Depressed business confidence holds back private investment in S. Africa: IMF official
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E-mail Xinhua, May 8, 2013
Depressed business confidence has held back private investment in South Africa which is still faced with huge social trouble, an International Monetary Fund (IMF) official said on Wednesday.
"Employment is too low in South Africa, especially in the private sector," said David Lipton, first deputy managing director of the IMF said when giving a presentation titled "South Africa: Facing the Challenges of the Global Economy" at an event organized by African Institute of International Affairs in Pretoria.
"One in two young South Africans is unemployed. At the same time, real wage growth has outstripped productivity growth," he added.
He urged Pretoria to act swiftly to address its socio-economic problem.
Lipton told delegates that South Africa's competitiveness problem is manifesting itself in a growing trade deficit, even against a backdrop of weak growth.
"Power and transportation bottlenecks are a drag on the economy. And despite strong corporate performance, depressed business confidence has held back private investment," he said.
"Rigidities in labor and product markets underlie many of these problems," he added.
According to Lipton, the collective bargaining system needs to serve the interests of the entire population, and not just insiders; in addition, product markets also need to see greater competition.
These reforms would also bring lower prices and provide greater incentives to innovation and increased productivity. Reforms in these areas will not be easy, but a grand national social bargain could help overcome the impasse, he said.
"South Africa is fortunate to have capable economic managers. They need to maintain the prudent macroeconomic policies that can create an economic climate conducive to growth and job creation," he said.
At the same time, a medium-term strategy, as outlined in the 2013 budget, is essential to rebuild fiscal buffers and reduce external vulnerabilities, Lipton said.
According to Lipton, these policies can provide the space to implement the reforms needed to increase growth and employment. The government's National Development Plan (NDP), he said, contains a thoughtful and broad blueprint for addressing several of the constraints "notably in infrastructure, education, healthcare, and public service delivery."
"Failure to address the structural problems would weaken growth prospects and hamper efforts to reduce unemployment and inequality. It could also trigger a decline of confidence and a pullback of capital flows," he said.
In the long run, failure to deliver inclusive growth poses a risk to social stability and structural reforms are the key to unlock South Africa's potential, he added.
Lipton said the IMF is deeply committed to working with South Africa to provide the advice and analysis that can help address these problems and unleash the economy's full capabilities.
He said South Africa, as a member of the G-20 and the largest economy in sub-Saharan Africa, has a role to play in ensuring global economic stability.
According to IMF, South Africa has made great strides in economic and social development since the end of apartheid.
"The reform process will require political courage, but it is the way to bring the most benefits to the entire population and continue building an inclusive country that can be a proud example to the international community," Lipton said. Endi
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