South Africa’s International Cost Competitiveness

The purpose of this paper is to assess South Africa’s international price and cost competitiveness, particularly with regard to labor costs, and to examine the quantitative relationships between South African cost competitiveness and trade performance. South African export and investment performance improved markedly during the 1990s, particularly the post-1994 period, coinciding with the demise of Apartheid, the ending of sanctions, and the adoption of more liberal economic policies. However, some questions remain. Although much improved, South African overall export growth still lags behind that of the most dynamic emerging economies. Moreover, the improved performance could be due to a one-time post-sanctions boom rather than a manifestation of sustained long-term competitiveness. Competitiveness is defined narrowly here as international cost and price competitiveness, with particular attention to labor costs in manufacturing. Unit labor costs in manufacturing (labor cost per unit of output or equivalently labor cost divided by productivity) captures a key underlying determinant of competitivenes