Document of The World Bank Group FOR OFFICIAL USE ONLY Report No. 154318-ZA INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL FINANCE CORPORATION MULTILATERAL INVESTMENT GUARANTEE AGENCY COUNTRY PARTNERSHIP FRAMEWORK FOR THE REPUBLIC OF SOUTH AFRICA FOR THE PERIOD FY22-FY26 June 24, 2021 IBRD Eastern and Southern Africa Region South Africa Country Management Unit The International Finance Corporation Middle East and Africa Region The Multilateral Investment Guarantee Agency This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank Group authorization. The date of the last Performance and Learning Review was 1 February 2017. CURRENCY EQUIVALENTS (Exchange rate effective as of June 17, 2021) Currency Unit = South African Rand 1.00 US$ = 14.0594 ZAR FISCAL YEAR 1 April – 31 March IBRD IFC MIGA Vice President: Hafez M. H. Ghanem Sergio Pimenta Hiroshi Matano Country Director/Director: Marie Francoise Marie-Nelly Kevin Njiraini Merli Baroudi Task Team Leader: Emmanuel Noubissie / Adamou Labara Jessica Wade Asmeen Khan Rajeev Gopal Persephone Economou Kassim Olanrewaju ACKNOWLEDGEMENTS The World Bank Group appreciates the close collaboration with the South African authorities in the preparation of this Country Partnership Framework. The preparation of the document involved extensive discussions with government representatives at the national, provincial, and municipal level, State Owned Entities, as well as many stakeholders, including civil society and business. The CPF builds on the Systematic Country Diagnostic (SCD) that was led by Marek Hanusch. The CPF was led by Emmanuel Noubissie and Asmeen Khan for IBRD, Rajeev Gopal for IFC, and Jessica C. Wade and Persephone Economou for MIGA, under the guidance of Marie Francoise Marie-Nelly, Kevin Njiraini, and Adamou Labara. The team comprised Aki Enkenberg, Aleksandra Posarac, Amina El-Zayat, Bekele Debele, Benedicte Baduel, Boubacar Bocoum, Chevaughn Van Der Westhuizen, Chris Heymans, Chitambala John Sikazwe, Chrissie Kamwendo, Edouard Al-Dahdah, Edward Beukes, Elizabeth Ninan Erwin De Nys, Franz Gerner, Frederic Verdol, Gabriela Schmidt, Ganesh Rasagam, Hiba Tahboub, James Seward, Jana El-Horr, Jeff Ramin, Jesal Kika, Jessica Charles Wade, Jorge Luis Alva-Luperdi, Julia Fraser, Knut J. Leipold, Kobina Egyir Daniel, Lolette Kritzinger-van Niekerk, Marc Schrijver, Mathew Verghis, Pablo Facundo Cuevas, Peter Goodman, Precious Zikhali, R. Martin Humphreys, Samaneh Hemat, Sara Nyman, Sarah Moyer, Satheesh Sundararajan, Sudhir Shetty, Stephan Vermaak, Suphachol Suphachalasai, Thulani Matsebula, Uzma Khalil, Victor Sulla, Victoria Monchuk, Wayde Flowerday, Wendy Cunningham, Wendy Hughes, Zandile Ratshitanga and Zano Mataruka. The team thanks Carlos Felipe Jaramillo, Haroon Bhorat and Sebastien Dessus for serving as peer reviewers. The team is also grateful for the excellent guidance and support from Vinaya Swaroop. The team expresses its profound gratitude to the many people involved – in the World Bank Group and on the side of the Government of South Africa – in preparing the CPF. i Table of Contents ACKNOWLEDGEMENTS.................................................................................................................... i ABBREVIATIONS AND ACRONYMS .............................................................................................. iv I. INTRODUCTION.............................................................................................................................. 1 II. COUNTRY CONTEXT AND DEVELOPMENT AGENDA .......................................................... 3 2.1 Social and Political Context ................................................................................................. 3 2.2 Recent Economic Developments .......................................................................................... 5 2.2.1 Dynamics of economic growth in South Africa ............................................................................... 5 2.2.2 Recent economic performance ........................................................................................................ 8 2.2.3 Medium-term Outlook................................................................................................................... 10 2.3 Poverty, Inequality and Unemployment Profile ................................................................ 12 2.3.1 Poverty is high, with racial, spatial and gender dimension........................................................... 12 2.3.2 Inequality is the highest in the world ............................................................................................ 14 2.3.3 Unemployment is exceptionally high and persistent ..................................................................... 15 2.3.4 COVID-19 is projected to worsen poverty, inequality and unemployment .................................. 17 2.4 Challenges to Accelerating Poverty Reduction and Boosting Shared Prosperity ............ 17 2.4.1 Insufficient skills (labor supply) .................................................................................................... 18 2.4.2 The skewed distribution of land and productive assets, and weak property rights (land and capital markets) ..................................................................................................................................................... 19 2.4.3 Exclusion in markets reduces competition and hurts SMEs......................................................... 20 2.4.4 Limited spatial connectivity and underserved historically disadvantaged settlements ................ 20 2.4.5 Climate shocks—transition to a low-carbon economy and growing water insecurity.................. 21 2.4.6 Governance as a cross-cutting constraint...................................................................................... 21 2.4.7 Summary ....................................................................................................................................... 22 III. WORLD BANK GROUP PARTNERSHIP FRAMEWORK ...................................................... 22 3.1 Government Program and Medium-term Strategy........................................................... 22 3.2 The WBG Country Partnership Framework .................................................................... 23 3.2.1 Lessons learned from past implementation and from consultations ............................................ 23 3.2.2 Alignment with Government’s priorities and SCD/CPSD Findings ............................................. 24 3.2.3 Comparative Advantages of the World Bank Group ................................................................... 26 3.3 Focus Areas and Objectives Supported by the WBG Program ........................................ 27 3.3.1 Focus Area 1: Promote increased competition and improved business environment for sustainable growth ....................................................................................................................................................... 28 3.3.2 Focus Area 2: Strengthen MSME performance and skills development to support job creation 34 3.3.3 Focus Area 3: Improve the Infrastructure Investment Framework and Selected Infrastructure Services....................................................................................................................................................... 39 3.3.4 Cross-Cutting Themes ................................................................................................................... 43 3.3.5 Supporting Regional Integration................................................................................................... 48 3.3.6 Maintaining and Deepening the Knowledge Agenda .................................................................... 48 3.4. Implementing the CPF ....................................................................................................... 49 3.4.1 Program Summary ........................................................................................................................ 49 3.4.2 Financial Management .................................................................................................................. 51 3.4.3 Procurement .................................................................................................................................. 51 3.4.4 Monitoring and Evaluation ........................................................................................................... 52 3.4.5 Partnership and Development Partner Coordination................................................................... 52 IV. MANAGING RISKS TO THE CPF PROGRAM ........................................................................ 53 V. ANNEXURES ................................................................................................................................. 55 ii ANNEXURES Annex 1: Results Framework (FY22-FY26) .......................................................................................................... 55 Annex 2: Completion and Learning Review (CLR) ............................................................................................... 71 Annex 3: South Africa Portfolio .......................................................................................................................... 116 Annex 4: IFC Portfolio ....................................................................................................................................... 123 Annex 5: MIGA Portfolio.................................................................................................................................... 127 Annex 6: Development Partners.......................................................................................................................... 130 Annex 7: Whole-of-WBG Approach to Climate Change Engagement in South Africa ........................................... 134 ILLUSTRATIONS : BOXES Box 1: South Africa in the Region—Engine of Growth and Regional Power Broker ............................................ 5 Box 2: Impact of COVID-19................................................................................................................................. 8 Box 3: South Africa’s Human Capital Index is Low ........................................................................................... 14 Box 4: The South African Employment Cascade, 2020 ....................................................................................... 16 Box 5: The CPF Consultation Process, 2019/20 .................................................................................................. 24 Box 6: South Africa’s ambitious climate change agenda ..................................................................................... 32 Box 7: South Africa Jobs Platform for Inclusive Job Creation ........................................................................... 35 Box 8: Strategic Agribusiness Partnerships - Support to Eastern Cape Provincial Government .......................... 36 Box 9: Impact of COVID-19 on MSMEs in South Africa .................................................................................... 37 Box 10: Challenges to Gender Equality in South Africa ...................................................................................... 46 Box 11: South Africa Governance Filter ............................................................................................................. 47 TABLES Table 1: Economic and Financial Indicators, 2019-2022 (current and pre-COVID-19 estimates) ......................... 9 Table 2: Summary of CPF Macroeconomic Scenarios ........................................................................................ 12 Table 3: SCD Binding Constraints: Root Causes and Manifestations and Links to the CPF ............................... 26 Table 4: Selected WBG Advisory and Analytics by Focus Area, FY2022-23 ........................................................ 50 FIGURES Figure 1: South Africa’s Long-Term Economic Growth Rate ............................................................................... 6 Figure 2: GDP per capita - South Africa relative to peers, since the end of the Apartheid ..................................... 6 Figure 3: Sectoral Composition of nominal GDP ................................................................................................. 7 Figure 4: Long-Term Poverty Trends .................................................................................................................. 13 Figure 5: Inequality - Comparison to Other Countries ........................................................................................ 15 Figure 6: Poverty Impact of COVID-19............................................................................................................... 17 Figure 7: CPF Foundations ................................................................................................................................ 23 Figure 8: CPF Overarching Goal, Strategic Focus Areas and Objectives ............................................................ 28 iii ABBREVIATIONS AND ACRONYMS AFD Agence Française de Développement / French Development Agency AfCFTA African Continental Free Trade Agreement AfDB African Development Bank AG Auditor General AIDS Acquired Immune Deficiency Syndrome ALMP Active Labor Market Program ANC African National Congress ASA Analytical and Advisory Services AU African Union Bn or b Billion BBBEE Broad-Based Black Economic Empowerment BFI Budget Facility for Infrastructure CAHOSCC Committee of Africa Heads of State and Government on Climate Change CMU Country Management Unit COFI Conduct of Financial Institute Bill COVID-19 Coronavirus Disease CPF Country Partnership Framework CPS Country Partnership Strategy CPSD Country Private Sector Diagnostic CSP Cities Support Program D4TEP Digital for Tertiary Education Program DBE Department of Basic Education DBSA Development Bank of Southern Africa DDM District Development Model DFID Department for International Development (from June 2020 the Foreign, Commonwealth and Development Office) DHET Department of Higher Education and Training DMRE Department of Mineral Resources and Energy DoH Department of Health DoT Department of Transport DPE Department of Public Enterprises DPL Development Policy Loan DPME Department of Planning, Monitoring and Evaluation DPO Development Policy Operation DSD Department of Social Development DSU Delivery Support Unit EBITDA Earnings before Interest, Taxes, Depreciation, and Amortization ECD Early Childhood Development EE Energy Efficiency EFO Externally Financed Operation EGR Early Grade Reading EIA Environmental Impact Assessments ERRP Economic Reconstruction and Recovery Plan EU European Union FCCL Fiscal Commitments and Contingent Liability FDI Foreign Direct Investment FIC Financial Intelligence Centre FSCA Financial Sector Conduct Authority FSLAB Financial Sector Law Amendment Bill G-20 Group of Twenty GBV Gender Based Violence GDP Gross Domestic Product GEF Global Environment Fund GFC Global Financial Crisis GHG Greenhouse Gas GIZ German Agency for International Cooperation ( Deutsche Gesellschaft für Internationale Zusammenarbeit) iv GNI Gross National Income GoSA Government of South Africa GW Gigawatt ha Hectare HCI Human Capital Index HIV Human Immunodeficiency Virus IBRD International Bank for Reconstruction and Development (of the World Bank Group) ICASA Independent Communications Authority of South Africa ICT Information and Communication Technology IDA International Development Association (of the World Bank Group) IDP Integrated Development Plan IF Infrastructure Fund IEP Integrated Energy Plan IFC International Finance Corporation (of the World Bank Group) IFWG Intergovernmental Fintech Working Group IIAG Ibrahim Index of African Governance IIO Infrastructure Investment Office ILO International Labour Organization IMF International Monetary Fund InfraSAP Infrastructure Sector Assessment Program IPF Investment Project Financing IPL Investment Policy Loan IPP Independent Power Producer IRP Integrated Resource Plan ISA Infrastructure South Africa IST Implementation Support Team ITC International Trade Center ITU International Telecommunication Union JET Just Energy Transition KfW Kreditanstalt für Wiederaufbau LNG Liquefied Natural Gas m Million MBT Minibus Taxi M&E Monitoring and Evaluation MFD Maximizing Finance for Development MIGA Multilateral Investment Guarantee Agency (of the World Bank Group) MIS Management Information System MoA Memorandum of Agreement MSME Micro, Small and Medium Enterprise(s) MT Metric tons MTBPS Medium-Term Budget Policy Statement MTSF Medium-Term Strategic Framework MW Megawatt NATCOR Natal Corridor NDC Nationally Determined Contribution NDP National Development Plan NEES National Energy Efficiency Strategy NEET Not in Employment, Education, or Training NEMA National Environmental Management Act NERSA National Energy Regulator of South Africa NPC National Planning Commission NSFAS National Student Financial Aid Scheme NT National Treasury OBI Open Budget Index OECD Organization for Economic Co-operation and Development OPG Open Government Partnership PCCCC Presidential Climate Change Coordination Committee PEFA Public Expenditure and Financial Accountability PFM Public Financial Management v PHP People’s Housing Program PIDA Programme for Instructure Development in Africa PIM Public Investment Management PIRLS Progress in International Reading Literacy Skills PforR Program for Results PLR Performance and Learning Review PPD Peak, Plateau and Decline PPP Purchasing Power Parity PPP Public Private Partnership PPPFA Preferential Procurement Policy Framework Act PSET Post-School Education and Training RAS Reimbursable Advisory Services RFI Rapid Financing Instrument RE Renewable Energy REIPPP Renewable Energy Independent Power Producers Procurement SA South Africa SACU Southern Africa Customs Union SADC Southern African Development Community SACMEQ Southern and Eastern African Consortium for Monitoring Education Quality SANRAL South African National Roads Agency SAPP Southern African Power Pool SARB South African Reserve Bank SARS South African Revenue Services SARS-CoV-2 Severe Acute Respiratory Syndrome Coronavirus 2 SCD Systematic Country Diagnostic SDGs Sustainable Development Goals SECO State Secretariat for Economic Affairs SIDS Sustainable Infrastructure Development Symposium SME Small and Medium Enterprise(s) SOE State-Owned Enterprise SOFI State-Owned Financial Institution SONA State of the Nation Address SRD Social Relief of Distress SSA Sub-Saharan Africa SSEG Small-scale Embedded Generation STEM Science, Technology, Engineering, and Mathematics TA / TC Technical Assistance / Technical Cooperation TB Mycobacterium Tuberculosis TEI Tertiary Education Institution TFP Total Factor Productivity TVET Technical and Vocational Education and Training UN United Nations UNFCCC United Nations Convention on Climate Change UNFPA United Nations Population Fund UNWOMEN United Nations Entity for Gender Equality and the Empowerment of Women WB World Bank US$ United States of America Dollar WBG World Bank Group WPBL Workplace-Based Learning ZAR South African Rand vi I. INTRODUCTION 1 South Africa (SA) is at a critical crossroads in its post-apartheid history. The democratic miracle of 1994, when the country held its first free elections, was followed by 15 years of significant development progress. SA experienced macroeconomic stability, higher economic growth, a substantial reduction of poverty and the emergence of a black middle class. Millions who were previously denied their basic rights, received access to basic services. These remarkable years of prosperity were followed by institutional deterioration and socio-economic decline in the 2010s. Over the last decade, poverty, inequality and unemployment increased, which perpetuated the apartheid legacy of socio-economic exclusion. The patience of many historically disadvantaged black South Africans has been running thin. Ideological rifts have opened between and within political alliance partners and societal discontent has been fueling higher crime levels and calls for radical policies. In addition, business and consumer confidence reached new lows, investment and economic growth have stagnated and public debt has increased. 2 SA was hard-hit by the Coronavirus Disease 2019 (COVID-19) pandemic. It has had the highest number of infections on the continent and by mid-June 2021 nearly 55,000 South African had lost their lives to the pandemic, especially end 2020 and early 2021 as a new local variant of the virus drove the second wave. The quick Government response starting with a month-long lockdown implemented at the end of March 2020 bought government time to prepare for the unfolding health crisis by developing the relief measures for vulnerable people and businesses. However, this came at a high economic cost with Gross Domestic Product (GDP) having contracted by 7.0 percent in 2020. The COVID-19 crisis has put additional pressure on public finances which have been on a deteriorating trajectory for several years and has made restoring fiscal sustainability more urgent. The deficit is estimated to have reached 12.9 percent of GDP resulting in public debt of 78.8 percent of GDP in 2020. 3 The social impact of the crisis has also been high. During the initial months of the pandemic, 2.2 million South Africans lost their jobs. Should this shock not have been mitigated by social protection and government relief grant programs.1, it was estimated that an additional 2.8 million people would have been at risk of falling into poverty due to labor market disruptions since the beginning of the lock-down in March 2020. However, by the end of October 2020, a COVID-19 social protection response package may have cushioned two-thirds against this impact, protecting 1.9 million people from falling into poverty.2 By the end of 2020, less than 40 percent of these jobs were recovered, which ended with a net loss of 1.4 million jobs and an unemployment rate of 32.5 percent. The average South African was 18 percent worse off at the end of 2020 than at the start of the year, and at an average real income level equivalent to that in 2005. The most vulnerable have been disproportionally affected by the economic fallout from the COVID-19 pandemic, resulting in even higher inequality. The number of people living in extreme poverty increased by an estimated 10 percent in 2020, with the sharp COVID-19-induced economic contraction. 4 Since 2019, the Government of South Africa (GoSA) has embarked on a new socio-economic transformation program3. At the centre of the program is dealing with the recent institutional and socio- economic disruptions and taking decisive steps for lifting SA out of the vicious cycle of high inequality and slow growth. This program builds on the National Development Plan’s overarching objective of forging an inclusive economy. It focuses on restoring the fundamentals of growth by rebuilding the capabilities of the state, restoring the quality of governance, and creating an environment in which the people, the market and the state can play their respective complementary roles in the economic transition. 1 Because the analysis simulates only the impact of labor income shocks and excludes health shocks and shocks to other sources of income, the results reported here are likely to be an underestimate. 2 Reports - CRAM (cramsurvey.org) 3 SA National Treasury, www.treasury.gov.za/comm_media/press/2019/Towards a Growth Agenda for SA.pdf; Various Presidential State of the Nation addresses President Cyril Ramaphosa: Speeches | The Presidency; 2019-2024 MTSF Comprehensive Document.pdf (dpme.gov.za) 1 5 This crisis has forced the Government to make difficult policy choices to restore macroeconomic stability, deal with the health and socioeconomic crisis, accelerate growth and make it more inclusive. On October 15, 2020, GoSA announced its Economic Reconstruction and Recovery Plan (ERRP), aimed at dealing with immediate actions towards economic recovery amid COVID-19; and rebuilding and growing the economy to ensure sustainability, resilience and inclusion. The crisis has also opened-up areas for reforms, which have been pending for years, as well as for addressing weaknesses undermining effective government. The reforms re-emphasize the binding constraints and pathways to development progress identified in the 2018 Systematic Country Diagnostic (SCD), entitled An Incomplete Transition: Overcoming the Legacy of Exclusion in South Africa. Reforms have become even more urgent in the wake of the COVID-19 health and economic shocks in addressing South Africa’s triple challenge of poverty, inequality, and unemployment. 6 South Africa has strong foundations to reshape its socio-economic trajectory, including: (a) a democratic political system and independent, constitutionally entrenched institutions such as the South African Reserve Bank; (b) modern, sophisticated sectors (e.g. finance, food and beverages, mining, agriculture, and tourism) that can serve as building blocks for the rest of the economy; (c) a well-developed infrastructure network of roads, ports and bridges; (e) abundant mineral and natural resources; and (d) a key role in the development of the African continent (and its own subregion) and an anchor in other key regional partnerships (Southern African Development Community - SADC - and the Southern Africa Customs Union - SACU). 7 In line with the Government priorities and those presented in the SCD, the central tenet of this Country Partnership Framework (CPF) is to help South Africa continue to tackle its Apartheid legacy of socio-economic exclusion, currently complicated by the COVID-19 pandemic. Economic growth can only be higher if it is also more inclusive, while more inclusivity will be indispensable for a lasting new consensus on the policy directions taken to address significant macroeconomic and fiscal imbalances in a post-COVID-19 environment. 8 The CPF’s overarching goal is to support SA in stimulating investment and job creation to achieve economic and social convergence for an inclusive and resilient society. The CPF’s three strategic focus areas support GoSA’s vision to move towards a new socio-economic transformation model and are designed to respond to the impact of COVID-19, particularly in the short run. They are: to cooperate with GoSA and other stakeholders in • Promoting increased competition and improving the business environment for sustainable growth, through improving the competition framework, contestability of selected sectors and the business environment; and greater climate change resilience and environmentally sustainable investments in selected sectors; • Strengthening MSME and skills development to support job creation, through more job- creating, selected value chains; strengthened ecosystem for MSME creation and growth; and strengthened employment and skills development services; and • Improving the infrastructure investment framework and selected infrastructure services, through an improved infrastructure investment framework, improved infrastructure services by selected state-owned enterprises (SOEs); and improved planning and delivery of infrastructure services in targeted cities. Governance, Gender and the Digital Economy are cross-cutting themes. 9 The CPF program is designed to support SA in its quest to successfully end this unprecedented crisis and lay the foundations for more sustainable growth. In the context of the COVID-19 health and 2 socio-economic crisis, there is a unique opportunity to re-engage in South Africa at a moment when the country is facing unprecedented economic and social challenges and is committed to undertaking needed reforms. This CPF builds on four previous CPFs which were essentially knowledge based, with financing primarily from the IFC and MIGA. While the knowledge emphasis is going to be continued in the current CPF, there is a possibility for broader access to IBRD resources for the GoSA. The content and the process of this CPF will leverage the WBG’s strength as a knowledge partner, as demonstrated by its long track record of delivering high-quality Analytical and Advisory Services (ASA) and technical cooperation with South Africa. The collaborative development of the World Bank 2018 SCD and the International Finance Corporation (IFC) 2019 Country Private Sector Diagnostic Creating Markets in South Africa: Boosting Private Investment to Unlock South Africa’s Growth Potential (CPSD) helped build trust with government and clearly demonstrates what the WBG (collectively as IBRD, IFC, and Multilateral Investment Guarantee Agency - MIGA) can offer by engaging with South Africa on an integrated agenda of support. 10 The proposed CPF for South Africa covers the five-year period from FY2022 to FY2026.4 The program has been designed with significant flexibility to take into account (i) the uncertainties related to the COVID-19 pandemic; and (ii) the possibility for GoSA to request IBRD lending. Right now, there are no immediate plans to borrow, but if the government so chooses, the World Bank is willing to provide lending through the IBRD envelope. The IFC currently has a portfolio of US$2.1 billion as of 22 June 2021 and through its new IFC 3.0 strategy can deliver a 5-year program of between US$1.4 billion and US$3.4 billion for the period FY2022-FY265 depending on the level and pace of reforms. Noteworthy within the COVID-19 pandemic context is the IFC’s support for vaccine manufacturing in South Africa. During the CPF period, MIGA will continue to support foreign private investors and cross-border commercial lenders in establishing new businesses in South Africa, with particular attention paid to those that promote competition and employment growth. The CPF will thus be a flexible strategy that adapts to the country situation and resulting demand. 11 The overall risk to achieving the development objectives identified for the WBG during the coming CPF period is substantial given the uncertainty of the duration of the COVID-19 pandemic and the substance and pace of post-pandemic reforms (see Section IV). Given SA’s economic spillovers into the sub-region and the African continent more broadly, despite the substantial risk of achieving the identified development objectives, the partnership promises high returns for both SA and the region. II. COUNTRY CONTEXT AND DEVELOPMENT AGENDA 2.1 Social and Political Context 12 In 1994, South Africa demonstrated that a peaceful, negotiated path from injustice to cooperation and reconciliation was indeed possible. The new democracy inherited a deeply fractured society. Apartheid was not only a political process of disenfranchising the black majority, but also a social engineering system, systematically excluding the majority from access to socio-economic opportunities. In addition, sanctions had cut the country off from regional and international relationships, leaving it isolated from trade and financial flows, with protectionist economic policies and practices distorting markets. As President Nelson Mandela noted in his State of the Nation Address of 24 May 1994, “The democratic miracle had to go beyond political rights to create a people-centered society of liberty, which binds us to the pursuit of the goals of freedom from want, freedom from hunger, freedom from deprivation, freedom from ignorance, freedom from suppression and freedom from fear.” 4 Thelast Country Partnership Strategy for South Africa (Report No. 77006-ZA) was discussed by the Board in October 2013, and a Progress and Learning Review was discussed in February 2017. 5 The period for the IFC 3.0 strategy is currently FY2020-FY24. 3 13 The Social Contract forged in 1994 between government, labor, the private sector and community-based organizations and the new Constitution with its enshrined Bill of Rights, adopted in 1996, have enabled South Africans to work towards forging a common identity and, through its public services and institutions, to progressively advance the rights of the disenfranchised while safeguarding democracy, human rights, nonracialism and non-sexism. Democratic South Africa has had six consecutive national and provincial elections and five municipal elections over the past 25 years. All political parties have accepted the outcomes of these elections as reflecting the will of the people. 14 In the first decade under the new Constitution, the reconstruction of the country focused on improving access to education, electricity, water, sanitation, health care, housing and social protection for millions of people. Equity in employment and affirmative action allowed for the emergence of a black middle class, and the end of the boycotts enabled South Africa to integrate into the continent and global institutions. In addition, a strong monetary and fiscal management framework allowed the Government to achieve macroeconomic stability, leading to economic growth. 15 Fifteen years into the new democracy, it was clear that the Social Contract was unravelling. Persistent structural factors worked against achieving sustained progress toward inclusion and prosperity for all South Africans. State capture weakened institutions and caused an increasing loss of confidence in government, parliament, and public and other institutions, with the notable exception of the independent judiciary and South African Reserve Bank (SARB). Failure to increase contestability of markets; to adapt to climate change; to deliver better human development and labor market outcomes and to forge meaningful racial, gender and spatial equity, further contributed to a loss of confidence in the development model. As a result, over the last decade, the country has experienced declining growth, a reversal of gains in poverty reduction, increased unemployment and inequality, and rising social discontent and crime. 16 The new leadership in Government has outlined clear priorities to reverse the socioeconomic decline and get the structural transformation project back on track. These priorities include: • Restoring the fundamentals of growth by rebuilding state institutions, improving governance, and creating an environment in which the people, the market and the state all play a role in the economic transition. Unsustainable fiscal dynamics, exacerbated by the COVID-19 pandemic; weak performance of SOEs; the unfriendly business environment; policy uncertainties and the low level of human capital, also need to be addressed; and public-private partnerships, particularly in infrastructure, need to be promoted. • Changing the growth pathway through greening of the economy, progressive digitalization, support for entrepreneurship and innovation, rebalancing the roles of the public and private sectors, and using its vast human and natural resources to help foster development of the continent (Box 1). 4 Box 1: South Africa in the Region—Engine of Growth and Regional Power Broker A stable and prosperous South Africa is essential for growth and poverty reduction on the continent. In the subregion, a dynamic and outward-looking South Africa can be an engine of growth for its neighbors, while a stagnant and inwardly absorbed South Africa could curtail regional growth and development. South Africa’s neighbors have much to offer as well, including rapidly growing markets (the biggest source of South African export growth in the last few years has been expansion into neighboring markets), investment opportunities, an expanded supply of skilled labor, transport links (such as port access through the Maputo corridor), and natural resources to relieve critical shortages within South Africa (such as the water provided through the Lesotho Highlands Water Project). In 2019, South Africa’s nominal GDP accounted for around one fifth of Sub-Saharan Africa’s (SSA) total, and half the GDP of the Southern African Development Community (SADC). From 2014-18, South Africa was the fifth-largest investor in SSA, with more than US$10 billion invested in 199 projects. South Africa’s e xports to the SADC region almost doubled from 12.1 percent of total exports in 2008 to 23.5 percent in 2019, and exports to the entire African continent made up 26.7 percent of the total in 2019. In banking, construction, tourism, retailing and many other sectors, South African companies are instilling new service standards and opening up new opportunities across the continent. Its level of development, weight in the sub-regional and regional economies, and degree of regional market integration contribute to South Africa being a driver of regional growth. Both external and internal shocks to the South African economy spill over to the region through trade, cross-border investment, remittance flows and fiscal transfers to neighboring countries that are part of the Southern African Customs Union (SACU). South Africa is one of the driving forces behind African Union initiatives. Together with three other countries, South Africa has been the main driver for the African Continental Free Trade Agreement (AfCFTA). South Africa was also the Chair of the African Union for 2020, and is also chairing the Africa Peer Review Mechanism, the Programme for Infrastructure Development in Africa (PIDA), and the Committee of African Heads of State and Government on Climate Change (CAHOSCC). Internationally, SA is one of the developing countries participating in multilateral fora and chaired the G-20 Summit in 2007. Note: For growth spillovers, see Vivek Arora and Athanasios Vamvakidis 2005, The Implications of South African Economic Growth for the Rest of Africa, IMF Working Paper No. 05/58; and Francisco Arizala, Matthieu Bellon and Margaux MacDonald 2019; Regional Growth Spillovers in Sub-Saharan Africa, IMF Working Paper No. 19/160. 2.2 Recent Economic Developments 2.2.1 Dynamics of economic growth in South Africa 17 Since the end of apartheid, there have been two distinct periods of economic development with the transition point coinciding with the global financial crisis of 2008. Until 2008, the economy grew robustly benefiting from the commodity super cycle and greater openness to the world which led to high growth in trade and foreign direct investment. High growth and macro stabilization gains led South Africa to reach sovereign investment grade rating in 2000. However, the less favorable global environment in the context of the Global Financial Crisis from 2008 combined with adverse domestic political, institutional, and economic factors led South Africa to lose most of the drivers of growth leveraged since 1994 (see Figure 1). The country thus experienced a decade of low growth while inequality and poverty remained persistently high. 18 As a result, South Africa fell behind its middle-income peers in the past decade. Among comparable middle-income economies, SA’s GDP growth has been the slowest since 2010 with per capita GDP now lower than in 2005. At the start of the decade, SA’s real per capita GDP in purchasing power parity (PPP) terms was 140 percent that of China but only 77 percent by 2019. Similarly, while per capita PPP GDP was roughly on par with that of Malaysia in 1990 and that of Thailand in the early-2000s, by 2019, it was only 44 percent of that of Malaysia and 68 percent of that of Thailand (see Figure 2). Relative to the average of Organization for Economic Co-operation and Development (OECD) countries’ per capita 5 Purchasing Power Parity (PPP) GDP in 2010, South Africa’s GDP fell from 32 to 28 percent between 2010 and 2019. Figure 1: South Africa’s Long-Term Economic Growth Rate Source: World Bank, World Development Indicators (WDI), South Africa National Treasury and SARB data bases Note: Should 2020 data be included, the average growth rate decreases to 0.7 percent from 2010-2020, due to the severe economic impact of the COVID-19 shock. Figure 2: GDP per capita - South Africa relative to peers, since the end of the Apartheid (PPP, constant 2017 international US$) 19 The legacy of an economy structurally based on import substitution, with SOEs dominating critical sectors, a concentrated market structure, has led to low productivity growth with a weak track record on 6 innovation and factor market allocative efficiency. This was starkly revealed after 2008 when other growth drivers lost steam. Massive currency depreciation since 2008 has not improved the country’s export competitiveness, already hampered by high risks to investing in tradable sectors and by the persistence of Apartheid-era structural and regulatory issues. Concentrated ownership structures have inhibited competition in key sectors, with adverse impacts on new firm entry, firm productivity, and employment growth. In addition, extensive government participation in the economy through state-owned enterprises has continued. The large SOE presence in the market, combined with weak regulation and oversight, has made it difficult for the private sector to compete in certain markets, with negative implications for consumers, employment, and the economy as a whole. In this context, well-intentioned industrial policies of localization within a deficient enabling environment have combined to further lower business competitiveness. In future, South Africa’s carbon-intensive model of production, if left unaddressed, will further undermine its competitiveness in advanced markets. 20 The pattern of growth has favored the Figure 3: Sectoral Composition of nominal GDP expansion of services while labor-intensive manufacturing as well as the primary sectors Business services Government services – mining and agriculture -- have stagnated. At Trade the beginning of the decade, SA’s economy was Manufacturing already heavily dependent on services, Mining accounting for 61 percent of GDP in 2010. This Transport and… dependence on services growth has increased Personal services over the decade, with especially rapid growth in Construction financial and business services towards the end of Utilities the period. However, the financial and business Agriculture services sectors absorb highly educated South 0% 5% 10% 15% 20% African who represent a small share of the labor force. This sectoral pattern of growth has resulted 2020 2010 in a growing gap between the skills in the labor force and those required for the jobs created, Source: Statistics South Africa and SARB resulting in weak labor market performance.6 21 Fiscal balances have deteriorated during the past decade with the shares of public sector wages and transfers to public corporations rising. The fiscal deficit widened from 4.3 to 6.4 percent of GDP between 2010 and 2019. As alarming was the deterioration in the primary balance between 2010 and 2019 – from 1.5 percent to -2.4 percent of GDP. This deterioration in fiscal balances was particularly stark in the latter part of the decade. It reflected continued increases in public spending, while revenue growth declined despite relatively stable and high revenue-to-GDP ratios, on the back of weaker economic growth. The poor financial performance of major infrastructure SOEs has contributed to increased government spending, fiscal deficits and public sector debt through large budgetary transfers and growing contingent liabilities. The composition of spending has continued to be biased towards current expenditures, with a large public sector wage bill. At the same time, interest payments on public debt have been growing fast. 22 Low investment has been a major drag on economic expansion. The shares of gross investment and savings in GDP have fallen over the decade from their already low levels – from 19.3 percent and 18 percent respectively in 2010 to 17.9 and 14.6 percent in 2019. Persistently high levels of inequality have contributed to these low and falling investment levels by underpinning demands for radical redistribution of wealth, which in turn exacerbated policy uncertainty and deterred private investment. Finance (at the macro 6 Bhorat, H, 2020. The South African Economy in Review: Five Key Long-Run Growth Concerns in CBPEP Colloquium 2020, Employment Growth in South Africa: Constraints and Opportunities https://www.cbpep.org/ 7 level) is not the constraint—the FDI balance has been negative or slightly positive for years. The more binding risk for investors is the loss of expected returns and possibly the loss of capital. 23 Public and external debt levels have risen on the back of higher fiscal and current account deficits. With higher fiscal deficits, financed primarily through domestic borrowing, public debt as a share of GDP rose from 36 percent in 2010 to about 63.5 percent in 2019, higher than the average for emerging market economies. The persistence and recent widening of current account deficits and their financing through foreign bank lending also caused total external debt as a share of GDP to rise sharply – from about 29 percent to over 50 percent between 2010 and 2019. 2.2.2 Recent economic performance 24 The COVID-19 crisis hit South Africa when its economy was already in a weak position. Since the recovery from the Global Financial Crisis (GFC), GDP growth has been on a declining trend, highlighting South Africa’s deep-rooted structural challenges. It reached 0.2 percent in 2019 before falling sharply to - 7.0 percent in 2020 as a result of the COVID-19 shock. Real GDP per capita, already falling since 2015, is now back to its 2005 level. Business confidence has recovered from the record lows reached at the onset of the pandemic but had already been weak pre-pandemic. Investment has contributed negatively to growth over the last three years. Net foreign direct investment (FDI) flows have remained relatively small. After recording deficits over 2003-2019, the current account registered a surplus in 2020 supported by favorable terms of trade and weak domestic demand in context of the COVID-19 pandemic. 25 South Africa has been severely affected by the COVID-19 pandemic with the highest number of infections on the African continent. It had a first wave of infections that peaked in July and a second wave over December-January, with the highest number of confirmed daily cases at 21,980. Daily confirmed cases were brought under control rapidly with some tightening of restrictions but no drastic lockdown. On March 1, 2021, the country reported the lowest number of confirmed cases (566 per day) since May 2020 (See Box 2), bringing the total number of infections to more than 1.6 million. On 30 May 2021, President Ramaphosa announced that 4 provinces – Free State, Northern Cape, North West and Gauteng had entered the third wave of a surge in infections. A significant increase in daily infections was announced on June 2, 2021 with a total of 5,782. The death toll has been significant: close to half of total COVID-19-related deaths have happened since December and over 56,000 South African have now lost their lives to COVID- 19. Box 2: Impact of COVID-19 The COVID-19 crisis in South Africa at a glance (as Daily Change in Positive Cases of June 12, 2021): March 5, 2020 - June 2, 2021 25000 Tests conducted: 11,667,916 Number of infections: 1,669,231 20000 Deaths: 56,601 Recoveries: 93.5%. GDP contraction, 2020: 7.0% 15000 Relief package: US$30 billion; 10% of GDP Poverty: 10000 o Additional people in poverty, before relief: 2.8 million (WB est.) 5000 o People escaping poverty due to relief package: 1.9 million (WB est.) 0 Jobs: o Immediate impact: 2.2 million jobs lost (StatsSA) o Short term impact Q4 2020: 1.4 million jobs lost o Unemployment: 32.5% Q4 2020 (StatsSA) 8 26 There are still significant uncertainties about the likely trajectory of the disease that will depend in part on the pace of vaccination and the efficacy of existing vaccines in protecting against the local variant of the virus. The country has embarked on a vaccination program, aiming to inoculate 67 percent of its population to achieve herd immunity. To date, SA has confirmed purchase of 30 million doses of the single-dose Johnson and Johnson vaccine and 30 million doses of the Pfizer vaccine. By June 2, 2021, 1 117 569 vaccines have been administered of which 637 801 being the first dose of the Pfizer vaccine, requiring a second dose within six weeks of the first to ensure the inoculation effort is effective. 27 As a result of COVID-19, South Africa experienced a sharp recession in 2020. GDP contracted by 7.0 percent, compared to projected growth of around 1 percent before the pandemic (see Table 2 for key economic indicators). The scale of the economic decline is similar to some emerging market economies, including Mexico and India, but is significantly larger that the contractions experienced by others, including Brazil and Russia. Government spending has risen substantially, while the collapse in economic activity has reduced tax revenues resulting in the estimated fiscal deficit more than doubling in 2020 at 12.9 percent of GDP, and public debt increasing from just over 63 percent of GDP in 2019 to about 78.8 percent in 2020. Table 1: Economic and Financial Indicators, 2019-2022 (current and pre-COVID-19 estimates) 2019 2020e 2021p 2022p 2020p 2021p Projected Pre COVID-19 National income and prices Annual percentage change, unless otherwise indicated Real GDP 0.2 -7.0 4.0 2.1 1.0 1.3 Consumer price inflation 4.1 3.3 4.2 4.5 5.3 4.7 Fiscal accounts Percent of GDP Revenues 29.6 28.2 28.5 28.5 29.2 29.2 Tax revenues 26.9 25.5 26.3 26.4 26.8 26.9 Non-tax revenues 2.7 2.6 2.1 2.1 2.4 2.3 Other revenues 0.0 0.0 0.0 0.0 0.1 0.1 Expenditures 36.0 41.0 36.9 35.6 36.0 35.4 Current expenditure 31.5 36.6 32.8 32.2 31.5 31.4 Capital expenditures 3.0 2.6 2.8 2.9 3.0 3.1 Other expenditures 1.5 1.8 1.3 0.6 0.2 0.4 General Government Balance -6.4 -12.9 -8.4 -7.1 -6.8 -6.2 Total Public debt 63.5 78.8 80.0 84.3 65.6 69.1 Balance of Payments Percent of GDP Current Account Balance -3.0 2.2 1.5 -0.8 -3.4 -3.5 Trade Balance 0.5 4.9 6.6 3.7 0.3 0.2 Exports (f.o.b.) 29.9 30.5 32.6 30.7 30.4 30.6 Imports (f.o.b.) 29.4 25.5 26.0 27.0 30.1 30.4 Gross Reserves (US$ million) 55,058 55,013 54,638 54,529 51,500 51,700 Other memo items GDP nominal (US$ millions) 351,539 301,924 378,871 379,260 377,591 387,234 Sources: World Bank staff calculations/estimates based on official data provided by the authorities. 28 The COVID-19 shock has exacerbated economic imbalances and is elevating the urgency of reforms to ensure a rapid and sustainable recovery. The South African Government’s fiscal response to the pandemic amounted to 10 percent of GDP in 2020 and consisted of measures to (a) protect lives by curbing the spread of the virus; (b) support the poorest and most vulnerable; and (c) mitigate the impact on jobs and businesses. In parallel, the Government has relaxed the monetary policy stance to support the economy. The Government’s comprehensive pandemic response package launched in April 20207, reached 36 million South Africans or 63 percent of the population – a remarkable effort within such a short period of time. During this period and mindful of the urgency of reforms, Government also prepared and released its ERRP aimed at addressing longstanding constraints to inclusive growth, to be implemented over the next years, while pursuing fiscal consolidation. 7 The comprehensive response package included a diverse set of support measures for different time periods. These ranged from a Credit Guarantee Scheme, Wage Protection (TERS) to revenue-side support measures for vulnerable households, health and other frontline services, municipalities, basic and higher education, job creation, SMEs and informal businesses and public entities. 9 2.2.3 Medium-term Outlook 29 Higher growth in trade partners and favorable global commodity prices will support growth in South Africa. South Africa should benefit from stronger external demand, especially from China and the United States. The terms of trade are expected to remain very favorable, supported by global commodity prices which will support the external sector. 30 However, the potential for full recovery remains constrained by domestic drawbacks. Growth momentum continued in Q1 and early indications point to sustained recovery into Q2. However, weak business confidence and electricity shortages will continue to weigh on growth. Private sector investment remains depressed, contracting by 15.1 percent y-o-y in Q1. At the same time, depressed labor market and tighter fiscal policy may limit households’ consumption, a major driver of pre-pandemic growth. There are also long-term impacts of the pandemic on some sectors that remain largely unknown (tourism, aviation, hospitality sectors for example) and could constrain the growth rebound. On the policy side, while monetary policy is likely to remain accommodative as long as inflationary pressures are contained, the overall policy mix will be constrained by the deteriorated fiscal position. Nevertheless, the recent announcement of the increase of the licensing threshold for embedded electricity generation from 1MW to 100 MW could have a significant positive effect on investment and confidence and translate into higher growth in the short term and contribute to alleviate the electricity supply constraint in the medium term. 31 To reflect the uncertainty around the outlook, the World Bank developed three macroeconomic scenarios (based on World Bank Macro and Fiscal Model - MFMod). These scenarios show how economic outcomes over the medium term will depend not only on the evolution of global economic conditions, but also on the effectiveness of reforms aimed at fostering growth and consolidating the fiscal balances while controlling the pandemic. • The base case scenario assumes continued progress in controlling the pandemic in South Africa and elsewhere, as well as the initiation of fiscal consolidation and structural reforms in 2021. As a result, growth is projected to rebound to 4.0 percent in 2021, although GDP will remain below its pre-COVID-19 level. The pace of fiscal consolidation and structural reforms is informed by the government’s plans. As described in the 2021 Budget Review, efforts to reduce the fiscal deficit and stabilize debt will span over a five-year period. These measures will focus on reallocating public resources towards capital investment and social development and on containing the overall growth in the expenditure envelope. This is planned to come primarily from reducing public sector compensation, as well as reducing leakages. Structural reforms will be modest and aimed at addressing only some of the barriers to higher investment and faster productivity growth, such as SOE regulation and the business climate. In this context, the growth potential will remain constrained over the medium term, around 1.5 percent annually. Real GDP per capita in 2023 will still be below its 2019 level. Debt levels in this scenario will reach 87.3 percent in 2023/24 and will not be stabilizing before 2025/26. • The optimistic scenario also assumes a containment of the pandemic but coupled with stronger reform momentum. Raising South Africa’s low growth potential is key to reducing poverty and inequality and stabilizing debt over the medium term. More rapid and inclusive growth will be indispensable in forging the needed consensus to address the macroeconomic imbalances and structural problems that currently characterize the economy. As discussed in the World Bank’s 2018 SCD, reforms to spur productivity growth and boost private investment will be critical in this regard and need to cover a range of complementary areas. Of highest priority will be measures to: raise contestability in key product markets, including financial sector and digital services; restructure network industries that provide key infrastructure services, including energy and transport; strengthen the financial autonomy of local governments to borrow for infrastructure, enhance the enabling environment for agriculture and labor-intensive services, including relaxing limits on immigration of skilled workers; and facilitate 10 private sector participation in the provision of tertiary education. Improving the business environment, especially for MSMEs and export-oriented enterprises would reinforce the inclusiveness of reforms, as is underscored in the Government’s recently announced ERRP Plan. While higher growth translates into higher fiscal revenues, the containment of expenditures over the Medium-term Expenditure Framework (MTEF) as planned in the Budget would allow for a faster reduction of fiscal deficits over the CPF period. Lower debt levels, in turn, would help reduce interest expenditure and improve the allocation of spending towards pro-poor expenditure, fostering higher inclusive growth. In this regard, the Government’s pledge in its October 2020 MTBPS to shift to zero-based budgeting is a step in the right direction. Under this scenario, GDP growth would remain dynamic after the post-pandemic rebound and average more than 3 percent over the CPF period. Debt in this scenario would stabilize earlier and at a lower level than in the base case. Higher growth would translate into higher revenues while expenditure would remain broadly unchanged compared to the base case. Lower interest payments on debt would free up resources for developmental spending. In this scenario, South Africa would start to generate primary surpluses from 2023. • The downside scenario captures the impacts of several medium-term risks, the most significant of which is a longer-than-expected duration of the pandemic in South Africa as well as weaker implementation of structural reforms. A serious and prolonged third wave in South Africa combined with slow vaccine roll-out would translate into further restrictions on economic activity in 2021 and early 2022, with the economic recovery delayed and muted relative to the base case. In this context, fiscal consolidation could prove challenging to implement due to the unfavorable economic conditions and opposition from vested interests. An additional source of fiscal risk is the high and rising level of contingent liabilities from SOEs and other public entities, which reached 19 percent of GDP at the end of FY2019 (Eskom accounts for more than 30 percent of the total), and could rise to 26 percent of GDP if the loan guarantee scheme is fully implemented. A longer and deeper pandemic could result in these liabilities being realized as the financial position of key SOEs could be weakened further. The protracted slowdown in the economy could also further delay implementation of the Government’s structural reform program. Weak implementation of planned structural reforms would also translate into weaker investors’ confidence and translate into slower growth over the medium term. The net result would be lower revenues and the need for larger public outlays, resulting in an even larger fiscal deficit. In 2022, the deficit would be around 8.6 percent of GDP, compared to 7.1 percent in the base case. Debt levels in this scenario would continue to rise rapidly throughout the CPF period and would not stabilize by 2025/26. This debt spiral highlights the heightened risks in the downside case. A longer and deeper crisis that delays implementation of the Government’s structural reform program could also further erode the social contract and is likely to strengthen calls for radical policies. 11 Table 2: Summary of CPF Macroeconomic Scenarios Scenarios If… Then… However… 1. Base Case • there is rapid progress • Overall and primary deficits improve • there will be little impact in controlling the gradually to -6.1 percent and -0.5 on poverty and Macroeconomic pandemic in SA and percent of GDP by 2023/24. unemployment levels and stability with most of SA’s trading • debt levels will stabilize by 2025 but on living standards and low growth partners with health will peak at close to 95 percent of GDP although debt will impacts brought under • GDP growth 1.5% – 2025 stabilize by 2025, its share control during 2021; of GDP will be about one and and a half times that in • gradual fiscal 2019 consolidation is achieved with structural reform initiated 2. Downside • the pandemic continues • a primary fiscal deficit will remain in • living standards will fall Case into 2022 with severe 2025 substantially below their health and economic • debt levels will continue to rise and get pre-crisis levels Unsustainable impacts; and close to 100 percent of GDP by 2025 • and prospects for macroeconomic • no fiscal consolidation • GDP growth will be slightly below 1% financing the fiscal deficit imbalances occurs with little - 2025 will be bleak with a likely structural reform macroeconomic crisis 3. Optimistic • there is rapid progress • Faster consolidation with primary • living standards will Case in controlling pandemic surpluses from 2023 improve relative to the in SA and globally, • Structural reforms unlock growth base case, A Sustained Rapid growth with health impacts potential, GDP growth 3% –2025 pace of reform and level and brought under control • With higher revenues from higher of fiscal consolidation will macroeconomic during 2021; and growth and contained expenditure mean that difficult policy stability • there is rapid fiscal growth, deficits fall faster, and debt choices will be required consolidation and levels are lower. Lower interest comprehensive payments also free-up resources for structural reform development spending. 2.3 Poverty, Inequality and Unemployment Profile 2.3.1 Poverty is high, with racial, spatial and gender dimension 32 Poverty has worsened since 2011 (Figure 4). The national upper bound poverty rate increased from 53.2 percent of the population in 2011 to 55.5 percent (around 30.3 million people) in 2015. Using the international extreme poverty line of US$1.90 per person per day (in 2011 PPP terms), the poverty rate increased from 16.2 percent in 2011 to 18.7 percent in 2015, and it reached an estimated 19.7 percent in 2019. The high and rising poverty levels in South Africa reflect its weak economy. Household consumption growth has softened as unemployment has risen to an unprecedented 32.5 percent in the fourth quarter of 2020. 12 Figure 4: Long-Term Poverty Trends (a) National upper bound poverty line (b) International poverty line, US$1.9 (2011 PPP) 100 40 36.3 87.6 88.0 34.5 90 81.3 77.0 35 31.5 80 66.6 30 70 62.1 25.7 Poverty rate (%) 55.5 25 Poverty rate (%) 60 52.0 53.2 50 46.8 18.7 19.1 19.3 19.7 38.8 40.6 20 16.7 16.2 40 15 30 20 10 10 5 0 0 Urban Rural Total 1996 1993 2001 2006 2009 2011 2015 2017 2018 2019 2006 2009 2011 2015 Source: Calculations based on the Income and Expenditure Surveys for 2005/06 and 2010/11 and the Living Conditions Surveys for 2008/09 and 2014/15. The national upper bound poverty line was ZAR 992 per person per day in 2015 prices. For the international poverty rate: PovCalNet for the years 1993, 1996 and 2001. Note: The national upper bound poverty line of ZAR 992 per person per day in 2015 prices was equivalent to about US$83 per person per day at market exchange rates. The international poverty rates for 2016 to 2019 were based on projections using the Income and Expenditure Surveys for 2014/15. 33 Chronic poverty and economic vulnerability are high, posing a threat to sustained poverty reduction. Between 2008 and 2015, only one in four (24 percent) South Africans were considered likely to maintain a nonpoor standard of living in the event of negative shocks, while 76 percent were either poor or at an elevated risk of falling into poverty. These patterns reflect the high level of income polarization —a high concentration of low-income earners (the poor) and a few very high-income earners (the rich or elite), with the small middle class at risk of falling into poverty. Education and formal employment are key determinants of a household’s ability to achieve economic stability. Although gender parity has been achieved in literacy and education, it has not translated to gender equitable employment outcomes. Women’s poverty levels are higher than those of men. Women, and particularly black women, comprise most low- paying job holders, and they receive a large majority of government’s cash assistance. Women tend to be landless, and they are often subject to multiple forms of violence and harassment in the workplace, in public spaces, using public transportation, and in the home. There are also important distinctions between various groups of black women—rural and urban, older, and younger - each posing distinct challenges that need to be understood and addressed in order to achieve gender equality in SA. 34 Poverty is a multidimensional phenomenon, with poor people being deprived of many basic needs. They are less likely to have access to employment, education, health care and other basic services, and they bear a disproportionate burden of malnutrition, particularly stunting. According to the South African Multidimensional Poverty Index, the overall multidimensional poverty rate declined from 17.9 percent in 2001 to 7.0 percent in 2016. Most of this had occurred by 2011, when the multidimensional poverty rate was only 8.0 percent. It then stagnated between 2011 and 2016, and is likely to have risen since, driven by high unemployment, and worsening of learning outcome indicators, which was found to be the most important driver of multidimensional poverty. 13 Box 3: South Africa’s Human Capital Index is Low Human capital formation and economic growth are the dual prerequisites for a stable, prosperous SA. Meaningful economic growth cannot be realized or sustained without a skilled and healthy labor force. Thus, SA has been investing significant resources in human capital development. In one generation after Apartheid, it has managed to achieve almost universal access to basic education and significantly expand access to health services. Public spending on education was 6.1 percent of GDP in 2018; about 4.0 percent in health and about 5.0 percent in social protection. However, human development outcomes are not commensurate with these investments, and are well below what could be expected for the country’s level of development, signaling inefficiency and ineffectiveness. Based on the World Bank Group Human Capital Index 2020 Update, South Africa’s 2020 Human Capita Index (HCI) is only 0.43, slightly above the average for Sub-Saharan Africa (0.40) and significantly below the HCI for countries at similar income levels (0.56). Moreover, despite significant public spending, the HCI has not changed relative to 2010 – making South Africa one of very few countries in Sub-Saharan Africa whose HCI has not improved. South Africa does not perform well on most indicators of the HCI: • Three out of 100 children will die before the age of 5 (this is an improvement from 2010 when it was 5 out of 100 children dying before age high). Despite the improvement since 2010, the probability of survival to age 5 is lower than in many countries with a similar income level. • Thirty-one percent of 15-year-olds will not survive until age 60 (significant improvement since 2010 when it was 42 percent). High HIV/AIDS and TB prevalence, violence, road traffic accidents, poor living conditions, unhealthy diet and growing prevalence on non-communicable diseases, all contribute to short life expectancy. • Twenty-seven percent of children below the age of five are stunted (it was 25 percent in 2010), which increases their risk of cognitive and physical limitations that can last a lifetime. Teenage pregnancy and associated low birth weight are associated with high stunting rates. • There is a large learning gap. A child who starts school at age 4 can expect to complete 10.2 years of school by her 18th birthday. Students score on tests were 343 in 2015 (381 in 2010) on a scale where 300 represents minimum attainment and 625 advanced Factoring in what children learn, expected school attainment is only 5.6 years, showing a large learning gap of 4.6 years. • Learning poverty is high. In 2016, 80 percent of 10-year-olds could not read and understand a simple text. This is the same as the average for the Africa region (80 percent learning poverty) but higher than the average for countries with similar income levels to South Africa (38 percent). 35 Race and geography are strong predictors of poverty8. The spatial patterns of poverty still reflect the legacy of Apartheid. Poverty rates in rural areas (81.3 percent) are more than double the rate in urban areas (40.6 percent). Most of the poor live in rural areas. There is also a clear difference in poverty levels between two sets of provinces: Free State, Gauteng and the Western Cape versus the Eastern Cape, KwaZulu-Natal and Limpopo. The latter provinces, which had larger proportions of homelands under Apartheid, are still the poorest. At 72.9 percent, the Eastern Cape had the highest poverty rate in 2015, as against only 33.3 percent in Gauteng, which consistently has the lowest poverty rate. The former homeland provinces also have the highest levels of multidimensional poverty. Public service delivery and infrastructure in these areas have long been poor, and they remain weakly integrated into the national economy. Overall, poverty is consistently highest among black Africans, the less educated, the unemployed, female-headed households, large families, and children9. 2.3.2 Inequality is the highest in the world 36 Inequality is high and persistent, and as progress stalled between 2011 and 2015, it is now higher than in 1994. The consumption-based Gini index was 63 in 2015, up from around 60 in 1994. By any measure, South Africa is the most unequal country in the world (Figure 5). Inequality manifests in disparities in access to basic public services across income groups and across geographical locations. Inequality of opportunity, measured by the influence of circumstances beyond an individual’s control (race, 8 https://documents1.worldbank.org/curated/en/530481521735906534/pdf/124521-REV-OUO-South-Africa-Poverty-and-Inequality-Assessment- Report-2018-FINAL-WEB.pdf 9 Statistics South Africa, Various Quarterly Labour Force Survey s and special reports, including, www.statssa.gov.za/publications/Report-03-10- 19/Report-03-10-192017.pdf 14 gender, parents’ education and occupation, place of birth), is high. This is compounded by low intergenerational mobility—the life outcomes of a given generation tend to mirror those of the previous one. South Africa also lags its peers in the inclusiveness of consumption growth, in terms of the relative rate of consumption growth for the bottom 40 percent of the population. Although the poorest 40 percent saw annual consumption growth of 3.5 percent between 2006 and 2011, their consumption declined by 1.4 percent a year between 2011 and 2015. This does not compare well with the median for the world (3.9 percent) for the earlier period, or with Sub-Saharan Africa (1.9 percent) since 2015. Overall, high levels of inequality and low intergenerational mobility slow poverty reduction. Figure 5: Inequality - Comparison to Other Countries Source: https://documents1.worldbank.org/curated/en/530481521735906534/pdf/124521-REV-OUO-South-Africa-Poverty-and- Inequality-Assessment-Report-2018-FINAL-WEB.pdf and World Development Indicators and data bases 2.3.3 Unemployment is exceptionally high and persistent10 37 The South African labor force is characterized by high levels of unemployment, low participation and many discouraged work seekers and non-seekers (Box 4). Unemployment rates, as measured by Statistics South Africa in the Quarterly Labor Force Survey (QLFS), have hovered around 25- 26 percent in the last decade, and have followed a moderate but increasing trend. By the fourth quarter of 2020, 7 million people (32.5 percent of all those in the labor force) were unemployed. This is based on the strict or narrow definition of unemployment under which people are considered unemployed if they do not have a job and have taken active steps to look for one or start some form of self-employment. The South African unemployment story is, however, broader than what is captured by the strict definition of unemployment. There is a large share of the working age population that do not have a job but are not actively searching for one as they are discouraged. Using the expanded definition of unemployment which includes the discouraged jobseekers (unemployed people available for work and want work but have stopped looking for work or given up finding work), indicates that there are about 11.2 million (42.6 percent) unemployed. Racial differences in unemployment are significant. 38 Labor market inequalities are reflected in stark disparities in unemployment rates across races, regions, and gender. In the last quarter of 2020, the unemployment rate among whites was just 8.8 percent, while it reached 36.5 among black South Africans. Similarly, while unemployment affected 22.5 percent of the labor force in the Western Cape, it reached 47.9 in the less developed Eastern Cape. For women and men, the unemployment rate reached 34.3 and 31 percent, respectively. 10Statistics South Africa, Various Quarterly Labour Force Survey s and special reports, including, SA economy sheds 2,2 million jobs in Q2 but unemployment levels drop | Statistics South Africa (statssa.gov.za) 15 39 South Africa’s informal sector is relatively small and does not play the labor absorption role that it plays in other developing countries. Only about 2.5 million people (16.8 percent of all employed) work in the informal non-agricultural sector. This is relatively lower than in other middle-income developing countries; the share of employment outside the formal sector reaches 33.2 in Botswana, 70.9 in Ghana, 77.2 in Senegal, 23.6 in Ethiopia, 63.1 in Egypt, 46.4 in Thailand, 51.6 in Indonesia, 34.4 in Brazil, and 37.8 in Argentina (International Labour Organization Statistics - ILOSTAT 2021). While in other countries the informal sector helps lower unemployment by absorbing part of the labor force, in South Africa this role is muted. 40 Youth unemployment is very high and has increased sharply over the past year. For the youth, succeeding into the labor market represents a steep challenge. Labor force participants of age 15-24 have faced unemployment rates of over 50 percent in the last decade. Job prospects deteriorated even more over the past year. By the last quarter of 2020, the unemployment rate for youth had reached 63.2 percent. In addition, unemployment affects 41.2 percent of those aged 25-34. In sum, 4.3 million people (60 percent) of the unemployed are between 15 and 34 years of age. In addition, 4.2 million people in this age bracket is neither economically active nor in education and training, resulting in 8.5 million of the youth being outside the labor market. The vast majority (90.7 percent) of the unemployed have, at most, a high school education, but even those who graduate often lack appropriate skills, competencies, and knowledge needed to find a job. Technical and vocational education and training (TVET) colleges have expanded rapidly (some 50 colleges with 364 campuses catered to around 700,000 learners in 2018/19), but most do not impart the skills needed by the labor market. 41 Fertility and mortality rates in South Africa are declining, and this could boost economic growth by reducing the extent of dependency on working-age adults. This trend is expected to continue as the working-age population is expected to grow by 6.7 percent (from 34.2 to 36.5 million) by 2030. To benefit from the demographic dividend, the economy needs to create employment and improve the labor market prospects of younger working-age people. Higher employment would raise mean incomes, enhance investment in education and savings, and boost capital accumulation and growth. Box 4: The South African Employment Cascade, 2020 Note: World Banks calculations using Quarterly Labour Force Statistics Q4 2020 (www.statssa.gov.za) 16 2.3.4 COVID-19 is projected to worsen poverty, inequality and unemployment 42 The COVID-19 pandemic is projected to increase poverty and inequality, mainly through lower incomes and higher prices. Due to a well-designed COVID 19 social protection package two-thirds of the 2.8 million11 most vulnerable, estimated at risk of falling into poverty, have been protected. Nevertheless, extreme poverty, measured at the US$1.9 per person per day poverty line, is projected to rise from 19.7 percent in 2019 to 21.7 percent in 2020. The poor and middle-class are likely to bear the brunt of the crisis, worsening the already extreme inequality. The worst-affected would be urban residents, black and colored South Africans, those with at most a secondary education, and those employed in the construction, manufacturing, private services, trade, and transport sectors. Women have been disproportionately affected by the closure of childcare centers and schools, and their burden of care has increased. Employment data show that women have not recovered their lost jobs as quickly as men have, due largely to this care responsibility. The extremely high inequality also means that growth-to-poverty elasticities are low; poverty reduction therefore requires both economic growth and a reduction in inequality. Figure 6: Poverty Impact of COVID-19 (a) National upper bound poverty line (b) International poverty line, US$1.9 (2011 PPP 59 22 58.6 21.7 58 21 Poverty rate (%) 57 Poverty rate (%) 56.9 20 20.1 55.9 56 56.5 56.1 19.7 55.9 19 19.3 55 55.5 19.1 18.7 54 18 53 17 2015 2016 2017 2018 2019 2020 2020 2015 2017 2018 2019 Pre-crisis projections Crisis impact Pre-crisis projections Crisis impact Source: Authors’ calculations. Note: The projections up to 2019 use the Income and Expenditure Survey data for 2014/15. The projection for 2020 is based on a microsimulation model using data from the National Income Dynamics Study (NIDS) Wave 5 (2017/18), NIDS | South Africa Income Dynamics | National Surveys - | NIDS (uct.ac.za). Households receive a shock to their expenditure based on the wage shock faced by wage earners among members of the household, with an assumption of full pass-through from income to expenditure. The wage earner faces a shock if they work (primarily, secondarily, or in self-employment) in a sector not exempt from the ongoing lockdown. 2.4 Challenges to Accelerating Poverty Reduction and Boosting Shared Prosperity12 43 While South Africa’s political transition was successful, its economic transition is still incomplete, and the COVID-19 pandemic has only exacerbated these challenges. Democracy in 1994 11 Because the analysis simulates only the impact of labor income shocks and excludes health shocks and shocks to other sources of income, the results reported here are likely to be an underestimate. 12 All findings reported in this section, unless noted otherwise, are based on the 2018 SCD: World Bank Group. 2018. An Incomplete Transition : Overcoming the Legacy of Exclusion in South Africa. Systematic Country Diagnostic;. World Bank, Washington, DC. © World Bank. https://openknowledge.worldbank.org/handle/10986/29793 License: CC BY 3.0 IGO.” 17 represented the achievement of the first two tenets of the ANC’s Freedom Charter, the democratic vote and equal rights for all South Africans. However, only partial progress has been made on the third tenet: economic participation. This was underscored by the 2018 SCD, which identified the following key binding constraints to reducing poverty and boosting shared prosperity: (a) insufficient skills (labor markets); (b) the skewed distribution of land and productive assets, and weak property rights (land and capital markets); (c) low competition and low integration in global and regional value chains (product markets); (d) limited spatial connectivity and underserved historically disadvantaged settlements; (e) climate shocks—the transition to the low-carbon economy and growing water insecurity, and its inhibiting effect on service delivery; and (f) Governance. These constraints have been re-emphasized by the COVID-19 crisis. Each of these constraints is discussed below. 2.4.1 Insufficient skills (labor supply) 44 The SCD found that the importance of gender and race in explaining poverty and inequality has declined, while the importance of education, skills and labor market incomes is increasing. 13 It also found that opportunities in terms of education, skills and labor market outcomes are not available to all South Africans driving inequality up. 45 Education is key to equalizing opportunities and promoting intergenerational mobility. The overall population has attained more education over time, which has helped reduce poverty. Education and skills promote intergenerational mobility: being born to educated parents has a positive effect on upward mobility, as does being born to a parent in a higher-skilled occupation. 46 South Africa has achieved almost universal access to basic education, but many students drop out of school before completing secondary education and the schooling system fails to adequately build foundational skills of literacy and numeracy. Primary school enrollment was 99 percent in 2015 and the Government’s pro-poor policies such as the National School Nutrition Program has benefitted nine million learners (out of 12 million). However, estimates from 2019 suggest that of 100 children that start school, approximately 60 will reach and write matric, 37 will pass and 12 will access university. These low retention rates and weak performance in secondary schools are rooted in weak foundations from primary school level already, where 78 percent of primary school children did not learn to read in Grade 1-3, and 61 percent of Grade 5 learners could not do basic mathematics in 2015/16. Lack of money for fees is the leading cause of school dropout, but gender variances do exist. For girls, family responsibilities and issues such as teenage pregnancy are the second leading cause of dropout. 47 The overall post-secondary education and training (PSET) sector does not generate the skills needed by labor markets in sufficient numbers and has, largely, not been accessible to the poor. In 2015, a total of 985,000 students were enrolled in universities – including 338,000 at the distance learning University of South Africa (UNISA) – representing 19 percent of the population aged 19-23 which is comparing poorly with both other upper middle-income and with lower middle-income countries. Nonetheless, universities only constitute one part of the broader PSET sector, in which a total of 2.2 million students were enrolled in 2015, including Technical Vocational and Education Training (TVET) institutes and community colleges. The quality of PSET varies considerably by institution - TVET institutes are costly to operate, given the high dropout rates and low employment outcomes of graduates. In contrast, the university system seems to generate skills demanded by markets at a reasonable cost, even if this average assessment probably conceals wide differences between universities of excellence and historically disadvantaged universities. Further, poor students were underrepresented among students that were academically eligible to enroll in PSET institutions in 2015 when compared with their proportion in the total population. This is likely to change in future, though, since the announcement in December 2017 that 13 Other factors contributing to household welfare include urbanization, demographic changes, and service provision. 18 students from poor and working-class families would be entitled to free higher education through the National Student Financial Aid Scheme (NSFAS). 48 Labor income made the largest contribution to reducing poverty and inequality between 2006 and 2015, especially at the national level and in urban settings. But labor markets face several challenges: insufficient job generation; persistent spatial, racial and gender disparities; and high labor market polarization. The labor market is split into two extremes. At one extreme is a small number of people in highly skilled, high-productivity, well-paid jobs, mainly in larger dynamic-sector enterprises and government entities. At the other extreme, most of the population works in low-skilled, low-productivity, low-paid jobs, often in lagging sectors and also the informal sector. This duality is accompanied by a structural mismatch between labor demand and supply, particularly for semi-skilled workers. The reduction in semi-skilled employment points to a “missing middle” in the labor market—the rise in skills-intensive employment has hollowed out the middle of the labor market distribution. 49 Inequities in the labor market, together with inequities in education and skills, reinforce exclusion and reduce the ability of the labor market to support poverty reduction and shared prosperity. Overall, improving both the quantity and quality of employment opportunities and quantity and quality of workers to benefit from those opportunities are prerequisites for the growth of a larger and more stable middle class. Given that casual and precarious forms of work do little to reduce the risk of poverty, policymakers are likely to face an important trade-off between flexible labor market arrangements to foster job creation, and the creation of fewer but better and more stable jobs that would allow more South Africans to escape poverty in the long run. 2.4.2 The skewed distribution of land and productive assets, and weak property rights (land and capital markets) 50 The SCD identified the skewed distribution of land and productive assets as a constraint to the attainment of the twin goals. It also identified the slow implementation of land reforms and the historical exclusion of people from the accumulation of productive and financial assets as barriers to the accumulation of intergenerational wealth. Poor people have limited access to financial assets, while those with lower incomes and young to middle-aged people have high rates of indebtedness, which makes it difficult for them to participate in asset accumulation and wealth building. 51 Land ownership remains highly unequal. The allocation of land to white owners under colonialism and Apartheid resulted in spatial segregation: the majority of historically disadvantaged South Africans still live in townships on the outskirts of urban areas and in the former homelands (“reserves”), where titling systems tend to be weak, contributing to slow transformation in property holdings. Few women own land, with the last land audit showing that just 13 percent of farms and agricultural holdings owned are owned by women despite women making up the majority of rural populations. The current land reform and agricultural models espoused, have also paid insufficient attention to the potential for employment growth through land redistribution aimed primarily at smallholders and small-scale commercial black farmers. With land ownership remaining racially skewed, also for housing as part of the urbanization process, the sense of historical injustice has intensified and calls for expropriation (including without compensation) have increased, putting pressure on the property rights regime. 52 Many businesses are still white owned, although the Government has been trying to make asset ownership more representative through programs such as Broad-based Black Economic Empowerment (BBBEE) and sector-specific BEE codes. While the program has not been comprehensively evaluated, it is perceived to have benefited only a relatively small percentage of black South Africans, and some of its requirements have deterred investors. Financial inclusion has increased significantly since the end of Apartheid. A credit boom in the 2000s supported, to some extent, the rise of a 19 black middle class. Yet credit growth has stalled, and households are highly indebted. While poor households borrow to remain liquid, richer households tend to borrow to build assets, which exacerbates asset inequality. 2.4.3 Exclusion in markets reduces competition and hurts SMEs 53 While South Africa’s economy is the most developed and diversified in Africa , its concentration has led to lack of contestability of markets and limited access to new entrants. During colonialism and Apartheid, the state shaped the development of the economy. While this economic model created the key pillars of the economy, from the power utility, Eskom, to the rail, road, and port network, it left a market structure dominated by large companies, many of them (formerly) public. On the one hand, large companies are an asset—they are more likely to be high-growth firms and job creators, as they can overcome market failures, attract talent, and muster scale to compete globally. However, South Africa remains relatively isolated from world markets, a source for external demand and innovation. On the other hand, the dominant presence of large firms can also undermine competition. South Africa has relatively few SMEs, few young firms, and little market entry of new firms. Although government promotes SMEs, black entrepreneurs are constrained by factors such as market structure, weak aggregate demand, an unequal education system, restricted access to finance, and location-specific factors affecting historically disadvantaged markets, including higher crime levels and poorer public services. 2.4.4 Limited spatial connectivity and underserved historically disadvantaged settlements 54 Despite significant progress in the provision of social protection and public services, more is needed to ensure inclusion spatially and across income groups. To support purchasing power and a basic level of public services, SA has introduced the concept of a “social wage.” One element of the social wage is access to basic services, which are free to households under a certain income threshold. The Government has dramatically advanced the electrification of historically disadvantaged areas and has made progress in expanding access to water and sanitation, especially in rural areas.14 However, gaps remain. Another element of the social wage is the social grants system, with grant-based age-old pensions, child grants, and grants for foster children, disabled people and veterans. About 17.6 million grants are registered (some recipients are entitled to more than one grant). These grants, which are well targeted, are key reasons for the reduction in poverty since 1994. Black women living in rural areas make up the largest proportion of recipients of grants. Without the grants, inequality would have been even higher. Coverage rates among the poorest 60 percent of society are very high, far above the average for upper-middle-income countries. While the social wage has provided a powerful “democratic dividend” to historically disadvantaged So uth Africans, this tool for social progress is increasingly strained by budget constraints (the relatively small tax base reflects both high inequality and the small number of large companies) and implementation issues, including the need to create an integrated social protection information management system. 55 Spatial convergence and connectivity are critical to overcoming the legacy of exclusion in South Africa. Two-thirds of SA’s population live in urban areas marked by extreme social and spatial inequalities. Fragmented cities and unplanned urbanization perpetuate poverty traps on the periphery of cities. Poor urban infrastructure and transport connectivity deepen the inequality, and urban sprawl raises the costs of service delivery to the marginalized poor. In addition, while more jobs, especially for women and youth, are needed to support rapid urbanization and a growing population, the spatial mismatch between housing and jobs remains a serious challenge. In rural areas, poor infrastructure connectivity limits access 14 In1990, 56.5 percent of South Africans had access to electricity; by 2014, coverage had increased to 86 percent. The improvement is particularly impressive in rural areas, where access increased from 28.4 percent to 71.5 percent. Access to improved water supply already stood at 98.1 percent in cities, which were largely white settlements. In rural areas, where most black South Africans live, access increased from 66.3 percent to 81.4 percent by 2014, although there are still gaps in access to flush toilets (World Bank Group 2018). 20 to markets and services for smallholder and emerging farmers, exacerbating the rural-urban divide and historical inequality among citizens. 2.4.5 Climate shocks—transition to a low-carbon economy and growing water insecurity 56 Climate change poses a critical constraint to inclusive and sustainable economic growth. SA already faces water scarcity and associated challenges 15. Increasingly frequent drought and heavy rainfall have put basic services and infrastructure under additional threat.16 Climate-related damage to infrastructure, in turn, affects economic sectors, strains public budgets and reduces the country’s attractiveness to private investors. The 2015/16 drought is estimated to have reduced GDP by nearly 1.5 percent and employment by 1.3 percent, while future climate change is likely to increase the frequency and severity of droughts by up to 39 percent per year. If not addressed, climate-related risks could jeopardize SA’s economic growth and financial stability, while disproportionately affecting the poor and vulnerable. 57 South Africa needs decisive reforms to mitigate and adapt to climate change. In addition to its high susceptibility to climate change, SA is also a major emitter of CO2. The 2012 National Development Plan (NDP) clearly commits SA to a low-carbon economy, but proposals to move away from fossil fuel- based power generation have been opposed by both industry and organized labor. The coal mining industry accounted for about US$3.3 billion in exports (2020) and more than 90 percent of total power generation and is a key employer in some provinces. However, the negative externalities associated with coal —such as damage to health from air pollution, water quality and environmental degradation—could cost SA as much as 6 percent of current GDP17. These are some of the reasons for transitioning to a greener economy. 58 A climate-smart transition offers new economic opportunities. New climate-smart investment opportunities can create jobs, improve basic services, make the economy more resilient, and ultimately become new engines of economic growth. These investment opportunities in SA is estimated at US$588 billion by 203018. 2.4.6 Governance as a cross-cutting constraint 59 As a cross-cutting issue, the SCD emphasizes the importance of better governance. Issues of exclusion and unequal services and distribution of resources may persist in SA in the absence of governance strengthening and completing the economic transition. SA is undertaking a major clean-up of the pervasive system of corruption (state capture) that has undermined governance in several SOEs (e.g. Eskom and SAA) and other vital institutions (e.g. prosecuting and law enforcement agencies and the South African Revenue Service). In SA, state capture is consistent with the notion of an incomplete economic transition and will remain a risk. Overcoming exclusion is critical to accelerating the transition and thus mitigating the risk of more state capture. Additional measures are needed to bolster the integrity of institutions and regain lost capacity in both the public and the private sectors. Beyond the institutional damage from state capture (although possibly amplified by it), capacity gaps have widened across government. This has further constrained the ability of the state to deliver and maintain vital social and economic infrastructure. 15 South Africa ranks among the top 30 driest countries in the world with an average rainfall of about 40 percent less than the annual world average (https://www.gov.za/speeches/government-water-scarcity-and-drought-13-Nov-2015- 0000?gclid=EAIaIQobChMI7N7V59jb7AIVl1VgCh0bogqcEAAYAiAAEgLUevD_BwE). 16 Droughts affected 15 million people in South Africa between 1980 and 2013; around 1,700 bridges, 900 dams, and 900 powerline crossings were at risks of flooding (Department of Environmental Affairs 2016). 17 Burton, J. et al. 2018. Coal transitions in South Africa: Understanding the implications of a 2C-compatible coal phase-out plan for South Africa, Energy Research Center, University of Cape Town. 18 International Finance Corporation (IFC). 2016. Climate Investment Opportunities in Emerging Markets: An IFC Analysis, Washington D.C 21 2.4.7 Summary 60 The SCD argues that exclusion could explain the poor growth performance (outside of commodity booms): low labor force participation and high unemployment (exclusion in labor markets), low savings (exclusion in capital markets and spending pressures on government undermining public savings), policy uncertainty, and a volatile currency (undermining investment). The COVID-19 shock is reinforcing the imperative of breaking the vicious cycle of high inequality and low growth, through addressing the root causes of the structural weaknesses, or binding constraints, in order to encourage greater economic participation, and drive inclusive and sustainable growth. III. WORLD BANK GROUP PARTNERSHIP FRAMEWORK 3.1 Government Program and Medium-term Strategy 61 The NDP, initiated in 2012, lays out the Government’s vision of eliminating income poverty and reducing inequality by 2030 (Vision 2030). This vision is in line with the WBG’s twin goals of eliminating extreme poverty and boosting shared prosperity, and with two of the Sustainable Development Goals (SDG 1 and 10). The NDP is being implemented through a series of 5-year Medium-Term Strategic Frameworks (MTSFs), which are translated into performance contracts for the heads of ministries and reflected in the budget. The Government’s second MTSF (2019-2024)19, released after the 2019 national elections, and the President’s State of the Nation Addresses (SONA) of 2019 and 2020, and the National Treasury document entitled Economic Transformation, Inclusive Growth, and Competitiveness: Towards an Economic Strategy for South Africa, have set up the priorities for the first three years with a focus on restoring the fundamentals for growth by rebuilding the capabilities of the state, restoring the quality of governance, and creating an environment in which the people, the market and the state can play their respective and complementary roles in the economic transition. This includes dealing with unsustainable fiscal dynamics, weak SOE performance, the unfriendly business environment, policy uncertainties; strengthening public-private partnerships; and forging structural transformation to change the pathways to growth. 62 With the global COVID-19 health and economic shock having exacerbated South Africa’s long-term structural challenges, it has also created opportunities for the GoSA to consider how best to rebuild the country. The Economic Reconstruction and Recovery Plan (ERRP) released on 15 October 2020, embedded in the NDP and 2nd MTSF, and SONA 2021 are setting out a bold vision to rebuild the economy of the future. It has two aims, namely: (i) to deal with immediate actions towards economic recovery amid COVID-19; and (ii) to rebuild and grow the economy ensuring sustainability, resilience, and inclusion. Its core elements are: • Priority interventions for economic recovery: the plan sets out eight priority interventions to ignite SA’s recovery and reconstruction effort. These are regarded as flagship initiatives for all of society to rally around towards building a new economy. They focus on infrastructure investment, energy security, the Presidential employment stimulus initiative, strategic localization, industrialization and export promotion, tourism recovery and growth, the green economy, food security and gender equality and economic inclusion. • Enabling conditions for growth: these are the growth-enhancing reforms and other preconditions for an inclusive, competitive and growing economy. 19 https://www.nationalplanningcommission.org.za/assets/Documents/Frameworks/mtsf-2019-2024.pdf 22 • Macroeconomic framework: the plan emphasizes that economic reconstruction and recovery would require careful mobilization of resources to ensure fiscal sustainability. The fiscal framework set out in the 2020 MTBPS of October 28, 2020, has found further expression in the February 2021 National Budget, and is focusing on measures for narrowing the budget deficit and stabilizing debt over the next five years to return the public finances to a sustainable position. • Institutional arrangements: the plan focuses on execution and is supported by enhanced institutional arrangements to ensure implementation and accountability. 3.2 The WBG Country Partnership Framework 63 The new CPF for FY2022-26 offers an opportunity to strengthen the relationship between South Africa and the WBG. MIGA and IFC already have relatively large exposure in South Africa: it is MIGA’s largest client in Africa and third largest globally, and IFC’s second largest portfolio in Africa. On the other hand, the IBRD program has so far been limited to two loans, an active portfolio of trust-funded activities, and Reimbursable Advisory Services (RAS). The COVID-19 health and economic impact presents an opportunity to develop an integrated knowledge-finance partnership to support the Government in addressing both short term COVID-response needs and longstanding constraints to broad-based growth and development, should the Government request IBRD financing. Figure 7: CPF Foundations 64 The CPF program is selective. Selectivity is COVID-19 based on a combination of principles and priorities that reflect: (i) The Government’s development priorities as reflected in its National Development Plan, 2nd MTSF and ERRP and related cooperation with the World Bank; (ii) The WBG’s assessment of the most important constraints to progress towards the twin goals in its 2018 SCD and 2019 CPSD; and (iii) Self- assessment of the WBG’s comparative advantage. Moreover, in selecting the CPF program, the WBG also takes into account the lessons learned – what has and has not worked well in the WBG’s experience over the past five years as well as new cooperation opportunities for the WBG. 3.2.1 Lessons learned from past implementation and from consultations 65 The proposed CPF incorporates the following lessons from the previous CPS (FY2014-18) and the Completion and Learning Review: • The Knowledge Hub facilitated the delivery of key products such as the Eradicating TB in Mines initiative. The knowledge approach should be further strengthened to promote access to just-in-time policy advice and knowledge sharing; 23 • The Bank should offer a cohesive and programmatic portfolio of selective RAS engagements in areas where it has a comparative advantage. The use of local experts would help ensure that any diagnosis and recommendations are adapted to the country context; • To convey the World Bank Group’s value in the South African context and to make WBG products and services better known, sustained, differentiated communication is required with various constituencies, such as local governments, Parliament, youth, academia and the private sector. South Africa, as emerging economy with a strong domestic financial market and access to international financial markets has had limited lending engagement in the past with the World Bank. However, early and sustained involvement of relevant stakeholders in the design and production of the SCD and CPSD have resulted in increased appreciation and greater interest in the WBG’s diversified portfolio. MIGA’s engagement has been fruitful in expanding MIGA’s portfolio across the range of its products. IFC’s range of knowledge services (for example on climate finance, green buildings, sustainable banking project, responsible lending framework, resource efficiency and competition policy) and continued dialogue with the Government have been important for familiarizing the authorities with the WBG range of services and Cascade concept and in helping increase the private sector role in addressing the country’s challenges. • A strong results measurement system enhances accountability and learning, develops a feedback loop, and strengthens future planning. Experience with the power sector suggests that we should target results in sector policy and institutional reforms rather than, as in the case of the Eskom loan for the Medupi coal-fired power plant, focusing more narrowly on the project investment. Since then our engagement has intensified with strong dialogue with key policy makers informing the new CPF. 66 To better understand the development context and needs of the country, design a better- informed strategy, and identify potential risks to achieving the CPF objectives, consultations were held with a variety of stakeholders. Furthermore, the Country Opinion Survey conducted in FY19 provided valuable feedback on perceptions of the WBG and the country’s development. Box 5: The CPF Consultation Process, 2019/20 A series of face-to-face consultations were held with the National Treasury and main line ministries in late 2019 and early 2020 to determine areas of focus in the CPF. This was followed by visits to the Universities of Cape Town and Witwatersrand, respectively, for roundtable discussions in February 2020, which validated the WBG’s approach to using a governance filter to better understa nd the local context and inform its engagement, and highlighted the need to focus on two or three areas that could help consolidate the country’s plan to boost the economy. A high-level interaction between the Government, development partners and the private sector in February 2020, focused on the country’s infrastructure needs, also informed the CPF. Due to the onset of the COVID-19 pandemic in March 2020, a virtual consultation was held with Business Unity South Africa, which in the past has supported the role of the WBG in helping to improve the business environment, attract investment, and provide direct support for job creation. Discussions were also held with youth, who were strongly in favor of the WBG convening stakeholders around policy areas regarding youth employment, in line with one of the focus areas of the CPF. The findings of the Country Opinion Survey align well with the 2018 SCD, emphasizing the importance of jobs, growth, and education. The survey found that those who collaborated with the WBG in SA were more positive about the institution’s work, highlighting the need to move beyond the WBG’s hitherto inner circle to build broader support for WBG -SA cooperation. 3.2.2 Alignment with Government’s priorities and SCD/CPSD Findings 67 The SCD and CPSD findings are well-aligned with the GoSA’s own diagnostics, strategy and priorities as represented by its various plans since 1996, the 2012 NDP, the MTSF (2019-2024) and the ERRP, focusing the plans and measures within the MTSF. The focus areas of the CPF fall squarely within the ERRP and SONA 21, which augers well for implementation of the CPF objectives 24 through integrated knowledge-financing support to SA. Economic growth can only be higher if also more inclusive (effective demands for more redistribution and expropriation will otherwise continue to scare investors). Building on the SCD and CPSD findings, it is anticipated that reforms engaged from 2021 could have a significant positive impact on factor productivity and private investment, at little fiscal cost. These reforms would inter alia comprise measures to raise contestability in key markets (e.g. digital, financial services), restructure network industries (electricity, transport), strengthening frameworks for private sector participation in infrastructure and services on all levels of government, and measures to relax skills constraints. Business environment reforms and introducing measures to foster the financial inclusion of MSME would reinforce the inclusive nature of this reforms package. More inclusiveness and efficient markets would also facilitate the implementation of reforms identified to accelerate the Just Energy Transition, and to stabilize the debt dynamics, as envisaged in the 2020 MTBPS. 68 All CPF activities will be selected based on their capacity to address constraints to socio- economic inclusion and shared prosperity. Only a few things can accelerate growth in the short run (e.g. competition, imports of skills); while building human capital and transitioning out of carbon will only deliver higher growth in the longer run. Fiscal consolidation is unlikely to boost growth in the short run and will need to be supplemented with other sources of inclusive growth to be politically sustained Therefore, the CPF aims to build an engagement that emphasizes specific SCD constraints (Table 3) in a dynamic way over the 5-year period, thus maximizing the impact of WBG interventions on the GoSA’s National Development Programs, including the ERRP, and the WBG twin goals, while taking into account the fiscal constraints of GoSA: • Its objectives address selected aspects of four of the five main identified constraints critical to revive inclusive growth with a focus on creating jobs; improving competition and strengthening value chains; continuing to support service delivery in disadvantaged settlements and cities; and a strong emphasis on a “Just Energy Transition” from coal-based energy to greener forms of energy production and usage; • The CPF acknowledges that accelerating human capital development is one of the key determinants of inclusive growth and improved equality of opportunity. Hence, one of the CPF Focus Areas emphasizes strengthening skills development and employment services to support job creation, reinforcing more job-creating, selected value chains; and a strengthened ecosystem for MSME creation and growth. In addition, a key aspect of the knowledge agenda during the first two years will be to strengthen the partnership between the World Bank and GoSA, through: (i) the Department of Basic Education regarding early childhood development and early grade reading (the scope of this engagement is defined in section 3.3.6 under the knowledge agenda of the CPF); (ii) the Department of Social Development and related implementation agencies; (iii) the Department of Health; and (iv) the Office of the President of South Africa towards a possible deeper engagement in the outer years of the CPF; • The CPF acknowledges GoSA’s long-standing efforts on land reform with the recent announcement of redistribution of 700,000ha of state land to black farmers in one year to accelerate the land reform program. Building on these efforts the CPF focuses on the use and productivity of land already allocated to emerging black farmers, particularly through area-based planning, integrated infrastructure services, well-targeted financial support and effective extension services, and then through initial demonstration in one of the poorest provinces, the Eastern Cape. 69 The CPSD (alongside the SCD) informed the overarching CPF theme of boosting private investment to unlock South Africa’s growth potential. Its analysis and recommendations helped to update and expand the analytical basis on private sector issues in SA to inform policy dialogue and guide transformational private investment. The CPSD findings on cross-cutting constraints (regulatory obstacles 25 to competition; business environment and investment policy; as well as limited integration into global value chains and weak connectivity) and opportunity sectors (education and skills; infrastructure; capital markets for infrastructure finance; agriculture and agribusiness; the automotive industry; as well as information and communication technologies) as well as its subsequent recommendations are fully reflected in the CPF focus areas and inform ongoing and planned operations. 70 Strong country ownership and demand are the most important determinants of specific activities included in the CPF program. Only the first two years of the program have been firmly defined, jointly with government, as flexibility is required mainly as South Africa faces an uncertain social and economic period as it navigates the COVID-19 pandemic. Therefore, the CPF will be a living business strategy that continually adapts to country circumstances and unforeseen or changing priorities. The definition of the program in outer years will remain flexible to allow it to respond to such changes and shocks; this will be discussed during the mid-term review. Table 3: SCD Binding Constraints: Root Causes and Manifestations and Links to the CPF Binding Constraint Root Causes and Manifestations CPF Focus Areas and Objectives Insufficient skills Intergenerational and spatial legacy of Focus Area 2, Objective 2.3: Apartheid educational system; limited teacher Strengthened employment and skills accountability; increased access not development services translating into strong learning outcomes due to quality issues, mismatch in the supply and demand for skills; insufficient access to and quality of TVET and workplace-based learning programs. Skewed distribution of land and Slow implementation of reforms to address Focus Area 2, Objective 2.1: Increased productive assets; weak property apartheid land policies, historical exclusion development of selected value chains rights from the accumulation of other productive with strong job-creating potential assets, resulting in fewer opportunities to build intergenerational wealth Low competition and limited • Overhang of import-substitution model; Focus Area 1, Objective 1.1: Improved integration into global and legacy structural and behavioral competition in selected markets and the regional value chains competition issues and unfair playing field business environment for new firms and MSMEs. Focus Area 2, Objective 2.1: Increased • High public ownership of vertically development of selected value chains integrated, inefficient SOEs and with strong job-creating potential government underinvestment raise barriers Focus Area 2, Objective 2.2: to private investment; poor governance Strengthened ecosystem for MSME affects the quality and cost of services. creation and growth • Deteriorating business environment and Focus Area 3, Objective 3.1: Improved competitiveness undermined by dearth of infrastructure investment framework appropriate skills, high unit labor costs, and Focus Area 3, Objective 3.2: Improved low technological innovation and infrastructure services by selected SOEs absorption Expensive connectivity and Apartheid spatial and public services legacy; Focus Area 3, Objective 3.3: underserved disadvantaged spatial policies post-1994 inadvertently Improved planning and delivery of settlements entrenched apartheid patterns and patchy, infrastructure services in targeted cities unsustainable basic services like water and sanitation, refuse removal and electricity Climate shocks: transition to low- Climate change, resource endowment and Focus Area 1, Objective 1.2: Greater carbon economy and increasing demand (coal, minerals and water), and climate change resilience and water insecurity industrial policy supporting energy-intensive environmentally sustainable production and carbon-intensive power investments in selected sectors. system 3.2.3 Comparative Advantages of the World Bank Group 26 71 Consistent with the WBG's value proposition for upper-middle-income countries, the CPF is aligned with WBG corporate and regional priorities. These include Creating Jobs and Transforming Economies, Building the Digital Economy, Supporting Climate Change Mitigation and Adaptation, and Building Partnerships and Working across the African Continent. It is also aligned with the relevant SDGs. 72 The WBG (collectively as IBRD, IFC, and MIGA) has engaged with South Africa on an integrated agenda of cooperation in the design of the CPF. During implementation of the CPF, this close collaboration will continue with IBRD, IFC and MIGA interventions that will take place in a complementary way. The prospect for the WBG to engage in the areas of market competition, job creation and infrastructure opens opportunities to apply the Maximizing Finance for Development (MFD) approach, and which GoSA is already applying for mobilizing private finance. This will enlarge the role of the private sector in the SA economy, ease government’s fiscal constraints and provide space to the government for addressing the needs of the vulnerable. Continued reform of capital market infrastructure could help mobilize long-term private financing for priority sectors. It could also enable SOEs with sound governance and financial performance to actively access capital markets. The WBG will seek to maximize leveraging of private risk-taking ability and finance across the CPF objectives. Both the IFC and MIGA will continue to fulfil a pertinent role in the MFD. MIGA’s existing portfolio in the renewable energy sector has benefited from the MFD principle, where its de-risking instruments have combined with interventions by IBRD and IFC to usher in foreign investors. Going forward MIGA will continue to explore opportunities to apply its de-risking instruments in the context of MFD engagements by the WBG in the energy and in other sectors. The WBG will also continue strengthening partnerships with other development partners to build on their respective comparative advantages to avoid duplication of efforts and help scale up impact. 73 Programming will focus primarily on areas and sectors where existing knowledge, advisory programs and country dialogue provide a strong basis for future financing and investment (Business Environment Improvements, Competition and Investment Policy, Digital Economy Diagnostic, Cities Partnership, Nationally Determined Contribution, market and SOE reform). It is however expected that knowledge will remain the bedrock of the partnership, similar to previous partnership strategies with South Africa. 3.3 Focus Areas and Objectives Supported by the WBG Program 74 In line with the main findings of the SCD, cooperation with SA to overcome exclusion is the core focus of the CPF (Figure 8). To maximize impact on investment, job creation and economic growth, the CPF is structured around three strategic focus areas: (a) Promote increased competition and improved business environment for sustainable growth; (b) Strengthen MSME and skills development to support job creation; and (c) Improve the infrastructure investment framework and selected infrastructure services. In addition, a major emphasis of the CPF will be a continued deepening of the Knowledge Agenda in important areas, also where the WBG has had less traction in its dialogue with key stakeholders. 75 The three strategic focus areas cover the thematic pillars of the COVID-19 Crisis Response Approach paper where the WBG has comparative advantages in South Africa. This includes the economic response for saving livelihoods, preserving jobs, and ensuring more sustainable business growth and job creation by helping firms and financial institutions survive the initial crisis shock, restructure and recapitalize to build resilience in recovery (Focus Areas 1 and 2) and focused WBG support for strengthening policies, institutions and investments for resilient, inclusive and sustainable recovery (Focus Areas 1 and 3). 76 Within the WBG, it has been the IFC that significantly contributed to SA’s immediate COVID-19 response to protect poor and vulnerable people. Immediate responses included support and 27 financing for the rollout of modular mobile Covid-19 testing and treatment infrastructure across South Africa in partnership with a leading logistics company. Existing clients in the real and financial sectors were supported through its global US$8 billion Fast Track Facility. This support included, among others, a US$660 million loan to a municipality to deal with Covid-19 related challenges, US$185 million for COVID-19 relief to one of the four large commercial banks, another US$10m working capital facility to a smaller bank and an investment of US$600 million in a bond issuance by a municipality during a period of market disruption caused by the onset of Covid-19. Advisory support included those for insolvency regime reforms to deal with an anticipated rise in distressed assets, surveys of the Covid-19 impact on affected sectors such as tourism and MSMEs and input to the Investment Promotion Agency and industry/ SMEs to deal with the COVID-19 crisis. IFC would also work with the private sector to strengthen the vaccine manufacturing capacity of the country. Figure 8: CPF Overarching Goal, Strategic Focus Areas and Objectives 3.3.1 Focus Area 1: Promote increased competition and improved business environment for sustainable growth 77 While South Africa has made important strides in implementing its competition law over the last two decades, there is still room to enhance a broader set of pro-competition policies. Insofar as competitive markets are central to investment, efficiency, innovation and inclusive growth, addressing the anticompetitive effects of SOEs and other dominant firms is essential to promote new and retain existing investment as well as to allow MSME to compete and expand. In addition, regulation of network industries in a way that can foster competition and thereby address national social and economic objectives are important. In the energy network industry, climate risk imperatives as well as technological innovation and price advantages of cleaner energy technologies are providing an additional impetus for change in energy sector institutions and markets. This focus area is organized around two objectives: (a) Increased competition in selected markets and improved business environment, and (b) Promotion of climate change resilience and environmentally sustainable investments in selected sectors. 28 Objective 1.1: Improved competition in selected markets and the business environment (a) Promoting competition reforms 78 The CPF will support reforms to policy frameworks that hinder competition across the economy as well as in key sectors and assist the Government in playing a more pro-competition role in markets. In order to make significant headway in opening South Africa’s markets to new ent rants, greater investment and more dynamic competition, the government is striving to ensure that pro- competition reform is elevated in the policy agenda, which is seen as the responsibility of a broad range of sector regulators and line ministries that control markets. Recently, the Competition Law was amended under the Competition Amendment Act (18 of 2018). The Competition Commission has been relatively successful in tackling anti-competitive behavior, but to fully address issues with South Africa’s market structures, policies and regulations will need to be explicitly designed to help boost competition and level the playing field. A cross-governmental approach to competition policy could build on the experiences of countries such as Mexico, Korea, Australia and the United Kingdom, which have successfully implemented national competition policies. 79 Transformative actions could include: (i) supporting policy departments to create an enabling environment and implement programmes or interventions that enable the recommendations of competition authorities to be realised; (ii) developing mechanisms to assess behavioral incentives of state-owned operators under market scenarios; (iii) supporting the strengthening of regulations to foster efficient service delivery; and (iv) contributing to the design of industrial incentives and support schemes to facilitate entry of new players. Interventions can have economy-wide scope or can also target specific sectors. For example, through IFC Advisory Services supported by the Swiss State Secretariat for Economic Affairs (SECO) and the UK Prosperity Fund, the WBG is currently supporting work to embed competition principles in the design of agricultural support schemes and in extension of broadband services. The WBG will also continue to provide diagnostics, advocacy and advisory services in the financial, Information and Communication Technology (ICT) and infrastructure sectors, which underpin South Africa’s competitiveness as a regional hub. 80 In the financial sector, diversification and transparency are important for promoting competition. South Africa has a sophisticated financial sector that has a high degree of concentration and interconnectedness, with the top five banks owning over 90 percent of banking assets. To promote access to financial products and services, recent policy decisions seek to promote competition and support diversification of the financial system. For instance, the SARB and NT have drafted the National Payments System Bill aimed at, inter alia, creating an enabling framework for the provision of payment services by banks and non-banks as well as enhancing financial inclusion, and are also considering introduction of a tiered licensing framework for the banking sector to encourage more new entrants. Further, to enhance transparency of financial offerings, NT together with the Financial Sector Conduct Authority (FSCA) are working on the Conduct of Financial Institutions Bill. Under the CPF, the WBG will continue to provide advisory services that support financial sector diversification and transparency, including through the trust- funded Financial Sector Development and Reform Program. 81 Financial stability and inclusion are foundational to contestable markets. To maintain financial stability the authorities adopted the Financial Sector Regulation Bill in 2017 and implemented the twin peaks model with SARB as prudential regulator and FSCA as market conduct regulator. In June 2020 the Financial Sector Law Amendment Bill was adopted, which gave SARB the mandate to implement a bank resolution and deposit protection framework. To increase financial inclusion the NT issued the Financial Inclusion Policy in October 2020 (for public consultation) and will develop and implement a Financial Inclusion Strategy and Action Plan with measurable results. The scope of the Financial Inclusion Policy covers use and affordability of transaction accounts, payment, credit, saving, and remittances products, 29 credit infrastructure, the financial cooperative and micro finance sector, the role of the state in financial inclusion, and Fintech for financial inclusion. The WBG will continue to provide support in the areas of financial stability and financial inclusion. 82 In the ICT sector, a limited competitive environment for the mobile broadband market has resulted in high prices and poor quality of services in some parts of the country, contributing to a persistent digital divide. Following the Digital Economy Country Diagnostic for South Africa and other policy analysis, the WBG has been engaged in a dialogue with the ICT regulator, the Independent Communications Authority of South Africa (ICASA). Support would focus on accelerating access to affordable high-speed internet through private sector-led expansion of networks combined with upstream regulatory reforms to improve services and encourage more competition. These can be supported by both technical cooperation and financing. Beyond the telecom sector, improvements in the broadband market can have a major positive contribution to the business environment overall and help growth of the digital economy. (b) Promoting investment 83 South Africa strives to have a clear strategic vision with competitive FDI policies, sector prioritization, and appropriate institutional arrangements to address investment retention and generation. Declining FDI inflows20 are attributed to receding investor confidence arising from critical issues such as policy uncertainty, the visa regime and related barriers to investment including perceptions of erosion of investor and property rights protections. This has been exacerbated by the COVID-19 pandemic, which has disrupted global supply chains, and deferred investment decisions. The CPF will support the efforts of the government towards improving investment policies. The WBG will, through ASA programs, provide support to Government’s policy development efforts to enhance institutional and regulatory frameworks for investment retention and generation. This will include, where possible and where there is clear demand, support to (i) address economy-wide policy uncertainty and sector level investment barriers; (ii) boost investor confidence by strengthening investment policies, adopting and deploying active retention tools for investor tracking, aftercare and grievance management; and (iii) upgrade competencies for investment promotion including strengthening capacity and improving coordination and coherence between national and subnational investment promotion efforts. 84 MIGA is already actively supporting foreign investors in South Africa through its political risk insurance instruments, with gross outstanding exposure attributed to them accounting for around one fifth of the total gross outstanding exposure of US$1.54 billion as of end-April 2021; the remainder pertains to credit enhancement products. Projects currently supported by MIGA’s political risk insurance span the infrastructure, energy and financial sectors and are broadly aligned with the CPF. During the CPF period, MIGA will continue to support foreign private investors and cross-border commercial lenders, including in establishing new businesses in South Africa, with particular attention paid to those that promote competition and employment growth. In doing so, MIGA will work jointly with IBRD and IFC to mobilize the foreign private sector in support of the MFD principle through its de-risking instruments. IFC will continue to support directly and help mobilize capital for new entrants and/or existing second tier players in highly concentrated sectors. (c) Improving the Business Environment 20 Between 2013 and 2015, FDI inflows into South Africa dropped sharply from US$8.3 billion to US$1.7 billion, marking a 10-year low point. Deteriorating investor confidence kept FDI inflows in the US$2 billion range for two more years. The dwindling inflows were coupled with a dramatic increase in FDI outflows from South Africa. A stronger signaling and better coordinated efforts by the GoSA (including two investment summits) helped recover FDI inflows to around the US$5 billion mark in 2018 and 2019. However , this is still far from GoSA’s goal set in 2018 of US$100 billion in foreign and domestic investment over 5 years, which is likely unattainable, given the impact of the COVID-19 pandemic. 30 85 The CPF will support the Government’s efforts to improve the business environment which is critical for efficient, competitive, inclusive and sustainable markets that is associated with better economic growth and job creation outcomes. The Government has made it a national priority to improve South Africa’s business environment and appointed a team that is dedicated to supporting this agenda. In alignment with this goal, the WBG will support the Government’s efforts to strengthen institutional capacity, put in place robust accountability mechanisms, updating and implementation of relevant laws and regulations, and automation of government-to-Business (G2B) services. 86 Building on recent achievements such as the launch of the BizPortal, an integrated digital business start-up platform that permits near simultaneous registration of businesses. Recently, the South Africa Business Environment team have recorded material improvements in areas related to the automation, streamlining, reduction in time and cost and improved transparency in the areas of starting a business, construction permits, paying taxes and registering a property, The DTIC and the Presidency are currently in discussions to agree on the priorities for improvement and required resources needed for technical working groups supporting Government in the process. The WBG will continue the dialogue and cooperation with the government on business environment improvements in areas such as (a) starting a business; (b) registering a property; (c) dealing with construction permits; (d) paying taxes; (e) trading across borders; and (f) getting electricity. COVID-19 has exposed government’s low level of automation where most government to businesses services were completely stalled during the COVID-19 lockdown period due to most services and processes being mostly manual. This led to major interruptions for the private sector. Business environment improvements are particularly important to support creation of new firms in a post- COVID-19 environment as well as ensuring government to business services continuity through automation. Objective 1.2 Greater climate change resilience and environmentally sustainable investments in selected sectors 87 To ensure inclusive, resilient, and sustainable economic growth, South Africa has an ambitious climate change agenda and is endeavoring to carefully manage climate change-related risks (see Box 6). The WBG supports the climate agenda in South Africa by leveraging a whole-of-WBG approach, organized across four themes (see Annex 7): • Climate-smart Investment & Risk Management: activities support systematic scale-up of climate- smart investment through policy implementation support and building infrastructure; • Just Transition in Key Sectors: activities support key industries that are critical to a successful transition to a low-carbon economy. Focus is on preparedness and early engagement with stakeholders; • Private Sector’s Low Carbon Investment: activities aim to catalyze the private sector’s low carbon investment through provision of loans and risk mitigation financial products; and • Environmental and Social Sustainability: activities support building climate change resilience, especially through conservation and sustainable use of natural resources. 88 Under this Pillar of the CPF, the WBG will support the GoSA in (a) integrating climate risks into macro-fiscal planning and infrastructure investment; and (b) effectively implementing its climate change policy and strategy. This will include a gender-focus, as recent research has shown that South Africa’s climate change law and policy is not gender inclusive and risks increasing vulnerability.21 The WBG support will also include building the demand side of climate-smart investments including at the stage of project identification, structuring, procurement and climate financing. 21 African Climate Reality Project (2020) http://climatereality.co.za/a-gendered-lens-report/ 31 Box 6: South Africa’s ambitious climate change agenda South Africa is both an important contributor to climate change and vulnerable to its impacts. It’s the 14th largest global emitter to greenhouse gases (GHG), principally due to its heavy reliance on coal22. It is vulnerable to impacts of climate change affecting its water and food security, health, human settlements, infrastructure, and ecosystem services. As the 29th driest country in the world and with significant rainfall variation across seasons, water scarcity is an issue of great importance. Higher temperatures and a reduction in rainfall expected as a result of climate change will reduce already depleted water resources. Extreme events such as heavy storms and floods will also become more frequent under climate change conditions with significant impacts on lives and livelihoods. To alleviate these challenges, South Africa has adopted an ambitious approach to achieve climate change mitigation and build resilience. Under the Paris Climate Agreement, the government commits (through the Nationally Determined Contribution - NDC) to a peak (by 2025), plateau (2026-2035), and decline (2036 onwards) trajectory for greenhouse gas (GHG) emissions. It plans to use several tools, including a carbon tax, sector emission and energy efficiency targets, firm-level carbon budgets, scaling-up renewable energy, and carbon capture and storage as key levers for carbon reduction. The country’s national climate change response policy also includes several adaptation plans, mainstreamed across sectors and different government tiers, with strong institutional framework for coordination, monitoring and reporting. The government has established a national oversight committee—the Presidential Climate Change Coordination Committee (PCCCC), chaired by the President, to guide implementation of its climate policy. One of the sectoral plans that the government has championed to achieve its climate change goals, Integrated Energy Plan (IEP) with one of its constituent plans, the IRP 2019 (Integrated Resource Plan) for the energy sector, which sets out the electricity capacity expansion plan up to 2030, calling, among others, to reducing the share of fossil fuel in its primary energy mix, scaling up of renewable energy and optimizing the nexus between energy and water. The government also adopted a Just Transition policy (including a Just Energy Transition—JET) to ensure that its transition to low-carbon economy has as its overriding priorities alleviating poverty and inequality as well as job creation. Moreover, the government’s infrastructure development strategy, economic reconstruction and recovery plan (in response to COVID-19), and other important recent government documents stress the significance of green, resilient and just recovery 23. The government is making progress on its climate agenda: the carbon tax policy is in effect, energy transition is taking shape, and the climate change law has been put forward to give legal credence to many of the sectoral policies and guidelines adopted. At the same time, more work remains, including increasing the level of ambition consistent with progress to date and new science, consolidation of efforts across sectors and governments, and strengthening of climate change mainstreaming more forcefully. (a) Macro-fiscal planning 89 A macro-fiscal framework and budget process that appropriately reflect climate risks and vulnerabilities are key to efficient allocation of resources and effective response to extreme events. WBG activities will include: (a) conducting a diagnostic of the National Treasury’s climate change-related activities, with recommendations for further integrating climate change into its macro-fiscal framework; (b) helping map out financing options and solutions for sustainable development investments, including through green and other thematic bonds; (c) updating the infrastructure framework to integrate climate-safe investments; and (d) conducting risk mapping for selected metros/cities.24 IFC will continue to support reduction of CO2 emissions by investing in green and blue projects. (b) NDC implementation and Just Transition to a low-carbon economy 90 In support of the Government’s effort to transition to a low-carbon, resilient and just society, the WBG will support effective implementation of South Africa’s NDC under the United Nations Convention on Climate Change (UNFCCC) using a carbon tax, sector emission and energy efficiency targets, firm-level carbon budgets, scaling-up renewable energy, and carbon capture and storage as the main levers for carbon reduction. To help achieve this goal, the WBG will (a) support the design 22 https://www.carbonbrief.org/the-carbon-brief-profile-south- africa#:~:text=South%20Africa%20is%20the%20world's,fuel%2C%20towards%20gas%20and%20renewables. 23 https://www.gov.za/speeches/president-cyril-ramaphosa-south-africa%E2%80%99s-economic-reconstruction-and-recovery-plan-15- oct?gclid=EAIaIQobChMIzvWdhpOg7wIVgsuWCh1g9QEJEAAYASAAEgJCT_D_BwE 24 Supporting the Implementation of Nationally Determined Contribution (P172748). 32 and piloting of new policies such as carbon budgets and sectoral emission and energy efficiency targets; (b) provide policy analysis and modeling in support of carbon pricing and the carbon tax; (c) develop an action plan for implementation of the National Climate Finance Strategy and a climate finance tracking system;25 and (d) strengthen GHG emissions monitoring and reporting systems. 91 The CPF will also support implementation of the Integrated Energy Plan (IEP) and 2019 IRP to achieve a secure and sustainable energy mix. The IRP, is key to the careful management of the Just Energy Transition to mitigate any potential socio-economic impacts.26 IRP implementation, specifically the decommissioning and repurposing of old coal fired power plants and the large scale up of renewables, will be critical to sustainably develop the power sector and to achieve South Africa’s climate change and NDC targets. With the power sector in South Africa currently undergoing one of its worst electricity crises, with frequent load shedding that is damaging the macro-fiscal position as well as the competitiveness of the country, promoting private sector investment in wind and solar power generation as well as scaling-up of energy efficiency interventions on the demand side is considered one of the most promising solutions to ensure energy security while at the same time achieving rapid, ambitious and cost-effective emission reductions. 92 In support of the IRP and NDC, the IBRD will continue to promote the just energy transition, coal plant retirement and repurposing, battery storage development, demand-side energy efficiency, carbon capture and storage and climate smart mining through the Programmatic ASA (P-ASA).27 IFC will support financing of renewable energy independent power producers (IPPs), embedded generation for commercial and industrial projects, smart grid infrastructure, and energy efficiency and distribution loss reduction for municipalities. It will also facilitate capital market financing of renewables, including with Green Bonds, and act as anchor for blended finance facilities to support implementation of the energy transition. IBRD can explore support to the national government and sub-national entities on the issuance of sustainable bonds based on the strategy as laid out by the National Treasury in the June 2020 Technical Paper on “Financing a Sustainable Economy.”28 Such advisory work can include helping to develop and implement a sustainable finance framework, market soundings, identifying eligible projects, preparing impact reports, and more. MIGA will continue to back both wind and solar energy-generating facilities of IPPs participating in the REIPPP. MIGA will carry on exploring and de-risking cross-border investment and lending in renewable energy projects, supporting South Africa’s environmental sustainability and the development of a low-carbon economy. This would be aligned with MIGA’s strategic priority of supporting climate finance projects, as outlined in its Strategy and Business Outlook FY2021-23, with the goal of having at least 35 percent of its guarantees in support of climate finance on average for the FY2022-26 period. 93 The CPF will also support GoSA’s efforts to strengthen resilience and sustainability in the agriculture, land-use, water, wastewater, and sanitation sectors, which are highly susceptible to climate risks. WBG support will include (a) development of a diagnostic on agriculture finance and insurance; (b) assessments, planning and investment towards resilience in the water sector with a focus on extending services for the poor in informal settlements while improving efficiency and financial sustainability of services provision in cities; (c) a regional approach on Southern Africa Drought Resilience 25 Supporting the Implementation of Nationally Determined Contribution (P172748) and Partnership for Market Readiness —PMR project (P155885). The Partnership for Market Implementation (PMI) —a successor program of the PMR—will focus on providing larger grants to enhance countries’ carbon pricing policy instruments. The PMI present a new opportunity for the WBG to provide additional support to GoSA on the implementation of carbon pricing instruments. 26 Given the current energ y mix, mitigation challenges are considerable as over 80 percent of South Africa’s carbon emissions come from the energy sector. Under the IRP, 10,000 MW (out of 45,000 MW) of old coal fired plants should be decommissioned by 2030. Implementation of the IRP foresees an additional 16 GW of RE to be installed by 2030. 27 Programmatic ASA for Energy Sector in South Africa (P172682); Eskom Renewable Support Project (P122329); Technical Assistance Project for the Development Carbon Capture and Storage in the Republic of South Africa (P149521). 28 http://www.treasury.gov.za/publications/other/Sustainability%20technical%20paper%202020.pdf 33 Initiative; and (d) support for climate-smart investments by the private sector and the financial sector through services such as 30 by 30 Climate Zero initiative to encourage commercial banks to support sustainable projects. The WBG can also explore support to the Government in quantifying the financial exposures to climate hazards, designing a comprehensive and layered disaster risk financing strategy and evaluate risk financing options including contingent credit and risk transfer mechanisms, such as disaster risk insurance and catastrophe bonds. Furthermore, the WBG will support GoSA in creating an outcome- driven structured bond that channels private sector funds to increase black rhino populations in target protected areas in South Africa, as well as addressing air pollution levels in the Greater Johannesburg Area, through provision of equipment to measure PM2.529 and other air pollutants at existing monitoring stations30. Advisory and financing support for reducing Non-Revenue Water, wastewater reuse (working with IFC) and transboundary water management and infrastructure will continue, including the Lesotho Highlands Phase 2 project. (c) Mobilizing resources to finance climate adaptation and mitigation 94 The financial sector is impacted by climate-related financial risks but could also mobilize resources for climate finance. The National Treasury (NT), the South African Reserve Bank (SARB), the Prudential Authority (PA), and the Financial Sector Conduct Authority (FSCA) are starting to identify and assess the impact of climate-related risks to the financial sector. This includes the impact of physical risks (i.e. climate change and extreme weather events) and transition risk (i.e., decarbonization of the economy) on financial institutions, such as banks, insurance companies, and pension funds. Doing so is important to maintain financial stability and to mobilize financial resources for climate-related objectives. This is critical since correctly pricing climate-related financial risks both supports financial institutions’ prudential objectives and allows for better investment and loan origination decisions – in turn leading to capital allocation that is more in line with green and sustainable targets. Furthermore, the development of sustainable finance products and a sustainable investment framework is also expecting to mobilize resources. To enable adequate pricing and risk management, disclosure of climate-related risk data by both financial and non-financial firms is needed. The WBG is supporting the authorities via different engagements in building capacity, developing climate policies and strategies, and conducting climate risk assessments. 3.3.2 Focus Area 2: Strengthen MSME performance and skills development to support job creation 95 While foreign investment, trade, and large, competitive industries are necessary for job creation, job growth could be accelerated through targeted support to MSMEs and startups in high- potential value chains, and through improved education and training to meet the skills demands emerging from economic and technological change. It is critical that government and private sector efforts to address joblessness focus more on the most vulnerable, low-skilled youth, who are the largest group among the unemployed. To address this complex challenge, a Jobs Platform for Inclusive Job Creation approach will be adopted. The focus areas will be on aspects of : (a) the demand-side for labor - Increased development of selected value chains with strong job-creating potential; (b) a strengthened ecosystem for MSME creation and growth; and (c) on the supply side of labor through strengthened employment and skills development services. 29 Atmospheric particulate matter (PM) that have a diameter of less than 2.5 micrometers. 30 Air Quality Management in the Greater Johannesburg Area (P170743). 34 Box 7: South Africa Jobs Platform for Inclusive Job Creation South Africa Jobs Platform for Inclusive Job Creation POLICY GOAL Competitive and Inclusive Private Sector that Creates Jobs and Opportunity OUTCOMES Faster and Deeper More productive firms, More inclusive Financial Integrated Value Chains Better skilled workforce Business Environment able to benefit from (inc. gender focus) and Labor Markets (inc. DB) Reforms at scale DTs and grow and job-matching - Partnerships for impact at scale - CROSS-CUTTING - Solutions needed for youth, rural and disadvantaged, informal sector - THEMES - Tapping opportunities from digital technologies – - COVID response – Protecting livelihoods and Recovery 3. IMPROVE EMPLOYABILITY – SKILLS 2. EXPAND THE 1. IMPROVE THE BUSINESS AND INTERMEDIATION [SUPPLY] ENTREPRENEURSHIP/MSME PRIORITY AREAS ENVIRONMENT AND ECOSYSTEM [DEMAND] • Provide relevant skills training (literacy, FOR SUPPORT COMPETITIVENESS (ENABLING) technical/TVET, business & digital skills) • Accelerate business environment reforms • Enhance and scale-up support for entrepreneurs/MSMEs, including access to • Change mindsets/behaviors/soft skills • Support increased market contestability early stage finance and microfinance (including for women) • Deepen financial markets intermediation • Strengthen value chain solutions for jobs • Provide support services (e.g. labor • Address labor market rigidities in manufacturing, agriculture/agribusiness centers, social services) to improve ability • Facilitate private investments, including • Create business opportunities through of vulnerable to work through PPPs and SOE reforms digital platforms (e-commerce and e- • Design smart intermediation services (to procurement) improve profiling and matching supply of labor with demand). The Jobs Platform is an integrated approach to coordinating and focusing WBG support for development of a competitive and inclusive private sector that creates new and better opportunities, especially for youth. The three pillars of the Jobs Platform are: (a) improving the enabling environment and overall competitiveness, (b) expanding the entrepreneurship and MSME ecosystem, and (c) improving employability of the workforce through better skills and more effective labor market intermediation. The platform also has four cross-cutting themes: (a) establishing partnerships for impact at scale; (b) focusing solutions on the needs of rural and disadvantaged youth, especially in the informal sectors; (c) tapping into opportunities from digital transformation; and (d) ensuring that livelihoods are protected and firms are supported in recovering from the impacts of the COVID-19 pandemic. Objective 2.1 Increased development of selected value chains with strong job-creating potential 96 Along with sound investment and sector policies, more targeted programs are needed to attract investment in value chains with a high potential for job creation, including for low/unskilled youth. Potential value chains include those in agriculture/agribusiness, automotive sector, renewable energy, climate-smart mining, transport, tourism and digital products and services.31 The WB will also support the efforts of national and provincial agencies in the Eastern Cape Province to: (a) identify agricultural areas of greatest potential through assessment of water availability and land suitability; (b) address land administration-related constraints to investment; (c) facilitate partnerships between agribusinesses and small and emerging farmers to facilitate their entry into horticulture and beef value chains; (d) strengthen delivery of rural infrastructure and services to improve small/emerging far mers’ access to water, technology, and markets, and a strong emphasis on improving natural resource management and building resilience to climate change; (e) facilitate cooperation with the banking sector, including The Land and Agricultural Development Bank of South Africa (the Land Bank), to reduce investor risks; and (f) address investment climate constraints along value chains. With regard to rural infrastructure (such as irrigation and rural roads), the WBG will advise provincial government on approaches to (a) crowding in public investment into infrastructure around private investment opportunities that support small and emerging farmers and their inclusion in value chains; (b) identifying opportunities for public private partnerships in infrastructure rehabilitation, operation and maintenance; (c) developing more effective service delivery models for rural infrastructure and related services and (d) ensuring that infrastructure investments employ climate-smart and water efficient technology (Box 8). 31 South Africa Country Private Sector Diagnostic 2019. 35 97 In line with this approach, IFC will coordinate with the World Bank to (a) promote the integration of smallholder farmers into commercial value chains; (b) support the agri-food sector; and (c) facilitate regional trade integration and value chains. A priority for IFC will be to continue working with authorities to address the bottlenecks which hinder the inclusion of small and emerging farmers in commercial value chains, including limited access to finance, limited agriculture know-how, limited access to technology, and productivity/quality issues. In addition to agriculture, IFC will continue to support the automotive sector value chain through supplier development. MIGA has been supporting the Land Bank through its guarantee for non-honoring of financial obligations of SOEs with the aim of enhancing the Land Bank’s ability to support farmers through its financial products and loans. Box 8: Strategic Agribusiness Partnerships - Support to Eastern Cape Provincial Government The World Bank is advising the Eastern Cape Provincial Government (ECPG) on creating opportunities for greater inclusion of small and emerging farmers in horticulture and livestock value chains through partnerships with agribusinesses and improved watershed management. Eastern Cape Province has the highest proportion of South Africa’s smallholder farmers (19 percent) , more than half of whom are women. Although small farmers in Eastern Cape have one of the lowest levels of access to water, in contrast to other provinces, it potentially has surplus water that could serve irrigated agriculture. The work began in FY20 and will evolve in FY21/22 to include three core technical components: (i) horticulture value chain development; (ii) beef and sheep value chain development, and (iii) watershed management, all of which have strongly interlinked constraints. For example: weak linkage of smallholder beef farms to markets reduces farmer incentives to adopt pasture management plans, causing ecosystem degradation that affects downstream irrigation. In FY20 the work has focused on identifying locations for horticulture development based on hydrological and land use suitability assessments. So far 16,500ha of potential irrigation development along a 25-50 km subtropical coastal strip has been identified. It is envisaged that the work will now evolve to a more comprehensive and integrated agribusiness development support, covering the following tasks: (i) Identify public service and infrastructure investments needs to unlock private investment; (ii) Provide advice on approaches to public infrastructure investment and services delivery to leverage private sector investment and (iii) Conceptualize a comprehensive approach to watershed management. This work is envisaged to be supported jointly by several Global Practices in the Bank and the IFC. Objective 2.2: Strengthened ecosystem for MSME creation and growth 98 Building a vibrant ecosystem for MSMEs and entrepreneurship can lead to better outcomes in investments and jobs. MSMEs account for about half the country’s work force and more than a third of GDP. Given the already high levels of informality of MSMEs and limited financing opportunities, there is an increasing risk that the worsening macroeconomic challenges will drive more MSMEs into decline.32 Additionally, black and female ownership is concentrated in the micro and small business segment of the MSME sector. These firms are highly vulnerable to the impact of COVID-19 and need better coordinated and harmonized support to achieve better outcomes (Box 9). 99 To improve a range of public and private sector programs targeting the growth of MSMEs and entrepreneurship, WBG support will aim at: (a) facilitating increased collaboration among startup ecosystem actors through a Startup Community for sharing of data, knowledge and experiences and piloting innovative approaches; (b) improving monitoring and evaluation (M&E) frameworks and tools to ensure optimization of public finance support; and (c) facilitating access to markets and crowding in of early stage private financing, especially through targeted solutions for women and youth. This support will be delivered through the Jobs Platform multi-year programmatic ASA. 100 To help MSMEs to overcome constraints resulting from limited access to collateral and early stage finance and low coverage by credit bureaus, the WBG will support: (a) GoSA’s efforts to develop 32 The MSME Voice: Growing South Africa’s Small Business Sector, February 2020. 36 and adopt the MSME Access to Finance Action Plan, improve the impact of the Partial Credit Guarantee Schemes, and establish an Online Movable Asset Registry; (b) the development of regulatory and policy responses to Fintech; (c) the assessment of state-owned financial institutions (SOFIs) to identify key constraints to the effectiveness of MSME support programs; and (d) public and private sector initiatives to strengthen the financial and non-financial support for early stage ventures. This support will be delivered through a multi-year programmatic ASA on financial inclusion and development, as well as through the SECO-funded Financial Sector Development Reform Program. 101 IFC will work with financial institutions, including commercial banks, to channel financing to underserved MSMEs through secured loans as well as asset-based financing solutions. IFC, for which inclusive finance is a strategic priority, is expected to provide investment and advisory support to accelerate SME lending. On the advisory side, IFC will work with financial institutions to enhance their capabilities to serve the SME segment, including to promote innovative services such as digital finance. A flexible approach will be adopted to ensure that the strategy adjusts for new developments or challenges such as COVID-19. MIGA will continue to support the financial sector through its guarantee instruments. Box 9: Impact of COVID-19 on MSMEs in South Africa The Department of Small Business Development-World Bank COVID-19 Business Pulse Surveys were conducted in May 2020 (first wave survey) and October-November 2020 (second wave survey), respectively. More than 2200 MSMEs and informal enterprises were surveyed in May 2020 of which 650 firms were re-interviewed during the October-November 2020 survey. Both surveys found that these enterprises were hard hit by the pandemic through many channels. The second wave survey found that that while there were positive signs in terms of the number of firms that were open for business and making revenue gains as well as the proportion that received Government support, the situation remained very challenging with many firms either experiencing financial distress or expecting to be in the near future. • Firm closings and decline in sales. Just over 50 percentage of firms surveyed remained closed during level 4 of the economic lockdown. Informal firms (70 percent) and firms in the services sector were most likely to remain closed (50 percent of firms). The second wave survey found that 85 percent of firms were either partially or fully open across all categories, but medium-sized firms were the most like to be fully open again. Female-owned businesses reported more business closures than male owned businesses, as also reflected by their expected levels of revenue loss. During the first wave survey, more than 90 percent of firms reported a decline in sales during the first wave and 80 percent during the second wave, but micro firms had a larger decline in sales than large firms. • Impact on employment. Many firms made labor adjustments, primarily through reductions in wages and also working hours. Firms in the formal sector, services sector and those with majority black workers laid off workers at higher rates than other firms. • Digital solutions. During the first wave, firms demonstrated increased flexibility, with nearly two-thirds reporting that they either began using digital solutions for the first time or increased their usage of digital solutions during lockdown. The second wave survey confirmed that digital platforms and solutions were increasingly being utilized, particularly by formal businesses, but that informal firms were catching up in this regard. • Government support. During the first wave survey, there were many unmet demands for government support. Just 16 percent of firms reported having received support, and micro, informal, female-owned and youth-firms, and those with disabled or majority black workers have not been able to access support as effectively as other groups. The second wave survey found that 28 percent of firms received government support of any form, but that most were unsuccessful in their applications for support, particularly micro firms. These findings are consistent with those from other surveys, including by McKinsey and StatsSA, all of which point to the need to increase MSME’s access to financing opportunities as well as for targeted support to leverage new technologies and digital transformation. Objective 2.3 Strengthened employment and skills development services 102 South Africa has many programs aimed at promoting youth employment, but they are fragmented and uncoordinated, and most target high school graduates rather than unskilled and vulnerable youth. The President’s Office has established a Presidential Youth Employment Intervention with a single-entry youth employment services platform, but proactive and coherent employment services and market-relevant skills training are still needed to help youth effectively enter the labor market. TVET 37 colleges have expanded rapidly in recent years, and there are now some 50 colleges with 364 campuses serving around 700,000 learners, but many of these institutions are characterized by poor management, funding constraints and outdated course content. Under the CPF, the WBG will assist the Government in supporting youth employment in two main areas: (a) strengthening employment services; and (b) expanding access to relevant skills training programs. (a) Strengthen employment services 103 The WBG will help to strengthen and modernize employment services by supporting (i) the development and use of modern psychometric self-assessment and matching platform tools and e-learning socio-emotional modules (e.g. one stop shop youth journey platform) for employment services, and (ii) identification of mechanisms to improve the package of services offered through employment services such as through employment centers, active labor market programs (ALMPs including the Presidential Employment Stimulus Program), self-employment programs and skill training programs; and (iii) expansion of non-formal training through technical services to scale up incubation and entrepreneurship training centers. Particular attention will be paid to disadvantaged girls and low-skilled vulnerable youth. Technical outputs would include: a) the curation and transfer of data, tools, and models of the one stop shop platform to employment centers, b) knowledge pieces and technical cooperation on youth employment services related to strengthening their services and program delivery (e.g. jobs pantry of available opportunities for disadvantaged youth, review of public employment services); and c) a review of ALMPs including recommendations for how to strengthen these to better respond to South Africa’s youth employment challenges especially for the COVID-19 recovery phase. In this context, the program will also identify training and skills requirements for value chains with high job-creating potential (Objective 2.1) and refer youth toward these opportunities. The WBG will cooperate with GoSA on the Presidential Youth Employment Intervention to support its development of an integrated youth employment platform, the Presidential Employment Stimulus Program, the Department of Labour and youth employment accelerators such as YES and Harambee. The activities will be implemented through ASAs including a SWISS SECO EFO and the Jobs Platform Cooperation. (b) Expand access to relevant skills training programs 104 To support strengthening of the skills development system, the WBG will cooperate with the Department of Higher Education and Training (DHET) in the following areas: • An analysis of constraints to MSMEs participating in workplace-based learning (WPBL) programs, and ways to strengthen and expand informal apprenticeship training in the township economy; • Technical advisory services to strengthen the management information system (MIS) in post-school education and training (PSET) and identify options to improve the monitoring of key outcome indicators; • A strategic review of the financing mechanism for skills development, focusing on cost effective options to improve access to skills development programs, including by improving funding flows. 105 IFC will support public and private universities and TVET institutions to improve strategies and services that support graduate employability and student preparedness for the job market. IFC will partner with DHET and private sector institutions to implement the Employability Tool, which assesses how well higher educational institutions are set up to promote student employability relative to good regional and global practices. IFC will then work with higher educational institutions, DHET, industry and sector stakeholders to implement recommendations coming from assessment. In addition, IFC will continue to leverage global best practices to mainstream innovations such as project-based learning, individual 38 learning (flipped classrooms) and the use of digital tools in education. In addition, IFC will continue to leverage global best practices to mainstream innovations such as project-based learning, individual learning (flipped classrooms) and the use of digital tools in education. 3.3.3 Focus Area 3: Improve the Infrastructure Investment Framework and Selected Infrastructure Services 106 South Africa has developed a relatively strong infrastructure base, but gaps remain in services provision while infrastructure spending has been declining over the last years. South Africa’s infrastructure face dual challenges—one of deteriorating performance and another declining investment— leading to higher cost of infrastructure services and undermining the country’s competitiveness.33 The COVID-19 pandemic has added to SA’s infrastructure challenges. With increasing fiscal deficit and debt - to-GDP ratios over the short term, the post-pandemic efforts of the Government are likely to be focused on measures to improve selection of investments and reduce overall spending while increasing impact. 107 To address these issues, the government has introduced key and complementary initiatives to consolidate and streamline relevant policies and strategies, develop a robust infrastructure development and delivery mechanism, and a financing architecture to leverage private investment in infrastructure to meet the growing financing gap. Accordingly, the government established Infrastructure South Africa (ISA)34 as a single point of entry for all infrastructure projects with standard methodology to, among others, identify and appraise projects35; strengthening the PPP framework for improving participation of private sector in infrastructure; an Infrastructure Fund (IF) to leverage private sector financing in infrastructure to the tune of one trillion Rand by 2030; and a delivery unit, Operation Vulindlela (OV)36, to facilitate implementation acceleration of selected priority sectoral reforms. One of the priorities for OV is to cooperate in enhancing the role of private sector participation in the water sector. The Government is also in the process of developing a long-term national infrastructure plan (NIP 2045) that would enable South Africa to meet its long-term socio-economic and environmental goals. These measures need to be coordinated under an improved infrastructure governance and investment framework. 108 Further consolidation in institutional coordination and capacity development for project preparation and implementation are under implementation. This will also require focusing on improving the efficiency of service delivery at both national and sub-national levels, including through building institutional capacity at sub-sovereign level, as well as critical infrastructure SOEs and to leverage the private sector when possible. While there are technical working groups established to review sectoral priority projects, technical capacity of ISA needs to be strengthened to accelerate infrastructure investment preparation and facilitation. 109 This focus area will promote efficiency and quality of public investment management and support the restructuring of key infrastructure services. It is organized around three objectives: (a) Support improvement of the infrastructure investment framework through implementation support of the mechanism contained in the Cabinet approved South Africa’s Infrastructure Investment Plan and Operation Vulindlela including focusing on PPPs in the water Sector; (b) Support improvement of 33 For example, despite its dominant position in Africa, the performance of the port of Durban is sub-optimal (https://www.itf- oecd.org/sites/default/files/docs/14durban.pdf). 34 ISA is modeled after the UK Treasury’s Infrastructure and Projects Authority (IPA) to streamline development an d delivery of infrastructure projects following good practice standards and guidelines. 35 For example, ISA uses a SIDS (Sustainable Infrastructure Development Systems) methodology, which builds on good international practices in infrastructure development, especially on the successful 5-Case Model (5CM) of the UK, and is fully aligned with the provisions of the Infrastructure Development Act (No. 23 of 2014). 36 A dedicated Vulindlela unit has been established in National Treasury in coordination with the Office of the President (drawing on additional expertise from public and private sectors as required) to monitor progress, escalate challenges, and provide support for fast-tracking priority structural reforms in the areas of energy, freight transport, water, digital communication and the visa regime. 39 infrastructure services by selected SOEs through established institutional coordinating mechanisms; and (c) Support the improvement of planning and delivery of infrastructure services in targeted cities. Objective 3.1: Improved infrastructure investment framework 110 Under this objective, the CPF will support key actions aimed at improving the infrastructure investment framework, by providing technical and financial resources to strengthen: • Strengthening overall infrastructure investment framework, with focusing on focus on improving the framework for overall infrastructure governance, aligning investment priorities in infrastructure with policy objectives, improving controls for infrastructure financing with a focus on fiscal commitment and contingent liabilities (FCCL), and strengthening the framework and implementation of public investment management (PIM), Budget for Facility (BFI) and public-private partnerships; • design and implementation support for the National Infrastructure Plan, as well as required legislative and procurement reforms to promote multi-sectoral and multi-jurisdictional infrastructure projects and programs; • the capacity of key infrastructure stakeholders including line ministries, sub-national entities and SOEs for project identification, prioritization, preparation, financing, and implementation in priority sectors, including coordinating with Operation Vulindlela in accelerating sectoral reforms. These mechanisms must align with the South Africa’s National Infrastructure Plan and the institutional mechanisms articulated in this Plan; • policy, regulatory and institutional frameworks aimed at mobilizing institutional investors, including through the development of scaled-up solutions such as investment consortiums and developing replicable financial structures and vehicles. Objective 3.2: Improved infrastructure services by selected SOEs 111 South African SOEs play a central role in delivering the infrastructure services necessary for growth. However, they face efficiency and operational challenges stemming from the lack of clear sector policies and regulatory framework, poor governance and financial sustainability issues. Under the CPF, the WBG will support the design and implementation of customized support packages for SOEs in different sectors, with an initial focus on the transport SOE, Transnet, the Passenger Rail Agency of South Africa (PRASA), and the electricity SOE, Eskom. Support initiatives could include those for underpinning the reform of these SOEs, facilitating the introduction of the private sector in some cases, and identifying financial solutions to help some SOEs better manage their financial sustainability, including through the provision of local currency, long-term maturities, and risk management tools. This support can also be focused on exploring development of hedging programs to help manage the low-carbon transition in a way that does not lead to significant disruptions in the economy or cause undue fiscal risks. (a) Transport 112 South Africa has the potential to fully utilize its geographical position to become an important regional transport and logistic hub. However, to fulfill this role, it will need to develop integrated, efficient, resilient, and sustainable transport infrastructure that facilitates both domestic and cross-border trade and transportation. The fulfillment of this potential is currently constrained by South Africa’s relatively poor connectivity with regional and global markets, and sector inefficiencies that are increasing the cost of transport along the logistics value chain and hindering the country’s competitiveness. The 40 foundation stone to this aspiration are the maritime gateways, and the hinterland access routes. Whilst the performance of the bulk terminals and associated rail movements is acceptable by global standards, the performance of the container terminals is poor by both regional and global standards.37 113 Transnet’s Corporate plan has been revised and approved by the Board in March 2021. This plan envisions, among others, the introduction of accounting separation of the business units, the corporatization of Transnet National Port Authority (TNPA), and the introduction of the private sector in container terminal operation and management, and in the freight rail sector, both on the main lines, and on the branch lines. The World Bank is supporting Transnet to submit an application to the Global Infrastructure Facility for grant support to assist in the identification of options, and the potential subsequent introduction and necessary public investment, of the private sector in container terminal operations in Durban and Ngqura and the freight rail sector to the Gauteng region. 114 In terms of passenger services, PRASA plays an important role in mitigating the impacts of apartheid spatial planning on the urban poor. However, in recent years passenger numbers have fallen sharply as the efficiency of this SOE has been largely eroded. South Africa commuter rail network transports workers long distances at very low fares. There are extensive commuter rail services in Gauteng, eThekwini and Cape Town, and limited services in Nelson Mandela Bay and Buffalo City municipalities. Urban rail, already serving a captive market, has seen a drop in usage from 646 million passenger trips in 2009 to 209 million passenger trips in 2019 – a 68% decline over the past decade despite population growth. This reflects a decline in service quality, particularly with respect to reliability and overcrowding, combined with underinvestment in maintenance programs and limited upgrading of networks, rolling stock and technologies. The situation has been exacerbated by the widespread theft and damage to assets, during the lockdown. The World Bank could, if requested, support in the development of a sustainable reform plan and with a clear mandate, potentially provide support to implement the agreed plan to restore the functionality of this vital public service. (b) Energy 115 South Africa’s power sector and electricity market value chain are dominated by Eskom, with limited competition and private sector participation in renewables generation. The sector is experiencing many challenges, particularly with Eskom’s operational and technical deficiencies resulting in periodic load shedding and an unsustainable financial and debt position. Sectoral reform and restructuring will be critical to ensure the long-term sustainable development of the electricity sector in South Africa. As indicated in Objective 1.2, the CPF will support implementation of the 2019 IRP to achieve a secure and sustainable energy mix, particularly through support to Government’s ambitious agenda to roll out its renewable energy plans and the decommissioning and repurposing of old inefficient coal plants. With regard to Eskom, the Government has responded to the SOE’s operational and financial difficulties through various policies and measures, including a 9-point Generation Improvement Plan (2018); budget support to Eskom (2019-2023); the Eskom Restructuring Paper (November 2019); the Eskom Strategic Improvement Plan (Turnaround Plan), adopted by the Eskom Board in January 2020; and the Eskom Corporate Plan 2021-2023, approved by Eskom in March 2020 and endorsed by DPE in April 2020. 116 Under the CPF, the WBG will be able to provide technical advisory services for the design and implementation of the Government’s electricity reform and just energy transition agenda, as well as financing to support GoSA and Eskom in their reform and energy transition initiatives. Cooperation could include those related to Eskom’s corporate unbundling and d ebt management strategy development, coal plant retirement and repurposing, promotion of competition in power generation, improvements in the regulatory framework, establishment of an efficient electricity 37 The World Bank (2021) The Container Port Performance Index, 2020. The World Bank, Washington D.C. 41 distribution sector, strengthening aspects of the regional power market development, and exploring financing solutions, including green bonds, for increasing renewables in the energy mix. Objective 3.3: Improved planning and delivery of infrastructure services in targeted cities 117 The National Development Plan calls for the urgent, well-planned and systematic pursuit of national spatial transformation in order to address inequality. To achieve this objective, the development of planning tools and strategies is vital in order to address uneven spatial patterns and to bring multi-sectoral stakeholders together in the development of economically productive cities. With a mutual reliance between cities and their surrounding rural areas, infrastructure investment is essential to addressing South Africa’s spatial injustice. Coordinated support to strategic agribusiness partnerships with small and emerging farmers (Objective 2.1), in conjunction with targeted support to building sustainable urban economies is needed. 118 South Africa’s rapid urbanization also requires a sustained focus on building institut ional capacity at the municipal and metropolitan levels to manage the increasing demand for improved service delivery. In support of this, the District Development Model (DDM) was adopted as a tool to realize greater synergies across national, provincial, and local levels of government with the objective of addressing poverty, unemployment, and inequality. Through a focus on development outcomes, the DDM enables long-term planning and targets strategic improvements in project management, implementation and accountability. The DDM will be anchored in “One Plans”, which set out long-term intergovernmental plans to guide investment and delivery in relation to the 52 districts and metropolitan areas. This work builds on different tools and approaches to service delivery, capacity development and planning, including metro-level outcomes through the Urban RAS I (2013-2016) under the Cities Support Program. 119 The CPF therefore adopts a spatially driven approach, underpinned by the strengthening of basic service delivery, to unlock the potential of urban areas across the country. WBG support will focus primarily on the institutionalization of the Cities Support Program, within the eight metropolitan areas38, and will encompass advisory services for improving (i) human settlements, (ii) fiscal and financial governance systems, (iii) economic development, (iv) climate resilience and sustainability and (v) public transport. Through a complementary engagement with the Development Bank of South Africa, the World Bank will also support strengthening of municipal service delivery through the development of smart city strategies. The intervention will assist four cities to develop credible smart city strategies, taking account of benchmark technologies, financing options and implementation approaches to achieve interdepartmental alignment of the smart city strategies.39 In addition, the Bank will support policy development of the country’s Circular Economy Framework around solid waste management, through multi -donor trust fund programs. Key objectives of the support include enhancing integration of the informal sector, improving management of municipal landfill sites, and contributing to the broader policy dialogue on circular economy in South Africa. The IFC, through the Africa Cities Platform, will also contribute to the engagement in the urban sector by exploring market-based infrastructure investment financing and providing advisory services directly to municipalities to help identify and assess potential bankable projects, including in the water sector. MIGA will explore supporting investment and lending to eligible cities and municipalities, with its breach-of-contract product for sub-sovereigns being particularly relevant. 120 Development and enhancement of human settlement policies are needed to address a number of issues. These relate to housing shortages, manifested in mushrooming of informal settlements, overpopulated inner city housing or uncoordinated backyard developments, without safe, reliable basic services like water and sanitation. To support South Africa in addressing these challenges, the WBG has identified specific policy areas such as informal settlement upgrading, People’s Housing Program (PHP), 38 RAS for Infrastructure Investment and Integrated Urban Development (P163422). 39 Beyond the Gap in South Africa – DBSA RAS (P171567) 42 scaling up affordable housing, social/rental, and inclusive housing to enhance development outcomes. The engagement will support preparation of the Human Settlements White Paper that is being developed by GoSA. In addition, through the provision of technical advisory services, the WBG will support scaling-up of city-wide and in-situ upgrading to improve security of functional tenure, safety and health security, and community empowerment and partnerships. This will be rendered through the application of the Program Management Upgrading Toolkit and design and implementation of the new Upgrading Partnership Grant. 121 As a strategic anchor in the development of spatially inclusive cities in South Africa, urban connectivity and a well-functioning and integrated public transport are essential. The WBG will support the development of planning instruments and the design of strategies and roadmaps for critical urban transport sector reforms. These will include national public transport grants, innovation of municipal urban transport financing, and integration of ticketing between Metro Rail and Bus Rapid Transit Systems. Working with the DBSA, the WBG will also help develop knowledge and practices on critical reforms in the Minibus Taxi sector40. Commuter rail reform is central to improve transport in urban areas, particularly in townships, and the Bank will continue to contribute to the national debate on the future of urban transport. MIGA will explore supporting transport/urban connectivity projects through its political risk insurance covers. 122 Implementation of the City Infrastructure Delivery Management System (CIDMS) is important for strengthening investment planning and implementation as well as asset management practices. The CIDMS is a framework for managing public investment projects and municipal infrastructure assets. Bank support for CIDMS implementation will assist cities to optimize performance right across the urban infrastructure value chain by offering best practice processes, techniques and tools in multiple disciplines such as asset management, risk management, construction procurement and infrastructure delivery, and program and project management. Bank support will focus on preparation of asset registers in metropolitan municipalities and the link with infrastructure and financial plans. 123 Understanding mobility patterns and needs for men and women is essential to design differentiated infrastructure and services and ensure inclusive connectivity in cities and municipalities. Women and men will benefit equally from road transport policies, infrastructure and services only if they are gender responsive. For example, in South Africa women are responsible for a disproportionate share of a household's transport burden but they have more limited access to safe means of transport compared to men. Safe and inclusive transportation is key for women to have equal access economic opportunities. Academic research revealed that female users of minibus taxis (MBT) and buses in South Africa suffer sexual harassment41.The CPF will provide technical support to the GoSA to update gender analysis in mobility and support initiatives to ensure that: (i) data is designed and collected through a gender lens, (ii) differences in mobility barriers between women and men are identified, and (iii) linkages with economic opportunities and services are established. 3.3.4 Cross-Cutting Themes 124 The WBG will support three cross-cutting themes in its South Africa country program: (a) Harnessing the Digital Economy for Job Creation and Stimulating Investment; (b) Gender – Empowering Women and Girls for Shared Prosperity; and (c) Governance. In addition, while regional integration is not a cross-cutting theme per se, the CPF will support selected activities in support of the regional integration agenda. Transcending Infrastructure Challenges – DBSA RAS (P171567) 40 41 Marianne Vanderschuren, Sekadi Phayane, & Alison Gwynne-Evans. (2019). Perceptions of Gender, Mobility, and Personal Safety: South Africa Moving Forward, Vol. 2673 (11) 616-627. 43 Cross-Cutting Theme 1: Harnessing the Digital Economy for Job Creation and Stimulating Investment 125 South Africa is one of the digital leaders in Africa and has the potential to become one of the hubs for digital entrepreneurship on the continent. However, nearly half the population lacks access to internet, 42 with high cost, lack of digital skills and poor quality of service being barriers for poor and rural residents. The Government has put in a place a sound legal and institutional policy environment for the ICT sector, but there is a need for more private investment, digital skills training for youth, and promotion of digital technology throughout the economy. With digitalization as a cross-cutting theme, the CPF will ensure that key interventions address bottlenecks to digital development in all three focus areas: Focus Area 1: Promote increased competition and improved business environment for sustainable growth o The WBG will support improvements in the regulatory and business environment for digital services, and expansion of access to digital financial services. o The WBG will support development of policies and programs aimed at enabling access to government data by citizens and companies to encourage digital innovation and development of new digitally enabled services. Focus Area 2: Strengthen MSME performance and skills development to support job creation o The WBG will support digital entrepreneurship and innovation to enhance competitiveness and job creation; and look at ways to improve digital skills for employability, especially among unemployed youth. Focus Area 3: Improve the infrastructure investment framework and selected infrastructure services o The WBG will support digital transformation in the energy, transport and agriculture sectors, including by mobilizing private investment, potentially through de-risking instruments. Through the Smart Cities Initiative, the Bank will strengthen the use of digital technology for urban planning and inclusive service delivery. It will also make a renewed effort to promote digital economy development in townships. o The WBG will support enhanced implementation of policies to ensure universal access to fast, affordable, and reliable digital infrastructure and broadband internet services. Cross-Cutting Theme 2: Gender – Empowering Women and Girls for Shared Prosperity 126 South Africa has made significant progress in moving towards gender equality and women’s empowerment over the last 25 years. There is gender parity in education; women occupy high government posts; many run their own businesses; and women’s access to financing, land and assets has improved. Yet significant gaps remain: enrollment in science, technology, engineering, and mathematics (STEM) education is lower for girls than for boys; women are less likely than men to participate in the labor market; women earn less than their male colleagues; the high rate of teenage pregnancy causes girls to leave education early, often with lifelong impacts; women’s voice is still not heard in public life; women are still disadvantaged in accessing resources (financing, land, businesses); women are more likely to be infected by HIV/AIDS; and gender-based violence (GBV) is rampant (Box 10). Moreover, GBV and women’s poverty have increased as a result of the pandemic. 127 Acknowledging the role of both UN WOMEN and the United Nations Population Fund (UNFPA) in addressing gender-based violence in SA, the CPF will focus on two other priority dimensions of women’s equality: economic empowerment and skills development. The CPF will systematically include education/skills development and economic empowerment of women in all relevant 42 Based on ITU 2017 data. 44 ongoing and forthcoming investment operations, RASs, and trust-funded and Bank-funded technical support under each of the focus areas. For example: Focus Area 1: Promote increased competition and improved business environment for sustainable growth o The WBG will support gender-sensitive strategies for climate adaptation and resilience of women and girls in South Africa. Impacts of climate change affect men and women differently, and unequal gender opportunities and structural barriers for women to seek economic opportunities will limit resilience of women and girls making them a more vulnerable population to climate shocks. o Supporting a just transition for women and girls in SA building on gender equality gains achieved thus far during the past 25 years and supporting the development of NDC relevant gender targets and outcomes during its implementation. Focus Area 2: Strengthen MSME performance and skills development to support job creation o The WBG will systematically consider gender equality, educational attainment of vulnerable girls and economic empowerment of women in all its SME support interventions and skills development programs, and in the assessment of value chains. This will include, among others, targeted business funding and procurement support for women-owned businesses and identifying incentives for private sector support for emerging women-owned businesses. Focus Area 3: Improve infrastructure investment framework and selected infrastructure services o The WBG will promote gender-smart solutions in transport systems, to give women more flexibility in their working hours, increase safety, and expand opportunities for different types of employment. o The WBG will also promote gender-sensitive budgeting on the city and municipal level, and the integration of gendered outcomes in their Integrated Development Plans (IDPs). 128 The gender cross-cutting CPF theme will benefit from the Southern Africa Gender and Social Inclusion Platform. This is an approach to securing strategic support at a program level and project specific support for task teams to enhance attention to gender and social inclusion issues in the World Bank’s operations and policy dialogue in the Southern Africa countries. It applies a three pronged approach that focuses on: (i) operational support to task teams including support on the gender tag and targeting pipeline operations suitable for more focused interventions on narrowing priority gender gaps that have been identified in country; (ii) technical and frontier analytical work, including evaluation of existing interventions on gender and social inclusion across the portfolio to contribute to the evidence base of what works; and (iii) capacity building and partnerships to build on systematic policy dialogue with clients, develop external partnerships with relevant stakeholders in priority sectors and support knowledge sharing both internally within the Task Teams and externally with government counterparts and other stakeholders. 45 Box 10: Challenges to Gender Equality in South Africa South Africa has made substantial progress toward gender equality since 1994, but women continue to face significant barriers. While gender gaps in education are closing, the gains have not resulted in more secure and better paying jobs for women, who continue to have higher unemployment rates than men and a higher concentration in low-paying jobs, mainly in the care economy. In 2020 (prior to the COVID-19 crisis), labor force participation was 53.8 for women compared to 65.9 percent for men. Men still earn significantly more than women. The median gender wage gap is between 23–35 percent for women and men with the same amount of schooling. This gap has not been declining over time. The number of women in science, technology, engineering, and mathematics (STEM) jobs is limited, as women tend to enroll in care-economy subjects such as education, social science, psychology and health. The largest gender gap in STEM is in the field of engineering, with men having a graduation rate of 15 percent compared to 3.9 percent for women. Social norms play a key role in girls’ educational choices and thereafter in their choices regarding the transition from school to work. Marriage, childcare, and social norms are key drivers in the uneven gendered outcomes in labor force participation . Apartheid and the resulting migrant labor system made it more likely that fathers would be absent from households, particularly in rural areas, and that mothers would be responsible for child rearing and domestic labor. These patterns continue, with long- term impacts on women’s participation in the labor force. According to the International Labour Organization (2018), women living with children under six years of age have the lowest employment rates (34.6 percent). The latest time-use survey (2020), found that the presence of children in the home keeps women in a state of long-term unemployment. The IMF recently reported that globally, gender gaps in labor markets have been remarkably resistant to change despite progress in other dimensions of gender equality. Focused policy reforms are needed to address these gaps. The country’s high level of gender-based violence also has a negative impact on women’s labor force participation. Sexual and domestic violence are extremely common and extract an enormous social and economic cost. Reported figures represent only part of t he picture. The violence is driven by many risk factors which exacerbate women’s safety concerns at school, at home, at university, and in particular in the workplace, where sexual harassment discourages women from taking jobs. A 2019 survey by the research agency Columinate found that more than 30 percent of women and 18 percent of men experience sexual harassment in the workplace, while only 37 percent of South African firms have a clear process to report sexual harassment. Source: South Africa Gender Background Note 2020, World Bank. Cross-Cutting Theme 3: Governance 129 The performance of South Africa’s strong institutional framework, which has been recognized in Africa and worldwide has eroded over time. The quality of its public financial management and budgeting systems still ranked first in the world in the 2017 and 2019 Open Budget Index. It ranks 7th out of 54 African countries on the Ibrahim Index of African Governance (IIAG), with a score of 68/100, higher than the African average (49.9). South Africa’s score on IIAG, while still good, has eroded sharply since 2007. South Africa only ranks 70th among 180 countries on the 2019 Corruption Perception Index by Transparency International, down from 43rd in 2007. A decade of state capture and corruption from 2008 to 2018 exposed and exploited some institutional vulnerabilities. These have started to be addressed in 2018 following the change in political leadership. A main governance challenge is intergovernmental coordination, particularly across the three levels of government. Another set of challenges concerns long delays in policy formulation, a weak track record in policy implementation and the resultant policy uncertainty. 130 This CPF will address selected cross-cutting governance topics including the monitoring and evaluation of government performance; building the capacity of the state through collaborative leadership and coalition-building; and a systematic governance approach to activities with the use of a governance filter (Box 11), that provides an opportunity to understand both the political economy and institutional bottlenecks to implementing reform. 46 Box 11: South Africa Governance Filter Political economy and governance constraints can threaten progress towards development objectives. These arise due to coordination problems, implementation gaps, misaligned incentives, weak authorizing environment; legal, policy or regulatory obstacles; ineffective allocation of resources; corruption and collusion; and conflict and tension between stakeholders and political factions. The SA Governance Filter is a CMU wide approach to support task teams in identifying, addressing and strengthening knowledge around governance and political economy constraints. The focus of the filter will be to provide support and solutions to operational teams through: knowledge sharing on targeted governance challenges; just-in-time governance support through expert round-table discussions, stakeholder mapping; and hands-on operational support through diagnostics and assessments. The Filter’s primary objective is to support the South Africa CMU leadership and select task teams to navigate governance and political economy constraints affecting delivery of development policy lending and analytical work in key sectors. The Filter's approach will leverage lessons learned from the design and implementation of previous “Governance Filters” in Nigeria and Maghreb. It will also be grounded in existing knowledge and good practice as gathered through the World Bank publications on the political economy of centers of government and sector reforms; past political economy work informing lending; and experience of governance experts and sector tasks teams. The design and methodology will also leverage analytics such SCD, the Country Policy and Institutional Analysis (CPIA), and the Equitable Growth, Finance, and Institutions (EFI) Vice Presidency's Scope Notes. Governance analysis will address political economy drivers of economic transformation in South Africa and recommend approaches for World Bank engagement, particularly in the early stages of the CPF cycle. Analysis will be focused on key factors relevant to World Bank policy dialogue and program/project design, considering four overarching issues: (i) incentives and capabilities of state actors to undertake meaningful reform in areas identified by the CPF; (ii) options for fostering meaningful improvements across core public sector functions and select sectors; and (iii) entry points for sustainable change that lasts beyond the current political and economic disruptions (iv) the role of external actors in incentivizing performance. • Monitoring and Evaluation: The WBG, the Department of Planning, Monitoring and Evaluation (DPME) at the Presidency of the Republic and the National Planning Commission have agreed to work together on monitoring and evaluation since most of the World Bank activities fit well within the MTSF. One first application of this collaboration will be in the joint monitoring of the implementation and effectiveness of two programs of the government’s COVID-19 socio-economic response, the Social Relief of Distress (SRD) social grants program, and the support to SMEs. The WBG will help DPME build a dashboard to monitor select indicators of these two programs. This dashboard will also help contribute to the tracking of relevant indicators around CPF outcome and objectives. It will partner with the Open Government Partnership (OGP) to pilot social accountability and participatory monitoring at the local level, with a focus on selected provinces; • Open Government: In addition, DPME is particularly interested in the Open Government Partnership (OGP) model that ensures the empowerment of citizens to monitor government interventions and stimulus safety net packages in the context of COVID-19. In this way, citizens’ trust is built by ensuring that government social relief efforts reach people. The World Bank will partner with OGP to help DPME enhance its capacity in the following areas: (i) big data analysis; (ii) citizen auditing, monitoring and evaluation; (iii) integrated reporting of national, provincial and local government interventions; (iv) technology-enabled M&E; and (v) increasing awareness of OGP principles among government officials and other role players. DPME is equally interested in global OGP processes of grants monitoring, open contracting, and in the OGP fiscal transparency approach in addressing the delivery of crucial services by municipalities, including through piloting social accountability and participatory monitoring at the local level, with a focus on selected provinces; • Collaborative Leadership Approaches: To help address the challenges of coordination, multi- stakeholder approaches centered on collaborative leadership will be developed to help build coalitions for reform, promote consensus in policy making and facilitate policy coordination and implementation. This CPF will apply such approaches to complex problems that involve multiple stakeholders outside government like trade unions, organized business, and community leaders. One application of collaborative leadership is the building of a delivery unit at the Department of Public Enterprises (DPE) 47 to monitor the reform of SOEs. Technical Cooperation with the planned Delivery Support Unit (DSU) in the DPE will be aimed at addressing bottlenecks to the implementation of SOE reform in selected areas such as contract management and municipal arrears, monitoring progress on a set of reform priorities and facilitating multi-stakeholder engagement and coalition building. This builds on a knowledge exchange on successful DSUs in the world during FY2020-21 with the CEOs and senior management of Eskom and Transnet; • The CPF will continue to support South African Cities ’ capacities including through the RAS with National Treasury (NT). Emerging areas under this RAS include intergovernmental fiscal transfers, the monitoring of local delivery of essential public services such as in the water and sanitation sector, and the monitoring of COVID-19 response at the local level. 3.3.5 Supporting Regional Integration 131 In alignment with the WBG’s Supporting Africa’s Recovery and Transformation: Regional Integration and Cooperation Assistance Strategy Update for the period FY21–FY23, the CPF will promote opportunities for regional and global integration and cooperation in order to: • Increase and broaden gains from intra-regional trade, by enabling smaller producers to integrate into and benefit from cross-border and global value chains; • Reduce trade and transport costs along some of the main corridors linking South Africa to the region and addressing inefficiencies in South Africa’s transport network and ports; • Promote infrastructure connectivity, with a focus on electricity (including renewable energy) trading, transport, digital connectivity, and facilitation of trade and transport; • Address common region-wide problems such as climate change and disease pandemics; • Increase the effectiveness of regional cooperation institutions, by working with the SADC and SACU Secretariats on issues and mechanisms supporting their cooperation functions; • Integrate MFD principles into regional projects by working with the Government, national and international development banks and regional organizations to mobilize private sector resources. 132 ASA and technical cooperation services during the first two years of the CPF period will complement the Africa regional integration and cooperation strategy and work program. The focus will be on strengthening regional trade and market integration in SACU and SADC through analytical work on leveraging trade for recovery from COVID-19 and inclusive long-run growth in South Africa as well as trade facilitation, the development of regional value chains for jobs and industrialization, integrated trade and transport corridors and disaster risk management. IFC’s financing of private sector renewable energy generation projects will also boost regional power market development through regional electricity trade, and MIGA will continue its support to South African investors for intra-regional investment. 3.3.6 Maintaining and Deepening the Knowledge Agenda 133 The CPF will continue to provide a strong analytical and advisory program, convening services and knowledge exchanges. This is consistent with South Africa’s strong interest in the global knowledge agenda. Reimbursable Advisory Services (RAS), complemented where possible by grant- 48 funded analytical and advisory work, will remain important instruments for the provision of knowledge services. This activity will be structured as follows: • Programmatic analytical and advisory services. Building on past experiences, the CPF will strengthen the programmatic approach to knowledge services, bundling tasks across sectors toward a common objective in the areas of jobs, skills, and a Just Energy Transition. • Knowledge exchange. o The WBG will continue to organize various South-South and South-North knowledge exchanges, including study tours for public servants to deepen knowledge in areas where dialogue and partnerships need to be nurtured to support government programs in youth employment, urban infrastructure and digital technology, among others; o Where appropriate and on demand, the WBG will continue to combine knowledge exchange with other knowledge activities such as advisory services as in the case of South Africa’s public debt and management program. The global Government Debt and Risk Management (GDRM) program is expected to enter into its third phase in 2022. South Africa has been a very active partner in the program and the WBG will maintain a strong role. The WBG has worked closely with the National Treasury’s Asset and Liability Management (ALM) Division under the GDRM program funded by the Swiss Government (SECO). The overall focus of the program is strengthening of the institutional arrangements and capacity in debt management. Examples of activities are the establishment of a framework for evaluating and monitoring government guarantees, an evaluation of the retail borrowing program, and development of analytical tools to provide the framework for the medium-term debt management strategy. Currently, ongoing activities include the establishment of an operational risk management framework and an aligned institutional arrangement. • Knowledge support and development. In areas deemed important in the SCD but where the WBG needs to better understand sector dynamics and develop partnerships with key counterparts, the CPF will focus on knowledge development, which can translate into full-fledged programs during the outer years of the program. One such area is human capital development, particularly for young children. The objective of this knowledge support is to strengthen policies, programs, and delivery systems to accelerate foundational human capital formation in young children, focusing on supporting Early Childhood Development (ECD) and Early Grade Reading (EGR) and Assessment. The World Bank’s knowledge support to the Department of Basic Education is expected to contribute to: (a) development and implementation of an Integrated Service Delivery Model for ECD provision; (b) enhanced dialogue on EGR program implementation in South Africa; and (c) development and implementation of a national policy on assessment of reading levels in early grades. . 3.4. Implementing the CPF 3.4.1 Program Summary 134 The five-year CPF implementation period is FY22-FY26. The CPF program is designed to support SA in its quest to successfully end this unprecedented crisis and lay the foundations of a more sustainable growth. In the context of the COVID-19 health and socio-economic crisis, there is a unique opportunity to re-engage in South Africa at a moment when the country is facing unprecedented economic and social challenges and is committed to undertaking needed reforms. This CPF builds on four previous CPF’s which were essentially knowledge based, with financing primarily coming through the IFC and MIGA. The knowledge outlook is going to be continued in the current CPF, with the possibility to access IBRD resources if the government would like to do so. 49 135 The IBRD support in areas of engagement would build on the Governm ent’s priorities. Initial areas of support include South Africa’s business recovery and inclusive growth, energy and transport sector reforms, and cooperation on South Africa’s resilience and adaptation agenda to climate change. This support will build on an existing portfolio of RAS, technical cooperation, grants and programmatic ASA in these areas. IFC currently has a portfolio of US$2.1 billion as of April 30, 2021 and through its new IFC 3.0 strategy can deliver a 5-year South Africa program between US$1.4 billion to US$3.4 billion up till FY24, depending on the level and pace of reforms. IFC’s next strategy will cover the last two years of the CPF period. MIGA is already actively supporting foreign investors in South Africa with gross outstanding exposure of US$1.53 billion as of April 30, 2021. During the CPF period, MIGA will continue to support foreign private investors and cross-border commercial lenders in establishing new businesses in South Africa, with particular attention paid to those that promote competition and employment growth. A mid- term Performance and Learning Review will evaluate the progress and continued relevance of different aspects of the WBG program, and adjustments will be made as needed to achieve program objectives. 136 The approach to ASA-RAS will focus on selectivity, impact and delivery of core analytical products (Table 4). An internal review of ASA-RAS suggested greater selectivity in new RAS engagements; therefore, the focus will be on engagements that help deliver on the core CPF objectives and help position the World Bank in the policy arena. There will be a greater focus on core diagnostics such as a Public Expenditure Review, Debt Management Assessment, Climate Change and Development, as well as Economic Policy updates. Ongoing analytical work will be consolidated under an integrated, cross- Group Practice platform such as the Job Platform. All new trust funds will be associated with existing global trust funds, in line with the Bank’s trust fund reforms. The WBG and the Government of South Africa, through the line departments and relevant entities, will coordinate closely in areas where global knowledge- sharing and South-South exchanges can support the reform. 137 To ensure maximum development impact during CPF implementation, the WBG will selectively apply the South Africa Governance Filter (Box 11) to key operations and new engagements. In addition, the Southern Africa Gender and Social Inclusion Platform will support incorporation of a gender lens in the design and review of operations. Table 4: Selected WBG Advisory and Analytics by Focus Area, FY2022-23 CPF Focus FY22 FY23 Areas Focus Area 1: Promoting prosperity through investment climate SA Government Debt and Risk Management Promote and policy reform (IFC) SA FSAP update * increased SA Private Sector Competitiveness Project (IFC) Country Economic Memorandum * competition and improved business environment for sustainable growth Focus Area 2: Support to the Jobs Platform Support to the Jobs Platform Strengthen Programmatic ASA on skills for employment Programmatic ASA on skills for employment MSME Supporting Innovations for youth employment Supporting Innovations for youth employment performance and Analytical underpinnings for greater financial skills Inclusion development to support job SA Automotive Linkages/Local Supplier SA Student Housing Program (IFC) creation Development Program) IFC) Focus Area 3: Supporting SOE governance reform framework SA RAS for Infrastructure Investment Improve Programmatic ASA for Energy Sector in South Infrastructure SA PPP Review Africa 50 CPF Focus FY22 FY23 Areas investment COVID-19 and Air Transport ASA Urban Mobility framework and Africa Cities Platform (IFC) TA carbon capture and storage selected infrastructure Environmental performance and market Supporting Implementation of Nationally services development (IFC) Determined Contribution (NDC) Eastern Cape Integrated Project SA Infrastructure Engagement with ISA Cross-cutting Strengthening the knowledge base for digital Strengthening the knowledge base for digital Areas: development development Digital, Gender Gender and Inclusion Assessment * Gender and Social Inclusion Platform & Governance Governance filter for SA Governance filter for SA ECD service delivery mapping and integrated Public Expenditure Review* Knowledge policy Agenda Early grade reading in Southern Africa Climate Change and Development Report* Review of Social Protection Systems in SA Note: Core ASA marked with * 3.4.2 Financial Management 138 South Africa’s financial management system meets Bank requirements. The 2014 Public Expenditure and Financial Accountability (PEFA) assessment found that the country’s PFM system, as guided by the PFM Act, provides a sound basis for resource allocation according to priorities, and clearly outlines the responsibilities of different national, provincial and municipal governments and public entities for service provision. However, the PEFA, as well as annual Auditor General (AG) reports over the past few years, also found weaknesses in supply chain management, resulting in irregular, unauthorized and wasteful expenditures; non-compliance with legislation; and poor quality of financial statements produced by some entities. Reforms to remedy these weaknesses are being supported by the WBG and other partners, including the European Union, German Agency for International Cooperation (GIZ), Department for International Development and from June 2020 the Foreign, Commonwealth and Development Office (DFID), USAID, France, Ireland and Belgium. A proposed Public Expenditure Review (PER) during the CPF period will help to identify further areas for improvement. 3.4.3 Procurement 139 Public works, goods and services account for US$40 billion a year or more than 20 percent of South Africa’s economy. This makes public procurement a powerful vehicle for improving the business and competitive environment and promoting private sector development, job creation and economic growth. However, the public procurement regime is in need of modernization to be more efficient and responsive to social, economic and technological changes. A new Procurement Bill, now in the process of consultation, will promote the use of e-procurement and digital technologies to strengthen governance and open up the system to MSMEs. The Bank will continue to provide technical advice and support to the government on procurement reforms as part of the ongoing process around the Procurement Bill. 140 Public procurement is also a vehicle for socio-economic development. The Preferential Procurement Policy Framework Act (PPPFA) and the Broad-based Black Economic Empowerment Act (BBBEE) provide the framework for implementing preferential procurement policies and promoting opportunities for historically disadvantaged groups participating in public procurement. However, there is a need for a rigorous evaluation system that measures the impact of the BBBEE on target groups. Following a dialogue with Eskom, the Bank has agreed to the application of PPPFA and BBBEE-based criteria in a 51 major Bank funded procurement contract under the Eskom Investment Project (116410).43 The outcome of this contract will be closely monitored with respect to the impact of using Eskom’s suggested sustainability requirements and may inform similar decisions in future Bank-funded procurements. 141 As part of enhanced monitoring of COVID-19-related procurement, the National Treasury has issued General Emergency Procurement instructions to prevent and combat the abuse of supply chain management processes and ensure that monies go where intended. These instructions also specifically outline required control measures in relation to COVID-19 spending, such as reporting frameworks, internal measures between and within departments, the establishment of audit committees, and reporting on a monthly basis what has been procured, by whom and in what amounts. The President also announced a high-level committee, includes law enforcement agencies, the Special Investigating Unit, and the Financial Intelligence Center to investigate anti-corruption cases involving COVID-19 funding. 3.4.4 Monitoring and Evaluation 142 The preparation of the CPF Results Matrix has been a collaborative effort between the Government and the World Bank Group. Given the flexible nature of this CPF, some indicators and milestones are set only until 2022. Following WBG guidance, some objectives go beyond what the WBG program will deliver on its own and are aligned with the client’s Development Objectives as expressed in the 2012 NDP and the Medium-Term Strategic Framework, 2019-2024, from the Department of Planning, Monitoring and Evaluation (DPME). A joint monitoring plan involving members of key Government departments as well as WBG has been designed. to facilitate the annual reviews that will be conducted to assess progress towards achieving milestones and outcome indicators. A full-fledged mid-term review will allow for a complete assessment of performance during the first two years as well as any adjustments needed to reflect new activities and changing circumstances. 3.4.5 Partnership and Development Partner Coordination 143 In support of SA’s development agenda, the WBG will continue to develop partnerships with other development partners to ensure that interventions are based on respective comparative advantages and contribute to scale up impact. Several partners are supporting implementation of the SDGs. The European Union (EU), African Development Bank (AfDB), and New Development Bank (NDB), the GIZ and Kreditanstalt für Wiederaufbau (KfW) and UK are supporting South Africa’s just energy transition. The UN, GIZ and EU are targeting health systems, TVET, and education sector reforms (See Annexure 6). The Government’s priorities of stimulating job creation are supported through MSME development and ecosystem programs under IFC, the UN and EU. South Africa is also a beneficiary of joint action plans under regional integration frameworks supported by multiple development partners. Recently, partners have also adopted a coordinated approach to supporting South Africa’s COVID-19 crisis response. 144 The WBG will continue to work with other multilateral and bilateral lenders and partners, while IFC and MIGA will crowd in private sector investors and financiers. IBRD has already co- financed activities in the electricity sector, together with the AfDB, KfW, the AFD, the European Investment Bank and others. Support has also been provided to agriculture finance through the Land Bank. The WBG will continue to develop joint and complementary initiatives on a strategic partnership for infrastructure delivery with the DBSA, the AfDB and NDB as well as bi-lateral financing institutions. 43The Bank’s 2016 Procurement Framework stipulates that “Borrowers may include additional sustainability requirements in the Pr ocurement Process, including their own sustainable procurement policy requirements, if they are applied in ways that are consisten t with the Bank’s Core Procurement Principles.” 52 IV. MANAGING RISKS TO THE CPF PROGRAM 145 The overall risk to achieving CPF development objectives is rated Substantial. There are three main areas of risk: (a) Future country demand for WBG support is uncertain, depending on the duration of the COVID-19 pandemic and its impact on the Government’s policy choices and the momentum for structural reform. (b) The relationship between South Africa and the WBG has deepened and has potential to mature further. (c) The unfinished transformation agenda, exacerbated by the pandemic and high levels of inequality, crime and GBV, could lead to social discontent, which could impact program implementation. Risks will be closely monitored throughout the CPF period, and deepened consultations with a broader constituency and capacity to adjust will allow for mitigation measures and adjustments to be made. Systematic Operations Risk-Rating Tool (SORT) Risk Category Rating (H, S, M, L) 1. Political and Governance S 2. Macroeconomics S 3. Sector strategies and policies S 4.Technical design of project or program S 5.Institutional capacity for implementation and sustainability S 6. Fiduciary S 7. Environment and Social S 8. Stakeholders S Overall S 146 Political and governance risks are rated Substantial. Since 2018, the Government has taken decisive steps to overcome the effects of recent disruptions and is going through a period during which governance (state capture) issues are being tackled and where the government intends to strengthen the social contract. Agreeing on a reform package that will necessarily hurt some short-term vested interests is made even more delicate during a recession. These risks will be mitigated through continuous monitoring of political developments amongst others through the governance filter to assess the political feasibility of various interventions, and adjustments to the program as necessary. More efforts at demonstrating / communicating the intended results of WBG interventions may help build social consensus. 147 Macroeconomic, fiscal and financial risks are rated Substantial. Fiscal risks are related to deteriorating public finances and rising debt, exacerbated by the severe COVID-19 pandemic. These would negatively affect business confidence and slow the recovery. Higher interest payments on debt would also further crowd-out much needed capital and social spending. However, current favorable external sector developments could support stronger public revenue and a faster reduction of budget deficits. Financing requirements remain high but are risk are mitigated in the short term by government large accumulated cash balances and over the medium term by the favorable debt profile (long maturity profile and small share of foreign currency debt). Weak growth potential in the absence of structural reforms would also weight on the macroeconomic outlook. However, recent decisive reforms implemented (electricity generation, SAA) should boost confidence in the short term and contribute to raise growth in the medium term. Financial sector risks stem from sovereign-bank nexus and increases in vulnerabilities in the non-financial corporates and household sector in the context of the pandemic. Nevertheless, non-performing loans remain moderate at 5.2 percent at the end of February 2021 and capital buffers appear adequate, though the full extent of asset deterioration is not known yet due to forbearance measures. 148 Sector strategy and policy-related risks are rated Substantial. South Africa has developed strong strategies in economically important sectors, but implementation remains challenging with more scope for strengthened cross-departmental and intergovernmental coordination, which are particularly 53 required for complex, and synchronized cross-sectoral reforms. The concentrated market structure in some sectors may reduce the pace of outcome achievements, such as access to markets / finance by MSMEs and previously disadvantaged groups important for reducing inequality. The WBG will mitigate these risks through technical cooperation and strong engagement to support implementation across the CPF focus areas. 149 Implementation and sustainability risks are rated Substantial: South Africa has a number of strong institutions, including the Reserve Bank, the National Treasury and key accountability structures. However, the broader public sector lacks sufficient capacity along the chain of design, financing, implementation, and monitoring and evaluation of development operations. There is also room for strengthening intergovernmental coordination, particularly across the three levels of government; long delays in policy formulation; a weak track record in policy implementation; and policy uncertainty, which constrains private investment. Specific attention will be paid throughout World Bank interventions on governance topics including the monitoring and evaluation of government performance; building the capacity of the state through collaborative leadership and coalition-building; and a systematic governance approach to activities with the use of a governance filter. 150 Fiduciary risks are rated Substantial: South Africa’s has a satisfactory financial management system as evidenced by its public financial management system consistently ranking among the best worldwide on the Open Budget Index of the International Budget Project. However, allegation of collusion, bid rigging, and corruption in public procurement, result in a substantial fiduciary risk downstream. These risks are mitigated through the planned DPME enhanced monitoring and evaluation measures and by government’s commitment at the highest level to use its Special Investigating Unit to investigate complaints. 151 Environmental/social risks are rated Substantial. South Africa made significant strides in developing its framework for environmental management and mainstreaming environmental sustainability into decision making processes. However, because of the important role of fossil fuels in South Africa’s economy, the low-carbon transition will need to be managed in a manner that does not lead to significant disruptions in the economy. To mitigate the risks of disruption, the World Bank will support Government efforts to implement adequate social action plans. 152 Stakeholder risks are rated Substantial: To mitigate the risk of stakeholder opposition or lack of buy-in to the CPF program, the WBG will expand collaboration and conduct regular consultations with the Government and its social partners: business, civil society, and trade unions. To ensure the relevance of the program, the WBG will engage in regular knowledge exchanges across academia and strengthen relationships with key players in strategic bodies such as the Presidential Economic Advisory Council, the President’s Office, the National Planning Commission, think tanks, and the SA-WB Country Consultative Board. 54 V. ANNEXURES Annex 1: Results Framework (FY22-FY26) ` In South Africa, the significant convergence between South Africa’s 2012 National Development Plan (NDP) and the SDGs is often emphasized. According to an unpublished analysis by the Department of Planning, Monitoring and Evaluation (DPME) and the UN Development Program (UNDP), 74% of the SDG targets are directly addressed by the NDP, and sectoral programs address 19% of the remaining targets (DPME, 2019). Seen in this way, the SDGs have the potential to accelerate the realization of the NDP’s vision, notably by fostering greater policy coherence and reducing duplication and inefficiencies. The CPF is closely aligned with the NDP, implemented through a series of 5-year Medium-Term Strategic Frameworks (MTSFs). The Government’s second MTSF (2019-2024)44 reflects the priority programs of the current administration, which it is directly linking to achieving SDG targets (Sustainable Development Goals: Country Report 2019 for SA). Specific SDGs supported by the CPF include the following: • Focus Area 1: This focus area has an impact on the government’s efforts to achieve some of SDG goals such as SDG 1 (No poverty), SDG 5 (Gender Equality), SDG 7 (Affordable and Clean Energy), SDG 8 (Decent Work and Economic Growth); SDG 12 (Sustainable consumption and production) and SDG 13 (Climate Action). • Area 2: This focus area contributes to the government’s efforts to achieving a few of the Sustainable Development Goals: SDG 1 (No Poverty); SDG 4 (Inclusive and equitable quality education and lifelong learning opportunities); SDG 5 (Gender Equality) and SDGs10 (Reduced Inequalities); SDG 8 (Decent Work and Economic Growth) • Area 3: This focus area contributes to the government’s efforts to achieve SDG 1 (No Poverty); SDG 5 (Gender Equality), SDG 7 (Affordable and Clean Energy), SDG 9 (Industry, Innovation and Infrastructure), (SDGs 11) (Sustainable Cities and Communities), SDG 13 (Climate Action). • Cross-cutting CPF themes contribute among others to SDG 16 (Inclusive Societies) and SDG 17 (Implementation and Global Partnership) 44 https://www.nationalplanningcommission.org.za/assets/Documents/Frameworks/mtsf-2019-2024.pdf 55 Focus Area 1: Promote increased competition and improved business environment for sustainable growth Objective 1.1: Improved competition in selected markets and the business environment Intervention Logic: This objective will help to improve the conditions to stimulate competition, create a more business-friendly environment, increase private sector investment and promote sustainable growth. This is particularly important in the post-COVID environment when all efforts must be made to reinvigorate growth and whereby the private sector will play a critical role in economic recovery considering the government fiscal constraint. In order to make significant headway in opening South Africa’s markets to new entrants, greater investment and more dynamic competition, the government must ensure that the business environment is more conducive to investment and that pro-competition reform is elevated in the policy agenda and is seen as the responsibility of a broad range of sector regulators and line ministries that control markets. The concentrated market structure of economic ownership across South African markets – both within the private sector and between the private sector and public sector - has perpetuated the country’s legacy of exclusion- by limiting opportunities for small or previously excluded entrepreneurs to enter and by making it difficult for small firms to compete with large firms. Anticompetitive effects of SOEs are caused not merely by the presence of SOEs per se, but by regulatory or financial advantages sometimes provided to SOEs that create a lack of level playing field and competitive neutrality across domestic markets. While South Africa has made important strides in implementing its competition law over the last two decades, there is still room to enhance a broader set of public policies – such as regulation of network industries and the financial sector - in a way that can foster competition and thereby address national social and economic objectives. Insofar as competitive markets are central to investment, efficiency, innovation, and inclusive growth, regulation of competition (through overarching competition policy and implementation) and regulation for competition (through sectoral regulation) are central to efforts to promote new and retain existing investment, as well as to preserve and promote supply chains connecting foreign and domestic (often SME) suppliers. Eliminating or reducing the administrative cost on businesses would reinforce the outcomes of regulatory measures for increased competition in key markets. The WBG will support reforms to policy frameworks that hinder competition across the economy (including frameworks regarding SOEs and investment incentives), but particularly in key sectors: (a) In the financial sector, the WBG will work towards a competitive, inclusive and resilient financial sector. The focus of this engagement will be on (i) acceptance of new players and innovative products in order to strengthen competition; (ii) implementation of the National Financial Inclusion Strategy in order to diversify financial products and providers, and increase financial inclusion for individuals in underserved segments of the market; and (iii) establishment of a resolution framework for weak financial institutions and introduction of deposit insurance coverage for individual savers, in order to strengthen business environment and financial resilience. (b) In the ICT sector, the WBG will facilitate accelerated access to affordable high-speed internet especially in townships and rural areas. The focus of this engagement would be on private sector led digital infrastructure expansion, including paving the way for deployment of next generation 5G networks. Completing the long-standing mobile spectrum auction in a way that incorporates pro-competition principles, alongside licensing a new national Wholesale Open Access Network, are expected to improve quality of broadband services and improve market entry for service-based operators, resulting in reduced market concentration. Ultimately improved competition is expected to contribute to lower data prices for consumers and to have a major contribution to the business environment overall and help growth of the digital economy. The WBG will provide support for technical design and implementation of government programs and regulatory instruments. The CPF, through its ASA programs, will support the efforts of the government towards improving investment policies in order to achieve the national investment target, by (i) removing policy uncertainty at economy and sector levels in areas such as licenses, the BBBEE regime, land, trade and investment policies; (ii) boosting investor confidence by strengthening investment protection and retention policies and deploying tools for investor tracking, aftercare and grievance management, (iii) addressing binding constraints and inhibitors to investment in priority sectors, and (iv) upgrading the investment promotion framework. MIGA will continue to actively support in-bound foreign private investors. 56 The WBG will also continue the dialogue with the government to broaden the scope and deepen the efforts on creating an enabling business environment in areas such as (i) starting a business; (ii) registering a property; (iii) dealing with construction permits; (iv) paying taxes; (v) trading across borders; and (vi) getting electricity. Reforms are particularly important to support creation of new firms in a post-COVID-19 environment as well as ensuring government to business services continuity through automation Expected Results: WBG support is expected to help improve the overall competition and investment framework, increase contestability of markets and tackle regulatory and governance bottlenecks in the business environment. In financial markets acceptance of new players and innovative products will strengthen competition. Overall, support for these measures should result in positive impacts on the economy through broadened ownership and market entry, increased productivity and competitiveness, less red tape, lower costs and increased employment. Key milestones expected to achieve these results include: (i) Completion of the auction and licensing process for high-demand radio spectrum for mobile broadband use, in line with the Policy Direction which was issued in July 2019 and the recommendations from the Competition Commission Data Market Inquiry. (ii) Enactment of revised National Payment System Act to allow non-bank financial institutions to issue e-money and compete with banks (2022). (iii) Establishment of tiered banking framework to promote competition in the market for (digital) financial services including the issuance of e-money (2022). (iv) Publication and implementation of National Financial Inclusion Strategy 2023 – 2025 (2025) (v) Enactment of Financial Sector Law Amendments to establish a resolution framework and enable the establishment of Deposit Insurance Scheme (2020) (vi) Improving the business environment by cooperating with GOSA in implementation of five areas by 2025: selecting from (1) starting a business; (2) registering a property; (3) dealing with construction permits; (4) paying taxes; (5) trading across borders; and (6) getting electricity.. CPF Objective Indicators WBG Program 1. Cost of 1 gigabyte of mobile broadband data as % of Gross National Income Financing: Ongoing (GNI) per capita. • MIGA Guarantees: ongoing support for infrastructure / finance Baseline: 2.17% (Q2/2019) sector projects in MIGA’s portfolio in South Africa Target: 1.3% (2025) New Financing: Pipeline (Based on ITU methodology) • IFC Infrastructure: ICT, transport, water, mining • Target: US$150million Advisory: US$1million 2. Concentration ratio of the 2 largest firms in the 4G wireless broadband market AAA/TA/TF/Others: Ongoing (based on number of connections) • Private Sector Competitiveness Advisory Project (IFC Baseline: 75% (Q2 2020) #602710) Target: 65% (2025) • Prosperity for Investment Advisory Project (IFC #602781 3. Value of digital transactions by non-bank financial institutions as percentage • Financial Sector Development and Reform Program II of total value of digital transactions by bank and non-bank financial institutions” (P169126); US$4.3m donor funded (SECO) ASA supporting Baseline: 0% (2020) implementation of financial sector resilience, competition and Target: 5% (2025) financial inclusion reforms. • Financial Sector Assessment Program Update-FSAP (P170707); Joint IMF-WB assessment of Financial Sector stability and 4. Adults (age 15 years +) making or receiving digital payments (Percentage) development issues. Baseline: 60 percent (2017) 57 Target: 70 percent (2025) • SADC Cross-border Crisis Simulation RAS (P172847). • Southern Africa Financial Inclusion Follow-up ASA (P172042). Rural Population • Southern Africa Digital Engagement (P172813) Baseline: 60 percent (latest Findex Survey 2017) AAA/TA/TF/Others: Pipeline/Indicative Target: 65 percent (2025) • South Africa future drivers of growth, economic modeling and economic policy notes FY21 Women • Technical Cooperation on competition Baseline: 61 percent (latest Findex Survey 2017) • Agricultural finance and insurance Target: 65 percent (2025) • TA South Africa Credit Reporting & Financial Inclusion Program (IFC) 605106 Income (poorest 40%) Baseline: 52 percent (latest Findex Survey 2017) Target: 60 percent (2025) 5. Eligible deposits insured by deposit insurance scheme Baseline: 0 (2020) Target: 80 percent (2025) 6. Time and # of procedures to start a business (2020) Baseline: 40 days and 7 procedures to register a business Target: 10 days and 3 procedures to register a business by 2025. 7. Time and # of procedures to obtain a permit in the construction sector Baseline: 155 days and 20 procedures Target: 120 days and 15 procedures by 2025 8. Time taken (hours per year) to complete tax payments Baseline: 210 hours per year Target: 168 hours per year by 2025 Focus Area 1: Promote increased competition and improved business environment for sustainable growth Objective 1.2: Greater climate change resilience and environmentally sustainable investments in selected sectors Intervention Logic: Extreme climate events, such as severe droughts and floods, have put basic services and infrastructure and economic sectors such as agriculture under threat. In addition to its vulnerabilities to climate change impacts, South Africa is also a major emitter of greenhouse gases, mainly CO2. About 91 percent of its total power generation is coal based with significant associated negative externalities—such as damage to health from air pollution, water quality and environmental degradation. The Government has committed to ambitious NDC targets under the Paris Agreement and has adopted detailed plans (e.g., IRP2019) to achieve it. A climate-smart and just transition is critical. Such transition also offers new investment opportunities that can create jobs, improve basic services, make the economy more resilient, and ultimately become new engines of economic growth. The CPF will 58 • support the GoSA in the integration of climate risks into macro-fiscal planning and infrastructure investment by increasing the capacity of GoSA to mainstream climate change into fiscal and budget processes, institutionalize the integration of climate and transition risks into the infrastructure delivery framework, as well as support sustainable finance and greening of the financial sector. • support key measures of the NDC through designing and piloting key new climate policies underlying the NDC along with the provision of necessary tools such as a climate finance planning and tracking system, and action roadmaps in selected sectors/metros. • provide IRP2019 implementation support to GoSA for a secure and sustainable generation mix to enable a just transition pathway for the electricity sector, particularly through more renewable energy, battery storage and decommissioning and repurposing of aging coal plants. IFC will continue to support the reduction of CO2 emissions, the financing of renewable energy independent power producers (IPPs), embedded generation for commercial and industrial projects, smart grid infrastructure, and energy efficiency and distribution loss reduction in municipalities. MIGA will continue to support IPP wind and solar energy-generating facilities participating in the REIPPP and explore and de-risk cross-border investment and lending in renewable energy projects. • support GoSA in its efforts to increase investments and actions towards a just transition and climate resilience in the agriculture, water and sanitation services, and land-use, as well as an increase in private sector investment and participation in these sectors. Expected Results: WBG support will contribute to a transition to a low-carbon and climate resilient economy, as well as supporting achievement of the country’s NDC. This will be measured through a secured and sustainable energy mix, through use of battery storage, carbon capture and storage, demand side energy efficiency and reductions of carbon emissions throughout the energy value chain. In addition, WBG interventions will lead to greater resilience through improved land and water use and drought management. Key milestones include: (i) Awarding of battery storage supply and installation contracts; 10 metric tons (MT) carbon capture, storage and utilization. (ii) Implementation of carbon tax; and IFC supporting the private sector with US$400 million new finance in climate mitigation and adaptation, to reach private sector investment of US$1billion by 2025 (iii) Operationalization of the SAGERS by DEFF and finalization of a GHG reporting and assessment framework for the energy and mining sectors by DMRE. (iv) Completion of the Southern African Power Pool Drought Sensitivity Assessment and Adaptation Strategy; and completion of a Watershed Management Plan for Livelihood Resilience in at least one transboundary River Basin. (v) Revised NDC includes specific gender targets by 2025. (vi) Climate budget tagging system implemented at three levels of government - one each on municipal, provincial and national level (NT) (vii) Three provinces supported in prioritizing irrigation investments and putting in place arrangements for the financing and implementation of irrigation improvement in three irrigation schemes. (viii) At least five partnerships supported between agribusiness and small and emerging farmers to prepare and implement plans to increase inclusion (black shareholding) in partnerships and adopt climate smart agricultural practices CPF Objective Indicators WBG Program 59 1. New battery energy storage capacity installed to scale up renewable energy Financing: Ongoing integration • Partnership for Market Readiness (P155885) Baseline: 0 MW (2020) • Eskom Renewable Support Project (P122329 Target: 300 MW (2023), absorbing energy generation by an equivalent of up to • MIGA Guarantees: ongoing support for 13 renewable sector 1350MW renewable energy capacity projects • Market Acceleration for Green Construction African Regional Program (IFC) New Financing: Pipeline/indicative • IFC private sector investment in climate mitigation and adaptation: $400 million new investment FY 21-25, Advisory:US$1.2m AAA/TA/TF/Others: Ongoing • Programmatic ASA on Energy in South Africa (P172682) • Grant support to develop climate smart mining strategy (P174003) • Grant support on coal plant decommissioning/repurposing 2. Greenhouse gas emissions reductions achieved from (BETF/RETF). FY 21 a) Carbon tax • Grant support on financing strategy to achieve energy Baseline: 0% (2020) efficiency target (BETF) FY21• Target: 3% (2025) and • PASA Support the Implementation of NDC (ASA, BETF) b) Greenhouse gas emissions reductions achieved from private sector • TA to Develop Carbon Capture (P149521) investments in clean energy (US$1 billion FY21-25) • Support for climate risk management and finance strategy, Baseline: 0 (2020) including agricultural insurance Target: 1.5MT Co2/year (2025) • DBSA RAS on Beyond the Gap • “30 by 30 zero program”- WB/IFC Climate finance partnership 3. Greenhouse gas emissions reporting and assessment framework (IFC) 603410; WB P169126) Baseline: National Atmospheric Emissions Inventory System (NAEIS) Target: Implementation of South Africa Greenhouse Gas Emissions Reduction • Environmental Performance & Market Development- South System (SAGERS) and Development of a GHG reporting and assessment Africa (IFC) framework for the energy and mining sectors by 2025 • Watershed Management Plan for Livelihood Resilience in the Limpopo and Cubango/Okavango Basins (part of the regional 4. Area under improved protected management status SADC drought resilience initiative, P173077 Baseline: 0.00 hectares (ha) (2020)45 • Catalyzing Financing and Capacity for the Biodiversity Target: About 175,000 ha of additional area put under improved46 protected area Economy around Protected Area (GEF IPF project) FY21 management (FY26). • Wildlife Conservation Bond (GEF IPF project). FY21 45 None has been implemented so far through World Bank-financed activities. This does not refer to areas put under improved protected area through government’s own support. 46 Including climate risk management and improved resilience. 60 Indicative AAA/TA/TF/Others • South Africa Air Quality Management, Greater Johannesburg, P170743 • Support for development of a disaster risk management and finance strategy (linked to Urban RAS) FY21 • Climate risk management and stress test in FIs, FY21 Focus Area 2: Strengthen MSME performance and skills development to support job creation Objective 2.1: Increased development of selected value chains with strong job-creating potential Intervention Logic: More targeted support is needed to attract investments in value chains with high job creation potential. Select value chains such as in agriculture/agribusiness, automotive sector, renewable energy, climate smart mining, transport, tourism and digital products and services have the potential to create new and better jobs including for low/unskilled youth. For these key sectors, it is important to help identify key bottlenecks, facilitate policy decisions to remove them and mobilize private sector investments. For example, in the agriculture/ agribusiness space, the WBG will support the efforts of national and provincial agencies (starting initially in Eastern Cape Province) to: (a) identify agricultural areas of greatest potential through assessment of water availability and land suitability; (b) address land governance, zoning and land registration-related constraints to investment; (c) facilitate at least three partnerships between agribusinesses and medium commercial and emerging farmers and bring at least 4000 hectares under new horticulture production; (d) strengthen delivery of rural infrastructure and services to improve small and emerging farmers’ access to water, technology, and markets; (e) increase lending to small and medium farmers through at least three investments supported by IFC risk-sharing facilities and / or other GOSA / DFI mechanisms / programs in this regard; and (f) address investment climate constraints along value chains. WBG will also support rural infrastructure development (such as irrigation, potable water and rural roads) to promote spatial convergence and connectivity, as well as facilitate regional trade integration and value chains. In addition to agriculture, IFC will continue to support the automotive sector value chain to increase localization through supplier development efforts aimed at facilitating at least three investments totaling US$100 million for Tier 1 and below suppliers. MIGA will continue to support Land Bank through its guarantee for non-honoring of financial obligations of SOEs with the aim of enhancing Land Bank’s ability to support farmers through its financial products and loans. Expected Results: The WBG support will contribute to GoSA’s implementation of targeted programs to attract investment in value chains with a high potential for job creation, including for low/unskilled youth. It is expected that WBG’s interventions will help address critical bottlenecks and translate into greater investments and ultimately increased job creation. For example, in the agribusiness sector, it is expected that the interventions will help to address the constraints which hinder the inclusion of small and emerging farmers in commercial value chains, including limited access to finance, limited agriculture know-how, limited access to technology, and productivity/quality issues. This would in turn translate into jobs created in the concerned value chain. Similar results are expected in other value chains as interventions are rolled out throughout the CPF. CPF Objective Indicators WBG Program 1. Lending to Small and Medium-scale Farmers (SMF) by Financial Institutions Financing: Ongoing Baseline: US$350 million (2020) • Land Bank Financial Intermediation Project (P150008). Target: US$700 million (2025) 61 2. Jobs created in Horticulture and Beef Value Chains • MIGA Guarantees: Ongoing support for Land Bank to support on-lending in accordance with the its mandate, including in (i) Horticulture (estimates based on IFC investment of US$50 million) value chains in agriculture/ agribusiness Baseline: 0 (2020) • MIGA guarantees for South Africa’s outward Target: 18,750 (2025) investments/lending supporting the integration of South African (Includes 6,250 direct and 12,500 indirect jobs. 70% direct for men, 50% firms and financial institutions into regional value chains indirect for women. IFC estimates based on 4,000 ha additional production) • MIGA Guarantees: ongoing support with a NHSOE guarantee (ii) Beef: (estimates based on support to 10,000 smallholder producers owning to the private commercial banks for their loans to Development 10 cattle each). Bank of Southern Africa to expand its USD lending portfolio in Baseline: 0 (2020) South Africa and in the broader Southern African Development Target: 1,000 (2025) Community, primarily in infrastructure New Financing: Pipeline/indicative 3. Increased share of the supply chain sourced locally (‘local content’) ‘in the • Additional financing under P150008 automotive value chain (estimates based on IFC investment of US$100million) • IFC private sector investment in agribusiness value chains. Baseline: 38.7% (2020) Target: US$100m by 2025 Target: 42% (2025) • IFC financing to support Tier 1 and below automotive suppliers, and localization of automotive supply chain in line with the DTI’s Automotive Masterplan 2035 • Regional Trade Integration and Value chains AAA/TA/TF/Others: Ongoing • Strategic Agri-business Partnerships in South Africa (IO 2103595) • IFC value chain support • Agriculture Finance Diagnostic Indicative AAA/TA/TF/Others • Integration of small holder farmers into commercial value chains TA • Climate smart agricultural services and infrastructure in the Eastern Cape (ASA / TA) FY21 • ASA on Roadmap for Sustainable Livestock Value Chain in Southern Africa (P174621) $0.1m, FY22 • Agri-processing resource efficiency (IFC) 603267 • South Africa Automotive Linkages/Local Supplier Development Program (IFC) 62 Focus Area 2: Strengthen MSME performance and skills development to support job creation Objective 2.2: Strengthened ecosystem for MSME creation and growth Intervention Logic: MSMEs account for about half the country’s work force and more than a third of GDP. Given the high levels of informality of MSMEs, limited employment and financing opportunities, there is an increasing risk that the worsening macroeconomic challenges (exacerbated by the effects of the COVID-19 pandemic) will drive more MSMEs into further decline. The GoSA is implementing a range of programs to create, support and grow MSMEs and entrepreneurship, targeting youth, women as well as township and rural economies. There is a need to enhance coordination, efficiency, efficacy and impact of the multiple public sector programs which the WB will support through (i) facilitating increased collaboration, and networking amongst the startup ecosystem actors through a Startup Community for sharing of data, knowledge and experiences and piloting innovative approaches; (ii) improved governance of the public and private interface through the design and implementation of monitoring and evaluation frameworks and tools to optimize public finance support for firms and entrepreneurs, and (iii) facilitate access to markets and crowding in private funding for early stage finance, especially for underserved entrepreneurs through innovative finance instruments and targeted solutions for women and youth. This support will be delivered through a multi-year programmatic Jobs Platform analytical and advisory services (ASA). Specifically, the WBG will: • support government efforts to develop and implement the MSME Access to Finance Action Plan and potentially other areas such as improving the impact of the Partial Credit Guarantee Schemes and establishing an Online Movable Asset Registry; • provide advisory support to the Government in the development of regulatory and policy responses to Fintech; • support the assessment of State-Owned Financial Institutions (SOFI) to highlight the key constraints in terms of limited effectiveness of government support programs, and • support public and private initiatives to enhance support to strengthening the ecosystem for entrepreneurs and tech startups, through a multi-year programmatic ASA on financial inclusion and development, the Jobs Platform as well as the SECO funded Financial Sector Development Reform Program. • IFC support for SMEs access to finance and technical cooperation through various financial institutions, including commercial banks is targeted at delivering at least US$400m lending to MSMEs. IFC is also exploring support for affordable housing through specific investments including loans directly to developers, or to commercial banks and non-banking financial institutions, for on-lending. IFC will provide advisory services to investee financial institutions to enhance their capabilities to serve the SME segment as well as provide loans to climate mitigation and resilience projects, thereby enabling them to better utilize the IFC. Expected Results: The main result expected under this objective is a significant enhancement of the overall ecosystem supporting MSMEs and startups. This would translate into the following impacts: more effective and better-connected support institutions to SME/startups (including through a digital platform), better resolution of administrative and regulatory bottlenecks preventing SME/startups to emerge and grow and increased access to financing, including equity. This would be measured by the number of startups created and surviving and the volume of investments mobilized by the end of the CPF. Outcomes Activities 63 1. Number of entrepreneurs who have developed their business models through Financing: Ongoing mentoring, coaching, training and matchmaking support delivered through the startup community. Baseline: 0 (2020) New Financing: Pipeline/indicative Target: 300 (2025) • IFC Inclusive Finance, Capital Markets, US$400m, FY21-25 2. Number of supported startups that have raised additional funding to scale their AAA/TA/TF/Others: Ongoing ventures • Jobs and Economic Transformation ASA (P171855) ending Baseline: 0 (August 2020) FY22 Target: 100 (2025) • Digital Engagement ASA (P172813) ending FY22 3. Increased lending to MSMEs by Financial Institutions • Financial Inclusion Program ASA (P172044), ending FY22 Baseline: US$16.68 billion (2020) Target: US$21.29 billion (2025) Indicative AAA/TA/TF/Others Focus Area 2: Strengthen MSME performance and skills development to support job creation Objective 2.3: Strengthened employment and skills development services Intervention Logic: South Africa has a variety of programs targeted at both labor supply and demand aiming to raise youth employability: training for skills development, entrepreneurship promotion, labor market intermediation services and employment schemes, among others. However, the current programs are fragmented, mostly target graduates and few resources are geared towards unskilled vulnerable youth, and the TVET system remains weak in equipping youth with skills demanded by a modern economy. The WBG will: • support the modernization of employment services by developing, testing, and implementing modern skills profiling, matching, and e-Learning platform tools into employment services; • identify mechanisms to strengthen the service delivery of public and private active labor market programs (ALMPs) through cooperation with actors such as the Presidential Employment Stimulus Program and the Department of Employment and Labour. Particular attention will be paid to disadvantaged girls and low-skilled vulnerable youth. Technical outputs would include: a) the curation and transfer of data, tools, and models into the local online zero rated mobi.site as well as to on-the-ground employment centers, b) real time map of services developed by youth and available to youth to access in their communities; c) a review of ALMPs including recommendations for how to strengthen these to better respond to South Africa’s youth employment challenges especially for the COVID-19 recovery phase. Technical cooperation with Government will be take place on the Presidential Youth Employment Intervention for the development of an integrated youth employment one stop shop platform for profiling, training and matching youth made available to youth employment accelerators such as YES and Harambee through the National Youth Portal. • expand non-formal training through technical cooperation to scale up incubation and entrepreneurship training centers and developing social- emotional skills and job readiness on-line training modules. strengthen the TVET system for improving the employability of graduates in a changing job market through an analysis of critical determinants of companies to participate in WPBL, especially of micro and small businesses, as well as 64 strengthening informal apprenticeship training in the township economy; and strengthen MIS in post-school education and training (PSET) to improve outcomes monitoring; and prepare an options paper for scaling up TVET through more cost-effective and coordinated financing models;; • identify training and skills requirements for value chains with high job creation potential (2.1) and direct youth toward these opportunities with the objective of increasing the number of tertiary education institutions using employability tools to prepare skill programs for the labor market from 2 to at least 8; and • IFC to implement the Employability Tool in TVET institutions and universities. The Tool is a global platform which helps institutions identify and address key challenges in preparing their graduates for the job market. Expected Results: WBG interventions will help improve the access of youth to better quality job intermediation services. This would result into: (i) more youth being better prepared for entrepreneurship or the job market and hence having a greater chance of finding a job; (ii) better matching between supply and demand for jobs in selected value chains, and (iii) a better adjustment of tertiary institution programs to the needs of the jobs market. CPF Objective Indicators WBG Program 1. Job-seeking youth supported through the availability of digital job Financing: Ongoing intermediation tools which aim to increase the employability and close skill gaps of vulnerable youth and strengthen the quality of service that employment Planned/Indicative New Financing services provide for youth. • IFC financing to private student accommodation sector, and co- Baseline: Youth Employment Service (YES) uses the digital profiling tool for funding of public student accommodation alongside DBSA to intermediation and generated 30,000 apprenticeship opportunities (Q1 2020) support Student Housing for TVET and University Students, Target: Harambee and the Presidential Pathway Management Network use the thus supporting skills development at Tertiary Institutions digital profiling and e-Learning tools for their network which includes around to support 2,000,000 youth (by 2025) AAA/TA/TF/Others: Ongoing • ASA: Skills for Employment • ASA: Innovations in Youth employment in SA • ASA: Social Protection System Review 2. Number of tertiary education students with access to improved employability • ASA: The future of medical work services • ASA: Jobs Platform (support to 5x5) Baseline: 0 (Aug. 2020) Target: 8,000 (by 2025) • South Africa Skills (IFC) 604960 • Support to Trace Academy 3. Number of youths trained in jobs created by specific value chains Baseline: 0 (Aug. 2020) Indicative AAA/TA/TF/Others Target: 50,000 (by 2025) • ASA: Integrated skills development approaches for disadvantaged youth – an assessment of SA’s vis-à-vis international experience • ASA: Advancing TVET system Reform in SA: financing, relevance, digitalization and monitoring and evaluation • ASA: Ensuring tighter linkages between the TVET system and employers 65 Focus Area 3: Improve Infrastructure Investment Framework and Selected Infrastructure Services Objective 3.1: Improved infrastructure investment framework Intervention Logic: South Africa has developed relatively good infrastructure base, but gaps remain in public services provision while infrastructure spending has been declining over the last years. The COVID-19 pandemic will add to the immediate pressures on the fiscus to finance infrastructure, while the downgrading of its sovereign credit rating is making it more expensive for the government to raise money on international markets, including for infrastructure investment. Existing public investment frameworks lack robust infrastructure planning, identification, preparation, financing and delivery mechanism to ensure adequate infrastructure services are delivered. Coordination among agencies at different levels is suboptimal. There is a need for further clarity on specific roles and responsibilities of each of the stakeholder institutions across the project cycle to ensure the projects are identified, prepared, financed and implemented in a fiscally sustainable manner. The Infrastructure Fund (IF) initiative, supported by the Memorandum of Agreement (MoA) between the key stakeholders (Infrastructure South Africa, National Treasury and Development Bank of Southern Africa), aims to develop sustainable infrastructure with an aim to crowd-in private sector investments. The recently established delivery unit, Operation Vulindlela (OV), will help facilitate implementation acceleration of selected priority sectoral reforms to support investments with private sector. The CPF will support key actions aimed at improving the infrastructure investment framework, by providing technical and financial resources to: • Strengthen the overall infrastructure investment framework, focusing on improving the framework for overall infrastructure governance, aligning investment priorities in infrastructure with policy objectives, improving controls for infrastructure financing with a focus on fiscal commitment and contingent liabilities (FCCL), and strengthening the framework and implementation of public investment management (PIM), Budget for Facility (BFI) and public-private partnerships. • Strengthen the capacity of key infrastructure stakeholders including line ministries, sub-national entities and SOEs for project identification, prioritization, preparation, financing and implementation in priority sectors, in accordance with the SIDS Methodology. These mechanisms must align with the South Africa’s Infrastructure Investment Plan and the institutional mechanisms articulated in this Plan. • Support Infrastructure South Africa in designing policies, regulations and frameworks aimed at mobilizing institutional investors, including through the development of scaled-up solutions such as investment consortiums and developing replicable financial structures and vehicles. The WBG will apply the MFD approach through integrated and complemented interventions from IBRD, IFC and MIGA, as has been done in the energy sector. Expected results: WBG support will contribute to strengthened PIM and BFI frameworks; IF processes; more capacitated line ministries, sub-national entities and SOEs in project identification, prioritization, preparation, financing, and implementation in priority sectors; and improved policies, regulations, frameworks and solutions including for mobilizing institutional investors. Key milestones that would support the achievement of the outcomes include: (i) Appraisal and Evaluation guidelines approved and applied for all public investment projects reviewed under BFI (2022) (ii) Recommendations/reforms in accordance with the proposed roadmap for the PPP framework are approved and applied by National Treasury to registered PPP projects CPF Objective Indicators WBG Program 1. Strengthened PIM and BFI processes for selection, appraisal and evaluation Financing: Ongoing Baseline: 0% of new large projects approved using appraisal and evaluation guidelines (2020) Planned/Indicative New Financing 66 Target: 75% of new large projects approved using the appraisal and evaluation guidelines (2025) AAA/TA/TF/Others: Ongoing • Support for a strengthened Infrastructure investment Note: Large projects refers to projects above a certain threshold as currently Framework defined by BFI (a system of procedures and guidelines to infrastructure projects • Review & strengthening of PFMA, Procurement Frameworks exceeding ZAR 90 million) and PIM process • Strengthen South Africa’s Asset, Debt and Risk Management approaches and practices • DBSA RAS on Beyond the Gap (RAS) Indicative AAA/TA/TF/Others Public Expenditure Review FY21 2. National Treasury application of strengthened PPP framework for PPP • Review & strengthening of PPP framework projects through adoption of improved and efficient processes under the PPP • Infrastructure Fund, including for green, public-private regulation (National Treasury Regulation 16) infrastructure program Baseline: 26 months approval time efficiency for PPP projects (2021) • Support in development of National Infrastructure Plan (NIP Target: 20 months approval time efficiency for PPP projects (2025) 2045) • Facilitate long-term LCY financing through capital markets Note: The improved PPP regulation (National Treasury Regulation 16) provides (Capital Markets Strengthening Facility (CMSF) Trust Fund) streamlined and more efficient review and approval processes for PPP projects. P169126. Focus Area 3: Improve Infrastructure Investment Framework and Selected Infrastructure Services Objective 3.2: Improved infrastructure services by selected SOEs Intervention Logic: South African infrastructure SOEs are critical to the delivery of affordable and high-quality infrastructure services in priority sectors and play a central role in the country’s economy and growth. SOEs face different challenges in providing infrastructure services that are cost effective, arising from factors such as a lack of clarity on sector policy and regulatory frameworks, institutional arrangements and decision-making processes, governance, operational and financial sustainability issues, and weakened capacity to operate infrastructure efficiently. These issues require designing and implementing a customized support package for SOEs across different sectors. This CPF will focus initially on the transport sector SOE, Transnet, and the electricity sector SOE, Eskom, as these institutions are key to the country’s competitiveness and Eskom, especially, to lowering the fiscal burden and carbon-intensity of electricity generation. Thus, the focus on Eskom is tantamount to a focus on a just energy transition in South Africa, with a more sustainable SOE that is sourcing energy from low carbon fuel sources. Decommissioning / repurposing of Eskom’s inefficient and or obsolete coal-fired plants will support Eskom’s financial standing by reducing operational costs associated with these ‘liabilities’. The CPF will contribute to SOE reforms and measures that would increase their efficiency and financial sustainability through the design and implementation of customized support packages tailored to their needs: • For Transnet, this support is expected to include areas related to their own reform program. 67 • For Eskom, the WBG will support the Eskom Restructuring / government reform program to improve the operational performance and financial stability of the company to ensure electricity supply security. In parallel, the power sector reform agenda, set out along the lines of the Eskom Restructuring Paper and other government documents, includes (a) Eskom’s full legal unbundling; (b) creating competition in generation; (c) dealing with Eskom debt management and optimization; (e) improving efficiency in electricity distribution;; (f) scaling up renewables; and (g) implementing the just energy transition. Expected results: The WBG support will contribute to increased efficiency, security of supply and financial sustainability through the design and implementation of customized support packages tailored to the needs of (i) Transport SOEs, Transnet, with the latter supported by development and implementation of a credible recovery plan; (ii) the electricity SOE, Eskom, with decommissioning of 3 Gigawatt (GW) of old, inefficient and expensive coal fired capacity and repurposing of those sites with RE through PPP to improve service quality and improve the financial position of Eskom. CPF Objective Indicators WBG Program 1. 1. Supporting the Just Energy Transition Financing: Ongoing Baseline: no coal plants retired/repurposed (2020) • MIGA Guarantees: Ongoing support with a non-honoring Target: 3 GW of retired coal plants / 1 GW repurposed with renewables and guarantee to the private commercial banks for their financing to PPP (2025) Eskom Holdings SOC Ltd (power) AAA/TA/TF/Others: Ongoing • Support Eskom institutional, governance and operational reforms through Programmatic ASA on Energy in South Africa (P172682) • Support regional cooperation in energy, transport & transport facilitation and ICT Indicative AAA/TA/TF/Others 2. Increased operational efficiency in Transport SOEs: • Support SOE Institutional, Governance and Operational Improve private sector participation in container terminal operations in Durban Reforms – Transnet and Ngqura and the freight rail sector to the Gauteng region; • Support to Infrastructure Fund (ASA) Baseline: No (2020) Target: Yes (2025) Focus Area 3: Improve Infrastructure Investment Framework and Selected Infrastructure Services Objective 3.3: Improved planning and delivery of infrastructure services in targeted cities Intervention Logic: South Africa’s urban areas are still characterized by the Apartheid legacy of the inefficiency and inequality of spatial and economic disparities. The focus on spatial convergence coincides with the objectives of GoSA in building sustainable and economically viable communities. The 68 CPF support seeks to unlock the potential of previously marginalized spaces in urban settings across the country, supported by sustainable basic services, such as water and sanitation. In the urban space, • The WBG support will contribute to strengthen basic service delivery and institutionalization of the Cities Support Program within the eight metropolitan areas by improving the planning and delivery of infrastructure services. It will support enhanced development outcomes in specific policy areas such as informal settlement upgrading, People’s Housing Program (PHP), affordable housing, social/rental, and inclusive housing. WBG will support scaling-up of city-wide upgrading to improve functional tenure, safety, health security, improvement of basic services and community empowerment and partnerships. In addition, the CPF aims to support cities to develop streamlined planning processes and strategies, while integrating climate-resilient and sustainability principles into their programs and investments. • Urban connectivity remains one of the strategic anchors towards achieving spatially equitable cities in South Africa. The WBG is supporting the National Treasury to improve the sustainability of public transport programs through improved financial planning and system integration. Through the Urban RAS, WBG will contribute towards planning, strategies and roadmaps for critical urban transport sector reforms, with a focus on the reform of national public transport grants, innovation of municipal urban transport financing, and integration of ticketing between Metro Rail and Bus Rapid Transport. • IFC will support municipalities in water, energy and other sectors. MIGA will explore supporting cross-border investment and lending to eligible cities and municipalities, and transport/urban connectivity projects through its products. Expected Results: WBG will contribute to strengthen basic public service delivery and institutionalization of the Cities Support Program within the eight metropolitan areas. It will support enhanced development outcomes in specific policy areas such as informal settlement upgrading, PHP, affordable housing, social/rental, and inclusive housing. WBG will also support scaling-up of city-wide and in-situ upgrading to improve functional tenure, public transport, safety, health security, basic WASH and other services and community empowerment and partnerships. Key milestones that would support the achievement of the outcomes include: (i) 4 cities implementing water resilience strategies; (ii) IFC broadening its support for municipal water, energy and other sectors for 6 cities; (iii) adoption of 4 smart-city strategies by select municipalities; (iv) all 8 metros apply finance planning strategies / tools; (v) 5 cities implementing the Township Development Program under the Cities Support Program; (vi) 2 Cities adopt integrated informal settlement upgrading plans under the Upgrading Partnership Grant; (vii) guidelines for a national public transport grant reform program developed; (viii) guidelines for improved integration of public transport system developed; (ix) a clear framework and roadmap for the reform and improved integration of the Minibus Taxi sector developed. CPF Objective Indicators WBG Program Improved multi-sectoral urban planning capabilities for basic service delivery in Financing: Ongoing all 8 metros. Baseline: 0 (2020) Planned/Indicative New Financing Target: 8 metros (2025) • IFC Infrastructure Investment in select cities (African Cities Platform) US$150m (2023) Advisory Services, US$5m • IFC Infrastructure: ICT, transport, water, mining. Target: US$150m Advisory: US$1m • IFC private sector investment in clean energy and gas. Target: US$200 million, Advisory: US$1.2m AAA/TA/TF/Others: Ongoing • RAS for Infrastructure Investment and Integrated Urban Development (RAS) 69 • SECO II Urban Knowledge Hub (ASA, BETF) • DBSA RAS on Smart Cities (RAS) • PFM support to South African Metro Cities (ASA, BETF) • Promoting Road Safety (ASA) • DBSA RAS on Urban Mobility (RAS) • Gender and Inclusion (ASA) • eThekwini wastewater PPP (IFC) 605021 • Africa Cities Platform (IFC) 603163 • Ekurhuleni Advisory (IFC) 605519 • Thekwini NRW (IFC) 605507 Indicative AAA/TA/TF/Others • Solid waste management and circular economy (ASA) FY21 70 Annex 2: Completion and Learning Review (CLR) Country Partnership Strategy FY14-FY18 I. INTRODUCTION AND CONTEXT 0. This Completion and Learning Review (CLR) assesses the World Bank Group’s (WBG) FY14- FY18 Country Partnership Strategy (CPS) for the Government of South Africa (GoSA). The Performance and Learning Review (PLR) dated November 16, 2016 confirmed the validity of the CPS strategic areas of (a) Reducing Inequality, (b) Promoting Investments, and (c) Strengthening Institutions, and extended the CPS for one year – to end-FY18 - to complete planned activities and programs. The additional two-year gap between the end of the CPS and the new CPF is mainly due to the need of aligning the policy dialogue with the electoral cycle for election which took place on 8th May 2019 and to building consensus with the new leadership around the new CPF. A note is annexed to reflect program implementation during the two-year gap (FY19 – FY20) not assessed in this CLR. The CPS was designed as an adaptable framework for providing knowledge services and evidence-based solutions in high-priority areas to address structural policy challenges. The CLR evaluates the program’s achievements and lessons learned, design and implementation, and alignment with WBG corporate goals, based on the PLR results framework (Attachment 1). 1. The CPS supported the implementation of the Government’s National Development Plan (NDP) through technical contributions to fiscal, policy, and regulatory reforms aimed at enhancing collaboration, integration and alignment across a diverse set of national and subnational stakeholders. The CPS did not foresee immediate lending opportunities yet had the flexibility to respond to emerging client demands such as the credit line to Land Bank47. International Bank for Reconstruction and Development (IBRD) financing mainly supported the implementation of two major IPF projects in energy (ESKOM)48 and environment (iSimangaliso)49, as the International Finance Corporation (IFC) and Multilateral Investment Guarantee Agency (MIGA) continued to seek opportunities to support private sector growth.50 Based on lessons from the previous strategy (FY 2009 – 2012), which, in response to client demand, promoted integrated development solutions and systematized the knowledge engagement,51 the CPS also responded to an increasing demand for reimbursable advisory services (RAS) building on the WBG’s global knowledge and expertise. 2. For most of the CPS period, economic growth was low, due to factors including a growth model previously financed by the public sector which reached its limits, corruption and state capture of public assets, rising unemployment (from 24.8 percent in 2011 to an 11-year high of 29 percent in 2019, with 58.1 percent youth unemployment), and rising inequality. By the end of the CPS period, South Africa had the highest level of inequality globally with a consumption Gini coefficient of 0.63. 3. Following nine years of limited progress on structural reforms, the election of Mr. Cyril Ramaphosa as ANC President in December 2017, and subsequently as President of the Republic, had been expected to boost investor confidence but things did not move as fast. The President took much-needed, decisive steps to halt the weakening of institutions, rebuilding the capabilities of the state, restoring the quality of governance, and strengthening public-private partnerships. In August 2018, President Ramaphosa launched the Judicial Commission of Inquiry into Allegations of State Capture, also known as the Zondo commission, to "investigate allegations of State Capture, Corruption, Fraud and other allegations in the Public Sector including Organs of 47Established in 1912, Land Bank is a government owned Development Finance Institution, which provides financial services to commercial and emerging farmers to finance land, equipment, improve assets and obtain production credit. 48 The US$3.75 billion Eskom Investment Support Project for South Africa aims at enhancing its power supply and energy security in an efficient and sustainable manner so as to support both economic growth objectives and South Africa's long-term carbon mitigation strategy 49 The US$9.0million GEF funded iSimangaliso aimed at improving access to information needed to select the best feasible option for maintaining the availability of fresh water of adequate quality to the Lake St. Lucia system, and to increase access among local communities to conservation-compatible economic opportunities. 50 South Africa was MIGA’s second largest portfolio across all countries as of end -FY2018. 51 The CPS supported the creation of a Knowledge Hub, an innovative approach to channel knowledge transfers to and from South Africa. Its purpose was to systematize the knowledge engagement between GoSA and WBG. 71 State" in South Africa. The revelations of the Zondo Commission have given impetus to leadership changes and reform programs. 4. To stimulate investment, President Ramaphosa set, as a first economic task, the rebuilding of strong fundamentals for growth through dealing with the effects of the past decade, such as unsustainable fiscal dynamics, weak SOE performance, unfriendly business environment, and policy uncertainties. He also set in motion a structural transformation program to reverse the socioeconomic decline and help the country transition out of the low-growth trap, underpinned by integration with the African continent, progressively greening the economy, ensuring a thriving digital economy, promoting investment, and enhancing smart industrial development. The downgrade of the sovereign credit rating to below investment grade and the global health and economic shock of the COVID-19 pandemic in the first half of 2020 have challenged the implementation of the program. Adjusting the program and sustained efforts will be required in the post COVID-19 environment. II. SUMMARY OF KEY FINDINGS 5. The overall performance of the CPS outcome is rated Moderately Satisfactory. All Result Areas: Area 1 on Reducing Inequality; Area 2 on Promoting Investments and Area 3 on Strengthening Institutions, are rated Moderately Satisfactory. Of the 13 objectives under these results areas, six were achieved, six were mostly achieved, and one was partially achieved. Notwithstanding the challenging implementation environment, the Bank made substantial progress in most target areas. Overall, the WBG contributed to significant policy, institutional, and regulatory reforms at both national and subnational levels. For example, the WBG contributed to curtailing the tuberculosis (TB) epidemic and to increasing access to useful and affordable financial products and services by businesses and citizens. The World Bank supported the improvement of the payments system to increase financial inclusion, while IFC helped increase access to affordable housing and access to credit for small and medium enterprises (SMEs). In the energy sector, despite the general governance concerns in the operating environment, the Eskom project managed to exceed its target on improving access to energy. MIGA complemented this effort by providing guarantees for investments aimed at strengthening the domestic grid for transmission and increasing clean energy generation. 6. The Concentrated Solar Power (CSP) component, however, remained three years behind schedule after the cancellation of the tendering process. Through WB facilitation, Eskom decided to undertake an alternative option that would help achieve the same objectives and results, the Battery Storage Project, which is currently under implementation. The CPS program also faced challenges in reaching some objectives fully, due to slow structural reforms, policy uncertainty, governance-related issues, and slow buy-in by some stakeholders. For example, rigidities of factor and goods markets, and skills mismatches, limited the economy’s ability to move away from commodities to manufacturing and services. Also, due in part to the nature of the program, which emphasized advisory and technical support, the lack of quantifiable indicators (acknowledged by the PLR), in some instances, challenged the assessment of the program’s performance in strictly quantifiable terms. In addition to measures undertaken at PLR stage to address the Result Framework related challenges in measurement, outputs expressed in milestones and their material impact are used to measure the performance of objectives that have been reported. 7. WBG performance in the design and implementation of the CPS is rated Good. The CPS design was well aligned with the NDP Plan and with the WBG’s twin goals of eliminating extreme poverty and boosting shared prosperity in a sustainable manner. To facilitate contributions to the twin goals as well as to the achievement of NDP objectives, interventions under the program were based on four principles: selectivity, knowledge to inform policy, implementation and programmatic approaches (SKIP). Ongoing collaboration and consultation with development partners and other stakeholders was an integral part of the program’s implementation. At the end of the CPS period, the IBRD portfolio comprised five active projects at US$4.1 billion, including two IBRD-financed projects (US$3.8 billion) and three Trust Funded projects (US$300 million). The program also included ASA with a commitment value of US$17.17 million, which included a RAS program valued at US$5.0 million, and 30 small Trust Funded activities with a commitment value of US$286.13 million. Complementing IBRD's financing of new electricity generation capacity, MIGA supported nine new 72 projects during the CPS period, bringing MIGA’s total gross outstanding exposure to US$1.3 billion as of end-FY18. MIGA’s mobilization from the private sector for the nine projects supported during the CPS period was US$2.3 billion. Of these, five projects were in the renewable energy sector, aimed at promoting clean energy. IFC invested a total of US$1590 million, of which US$991.1 million was from its own account and US$598.9 million was mobilized. IFC strategically opted to make Energy/Climate Change/Sustainability a priority, in line with GoSA's policies. 8. Implementation of the CPS provided many lessons that would inform design, implementation, monitoring and evaluation of the new CPF. Key lessons include strengthening the Knowledge Hub to create a platform for just-in-time policy advice and knowledge sharing, being more strategic in growing the RAS program, developing effective country dialogue and deeper engagement to overcome the legacy and negative perceptions of World Bank Group, and strengthening the Results Monitoring Framework. III. ASSESSMENT OF CPS DEVELOPMENT OUTCOMES 9. The section assesses the overall CPS performance of 13 objectives under three strategic results areas. Table 1 summarizes the objectives and outcome ratings, and Annex 1 provides more details. The CLR uses the updated PLR Results Framework to assess the program. In addition to the CPS extension, the results matrix was modified to account for the CPS extension and evolving client demands and to enhance clarity. For example, the outcomes supporting financial inclusion, financial stability, and the rural economy were added based on the planned new investment project. The PLR also consolidated outcomes on energy to enhance clarity. The relatively high number of changes to the matrix reflected the evolving nature of the WBG’s engagement with South Africa, which was primarily demand-driven and focused on knowledge. Table 1: Ratings of Strategic Areas of Engagement and CPS Outcomes/Objectives Strategic Engagement Areas/Objectives Rating ENGAGEMENT AREA 1: Reducing Inequality MS Objective 1: Strengthen the capacity of select municipalities to promote A inclusive growth and better manage and develop land, housing, transport and other infrastructure. Objective 2: Strengthen Government capability to formulate and implement A strategies, policies, and programs that improve townships and informal settlements (T&IS). Objective3: Increase Government capacity to address TB in the mining A sector, and better manage and finance the national and local health systems. Objective 4: Assist the Government in improving financial inclusion. MA Objective 5: Increase the capacity of the Government to develop the rural A economy. ENGAGEMENT AREA 2: Promoting Investment MS Objective 6: Support Government efforts to enable carbon reduction and PA mitigation in the energy sector. Objective 7: Increase South Africa’s capacity to generate and distribute power using cleaner technologies and sources. MA Objective 8: Support selected South African businesses and residences to MA become energy efficient. 73 Objective 9: Capture and provide sector knowledge to enhance the A functioning of one ecosystem. Objective 10: Global knowledge and technical solutions captured and transferred for establishing policy and regulatory frameworks for renewable MA energy in South Africa, and for assisting potential renewable energy (RE) developers. Objective 11: Inform Government policy actions for inclusive growth and employment generation, targeting creation of opportunities for low-skilled MA workers, increasing private sector investment, and outbound/inbound guarantee support for South Africa companies. ENGAGEMENT AREA 3: Strengthening Institutions MS Objective 12: Improve asset, debt and risk management. MA Objective 13: Strengthen financial stability by providing practitioner advice. A Outcome Ratings: Not Achieved (NA), Partially Achieved (PA), Mostly Achieved (MA), Achieved (A) Pillar Ratings: Highly Unsatisfactory (HU) Unsatisfactory (U), Moderately Unsatisfactory (MU), Moderately Satisfactory (MS), Satisfactory (S), Highly Satisfactory (HS) RESULTS AREA 1: Reducing Inequality – Moderately Satisfactory The RAS Program had a tangible impact across several critical public policy areas including the Government’s flagship sub-national Doing Business initiatives. It contributed to formulating innovative approaches to infrastructure finance, and to modernizing policies and incentives aimed at upgrading informal settlements through land and housing reform. The Cities Support Program (CSP) vision of integrated city governance and economic management, combined with the Bank’s deep analysis and advice, resulted in deeper understanding among policymakers of the need for urban management reform. The WBG also contributed to curtailing of the Tuberculosis (TB) epidemic through targeted improvements of TB services, including harmonized protocols, treatment and capacity building, and cross border monitoring of migrant mine workers. IFC facilitated access to affordable housing and also contributed to increased access to SME financing. CPS Objective 1: Strengthen the capacity of select municipalities to promote inclusive growth and better manage and develop land, housing, transport and other infrastructure – Achieved 10. Cities’ spatial transformation agendas strengthened, and momentum increased through governance improvement and capacitation of leadership. At the city level, there is noticeable progress in achieving a change of vision, leadership and development of city spatial transformation capability. At the intergovernmental level, moderate progress is evident in achieving an improved policy and regulatory framework, but substantial progress has been made in achieving a restructured fiscal and financial framework to support urban growth. As a result, cities' efficiency improved through the implementation of the CSP program. The rationalization of projects through cancellation and integration led to savings of significant resources. Stakeholders appreciated the flagship subnational Doing Business initiative as well as innovative approaches to infrastructure finance and to upgrading informal settlements through land and housing reform for accelerated development. There are still some weaknesses in the CSP M&E framework that are being addressed through the Swiss Department of Economic Cooperation (SECO) Trust Fund financing by recruiting experts to develop the system and training users. Bottlenecks being addressed include the lack of a set of program-level performance indicators to measure overall progress and inadequate project indicators to sufficiently capture the CSP's process progress. 11. Transparency and predictability of the Public Transport Network Grant (PTNG) program improved. Contributions included the Bank’s advice on critical strategic aspects (including incentives and requirements), and support for a shift from discretionary funding to a predominantly formula-based approach for distributing the PTNG grant, complemented with a requirement for 74 fiscally sustainable plans. The change provided cities with more discretion to find context-sensitive mobility solutions (moving away from a technology bias), but also more responsibility for finding financially sustainable solutions. There was also a fundamental shift in the policy approach to the development of integrated human settlements and spatial transformation. 12. Additional resources leveraged. The Swiss Department of Economic Cooperation (SECO) provided US$9 million to complement the RAS budget to deepen and broaden the RAS work. GoSA also requested a US$11.4 million (ZAR150 million) RAS II engagement, and an additional ZAR 2.2 million request came from the Ministry of Cooperative Governance and Traditional Affairs (COGTA) to provide advisory services to secondary cities. All requests materialized. A Capacity Needs Assessment carried out under the CPS helped to define interventions, which commenced in June 2018. 13. To mitigate the risk of program fragmentation due to the dynamic nature of the activities, the Bank established a more structured monitoring and reporting system under SECO’s Multi- Donor Trust Fund (MDTF) to help guide future program management, whilst still maintaining the flexibility to respond to evolving demands. Activity implementation in certain circumstances was initially delayed due to frequent changes in the Bank’s international technical leads, but the Bank adapted its approach by maintaining stability in its teams and increasing the number of experts in the Pretoria Office, resulting in speedy delivery of projects/programs. All targets on completion of subnational Doing Business assessments, policy advice, and products to mitigate governance and PFM impediments were met (in four cities against the CPS target of three cities), and commitments on affordable housing were delivered. 14. Access to affordable housing increased. IFC invested US$25 million equity in supporting affordable housing through a South African investment fund that develops and operates housing units and a financial institution that on lends to developers of affordable housing units. IFC investments directly resulted in the construction of more than 6,000 housing units and indirectly in the construction of 16,000 units against a CPS target of 1,209 units. More importantly, it constituted an operational framework for scaling up, as an additional 3,000 units were under construction at the end of the CPS period. CPS Objective 2: Strengthen Government capability to formulate and implement strategies, policies, and programs that improve townships and informal settlements (T&IS) – Achieved 15. New policies on the provision of housing in T&IS were put in place. The World Bank supported the development of Informal Settlements Program Management Toolkits for metro governments, as well as research and reviews of experiences to inform future programs. Those interventions directly contributed to a shift from supply-side provision of housing and elimination of informal settlements to a demand-driven, supply-negotiated, broad-based platform for citywide upgrading of Townships and Informal Settlements (T&IS). Proposed policy measures such as demand-side subsidies fed directly into a Government White Paper on housing and human settlements. Other research and knowledge work included: (a) a review of urbanization policy; (b) an assessment of prevailing economic development practices and training needs; (c) the production of policy notes on Special Economic Zones (SEZs) and Cities; (d) background research on the economic development strategies of each of the eight major metro areas; and (e) benchmarking of the economic data of each metro area. 16. IFC tackled impediments to SME financing and provided resources to financial institutions to on lend to SMEs which led to improved access to finances for the SMES. IFC provided approximately US$361 million in direct financing to three financial institutions52 for on lending to SMEs. It also provided US$150 million to the manufacturing sector; and more than US$20 million to the agriculture sector. IFC also established a roadmap with milestones on the integration of townships in the main economy; completed analysis for a set or cluster identified by a panel of SEZ experts; and initiated a feasibility study on piloting innovations in SME policy and financing. CPS Objective 3: Increase Government capacity to address TB in the mining sector, and to better manage and finance the national and local health systems – Achieved 52 FirstRand (US$300 million), Mercantile Bank (US$54.4 million) and Merchant West (US$7.5 million). 75 17. Access to compensation and TB screening for ex-miners was expanded through Occupational Health One-Stop Service Centers (OSSC), created as part of the TB in mines project (P145542) to deliver services to current and ex-mineworkers suffering from lung diseases. OSSCs were established in Umthatha and Carletonville in South Africa, and in Lesotho, Mozambique and Eswatini. The TB project also included development of a database to track and trace ex-mineworkers. It is the first cross-border disease database in the world, which includes demographic and medical information on 600,000 former and 400,000 current mineworkers. The TB project also developed an innovative cross-border compensation mechanism for several generations of ex-mineworkers across Southern Africa. 18. In addition, health activities implemented under the Knowledge Hub facilitated establishment of a coalition of major stakeholders drawn from the Southern African Development Community (SADC), which played a catalytic role in putting a framework in place. The framework promoted collaboration among high-level stakeholders to develop a common vision, helped identification of opportunities and constraints, bridged longstanding divides between sectors and systems, implemented guidelines to standardize TB care and treatment, and improved delivery of TB services to mineworkers across the region. In addition, a US$122 million regional Bank-supported project on TB and Health Systems Support (P155658), approved in 2017, targeted Lesotho, Malawi, Eswatini and Zambia to reduce the disease burden through regional action against TB and HIV/TB in the mining sector. 19. A TA provided by the WB contributed to improved financial management in the health sector by overhauling the information technology systems and management processes in three referral hospitals. The government recruited 400 interns, trained and deployed them to increase human resource capacity in three referral hospitals in response to identified operational bottlenecks in the hospitals, and to assist in the implementation of tailored solutions to improve service delivery efficiency. Based on the assessment, needs-driven training was conducted for the interns to accelerate implementation. This innovative approach to capacity strengthening resulted in a more than 100 percent increase in revenue collection within one year (to US$13 million from a baseline of US$6 million). HR achievements included: improvement of personnel records management, qualification verification and ghost-worker identification, and sensitization of staff on HR policy, which resulted in improved compliance. 20. The Public Expenditure Tracking Survey and Quantitative Service Delivery Survey (together the PETS-QSDS) conducted in KwaZulu-Natal and Gauteng provinces reported significant variations in per capita expenditure and services across facilities and districts, indicating possible inefficiencies in resource utilization. On average, 60 percent of the funds were spent on commodities and only 40 percent on service delivery. Distance to health facilities was found to be short and most facilities offered a range of required primary health care services. However, the study found that HIV testing was not routinely offered, there were missed opportunities for HIV and TB diagnosis because services were not integrated, not all patients diagnosed with TB were receiving appropriate treatment, and these challenges were compounded by staff shortages. The findings were presented to the provincial leadership along with recommendations for action that contributed to improvements in health services delivery. In KwaZulu-Natal, the PETS-QSDS found that the Benefits Administration System (BAS) was robust and able to track 100 percent of funds allocated for HIV/AIDS. CPS Objective 4: Assist the Government to improve financial inclusion – Mostly Achieved 21. WBG helped the establishment of a credit information service for SMEs. Considerable progress was made on improving SME access to credit, notably through the development of two initiatives supported by the SECO Trust Fund: (a) an SME credit bureau, led by Credit and Risk Reporting Association (SACRRA); and (b) an SME rating agency, led by the Department of Small Business Development (DSBD). The initiatives sought to reduce information asymmetries for SMEs, thereby facilitating access to finance for these enterprises. Support was provided to identify complementarities between the credit bureau and SACRRA, while discussing strategies for their effective deployment and sustainability of the initiatives. Furthermore, a report on credit information, “Credit Reporting in SA: A Focus on SMEs” was finalized. The report provided an overview of the 76 twin initiatives on SME credit reporting, assessed the status of implementation thereof and highlighted the challenges to the full deployment of the proposed projects. 22. The Bank also carried out a diagnostic of the country’s secured transactions and collateral registry (STCR), to support improved access to finance for SMEs through the establishment of an online registry for movable assets. The diagnostic report was presented to several stakeholders in October 2017, most notably through a public-private sector workshop co-hosted by National Treasury and the Bank. A key workshop recommendation was the need to ensure industry consensus before implementing reforms. The Bank also carried out a supply- and demand-side study of the SME landscape and a review of SME financing products offered by national development finance institutions (DFIs). Further analytic work on the availability of early-stage finance for SMEs is envisaged under the new CPF. 23. The WBG provided support to improve the legal, regulatory and policy framework for innovative retail payment instruments and infrastructure. While South Africa’s national payment system (NPS) is well developed, improvements are needed to serve the needs of those currently excluded from the banking system. A diagnostic report 53 was finalized in May 2016 with recommendations to improve financial inclusion. In addition, towards the end of the CPS period, the WBG recommended legal and policy reforms, including allowing the participation of non-banking institutions, to improve the interoperability of payment instruments and mass transit payments. These reforms were not completed during the review period for this CLR. The Bank continued to support these efforts primarily by providing technical input on the amendment of the NPS Act. 24. The Bank undertook an analysis of indicative fiscal costs of different ways of structuring a public-private sector partnership to support the agriculture insurance market development. The Bank provided options to the existing multi-peril crop insurance market in South Africa targeting commercial farmers. The analysis also informed the launching of an area-yield index insurance program targeting small and medium market-orientated farmers and launching a pasture drought index insurance program targeting vulnerable pastoralist households. Estimates ranged from a low of US$11.4 million (ZAR 150 million) to a high of US$18.54 million (ZAR 244 million) per year for providing insurance to approximately 40,000 farmers. The analysis also found that fewer than one percent of small and medium market-oriented farmers have access and that 85 percent would be willing to purchase such insurance. 25. A new US$93-million financial intermediary IBRD loan to the Land Bank aimed at scale-up financing to emerging farmers became effective in September 2017, and the first US$6.7 million (ZAR 93 million) was disbursed in June 2018. The project complemented the ongoing MIGA guarantee for a 10-year loan to the Land Bank by commercial banks. However, the IBRD project encountered initial implementation delays due in part to slow progress in aligning the Land Bank’s environment and social safeguard standards with WB Performance Standards, and the need to identify opportunities to integrate emerging farmers into established value chains. As a result, the IBRD project failed to contribute to improving financial inclusion through improved access to finance by farmers and this sub-component is rated as Not Achieved. CPS Objective 5: Increase the capacity of Government to develop the rural economy – Achieved 26. The Rural Land Development project (P128321) and the SECO-financed MDTF improved policy development and strengthened institutions in rural areas, and elevated South-South learning exchanges. Notable contributions include (a) improved geographic targeting that reduced duplications, and increased community participation under the Comprehensive Rural Development Program (CRDP); (b) enhanced National Rural Youth Service Corps (NARYSEC) program, including through South-South learning exchanges with China, supported by the RAS; (c) introduction of a multisectoral rural poverty reduction approach in the Eastern Cape; and (d) improved Agri-Park policies . In addition, a review of the cadaster system helped to align the system with international norms on land reform-related acquisition and compensation. Rural areas contain the highest poverty concentration areas with 59.7 percent of the poor in 2015. Eastern Cape, the spatial focus area for these World Bank interventions, is among the three poorest provinces that include KwaZulu-Natal and Limpopo. 53 “Achieving Effective Financial Inclusion in South Africa: A Payments Perspective.” 77 RESULTS AREA 2: Promoting investments: – Moderately Satisfactory South Africa became a leader in private sector-led renewable energy (RE) development in Africa through the Renewable Energy Market Transformation initiative, which supported the establishment of the Renewable Energy Independent Power Producer (IPP) Program. Access to energy also improved as a result of the full completion of the first three turbines of the Medupi power plant, which came online in September 2017. In addition, implementation of the GEF-financed iSimangaliso project improved the management of the third-largest park in South Africa as well as the commercial viability of conservation- compatible small, medium, and micro enterprises within the park. IFC assisted companies to expand across Africa, focusing on (a) reducing inequality, (b) promoting investments, and (c) strengthening institutions. MIGA is actively engaged with South African investors to promote intra-regional investments in Sub-Saharan Africa, facilitating outbound investment. MIGA’s gross outstanding exposure attributed to South African sponsors reached US$479million at end-FY18 in projects spanning the agribusiness, manufacturing, infrastructure and energy sectors. CPS Objective 6: Support GoSA’s efforts to enable carbon reduction and mitigation in the energy sector –Partially Achieved 27. To enable South Africa’s transition to a low-carbon economy, the Government included carbon capture and storage (CCS) in its Near-Term Priority Flagship Program and established a CCS Roadmap. The Bank is supporting these efforts through Programmatic Technical Assistance (PTA) and through ongoing support for the Pilot Carbon Dioxide Storage Project (PCSP), including a comprehensive technical and project management capacity building program. The geological analysis was done as part of the potential for CCS as a mitigation option. Additional support to government efforts to enable carbon reduction and mitigation in the energy sector included identification and follow-up assessment of pilot test injection project conducted, at least two CCS thematic workshops conducted to develop methodologies and protocols in surface measurement, monitoring, and verification of CO2, thus equipping the monitoring team with global CCS expertise and the study tour of an existing test injection site. All achievements are financed under the Bank Executed Trust Fund. The PTA experienced considerable delays with zero disbursement a year after its approval due to governance-related issues concerning the management structure. The Government has since changed the implementing agency which would invariably alter the subsisting governance arrangements for the project. This required an amendment to the legal agreement. CPS Objective 7: Increase South Africa’s capacity to generate and distribute power using cleaner technologies and sources – Mostly Achieved 28. The 2,400 MW of the Medupi power plant was in commercial operation by September 2017, exceeding the planned target of 2200 MW by 9 percent before the CPS closing date. The CPS goal was to increase South Africa’s capacity to generate and distribute power using cleaner technologies and sources, as indicated by: Increase in conventional generation capacity using supercritical technology by 2200 MW; Increase renewable generation capacity by 230 MW; Investments in domestic distribution grid; and Increase in off-grid connections by 20,000 new connections. The overall total plant completion was at 93 percent. Three units were in commercial operation, and the fourth of six units were in the final commissioning and pre-optimization phase. Some challenges surfaced involving boiler defects. Meanwhile, the country suffered power shortages during mid-2015 due to poor maintenance of Eskom’s old power plants and the new power plants not performing at an optimal level. 29. The 100-MW Sere wind farm has been operating commercially since May 2015, and the Eskom demonstration Battery Storage Program (BSP), which will replace the original 100 MW Kiwano CSP pilot project, has made significant progress in processing the technical design and safeguards assessment for the 8 sites that comprise Phase 1 (840 MWh of storage capacity). MIGA provided US$792 million in guarantees for the commercial financing of Eskom’s capital expenditures to strengthen the domestic grid and transmission. In addition, the long-pending signing in April 2018 of the Renewable Energy Independent Power Producer Procurement (REIPPP) Project Preparation 78 Advance (PPA) allowed construction to begin on 27 clean energy projects, which are projected to provide 2,330 MW of new wind and solar capacity by 2021, a target outside CPS implementation. 30. IFC’s Advisory Services were instrumental in supporting the Government’s Energy and Climate Change plans. The Africa Renewable Energy Advisory Services (AREAs) project helped the Department of Energy (DoE) develop the National Electrification Roadmap to achieve off-grid connectivity. Through its first phase, the project facilitated the allocation of about US$10 million towards off-grid connections. IFC’s Climate Change Investment Programme in Africa for South Africa, in partnership with SECO, worked with Sasfin Bank and facilitated US$18.7 million of financing to projects that help smaller businesses in South Africa become more energy-efficient, productive and competitive. Furthermore, the Cleaner Production Advisory Services Program facilitated another US$6.5 million of financing. Together with the follow-on Energy and Resource Efficiency Solutions in Sub-Saharan Africa initiative, these programs are expected to produce 4,000 MWh/year in renewable energy and help avoid 6,000 tCO2e/year. CPS Objective 8: Support selected businesses and residences to become energy efficient – Mostly Achieved 31. In November 2015, IFC launched a Green Buildings Market Transformation program in cooperation with the Green Building Council of South Africa to facilitate 20 percent of new residential buildings certified as resource efficient by 2022, using IFC’s EDGE green buildings certification system. IFC coordinated the business development and training with the Green Building Council of South Africa (GBCSA), reaching all segments of the buildings’ ecosystem. The GBCSA also launched a marketing campaign called ‘Bring Change Home.’ Three pilot projects received certifications in the inaugural year, and additional projects are registering for certifications. IFC saw a high potential in energy efficiency, as South Africa could free up to 5,000 MW of generation through effective demand side management. IFC supported this cause through an Advisory Services program, but traction has been limited as key players did not consider a relevant strategy. 32. IFC supported SMEs’ investments in energy efficiency (EE) through two SME/EE facilities.54 IFC invested $27.5 million in International Housing Solutions’ green property fund to catalyze the local green building market in the residential sector and financed the building of 6,000 EDGE- certified affordable homes resulting in Green House Gas savings of 600 tons per annum. IFC also provided training to stakeholders (e.g., developers, banks, government) on the EDGE Green Buildings Certification System. The certification process contributed to savings in electricity and water consumption. It significantly reduced the construction sector’s carbon footprint, helping in the global battle to combat the negative impact of climate change and to conserve natural resources. Besides this, IFC engaged two-second tier banks in energy efficiency (EE) facilities: Mercantile Bank provided a $50 million SME facility, of which 5 percent went to the EE, and SASFIN provided $10 million. The solar PV equipment financing facility was signed with SASFIN. Although Nedbank developed pilots for commercial and industrial rooftops, implementation was affected by Environmental and Safeguard noncompliance. CPS Objective 9: Capture and provide sector knowledge to enhance the functioning of one ecosystem (St. Lucia Wetland Park) by increasing employment opportunities and entrepreneurial capacity for local youth in conservation and tourism sectors in the Lake St Lucia area – Achieved 33. In the environment, the Isimangaliso Wetland project (P086528) to restore Lake St Lucia made strides after hiccups. The St Lucia estuarine system is an important protected area for conserving the Nile crocodile. After a protracted design stage and implementation delay of 18 months, this US$9 million GEF project made good progress and has disbursed fully: the latest ISR rates all components as satisfactory. This project financed public works removing about 624,212 m3 of dredge spoil obstructing the natural course of the uMfolozi River into the iSimangaliso Wetland Park (a World Heritage Site). The project trained 185 participants from communities around the Park in enterprise development and awarded 79 sub-grants amounting to nearly ZAR 6 million. The project supported 54 IFC engaged two second-tier banks in providing lending for energy efficiency: Mercantile Bank provided a US$50 million facility for SMEs, of which 5 percent went to EE; and SASFIN provided US$10 million for an EE facility. 79 young people from communities around the Park to access higher education in conservation, tourism and related fields. In addition, the project financed more than 60 meetings, conferences and other outreach activities with scientists, sugar cane planters, traditional leaders, land claimants, and conservation and fishery organizations; and initiated a bi-monthly electronic newsletter that is sent out to 14,000 Lake St. Lucia residents to enhance functioning of the ecosystem by sharing good management practices, and to enforce regular reporting on system functionality. 34. Under the project, the management effectiveness score of the Wetland Park improved from a score of 71 to 80, as measured by the GEF Management Effectiveness Tracking Tool (METT55), as a result of training of park staff, development of management plans, and infrastructure support for some visitor centers. In addition to these actions, the project supported the removal of invasive Casuarina plants from dunes, the reintroduction of wildlife, and the labeling of indigenous trees. The GEF project also helped to increase the commercial viability of the hundred or so conservation- compatible small, medium and micro enterprises (SMMEs) in the park through grants and business training to enable them to improve their operations, purchase specific equipment and become financially stable. Although it was difficult to quantitatively measure the impact of these interventions, there are now about 75 viable SMMEs operating in the park, an increase of 50 percent since before the intervention. CPS Objective 10: Global knowledge and technical solutions captured and transferred for establishing policy and regulatory frameworks for renewable energy in South Africa, and for assisting potential RE power generator developers – Mostly Achieved 35. South Africa has become a leader in Africa in private sector-led renewable energy (RE) development, leading to several countries now seeking advice from SA in this area. The CPS goal was to assist 10-12 renewable energy firms (promoters) with pre-feasibility studies, facilitate installation of 200 Commercial Solar Water Heating (CSWHs) systems installed and installation of 200 Commercial Solar Water heating (CSWHs) systems by 2014The REMT supported establishment of the Renewable Energy IPP Program, resulting in some 6,000 MW of renewable energy capacity in 2018. Thirty-three pre-feasibility/pre-investment studies were carried out for RE projects under the Matching Grant program to help 14 RE firms develop projects with a combined generation capacity of 275 MW. Also, the project support to the solar water heating (SWH) program was scaled back due to the successful implementation of the SWH installations by Eskom, so the objective was achieved outside the project. CPS Objective 11: Inform Government policy actions for inclusive growth and employment generation targeting creation of opportunities for low-skilled workers, increasing private sector investment, and outbound/inbound guarantee support for South African companies –Mostly Achieved 36. South Africa leveraged the strengths of its innovation and entrepreneurship ecosystem assets to promote competition, strengthen connectivity and increase access to smart growth capital for innovative firms and entrepreneurs at the subnational and regional levels. The CPS objective was to contribute to the implementation of the Government's Regional Industrial Development Plan. It provided analytical and advisory services in two less developed regions and follow-up policy dialogue and TA, and expanded IFC and /MIGA portfolios especially in agribusiness, financial sector, renewable energy an, EE, and support for SMEs, fostering innovation. Assets utilized include universities, early-stage investors, mLabs and other incubators, XL Africa and other accelerators, and service providers. The XL Africa Program, rolled out in 2017 as part of the Digital Entrepreneurship Program, is the first pan-African acceleration and cross-border market access program for regional entrepreneurs looking to collaborate with regional and global partners expanding into new markets. The program attracted 900 applications from all over the continent, and the 20 most promising digital start-ups were linked to 17 early-stage investors in Africa, leading to equity investments and new partnerships for several companies. 55METT is one of the two most widely used/adapted globally applicable generic systems designed to track and monitor progress to wards worldwide protected area management effectiveness. It includes all six elements (context, planning, inputs, process, outputs and outcomes), but has an emphasis on context, planning, inputs and processes. METT can be used as a donor / treasury evaluation, to improve management (adaptive management), and for accountability / audit. 80 37. IFC maintained a high-level engagement in South Africa, with annual commitments ranging from US$250 to US$350 million per year over the period, including in regional projects sponsored by South African groups. As of June 2018, IFC had an own-account portfolio of US$1.1 billion (US$999 million outstanding) invested in 33 clients, with the aim of supporting SMME development to stimulate job creation. IFC also assisted South African companies in expanding across Africa. 38. MIGA stepped up its engagement in South Africa during the CPS period, with new issuance averaging US$270 million annually during FY14-18 for a gross outstanding exposure of US$1.3 billion at end-FY18. This was MIGA’s second largest portfolio across all countries. MIGA’s operations in South Africa spanned a diverse range of sectors, namely, agribusiness, finance, infrastructure and energy. MIGA also engaged actively with South African investors to promote “South-South” investments in Sub-Saharan Africa, for a gross outstanding exposure of US$479 million as of end-FY18. RESULTS AREA 3: Strengthening institutions: –Moderately Satisfactory Strengthening institutions was a cross-cutting theme for this CPS. Many CPS activities provided capacity building and regulatory and legal advice to enhance institutions. These activities include a program to build the capacity of communities to manage wetlands, SSKEs to build the skills of policymakers under the rural development RAS, and the Finance Sector Development and Reform Program, which supports measures to develop and stabilize the financial sector. The engagement in asset, debt, and risk management deepened. The RAMP program strengthened sector institutions managing large pools of public assets, such as pension funds, the South African Reserve Bank, and State-Owned Enterprises (SOEs). CPS Objective 12: Improve asset, debt and risk management by providing advice on debt management strategy and secondary debt market architecture – Mostly Achieved 39. The engagement in asset, debt, and risk management supported training provided under the World Bank Treasury’s RAMP for official-sector institutions managing large pools of public assets, such as pension funds, the SARB, and State-Owned Enterprises (SOEs). The World Bank Treasury assisted these institutions through RAMP to strengthen their investment capacity and infrastructure, including building human capital. The World Bank also facilitated knowledge exchange, exporting lessons from South Africa to other institutions in the region. The World Bank Treasury provided advisory services and extensive training on debt management to South Africa’s National Treasury. The Bank also carried out a study on illicit financial flows (IFFs) submitted to the authorities in 2018. 40. Liquidity in the secondary market improved and borrowing costs were reduced as a result of technical assistance, training and study tours to improve asset, debt and risk management. Approximately 20 people from NT’s Asset and Liability Management (ALM) unit, Budget Office and Government Technical Advisory Centre (GTAC) benefited from the training. TA provided to the NT contributed to a deeper understanding of the costs and risks associated with government debt and improved the architecture of the secondary market for governments securities. Additional TA was provided to SARB, PIC/GEPF, and the Export Credit Insurance Corporation (ECIC), which fostered good governance and sound investment management practices. 41. Quantification and management of contingent liabilities from sovereign guarantees improved. Enhanced understanding and management of contingent liabilities, e.g. sovereign guarantees to SOEs, contributed to better macroeconomic and fiscal management and reduced the country’s vulnerability to financial shocks and fiscal risks. These achievements resulted in a South-South Knowledge Exchange to export SA’s expertise and practices in managing contingent liabilities to other countries. CPS Objective 13: Strengthen financial stability by providing practitioner advice – Achieved 42. The WBG provided advice on strengthening the resolution regime and crisis management system of financial institutions, in line with Financial Services Board (FSB’s) Key Attributes. 81 A resolution and deposit insurance framework was drafted (introduced through the Financial Sector Laws Amendment Bill). The WBG commented on several iterations of the proposed framework. The Amendment Bill also established a deposit insurance system in line with International Association of Deposit Insurers (IADI) Core Principles, that contributed to financial stability and protection of depositors. Capacity building initiatives supported the establishment of the Deposit Insurance Scheme (DIS). In addition, a Financial Sector Regulation (FSR) Act was promulgated in 2017, introducing “Twin Peaks56” reform. The FSR Act (with input from WBG), established a Prudential Authority and a Market Conduct Authority Financial Sector Conduct Authority (FSCA). Drafting efforts also commenced on a supplementary Bill, the Conduct of Financial Institutions (COFI), to establish comprehensive market conduct requirements. 43. The WBG provided technical assistance to the authorities on the development of the Electronic Trading Platform (ETP) for government bonds to advance capital market development in the country by allowing traders access to live pricing. In addition, the WBG provided advice on the development of infrastructure financing solutions. Following the publication of new listing requirements for project bonds in March 2018, the WBG has been exploring potential refinancing projects in the REIPP that could be supported as demonstration transactions. Further work was done to assess the use of unlisted project bonds as an alternative for certain projects that would co-exist with listed project bonds. The WBG continues to engage on this topic and advance efforts to create new infrastructure financing solutions. 44. The team developed a methodology to estimate the size of undetected illegal income in the economy and the historical dynamics of money and asset laundering.[1] Although discussions on the study have not advanced pending formal comments from the authorities since they were submitted after the CPS expiry in August 2018, this remains an area of interest particularly given the ongoing work on Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT). VI. WORLD BANK GROUP PERFORMANCE 45. The WBG’s performance in designing and implementing the CPS is rated Good. The CPS design was well aligned with the three priorities of South Africa’s National Development Plan: (a) eliminate extreme poverty; (b) reduce inequality; and (c) build the capacity of the state. The CPS was designed as an adaptable framework for providing knowledge services and evidence-based solutions in high priority areas with proven demand for WBG services. The challenges of measuring of results of objectives without quantifiable indicator targets, due in part to the nature of the program, which emphasized advisory and technical support, were addressed by reporting on impacts as a result of achieving the milestone and output targets. The WBG was consistently engaged in the CPS implementation, addressed proactively implementation problems and appropriately adapted to changing circumstances. Overall, the WBG performance in designing and implementing the program contributed to the achievement of key CPS objectives; as a result, a sound program of ongoing activities and stronger stakeholder partnerships are in place (see also para 8). A. Design 46. The program focused on areas where the WBG had a clear comparative advantage that conformed to SA’s needs as a MIC client. Interventions were based on four principles: selectivity, knowledge, implementation and programmatic approach (SKIP). Selectivity focused on the potential of programs to reduce poverty and boost shared prosperity; knowledge focused on creation of a Knowledge Hub to facilitate the implementation of development solutions and meet the Government’s goal of improving implementation and service delivery, as in the case of the successful TB in Mines program. The programmatic approach aimed to help the authorities to effectively deploy and consolidate donor funding with financing from Government sources. Notwithstanding the absence of quantifiable outcome targets, the CLR considers the revised RF to be relevant, responsive and broadly realistic, with a few/some exceptions which encountered implementation delays, in the context and the nature of the CPS program. 56Twin peaks of financial regulation for South Africa seeks to promote and maintain financial stability by strengthening South Africa’s approach to consumer protection and market conduct in financial services, and by creating a more resilient and stable financial system. 82 47. The CPS design incorporated five main lessons from the FY 2009 – 2012 CPS. These were: (a) Provision of integrated development solutions to the client through the establishment of a Knowledge Hub; (b) Alignment to Government’s NDP; (c) Joint program/activity design and analytical work with the client; (d) Incorporation of principles of activity identification; and (e) Improved collaboration among the IBRD, IFC and MIGA to maximize synergies across the different WBG institutions. WBG intensified collaboration with the client and among its internal members to improve the acceptance of its products, e.g. the SCD. Ongoing collaboration and consultation with development partners and other stakeholders was also an integral part of program implementation. 48. At the CPS design stage, the overall risk to the implementation of the CPS was rated moderate. The World Bank continued to monitor the risk levels during implementation. The World Bank addressed identified risks through dialogue with the GoSA on the adaptation of the remaining program to changing conditions to achieve more coherent and integrated programming and strengthening institutional mechanisms of the WBG’s coordination with the GoSA. Implementation risks were mitigated through implementation support and continuous due diligence. For example, when Eskom was involved in the state capture, an independent audit was undertaken whose report was not qualified. B. Program Implementation 49. The Country Client Survey found that stakeholders57 were satisfied with the WBG’s engagement in South Africa. The survey was commissioned as part of the CPS mid-term review (report attached to PLR). Ninety percent of stakeholders confirmed the relevance of the WBG engagement in contributing to the development objectives articulated in the Government’s NDP. Respondents felt that the WBG program added value by impacting policy and building the technical capacity of public servants. An example cited was the Cities Support Program, commended for its contribution to improved service delivery. Stakeholders (67 percent), however, suggested that the WBG do more to improve the timeliness of interventions and thirty-three percent suggested that the Bank should be less prescriptive in its recommendations. Stakeholders also suggested that the World Bank office in Pretoria should increase the number of in-house experts to ensure responsiveness and continuity, since some international experts spent only a limited number of days in country. 50. Given the size and risks of the South Africa portfolio, especially the two ESKOM operations, the World Bank continued to complement staff for implementation support fully. Similarly, ESKOM and the Government of South Africa intensified project supervision and coordination. in most cases, field-based TTLs supported by senior environmental and social development specialists led implementation support from the World Bank side. The team also included in-country senior procurement specialists to accelerate procurement flow, including contract management aspects, and incorporated consultants in different with diverse expertise, including in coal-fired power plant technology, to assist with complex technical issues. Implementation was also supported by senior management to ensure timely resolution of implementation bottlenecks. 51. During the CPS implementation, the responsible South African authorities addressed environmental and social safeguards issues through the country’s legal and regulatory system. These issues were the main subject of an Inspection Panel review of EISP, which was discussed at the Board on May 22, 2012. The Board had agreed at the approval of the EISP in 2010, to use South Africa’s legal and regulatory framework to assess and manage environmental and social impacts of the EISP, in place of World Bank Safeguard Policies, as provided by OP 4.00 (Piloting the Use of Borrower Systems to Address Environmental and Social Safeguard Issues in World Bank-supported Projects). The World Bank’s project team was closely supervising the environmental and social aspects of the project. The team included senior environmental and social specialists who review the implementation of the project’s environmental and social aspects every six months. Implementation support missions continued to assess the effectiveness of the system. In 2016, the safeguards team confirmed that implementation of the environmental management plans for the project sites continued 57Stakeholders (Respondents) for the survey included responses received from counterparts from the National Treasury, STATSA, Department of Health, University of Cape Town, University of Pretoria, Stellenbosch University, Local Government, Social Deve lopment, USAID, International Water Institute, Climate Resilient Infrastructure Development Facility. The survey took place in the second half of 2019. 83 to comply with all regulatory requirements consistent with South Africa’s regulatory framework for environmental management. 52. Collaboration with internal and external clients improved, with the three arms of the World Bank Group (IBRD, IFC, MIGA) and Development Partners complementing resources to achievement of goals, e.g. in energy. The Eskom project and some knowledge activities improved collaboration among development partners, however, there is a need to broaden collaboration beyond project/activity implementation to have more impact on the Government’s development agenda, e.g. strategy formulation. Under Results Area 1, the Knowledge Hub played a catalytic role in building momentum for the TB program and triggering interest and resources from critical stakeholders to ensure that a framework was in place to drive the TB in Mining agenda. This collaboration helped to identify areas of opportunity and constraint, bridge longstanding divides between sectors and systems, and facilitated the implementation of measures to improve the delivery of TB services to mineworkers across the region. However, inadequate funding (by GoSA) and weak coordination resulted in limited progress toward strengthening multi-sectoral collaboration and coordination. 53. CPS mainstreamed gender, governance, environment, and climate change across all pillars of the CPS. Gender concerns, were addressed through two impact evaluation projects centered on skill certification and counselling and youth job search assistance In line with the CPS, these evaluations seek to assist authorities to reduce gender disparities and youth unemployment by evaluating how innovative employment services impact the supply and demand for labor; job search behavior; and the hiring practices of firms. Governance issues have been embedded in the Urban RAS and institutional strengthening, such as under the RAMP. The governance program has been limited, despite state strengthening being one pillar of the NDP. This is largely due to the lack of client demand. Small interventions under the Urban RAS strengthened the financial management systems of metros, while training in asset and debt management, under the RAMP and similar activities, strengthened the capacity of key institutions, such as SARB, the National Treasury, and GEPF. The environment and climate change cut across engagement areas of the CPS. For example, both areas are reflected in energy—complementing investments in the coal-fired Medupi power plant with greener generation and climate change mitigation initiatives. In complement, restoring the iSimangaliso Wetland Park aims to conserve the region’s biodiversity, strengthen environmental consciousness, and foster environmentally sustainable investments. 54. In contrast, training in asset and debt management, under the RAMP and similar activities, enhanced the capacity of critical institutions, such as SARB, the National Treasury, and GEPF. The environment and climate change cut across engagement areas of the CPS. For example, both areas are reflected in energy-complementing investments in the coal-fired Medupi power plant with greener generation and climate change mitigation initiatives. Further, restoring the iSimangaliso Wetland Park aims to conserve the region’s biodiversity, strengthen environmental consciousness, and foster environmentally sustainable investments. C. Alignment with Corporate Goals 55. The CPS was aligned with the WBG’s twin goals of eradicating extreme poverty and improving shared prosperity. The CPS supported financial inclusion, financial stability and development of the rural economy. Forty percent of South Africans lived under the national lower bound poverty line of ZAR 647 per person per month (April 2015 prices) in 2015, against 51.0 percent in 2006. Nevertheless, while poverty rates have fallen since the beginning of democracy in 1994, the trajectory of poverty reduction was reversed between 2011 and 2015, threatening progress made since 1994. The reversal between 2011 and 2015 saw at least three million more South Africans slipping into poverty during this period, with the poverty rate increasing from 36.4 percent to 40.0 percent. Not only did poverty rates rise, the welfare of the poor worsened during this period as the level of poverty became deeper and more unequal. Furthermore, poverty levels in SA are high for an upper-middle income country. The most affected are women, people of black African origin, those with little or no education, those living in large families, the unemployed, children, and those living in rural areas. By any measure, SA is one of the most unequal countries in the world. In 2015, the consumption Gini coefficient was 0.63. Skills and labor market factors are critical to explaining poverty and inequality, while the role of gender and race, though still important, has declined. Social protection is important in supporting poverty and inequality reduction, particularly among the extremely poor. In addition, 84 social transfers have kept inequality from rising. The growing importance of labor incomes in supporting poverty and inequality reduction suggests that the nature of economic growth, which is not pro-poor and does not generate enough jobs for the poor, entrenches high inequality which slows progress towards poverty reduction. D. Lessons Learned 56. The CLR confirms the main lessons that emerged from the PLR. The implementation experience of the CPS provides important lessons which could inform the next CPF. The lessons include: 57. The Knowledge Hub, though still a work in progress, facilitated delivery of key products, for example, the eradicating TB in mines initiative. There is a need to continue strengthening this Knowledge Hub approach to further promote access to just-in-time policy advice and knowledge sharing. Such a framework can help enhance national dialogue as well as inclusive and flexible policymaking. 58. The next CPF should build on the growing RAS program. The Bank should continue to explore the best ways to respond selectively to client demands for new RAS programs to ensure cohesiveness of the overall WBG program. The evaluation of the RAS program helped to elucidate lessons for effective collaboration to achieve development objectives. High-level (political) and technical level commitment by the client is necessary but not enough. Other critical success factors include frequent communication between the Bank and client teams, a local Task Team Leader or senior specialist available on the team to facilitate collaboration and relevant international expertise to bring in global best practice examples. The use of local experts helps to ensure that any diagnosis and recommendations appropriately consider the country context. Additionally, the RAS portfolio could benefit from a more systemic and effective strategy to measure results through better tracking of measurable targets. 59. Developing effective country dialogue and strong engagement is a long-term process that requires a concerted effort and strategic engagement. The South African government has made limited use of World Bank products despite sustained efforts by country teams. This requires building on existing partnership with GoSA and focusing on building trust as a key dimension in the design of development programs well-aligned with country priorities. Early and sustained involvement of relevant stakeholders in the design and the production of products, for example the SCD and the CPSD have resulted in buy in, commitment and high utilization. 60. Overcoming the legacy and negative perceptions of the World Bank, rooted in the history of structural adjustment in Africa, will require a different type of engagement, sustained, differentiated communication and involvement with various constituencies, including local governments, Parliament, youth, academia, and the private sector. WBG products and services are not well-known and require a concerted communication effort to convey the Bank’s usefulness in the South African context. There are considerable differences in perceptions between stakeholders that have worked directly with the Bank before (positive sentiments) and those that have never worked with the Bank (negative image). Unfortunately, those that have not worked with the Bank influence the debate on the Bank and portray a negative image. 61. There is a need to strengthen the results measurement system to enhance accountability and learning in order to develop a feedback loop and strengthen future planning. At the PLR stage, the CPS results matrix was modified to account for the CPS extension and evolving client demand and to enhance clarity. Changes included the addition of new CPS outcomes supporting financial inclusion, financial stability, and the rural economy and consolidated outcomes in energy, and lightly rephrased other outcomes – while keeping the original CPS focus largely intact. 85 Annex 2. 1: Updated CPS Results Framework Final This Annex presents a CPS results matrix updated to reflect the WBG’s engagement with the GoSA at the PLR stage. The matrix has been amended to enhance clarity and align with client demand, including in new areas (e.g., financial inclusion). Annex 2 summarizes changes between this amended matrix and the original CPS matrix. New text under “Country issues and challenges” is underlined. ENGAGEMENT AREA 1: REDUCING INEQUALITY Rating: Moderately Satisfactory Country Development Goals: (a) Reduce inequality by decreasing spatial divisions and social fragmentation; change development patterns through shifts in spatial form, transforming fundamentally jobs and livelihoods of the poor; creating more jobs in or close to dense, urban townships; create employment opportunities in the agricultural sector and in rural areas; reducing travel distances and costs for poor households; more efficient land use. (b) Lower the cost of living for the poor by improving the provision of public services, progressively improve TB prevention and cure, strengthen the health system, reduce the disease burden and implement national health insurance. Country issues and challenges: ➢ Integrate township development into economic policy and programs by implementing the Local Government and Human Settlements Program; ➢ Implement pilot program on township growth for catalyzing public and private investment; ➢ Reduce disease burden of TB across four selected SADC countries by harmonization of treatment protocols; ➢ Transfer practitioner’s global knowledge and capturing and exporting lessons of South African experience to other countries regionally and globally; ➢ Improve the provision of agricultural financing and access to finance for historically disadvantaged emerging farmers, and address the limited availability of medium- to long-term financing; ➢ Strengthen financial stability and increase access to finance for the poor as well as SMEs. Outcomes Influenced by the CPS Program Implementation Milestones and WBG Activities, Lessons WBG Program Outputs Instruments and Partners 1. Cities Support Program Objective 1: Strengthen the Achieved WBG Activities • The WBG should seek mechanisms to capacity of select municipalities • RAS for Cities Support transfer necessary skills to government to promote inclusive growth and Program (P144125) SA officials to ensure sustainability of activities. better manage and develop land, RAS for Infrastructure GoSA used a consultant staffed unit within housing, transport, and other Investment and Integrated National Treasury (Cities Support Program) infrastructure. (No defined Urban Development to implement the program. The consultant- indicator targets) (P163422) driven model seems widespread within the government. 86 Achieved • SA Urban Knowledge • Knowledge capture and sharing should be Milestone & Outputs 1.1. The subnational study on the ease of doing Hub-Urban TA Program embedded into the program design to 1.1 Cities under the CPS business strengthened the vision & leadership (TF072369). maximize impact. The current practice is to complete subnational doing attributes of Cities Management to drive spatial • IFC PE Fund constructing harvest outputs at the end vs. designing business assessment. restructuring. Study results strengthened and affordable housing in interventions for learning. accelerated Cities’ spatial transformation agendas. South Africa and selected This is evidenced by the cities’ robust Transit- SSA countries Oriented Development strategies and the establishment of institutional structures for WBG Partners: implementation. The study was undertaken & • National Treasury; launched in 2015 in nine targeted cities in SA: • SECO; Buffalo City, Cape Town, Ekurhuleni, eThekwini, • SA Cities Network; Johannesburg, Mangaung, Msunduzi, Nelson • National Treasury; Mandela Bay and Tshwane. (See ‘Rapid Assessment • Municipality of of WBG Reimbursable Advisory Services for Cities, Johannesburg; South Africa Program’, June 2016.) • University of Cape Town Achieved. 1.2 A model was developed, which facilitated IFC Partners: assessment of the financial impact of various policy IHS Fund/EDGE. 1.2 Cities targeted under the CPS choices, such as spatial development, investment- receive WBG policy advice and funding plan alternatives over the long term. A and products to mitigate long-term financial model (“LTFM”), a tool to governance and PFM forecast future financial performance of the city was impediments. developed and is being utilized in four against the three planned cities of Tshwane, eThekwini and Nelson Mandela Bay, resulting in improved financial performance (See Metropolitan Municipalities: Long-term Financial Strategy project report of June 2018 for details. Achieved. 1.3 IFC invested ~US$25m equity in International Housing Solutions (IHS), resulting in the construction of over 6,000 housing units, &16,000 units indirectly, exceeding the set target of 1209. 1.3 IFC makes four Another 3,000 were under construction. commitments to affordable 87 housing (1,209 units) three of which are for green development (729 units). Objective 2: Strengthen Achieved WBG Activities • Effective partnerships with line Departments government capability to • Economics of Townships such as the National Development of Human formulate and implement Report (P128715) -ongoing Settlements is critical to ensure buy-in and strategies, policies, and programs • SA Urban Knowledge Hub strong collaboration for the success and that improve Townships and Urban Technical Assistance sustainability of the programs. Informal Settlements (T&IS). (TA) Program (TF072369). • Defining and articulating specific contributions Mostly Achieved rather than broadly referencing townships is key 2.1 Modeling conducted of 2.1 A workshop on modeling effort and the IFC Projects: to identification of value addition by individual relationships between general principles regarding cost models and how • Mercantile Bank players where there are many players. As townships and the main these principles could apply to Metros in US($54.4m) township economic development is receiving economy. Johannesburg as delivered (February 2015) helped • Merchant West growing political attention, the WB would have identification of potential solutions to challenges in (US$7.5m) to consider its role carefully and its comparative transport financing currently being implemented. • Senior US$100m bond advantage, given that this is becoming a to support lending to congested space. 2.2 A feasibility study completed Achieved affordable housing on piloting innovations in policy 2.2 A background research on the economic (50%), climate and financing. development strategies of each of the eight Metros efficiency (40%) and was conducted and benchmarking of the economic SMEs (10%) data of each Metro was done (April 2015). • Senior US$200m loan to • Assessment of current practice, aspirations, support lending to and needs for the economic development SMEs courses were conducted. A total of 5 learning • African Bank events hosting 131 attendees were conducted. (US$91.7m) • Consequently, at the metro level, there are emerging changes in vision and leadership to IFC Manufacturing drive spatial restructuring, integrated projects BGM SA, CLN SA, Development Plans (IDPs) and Spatial Safal Steel, Sonae Development Plans (SDPs) reflect a stronger Novobord, SRF SA focus on spatial transformation. Partners: • National Treasury • SECO Achieved 88 2.3 Policy note on SEZs and Cities produced (May • Advisory Committee 2.3 Analyses completed, and a 2014), courses conducted on SEZs (May 2015) from NT bundle for the sectoral cluster • Informal Settlements Programme Management • HS identified by a panel of SEZ Toolkit for Metros developed and informing experts. • Ministry of decision making regarding informal settlement Transportation & NPC upgrading. Toolkits assisting to address the & selected prevailing challenges and barriers to upgrading. municipalities (to be • Research deliverables completed (in June established). 2018) focusing on the review of past experiences of township economic development as well as city level policies and initiatives in townships. • Urbanization Review published in May 2018 provided valuable insights and informed urban policies development in SA. • Township Economies agenda has been elevated & included as a deliverable and an indicator in one Thematic Area in the MDTF. Achieved IFC contributed to SMEs’ improved access to IFC provides approximately finance by providing US$361.4m to four financial US$200m in direct financing to institutions for on-lending to SMEs. The institutions financial institutions focused on included: FirstRand (US$300) Mercantile Bank SMEs, and a projected US$140m (US$54.4m) and Merchant West (US$7.5m). to the manufacturing sector. US$565.2 million in new loans to SMEs through 10,320 loans (December 2014). In Manufacturing IFC committed US$113 million in five investment engagements. 89 2. Health Program Outcomes Influenced by the CPS Program Implementation Milestones and WBG Activities, Lessons WBG Program Outputs Instruments and Partners Objective 3: Increase Achieved WBG Activities There is a need to focus on win-win strategies. A government capacity to address • South Africa Health significant challenge in the technical cooperation TB in the mining sector, and Knowledge and process was the coexistence of differing policies, better manage and finance the Solutions implementation approaches, and capacities among national and local health (P145542) countries. In some instances, particularly around the systems, and as indicated by: • Piloting National more contentious points, setting specific requirements at Health a “higher level,” instead of being prescriptive allowed Outcome Indicators: Achieved • Insurance Reform for much-needed flexibility and enabled partners to find 3.1 Knowledge Hub supports a 3.1 A Framework was developed, which contributed Project (P129090) the best middle ground. pillar and partnership on TB in to reduced high treatment drop-out rates and • ZA-Economics and the mining sector; preventing the spread of multi-drug resistant TB in HIV/AIDS There is need to apply a holistic approach in dealing mining and labor-sending communities. Knowledge (P121556) with issues. Evidence suggests that integrated, Hub supported countries in Southern Africa to sign a • PETS of HIV/AIDS comprehensive services delivery and support is more Harmonized Framework for fighting TB in the in Kwa Zulu Natal effective for disadvantaged groups with complex needs. mining sector in March 2014, which was a historic Investing in models that have the capacity to encompass • Regional Capacity and unprecedented achievement. In addition, high- the broader social and economic environment can & Knowledge improve the overall well-being of mineworkers and their level leadership dialogue among policy makers from various sectors and ministries on strategies for Sharing in families over the long term. While the issue of reducing TB prevalence within the mining sector and Strengthening compensation for occupational TB and silicosis was mining communities in the Southern Africa sub- Health Systems highlighted as an urgent concern for ex‐mine workers region was conducted that contributed to further (IDF). and their families through this program, it does not harmonization of various aspects. address the long-term structural issues of poverty and social exclusion that affect many mine working Achieved communities. 3.2 Delivery system developed 3.2 Occupational Health One-Stop Service Centers for fighting TB in the mining (OSSC) improved access to compensation and Evidence-based innovations are catalytic in mobilizing sector; contributed to improved TB screening for ex- resources, sustaining commitment of stakeholders, and mineworkers. OSSC were created to address service developing effective interventions. Data on TB in the delivery challenges for current and ex-miners mining sector was limited at the start of this program. suffering from lung diseases. These were Innovations supported through this program were implemented in Umthatha and Carletonville in SA, instrumental in providing valuable data basis on which while others have been established in Lesotho, 90 Mozambique and Eswatini. The OSSCs also have a a business case was developed to support investment in framework for assessment of occupational injuries the program and to inform the design of interventions. and disability among ex-miners developed to inform the development a service delivery model. It takes considerable time for national systems to be modified to disaggregate data for mineworkers, ex- 3.3 Achieved mineworkers, their families and communities around the 3.3 TA and analytical products • A landmark innovation – the first cross border mines. Bureaucratic processes at the country level for delivered addressing structural disease database in the world improved tracking changing data tools may contribute to such a scenario. challenges in the health sector. and tracing of ex-mineworkers through the development and rolling out of a database in 2016 The use of rapid results approaches by the World Bank and 2017, respectively that includes both the in supporting the project in the three hospitals demographic and medical information of 600,000 contributed significantly to the results achieved and the ex-mineworkers and 400,000 current mineworkers possibility of sustainability. The approach involves from 2016 to 2017. systematic identification of challenges, development of • The PETS-QSDS conducted in KwaZulu Natal solutions, the definition of results and careful planning Gauteng provinces identified significant variations to achieve the results. in per capita expenditure and services provided across facilities and districts, indicating possible A performance planning and monitoring and evaluation inefficiencies in resource utilization. component should be integrated into the capacity • Compensation improved for ex-mineworkers, building program for effective management. There is spanning several generations across Southern need for regular monitoring and reporting on the Africa, who acquired TB while working in the program to enable the province and national mines in SA Again, this has led to an innovation coordinators to make timely decisions based on relevant facilitating cross-border compensation, improving information to continuously improve the program. livelihoods in labor-sending communities both within and outside South Africa. There is a need to develop a clear accountability and • A compendium of knowledge products that oversight structure that will drive compliance to set captured the successes, challenges, collaborations, norms and targets at the all levels. and lessons learned developed was promulgated. • Improved workplace conditions and reduce TB and silicosis incidence in the mines, and advocate for better compensation for occupational lung diseases through reviewed mine health legislation. Objective 4: Assist the Mostly Achieved • Land Bank Financial In tackling financial inclusion challenges, it is Government improving Intermediation Loan important to conduct stakeholder engagements, financial inclusion. (P150008) particularly for SME financing, given that the mandate 91 Milestones and Outputs Not Achieved • SECO-financed trust to develop SMEs spans across numerous government 4.1 Financing provided to 4.1 A new US$93 million financial intermediary fund on the financial departments and stakeholders. farmers through the Land loan to the Land Bank was approved & became sector. (P No) Bank. effective in Sept. 2017, with the first The lending engagement on the Land Bank project disbursement of US$6.7 m (ZAR93 m) in June suggests several important lessons that will be critical 2018. The project experienced a considerable WBG Partners: to scale up WB lending under the new CPF. These delay hence, resulting in failure to contribute to • National Treasury include improving financial inclusion by the end of the • SARB • The need for strong demand from National CPS period. • Land Bank Treasury for WB project and early agreement on sovereign guarantee; 4.2 WBG provides assistance Achieved to establish credit 4.2 An online registry for security interests in • The need for simple and flexible project design information service for movable assets that was created is contributing to using, to the extent possible, South Africa national SMEs. improved access to credit. systems; Achieved • The need to ensure adequate capacity of 4.3 Advice provided for 4.3 A diagnostic report on Secured Transactions and implementing agency to support preparation and improving SME support Collateral Registry (STCR) was finalized in 2015. implementation; schemes and creating an online The report examined the current state of secured registry for security interests in transaction systems in SA to support the GoSA in its • The use of WB Performance Standards on movable assets. efforts to improve access to finance for SMEs Environment and Social that are more oriented through the establishment of an online registry for towards private sector; movable assets. The diagnostic was workshopped to several stakeholders since, most notably through a • The need to utilize Technical assistance on ESMS public-private sector conference, co-hosted by NT during project preparation and early stage of and the World Bank, which was held in October project implementation to address capacity gaps. 2017. Achieved 4.4 WBG provides support to 4.4 A diagnostic report, “Achieving Effective improve the legal, regulatory Financial Inclusion in South Africa: A Payments and policy framework for Perspective,” was finalized in May2016 setting out innovative retail payment recommendations for reform. The WBG has since instruments and payment been providing advice to the authorities in the infrastructure. implementation of recommendations, most notably: input into the revision of the NPS Act to enable the participation of non-banks and policy and legal 92 reforms to support interoperability of payment instruments and mass transit payments. Achieved 4.5 Analysis completed of 4.5 A demand analysis conducted revealed the indicative fiscal costs of potential of the agriculture insurance market. The different ways of structuring a findings estimated access at less than 1% and public-private sector reported that 85% of these farmers are willing to partnership to support the purchase agriculture insurance. The annual cost of agriculture insurance market. supporting these programs at full scale ranged from a low-cost scenario of Rand 150 million, to a high cost scenario of Rand 244 million for providing insurance to approximately 40,000 farmers. The World Bank also conducted a demand analysis for agriculture insurance, which reported low access to agriculture insurance among small and medium sized market farmers. Objective 5: Increase the Achieved Activities The Bank is in a good position to provide world class capacity of the government to • Rural RAS (US$4 policy advisory services on a timely basis; develop the rural economy million) from 2014- 2017 (P128321) The RAS design should be demand-driven and flexible Milestones and Outputs Achieved enough to accommodate client changing and volatile 5.1 WBG supports the 5.1 World Bank support contributed to better policy WBG Partners policy environment; development of the Eastern development on rural development: improved CRDP • Department of Rural Cape Integrated Rural geographic targeting and community participation; Development Establishing mutual trust and respect is key to allowing Development and Poverty strengthened NARYSEC program and its exit • Land Reform the Bank to examine complicated and controversial Reduction Program. strategy; introducing multisectoral rural poverty Government of China. policy issues; reduction approach by Eastern Cape Program; and improved Agri-Park Program policy. The Bank should consider attaching importance to high-level south-south learning and exchange which is Achieved highly appreciated by the client; 5.2 Agri-Park Pilot (APP) afforded disadvantaged, 5.2 WBG supports design of the small-scale black farmers access to new production The RAS program should have undertaken greater Agri-Park Initiative and its technologies and practices, access to modern value efforts to strengthen the client’s capacity in piloting implementation. chains, and access to broader and more lucrative implementing some key RAS outputs (e.g., LCDD and national and international markets. The World Bank the Eastern Cape Integrated Rural Poverty Reduction contributed to the APP through a One Agri-Park Program). 93 document and facilitation of drafting of the Agri- Park Results-Based Monitoring and Evaluation Framework and Implementation Manual. The success stories of several small-scale entrepreneurs, and the outreach in one Agri-Park to a successful cooperative of hearing-impaired vegetable growers. No pilots were conducted, GoSA rolled out the program to 44 districts, missing out on testing of concepts. Achieved 5.3 The visit to China in 2014 and 2015 played an 5.3 Study tours and training essential role in the genesis of the SA’s Agri-Park programs to China and Program (APP) initiative that is benefiting high-level discussions marginalized farmers. Study tours Elevated South- conducted on rural South learning and exchange: fostering a strong and development topics. ongoing collaboration between the DRDLR and Chinese government on key rural development, poverty reduction, and rural enterprises development. Achieved 5.4 Institutional capacity of central government 5.4 Facilitating a three-year agencies and national academic institutions in managing rural development strengthened. Two cooperation agreement hundred and sixty participants received two weeks between South Africa and custom designed training in China focusing on rural China on poverty enterprise development, poverty reduction, and reduction and rural agricultural production, which in better managed enterprise development. project /programs Achieved 5.5 The LCDD module was fully piloted in two wards in each of the two CRDP sites in Mhlontlo 5.5 Community Driven (Eastern Cape) and Dysselsdorp (Western Cape) Development Project piloted in through which: an improved tool for sustainable at least two communities in livelihoods was designed and tested; the local Mhlonto and Dysselsdorp. Integrated Development Plan (IDP) process and local 94 Community Based Planning (CBP) process were aligned to CRDP; four ward plans were developed using community based planning tools; and a new tool was designed and tested for linking community plans to the IDP for rural conditions and resulting in better planning process. Outcomes Influenced by the CPS Program Implementation Milestones and WBG Activities, Lessons WBG Program Outputs Instruments and Partners ENGAGEMENT AREA 2: PROMOTING INVESTMENTS Government Objectives: (a) Support opportunities for sustainable growth by investing in infrastructure and raising the level of public-sector fixed capital formation; attain energy security, cleaner and safer environment, while retaining greater biodiversity; transit to a low carbon economy, thus spurring innovation; (b) Tap into the growth potential of the private sector as a provider of capital, talent, innovation and employment to support economic diversification. Stimulate private sector development by expanding markets and leveraging the county’s position on the continent. Country issues and challenges: ➢ Increased reliable power generation and renewable energy supply by implementing the 2010 Integrated Resources Plan and install 45 000 MW of new capacity by 2025; ➢ Reduces carbon intensity of existing fixed investments and invest in greener technologies; ➢ Prevent environmental degradation and protect biodiversity; ➢ Strengthen the investment climate for MSMEs and stimulate domestically oriented industries, leveraging African growth and external reach; ➢ Increase the efficiency of the national innovation system. Promote greater opportunities for women and young people. Outcomes Influenced by the CPS Program Implementation Milestones and WBG Activities, Lessons WBG Program Outputs Instruments and Partners 95 3. Energy Objective 6: Support Partially Achieved WBG Activities • Management flexibility in project government efforts to enable Though not included as a target, the REMT supported • ESKOM Investment Support implementation process may cause carbon reduction and establishment of the Renewable Energy IPP Program, Project (P116410), US$3,750 implementation delays and failure to mitigation in the energy which has resulted in some 4,000 MW of renewable million; achieve certain objectives. Kiwano CSP sector. energy capacity. • ESKOM Renewable Support stringent requirements failed all bidders to Project (P122329) US$250 million; meet requirements. The procurement Achieved (ongoing). process which did not permit negotiation 6.1 The Bank supported to help Government to assess • Renewable Energy Market post bid evaluation was also a flaw. Milestones and Outputs the feasibility of, and build expert capacity for, CCS. Transformation Project - GEF 6.1 Advice provided on The Capacity Building pillar of the PTA progressed (P155885). • The legal and regulatory context for CCS in South Africa’s long-term substantially on the storage part despite delays. • Programmatic Technical South Africa, beyond the current pilot carbon mitigation Assistance Programmatic TA for projects, remains uncertain and would strategy. Achieved Capacity Building for Carbon benefit from high-level engagement 6.2 Establish a project management framework for Capture and Storage in the RSA, between the SANEDI, WB and the relevant US$4.4 million (P151193) GoSA representatives (e.g., DOE and the • Development of Carbon Capture Parliament). Achieved and Storage in South Africa US$23 6.2 Advice provided on 6.3 Provided legal and regulatory context on CCS. But, million (P149521) Streamlined responsibilities and less developing regulatory legal and regulatory context for CCS in South Africa, bureaucracy is key to successful project frameworks for renewable beyond the current pilot projects is uncertain. Partners: implementation. In case of Eskom, would have energy. • Department of Energy; speeded up approval of the CCS grant and Achieved • DBSA; facilitate the start of implementation. 6.3 Advice provided on 6.4 Project Execution Plan and a Risk Assessment & • ESKOM; carbon capture and storage Management Plan developed that guided (CCS) regulatory framework. • SA National Energy Development implementation and helped manage risks. Institute. Achieved. 6.5 Project management framework developed 6.4 Implementation plan for the CCS Roadmap developed. Implementation and Not Achieved exploration plans for pilot 6.6 Not achieved carbon storage project. 96 Achieved 6.5 Implementation and 6.7 Undertook preliminary static and dynamic exploration plans for pilot geological modelling that can inform future detailed carbon storage project. geological modelling once new field data has been acquired for the project Achieved 6.6 Front end engineering 6.8 Facilitated multiple short courses; and a number of design for pilot capture plant multi-day technical workshops that strengthened the at Kusile power station. capacity of implementers. 6.7 Identification and follow- Achieved up assessment of pilot test 6.9 Two study tours undertaken injection project conducted. Most Achieved 6.10 The Majuba Rail project is over 90 percent 6.8 At least two CCS thematic completed. Completion awaits a suitable time to install workshops conducted. coal offloading facilities. It requires the delivery of an adequate amount of coal for Majuba power plant to avoid the plant’s shut down during the works when coal cannot be delivered. 6.9 Study tour of an existing test injection site. 6.10 Convert Majuba coal transportation mode from road to rail. Objective 7: Increase South Mostly Achieved Activities Africa’s capacity to generate • ESKOM Investment Support and distribute power using Project cleaner technologies and • ESKOM Renewable Support sources. Project (CTF) (ongoing). Achieved • Renewable Energy Market Indicators 7.1 Target: 2,200MW Transformation Project 7.1 Increase conventional (ongoing). generation capacity using 97 supercritical technology by Actual: 2,400 MW from Medupi power plant in • IFC investment in Abengoa (Ref 2,200 MW commercial operation by September 2017. The target 32327) was exceeded by 9 percent. • Khi/KaXu/Xina CSP • Amakhala Wind project (new) Achieved • ID 12595-MIGA guarantee for 7.2 Increase in renewable 7.2 Target:230 Eskom capital expenditure generation capacity by 230 Actual: 385 MW Sere Wind was in commercial program (ongoing). MW operation since March 2015. Achieved • MIGA guarantees for 5 385 MW- completed (3 CSPs and 1 wind project), renewable energy IPP projects (Noupoort Wind Farm, Achieved Loeriesfontein Wind Farm, 7.3 Domestic grid and transmission strengthened Khobab Wind Farm, Kangnas through MIGA guarantee of US$792 million to private Wind Farm, Perdekraal East 7.3 Investments in domestic banks for financing Eskom capital expenditure Wind Farm) (ongoing). distribution grid program. IFC Advisory projects • AREAS South Africa Not Achieved • Cleaner Production Advisory 7.4 Non-grid diversification strategy was developed. Services Programme Models not developed due to unavailability of data from • Climate Change Investment 7.4 Increase off-grid ESKOM. Programme in Africa connections by 20,000. Target: 20,000 Actual: (Not available) Partners • Department of Energy • DBSA • ESKOM • AfDB • DfID • AFD • EIB • KfW 98 Objective 8: Support Achieved Activities selected South African • IFC advisory services in energy businesses and residences to efficiency. become energy efficient, as • Climate Change Investment indicated by: Program (CIPA) Achieved • Cleaner Production Advisory Outcome Indicators 8.1 IFC financing supported SMEs to invest in energy Services Program; 8.1 Energy savings and efficiency improvements, which was implemented • AREAS South Africa. reduced GHGs from through two SME/ EE facilities. IFC engaged two • EDGE Certification efficiency improvements. second-tier banks in EE facilities. Mercantile provided a US$50-million SME facility of which 5% was for EE. • SA Energy and Resource SASFIN provided a US$10-million EE facility. IFC Efficiency Solutions in Sub- provided approximately US$361m in direct financing to Saharan Africa. financial institutions focused on SMEs. IFC Investment Projects Achieved contributing to jobs 8.2 By June 2018, over 1,200 homes with over • Abengoa CSPs Khi/Kaxu/Xina 600,000m2 received EDGE certification largely in the • Amakhala Wind affordable housing sector, resulting in GHG savings of • CLN South Africa 600 tons per annum. IFC’s green building certification • Farm secure RSF 8.2 Increase in buildings tool (“EDGE”) is administered by the Green Building • Hernic WCF certified under the EDGE Council of South Africa through a licensing agreement. • Horizon III Green Buildings Certification IFC provided trainings to stakeholders (e.g., developers, • Safal Steel System. banks, government) on the EDGE Green Buildings Certification System. IFC provided 54 training Financial Institution Partners workshops and events to stakeholders (e.g., developers, • Mercantile Bank banks, government) and 31 to financial institutions on • Sasfin. the EDGE Green Buildings Certification System. 99 4. Environment Program Outcomes Influenced by the WBG CPS Program Implementation Milestones and WBG Activities, Lessons Program Outputs Instruments and Partners Objective 9: Capture and provide Achieved GEF-financed IPF Full integration approach of a project into the sector knowledge to enhance the “Development, mechanics of a conservation institution functioning of one ecosystem (St. Lucia Empowerment and (rather than convening a separate PIU) Wetland Park) by increasing Conservation in iSimangaliso contributed to the efficiency effectiveness, employment opportunities and Wetland park and and sustainability of the outputs. entrepreneurial capacity for local youth surrounding region project in conservation and tourism sectors in the Lake St Lucia area. Milestones and Outputs 9.1 Achieved Scientific research and data inputs to projects 9.1 Technical studies and • Technical studies and the Environmental Impact are important. However, delays in Environmental Impact Assessment Assessment (EIA) completed and integrated into implementing PPG studies at the scoping (EIA) completed and inform management decisions. Technical studies and stage and their continuation during the management decisions to improve the EIA informed the design and implementation of project caused further delays in the initiation ecological functioning of the Park. activities that led to the improvement of the of the Alternatives study. If the Analysis of management of the fragile ecosystem. Alternatives studies could have begun earlier, • These included removal of 624,212 m3 of dredge then the delays in the hydrodynamic spoil obstructing the natural course of the modeling, faced during implementation, uMfolozi River, and additional dredging totaling would not have been so serious, and, 1,384,413 m3 through funds leveraged by the potentially, reducing implementation period project significantly improved the management of this fragile ecosystem. Bringing long-term technical specialists into • Sixty-two meetings, workshops, open days, and the team, rather than relying on existing (and conference meetings conducted facilitated sometimes overstretched) human resources consultation with stakeholders and/or raising or solely on short-term consultants, new awareness on pertinent is-sues. These were specialists raised the capacity and enforced by the bimonthly distribution of an responsiveness of the Authority to implement electronic newsletter to 14,000 people every two the project weeks. 100 Achieved 9.2 Increased number of targeted SMEs that achieve financial and commercial viability over the project period. About 76 percent of 9.2 Increase in grants provided to the 106 SMMEs that received grants conservation compatible SMMEs in the improved operational ability. Park. Achieved 9.3 There are now about 75 viable SMMEs operating in the park, an increase of 50 percent since implementation of the intervention. 9.3 Increase in share of targeted conservation compatible SMMEs Achieved achieving commercial viability over the 9.4 Increased number of youth passing courses project period. each year at tertiary level. By 2017, 66 of 77 youth targeted graduated and obtained permanent jobs by 9.4 Increase in youth passing courses the end of the project. Only 11 students left the each year at the tertiary level in project- program because of reasons including failure, supported topics receipt of another bursary, and changes to courses not supported by iSimangaliso. 5. Private Investment Program Outcomes Influenced by the WBG CPS Program Implementation Milestones and WBG Activities, Lessons Program Outputs Instruments and Partners Objective 10: Global knowledge and Achieved WBG ASA/TFs • Flexible project design allows clients to technical solutions captured and • Renewable Energy IPP Program was • Renewable Energy Market move quickly to adjust to changing global transferred for establishing policy and established, which resulted in some 4,000 Transformation Project, market conditions. The project’s support regulatory frameworks for renewable MW of renewable energy capacity. US$6 million (ongoing) proved timely and relevant, when South energy in South Africa, and for assisting • South Africa become a leader in Africa in Africa decided to evolve the regulatory potential RE power generator private sector led RE development and Partners approach developed under REFIT to a developers. several countries sought advice from • Development Bank of tendering process to procure new capacity South Africa on RE development. Southern Africa (DBSA) from private-sector entities. • Department of Minerals and Energy (DME) • Reducing turnaround time for procurement of consultants would have helped the Milestones Achieved project become even more responsive in a 101 10.1. 10-12 renewable energy firms 10.1 Compared to the CPS target of assisting 10-12 • National Energy Regulator fast-moving policy and regulatory (promoters) assisted with pre-feasibility renewable energy firms, 33 pre-feasibility/pre- of South Africa (NERSA). environment. Reduction could be achieved studies by 2014. investment studies were carried out for RE projects through procurement panels of consultants under the Matching Grant program. In all 14 RE who could be prequalified to bid for firms were helped to develop projects with a specific or the use prequalified teams. combined generation capacity of 275 MW. Successful projects require close oversight Achieved and engaged supervision with enough 10.2 More than 312,350 residential SWH systems budgets. It is important to consider having 10.2 200 Commercial Solar Water were installed by 9/30/2013. As a technical one team. Heating (CSWHs) systems installed by assistance facility, the project did not directly 2014. finance the installation of SWH systems, except by providing early limited grant support to develop, demonstrate and document an innovative design for speedy SWH installation, resulting in several hundred SWH installations annually. The 2009 project restructuring redefined and expanded CSWH to include support for implementation of all SWH (ICR for TF-91191, 03/27/14). Objective 11: Inform Government Mostly Achieved WB Activities • Analytic work on productivity and policy actions for inclusive growth and • South Africa Economic innovation featured in the South Africa employment generation targeting Updates (P131437) Economic Update # 10 led to a robust creation of opportunities for low-skilled • TA supporting debate around the opportunities for (info workers, increasing private sector enhancement of policies mission) investment, and outbound/inbound aiming at improving R&D guarantee support for South Africa efficiency (new). companies. • Digital Entrepreneurship (P159169) Milestones and Outputs Mostly Achieved • IFC direct debt & equity 11.1.The Implementation of the 11.1 The XL Africa Program rolled out in 2017 as investments in private Government's Regional Industrial part of the Digital Entrepreneurship Program -the sector companies and Development Plan is informed by first pan-African acceleration and cross-border financial institutions WBG assistance. market access program for regional entrepreneurs. • Provision of short-term • 900 Applications from all over the continent, Trade and Supply Chain and the 20 most promising digital start-ups that financial products (new). were selected were linked to 17 of the leading • IFC financing one trade early stage investors in Africa, resulting in project through SASFIN 102 equity investments and new partnerships for • BGM South Africa several companies. • CLN South Africa; New investments in Mostly Achieved Manufacturing, Agri and 11.2 Promoted competition, strengthened Services 11.2 Analytical and advisory services connectivity, increased opportunities and access to • Abengoa CSP & Makhala provided on private sector smart growth capital for innovative firms & • Cullinan development in two less developed entrepreneurs through leveraged strengths of its • IFC investments in banks regions and follow-up policy dialogue innovation & entrepreneurship ecosystem assets at and non-banks to expand and TA. the subnational and regional levels. This ASA access to finance for SMEs, opened the door to a deeper engagement which and low- and middle- includes an evaluation of the fiscal incentives for income communities (new). innovation. • IFC financial markets projects: African Bank, Achieved Custom Capital, Sasfin, 11.3 Both portfolios increased. IFC invested a total Mercantile Bank, Nedbank, of US$1590 million, of which US$991.1 million WIZZIT, Net1, Metier II 11.3 IFC and MIGA portfolios was from its own account and US$598.9 million • New IFC projects in the expanded, especially in agribusiness, was mobilized. MIGA’s guarantees supported 9 period: BGM South Africa; financial sector, renewable energy, EE, new projects, for a gross outstanding exposure at Project Leo; Abengoa CSP and support for SMEs, fostering end-FY18 of US$1.3 billion. Of these 9 projects, 5 Xina; CLN South Africa; innovation. were in renewable energy. Cullinan; Net1; Metier II; MWWCS; Ascendis • IFC South Africa Sub- National Investment Climate Reform Program (ongoing; new). Partners: • National Treasury PPP unit; • SADC ENGAGEMENT AREAS 3: STRENGTHENING INSTITUTIONS 103 Country Development Goals: Provide stable and enabling macro-economic platform capable of mitigating the growing risks of globalization and the uncertainty and volatility of the global financial system. Country issues and challenges: ➢ Sound macroeconomic and fiscal management and reduced vulnerability to financial shocks; ➢ Strengthen financial risk management. Outcomes Influenced by the CPS Program Implementation Milestones and WBG Activities, Lessons WBG Program Outputs Instruments and Partners 6. Asset, Debt and Risk Management Program Objective 12: Improve asset, Mostly Achieved • RAMP: Technical • Continuous engagement, constant on and off-site debt and risk management by advisory services with the support helped building trust between the WB providing practitioner advice SARB, GEPF/PIC and team and Government represented by the ECIC on the management National Treasury Team. As a result, NT used the Milestones and Outputs Achieved of the official foreign Bank Team as a sounding Board. Additionally, to 12.1 TA provided to the 12.1 Shifted the debt portfolio composition to reduce currency reserves and the have staff from the South African team join, as National Treasury on debt vulnerability to shocks (measured in stress pension assets (ongoing) consultants, the WB missions in South-South management strategy, debt testing).Liquidity in the secondary market improved • Government Debt & Risk exchange helped strengthen the relationship. composition, and secondary and there are lower borrowing costs for the (P.no) Management • Technical activities involving a single unit debt market architecture. government as a result of several activities including Program (funded by worked well as they were mainly about capacity technical assistance, training of 37 staff members of SECO; ongoing) building and model development in collaboration strategic institutions and study tours undertaken to • TA supporting the revision with the authorities. However, activities support this objective. The Bank enhanced of the strategic benchmarks involving multiple teams or requiring policy institutional capacity to manage the investment by the NT based on cost discussion and decision were slower to be portfolios either directly through executing and risk analysis through transactions in the financial markets, or through implemented. an analytical tool to be external managers. • The WBG provided technical assistance to the developed (completed). • TA on helping the NT and authorities on the development of the Electronic Achieved relevant stakeholders Trading Platform (ETP) for government bonds. 12.2 TA provided to the SARB, 12.2 Business processes and systems to settle decide on how to improve The platform, which helps to advance capital PIC/GEPF, and ECIC on transactions, track positions, monitor compliance, the secondary market market development in the country by allowing strengthening asset account for investment activities and report results in architecture (ongoing). traders access to live pricing, was piloted in July management frameworks. line with relevant accounting standards were • TA on supporting NT for 2018, with all nine primary dealers commencing strengthened leading to effective management of improving the trading on the platform on 22 August 2018 methodology to measure 104 relationships with custodians, brokers, and bank contingent liabilities from counterparties. sovereign guarantees and 12.3 Increase in number of staff develop management tools. from key institutions trained in Achieved • Providing support for the asset, debt, and risk 12.3 Introduced strategies and frameworks to development and delivery management topics. develop annual borrowing and risk management of training programs to plans (including hedging operations) based on the share the South African debt management strategy and benchmarks. expertise (new). Institutional capacity in policy framework and analytical tools to identify sources of risk, quantify Partners: their potential impact on the portfolio, take remedial • SARB; action to mitigate those exposures was enhanced, • PIC; and capacity to continuously monitor, aggregate and • GEPF report relevant risk and performance metrics to all stakeholders. • ECIC 12.4 Improved quantification and management of contingent Achieved liabilities from sovereign 12.4 Quantification and management of contingent guarantees. liabilities from sovereign guarantees improved. Better understanding and management of contingent liabilities, such as sovereign guarantees to State Owned Companies, contributed to South Africa’s macroeconomic and fiscal management and the reduction of the country’s vulnerability to financial shocks and to fiscal risks. 12.5 Implementing domestic borrowing programs. Achieved 12.5 Domestic borrowing programs adopted and Being implemented. 12.6 Engagement in South- South Knowledge Exchange to Achieved export South Africa’s expertise 12.6 Study tours organized by the Bank undertaken and practices in financial and and enhanced knowledge on financial and fiscal fiscal management to other management skills of attendees. countries. 105 Objective 13: Strengthen Mostly Achieved SECO-financed trust fund on • Implementation of a well-designed and effective financial stability by providing the financial sector. Include multi-year comprehensive program which practitioner advice. project no. benefited from strong coordination and collaboration between government counterparts Milestones and Outputs Achieved Partners: and the World Bank Group is key to achieving 13.1. Introducing a financial 13.1 Resolution bill developed and expected to be • National Treasury; concrete outcomes on financial sector reforms. institution resolution bill, released for public consultation in 2018. The Bill • SARB • Ongoing technical support at each stage of including cross-border provides a framework for the strengthening of the legislative process and capacity building for resolution; financial institutions resolution regime and crisis SARB and NT is critical to ensure buy-in for management system. Also introduces a deposit reform and smooth passage of key financial sector insurance system. legislation. • There is need for Strong ownership of SARB and Achieved NT to lead the legislative process and consensus 13.2 Establishing a deposit 13.2 The proposed draft deposit insurance scheme building across wide range of stakeholders is insurance scheme, compliant was released for public consultation in May 2017. Its important. with Core Principles for legal framework is embedded in the resolution bill Effective Deposit Insurance and is expected to be launched in 2019. Please see Systems; Financial Sector Development and Reform program TF Completion Report to Development Partners, December 3, 2018. Achieved 13.3 Supporting the enactment 13.3 Financial Sector Regulation Bill promulgated in of the Twin Peaks Law, and 2017 introduced 'Twin Peaks' reform, established a reorganization of regulatory Prudential Authority and Financial Sector Conduct responsibility; Authority framework. Achieved 13.4 Supporting the enactment 13.4 Drafting of Conduct of Financial Institutions Bill of by-laws of new Electronic advanced and expected to be submitted for public Trading Platform; consultation in third quarter of 2018. Partially 13.5 Designing and 13.5 Amended Financial Intelligence Centre Act implementing new (FICA) submitted to Parliament, including a tiered AML/CFT framework. The by-laws and rules of 106 infrastructure finance forthcoming Electronic Trading Platform are being instruments; drafted and being circulated for stakeholder feedback. Achieved 13.6 A methodology to estimate the size of undetected 13.6 Support a study on illicit illegal income in the economy & the historical financial flows. dynamics of money and asset laundering in the country was developed & is in use. The study on illicit financial flows was completed in 2018. 107 Annex 2. 2: SA CLR: Planned Versus Actual Lending Deliveries (Italics signifies part of revised CPS plan in PLR) Planned (US$, Actual (US$, CPS Program Fiscal Year Comments millions) millions) Projects Approved Before CPS Period Eskom Investment Support FY10 3,750 IBRD Active 3,750.00 Project Isimangaliso Wetland Project FY10 9.0 GEF Closed 9.0 (P086528) Eskom Renewables Support FY12 250.0 Active 250.0 Project Projects Approved During CPS Period Development Carbon Capture FY17 23 Active 23 and Storage Land Bank Financial FY17 93 IBRD Active 93 Intermediation Project Partnership for Market FY17 5 Active 5 Readiness Overall Support FY14–18 IBRD, TF 108 Annex 2. 3: SA CLR: Non-lending Deliveries, FY14-18 Activity by Fiscal Year (from Original CPS) Actual FY14 Approved in FY13, Delivered in FY16 Financial Sector Development and Approved in FY14 delivered in FY 18 Reform Program (P146394) Economic Diversification and Micro, FY15 Approved FY11, delivered FY15 Small, Medium Enterprise (P128026) Economics of South African Approved F12, Delivered FY15 Townships (P128715) Financial Regulatory Reform Approved FY13, Delivered FY15 (P144812) SA Distributional impact of fiscal Approved FY14, Delivered FY15 policy (P145547) AFCS1 Competitiveness Dialogue Approved FY14, Delivered FY15 (P153620) South Africa Water Sector Analysis Approved FY14, Delivered FY15 (P153963) Education program and knowledge hub FY16 Approved FY14, Delivered FY16 support (P1461680) Strengthening monitoring and Approved FY15, Delivered FY16 evaluation (P147291) Partnership for market readiness Approved Fy15, Delivered FY16 (P148396) Subnational Doing Business (P148743) Approved FY14, Delivered FY16 ZA Health PETS in Gauteng Province Approved FY14, Delivered FY16 (P148796) ZA From policies to implementation: Approved FY14, Delivered FY16 Case studies (P149964) Review of Annual National Approved FY15, Delivered FY16 Assessment (P158401) TA to Integrate ICT in Education Approved FY15, Delivered FY16 (P158404) SA Municipal Real Estate TA Approved FY16, Delivered FY16 (P159036) South Africa Economic Update FY17 Approved FY12, Delivered FY17 (P131437) Municipal Infrastructure Financing Approved FY16, Delivered FY17 (P162137) ZA-FBTA on Rural Dev and Land FY18 Approved FY12, Delivered FY18 Reform 2 (P128321) RAS for Cities Support Program Approved FY14, Delivered FY18 (P144125) AFCS1 Programmatic Poverty Work Approved FY13, Delivered FY18 (P148652) Preparation of Pilot Storage Project Approved FY15, Delivered FY18 (P154993) South Africa Crisis Simulation Approved FY16, Delivered FY18 Exercise (P161701) Develop TOD implementation guidelines for the City of Cape Town Approved FY17, Delivered FY18 (P165950) Phase 1 - City Resilience Program Approved FY17, Delivered FY18 (P166055) TA for Multisectoral Collaboration Approved FY17, Delivered FY18 (P252343) Approved FY17, Delivered FY18 109 Annex 2. 4: SA CLR - IFC Portfolio FY14-FY18 Investment Portfolio, IFC Own Account Client Sector (IFC Group Level 1) Committed Portfolio US$m Bioventures Collective Investment Vehicles 1.31 Ethos V Collective Investment Vehicles 6.56 Metier II Collective Investment Vehicles 20.59 Sphere I Collective Investment Vehicles 0.24 Horizon Afri III Collective Investment Vehicles 3.81 Sasfin Financial Markets 0.67 Sasfin Financial Markets 1.27 FirstRand Financial Markets 200.00 Mercantile SA Financial Markets 50.31 FirstRand Financial Markets 100.00 ABL New Financial Markets 6.93 Business Partners Ltd. Financial Markets 40.8 Assupol Financial Markets 20.33 Net 1 Financial Markets 24.45 Sasfin Financial Markets 0.08 Sasfin Trade Finance 4.25 Kaxu Infrastructure 19.65 Khi Infrastructure 4.38 Khi Infrastructure 29.43 Xina Solar One Infrastructure 28.82 Amakhala Infrastructure 4.19 Amakhala Infrastructure 38.68 Ekurhuleni Muni Infrastructure 42.99 Kaxu Infrastructure 1.33 Khi Infrastructure 1.22 Amakhala Infrastructure 2.57 Buffalo City Infrastructure 2.75 Petra Diamonds Oil, Gas & Mining 3.24 Bakhresa SA Agribusiness & Forestry 16.7 Bounty Brands Agribusiness & Forestry 24.64 Westfalia Fruit International Agribusiness & Forestry 32.2 Country Bird Agribusiness & Forestry 25 Hans Merensky Agribusiness & Forestry 34.52 Country Bird Agribusiness & Forestry 2.38 Ascendis Health, Education, Life Sciences 30 Advtech Health, Education, Life Sciences 23.07 Safal Steel Manufacturing 5 Safal Steel Manufacturing 11.08 SRF Flexipak Manufacturing 15.5 110 BMW SA Manufacturing 130.14 MA South Africa Manufacturing 27.31 CLN SpA Manufacturing 54.24 IHS-SA Tourism, Retail, Construction & Real 13.08 Estates Grand total 1105.71 Annex 2. 5: SA CLR - IFC Advisory Services FY14-FY18 Project Name Primary Business Line Name Total Funds Managed by IFC (US$ m) eThekwini Wastewater PPP Strategic Cross-Cutting Advisory solutions 0.3 Advisory and Capacity Building EDGE Certification South Africa Economics & Private Sector 1.5 Development Environmental & Social Risk Environment, Social and Governance 0.7 Management Program - South Africa Promoting Prosperity through Equitable Growth, Finance and 2.9 Investment Climate and Investment Institutions Policy Reform South Africa Private Sector Equitable Growth, Finance and 3.0 Competitiveness Project Institutions Grand total 8.8 111 Annex 2. 6: SA CLR - MIGA Portfolio FY14-FY18 South Africa Inbound Portfolio As of June 30th, 2018 (FY18) Gross Project Name Investor Sector Exposure (US$ m) DBSA Standard Chartered Bank Plc Financial 167.79 Eskom Holdings SOC Ltd Deutsche Bank AG Infrastructure 689.20 HBZ Bank S.A. Habib Bank AG Zurich Financial 12.40 Land and Agricultural Development Bank of South Standard Chartered Bank Plc Financial 357.43 Africa Kangnas P Limited Lekela Power B.V. Infrastructure 38.46 Khobab Wind (RF) Lekela Power B.V. Infrastructure 19.95 Loeriesfontein 2 Lekela Power B.V. Infrastructure 18.93 Noupoort (RF) Pr Lekela Power B.V. Infrastructure 9.85 Perdekraal E (RF) Lekela Power B.V. Infrastructure 34.02 Grand Total 1,348.03 112 Addendum: Summary Two-year gap FY19-20 South Africa’s Country Partnership Strategy Completion and Learning Report Summary of program implementation during two-year gap FY19 – FY20 Since July 2018, implementation momentum accelerated considerably until the third quarter of FY 20 when the COVID pandemic led to a restriction of movements and reduced activity due to the adoption of Home-Based Work in response to the nation-wide lock down. This update is provided for information only, and these accomplishments are not reflected in the ratings of performance during the CPS period. i. Reducing inequality The capacity of the Department of Cooperative Governance and Traditional Affairs (COGTA) to support Intermediate City Municipalities (ICMs) in SA strengthened through the implementation of activities financed by SECO. WBG support to the COGTA’s Integrated Urban Development Framework (IUDF) culminated in the design of the ICMs Support Program in SA. The support helped to increase the government focus on the municipal management challenges facing ICMs and successfully piloted appropriate mitigation measures in nine ICMs. These ICMs included Rustenburg, Drakenstein, Kwa Dukuza, Sol Plaatje, Rustenburg, Thulamela, Steve Tshwete, and Mogale City. Activities undertaken included the development of Capital Expenditure Frameworks (CEFs) guidelines, applied in the nine pilot ICMs. Lastly, a donor coordination strategy was developed to support further upscaling and implementation of the IUDF in the remaining intermediate cities. Implementation of the SA Urban Knowledge Hub - Urban Technical Assistance (TA) Program MDTF (P173097) contributed improved business environment and resulted in more competitive cities. The second phase of support to participants in the Partnering for Growth program was completed in 2019. The program contributed to the adoption of the Partnering for Growth concept as a foundation for eThekwini’s new economic strategy. In addition, significant traction through a collaborative approach to the Innovation Capital brand and concept in Tshwane, and considerable network-level results were recorded in Nelson Mandela Bay (including participants reporting over 100 new actions taken). Invest Durban continued to implement the operations plan of the investment strategy with ongoing support from the SECO funded Multi-Country Investment Climate Program (MCICP) on the IFC project, SA Competitiveness Program. Sub-National Doing Business (SNDB) continued to be an agenda driven by the cities and monitored by the CSP team for the three sub-national indicators. Noticeably, increased ownership by larger cities such as the City of Johannesburg and eThekwini, along with the continued implementation of reforms in Cape Town, is evident. Smaller municipalities such as Mangaung and Nelson Mandela Bay were increasingly engaged through the implementation and update of their reform action plans. Additionally, some electricity reforms were noticed in Mangaung and Nelson Mandela Metropolitan Municipalities. The program promoted the engagement of metros at the national level with CoJ, eThekwini and the City of Cape Town participating in the national technical working groups on SNDB managed by the Department of Trade and Industry and National Treasury (in conjunction with the SECO and PF funding from the IFC project, South Africa Competitiveness Program). The World Bank, jointly with SA's National Department of Health and Gauteng Department of Health, piloted Optima Model in an HIV/TB co-epidemic setting to respond to six policy questions centered on the efficient allocation of TB resources in Gauteng Province. The analysis formed part of the tools used to determine resource requirements to achieve the National Strategic Plan 2022 TB targets. The report summarizes the experience and learning from the Optima TB model's pilot application in an HIV/TB co-epidemic setting. The report also presents the findings of Optima TB regarding epidemic trends, TB spending patterns, and the modelling effects of several resource allocation scenarios and optimization. The historically disadvantaged small- and medium-scale farmers are being integrated into well- established agricultural value chains through support from the Land Bank project. Though progressing slowly but steadily, in 2019, the Land Bank approved R340 million to finance a partnership between a black- majority owned investment company, a leading citrus and grape producer operating out of Loskop Valley in 113 Limpopo, a women’s cooperative, and community trust. Of the total financing approved, the project provided R90 million. The loan provided working capital financing for 176 ha of existing orchards and supports orchard development in an additional 531 ha. The women’s cooperative and community trust jointly own 20 percent of the initiative and would receive an equivalent share of the profits. Community members have started to benefit from enterprise development, job creation, and investments in education and health through investments made by the community trust from its share of the profits. The project is facing liquidity challenges that have slowed its implementation, but measures are under way to get the project back on track. As the Land Bank project supported by the MIGA non-honoring guarantee is facing the same liquidity challenges, MIGA and IBRD are jointly exploring solutions. ii. Promoting investments All six units of the Medupi coal-fired power plant are in commercial operation, with a generation capacity of 4,000 megawatts (an increase of 1,600 megawatts from 2,400 megawatts reported at the close of the CSP), benefiting 3,600,000 people. Over 90 percent of the works on transmission lines are completed (919 km out of 1,020 km). The final contract for 77 km Masa-Ngwedi 765kV sections is delayed due to procurement challenges. The Majuba Rail has been at a standstill since July 2019, with implementation progress at about 97.5 percent complete. Last remaining works activities are delayed due to a lengthy Eskom procurement process. The EISP (P116410) has disbursed eighty-two percent of the loan. In FY19 and FY20, the Multilateral Investment Guarantee Agency (MIGA) supported eleven new projects, bringing the total number of projects in SA to twenty, with a gross outstanding exposure of US$1.54 billion as of end-FY20. All of the new projects were in the renewable energy sector. For example, in December 2019, MIGA issued guarantees supporting the development, construction, operation, and maintenance of the Golden Valley and Excelsior wind power plants against the risks of Breach of Contract, Expropriation, Transfer Restriction & Currency Inconvertibility, and War & Civil Disturbance for a period of up to 15 years. The Project consists of two wind energy-generating facilities with a combined total installed capacity of 156 megawatts (MW) located in the Eastern Cape (Golden Valley) and Western Cape (Excelsior) Provinces of SA. The Project was awarded through Round 4 of the SA Renewable Energy Independent Power Producers Procurement Program (REIPPP). MIGA’s support for this Project aligns with the Agency’s strategic priority of supporting climate finance investments. In addition, in FY19 and FY20, MIGA, through its guarantees, supported outward investment and capital optimization for seventeen new projects by South African corporates and banks, bringing MIGA’s gross outstanding exposure attributed to SA private sector entities to US$1.2 billion in 28 projects. Recently, IFC invested US$200 million in The Standard Bank of South Africa Limited's green bond placed on the London Stock Exchange. It is Africa's largest green bond, and SA's first offshore green bond issuance which will increase access to climate finance. The 10-year green bond facility privately placed by IFC is compliant with the International Green Bond Principles. It will enable Standard Bank Group's Sustainable Finance Business Unit to on-lend to and finance climate-smart projects in SA, such as renewable energy, energy efficiency, water efficiency, and green buildings. The bond is a landmark placement for South Africa and will contribute to financing South Africa's green economy and catalyze interest in green investments from other actors in the country. IFC estimates that South Africa's climate-smart investment potential, between now and 2030, is US$588 billion. IFC also estimates that projects funded by the green bond have the potential to reduce greenhouse gas emissions by 742,000 tons per year, or nearly 3.7 million tons over five years. The WB and IFC conducted a Country Private Sector Diagnostic (CPSD) to contribute to the identification of policy actions and interventions in critical sectors of the economy where short-to-medium term reforms could unlock investment and jobs. The core of the CPSD analysis is the identification of opportunities for market creation and the potential for increased development impact of an investment. Three deep dives were conducted to put a lens on sector-specific opportunities for scaling-up investment and leveraging private sector solutions, with a focus on identifying policy options that can be implemented in the short to 114 medium term. This was complemented by in-depth consultations with entrepreneurs and leading companies, business associations, financial institutions, think tanks, and the IFC investment team at the WBG. The three sectors covered—agriculture and agribusiness, automotive, and ICT—are vital and dynamic, economically significant, and have dense backward and forward linkages to the rest of the economy. With the right policies, these sectors have the potential to make a much more substantial impact on inclusion; and the findings provide pointers relevant to other sectors. The report also provides a summary of opportunities in different sectors that were briefly reviewed for the CPSD (tourism, health, mining). The CPSD provides policy options and outlines possible World Bank and IFC interventions to unlock barriers to private investment and leverage private sector solutions to improve the delivery of public services. The CPSD will provide a key analytical input to the new CPF. iii. Strengthening institutions To an extent, strengthening institutions continues to cut across the other two pillars of the CPS. Many CPS activities provided capacity-building support, regulatory and legal advice that strengthened institutions. These activities included a program to build the capacity of cities to manage programs, South-South Knowledge Exchanges to build the skills of policymakers under the RAS, and the Finance Sector Development and Reform Program, which supports measures to develop and stabilize the financial sector. WBG continued to provide support on the implementation of South Africa’s ‘twin peaks’ reform agenda, through which a system-wide approach to financial oversight was introduced through the Financial Sector Regulation (FSR) Act, promulgated in August 2017. Drafting efforts on a supplementary Bill, the Conduct of Financial Institutions (COFI) Bill – which is envisaged to provide comprehensive market conduct requirements – have been advanced. A crisis management and resolution framework, including an explicit deposit insurance scheme, will be established through the Financial Sector Laws Amendment Bill (FSLAB), which has gone through the pre-parliamentary approval process and is expected to be promulgated in FY21. WBG provided support to improve the legal, regulatory, and policy framework for innovative retail payment instruments and payment infrastructure. Towards this end, significant progress was made through the publication of a policy paper on proposed reforms by the SARB and NT, with input from WBG. Continued support has been provided to the authorities on advancing legal drafting efforts for amendments to the Act, which will include non-banks in the payments system. Policy and legal reforms to support the interoperability of payment instruments are expected to commence thereafter. A safe, efficient, reliable, and inclusive national payment system plays a critical role in supporting economic activity and development and facilitating greater access to payment services by the population at large. Whilst South Africa’s national payment system (NPS) is well developed, it could be improved to better serve the needs of those currently excluded from the banking system. 115 Annex 3: South Africa Portfolio Annex 3.1: IBRD Pipeline portfolio, CPF Project Name Len. Inst Type Comm Fiscal Year (US$m) - Total South Africa: Wildlife Conservation Bond (P174097) GEF Grant 15.00 FY21-Q3 =IPF South Africa: Catalyzing Financing and Capacity for the Biodiversity Economy around GEF Grant- 9.00 FY21-Q3 Protected Areas (GEF) 58 (P170213) IPF Total 24.00 58 GEF 116 Annex 3.2: IBRD Non lending deliveries, CPF FY2022-26 (45 in total): 10 Southern Africa, 35 South Africa Sector Lead GP/Global Task ID Project Name Closing Date- Prod Line Activity Start Delivery/ Themes FY Date Completion Finance, P172849 South Africa: Ombuds Diagnostic 2021 AA 4/2/2020 5/31/2021 Competitiveness and P170707 South Africa FSAP Update 2022 AA 3/8/2019 9/15/2021 Innovation P169126 South Africa Financial Sector Development and Reform 2022 AA 9/27/2018 11/30/2021 Program Phase II P171855 Jobs and Economic Transformation in Southern Africa 2022 AA 8/16/2019 5/31/2022 (Support to the Jobs Platform) P174455 South Africa Trade Facilitation 2022 AA 6/15/2020 5/31/2022 Equitable Growth, Finance, and Institutions P172131 Component 3: Inclusive Economic Development at City, 2023 AA 9/26/2019 9/6/2022 Regional and National Level P172044 Southern Africa Financial Sector Development 2023 AA 8/19/2019 6/30/2023 (Botswana, Eswatini, Lesotho, Namibia, South Africa) Governance P175157 Southern Africa Governance and Political Economy 2022 AA 10/28/2020 7/30/2021 Facility (Governance Facility) P173396 Effective and Sustainable Fiscal and Urban Financing and 2022 AA 1/27/2020 1/31/2022 Strengthened Governance Macroeconomics, Trade P175504 South Africa - Economic Update 2021 AA 10/5/2020 5/31/2021 and Investment Planned Country Economic Memorandum 2022 AA 7/30//2021 6/30/2022 Planned South Africa – Public Expenditure Review 2022 AA 7/30/2021 6/30/2022 P175579 Leveraging Trade for South Africa's Recovery and for 2022 AA 11/9/2020 9/30/2021 Inclusive Long-Term Growth P129817 South Africa - Government Debt and Risk Management 2022 AA 2/8/2012 12/31/2021 Poverty and Equity P164927 Southern Africa Programmatic Poverty Assessment and 2022 AA 9/21/2017 9/13/2021 Statistical Capacity Building Education P171994 Programmatic Education ASA on Skills for Gainful 2021 AA 10/22/2019 6/29/2021 Human Development Employment for Youth in Southern Africa P175679 Early Childhood Development in South Africa 2022 AA 10/19/2020 3/30/2022 P172616 Early Grade Reading in Southern Africa 2022 AA 10/15/2019 6/30/2022 Health, Nutrition & P172420 Designing and Implementing Interventions to Accelerate 2021 AA 9/23/2019 5/28/2021 Population Human Capital Formation for Adolescents in South Africa, Eswatini and Lesotho P171798 The Future of Medical Work in Southern Africa 2022 AA 7/24/2019 9/28/2021 117 P175444 Investing in Human Capital in Southern Africa 2022 AA 10/27/2020 4/28/2022 Other P154307 South Africa Youth Job Search Assistance 2022 AA 2/18/2015 8/31/2021 Social Protection & P172175 Review of Social Protection Systems in Southern Africa 2022 AA 9/19/2019 1/31/2022 Jobs P168508 Supporting innovations for youth employment in South 2022 AA 9/19/2018 2/28/2022 Africa P175294 Adaptive Social Protection in Southern Africa 2022 AA 9/21/2020 5/31/2022 Agriculture and Food Planned Eastern Cape Engagement 2023 AA 7/31/2021 12/31/2023 Climate Change P172748 South Africa: Supporting the Implementation of 2022 AA 12/5/2019 6/30/2022 Nationally Determined Contribution Planned Climate Change and Development Report 2022 AA 7/30/2021 6/30/2022 Digital Development P172813 Southern Africa Digital Engagement 2022 AA 4/4/2020 6/30/2022 Energy & Extractives P172682 Programmatic ASA for Energy Sector in South Africa 2022 AA 12/11/2019 6/30/2022 Sustainable Development and Infrastructure P151193 Programmatic Technical Assistance for Capacity 2023 AA 12/18/2014 12/30/2022 Building for Carbon Capture and Storage in the Republic of South Africa Infrastructure, PPP's & P171413 South Africa PPP Framework Review 2021 AA 6/14/2019 5/31/2021 Guarantees Social Sustainability P171560 Gender and Inclusion Assessment 2021 AA 8/26/2019 9/30/2021 & Inclusion Transport P172574 Review of Road safety in Southern Africa 2021 AA 10/1/2019 6/18/2021 P169953 Integrated and Fiscally Sustainable Public Transport 2022 AA 3/14/2019 12/1/2021 P176752 COVID-19 and Air Transport: Analyzing Policy and 2022 AA 4/14/2021 5/31/2022 Operational Responses for Quicker Economic Recovery in Selected SA Countries P174147 Transforming Transit in South Africa 2022 AA 5/9/2020 6/30/2022 P176566 E-Mobility and Climate Resilience in the Minibus Taxi 2022 AA 5/7/2021 6/30/2022 sector in South Africa Planned Infrastructure Engagement with ISA 2022 AA 7/30/2021 6/30/2022 P171567 Beyond the Gap in South Africa 2023 AA 7/25/2019 9/30/2022 Urban, Resilience and P172009 Component 5: Integrated Human Settlements 2022 AA 9/3/2019 1/31/2022 Land P172721 Component 2: Sustainable and Climate Responsive 2022 AA 10/22/2019 1/31/2022 Infrastructure and Land Development P175422 DBSA Smart Cities Program in South Africa 2022 AA 9/28/2020 5/31/2022 118 P173517 Urban MDTF for South Africa 2024 AA 5/23/2020 3/29/2024 P163422 South Africa RAS for Infrastructure Investment and 2025 AA 3/24/2017 9/6/2024 Integrated Urban Development 119 Annex 3.3: IBRD Active Trust Funds, CPF FY22-FY26 Grant Pipeline Active Grant Approval Approval Program Project ID TF Number Project Name Grant Closing Date Amt ($M) AFR Finance And Private Sector P169126 TF0A8797 South Africa FSDRP II 10/18/2018 7/31/2023 √ 0.67 AFR Finance And Private Sector P169126 TF0A8803 South Africa FSDRP II 10/18/2018 7/31/2023 √ 0.53 AFR Finance And Private Sector P169126 TF0A8737 South Africa FSDRP II 10/17/2018 7/31/2023 √ 0.75 AFR Finance And Private Sector P169126 TF0A8799 South Africa FSDRP II 10/16/2018 7/31/2023 √ 0.81 AFR Finance And Private Sector P169126 TF0A8798 South Africa FSDRP II 10/17/2018 7/31/2023 √ 0.74 AFR Finance And Private Sector P169126 TF0A8810 South Africa FSDRP II 10/17/2018 7/31/2023 √ 0.78 Total 4.27 Carbon Results Based Finance (Crbf) P173517 TF0B5184 Urban MDTF for South Africa 2/17/2021 9/30/2022 √ 0.20 Total 0.20 Clean Technology Fund - IBRD As ZA - Eskom Renewables Implementing Agency P122329 TF010690 Support Project 11/23/2011 12/30/2021 √ 250.00 Clean Technology Fund - IBRD As ZA - Eskom Renewables Implementing Agency P122329 TF013681 Support Project 11/23/2012 12/31/2021 √ 0.41 Total 250.41 Climate Resilient and Low-Carbon Energy diversification & Development P175421 TF0B4570 electrification 11/25/2020 7/31/2021 √ 0.07 Climate Resilient and Low-Carbon Supporting NDC Development P172748 TF0B2102 Implementation 2/3/2020 6/30/2022 √ 4.00 Total 4.07 SADC Sustainable Cooperation in International Waters in Africa P127086 TF016748 Groundwater Management 7/16/2015 6/30/2021 √ 2.00 Cooperation in International Waters in Africa P174856 TF0B3706 Drought-Resilient Cities 8/24/2020 9/30/2022 √ 0.40 Drought-Resilient Livelihoods Cooperation in International Waters in Africa P174871 TF0B3669 & Food Sec 8/21/2020 9/30/2022 √ 0.40 Drought-Resilient Energy Cooperation in International Waters in Africa P174870 TF0B3730 Systems 8/21/2020 9/30/2022 √ 0.40 Cooperation in International Waters in Africa P173077 TF0B3679 SADRI 8/12/2020 9/30/2022 √ 0.30 Total 3.50 Southern Africa Digital Digital Development Partnership P172813 TF0B2359 Engagement 4/4/2020 6/30/2022 √ 0.15 Total 0.15 Energy Sector Management Assistance Program P172682 TF0B3180 PASA Energy South Africa 6/26/2020 6/30/2022 √ 1.25 120 Energy Sector Management Assistance Development of CCS in South Program P149521 TF0A3137 Africa 11/21/2018 12/30/2021 √ 23.00 Energy Sector Management Assistance PTA for Capacity Building for Program P151193 TF019231 CCS in RSA 3/2/2015 12/31/2021 √ 4.42 Energy Sector Management Assistance SAPP-AREP Regional Program P126661 TF0B5574 Program 4/8/2021 10/31/2022 √ 0.30 Total 28.97 Free Standing Trust Funds For GSURR GP P173517 TF0B3878 Urban MDTF for South Africa 9/14/2020 2/29/2024 √ 0.42 Free Standing Trust Funds For GSURR GP P173517 TF0B3876 Urban MDTF for South Africa 9/15/2020 2/29/2024 √ 0.50 Free Standing Trust Funds For GSURR GP P173517 TF0B3798 Urban MDTF for South Africa 9/15/2020 2/29/2024 √ 0.55 Free Standing Trust Funds For GSURR GP P173517 TF0B4117 Urban MDTF for South Africa 10/1/2020 2/29/2024 √ 0.58 Free Standing Trust Funds For GSURR GP P173517 TF0B3877 Urban MDTF for South Africa 9/14/2020 2/29/2024 √ 1.44 Total 3.50 SADC Sustainable GEF-IBRD As Implementing Agency P127086 TF016970 Groundwater Management 7/16/2015 6/30/2021 √ 8.20 Protected Areas for Rural GEF-IBRD As Implementing Agency P170213 TF0B1544 Development 11/8/2019 12/31/2025 √ 0.22 SA: Wildlife Conservation GEF-IBRD As Implementing Agency P174097 TF0B3111 Bond 6/19/2020 6/30/2026 √ 1.24 Total 9.66 Global facility for Disaster Reduction & Recovery P166727 TF0A3668 SADC DRM TA 10/24/2016 8/31/2021 √ 3.19 Global Infra Facilty (Gif)-Technical Partner Fees P173517 TF0B5869 Urban MDTF for South Africa 5/21/2021 6/30/2022 √ 0.49 Total 3.68 Government Debt And Risk Management P129817 TF0A6770 South Africa - GDRM 1/25/2018 8/31/2021 √ 0.48 Total 0.48 Identification For Development P169126 TF0B4015 South Africa FSDRP II 9/21/2020 11/30/2021 √ 0.25 Identification For Development P172175 TF0B4016 SP Review in Southern Africa 10/6/2020 12/31/2021 √ 0.13 SA Financial Sector Identification For Development P172044 TF0B4236 Development 10/16/2020 12/31/2021 √ 0.18 Identification For Development P172175 TF0B4227 SP Review in Southern Africa 10/21/2020 12/31/2021 √ 0.18 Total 0.73 Investment Enabling Environment in ACP SADC Scorecard on FDI Countries P176189 TF0B5222 Restrictiveness 2/22/2021 5/31/2022 √ 0.20 Total 0.20 South Africa Youth Job Jobs Umbrella Partnership P154307 TF0A4831 Search Assistance 4/4/2017 8/31/2021 √ 0.30 Total 0.30 Policy and Human Resources Development Fund-Technical Assistance TF P165228 TF0B0290 SADP-II 6/25/2019 5/31/2026 √ 2.00 121 Total 2.00 Pollution Management And Environmental South Africa-Air Quality Health P170743 TF0B2798 Management 2/9/2021 6/30/2021 √ 1.00 Total 1.00 PROBLUE P173517 TF0B3956 Urban MDTF for South Africa 9/15/2020 12/31/2022 √ 0.50 Total 0.50 Public-Private Infrastructure Advisory Facility P166170 TF0B4371 NRAP 11/5/2020 2/28/2022 √ 0.20 Public-Private Infrastructure Advisory South Africa PPP Framework Facility P171413 TF0B0561 Review 6/17/2019 5/31/2021 √ 0.20 Public-Private Infrastructure Advisory Improving transport Facility P174763 TF0B2370 connectivity in SA 3/9/2020 12/31/2021 √ 0.45 Public-Private Infrastructure Advisory Facility P172682 TF0B3641 PASA Energy South Africa 7/31/2020 12/31/2021 √ 0.31 Public-Private Infrastructure Advisory Climate Resilient Minibus Facility P176566 TF0B5742 Taxi Reforms 5/7/2021 2/28/2022 √ 0.06 Public-Private Infrastructure Advisory Climate Resilient Minibus Facility P176566 TF0B5743 Taxi Reforms 5/7/2021 2/28/2022 √ 0.21 Total 1.42 Innovations youth RSR-ADSP Umbrella Trust Fund Program P168508 TF0B0533 employment 6/4/2019 6/30/2021 √ 0.14 Total 0.14 Standalone Trust Funds P166170 TF0B2706 NRAP 4/24/2020 9/30/2021 √ 0.29 Total 0.29 SA Financial Sector Sustainable Business for Africa (SB4A) P172044 TF0B4670 Development 12/5/2020 12/31/2021 √ 0.25 SA Financial Sector Sustainable Business for Africa (SB4A) P172044 TF0B3995 Development 9/21/2020 12/31/2021 √ 0.30 Total 0.55 Trade as a Driver of Growth Umbrella Facility for Trade P175579 TF0B4641 in SA 3/16/2021 9/30/2021 √ 0.20 Jobs and Economic Umbrella Facility for Trade P171855 TF0B3950 Transformation 9/15/2020 12/31/2021 √ 0.25 Southern Africa Trade & Umbrella Facility for Trade P164847 TF0A9137 Connectivity Project 11/15/2018 4/30/2021 √ 0.20 Total 0.65 316.64 122 Annex 4: IFC Portfolio Three Priority Sectors for IFC (Investment and/or Advisory incl. joint work with WB): Infrastructure (incl. transport, energy, municipal and ICT), Finance & Insurance (SME); Education/skills with Investment Climate and Digital Economy as cross-cuttings Program (US$ million as of 2/28/2021) FY16 FY17 FY18 FY19 FY20 FY21 YTD Total LTF Commitments 149.3 395.4 242.8 333.2 736.2 286.0 Vol: Own Account LTF 86.8 395.4 242.8 212.8 686.2 209.3 Vol: Mobilization 62.5 0.0 0.0 120.4 50.0 76.8 Total Short Term Finance 28.7 32.7 29.1 13.7 19.5 7.8 Total IFC own Acc. LTF 3,216.9 Commitments since [2007] Outstanding Portfolio (US$ millions, as of 1/31/2021) MAS INR FIG CDF Debt, equity and quasi-equity 335.0 216.3 882.3 17.6 STF 0.0 0.0 3.1 0.0 Total 335.0 216.3 885.4 17.6 Top 3 exposures (project FirstRand (Financial Markets ) US$400.0m ; Standard Bank (Financial Markets) US$384.1m ; names and outstanding Nedbank SA (Financial Markets) US$0.0 amounts) Annex 4. 1: Investment Portfolio, IFC Own Account (As of 31 January 2021) Committed Commitment Client Product Description Amount (US$ Year millions) Manufacturing, Agribusiness and Services (MAS) Advtech Equity 2016 22.3 ArcelorMittal South Africa Guarantee/RM 20xx 66.4 Ascendis Equity 2016 43.3 Bakhresa SA Debt 2014 4.6 BMW SA Debt 2017 98.9 Bounty Brands Debt 2017 0.4 CLN Group Debt 2018 55.1 Country Bird Equity 2013 27.4 Growthpoint Debt 20xx 60.0 Growthpoint Equity 20xx 20.2 Hans Merensky Equity 20xx 34.5 IHS-SA Equity 2012 12.8 Safal Steel Debt 20xx 11.3 SRF Flexipak Debt 2012 3.0 United Exports SA Debt 2019 11.5 WESTFALIA FRUIT Debt 2017 5.8 INTERNATIONAL Financial Markets (FM) African Bank Debt 2008 0.0 Assupol Equity 2012 20.3 123 Business Partners Ltd Debt 2018 39.9 DARP Nimble Group Equity 2019 10.7 FirstRand Debt 2017 500.0 Lulalend Equity 2019 2.8 Nedbank SA Debt 20xx 200.0 Net 1 Equity 2016 24.5 Sasfin Guarantee/RM 2012 3.1 Standard Bank Debt 20xx 384.1 Infrastructure and Natural Resources (INFRA) Amakhala Guarantee/RM 2013 6.3 Amakhala Debt 2013 40.4 Buffalo City Guarantee/RM 2006 2.7 Ekurhuleni Muni Debt 2017 90.4 Kaxu Debt 2012 17.9 Kaxu Guarantee/RM 2012 1.3 Khi Debt 2012 30.5 Khi Guarantee/RM 2012 1.2 SA LNG SPV Debt 2019 1.4 Xina Solar One Debt 2015 26.8 Disruptive Technologies and Funds (CDF) Ethos V Equity 2005 0.5 Horizon Afri III Equity 2007 2.5 Metier II Equity 2016 18.9 TOTAL 1,903.4 Annex 4. 2: Advisory Portfolio as of 31 January 2021 Amount Project name Sector Description (US$ millions) The objective of the Africa Cities Platform (ACP, Platform or program) is to catalyze investment to address the financing gap for urban infrastructure projects to improve access and/or the quality of basic urban services (e.g. transport, waste and water management) in selected African cities. To achieve this, the Platform will support sub- sovereign entities, like municipalities and/or utilities, Infrastructure & Africa Cities Platform to develop a bankable pipeline of sustainable urban 4.4 Natural Resources infrastructure projects in key priority areas such as urban mobility, energy, water, and waste, as well as covering communication, housing, social infrastructure such as health and education. In the long term, the program will contribute to increasing the quality and/or efficiency of urban services. The program also expected to contribute to fiscal decentralization in the participating cities. The objective of this project is to contribute to enhanced productivity of companies in the agri- Manufacturing, Agri-processing Resource processing industry in South Africa through improved Agribusiness & 2.8 Efficiency energy and water use, reducing overall consumption Services and mitigating risks associated with uncertain and constrained water supplies. The program has been designed to undertake an array of well-coordinated actions aimed at creating a market- EDGE Certification South Economics & Private wide result in the South African construction sector. It 1.3 Africa Sector Development is focusing on increasing the construction of green building in the housing sector. 124 Environmental The Objective of the program is to increase the uptake Performance & Market Environment, Social of E&S best practices by FIs, leading to an 1.2 Development- South and Governance improvement in the E&S performance of both the FIs Africa and their real sector clients. This project supports the SME Push Program and aims to help Mercantile Bank to strengthen its offering to the MSME sector. The engagement is expected to contribute to improving access to finance opportunities for MSMEs in South Africa, by providing advisory services to Mercantile Bank based on IFC’s unique Financial Institutions knowledge and expertise developed through extensive Mercantile Bank SME AS 0.1 Group market research (published in reports such as ‘The Unseen Sector’ and ‘The MSME Voice’) and advisory projects across the continent. Although the Bank already has an offering to MSMEs it plans to scale up its MSME business drastically given its acquisition by Capitec Bank which has provided access to a much larger branch network and other channels. The objective of the eThekwini NRW project (the Project) is to support eThekwini with the upfront development of a possible non-revenue water (NRW) eThekwini Non-Revenue Infrastructure & reduction project, with the aim of informing the 0.3 Water Natural Resources decision-making for the subsequent transaction design phase that is expected to be structured through a performance-based contract (PBC). The eThekwini Municipality ("EM") is the local authority for the city of Durban. The strategy of the Water and Sanitation ("EWS") unit of EM is to develop Durban's urban water and wastewater treatment infrastructure through a program of Public Private Partnerships (the "PPP Program"). EM requested IFC eThekwini Wastewater transaction advisory support for (i) the structuring and Transaction Advisory 1.9 PPP Transaction Advisory bidding of a key PPP transaction: the construction and operations of two greenfield wastewater treatment works ("WWTWs") at uMdloti and uMkomaas. EM also requested IFC advisory support to cover (ii) the next phase of the existing DWR wastewater reuse PPP contract, and (iii) non-revenue water ("NRW") reduction. Promoting Prosperity The project aims at addressing key investment/growth Equitable Growth, through Investment challenges by focusing on a range of Finance and 3.1 Climate and Investment horizontal/vertical sectoral reforms with special Institutions Policy Reform attention to SMEs. The overall objective of the project is to improve processes and operations in SA HEIs (higher education institutions) to enhance graduate employability. As this is a new engagement with a significant public sector component, the project will be structured in 2 Phases. In Phase I IFC will pilot the approach of working with SA HEIs, public and private, as well as the South African regulator (DHET) to move from employability Manufacturing diagnostic to provision of IFC advisory to clients for Skills in South Africa Agribusiness & 0.3 implementation of recommendations. Pending Services achievement of outcomes in Phase I, Phase II of the program will be structured to increase reach to a greater number of institutions for assessment and to provide a subset of these institutions with in-depth support to implement recommendations, in partnership with DHET and industry. Phase II will have additional M&E targets and a separate IP decision meeting prior to moving ahead. 125 The program seeks to address key investment climate South Africa Private Equitable Growth, and structural challenges facing the country’s economy Sector Competitiveness Finance and such as poor regulation, government intervention that 3.3 Project Institutions do not provide firms with the ability and incentives to enter and compete and negative investor perception. TOTAL 18.7 Annex 4.3: High impact through IFC 1.0/2.0, upside potential through IFC 3.0: Annex 4.4: IFC Investment Services Projects pipeline, FY2021-FY25 as of 28 February 2021 Sector Main Activities Total (US$m) INR Sustainable infrastructure (Transport, Energy, Municipal water, Mining, ICT) and Natural 12404 resources FIG Inclusive Finance, Climate Finance 247 Manufacturing & Agri-Finance and Manufacturing (Automotive) 128 Agribusiness Education & Skills TVETs 0 Total 1615 Annex 4.5: IFC Advisory Portfolio, FY2021-FY25 Sector Main Activities Total (US$m) Infrastructure Africa Cities Platform 4.7 Manufacturing, Agribusiness & Services Agri-processing Resource Efficiency 2.4 Economics & Private Sector Development EDGE Certification South Africa 1.2 Environment, Social & Governance Environmental Performance & Market Development – South Africa 1.1 Transaction Advisory eThekwini Wastewater PPP Strategic Advisory and Capacity Building 0.3 Promoting Prosperity through Investment Climate and Investment 3.1 Equitable Growth, Finance & Institutions Policy Reform South Africa Private Sector Competitiveness Project 3.3 The Amundi Green Bond Technical Assistance Project 0.3 Total 16.4 126 Annex 5: MIGA Portfolio Annex 5.1: South Africa - Inbound Portfolio (as of April 30, 2021) Project Name Investor Sector Gross Exposure (US$ m) Amstilinx (RF) Proprietary Limited Okavango Biology Infrastructure 10.70 Amstilite (RF) Proprietary Limited Okavango Biology Infrastructure 34.91 DBSA Standard Chartered Bank Plc Financial 167.79 Dyason's Klip 1 (RF) Proprietary Limited Scatec Solar ASA Infrastructure 9.09 Dyason's Klip 2 (RF) Proprietary Limited Scatec Solar ASA Infrastructure 9.09 Eskom Holdings SOC Ltd Deutsche Bank AG Infrastructure 689.20 HBZ Bank S.A. Habib Bank AG Zurich Financial 12.40 Kaxu Solar One (RF) Proprietary Limited Atlantica Yield Plc Infrastructure 89.93 Land and Agricultural Development Bank of Standard Chartered Bank Plc Financial 357.43 South Africa Main Street 957 (RF) Proprietary Limited Okavango Biology Infrastructure 5.99 Ramizone (RF) Proprietary Limited Okavango Biology Infrastructure 11.11 Scatec Solar Kalkbult (RF) Proprietary Limited Scatec Solar ASA Infrastructure 3.33 Simacel 155 (RF) Proprietary Limited Scatec Solar ASA Infrastructure 1.35 Simacel 160 (RF) Proprietary Limited Scatec Solar ASA Infrastructure 2.61 Sirius Solar PV Project One (RF) Scatec Solar ASA Infrastructure 9.09 Kangnas P Limited Lekela Power B.V. Infrastructure 38.46 Khobab Wind (RF) Lekela Power B.V. Infrastructure 19.95 Loeriesfontein 2 Lekela Power B.V. Infrastructure 18.93 Noupoort (RF) Pr Lekela Power B.V. Infrastructure 9.85 Perdekraal E (RF) Lekela Power B.V. Infrastructure 34.02 Grand Total 1,535.23 Annex 5.2: South Africa – Outbound portfolio (as of April 30, 2021) Project Name Host Country Investor Sector Gross Exposure (US$ m) UT Abidjan Cote d'Ivoire Pan-African Infrastructure 30.4 Infrastructure Development Fund GSM Services Afghanistan MTN Group Infrastructure 114.0 Seawater Desalination Project Ghana The Standard Bank of Infrastructure 58.5 - Ghana South Africa Limited Thika Power Ltd Kenya Absa Capital Infrastructure 21.50 83 Megawatt Kitengela Power Kenya The Standard Bank of Infrastructure 90.54 Plant South Africa Limited Bujagali Hydroelectric Project Uganda Absa Bank Limited Infrastructure 4.75 Gigawatt 100MW Gas-Fired Mozambique The Standard Bank of Infrastructure 42.18 Power Plant South Africa Limited Gigawatt 100MW Gas-Fired Mozambique Gigajoule Power (Pty) Infrastructure 38.25 Power Plant Ltd 127 Azura Power West Africa Ltd. Nigeria FirstRand Bank Limited Infrastructure 65.1 Ejuva One (Pty) Ltd Namibia Investec Bank Limited Infrastructure 7.05 Ejuva Two (Pty) Ltd Namibia Investec Bank Limited Infrastructure 7.05 Karibib Solar Park Namibia Mettle Solar Infrastructure 2.22 Investments Proprietary Limited NCF Energy (Pty) Ltd Namibia Mettle Solar Infrastructure 0.57 Investments Proprietary Limited Tandii Investments (Pty) Ltd Namibia Mettle Solar Infrastructure 0.57 Investments Proprietary Limited ABSA/Barclays Ghana Ghana ABSA Group LTD Financial 84.54 ABSA/Barclays Kenya Kenya ABSA Group LTD Financial 109.73 ABSA/Barclays Mozambique Mozambique ABSA Group LTD Financial 88.55 ABSA/Barclays Seychelles Seychelles ABSA Group LTD Financial 40.18 ABSA/Barclays Uganda Uganda ABSA Group LTD Financial 41.80 ABSA/Barclays Zambia Zambia ABSA Group LTD Financial 38.07 ABSA/Barclays Mauritius Mauritius ABSA Group LTD Financial 94.05 FirstRand Bank Lesotho Lesotho FirstRand EMA Financial 5.15 Holdings (Pty) Limited FirstRand Bank Swaziland Eswatini FirstRand EMA Financial 20.46 Holdings (Pty) Limited FirstRand Bank Zambia Zambia FirstRand EMA Financial 33.16 Holdings (Pty) Limited FirstRand Bank Mozambique Mozambique FirstRand EMA Financial 29.70 Holdings (Pty) Limited FirstRand Bank Nigeria Nigeria FirstRand EMA Financial 25.59 Holdings (Pty) Limited FirstRand Bank Ghana Ghana FirstRand EMA Financial 39.74 Holdings (Pty) Limited FirstRand Bank Botswana Botswana FirstRand EMA Financial 81.15 Holdings (Pty) Limited Grand Total 1,214.55 MIGA will continue to seek opportunities to grow its portfolio in South Africa in support of cross- border investment and lending. For MIGA, South Africa is the third largest host country in its portfolio, with a gross exposure of US$1.54 billion in 20 projects as of April 2021 compared with just four projects (with exposure of US$1.2 billion) at end-FY17. MIGA’s exposure in South Africa spans the infrastructure, energy and financial sectors and comprises both political risk insurance and credit enhancement products (non-honoring of financial obligations) – the latter accounted for four-fifths of MIGA’s gross exposure in terms of volume in South Africa as of April 2021. MIGA has been particularly active in the renewable energy space, supporting both wind and solar energy generating facilities by IPPs participating in the South African Renewable Energy Independent Power Producers Procurement Program (REIPPP). Supporting the development of renewable energy going forward is aligned with the CPF and with South Africa’s plans of developing clean, renewable and low-cost electricity to diversify its energy mix and reduce carbon emissions, as well as MIGA’s strategic priority of supporting investments with positive climate change effects. Going forward, MIGA will continue to support cross-border investment and lending in renewable energy projects, aligned with Pillar 1 of the CPF. 128 MIGA’s support to South African investors is helping to promote intra -regional investment in Sub- Saharan Africa. South Africa is MIGA’s sixth largest investor country with exposure of US$1. 2 billion in 28 projects as of April 2021. There has been a rapid growth in MIGA’s support to South African investors, with 7 new projects receiving MIGA guarantees and new issuance of US$252 million in FY20 to unlock liquidity in host countries impacted by the COVID-19 pandemic. South African investors span the finance, infrastructure and manufacturing sectors. MIGA’s guarantees are supporting intra-regional investment, since all projects are located across twelve countries in Sub-Saharan Africa. Going forward, MIGA will continue to support intra-regional investment in Sub-Saharan Africa by South African corporates and banks, as well as South African investments into other regions. 129 Annex 6: Development Partners Development Sector Program & Priorities Overview South Africa receives lending and advisory support from development partners in excess of US$10 billion. All programs by development partners are aligned with Sustainable Development Goals 2030. The European Union, through the European Commission and European Investment Bank (EU), African Development Bank (AfDB), and National Development Bank (NDB) are providing support to South Africa with Energy sector development strategy, focused on energy transition. The UN and EU have designed a number of human capital projects targeted at health system, TVET, and education sector reforms. The Government of South Africa priority on stimulating job creation and economic devleopment are supported through ecosystem and SME development programs under IFC, UN and EU. South Africa is a beneficiary country of joint action plans under multi-development partner regional integration frameworks. A number of development partners have approved financing to South Africa targeted at the COVID-19 response: US$300 million from AfDB; US$1 billion from NDB; and US$4.2 billion from IMF. Annex 6.1: Development Partners Recent Areas of Cooperation Grid Development Sector Priorities* World IFC UN AFDB EU NDB Bank ○ Climate Change/Green economy ○ ○ ○ ○ ∆ Digitalization, Science, Technology, Innovation ∆ ∆ ∆ □ Energy, Power □ □ □ ◊ Financial markets ◊ ◊ ○ Gender ○ ○ ○ ○ ∆ Governance and participation ∆ ∆ ∆ v □ Human Capital (health, education, youth development) □ □ □ □ □ ◊ Industrialization and Infrastructure ◊ ◊ ○ Investment and inclusive financing/job creation (incl SME, ○ ○ ○ ○ competition) ∆ Manufacturing, Agribusiness, and agro-processing ∆ ∆ □ Regional integration □ □ □ □ □ ◊ Transport ◊ ◊ ○ Water ○ ○ *Other priority areas include: Cultural cooperation, Environment, Human rights, Gender Equality, Rural development and HIV/AIDS 130 Annex 6.2: Development Partners Recent Areas of Cooperation- select detailed cooperation except for the World Bank Development WB IFC UN AFDB EU NDB Sector (US$ 1.1billion) (Not available) (UA 3.70 billion) (Euro 270 million) (USS 4.8 billion) Areas Climate ○ i. Economic Empowerment Financing: i. Eskom Holding i. Clean/Green energy, Green Change/Green of Work in Green Industry* Limited (unbundling)* ii. Xina jobs, economy Solar One Project; iii. Redstone Mitigation adaptation* Concentrated Solar Power* Digitalization, ∆ i. Paving the Way for i. Science, Research, Science, Collaboration in the Innovation, Inter-university Technology, Development of the Digital cooperation Innovation Skills for Jobs for Youth Initiative for South Africa* Energy, Power □ i. Medupi Power Project; ii. i. Clean/Green energy, Green i. Greenhouse Gas Eskom II; iii. Eskom Transmission jobs, Emissions and Improvement; Mitigation adaptation* energy project; ii. Energy sector development project; iii. Energy storage project Financial ◊ Financing: SME i. Non-Sovereign LOC to IDC; ii. markets Lending (First Rand Std Bank of S.A. Project Finance and Mercantile Bank), LOC; iii. Nedbank Group LOC; Education iv. IDC LOC; v. DBSA LOC (ADvTECH), Agribusiness (Westphalia), Housing (IHS-SA), Insurance (Assupol), Municipal Finance (Ekurhuleni), and Concentrated Solar Power (Xina) Gender ○ i. Support for Gender i. Gender & women Responsive Budgeting, empowerment planning, monitoring & auditing (UNWomen); Governance and ∆ i. Rural development and i. PFM, Capacity building, participation Land Reforms (UNDP) ii. Civil society, Transparency, Social Economy Policy Service delivery Project (ILO); Technical Assistance towards a National Minimum Wage (Labor); iii. ILO Technical Assistance to the National Expanded Public Works 131 Programme (EPWP) – 3rd Phase (ILO) Human Capital □ i. Deepening social i. HIV/AIDS & TB (Global i. Emergency (health, development of SASSA Fund) Program education, youth Grant Recipients (UNDP); ii. National Healthcare System; development) Accelerate progress towards ii. Basic education, Higher Universal Health Coverage education, TVET/skills, through Health system Study abroad; iii Teaching reforms and legislation of and Learning Development National Health Insurance Sector Reform Contract (WHO); iii. Strengthening Education for Employability Health Security; iii. Capacity Building for Addressing the burden of Employment Promotion HIV and TB; iv. An Erasmus + integrated and universal social protection linked to developmental social welfare services in South Africa/Social Protection (joint); iv UNICEF Human Capabilities flagship programme (UNICEF) Industrialization i. IFC is helping sub i. Kalagadi Industrial and sovereign entities, Beneficiation Project Infrastructure such as municipalities and utilities, to address the financing gap for urban infrastructure. Investment and ○ i. Investment Climate ii. Stimulating Economic SMME, Investment inclusive (Prosperity Fund UK): Opportunities for Women Infrastructure (IIPSA), financing/job address key growth Entrepreneurs (flagship Business environment, creation (incl and investment programme is implemented Ecosystem Development for SME, challenges by focusing in South Africa, UAE and Small Enterprise competition) on sectoral reforms globally (UNWomen); iii. with special attention Supplier development to SMEs; ii. Private program to support SMMEs Sector (UNDP Competitiveness (SECO) This project will seek policy reforms that promote private sector 132 investment and competitiveness. Manufacturing, i. Resource Efficiency i. Strengthening the quality Agribusiness, (SECO): IFC is of essential and vegetable and agro- supporting the to oils exports from South processing enhance productivity Africa (UNIDO) through more efficient energy and water use; ii. Global Agriculture and Food Security Program (GAFSP) started a program with Nedbank. Regional □ i. Trade & Investment: i. Southern Africa Migration i. Pillar 2: Deepen Regional i. Strategic Partnership Joint integration Growthpoint pan- Management (SAMM) Joint Integration - Integrate Africa & Action Plan (JAP): Trade, African investment Program; ii. Economic industrialize Africa; Economic Cooperation, strategy; ii. Africa- Empowerment of Work in Development Cooperation, wide Power and Green Industry*; iii. Paving Parliamentary Dialogue; agribusiness the Way for Collaboration in International partnership: investment with South the Development of the digital partnerships, Africa- Africa Banks and Digital Skills for Jobs for European alliance, Green companies Youth Initiative for South deal, Governance peace Africa* (Joint Programmes) Security, migration. Transport ◊ i. Container Terminal Berth Construction Water ○ i. Highlands Water Project Phase II; ii. National Toll Roads Strengthening Note: In this Annex, World Bank is denoted by “WB” 133 Annex 7: Whole-of-WBG Approach to Climate Change Engagement in South Africa The WBG supports the climate agenda in South Africa by leveraging a whole-of-WBG approach. The diagram below captures how existing and potential future engagements are mapped across four vice presidencies of the World Bank: Sustainable Development; Infrastructure; Equitable Growth, Finance and Institutions; and Human Development, as well as the IFC and MIGA. Support is organized across four themes: • Climate-smart Investment & Risk Management: activities support systematic scale-up of climate-smart investment through policy implementation support and building infrastructure; • Just Transition in Key Sectors: activities support key industries that are critical to a successful transition to a low- carbon economy. Focus is on preparedness and early engagement with stakeholders; • Private Sector’s Low Carbon Investment: activities aim to catalyze the private sector’s low carbon investment through provision of loans and risk mitigation financial products; and • Environmental and Social Sustainability: activities support building climate change resilience, especially through conservation and sustainable use of natural resources Financed by CCG Future engagements Partnership for Market Readiness TCAF** in Solid Waste Sector SAPP/Article 6 PMEH Air Quality Johanesburg VPU Partnership for Market Implementation CIF Just Transition* Carbon Pricing for Just Transition Wildlife Conservation Bond SD Southern Africa Drought-Resilient DRM and Finance Strategy Livelihoods and Food Security (linked to Urban RAS) GEF7 Biodiversity Economy Urban RAS & Circular Economy NDC Deep Dive IBRD/CIF Energy Battery Carbon Capture & Storage Storage* DBSA Beyond the GAP in South Africa RAS DBSA Smart Cities RAS South Africa INF Transforming Transit in South Africa CIF Accelerating Coal Transition* COVID-19 Energy Sector PASA Response Improving the transport connectivity and DPO facilitating trade in Southern Africa HD Financial Sector Assessment Program (FSAP) South Africa Financial Inclusion and South Africa Financial Sector Development Competitiveness DPO EFI and Reform Program Phase II Green Bond Market Development ASA on Leveraging Trade for South 30 by 30 zero program – Climate Africa's Recovery Program/Sustainable Finance finance partnership Practices for SA Pension Funds Climate-friendly planning for cities – IFC’s MIGA IFC RE and EE financing including APEX tool for municipalities and private sector or IFC Support for municipal non-revenue water reduction SBSA Green bond SA Sustainable Blueberries FirstRand Green loan Green building project MIGA Guarantees to RE IPPs *These programs would support both public and private sector investments with the goal of mobilizing additional private sector finance. **Transformative Carbon Asset Facility (TCAF) 134 Annex 7.1: Details of existing engagements Project Name (P- Lead GP Implementing Description Project code) (supporting Counterpart Type GPs) (Supporting Counterparts) Climate-smart Partnership for ENB NT, (DEFF, Strengthen the readiness of the IPF Investment & Market Readiness (CCG) DMRE, government of South Africa for the Risk (P155885) SARS) design, preparation and Management implementation of a carbon pricing instrument Southern Africa Water A subtask of the Southern Africa ASA Drought-Resilient (AGF, Drought Resilience Program Livelihoods and ENB, URL) (P173077); develop detailed agri- Food Security food value chain solutions for the (P174871) management and financing of drought risks PASA Supporting CCG NT and DEFF Support the government of South ASA the Implementation (EEX, Africa in achieving effective of NDC (P172748) ENB) implementation and update of its NDC DBSA Beyond the Transport Development Assist the Development Bank of RAS Gap in South Africa Bank of Southern Africa with identifying RAS (P171567) Southern infrastructure investment needs for Africa South Africa to reach the SDGs (DBSA) DBSA Smart Cities Urban, DBSA The provision of technical support in Program in South Resilience respect of drafting, reviewing and Africa and Land finalizing of Smart City strategies (P175422) for 4 Selected Pilot Cities Transforming Transit Transport DBSA To assist the DBSA to develop a RAS in South Africa generic approach to formalizing (P174147) informal transit services in South Africa, to develop implementation strategies for the digital regulation of informal transit and to develop a sustainable approach to payment system integration of informal transit with formal transit. • Task 1: Minibus Taxi Formalization (includes an investigation into the potential for introducing electric vehicles into the pilot project examples) • Task 2: Regulatory Data Systems for Minibus Taxi Services • Task 3: Modal Integration - Payment systems integration Improving the Transport Pillar 1: The • Pillar 1: Trade and Transport ASA transport Regional Sector Review – just starting for connectivity and Economic FY21/22 delivery; a regional study facilitating trade in Communities, looking at the key trading corridors Southern Africa SADC, from Zambia down, and will be (P174763) COMESA, looking explicitly at improving Corridor network climate resilience, and Committees, emissions reductions that could be and public and realized from the priorities private • Pillar 2: Feasibility Study of a stakeholders at Block Train on the North-South a national Corridor level. 135 Pillar 2 – Nepad Business Foundation, acting as the convener of the 5 railways, and respective line ministries Financial Sector FCI, IMF NT, SARB, The objective is to conduct a ASA Assessment Program FSCA diagnostic to assess the impact of (P170707) climate risks and opportunities for the financial sector. i. Assess physical risk and transition risks for the financial sector, and the response by the financial sector supervisors to mitigate these risks ii. Assess how the authorities could scale up climate finance South Africa FCI Developing capital markets ASA Financial Sector framework (including project Development and pipeline, and mobilization of Reform Program investors) to increase sustainable Phase II (P169126) finance including climate finance 30 by 30 zero IFC – FIG, NT, SARB, Partnership program of IFC, WB, IFC partnership program WB – FCI JSE, FSCA, and GIZ aiming to align financial Advisory/ – Scale up climate Baseta, sector strategies to support NDC WB ASA finance through Banking implementation. greening financial Association • Increase the climate share to sector (603410) 30% of credit portfolios of (P172044) participating banks. • Manage and reduce climate and carbon-related risks in participating banks overall portfolios. • Develop domestic capital and thematic bond markets to foster climate and cross-border investments. • Climate risk identification and mitigation • Climate finance Ekurhuleni Advisory IFC – INR City of The project aims to support IFC (605519) with Ekurhuleni Ekurhuleni to improve efficiencies Advisory / (Climate-friendly Climate and attract private sector investment, Upstream planning for cities – Business and includes support for commercial IFC’s APEX tool) Department energy losses reduction, non- revenue water (NRW) losses reduction, smart city solutions (focused on energy and water), sourcing electricity from IPPs (including renewable sources) and testing of IFC’s ‘APEX’ tool. The APEX tool supports climate- friendly planning by providing an estimation of a city’s greenhouse gas (GHG) emissions and resource use and helping prioritize measures to reduce GHGs and resource use, focusing on the water, waste, energy and transport sectors. 136 Ethekwini NRW IFC – INR eThekwini The project aims to support IFC (605507) Metropolitan eThekwini in development of a Advisory / (Support for Municipality NRW reduction project, to be Upstream municipal non- implemented through a revenue water performance-based contract (PBC), reduction) by defining the technical scope of the PBC, developing a preliminary baseline of physical and commercial losses, and recommending a structure and concept for a PBC (with transaction design envisaged as a subsequent phase). SA Blueberries IFC – MAS Proparco, €30 million C-Loan financing IFC (40468) FMO package organized by IFC (€10m Investment commitments each by IFC, Proparco, and FMO) to support Phase II of a €60 million expansion of sustainable Blueberry farming by trading/holding company Mbiza, including: • 80-hectare farm establishment in Northern Limpopo • 100-hectare farm establishment in either Northern Limpopo / Western Cape • Refinance of short-term bridge loan used to finance initial Nyami Berries establishment • Packhouse expansion and set up to service the farms in the Northern regions near OR Tambo airport IHS – SA IFC – MAS As a green building project, this IFC (31851) project invests in IHS’ second real Investment (Green building estate fund (targeting R2.4bn in project) commitments; IFC commitment up to US$25m), providing equity for the development of affordable housing projects primarily in South Africa and in selected Sub- Saharan African countries. Just CIF Just Transition CCG Explores the perspectives and Transition in approaches of key actors involved in Key Sectors South Africa’s just transitions. Completed case study, podcast, and other materials available here. Urban MDTF for Urban, NT Support the Government of South RAS South Africa Resilience Africa’s Cities Support Program (P173517) and Land (CSP) in improving the regulatory, (Urban RAS & policy and fiscal environment in Circular Economy) selected metropolitan cities for implementing integrated urban development • Component 1: Effective and Sustainable Fiscal and Urban Financing and Strengthened Governance Capabilities • Component 2: Sustainable and Climate Responsive Infrastructure and Land Development 137 • Component 3: Inclusive Economic Development at City, Regional and National Level • Component 4: Advancing Circular Economy in South Africa Carbon Capture & EEX Department of Assess the feasibility of, and build ASA Storage (P149521) (CCG) Mineral expert capacity for, carbon capture Resources and and storage in South Africa Energy (DMRE) CIF Accelerating EEX This program would support the IPF Coal Transition implementation of projects that Investment Program demonstrate transitions away from coal toward renewables and social/economic development programs. It could also enable economic stimulus programs post- COVID-19 to focus on clean energy to create jobs and avoid the risk of coal investments being supported instead. In parallel, MDBs will support necessary upstream analytical work such as coal transition road maps as well as pre- feasibility and feasibility studies, technical cooperation, and related stakeholder engagement. Energy Sector PASA EEX DMRE, DPE, • ESKOM TA to ASA (P172682) and Eskom decommission/repurpose 6 GW of coal plants • DMRE GHG emission accounting • DMRE support to improve legal/regulatory framework to enable RE embedded generation by municipalities • DMRE support to develop JET strategy • DMRE/DPE support on energy sector reform • DMRE support to develop EE financing strategy for industry, agriculture and public sector • DMRE to support development of offshore wind Private Supporting Carbon CCG NT and Develop concepts to enhance WB ASA Sector's Market Development multiple line operations initiated by relevant GPs Low Carbon for SAPP ministries by incorporating climate market Investment (Operationalizing transactions under Article 6 of the Article 6, P166499) Paris Agreement Produce analytical outputs that inform the regulatory and infrastructure development for Article 6 of the Paris Agreement Carbon Pricing for CCG NT/NBI Assess the role of carbon pricing in IPF Just Transition supporting transition pathways for (PMR/CPLC) vulnerable industry sectors (energy intensive and trade exposed sectors) in South Africa 138 CIF Eskom EEX ESKOM and Sere wind farm (100 MW) IPF Renewables Support Department of construction (100% completed) (P122329) Public Battery storage capacity (target: 360 Enterprises MW) (DPE) Green Bond Market IFC – FIG JSE, FSCA, The Program covers 9 countries, IFC Development and and Baseta including South Africa, and aims to Advisory Program Sustainable support green bond/sustainability (601913)/Sustainable Banking bond policy, technical training and Finance Practices for Network awareness raising among banks, SA Pension Funds corporates, and domestic investors (pension funds). A joint survey of SA pension funds with FSCA in 2020 has provided insights into the current baseline of green finance strategies and green investments undertaken by SA pension funds and confirmed there is sufficient interest for a collective pledge for green finance/climate finance by the sector, including reduction in coal exposures. A cooperation agreement is in place with the JSE until Q1 2021 to promote awareness of green finance and support JSE’s regulatory/enabling role. IFC RE projects and IFC DMRE Mobilize private sector investments IFC efficiency through IFC investments to develop Investment technologies’ renewable energy projects finance, including for municipalities and private sector SBSA Green bond IFC – FIG Standard Bank US$200m for renewable energy IFC (43173) projects (total 283MW capacity Investment estimated 741,580Mwh/year, and nearly 750,000 tCo2e/year). FirstRand Green loan IFC – FIG First Rand, US$225m for renewable energy and IFC (42640) FMO water projects Investment MIGA RE IPP MIGA DMRE Provide Guarantees to de-risk and Guarantee Guarantees attract private sector investments to develop renewable energy projects through IPPs (Independent Power Producers) Solar PV Project MIGA Scatec Solar The project consists of the Guarantee (Scatec) ASA construction, ownership, and operation and maintenance of six Solar PV energy generating facilities in South Africa, as part of the government’s Renewable Energy Independent Power Procurement Program (REIPPP). Wind Farm Project MIGA Lekela Power The Project include the construction Guarantee (Lekela) B.V. and operation of five wind farms in the Northern and Western Cape Provinces in South Africa. Solar PV Project MIGA Okavango The Project consists of the operation Guarantee (Okavango) Biology of two solar PV energy generating facilities with combined total installed capacity of 132 megawatts (MW) located in the Northern Cape Province of South Africa. 139 Air Quality ENB DEFF Improve South Africa’s capacity to ASA Management in address air pollution levels and Greater support development of full-scale Environmental Johannesburg Air Quality Management (AQM) & (P170743) plans in the Greater Johannesburg Social Area (GJA) through provision of Sustainability specific equipment to measure PM2.5 and other air pollutants, SLCPs and GHGs at existing monitoring stations to expand the capacity of the DEFF to improve Air Quality Management Planning going forward Catalyzing Financing ENB DEFF, NT, Increase investment in three target IPF and Capacity for the (AGF, and protected area (PAs) landscapes to Biodiversity CCG, URL) South African grow the biodiversity economy and Economy around National Parks benefits to local communities. The Protected Area proposed project creates the (P170213) strategic enabling environment for the following: i. skills enhancement for business development; ii. increased integration into value chains with potential positive spillovers for local communities; iii. increased and more affordable services for historically disadvantages settlements; and finally iv. by increasing resilience and adaptation to climate shocks through climate-smart v. business practices and enhanced, less vulnerable rural livelihoods. Wildlife ENB (FCI) South African Create an outcome-driven structured IPF Conservation Bond National Parks bond that channels private sector (P174097) Eastern Parks funds to increase black rhino & Tourism populations in target protected areas Agency in South Africa. The project supports recovery of the critically endangered black rhino and improves the management of two important conservation areas, which provide important ecosystem services that support local economies, and are critical for tourism and related jobs. 140 Leveraging Trade for MTI NT The project will have a secondary ASA South Africa's focus on how trade can contribute to Recovery and for climate change adaptation and Inclusive Long-Term sustainable development. In this Growth regard, it will link to the project "Climate Change and Trade: Impacts and Opportunities for Least Developed Countries" (P172008) and the new framework it is developed to bring a climate lens to the Trade Competitiveness Diagnostic. It may include case studies on South Africa's opportunities in the green goods value chain under the regional integration focus. 141