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SA’s economy “stands at a decisive crossroads,” according to a newly released World Bank report titled “Driving Inclusive Growth in South Africa”.
As part of the dialogue between SA and the World Bank in early 2023, it was agreed that the bank would produce a new policy road map for the government through a demand-driven and focused process.
Unveiled on Wednesday evening, the report singles out two enduring barriers — weak market competition and inefficient institutions — as the main culprits behind the country’s sluggish economic performance and stubbornly high unemployment rate.
Coming on the heels of last year’s national elections, it highlights how a confluence of public demand for better governance and a renewed push for economic growth presents “a rare window of opportunity”.
Policymakers, the World Bank argues, should leverage this political momentum to enact structural reforms that have long been on the back burner, especially in sectors dominated by state-owned enterprises (SOEs) or restrictive regulatory frameworks.
“Such alignment was key behind the successful economic transformation of China in the early 1980s, Vietnam in the late 1980s and 1990s, Poland in the 2010s, and India in the early 2020s,” the report states.
The analysis points to insufficient market competition as an anchor on innovation and job creation.
Large incumbents — including SOEs — have stifled new entries, particularly SMEs and digital start-ups that could otherwise bring fresh skills, technology, and employment.
“New entrants to the labour market can’t find stable and productive jobs — leaving youth unemployment above 60%,” the report states.
The second significant obstacle, it says, is the increasing complexity of public administration, marked by overlapping rules and weakened accountability measures.
According to the document, “SA policymakers have attempted, often with good intentions, to correct market or historical failures by intervening through hard regulations, such as black empowerment policies, local content and collective labour bargaining — and direct support programmes to specific groups, such as grants, tax rebates, and labour training.”
But today, these interventions have become “so cumbersome that they smother the implementation capacity of the public administration, especially local officials, and open spaces for corruption”.
These two drivers provide direction for SA policymakers, the World Bank says. “But they still need a vehicle for action.”
The state has limited financial and technical capabilities to do everything at the same time. It needs to create momentum for reforms by delivering the biggest positive results possible.
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