## South Africa: Restoring Confidence to Oil the Wheels for Growth

_IMF News, August 2, 2018_

## Source details

**Canonical URL:** [South Africa: Restoring Confidence to Oil the Wheels for Growth](https://www.imf.org/en/news/articles/2018/08/02/na080218-south-africa-restoring-confidence)

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## Bibliographic details
- Published: August 2, 2018

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### Medium-term growth and headline projection
- The IMF's latest assessment projects real GDP growth will stay "slightly below 2 percent in the medium term", which IMF staff state is "not enough to increase living standards or make a dent in unemployment."

### Confidence, governance, and political change
- "Confidence" is central: weak consumer and investor confidence has contributed to low growth.
- Corruption has undermined trust in leaders and institutions, reducing investment and consumption decisions.
- Signs of political will to address governance problems:
  - President Ramaphosa has publicly prioritized combating corruption and increasing transparency as part of his economic strategy.
  - Changes in boards and management of key state-owned enterprises to replace questionable officials with credible officials.
  - Major revamping of the tax revenue service to recover taxes "that were in the past lost to corruption."
  - Prosecutions of public officials involved in illegal practices are underway.
- IMF view: given South Africa's "good laws and good institutions," restoring adherence to these institutions should be comparatively feasible.
- Strong political commitment to governance reforms can enable complementary reforms in products and labor markets needed to fight unemployment and inequality.

### Inequality and labor market issues
- South Africa is described as "one of the most unequal societies in the world," with persistent legacies of apartheid:
  - "Black South Africans are still by far poorer than white South Africans."
  - A pay gap between women and men of "about 30 percent."
- Skills mismatch is a central constraint:
  - Firms "find it difficult to find workers that fit their high standards," while jobseekers "find it difficult to find a job that accepts their limited skills."
- Policy directions emphasized:
  - Facilitate competition in the production of goods and services to attract more industries and investment.
  - Introduce more flexible labor laws to expand labor force participation.
  - Improve the business environment to attract investment.
  - Invest in improving the quality of education to address skills mismatches.
  - Improve delivery of targeted transfers so "more money goes to the poor."

### Education spending and outcomes
- Increased government spending in areas like education has not translated into better outcomes due to inefficiencies:
  - Wage increases often reflect negotiations with trade unions rather than teacher performance.
  - A sizable portion of teachers are "not well prepared to be teachers."
  - Uneven distribution of funds: public schools in urban areas receive more funding per pupil than rural areas.
  - Non-tuition costs (e.g., transportation) drive dropout rates in low-income sectors.
- Education outcomes cited:
  - "About half of South African students drop out of school before completing secondary education."
  - "Less than five percent of students who start primary school end up with a university diploma."
- IMF recommendation: improve efficiency and targeting of education spending and strengthen teacher quality and resource distribution.

### Technology, financial sector, and digital governance
- South Africa is "at the forefront of the digital revolution in Africa" with technology improving financial inclusion (e.g., mobile banking).
- Central bank initiatives:
  - A financial technology unit is "piloting interbank clearing and settlement of transactions using distributive ledger technology."
- Digitalization is aiding governance:
  - Emphasis on electronic tax payments to reduce tax avoidance.
  - Electronic customs declarations.
  - A new automated procurement system capturing data on beneficiaries of government contracts, increasing transparency and expanding participation of smaller enterprises in tenders.
- Constraints and IMF recommendations:
  - Internet cost is high and quality is low due to limited competition.
  - IMF staff recommend increasing competition across sectors (telecommunications, energy, transport, and others) to attract domestic and foreign private investment.

*Source: IMF News — South Africa: Restoring Confidence to Oil the Wheels for Growth (August 2, 2018).*

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## References

- [https://www.imf.org/en/News/country-focus](https://www.imf.org/en/News/country-focus)
- [PRESS CENTER](http://presscenter.imf.org/)
- [Read the report](http://www.imf.org/en/publications/cr/issues/2018/07/30/south-africa-2018-article-iv-consultation-press-release-staff-report-and-statement-by-the-46132)
- [Read the press release](http://www.imf.org/en/news/articles/2018/07/27/pr18319-south-africa-imf-executive-board-concludes-2018-article-iv-consultation)
- [Listen to podcast](http://www.imf.org/en/News/Podcasts/All-Podcasts/2018/07/31/south-africa-2018)
- [South Africa and the IMF](http://www.imf.org/en/Countries/ZAF)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2018/08/02/na080218-south-africa-restoring-confidence_