Harare – South Africa should urgently reform state-owned enterprises, reduce policy uncertainty and speed up reforms, the International Monetary Fund (IMF) said on Thursday, noting however that there has been “progress” in dialogue between the government, labour and business.
The IMF has cut its economic growth projection for SA – now the continent’s third-largest economy – to 0.1%, fresh evidence of the economic turmoil that the country faces.
However, SA remains Africa’s most industrialised country and the most attractive destination for foreign investments aimed at Africa, according to an EY index released in May.
The IMF noted that “authorities are making progress in the recent dialogue between government, businesses, and labour, which could catalyse reform implementation” and breathe fresh life into floundering growth.
The country frequently suffers job protests by workers in the mining sector, one of its most lucrative industries. The protests usually centre on wages for the mineworkers employed in a sector with the world’s largest reserves of platinum and vast deposits of gold and other minerals.
The IMF also urges SA to intensify momentum on its reform agenda. This would help boost employment creation in the private sector that has often complained of policy uncertainty.
“To generate reform momentum, the report suggests government should implement a focused set of tangible measures with a priority on boosting private sector employment.
“Clarifying the regulatory environment in the mining sector and reforming state-owned enterprises, for example, would reduce policy uncertainty and increase confidence and trust even in the short term,” said the IMF’s Yi Wu and Laura Papi in a report released on Thursday.
It said growth in SA slowed to 1.3% in 2015, the slowest pace since the global financial crisis of 2008. SA’s growth trajectory in 2015 was also below that of most emerging market economies and commodity producing nations.
“The IMF projects 2016 growth at 0.1 percent, which would mean a second year of falling per capita incomes. A muted recovery is expected from 2017, approaching 2-2½ percent in the outer years as shocks dissipate and more power plants are completed; with these projections, unemployment will likely rise over the medium term.”
Economic headwinds South Africa is facing could be amplified by “linkages between capital flows, the sovereign, and the financial sector, especially if combined with sovereign credit rating downgrades to speculative” grade.
Additionally, Britain’s decision to leave the European Union has further increased risks for SA, the IMF said, “as there are extensive financial linkages between the United Kingdom and South Africa and sizable trade linkages with the EU as a whole”.