SA’s tran­si­tion, in­ter­rupted

A World Bank re­port aims to help the coun­try to elim­i­nate poverty by 2030 and to boost shared pros­per­ity

Mail & Guardian - - Business -

South Africa has come a long way since the ad­vent of democ­racy but its tran­si­tion re­mains in­com­plete. The first three clauses of the Free­dom Char­ter, the 1955 doc­u­ment set­ting out the cen­tral ob­jec­tives of the demo­cratic move­ment, were: the peo­ple will gov­ern; all na­tional groups will have equal rights; and all peo­ple will share in the coun­try’s wealth.

The first two ob­jec­tives have largely been achieved since the first demo­cratic elec­tions of 1994 but his­tor­i­cal disad­van­tage re­mains a de­ter­mi­nant of in­come, wealth and op­por­tu­nity.

Poverty has de­clined sig­nif­i­cantly since 1994 but in­equal­ity re­mains high. Im­proved ac­cess to ba­sic ser­vices such as elec­tric­ity, wa­ter and san­i­ta­tion, the state pro­vi­sion of more than four mil­lion houses and the ex­pan­sion of the so­cial wage have con­sid­er­ably im­proved liv­ing stan­dards for mil­lions of South Africans.

A pro­gres­sive fis­cal sys­tem, ex­panded ac­cess to credit, jobs in the pri­vate and pub­lic sec­tors and af­fir­ma­tive ac­tion poli­cies have re­duced in­equal­ity be­tween black and white South Africans, although in­equal­ity within the black pop­u­la­tion has in­creased. Over­all, in­equal­ity has risen since 1994 and, in some cases, gov­ern­ment poli­cies have in­ad­ver­tently helped to en­trench it fur­ther. Ac­cord­ing to World Bank Group data, South Africa re­mains the world’s most un­equal coun­try.

Cre­at­ing jobs, es­pe­cially for young peo­ple, is crit­i­cal to over­come the legacy of ex­clu­sion. Jobs are also im­por­tant to build a stronger so­cial con­tract. Large-scale job cre­ation re­duces eco­nomic vul­ner­a­bil­ity and helps to trans­form the econ­omy to be­come more rep­re­sen­ta­tive of the pop­u­la­tion. But only about 60% of work­ing-age South Africans par­tic­i­pate in the labour force and un­em­ploy­ment is high (27%), es­pe­cially among young peo­ple (more than 50%).

To cre­ate more jobs, the econ­omy needs to grow much faster than it has since 1994. But the legacy of ex­clu­sion in land, labour, cap­i­tal and prod­uct mar­kets hampers growth. At the same time, high in­equal­ity and the legacy of ex­clu­sion fuel the con­tes­ta­tion over re­sources, in­creas­ing pol­icy un­cer­tainty and de­ter­ring in­vest­ment, while also un­der­min­ing the fi­nan­cial sta­bil­ity of state-owned en­ter­prises and their abil­ity to pro­vide qual­ity pub­lic ser­vices. This, too, has weighed on growth.

The World Bank Group’s twin goals are to help coun­tries to elim­i­nate poverty by 2030 and boost shared pros­per­ity. These goals are also en­shrined in South Africa’s Vi­sion 2030 in the Na­tional De­vel­op­ment Plan. The World Bank Group is pre­par­ing for its 2019-2022 Coun­try Part­ner­ship Frame­work with South Africa and has drafted this sys­tem­atic coun­try di­ag­nos­tic (SCD) to strengthen its un­der­stand­ing of key con­straints to achiev­ing these goals.

The broad pol­icy pri­or­i­ties iden­ti­fied are ex­pected to strengthen job cre­ation, and re­duce poverty and in­equal­ity. These res­onate with con­tem­po­rary calls for an “eco­nomic Codesa” — a ref­er­ence to the Congress for a Demo­cratic South Africa ne­go­ti­a­tions in the early 1990s, which led to the po­lit­i­cal tran­si­tion from apartheid.

Over­com­ing the legacy of ex­clu­sion re­quires a stronger so­cial con­tract, and in the Feb­ru­ary 2018 State of the Na­tion ad­dress, Pres­i­dent Cyril Ramaphosa an­nounced that a new so­cial com­pact would be ne­go­ti­ated in col­lab­o­ra­tion with busi­ness, labour and civil so­ci­ety. This is an es­sen­tial foun­da­tion on which to build the coun­try’s fu­ture and the pri­vate sec­tor will have to play a more ac­tive role in shap­ing pol­icy and cre­at­ing jobs.

This SCD iden­ti­fies five key con­straints: in­suf­fi­cient skills; the skewed dis­tri­bu­tion of land and pro­duc­tive as­sets, and weak prop­erty rights; low com­pe­ti­tion and low in­te­gra­tion in global and re­gional value chains; lim­ited or ex­pen­sive spa­tial con­nec­tiv­ity and un­der-ser­viced his­tor­i­cally dis­ad­van­taged set­tle­ments; and cli­mate shocks, which in­clude wa­ter in­se­cu­rity and a tran­si­tion to a low-car­bon econ­omy.

In­suf­fi­cient skills is the key con­straint to re­duc­ing poverty and in­equal­ity. Skills are crit­i­cal for both labour sup­ply and de­mand. They raise the pro­duc­tiv­ity of work­ers and en­trepreneurs, help firms to ex­pand pro­duc­tion at com­pet­i­tive prices, lead to ad­di­tional hir­ing, boost ag­gre­gate de­mand, and con­trib­ute to a grow­ing econ­omy.

But South Africa’s learn­ing out­comes are still poor by global and re­gional stan­dards be­cause of the legacy of “Bantu ed­u­ca­tion”.

In­equal­ity is also re­flected by low house­hold sav­ings and high lev­els of in­debt­ed­ness. Vi­sion 2030 stresses that im­prov­ing the qual­ity of ed­u­ca­tion is an es­sen­tial in­gre­di­ent for na­tional de­vel­op­ment.

The highly skewed dis­tri­bu­tion of land and pro­duc­tive as­sets is a source of in­equal­ity and so­cial fragility, fu­elling con­tes­ta­tion over re­sources. Prop­erty rights are weak or un­der pres­sure. De­spite some progress, wealth and land own­er­ship re­main highly con­cen­trated. Pub­lic hous­ing pro­grammes pro­vide a grow­ing num­ber of poor house­holds with tan­gi­ble as­sets. But a lack of ti­tle deeds to prop­erty, es­pe­cially in poor and in­for­mal ar­eas, lim­its its value, in­clud­ing as col­lat­eral to ac­cess fi­nance. Se­cu­rity of ten­ure in the for­mer home­lands is also ten­u­ous.

As a re­sult, even where the poor hold land, its value is lim­ited. Calls for land ex­pro­pri­a­tion with­out com­pen­sa­tion and as­pects of the third Min­ing Char­ter fuel con­cern about prop­erty rights. A new so­cial com­pact will re­quire greater cer­tainty about what will be re­dis­tributed and how this will take place while en­sur­ing that se­cure prop­erty rights pro­vide a sus­tain­able plat­form for in­vest­ment.

Prop­erty rights are crit­i­cal for all South Africans to use their as­sets to sup­port eco­nomic growth, house­hold in­comes and jobs. Black eco­nomic em­pow­er­ment should be eval­u­ated to en­sure that it be­comes truly broad-based while min­imis­ing ad­verse ef­fects on in­vest­ment.

Low lev­els of com­pe­ti­tion and in­te­gra­tion into global and re­gional value chains de­ter growth and job cre­ation. They also keep prices high, es­pe­cially for the poor. The coun­try’s banks are well in­te­grated into the global econ­omy but man­u­fac­tur­ers have tra­di­tion­ally been pro­tected by nat­u­ral trade bar­ri­ers (for ex­am­ple, dis­tance) and a his­tory of im­port sub­sti­tu­tion and in­dus­trial pol­icy sup­port.

The coun­try’s prod­uct mar­kets have high bar­ri­ers to en­try and are poorly in­te­grated with the global econ­omy. As a re­sult, busi­nesses miss out on op­por­tu­ni­ties to trade in­ter­na­tion­ally and grow through tech­nol­ogy trans­fers as­so­ci­ated with par­tic­i­pat­ing in the value chain.

This is es­pe­cially a prob­lem for smaller firms, which strug­gle to find new de­mand in a stag­nant econ­omy and face bar­ri­ers im­posed by in­cum­bents.

The skills con­straint ex­ac­er­bates mat­ters, par­tic­u­larly hurt­ing man­u­fac­tur­ers, small com­pa­nies and emerg­ing en­trepreneurs and farm­ers. Pro­duc­tiv­ity gains from com­pe­ti­tion and in­no­va­tion are needed to pro­duce goods more cheaply for all South Africans, es­pe­cially the poor, al­low­ing their bud­gets to stretch fur­ther.

En­abling busi­ness to com­pete ef­fec­tively will have the dual ben­e­fits of over­com­ing the ex­clu­sion of his­tor­i­cally dis­ad­van­taged South Africans and end­ing the coun­try’s his­tor­i­cal iso­la­tion from global mar­kets.

Ex­clu­sion is also un­der­pinned by lim­ited or ex­pen­sive con­nec­tiv­ity, and un­der­ser­viced his­tor­i­cally dis­ad­van­taged set­tle­ments. Many South Africans con­tinue to live far from job op­por­tu­ni­ties in un­der­served town­ships, in­for­mal set­tle­ments and the for­mer home­lands. This makes com­mut­ing ex­pen­sive.

There has been sig­nif­i­cant mi­gra­tion from ru­ral to ur­ban ar­eas as peo­ple seek work. Although mi­gra­tion re­duces poverty, it can also put pres­sure on pub­lic ser­vices and raise so­cial ten­sions as new ar­rivals com­pete with ex­ist­ing res­i­dents for jobs, ser­vices and busi­ness.

The gov­ern­ment has made con­sid­er­able efforts to re­duce these skewed spa­tial pat­terns but has at times in­ad­ver­tently re­in­forced them, for ex­am­ple, by adopt­ing hous­ing poli­cies that do not en­cour­age ur­ban den­si­fi­ca­tion. Ur­ban plan­ning is in­creas­ingly fo­cused on sus­tain­ably den­si­fy­ing cities but this is a longterm process.

For some years to come, many South Africans will con­tinue to live in rel­a­tively re­mote lo­ca­tions with lim­ited em­ploy­ment op­por­tu­ni­ties. Ac­cess to elec­tric­ity, wa­ter, san­i­ta­tion, good pub­lic clin­ics and schools, and fi­nan­cial ser­vices re­mains much weaker in such ar­eas, lim­it­ing op­por­tu­ni­ties for growth and weigh­ing down liv­ing stan­dards.

Im­prov­ing in­ter­net con­nec­tiv­ity and low-cost broad­band ac­cess can help to in­crease con­nect­ed­ness.

Cli­mate change will im­pose con­sid­er­able costs on South Africa, which re­lies heav­ily on coal to power its econ­omy. Man­ag­ing the low-car­bon tran­si­tion and ad­dress­ing wa­ter in­se­cu­rity will be crit­i­cal. Cheap coal was one of the key fac­tors in the coun­try’s de­vel­op­ment, and the econ­omy re­mains heav­ily de­pen­dent on coal for en­ergy and min­ing.

In the tran­si­tion to a low-car­bon econ­omy, a vi­able de­car­bon­i­sa­tion strat­egy will be needed to en­sure that im­por­tant eco­nomic sec­tors are not neg­a­tively af­fected. This in­cludes im­ple­ment­ing the car­bon tax and ac­cess­ing pri­vate in­vest­ment for en­ergy con­ser­va­tion and clean en­ergy tech­nolo­gies.

Although cli­mate change will ex­ac­er­bate the coun­try’s wa­ter prob­lems, it is not the rea­son for the struc­tural wa­ter deficit. Pop­u­la­tion growth, ur­ban­i­sa­tion and eco­nomic ex­pan­sion are in­creas­ing de­mand for wa­ter, out­strip­ping fixed sup­ply. Ad­dress­ing this deficit re­quires poli­cies tar­get­ing wa­ter sup­ply, man­age­ment and de­mand.

Cli­mate-smart agri­cul­ture will be im­por­tant to guar­an­tee ad­e­quate food pro­duc­tion for South Africa and the re­gion and to pro­tect farm­ers’ liveli­hoods, as will in­sur­ance prod­ucts cov­er­ing cli­mate shocks.

Pub­lic in­sti­tu­tions have served South Africa well. Their in­tegrity needs to be up­held and strength­ened. The coun­try has a vi­brant demo­cratic sys­tem, a ca­pa­ble civil ser­vice and a strong and in­de­pen­dent ju­di­ciary and cen­tral bank, as well as ro­bust me­dia. Cor­rup­tion, or “state cap­ture”, has been un­der­min­ing the qual­ity of in­sti­tu­tions, es­pe­cially the state-owned en­ti­ties, since 2009.

A re­newed em­pha­sis on trans­parency, strong pro­cure­ment sys­tems and ac­count­abil­ity (on the boards of state-owned en­ti­ties and oth­ers) are needed to en­sure ef­fec­tive ser­vice de­liv­ery.

Im­prove­ments in ed­u­ca­tion will en­able cit­i­zens to hold gov­ern­ment more ac­count­able. In­sti­tu­tions can also be strength­ened by im­prov­ing pol­icy co-or­di­na­tion, mon­i­tor­ing and eval­u­a­tion. A leaner civil ser­vice fo­cused on pri­or­i­ties, cou­pled with the consolidation of state de­part­ments, can im­prove the im­ple­men­ta­tion of pol­icy and will re­duce com­pe­ti­tion for skilled work­ers and en­trepreneurs with the pri­vate sec­tor.

The global eco­nomic re­cov­ery, cou­pled with re­newed com­mit­ment by South Africa’s po­lit­i­cal lead­er­ship to strengthen in­sti­tu­tions and strengthen the so­cial con­tract, presents an enor­mous op­por­tu­nity. But so­cial progress takes time. Man­ag­ing ex­pec­ta­tions will en­sure that dis­ap­point­ment does not un­der­mine South Africa’s con­tin­ued progress to­ward its Vi­sion 2030.

This SCD, based on both new and ex­ist­ing re­search, was de­vel­oped by ex­ten­sive con­sul­ta­tion with South African or­gan­i­sa­tions and in­di­vid­u­als. But knowl­edge gaps re­main. Fu­ture ar­eas of in­ter­est for the World Bank Group team in­clude in­ter­ven­tions in ba­sic ed­u­ca­tion that can raise learn­ing out­comes for the poor; im­prov­ing the af­ford­abil­ity of ter­tiary ed­u­ca­tion in col­lab­o­ra­tion with the pri­vate sec­tor; de­vel­op­ing town­ship and ru­ral economies; ex­plor­ing how small firms can sup­port growth and job cre­ation; sus­tain­ably en­hanc­ing na­tional wa­ter re­sources; pre­par­ing work­ers and com­mu­ni­ties for the low-car­bon tran­si­tion; har­ness­ing the po­ten­tial of nat­u­ral re­sources to ben­e­fit his­tor­i­cally dis­ad­van­taged com­mu­ni­ties; and en­cour­ag­ing greater foreign di­rect in­vest­ment.

The pol­icy pri­or­i­ties are ex­pected to strengthen job cre­ation and re­duce poverty and in­equal­ity

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