## Product Market Regulation – Overall Indicator

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---

### Summary
- South Africa exhibits one of the most restrictive business environments among peers, with burdensome administrative procedures, licensing and permitting constraints, weak procurement practices, and limited competition.
- Product-market regulations, notably related to licensing and permitting, hinder firms’ growth and productivity, with particularly large effects on South African firms and small firms.
- Closing 50 percent of South Africa’s gap to the emerging-market (EM) business regulation frontier could:
  - boost real output by around 2 percent in the medium run relative to a no-reform scenario;
  - correspond to boosting South Africa’s average yearly growth by up to 0.4 percentage points relative to a no-reform scenario.

### Background and macro context
- Historical growth:
  - Annual growth averaged 3.6 percent in 1994-2007.
  - Average real growth was below 1 percent between 2008 and 2024.
  - Real per capita income declined to its 2007 level over this period.
- Structural rigidities highlighted:
  - Inefficient state-owned enterprises, recurrent infrastructure breakdowns, eroded state capacity, high bureaucracy.
  - Product-market rigidities identified as a major contributor to low business dynamism and subdued employment opportunities.
- South Africa’s gap to the business regulation frontier is large and has widened since 2010, especially for bureaucratic costs and administrative requirements.

### Empirical approach and data
- Data source: World Bank Enterprise Surveys (WBES).
- Sample:
  - Period: 2002−2025.
  - The sample comprises 183 economies covering all regions and income groups.
- Firm performance indicators used:
  - Sales growth, employment growth, labor productivity (ratio of value added or sales to number of employees), and firm-level total-factor productivity (TFP).
- TFP estimation:
  - TFP is estimated as the residual of a Cobb-Douglas sales equation with inputs: employees (L), capital stock (K), and intermediate consumption (C).
- Main explanatory variable:
  - Regulijk: share of managers’ time spent dealing with government regulations (e.g., licensing and permitting).
- Endogeneity concerns addressed via instrumental-variable two-stage least squares:
  - Instruments: country-sector-city average of managers’ time spent dealing with regulations (excluding the firm) and the country-sector-city average of the share of total annual sales paid as informal payments (excluding the firm).

### Key empirical findings (firm-level)
- Regulatory burden trend:
  - The average time spent by business leaders dealing with government regulations nearly doubled between 2007 and 2020 for the average South African firm.
- Cross-country results:
  - Firms spending a larger share of managers’ time dealing with regulations are less dynamic: weaker sales growth, weaker employment growth, and lower productivity.
- South Africa-specific impacts:
  - The impact of cumbersome business regulations on firm performance is consistently larger in South Africa compared to the average country in the sample.
  - Example: A one-percentage-point increase in business leaders’ time spent dealing with regulations is associated with a 0.94 percent reduction in firm-level job growth in South Africa.
- Distributional effects:
  - Administrative barriers are particularly damaging for smaller firms, costing a larger share of turnover and hindering job creation potential.
- Small-firm specifics:
  - Small firms (with less than 20 employees) report a greater burden from cumbersome business regulations.
  - Smaller firms in South Africa suffer about twice as much as the average of all firms in the sample from the impact of cumbersome business regulations on total factor productivity.
  - A one-percentage-point increase in firms’ own perception of how business licensing and permitting represent an obstacle is associated with a drop in firm-level productivity by close to one percent.

### Quantitative policy-relevant scenarios and effects
- Reform scenario:
  - Closing 50 percent of South Africa’s gap relative to the EM frontier on business regulations → real output boost by around 2 percent in the medium run relative to a no-reform scenario.
  - This corresponds to boosting South Africa’s average yearly growth by up to 0.4 percentage points relative to a no-reform scenario.
- Confidence and amplification:
  - Implementing complementary governance reforms would amplify output effects, particularly in the near term by bolstering trust and confidence in government reform efforts.

### Licensing & permitting environment (L&P) and institutional design
- Legal and institutional features:
  - Primary legislation: Businesses Act, No. 71 of 1991 governs business licensing and permitting (L&P) in South Africa; criticized for a decentralized approach, high compliance costs (especially for SMMEs), excessive requirements that disincentivize informal employment, and broad scope/complex wording producing uncertainty and legal challenges.
- Decentralization and fragmentation:
  - L&P responsibilities divided across national, provincial, and local government spheres, producing duplicative processes and misaligned fee structures.
  - Sector-specific requirements regulated under additional statutes (examples: Liquor Act 59 of 2003, National Environmental Management Act 107 of 1998, Electronic Communications Act 36 of 2005).
- Administrative burdens for firms:
  - No public up-to-date list of all permits and licenses required.
  - Absence of “silence is consent” principle.
  - Lack of a “once-only” principle.
  - No differentiation in complexity/length of licensing procedure based on risk profile.
  - Sector-based licensing (e.g., water use licensing) can delay or discourage entry in farming, manufacturing, and mining.
- Effects on informal and micro firms:
  - Restrictive local requirements and zoning push vendors away from central business districts.
  - Requirements include business license, trading-location permits, monthly tariffs, and Certificate of Acceptability for food preparation—often unaffordable and complex.
  - Violation can lead to criminal sanction, fines, imprisonment, and impoundment of goods by law enforcement in major metropoles.
- Three-tier L&P system (summary):
  - National: sets framework and broad policies.
  - Provincial: implements/adapts national policies and may have specific licensing.
  - Local (municipal): enforces regulations and issues licenses within geographic areas.
  - Sector examples: liquor trade (municipal trading permits + provincial liquor board licensing); waste management (municipal and national environmental permits); telecommunications (ICASA national licensing); informal food vendors (local/provincial health and zoning restrictions).

### Other product-market restrictions and competition
- Market structure and behavior:
  - High concentration across product markets leads to low competition and higher prices; lack of contestability weighs on productivity.
  - Entrenched incumbents use exclusionary conduct, strategic mergers, lobbying, vertical restraints, exclusive dealing, and bundling to foreclose rivals.
  - Competition Act faces challenges addressing entrenched market power and legacy concentration.
- Trade and sectoral barriers:
  - Import restrictions and punitive import duties (example: single cab bakkies) raise operational costs for small businesses.
  - Retail and many professional services are more regulated than OECD and G-20 peers.
  - Some professions have a single pathway to enter and require South African citizenship; architects/civil engineers trained abroad must pass a local exam.
  - Mining sector faces heavy regulatory regime and regulatory uncertainty.
- Quantified estimate:
  - Thakoor (2020) estimated that improving contestability could boost GDP per capita growth by 1 percentage point in the short term and up to 2.5 percentage points in the long term.

### Public procurement and insolvency
- Public procurement:
  - Public Procurement Act (Act No. 28 of 2024) seeks to unify fragmented procurement legislation and improve transparency, but challenges persist:
    - Bid timeframes are not proportional to project value/complexity.
    - Contracting authorities do not divide tenders into smaller lots, limiting small firm participation.
    - Late payments estimated at close to one-fourth of total invoices (MPAS, 2024).
- Insolvency regime:
  - Procedures and time to discharge debt are lengthy as done by regular courts (André and Demmou, 2022).
  - Exemptions on personal assets are limited; management is dismissed during restructuring, discouraging early filing.
  - No early warning system and no special insolvency procedure for SMEs (OECD, 2025b).

### Policy recommendations (priority actions and design features)
- Reduce bureaucratic costs and administrative requirements that raise compliance costs and burden SMEs disproportionately.
- Prioritize reforms in licensing and permitting to lower time spent by managers on regulations and reduce associated drag on sales growth, employment growth, and productivity.
- Establish a coherent National Licensing & Permitting Policy to align regulatory roles across government tiers, leverage digital systems, and support standardized fees.
- Key characteristics for an effective L&P framework:
  - Centralized and streamlined: use a single-window or centralized electronic platform to apply for and track multiple licenses and permits (example cited: Singapore’s OBLS portal—licensing across 260 categories; average application processing time dropped from 21 to 8 days).
  - Building capacity: address municipal institutional weaknesses via training and intergovernmental coordination.
  - Simplifying licensing/permitting for informal trading and micro firms through concessional licensing, digital onboarding, and facilitating trading in high-traffic areas.
  - Risk-based licensing: differentiate requirements by business risk profile so low-risk firms face minimal licensing (examples cited: Botswana, New Zealand; Brazil’s Business Environment Law (2021) introduced automatic approvals for medium-risk businesses).
  - Predictability: publish a public up-to-date inventory of permits/licenses; adopt “silence is consent” and possibly a “once-only” principle where appropriate.
  - Fee standardization: implement national fee schedules with room for locally calibrated pricing (examples cited: Botswana and Kenya).
  - Clear distinction between registration and licensing: separate business registration (legal identity for tax/statistics) from licensing (sectoral regulatory permission).
  - Transparent appeals and complaint mechanisms to challenge licensing decisions (examples cited: Japan and Botswana).
  - Regular review of licensing requirements to eliminate redundant/outdated licenses (examples cited: Australia and Canada—British Columbia).
- Improve public procurement practices to reduce barriers and increase market access and competition:
  - Make bid timeframes proportional to project value/complexity.
  - Divide tenders into smaller lots to increase small firm participation.
- Strengthen competition policy and remove barriers to entry in services and network sectors.
- Complement product-market reforms with governance reforms to reinforce near-term confidence and deliver larger macroeconomic gains.
- Streamline the insolvency procedure to facilitate restructuring or exit of distressed firms and free up resources for new entrants.

### Spatial exclusion, commuting, and inequality (summary of linked analysis)
- Data and methodology:
  - Data source: 2024 South Africa General Household Survey (GHS).
  - Inequality measure: Theil index.
  - Microsimulation: partial equilibrium counterfactuals with Monte Carlo simulations (100 draws).
  - Structural model: dynamic spatial general equilibrium model calibrated to census and survey data; policy experiments include halving commuting costs and a housing subsidy covering 10 percent of purchase costs for low-income central-city purchasers.
- Key spatial inequality findings:
  - Decomposition of Theil index:
    - Inequality within rural areas accounts for about 57 percent of overall income inequality.
    - Inequality within metropolitan areas contributes an additional 38 percent.
    - Differences in average income levels between urban and rural areas explain only about 5 percent of total inequality.
- Commuting and unemployment:
  - Unemployment rates are more than 20 percentage points higher in locations where median commute exceeds one hour compared to areas where it is under 15 minutes.
  - For individuals under age 35, areas with median commute > one hour have unemployment rates higher by 21 percentage points in urban locations and 25 percentage points in rural locations, relative to areas with median commutes below 15 minutes.
  - After controlling for observable characteristics, likelihood of being unemployed is about 20 percent higher for individuals in areas with median commute of 15–30 minutes compared with the <15 minutes reference group.
  - The probability roughly doubles when commuting time increases from less than 15 minutes to more than one hour.
- Microsimulation main results (averages across Monte Carlo draws):
  - Reducing commuting times lowers the unemployment rate by about 4½ percentage points.
  - Raises average household income by more than one-third.
  - Reduces the Theil index by 0.08, or roughly 9 percent of its initial level.
- Structural model outcomes and fiscal costs:
  - Halving transportation costs reduces inequality by roughly 3.1 percent.
  - Housing subsidy covering 10 percent of purchase costs for low-income central-city purchasers reduces inequality by slightly under 1.9 percent.
  - Fiscal cost estimates:
    - Commuting subsidy: about 1.3 percent of GDP.
    - Housing subsidy: about 0.8 percent of GDP.
  - Cost-effectiveness:
    - A percentage point increase in commuting subsidies reduces the Theil inequality coefficient in urban areas by 2.4 percent.
    - A comparable percentage point increase in housing subsidy reduces the Theil inequality coefficient in urban areas by 2.3 percent.
- Policy implications:
  - Spatial integration—through transport improvements, targeted commuting subsidies, and housing interventions—is central to fostering inclusive growth and addressing persistent within-area disparities.
  - Complementary interventions in transport and housing should be sequenced with broader structural reforms (infrastructure, product-market reforms, governance, labor market measures) to boost output, create jobs, and reduce inequality.

### Urban transport, rural connectivity, housing, and sequencing (policy actions)
- Urban transport:
  - Prioritize high-capacity public transport to lower commuting costs and reduce spatial inequality.
  - Expand Bus Rapid Transit (BRT) systems with dedicated lanes and integrated ticketing.
  - Modernize commuter rail and support with conditional financing linked to performance.
  - Formalize and integrate the minibus taxi sector as feeder services; support fleet renewal and electrification incentives.
  - Strengthen institutional coordination across municipalities and transport agencies; deploy smart technology (real-time data, integrated payment systems).
- Rural connectivity:
  - Upgrade gravel and earth roads to all-weather surfaces.
  - Formalize and regulate the light delivery vehicle sector; subsidize bus services for longer rural–urban routes where demand justifies scheduled operations.
  - Embed rural transport in Integrated Development Plans (IDPs), secure predictable maintenance funding, and strengthen coordination across government levels.
  - Promote digital solutions (mobile ticketing, route information) and climate-resilient infrastructure.
- Urban housing and spatial integration:
  - Shift housing subsidies from supply-side policies that locate housing far from city centers toward demand-driven subsidies.
  - Increase housing supply in well-located urban areas by relaxing restrictive zoning regulations, promoting higher-density development, and accelerating release of state-owned and municipal land for affordable housing.
  - Support measures with streamlined permitting processes, infrastructure investment, and partnerships with private developers.
- Broader structural reforms and sequencing:
  - Implement infrastructure reforms in electricity and logistics, horizontal product-market reforms, governance reforms, and complementary labor market measures.
  - Proper sequencing of these reforms, coupled with targeted transport and housing interventions, can boost real output, generate jobs, lower inequality, and improve standards of living.

*Source: 1zafea2026002-source-pdf*

### 1.   Product Market Regulation – Overall Indicator _______________________________________ 4

### 1. Product Market Regulation – Overall Indicator

### Summary
- South Africa exhibits one of the most restrictive business environments among peers, with burdensome administrative procedures, licensing and permitting constraints, weak procurement practices, and limited competition.
- Product-market regulations, notably related to licensing and permitting, hinder firms’ growth and productivity, with particularly large effects on South African firms and small firms.
- Closing 50 percent of South Africa’s gap to the emerging-market (EM) business regulation frontier could boost real output by around 2 percent in the medium run relative to a no-reform scenario; this corresponds to boosting South Africa’s average yearly growth by up to 0.4 percentage points relative to a no-reform scenario.

### Background and macro context
- Historical growth:
  - Annual growth averaged 3.6 percent in 1994-2007.
  - Average real growth was below 1 percent between 2008 and 2024.
  - Real per capita income declined to its 2007 level over this period.
- Structural rigidities highlighted:
  - Inefficient state-owned enterprises, recurrent infrastructure breakdowns, eroded state capacity, high bureaucracy.
  - Product-market rigidities identified as a major contributor to low business dynamism and subdued employment opportunities.
- South Africa’s gap to the business regulation frontier is large and has widened since 2010, especially for bureaucratic costs and administrative requirements.

### Empirical approach and data
- Data source: World Bank Enterprise Surveys (WBES).
- Sample:
  - Period: 2002−2025.
  - The sample comprises 183 economies covering all regions and income groups.
- Firm performance indicators used:
  - Sales growth, employment growth, labor productivity (ratio of value added or sales to number of employees), and firm-level total-factor productivity (TFP).
- TFP estimation:
  - TFP is estimated as the residual of a Cobb-Douglas sales equation with inputs: employees (L), capital stock (K), and intermediate consumption (C).
- Main explanatory variable:
  - Regulijk: share of managers’ time spent dealing with government regulations (e.g., licensing and permitting).
- Endogeneity concerns addressed via instrumental-variable two-stage least squares:
  - Instruments: country-sector-city average of managers’ time spent dealing with regulations (excluding the firm) and the country-sector-city average of the share of total annual sales paid as informal payments (excluding the firm).

### Key empirical findings (firm-level)
- Regulatory burden trend:
  - The average time spent by business leaders dealing with government regulations nearly doubled between 2007 and 2020 for the average South African firm.
- Cross-country results:
  - Firms spending a larger share of managers’ time dealing with regulations are less dynamic: weaker sales growth, weaker employment growth, and lower productivity.
- South Africa-specific impacts:
  - The impact of cumbersome business regulations on firm performance is consistently larger in South Africa compared to the average country in the sample.
  - Example: A one-percentage-point increase in business leaders’ time spent dealing with regulations is associated with a 0.94 percent reduction in firm-level job growth in South Africa.
- Distributional effects:
  - Administrative barriers are particularly damaging for smaller firms, costing a larger share of turnover and hindering job creation potential.

### Quantitative policy-relevant scenarios and effects
- Reform scenario:
  - Closing 50 percent of South Africa’s gap relative to the EM frontier on business regulations → real output boost by around 2 percent in the medium run relative to a no-reform scenario.
  - This corresponds to boosting South Africa’s average yearly growth by up to 0.4 percentage points relative to a no-reform scenario.
- Confidence and amplification:
  - Implementing complementary governance reforms would amplify output effects, particularly in the near term by bolstering trust and confidence in government reform efforts.

### Identified priorities for reform (policy implications derived from analysis)
- Reduce bureaucratic costs and administrative requirements that raise compliance costs and burden SMEs disproportionately.
- Prioritize reforms in licensing and permitting to lower time spent by managers on regulations and reduce associated drag on sales growth, employment growth, and productivity.
- Improve public procurement practices to reduce barriers and increase market access and competition.
- Strengthen competition policy and remove barriers to entry in services and network sectors.
- Complement product-market reforms with governance reforms to reinforce near-term confidence and deliver larger macroeconomic gains.

*Source: 1zafea2026002-source-pdf*

### 13.      The results confirm the prior that South African small firms suffer more from

### 13.      The results confirm the prior that South African small firms suffer more from

### Key empirical findings
- Small firms (with less than 20 employees) report a greater burden from cumbersome business regulations.
- The difference between all firms and small firms is statistically significant, implying that smaller firms in South Africa suffer about twice as much as the average of all firms in the sample from the impact of cumbersome business regulations on total factor productivity.
- A one-percentage-point increase in firms’ own perception of how business licensing and permitting represent an obstacle for their operations is associated with a drop in firm-level productivity by close to one percent.
- IMF (2025) estimated that implementing reforms to close 50 percent of South Africa’s gap relative to the EM frontier on business regulations could boost real output by around 2 percent in the medium term.
- South Africa’s share of informal employment in total employment is about one-third.
- Late payments of invoices are estimated at close to one-fourth of total invoices (MPAS, 2024).

### Robustness and identification
- Main results are broadly robust to inclusion of additional explanatory variables: training provided to employees (human capital), access to a credit line (finance), security expenses (protection against crime), and transport obstacle (infrastructure).
- Controlling for the presence of foreign firms does not alter main results.
- An alternative measure of cumbersome business regulations—firms’ own perception of licensing and permitting as an obstacle—confirms the main findings (Appendix Table 4).
- A test of weak instruments: Cragg–Donald statistics in this paper are far higher than the Stock and Yogo (2005) critical values, indicating the absence of weak instruments.

### Licensing & permitting environment (L&P)
- Primary legislation: Businesses Act, No. 71 of 1991 governs business licensing and permitting (L&P) in South Africa and has been criticized for:
  - a decentralized approach;
  - high compliance costs, especially for SMMEs;
  - excessive requirements that disincentivize informal employment;
  - broad scope and complex wording producing uncertainty and legal challenges.
- Decentralization and fragmentation:
  - L&P responsibilities are divided across national, provincial, and local government spheres, producing duplicative processes and misaligned fee structures.
  - Sector-specific requirements are regulated under additional statutes (e.g., the Liquor Act 59 of 2003, National Environmental Management Act 107 of 1998, Electronic Communications Act 36 of 2005).
- Administrative burdens for firms:
  - No public up-to-date list of all permits and licenses required; business owners must research requirements.
  - Absence of “silence is consent” principle.
  - Lack of a “once-only” principle.
  - No differentiation in complexity/length of licensing procedure based on risk profile.
  - Sector-based licensing (e.g., water use licensing) can delay or discourage entry in farming, manufacturing, and mining.
- Effects on informal and micro firms:
  - Restrictive local requirements and zoning push vendors away from central business districts.
  - Requirements include business license, trading-location permits, monthly tariffs, and Certificate of Acceptability for food preparation—often unaffordable and complex.
  - Violation can lead to criminal sanction, fines, imprisonment, and impoundment of goods by law enforcement in major metropoles.

### Three-tier L&P system (Box summary)
- National: sets overall framework and broad policies for business regulation, including licensing requirements and standards.
- Provincial: implements/adapts national policies to regional needs and may have specific licensing requirements.
- Local (municipal): enforces regulations and issues licenses within geographic areas.
- Sector examples:
  - Liquor trade: municipal trading permits + provincial liquor board licensing.
  - Waste management: environmental permits from municipal and national agencies + sectoral waste-handling permissions.
  - Telecommunications: licenses issued by ICASA (national) with no municipal engagement.
  - Informal food vendors: face health and zoning restrictions at local/provincial levels.

### Other product-market restrictions and competition
- High concentration across product markets leads to low competition and higher prices; lack of contestability weighs on productivity.
- Competition Act faces challenges addressing entrenched market power and legacy concentration.
- Entrenched incumbents use exclusionary conduct, strategic mergers, lobbying, vertical restraints, exclusive dealing, and bundling to foreclose rivals.
- Import restrictions and punitive import duties (example: single cab bakkies) raise operational costs for small businesses.
- Sectoral barriers:
  - Retail and many professional services are more regulated than OECD and G-20 peers.
  - Some professions have a single pathway to enter and require South African citizenship; architects/civil engineers trained abroad must pass a local exam.
  - Mining sector faces heavy regulatory regime and regulatory uncertainty.
- Quantified estimates:
  - Thakoor (2020) estimated that improving contestability could boost GDP per capita growth by 1 percentage point in the short term and up to 2.5 percentage points in the long term.

### Public procurement and insolvency
- Public Procurement Act (Act No. 28 of 2024) seeks to unify fragmented procurement legislation and improve transparency, but challenges persist:
  - Bid timeframes are not proportional to project value/complexity.
  - Contracting authorities do not divide tenders into smaller lots, limiting small firm participation.
  - Late payments estimated at close to one-fourth of total invoices (MPAS, 2024).
- Insolvency regime:
  - Procedures and time to discharge debt are lengthy as done by regular courts (André and Demmou, 2022).
  - Exemptions on personal assets are limited; management is dismissed during restructuring, discouraging early filing.
  - No early warning system and no special insolvency procedure for SMEs (OECD, 2025b).

### Policy recommendations (priority actions and design features)
- Establish a coherent National Licensing & Permitting Policy to align regulatory roles across government tiers, leverage digital systems, and support standardized fees.
- Key characteristics for an effective L&P framework:
  - Centralized and streamlined: use a single-window or centralized electronic platform to apply for and track multiple licenses and permits (example: Singapore’s OBLS portal—licensing across 260 categories; average application processing time dropped from 21 to 8 days).
  - Building capacity: address municipal institutional weaknesses via training and intergovernmental coordination.
  - Simplifying licensing/permitting for informal trading and micro firms through concessional licensing, digital onboarding, and facilitating trading in high-traffic areas.
  - Risk-based licensing: differentiate requirements by business risk profile so low-risk firms face minimal licensing (examples: Botswana, New Zealand; Brazil’s Business Environment Law (2021) introduced automatic approvals for medium-risk businesses).
  - Predictability: publish a public up-to-date inventory of permits/licenses; adopt “silence is consent” and possibly a “once-only” principle where appropriate.
  - Fee standardization: implement national fee schedules with room for locally calibrated pricing (examples: Botswana and Kenya).
  - Clear distinction between registration and licensing: separate business registration (legal identity for tax/statistics) from licensing (sectoral regulatory permission).
  - Transparent appeals and complaint mechanisms to challenge licensing decisions (examples: Japan and Botswana).
  - Regular review of licensing requirements to eliminate redundant/outdated licenses (examples: Australia and Canada—British Columbia).

### Concluding implications
- Cumbersome business regulations materially hinder firm dynamism—sales and employment growth as well as labor and total-factor productivity.
- The negative impact is larger in South Africa relative to the average country in the sample and especially large for small firms (about twice the average firm’s burden).
- Fragmented three-tier L&P combined with municipal capacity constraints produce duplicative processes, misaligned fees, and inefficiencies detrimental to firm creation and performance.
- Addressing L&P, contestability, procurement practices, and insolvency regime weaknesses would support growth, formalization, and job creation.

*Source: IMF staff calculations.*

### 26.      Additional reforms could further ease product markets restrictions and support

### Additional reforms could further ease product markets restrictions and support business dynamism

### Clarifying legal requirements
- Complement the public online database for primary laws with an online database for subordinate regulations.
- Require the use of “plain language” in the drafting of primary laws and subordinate regulations as in most OECD countries.
- Expected effect: support a better understanding of regulations and decrease the time entrepreneurs need to devote to them to ensure compliance.

### Ensuring a level-playing field
- Conduct a review of current regulations and incentives that limit competition to guide actions to streamline them.
- Align sector regulators with the Competition Commission to strengthen the competition policy framework and its enforcement.
- Reduce barriers to entry, including in regulated service sectors, to foster innovation and lower prices through competition and facilitate access for small businesses to these services.
- Example policy: setting clear criteria to recognize foreign qualifications could facilitate skilled immigration and address skills shortage in the near-term (OECD, 2020).

### Simplifying procurement
- Simplify procedures by making bid timeframes proportional to projects’ value and complexity.
- Divide tenders into smaller lots to make South Africa public procurement more competitive and provide greater opportunities for smaller firms.

### Insolvency regime
- Further streamline the insolvency procedure to facilitate the restructuring or exit of distressed firms and free up resources for new entrants.

*International Monetary Fund — Chapter excerpt from the South Africa country report*

### 4.      This analysis draws on the 2024 South Africa General Household Survey (GHS), to

### 4.      This analysis draws on the 2024 South Africa General Household Survey (GHS), to

### Data and methodological framework
- Data source: 2024 South Africa General Household Survey (GHS), nationally representative microdata including province, metropolitan status, educational attainment, labor income, access to basic services, and spatial indicators such as distance to the nearest transport facility.
- Inequality measure: Theil index (decomposable into within- and between-group components).
- Individual income construction: total household income (wages and non-wage income) divided by household size.
- Regression approach: logistic model of unemployment status with controls (age, gender, education, race, province, metro dummy) and categorical median travel time at the primary sampling unit level; odds ratios calculated as ORk = Teex(δk).
- Microsimulation framework: partial equilibrium counterfactuals using survey-weighted empirical employment rates within demographic cells with hierarchical back-off; wages assigned via hot-deck matching; Monte Carlo simulations (100 draws).
- Structural analysis: dynamic spatial general equilibrium model (overlapping generations, heterogeneous agents) calibrated to census and survey data, with counterfactual interventions (halving commuting costs; housing subsidy covering 10 percent of costs for low-income central-city purchasers).

### Key findings — spatial income inequality
- Decomposition of Theil index by area (GHS, 2024):
  - Inequality within rural areas accounts for about 57 percent of overall income inequality.
  - Inequality within metropolitan areas contributes an additional 38 percent.
  - Differences in average income levels between urban and rural areas explain only about 5 percent of total inequality.
- Implication: Reducing overall inequality requires addressing structural disparities inside both urban and rural economies, not only narrowing the urban–rural income gap.

### Spatial exclusion, commuting, and unemployment
- Relationship between commuting time and unemployment:
  - Unemployment rates are more than 20 percentage points higher in locations where the median commute exceeds one hour compared to areas where it is under 15 minutes.
  - For individuals under age 35, areas with median commute > one hour have unemployment rates higher by 21 percentage points in urban locations and 25 percentage points in rural locations, relative to areas with median commutes below 15 minutes.
- Regression/odds results:
  - After controlling for observable characteristics, the likelihood of being unemployed is about 20 percent higher for individuals in areas with a median commute of 15–30 minutes compared with the <15 minutes reference group.
  - The probability roughly doubles when commuting time increases from less than 15 minutes to more than one hour.

### Microsimulation scenarios and quantitative impacts
- Simulation design (main scenario: “reducing distance to work”):
  - Treat unemployed individuals in areas with median commuting times 30–60 minutes or >60 minutes as if travel conditions improved to the 15–30 minute category; employment probabilities set equal to comparable individuals in that category; wages imputed via demographic matching.
- Alternative scenario (“higher aggregate growth”):
  - Positive productivity shock converts 40 percent of unemployed individuals (weighted by survey design) to employment—broadly consistent with conditions under which South Africa’s economy would have expanded by 3 percent annually during 2000–24, rather than 1.5 percent on average—wages assigned by simple random sampling from employed workers.
- Main microsimulation results (averages across Monte Carlo draws):
  - Reducing commuting times lowers the unemployment rate by about 4½ percentage points.
  - Raises average household income by more than one-third.
  - Reduces the Theil index by 0.08, or roughly 9 percent of its initial level.
- Comparison to aggregate-growth shock:
  - The decline in unemployment is nearly three times larger under the “higher aggregate growth” scenario, but reductions in inequality are only slightly larger than in the commuting-time reduction scenario.
- Additional simulation parameters:
  - Monte Carlo simulations: 100 runs.
  - Higher aggregate growth simulations: a 20 percent employment boost (stylized), roughly equivalent to GDP growing by 3 percent on average between 2000-24 under the model’s assumptions.

### Structural model policy experiments and fiscal costs
- Policy interventions evaluated:
  - Halving commuting costs (transport subsidy / reduced travel time between townships and metropolitan areas).
  - Housing subsidy covering 10 percent of purchase costs for low-income individuals in central city areas.
- Structural model outcomes:
  - Halving transportation costs reduces inequality by roughly 3.1 percent.
  - Housing subsidy reduces inequality by slightly under 1.9 percent.
- Fiscal cost estimates (model):
  - Commuting subsidy: about 1.3 percent of GDP.
  - Housing subsidy: about 0.8 percent of GDP.
- Cost-effectiveness metrics reported in model:
  - A percentage point increase in commuting subsidies reduces the Theil inequality coefficient in urban areas by 2.4 percent.
  - A comparable percentage point increase in housing subsidy reduces the Theil inequality coefficient in urban areas by 2.3 percent.
- Interpretation: Commuting subsidies (or transport improvements that lower travel time) are slightly more cost-efficient in reducing inequality, while housing subsidies also reduce inequality but at somewhat higher fiscal cost per unit of impact.

### Policy conclusions and recommendations
- Spatial exclusion is a major driver of inequality and unemployment in South Africa; long commuting times strongly associate with higher unemployment.
- Targeted improvements in spatial access (transport infrastructure, commuting cost reductions) can:
  - Lower unemployment meaningfully (e.g., about 4½ percentage points in microsimulations).
  - Raise average household income substantially (more than one-third in simulations).
  - Reduce measured inequality (Theil index reductions of roughly 9 percent in microsimulations; ~3.1 percent in structural experiment for halved commuting costs).
- Complementary interventions such as housing subsidies also reduce inequality (roughly 2 percent in structural model) but with different fiscal costs and spatial incidence.
- Policy implication: Spatial integration—through transport improvements, targeted commuting subsidies, and housing interventions—is central to fostering inclusive growth and addressing persistent within-area disparities.

*Source: GHS (2024), IMF staff analysis and simulations as presented in the supplied chapter.*

### 17.      These reforms efforts will need to be deepened and complemented by additional

### 17.      These reforms efforts will need to be deepened and complemented by additional policy interventions:  

### Urban transport
- Prioritize high-capacity public transport to lower commuting costs and reduce spatial inequality (World Bank, 2023 and OECD, 2025).
- Expand Bus Rapid Transit (BRT) systems with dedicated lanes and integrated ticketing to improve efficiency and affordability (World Bank, 2023 and OECD, 2025).
- Modernize commuter rail for reliability and safety in dense corridors; support with conditional financing linked to performance (World Bank, 2025).
- Formalize and integrate the minibus taxi sector as feeder services to BRT and rail, supported by fleet renewal and electrification incentives (World Bank, 2023).
- Strengthen institutional coordination across municipalities and transport agencies; ensure predictable financing and deploy smart technology (real-time data, integrated payment systems) to deliver an efficient, inclusive, and sustainable urban transport system (World Bank, 2025).

### Rural connectivity
- Focus on basic access and affordability to improve rural connectivity in South Africa.
- Upgrade gravel and earth roads to all-weather surfaces to ensure year-round access to markets, schools, and health facilities (World Bank, 2012).
- Formalize and regulate the light delivery vehicle sector for safety and reliability; subsidize bus services for longer rural–urban routes where demand justifies scheduled operations (Wosiyana, 2014, Munwana, 2018, SSATP 2-21).
- Embed rural transport in Integrated Development Plans (IDPs), secure predictable maintenance funding, and strengthen coordination across government levels (Charizawa and Ma, 2019).
- Promote digital solutions (e.g., mobile ticketing, route information) and climate-resilient infrastructure to enhance sustainability and reduce vulnerability to extreme weather (World Bank 2024, World Bank 2025).

### Urban housing and spatial integration
- Shift housing subsidies from supply-side policies that locate housing far from city centers toward demand-driven subsidies as envisaged under Operation Vulindlela.
- Increase housing supply in well-located urban areas by:
  - Relaxing restrictive zoning regulations,
  - Promoting higher-density development,
  - Accelerating the release of state-owned and municipal land for affordable housing (World Bank, 2024; DAG, 2024).
- Support these measures with streamlined permitting processes, infrastructure investment, and partnerships with private developers to reduce costs and expand supply (OECD, 2023).

### Broader structural reforms and sequencing
- Implement a package of broader structural reforms to support potential growth, accelerate job creation, and reduce inequality (IMF, 2025).
- Key areas:
  - Infrastructure reforms in electricity and logistics to remove impediments to growth and enable productive activity and employment gains.
  - Horizontal product-market reforms to streamline regulatory burdens and compliance costs, supporting SMEs and job creation.
  - Governance reforms to strengthen institutional integrity and rebuild public trust.
  - Complementary labor market measures to bolster market flexibility and job creation.
- Proper sequencing of these reforms, coupled with targeted interventions in transport and housing, can boost real output, generate jobs, lower inequality, and support better standards of living for all.

*INTERNATIONAL MONETARY FUND — SOUTH AFRICA*

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_Source: https://www.imf.org/-/media/files/publications/cr/2026/english/1zafea2026002-source-pdf.pdf_