Market Power, Growth, and Inclusion: The South African Experience

IMF Working Papers, September 25, 2020

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Before the pandemic, the South African economy remained stuck in low gear, with anemic growth, stagnant private investment, and a shrinking tradable sector.
Subdued growth has raised unemployment, poverty, and inequality, hindering inclusion efforts.
The pandemic has worsened economic and social vulnerabilities.
Economic recovery and social inclusion hinge critically on structural reforms to boost competiveness and growth.
Product markets represent a cornerstone of the reform strategy.
Firms have used their market power to drive up prices and limit competition.
Important state-owned monopolies provide low-quality services, while representing a fiscal drag.
Existing regulations inhibit the entry of both domestic and foreign firms.
Addressing product markets constraints could boost per capita growth by 1 percentage point—adding about 2½ percentage points to headline growth—and foster greater inclusion.

Growth and investment
- Anemic growth.
- Stagnant private investment.
- Shrinking tradable sector.
Labor market and inclusion
- Subdued growth has raised unemployment, poverty, and inequality.
- Inclusion efforts have been hindered prior to and worsened by the pandemic.
Market structure and competition
- Firms use market power to drive up prices and limit competition.
- High market concentration and mark-ups impede competitive dynamics.
State-owned enterprises and regulation
- Important state-owned monopolies provide low-quality services.
- State-owned monopolies represent a fiscal drag.
- Existing regulations inhibit entry of domestic and foreign firms, constraining competition and investment.

Focus on product market reforms as a central pillar of structural reform to boost competiveness and growth.
Curtail abusive market power practices to lower prices and stimulate competition.
Reform and improve efficiency of state-owned monopolies to reduce fiscal drag and improve service quality.
Remove regulatory barriers that inhibit entry of domestic and foreign firms to promote investment and tradable-sector expansion.
Implement reforms that can raise per capita growth by 1 percentage point and add about 2½ percentage points to headline growth, supporting greater inclusion.

Author: Vimal V Thakoor
Date: September 25, 2020
Pages: 19
Volume: 2020
Issue: 206
Series: Working Paper No. 2020/206
DOI: https://doi.org/10.5089/9781513557731.001
Stock No: WPIEA2020206
ISBN: 9781513557731
ISSN: 1018-5941
Subject: Commodity markets, Competition, Financial markets, Job creation, Labor, Labor markets, National accounts, Private investment
Keywords: Africa, Commodity markets, Competition, firm, firm markup, Global, growth performance, Job creation, labor markets, mark-up, market concentration, market power, market power abuse, market share, market structure, Private investment, product market, product market reform, product markets, SMES space, South Africa, South Africa inflation differential, state owned enterprises, structural reforms, uncompetitive firm, value chain, WP

Market Power, Growth, and Inclusion: The South African Experience — Vimal V Thakoor, IMF Working Paper, September 25, 2020.