South Africa Economic Update, January 2017 : Private Investment for Jobs
The first chapter of the ninth edition of the economic update discusses recent economic development in South Africa. It underlines that economic growth continued to decelerate in 2016, marking the third consecutive year of negative per capita growt...
| Main Author: | |
|---|---|
| Language: | English en_US |
| Published: |
World Bank, Pretoria
2017
|
| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/509111484323988058/South-Africa-economic-update-private-investment-for-jobs http://hdl.handle.net/10986/25971 |
| Summary: | The first chapter of the ninth edition
of the economic update discusses recent economic development
in South Africa. It underlines that economic growth
continued to decelerate in 2016, marking the third
consecutive year of negative per capita growth. Nonetheless,
2016 may mark the trough of South Africa’s business cycle. A
modest recovery is now foreseen for 2017 and 2018, driven
modestly by rising commodity prices, easing inflationary
pressures and a pickup in credit stimulating household
consumption demand. By contrast, the continuation of the
needed fiscal consolidation efforts should not offer any
significant stimulus to GDP growth. The report argues that
private investment will be the determining factor
influencing the GDP trajectory. On the one hand, continued
weak private investment would further undermine growth
prospects, raise again the likelihood of a costly rating
downgrade, and perpetuate a vicious circle of low growth–low
investment. On the other hand, accelerated investment could
benefit from a still weak and more stable rand, improving
electricity capacity, and less fractious labor relations, to
boost exports and growth and stabilize the capital account.
Accelerating investment will require providing a predictable
business environment, not least through greater policy
certainty. The second chapter discusses the relationship
between private investment and jobs creation. It reveals
that in recent years, private investment increasingly went
to less productive sectors, generating negative total factor
productivity growth. It analyses using firm level data the
effectiveness and efficiency of investment tax incentives
and suggests that, overall, tax incentives generated since
2006 additional private investment exceeding foregone fiscal
revenue, and contained the contraction recorded in some
sectors, manufacturing in particular. It nonetheless makes
the case for re-orienting these incentives towards sectors
where their effectiveness can be observed (agriculture,
manufacturing, trade, construction, and other services) and
away from sectors on which they have no tangible impact
(mining, finance, transport, and electricity). Sectors which
would benefit from re-oriented incentives are also those
enjoying the largest employment multipliers, thus amplifying
the impact of incentives on jobs creation. The impact of
these incentives would equally be magnified by the emergence
of new comparative advantages in manufacturing and trade,
resulting from the decline in commodity prices and the
protracted depreciation of the Rand since 2012. |
|---|