Today, Key Note follows yesterday’s blog on the People’s Republic of China (PRC) with one on South Africa, concluding our five-blog run on the BRICS nations, which has also taken a whistle-stop tour of the economies of Brazil, Russia and India.

South Africa wasn’t part of the BRICS group of nations when the acronym was coined in 2001. Originally, the club contained just four members: Brazil, Russia, India and the PRC. These were singled out as four major emerging global powerhouses that would soon rival developed economies. South Africa’s invite must have been lost in the post, because it wasn’t tagged onto the end of the acronym until 2010, when it was realised that Africa, despite being the world’s second-largest and second-most populous continent after Asia, was totally unrepresented.

When it was invited into the club, South Africa was the continent’s largest economy. Nigeria has since recalculated gross domestic product (GDP) in such a way that it has leapfrogged South Africa into the top spot, but even when it reigned supreme, South Africa was still smaller than its BRICS partners. Its economy was the world’s 32nd-largest last year according to the World Bank, smaller than Thailand, Colombia and default-prone Argentina.

The UK’s economy was the world’s fifth-largest last year, although the PRC’s is over three times bigger and ranked second in the world. Brazil’s economy was the seventh largest last year, valued at 79.7% of the UK’s; India’s was the ninth largest, worth 70.3% of the UK’s; and Russia’s was the tenth largest, worth 63.2% of the UK’s economy. South Africa’s economy is just 11.9% the size of the UK’s and, though the BRICS nations’ total economic output last year was $16.98 trillion, South Africa only accounted for 2.1% of this.

Of course, these figures don’t portray South Africa’s importance within Africa. South Africa’s GDP accounts for more than a fifth of the total output of sub-Saharan Africa. In 2013, it accounted for 15.9% of the entire continent’s exports of merchandised goods and 15.3% of commercial services, according to the World Trade Organization (WTO). In 2012, it accounted for over a third of all electricity produced in Africa (not always successfully, but more on that later). What’s more, South Africa’s ranking in GDP per person in 2014 was 53 places above India’s.

South Africa is a major exporter of raw materials; diamonds, gold, platinum and other precious or rare metals top its exports list. This has seen money roll in, especially when commodity prices were high. Mining is big business in South Africa: it was the world’s seventh-largest producer of coal in 2013 and the sixth-largest exporter of it.

However, despite the business created by mining, unemployment in South Africa is stubbornly high — officially around 24%. This is exacerbated by the considerable heft of the trade unions, which demand higher wages in an economy not performing well enough to grant their wish. Strikes have led to mass sackings, further hiking unemployment levels. With economic output being so heavily related to mining, striking miners send shockwaves through the economy. Strikes have spread beyond mining and into other sectors of the economy also, including manufacturing and transport.

Forget the Diamonds: Wine Exports Now South Africa’s Best Friend

Though South Africa accounted for $1.50 in every $10 of goods exported from Africa in 2013, its raw materials are experiencing reduced demand as the world economy slows and the PRC’s position as a manufacturing powerhouse cools. Other exports had previously been destined for Europe which, due to ongoing problems of its own, has hardly been in an importing mood. A bright spot is that wine exports are booming: despite economic shifts, Europeans remain more than up for a tipple, while newly wealthy middle-class Chinese citizens are also discovering the joys of the vine.

In South Africa, inequality is high and income disparity wide. Its poorer residents are often found clustered around the outskirts of big towns and cities in low-quality housing. Despite the end of Apartheid, the divisions it created between races still remain, at least geographically, although more is being done to bring the poorer into the fold of the big cities, including connecting them with water and electricity. In Johannesburg, pedestrian bridges and walkways are being built between the poorest neighbourhoods and the wealthiest parts of cities, where many of the poorer people work. This will reduce long and hugely unproductive walking commutes.

Yet despite this, tensions remain high. Foreign workers were attacked in a period of rioting in the spring of 2015 (South Africa’s autumn), blamed for the high unemployment rate; a street vendor from Mozambique was murdered. This prompted many foreign workers to up sticks and leave. News of murder in the streets has, understandably, been an ill omen for South Africa’s tourism industry. Tourists arrive in South Africa by their millions each year, attracted by an abundance of wildlife and that all-important wine. The rioting came on top of the country’s recent draconian immigration laws, introduced to cut child trafficking. From June 2015, all minors entering South Africa must have an unabridged birth certificate displaying both their parents’ names, while only an in-person application for a visa will suffice. Africa has plenty of other countries with wildlife (though sadly not the wine) aching for tourists’ cash; many may now decide to visit one of these countries instead.

Electricity: A Mega What?!

The biggest drag on South Africa’s growth is its electricity network, which creaks (crackles?) at the seams under the strain of simply keeping the lights on — often failing to do just that. ‘Load-shedding’, essentially a term for blackouts, sees Eskom, the national electricity provider, forced into cutting supply because it cannot produce enough electricity to go round. Generator sales have surged, especially for businesses, fed up with sending staff home and sacrificing productivity because they’re sitting in the dark.

South Africa’s power stations are decrepit. They need a tune up and more, but giving them an MOT would mean switching them off — not really an option in a country that doesn’t have enough electricity to go round. And so on they chug until one day, inevitably, something breaks and the power station is forced offline. Blackouts will ensue

Equally, Eskom needs investment; in 2007 and 2008, electricity was sold below cost price. It has since raised electricity prices considerably to counteract this, but many domestic customers resent this and have stopped paying their bills.

Manufacturing, services and industry are all hit by blackouts. Industry is a particular pain for South Africa’s electricity network because it is power hungry. The price of precious metals spiked in 2008 not only on the financial crisis but also as South Africa’s mining capacity was knocked out for several days due to blackouts. In the 1990s, Eskom agreed a deal with Anglo-Australian miner BHP Billiton to link the price of the electricity it supplies the latter’s three aluminium smelters to the price of aluminium. This has often been below the cost of production — indeed, cheap electricity was one of the draws of locating there, for aluminium smelting gobbles power. The three smelters alone draw about 2,100 megawatts of capacity and produce a huge amount of the country’s aluminium from bauxite. There is somewhat of a catch-22 in progress: if they go dark, the economy suffers; if they stay online, gobbling power and increasing the chance of blackouts, other sectors of the economy suffer.

South Africa is trying to address these issues. The new Medupi Power Station will be the Southern Hemisphere’s fourth-largest coal power station and the largest dry-cooled one anywhere in the world. The complex will contain more steel than Dubai’s Burj Khalifa, the world’s tallest building. Though its vast new capacity when at full power will take some of the pressure off its ageing brethren and enable them to shut down for some much needed R&R, exactly when this will be is shrouded in a fog of coal smoke — the project is already 4 years behind schedule.

South Africa produces 85% of its electricity from coal, as much as South Korea and more than Australia, the UK and the far more populous Russia. 2.6% of the electricity produced in the world by burning coal in 2012 was produced in South Africa, a country with just 0.7% of the world’s population. Pollution from coal power stations harms human health. Medupi Power Station will essentially be six coal-fired power plants in one and will only add to this cost. The lights may stay on, but if respiratory diseases cut the number of people healthy enough to work, then gains may prove minor.

Though it was a statistical quirk that sent Nigeria leapfrogging South Africa to become Africa’s largest economy last year, South Africa has plenty of other legitimate competition in a continent brimming with emerging economies. Angola is a rising star. Morocco continues to grow, benefitting from its position of relative stability among North Africa’s political upheaval. Kenya and Ethiopia both continue to look promising, despite instability in neighbouring Somalia and Eritrea. Tourism dollars continue flowing in Cape Verde, Mauritius and the Seychelles. Meanwhile, growth in South Africa’s economy is looking lacklustre. Unemployment is high. The prices of its raw materials are waning. From being Africa’s one jewel worthy of BRICS inclusion, South Africa now finds itself pushed into the number two spot. As it struggles, economies around it boom.

Going forward, it will find it hard to sparkle as brightly as the millions of carats of diamonds it exports each year.

Michael joined the company in October 2010 and works as Key Note's Lead Writer. He specialises in producing our range of financial services and insurance titles.