The World Bank in South Africa

Energy supply has stabilized in 2024, with no rotational loadshedding (planned power cuts) since late March 2024. Prior to this, electricity supply shortages had constrained South Africa’s growth for several years. Rolling scheduled power cuts (load shedding) started in 2007 and intensified from 2022. The cumulated duration of the outages due to rotational load shedding, each of which lasted 2 to 4 hours, was equivalent to 289 days in 2023, up from 157 in 2022 and 48 in 2021. This severe electricity shortfall disrupted economic activity and increased operating costs for businesses, many of which rely on costly diesel generators. The subsequent improvements in electricity supply have been attributed to improvements in the management of the national power utility Eskom, and high-level political support from the President and the Minister of Electricity.   

Weak structural growth and the COVID-19 pandemic have exacerbated socio-economic challenges. South Africa’s GDP has recovered to its pre-pandemic levels, but the strength of the recovery has been hindered by multiple structural constraints, including infrastructure bottlenecks and low productivity. The recovery in employment continued in 2023 (790,000 jobs were added, leading to a higher level of employment than before the pandemic) but the pace of job creation has not kept up with the growing labor force, resulting in a rising number of unemployed people. The unemployment rate stood at an elevated 33.5% in Q2-2024, with women and youth persistently more impacted. Inequality remains among the highest in the world, and poverty was estimated at 62.6% in 2023, based on the upper-middle-income country poverty line, only slightly below its pandemic peak. These trends have prompted growing social demands for government support, which could put the sustainability of public finances at risk if they are to be met.

Increasingly severe domestic constraints, alongside slowing global demand, led to GDP growth falling to just 0.7% in 2023, from 1.9% in 2022. Mining production contracted while manufacturing production edged higher, as load shedding and transport bottlenecks intensified. The services sectors (financial, transport, and personal) and domestic trade were key drivers of growth. The labor market has remained weak. The employment ratio only increased to 40.8% at the end of 2023, and 39.4% in 2022, from a pandemic low of 35.9% in September 2021. In this context, the COVID-19 Social Relief of Distress Grant, introduced in May 2020, was extended for another year until March 2025. Socio-economic challenges were further exacerbated by high fuel and food (bread and cereals) prices, which disproportionately affected the poor. Inflation averaged 6.0% in 2023 but stood at 9.3% for those at the bottom 20% of the income distribution. Headline inflation has eased to 4.4% in August 2024.

Following the May 2024 national elections, a Government of National Unity (GNU) was formed in June 2024, led by President Cyril Ramaphosa. It focuses on constitutionalism, economic recovery, workers’ rights, social protection, and equity. The GNU brings together 11 political parties in a power-sharing agreement and aims to rebuild South Africa’s economy through key reforms for faster growth, better service delivery, and job creation, marking a new direction for economic policy and implementation.

Key Development Challenges
South Africa has taken considerable strides to improve the well-being of its citizens since its transition to democracy in the mid-1990s, but progress has stagnated in the last decade. The percentage of the population living below the upper-middle-income country poverty line fell from 68% to 56% between 2005 and 2010 but has since trended slightly upwards, to 57% in 2015, and is estimated to have reached 62.6% in 2023.

Structural challenges and weak growth have undermined progress in reducing poverty, heightened by the COVID-19 pandemic. The achievement of progress in household welfare is severely constrained by rising unemployment, which reached 33.5% in the second quarter of 2024, above the already high pre-pandemic rates. The unemployment rate is highest among youths aged between 15 and 24, at 60.8%.

Other structural challenges have also increased, including transport and logistics, which have deteriorated due to weak management of the state-owned enterprise Transnet, theft, and sabotage, constraining South Africa’s export capacity.

South Africa remains a dual economy with one of the highest and most persistent inequality rates in the world, with a consumption expenditure Gini coefficient of 0.67 in 2018. High inequality is perpetuated by a legacy of exclusion and the nature of economic growth, which is not pro-poor and does not generate sufficient jobs. Inequality in wealth is even higher, and intergenerational mobility is low, meaning inequalities are passed down from generation to generation with little change over time.

Last Updated: Oct 03, 2024

The World Bank Group (WBG) Country Partnership Framework (CPF) for 2022–2026continues the theme of the past three Country Partnership Strategies, to support South Africa in its quest to complete a post-apartheid socio-economic transition. It is informed by the Systematic Country Diagnostic (SCD) of 2019, developed by the WBG in broad consultation with South Africans. The SCD identifies five binding constraints to socio-economic transition, reducing poverty, and boosting shared prosperity. They are: (i) insufficient skills; (ii) the skewed distribution of land and productive assets, and weak property rights; (iii) low competition and low integration in regional and global value chains; (iv) limited or expensive connectivity, and underserviced, historically disadvantaged settlements; and (v) climate change and the transition to the low-carbon economy, as well as water insecurity.

Aligned with the South African government’s National Development Plans for continued reforms to sustain economic recovery and reconstruction (for a more inclusive and resilient economy), the CPF charts a clear path for collaboration in the following focus areas: (i) increased competition and an improved business environment; strengthened micro, small, and medium enterprises and the supporting ecosystem to boost job creation; (ii) increased resilience to external (climate and health) shocks; and improvements in the infrastructure investment framework and selected infrastructure services. All focus areas are approached through a lens of harnessing the digital economy, empowering women and girls, strengthening public sector institutions and governance frameworks, and promoting integration and cooperation in the region and continent.

Overall, the WBG’s support is driven by increased private sector investments through the International Financing Corporation (IFC) and the Multilateral Investment Guarantee Agency (MIGA). In a departure from previous strategies, during FY21 the government signaled its intent to make greater use of International Bank of Reconstruction and Development (IBRD) financing under the CPF. As a result, IBRD lending to South Africa reached $1.9 billion in FY24.The nature of development financing utilized in South Africa has also been changing. While initially focused on Knowledge Work (Analytics and Technical Assistance) and Development Policy Loans, it is slowly broadening with new investment projects and program-for-results recently approved or under development.

Supporting South Africa’s Just Energy Transition
In November 2022, the World Bank approved the $497 million Eskom Just Energy Transition Project. The project is financing the decommissioning and repurposing of the Komati coal-fired power plant, including: (i) decommissioning the plant, and environmental remediation of the site; (ii) repurposing the facility with renewable technologies (wind, solar PV) and batteries; and (iii) sustainably mitigating socio-economic impacts for workers and affected communities. The project leverages significant financing from various development partners and sets the stage for future support for coal plant retirement in South Africa with anticipated Climate Investment Fund support of $500 million.

In October 2023, the World Bank approved a $1 billion Development Policy Loan which endorses a significant and strategic response to South Africa’s ongoing energy crisis and supports the country’s goal of transitioning to a just and low-carbon economy. The operation facilitates the restructuring of the power sector through the unbundling of Eskom, South Africa’s power utility. It supports the opening of the power market and aims at improving Eskom’s efficiency by redirecting its resources toward investments in the transmission and maintenance of existing power plants. Furthermore, the operation supports the transition to a low-carbon economy by encouraging private investments in renewable energy.

Catalyzing Financing and Capacity for the Biodiversity Economy Around Protected Areas Project
The World Bank is supporting the implementation of a new wildlife initiative, an $8.9 million grant from the Global Environment Facility (GEF), to step up investment in South Africa’s wildlife and biodiversity sectors in the Kruger National Park, Addo Elephant National Park, and iSimangaliso Wetland Park. The project aims to improve stewardship of the country’s rich biodiversity and to expand the benefits of protected areas for local communities by helping address high unemployment and limited livelihood opportunities, as well as inequality in rural economies.

Last Updated: Oct 03, 2024

As part of a four-year Reimbursable Advisory Services agreement (2018–2022) for Infrastructure Investment and Integrated Urban Planning, the World Bank provided targeted technical assistance to support the integration, implementation, and institutionalization of approaches and instruments to urban management in South Africa. This is to support the second phase of the government Treasury’s Cities Support Programme. As a follow-on to this work, preparation of a new Program-for-Results (P4R) is underway and is expected to be approved during the second half of FY25. The operation would cover water, sanitation, electricity, and solid waste across South Africa’s eight metropolitan areas.

This program has contributed to strengthening economic incentives, increasing the speed of starting a business, reforming infrastructure finance and fiscal management, and promoting inclusive urban development—with a focus on informal settlements. Supported also by Switzerland’s State Secretariat for Economic Affairs, it is in line with South Africa’s National Development Plan and Integrated Urban Development Framework.

The South Africa Country Climate Development Report was prepared in late 2022 and demonstrated that South Africa’s ambition to build a more inclusive, resilient, and sustainable economy depends on the extent that the country will be able to shift from its current heavy dependence on coal to low-carbon activities (decarbonize) and to address the growing risks from climate change (adapt and build resilience). Its decarbonization and adaptation must be people-centered, creating jobs and protecting the poorest in the most unequal society in the world (a “just transition”), to build the necessary broad support in favor of reforms. This work was complemented by the IFC-led 30x30 Zero Climate Finance Program which has supported $680 million in IFC investments in the financial sector, driving the scaling of green building, renewable energy/energy efficiency, and climate-smart agriculture while building capacity to implement the National Green Taxonomy climate risk assessments, and climate disclosure standards. Furthermore, climate engagement was built in as a key component of policy lending, with climate-related prior actions in the South Africa COVID-19 Response Development Policy Operation as well as South Africa Sustainable and Low-Carbon Energy Transition Development Policy Loan II. A 100MWh Battery Energy Storage System (Hex BESS) was commissioned in November 2023 under the Eskom Renewables Support Program, the first and largest of its kind in Africa.

The Wildlife Conservation Bond (WCB), also known as the “Rhino Bond” (a $150 million IBRD bond), is the world’s first species impact bond linking investment return (under a bond issuance to conservation performance) to allow private and institutional investors to participate in a market that is historically a focus of donors and philanthropists. Rhino Bond investors agree to forego periodic interest coupon payments and instead direct the money to fund rhino conservation in two protected areas in South Africa. If rhino population growth rates climb over five years (that is, if black rhino growth is above 4% annually), investors receive a payment, financed through the Global Environment Facility (GEF), of $0 to $13.76 million.

The coupon payments that are foregone are used to improve the management of the Addo Elephant National Park and Great Fish River Nature Reserve, both of which contain populations of black rhino, and to raise the benefits of their presence to local communities. Project activities have included measures to increase the supply and distribution of water, and to improve security through more staffing, equipment, facilities, training, fence upgrades, and improved aerial support and communications, as well as national and regional coordination. Financing also supports local communities through the creation of conservation-related employment, such as park maintenance, rangers, monitors, gate guards, joint operations center staff, and project managers.

The South Africa Financial Sector Development Program is a Bank technical assistance program, launched in September 2018, with support from the Swiss State Secretariat for Economic Affairs. Through this program, the World Bank supported key financial sector reforms such as the finalization by National Treasury of a National Financial Inclusion Policy in 2023, as well as the passing of a new Financial Sector Laws Amendment Act which led to the establishment by the South African Reserve Bank (SARB) of a new Deposit Insurance Scheme in April 2024. The Bank is continuing to support the government on key reforms such as a new Financial Inclusion Strategy, review of the National Payment System Act which will allow non-bank financial institutions to make digital transactions, as well as promulgation of the new Conduct of Financial Institutions Bill (COFI) which will replace existing industry-specific conduct regulation such as the Financial Advisory and Intermediary Services Act of 2002 (FAIS), the Collective Investment Schemes Control Act of 2002 (CISCA), and the Short- and Long-Term Insurance Acts, and is focused on regulating the general market conduct of financial institutions and the fair treatment of customers.

The $750 million South Africa COVID-19 Response Development Policy Operation supported government efforts to accelerate its COVID-19 response aimed at protecting the poor and vulnerable from the adverse socio-economic impacts of the pandemic and promoting sustainable recovery. The DPL supported the implementation of South Africa’s Economic Reconstruction and Recovery Plan, including priority reforms, improving the stability of the financial sector, and supporting the country’s commitments to addressing climate change. The operation aligned with the World Bank’s Crisis Response Approach which aims at protecting lives and livelihoods and supporting inclusive and resilient growth.

More than 10 million people have received COVID-19 Social Relief of Distress (SRD) grants to mitigate the socio-economic impact of the pandemic on unemployed and informal sector workers who were not otherwise eligible for social grants or unemployment insurance benefits. The operation was the first budget support South Africa has received from the World Bank during the country’s post-apartheid, democratic era.

Last Updated: Oct 03, 2024

Partners include the United Nations, African Development Bank (AfDB), New Development Bank, International Monetary Fund (IMF), Department for International Development (DfID), Kfw Development Bank, African Development Bank and the State Secretariat for Economic Affairs of Switzerland (SECO).

Last Updated: Oct 03, 2024