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South Africa economic update : private investment for jobs (English)

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.

Details

  • Author

    Dessus,Sebastien C., Hanusch,Marek

  • Document Date

    2017/01/01

  • Document Type

    Working Paper

  • Report Number

    111888

  • Volume No

    1

  • Total Volume(s)

    1

  • Country

    South Africa,

  • Region

    Africa,

  • Disclosure Date

    2017/01/17

  • Disclosure Status

    Disclosed

  • Doc Name

    South Africa economic update : private investment for jobs

  • Keywords

    Earnings Before Interest and Taxes;commodity price;Job Creation;tax incentive;vocational education and training;education and training system;private sector job creation;marginal effective tax rate;urban and regional planning;global financial crisis;labor market development;industrial sector;Real estate;high unemployment rate;cost of capital;unit labor costs;crude oil price;independent power producer;commodity exporter;high school diploma;net job loss;real wage growth;interest rate investment;claim on land;global financial flows;increase in labor;labor market entrant;local decision making;european central bank;private consumption expenditure;government consumption expenditure;engine of growth;import of goods;commodity price shock;daily exchange rate;real estate market;export of goods;total gross value;total capital stock;private sector credit;global economic prospect;exchange rate movement;consumer price index;exchange rate volatility;terms of trade;special economic zone;power generation capacity;central business district;net public debt;youth unemployment rate;capital stock growth;long-term interest rate;foreign direct investment;effective exchange rate;Employment and Growth;foreign capital inflow;credit rating agencies;credit rating agency;global economic recovery;fiscal consolidation effort;effect of drought;interest rate level;working age population;global growth;private investment;Manufacturing;labor relation;manufacturing sector;business service;policy uncertainty;domestic demand;minimum wage;inflationary pressure;young people;agricultural sector;supply side;Industrial Policy;investor confidence;investment growth;industrial production;construction sector;comparative advantage;labor demand;household consumption;financial market;household survey;Basic Education;job destruction;skill shortage;fiscal cost;Industrial Policies;Mining;Capital Inflows;policy orientation;investment grade;monetary policy;electricity capacity;domestic growth;corporate profitability;poverty impact;job growth;technology investment;capital-labor ratio;employment tax;current investment;reducing inequality;eliminating poverty;concentrated industry;significant loss;business environment;procurement requirement;capital account;capital allocation;low wage;capital productivity;employment multiplier;domestic competition;foregone revenue;high wage;positive outcome;machine operator;municipal election;domestic policies;risky asset;skill job;skilled labor;skilled trade;school consolidation;academic area;productivity growth;wage employment;opposition party;high-income group;drought effect;agricultural employment;net employment;Financial Sector;domestic worker;competency level;bachelor degree;Haver Analytics;productive capacity;tax revenue;external imbalance;food price;business cycle;financing need;Annual Pay Increase;schooling attainment;automotive regulation;capital deepening;modest increase;global market;duty-free access;mining investment;industrial employment;private capital;volatile capital;stable growth;income economy;Trade Policies;Trade Policy;protectionist measure;business opportunity;import demand;trade growth;professional training;youth employment;global trade;adversely impact;domestic politics;electricity shortage;supply disruption;bond yield;treasury yield;pound sterling;high court;inflation expectation;asset purchase;export growth;put pressure;election result;upward pressure;capital flow;global economy;Macroeconomic Policy;global bond;spatial economic;professional experience;fiscal resource;Fiscal Stimulus;downside risk;bond fund;equity fund;external financing;brazilian real;fiscal space;world demand;resident representative;economic sector;sustainable solution;ongoing work;investment asset;demand response;long-term capital;policy risk;energy commodity;oil producer;global impact;property market;household wealth;disposable income;fixed investment;household spending;rising unemployment;expenditure projection;restrictive trade;credit growth;retail sale

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Citation

Dessus,Sebastien C. Hanusch,Marek

South Africa economic update : private investment for jobs (English). South Africa Economic Update,no. 9 Washington, D.C. : World Bank Group. http://documents.worldbank.org/curated/en/509111484323988058/South-Africa-economic-update-private-investment-for-jobs