Challenges remain for the Rainbow Nation: South Africa boasts one of the best macroeconomic and governance policies among emerging markets, but much remains to be done before the Rainbow Nation can truly realise its considerable potential.(South Africa)

TODAY'S SOUTH AFRICA bears no resemblance to the era pre-1994 when the sanction-hit country was dogged by international isolation, growth stagnation, and debt crises. In the early 1990s, a spiralling public-sector debt of R254bn (US$71.5bn) required annual repayments of R50bn and the budget deficit surged to a record nine per cent of GDP.

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Interest rates and inflation were running at 25 and 18 per cent respectively whilst forex reserves fell below three weeks of imports. Moreover, South Africa was barred from global capital markets and inward foreign direct investment (FDI) stock totalled just US$9.2bn because of large disinvestments by multinationals.

Since then the ANC-government has pursued a radical restructuring strategy, designed to install economic efficiency and increase SA's integration in the globalised marketplace. The programme, though still unfinished, has produced impressive results within a decade. The average GDP growth rate has more than doubled to three per cent since 1994, with inflation dipping to a 30-year low. Fiscal probity is reflected in a steadily declining budget deficit and national debt burden--to under 40 per cent of GDP Gross external reserves of the SA Reserve Bank (SARB) now exceed the international norm of three months import cover--making the economy more resilient to external shocks. Meanwhile, prime lending rate (currently 11 per cent) charged by commercial banks remains at a 24-year low, thereby fuelling private investments and consumer spending.

A steady, if unspectacular, growth is supported by competent macroeconomic management and total factor productivity (TFP) gains [1]. According to Statistics SA, TFP growth averaged 1.5 per cent during 1995-2002, compared with half a per cent contraction over 1980-1994. This marked turnaround reflects improvements in technology/efficiency. Increased trade liberalisation and a better climate for private businesses, SA's free-trade agreements with the European Union and the Southern African Development Community, as well as bilateral accord with the US, have resulted in lower tariffs. SA has a rating of 5 in the International Monetary Fund's Trade Restrictiveness Index, which compares well with other developing countries. The average tariff rate has declined from 22 per cent in 1988 to 11 per cent today and most non-tariff barriers (excepting textiles) have been dismantled.

South Africa has helped to harmonise macroeconomic policies as well as liberalising trade flows within Southern Africa [2]. Furthermore, transnational corporations led by AngloAmerican. SABMiller (brewer). Standard Bank (biggest banking group), MTN. Vodafone (mobile operators), and Shoprite (retailer), among others, have emerged as the largest foreign direct investors in sub-Saharan Africa. Outward FDI into neighbouring countries has averaged about US$1.4bn/year since 1991. The main target sectors are mining, breweries, telecoms, banking and retail trade.

On the social welfare front, the government--despite budgetary constraints--has made some steps towards eradicating poverty and improving the delivery of basic …