Despite South Africa’s natural resources endowment and a robust economic growth outlook, her economy has been decelerating over time. Notably, South Africa has well-developed legal, communications, transport, and energy sectors.
Additionally, it has the largest stock exchange market in Africa. South Africa’s stock exchange market sits at position 20 in the world. The question then begs, why is the economy of this African giant going off the drain?
The economic deceleration in South Africa is as a result of unemployment, inequality, corruption, and poverty. In the recent past, President Cyril Ramaphosa’s government has been working to salvage the economic situation of South Africa. However, the COVID-19 pandemic has again sent shocking waves in the country’s economy. With the current national lockdown, progress is shifting downwards.
South Africa majorly has focused on economic policies aimed at controlling inflation and facilitating a broader economic base. On the other hand, they have done little with regards to structural reform. Quelling of political infighting, is just a drop in the many structural reforms the country needs to carry out.
The World Bank’s prediction of a possible recession in Sub Saharan Africa due to the pandemic is looming. But, there is light at the end of the tunnel. South Africa should do the below structural reforms to bounce back from its financial turmoil.
Skill shortages to spearhead the economy
South Africa’s graduate skillset has declined from 85 to 102 out of 141. The ease of hiring foreign labor has also declined from 102 to 123 out of 141. These statistics are according to the 2019 Global Competitiveness Report, published by the World Economic Forum.
Evidently, there is skill shortage in South Africa. The government should give a keen eye on how to improve the skill base. There is need for more emphasis on improving tertiary education in the country.
Skilled manpower is a recipe to a well performing economy.
Ease of doing Business
South Africa witnessed a deterioration in the ease of doing business. According to the latest annual World Bank rankings, S.A is number 84 among 190 economies. Coming from position 82 in 2018.
This comes as a result of total decline in willingness for entrepreneurial risk. Moreover, the recent xenophobic acts also contributed to reduced ease in doing business. A reduction in the financing of SMEs has also a contributing factor of the same.
Improving the ease of doing business will make South Africa a stopover for many investors. Not only will it attract foreign investors but also the local investors will be on board.
Financing of SMEs should be increased. This will go a long way to help reduce unemployment.
South Africa scored 44 points out of 100 in the 2019 Corruption Perceptions Index reported by Transparency International. Consequently, making it the 70 least corrupt nation out of 180 countries.
South Africa has a robust legal framework and competent courts that are underutilized. The anti-corruption framework is well put out, but there is inadequate enforcement of the laws.
The Sub-Saharan country needs to ensure effective role out of her anticorruption framework. The court system should act with sovereignty and prosecute those indulging in corruption.
Although South Africa is improving on transparency, more transparency is still needed from the public institutions and the government.
As evident in most African countries, corruption staggers the economy. Fighting corruption will give South Africa the boost it needs to kick start her economy!
Government Size and Spending (Wasteful Expenditure)
Finance Minister Tito Mboweni during his second National Budget Speech addressed the need for this reform. The proposed steps for this reform from his speech includes:
- Merging and consolidation of public entities.
- A law to stop excessive salaries in public entities.
- Deal with the excessively high cost of leasing government buildings.
- A procurement system with a focus on value for money and maximizing the quality and quantity of services
Conclusively, it is argued that Africa countries have excellent policies that are not implemented. South Africa is no exception. If the country acts on the current proposed structural reforms, bouncing back after the virus is inevitable!
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