The World Bank recently released the latest iteration of its Africa’s Pulse report. In a wider global context of many economic headwinds, and likely lower growth prospects, developing countries will find it more difficult to grow themselves out of trouble. Governments will also be under pressure to spend more, but will not necessarily have the fiscal revenues and room to do so. Those countries that do not get the growth fundamentals into place will suffer from higher inflation, higher unemployment, and lower growth prospects over the medium-to-long term.
In its latest report, the Bank cuts its Sub-Saharan Africa growth forecast for 2022 to 3.3%, down from the 3.6% announced earlier this year. For South Africa specifically, the Bank estimates growth to remain below 2% for the next three years: “Growth will be down to 1.4% in 2023, from 1.9% [in 2022], and will rebound to 1.8% in 2024.” Rising hunger – and the social instability that would accompany this – as well as persistently high inflation are two of the biggest concerns for the Bank that could seriously curtail the region’s growth prospects.
The International Monetary Fund’s (IMF) latest economic outlook for the Sub-Saharan Africa region also paints a concerning picture. The region experienced growth of nearly 5% in 2021; the IMF expects this figure to decline to 3.6% in 2022. Those countries that have “diverse economic structures” will be able to navigate challenges and possibly even grow more, as compared with countries and economies that are more resource intensive. Mining and agriculture have been two of the few bright lights for the South African economy, but with the possibility of declining or at least somewhat lower commodity demand and prices, the country cannot hedge all its future growth on these areas. More complex skills, technology, and production are needed in order for adequate levels of jobs and opportunities to be created.
Inflation in South Africa was measured at 7.6% in August this year. It is likely that this figure will be slightly lower for September, as a result of lower fuel prices. However, even should this scenario prove to be true, the Reserve Bank will continue with its cycle of interest rate hikes. Bank Governor Lesetja Kganyago has at numerous speaking engagements indicated that the Bank is likely to continue with hikes until it sees inflation at 4-5%. Therefore, one of the biggest economies on the continent should brace for more pressure from the Bank through at least 2023.
The best pro-growth path for countries such as South Africa is to liberalise the areas of labour and trade as much as possible, as well as avoid the most basic pitfalls – for example, not undermining property rights, which would in turn attract more investment from both local and foreign sources. Less developed economies will not be able to grow without external skills sharing and technological input; in this regard, eliminating bureaucratic hurdles for companies to bring in skilled foreign workers is an immediate priority.