Question

Why is South African economy not growing? 

Answer 1

Post global financial crisis, the South Africa economy entered a slump and has struggled to come out of it for many years. This can be seen in the below graph where we can see that South Africa has not gone above 3% after 2008. In fact we are observing a downward trend since 2012.

Below are some of the reasons why South African economy has not grown really fast:

1. Dependence on foreign markets
South Africa's major exports are still primary commondities. They struggled to generate revenue due to low commodity demand and price. Add to it, a low manufacturing share didn't really help the economy to recover out of the recession.

2. Low fixed capital investment
A fixed capital investment less than 20% in past few years has meant slow growth. Many large South African firms didn't invest at home but outside the country. This only adds to their woes when there are sectors that do not seek fresh investment which will create more jobs.

3. Income inequality
Countries with higher income inequalities tend to be slow growers. The poor tend to generate low demand and hence the economy grows a lot slower if the income inequality is on rise. Programs that provide basic food, health and education can help to reduce the inequality.

4. Systemic problems
Rampant corruption and slow progress on economic reforms also made the recovery rather difficult. The entrepreneurs feel discouraged if there are costly entry barriers. Corruption not only affects the common man but also businesses who tend to underinvest when they're unsure about the return on investment.