The largest economy on the African continent, South Africa boasts impressive industrial output and a relatively strong currency. The South African economy is one of only four in Africa to be ranked as a middle-income economy by the World Bank. Despite its successes, however, the country remains stricken by enormous inequalities and unemployment.

History

The South African economy has been shaped by political strife. Dutch traders landed at the southern tip of modern day South Africa in the 17th century and established a stopover point on the spice route between the Netherlands and the Far East. After the British seized the Cape of Good Hope area in 1806, many of the Dutch settlers (the Boers) moved north to found their own republics. The discovery of diamonds and gold generated substantial wealth and provoked increased immigration. It also intensified the subjugation of the native inhabitants.

This injustice continued until well into the last century, during which the policy of apartheid reinforced racial inequality. By the time apartheid was ended in the mid-1990s, the country's economy was split into two distinct sections - the affluence and privilege of the white community contrasting with the extreme poverty of the black population. Inflation soared during this period of political uncertainty, leaving the newly-elected government the daunting task of restoring order to the economy.

The government was successful in many areas; bringing down inflation and stabilising public finances. Growth, however, was limited. As the new millennium began, President Thabo Mbeki promised to promote foreign investment and economic growth by relaxing labour laws. From 2004, economic growth picked up significantly; both employment and investment increased.

Current performance

South Africa continues to make the most of its abundant natural resources, boasting one of the most lucrative mining industries in the world. The globe's foremost producer of gold, platinum and chromium, South Africa employs thousands in the mining sector. The significance of the industry has dropped in recent years, however - according to The Economist, the industry now represents just 3% of the country's gross domestic product (GDP), down from 14% in the 1980s.

Another of the country's traditional sectors has also seen a reduction in its workforce. Agriculture, despite still being a major contributor to South Africa's international trade account, now employs just 5% of the nation's formal workers. The service sector is now the major player in the South African economy, accounting for around two-thirds of GDP. The government is also keen to promote tourism, another potential generator of unskilled jobs. The number of foreigners visiting the country leapt from 3.7 million in 1994 to nearly 10 million in 2009, and increased yet further during last year's World Cup tournament.

Until the global economic crisis hit in late 2008, South Africa had experienced years of steady economic growth. According to Statistics South Africa, GDP rose annually by an average of 4.1% between 2001 and 2008. South Africa's budget deficit has dropped dramatically, from 5.1% of GDP in 1993/94 to 0.5% in 2005/06 - the second-lowest fiscal deficit in the country's history.

The rand is the most actively traded emerging currency in the world, and has joined the continuous linked settlement (CLS), which lowers the risks of transactions across time zones. The rand was the best-performing currency against the United States dollar between 2002 and 2005, according to the Bloomberg Currency Scorecard. In 2011, after a year of observation, South Africa officially joined Brazil, Russia, India and China in the BRICS group of emerging-market nations.

Issues

Despite South Africa's successes, many economic problems remain from the apartheid era - especially unemployment, poverty and lack of economic empowerment among disadvantaged groups.

South Africa has a very high unemployment rate, which exacerbates other economic and social problems. In the second quarter of 2010, the jobless rate increased to 25.3%, and was markedly higher among the nation's black population. The situation has contributed to a growing 'brain drain' - many South African professionals prefer to seek employment overseas, thus depriving the nation's workforce of valuable skills and experience. Rising unemployment is likely to curb consumer spending, which accounts for two-thirds of demand in the economy.

In addition, South Africa is marked by social injustice - the country is ranked in the top ten countries in the world for income inequality. The inequality manifests itself both along lines both racial (real incomes have been rising for all groups, but many blacks in the country still live in poverty) and geographical (rural poverty rates remain substantially higher than those in urban areas).

Key to overcoming these challenges will be the economic integration of South Africa's previously disadvantaged majority. South Africa's economy has a marked duality, with a sophisticated financial and industrial economy having grown alongside an underdeveloped informal economy.