3 ways to jumpstart South Africa’s economy, according to the World Bank
The World Bank has suggested several key trade policy reforms for South Africa. It says that driving an export-oriented strategy can enhance economic growth and job creation while strengthening the economy’s resilience to shocks.
In a new report titled Unlocking South Africa’s Potential: Leveraging Trade for Inclusive Growth and Resilience, the World Bank said that “over the past 15 years, South Africa has lost its economic growth momentum, systematically underperforming other middle-income economies.”
Although the country has been subject to challenging global and domestic shocks over the past several years, the World Bank notes that some of the current policies have not done enough to ease these woes.
“Promoting inclusive growth and development in South Africa requires bold microeconomic reforms to adapt to global changes and address domestic constraints,” said the World Bank.
The report argues that spearheading an export-oriented strategy can enhance economic growth and job creation in South Africa while strengthening the economy’s resilience to shocks.
These arguments are based on seven key findings from the World Bank, which include:
- South Africa’s exports have grown more slowly and are concentrated in a few products and markets.
- Regional exports face high tariffs and logistics barriers.
- Despite global growth, South Africa’s services exports have stagnated, though knowledge-intensive sectors show potential.
- Goods exports are dominated by a few firms, with declining new entrants and low survival rates.
- Rising transport and logistical costs have hurt export competitiveness.
- While overall exports haven’t significantly increased, higher firm-level exports have boosted wages for low earners.
- Current policies promoting local industries may reduce competitiveness and harm export performance and consumers.
While these suggestions are to emphasise an export-oriented economy, the Department of Trade, Industry and Competition’s (DTIC) Deputy Minister Andrew Whitfield said that this is already part of the new administration’s priorities.
The Deputy Minister said that South Africa’s economic growth is grounded in manufacturing-led growth and export-oriented economy.
“The creation of an export-oriented economy can be realised through a dedicated focus on implementing measures to boost the competitiveness of local industries in global markets, streamlining export processes, lowering trade barriers, offering financial and technical assistance to exporters, and cultivating beneficial trade alliances with other nations,” explained Whitfield.
Suggestions for South Africa to see broad-based gains from trade
The World Bank said that adopting an export-oriented strategy and making the most of it for South Africa’s economy will require policy changes in at least three key areas.
1 – Structural reforms
“Firstly, a more dynamic export performance requires addressing long-standing structural constraints related to input markets that have continuously eroded private sector competitiveness and profitability over the past decade,” said the World Bank.
They said that continuing macro-fiscal and structural reforms to restore business confidence and stimulate private-sector investment is essential to restart growth.
Additionally, they ensure social policies and education align with labor market needs while coordinating efforts across government agencies.
This is seen to have been in motion with the government’s Operation Vulindlela, which is a joint initiative of the Presidency and National Treasury which hopes to accelerate the implementation of structural reforms and support economic recovery.
It aims to modernise and transform network industries, including electricity, water, transport and digital communications, through collaboration with the private sector.
2 – Improve export competitiveness
“This encompasses taking a multi-dimensional lens when analysing specific policy reforms and their implications at the level of the firm, industry and macroeconomy,” said the World Bank.
The researchers point out that in recent years, the DTIC and, in turn, trade policy have increasingly focused on localisation and increased domestic value addition.
The report indicates that the net benefits of localisation in South Africa and SACU members are limited due to low growth, constrained domestic demand, and higher consumer costs from restricting imports.
“If localisation policies can, under certain circumstances, support growth and job creation, they also need to be assessed given their potential costs throughout value chains and on consumers,” said the World Bank.
“A sound analysis of these proposals, as well as clearly stating the objectives and concrete plans to achieve them, developed in consultation with the private sector and other social partners, will be essential,” it added.
3 – Reforms in trade policy and facilitation
The crux of the report is that the World Bank suggests making the most of new trade agreements and other opportunities for diversification.
They said that modernising trade policies and leveraging new agreements like the African Continental Free Trade Agreement can help South Africa capitalise on emerging digital services and green sectors, diversify exports, and expand into advanced markets.
They say that this will ultimately position the country to better seize competitive trade opportunities.
Additionally, it said that the country must improve trade facilitation and address non-tariff barriers by reducing trade costs through infrastructure investment, more competition in logistics, and streamlined processes, which is essential for boosting South Africa’s export sector.
Overall, the bank said that to boost export capabilities, South Africa should enhance export promotion, centralise trade information, improve SME access to finance, and attract foreign direct investment.
Identifying cross-government priorities for integration
The researchers suggest that significant, targeted interventions could be led through Operation Vulindlela, enhancing visibility and ensuring cross-government coordination with high-level support.
“The foundations for trade to drive inclusive growth are in place,” said the World Bank.
“South Africa has enormous potential to drive forward Africa’s integration and industrialisation – however, the cost of inaction is high.”
“Realising this potential will require a shared and coordinated effort by the country’s leadership, government departments and agencies, the private sector, and workers,” concluded the report.
The full report with detailed suggestions can be found here.
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