South Africa's GDP is expected to grow at a modest rate of 3.0 percent a year in the decade from 1996 to 2005, well higher than the 1.7 percent annual growth registered in the years of economic adversity from 1975 to 1995. However, economic problems inherited from that period and the challenges of the political transformation will prevent the growth rate from reaching levels associated with more vigorous growth.
South Africa should enjoy a high level of foreign direct investment in the coming years, especially in comparison to the near total lack of such investment during the years when it was an outcast nation due to its apartheid policies. Years of underinvestment in infrastructure and housing among disadvantaged communities, coupled with government social spending targets set in the RDP, are likely to lead to a relatively high average growth rate of 6.5 percent in government expenditures. Even though unemployment is expected to increase, labor unions are likely to persist in demanding wage and salary increases to compensate them for inflation in the recent past. Both exports and imports are likely to be stimulated by trade liberalization .
Long-term interest rates are expected to remain high because of inflation and continued deficit spending by the government. Monetary discipline and the globalization on the money market will also keep upward pressure on short-term interest rates. The current political transformation makes it very difficult to forecast trends in the financial system, however.
As with any major political and economic transition, problems of adjustment are evident in the incidence of crime and violence in the major metropolitan centers. The concerns of foreign visitors are shared by all South Africans and are addressed by a comprehensive national crime prevention strategy focusing on all components of the criminal justice system. Solutions are also provided by the resurgence of urban renewal and re-development projects in the inner city areas of Johannesburg, Durban, and Cape Town, public works and programs in under-developed areas, and community development projects linking the youth to meaningful income generating opportunities.
Against the background of a rapidly transforming national economy, striving to expand and increase its competitive edge in world markets, the South African government has implemented a variety of incentive programs aimed at easing and accelerating the transition to competitive and sustainable manufacturing industries. These programs are geared to provide support for training and education, technology development, competitive prices for manufacturing inputs, and investment in competitive machinery and equipment.
A level of economic liberalization has accompanied South Africa's political transformation and is reinforced by a restructured civil society. The new constitution provides a solid foundation for political stability as a key cornerstone to long-term real economic growth.