What the IMF means when it says SA needs ‘growth-enhancing structural reforms’ – IRR

Approval of South Africa’s R70 billion International Monetary Fund (IMF) Covid-19 support package is an invaluable opportunity for South Africans to demand accountability from the government on delivering on four key objectives: attracting investment, growing jobs, maintaining and expanding infrastructure and achieving real economic empowerment.

Of vital importance in the IMF’s approving financial support to South Africa is its almost unprecedented advice to the SACP-ANC government on the “pressing need” for “growth-enhancing structural reforms”. Putting pressure on the government to pursue pro-growth economic policies was central to the IRR’s international engagement campaign over the past two months, in correspondence with diplomatic, political, other representatives of IMF donor nations.

Now is the moment for South Africans to advocate for policies capable of delivering the real growth, economic empowerment and upliftment the country desperately needs.

This can be achieved by:

1. Attracting direct investment to boost economic growth

Direct investment, the key ingredient of economic growth, will depend on securing property rights as the basis of all trade and economic activity, creating a streamlined, effective state and civil service, and fostering a competitive investment- and entrepreneur-friendly climate.

2. Maintaining and expanding infrastructure

Greater voluntary private sector involvement in providing, maintaining and managing economic and social infrastructure would boost capital investment. It would also improve state efficiency in key spheres and stimulate job creation in construction and a host of other areas. Where public-private partnerships are not appropriate, state-owned enterprises should be privatised through open, competitive processes that guard against corruption, cronyism, or new monopolies.

3. Creating a nationwide focus on and climate for job creation

Joblessness cannot be meaningfully addressed without major reforms in labour regulation. Entry-level wages are generally so high that they lock the unskilled and inexperienced out of jobs. Rules which push up labour costs – including the extension of bargaining council agreements to non-parties and the sectoral wage determinations made by the labour minister in areas with little union presence (farm and domestic labour, for instance) – must be scrapped. As a destructive mechanism that prices younger or unskilled people out of jobs, minimum wage laws must be either scrapped or amended to allow for opt-outs for jobseekers.

4. Achieving real economic empowerment

South Africa’s black economic empowerment (BEE) and employment equity policies are by far the most ambitious and far-reaching affirmative action programmes in the world, but they fail to help the disadvantaged, as the IRR’s field surveys show. Worse still, they deter investment, limit growth, and add to the unemployment crisis. That means they are hurting, rather than helping, the victims of past racial discrimination. These policies are nevertheless being steadily ratcheted up, at great cost to the economy. Present empowerment rules are thus sufficient in themselves to prevent any sustainable growth recovery. This is the single biggest hurdle to real transformation.

Said IRR deputy head of policy research Hermann Pretorius: “South Africa is in an economic crisis with glaring weaknesses exposed by the Covid-19 pandemic. However, the incentive of IMF support at this time creates the necessary impetus for implementing long-overdue, growth-enhancing structural reforms.

“The IRR will shortly publish a Recovery and Growth Strategy expanding on the four-part approach set out above. If implemented, such a plan would not only see South Africa take seriously the IMF’s linking its support to such reforms, but also give South Africans the opportunities they crave for real socio-economic empowerment and sustainable progress.

“With the IMF putting the SACP-ANC government on notice about its policy failures, now is the moment for South Africans to rally behind practical, sound policy solutions. The IRR is committed to advancing such solutions and will continue playing its part as a leading voice calling for real growth-enhancing reforms.”

Media contact: Hermann Pretorius, IRR Deputy Head of Policy Research – 079 875 4290; hermann@irr.org.za
Media enquiries: Michael Morris Tel: 066 302 1968 Email: michael@irr.org.za
Kelebogile Leepile Tel: 079 051 0073 Email: kelebogile@irr.org.za
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