International financial institution the International Monetary Fund (IMF) has reported that, while South Africa’s economy has shown resilience in 2025, growth remains too low to significantly reduce unemployment, which exceeds 30% overall and reaches 60% among young people.

According to its latest country focus report by IMF senior resident representative for South Africa Tidiane Kinda and local IMF economist Nasha Mavee, fast-tracking ongoing reforms in electricity and logistics under Operation Vulindlela is critical to remove immediate impediments to growth.

To fully unlock South Africa’s growth potential, stimulate private investment and boost employment, it notes that additional broad-based reforms are essential 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 burdensome, fragmented and costly than in peer economies.

“These constraints deter investment and stifle innovation. And they are especially challenging for small and medium-sized enterprises (SMEs), which have limited resources to cope with red tape while accounting for the lion’s share of job creation,” the report authors say.

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 extra burden has been increasing over time and is among the highest relative to comparable economies.

“How costly is this burden for firms? We find that firms whose managers devote more time to regulatory compliance experience slower sales growth, weaker employment growth and lower productivity.”

For South African firms, it notes 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.

Moreover, for small South African firms with fewer than 20 employees, these regulatory burdens have nearly twice the impact on productivity compared with the average firm.

These findings indicate that regulatory frictions directly undermine employment creation and especially the ability of SMEs to scale up, innovate and create jobs.

The IMF posits that there is a lot that policymakers can do to alleviate these constraints on the growth of firms and employment.

It notes that the proposed Business Licensing Bill of 2025 offers an opportunity to modernise the current business licensing system, which is decentralised and leads to inconsistent enforcement, duplicative procedures and misaligned fees across jurisdictions.

The IMF argues that establishing a simplified and coherent national licensing and permitting policy could anchor reform efforts around several key principles.

This includes, firstly, a streamlined digital platform that includes clearly delineating responsibilities across levels of government and adopting a single window, or centralised digital platform, for licence applications and tracking, which would reduce duplication, increase transparency and shorten processing times.

Secondly, capacity building that involves strengthening administrative and enforcement capacity at the municipal level through training, digital tools and better intergovernmental coordination, which would help ensure consistent and predictable implementation.

Thirdly, the IMF says tailored, concessional licensing arrangements, combined with digital onboarding and facilitated access to trading spaces, could lower regulatory, financial and digital barriers for microenterprises and informal traders, encouraging entrepreneurship.

The IMF further suggests the need for risk-based licensing that includes differentiating regulatory requirements based on the risk profile of activities. For example, considering the food production versus retail clothing sectors, low-risk businesses would operate with minimal regulatory burden, while safeguarding public interest.

Lastly, it points to the need for predictability through the introduction of an up-to-date public inventory of all required permits and licences.

Moving forward with these actions, to deliver a more efficient and predictable licensing and permitting framework, together with other reforms making it easier for businesses to operate, is essential for South African firms to thrive, innovate and generate much-needed jobs.

“Our earlier analysis shows that reforms that close half the gap with emerging-market best practices on business environment, governance and the labour market could lift South Africa’s real output by up to 9% over the medium term, raising annual growth from 2% to around 3%.

“Simply put, durable growth that decisively reduces unemployment requires a decisive shift toward business-friendly structural reforms.”