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Stagnant Productivity in South Africa Calls for Urgent Economic Reforms

Published April 02, 2024
2 months ago

In a concerning revelation by global financial services firm PwC, South Africa's productivity levels have remained largely static for the past 15 years, with real GDP per employed worker stagnating at just over R200,000. This figure, which reflects the value each worker adds to the economy, underscores the challenges facing the nation's economic growth and competitiveness.

Productivity is the backbone of economic success. It empowers nations to maximize outputs from available resources and is a key determinant of wage levels and overall economic well-being. With high productivity, countries can bolster employment, raise living standards, and achieve sustainable growth. In contrast, South Africa's flat productivity trajectory signals an urgent need for remedial action.

PwC’s March 2024 South Africa Economic Outlook report paints a vivid picture of the importance of productivity growth, and the grim implications of its stagnation. South Africa's productivity woes are particularly disheartening when compared to global trends. According to World Bank research, South Africa ranked a modest 80th out of 170 countries in productivity growth between 2015 and 2021, demonstrating a growth rate only two-thirds that seen on an international scale.

This lack of progress is not without consequence. A competitive economy, driven by high productivity, can absorb shocks and recover from downturns more efficiently. It can also boost taxation revenue, increase export capability and reduce fiscal and current account deficits. For individuals, it means better wages that directly improve living standards and quality of life. The South African government is thus compelled to explore ways to kickstart productivity.

Addressing the impediment requires understanding the drivers of productivity. As Lullu Krugel, chief economist at PwC South Africa, outlines, "Productivity matters because it supports innovation and resource optimization, which in turn spurs economic growth and increases global competitiveness."

The report by PwC lists six main drivers of productivity, signaling where potential interventions could be most effective. The onus is now on policymakers to leverage these insights, facilitating the movement of goods, people, capital, and ideas more fluidly within the economy.

Besides economic policies, addressing infrastructural weaknesses such as the persistent energy crisis exemplified by load-shedding, and streamlining logistics inefficiencies, will be pivotal. These issues have had a tangible negative impact on South African productivity, and their resolution could provide a substantial boost.

For South Africa, breaking free from the productivity plateau is not just an economic imperative but a critical step towards securing a prosperous future for its people. As the data indicates, the time for decisive action and strategic economic reforms is now.

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