International financial institution the International Monetary Fund (IMF) has reported that, while South Africa's economy has shown resilience in 2025, growth is too low to reduce unemployment, which is more than 30% overall and has reached 60% among young people.
According to its latest country focus report by the IMF's Senior Resident Representative for South Africa Tidian Thoda and local IMF economists Nasha MaaviAccelerating the ongoing reforms in electricity and logistics under Operation Vulindlela is critical to addressing immediate barriers to development.
To fully unlock South Africa's growth potential, encourage private investment and boost employment, it notes that additional broad-based reforms are necessary to further improve the business environment.
“Indeed, operating a business in South Africa – especially dealing with product-market regulations such as required licensing and permitting – is significantly more cumbersome, fragmented and expensive than in peer economies.
“These barriers deter investment and hamper innovation,” say the report's authors. “And they are particularly challenging for small and medium-sized enterprises (SMEs), which have limited resources to deal with red tape despite accounting for the lion's share of job creation.”
The IMF says its analysis, which is based on South African firm-level data as well as cross-country data, points to the same conclusion.
It argues that, not only are South African business leaders spending significant time dealing with government regulations, but this additional burden is increasing over time and is higher than most comparable economies.
“How costly is this burden to companies? We found that companies whose managers devote more time to regulatory compliance experience slower sales growth, weaker employment growth, and lower productivity.”
For South African companies, it has been noted that these costs are particularly large – a one percentage point increase in management time spent dealing with regulations is associated with a 1% reduction in job growth.
Furthermore, for small South African firms with fewer than 20 employees, these regulatory burdens have approximately twice the impact on productivity than the average firm.
These findings indicate that regulatory frictions directly weaken job creation and the ability of SMEs in particular to scale up, innovate and create jobs.
The IMF believes that there is much that policymakers can do to reduce these constraints on the growth of companies and employment.
It said the proposed Business Licensing Bill of 2025 provides an opportunity to modernize the current business licensing system, which is decentralized and leads to inconsistent enforcement, duplicate processes and misappropriated fees across jurisdictions.
The IMF argues that establishing a simplified and consistent national licensing and permitting policy could promote reform efforts around several key principles.
This includes, firstly, a streamlined digital platform with clearly delineated responsibilities at all levels of government and the adoption of a single window, or centralized digital platform, for license applications and tracking, which will reduce duplication, increase transparency and reduce processing time.
Secondly, capacity building including strengthening administrative and enforcement capacity at the municipal level through training, digital tools and better inter-governmental coordination, which will help ensure consistent and predictable implementation.
Third, the IMF says that tailored, concessional licensing regimes, along with facilitating digital onboarding and access to trading venues, can reduce regulatory, financial and digital barriers for micro-enterprises and informal traders, thereby fostering entrepreneurship.
The IMF further suggests the need for risk-based licensing which involves differentiating regulatory requirements based on the risk profile of activities. For example, when considering the food production versus retail textile sectors, low-risk businesses will operate with minimal regulatory burden while protecting the public interest.
Finally, it points to the need for predictability through the introduction of an updated public list of all required permits and licenses.
Moving forward with these actions, providing a more efficient and predictable licensing and permitting framework, along with other reforms to make it easier for businesses to operate, is essential for South African firms to grow, innovate and create much-needed jobs.
“Our earlier analysis shows that reforms that close half the gap with emerging market best practices on the business environment, governance and labor market could boost South Africa's real output by 9% in the medium term, increasing annual growth from 2% to around 3%.
“Simply put, sustainable growth that decisively reduces unemployment requires a decisive shift toward business-friendly structural reforms.”