South Africa needs structural reforms to shore up the economy as there is little room for monetary and fiscal stimulus, the Organisation for Economic Cooperation and Development (OECD) reported on Monday.
Africa’s most industrialised economy slid into recession in March. The country is also struggling with a high unemployment rate, and credit downgrades by two of the top three ratings agencies, triggered by economic and political turmoil, have dented business and consumer confidence.
“Reviving economic growth is crucial to increase well-being, job creation and inclusivity,” the Paris-based OECD said in an Economic Survey on South Africa.
“As there is limited room for monetary and fiscal stimulus, bold structural reforms, supported by social partners, are needed to unlock the economy.”
The OECD said one possible structural reform was to open key sectors to more competition, including telecommunications, energy and transport. South Africa also must address the serious income inequality, it said.
“The low employment rate, especially for black South Africans, contributes to high income inequality,” OECD Secretary General Angel Gurria told a news conference in Pretoria held to present the Economic Survey.
“More needs to be done to achieve growth that is strong and inclusive; it has to capture all the ones that have been left behind.”
The government has developed a 14-point economic strategy to stimulate growth, released by Finance Minister Malusi Gigaba on July 13, but the plan has elicited only a lukewarm reception from investors.
Gigaba told the OECD media conference that said the plan would address some of the challenges highlighted by the survey, including provision of political and policy certainty.
“The action plan aims to accelerate progress, coordinate government efforts and act as a mechanism for accountability, and it has realistic, achievable objectives set against realistic and firm timelines,” Gigaba said.
Critics say the plan, which included the possible sale of assets and partial privatisation of state-owned firms, is not enough to restore business confidence and stimulate private sector investment. Ratings agencies have also warned of further credit ratings downgrades.
Last week, the South African Reserve Bank halved its 2017 growth forecast to 0.5 percent and cut the benchmark lending rate for the first time in five years to help out the economy.
Reporting by Olivia Kumwenda-Mtambo; editing by James Macharia and Mark Heinrich