4 things South Africa needs to do to turn things around: IMF
The International Monetary Fund (IMF) recently completed an official staff visit to South Africa.
In a concluding statement released on Monday (19 November), the organisation set out its findings and highlighted where South Africa needs to improve.
“Following the leadership transition, the government stepped up its efforts to improve governance and enhance the dialogue with the private sector, but reform implementation has faced headwinds,” the IMF said.
“Markets reacted favourably to the government’s efforts aimed at fostering an environment more conducive to private investment, growth, job creation, and social inclusion.
“However, some of the initial optimism has dissipated as growth remains stuck in low gear and reform implementation has faced constraints.”
The IMF said it is a critical time to implement stalled reforms to restore confidence, attract investment, support growth, and rebuild buffers to deal with a challenging environment.
It noted that South African can do this by doing the following four things:
Address remaining governance issues and improve the business models of SOEs
- Enforcement of existing good laws and regulations needs to be stepped up and effectiveness of anti-corruption institutions bolstered.
- Well-defined participation of the private sector in key segments of the economy should be secured, with the modalities carefully assessed to maximise benefits for the population.
- More efficient service provision by SOEs would lower input costs for households and businesses, and reduce fiscal risks.
Revisit labour market practices to help unlock job creation and reduce the cost of doing business
- Wage negotiations should ensure that salary increases are aligned with productivity gains.
- Small and medium-sized enterprises (SMEs) should not be subject to the outcomes of centralised negotiations that may negatively affect their cost structure and competitiveness.
- There is a need to further reduce hiring and firing restrictions and facilitate the settlement of labour lawsuits.
- To reduce skills mismatches, basic education outcomes and vocational training need to be improved over time. Considerations should be given to easing visa restrictions to help mitigate skill shortages and support the tourism industry.
Promote competition in all sectors of the economy to boost business opportunities
- A competitive regulatory framework is needed to enhance South Africa’s attractiveness as a viable mining investment destination.
- While the revised Mining Charter represents an improvement from a previous version, costs and barriers for investors remain above those in competing destinations.
- The process of allocating broadband spectrum should be executed expeditiously to promote an efficient and competitive telecommunications sector with significant positive spillovers for the rest of the economy.
Reduce uncertainty by clarifying some recent policy proposals
- Guided by lessons from international experience, land reform should focus on enhancing agricultural productivity and strengthening tenure security, including in urban areas where most South Africans live.
- At the same time, potential negative effects of land reform should be mitigated, particularly those related to the security of property rights and the health of bank balance sheets.
- Similarly, the proposals to nationalise the South African Reserve Bank (SARB) should be reconsidered, especially at this juncture, as they represent an unnecessary distraction with a potentially sizeable fiscal cost.
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