THE International Monetary Fund (IMF) says South Africa’s poor growth performance cannot be blamed on weak global conditions alone, and that domestic factors such as strikes and policy uncertainty play an important part in holding back growth and investment.
While acknowledging the poor global outlook is partly responsible for South Africa’s growth lagging other emerging market economies, the IMF report pinpoints policy uncertainty, labour disruptions and electricity supply concerns as key problems that have held back investment and damaged growth and job creation. The IMF, which published its annual country report on South Africa on Tuesday, projects growth this year to slow to 2% and to recover only slightly to 3% - 3.5% in the next few years.
Finance Minister Pravin Gordhan and President Jacob Zuma have frequently blamed South Africa’s recent poor growth on global conditions and weakness in South Africa’s main trading partners. However, the IMF emphasises domestic problems and urges the authorities to get on with structural reforms — many of them captured in the National Development Plan (NDP) — or risk an inexorable build-up of economic problems and heightened social tension.
"South Africa faces low growth, widespread unemployment and a high reliance on foreign capital inflows. The weak global economic outlook is not helping, but ultimately, the country needs to move ahead with planned structural reforms to boost growth and create jobs," the IMF said.
The economy is also deeply vulnerable to a reversal of capital, which could come about through either global or domestic dynamics. Foreign buying of local assets such as bonds has seen capital inflows into South Africa that help finance the shortfall on the current account — the broadest measure of trade in goods and services.
"The outlook is for continued sluggish growth and elevated current account deficits … the balance of risks is tilted firmly to the downside. The main risk is a prolonged stop in capital inflows. The trigger could be either external — that is a global repricing of risk resulting from an unwinding of unconventional monetary policies in advanced economies — or a further escalation in domestic labour and social unrest."
It is suggested in the report the Reserve Bank increase its holdings of foreign exchange reserves to "lower vulnerabilities".
South Africa also remains vulnerable to other global factors such as a further weakening of growth in Europe or a slowdown in China, particularly if accompanied by a weakening of commodity prices.
The IMF compiles country reports of its members annually, based on work by a research team and consultation with authorities, in particular the Treasury.
In response to the report, the Treasury said the issues raised by the IMF "are indeed issues that are already captured in government policies and programmes".
One of the government’s responses has been the NDP, and another was announced at the August Cabinet lekgotla: that the government would establish a task team to look at measures to reignite growth. A range of measures including plans to resolve energy constraints, improve labour relations and boost infrastructure investment was part of the government’s focus, the Treasury said.
"These measures are in part informed by the recognition that the South African economy can no longer rely heavily on the global economy to reignite growth and create jobs," the Treasury said.
The IMF report placed emphasis on the NDP and the need to demonstrate to investors that the government was serious about its implementation. The implementation of the youth employment tax incentive — which will encourage employers to employ young people, and for which draft legislation has been approved by the Cabinet — would send a positive signal, it said.
While this would be a good "high-impact reform", structural reforms, in the long term, needed to increase competition in labour and product markets. This would mean labour market reforms.
The report recommends that pay deals no longer be extended to nonparties by bargaining councils. It suggests the powers of the Competition Commission to deal with abuse of dominance be enhanced, and larger penalties for uncompetitive behaviour.
On fiscal policy, the IMF praised the Treasury’s commitment to fiscal ceilings. But should revenue fall short of budget projections, the Treasury should maintain a wider fiscal deficit in order to boost the economy, it said.
With Ntsakisi Maswanganyi