SA NEEDS to deal with structural problems, such as poor education, HIV/AIDS and crime, to achieve sustainable economic growth, the World Trade Organisation (WTO) said in its trade policy report on SA, released on Wednesday.
The report will form the basis of the third Trade Policy Review of countries in the Southern African Customs Union (SA, Botswana, Swaziland, Lesotho and Namibia) to be held this week.
“Unemployment and poverty remain the most pressing economic problems (for SA) along with the electricity supply shortages, which threaten near-term growth prospects,” the WTO said.
Further investment in electricity infrastructure and opening up the economy to greater competition in services would help to enhance efficiency and accelerate growth.
While SA’s economic growth was expected to fall to about 1,2% this year in response to the global slowdown, it should recover to above 4% by 2011. Sound fiscal and monetary policy, a well-regulated financial system and prudential limits on foreign investment had limited SA’s exposure to the crisis.
But the WTO warned that the Reserve Bank looked likely to miss its inflation targets and did not appear to have a policy to deal with currency volatility. This could affect growth, as risk-averse firms were not willing to invest in an economy with a volatile exchange rate. A fluctuating exchange rate could also be a sign of weak fundamentals.
State intervention in manufacturing had led to a misallocation of resources and low profitability in the sector, the WTO said.
The development of the manufacturing sector was also being hampered by the high cost of inputs and intermediate goods, partly because of the lack of competition in various sectors.
This highlighted the importance of competition policy in SA.
Similarly, state intervention rendered the supply of key services both inefficient and costly, the WTO said.
mathewsc@bdfm.co.za