IMF outlook for SA shows lack of economic performance

The IMF’s economic outlook for South Africa, showing that the country will grow by only 0.9% this year and a still miserable 1.2% next year, is a depressing reminder of how far we are from the kind of economic performance we should achieve as a country.

However, Busi Mavuso, CEO of Business Leadership South Africa (BLSA), says what really puts that performance into context is the expectations for global growth, with the IMF forecasting 3.2% for 2024 and 2025.

Sub-Saharan Africa will perform even better, delivering 3.8% this year and 4.0% next year. If you exclude South Africa and Nigeria, the two biggest economies, regional growth will be 4.5% in 2024 and 5.1% next year.

“The IMF’s forecasts reflect the many headwinds facing our economy, with the logistics crisis constraining our ability to get our output to global markets, as well as ongoing electricity shortages and wider infrastructure failures.”

Mavuso points out the IMF is also concerned about electoral uncertainties which could affect reform momentum, but it also acknowledges that reforms are having a positive impact, particularly in solving the energy challenges.

“The trouble is that the gap between reforms and changes to economic output can be significant and it takes time for production to respond to the opportunities that reform enables.”

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Momentum for structural reform needed for economic growth

She says BLSA works hard to support momentum for structural reform that will open a new growth path for the economy.

“Many of our challenges, from logistics and energy to local service delivery, depend on infrastructure. We support the National Energy Crisis Committee and the National Logistics Crisis Committee, among other interventions, by mobilising resources and funding to ensure their success.”

However, she says, there is a huge and urgent need to mobilise investment, from building out the electricity grid to solving problems at local water treatment plants.

“City-level infrastructure is also a huge challenge to ensure delivery of basic services like water and local roads. Government’s fiscal position means it cannot open the spending taps itself, while the state-owned enterprises also have balance sheet constraints that mean they cannot raise the debt to invest either.”

The only option is for the private sector to partner with the state in a way that can mobilise private investment, she says. “Therefore, I was pleased to see National Treasury’s efforts earlier this month to engage the private sector and others regarding reforms it is making to regulations regarding public-private partnerships (PPPs).”

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Role of public-private partnerships

The reforms, which have been a long time coming, will simplify the bureaucracy around developing PPPs, particularly smaller ones, she says. “They also make it easier for the state to entertain unsolicited PPPs. That enables the private sector to develop concepts and proposals that we can take to government for partnerships that will solve some of the challenges we face.”

Mavuso says she particularly likes that this enables bottom-up solutions, which is important to ensure we are genuinely addressing the challenges we face on the ground.

“While there has been a major push for infrastructure over the last five years, with the creation of Infrastructure South Africa and the Infrastructure Fund, these have not yet resulted in the wave of infrastructure investment we all have hoped for.”

She says part of the solution is decentralising by enabling businesses and local governments to work together to solve local challenges. “The PPP reforms can enable this, but it will still take considerable political will and support from national government to enable all parts of government to embrace PPPs as an important solution to the infrastructure challenges we face.”

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IMF’s global outlook a sobering report card

“One of the political challenges of reform is that results can take years to emerge. The electricity reforms of a year ago will only result in the end of load shedding in about two years’ time.

“Logistics will take even longer to result in sustained improvements in performance through our ports and railways as regulatory change beds in and we get to actually concession out the construction and management of infrastructure.”

Mavuso says the performance we see in other sub-Saharan African countries reflects difficult reforms that have been implemented over many years, finally culminating in notable economic results.

“It takes a great deal of maturity on all sides, putting the country first, to commit and drive reforms that will only pay off in several years. But we must make those choices now and stay steadfast in implementation if we are going to achieve a significant improvement in economic performance in the long term. I am confident that many of the reforms we are making are setting up that base, but they are not enough and we could go faster. BLSA is committed to doing its part.”