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When Nelson Mandela took office in 1994, his government inherited a South Africa devastated by decades of apartheid

By Kim Cloete
South African Broadcasting Corporation

CAPE TOWN, South Africa -- If the past five years since South Africa's first democratic elections have been about reconciliation, the next five are sure to focus strongly on building up the economy and bringing down spiraling unemployment.

As a developing country, South Africa has had to face globalization and its often painful consequences head-on. At the same time, it has been grappling with its own domestic problems -- paying off interest on government debt, bridging the divide between rich and poor, and trying to satisfy the needs of millions of South Africans who have been deprived of decent education, housing and health care for so long.

It's been a tough balancing act for South Africa's finance minister, Trevor Manuel, who has been given credit for maintaining fiscal discipline while still coping with the demands of South Africa's people.

But he's had a rocky ride, particularly during the past year. The country's economy was hit by the crash in Asian financial markets. Although South Africa held up better than many other developing countries, the South African rand took a knock, losing more than 16 percent of its value. Interest rates were hiked, and prospects for economic growth nose-dived.

The target of 6 percent annual economic growth by the year 2000 became clearly unattainable and has now been forecast to hover well below 2 percent.

Although much hinges on the potential for a crash on world stock markets, economist Azar Jammine believes the outlook for the South African economy could improve.

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"Assuming a relatively stable mood toward emerging markets, [Deputy President Thabo] Mbeki will be inheriting the presidency at a time when South Africa's regular seven-year business cycle is at rock-bottom. There is a good chance that we will see the economy move upwards not long after him becoming president," Jammine says.

Interest rates are expected to fall, business confidence is slowly returning, and inflation is in control. Exports have increased steadily during the past few months, although not enough to significantly boost economic growth. Most of South Africa's trade is still with Europe, although it has made inroads into other markets. Its trade with the United States has risen significantly during the past few years, climbing to $6.7 billion last year.

But it is international investment that most South Africans talk about when they discuss ways to uplift the economy and create much-needed jobs.

Volkswagen, BMW, Coca-Cola and telecommunications giant SBC Communications are some of the biggest international investors in the country. But South Africa often battles to sustain lasting investment. Short-term portfolio investments are often moved out of the country when investors find greener pastures.

South Africa's high crime rate is often cited as the biggest deterrent to international investment. Some investors have pulled out of the country, while others have avoided South Africa as an investment destination, saying it's not safe enough to do business here.

But Mbeki, South Africa's president-in-waiting, is adamant about cracking down on crime and ensuring that investors aren't scared off.

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And with unemployment in South Africa now topping 40 percent, South Africa is pinning its hopes on more investment.

Joblessness has affected almost every aspect of South African society. During the past few years, grinding poverty has become a way of life for millions more South Africans, and streams of people heading for the cities in search of jobs frequently end up disappointed.

Layoffs have become commonplace, especially in the fields of mining, construction and textiles.

A recent study by the South African-based social development fund Shared Interest said the private sector has lost 500,000 jobs during the past five years. Many of the casualties have been in mining, where the falling gold price has caused several mines to close. With gold at a 20-year-low, the prospects don't look good for the industry.

Several economists blame job losses partly on a labor system that they say favors workers and discourages investment. The government recently introduced labor legislation aimed at a 40-hour work week. It also stipulates four months' maternity leave and a stiff policy on overtime. Employment equity law compels employers to stick to plans to recruit and promote more blacks, women and the disabled. It's a move widely welcomed by workers but worrying to business.

"It's another factor that holds foreign investors back. Labor policy must become more flexible," says Peter Linley of the South African insurance giant Old Mutual.

The impact of globalization on South Africa also has caused companies to tighten their budgets and take another look at their labor forces. When cutting costs, companies tend to cut jobs first.

Many people laid off by companies are trying to find work in small- and medium-size businesses -- something the government is encouraging. The government also has recently been on a drive to get wary banks to give loans to black entrepreneurs.

More people are also moving into the informal sector, selling fruits and vegetables, hawking clothes and setting up backyard auto workshops -- anything in an attempt to make some money.

But as many South Africans face the daily battle to find work, others are optimistic that the South African economy is looking up.

Companies are finally recognizing the need for more training, ordinary South Africans are becoming more enterprising, and the government has been lauded for sticking to a firm monetary policy.

The appointment of a strong and effective Cabinet, especially in key portfolios such as finance, education and public enterprises, also could help boost the economy.

Kim Cloete is a senior journalist and producer for the South African Broadcasting Corporation and a contributor to CNN World Report.