Sub-Saharan Africa needs a policy reset
A policy reset is the only way to get back onto the high growth path. This means labour market flexibility, policy certainty, and diversifying away from commodities, according to the International Monetary Fund.
weakcommodity prices and slowing economic growth have interrupted sub-Saharan Africa’s blistering 5.8% average growth over the last decade for the 20 fastest-growing countries. For this kind of growth to resume, Africa needs a policy reset, says Axel Schimmelpfennig, the International Monetary Fund’s (IMF’s) senior resident representative in South Africa, referencing the IMF’s April 2016 Regional Economic Outlook for Sub-Saharan Africa.
Speaking to finweek, Schimmelpfennig said the continent needs to counter overreliance on commodity exports by diversifying into manufacturing and services, while focusing on fiscal sustainability, infrastructure development and social spending. “We feel the latest Budget in SA sets appropriate fiscal targets to safeguard fiscal sustainability. The big question is whether the government’s growth projections will be realised, and what it plans to do if growth falls short of its target.”
Treasury expects growth to limp along at 0.9% this year (Standard & Poor’s [S&P] is forecasting only 0.6%), reaching 1.7% next year. This leaves little elbow room for fiscal manoeuvring.
Schimmelpfennig says pro-growth reforms would include measures to enhance competition in the economy, a more flexible labour market, increased infrastructure investment to reduce the electricity and other bottlenecks, and greater policy certainty. “The one thing we have seen in SA is the decline in the mining sector, which has been impacted by lower commodity prices. However, with a predictable and conducive policy environment, the mining sector should stabilise.”
S&P highlighted a number of structural issues that should be addressed to put the South African economy on a “firmer footing” and to maintain the country’s investment-grade rating. These issues include the provision of a reliable energy supply, where Eskom has been making progress through a better maintenance programme, additional capacity coming online (including from independent power producers), and better management of demand in peak periods, S&P said. Labour reform is also needed to prevent prolonged strikes and address high youth unemployment, which pose structural weaknesses to SA’s economy, the ratings agency said.
From a policy certainty perspective, concerns include the discussions around the new Mining Charter, as well as the “cohesion of the executive branch”, with political tension having increased since Nhlanhla Nene was fired as finance minister in December. S&P said the successful conclusion of the Mining Charter talks “could help improve confidence and investment”, while