South African economy surprises the IMF

South Africa’s economy is showing a high degree of resilience to structural issues such as load-shedding and logistical constraints, avoiding a recession and improving the country’s growth outlook. 

Resident representative of the International Monetary Fund (IMF) Max Alier told Business Day TV that the organisation was surprised at the local economy’s resilience considering the significant headwinds it faces. 

Alier said the overall expectation was that load-shedding would substantially impact the South African economy and potentially push it into a recession. 

However, the local economy grew in the first quarter of 2023 and is expected to show marginal growth in the second quarter. 

“The South African economy has shown a high degree of resilience, predominantly driven by the services sector, which has recovered from its Covid lows,” Alier said. 

Monthly data shows the country’s economy is performing better than expected, and the outlook is gradually improving with many institutions, including the IMF, revising their growth forecasts higher. 

Alier said this indicates businesses are becoming less reliant on Eskom for electricity supply, leveraging alternative energy sources. 

“They are finding ways around load-shedding. But we need to see the numbers first. It is too early to speculate how resilient the economy is.”

Despite improvements in the country’s economic performance, it is not enough, as the economy is still expected to grow below the population growth rate. This means South Africans will continue to become poorer per capita. 

There is a clear understanding of what the bottlenecks are, and there are clear plans to address them, which will work. However, the implementation of these plans is lacking. 

“The frustration is that the implementation has been slow. It is not due to a lack of knowledge or what to do – the system is just moving slowly,” Alier said. 

As the problems become more binding and their negative impact on the economy becomes more apparent, implementation should hopefully speed up. 

To solve the problems, the government has to engage with the private sector as it does not have the financial resources to invest in solutions by itself. 

However, Alier said this requires confidence from investors in the country, its governance, and economic performance. 

If South Africa could solve load-shedding and its logistical inefficiencies, then the economy could grow at 2.5% to 3%, according to IMF estimates.