The IMF has released its report on the South African economy. From a macro growth perspective, the report argues that it’s two steps forward (government spending, export growth) & two steps backward (weak consumption, muted private investment) for the economy. Various areas of concern are highlighted:
- Lackluster economic performance compared to other emerging markets and commodity-based economies
- Fiscal and current account deficits
- Depreciating currency
- Higher risk rating of the country’s debt
- Labour and social tensions
- Negative demand conditions in export markets
- Low household savings rate
- Risks of unsecured lending
And the advice includes:
- Speedy implementation of the National Development Plan
- Labour market reforms
- Product market reforms
- Improved business climate
- Trade liberalisation
- Increased co-ordination amongst (financial) regulators
The IMF also echoes the view that there is policy uncertainty in the country, as a result of political debate. It may be true that there is a climate of uncertainty with regard to government policy. However, the importance of political debate in a young democracy cannot be minimised. In fact, debate is crucial to any democracy. The real point is the need to balance debate with implementation and to avoid paralysis.
I was musing to myself early this week that a US-style government shut-down driven by political contestation will remain unthinkable for a long time in our country. But then again, factionalism-induced paralysis may lead to our own unique kind of (invisble) shut-down. But let’s not condemn debate in and of itself.
The macroeconomic arguments in the report have already been ventilated in the press, but the microeconomic aspects are also worth reflection. The report appreciates the challenges of concentration and uncompetitive markets. The enhanced powers of the competition authorities (the power to conduct market inquries) are noted. There is the suggestion that greater competition in product markets should be twinned with greater competition in labour markets, and developed as part of a ‘social bargain’.
In short, the argument is that the modes of operation and agreements entered into by big business and big labour have locked the economy into a low growth scenario characterised by high prices, high wages and unemployment. So the deal would be struck thus: organised labour exercises wage restraint, big business submits to measures to increase competition and government provides better public services. The report makes some interesting suggestions on how to improve the competition commission’s capabilities, including, quite obviously, increasing its resources.*
International competition is important, and the report argues for further reductions in tariffs. Interesting, in the wake of the recent determination to increase tariffs on certain lines of poultry products.
* Some of the analysis on the competition regime draw on a 2012 paper by Makhaya, Mkwananzi and Roberts (How should young institutions approach competition enforcement? Reflections on South Africa’s experience) published in the South African Journal of International Affairs.