Preserving Macroeconomic Stability Critical for South Africa’s Post-COVID-19 Recovery

South Africa is set to emerge from the COVID-19 (coronavirus) crisis weaker than when it entered it despite its solid response to the pandemic, says a World Bank report released today. The report suggests simultaneously implementing policies that preserve macroeconomic stability, revitalize the jobs market, and improve the investment climate to build a more inclusive economy after the pandemic.

The World Bank projects the gross domestic product (GDP) for South Africa to rebound to 4 percent in 2021, propelled by the strong global recovery and favorable commodity prices. However, the country’s growth outlook is uncertain with major risks around the path of the pandemic. For 2022, GDP growth is projected to slow to 2.1 percent and 1.5 percent in 2023, suggesting that the average South African will be worse off in 2023 compared to 2019.  However, the global recovery presents an opportunity for the Government to address the well-known structural constraints to its growth prospects and to lift the country onto a higher and dynamic growth path.

This 13th edition of the South Africa Economic Update has a special focus on South Africa’s employment performance, particularly as impacted by the COVID-19 pandemic. It shows that the COVID-19 crisis is widening inequality by contributing to severe and unequal job losses. It finds that low-wage workers suffered almost four times more job losses than high-wage earners. By the end of 2020, 1.4 million people had lost their jobs, representing an 8 percent contraction in aggregate employment.

This review calls for policies that address long-standing structural constraints to accelerate growth,” saysMarie Francoise Marie-Nelly, World Bank Country Director for South Africa, Botswana, Namibia, Lesotho and Eswatini. “Supporting young entrepreneurs is South Africa’s best hopes of solving

the jobs crisis, especially in relaxing constraints and rules to the start-up community.”

The report shows that young people in particular face acute unemployment. It finds that entrepreneurship and self-employment are South Africa’s biggest opportunity to create jobs with start-ups, especially in the digital sector. It suggests strengthening the ecosystem and implementing policy measures that target labor market outcomes and can make a difference in the pace of employment recovery. In that regard, the report proposes four policy considerations.

First, it proposes strengthen labor market linkages of the social transfer system including by expanding the employment tax incentive to enhance access to jobs, particularly for those facing more constraints to integration into the labor market, such as young people and women. It also suggests continuing the Temporary Employee/Employer Relief Scheme (TERS) for lockdown-damaged sectors until a sizeable share of firms are once again operational.

Second, the report proposes considering a negotiated moratorium on specific labor regulations that increase the real cost of labor and make job recovery more difficult. These would benefit vulnerable people, who have disproportionately lost their jobs during the deep economic crisis triggered by the pandemic.

Third, to address other barriers to entry, the report suggests relaxing constraints to entrepreneurship and self-employment and scaling up programs that provide both entrepreneurial training and start-up grants.

Finally, to help beneficiaries enter the labor market, the report suggests improving the effectiveness of active labour market programs through broader public-private partnerships and system enhancements. This could be done through systematically incorporating job search and training modules into active labor market programs, such as the Expanded Public Works Programme and the Presidential Employment Stimulus.