Electricity shortages in South Africa and fiscal risks‚ “especially from state-owned enterprises”‚ have been highlighted by the International Monetary Fund (IMF).
An IMF team visited South Africa during June 1–9 to discuss the outlook‚ risks‚ and policy challenges facing the South African economy. In a concluding statement of their visit issued today‚ 23 June‚ the IMF voiced concern about several aspects.
“Downside risks persist‚ mainly stemming from electricity shortages‚ policy uncertainty‚ volatility in global financial markets‚ and global growth.
“Solving the electricity crisis is the utmost priority‚” the IMF said. “Severe electricity shortages‚ the worst since 2008‚ have become the greatest obstacle to growth‚ reducing economic activity‚ sapping confidence‚ and discouraging investment.”
To do this‚ the IMF accepted that “higher electricity tariffs and the envisaged government support are necessary to make Eskom financially sustainable”.
It cautioned‚ however‚ that this should be complemented by cost containment (including through improved procurement practices)‚ efficiency enhancements‚ and governance improvements to minimize the impact on consumers and business costs.
At the same time‚ consideration should be given to further private participation to increase capacity and reduce the cost of generation‚ the group said.
The IMF also noted that the growth and jobs outlook “remains lacklustre”‚ with growth projected at 2% in 2015–16.
“The 2015 Budget rightly adjusts to lower potential growth. But there are fiscal risks‚ especially from state-owned enterprises (SOEs)‚ that need attention.”
Commenting on SA’s growth and job prospects‚ the report said real GDP growth was 1.5% in 2014‚ which was attributed to protracted strikes and electricity constraints.
“South Africa continued to underperform peer Emerging Markets‚ and the gap with trading partners widened. As the electricity crisis has deepened‚ only a muted recovery to 2% growth is expected in 2015–16 mainly due to the anticipation of fewer days lost to strikes.
Lower oil prices have improved the terms of trade‚ but are expected to have a negligible impact on growth as highly-leveraged consumers may not spend much of the extra income and electricity constraints hinder domestic production expansion. Headwinds to growth also stem from the needed fiscal consolidation‚ high policy uncertainty‚ and tighter financial conditions.”
Eskom’s impact on the economy would be felt for some time‚ the IMF said‚ noting: “The improvement in growth over the medium term to about 2.8% is predicated on increased energy availability”.
Unemployment is expected to remain above 25 percent‚ the statement said‚ unless major policy changes are implemented.
The IMF group said the SA government should address the skills mismatch.
“Long-standing recommendations for reforms in these areas remain essential for sustainably higher‚ job-rich growth. Better quality education and training and more liberal immigration policies would ease skills mismatch. Reducing the regulatory burden and strengthening competition‚ including through trade liberalization‚ will help reduce the wage-productivity gap by lowering the cost of living and enhancing productivity.
Simultaneous labour market reforms—giving more consideration to the unemployed and small firms in wage setting‚ exempting small and medium enterprises (SMEs) from the extension of collective bargaining outcomes‚ and reducing firing costs—will increase job creation and facilitate new firms’ entry. A renewed impetus for reforms in this direction is urgently needed.”
It also cautioned that‚ “Some recent measures—for example‚ new regulation for visas for certain skilled workers and restrictions on temporary employment—risk depressing growth and job creation”.
Government was also advised to focus on improving “spending efficiency”‚ including making smarter use of technology to simplify bidding for tenders and increase transparency‚ and standardization of government contracts to reduce costs.
Reducing electricity shortages is the utmost priority for South Africa‚ says IMF
Electricity shortages in South Africa and fiscal risks‚ “especially from state-owned enterprises”‚ have been highlighted by the International Monetary Fund (IMF).
An IMF team visited South Africa during June 1–9 to discuss the outlook‚ risks‚ and policy challenges facing the South African economy. In a concluding statement of their visit issued today‚ 23 June‚ the IMF voiced concern about several aspects.
“Downside risks persist‚ mainly stemming from electricity shortages‚ policy uncertainty‚ volatility in global financial markets‚ and global growth.
“Solving the electricity crisis is the utmost priority‚” the IMF said. “Severe electricity shortages‚ the worst since 2008‚ have become the greatest obstacle to growth‚ reducing economic activity‚ sapping confidence‚ and discouraging investment.”
To do this‚ the IMF accepted that “higher electricity tariffs and the envisaged government support are necessary to make Eskom financially sustainable”.
It cautioned‚ however‚ that this should be complemented by cost containment (including through improved procurement practices)‚ efficiency enhancements‚ and governance improvements to minimize the impact on consumers and business costs.
At the same time‚ consideration should be given to further private participation to increase capacity and reduce the cost of generation‚ the group said.
The IMF also noted that the growth and jobs outlook “remains lacklustre”‚ with growth projected at 2% in 2015–16.
“The 2015 Budget rightly adjusts to lower potential growth. But there are fiscal risks‚ especially from state-owned enterprises (SOEs)‚ that need attention.”
Commenting on SA’s growth and job prospects‚ the report said real GDP growth was 1.5% in 2014‚ which was attributed to protracted strikes and electricity constraints.
“South Africa continued to underperform peer Emerging Markets‚ and the gap with trading partners widened. As the electricity crisis has deepened‚ only a muted recovery to 2% growth is expected in 2015–16 mainly due to the anticipation of fewer days lost to strikes.
Lower oil prices have improved the terms of trade‚ but are expected to have a negligible impact on growth as highly-leveraged consumers may not spend much of the extra income and electricity constraints hinder domestic production expansion. Headwinds to growth also stem from the needed fiscal consolidation‚ high policy uncertainty‚ and tighter financial conditions.”
Eskom’s impact on the economy would be felt for some time‚ the IMF said‚ noting: “The improvement in growth over the medium term to about 2.8% is predicated on increased energy availability”.
Unemployment is expected to remain above 25 percent‚ the statement said‚ unless major policy changes are implemented.
The IMF group said the SA government should address the skills mismatch.
“Long-standing recommendations for reforms in these areas remain essential for sustainably higher‚ job-rich growth. Better quality education and training and more liberal immigration policies would ease skills mismatch. Reducing the regulatory burden and strengthening competition‚ including through trade liberalization‚ will help reduce the wage-productivity gap by lowering the cost of living and enhancing productivity.
Simultaneous labour market reforms—giving more consideration to the unemployed and small firms in wage setting‚ exempting small and medium enterprises (SMEs) from the extension of collective bargaining outcomes‚ and reducing firing costs—will increase job creation and facilitate new firms’ entry. A renewed impetus for reforms in this direction is urgently needed.”
It also cautioned that‚ “Some recent measures—for example‚ new regulation for visas for certain skilled workers and restrictions on temporary employment—risk depressing growth and job creation”.
Government was also advised to focus on improving “spending efficiency”‚ including making smarter use of technology to simplify bidding for tenders and increase transparency‚ and standardization of government contracts to reduce costs.
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