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5 things that will make or break South Africa in the next few years

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Credit rating agency Moody’s has predicted that the South African economy will grow by around 1.5% over the period 2022-2023, constrained by a rigid labor market, weakened competitiveness and decaying infrastructure. .

The electricity sector poses the greatest risks to the outlook for economic growth, with generating capacity already insufficient to meet the needs of the economy, the group said in a research note on Wednesday (May 4).

“The current administration, which came to power in 2018, has introduced some measures to address the structural constraints to growth, but these remain a challenge. Socioeconomic pressures and institutional weaknesses also complicate government efforts to introduce reforms. As a result, growth continued to underperform other emerging market economies,” he said.

Moody’s noted that longer-term growth prospects will depend on the extent to which the government is able to advance its sector reforms, particularly those aimed at rehabilitating electricity capacity.

The group identified five main areas of concern and what the government needs to do to address these issues.


Land reform

  • Objective of the reform: Allow restitution and redistribution of land, including through expropriation without compensation, but spare the economy by focusing on unused land or land seized without right.
  • Credit view: Positive, as it supports social cohesion and growth. But until it is fully implemented in such a way as to ensure that economic objectives are met, it is a source of uncertainty.
  • Progress: Initial public consultations closed. Expropriation Bill drafted and promulgated on October 9, 2020, providing for a mandatory and uniform expropriation process, fair and equitable compensation and the possibility of non-compensation in specific cases.

Regulation

  • Objective of the reform: Increase competition and remove barriers to entry, especially in service sectors (tourism, retail, financial services, network industries).
  • Credit view: Positive, but reform progress is difficult to track, both in terms of implementation and effectiveness.
  • Progress: General measures include a new draft competition law (February 2019), modernization of exchange control regulations (budget 2020), a new industrial master plan and an initiative to reduce the regulatory burden for SMEs and to increase access to finance. Sectoral measures include a relaxation of the visa regime (e-Visas), the allocation of new spectrum licenses and measures to encourage competition in the retail sector.

labor market

  • Objective of the reform: Boost public sector employment and reduce the skills mismatch by adapting education and training programmes.
  • Credit view: Measures disproportionate to the scale of the problem.
  • Progress: The initiatives remain very demand-driven and ambitious in terms of the number of jobs to be created (eg through the creation of a job summit, tax incentives for young senior managers).

Electricity

  • Objective of the reform: Unbundle Eskom, increase efficiency, switch to greener energies, get additional electrical capacity.
  • Credit view: Positive, as it would support growth and confidence, and reduce the government’s contingent liabilities.
  • Progress: Ongoing process. The transmission should be unbundled in 2022 as a first step. The independent power producer framework is complete.

Mining

  • Objective of the reform: New mining charter.
  • Credit view: Neutral, because it provides stability to the mining sector, but does not change the situation.
  • Progress: Legal actions completed, but pending.

Corruption

  • Objective of the reform: Building trust and improving efficiency in the public sector.
  • Credit view: Positive, although it will take time to show results.
  • Progress: The Zondo Commission (the judicial commission of inquiry into allegations of state capture) was dissolved. The Commission is publishing its findings in a three-part report. No individual has been convicted.

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