South Africa Defined by ‘Stagnation and Exclusion,’ Harvard Says

(Bloomberg) -- Three decades into democracy the poor performance of South Africa’s economy can be attributed to the collapse of state capacity and the vast distances many citizens live from job opportunities, Harvard University’s Growth Lab said.

Most Read from Bloomberg

The potential of Africa’s most industrialized nation remains unrealized and its economy is deteriorating, the lab, headed by Professor Ricardo Hausmann, said in a 178-page report that involved two years of research.

“South Africa’s trajectory is not one of growth or inclusion, but rather stagnation and exclusion,” the researchers wrote.

The report is the latest indictment of government policy that has failed to kick-start the economy after the nine years of rule under former President Jacob Zuma saw the onset of widespread corruption and the collapse of state services ranging from the provision of electricity to the running of ports. Zuma, who was ousted by his own party in 2018, has denied wrongdoing.

The collapse of state utilities can explain about 40% of South Africa’s growth slowdown even before this year’s increase in the severity of power cuts and woeful performance of its freight rail system, the researchers said. That, they said, has robbed the country of its competitiveness.

“The collapse in state capacity to deliver key inputs has, in effect, squandered the country’s comparative advantage in cheap, coal-fired electricity,” they said. “South Africa is seeing signs of unsustainability in its repeated credit downgrades and large sovereign risk premia. All the while, as growth slows, exclusionary forces are becoming more entrenched.”

The collapse in power supply, which has led to the imposition of almost daily power outages known locally as load shedding by state utility Eskom Holdings SOC Ltd., has created a “spiral of circular debt.”

“The electricity crisis has put additional strains on the system as load-shedding means reduced sales as well as increased consumer dissatisfaction and lowered willingness to pay,” the researchers said. “This chain of debt further undermines Eskom’s finances and increases the need for national bailouts to unburden Eskom’s balance sheet. In the process, municipal capabilities are further weakened.”

Inequality, which the researchers said is the world’s worst, has been exacerbated by the placing of potential workers, mainly Black South Africans, far from potential work places during apartheid. Policy since the end of Whites-only rule in 1994 has only aggravated that, they said.

“South Africa is exceptional in its human geography, and its spatial patterns undermine growth,” the researchers said. “South African cities are unique in their degree of fragmentation, with long distances between where people live and central business districts.”

A further impediment to growth is a work permitting system that has locked skilled immigrants out of the country at a time when many educated South Africans are leaving.

‘Out of Step’

“South Africa continues to miss out on the benefits of high-skill immigration,” the researchers said. “The country remains out of step with peers who recognize the importance of high-skill immigration as an engine of growth and transformation.”

Still, the researchers argued, the country does have the potential to grow by capitalizing on its vast deposits of metals needed for the global energy transition, such as chromium and vanadium, and by taking advantage of its abundant solar power potential.

The country will also need to rebuild its ailing electricity system bolster the capacity of failing municipalities and build more densely populated cities, they said.

(Updates with comments on power supply in seventh and eighth paragraphs)

Most Read from Bloomberg Businessweek

©2023 Bloomberg L.P.