SOUTH AFRICA

General Information

Economic Indicators

Trade Indicators

Economic Overview

South Africa is the most advanced, broadly based, and productive economy in Africa, with a gross domestic product (GDP) nearly four times that of Egypt, its nearest competitor on the continent. It possesses a modem infrastructure supporting an efficient distribution of goods to major urban centres throughout the region, and well-developed financial, legal, communications, energy, and transport sectors.

The country is extraordinarily rich in minerals and the mining sector is vital to the economy although gold mining as such is in slow decline. The manufacturing sector contributes more than any other sector to GDP at around 25%. Restructuring has been improving since 1994. 1

As a response to international economic sanctions to protest apartheid, government economic policies from the mid-1970s became increasingly protectionist, and the state invested heavily in industries such as armaments and synthetic fuels. The lifting of UN sanctions in 1993 and the stabilisation of political conditions have resulted in a marked increase in overall trade. South Africa is now a relatively open economy by world standards. Although import barriers are still in place, they are being gradually reduced. 2

The South African economy contracted between 1990 and 1992, but growth since then has averaged 2.7% (1994-98) with real GDP growth reaching 4.2% in 1996 before slumping to 0.5% in 1998. 3 This is largely due to an under performing export sector; 4 adversely affected by increased price competitiveness in Southeast Asian countries, and imports. 5 Another factor was uncertainty about fiscal policy post-apartheid.

In June 1996, the government took a firm economic policy stand with the release of a major macroeconomic strategy, "Growth, Employment and Redistribution" (GEAR) underscored by the urgency of action to raise labour-intensive economic growth and cut unemployment. Amongst policies inherent in GEAR were a reaffirmation of support for existing commitments to privatisation and the reorientation of public spending towards the poor. 6

South Africa is a member of the WTO and was granted acceptance as an "economy in transition", placing it between developed and developing economies, thereby providing extra time to comply with tariff reduction requirements and general restructuring of the trade regime. 7

As a member of the Southern African Customs Union (SACU), South Africa, along with Botswana, Namibia, Lesotho and Swaziland, has tariff-free access to all SACU markets and applies a common external tariff to third-country imports. 8

Regulatory Environment

South Africa's return to the international community and economic recovery have raised import levels and eliminated the previous current-account surpluses. There is little chance of surplus in the coming years, especially as import barriers are lowered in line with the rationalisation and reduction of tariffs under WTO rules. 9

While many goods enter duty free, those subject to duty generally pay at a rate between 5 and 25%. However, rates of tariff protection can reach over 60%, with luxury goods tariffs as high as 60 percent and automobiles at 100%. 10 Currently, 90% of South Africa's tariff rates are GATT-bound; this percentage will increase 10% as Uruguay Round obligations are implemented. 11 South Africa has committed itself to a maximum tariff of 15-30% for most items, a reduction in the number of tariff headings from 12000 to around 1000 and a dropping of tariffs now at 5% or less. 12

South Africa is open to foreign investment. It offers a substantial market with growth potential, access to other markets in Africa, and labour costs lower than other Western industrialised countries (although production levels are also lower). 13 Foreign firms are treated the same as domestic companies for various investment incentives such as export incentive programs and tariffs, and other trade regulations. 14 Foreign investors are permitted 100% ownership of a company.

Screening of foreign investment per se does not normally occur. Performance requirements are levied in only a few key sectors in order to obtain permission for foreign investment. The Government encourages investments that strengthen, expand and/or update various industries but does not require that new investments comply with specific requirements. The primary significant difference for the foreign investor is access to domestic financing. 15

Current Process of Liberalisation

The present government has moved to reduce its role in the economy and to promote private sector investment and competition. It has lowered tax rates for foreign companies, and begun a policy of trade liberalisation including the scrapping of the financial rand. 16

GEAR, a five-year economic plan released by the government in June 1996, emphasises fiscal discipline, supply-side-driven economic growth and a flexible labour market.

The government is currently in the process of simplifying the tariff system by consolidating categories of similar goods and lowering many tariff levels. 17

South Africa's Uruguay Round commitments include:

• rationalising 10,000 tariff lines down to 5,000 - 6,000 by the end of the five-year adjustment period following 1995;
• binding 98% of its tariff lines over that period;
• replacing all remaining quantitative control and formula duties with ad valorem duties: and
• reducing tariff lines from the previous 80 different levels into six levels: 0%, 5%, 10%, 15%, 20%, and 30%.

After two-and-a-half years of negotiations, South Africa and the European Union, its biggest trading partner, signed an agreement on free trade to take in 1999 with exemptions for farm products and textiles.

1. Country Profile: South Africa: 1999-2000 (Economist Intelligence Unit, London, 1999), p. 35.
2. CIA World Factbook 1997 (http://www.odci.gov/cia/oublications/factbook/country-frame.html).
   1996-1997 World Trade Almanac, (World Trade Press, California, 1996), p. 675.
3. Country Profile...1999-2000, pp. 28-29.
4. Country report: 1 st Quarter 1998: South Africa (The Economist Intelligence Unit, London, 1998), p. 14.
5. lbid., p.8.
6. Country Profile...1999-2000, pp. 25-26.
7. Country Profile: South Africa: 1998-99, (The Economist Intelligence Unit, London, 1998), p. 38.
8. Country Reference: Investing, Licensing & Trading Conditions in South Africa: 1998, (The Economist Intelligence Unit, London, 1998), p. 38.
9. Country Reference..., p. 38.
10. Trade Compass Country Commercial Guides,
    (http://www.tradecompass.com/library/books/com_guide/).
11. 1996-1997 World Trade Almanac, (World Trade Press, California, 1996), p. 677.
12. Country Reference..., p. 38.
13. 1996-1997 World Trade Almanac, (World Trade Press, California, 1996), p. 681.
14. Trade Compass Country Commercial Guides,
    (http://www.tradecompass.coin/library/books/comJguide/).
15. Ibid..
16. Ibid..
17. Trade Compass Country Commercial Guides,
    (http://www.tradecompass.coin/library/books/com_guide/).
18. Ibid..