World Bank slashes growth forecast for ‘fragile’ SA
SA's top five exports per technology type have changed little over the past seven years, and only 7% of exports are high tech
The World Bank has halved its growth outlook for SA and has flagged dwindling productivity as a major threat to growth.
Speaking at the presentation of the World Bank's 10th edition of the SA Economic Update on Tuesday, Sebastien Dessus, the World Bank programme leader said the bank had revised growth down to 0.6% for 2017. In January, the World Bank forecast GDP growth of 1.1%.
The downward projection follows the technical recession from which the economy has since emerged, and the credit rating downgrades earlier in 2017.
The bank expected growth to improve to 1.1% in 2018, and 1.7% in 2019 on better commodity prices and stronger household spend.
"However, this recovery prospect will remain fragile unless SA succeeds in bending the curve of productivity," Dessus said.
At least for four years in a row GDP growth will be lower than population growth. Slow growth in 2016 and this year is likely to further prolong a trend of increasing poverty recorded between 2011 and 2015, the World Bank said.
World Bank SA country director Paul Noumba Um said SA's productivity growth had diverged from global trends and SA risked falling further behind its peers, with productivity having fallen 6% since 2007.
Growth has been dragged down by productivity losses, which had cost the economy 0.7% in foregone GDP growth annually since 2008. Private investment in research and development (R&D) has declined 40% in SA since 2008. "And that's very worrisome," Dessus said.
R&D in SA is concentrated in manufacturing.
The study found that SA had been lagging in total productivity levels relative to its Brics peers since 2000.
SA is also an outlier among its peers in terms of the share of young firms in the total, with the proportion of young firms well below other emerging markets. There has also been almost no export diversification over the last seven years, reflecting SA's inability to break into new markets with innovation.
SA's top five exports per technology type have changed little over the past seven years: only 7% of exports are high tech.
However, the bank's economists argue that SA has untapped potential for innovation. "We believe that SA has strong assets it can leverage to enhance its competitiveness and respond better to the aspirations of its people," Noumba Um said.
The World Bank said productivity gains in gold, social housing and machinery equipment would have the most significant effect on job creation. A 1% gain in productivity would increase demand for jobs by 0.2%-0.25% and real wages by 0.9%-1.8%, the study found.
The Bank's economists said that though SA had emerged from recession in the second quarter, this would not be sufficient to restore positive per capita growth, with the economic growth rate set to fall behind the rate of population growth for the four years to 2018.
This is likely to prolong the trend of increasing poverty recorded from 2011 to 2015, with the bank's research showing that only 20% of SA's population had not been in poverty at all in the past eight years, while 40% were chronically poor and a further 40% were the "transient" poor, going in and out of poverty since 2008.
Dessus said SA had significant scope for innovation that would create jobs, and could improve people's lives even where it did not create new jobs. To harness this, SA needed to improve the investment climate for small firms, and address hindering regulations, which have been identified as the second higher constraint for small and medium enterprises. In other countries a lot of innovation has come from small firms and the composition of firms in SA — with most old or ageist — means a very strong vehicle for innovation is missing.
SA also needs to address the skills gap, particularly through importing the skilled labour the education system could not create in the shorter term, and it needed to facilitate trade, to make it easier to break into foreign markets.
SA's port costs are 88% higher than the global average and ports tend to be designed to export mining products rather smaller products, which could be a deterrent to innovation.
The bank's economists also identified ICT as crucial to drive innovation and enable new firms. SA's data costs are five times higher than Egypt's. The bank's report, titled Innovation for Productivity and Inclusiveness, also said that the administration of the many public support programmes that SA has for innovation needed to be integrated and improved.