The World Bank in South Africa

South Africa’s political transition is known as one of the most remarkable political feats of the past century. The ruling African National Congress (ANC) had driven the policy agenda since 1994 until August 2016, when the country held the most competitive local government election in which the ANC lost majority support in four of the metropolitan cities. Political parties negotiated coalition deals that have left the ANC unseated in Pretoria and Nelson Mandela Bay. The last local government elections were held in November 2021, where the ANC’s support fell below 50% for the first time across all elections since the dawn of democracy. This result reinforced the new era of coalition politics particularly in the metros. The next general elections will be held in 2024.

After the pandemic-induced contraction of 6.4% in 2020, South Africa’s economy started to recover in 2021, with GDP growth reaching 4.9%. Growth was supported by favorable global demand and commodity prices, as well as the rebound in domestic economic activities from the 2020 recession. However, the recovery has been job-less thus far with nearly 1.9 people less people employed at the end of 2021 compared with the quarter before the pandemic struck. The pandemic shock has broadly weighed on social outcomes, with poverty rates, based on the poverty line for upper-middle income countries, estimated to have risen to levels of more than a decade ago.

The South African economy was already in a weak position when it entered the pandemic after a decade of low growth. In 2019, the economy grew by 0.1% partially caused by the resurgence of load shedding associated with operational and financial difficulties at the energy utility Eskom. From 2021, the recovery is expected to continue in 2022, with GDP growth expected at 2.1% and to average 1.7% over the medium term. Longstanding structural constraints, such as electricity shortages, continue to be binding. Important steps have been taken last year towards addressing structural hurdles to growth over the medium term, including the increase in the licensing threshold for embedded electricity generation. Commodity prices remain important for South Africa, a major net exporter of minerals and net importer of oil, however, strengthening investment, including foreign direct investment, will be critical to propelling growth and create jobs.

Key Development Challenges

South Africa has made considerable strides to improve the wellbeing of its citizens since its transition to democracy in the mid-1990s, but progress has stagnated in the last decade. The percentage of the population below the upper-middle-income-country poverty line fell from 68% to 56% between 2005 and 2010 but has since trended slightly upwards to 57% in 2015 and is projected to have reached 60% in 2020.

Structural challenges and weak growth have undermined progress in reducing poverty, which have been heightened by the COVID-19 pandemic. The achievement of progress in household welfare is severely constrained by rising unemployment, which reached an unprecedented 35.3% in the fourth quarter of 2021.  The unemployment rate is highest among youths aged between 15 and 24, at around 66.5%.

South Africa remains a dual economy with one of the highest, persistent inequality rates in the world, with a consumption expenditure Gini coefficient of 0.67 in 2018. High inequality is perpetuated by a legacy of exclusion and the nature of economic growth, which is not pro-poor and does not generate sufficient jobs. Inequality in wealth is even higher and intergenerational mobility is low meaning inequalities are passed down from generation to generation with little change over time.

Last Updated: Apr 14, 2022

The South Africa Country Partnership Framework (CPF) for 2022-2026, approved by the World Bank Board on July 22, 2021, continues the theme of the past three Country Partnership Strategies to support South Africa in its quest to complete the Post-Apartheid socio-economic transition.  It is informed by the Systematic Country Diagnostic (SCD) of 2019 developed by the World Bank Group (WBG) in broad consultation with South Africans, which identifies five binding constraints to completing the socio-economic transition, reducing poverty and boosting shared prosperity. They are: (i) Insufficient skills; (ii) The skewed distribution of land and productive assets, and weak property rights; (iii) Low competition and low integration in regional and global value chains; (iv) Limited or expensive connectivity and underserviced historically disadvantaged settlements; and (v) Climate change and the transition to the low-carbon economy, as well as water insecurity.

Aligned with the Government’s National Development Plans of continued reforms to sustain economic recovery and reconstruction for a more inclusive and resilient economy, the CPF charts a clear path for collaboration with SA in the following focus areas: (i) increased competition and an improved business environment; strengthened micro, small, and medium enterprises and the supporting ecosystem to boost job creation; (ii) increased resilience to external (climate and health) shocks; and improvements in the infrastructure investment framework and selected infrastructure services. All focus areas are approached through a lens of harnessing the digital economy, empowering women and girls, strengthening public sector institutions and governance frameworks; and promoting integration and cooperation in the region and continent.

Overall, this World Bank Group’s support is driven by increased private sector investments, through the Group’s private sector arm the International Financing Corporation (IFC) and its Multilateral Investment Guarantee Agency (MIGA). Knowledge exchange remains a key cornerstone of the partnership through technical and analytical collaboration.

Last Updated: Jul 20, 2022

The Eskom Investment Support Project ($3.43 billion), the largest of the two-lending operations sought to enhance South Africa’s power supply and energy security in an efficient and sustainable manner. This project closed on June 30, 2021, with all six units of Medupi in commercial operation into the grid, delivering 3,970 MW of new generation capacity, about 15% of South Africa’s electricity demand.

The Eskom Renewables Support Project (ERSP) focuses on demonstrating the viability of clean technologies in South Africa. ERSP is a US$250 million operation, funded by the Clean Technology Fund, which also financed the first public wind power plant in the country, the 100MW Sere Wind Farm, that to date is the best performing wind plant in the country. Since 2019, ERSP is supporting the Eskom Battery Storage Program, a 300MW / 1440 MWh investment of several battery sites, aiming to integrate more wind and solar photovoltaic generation capacity into Eskom grids. The procurement process for the first phase of this program has been finalized in March 2022 as Eskom awarded six battery system contracts - representing an equivalent capacity of over 200 MW – to firms that should install these assets by June 2023.

Under the Government of South Africa request, the World Bank is preparing a coal plant decommissioning and repurposing pilot operation, to support Eskom in decommissioning its coal power station in Komati site, rehabilitating the site, repurposing the site area using cleaner energy and providing new opportunities for the plant workers. This operation is a first for Eskom and the Bank and would contribute to South Africa’s Just Energy Transition.

Development Policy Loan

The World Bank Group approved a $750 million Development Policy Loan (DPL) on January 20, 2022. The Development Policy Loan will support the Government’s efforts to accelerate its COVID-19 response aimed at protecting the poor and vulnerable from the adverse socio-economic impacts of the pandemic, and a resilient and sustainable economic recovery. The DPL supports the implementation of South Africa’s Economic Reconstruction and Recovery Plan, including priority reforms, and is well aligned with the World Bank’s Crisis Response Approach aimed at protecting lives, livelihoods and supporting a more inclusive and resilient growth path. This support will further enhance financial sector stability and support the country’s commitment to climate change. The operation is the first budget support from the World Bank to South Africa during the democratic era.

Urban Development

The World Bank is actively providing targeted technical assistance to support the integration, implementation and institutionalization of approaches and instruments to urban management in South Africa, as part of a four-year Reimbursable Advisory Services agreement (2018-2022) for ‘Infrastructure Investment and Integrated Urban Planning’ in support of the second phase of the Treasury’s Cities Support Programme

Aligned with South Africa’s National Development Plan and Integrated Urban Development Framework and supported by Switzerland’s State Secretariat for Economic Affairs, this program has contributed to strengthening economic incentives, improving speed of starting businesses, reforming infrastructure finance and fiscal management and promoting inclusive urban development with a focus on informal settlements.

South Africa Financial Sector Development and Reform Program

The South Africa Financial Sector Development and Reform Program Phase 2 (FSDRP 2) is a five-year World Bank technical assistance program launched in September 2018 with a contribution from the Swiss State Secretariat for Economic Affairs. Through this program, the World Bank supported the South African Reserve Bank (SARB) on the Financial Sector Law Amendment Bill which establishes a resolution regimen and enables provisions for the Corporation of Deposit Insurance. A feasibility study and cost-benefit analysis for using bail-in as a recapitalization mechanism in South Africa (the “Flac” study) was published by the World Bank in December 2020 to provide guidance to the SARB on implementing bank resolution secondary legislation.

The World Bank also supported the development of regulatory and policy response to fintech, including undertaking a landscape assessment of the fintech sector in South Africa in collaboration with the Intergovernmental Fintech Working Group (IFWG), to better inform policy and regulatory priorities. This helped enhance discussions that informed the development of the vision for South Africa to be a leading Fintech hub for Africa, promoting financial inclusion while spurring competition, digital skills, and economic growth through innovation.

Wildlife Conservation Bond (WCB)

The WCB, a US$150 million IBRD bond, is the world’s first bond that links the investment return under a bond issuance to conservation performance. This enables private and institutional bond investors to participate in a market that historically has been a focus of donor and philanthropic investors. WCB investors agree to forego the bond’s periodic interest coupon payments (~ZAR152 million) and instead direct this money to two protected areas in South Africa to fund rhino conservation. If pre-established rhino population growth rates are achieved over five years (100% conservation success payment is achieved if black rhino growth is above 4% annually), investors receive a success payment financed through the Global Environment Facility (GEF) (range: US$0-13.76 million).

Foregone coupon payments are used to enhance management of Addo Elephant National Park and Great Fish River Nature Reserve to secure and increase black rhino populations, and increase benefits realized by local communities. WCB project activities include measures to increase supply and distribution of water, improve rhino security through enhancements in staffing, equipment, facilities, training, fence upgrades, improved aerial support, communications, and national and regional coordination. Financing will also support local communities through the creation of conservation-related employment such as park maintenance, rangers, monitors, gate guards, joint operations center staff, and project managers.

Catalyzing Financing and Capacity for the Biodiversity Economy Around Protected Areas Project

The World Bank is supporting the implementation of a new, $8.9 million grant from the Global Environment Facility (GEF) to step up investment in South Africa’s wildlife and biodiversity sectors. The Project aims to enhance the stewardship of the country’s rich biodiversity and expand the benefits of protected areas for local communities. It helps address high unemployment and limited livelihoods around protected areas and inequality in rural economies. The work is happening at Kruger National Park, Addo Elephant National Park, and iSimangaliso Wetland Park.

The South Africa Economic Update

The 13th edition of the South Africa Economic Update (SAEU), launched in July 2021, with a special focus on the COVID-19 impact on South Africa, particularly the job market, where it has exposed severe structural weaknesses. The labor market was marked by high levels of unemployment and inactivity even before the crisis; these have been exacerbated by the pandemic. The report suggests a sequenced set of interventions to strengthen job recovery, including temporary support programs, more permanent changes in government finances, and a redirection of policies to support job creation and entrepreneurship. The COVID-19 pandemic created an opportunity to accelerate much needed reforms for a higher growth trajectory and a more inclusive and resilient economy.

Digital Economy Country Diagnostic Report for South Africa

The World Bank South Africa Digital Economy Diagnostic, examined the strengths, weaknesses and opportunities for digital economy development. It forms part of the World Bank Group’s Digital Economy for Africa Initiative (DE4A), a collaboration between the African Union and the WBG. The initiative aims to ensure that every individual, business and government in Africa is digitally enabled by 2030.

South Africa has good potential to build on its strong foundations to continue to grow and expand its digital economy, including playing a regional leadership role, to boost digital infrastructure and skills in particular. Priority considerations include updating the national broadband policy in line with international best practices, fast-tracking spectrum licensing, and ensuring the independence and capacity of the Independent Communications Authority of South Africa.

Last Updated: Apr 14, 2022

Partners include the United Nations system, the African Development Bank (AfDB), the New Development Bank, the International Monetary Fund (IMF), Department for International Development (DfID) and the State Secretariat for Economic Affairs of Switzerland (SECO).

Last Updated: Apr 14, 2022