South Africa is the second largest economy in Sub-Saharan Africa and is often perceived as a gateway to the continent. Since the end of apartheid in 1994, South Africa has enjoyed macro-economic stability and significant GDP growth as well as a steady rise in spending in social services. However, South Africa's Upper Middle-Income status masks the many problems it faces in terms of poverty, inequality and unemployment.

About 40% of the population live below the poverty line of ZAR 416 (about €30 per month) and there is high inequality and a high unemployment rate, especially among youth [with a GINI-coefficient of 0.7]. In addition, South Africa's apartheid history is still very much felt in terms of the distribution of wealth. Living standards, both in economic and social terms, vary highly between different population groups as well as between urban and rural communities. Almost 50% of the black population is reported to live below the national poverty line, compared with only 2% of the white population. The government is committed to narrowing this gap through a set of comprehensive policy measures such as employment generation, Black Economic Empowerment, skills development and social grants.

The basis for the relations between the European Union (EU) and South Africa (SA) is underpinned by the Trade, Development and Cooperation Agreement (TDCA) which covers three pillars: trade, development aid and cooperation in various areas, such as economic and social cooperation. The significance of the special and reinforced relationship between the EU and SA was consolidated with the establishment of a Strategic Partnership signed in 2007, one of the ten in the World and the only one the EU has with an African country. The purpose of the Strategic Partnership (see the Action Plan) is to strengthen political dialogue and pursue strategic cooperation and shared objectives with regard to regional, African and global issues on the one hand, and stronger policy dialogue and sectoral cooperation in a number of areas on the other. It entails annual EU-SA Summits.

The Multiannual Indicative Programme for South Africa (2014-2020), drawn up jointly between SA and the EU, detail the areas of cooperation for €241 million of funding allocated under the Development Cooperation Instrument. The cooperation between South Africa and the EU focuses on three main sectors:

(1) Employment creation: the unemployment rate is 25% and as high as 50% for youth. The program aims to reduce inequality, promote pro-poor sustainable economic growth and fight social exclusion;

(2) Education, training and innovation: to improve overall economic performance and ensure the employability of people;

(3) Building a capable and developmental state: as implementation and delivery of policies remain challenging, this area will address these challenges and support the country in fulfilling its transformative role. The programme aims to build the capacity for service delivery and social cohesion by addressing bottlenecks in human and systems development.

The objectives of EU - South Africa development cooperation remain, as in the past, firmly anchored in the view that the real value added of Official Development Assistance (ODA) is not the finance itself, but what comes with it, namely value added activities involving innovation, pilot programmes, capacity development, the sharing of skills and knowledge, and risk-taking. This value-added and much more focused approach to development cooperation rather gives space to Government to identify value-added activities, provides technical assistance in areas where this form of assistance is most valued, and complements these activities with support to civil society organizations. Once development cooperation has proved its usefulness, activities can be replicated using the government's own budget and resources.

Recent assistance

Before 1994, the EC and some EU Member States supported the anti-apartheid movement and assisted the needy population in South Africa. With the transition to a democratic government in 1994, co-operation increased. Now, the EU is South Africa's most important development partner, providing 70% of all external assistance funds: 25% from the EC, 20% from the European Investment Bank (EIB) and 25% from the EU Member States. However, with external aid only constituting 1.3% of the government’s budget and 0.3% of the GNP, South Africa is far from being dependent on international funds.

Key projects

A total of €102.5m have been invested in three LED (Local Economic Development) Support Programmes since 2001. These pilot programmes were implemented to test mechanisms that could address poverty, inequality, and approaches to pro-poor development. They mainly incorporated the use of grant funding instruments in the Limpopo-, KwaZulu-Natal and Eastern Cape Provinces.  Instruments such as the Marginalised Community Funds, the Local Competitiveness Funds, the Local Government Support Funds and the Financial Intermediary Funds were demand-driven, although guided by strategic developmental objectives for the respective provinces. Most of the grants contributed to leveraging private sector investment. 396 grants have thus created about 7,080 permanent and seasonal jobs, with an average of 52% of these aimed at women. More than 4,000 people received training in policy making, community development, business-, agricultural and various other sector-specific skills.

The Risk Capital Facility (RCF) aims to provide high-risk and quasi-equity funding to Small and Medium Enterprises (SMEs) owned and operated by historically disadvantaged persons. The European Investment Bank and the Industrial Development Cooperation of South Africa co-manage this €100-million-programme, which has supported 136 small and medium enterprises, creating 11,000 sustainable jobs and impacting on 55,000 livelihoods. Beneficiaries stated that they would not have been able to start or grow their businesses without the RCF funding. The programme leveraged further investment with a global financial leverage effect of 385% – RCF investment of €70 million has enabled a total investment value of €266 million. Throughout the programme, female empowerment was strong in terms of job creation, managerial positions and shareholding (exceeding 30% in all these areas in line with the programme's targets).

The Primary Education Sector Policy Support Programme (SPSP) supports the South African Government's objective to expand the provision of early childhood development opportunities, to improve curriculum implementation in schools, and to strengthen the initial training of teachers. Since 2009, sector budget support to the education sector has helped the SA Government to increase the number of (i) public universities involved in training of teachers for the early grades, (ii) students enrolled in such programmes, and (iii) children enrolled in pre-school classes attached to public schools. The programme also helped the SA Government to develop and provide public primary schools with important resources for improved implementation of the curriculum and to undertake large-scale assessments of learning outcomes in key subjects (6 million learners assessed in 2012).

More information on EU relations with South Africa is available on the pages of the Delegation of the European Union to South Africa, which is also responsible for co-operation activities in the country.

Information on trade and external relations with the ACP region can be found on the websites of the Directorate-General for Trade and the EU External Action Service.