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World Bank warns structural constraints, war could drag down SA’s growth recovery

THE bank said the Russia-Ukraine war had added uncertainty to the outlook. | AP

THE bank said the Russia-Ukraine war had added uncertainty to the outlook. | AP

Published Apr 14, 2022

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The World Bank has warned that South Africa’s economic growth could decline by 2.8 percentage points in 2022 from an estimated 4.9 percent recorded in 2021.

The bank said yesterday that South Africa’s economy could be dragged down by persistent structural constraints and the ongoing war in Ukraine, in spite of entering the new year on a strong footing.

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In its biannual Africa Pulse report released yesterday, the World Bank Group forecast South Africa’s gross domestic product (GDP) to grow 2.1 percent, in line with the previous forecast in October 2021.

The bank said the Russia-Ukraine war had added uncertainty to the outlook as South Africa could gain in terms of favourable trade, but it would lose if the inflationary effects outweighed the benefit of high commodity prices.

It said the elevated oil prices were expected to translate into more inflation, which will affect the poor disproportionally.

The war in Ukraine has also exacerbated food price inflation and impacted some of the poorest and most vulnerable countries.

“South Africa’s long history of weak competitiveness – attributed to labour and product market rigidities – constitutes a challenge over the medium term,” it said.

“Bold reforms are needed to boost export volumes and gain even more from favourable commodity prices while generating more and better jobs in the formal and informal sectors.”

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South Africa is the top producer of platinum and palladium, and can accommodate the demand unmet by trade disruptions and sanctions in Russia, which is an important producer of palladium and, to a lesser extent, platinum.

In addition, South Africa produces manganese, zirconium, and tungsten – metals associated with manufacturing steel, aluminum, microwave filters, light bulbs, and cathode ray tubes, among other products.

In South Africa, the bank said the economy was projected to return somewhat above its potential growth of 1.1 percent in 2023 and nudge up to 1.8 percent in 2024.

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Growth in South Africa has pointed to a stronger rebound from the 6.4 percent contraction in 2020, which was impacted by the Covid-19 pandemic.

The bank said that the recovery in South Africa, while benefiting from persistently high commodity prices, will continue to be held back by structural problems – including electricity shortages, transport and logistic inefficiencies, as well as labour and product market rigidities.

It said the weak private investment amid structural constraints are especially concerning, as they inhibit South Africa’s economic growth potential.

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The World Bank also said Sub-Saharan Africa was now facing new economic growth challenges, compounded by the Russian invasion of Ukraine.

Economic growth in the region is estimated at 4 percent in 2021, 0.7 percentage point higher than the forecast of October, and up from a contraction in economic activity of 2 percent in 2020.

However, World Bank’s chief economist for the Africa, Albert Zeufack, said resource-rich countries were projected to be adversely affected by rising commodity prices, dragging down growth in the region.

Zeufack said the South African economy would drag the regional recovery owing to weak investment reflecting structural obstacles, such as electricity outages, that continued to hinder economic activity.

“As African countries face continued uncertainty, supply disruptions and soaring food and fertiliser prices, trade policy can potentially play a key role by ensuring the free flow of food across borders throughout the region,” he said.

“Amid limited fiscal space, policymakers must look to innovative solutions such as reducing or waiving import duties on staple foods temporarily to provide relief to their citizens.”

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BUSINESS REPORT ONLINE

Related Topics:

economic growth

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