Overview

South Africa’s peaceful political transition was one of the most remarkable political feats of the past century. The African National Congress (ANC) has been driving the policy agenda since 1994. Local government elections will be held in October 2016.

A sustained record of macroeconomic prudence and a supportive global environment enabled South Africa’s gross domestic product (GDP) to grow at a steady pace for the decade up to the global financial shock of 2008-2009. Improvements in the public budget management system and efforts to restore the macro fundamentals by National Treasury played an essential role.

Due to consistent and sound budgetary policies South Africa has been able to tap into international bond markets with reasonable sovereign risk spreads. The 2012 Open Budget Index prepared by the International Budget Partnership ranked South Africa second among 94 countries surveyed. In 2014 and 2015 however, South Africa’s ratings have been downgraded by most rating agencies citing poor growth prospects and rising government debt as well as high deficits on the current account.

Pro-poor orientation of public spending has contributed to improved social development indicators in a range of areas. .Millennium Development Goals (MDG) on primary education, gender, several health indicators and environmental sustainability are likely to be achieved. Social insurance programs currently cover around 16 million people and, at 3.5% of GDP, are more than twice the median spending among developing economies.

Key Development Challenges

South Africa remains a dual economy with one of the highest inequality rates in the world, perpetuating inequality and exclusion. With an income Gini of around 0.70 in 2008 and consumption Gini of 0.63 in 2009, the top decile of the population accounts for 58% of the country’s income, while the bottom decile accounts for 0.5% and the bottom half less than 8%.

Life expectancy, after falling dramatically from 62 years in 1992 to 53 years in 2010, recovered to 62 years in 2014. The recent recovery was in large part due to the rapid expansion of the antiretroviral treatment programs to fight HIV/AIDS. And it is supported by declines in both adult and infant mortality. The poor are particularly vulnerable, and high HIV and AIDS infection rates, as well as TB infections, have severely strained the health system, contributing to the poor health indicators

Recent Economic Developments. South Africa’s growth is stuck in low gear with real GDP growth estimated at 1.3% in 2015/16 and projected at 0.8% for 2016/17 due to a combination of domestic constrains and external headwinds arising from the fall in commodity prices and slowdown of the Chinese economy.  The weak growth performance has exacerbated already high unemployment, inequality, and macro vulnerabilities.

The weak economic outlook has made the fiscal outlook more challenging. As part of the budget Law 2016/17, the government announced an adjustment package of expenditure savings, for one-third, and tax measures, for two-third, to reduce the budget deficit from 3.9% of GDP in 2015/16 to 3.0% of GDP in 2017/18 and stabilize the gross debt burden at about 51% of GDP, helping minimize pressures on the sovereign rating.

Government Policy Priorities

The current administration is acutely aware of the immense challenges to accelerate progress and build a more inclusive society. Its vision and priorities to address them are outlined in the 2030 National Development Plan (NDP) which outlines two main strategic goals to double the GDP by 2030 and eliminate poverty, and reduce inequality, as measured by the income Gini coefficient, from 0.70 to 0.60.

To achieve these, the NDP lists several critical factors for its successful implementation; focused leadership that provides policy consistency; ownership of the plan by all formations of society, strong institutional capacity at technical and managerial levels, efficiency in all areas of government spending including management of the public service wage bill and making resources available for other priorities, and prioritization and clarity on levels of responsibility and accountability at every sphere of government as well as a common understanding of the roles of business, labor and civil society.

Last Updated: Apr 12, 2016

Country Partnership Strategy (CPS) for 2013-2016, was discussed by the World Bank Group (WBG) Board in November 2013. The CPS is demand-driven and centered on knowledge and technical cooperation as well as support to the implementation of the ongoing lending program in energy and the environment.

The CPS is anchored to the government’s National Development Plan. It primarily focus on the “three I’s”: reducing inequality, which responds to priorities in improving access and quality of public service delivery at the national level as well as in smaller cities and townships; promoting investments, refers to the large infrastructure deficit in the country, and ambitious plans to meet this demand through both public and private investments and; strengthening institutions, responds bolstering financial risk management through improving the capacity of public institutions.

Last Updated: Apr 12, 2016

Improving energy security and greening South Africa’s energy mix and preserving the country’s biodiversity

The Eskom Investment Support Project ($3.75 billion) seeks to enhance South Africa’s power supply and energy security in an efficient and sustainable manner. It is the only on-going lending operation and is making progress towards achieving its objectives, but slower than envisaged (four years behind schedule). The synchronization of the first 800 MW generating unit at the Medupi power station has been done successfully and the unit has been connected to the national grid. An additional 100MW from the Sere Wind Farm also came online in December 2014. The project has been restructured and extended to December 2019.

Factors contributing to the Medupi delay include delays in bringing new capacity online (including Bank-financed 4800 MW Medupi power plant); lack of adequate O&M; high costs of electricity; and institutional and financial challenges. The Government has established a “war room” led by the Deputy President to tackle these challenges.

To sustain these investments the WBG is supporting a number of technical assistance activities and advisory services. ,

Growth, Jobs and Private Sector Development

The eighth edition of the South Africa Economic Update series focusing on promoting faster growth and poverty alleviation through competition was launched in February 2016. It finds greater potential for South Africa to promote faster growth and poverty alleviation through structural reforms that open markets to competition and enhance product market regulation.

Urban development

The Urban Reimbursable Advisory Service (RAS) worth $5 million, is now under full implementation, supporting the government's efforts to turn around the apartheid spatial legacy of South African cities and improve spatial efficiencies. There is a multi-global practice work program for metropolitan-level support, with a World Bank (WB) team acting as principal technical advisor to National Treasury (NT) on a range of critical policy areas.  Work is being scaled up with financial support from NT ($5m RAS and likely second phase request) and SECO (additional $9 million BETF signed in September 2015), in addition to a potential engagement with the Ministry for Cooperative Governance and Traditional Affairs, (CoGTA) focusing on secondary and fast-growing cities, as well as  the launch of a flagship book on townships.

Service delivery and human capital

A landmark common treatment protocol for TB in the mining sector was signed in Johannesburg in 2014. This was followed by launch of an ambitious three-year initiative that aims to screen 100% of all mineworkers and communities with the highest concentrations of mining and achieve zero infections of TB by 2018. A proposal to the Global Fund for $60 million for 10 SADC countries to support TB in the mining sector has been submitted in support of this goal. 

Last Updated: Apr 12, 2016

Partners include specialized agencies of the United Nations system, the African Development Bank (AfDB), the Department for International Development (DfID).

Last Updated: Apr 12, 2016


LENDING

South Africa: Commitments by Fiscal Year (in millions of dollars)*

*Amounts include IBRD and IDA commitments