The World Bank in South Africa

The South African economy continues to recover from the effects of the COVID-19 pandemic, albeit more slowly than expected, with growth estimated at 1.9% in 2022. Employment growth picked up in the first half of 2022, but the labor market situation remains challenging. Poverty has reached levels not seen for more than a decade, while inflation has increased to a 13-year high. The outlook is clouded with risks, and sustained reforms and investments are required to support better growth outcomes and poverty reduction.

The South African economy was already in a weak position when it entered the pandemic after a decade of low growth, expanding only by an average 1% percent between 2012 and 2021, leading to a contraction of income per capita of 5.6% during this period. Longstanding structural constraints, such as electricity shortages, continue to be binding. Important steps were taken in 2021 towards addressing structural hurdles to growth over the medium term, including an 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. Strengthening investment, including foreign direct investment, will be critical to propelling growth and create jobs.

Key Development Challenges

South Africa has taken 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 living 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, 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 and most 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: Oct 06, 2022

The South Africa Country Partnership Framework (CPF) for 2022-2026 presented to 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 a 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. The SCD identifies five binding constraints to 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 South African government’s National Development Plans for continued reforms to sustain economic recovery and reconstruction (for a more inclusive and resilient economy), the CPF charts a clear path for collaboration 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, the 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). In a departure from previous strategies, the government has signaled its intent to make greater use of International Bank of Reconstruction and Development (IBRD) financing under the CPF.  As a result, IBRD lending to South Africa reached $1.2 billion in FY22 and an additional $1.4 billion in the active lending pipeline.

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

The World Bank is supporting the implementation of another new wildlife initiative, a $8.9 million grant from the Global Environment Facility (GEF), to step up investment in South Africa’s wildlife and biodiversity sectors in the Kruger National Park, Addo Elephant National Park, and iSimangaliso Wetland Park. The project aims to improve stewardship of the country’s rich biodiversity and to expand the benefits of protected areas for local communities by helping address high unemployment and limited livelihood opportunities, as well as inequality in rural economies.

Last Updated: Oct 06, 2022

The South Africa Covid-19 Emergency Response Project ($480.0 million equivalent) aims to increase COVID-19 vaccination coverage among the population of South Africa. The project is designed to support the government in procuring 47 million COVID-19 vaccine doses to reach a target population, and thus reduce the spread of COVID-19 and resulting deaths.

The Eskom Renewables Support Project (ERSP) focuses on demonstrating the viability of clean technologies in South Africa. ERSP is a $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, to date the best performing wind plant in the country. ERSP has supported the Eskom Battery Storage Program, a 300MW/1440 MWh investment of several battery sites, since 2019, and aiming to integrate more wind and solar photovoltaic generation capacity into Eskom grids. The procurement process for the first phase of this program was finalized in March 2022, as Eskom awarded six battery system contracts—representing an equivalent capacity of over 200 MW—to firms that installed these assets by June 2023.

At the government’s request, the World Bank is preparing a coal plant-decommissioning and repurposing pilot operation to support Eskom to decommission its coal power station in Komati and rehabilitate and repurpose the site using cleaner energy, providing new opportunities for 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 DPL will support government efforts to accelerate its COVID-19 response, aimed at protecting the poor and vulnerable from adverse socio-economic impacts of the pandemic and promoting sustainable recovery.

The DPL supports the implementation of South Africa’s Economic Reconstruction and Recovery Plan, including priority reforms. It is aligned with the Bank’s Crisis Response Approach, aimed at protecting lives and livelihoods and supporting inclusive and resilient growth. Its support will improve financial sector stability and support the country’s commitment to climate change. Under the program supported by the operation, more than 20 million people received COVID-19 Social Relief of Distress (SRD) grants to mitigate the socio-economic impact of the pandemic on unemployed and informal sector workers who were not otherwise eligible for social grants or unemployment insurance benefits. The operation is the first budget support South Africa has received from the World Bank during the country’s post-apartheid, democratic era.

Urban Development

The World Bank is 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 to support the second phase of the government Treasury’s Cities Support Programme.

This program has contributed to strengthening economic incentives, increasing the speed of starting a business, reforming infrastructure finance and fiscal management, and promoting inclusive urban development—with a focus on informal settlements. Supported also by Switzerland’s State Secretariat for Economic Affairs, it is in line with South Africa’s National Development Plan and Integrated Urban Development Framework.

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 Bank technical assistance program, launched in September 2018 again 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 provided for the orderly resolution of designated financial institutions and establishment of deposit insurance scheme. 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 inform discussions on the development of a vision for South Africa to be a leading fintech hub for Africa by promoting financial inclusion while spurring competition, digital skills, and economic growth through innovation.

The Wildlife Conservation Bond (WCB), a $150 million IBRD bond, is the world’s first species impact bond linking investment return (under a bond issuance to conservation performance) to allow private and institutional investors to participate in a market that is historically a focus of donor and philanthropists. Rhino bond investors agree to forego periodic interest coupon payments and instead direct the money to fund rhino conservation in two, protected areas in South Africa. If rhino population growth rates climb over five years (that is, if black rhino growth is above 4% annually), investors receive a payment, financed through the Global Environment Facility (GEF), of $0 to $13.76 million.

The coupon payments that are foregone are used to improve the management of the Addo Elephant National Park and Great Fish River Nature Reserve, both of which contain populations of black rhino, and to raise the benefits of their presence to local communities. Project activities include measures to increase the supply and distribution of water, and to improve security through more staffing, equipment, facilities, training, fence upgrades, and improved aerial support and communications, as well as 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.

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 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’s South Africa Digital Economy Diagnostic examined the strengths, weaknesses, and opportunities in the digital economy. It forms part of the WBG’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 continue to grow and expand its digital economy by building on its strong foundations, in particularly by including playing a regional leadership role to boost digital infrastructure and skills. Considerations to be given priority include updating its policy on national broadband in line with international best practice, fast-tracking spectrum licensing, and ensuring the independence and capacity of the Independent Communications Authority of South Africa.

Last Updated: Oct 06, 2022

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

Last Updated: Oct 06, 2022