{ "title": "Bridging South Africa’s Economic Divide", "publication": "IMF News, July 19, 2016", "sourceUrl": "https://www.imf.org/en/news/articles/2016/07/18/20/15/sp071916-bridging-south-africas-economic-divide", "canonical": "https://www.imf.org/en/news/articles/2016/07/18/20/15/sp071916-bridging-south-africas-economic-divide", "overlayPath": "/en/news/articles/2016/07/18/20/15/sp071916-bridging-south-africas-economic-divide/index.md", "summary": "Speech by David Lipton at Witwatersrand University, Johannesburg, July 19, 2016.", "publishDate": "2016-07-19", "sections": [ { "heading": "Introduction and core message", "content": "- Speech by David Lipton at Witwatersrand University, Johannesburg, July 19, 2016.\n- Central concern: South Africa faces a large and growing gap between accomplishments and concrete economic needs; inclusion of the excluded one-third of the working population is essential for growth.\n- Urgent need for a \"fresh and energetic review of South Africa’s policies\" aimed at fundamental change to open opportunities for the next generation of workers, entrepreneurs, and innovators." }, { "heading": "Positives and key statistics", "content": "- An estimated 3.6 million people have been lifted out of poverty (those living on less than 2.5 U.S. dollars a day).\n- The rate of extreme poverty has been more than halved to 16.5 per cent of the population.\n- Social grants benefit over 16 million people.\n- South Africa ranks Number 2 in the World Economic Forum’s corporate governance rankings.\n- The Fund’s annual report forecasts:\n - 0.1% growth in 2016\n - about 1 percent growth in 2017\n- Annual population increase: 1.7%.\n- Employment Tax Incentive Act brought 270,000 youths into the workforce in its first year.\n- Container-handling costs at South Africa’s ports are some 175% higher than the global average." }, { "heading": "Why growth is so weak — external factors", "content": "- Rebalancing of the Chinese economy reducing demand for exports and contributing to steep fall in commodities prices (affecting iron ore, coal, and platinum).\n- China’s growth now matters more to South Africa than growth in the EU and U.S.\n- Normalization of U.S. monetary policy, generally tighter financial conditions worldwide, and Brexit have increased uncertainty.\n- Large share of South Africa’s bonds and equities are held by foreign investors, increasing vulnerability to rising interest rates and shifts in sentiment.\n- The recent drought was the worst in decades.\n- Leadership changes at the National Treasury and other political developments heightened governance concerns, deepening policy uncertainty and shaking investor confidence." }, { "heading": "Why growth is so weak — domestic and structural factors", "content": "- Infrastructure bottlenecks and skills mismatches in the workforce.\n- Regulations that stifle competition and entrepreneurship keep one-third of the labor force unemployed or discouraged.\n- Wage bargaining practices:\n - Sector-wide wage agreements extended to bind entire sectors impose barriers on small and medium-sized enterprises and low-skilled hiring.\n - These agreements can keep low-skilled workers out of the labor force and exclude SMEs from negotiation tables.\n- Privileged markets and barriers to entry:\n - Concentration in retail banking with high fees and barriers favoring incumbents.\n - Many South African companies exhibit profit margins often 50 percent higher than in other countries.\n - Tariffs (e.g., on poultry imports) protect producers but raise costs for the poor.\n - Transport sector: taxi and bus cartels deter new entrants, including with violence.\n - Anti-competitive behavior common in construction, maize and wheat milling, and telecommunications.\n- State-owned enterprises (SOEs):\n - Plagued by inefficiencies, poor management, weak balance sheets, and growing fiscal drains.\n - SOE dominance prevents private sector entry in key sectors and contributes to bottlenecks.\n- Crime as a constraint: World Bank finds crime is the single biggest obstacle to economic activity in the townships.\n- Corruption: National Planning Commission notes high levels of corruption in both private and public sectors, reinforcing exclusion dynamics." }, { "heading": "Policy priorities and specific measures recommended", "content": "- Primary objective: job creation, with emphasis on private-sector jobs, including temporary and informal employment.\n- Build on government-business-labor dialogue to produce substantive action; consider a social bargain:\n - Agree on wage restraints in exchange for job retention and hiring commitments.\n - Exempt small and medium enterprises from collective bargaining agreements to create hiring space.\n- Introduce a single employment contract:\n - Eliminate distinction between fixed-term and open-ended jobs.\n - Implement gradual, continuous increases of rights and benefits accruing with tenure to facilitate first-job entry and on-the-job learning.\n- \"Do no harm\" policy approach:\n - Centralized evaluations of policy proposals to ensure they do not undermine job creation and to reduce business uncertainty.\n- Improve SOE governance and operations:\n - Greater transparency in board appointments and executive and board remuneration.\n - Enhance efficiency of public investment in infrastructure; aim to ensure reliable electricity supply and lower port tariffs.\n- Product market reforms and stronger Competition Authority:\n - Allocate more resources to detect cartel behavior and excessive market power.\n - Proactive market inquiries to facilitate market entry for smaller businesses.\n- Open up telecommunications spectrum to increase broadband speed and reduce business costs.\n- Procurement reforms:\n - Recent procurement reforms could increase government spending efficiency, reduce corruption potential, and give smaller companies access to public contracts, potentially reducing government costs dramatically.\n- Labor market and regulatory caution:\n - Beware unintended consequences of well-intended policies (example: a national minimum wage could reduce inequality but, if set too high or without sub-minimums for young people and small enterprises, could increase unemployment).\n- Public security: government responsibility to ensure daily security of citizens as a prerequisite for economic activity." }, { "heading": "Expected outcomes and rationale", "content": "- Inclusion of the excluded one-third can be a source of growth and dynamism.\n- A combination of filling infrastructure gaps, promoting competition, sensible labor market and industrial relations reforms, improving education and training, and insisting on better governance can re-energize growth and create jobs for young people.\n- Reforms require confronting vested interests, long-term stakeholder buy-in, and a commitment comparable to South Africa’s democratic transformation.\n\nDavid Lipton, \"Bridging South Africa’s Economic Divide,\" speech at Witwatersrand University, July 19, 2016.\n\n---\n\n\n References\n\n- South Africa and the IMF\n- The IMF and Good Governance -- A Factsheet\n- Speeches\n- PRESS CENTER\n- David Lipton\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2016/07/18/20/15/sp071916-bridging-south-africas-economic-divide" } ], "bullets": [ "[Markdown version](/en/news/articles/2016/07/18/20/15/sp071916-bridging-south-africas-economic-divide/index.md)", "[Structured JSON version](/en/news/articles/2016/07/18/20/15/sp071916-bridging-south-africas-economic-divide/index.json)", "[Bundle manifest](/en/news/articles/2016/07/18/20/15/sp071916-bridging-south-africas-economic-divide/bundle-manifest.json)", "Published: July 19, 2016", "Speech by David Lipton at Witwatersrand University, Johannesburg, July 19, 2016.", "Central concern: South Africa faces a large and growing gap between accomplishments and concrete economic needs; inclusion of the excluded one-third of the working population is essential for growth.", "Urgent need for a \"fresh and energetic review of South Africa’s policies\" aimed at fundamental change to open opportunities for the next generation of workers, entrepreneurs, and innovators.", "An estimated 3.6 million people have been lifted out of poverty (those living on less than 2.5 U.S. dollars a day).", "The rate of extreme poverty has been more than halved to 16.5 per cent of the population.", "Social grants benefit over 16 million people.", "South Africa ranks Number 2 in the World Economic Forum’s corporate governance rankings.", "The Fund’s annual report forecasts:", "Annual population increase: 1.7%.", "Employment Tax Incentive Act brought 270,000 youths into the workforce in its first year.", "Container-handling costs at South Africa’s ports are some 175% higher than the global average.", "Rebalancing of the Chinese economy reducing demand for exports and contributing to steep fall in commodities prices (affecting iron ore, coal, and platinum).", "China’s growth now matters more to South Africa than growth in the EU and U.S.", "Normalization of U.S. monetary policy, generally tighter financial conditions worldwide, and Brexit have increased uncertainty.", "Large share of South Africa’s bonds and equities are held by foreign investors, increasing vulnerability to rising interest rates and shifts in sentiment.", "The recent drought was the worst in decades.", "Leadership changes at the National Treasury and other political developments heightened governance concerns, deepening policy uncertainty and shaking investor confidence.", "Infrastructure bottlenecks and skills mismatches in the workforce.", "Regulations that stifle competition and entrepreneurship keep one-third of the labor force unemployed or discouraged.", "Wage bargaining practices:", "Privileged markets and barriers to entry:", "State-owned enterprises (SOEs):", "Crime as a constraint: World Bank finds crime is the single biggest obstacle to economic activity in the townships.", "Corruption: National Planning Commission notes high levels of corruption in both private and public sectors, reinforcing exclusion dynamics.", "Primary objective: job creation, with emphasis on private-sector jobs, including temporary and informal employment.", "Build on government-business-labor dialogue to produce substantive action; consider a social bargain:", "Introduce a single employment contract:", "\"Do no harm\" policy approach:", "Improve SOE governance and operations:", "Product market reforms and stronger Competition Authority:", "Open up telecommunications spectrum to increase broadband speed and reduce business costs.", "Procurement reforms:", "Labor market and regulatory caution:", "Public security: government responsibility to ensure daily security of citizens as a prerequisite for economic activity.", "Inclusion of the excluded one-third can be a source of growth and dynamism.", "A combination of filling infrastructure gaps, promoting competition, sensible labor market and industrial relations reforms, improving education and training, and insisting on better governance can re-energize growth and create jobs for young people.", "Reforms require confronting vested interests, long-term stakeholder buy-in, and a commitment comparable to South Africa’s democratic transformation.", "[South Africa and the IMF](http://www.imf.org/external/country/ZAF/index.htm)", "[The IMF and Good Governance -- A Factsheet](https://www.imf.org/en/about/factsheets/sheets/2023/the-imf-and-good-governance)", "[Speeches](https://www.imf.org/en/news/searchnews)", "[PRESS CENTER](http://presscenter.imf.org/)", "[David Lipton](http://www.imf.org/external/np/omd/bios/dl.htm)", "[https://www.imf.org/en/home](https://www.imf.org/en/home)" ], "alternates": { "markdown": "/en/news/articles/2016/07/18/20/15/sp071916-bridging-south-africas-economic-divide/index.md", "json": "/en/news/articles/2016/07/18/20/15/sp071916-bridging-south-africas-economic-divide/index.json", "bundleManifest": "/en/news/articles/2016/07/18/20/15/sp071916-bridging-south-africas-economic-divide/bundle-manifest.json" }, "generatedAtUtc": "2026-09-25T20:04:41.379Z" }