By Rogers Dhliwayo and Ramos Emmanuel Mabugu  

As South Africa faces a challenging period with increasing pressure on natural resources, gender inequality, and heightened risks for vulnerable populations, practical approaches to advance transformative structural change are more important than ever. The South African Government has committed to tackling these challenges by targeting the country’s triple development challenges of high inequality, poverty and unemployment to advance progress towards the Sustainable Development Goals (SDGs). The SDG Push Framework aims to identify a plausible economic policy roadmap that will accelerate the realization of the key economic growth and development targets of the National Development Plan (NDP) and the SDGs within the country’s current and envisaged fiscal constraints.

The SDG Push framework is designed to help countries achieve a stable footing by reimagining and recalibrating how countries determine, interrogate and advance development interventions. It builds on lessons learned through the COVID-19 pandemic and the first half of the 2030 Agenda for Sustainable Development by advancing longer-term structural transformation while balancing short-term imperatives.

The SDG Push framework has the following integrated elements:

• Scoping: Examining specific contexts and trends with data visualization through the SDG Push Diagnostic, establishing a rapid landscape of trends, current priorities, futures and interlinkages; 

• Acceleration Dialogues: Leveraging sensemaking protocols to explore scoping outcomes, interrogate previous policies, and chart accelerators;

• Modelling: Engaging new forms of participatory economic modelling to assess impact of potential accelerators; 

• Sustainable Finance: Using SDG finance tools, including the Integrated National Financing Framework (INFF) to estimate financing and the feasibility of potential accelerators; and

• Acceleration Pathways: Integrating insights developed through this approach with data visualizations and recommendations to advance policy interventions.

To accelerate progress towards meeting SDG targets, the Government of South Africa through the National Planning Commission (NPC) is leading initiatives to generate innovative, contextualized and policy-relevant insights on SDG Push and NDP-related issues, with a focus on how the tools can better support a more sustained push towards meeting SDGs, and the financing thereof. A recent NDP review by the NPC showed slow progress towards achieving its goals and how COVID-19 and other global and national complex issues such as ongoing electricity loadshedding had exacerbated inequality, poverty and unemployment in the country. The SDG Push Dialogue held in 2023 considered these priority areas and reaffirmed that ending poverty, reducing inequality and unemployment are the main development challenges, and accordingly, the most important strategic development objectives. The primary mechanisms to revive growth are structural reforms, including credible policies to align private sector growth strategies to global, national and local priorities, stimulating private sector investment, as well as an employment and skills matching interventions agenda. A range of complementary actions, such as expanding social protection to reach those currently left behind, are also needed in the short to medium term{1}.  

The SDG Push’s main focus has been on how to create jobs, reduce poverty and inequality, address underlying structural issues, and re-evaluate social grants. The strategies for addressing these challenges stem from the recognition that tackling structural issues necessitates a closer examination of initiatives like promoting private sector employment to facilitate firm expansion and implementing skill-matching interventions. Due to insufficient and poorly matched skills, South Africa has a low skills base whereas the structure of the economy is biased towards high skills (i.e. industry (manufacturing, mining and quarrying) and mainly high-skill services (i.e. finance and insurance, real estate and business services)– with agriculture making a very small contribution to economic output.

There was also a lively debate during the SDG Push Dialogue on the effectiveness of supply-side versus demand-side social grants as a solution to high unemployment. We contributed to the dialogue by offering empirical evidence outlining the essential conditions for South Africa to effectively utilize social grants in achieving the dual objectives of eradicating extreme poverty and bolstering economic growth through employment acceleration. Because of the substantial spending magnitude, the impact of social grants can go beyond the direct effects on beneficiary populations. In other words, social grants can produce sizeable multiplier effects on the economy. The central question remains, what is the benefit to society when a large share of the public budget is transferred to poor households?

At the heart of the economic modelling approach is a carefully designed tool for the South African economy, which combines a sequential dynamic Computable General Equilibrium (CGE) model and a Micro-Simulation (MS) model, both top-down and bottom-up. The main innovation brought into the modelling framework is linked to combining coherently and systematically macro-micro and micro-macro effects of policy combinations that simultaneously address economic growth, unemployment and inequality, in line with reaching the SDG targets. The tool also simulates the likely future impacts of the scenarios identified for the 2023–2030 period, i.e. ex-ante assessment and draws lessons on the SDGs. A combination of policy options was tested (SDG Push), including skill formation {2} acceleration,  services sector growth acceleration {4,5}, industry sector growth acceleration,  and poverty-alleviating social grants and making explicit conditions necessary for social grants for such grants to effectively end extreme poverty and accelerate job creation.

More precisely, under the poverty-alleviating social grants intervention, two counterfactual samples are generated to build two counterfactual scenarios in addition to the baseline scenario: the unconditional social grant scenario and the conditional social grant scenario. The unconditional social grant scenario implements increases in food and non-food consumption expenditures and decreases in labour market participation by members of target households. The conditional social grant scenario implements increases in food and non-food consumption expenditures combined with increases in labour market participation by members of target households. The conditionality in the latter scenario is related to the labour market participation of members of the target households. In the two scenarios, it is assumed that additional grant expenditure is externally funded.

In addition to the SDG Push scenario, a business-as-usual (BAU) scenario is created to serve as the baseline scenario against which the net effect of the SDG Push package is compared. Each scenario shows how policies could enhance economic growth and reduce unemployment, poverty and inequality. The economic and fiscal cost of the SDG Push financed internally (i.e. government financing) and externally (i.e. through the SDG Stimulus) are then derived from the modelling. In a final step, a Results Framework is developed using findings of the modelled policy scenarios under the SDG Push and BAU. The analysis assesses direct progress on SDGs 1, 2, 8, 9 and 10.

The analysis shows that achieving the SDGs by 2030, consistent with reductions in poverty, inequality and unemployment, is feasible from an economic and fiscal perspective for South Africa. The results of the economic modelling of the SDG Push policy package highlight that there are benefits and costs to effectively addressing the country’s persistent low economic growth, high inequality, poverty and unemployment challenges.

The net benefits are that 25 million South Africans will be lifted out of poverty (lower-bound poverty line and food poverty line), while income inequality will decrease by 8.35 percent. As regards the economic indicator, economic growth increases from 4.5 percent in 2023 to 7.0 percent by 2030. Under the combined scenario, there is a substantial reduction of the unemployment rate by more than 13 percentage points, from the 41.8 percent in 2023 to 28.3 percent by 2030. Personal and social service activities, transport, finance and insurance can make the greatest contribution of all the industries tested to reducing unemployment. These sectors within services and industries can increase overall productivity and reduce unemployment while also contributing to absorbing tertiary skills education employment, which would otherwise remain very high if the current policy trajectory (BAU) persists. Putting together a programme to stimulate these sectors would be economically viable.

The economic cost, when financed by the government, is US$6.5 billion per year on average (US$52 billion, 2023–2030), or indirectly, an annual GDP growth loss of 0.8 percentage points (US$3.5 billion). However, with the SDG Stimulus, the losses in GDP are neutralized. The cost of social grants is 2.63 times higher under the unconstrained scenario compared to the constrained scenario. Still, a substantial contribution of the SDG Stimulus (approximately 80 percent on average) is needed to wipe out the negative economic growth impact.

While the government faces difficult policy choices in addressing poverty, inequality and unemployment, the analysis shows that transitioning towards SDGs by 2030 is not only desirable from a social (poverty and inequality reduction) viewpoint, but also feasible when considering economic and fiscal impacts and consequences. While the SDG Push market-based interventions focused on addressing both the demand and supply side, propelling the economy onto the desired high growth and employment path, inequality and poverty remain stubbornly high. A conditional increased social grant package under the SDG Stimulus is needed to address poverty and inequality. Thus, what South Africa requires for the SDG Push is a combination of policies, rather than one policy alone that effectively addresses its persistent low economic growth and high inequality, poverty and unemployment challenges.

About the authors

Rogers Dhliwayo is the Economics Adviser for the UNDP South Africa Country Office in Pretoria.

Ramos Emmanuel Mabugu is a Professor of Economics, at the Sol Plaatje University, Faculty of Economic and Management Sciences, Department of Accounting and Economics, in South Africa. 

Footnotes

[1] This refers to the doubling the supply of tertiary education, i.e. from an annual increase of 2.2 percent under the BAU scenario to reach 4.4 percent

[2] This growth acceleration aims to address the demand for skills generated, i.e. to absorb the additional supply of labour with tertiary education, where the employment rate of tertiary education is the same at the beginning and end of the period. 

[3] Industry sector growth acceleration aims to generate identical economywide average growth rate over 2023–2030 as in the Services Sector Acceleration Scenario.

[4,5] The shock is introduced through the total factor productivity parameter. The size of the shock in service industries is determined by the level of unemployment in 2030, which should be equal to the level in 2023, i.e. full absorption of the additional skill produced. The size of the shock in the industry sector is equivalent to the size of the shock in the service industry sector in terms of average GDP growth rate between 2023 and 2030 in order to ensure consistency and comparability.