National Treasury’s vision to boost economic growth in South Africa

South Africa’s National Treasury outlined its vision to bolster economic growth and tackle a 29% unemployment rate, proposing a range of reforms including cutting red tape for businesses and easing visa rules to boost tourism.

The reforms could lift the average economic growth rate by 2 to 3 percentage points and create more than one million jobs over a decade, the Treasury said in a policy paper released on Tuesday. Other proposals include selling off power plants owned by state utility Eskom Holdings SOC Ltd and introducing new rules that will let households and companies sell excess electricity they produce back to the national grid.

Weak growth has exacerbated social pressures in Africa’s most-advanced economy and failure to create jobs and reduce income inequality could spark unrest. The economy contracted an annualized 3.2% in the first quarter, the most in a decade, as power shortages curbed output.

The Reserve Bank projects growth of 0.6% for the year. That’s well short of the more than 5% rate the government says is needed to halve the unemployment rate.

The Treasury described the current economic trajectory as unsustainable and said it could only be turned around through “deliberate and concrete action.”

The building blocks of sustainable growth included improving the education and public-transport systems, implementing programs to create work for the youth, developing a capable state and reducing a skills shortage by easing immigration requirements, it said.

The country also needs “a stable macroeconomic policy framework underpinned by a flexible exchange rate, inflation targeting, and credible and sustainable fiscal policy,” the Treasury said.

“Low and stable inflation and a more sustainable fiscal trajectory reduces uncertainty, lowers borrowing costs across the economy, anchors returns expectations for investments and increases business confidence — all of which boost productivity.”
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The government is battling to contain debt after being forced to expand a bailout for the cash-strapped power utility. The fiscal deficit is expected to climb to more than the 4.5% of gross domestic product forecast in the budget this year, placing the country’s only remaining investment-grade credit rating at Moody’s Investors Service at risk.

The Treasury urged the government to urgently allocate broadband spectrum to private companies, change banking and telecommunications rules to encourage competition and increase support for the agriculture, manufacturing and tourism industries. It also called for private companies to participate in the state-dominated rail industry and port operations to bring down prices. Small businesses should receive full or partial exemptions from certain regulations, including labor laws, to lower the start-up costs and reduce the regulatory burden, the Treasury said.

The policy paper is an attempt to circumvent obstacles to structural reform in both the cabinet and the ruling African National Congress and is likely to trigger an angry reaction from within the government and parts of the party, according to Frans Cronje, chief executive officer of the Johannesburg-based South African Institute of Race Relations.

It “is likely to be welcomed in analyst and investor circles but not sufficiently to change investor sentiment, and will rather be read as further evidence of the contradictions and confusions that continue to bedevil government policy in South Africa,” he said.

Read: Government to introduce ‘harsh measures’ to enforce transformation in South Africa

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National Treasury’s vision to boost economic growth in South Africa