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Cape Town - Focusing on five growth opportunities could deliver significant gross domestic product (GDP) growth, create jobs and confound a rising sense of pessimism about South Africa’s future prospects, according to a report released by McKinsey on Tuesday.
The "big five" have been identified by McKinsey as they are mutually reinforcing, the consultancy firm said in a statement.
“Each of the identified opportunities will contribute both to GDP growth and job creation, and their successful implementation will benefit many other sectors of the South African economy,” it explained. “All of them depend on two critical enablers of building South Africa’s skilled labour force through a dramatic expansion of vocational training, and forging a true development partnership between government and business.”
INFOGRAPHIC: SA's big 5 priorities for inclusive growth
McKinsey Global Institute director Acha Leke said: “Implementing the recommendations of this report and realising the enormous promise of South Africa represents a huge challenge today.
“Uppermost is the clear requirement that government and business must find new ways to work together, not least in transforming the South African skills system to ensure it is truly demand led and the future workforce is employment ready to meet the needs of the high growth industries we outline in the report.”
McKinsey's big five:
1. Advanced manufacturing
South Africa can draw on its skilled labour to grow into a globally competitive manufacturing hub focused on high-value added categories such as automotive, industrial machinery and equipment, and chemicals. To realise this opportunity, however, South African manufacturers will have to pursue new markets and step up innovation and productivity.
2. Infrastructure productivity
South Africa is investing heavily in infrastructure, but big gaps remain in electricity, water, and sanitation. By forging a true partnership, the public and private sectors can together drive three strategies to make infrastructure spending up to 40% more productive: making maximum use of existing assets and increasing maintenance; prioritising the projects with greatest impact; and strengthening management practices to streamline delivery.
3. Natural gas
South Africa’s electricity shortage has constrained growth, and despite new capacity, another shortfall is projected between 2025 and 2030. Natural gas plants—which are fast to build, entail low capital costs, and have a low carbon footprint—can provide an alternative to diversify the power supply. With the necessary regulatory certainty, we estimate that South Africa could install up to 20GW of gas-fired power plants to diversify base-load capacity by 2030. Gas can be provided through imports, local shale gas resources (if proven), or both.
4. Service exports
South Africa has highly developed service industries, yet it currently captures only 2% of the rest of sub-Saharan Africa’s market for service imports, which is worth nearly half a trillion rand. With the right investments, service businesses could ramp up exports to the region; and government can help by promoting regional trade deals. In construction, the opportunity ranges from design to construction management to maintenance services. In financial services, promising growth areas include wholesale and retail banking and insurance.
5. Agricultural transformation
With consumption rising in markets throughout sub-Saharan Africa and Asia, South Africa could triple its agricultural exports by 2030. This could be a key driver of rural growth, benefiting the nearly one in ten South Africans who depend on subsistence or smallholder farming. Capturing this potential will require a bold national agriculture plan to ramp up production, productivity, and agro-processing.
READ: The full report
