World Bank outlines plan for SA to speed up reforms

The World Bank has urged SA to speed up economic reforms, saying that while the country will emerge from the Covid-19 crisis weaker than before the pandemic it creates an opportunity for the government to implement growth-enhancing policy changes.

The global development bank said in the 13th edition of its SA economic update, released on Monday, that it expects the domestic economy to expand 4% in 2021, up from the 3% forecast in its April 2021 Africa’s Pulse publication.

But it said the expansion will be hampered by long-standing structural constraints. These include weak investment, electricity shortages, high transport and logistical costs, and historically high unemployment, which has been worsened by Covid-19 and the subsequent lockdown restrictions.

While economic growth will rebound in 2021, from a low base following the 7% slump in GDP in 2020, the World Bank warned that SA’s medium-term growth outlook is too low to significantly improve socioeconomic conditions and reduce unemployment, which reached 32.6% in the first quarter.

SA’s economy is only likely to grow 2.1% in 2022 and 1.5% in 2023, meaning that real GDP per capita in 2023 will be below its 2019 level, the World Bank said.

"This review calls for policies that address long-standing structural constraints to accelerate growth," said Marie Francoise Marie-Nelly, World Bank country director for SA, Botswana, Namibia, Lesotho and eSwatini. "Supporting young entrepreneurs is SA’s best hope of solving the jobs crisis, especially in relaxing constraints and rules to the start-up community," she said.

With SA still battling a worsening third wave of Covid-19 infections driven by the more contagious Delta variant of the virus, as well as widespread civil unrest in the wake of former president Jacob Zuma’s imprisonment, the government will have its hands full trying to change policy direction at a time of heightened political tensions. Much of the pro-Zuma lobby in the ANC are proponents of so-called radical economic transformation, which calls for more aggressive redistribution of land and the nationalisation of certain industries.

Among the policy interventions the World Bank recommends are expanding employment tax incentives to boost job creation; continuing the Temporary Employer/Employee Relief Scheme for lockdown-damaged sectors until most are back on their feet; a 12- to 18-month moratorium on regulations that raise the cost of labour; and a relaxation of regulations for small businesses and the self-employed.

The World Bank said if SA could raise self-employment levels from about 10% of all workers to the 30% average seen in other middle-income countries, it could potentially halve the unemployment rate. To remedy this it says entrepreneurial training programmes should be scaled up and start-up grants introduced to counter barriers to entry for entrepreneurs.

"SA has stringent regulations that constrain entrepreneurs and freelance and own-account workers more than in other upper-middle-income countries," the World Bank said. It also recommends incorporating job search and training modules into labour market programmes such as the Expanded Public Works Programme to help prepare beneficiaries for entering the job market.

Despite predicting 4% growth for 2021, the World Bank warned that SA’s growth outlook faces major risks including slow progress with vaccinations, a potential drop in fiscal discipline by the government, a weaker-than-expected global recovery and lower commodity prices. Power generating issues at Eskom were also highlighted as a severe constraint to private sector activity, with the World Bank citing its 2020 Enterprise Survey for SA, which showed 55% of firms surveyed reported power issues as the biggest obstacle to their businesses.

Based on the government’s plans, the World Bank expects SA’s consolidated fiscal deficit to narrow to 8.4% of GDP in 2021, from 12.9% in 2020, while the current account is forecast to maintain a surplus of 1.5% of GDP in 2021 before slipping into deficit in 2022. Debt to GDP is expected to top 80% in 2021 before widening to 84.3% in 2022 and 87.3% in 2023.

"For the SA economy to create prosperity, generate jobs, and improve public finances and debt dynamics, there is only one path — higher growth," it said.

theunisseng@businesslive.co.za