IMF issues warning on South African economy

Cranes at a building site in Cape Town on August 28, 2008 (AFP/File)

Johannesburg (AFP) – The International Monetary Fund warned Tuesday that South Africa is trailing other emerging markets and must quickly implement reforms if it wants to avoid crisis.

The IMF, in an annual report on Africa's largest economy, pointed to painfully high unemployment and a plethora of other economic troubles staking the country.

"South Africa's growth has underperformed and vulnerabilities have increased considerably," the IMF said, predicting "continued sluggish growth" of 2.0 percent this year and 2.9 percent in 2014.

"Absent structural reforms, growth will be insufficient to reduce unacceptably high unemployment" the report said, pointing an economy "increasingly vulnerable to shocks."

"Risks are tilted firmly to the downside."

Unemployment is officially at 25 percent, but is closer to 35 percent including those who have given up looking for work. Around 50 percent of all young people are without a job.

While South Africa has made "important strides" to correct disparities caused by decades of apartheid rule, the Washington-based institution said systemic problems have "come to the fore" in recent years.

"The economy has underperformed other emerging markets and commodity exporters, exacerbating South Africa's already high levels of unemployment and inequality and contributing to rising social tensions."

Nearly two decades after Nelson Mandela swept to power South Africa is among the most unequal countries in the world.

Street protests are common across the country, often prompted by the lack of basic services or the presence of foreign workers.

A series of strikes have also hit the mining, automotive, transport, public and manufacturing sectors, halting production and often resulting in deadly clashes with police and between rival unions.

The ruling African National Congress has pointed to the economic crises in Europe -- a key trading partner -- as the main cause of the country's economic malaise.

The IMF agreed that "contributed" to weak growth, but said "domestic factors were an important reason why South Africa's growth has been below that of other emerging markets."

The IMF warned serious domestic reforms were needed to the labour market as well as improvements in the business climate and trade liberalisation.

A far-reaching economic plan -- dubbed the National Development Plan -- put forward by the government in 2011 has been put on ice amid opposition from within the ruling ANC and its trade union and communist allies.

"Prompt progress on NDP implementation could build reform momentum and reduce policy uncertainty," the IMF stated.

"Limited reform progress leads to an inexorable build-up of vulnerabilities."

But with general elections due within the year, quick implementation is unlikely.