Sandton Bridge separates two South African communities that are worlds apart; Sandton, an affluent area believed to be the richest square mile in Africa, and Alexandra Township, one of the poorest urban areas in the country. Credit: World Bank
The fall of the Berlin Wall and the release of Nelson Mandela from Robben Island were perhaps the most noteworthy transitions of the 1990s. Notwithstanding their considerable historical, cultural, and economic differences, in both cases, the transitions in South Africa and Germany brought the challenge of uniting people who had been separated for decades, and of building a path toward an inclusive market economy benefiting all citizens.
I am German. It took my country perhaps 20 years to overcome its separation, and there are still many divides. I am keenly aware that given the much deeper historical divisions in South Africa, overcoming the legacy of exclusion under segregation and apartheid will take even longer.
Over the past two years, I worked with many colleagues across the World Bank Group (WBG) on the South Africa Systematic Country Diagnostic. The objective was to identify the binding constraints to the WBG’s twin goals: eliminating poverty in a generation, and boosting shared prosperity. In the process, we partnered with the National Planning Commission which is reviewing South Africa’s National Development Plan. Given that its Vision 2030 is to eliminate poverty and reduce inequality, our interests were perfectly aligned. We followed the commission’s example, and prepared the diagnostic in conversation with South Africans, including government, the private sector, members of the union movement, young South Africans, and many more. Although we contributed a large amount of new analysis, we perhaps learned even more from these conversations.
What are these binding constraints then? I have noticed that they do not seem to surprise many South Africans, which I take as a reflection of us having captured what we learned in our conversations. The five constraints identified are: (i) insufficient skills; (ii) skewed distribution of productive and land assets, and weak property rights; (iii) low competition and low integration in global and regional value chains; (iv) limited or expensive connectivity and underserviced historically disadvantaged settlements; and (v) climate change: low-carbon transition and water insecurity. The diagnostic notes that there has been progress in many areas since 1994, but fundamentally, the historical legacy of exclusion has not yet been overcome, rendering South Africa’s transition incomplete.
I know from my own country’s experience that the promise of a better future can only be upheld as long as there is progress that lends credibility to the promise. The slower the progress, the weaker the promise becomes and this puts pressure on the social contract. Job creation in South Africa has been too slow since 1994 and it remains the world’s most unequal country. Discontentment breeds contestation over resources, through the budget, regulation, or through illegal ways of improving one’s lot, be it crime or corruption, even state capture. In this environment, policy uncertainty is high, undermining investment and thus limiting the growth that is so urgently needed to lift more South Africans into the middle class.
The diagnostic suggests that addressing these five constraints will reduce poverty and inequality and support growth and job creation. Change rarely happens overnight, but it can be accelerated. The diagnostic proposes ways in which this can be done—and the WBG looks forward to partnering with the government and the private sector to work toward South Africa’s Vision 2030.