Turkey and South Africa heading in parallel economic directions

MUSTAFA SÖNMEZ

Cape Town is one of the three capitals of the South Africa Republic. The city’s population is around 3.5 million.

When you are reading this article, its author will be in Cape Town on the 5th day of his South Africa visit. Cape Town is one of the three capitals of the South Africa Republic, as you know. The city’s population is around 3.5 million. It’s a beautiful global city, where African, Dutch and English cultures are harmonized very well at the most distant end of the African continent to Europe. 

I’ll try now to elaborate on the similarities and the differences between South Africa and Turkey, as they have many things in common economically, and are heading in the same direction on a highway.

Turkey and South Africa 

They are both in the same league: The emerging world. Both of them are trying to attract more foreign capital and they are being compared based on their “fragile” economic indicators, mainly their high current account deficits and external debt levels. Both of them were very relieved after the U.S. Federal Reserve (Fed) postponed the ending of its huge bond buying program. Before I accepted an invitation from the Consulate General of South Africa, I checked the CDSs of the two countries: The CDS of Turkey decreased from 224 to 217 on Sept. 20, after the Fed announced its postponement decision, and South Africa’s decreased to 213 from 237. 

South Africa is the most developed country in the continent with a national income of around $600 billion and a population of 51 million. Its income per capita is a bit lower than Turkey’s, around four-fifths. The income per capita was announced at $11,500 in 2012 in South Africa. The agricultural sector is not very flourishing in the arid South African land. Only 9 percent of the population cultivates land, and the share of the sector does not constitute more than 3 percent of national income. The principal source of income is mining-oriented industries and the services sector. 

However, unemployment and the income gap in the country are huge and still have a long way to go. The growth rate is around 3-4 percent. After the country’s economy shrank 1.5 percent during the 2009 crisis, it bounced back with a period of growth, currently having reached around the 3 percent mark. 

South Africa has been suffering from low levels of domestic savings, just like Turkey, so the country heavily relies on foreign capital. Trying to attract more foreign capital, the country uses a number of strategies, including privatization. Privatization and liberalization have both been made a state policy since 1996 by the government at the time, the ANC government. The biggest privatization move since then has been the railways and ports. The accelerated and shared growth initiative for South Africa, known as AsgiSA, has been active since July 2005, requiring the privatization of a number of public assets. There are still many public assets waiting to be privatized. 

South Africa is trying to handle the economy with hot money and debt rather than attracting foreign direct investment, just like Turkey does. The annual trading volume of the Johannesburg stock exchange is around $1.3 trillion. Foreigners put their hot money on stocks and government bonds, as is the case in Turkey. South Africa’s budget deficit is around 5 percent. The country aims to close the gap, thus attracting more foreign capital. South Africa seeks to reach its fiscal discipline target, to reduce its spending and to increase its income by way of privatization. 

BRICS member

South Africa has been a member of the BRIC club since 2010. China, in particular, being the prominent buyer of South Africa’s mines, can be easily seen as South Africa’s main trading partner, both in imports and exports. The BRICS is a new horizon for South Africa, which has customs union agreements with some countries in the African continent and also various commercial deals with the United States and Brazil. The country expects to raise the foreign investments that it needs, expand its economy and reduce its current account deficit by developing its foreign trade, thanks to this rising block. Parallel to this, it expects to reduce unemployment and create jobs for the population, 32 percent of which lives under the poverty threshold.