World Bank cuts SA growth outlook
Lack of innovation, drop in productivity hindering economy
THEWorld Bank has cut its forecast for South Africa’s economic growth, saying that the country’s low levels of innovation and declining productivity are factors holding back growth.
The bank’s latest economic update on South Africa, which reports that productivity losses since 2008 cost South Africa 0.7% of foregone GDP growth every year, comes as ratings agencies continue to raise concern about the country’s “low-growth trap” and rising poverty, which are seen as risk factors for its rating.
World Bank SA country director Paul Noumba Um said South Africa’s productivity growth had diverged from global trends and it risked falling further behind its peers, with productivity having declined 6% since 2007, while private sector investment in research and development had dropped about 40% since 2009.
South Africa is also an outlier among its peers in terms of the share of young enterprises in the total, with the proportion of young companies well below that of other emerging markets. There has also been almost no export diversification over the past seven years, reflecting South Africa’s inability to break into new markets with innovation.
However, the bank’s economists also argue that South Africa has untapped potential for innovation.
“We believe that South Africa has strong assets it can leverage to enhance its competitiveness and respond better to the aspirations of its people,” Noumba Um said.
The bank revised its growth forecast for 2017 to 0.6%, down from its January forecast of 1.1%, with growth estimated to pick up moderately to 1.1% in 2018 and 1.7% in 2019.
Releasing its economic update on South Africa on Tuesday, the bank’s economists said although South Africa 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 population growth for the four years to 2018.
This was likely to prolong the trend of increasing poverty recorded from 2011 to 2015, with the bank’s research showing that only 20% of South Africa’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.
Programme leader Sebastian Dessus said insufficient investment in innovation was behind South Africa’s divergent productivity.
However, it 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, South Africa needed to improve the investment climate for small firms, mainly by tackling the obstructing regulations that were identified as the second-highest constraint for small and medium enterprises.
In other countries, a lot of innovation had come from small enterprises and the composition of companies in South Africa – with most old or ageing – meant that a very strong vehicle for innovation was missing, Dessus said.
South Africa also needed to deal with the skills gap, particularly by importing the skilled labour the education system was unable to create in the shorter term, and it needed to facilitate trade, to make it easier to break into foreign markets.
South Africa’s port costs are 88% higher than the global average and ports tend to be designed to export mining products rather than smaller products, which could be a deterrent to young companies.
The bank’s economists also identified information technology as crucial to drive innovation and enabling new enterprises – South Africa’s data costs are five times higher than Egypt’s.
The bank’s report said the administration of the many public programmes for innovation needed to be integrated and improved.
Although South Africa has public and private sector incubators as well as grant and tax incentive programmes, these are fragmented and in some cases inappropriate for young companies.
Dessus said South Africa had a relatively high percentage of entrepreneurs in its big cities, but its weak innovation was reflected in the fact that its top five exports per technology type had showed little change since 2010. — BDLive