A View on the South African Economy

By: Gerald Crawford
Submitted: 2007-01-17 16:25:25
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South Africa has developed from an agrarian into a modern industrial state since World War II. Today, the economy is well-diversified and the country is capable of producing a wide range of consumer and investment goods. South Africa produces one fifth of the entire production of the African continent.

The mining industry still plays a prominent part. However, over the last few years, the country's economic dependency on the export of raw materials, especially on gold, has lessened.

The economy is based on foreign trade. More than half of the gross national product (GNP) is achieved through exports and imports. By investing in modern production technologies after the apartheid era, South African products became more and more competitive on the world market. In 1996, an export surplus of about 8,7 billion Rand was achieved. Exports consist mainly of mineral raw materials, agricultural produce, chemical products, machinery, electric appliances and vehicles. Import goods are machines, plastic products, chemicals and also vehicles.

Agriculture in South Africa:

South Africa is generally short of water. Only 11,8 per cent of the land is used for intensive agriculture relying on rainfalls. About two thirds of the country is arid or semi-arid. Rainfall is unreliable, and there can be long drought periods, as well as devastating floods. Therefore, irrigation based agriculture is very important and many products, like wine, citrus fruit and vegetables are grown under irrigation.

Meat production is also adapted to the climatic conditions in South Africa. In the arid expanses of the Karoo extensive cattle, sheep and goat breeding on natural pastures is predominant. In the north-west, the farming is confined to goats and sheep, though in areas with more precipitation they also breed cattle. At the coast and near densely populated areas there is also dairy production.

The share of agricultural produce in the GDP is slightly receding and was about 40 billion Rand (5,4 %) in 2004. Altogether, South Africa's agriculture is well developed and can successfully hold its ground on the world market, especially through products like wine, fruit, vegetables and sugar. About one million people earn their living through agriculture.

South Africa's Currency and Finance:

Over the last ten years, the South African Rand has lost almost half of its value against leading world currencies. In 2000 alone, it fell about 25 per cent against the US Dollar, British Pound and Japanese Yen. This occurred despite the fact that the currency was protected by high interest rates (up to 20 %) and despite decreasing inflation. Many investors, who had optimistically bought Rand bonds, came to feel the decline of the currency painfully.

It is doubtful whether the rating of the Rand is justified by economic indicators. The South African currency has become a favorite object for speculators, and many serious analysts consider the Rand to be under-rated by about 15 to 20 per cent.

Tourism which has developed into an important economic factor over the last years, is not the only industry that benefits from the Rand's weakness. The still very important gold mining sector, which has been put under strong pressure through the decline of the gold price, could also hold itself together due to the fall of the currency.

In 1998 the Rand got much stronger again and currently trades 9,80 Rand to the Euro and 7,80 Rand to the US Dollar. Nobody can predict at this stage in which direction the currency will move. The South African Reserve Bank publishes the latest exchange rates daily.

Article source: Expert Articles