South Africa: radical reform needed to revive growth, says OECD

By:

Mark Smulian

24 Jul 17

South Africa’s economy has registered tremendous progress over the past 20 years but needs wide-ranging structural reforms to revive economic growth, a report from the Organisation for Economic Co-operation and Development has said.

Its OECD Economic Survey of South Africa said the country should look to competition, better skills training and more vigorous entrepreneurship given the limited scope for monetary or fiscal policy action to boost growth.

It said South Africa should open key economic sectors to more competition, including in telecommunications, energy, transport and services.

The economy was hamstrung by skill shortages and mismatches that formed bottlenecks to growth.

Access to higher education was limited, and the OECD called for a universal student loan scheme contingent on future earnings.

It also urged the country to proceed with the planned introduction of a national minimum wage, with wider development of apprenticeship and internship programmes to increase the numbers of young people in the labour market.

Action was needed to tackle the low level of entrepreneurship compared with other emerging economies, and red tape remained an obstacle to creating small businesses.

Economic integration between South Africa and its neighbours had made little progress despite this offering “substantial opportunities”, the OECD noted.

Trade between member states of the 15-strong Southern African Development Community amounted to only 10% of total trade, compared with about 25% in the Association of South East Asian Nations region and 40% in the European Union.

Obstacles to increased trade included non-tariff barriers, customs procedures and rules on country of origin.

On a visit to South Africa, OECD secretary-general Angel Gurría said: “South Africa has accomplished many great things in the past two decades, but building stronger and more inclusive growth will require bold action from policymakers.

“Ensuring a better future for all South Africans will require increased access to higher education, a stronger and fairer labour market, deeper participation in regional markets and a regulatory framework that fosters entrepreneurship and allows small businesses to thrive. Many of the necessary reforms will be difficult, but the rewards will be worth the effort.”