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Everybody thinks SA will soon need a bailout from the IMF – except the IMF and Futuregrowth.
Despite Montfort Mlachila, the IMF country representative in SA telling the Bureau for Economic Research last week that the country has not requested nor does he think it needs a bailout, the rumours persist.
Bloomberg reported that investors like (Remgro chairman) Johann Rupert who has pushed the IMF line and business leaders like Mcebisi Jonas who has done the same may be using the spectre of a bail out to force the government to get a move on economic reforms.
If anything, the IMF presentation Mlachila made last week is even more disappointing than a bail out may be.
In a nutshell, he said that South Africa has shown itself to be a serial under-performer against other emerging markets and that in many cases, simple micro-economic reforms (less complex policy measures) could make all the difference.
This slide shows that South Africa’s growth against comparator economies and countries has been persistently lower. Growth is much lower than the top emerging market performers.
This slide shows that South Africa’s export performance has lagged behind both the top performers among emerging markets and we are way behind median performance. In addition, the structure of exports has been static. South Africa could have improved manufactured exports as well as tourism to improve its position but this has not happened, despite the Asgisa or accelerated growth initiative which was adopted in 2006 which made available billions of rands in financial and non-financial incentives.
This slide shows that there is relatively low private investment. This means (and it is backed up in data) that business is sitting on cash piles instead of investing. Whose fault is this: a skittish private sector that has never bought into SA Inc since democracy arrived or a government that has serially mismanaged the economy and which has driven down business confidence?
This slide shows that government is a huge player in the economy as it has tried to use the fiscus to prop up the economy in a policy encapsulated in the idea of a developmental state. The share of public investment as a percentage of total investment is much higher than the median and the best performers in emerging markets. In the good times, this was fine; but the policy now means that debt as a percentage of GDP has grown so high that it threatens a sovereign downgrade in South Africa’s investment-grade rating.
Fiscal policy is now permanently focused on supporting economic activity rather than on expanding education, health and on reducing spatial apartheid.
Conclusion
Mlachila says that “Growth has historically been systematically below comparator groups, but especially since the global financial crisis.”
He also analysed anaemic growth levels as attributable to a “shrinking tradable sector, lacklustre export performance with a rather static composition, and high role of consumption in driving growth rather than investment or net exports”.
The IMF has found that SA’s growth is low because of: a lack of competition, inefficient state-owned enterprises; labour market rigidities.
In addition, the Fund has said that inefficient education, health, infrastructure public spending were complementary factors to low growth as was the scarcity of skilled labour.
In essence, each of the factors highlighted by the IMF is within South Africa’s ability and power to fix.
