South Africa’s economy needs f

South Africa’s economy needs fundamental transformation. IMF boss

This is the message delivered by David Lipton, the First Deputy Managing Director of the International Monetary Fund, speaking at the University of the Witwatersrand about ways of bridging South Africa’s economic divide.

South Africa’s economy needs f

Despite warning that South Africa is grappling with growth that is too slow to raise average living standards, “there are ways to tackle these economic problems,” he said.

“… it is deeply problematic that one-third of the working population is effectively excluded from the economy. Fortunately… as is often the case in economics, the root of your problems contains the seed of their solutions. Inclusion of the excluded one-third of South Africans could and should be a source of growth and dynamism for the generation to come.”

Lipton advocates a new approach to economic reform. One that is not merely a matter of tax cuts or spending increases. “Rather, it is a question of fundamental, transformational reforms that can boost employment – particularly for young people – reduce inequality, and promote economic inclusion.”

“This approach should focus not just on levelling the playing field, but opening up the playing field—for individuals and businesses.”

He admits that this will not be easy. “Tackling vested interests and promoting a truly inclusive economy will require buy-in from all stakeholders, and require stakeholders to take a long-term view of their interests in a more dynamic South Africa of the future.

In what he describes as ‘blueprints for change’, he lists some steps that will lead South Africa’s economy in the right direction. They are:

  • Tackling crime. The World Bank has found the single biggest obstacle to economic activity in the townships is crime. It is every government’s responsibility to ensure the daily security of its citizens.
  • Job creation. “With public finances already stretched, the priority must be on private sector jobs, including temporary and informal jobs. In this regard, the dialogue between government, labor, and business is encouraging, but the talks need to produce substantive action. One solution to the employment problem may lie in a social bargain: build on the ongoing government-business-labor negotiations to agree on wage restraints in exchange for job retention and hiring commitments.”
  • A commitment to a ‘do no harm’ approach in government policies. “It could help to reduce business uncertainty and make policies more consistent. This might begin with centralised evaluations of all policy proposals to ensure that they do not undermine job creation.”
  • Level the playing field. “Product market reforms and allocation of more resources to the Competition Authority to detect cartel behaviour and excessive market power would be another important step to level the playing field for businesses.”

Lipton said even though many of these policy ideas “fly in the face of established interests”, the challenges facing South Africa call for reforms that create opportunities and enable all people to successfully pursue them – particularly the excluded one-third.

“The primary goal must be to re-energise growth by seeking inclusion and job creation. As I have outlined, that will require filling infrastructure gaps, encouraging more competition, reaching agreement on sensible labor market policies and industrial relations, improving education and training, and insisting on better governance.

“These reforms must be undertaken with the same commitment that this nation brought to democratic change. This is how South Africa can build stronger, inclusive growth – with jobs for its young people. This is how South Africa can serve as a beacon of economic change, just as it once emerged as a model for political change. While the politics of the moment may favour the status quo over sweeping change, it is helpful to recall Nelson Mandela’s wise reminder that: ‘After climbing a great hill, one only finds that there are many more hills to climb’,” he said.