SA defined by ‘stagnation and exclusion,’ Harvard says

Three decades into democracy the poor performance of South Africa’s economy can be attributed to the collapse of state capacity and the vast distances many citizens live from job opportunities, Harvard University’s Growth Lab said.

The potential of Africa’s most industrialised nation remains unrealised and its economy is deteriorating, the lab, headed by Professor Ricardo Hausmann, said in a 178-page report that involved two years of research.

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“South Africa’s trajectory is not one of growth or inclusion, but rather stagnation and exclusion,” the researchers wrote.

The report is the latest indictment of government policy that has failed to kick-start the economy after the nine years of rule under former President Jacob Zuma saw the onset of widespread corruption and the collapse of state services ranging from the provision of electricity to the running of ports. Zuma, who was ousted by his own party in 2018, has denied wrongdoing.

The collapse of state utilities can explain about 40% of South Africa’s growth slowdown even before this year’s increase in the severity of power cuts and woeful performance of its freight rail system, the researchers said. That, they said, has robbed the country of its competitiveness.

“The collapse in state capacity to deliver key inputs has, in effect, squandered the country’s comparative advantage in cheap, coal-fired electricity,” they said. “South Africa is seeing signs of unsustainability in its repeated credit downgrades and large sovereign risk premia. All the while, as growth slows, exclusionary forces are becoming more entrenched.”

Inequality, which the researchers said is the world’s worst, has been exacerbated by the placing of potential workers, mainly Black South Africans, far from potential work places during apartheid. Policy since the end of Whites-only rule has only aggravated that, they said.

“South Africa is exceptional in its human geography, and its spatial patterns undermine growth,” the researchers said. “South African cities are unique in their degree of fragmentation, with long distances between where people live and central business districts.”

A further impediment to growth is a work permitting system that has locked skilled immigrants out of the country at a time when many educated South Africans are leaving.

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‘Out of step’

“South Africa continues to miss out on the benefits of high-skill immigration,” the researchers said. “The country remains out of step with peers who recognise the importance of high-skill immigration as an engine of growth and transformation.”

Still, the researchers argued, the country does have the potential to grow by capitalising on its vast deposits of metals needed for the global energy transition, such as chromium and vanadium, and by taking advantage of its abundant solar power potential.

The country will also need to rebuild its ailing electricity system, which is subjecting South Africans to almost daily power cuts, bolster the capacity of failing municipalities and build more densely populated cities, they said.

© 2023 Bloomberg

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