South Africa should end its “excessive” regulatory burden and revamp its Black-ownership laws to remove the “signs of paralysis” that plague its economy, the World Bank said.
Enabling these changes would take the country off what the Washington-based lender termed “the wrong growth trajectory,” where real output per capita in 2023 was less than in 2007, the unemployment rate is among the highest globally and inequalities persist, it said in a report released Friday.
“The burden of institutions has become excessive — not only for businesses and citizens but also for public administration,” the World Bank said. Interventions such as Black-empowerment policies and direct-support programs including grants, tax rebates and labour training “have become so cumbersome that they smother the implementation capacity of the public administration, especially local officials, and open spaces for corruption,” it said.
Gross domestic product in Africa’s most industrialised economy expanded by an average of less than 1% annually over the past decade, and an era of government graft, mismanagement and bailouts for under-performing state companies weakened public finances.
South Africa’s Black-ownership rules — introduced after apartheid ended in 1994 — compel companies to allocate a 30% shareholding to historically disadvantaged groups that were sidelined from the mainstream economy during White-minority rule.
“The burden of several industrial and labour policies can be reduced by adjusting them to the reality of the market — for example, by generalizing the use of the equity-equivalence investment programs by the Department of Trade and Industry instead of the hard, complex conditions associated with Black economic-empowerment policies,” the World Bank said.
South Africa could rebalance its economic model by making it easier for foreign and domestic investors and for young workers to enter markets, and by reducing the protection of incumbents that include state-owned enterprises, the World Bank added.
Talks between South Africa and SpaceX to launch the Starlink internet service stalled after Elon Musk and his ally, US President Donald Trump, ramped up public rhetoric against laws aimed at redressing the racial inequality wrought by apartheid.
South Africa-born Musk has sought approval to expand Starlink in the country but has objected to the requirements in the empowerment regulations and accused the government of having “openly racist ownership laws.”
The World Bank said the status quo “is most penalising for small firms, which lack the capacity or financial means to navigate the complex system of rules and regulations, and for low-skill workers, who face a heavy income tax burden if formally employed.
By Bloomberg
