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South Africa: Policy and Political Uncertainty Constrains Economic Growth

Key Information
CapitalCape Town (legislative), Pretoria (administrative) and Bloemfontein (judicial)
Population56.7 million
CurrencySouth African Rand
Official language11 languages including Afrikaans and English
Form of governmentRepublic


Major Merchandise Exports (% of total, 2017)Major Merchandise Imports (% of total, 2017)
Mineral products (20.2%)Machinery (24.4%)
Precious metals (16.3%)Mineral products (13.9%)
Vehicles, aircraft and vessels (13.2%)Chemicals (10.4%)
Top Three Export Markets (% of total, 2016*)Top Three Import Markets (% of total, 2016*)
China (9.0%)China (19.2%)
Germany (7.4%)Germany (12.5%)
US (7.2%)US (7.1%)

* Most recent data available
Source: Economist Intelligence Unit

Political Highlights

The African National Congress (ANC) has been the dominant political party in South Africa since 1994. The former president Jacob Zuma has overseen a tumultuous nine years in power marked by economic decline. Accused of corruption, Zuma resigned on eve of no-confidence vote in February 2018. Cyril Ramaphosa, formerly the Deputy President, was elected by the National Assembly on 15 February 2018 following the resignation of Zuma.

The ANC suffered major setbacks in key urban areas in local government elections to the Democratic Alliance with only 54% of votes in 2016 (62% in 2011). The ANC’s performance was undermined by the high unemployment and slow service delivery in rural areas and townships that are characterised by high levels of poverty and rampant income inequality.

Shortfall in government revenue with rising poverty and unemployment has increased pressures on expenditures. Unemployment has historically been a challenge and has remained at high levels over the past two decades. According to the Statistics South Africa, unemployment rate declined slightly from record highs of 27.7%, to 26.7% in the fourth quarter of 2017. Ramaphosa said that he would play an active role to help curb the shedding of jobs in the country.

Economic Trend

Economic Indicators2015
Nominal GDP (USD bn)317.6296.1349.7409.0398.2
Real GDP growth (%)
GDP per capita (USD)5,7415,2726,0015,5905,391
Inflation (%)
Budget balance (% of GDP)-4.2-3.9-3.9-3.7-3.7
Current account balance (% of GDP)-4.4-3.3-2.8-3.4-3.6
External debt (% of GDP)43.549.443.240.539.8

^ Forecasts
Source: Economist Intelligence Unit, Statistics South Africa

After recording the slowest growth in 2016, the South African economy has been heading in a stronger direction, grew by 1.3% in 2017, exceeding National Treasury’s expectation of 1.0% growth. The economy experienced the highest growth rate by 3.1% quarter-on-quarter in Q4 2017. The strengthening in economic activity over 2017 was partly driven by an agriculture industry bouncing back from one of the worst droughts in recent history, and improvement in the finance and mining industries. It is expected that growth will show a broad upward trend during 2018‑22, underpinned by a modest pick-up in the global economy but will be constrained by high unemployment, skills shortages and high levels of policy and political uncertainty.

ANC aggressively increased sales tax ahead of elections next year as new President seeks to stabilise debt and prevent a third junk credit rating. The VAT rate will first be increased from 14% to 15%, alcohol, tobacco, levies on fuel and estate duty will also be increased. The annual cost cutting programme is expected to save 5% a year through consolidating State procurement. As a result, the 2018/19 Budget deficit is projected to fall from 4.3% to 3.6%.

Chart: Hong Kong total exports to South Africa
Chart: Hong Kong total exports to South Africa

Hong Kong-South Africa Trade

Total exports from Hong Kong to South Africa increased by 22.3% from HK$7,320 million in 2016 to HK$8,951 million in 2017. The top three export categories to South Africa were: (1) telecommunications, audio & video equipment (+25.8%), (2) office machines & computers (+62.6%), and (3) electrical machinery, apparatus & appliances, & parts (+73.4%), which represented 83.1% of total exports to South Africa.

HKECIC Underwriting Experience

HKECIC imposes no restrictions on covering South African buyers. Currently, the insured buyers in South Africa range from small and medium sized companies to listed companies. The Corporation’s underwriting experience on South Africa has been satisfactory, with no claim payment or payment difficulty case reported from May 2017 to April 2018.

Content provided by Picture: Hong Kong Export Credit Insurance Corporation
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