IMF says red tape weighing heavily on South Africa's growth potential

By Colleen Goko

JOHANNESBURG, March 11 (Reuters) - The International Monetary Fund said on Wednesday South Africa's complex regulatory environment is holding back growth and limiting job creation due to heavy licensing requirements and administrative burdens.

• In a country focus report, the IMF said that firms where managers spend more time dealing with government regulations tend to see slower sales growth, weaker job creation and lower productivity.

• The impact is particularly severe for small firms: Fund analysis shows regulatory burdens affect small businesses roughly twice as much as the average firm in South Africa, limiting their ability to expand and hire workers.

• South Africa stands out among peers for the complexity of its regulatory environment with licensing systems spread across national, provincial and municipal authorities, often creating overlapping requirements and high compliance costs.

• South Africa's economy grew 1.1% in 2025, below what the central bank and National Treasury had forecast, statistics agency data showed on Tuesday. The coalition government is trying to lift the growth rate after it has averaged less than 1% annually over the past decade.

• The focus document, penned by IMF senior resident representative Tidiane Kinda and IMF local economist Nasha Mavee said a proposed Business Licensing Bill could lead to a more growth-friendly business environment.

• The bill "offers an opportunity to modernize the current business licensing system, which is decentralized and leads to inconsistent enforcement, duplicative procedures, and misaligned fees across jurisdictions."

• Other fixes could include digitizing processes, tailored, concessional licensing arrangements for micro and informal firms, differentiating regulatory requirements based firm's risk profiles and introducing a public, up-to-date inventory of all required permits and licenses.

• Reforms that close half the gap with emerging-market best practices on business environment, governance, and labor market could lift South Africa’s real output by up to 9% over the medium-term, raising annual growth from 2% to around 3%, the report said.