SA’s economy stands at a “decisive crossroads” and the country needs to beef up the efficiency of its institutions, a newly released World Bank report has said.
The overview of the report, titled “Driving Inclusive Growth in SA”, was released on Wednesday. It singled out weak market competition and inefficient institutions as the main culprits behind SA’s sluggish economic performance and stubbornly high unemployment rate.
Coming on the heels of last year’s national elections, the report highlighted how a confluence of public demand for better governance and a renewed push for economic growth presented “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 report pointed 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, it said.
“New entrants to the labour market can’t find stable and productive jobs — leaving youth unemployment above 60%.”
The second significant obstacle, it said, was the increasing complexity of public administration, marked by overlapping rules and weakened accountability measures.
“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 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 provided direction for SA policymakers, the World Bank says. “But they still need a vehicle for action.”
The state had limited financial and technical capabilities to do everything at the same time. It needed to create momentum for reforms by delivering the biggest positive results possible.
New entrants to the labour market can’t find stable and productive jobs - leaving youth unemployment above 60%
— World Bank report, Driving Inclusive Growth in South Africa
“And the political incentives to jump-start reforms with feasible, impactful and timely actions are enormous. Operation Vulindlela, the delivery unit created in the presidency in 2019, produced encouraging results in electricity and in streamlining visa applications,” it said.
As part of its recommendations, the World Bank highlighted four priority areas:
First, efficiency of public spending. Rethinking how national budgets are allocated by consolidating similar grants, exploring public-private partnerships and holding both local and provincial governments more accountable for results.
Second, delivery of quality, climate-friendly and resilient infrastructure services. Inviting more private sector involvement in electricity distribution, rail and other core utilities while strengthening state regulators’ ability to monitor and enforce fair competition.
Third, the need to promote efficiency and equitable urban development and mobility. This includes the reduction of exorbitant costs of commuter transport for low-income workers by upgrading public transport management, supporting private taxi operators with digital tools and promoting denser and more accessible neighbourhoods to cut travel distances and spur economic integration.
Fourth, the need to inject dynamism in the private sector so as to create jobs and productivity gains. This included lowering administrative hurdles and encouraging diverse financing options, such as venture capital or mobile payment platforms, to nurture a more competitive environment for small businesses and innovative start-ups.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.