South Africa Searches for Faster Growth, More Jobs

Growth is lower than in other emerging markets, too low to cut unemployment

Fiscal, monetary policies support activity; structural reforms to help boost growth

Reliance on capital flows exposes South Africa to swings in investor sentiment

The weak global economic outlook is not helping but, the IMF says in its regular review of Africa’s largest economy, moving forward with planned structural reforms would boost growth and create jobs for a growing population.

South Africa has posted major achievements since the transition to majority rule in 1994. Per capita GDP has increased by 40 percent in inflation-adjusted terms. The poverty rate has dropped by 10 percentage points. Schools and hospitals have been built in previously underserved areas, and government-financed houses have been made available to many in need. Social transfers now reach more than half of all households.

And South Africa has strong macroeconomic policy institutions. The government’s medium-term fiscal policy framework has been a pillar of South Africa’s prudent fiscal policy. Monetary policy has anchored inflation expectations. And financial sector policies are at the forefront of international reforms, with the South African Reserve Bank having adopted the Basel III bank capital adequacy rules in January of 2013 and moving to a “twin-peaks” model of banking supervision in 2014.

Muted growth outlook

Still, in recent years, growth has been lower than in peer emerging markets and commodity exporters. Since 2009, South Africa’s growth has averaged 3 percent compared to 5 percent for emerging markets and 4 percent for commodity exporters.

Weak growth in South Africa’s main trading partners, in particular Europe, partly explains this. However, domestic factors played an important role, including labor disruptions or concerns over electricity supply.

The IMF projects growth to slow further to 2 percent in 2013 from 2½ percent in 2012, reflecting global factors as well as softer private consumption growth and sluggish private investment. As the global economy recovers and the government’s infrastructure drive bears fruit, South Africa’s growth should pick up to 3–3½ percent in the coming years.

High unemployment

At these growth rates, the economy creates jobs, but not enough for the growing labor force and those currently without work. Unemployment remains stubbornly above 20 percent, or more than 30 percent when including those who have given up looking for a job. Youth...