Start implementing NDP, IMF urges SA

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2 October 2013

The International Monetary Fund (IMF) has urged South Africa to move forward with the structural reforms outlined in the country’s National Development Plan (NDP) in order to boost growth and create jobs for a growing population.

In its annual country report on South Africa, released on Tuesday, the IMF said that, while a weak global economy was not helping South Africa to lift its growth to the levels where it could start making a dent on unemployment, the country had to focus on tackling domestic constraints to growth.

The report notes that South Africa’s economic growth is lagging that of its peer emerging markets, averaging 3 percent since 2009 compared to 5 percent for emerging markets in general.

The country’s outlook “is for continued sluggish growth and elevated current account deficits,” the IMF said in a statement, projecting a further slowing of growth from 2.5 percent in 2012 to 2 percent in 2013 “as weak consumption growth and lacklustre private investment offset robust public investment and higher export growth”.

As the government’s infrastructure drive gathers pace, the country’s growth is expected to rise to about 3 percent in 2014 and 3.5 percent in the medium term – not enough to bring down South Africa’s 25 percent unemployment rate.

The IMF report notes that South Africa “has posted major achievements since the transition to majority rule in 1994. Per capita GDP has increased by 40 percent in inflation-adjusted terms. The poverty rate has dropped by 10 percentage points. Schools and hospitals have been built in previously under-served areas, and government-financed houses have been made available to many in need. Social transfers now reach more than half of all households.”

However, “while inequality along racial lines has decreased, income distribution in South Africa remains globally among the most unequal. At the lower end of the wage distribution, households’ purchasing power has stagnated over the last two decades”.

To address the country’s vulnerabilities, create jobs and foster inclusive growth, the IMF stressed the need for firm policy action and progress on reforms.

The report welcomed the government’s National Development Plan (NDP) as a “blueprint for the structural reforms that will facilitate high and inclusive private sector-led growth”.

South Africa could address some of the key bottlenecks, the IMF said, by improving education outcomes in order to raise the skills level of young people entering the job market; by reducing high transport costs for workers and job seekers; and by enhancing competition in product markets in order to promote innovation and dynamism.

The country should also “ensure that outsiders have a voice in collective bargaining between large established firms and labour unions, so that wage costs allow for job creation by small or new businesses”.

While it would take time to implement the NDP, the IMF said that moving on individual reforms would help to address some of the major constraints.

“The government’s infrastructure investment drive is an example. The introduction of a youth employment incentive – which is under preparation – would be another important signal,” the IMF said.

“Lastly, a social bargain could help spur job creation by combining commitments for wage restraint from unions, commitments for job creation from firms, and commitments to strengthen public services from the government.”

SAinfo reporter