Picture: REUTERS
Picture: REUTERS

The World Bank has raised its growth forecasts for SA due to a rise in business confidence and recent political changes, but warned that growth potential would remain weak without policy implementation.

While the bank expects growth to accelerate to 1.4% in 2018 from a previous estimate of 1.1%, economic growth is expected to remain less than 2% in the medium term.

Despite a rebound in growth on improved confidence levels and a smooth political transition in the election of President Cyril Ramaphosa, SA is lagging behind its peers in emerging markets as it remains one of the world’s most unequal countries.

Emerging markets are expected to grow 4.5% in 2018.

Sebastien Dessus, World Bank programme leader for SA, said that reaching 5% growth in line with the National Development Plan was not realistic in the near term.

The forecast is also more pessimistic than that of the Treasury, which is expecting growth of 1.5% in 2018, and of the Reserve Bank, which is expecting 1.7% growth.

Among the challenges for Ramaphosa is access to better education, fighting corruption and restoring policy certainty in mining as factors that could boost the economy, said Dessus.

Policy interventions

“There has been a smooth and seamless political transition, which is important. And there have been gains in the trust of people and businesses,” Paul Noumba Um, World Bank country director for SA, said.

Despite the rosier outlook compared to 2017, the bank stressed that SA would struggle to raise growth beyond 2% without policy interventions to improve skills among the poor.

The current growth rate would also be insufficient to reduce the 80% poverty rate and the 27.7% unemployment rate.

“That said, inequality, poverty and unemployment are big challenges. SA is the most unequal economy in the world today,” Noumba Um said.

He said that the outlook called for a policy change that focused on building a skilled labour force.

SA’s labour force dynamics and persistent inequality were driven by a skills deficit rather than race or gender, he said.

“[Inequality] has been driven by labour market developments that demand skills the country’s poor currently lack,” Noumba Um said.

World Bank senior economist Marek Hanusch said that the economy was very skills intensive and that there should be a focus on addressing skills constraints, particularly in the manufacturing sector, in order to see higher growth.

Upskilling workers in the manufacturing sector had the potential to could tackle deeply entrenched challenges of poverty, inequality and unemployment in the country, Hanusch said.

The Absa purchasing managers index indicated that businesses were very confident but sales orders remained below the crucial 50-mark that divides expansion from contraction, Hanusch said.

“The economy doesn’t work on confidence, it requires investment,” he said.

On Tuesday, data from Statistics SA showed that manufacturing production increased by 0.6% in February 2018 compared with February 2017, while decreasing by 2.4% compared to January.

Since the early 1980s, manufacturing’s contribution to GDP has dropped from 24% to less than 13% in 2017.