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. Fifth general elections were held in May 2014, and the ANC won majority of 62% of the vote, governs eight out of nine provinces, and President Zuma was reelected for another term.

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 however, South Africa’s ratings have been downgraded by some rating agencies citing poor growth prospects mainly because of labor market instability 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

Despite the notable accomplishments, South Africa’s economic transformation agenda remains incomplete. The limited progress since 1994 in lifting the living standards of the majority and reducing the income inequality has put the social contract under pressure and has grown into an open public debate. Wildcat strikes in the mining, energy, transport and farming sectors have put into question labor and business relations in the country.

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

The unresolved set of complex socio-economic challenges has locked South Africa into a low-level equilibrium of low growth, persistent poverty and widespread exclusion and unemployment. Although many of the required policy actions are known to the policy-makers, implementation of these has been hampered by a lack of broad political consensus and the “deficit in trust between business, labor and government” (NDP 2012).

Recent Economic Developments

Real GDP growth continues to flatten and is expected to slow from 1.9 percent in 2013 to around 1.5% in 2014 due to prolonged labor strife and electricity supply constraints. The slowdown has exacerbated the high unemployment and external vulnerabilities, pushing up the unemployment to 25.5% in Q2 2014 (33 percent including discouraged workers). Following the negative growth rate recorded in the first quarter of 2014, the South African economy escaped a further contraction in the second quarter as real domestic production rose at an annualized rate of 0.6%. This barely positive growth rate was extremely disappointing given the country’s development needs, and was mainly brought about by the drawn-out industrial action in the platinum-mining subsector which started on 23 January 2014 and only came to an end five months later.

Fiscal policy continues to provide support to the economic recovery: Both general government and the non-financial public corporations continued to incur more expenditure than their current revenue as they aligned their infrastructure and other programs with the targets set out in the National Development Plan (NDP). In the most recent quarter, however, general government raised its share of the borrowing requirement whereas public corporations decreased theirs.

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). Released in 2012, the report is the product of extensive nationwide consultations led by the National Planning Commission. The two main strategic goals framed by the NDP 2030 vision are 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.

The NDP identified the failure to implement policies and an absence of broad partnerships as the main cause for the slow progress in eliminating poverty and reducing inequality. To achieve its two main strategic goals, 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: Oct 07, 2014

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.

A Knowledge Hub is the primary vehicle for delivering development solutions. Its approach will be pragmatic, starting small in a few selected areas, showing quick results, developing momentum, and growing the Hub over time. It is currently hosted by the South African National Treasury, with support from the WBG Country Office.

Last Updated: Oct 07, 2014

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

The $3.75 billion Eskom Investment Support Project (EISP) was approved in April and seeks to enhance South Africa’s power supply and energy security in an efficient and sustainable manner. The project has three components: $3.05 billion for completing the 4,800 megawatt Medupi coal-fired power station using proven, efficient supercritical technology; $260 million for piloting a utility-scale 100 megawatt wind power project in Sere and a 100 megawatt concentrated solar power project with storage in Uppington. These wind and solar investments are also being supported by $350 million in financing from the Clean Technology Fund under the proposed Eskom Renewable Support Project ($250 million to be channeled through the World Bank Group (WBG) and $100 million though the African Development Bank). Funding comes from the Agence Française de Dévelopment (AFD), European Investment Bank (EIB), and the Kreditanstalt für Wiederaufbau (KfW), with Eskom making up the balance of the total cost of $1.55bn.

In addition, the EISP include a $485 million allocation for low-carbon energy efficiency components, including a railway to transport coal to reduce greenhouse gas emissions. The construction of Medupi power station is three years behind schedule. The first generating unit six is expected to begin commercial operations in mid-2015 instead of mid-2014, with each of the five subsequent units scheduled at six-month intervals thereafter. Construction of the Sere Wind Farm is 50% complete with commercial operation expected to start in early 2015.

To sustain these investments the WBG is supporting a number of technical assistance activities and advisory services, including support to National Treasury and the Development Bank of South Africa for renewable energy market transformation (REMT)The REMT project closed in March 2014, its overall performance rated as satisfactory.

Growth, Jobs and Private Sector Development

The WBG’s Investment Climate Assessment (ICA) assessed the state of South Africa’s overall business environment and policy options to further improve it for greater job creation and faster growth. It concluded that while South Africa’s overall business environment but there is need to strengthen competition to better allow high productivity enterprises to increase their market share and poor performing enterprises to exit. In addition, actions must be taken to improve the nation’s infrastructure, better educate its workforce, allow for better access to finance for small firms, and reduce crime.

The 5th South Africa Economic Update with a focus on export competitiveness was launched in February 2014. The report pointed out that South Africa’s export growth has stagnated in real terms over the past decade and that South Africa’s exporters have made only limited inroads into global markets. On the upside, Sub-Saharan Africa has emerged as the key destination for South Africa’s non-mineral exports, but exports to these markets are still smaller and shorter-lived than exports to traditional markets. If South Africa wants to improve export-led growth, the report identifies three areas in which it must act; these include boosting domestic competitiveness by opening local markets to domestic and foreign competition. Second, it must alleviate infrastructure bottlenecks and cut the costs of trade: logistics and telecommunications. And third, it must promote deeper regional integration. The report talks about creating the right conditions for a "Factory Southern Africa" to emerge.

Urban development

The WBG has maintained a long-standing dialogue with authorities around a program of technical engagement focused on capacity building, technical analysis, learning-by-doing and international knowledge transfer in support of national programs. A Reimbursable Assistance Service (RAS) for $5 million to finance WBG support was signed by government and the WBG.

The WBG will also support the government’s efforts to better understand how the townships and informal settlements and their populations are situated in the overall economy, the role they play in overall economic activity and employment (including self-employment) opportunities, the situation of housing and social services and linkages to the non-township economy in urban and rural areas.

Service delivery and human capital

South Africa continues to struggle with the HIV/AIDS epidemic, especially in the mining sector, which is the epicenter for the sub-regional TB-HIV/AIDS co-epidemic. South Africa’s mine workers have the highest TB incidence in the world: an estimated 3000-7000 per 100 000 are infected, with worrying levels of resistance to standard treatment regimens and very high underlying HIV prevalence rates.

A landmark common treatment protocol for TB in the mining sector signed in Johannesburg on March 2014, at the Regional Ministerial Meeting on Harmonizing the Response to TB in the Mining Sector with the active support and intermediation of the WBG. The forum was convened by the Government of South Africa and sponsored by the WBG, the Stop TB Partnership, and the Global Fund to Fight AIDS, Tuberculosis and Malaria. For the first time in history, four countries (South Africa, Lesotho, Mozambique, and Swaziland) signed such common protocol. Four other countries (Malawi, Namibia, Zambia, and Zimbabwe) signed intent to conduct preparatory works. The WBG is working closely with the countries to support implementation of the protocol and supporting countries that signed intent with country level preparatory work.  

Last Updated: Oct 07, 2014

The World Bank Group (WBG) works with a range of development partners in South Africa, including the specialized agencies of the United Nations system, such as the Food and Agriculture Organization of the United Nations (FAO), the International Labour Organization (ILO) and the United Nations Development Programme (UNDP), the African Development Bank (AfDB), the Department for International Development (DfID), and KZW.

Last Updated: Oct 07, 2014


LENDING

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

*Amounts include IBRD and IDA commitments