestic recovery. Broadly, South African scal policy is guided by three principles: long-term public debt sustainability, counter-cyclicality, and intergenerational equity. As investment in network infrastructure (energy, transport, and information, communications and technology (ICT) remains central to governments development plans, public sector spending on infrastructure reached 7.5% of GDP during the rst half of 2011 and is expected to rise further to 7.8% of GDP during the next two years, gradually declining thereafter. The bulk of infrastructure investment was accounted by state-owned enterprises, particularly Eskom (electricity) and Transnet (transport). Improvements in public service pay and increases in employment raised the wage bill to 12% of GDP, or 42% of government revenue, up from 31% in 2008, making it the fastest growing component of current expenditure. The budget decit declined signicantly from 6.3% of GDP during scal year 2009/10 to 4.2% during 2010/11, as a result mainly of restraint in non-interest spending growth and a modest improvement in tax revenue, before widening slightly to 4.8% of GDP in scal year 2011/12 , as growth in national government spending, underpinned by higher current payments together with transfers and subsidies, exceeded the moderate growth in revenue collection. The decit is expected to fall slightly to 4.4% in 2012/13 and to 4.2% in 2013/14, chiey because of moderation in primary spending growth. The primary decit declined substantially from 4.0% in 2009/10 to 1.8% in 2010/11. Total government revenue for 2012/13 is estimated at ZAF 905 billion, or 27.4% of GDP, while total government expenditure is put at ZAF 1.1 trillion, or 32% of GDP, for the same year. The scal stance is expected to remain moderately expansionary for 2012 and 2013.

Table 3: Public Finances (percentage of GDP)

2003 Total revenue and grants Tax revenue Oil revenue Grants Total expenditure and net lending (a) Current expenditure Excluding interest Wages and salaries Interest Primary balance Overall balance 23.2 22.7 0 25.5 25.9 223 9.3 3.6 1.3 -2.3 2006 26.3 25.7 0 25.7 25.7 22.8 8.4 2.9 3.5 0.6 2007 27 26.4 0 26 26.1 23.5 8.5 2.5 3.5 0.9 2008 29.7 25.9 0 30.6 28.2 25.9 9.2 2.4 1.5 -0.9 2009 27.2 23.4 0 33.5 31 28.6 10.2 2.3 -4 -6.3 2010 27.5 23.8 0 31.7 29 26.6 11.2 2.4 -1.8 -4.2 2011 27.7 23.9 0 32.5 30.1 27.6 11.6 2.6 -2.2 -4.8 2012 27.8 24.1 0 32.2 30 27.3 10.6 2.7 -1.6 -4.4 2013 28 24.3 0 32.3 29.8 27 10.3 2.9 -1.4 -4.2

Figures for 2010 are estimates; for 2011 and later are projections.
http://dx.doi.org10.1787/888932622281

Monetary Policy
Average annual consumer price ination remained within the target range of 3% to 6% in 2011, at 5% for the year. However, headline ination breached the upper limit, reaching 6.1% in November and December 2011. The rise was driven primarily by increases in the prices of food and non-alcoholic beverages and transport. Core ination remained at around 3.9%. Both regulated and non-regulated prices administered by policy-makers

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continued to remain well above the policy range for nearly two years and were at 16.1% and 8.2% year-onyear, respectively, in November 2011. Ination is expected to remain outside the upper end of the target range for the whole of 2012, returning to within the target range in 2013. Ination is expected to average 6.2% in 2012 and 5.4% in 2013. A 150 basis points cut in the repo rate in 2010 brought the policy rate to 5.5%, its lowest level in 30 years, and provided additional stimulus to the economy throughout 2011. In real terms, the repo rate remained at about 1.2% in 2010 before shrinking to 0.5% in 2011. South Africa operates a freely oating exchange rate system. A sudden reversal in capital ows since the second quarter of 2011, coupled with heightened investor risk aversion towards emerging markets, led to a gradual depreciation of the rand, beginning in the third quarter of 2011, posing a further upside risk to inflation. In spite of historically low interest rates, demand for credit by the private sector remains subdued, increasing by 6% year-on-year in November 2011, compared to 5% in January 2011, while growth in broad money supply (M3) declined from 8.2% in January 2011 to 7.26% in October 2011. Private sector investment in 2011 grew at an estimated 5.0%, down from 12.0% in 2010. Given the gloomy outlook for growth and other key macroeconomic indicators, with employment, investment and exports remaining well below their pre-crisis levels, early monetary policy tightening could harm the recovery. The continuation of the current accommodative monetary policy stance through 2012 and 2013 is, therefore, crucial for the recovery of private investment and consumption, which are critical for sustained growth and job creation. However, given the Monetary Policy Committees statement in January 2012, it is unlikely that the repo rate will be cut in 2012, unless global conditions deteriorate substantially and start visibly curtailing growth.

Economic Cooperation, Regional Integration & Trade

Given the shift of global power towards developing countries, South Africas trade policy would be underpinned by deepening functional integration in the region, on the continent, and with emerging economies, particularly, the BRICS (Brazil, Russia, India, China, South Africa), which the country joined in 2011. South Africas trade prole has evolved signicantly. At the end of 2010, 36% of South Africas exports went to Asia, 27% to the EU, and 18% to sub-Saharan Africa; and exports of manufactured goods to Asia and Africa increased markedly, unlike those to Europe and America. A 17% trade-weighted depreciation of the rand in 2011 contributed to improved external competitiveness, raising the value of merchandise exports by 3.3% in the third quarter of 2011. On the other hand, imports increased by 4.6% during the third quarter of 2011, buoyed by increased domestic demand for consumer and capital goods. The trade balance is estimated to have declined to 0.8% of GDP in 2011 from around 1.0 % in 2010. For the future, South Africas import intensity is likely to continue to rise as domestic expenditure improves, especially if there is a pick-up in xed investment into 2013, putting some pressure on the trade balance over the next two years. This, plus increased outows in service, income and current transfers, is likely to lead to the current account deficit of over 3.9% in 2012 and 4.3% in 2013. FDI, mainly in mining and retail trade, reached USD 4.5 billion in 2011 from USD 1.2 billion in 2010. FDI to South Africa had declined by 70% in 2010 as investors shifted to other resource-rich countries and/or countries with larger domestic markets in Africa.

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Table 4: Current Account (percentage of GDP)

2003 Trade balance Exports of goods (f.o.b.) Imports of goods (f.o.b.) Services Factor income Current transfers Current account balance 2.1 22.9 20.8 0.2 -2.7 -0.6 -1 2006 -1.7 25.3 27.0 -0.8 -2.0 -0.9 -5.4 2007 -2 26.5 28.5 -0.9 -3.4 -0.8 -7.2 2008 -1.6 31.1 32.7 -1.5 -3.3 -0.8 -7.2 2009 0.1 23.2 23.1 -1 -2.2 -0.9 -4 2010 1 23.5 22.5 -1.2 -2 -0.6 -2.8 2011 0.8 24.3 23.5 -1.2 -2.2 -0.5 -3.1 2012 0.9 25.1 24.3 -1.5 -2.5 -0.8 -3.9 2013 0.3 24 23.8 -1.5 -2.4 -0.8 -4.3

Figures for 2010 are estimates; for 2011 and later are projections.
http://dx.doi.org10.1787/888932623269

Debt Policy
Public debt increased signicantly in 2011 but debt sustainability remains generally sound. Between the rst and the third quarters of 2011, the domestic debt stock increased from ZAF 878 billion to ZAF 966 billion. This accounted for 89.5% of total national government debt while foreign public debt accounted for the remaining balance. The national governments foreign debt reached ZAF 113 billion at the end of the third quarter, largely because of the weakening of the rand. As a result of the liquid and ecient nature of the domestic money and capital markets, the primary source of decit nancing remained domestic borrowing, through a combination of Treasury bills as well as fixed-income and inflation-linked bonds. Foreign debt rose to 28.5% of GDP at the end of June 2011 from 25.6% of GDP in June 2010. The countrys outstanding foreign debt expressed in rand increased from USD 94 billion at the end of December 2010 to USD 111 billion at the end of June 2011, driven mainly by the currencys depreciation. About 45% of foreign debt is public while the remainder is held by the private sector. Borrowing abroad by public corporations, which hold about 21% of external public debt, to nance infrastructure improvement and development led to a signicant rise in foreign borrowing in 2011 compared with the previous period. At the end of March 2011, the outstanding foreign debt of public corporations was USD 10.5 billion compared to USD 5.3 billion in March 2010. However, the current level of external indebtedness by both public and private sector is well below the 40% sustainability threshold recommended by the International Monetary Fund (IMF) and the World Bank. Total national government gross loan debt, i.e. domestic plus foreign debt, rose from USD 139 billion at the end of March 2011 to ZAF 1.1 trillion (USD 175 billion) at the end of September 2011, increasing from 35.4% of GDP during the rst quarter to 37.3% of GDP during the third quarter of 2011. However, the debt burden indicators do not signal signicant risk of debt servicing diculties. Foreign debt is less than 10% of total public debt while the government is able to raise public and publicly guaranteed debt in local currency with relative ease. Total net government debt is expected to reach ZAF 1.35 trillion (USD 175.5 billion), or 36% of GDP, by the end of 2012/13, rising to ZAF 1.54 trillion, or 38.5% of GDP, by the end of 2014/15.

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Figure 2: Stock of total external debt (percentage of GDP) and debt service (percentage of exports of goods and services)
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Figures for 2010 are estimates; for 2011 and later are projections.
http://dx.doi.org10.1787/888932619317

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Economic & Political Governance

Private Sector
The private business regulatory climate is regarded as one of the most conducive in Africa. The World Banks Doing Business report 2012 ranks South Africa 35 th. In 2011, the country implemented its new company law which eliminated the requirement to reserve a company name, i.e. the obligation to submit the proposed companys name for regulatory approval, and simplied incorporation procedures. However, historical and new barriers to growth and formalisation of microenterprises remain high. The main obstacles to the growth and formalisation of small-scale enterprises are limited access to nance; crime; and problems of access to land and transport, while the three most problematic factors for doing business in the country for formal businesses remain inecient government bureaucracy; an inadequately educated workforce; and what some perceive to be restrictive labour regulations. The product market regulation is regarded as relatively onerous partly because of the presence of a signicant number of parastatals which enjoy near-monopoly positions. According to the Doing Business report 2012, trading across borders is also among one of the most dicult in the region, with South Africa ranking 144th out of 183 countries. However, the country performs well with regard to paying taxes, involving 9 payments and 200 hours, well below the regional average of 28 payments and 210 hours, and in dealing with construction permits which involves 13 procedures and 127 days, again well below the regional average of 17 procedures and 288 days. South Africas labour laws are viewed by some to be excessively rigid in respect of the hiring and ring of workers. According to the Global Competitiveness Report 2011/12, a minimum wage for a 19-year-old worker and the ratio of minimum wage to value added is almost three times the average for other BRICS countries. Private ownership of land is legally guaranteed. However, the current willing buyer-willing seller model of land redistribution has been largely ineective in ensuring the transfer of a signicant proportion of land to previously disadvantaged groups.

Financial Sector
The nancial sector in South Africa is well developed and comprises 17 banks, two mutual banks, and a number of foreign bank branches and oces, non-banking nancial institutions (including state-owned development nance institutions (DFIs), smaller nancial intermediaries and the Johannesburg Stock Exchange, the 18th largest in the world in 2011. The banking sector is resilient to shocks and has survived the nancial crisis relatively unscathed, although it currently faces low credit demand and rising costs. Domestic banks are already capitalised above the new Basel III levels and are currently operating with an average capital adequacy ratio of 15%, or 12% for Tier 1 capital, which includes issued ordinary share capital and retained earnings, well above the minimum prudential capital adequacy requirement of 10%. In spite of this, they do not presently meet the new global liquidity standards. Because of sluggish economic recovery the ratio of non-performing loans reached 5.5% of gross loans at the end of November 2011 but is expected to stabilise at this level. Following the 650 basis points cut in the policy rate between 2008 and 2010, the prime lending rate declined to 9% in 2011 while the average savings rate by ve major banks on one-year deposits was 5.34%, leading to an interest rate spread of 4.66% at the end of 2011. The bank loans-to-deposits ratio improved to 93% in June 2011 from 100% in March 2008, providing a significant buffer against liquidity pressures. In spite of the high level of nancial sector development, about 37% of South Africas 33 million adults did not have access to banking services in 2010. The majority of informal businesses have limited access to formal nancing. The government has created alternative channels of small- and medium-sized enterprises (SMEs) nancing, including the provision of credit guarantees to commercial banks which are willing to lend to small businesses, and direct lending by specialised SME nancing entities. Three state-owned development funding agencies operating in the micro-, small- and medium-sized enterprise segments will be merged into a single entity as a subsidiary of the countrys largest DFI, the Industrial Development Corporation in April 2012.

Public Sector Management, Institutions & Reform

The South African legal system provides eective protection to property rights, and contract rights are adequately respected and enforced. Laws and regulations aecting businesses and individuals are uniformly applied. Both foreign and domestic investors are allowed to participate in all sectors of the economy without any discrimination. Transfer of land ownership to the previously disadvantaged group remains slow and new legislation has been proposed in 2011 to replace the current willing seller-willing buyer model. The legislation is expected to be enacted in 2012.

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In December 2011, the Department of Trade and Industry published the Broad-Based Black Economic Empowerment (B-BBEE) Amendment Bill to align the existing B-BBEE Act with other related legislation and provide for the establishment of the B-BBEE Commission tasked with monitoring and evaluating black economic empowerment interventions in the country. The Bill also proposes stronger penalty against businesses involved in fronting i.e. falsely claiming black people as having a leadership position in a company, and other abuses of the Act. Local governments continue to face challenges in delivering basic services primarily because of a lack of skills and limited institutional and revenue management capacities. In December 2011 the government placed ve departments in Limpopo and some others in two other provinces under central government administration as a result of weaknesses in nancial management. Recruitment to the public service is to some extent governed by merit-based principles; however, public services face a policy dilemma of righting the racial imbalances created under apartheid while avoiding the weakening of government capacity and undermining its trust and credibility. The government has created a number of initiatives and structures to ght corruption and has implemented a comprehensive conict of interest policy. However, perceived corruption is rising in the country, as South Africa ranks 64th out of 183 countries surveyed in Transparency Internationals 2011 Corruption Perception Report, a record low, from 54th in 2010.

Natural Resource Management & Environment

Within the framework of the overall environmental management policy, the cabinet approved a new National Climate Change Response Policy in October 2011, which seeks to balance the objectives of job creation, economic growth, environmental sustainability and reducing greenhouse gas emissions. The policy envisages cutting CO2 emission by 34% over the next decade by introducing emission caps among the major polluters. In 1990 South Africa acceded both to the Vienna Convention for the Protection of the Ozone Layer and the Montreal Protocol on Substances that Deplete the Ozone Layer. The Department of Environment Aairs is currently in the process of developing a national strategy for phasing out ozone-depleting substances. South Africa has made some progress on Millennium Development Goal (MDG) 7 (environment), including halving the proportion of people without access to drinking water. However, it is unlikely to meet the timetable for ensuring environmental sustainability. The country is lagging behind in a number of areas, such as CO2 emission levels, over-exploitation of sh stocks, access to basic sanitation and the persistence of a large number of people living in informal dwellings. Currently about 1.2 million households live in informal settlements. Moreover, monitoring systems for water ows and quality, air quality, deforestation, and other land degradation are inadequate. Sustained investment in strengthening environmental monitoring systems will thus be essential. The proportion of land area covered by forest, a key indicator for environmental sustainability, is 36.6%, although indigenous forest cover is only 0.4% of the total land area, the rest of forest areas being planted with species introduced from 1880 onwards. South Africa is a water-stressed country and equitable water conservation remains crucial.

Political Context
The 57.7% turnout at the May 2011 municipal elections was the highest since the rst such elections in 2000. The ANC continues to dominate, with just under 62% of the vote, although support declined in some provinces. The ability of the government, at both national and local levels, to deliver essential social services such as water and sanitation remains a critical leadership challenge. Service delivery was a major determinant in the political fortunes of the smaller parties during the municipal elections. In December 2011, the ANC endorsed the Protection of Information Bill (PIB) in the lower house of Parliament despite strong opposition from civil society organisations, the media and trade unions, who viewed the bill as a threat to democracy. The Bill is likely to be the object of further amendments in early 2012 before it becomes an Act in the course of the year. In November 2011, the ANCs vocal and controversial Youth League president, Julius Malema, was suspended for ve years for acts deemed to be detrimental to the party and the country. In March 2012, the suspension was elevated to a full dismissal from the party following an appeal by Mr. Malema. Fears that his dismissal would widen divisions in the party did not materialise. Major policy dierences, however, remain within the party and among its coalition partners of organised labour, the Congress of South African Trade Unions (COSATU) and the South African Communist Party. These dierences are expected to come to a head when the ANC holds its policy conference in June.

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Social Context & Human Development

Building Human Resources
South Africa has the necessary policies and resources to improve human resource indicators such as under-ve mortality and maternal mortality. However, it lacks the implementation capacity to translate these policies into broad-based results. Decline in both measures of human welfare has been slow. Substantial progress, however, has been made in ghting malnutrition, mother-to-child transmission of HIV, as well as increased immunisation coverage and access to free health care. The national mother-to-child HIV transmission rate fell to 3.5% in 2010 from 8.5% in 2009. South Africa has eectively scaled up the implementation of national HIV and AIDS initiatives, including voluntary counselling and testing (provided in more than 95% of health facilities), the distribution of condoms, an increase in the provision of anti-retroviral (ARV) therapy, and the introduction of a dual therapy policy in 2008 for the prevention of mother-to-child transmission. However, although it has the largest ARV treatment programme in the world, the country has not achieved the goal of universal access to ARV treatment. As a result, it is unlikely to achieve MDG 6, that of halting and reversing the spread of HIV and tuberculosis by 2015. Malaria is not endemic in South Africa, and does not therefore pose a major health risk except in some parts of the Limpopo, Mpumalanga and KwaZulu-Natal provinces. The death rate due to malaria in South Africa has remained very low at 4 to 10 per thousand since 1999. South Africa has achieved the goal of universal access to primary education before the year 2015, covering children up to the age of 13 who constitute nearly 30% of the countrys population. School attendance for those aged 7-13 reached 98.4% for boys and 98.8% for girls in 2009, while the functional literacy rate also rose from 88% in 1999 to 91% in 2009.

Poverty Reduction, Social Protection & Labour

The governments anti-poverty strategy identies the most vulnerable and the poorest sections of the society and provides a comprehensive social security programme that combines income support with a social wage package. In 2011 social welfare grants supported about 15.2 million South Africans, up from 2.5 million in 1998. The grants have been expanded in recent years by raising the threshold for the child support grant until a childs 18th birthday. In 2010/11 government spent 10.9% of the total budget, or 3.4% of GDP, on social grants while spending on education, grants, health clinics, hospitals and subsidised housing increased from 10% of GDP in 2006 to 15% in 2009. As a result of active government intervention in poverty alleviation, the proportion of people living on less than USD 1 per day fell from 11.0% to 5.0% between 1994 and 2010. With this achievement, South Africa more than halved the population living in extreme poverty, thus meeting MDG 1. The fall in poverty at higher levels of incomes, such as USD 2.50 a day, has been slow. The government adopted a comprehensive approach to eradicating extreme poverty and hunger through a safety net programme. In 2010 the no-fee school policy was extended from the poorest 40% of pupils to the poorest 60%, and as a result 8.1 million students in 20 000 schools had access to free education. Moreover, about 2.8 million and 11.5 million housing units received free basic electricity and water services respectively during the 2008 nancial year. In spite of these measures, the country remains one of the most unequal societies in the world as measured by the Gini coecient of household income, which, according to an Organisation for Economic Co-operation and Development (OECD) report, increased from 0.66 in the early 1990s to 0.7 in the late 2000s. Since 1994 South Africa has ratied 12 International Labour Organization (ILO) conventions, including ILO convention 182 on the Worst Forms of Child Labour and seven other conventions considered fundamental to the rights of human beings at work. The government has passed a number of laws that conform to most of the conventions and ensure that these legislation and conventions are enforced. Because of structural constraints, job creation has lagged behind the economic recovery that started in 2010. Between the fourth quarter of 2008 and the third quarter of 2010, when the recession bottomed out, the economy shed over 1 million jobs, with the overall unemployment rate rising correspondingly from 21.9% to 25.3%. Youth unemployment rose steeply from 45.5% to 50.5% between 2008 and 2010. From late 2010, however, the economy began reclaiming some of the lost jobs. Between the fourth quarter of 2010 and the fourth quarter of 2011, the economy added 515 000 net jobs about half of the total lost in the preceding seven months.

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Gender Equality
South Africa has made signicant progress in addressing gender disparities in health and education services. Basic antenatal care services were provided in 79.4% of all public health facilities in scal year 2010/11. The National Health Amendment Bill was enacted in January 2011 to give eect to the core standards and to enforce them in the health system. The country has also made progress in respect of girls participation in secondary schooling with the ratio of female to male secondary enrolment reaching 104.8% in 2009. Some progress has also been made in tertiary education enrolment. The share of women in non-agricultural wage employment also increased in recent years from 44% in 2005 to 45% in 2010. However, while poverty has been halved for both genders, the proportion of women living below USD 1 a day remains high compared to that of males. Approximately 70% of informal businesses are owned and/or controlled by women. South Africa has signed and ratied the Convention on the Elimination of Discrimination against Women (CEDAW) and various international human rights instruments, treaties and conventions and enacted a number of laws to protect women from violence and abuse. Nevertheless, gender violence remains very high. The representation of women in the South African Parliament increased from 27.8% in 1994 to 44.0% in 2009; it rose from 25.4% to 42.4% in provincial legislatures and stands currently at about 40% in local government.

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Thematic analysis: Promoting Youth Employment

The unemployment rate in South Africa in 2011 was 24.9%, considerably higher than the 22.9% in 2008, the eve of the recession. Among the young, the unemployment rate is double the national average, having risen from 45.5% in 2008 to 50.5% in 2010. A survey by Statistics South Africa in 2010 oered the following prole of youth unemployment in South Africa: About 42% of young people under the age of 30 are unemployed compared with fewer than 17% of adults over 30. Only 1 in 8 (13%) of working age adults under 25 years has a job, compared to 40% in most emerging economies. Unemployed young people tend to be less skilled and more inexperienced: almost 86% do not have formal further or tertiary education, while two-thirds have never worked. The problem of youth unemployment was aggravated by the 2008-09 economic recession, which saw South Africas young people accounting for as much as 40.0% of the over one million jobs that were lost between the last quarter of 2008 and the third quarter of 2010. Among workers aged 15-24 employment levels fell by 21.8% (or 355 000 jobs), compared with an overall decline of 6.4%. The unemployment rate in the last quarter of 2011 edged down from 25.0% in the preceding quarter to 23.9%, conrming the hope that the recovery might be taking hold. Compared to nations at similar stages of economic development South Africa has an unusually high unemployment problem in general and among the young. Only 40% of those of working age have jobs, compared to 65% in Brazil, 71% in China, and 55% in India. The emerging market average is 56%. In early 2011, government released a discussion paper, Confronting Youth Unemployment: Policy Options for South Africa, which identied a number of factors responsible for the high unemployment among young people. These include low levels of education and skills, which tend to result in a mismatch between existing vacancies and available labour. A paradox has thus emerged whereby unemployment remains persistently high while the scarcity of critical skills prompted the government to launch an ambitious programme in 2010 to attract 50 000 temporary foreign workers per year. However, a report by the Department of Trade and Industry to Parliament in August 2011 indicated that, as of the middle of 2011, only 2 497 visas had been issued, implying the continuing existence of a gap between vacancies and qualifications. Besides a shortage of skills, lack of work experience has also tended to impede the job prospects of young people. A recent study by the National Treasury found that the probability of nding a job within six months rises with age: an unemployed person aged 18-24 had about an 11% chance of nding a job within six months, compared to a 22% chance for someone aged 25-54, with the dierence accounted for mainly by work experience. The governments broad strategy against unemployment is contained in the New Growth Path (NGP) document inaugurated in 2010 by the Department of Economic Development. The objective is to create 5 million jobs by 2020 through infrastructure development and housing; agriculture and agro-processing; tourism; and the green economy, among others. A number of policies have been proposed to stimulate the demand for labour (through increased economic growth), improve the supply of labour (through better education and skills development), and to strengthen labour markets to ensure an effective interface between employers and job seekers. The emphasis has been on labour-demand initiatives. A youth employment subsidy has been proposed to encourage employers to hire young workers whom they might otherwise not hire because of lack of experience. The experience and training gained during the period of subsidised work will therefore improve the longer-term career prospects of the beneciaries. Sections of organised labour, however, have expressed concern that the scheme might adversely aect experienced workers as rms hire low-wage young people in an eort to save costs. Negotiations are taking place between the government and labour over the issue. A ZAF 9 billion (about USD 1 billion) jobs fund has also been proposed to support projects with the potential to create large numbers of jobs particularly for younger workers. Between 50 000 and 100 000 jobs are expected to be created over the medium term. The public works programme is being expanded, based mainly on infrastructure development as well as social, environmental and community projects administered by various government departments, municipalities, and partner organisations, with the aim of creating nearly 800 000 short-term jobs between 2011 and 2012. This is supplemented by the Community Work Programme, a pilot initiative to provide an employment safety net. It is expected that these interventions will draw lessons from previous ones to ensure their success. The Umsobomvu Youth Fund, for example, which existed from 2001 to 2009, and was later replaced by the National Youth Development Agency, had created disproportionately few jobs for the number of young people who
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were assisted. While the numbers of young people given employment advisory services grew by 16.2%, the number of jobs created and/or sustained declined by 6.6% over the period. In respect of labour demand initiatives, the Economic Development Department has signed a number of accords in 2011 with industry, government and labour, among other things to expand skills in the country to create jobs. The department is also working with the Department of Trade and Industry to consolidate and strengthen nancial and other forms of support for small- and mediumsized enterprises. The economy has traditionally been dominated by large firms and support for SMEs is deemed essential to complementing the jobcreating potential of these firms. In terms of labour market initiatives, the Department of Labour intends to extend its nationwide labour services, including the registration of job seekers and placement opportunities, matching services, referrals to training, and career information. A debate over labour laws, considered by some too rigid and blamed for high unemployment because rms are supposedly reluctant to hire workers without enough exibility to re them, is currently going on in various sections of the government and among the governing coalition partners. The draft National Development Plan Vision for 2030 proposes a range of labour market reforms to facilitate rapid job creation while enhancing the countrys international competitiveness.

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