South Africa’s Gross Domestic Product (GDP) is worth 364 billion dollars, which constitutes only 0.59% of the world economy (Trading Economics, 2011a: 1). This fraction of a percentage is achieved from a country which had a m id-year population estimate of 50.59 million in 2011 (Statistics South Africa, 2011: 2) and which has an unemployment rate of 23.90% as of January 2012 (Trading Economics, 2011b: 1). This is exceptionally high in comparison with the top three economies worldwide, namely the United States of America, China and Japan. The United States of America currently has an unemployment rate of 8.30% (Trading Economics, 2011c: 1), while China had an unemployment rate of 4.10% in the third quarter of 2011 ( Trading Economics, 2011d: 1) and Japan had an unemployment rate of 4.60% in the fourth quarter of 2011 (Trading Economics, 2011e: 1).
South Africa’s high rate of unemployment is a result of a lack of education (Amos, Ristow, Ristow and Pearse, 2008: 172). Over the years, the nature of the workforce has changed dramatically in terms of age, ethnic and racial composition, family structure and job expectations (Chew, 2004: 13). Following from this, intellectual capital within South Africa has become an increasingly scarce commodity. Innovative potential in South Africa is also at increased risk with a university enrolment rate of only 15.00% (World Economic Forum, 2009: 12; World Economic Forum, 2011: 16). This idea may be fuelled by the fact that during the apartheid era many individuals were deprived of the opportunity to further their education and now the country is suffering from a poor supply of educated individuals (Amos et al., 2008: 172; Morris et al., 1996: 64-65).
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Job creation within the country remains less than ideal. President Jacob Zuma declared 2011 to be the ‘year of job creation’ and the introduction of the New Growth Path by the ANC government was developed to achieve its five million jobs target by 2020, thereby reducing unemployment to 15.00% (Business Report, 2011: 1; South African Government Information, 2011: 1). Statistically, a total of 47 000 people were employed in the formal sector in the first quarter of 2011, while a total of 193 000 jobs were created from the second to the third quarter of 2011 (Business Report, 2011: 1; Roberts, 2011: 1). This shows that job creation by the ANC is on t he increase, even though this may be at a slower pace than expected. According to the Democratic Alliance (DA), a more coherent jobs policy is required for South Africa in light of the “small increase in people employed in the first quarter of 2011 compared to the country’s jobs target” (Business Report, 2011: 1).
More recently, the global recession is another factor which has affected the South African economy. The United States of America began to enter a recession in late 2007 when its GDP rapidly decreased in the two years which followed (Lombra, 2009: 4-7). This decline caused the country’s financial system and economy to weaken, which was ultimately the catalyst for the start of the worldwide recession (Lombra, 2009: 4).
Of the many factors that gave rise to the financial crisis perhaps the most significant was the issuance of sub-prime mortgages to individuals, which resulted in significant losses for banks and financial markets (Bernanke, 2009: 2). The recession resulted in a decline in total spending by worried American consumers, which in turn reduced the country’s purchases of imported goods, and hence caused other countries to experience a drastic decline in their exports, which are a major component of a country’s GDP (Lombra, 2009: 4). Although the financial crisis began in the United States of America it spread to world markets and these regrettably suffered the same unfavourable economic consequences (Bernanke, 2009: 6). According to the Board of Governors of the Federal Reserve System (2009: 1) of the United States of America, “the pace of economic contraction is slowing” and conditions in financial markets worldwide seem to be improving.
The only seemingly hopeful ‘upside’ for small businesses affected by the global recession is that economic crises are historically times of industrial renewal, whereby new business models and new technologies, particularly those leading to cost reductions, emerge.
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Furthermore, the benefit is that less efficient businesses will fail, while more efficient ones will emerge and expand during such unfavourable economic times (OECD, 2009: 5).
The World Economic Forum (2011: 16) states that South Africa’s competitiveness outlook falls short when it comes to labour market efficiency; the country has “inflexible hiring and firing practices, a lack of flexibility in wage determination by companies and poor labour- employer relations” (World Economic Forum, 2009: 12). Nevertheless, the South African economy remains a p roductive and industrialised one that “exhibits many characteristics associated with developing countries, including a division of labour between formal and informal sectors and an uneven distribution of wealth and income” (Trading Economics, 2011a: 1). Again, this can be regarded as the effect of the turbulent political climate South Africa has experienced over the years which in turn has led to the existence of a highly concentrated capitalistic system within the country (Morris et al., 1996: 64).
Conversely, the hosting of the 2010 FIFA World Cup by South Africa proved to be a major boost for the economy (South African Government Information, 2011: 1). South Africa’s GDP recovered from -1.70% in 2009 t o 2.80% in 2010, t hough this remains below our potential, estimated at 4.00% per annum. The belief is that GDP growth was driven primarily by a steady recovery in consumer spending, in spite of the effects of the worldwide recession, and this can be partially attributed to the 2010 FIFA World Cup (African Economic Outlook, 2011: 1).
South Africa is also the top destination for China’s exports, as well as being China’s leading source of imports. Many countries now use South Africa as a gateway to other African countries, which has led to the country becoming an official member of the BRICS (Brazil- Russia-India-China-South Africa) group in December 2010 – another major boost for the economy (African Economic Outlook, 2011: 1).
The challenge now remains for the government to maximise its engagement in being a member of the BRICS group. However, this cannot be achieved in isolation as the government still has many other responsibilities to South Africa at large. According to Keil (2007: 49), the primary objective of the government’s medium-term programme in South Africa is to increase economic growth and direct foreign investment in order to create
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employment, all “while broadening ownership of the post-apartheid economy” by encouraging BBBEE.
3.2.3 Human Immunodeficiency Virus (HIV) and Acquired Immune Deficiency