Freedom Day Gives Us Reason to Reflect on Just How Far South Africa's Economy Has Come in Two Decades

20 years ago this weekend the first multi-racial elections took place in South Africa. The apartheid policies of the National Party were tossed aside, as Mandela's African National Congress swept to power, taking close to 63% of the overall vote. In the 20 years since - the quality of life, and the economy South Africa has only gone in one direction - upwards.

20 years ago this weekend the first multi-racial elections took place in South Africa. The apartheid policies of the National Party were tossed aside, as Mandela's African National Congress swept to power, taking close to 63% of the overall vote. In the 20 years since - the quality of life, and the economy South Africa has only gone in one direction - upwards.

With the eventual repealing of apartheid, the South African economy was thrust back on to the world stage after years of exclusion. The UN had started an arms embargo in the 1960s, while OPEC enacted an oil embargo in 1973 - but most trade sanctions from the European Community, Commonwealth nations and the United States did not come into force until 1985.

In 1986, further action was taken against exports of iron ore, textiles and agricultural goods. Needless to say, most nations continued to buy South African gold and South Africa itself took advantage of an international 'grey market' to circumvent these measures.

By 1996 the majority of these sanctions had been lifted and by 2000, the stewardship of Thabo Mbeki had turned the South African economy into an attractive investment opportunity.

The spine of the South African economy is its vast natural resources. Opinions differ, but some say that as much as 90% of the world's platinum reserves are in South Africa alongside significant deposits of palladium, vanadium, gold, nickel and coal.

Given the lack of a true manufacturing base in country, and the relatively high level of manufacturing pay in South Africa compared to other emerging market economies, a large majority of these raw materials are exported.

Exports since the election are up 909% with the main destinations to places like Germany, China and the United States. To help the value of these exports the South African rand [ZAR] has weakened in value from a GBPZAR rate of around 5.18 to a current level of 17.43 - a 71% devaluation.

In the immediate aftermath of the 1994 election, the rand fell as international speculators priced in the uncertainty of the new government. Throughout the 2000s, the ZAR was a popular destination for carry trade investors who borrowed in low rates elsewhere and invested in the rand benefiting from interest rates as high as 12% in 2008.

The Global Financial Crisis and the risk aversion exhibited by investors led to the rand being sold heavily with further weakness coming from a drop in exports to industrial nations as global growth bottomed out and inflation levels of 9%.

In the past year or so a series of strikes in mining operations across the country alongside issues in power generation have hurt output.

Much like the rest of the BRICS nations (Brazil, Russia, India, China, South Africa) the past 20 years has been a period of dramatic and positive expansion in South Africa. In the last fortnight it may have lost its crown as Africa's largest economy to Nigeria, but, we envisage the eventual rebalancing of the South African fiscal landscape - from a raw material economy to a services and investment economy - will clear the way for a bright future for the Rainbow Nation.

Jeremy Cook is chief economist at World First

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