The World Bank recently released its diagnostic report on South Africa. The diagnostic report is the culmination of years of research and consultation with the government, academia and private sector which summarises the key strengths and weaknesses of the South African economy. The document is primarily used to assess the country’s viability as an investment destination for the World Bank and affiliated agencies. It also provides an invaluable perspective on the changes needed to improve the country’s investment potential.
The report cuts across multiple sectors, assessing the key constraints and enablers from a legislative point of view whilst shedding some light on the country’s relative strengths and weaknesses. This is done by rating critical components of the economy in terms of its global competitiveness. Here are some key figures from the diagnostic report:
Robust capital markets and logistics infrastructure seen as a strength
South Africa is bolstered by the most advanced capital market in the region and boasts sophisticated logistics infrastructure, ranked 29th out of 167 countries on the World Bank global logistics performance index.
Skills shortage a key factor likely to limit growth
South Africa will soon face a dire shortage of skills as we are ranked a paltry 126th out of 157 countries in the World Bank Human Capital Index. While we rate 84th out of 140 on the skills index, only 19% of our school leavers enter into tertiary education compared to a global average of 36%. This is certainly a cause for concern and it is estimated that this will be a limiting factor for economic growth. One way to overcome this impasse in the short term (three to five years) is to source critical skills through immigration. However, here we are hampered by a restrictive policy environment as critical skills visas are exceptionally difficult to obtain.
Energy security needs urgent attention
While our electricity woes will come as no surprise to most businesses, the scale of the challenge is brought home by the fact that we are ranked 112th out of 157 countries as far as the efficiency of our energy supply is concerned. Needless to say, this is another crucial factor limiting growth but there is a silver lining. Should the state be able to rationalise its policies around independent power producers, renewable energy and embedded generation, private and development finance institution (DFI) investment should be able to make a real impact on our energy security.
Need to plan for water scarcity
Another key figure worth taking note of is the World Bank’s estimation that South Africa will face a water demand deficit of between 2,7 and 3,8 million cubic meters of water per annum by 2030. The World Bank, therefore, makes recommendations to improve the efficiency of water sector management and regulation.
Agricultural and agribusiness sectors are the silver lining
The diagnostic report also places special emphasis on agriculture and agroprocessing. There, sectors are lauded in the report as several South African companies are world leaders despite our small standing in the world market. The report highlights how the sector has managed to dramatically increase productivity and competitiveness in the past three decades which puts it in a good position to lead export-led growth along with the ICT and automotive sectors.
That being said, there are real challenges around climate change, barriers to entry and concentration, water scarcity, low levels of labour uptake, policy uncertainty around land and water rights as well as access to finance for the emerging sector. These items are well known as the sector has continuously called for an enabling policy environment to facilitate growth and employment. Perhaps most importantly, the report notes that there is no shortage of information in South Africa. We know what the challenges are and there are several proposals on how to fix them. All that is required is for this knowledge to translate into actionable decisions. – Theo Boshoff, Agbiz