EDITORIAL: Transformation of the IMF kind
The IMF is clear: we have to reform product and labour markets so as to open up the economy, create more jobs, and engender more confidence and investment
It’s a relief that the IMF has kept its forecast for SA’s 2017 economic growth rate unchanged at 0.8%, rising to 1.6% in 2018. But it is no comfort that its economists, who just a few months ago had one of the gloomiest outlooks on SA’s economy, were proved correct on their 2016 forecast of 0.3% and now look realistic, even optimistic, on 2017 and 2018.
An IMF spokesman said the cabinet reshuffle and subsequent downgrades occurred after the publication cutoff for the World Economic Outlook, which contained the latest forecasts. "Even so, the growth forecast embedded an environment of low investor and consumer confidence, and the risk premium on SA’s foreign currency debt had already been on the high side for several months," said the IMF, which, in other words, was fairly pessimistic even before SA’s renewed efforts over the past three weeks to shoot itself in both feet, economically speaking. Already, some economists have revised down their growth expectations to even lower levels than Washington’s "modest" numbers.
The end of the drought and higher commodity prices, along with a stable electricity supply, are expected to drive SA’s modest recovery. But it’s hardly shoot-the-lights-out stuff. At these levels, the economy is growing at well below the population growth rate, so South Africans are getting poorer in real terms with each passing year. The unemployment rate, already one of the world’s highest, is likely to rise.
And the sub-Saharan African region, which SA continues to dominate, is not expected to do that well either, with growth of just 2.6% in 2017 and 3.5% in 2018.
So what’s to be done? The IMF offers only a few lines on each country in the World Economic Outlook, with more detail to follow in this week’s regional economic outlooks. But its line on SA is clear, as it has been for a while now: we have to reform product and labour markets so as to open up the economy, create more jobs, and engender more confidence and investment.
At a time when slogans such as "white monopoly capital" and "radical economic transformation" are being bandied around, Washington’s recommendations could easily be seen as somehow supportive of those slogans.
The IMF wants to see transformation and it urges SA to do something about its highly concentrated economy
It also wants to see transformation and it urges SA to do something about its highly concentrated economy. But its views on the kinds of reforms we need if we want to grow could hardly be further from the self-interestedly crude economics of the slogans.
SA’s product markets tend to be dominated by large and sometimes monopolistic (or oligopolistic) players, which keeps the cost of goods and services high and makes it difficult for smaller players to get into the market and to thrive.
But the IMF is referring just as much to Eskom or Telkom or Transnet as it is to the private sector. Those markets need to be opened up and radically reformed, too, if SA wants to generate entrepreneurship, investment, jobs and growth.
And as a talk in SA by the IMF’s David Lipton made clear in 2016, when the organisation talks about reforming SA’s product markets, that’s not about bringing in black players — it is about opening them up to new entrepreneurial players, whatever their colour, who can bring dynamism to those markets and create jobs in sizeable numbers. It is about opening them up to the kind of competition that will bring down input costs for businesses and living costs for workers, not take them further up. Nor is it just product markets that the IMF sees as being in need of reform. Labour markets, too, must become more dynamic and more flexible if we are to have more jobs and more growth.
Reforms such as these could really transform the economy and enable higher rates of growth and job creation. Sadly, there is little sign our policymakers are hearing the advice.