Economics Challenges of South Africa

Topics: Economics, Macroeconomics, International Monetary Fund Pages: 2 (581 words) Published: October 29, 2011
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...
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