Tag Archives: World Bank

SA economy trails emerging-market peers by 37%

South Africa’s sluggish economic growth since 2010 has significantly eroded the relative wealth of its population compared to global trends, according to Investec Wealth & Investment International.

“You can see a decoupling of South Africa’s gross domestic product per capita from the rest of the world in 2010,” said Osagyefo Mazwai, investment strategist at Investec Wealth & Investment International.

In 2023, South Africa’s GDP per capita – adjusted for purchasing power parity – stood at $15,194, well below the global average of $22,850.

Bloomberg reported that the country has buckled under the weight of persistent power outages, widespread corruption, rising crime, deteriorating infrastructure, and foreign policy missteps.

As a result, South Africa’s economy is now estimated to be 37% smaller than it would have been had it kept pace with its emerging-market peers.

Investec estimates that the country may have forfeited as much as R5 trillion in tax revenue since 2010—resources that could have been used to strengthen public services and reduce the national debt burden.

To catch up with the global average over the next decade, GDP per capita would need to grow by around 8% annually, Mazwai said.

“You need to be exceptional in your GDP growth outcomes, and even in that environment, you only get back to the global average,” he added.

That 8% annual growth target far exceeds historical benchmarks: since 1991, middle-income countries have grown at an average rate of 5.9%, while the global average has been just 4.4%, according to Investec.

The outlook remains cautious. The International Monetary Fund has revised its growth forecast for South Africa’s economy to 1% in 2025, down from an earlier estimate of 1.5%. Investec projects slightly lower growth at 0.9% for 2025, with a gradual rise to 3% by 2030.

Meanwhile, the Bureau for Economic Research highlights weak investment sentiment. Since the global financial crisis, South African business confidence has remained consistently below the neutral 50-point threshold, and gross fixed capital formation has shown similarly disappointing performance.

World Bank data shows that it was just 15% of GDP in 2024, compared with 40% for China, 30% for India, and 22% for Russia.

Over the past decade, South Africa’s economy has remained largely stagnant, growing at an average of just 0.7% annually, World Bank said. Structural issues – such as weak infrastructure, electricity supply shortages, and a poor business environment – have consistently hampered growth.

Load shedding, a key constraint since 2007, worsened in 2022–2023 but has improved significantly since March 2024 due to stronger management of Eskom, increased political support, and the liberalisation of power generation markets.

Despite this progress in energy supply, economic growth remained subdued at 0.6% in 2024, slightly down from 0.7% in 2023, it noted.

Inequality remains among the highest globally, with a Gini coefficient of 0.67 (2018), according to the bank. Economic duality and limited social mobility mean structural inequality is passed down through generations. The country also faces growing issues in logistics and transport, largely due to the poor performance of state-owned Transnet and widespread infrastructure sabotage, further constraining exports.

In June 2024, a Government of National Unity (GNU) led by President Cyril Ramaphosa was formed, uniting 11 political parties. The GNU aims to rebuild the economy through constitutionalism, job creation, economic reform, and improved service delivery—marking a potential shift in the country’s policy direction and governance approach.

South Africa has taken considerable strides to improve the well-being of its citizens since its transition to democracy in the mid-1990s, but progress has stagnated in the last decade.

The percentage of the population living below the upper-middle-income country poverty line fell from 68% to 56% between 2005 and 2010 but has since trended slightly upwards to 57% in 2015 and is estimated to have reached 63% in 2024.

South Africa’s bold plan to revive struggling cities

South Africa, with assistance from the World Bank, has launched a $3 billion (R54.6 billion) initiative aimed at reversing the decline in services and infrastructure in eight of the country’s largest cities.

The programme will leverage a $1 billion loan from the World Bank, along with $2 billion from government funds, to provide grants to cities such as Johannesburg, Durban, and Cape Town, which meet specific targets in delivering water, sanitation, electricity, and solid-waste management under a new government scheme, according to Bloomberg.

In response to an inquiry, the World Bank explained that the initiative “consists of a new, targeted performance-based fiscal transfer” to municipalities. It will “support reforms in the trading services” cities charge residents for, it added.

The government is introducing the Metro Services Trading Programme amid growing pressure from citizens.

In the 2024 elections, the African National Congress lost its outright majority for the first time since the end of apartheid, partly due to dissatisfaction with the quality of service delivery.

“South Africa’s metros are facing a crisis in the provision of basic services, marked by declining safety, reliability, and accessibility,” the World Bank said in a report about the programme. “Urgent action is needed to reverse the collapse of urban services.”

The programme will focus on cities where 22 million people, or more than a third of the country’s population, live across an area of almost 30,000 square kilometres.

Currently, South Africa’s government allocates funds to municipalities for infrastructure investments, but there has been no incentive based on performance.

The new initiative “will involve a combination of grant reforms together with the provision of conditional financial incentives that encourage municipalities to aggressively target the challenges affecting service delivery,” the World Bank stated.

The National Treasury did not respond to a request for comment. However, it mentioned the incentive-based programme in its budget statement earlier this month, without providing specifics on the requirements, targets, or funding.

The funds will be in addition to approximately $6 billion sourced from revenue generated by metropolitan areas and their borrowing, making for a $9 billion government programme, according to the World Bank.

Its focus will be on improving service delivery, reducing losses in water and electricity, and enhancing revenue collection.

Other municipalities included in the programme are those that oversee cities such as Bloemfontein, Pretoria, East London, Gqeberha, and Ekurhuleni.

Amidst these struggles, President Cyril Ramaphosa announced the establishment of the Presidential Johannesburg Working Group (PJWG) in an effort to resolve the “enormous challenges” facing the city.

The president announced the working group at a meeting between the National Executive and the City of Johannesburg Executive Council earlier in March.

“We would like to implement this collaborative approach in the City of Johannesburg and to do it as underpinned by the District Development Model. We are proposing the establishment of Presidential Johannesburg Working Group.

“This would bring in all levels of government and the expertise of our stakeholders to accelerate service delivery, stabilise the city’s finances and operations, and enable economic growth and job creation.

“We are going to work together to rebuild Johannesburg and to take Johannesburg back to its glory days,” the president said.

A similar approach has been applied in KwaZulu-Natal with the 2024 establishment of the eThekwini Presidential Working Group to turnaround the fortunes of Durban and position it as an investment and tourism hub.

The PJWG will have a special focus on rejuvenating the Johannesburg inner city.

“The infrastructure of this city is archaic. It was built in the apartheid days many years ago and needs to be attended to. We will need to refocus on the rejuvenation of the city.

“This historic part of our city… has been allowed to deteriorate for much too long. Efforts must be taken to make it a liveable, thriving and safe space for all citizens. We must work together to ensure the inner city is primed… to attract new investment and jobs. It is possible.

“I thank the executive mayor and his team for engaging openly and in a collaborative sprit with the Presidency on this support mechanism. It is in this spirit that we will make real strides to unlock Johannesburg’s role as the engine of growth for South Africa’s economy,” he said.

President Ramaphosa noted that the city is facing an array of challenges.

“Johannesburg today faces enormous challenges, ranging from financial and governance instability to rapidly deteriorating infrastructure. Water and electricity interruptions have become the norm. This has an enormous impact on the quality of life of citizens and the operations of businesses.

“The road infrastructure faces tremendous challenges. These include vandalism of traffic lights, dysfunctional street lights and rapidly deteriorating roads and bridges. These are just some of the challenges that are constraining growth in the country’s economic heartland,” he said.

Beyond Johannesburg, cities across South Africa are struggling with the same problems—broken power grids, neglected water infrastructure, deteriorating roads, and widespread service outages.

Water interruptions are frequent, and streetlights and traffic lights are often in disrepair due to vandalism or neglect. This failure to maintain essential infrastructure hampers economic growth and affects the daily lives of residents.