Reference no: EM133016205

When South Africa's era of apartheid ended in 1994, there began a journey of democratic transition. Apartheid enshrined white minority rule over the country's black majority, supported by institutional segregation. When that regime was toppled, there were hopes that the new democracy would see the emergence of a rainbow nation. Two main aspects were the hopes of economic participation for all people regardless of race, and the ushering in of a more unified society where racial divides would fade away. In both respects, the new democracy has disappointed. The country was hailed as one of the new emerging economies on the global stage, but it has failed to live up to expectations. Racial divides remain a reality, and problems of poverty and lack of economic opportunity are particularly poignant for the poor black population, who had pinned their hopes on the changes to take place in the new era. These black South Africans have become disillusioned because of the continuing deprivation they endure. In recent years, social divisions have been further exacerbated by the influx of refugees from other African countries, many fleeing poverty and instability in countries such as Somalia, Angola, the Democratic Republic of Congo and Zimbabwe. The presence of these refugees has given rise to social tensions.

South Africa's economy should be in a strong position. It is rich in natural resources, generating income from exports of mining and agricultural commodities. While the end of apartheid offered an opportunity to introduce economic reforms that would move the country towards more sustainable development, the reforms that were made were limited. The reform agenda has been determined by the dominant political party, the African National Congress (ANC), which led the overthrow of apartheid. Large businesses still tend to dominate the landscape, many now with black African owners. Business models remain focused on profits rather than social goals. And there are also numerous state-owned businesses. While these should ideally serve the public interests, they have become vehicles for enriching those who manage them, thus breeding corruption. The business environment under the ANC became entangled in wide-scale corruption, draining the state of resources. In 2018, the ANC took drastic action to remove the country's president for the last nine years, Jacob Zuma. It removed Mr. Zuma from the presidency of the party, which had the effect of removing him from the office of president of the country. A new president, Cyril Ramaphosa, took over, facing a mammoth task of reining in corruption, restoring the public finances and alleviating the many social problems that had festered under the previous government.

Among the most difficult challenges is the plight of the poor and unemployed, suffering in inadequate housing and coping with a weak educational system. Unemployment is officially 26.7%, but is closer to 30% in reality. Youth unemployment is higher still, in the region of 50%. These people at the bottom of the pyramid are the predominantly black majority. The challenge for the government is to foster economic growth that encompasses all people. South Africa is one of the world's most unequal countries (see the section on inequality in Chapter 4), with a concentration of wealth in the big cities, such as Johannesburg and Cape Town, contrasting markedly with the deprivation outside the cities, mostly affecting the black population. Diversifying the economy and attracting investors are priorities for Mr. Ramaphosa.

Dependence on mining exports has left the economy vulnerable when global markets take a downturn, as is currently the case in sectors affected by trade tensions. Investment in manufacturing, as has occurred in China through FDI, would help to create jobs. But South Africa's task is made difficult because of the entrenched position of its ruling business elites and its endemic corruption. Attracting investors is an uphill task in countries such as South Africa, which have poor governance and political instability. The plight of the black majority has not been alleviated as hoped for in 1994. Instead, the economy has been directed towards enriching the few at the top, which, in effect, has led to a worsening of the racial divides that still persist. Democracy brought the hope of the rule of law, equality before the law and equal opportunity. In elections in 2019, Mr. Ramaphosa faced the voters and was elected president, but with a majority of only 57.5%. This was the smallest winning margin for the ANC since 1994. He promised a new era, to tackle corruption and to build the social cohesion and economic participation that the overthrow of apartheid had promised.

• What aspects of the social and cultural environment would deter foreign investors in South Africa?

• In what ways is South Africa moving towards sustainable development?