“South Africa will not get back on top. Nigeria will have strong competition and by 2050 may have an economy smaller than DR Congo and Ethiopia.”
SOUTH Africa has had a very tough 2015, as global – and local – forces seemingly conspired to knock the wind out of the country’s lungs. First, the global commodity price collapse linked to a slowdown in the Chinese economy has made a big dent in South Africa’s export revenues.
China is a major consumer of South Africa’s mining exports, but has had to cut down its order book as it tries to rebalance its economy.
Making things worse is the worst drought in more than three decades. Some parts of the country have been declared disaster areas, thousands of livestock may have to be killed, and the government is spending about 350 million rand ($25 million) on emergency measures.
And internally, social unrest has gripped the country in 2015, from the student protests that begun at Rhodes University early in the year and culminated in the #FeesMustFall protests, to a spate of xenophobic attacks in April. As the year came to a close, there were more protests against perceptions of increasing government corruption, and President Jacob Zuma’s highly controversial sacking of Finance Minister Nhlanhla Nene.
As South Africans watch with dismay as the country’s sovereign credit risk hover close to junk level, could this all be a passing cloud? Is there a chance that the country will regain its top spot as Africa’s biggest economy? Nigeria knocked off South Africa as the continent’s largest economy last year, with the rebasing of its economy to $521 billion.
Carlos Lopes, executive secretary of the UN’s Economic Commission for Africa (UNECA), doesn’t think so.
“South Africa will not get back on top,” said Lopes.
The reason for this possibly is two-fold, according to Mail & Guardian Africa analysis. First, there is a quiet but hugely significant trend happening in Africa at the moment, for which South Africa is a relative outlier – demographic change.
Over the next 35 years, more than half of the world’s births will happen in Africa. It means that over the same time period, the region’s working age population is expected to triple to 1.25 billion people. With the right policies in place, this could be harnessed into increased savings and investments, and booming economic growth.
Nigeria, for example, will see its working age population grow from 51.5% of the total population in 2015 to 58.4% in 2050, according to latest projections (pdf) by the UN’s Department of Economic and Social Affairs.
But over the same time period, South Africa will see its working age population (age 15-59) grow by just 0.3 percentage points, from 63% to 63.3%. South Africa’s demographic transition into smaller, and relatively more prosperous families, began earlier than in the rest of sub-Saharan Africa. It means that there is less room for growth.
Financial markets
The other major challenge holding South Africa back is structural. The country has an enormous amount of capital concentrated in its financial markets – data from the World Bank shows that the market capitalisation of the financial markets is nearly three times larger than the country’s actual Gross Domestic Product.
That gives it a market capitalisation-to-GDP ratio that is the third largest in the world; only Hong Kong and Switzerland have relatively larger capital markets. Some of this is accounted for by large overseas companies cross-listing on the Johannesburg Stock Exchange, but even so, the financial sector’s size is remarkable for a country of South Africa’s size and population.