South Africa is falling behind its African peers as its inconsistent electricity supply and deteriorating logistics have hobbled the country’s economic growth.
This is feedback from the World Bank, which released its Africa Pulse report this month, detailing South Africa’s poor performance compared to the rest of the continent.
In the report, the World Bank referred to Africa’s “lost decade” caused by the underperformance of the continent’s largest economies, Nigeria and South Africa.
Economic activity in South Africa is expected to remain subdued, with growth decelerating sharply to 0.5% in 2023 from 1.9% in 2022.
Structural constraints, including the severe energy crisis and transport bottlenecks, are holding back the economy.
Scheduled power outages have increased in 2023, inhibiting the performance of South Africa’s mining and manufacturing sectors.
Poor port and rail performance has stymied domestic and foreign trade, limiting the revenue collected by the government from commodity exports and mining profits.
The above graph shows South Africa is expected to grow faster than only four other African countries in 2023.
According to the World Bank’s forecast, South Africa’s economy will perform even worse than its African peers in 2024 and 2025.
The country’s deteriorating performance can be seen by comparing its Purchasing Managers’ Index (PMI) to other African countries’ PMIs over the last 12 months.
South Africa is the only country of those selected by the World Bank to experience 11 consecutive months of contraction, with the index indicating marginal growth in August 2023.
The World Bank’s warning that South Africa is falling behind Africa echoes a similar analysis from the CEO of Standard Bank, Sim Tshabalala.
Tshabalala warned that South Africa is quickly losing its competitive advantage over the rest of Africa, with its risk premium deterring investment.
Tshabalala explained that South Africa is competing globally with its African counterparts and other emerging markets for scarce capital to drive economic development.
“The world competes for capital. We compete for the money we need to finance our nation’s budget deficit and compete globally for the money to finance infrastructure investment, fund Eskom and Transnet, and finance corporate projects.”
The biggest factor in attracting capital is the country’s risk premium, which dictates the returns an investor should expect for taking on the risk of investing in a given country.
This directly impacts a country’s ability to raise capital and the companies that operate in it. As this premium increases, which it has in South Africa, it makes it more difficult to attract investments in local businesses and finance the government’s deficit.
“We are competing on the continent and with emerging markets for this capital. So if they have decreased the risk of investing in their country and generated greater returns, the money will then rather go to those places than South Africa,” Tshabalala said.
The key factor is the rate at which the economy is growing. South Africa is expected to grow at less than 1% in 2023, while other African countries will average greater than 3% growth.
“What does this mean? It means that we are losing our national competitive advantage. We need to grow faster and get people healthier and wealthier,” Tshabalala said.
“We are growing at 0.8%. Other countries are growing much faster. Where do you think that money is going to go? It is going to go to other countries and not South Africa.”