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IMF: Education reform key to get SA out of growth slump

Jan 17 2017 08:37
Matthew le Cordeur

Cape Town – The International Monetary Fund (IMF) said broad-based reforms to education are needed to boost growth in South Africa, which it predicts will remain below 1% in 2017.

Oya Celasun, deputy division chief at the IMF, said that in 2016 South Africa’s growth “was stuck in low gear” and that 2017 will “improve somewhat … to a still-weak pace of recovery of 0.8% and then improve a bit further” to 1.6% in 2018.

She was speaking at a press briefing on the update of the IMF’s world economic outlook on Monday in Washington, DC.

The IMF’s growth expectations for South Africa remained unchanged from its October report, when it said policy uncertainty will result in the economy making only a “modest recovery” in 2017.

“So looking ahead, more inclusive labour market policies, more education, broad-based reforms to education are needed to boost growth,” said Celasun.

South Africa's education system is one of the worst in the world, according to a scathing report in The Economist on 7 January 2017.

"In a league table of education systems drawn up in 2015 by the OECD club of mainly rich countries, South Africa ranks 75th out of 76," it said.

The Economist said money is not the reason for the failure. "Few countries spend as much to so little effect. In South Africa public spending on education is 6.4% of GDP; the average share in EU countries is 4.8%."

"More important than money are a lack of accountability and the abysmal quality of most teachers. Central to both failures is the South African Democratic Teachers Union, which is allied to the ruling African National Congress."

Lack of skills mix another reason for low growth

Explaining why South Africa’s growth is battling to get out of low gear, Celasun said “structural factors have also been weighing on growth and are projected to do so going forward”.

“Those include, importantly, power provision issues, which the authorities are addressing, but also an inadequate level and mix of skills in the economy, and more recently also policy uncertainty.”

“So what's allowing for higher growth will be better power provision, which was a factor holding back growth recently.

“And going beyond that it will also be the fact that macro policies will be shifting towards a more neutral stance from the contractive stance they've had and they are likely to have in the near term.”

IMF seeks state owned entity reform

Like rating agencies Standard & Poor’s, Moody’s and Fitch, the IMF said in its October report that growth prospects for South Africa will hinge on whether the country would be able to improve the efficiency and governance at its state-owned enterprises.

“Measures to improve state-owned enterprises’ efficiency and governance, including through greater private participation can lift growth prospects and reduce contingent fiscal risks,” it said.

In the October report, South Africa’s high unemployment rate, policy uncertainty and political risks are singled out as obstacles to growth.

“A comprehensive structural reform package that fosters greater product market competition, more inclusive labour market policies and industrial relations, and improved education and training, as well as reducing infrastructure gaps is critical to boost growth, create more jobs, and reduce inequality,” the October report says.

Africa losing its growth appeal

In the IMF’s January global economic report, it said geopolitical risks and a range of other noneconomic factors continue to weigh on the outlook in regions that include Africa.

These include “civil war and domestic conflict in parts of the Middle East and Africa, the tragic plight of refugees and migrants in neighbouring countries and in Europe, acts of terror worldwide, the protracted effects of a drought in eastern and southern Africa, and the spread of the Zika virus”.

“If these factors intensify, they would deepen the hardship in directly affected countries. Increased geopolitical tensions and terrorism could also take a large toll on global market sentiment and economic confidence.”

Trump weighs on global growth uncertainty

From a global economic perspective, the IMF said this is projected to pick up pace in 2017 and 2018, especially in emerging market and developing economies.

“However, there is a wide dispersion of possible outcomes around the projections, given uncertainty surrounding the policy stance of the incoming US administration and its global ramifications.

“The assumptions underpinning the forecast should be more specific by the time of the April 2017 World Economic Outlook, as more clarity emerges on US policies and their implications for the global economy.”

“Growth prospects have marginally worsened for emerging market and developing economies, where financial conditions have generally tightened.”

“Global activity could accelerate more strongly if policy stimulus turns out to be larger than currently projected in the United States or China.

“Notable negative risks to activity include a possible shift toward inward-looking policy platforms and protectionism, a sharper than expected tightening in global financial conditions that could interact with balance sheet weaknesses in parts of the euro area and in some emerging market economies, increased geopolitical tensions, and a more severe slowdown in China.”

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