South Africa can achieve more inclusive and sustainable development with coordinated reforms across a broad range of areas that maximize development impact and address constraints to reduction in poverty and inequality, according to the World Bank Group’s new Systematic Country Diagnostic for South Africa, released on 14 May 2018.

Prepared in close consultation with government and other key stakeholders, this Diagnostic, An Incomplete Transition: Overcoming the Legacy of Exclusion in South Africa, looks at the interplay between history, social, economic, financial, fiscal and environmental issues, and their impact on poverty and inequality. It acknowledges the progress made since 1994 and suggests a selected range of policy options to eliminate poverty and boost shared prosperity.

“The Government of South Africa has done much to address its most pressing development challenges, the triple challenge of high unemployment, poverty and inequality, but much still remains to be done,” said Paul Noumba Um, World Bank Country Director for South Africa. “As the World Bank we stand ready to support South Africa in its efforts to tackle the triple challenge.”

The SCD places special emphasis to the need for large-scale job creation. The diagnostic says that while South Africa underwent a successful and peaceful political transition in 1994, too many South African remain excluded from participating in the economy, rendering the transition incomplete. The persistent legacy of exclusion makes it difficult to build the post-apartheid social contract, the diagnostic says, resulting in contestation over resources and undermining investment and economic growth as well as financial, fiscal, and external sustainability. In addition, climate change poses shocks that further undermine the country’s its sustainability, according to the SCD.

“With this Diagnostic, the World Bank Group has identified five binding constraints to addressing the legacy of exclusion which persist despite South Africa’s progress in granting political and civil rights to its citizens and in increasing access to basic services and social assistance,” said Paul Noumba Um.

The five binding constraints and policy recommendations are:

• Insufficient skills: This Diagnostic finds that due to continued historical disadvantage entrenched in the education system, insufficient skills, are among the most binding constraints to fighting unemployment, poverty and inequality. Identified policy interventions focus on children and young adults as the most critical. It recommends focusing on children and young adults as the most critical. Policy options expected to have the most impact include strengthening nutrition and early years development, training school teachers, expanding affordable university access to poor students, reforming the Technical and Vocational Education and Training (TVET) system, and active labor market policies.

• Skewed distribution of land and productive assets and weak property rights, is the second binding constraint. The SCD suggests reforms that can strengthen the asset base of the poor, while also increasing property security for investors and strengthening capacity for land reform.

• Low competition and low integration in global and regional value chains. The Diagnostic proposes implementing sustainable mechanisms to embed competition principles in policy formulation. Reform of transport-related state-owned enterprises, including greater private sector participation; attracting foreign direct investment, linking small-medium enterprises (SMEs) with lead firms to connect them with international value chains, are among suggested policies.

• Limited or expensive connectivity and under-serviced historically disadvantaged settlements: Policy options include fostering strategic densification of cities and diversifications of land use, as well as expanding basic services in underserviced settlements. Other interventions are better integrated transport planning and land use, as well as strengthening regulatory framework in support of competition in the minibus taxi sector. 

• Climate shocks: Disruptions to the economy and jobs as South Africa transitions to a low-carbon economy will need to be mitigated carefully, the Diagnostic suggests. Climate change also puts further pressure on the country’s scarce water resources which require long-term planning and strategic adaptation.

“It would be easy to assume that addressing South Africa’s biggest constraints is the responsibility of government alone. That would be a mistake. We hope all stakeholders can embrace the contribution business can make in tackling these issues. The private sector has a huge role to play in creating jobs, growth, and a more equal economy,” said Saleem Karimjee, International Finance Corporation Country Manager for Southern Africa.