South Africa PESTLE Analysis

7/25/2019 South Africa PESTLE Analysis

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PESTLE analysis

Political Environment

South Africa is a multiparty parliamentary democracy in which constitutional

power is shared between the president and the Parliament. The Parliament

includes two parts, the National Assembly and the National Council of

Provinces. They are in charge for creating the laws of and taking care of bills

involving monetary issues. The third governmental division is an autonomous

udiciary. The Constitutional Court is the highest court for interpreting and

deciding constitutional issues, while the Supreme Court of Appeal is the

highest court for nonconstitutional matters !"ureau of African A#airs, $%&%'.

South Africa achieved independence from "ritain on (& )ay, &*&% and the

o+cial ndependence -ay is $th April. n &**/, there was 0rst all1race

multiparty election making it the formal end of apartheid. n $%%*, the ruling

African National Congress !ANC' won its third consecutive election and 2acob

3uma was elected President.

There has been a concern that the dominance of the ANC has made South

Africa a de1facto one1party state with other parties, such as -emocratic

Alliance !-A' and Congress of the People !C4P5' being in the opposition.

President 3uma6s rise to power has been divisive. 3uma6s reputation has

been stained by several issues, such as accusations for corruption and se7ual

abuse, which provoked his discharge as -eputy President in $%%8. There are

still issues concerning 3uma which include his setback in declaring his

commercial interests and e7tra1marital a#airs.


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3uma was brought to power with a support of two ruling partners 1 powerful

Congress of South African Trade 9nions !C4SAT9' and the South African

Communist Party. The 3uma administration has mainly remained to the

previous administration6s economic policies. Nevertheless, there are still

ideological tensions within the ANC and among the ANC and its ruling

partners. South Africa continues to have broad economic and political

relations with the regional and international community that will likely o#er a

degree of stability. South Africa6s successful hosting of the :orld Cup of

soccer in 2une12uly was viewed as a coming1out party of sorts for South Africa

on the international stage !:helan, n.d.'.

"ased on the recent political situation in South Africa there are certain

challenges ahead. There have been notable transformations in the country

after the apartheid period such as programs to develop necessary social

services, wide spreading the right to use improved chances in education and

business. ;owever, the process of transformation of South Africa is long and

re


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5ven though South African economy is in many areas highly developed, the

nature of apartheid caused the country6s international isolation until the

&**%s that has left maor disadvantages. The economy is in a course of

change as the government attempts to manage the ine


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reporting, auditing and accountability, and changes in monetary policy in

terms of in>ation targeting, allowed South Africa to have transparency and

predictability that are highly1praised. Third, the process of trade liberali@ation

has progressed signi0cantly since the early &**%s, which together with

implementation of :orld Trade 4rgani@ation !:T4' obligations and initiation

of the -oha -evelopment =ound shows South Africa6s recognition of free

market values.

Today, economic recovery is on track. The 0scal position remains

challenging, the forecasts for $%&& include si@able but manageable de0cit.

The government e7pects these shortfalls to gradually narrow due to a

rebound in growth and slowdown in e7penditure growth. nternational

investors remain cautious of emerging markets due to events in 5urope

!reece' and South Africa could fall out of favor should perceptions shift. So

far, unemployment remains stuck at $8E, with employment gains only being

registered in the public sector. The recovery is e7pected to remain on course

and private sector demand should gradually gain force, thus replacing

government as a growth driver. A stronger recovery will likely only take hold

in $%&$.

=egardless of the various optimistic economic achievements since &**/,

South Africa has had di+culties in attracting signi0cant foreign direct

investment. ;owever, the situation started to change, in $%%8 South Africa

had the largest single - when "arclays ac


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investors, there are several investment opportunities e7isting in South Africa

since the country is the world leader in several speciali@ed manufacturing

areas and it has fast growing service industry, tourism construction that will

signi0cant foreign investment over the ne7t few years.

4n )ay &8, $%%/, South Africa was honored a chance to hold the $%&% A

:orld Cup.

That was the biggest event that was ever held in Africa. South Africa made a

big e#ort on improving the infrastructure and security in the country. The

economic impact of the :orld Cup is great for the country, since it willincrease the -P, create numerous obs and attract foreign investments.

South Africa6s longer1term prospects center on the government6s ability to

manage a country through a transitional period. 5conomic policy is generally

business friendly, while - is welcomed. Success depends on the capability

of the government to address the power issue.

Social Environment

Today there are /*,&%*,&% people living in the country. )ore or less half of

the population lives in urban areas, and many live in rural areas with

insu+cient housing. n both rural and urban centers, a lot of people do not

have access to water supply and sanitation, electricity, and other services.

-ue to the fact that population is more mobile today and there are more

employment opportunities in the urban areas, the immigration among the

citi@ens is growing rapidly. Poverty is the highest among the "lack

population, reaching over B%E. There have been several reforms in the


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education sector and now all inhabitants have access to education, however

still around &(,BE of population are illiterate.

5ven though maority of people have access to health services, publicestablishments are usually lacking necessary resources and not capable to

meet demands. South Africa has one of the highest rates of ;G occurrence

in the world. 4verall, &H,&E of the population is infected by this disease.

5very day there are &,%%% new infections occurred, and around (8%,%%%

people die annually from A-S1related diseases. A $%%1$%&& strategic plan

o#ered the arrangement for a widespread reaction to ;G and A-S, counting

a national compress of antiretroviral therapy. 4verall, (%E of infected people

are currently on antiretroviral therapy.

rom the time when apartheid was abolished, political violence in South

Africa has went down noticeably, however today violent crime is still a maor

concern in South Africa and these acts are increasingly economically rather

than racially motivated. Therefore, there are many robberies targeting upper1

class citi@ens. n $%%H, due to the national dissatisfaction with high

unemployment rates and illegal immigration, people from other African

countries who came to urban cities of South Africa were often targeted by

local citi@ens. n April $%&%, 5ugene Terre6"lanche, a disreputable pro1

Apartheid person, was killed by two of his black employees. This event raised

concerns of inter1racial violence, however it did not happen.

:hile South African society is e7periencing a rapid change, some preudice

against women and people infected by ;GIA-S continues !"ureau of African

A#airs, $%&%'.


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Technological Environment

n rural areas of South Africa telecommunications are limited and


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Legal Environment

T=AFAC1Trade Faw Center in South Africa 1 is a not1for1pro0t organi@ation,

building trade law capacity in the southern Africa regionD in governments, the

private sector and civil society. Trade Faws 1 Sanitary and phytosanitary

measures, standards and technical regulations on trade, anti1dumping

measures, and elimination of importIe7port duties, non1tari# barriers, and


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mismanagement, the government has supported a scheme which promotes

sustainable development and the use of natural resources.

A warmer temperature in South Africa is another upcoming issue that maylead to?

luctuations in bio geographic distributions and loss of biodiversity

ncrease in human deaths, especially among the elderly, due directly to heat

waves

Serious risk of epidemic infectious illnesses, for e7ample malaria !due to ane7pansion of suitable habitat for mosation

5


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"etween all the Sub1Saharan African countries, the =epublic of South Africa is

the most developed in both aspects? economically and politically. The ross

domestic product !-P' of South Africa represents one third of the total sum

of the -P6s of that region and one 0fth of the collective gross domestic

products of Africa. rom the point of international trade, South Africa is

considerable due to its geographical position, natural resources and well

developing economical structure. South Africa is regarded to be a leading

nation in Africa, thus the economy of South Africa is divided in many aspects.

4ne part of it is moderni@ed and based on high technologyD on the other

hand a signi0cant part of South Africa has low education and is poor, living atsurvival level. )ain cause for such division is the e7tended apartheid era,

when the inhabitants were separated due to race.

Apartheid had a great in>uence on trade relations, due to the fact that

=epublic of South Africa was in trade restriction by 9N decision. -uring that

time, growth of foreign trade was modest and that also re>ected on the

whole economic e7pansion in the country. Apartheid came to an end in &**/,

followed by liberali@ation progress of foreign trade. South Africa entered :T4

in &**8 and four years later created a new trade relation with 59. rom the

0rst


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9ntil the global economic crisis hit worldwide economic growth in South

Africa was stable and e7ceptional. Corresponding to statistics South African

-P rose by $,E in $%%&, (,E in $%%$, (,&E in $%%(, /,*E in $%%/, 8E in

$%%8, 8,/ in $%%B, 8,&E in $%% and (,&E in $%%H. n the third and fourth

ation composed at the level of *,HE. rom $%%/ all

the way through $%%B consumer in>ation came in at below 8E, before global

prices pressed it up to B,8 E in $%%. :ith low ta7es across the borders, theoptimistic economy, improved ta7 compliance and a progressively improving

ta7 and customs administration have seen government rising and falling,

hitting =/8.H billion ! nearly K$ billion' in $%%BI%, three times more than

in &**BI*.


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A :orld Cup $%&% boosted country6s economy by =(,B billion K8$8 million

and attracted more than (B%%%% visitors and estimated around B*8%%% obs.

Thus there is another positive note? a successful :orld Cup will facilitate the

perceptions that a large number of foreign investors hold of Africa.

The results show the event will have a lasting legacy in terms of the South

African tourism industry, according to )inister )arthinus van Schalkwyk.L ;e

said? M"ased on the results of our survey of the tourism impact of the :orld

Cup, the success of the event will reverberate for many years to come. The

:orld Cup was never about the hosting of a tournament, but rather about

building a legacy for our country and our continent 1 a legacy in terms of

infrastructure development, economic growth, skills development, ob

creation, nation building and brand awarenessM !n.a., )edia Statement by

the o+ce of )r. )arthinus Gan Schalkwyk , $%&%' .L

Increasing employment

South Africa6s unemployment rate is $(.(E !$%&% est.'. The costs of

unemployment can be very destructive to country6s economy since the

production decreases, -P dropping and in>ation rises. South Africa6s

fundamental di+culty is fast population growth and the measures that can

be taken to limit population growth can be a part of the strategy to decrease

unemployment. The control over migration must be enforced in the country

since it limits the amount of obs for local people, especially for unskilled

workers which form the largest group of unemployed citi@ens !-epartment of

home A#airs, n.d.'. There is a shortage in skilled workers, therefore certain

measures should be taken in education and training programs. overnment

of South Africa initiated special employment programs in order to employ as


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many people as possible to build roads, dams and clean the environment.

Another possible way to increase employment is to o#er ta7 incentives for

employers such as ta7 bene0ts or subsidies if they hire more people.

;owever, a policy like this must be highly monitored since there is a high

possibility of its abuse.

Trade balance

The trade balance is a part of the balance of payments. The di#erence is that

the trade balance only outlines the balance between e7ports and imports in

order to determine a surplus or a de0cit. According to the graph below, South

Africa6s trade balance from the point where the ANC where elected till the

point where we stand today. The largest surplus of =* billion was achieved in

$%%& and the biggest de0cit of more than =& billion occurred in the

beginning of $%%* !Trading 5conomics, $%&%'.

ig.$. South Africa "alance of trade

The reason for these outcomes is that in the end of $%%%, the merchandise

e7ports rose by &8E. This was due to the devaluation of the rand, which

made all e7ports more attractive for the rest of the world. The reason for the

large de0cit faced in $%%* was a combination of the world cup and the

0nancial crisis. mports were needed for the event to take place, but also an

economical recovery was in progress. 4nce again history repeats itself, ust

in more dynamic de0cits. As the South African economy won the battle

against the =8% billion in net capital &**/, the domestic demand for imports

boosted towards the sky. The same scenario is found here, there was a


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feeling towards more economic security, therefore the demand boosted once

again.

"ased on the graphs below, Asia and 5urope play the biggest role in terms ofSouth Africa6s imports and e7ports and it is also in these two continents

where the biggest de0cit is found. This is mainly due to the e7change rate

di#erences of the 5uro and the uan versus the =and.

ig.(. Trade "alance

ig./. 57ports and mports data

As the forecast of appendi7 & indicates that a continued de0cit in the current

account will occur up to $%&8, mainly due to the economic plan of the

country. South Africa is still facing issues related to the apartheid period

including poverty, lack of public transportation, unemployment being at

appro7imately $8E and rising and economic empowerment. The ANC

addressed these issues at the **th Anniversary, in 2anuary $%&&, and willtake measures upon increasing income and employment opportunities for

low1income families, decrease in>ation rate and boost -P by $%&8. -ue to

these plans undertaken by the government, a further de0cit will be seen in

the current account and with that, a further e7ceeding of imports compared

to e7ports will be present in the ne7t coming years !South African =eserve

"ank, $%&%'.

Infation

The historical trends of in>ation in South Africa show that it has a strong

economy with a stable economic growth. According to CA act book, in>ation


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in $%&% was /,8E. The South African in>ation is mainly caused by the

production costs and the demand within the economy. The conseation can be destructive to the economy since the increase in production

costs will drive the increase in the prices for the products and shortages of

manufacturing products can happen in the manufacturing industry as well in

the economy. n>ation can also result in banks not o#ering credit facilities to

investors and it can cause instabilities in the economy as it depresses saving

and in>uences the balance of payments. Today, one of the maor elements of

South African 0scal and monetary policy is targeting and 0ghting in>ation.

According to the reserve "ank overnor, )r T T )boweni, the use of themonetary instruments by SA=" to 0ght in>ation is essential to decrease the

destructive impacts of in>ation in the economy.

Equity

South Africa is ranked in the top &% countries in the world for income

ine


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failed to improve the living of black citi@ens and ine


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becoming overheated. There were not enough resources to cope with the

eager to grow. There was also a lack of people with enough skills to use the

available resources e#ectively for the goods and services needed by the

economy. Another as important factor indicating why the beginning balance

of payments showed a warning to the country was due to the internal

problems faced by apartheid leaving the maority of the population in very

limited conditions to grow economically. The actual hit upon the balance of

payments came in &*H/ 1 &**/, where a total of =8%billion in net capital, had

to be accommodated over this ten1year period. This led the depression in

domestic demand even further, because the annual =8billion had to becovered by a surplus of the current account, meaning that less was imported

and even less economical development was achieved. "y &**( the =8%

billion was almost covered, the remaining de0cit was covered by the national

reserves, leaving the new elected government !ANC' with national reserves

e


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shortfall started with the preparation of the :orld Cup. )ore imports and

domestic spending was needed in terms of infrastructure and therefore a

de0cit occurred. n relation to this, the economic crisis was knocking on

South Africa6s door and let to the further fall in $%%H !-epartment Trade and

ndustry =epublic of South Africa, $%&%'.

ig.8. "alance of payments

ig.B. 57ports and mports at current prices

ig.. "alance of payments? transfers and balance on current account

According to appendi7 &, the current account and the transfer !net receipts

O' are both still facing a de0cit, but the overall balance of payments is

achieving a surplus. According to the forecast of the coming year up to year

$%&8, show that the current account as well as the transfer !net receipts O'

account will still face a de0cit, but the overall balance of payments will reach

@ero according to the SA reserve banks predictions. ;owever, as history hasshown, there will never be balance of payments report that will euctuations, especially

since there is no ultimate answer to what the euro and the dollar will stand in

$%&8, it seems too optimistic to make such forecast in today6s economic

situation that is still not fully recovered from the recession.

E"change rate policy

South Africa has a strong 0nancial structure with a great and active stock

e7change that ranks &th in the world in terms of total market capitali@ation.


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South Africa has a >oating e7change rate system where the rand e7change

rate is mainly established by the foreign e7change market forces under

circumstances that e7change control is still applied, however only over

inhabitants in terms of capital movements. The government has taken steps

to slowly lessen lasting foreign e7change controls !)erwe, n.d.'. Private

citi@ens can do a single investment of up to $,%%%,%%% rand in o#shore

accounts. -uring $%%, the percentage of South African shareholdings for -

outside Africa was decreased from 8%E to $8E. This change allows South

African companies to hold strategic international partnerships. )oreover,

companies that are involved in international business were allowed to use asingle Customer oreign Currency !CC' account for all intercontinental

dealings. 2ohannesburg Securities 57change !2S5' was also given a

permission to set up a rand currency futures market that aims to e7pand

South Africa6s 0nancial markets and raise li


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#orecasts

South Africa is the largest economy in the African continent. South African

economy is proected to grow over the ne7t decade at around /E. "ased on

these proections, South Africa6s is supposed to add appro7imately %,E of

global demand in the ne7t &% years.

n order to become a member of "=C group, South African economy is

supposed to grow at BE over the years and have bigger contribution to the

global demand. 5ven though this growth rate is feasible to achieve, there are

several issues that will make it di+cult. The maor concern is poordemographic scenarios and the structural comple7ities in improving the

conditions in the labor market.

According to some forecasts, economy in South Africa is proected to be

positioned seventh globally by the year $%8%, growing faster than economies

in =ussia and "ra@il. :hile there are various opportunities and potential for

South Africa to develop, it is uncertain to say that this economy will overtaketwo members of the "=C group !5nsor, $%&&'.

-ue to South Africa6s predicted growth rate, a proected increase in -P will

follow. "y $%&8, according to economic e7perts of ), the -P value is

e7pected to rise from K$H.$&* in $%%* to K/$*.8*&. 5


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The laws and restrictions are increased, leaving the agricultural sector to

move from the land towards the cities. Another factor that is of concern in

contribution with the continuously increased unemployment rate is the

increase of population by %.(E annually !5conomy :atch, $%&%'. L

Fooking at the proected balance of payments and balance of trade is

supporting the growth and -P increase since imports will overtake e7ports.

-ue to the continuous growth on the other hand, the economy will still face a

surplus in terms of balance of payments due to the capital and 0nancial

account in combination with the national reserves.

South Africa will carry on with challenges of A-S and e7tensive crime and

poverty, thus economy of SA is forecasted with boost. 57perts oppose

whether South Africa will take an advantage of more than southern Africa or

will instead create close relationships with ade


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economic growth must be directed towards the very large populations that

still inhabit in the rural areas. f the great amount of Africans who still live in

rural sector will not become wealthier, it will be hard to deduce that African

countries overall will develop into thriving economy !The "renthurst

oundation, $%%B'.

South Africa is an attractive economy with various prospects in the future,

however it is far from being a member of "=C group. The main concerns are

the development of its current account and the di+culties in demographic

and labor market situation. Therefore, the process of including South Africa in

the "=C must focus on the geopolitical rather than on economic reasons.

Documents

South Africa PESTLE Analysis