This report reviews South Africa’srecent economic and social developments. It underlines thatSouth Africa’s current economic rebound may not be sustainedif the fundamental factors undermining its growth potentialare not boldly addressed. This includes in particular incomeinequality, which fuels resource contestation, policyuncertainty and scare private investors of seeing theirinvestments overly taxed and expropriated. Nevertheless,inequalities are increasingly driven by labor marketsdevelopments, as opposed to race or location of origin.Policy actions could accelerate a projected decline ininequalities resulting from greater access to education.Using a dynamic computable general equilibrium, the reportsimulates a number of policy scenarios until 2030.Simulation results suggests that continuing to addresscorruption, restoring policy certainty in mining, improvingthe competitiveness of strategic state-owned enterprises,further exposing South Africa’s large conglomerates toforeign competition, and facilitating skilled immigrationwould raise labor demand and create the fiscal space neededto eventually build labor supply from the poor populationthrough education and spatial integration reforms. By 2030,extreme poverty could be almost eradicated and inequalitiessignificantly reduced. And as inequalities decline, thesocial contract would strengthen and likely encouragefurther private investment – a possibility not captured inthe simulations.
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