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South Africa Economic Update 8 th edition

In the 8th edition of the South Africa Economic Update, the focus is on the challenges facing South Africa's economy. The report highlights the impact of strong external headwinds, domestic constraints, and the need for fundamental reforms to reignite growth. The update also discusses the shifting patterns of global growth and their effects on South Africa.

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South Africa Economic Update 8 th edition

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  1. South Africa Economic Update8th edition Prepared by the Macro & Fiscal Management and Trade & Competitiveness Global Practices

  2. Economic Outlook 2016 Shaping Up To Be A Difficult Year Strong External Headwinds Are Compounding Domestic Constraints Fundamental Reform Required To Reignite Growth From Low Levels

  3. South Africa is Caught in the Cross Winds of Shifting Patterns of Global Growth Growth in High Income Countries at a Post-Crisis High Growth in Developing Countriesat a Post-Crisis Low 5.3% 4.8% 4.3% 2.1% 2.1% 1.6% Sources: Global Economic Prospect 2010; January 2012; June 2013; January 2016

  4. …Causing Commodity Prices and Capital Flows to Emerging Markets to Collapse… Chg Peak 2011 to 2015 2016 -10% -52% Platinum -7% -39% Gold -25% -77% Iron Ore -64% -27% Oil -$733 bn Capital Flows to EM In 2015

  5. …and EM Currencies Across the Board to Weaken Sharply Exchange Rate Depreciation Jan 2014-Jan 2016 Source: Haver Analytics

  6. …Domestic Constraints Are Adding to These External Woes… Policy Uncertainty Infrastructure Gaps Rising Fiscal Pressure Drought High Joblessness for Youth Rising Interest Rates

  7. … Domestic Constraints Are Adding to These External Woes… Impact on Markets Policy Uncertainty Source: JSE; SARB

  8. … Domestic Constraints Are Adding to These External Woes… Rising Yields 10-year Treasury-Bond Yield Rising Fiscal Pressure Falling Ratings Source: SARB BBB/Baa2 BBB-/Baa3 Speculative Grade BB+/Ba1

  9. … Domestic Constraints Are Adding to These External Woes… 100 bps since 2015 6.75% 29 Jan 2016 6.25% 20 Nov 2015 6.00% 24 Jul 2015 5.75% 01 Jan 2015 Rising Interest Rates Further increases expected in 2016

  10. … Domestic Constraints Are Adding to These External Woes… Pushes 50, 000 People Drought Drought Belowthe R501 Poverty Line

  11. …Causing Significant Down Grade in the Outlook for Growth… 1.3% 1.1% 0.8% Sources: South African Economic Update 8; Global Economic Prospects 2014; Macro Poverty Outlook 2015

  12. …And Placing the Goals of the NDP Further Out of Reach… Required average growth of 7.2% to catch up with NDP target 2017 Projections: Poverty Rate ($3.1 2015 PPP terms) =34.7% Gini Coefficient = 0.64 Real GDP (millions) Source: NDP and World Bank Staff Calculations

  13. Policy Priorities: Fundamental Reform is Needed to Kick Start Growth Address Infrastructure Gaps Encourage Competition Streamline Regulations Improve Education & Skills Increase Regional Trade in Goods and Services

  14. Through Active Competition Enforcement South Africa: Successfully Sanctioned 76 Non- Construction Cartels Over A Period Of 10 Years Lowered Key Input Prices In Sectors Such As Cement But In Network Sectors Like Telecommunications Regulations Could Be Strengthen To Bolster Competition Lifted The Purchasing Power Of The Poor By Cutting Prices Of Essential Goods

  15. What The Case Data Reveals About Competition In South Africa? South Africa’s Competition Authorities rank as the most active in Africa but also compared to other middle income countries Cartels occur frequently, last several years, involve large & small firms, firms often engage in more than one cartel They occur most frequently where markets are dominated by a few large firms, barriers to entry are high and are often facilitated by trade associations

  16. South Africa Active and Successful In Competition Enforcement (Non-construction cartels)

  17. Network Analysis Reveals Close Links

  18. Factors Found To Facilitate Cartels Source: South Africa cartel database, 2005–15, developed by the WBG based on reports of the competition authorities of South Africa and other public sources; WBG assessment of facilitating factors for cartels

  19. How Can Competition Policy Promote Faster Economic Growth? Competition in input markets reduces costs improving competitiveness of downstream markets helping spur new investment

  20. Example 1: Active Competition Enforcement Breaking Up The SACU Cement Cartel New Entrants Are Charging Lower Retail Cement Prices (Price in Rand for Grade Cement, Gauteng) 1/ 1/ Govinda et al (2014) Source: Bank of America Merrill Lynch Global Research, May 2015

  21. Example 2: Broadband Penetration Great Potential to Boost Productivity and GDP GREATER CONTRIBUTOR TO THE ECONOMY THAN AGRICULTURE IN 2012 A10% increase in broadband penetration can increase GDPgrowth by 1.4% points 1/ 1/Qiang el al (2009)

  22. But Regulation Needs To Support CompetitionTo Address High Cost & Slow Broadband WEF Network Readiness Index: SA Ranks 75th Source: NRI 2015

  23. Example 3: Reducing Regulatory Restrictions On Professional Services OTHER SECTORS THAT USE PROFESSIONAL SERVICES WOULD SEE THEIR VALUED ADDED GROWTH BY $1.4-1.6 billion SUGGESTS POTENTIAL TO BOOST GROWTH BY 0.5%

  24. How Can Competition Policy Promote Faster Poverty Alleviation? By Reducing The Cost Of Basic Essentials For The Poor

  25. Example: Competition Enforcement In Just 4 Essential Goods Yielded Sizeable Gains

  26. Policies to Extend The Gains From Competition

  27. THANK YOU Website: www.worldbank.org/za Facebook: www.facebook.com/WorldBankSouthAfrica Twitter: #SouthAfricaEU

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