By Peter G Hall, Vice President and Chief Economist

Times are tough for resource-rich economies. Plunging global prices for oil, gas and other minerals are wreaking havoc with profit margins, trade balances and future investment plans. Canada knows this all too well – but for economies that are far less diversified, the news is obviously worse. Resource-dependence is a lot greater in South Africa, and the effects are evident: a contracting economy, currency depreciation, labour unrest and infrastructure woes. It’s not a pretty picture; has our optimism for the South African economy faded?

Current numbers aren’t great. The economy contracted by 1.3 per cent in the second quarter. This was heavily influenced by a one-time swing in inventories, but even so, underlying growth is steadily trending downward. Manufacturing is stagnant. Gold mining is on a long-term slide, and weaker prices aren’t helping. The leading indicator has fallen to its lowest point since 2009. In general, confidence is sagging. At least in the short term, economic prospects have soured.

Unfortunately, that’s what happens to any country or company when the prices of their key products plunge. And if the prices are beyond their control, those affected by the change can only hope to react appropriately, in a way that ensures long-term viability. In South Africa’s case, longer-term prospects now depend on what the country did through the past six-to-seven years of favourable conditions. Were the good years squandered, or has South Africa actually positioned itself well to capture future waves of global growth?

What do the data say? According to the latest WEF Global Competitiveness Report, South Africa climbed seven spots to 49th place among the 140 countries ranked, and placed second only to Mauritius in the region. A key strength for South Africa is its financial sector. In financial market development, it ranks 12th in the world, just behind Luxembourg. South Africa’s financial markets are by far the most developed and stable on the continent and rival those of most other countries. South Africa is home to Africa’s largest commercial banks and hosts over 40 per cent of Africa’s publicly-listed companies.

The Report also ranks South Africa as the most innovative and sophisticated business environment in Africa and ranked it 36th worldwide, coming just behind Spain. Another area of strength is in institutions, where South Africa ranks 38th worldwide, better than all the BRIC countries, Mexico and several developed economies including Israel, South Korea, Spain and Portugal.

The World Economic Forum’s Africa Competitiveness Report gives a revealing inside look at the region. The overall assessment is that competitiveness across the continent has remained stagnant for much of the past decade. Here, South Africa is one of only three regional economies that stands apart, for reasons that increase its strategic economic importance.

First, Africa as a whole claims a tiny share of global trade, at just 2 per cent. Participation in global value chains is about the same, at only 2.2 per cent of the total. However, as a ‘headquarter economy’ for other countries in the region, South Africa stands in contrast to the rest of Africa. This critical mass remains a key magnet for additional foreign direct investment.

Second, the Report cites lack of access to financing as the greatest challenge to doing business in Africa. South Africa’s state-of-the-art financial sector makes it an essential link in regional corporate activity, and a key opportunity for global financial institutions that are active in the region.

Third, the Report notes that trade costs in Africa remain among the highest in the world. South Africa’s superior transportation infrastructure, including Durban, the sub-continent’s busiest port, remains the lowest trade cost option for Africa. These features together suggest a bright future for South Africa, and a good reason for EDC to open its newest international office this week in Johannesburg.

The bottom line? Life is rough for resource-dependent economies these days. But those who used the good times to structure themselves well for the long term are still full of promise, and South Africa has definitely made the list.

This commentary is presented for informational purposes only. It is not intended to be a comprehensive or detailed statement on any subject and no representations or warranties, express or implied, are made as to its accuracy, timeliness or completeness. Nothing in this commentary is intended to provide financial, legal, accounting or tax advice nor should it be relied upon. Neither EDC nor the author is liable whatsoever for any loss or damage caused by, or resulting from, any use of or any inaccuracies, errors or omissions in the information provided.