Higher Rates of Investment and Savings Essential to Meeting the Challenge
Johannesburg, July 20, 2011 – South Africa’s strengthening recovery, with growth projected at 3.5 percent in 2011, is placing the spotlight back on the critical long-term challenge of tackling high unemployment rates, which, in turn, requires faster, more inclusive growth. Raising the investment and savings rates is crucial to achieving these important national objectives, says a new World Bank report released today.
“The World Bank is pleased to launch a new, biannual series of economic reports – the South Africa Economic Update” said Ruth Kagia, World Bank Country Director for South Africa. “This genre of economic reports constitutes an important aspect of the World Bank’s analytical program in a number of large middle-income countries. We offer this first issue with a view to contributing to the national debate on a consequential topic and help shape informed policy decisions for sustainable economic recovery in South Africa.”
The report finds that a sub-optimal economic equilibrium triggered by low rates of savings and investment, low employment- intensity production, and slow productivity growth is making difficult the achievement of inclusive growth. It argues that a stimulus to any of these elements can unleash a virtuous cycle marked by faster capital accumulation, job creation, and technological advancement.
“Our results show South Africa as being an attractive place for business, which has not translated into investment and growth commensurately,” said Sandeep Mahajan and Fernando Im, World Bank economists and co-authors of the report. “Modest investment rates in South Africa despite attractive returns and low savings rates despite favorable demographics are important impediments that need to be resolved to achieve the full potential.”
The report calls for bold and creative thinking to secure broad-based growth and cautions that quick fixes will not produce the dramatic results required. It urges better integration of South Africa’s advanced and less-developed economy that is characterized by spatially-separated townships and informal settlements, home to the bulk of unemployed people. It calls for a big push on public transport and programs to enhance the technical skills of youth and it calls for improving the access to finance of small enterprises and rural and township residents.
The report also calls for “smarter regional integration” that capitalizes on South Africa’s comparative advantages, particularly its two surplus endowments in natural resources and a large pool of unemployed labor. The report argues that dynamic and nimble “regional production supply chains are needed, backed by a greater push to attract foreign direct investment.