South Africa's growth experienceprovides an example of how contrasting growth trendslong-term decline followed by improved growth pivot aroundpolitical change, in this case a transition to democracy. Inthe decade prior to 1994, South Africa experienced the worstperiod of economic growth since the end of the Second WorldWar, with growth variable and declining. The proximatecauses of slowing growth were trade and financial sanctionsin opposition to the Apartheid government, politicalinstability and macroeconomic policy decisions that resultedin higher inflation, increased uncertainty, and declininginvestment. Democracy has proved critical for, among otherfactors, creating the possibility of a peaceful and morestable future and reversing investor sentiment at a basiclevel. Political and economic leadership have been essentialfor improving the country's growth performance becauseof the effect on policy formulation, institutionaldevelopment, regulatory design, and economic vision. Prudentfiscal policy and sound macroeconomic management have beencritical factors in creating an environment conducive togrowth by stabilizing economic conditions, lowering the usercost of capital, and putting downward pressure on the realexchange rate. This case study provides some insight into amore general perspective on political and economictransition and some of the key macro- and microeconomicpolicy shifts that need to occur to realize a more rapid andsustained growth path.
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