The IMF report argues that a comprehensive overhaul of the country’s licensing and permitting framework could go a long way toward improving the situation. It said one opportunity lies in the proposed Business Licensing Bill of 2025, which aims to modernise the current system that is often decentralised and inconsistent across municipalities.
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South Africa could significantly boost economic growth and job creation by cutting red tape and modernising the country’s business licensing system, according to new analysis from the International Monetary Fund (IMF).
In a country focus note released on Wednesday, IMF economists said the country’s complex regulatory environment is holding back private investment and placing a heavy burden on companies, particularly small and medium-sized enterprises that play a crucial role in employment.
The IMF noted that despite showing some resilience in 2025, South Africa’s economic growth remains too weak at 1.1% to meaningfully reduce unemployment, which remains above 30% overall and far higher among young people.
“South Africa’s economy has shown resilience, but growth remains too low to significantly reduce unemployment,” said Tidiane Kinda, the IMF’s senior resident representative in the country.
Kinda said improving the business environment must become a central pillar of South Africa’s reform agenda if the country wants to stimulate private investment and accelerate job creation.
“Operating a business in South Africa—especially dealing with licensing and permitting requirements—is significantly more burdensome, fragmented and costly than in peer economies,” he said. “These constraints deter investment and stifle innovation.”
The IMF’s analysis, which draws on firm-level data from South African businesses as well as international comparisons, found that regulatory complexity has grown over time and now ranks among the highest relative to comparable emerging market economies.
Business leaders are spending an increasing share of their time navigating government regulations instead of focusing on growing their companies.
According to the research, this regulatory burden has measurable economic costs. Firms whose managers spend more time dealing with compliance issues experience slower sales growth, weaker employment growth and lower productivity.
“Even small increases in the time managers devote to regulatory compliance can have a noticeable effect on job creation,” said Nasha Mavee, a local IMF economist who co-authored the analysis.
“Our findings show that a one percentage point increase in management time spent dealing with regulations is associated with roughly a one percent reduction in job growth,” Mavee said.
The impact is even more pronounced for small firms. Businesses with fewer than 20 employees face almost double the productivity impact from regulatory burdens compared with larger companies.
This is particularly concerning, the IMF said, because small and medium-sized businesses account for a large share of job creation and entrepreneurial activity in South Africa.
The report argues that a comprehensive overhaul of the country’s licensing and permitting framework could go a long way toward improving the situation.
One opportunity lies in the proposed Business Licensing Bill of 2025, which aims to modernise the current system that is often decentralised and inconsistent across municipalities.
The government is pushing ahead with the Bill despite mounting opposition from business groups, civil society organisations, and small business owners who warn it could stifle entrepreneurship and deepen red tape.
Kinda said a simplified national framework could reduce duplication, shorten processing times and provide more predictable rules for businesses.
The IMF also recommends the creation of a single digital platform where companies can apply for and track licences across different levels of government.
“Clearly delineating responsibilities and adopting a centralized digital platform for licence applications would reduce duplication, increase transparency and speed up approvals,” Kinda said.
Other reforms could include introducing risk-based licensing rules—allowing low-risk businesses to operate with minimal regulatory requirements—while strengthening enforcement for higher-risk sectors.
The IMF also called for special measures to make it easier for micro-enterprises and informal traders to enter the formal economy, including simplified licensing requirements and digital onboarding.
These reforms would complement broader structural changes already under way, including electricity and logistics reforms under Operation Vulindlela.
If implemented effectively, the IMF estimates that reforms closing even half the gap between South Africa and emerging-market best practices in areas such as business regulation, governance and labour markets could lift economic output by as much as 9% over the medium term.
That would raise annual growth from roughly 2% to around 3%—a shift the IMF says could make a meaningful dent in unemployment.
“Durable growth that decisively reduces unemployment will require a decisive shift toward business-friendly structural reforms,” Mavee said.
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