OECD Economic Surveys: South Africa 2017

The OECD has published its fifth economic survey of South Africa, OECD Economic Surveys: South Africa 2017.  This survey "identifies some of the foundations for inclusive growth in the future: more access to higher education; a more integrated labour market; expanding regional markets; and efforts to promote entrepreneurship and SMEs. Allow me to address each of these in turn.

First, low growth has kept unemployment high at 27%, and in-work poverty also persists. The co-existence of several sector minimum wages and bargaining councils, and the extension of wage agreements, have contributed to a fragmented labour market and difficult wage negotiations. I welcome the initiative of the South African authorities to introduce a national minimum wage to reduce poverty among workers and make growth more inclusive. 

Second, recent calls from students for free education highlight the importance of education financing, as does the skills shortage in the South African labour market. Enrolment in higher education has expanded significantly over the past five years. Nevertheless, there is scope to broaden access to less privileged groups. At the same time, universities face rising cost pressures.

Third, regional economic integration can play an important role in boosting growth and creating jobs in the region. Seven out of 15 countries in Southern Africa are landlocked. The Southern African Development Community (SADC) is already the largest export market and a major investment destination for South Africa. Economic integration has nevertheless been slow. SADC intra-regional trade – now about 10% of total exports in the region – remains modest. (For comparison, this figure is around 25% in the ASEAN, or 40% in the European Union.) South Africa can play an important role in boosting regional integration in SADC, and South African firms would be well placed to benefit from this.

Finally, the South African authorities have rightly identified a key role for SMEs in generating growth and employment opportunities. Delivering on this will mean deepening efforts to tackle the barriers to entrepreneurship. SMEs face the burden of heavy and frequently changing regulations, many challenges in access to credit, insufficient infrastructure, and lack of skilled workers. Earlier OECD studies have recommended reforms to improve regulatory and competition policies, as well as education and skills.

Addressing most of these challenges will require more public and private investment. Resources are also needed for other spending such as health and infrastructure. And in the medium term, fiscal consolidation must continue, to contain public debt increases.

Our Survey suggests that more effective government spending would increase fiscal space. Efforts are already underway to modernise public procurement, which is encouraging. Efforts to limit government wage bill increases, as well as to redeploy civil servants to high-need sectors such as health and education, could also help."

(Available in the OECDiLibrary, http://www.oecd-ilibrary.org/economics/oecd-economic-surveys-south-africa-2017_eco_surveys-zaf-2017-en)