Economics Challenges of South Africa

Challenges: energy supply (South Africa)
Capacity constraint that has arisen precisely because of the country's strong economic performance in recent years is the largest immediate menace to South Africa's continued economic growth. This growth, coupled with the rapid industrialisation and mass electrification programme of the last decade, eventually led to demand for electricity outstripping supply in January 2008.
At the end of 2007, South Africa began to experience an electricity crisis. State power supplier Eskom confronted problems with aged plants, necessitating "load-shedding" cuts to residents and businesses in the major cities. Growth was robust from 2004 to 2007 as South Africa gained the benefits of macroeconomic stability and a global commodities boom, but began to slow in the second half of 2007 due to the electricity crisis and the subsequent global financial crisis' impact on commodity prices and demand. GDP dropped nearly 2% in 2009. Unemployment remains high and outmoded infrastructure has constrained the growth. Daunting economic problems remain from the apartheid era - especially poverty, lack of economic empowerment among the disadvantaged groups, and a shortage of public transportation.
Ratings agencies Standard & Poor's and Fitch said in January 2008 that the electricity shortage was not seen as an immediate threat to SA's investment-grade credit rating, but could become an issue if it sharply curbed economic growth.
The resulting power cuts prompted the government to move quickly to deal with the crisis. The response plan includes spending about R343-billion over five years to fund a new generation of power stations, as well as a raft of measures to lower the residential and industrial demand. South Africa's former economic policy was fiscally conservative, focusing on controlling inflation, and attaining a budget surplus. The current government largely follows the same prudent policies, but must contend with the impact of the global crisis and is facing growing pressure from special interest groups to use state-owned enterprises to deliver basic services to low-income areas and to increase job growth.

Challenges: unemployment (South Africa)
The International Monetary Fund (IMF), in its 2007 annual country assessment, noted that South Africa's economy was "undergoing its longest expansion on record, and in recent years has experienced elevated growth in an environment of rapid credit expansion, booming asset prices, strengthening public finances, and rising international reserves financed by large capital inflows."
At the same time, the IMF expressed concerns about the country's current account deficit and inflation rate.
The IMF report also identified the long-standing issue of unemployment as one of the biggest challenges to economic growth in the country, along with poverty, large wealth disparities and a high incidence of HIV/Aids.
But the report also came out in support of the SA authorities' approach to these problems, with policies aimed at raising economic growth in a stable economic environment and initiatives to reduce unemployment and improve social conditions.
The IMF said this strategy could be bolstered by labour market reforms and further trade liberalisation.
Key to overcoming the challenges identified by the IMF will be the economic integration of South Africa's previously disadvantaged majority. South Africa's economy has a marked duality, with a sophisticated financial and industrial economy having grown alongside an underdeveloped informal economy.
While SA's financial and industrial "first economy" has an established infrastructure and economic base with great potential for further growth and development, its informal "second economy" presents both untapped potential and a developmental challenge for the country.