Download Economics of South Africa

African Economies: Hardship vs. Promise
After colonization, most countries in Africa had a hard time prospering. Many countries had an abundance of natural resources but
found it difficult to become a power player in the global economy. Most countries have small traditional economies within the country,
but the national economy is mixed. While each country is different, many countries’ economies suffer from corruption, unfair business
practices, and a lack of consumer protection.
Economy of Nigeria
Nigeria is a mixed economy and has an economic freedom score of 55%. The GDP is around
$233.2 billion with the per capita GDP of $1,611. The economy is considered to be very weak for many
reasons including unclear policies, resources, investment, and widespread corruption.
Government involvement in the economy is considerable, and privatization is uneven making
Nigeria a pretty standard mixed economy. It is a heavily cash based economy with many, confusing
government regulations. For example, it often can take up to a year to start a business because of the
government’s policies. Nigeria has a relatively low tariff on imports, but because of dishonest government
guidelines it costs more money to trade. Most prices are set by the market, although the government does
give money to manufacturers and farmers and does influence through some state owned businesses.
Nigeria depends heavily on oil and natural gas to support the economy. Oil exports are over 90%
of the GDP and over 80% of the government income comes from oil. However, violence in the region often
disrupts production of oil. Most of the population is not involved in oil, but instead in agriculture.
Nigeria wants investment (both foreign and domestic) to happen in the country to improve the
economy. However, there are a lot of reasons why people don’t invest: crime, corruption, security
concerns, weak infrastructure (roads and communication), and confusing government regulations. Because
most people make little money, they have little money to try to invest. There are also few banks because of
the cash based economy. There is also a lot of corruption and the government does little to enforce
contracts and other business practices.
No matter what the economic the economic data says, the biggest problem affecting the economy
is its strong connection to the corrupt government. Many government officials are constitutionally protected
from civil and criminal prosecution, and these officials often have their hands on all aspects of the economy.
Economy of South Africa
South Africa is also a mixed economy, with an economic freedom score of 63%. The GDP is
approximately $430.7 billion with a per capita GDP of $9,087. South Africa’s economy is considered one of
the best in Sub-Saharan Africa, but there is still widespread poverty. The government has tried to increase
land ownership by black South Africans since the end of apartheid to help combat poverty and stimulate the
economy, but corruption is widespread enough to have some impact on the economy.
The government is involved in the economy through many different means although it is loosening
control more and more as time progresses. The mining, services, manufacturing, and agricultural sectors
are extremely strong. There are only 8 state owned enterprises and all prices are set by the market except
petroleum, coal, paraffin, and utilities. The government regulations still take time like in Nigeria, but the
procedures are much clearer and most business owners are protected.
South Africa also has a relatively low tariff on imports, but because of stringent standards and
some government corruption it costs more money to trade. The government still has a monopoly on
transportation and the electric utilities, but almost all other businesses are privatized.
Investment in business in South Africa is easier and safer than in Nigeria, but there is still some
level of corruption that dissuades investors (foreign & domestic). For people who do invest there are lots of
restrictions and in some cases there needs to be government approval. South Africa is considered to have
a well-developed financial system, including several small “micro enterprise” operations that attempt to help
black South Africans.
South Africa has inflexible labor regulations that get in the way of productivity and economic
growth. Pay for employees are somewhat low, but there is a lot of difficulty in firing people which often
affects hiring decisions.
Even though the government of South Africa has signed the UN Convention Against Corruption,
dishonesty and fraud is still an issue in South Africa. Although a concern, corruption is not crippling South
Africa like it is in Nigeria which might have to do with the stable government. Overall, South Africa’s
economy is steadily improving and could one day be used as a model for other African countries.
Economies of Nigeria and South Africa
Pure Command
Pure Market
Type of Economy
Economic
Freedom Score
per capita GDP
Nigeria
South Africa
1. Complete the above chart and mark the continuum line with labels for Nigeria and South
Africa.
2. What products does Nigeria depend upon to support the economy?
3. Which industry are most Nigerians involved with?
4. What is the biggest problem affecting Nigeria’s economy?
5. What has the government of South Africa done to try to combat poverty?
6. Compared to Nigeria, how much corruption is there in South Africa? (Is there more
corruption, or is there less?)
7. How is South Africa’s economy doing, overall?