What South Africa must do to grow the economy

A new discussion document – COVID-19 and the South African Economy – provides practical policy changes to help grow the economy.

Over the last decade, the country’s growth rate has failed to keep pace with the rest of the world and its expanding population.

The stagnant economy has resulted in increased unemployment and inequality.

South Africa has also fallen behind in world trade and has failed to take advantage of its unique climatic conditions to address energy shortages.

Many economic problems in South Africa stem from inappropriate or inadequate policy choices.

Remedying the country’s infrastructure, education, and spatial imbalances is complex and will take a long time.

However, without a short-term boost to growth, it will not be easy to secure the resources needed to fund these longer-term initiatives.

Government, therefore, needs to act quickly to move us out of our current social and economic malaise.

The document, authored by Matthew Stern and Chris Loewald, looks at how South Africa can navigate itself out of the Covid-induced recession and restore economic growth.

Stern and Loewald said the existing policy framework is not working fast enough and that policy reforms are needed to alter the trajectory of the slow-growing South African economy.

“As a small, open and exposed economy, the policy options available to South Africa are limited,” they said.

They have suggested policy recommendations that can be implemented quickly and at a reasonable cost.

• The unrestrained roll-out of renewable energy production, absent from unnecessary and potentially costly conditions and led by private sector interests and capabilities.

• Concluding and implementing regional and continent-wide trade agreements, including an open approach to using preferences and rules of origin and developing informed positions that reflect the country’s actual economic interests.

• Direct labour market reforms to lower hiring and firing costs, especially for smaller businesses, and increase investment in wage subsidies.

• Relaxation of immigration restrictions, especially on skilled and regional workers and their families to encourage foreign firms and talent to locate, invest and remain in South Africa.

• Targeted land reform initiatives that focus on shifting production away from bulk commodities and into the intensive production of higher value crops, such as fruit and vegetables, on high potential land.

• An independent assessment of the unintended consequences of local content and Black Economic Empowerment (BEE) policies on employment, competition, trade and investment.

Ensuring that these reforms are implemented fully and effectively will require a change to the policy-making process.

“The economic departments of the government need to work in tandem to achieve a common policy outcome,” the researchers said.

It will require strong leadership from the centre and a willingness from others to look beyond the short-term sector and insider interests.