In today’s blog we take a look at South Africa’s economic performance over the last couple of years compared to their BRICS peers and certain developed economies. The graphic below looks at the economic growth rates of South Africa, UK, USA, Japan, Brazil, China, India and Russia.
What is concern to see is that all but one BRICS country showed improving growth from 2011 to 2014. Only one of the BRICS’s countries who’s economic growth was better in 2014 than 2011 was India. All other BRICS countries showed lower economic growth in 2014 than the growth they achieved in 2011. Hardly encouraging numbers for South Africa, especially considering the fact that the South Africa government seems more inclined to do business with these countries than the USA and UK.
While the BRICS countrie’s economic growth rates are slowing, the developed economies such as UK and USA have seen strong improvements in their growth rates when comparing it to the growth they achieved in 2011.
So the question is why? Do they have better economic policies? Are their economies less dependent on one specific economic sector?
Think about China. Largely based on manufacturing. They trying to change their economy to be more retail and services orientated.
Then there is South Africa, who’s economic performance seems closely tied to the fortunes of commodities. As our manufacturing sector has started to decline substantially since 1994. See our Economic History and South Africa’s animated GDP pie chart. As we import more instead of manufacturing locally. A contributor to this is the lack of reliable power in South Africa.
Russia and Brazil’s economies are largely based on commodities too. Russia with crude oil and gas and Brazil with sugar cane for use in ethanol. Significant declines in gas and crude prices have severely hampered the state coffers of these countries and has lead to serious economic contractions over the last couple of years.
India being the only BRICS country to buck the trend is slowly rising to become a economic super power. They have large scale urbanisation taking place (similar to what China experience years ago, and to some extent is still experiencing). Demand for all goods and services are on the rise and there seems to be little stopping India’s growth for the medium term.
The USA and UK’s economies are less dependent on resources as they have a more diversified economy with strong manufacturing sectors, strong retail and services sectors etc, and this does shield them a little more against volatile commodity movements. While their economic growth rates are lower during times of high commodity prices, compared to the more commodity based economies, their growth rates are higher during times of struggling commodity prices.
Perhaps South Africa, like China, should implement significant policy changes in order to change the level of dependence of the South African economy (and exchange rate) on commodity prices. As this will provide a more stable platform to build an economy on, and it will be easier for government to predict tax revenues as the economy will be a more stable one and less dependent on commodities.
Source:https://www.southafricanmi.com/blog-17may2016.html