The International Monetary Fund (IMF) has released a new report on South Africa, highlighting where the country is succeeding, as well as points of concern.
This after an IMF team led by Ana Lucía Coronel visited South Africa from 28 May – 11 June, to conduct its regular Article IV surveillance activities. Discussions focused on measures and reforms to reignite growth and reduce poverty and inequality.
“South Africa’s potential is significant, yet growth over the past five years has not benefitted from the global recovery,” it said.
“The economy is globally positioned, sophisticated, and diversified, and several sectors—agribusiness, mining, manufacturing, and services—have capacity for expansion.
“Combined with strong institutions and a young workforce, opportunities are vast. However, several constraints have held growth back.
“Policy uncertainty and a regulatory environment not conducive to private investment have resulted in GDP growth rates that have not kept up with those of population growth, reducing income per capita, and hurting disproportionately the poor,” it said.
It further noted that the projected growth rate of 1.5% was still insufficient to make a meaningful dent in unemployment, poverty, and inequality. however it added that growth is unlikely to exceed 2% over the medium term.
The report does praise a number reform efforts introduced since president Cyril Ramaphosa took office at the start of the year.
These include new measure adopted to tackle corruption, such as changes in boards and/or management of major state-owned enterprises (SOEs), an inquiry into tax administration, actions to strengthen procurement, the signing of contracts with independent power producers, and in general, the intention to eliminate wasteful expenditure.
While the group said that these reforms are welcome, it cautioned that it’s not enough.
To durably improve growth and lift people out of poverty, these actions need to be followed by strict enforcement of good regulations, such as the Public Financial Management Act, and the implementation of a broad set of reforms, it said.
What needs to change
According to the IMF, materially turning the economy around toward strong and inclusive growth will require swift implementation of a bold reform agenda.
“Reforms in product and labor markets must span all sectors of the economy, and implementation carried out expeditiously,” it said.
The group said that ‘quick win’ reforms should be implemented right away so that the economy could benefit from them sooner rather than later – while wider-reaching reforms (which will take some time), should be initiated as soon as possible.
Notably, the IMF said that the introduction of the national minimum wage has the potential to benefit workers – but its impact should be carefully monitored, and complementary measures envisaged if undue effects on youth employment and small- and medium-sized enterprises ensue.
The finance body also said that clarity was needed around land reform.
Ten proposed changes include:
- Maximising the benefits of social grants for the poor by reducing intermediation costs;
- Clarifying mining regulation to foster private investment in the sector;
- Allocating broadband spectrum to the private sector to increase competition, improve the quality of service, and reduce user charges;
- Mitigating skill shortages by addressing onerous visa requirements for hiring skilled workers.
- Increasing private-sector participation to support cost-effective energy distribution and transportation;
- Improving efficiency of SOEs to lower the costs to businesses and consumers, and reduce fiscal risks;
- Reducing red tape to lower entry barriers for businesses and strengthen competition;
- Enhancing flexibility in the labor market, improving basic education, and aligning training with business needs to help increase employment over time, particularly that of the youth.
- Monitoring the impact of the national minimum wage; and
- Clearly articulating policy and regulatory decisions related to land reform in a fair, transparent, and market-friendly manner would help remove uncertainty, which is currently weighing on investor sentiment.