FIFI PETERS: The International Monetary Fund, the IMF, was in town. This is part of its regular country visit to South Africa. They spoke to several individuals – mainly from National Treasury and other really important people – from May 26 until June 6, which was yesterday. I imagine that those conversations focused squarely on the economy.
We’ve got Max Alier, the senior South African representative for the IMF, to fill us in on the details. Max, thanks so much for your time. These are part of the regular visits, I understand, but tell us how they went. Who did you meet and what did you talk about?
MAX ALIER: Good evening Fifi. The IMF, as part of our surveillance activities, our regular dialogue with the government, we have once a year what is called the Article for Consultation, the big consultation that we did last November.
Now in between consultations we have what we call a staff visit, when basically my colleagues come to South Africa, take stock of economic developments, take a look at the outlook, the latest data, and get a sense of the situation in general.
In these visits we usually meet with the National Treasury and the Sarb [the South African Reserve Bank], who are our main counterparts. But we also meet with a whole range of stakeholders, both in the public sector and the private sector, because we like to get a comprehensive view of the situation.
FIFI PETERS: Statistics South Africa told us today that the state of our economy, as it pertains to the first quarter, is pretty good, is back to pre-pandemic levels good. What’s the IMF’s assessment of SA’s economy right now?
MAX ALIER: We believe in the short term South Africa’s economy has been performing well. It has benefitted from high commodity prices. This started to happen towards the end of 2020. That continued last year, for the economy had a strong rebound. And in the context of the war in Ukraine commodity prices have held quite high, and that has supported economic activity in South Africa.
So far developments have been quite positive. I think the only thing I would like to note is that this has been a jobless recovery so far.
Now, more interesting than looking back is going forward. We see a number of headwinds. We look forward to see the second-quarter data, where we think activity was probably affected by a number of things, including the floods in KZN and by the load shedding, which has been somewhat higher than initially expected.
Also it’s a more complicated global situation. There are a number of factors there, including the [US] Federal Reserve and how it has started to tighten monetary policy, the European Central Bank is expected to start tightening towards the end of the year, and therefore global financial conditions will be less easy than they have been in recent years. At the same time we see a slowdown in the Chinese economy.
So those things [represent] a bit of headwinds going forward. I think for the time being our projection of growth for the whole year remains at 1.9%, hopefully higher. Obviously this is the kind of thing we will be glad to see; the good news. But we see those headwinds for this year.
FIFI PETERS: An interesting point about the recovery and how you have described it as a ‘jobless recovery’ – I think most people would agree with you. While we had a slight shift to the downside in our official unemployment rate, it’s still pretty high at 34.5%. I’d like to understand what a jobless recovery means for the sustainability of the overall recovery in the economy that we’re seeing right now. What are the risks?
MAX ALIER: Certainly unemployment is probably one of the most pressing challenges that South Africa faces. Not only just unemployment [but] the consequences it has on poverty and inequality. We believe that when we look at the structural employment in South Africa, that is quite high. I think it is largely related to many of the issues that we have indicated now for a number of years, which are the structural issues that are holding back growth and private investment in South Africa. Obviously private investment remains good when there is no investment, low growth and little job creation.
A key issue in this regard is energy security. It’s difficult for any economy in the world to grow in a sustainable and a strong way when you don’t have energy security.
We also see the bottlenecks in infrastructure – in particular in railways and ports. So those also need to be addressed for South Africa to be on a higher growth path.
We also believe it is important to address issues and regulations that may hold back investment. In particular it is important for policies to support the growth of small and medium enterprises. But we know from everywhere in the world, not only here, big corporations are very important. They generate a lot of wealth. They do generate a lot of revenue, they pay a large amount of taxes. But the biggest sources of jobs in the world are usually generated by small and medium enterprises.
So we are addressing things that are holding back the development of small and medium enterprises in terms of regulations, and the need to level the playing field is also important. Furthermore, we see a more long-term element as issues related to the labour market.
On the supply side, we believe it’s important to strengthen the effort to improve the quality of visitation. That’s obviously very important. Also there is the issue of NUM [National Union of Mineworkers]. We have mentioned before the collective bargaining, which is very important in any economy, of course.
We believe in the important role that trade unions play, but collective bargaining in South Africa is highly centralised and we see from other countries that have similar schemes, they end up generating high unemployment.
So I think these are important issues that the authorities may want to take a look at, and see whether they may identify issues that could facilitate job creation.
FIFI PETERS: Max, thanks so much for those recommendations. We hope that some of those authorities are listening to the Market Update. We’ll leave it there. Max Alier is the senior South Africa representative for the IMF.