Business

Here’s what is helping and hurting South Africa’s economic growth

Staff Writer

 ·17 Oct 2018

The World Economic Forum (WEF) has published its latest Global Competitiveness Index, showing that South Africa has dropped five places in the rankings since 2017.

The report measures and assesses the competitiveness landscape of 140 economies, and gives insights into what drives economic growth among them.

This is done through assigning scores to various indicators across 12 key pillars – starting with a country’s institutions, all the way through to the business dynamics.

In 2018, South Africa ranked 67th globally – with an overall score of 60.8 – attaining the second spot in Sub-Saharan Africa. This is down five places from 62nd place in 2017.

According to the WEF, among its strengths, South Africa is home to a large market size (68.4), good infrastructure (68.6) and a well-developed financial system (82.1, 18th).

More specifically, South Africa’s financial sector offers a relatively balanced access to various sources of finance, including credit (100.0, 11th), venture capital (33.0, 63rd), equity (100.0, 2nd) and insurance (100.0, 3rd).

In addition, South Africa’s innovation capability is relatively advanced (44.3, 46th), although limited by insufficient research and development (37.5).

Among its weaknesses, however, South Africa’s performances on the health pillar (43.2, 125th) and security (43.7, 132nd) sub-pillar are among the worst in the world.

Driven by high incidence of communicable diseases and high rate of homicides (34 per hundred population, 135th), these factors are major challenges for the economic and human development of the country.

Low ICT adoption (46.1, 85th) is another important restraint on South Africa’s competitiveness. Only 54% of the adult population has access to the internet, and only 70 out of 100 people have subscribed to mobile-broadband services (66th).

Similarly, the digital skills (116th) and critical thinking skills (78th) of the current workforce are inadequate for the progress of a successful economy in the Fourth Industrial Revolution

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The bad news

Among the 98 individual indicators measured by the WEF, South Africa ranks in the lowest quartile (bottom 35 countries) in 13 categories, which emerge as the main factors dragging us down the competitiveness rankings.

According to the WEF’s assessment, much of what’s holding South Africa back competitively has to do with labour and crime – particularly the high rate of murder coupled with an unreliable police force, and the friction between labour and employers that often results in protracted strikes which bring industries to a halt.

Other factors dragging us down the rankings include a lack of digital skills, poor education, and poor healthcare.

South Africa and crime

The WEF mentions South Africa in two very specific contexts relating to competitiveness – namely security and inequality: two areas South Africa puts in the worst performance.

Globally, performance among all countries is best on Security. Here, the median score is 72 and half of all countries score 75 or above, with Finland (97.5) coming closest to being free from terrorism and crime.

With equal scores of 33.8, El Salvador and Venezuela are the worst performers, but crime and violence extract a huge economic and human toll across Latin America. The continent’s largest economies—Brazil (45.8), Mexico (46.0) and Colombia (43.5)—are less than halfway to the frontier.

Nigeria, Yemen, South Africa, Pakistan and the Philippines are other countries with notable problems related to violence, crime or terrorism, and where the police are considered unreliable.

Across all countries, the relationship between the prevalence of organised crime and the perceived reliability of the police is strikingly close.

South Africa and poverty

South Africa is also the most unequal country in the world, the WEF said.

“The incidence of extreme poverty is an important measure of broad-based economic progress, and low productivity is its proximate cause: the poor produce too little to earn a wage to subsist let alone to invest in healthcare and education,” it said.

“That’s why higher competitiveness scores are typically associated with lower poverty.”

Only two countries in the top half of the GCI rankings – South Africa and India – demonstrate what is considered an extreme poverty incidence, in which the poverty rate exceeds 10% of the total population.

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The good news

Negative factors aside, there are also 20 indicators where South Africa ranks in the top quartile (top 35 countries).

These factors centre around the strong financial markets, low costs of doing business in South Africa compared to other countries, and the strong rights and freedoms we enjoy.

With solid regulations, and relatively stable infrastructure, South Africa does have some major draws – which makes it the second most competitive country in Sub-Saharan Africa (below Mauritius).

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Read: South Africa could see a ratings upgrade if it fixes these things: Moody’s