South Africa

Short-term factors add to structural deficiencies



  • Economic risk

  • Business environment risk

  • Political risk

  • Commercial risk

  • Financing risk

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GDP USD349.419bn (World ranking 32, World Bank 2017)
Population 56.72mn (World ranking 25, World Bank 2017)
Form of state Republic
Head of government Cyril Ramaphosa (President)
Next elections 2019, presidential and legislative
  • Natural resource base includes gold, platinum, chrome, manganese, vanadium, coal and diamonds.
  • Geographic (strategic) and economic size engender regional dominance.
  • ANC government has a strong mandate.
  • Judicial and business environments aligned with western ‘norms’.
  • Economic management (monetary & fiscal policy) has a track record of being sound.
  • Exemplary exodus from foreign debt problems in the 1990s.
  • Good relations with IFIs and assistance would be readily available, in need.
  • Long-term structural problems include unemployment, rural poverty, skewed incomes, incidence of HIV/AIDS, track record of labour militancy and weak educational standards.
  • Open economy can result in currency and external account pressures.
  • Despite lower dependence on mining (now accounting for around 13% of GDP), vulnerability to commodity price fluctuations.
  • Current and fiscal account deficits.
  • Inward investment weighted to portfolio flows rather than FDI.
  • Lack of investment in power generation has resulted in some rationing of supplies to homes and industry.
  • Labour market inflexibility.

Fading Rainbow Nation?

South Africa is no longer Sub-Saharan Africa’s largest economy, following Nigeria’s rebasing of its GDP data, but it continues to be a regional leader and representative on the international stage (including membership of the BRICS grouping). 

Dependence on the gold sector is much reduced, with mining as a whole now accounting for around 13% of GDP, a similar share to manufacturing. Platinum and coal are both larger contributors to mining output than gold. A feature of economic policymaking has been the adoption, to date, of relatively orthodox policies and perceptions (acknowledged by multilateral agencies) that economic management has been generally good. This allayed some concerns that an ANC government would adopt populist policies that would deter investment. However, there are recent concerns that policy implementation is slipping and that a more popular agenda is now gaining traction. This was evident in late 2015 with confusion relating to the position of Finance Minister. In the end, pragmatism prevailed and an appointment was made of a minister with market credibility. However, some damage was done to perceptions that the independence of the country’s previous sound policy pillars (Treasury and Central Bank) was being undermined.



Insolvencies will increase as the business environment is deteriorating

The business environment is clouded by ongoing structural rigidities, including uneasy labour relations and periodic disruptions to power supplies, and is compounded by at least four other factors: (i) weak international commodity prices; (ii) slowdown in China, the country’s largest trade partner; (iii) drought conditions, with weakened agricultural output and a need to import maize and other foodstuffs; and (iv) uncertainties relating to U.S. monetary policy tightening. 

Against this background, EH expects insolvencies will increase by +2% in 2019 (after +3% in 2018), first outright deteriorations since 2009 and the global financial crisis. The construction sector is already registering an increase in insolvencies.  The World Bank Doing Business 2019 survey ranks South Africa 82 out of 190 economies (74th 3 years ago), just below Panama, Tunisia and Bhutan. South Africa still keeps some aspects of an Advanced Economy, particularly on protection of minority investors (23rd) and paying taxes (46th) items. However recurrent power blackouts, difficulties to start a business (134th) and strong barriers to trade (143rd) are key bottlenecks. Barriers to domestic transactions and to register a property (106th) are among other key weaknesses.

GDP growth likely to remain sub-par

GDP growth was an annual average +5.4% in 2004-07 but the ten-year average to end-2015 was +2.6%. Rates of expansion of around +5% are required to make meaningful improvements in incomes and living standards. However, structural impediments have generally limited GDP growth to below that rate. These constraints include a lack of skilled labour, limited job creation (capital intensive industry), high unemployment and under-employment, infrastructure bottlenecks, weak public sector delivery and disruptions to power supplies.  GDP growth will stay well below necessary in 2019 (+1%, after +0.7% in 2018).


External accounts are also under pressure

South Africa has a structural current account deficit (-4.2% of GDP in 2018), as a result of low savings. Potential benefits for the trade and current accounts from recent weak oil prices are offset by output depletion issues in the main commodities exported by South Africa, as well as strong barriers to cross-border trade that inhibit the trade integration within the Southern African area.

The import cover of foreign reserves is quite stable to 5 months, since the Central Bank does not intervene on the ZAR, which is quite a textbook free floating.

South Africa underwent an exemplary exodus from external debt problems arising in the 1980s. This reflected the generally sound economic management that carried over into the post-transition period. However, external debt is now increasing (52% of GDP in 2018) and despite accumulation of FX reserves, some external liquidity indicators remain weak. The debt due ascended to 87% of FX reserves, as corporates (particularly state-owned ones) accumulated more USD debt, as a consequence of high debt costs in ZAR.



Trade structure by destination/origin

(% of total)

Exports Rank Imports
China 9%
18% China
United States 7%
12% Germany
Germany 7%
7% United States
Botswana 5%
4% India
Namibia 5%
4% Saudi Arabia

Trade structure by product

(% of total)

Exports Rank Imports
Road vehicles 12%
12% Petroleum, petroleum products and related materials
Non-ferrous metals 11%
7% Road vehicles
Metalliferous ores and metal scrap 11%
5% Other industrial machinery and parts
Iron and steel 7%
5% Telecommunication and sound recording apparatus
Coal, coke and briquettes 5%
5% Electrical machinery, apparatus and appliances, n.e.s.

Due to financial constraints, most companies pay up to 90 days compared with the average 30 and 60 day terms and conditions which are industry driven. In some cases, small to medium enterprises are taking as long as 120 to 180 days to settle debts.

  • Low

  • Medium

  • Sensitive

  • High

  • Payments

  • Court proceedings

  • Insolvency proceedings

South Africa has a court system plagued by inadequate systems, backlogs and general inertia by the clerks that serve within it. This makes the whole process tedious and frustrating for the creditor and their attorney. Unfortunately, this is very often used to the defaulter’s advantage to drag matters out for as long as possible.

All insolvent estates are administered under the control of the Master of the High Court. The liquidation procedures in South Africa are protracted and tedious and they rarely yield any worthwhile dividends. The cost, on the other hand, is relatively low unless an attorney has been involved in the collection prior to the liquidation.

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Collection complexity South Africa

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Euler Hermes

Economic Research Team

Stéphane Colliac

Senior Economist for France and Africa 

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