Chapter 3:

10-Year Forecast

of nominal GDP in 2009, will constitute the most important

The South African Economy To
2019
Structural Constraints To Curb
Long-Term Growth
BMI View
While we forecast relatively stable real GDP growth rates over the com-
ing 10 years, ongoing structural shortcomings will continue to limit South
Africa’s long-term growth potential. In our view, high unemployment and
powerful trade unions present key challenges to the authorities.
In the aftermath of the 1.8% economic contraction experienced
in 2009, we believe that real GDP growth in South Africa will
average 4.0% over 2010-2019. In our view, the successful
staging of the 2010 FIFA Football World Cup will represent
an important anchor of growth in 2010, and it will have a last-
ing positive impact on investor perceptions. At the same time,
the continuation of accommodative fiscal and monetary policy
over the medium term will add an additional lift to consumer
spending and real GDP growth beyond 2010.
driver of growth, and its share is likely to remain around that
level over the course of our 10-year forecast period. South
Africa’s rising black middle class will play an integral part in
further shifting the country’s economy from an export-oriented
to a more consumption-based one. While lagging behind other
comparable emerging markets in terms of national wealth, South
Africa’s real GDP per capita is expected to more than double in
US dollar terms over the coming ten years, which will further
increase the purchasing power of consumers and drive forward
industries such as the wholesale and retail sector.
Growing wealth will also bode well for greater expansion of
the South African financial and real estate sector, despite the
sharp slowdown in activity in 2009. In that year, worsening
economic conditions cut deep into consumers’ disposable in-
comes, leading to a fall in credit demand and a rise in arrears
on mortgages and loans. At the same time, activity in South
Africa’s housing market, especially in urban areas, has almost
came to a standstill. Things are improving though, with the latest
available data showing that consumer confidence is picking up
and house prices are rising once more.

Drivers Of Growth To Remain
Unchanged
Thanks to its relatively diversified and developed structure, the
economy is unlikely to experience major structural changes
with regard to the key contributors to real GDP growth, and we
expect existing, gradual shifts to continue over the coming 10
years. Indeed, private consumption, accounting for about 60.0%
In our view, South Africa’s agricultural and mining industries
are the only important segments of the economy whose contribu-
tion to real GDP growth is unlikely to increase noticeably over
time. On the back of the considerable surge in food prices in
2007 and 2008, growth in agricultural output could see a revival
over the medium term. Over the longer term, however, with
GDP growth becoming more consumption based, we believe

table: SOUTH AFRICA Long-Term Macroeconomic Forecasts

  2012f 2013f 2014f 2015f 2016f 2017f 2018f 2019f
Nominal GDP, US$bn [1] 472.7 557.9 649.2 754.5 870.6 1,003.9 1,152.0 1,322.2
Real GDP growth, % change y-o-y [1] 4.1 4.6 4.7 4.7 4.1 4.1 3.5 3.5
Population, mn [2] 50.7 51.2 51.7 52.2 52.7 53.2 53.8 54.3
GDP per capita, US$ [1] 9,331 10,904 12,562 14,454 16,514 18,854 21,420 24,341
Consumer prices, % y-o-y, ave [3] 6.2 6.3 6.0 5.8 5.7 5.5 5.6 5.6
Current account, % of GDP [1] -4.9 -4.9 -4.0 -2.9 -1.6 -0.2 1.3 1.8
Exchange rate ZAR/US$, ave [4] 6.75 6.35 6.04 5.76 5.48 5.22 4.97 4.73
Notes: f BMI forecasts. Sources: 1  South African Reserve Bank/BMI Calculations. 2  World Bank/BMI calculation/BMI; 3  Statistics South Africa/BMI
Calculations; 4  BMI.

Business Monitor International Ltd www.businessmonitor.com 25

South Africa Q4 2010

that the agriculture sector is likely to maintain its current share in the economy. We believe that South Africa’s steady real
of around 3.0% of GDP over our forecast period. GDP growth rates since the beginning of 2000 can be partly
attributed to the implementation of a series of market-friendly
Structural Problems Putting Brakes On reforms during that period. As a result, while we have already
Growth integrated some potential changes in our projections – such as
However, we believe that structural shortcomings will weigh higher social spending – any greater-than-expected reversals in
considerably on the performance of the South African economy economic policies would be likely to have a negative impact on
and are likely to prevent real GDP growth from exceeding our South Africa’s growth potential and entail lower-than-expected
forecast average annual 4.0% expansion rate between 2010 expansion rates.
and 2019. First, aside from a high HIV/AIDS prevalence that
negatively impacts on the health of the workforce, ongoing low
primary and secondary education levels will constitute a con-
siderable challenge to increasing the efficiency of the country’s
labour force. Second, while high unemployment keeps downside
pressure on wages, South Africa’s strong unionisation and strin-
gent labour laws have led to an inflexible labour market, which
considerably increases the cost for foreign investors to set up
shop in the country. Third, high levels of crime will continue
to represent a major disincentive for foreign firms to move in.

Fourth, as experienced over the course of 2008, the ailing power

sector will put a drag on economic growth over the longer term
and is likely to have a negative impact on investor confidence
until state utility company Eskom has successfully overhauled
the national power grid. It is encouraging news that the World
Bank approved a US$3.75bn loan to Eskom in April 2010, but
this will not be a panacea. Last, but not least, South Africa’s
historic inability to attract high levels of FDI is also likely to limit
economic expansion, and the strong dependence on portfolio
investment will continue to pose a risk to financial stability.

Risks To Outlook
In our view, the considerable influence of South Africa’s left-
wing factions will represent a considerable downside risk to
our forecasts. This is because while the government has tried
to reassure foreign investors that it will not implement any
far-reaching changes to economic policies, the Congress of
South African Trade Unions (COSATU) and the South Af-
rican Communist Party have demanded greater intervention

BMI’s long-term macroeconomic forecasts are based on a variety of quantitative and qualitative factors. Our 10-year forecasts assume in most
cases that growth eventually converges to a long-term trend, with economic potential being determined by factors such as capital investment,
demographics and productivity growth. Because quantitative frameworks often fail to capture key dynamics behind long-term growth determinants,
our forecasts also reflect analysts’ in-depth knowledge of subjective factors such as institutional strength and political stability. We assess trends in
the composition of the economy on a GDP by expenditure basis in order to determine the degree to which private and government consumption,
fixed investment and the export sector will drive growth in the future. Taken together, these factors feed into our projections for exchange rates,
external account balances and interest rates.

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