Driving Inclusive Growth in South Africa

© 2024 International Bank for Reconstruction and Development / The World Bank1818 H Street NW, Washington, DC 20433Telephone: 202-473-1000; internet: www.worldbank.org Some rights reserved This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, andconclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of ExecutiveDirectors, or the governments they represent. The World Bank does not guarantee the accuracy of the data includedin this work. The boundaries, colors, denominations, and any other information shown on any map in this work do notimply, on the part of the World Bank Group, any judgment on the legal status of any territory, or any endorsement oracceptance of such boundaries. Nothing herein shall constitute or be considered to be a limitation upon or waiver of the privileges and immunities ofThe World Bank, all of which are specifically reserved. Rights and Permissions This work is available under the Creative Commons Attribution 3.0 IGO license (CC BY 3.0 IGO)http://creativecom-mons.org/licenses/by/3.0/igo. Under the Creative Commons Attribution license, you are free to copy, distribute, trans-mit, and adapt this work, including for commercial purposes, under the following conditions: Attribution—Please cite the work as follows: World Bank. 2024.Driving inclusive growth in South Africa: Overview.Wash-ington, DC: World Bank. Translations—If you create a translation of this work, please add the following disclaimer along with the attribution: Thistranslation was not created by The World Bank and should not be considered an official World Bank translation. TheWorld Bank shall not be liable for any content or error in this translation. Adaptations—If you create an adaptation of this work, please add the following disclaimer along with the attribution:This is an adaptation of an original work by The World Bank. Views and opinions expressed in the adaptation are thesole responsibility of the author or authors of the adaptation and are not endorsed by The World Bank. Third-party content—The World Bank does not necessarily own each component of the content contained within thework. The World Bank therefore does not warrant that the use of any third-party-owned individual component orpart contained in the work will not infringe on the rights of those third parties. The risk of claims resulting from suchinfringement rests solely with you. If you wish to reuse a component of the work, it is your responsibility to determinewhether permission is needed for that reuse and to obtain permission from the copyright owner. Examples of compo-nents can include, but are not limited to, tables, figures, or images. All queries on rights and licenses should be addressed to World Bank Publications, The World Bank Group, 1818 HStreet NW, Washington, DC 20433, USA; email: pubrights@worldbank.org. Driving inclusive growthin South Africa Quick wins with competitive markets and efficientinstitutions The new political context emerging from the May2024 elections provides a unique opportunity forSouth Africa. The alignment of economic and politi-cal incentives, in the sense that improving the econ-omy is essential for gaining political power, offers aplatform to launch a decisive transformation pro-cess, even if there is not yet an agreement on whicheconomic reforms to implement. Such alignmentwas key behind the successful economic transfor-mation of China in the early 1980s, Vietnam in thelate 1980s and 1990s, Poland in the 2010s, andIndia in the early 2020s. Those successes wereanchored on “a development bargain, whereby thecountry’s elites shifted from protecting their ownpositions to gambling on a growth-based future.”1This report offers pragmatic policy options, tailoredfor South African policymakers who want to obtainshort-term results, while creating momentum forstructural reforms, resume growth, and improvethe overall welfare of their citizens, especially themost disadvantaged. new entrants to the labor market can’t find stableand productive jobs—leaving youth unemploymentabove 60%. Market competition, while ensuringgreater economic inclusion and enhanced house-hold welfare, is the best way to dynamize an econo-my as it boosts efficiency and promotes innovation.South Africa could rebalance its economic modelby making it easier for foreign and domestic inves-tors and for young workers to enter markets, andby reducing the protection of incumbents (includingstate-owned enterprises). The status quo is mostpenalizing for small firms, which lack the capacityor financial means to navigate the complex systemof rules and regulations, and for low-skill workers,who face a heavy income tax burden if formallyemployed. The alignmentof economicand politicalincentives offersa platform tolaunch a decisivetransformationprocess■ Second, make institutions more efficient and sup-portive.The burden of institutions has becomeexcess