NASTASSIA ARENDSE: The World Bank published the 10th edition of the South Africa Economic Update, and they project growth for 2017 to be 0.6%, revised down from 1.1% in January this year.
To take me through the findings of the report I am joined on the line by Sébastien Dessus, who is a World Bank programme leader. Sébastien, thank you so much for your time. Take me through the highlights of the report.
SÉBASTIEN DESSUS: While the global economy is rebounding, South Africa is rebounding as well, and we’ve seen that from the end of the recession. But the rebound is extremely fragile, and will not suffice to make an indent on poverty. Poverty remains extremely widespread in the country.
Second, one of the many reasons the growth performance in South Africa remains weak is that what we’ve been observing since 2008 the divergence in productivity with respect to most of its peers – South Africa’s declining productivity, that is in the efficiency with which it produces goods and services, as opposed to many other countries in the world.
The third message is that insufficient innovation efforts in the [private sector] in particular is probably behind this negative trend, and this is evidenced by the fact for instance that there has been a very strong decline in the expenditure in research and development from the private sector, or a decline in the purchase of high-tech equipment in the manufacturing sector. And this affects productivity and competitiveness of the economy, but it also affects the lives of people because the poor could benefit from a lot of innovation – in particular in transport, in health, etc, that could facilitate their lives.
Now the good news is that a very large innovation potential, which remains intact in South Africa, and giving some of its strengths like a very strong academic acceptance or strong networks of entrepreneurs in Cape Town and Johannesburg. Its innovation potential could be tapped and we are offering maybe four or five options to consider. One is facilitating the life and investment climate for small firms, which are very apparent in many countries as the origin of many innovations. That we don’t see in South Africa.
The second one is the trade facilitation. A lot of innovation comes from increased trade with the rest of the world in manufacturing goods, in particular. When you import goods you import that technology and when you innovate you would like to export to break into new markets. In both cases you need to have trade costs which are not too high. And what we see is that in South Africa port tariffs are almost twice as high as the rest of the world on average.
The third thing that is very important is fixing your ICT sector, and in particular making it more competitive. There is no reason why one gigabyte is five times more expensive in South Africa than it is in Egypt. And, unless ICT can be provided, broadband and everything can be provided at a much cheaper cost and is much more reliable, it would be very difficult to spur innovation in the country.
NASTASSIA ARENDSE: I just want to go back on your comments about the GDP growth. Last week we had the analysts from Moody’s, who were in the country to take us through their thought rationale in terms of economic prospects for South Africa. The one thing that they did mention, which a lot of the rating agencies are quite concerned about, is that a lot of South Africa’s problems are domestic. It comes across as though, although the global economy is expanding and there seems to be some improvement, South Africa is at a point where it’s decoupled from that growth. Would you say that South Africa is somehow in a low -growth trap?
SÉBASTIEN DESSUS: South Africa is indeed decoupling from what is happening in the rest of the world, and I think something I like concerning the report, was we’ve seen quite a strong rebound in the world – and South Africa is not reaping the benefits or is not participating in those rebounds. So it is decoupling, and indeed it is mostly because of domestic problems in South Africa. I don’t know if it’s a trap in the sense that the country cannot emerge from it, but certainly South Africa is in a very slow growth period and offering a few options to maybe emerge from the difficult situation.
NASTASSIA ARENDSE: Of those options I love the solution around foreign technology and investing in research and development. From your perspective, what are some of the low-hanging fruits of the things we can do now, immediately, and we can implement as soon as possible?
SÉBASTIEN DESSUS: There are two things that I think could be rapidly implemented. One is to change the [im]migration policy, especially for skills, and the government has issued a white paper in that field which now needs to be agreed upon, ratified and implemented. That’s one way.
The other thing that can be done rapidly because it’s just a regulation to change, is the regulatory framework of the ICT sector. There is no reason why the licensing of some spectrum is still closed or it’s not as open as it could be elsewhere in other countries. It’s very important to realise that ICT is not important for the sector itself, and the regulation of the ICT is important for the sector itself and for people who are participating to that sector. But for the rest of the economy it’s really an enabler of innovation, and innovation is extremely important for competitiveness, as we’ve said, and for job creation down the road, but also for the life of people. Think about transportation, for instance, think about health systems in remote areas. We could all benefit much more from good provision of ICT.
NASTASSIA ARENDSE: Sébastien, thank you so much for your time.