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Published on 15 July 2008.
See remarks by Angel Gurria, OECD Secretary-General.
An Economic Assessment of selected, globally important non-member countries is prepared as part of the Organisation's outreach on a case-by-case basis. The focus is on the macroeconomic and structural developments which most likely constitute barriers for the long-term sustainability of growth and therefore require policy attention. Read more about how Economic Assessments are prepared. The OECD's conclusions concerning the main economic challenges faced by South Africa are available by clicking on each chapter heading below.
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Chapter 1: Achieving Accelerated and Shared Growth for South Africa
This Chapter presents an assessment of South Africa’s development strategy, the Accelerated and Shared Growth Initiative for South Africa (AsgiSA). Its main conclusions are as follows:
The formulation of AsgiSA was in many ways an impressive process. The government consulted widely with social partners and sought international expert opinion on economic development. The strategy first identified a limited number of constraints to faster and more broadly shared growth, and then outlined a set of policy interventions to remove those constraints. AsgiSA set targets for growth for 2006 10 and 2011 14 aimed at meeting the government’s previously determined objective of halving unemployment and poverty by 2014.
Success on the growth front has already been achieved. Real GDP has risen by 5% a year since 2004, exceeding the AsgiSA target of 4½% for this period. But despite this outperformance on growth, the reduction of unemployment and poverty, despite some progress, has lagged.
• The diagnosis of the constraints to growth is broadly sensible, although the concern with rand overvaluation and exchange rate volatility may not warrant the same prominence as other factors. At the same time, the list might have been longer; some major issues with serious economic consequences, such as HIV/AIDS and crime, were not touched in AsgiSA.
Where AsgiSA is less convincing is in the mapping from constraints to interventions. While much of the diagnosis of constraints concerns obstacles facing firms in entering markets, policy responses are predominantly state-oriented, and some may frustrate the objective of strengthening competition. Moreover, the emphasis on government investment, initiatives and programmes is at odds with the finding that limited public capacity for policy planning, implementation and coordination is a major constraint.
In addition, AsgiSA could do more to recognise the synergies between different policies that would expand opportunities for the historically disadvantaged black population. For example, there are complementarities between the pro-competitive measures in product markets and policies to facilitate mobility in labour markets, which would permit the economy to generate more jobs in the face of cyclical upturns such as the one underway since 2004.
Chapter 2: Reforming goods and services markets in South Africa
This chapter examines the potential role of competition policy in enhancing long-term productivity growth in South Africa. Different sets of measures indicate that the level of market concentration, albeit decreasing, has remained relatively high. To a large extent, an excessive monopolisation of the economy is a lasting legacy of the apartheid regime, which manifested itself during the period of forced import substitution. While the authorities primarily emphasise market-oriented responses to overcome these distortions, state interference in the economy remains extensive and is widely perceived as a viable development path. Empirical evidence shows unambiguously, however, that South Africa would reap large benefits from increased domestic and foreign competition.
The chapter therefore investigates the role of regulatory and institutional reform in reducing barriers to entry, exit and growth. More precisely, it uses the OECD's methodology to calculate an indicator of Product Market Regulation (PMR) to assess the degree to which government regulation in markets for goods and services promotes or inhibits competition. The main conclusions that emerge are that the overall burden of regulation is relatively heavy by OECD standards and that state ownership and interference impose high barriers to entry in many areas. In particular, the lack of competition and uncertain decision-making process in network industries impede their efficient development in terms of productivity and innovation, with negative spill-over effects for the whole economy.
These findings highlight the potential contribution of a competition-enhancing regulatory reform to South Africa's long-term economic prospects. The support for such a policy line, clearly expressed in AsgiSA, needs therefore to be reasserted and translated into a comprehensive policy strategy: given the complementarities that exist among different elements of regulatory reform, the creation of a broad, coherent and systematic framework for the conduct of regulatory policy would allow the synergies of product market reform to be reaped.
Chapter 3: Realising South AFrica's employment potential
Unemployment in South Africa is extremely high and very unevenly distributed, being concentrated among young less-skilled blacks. The sharp increase in unemployment in the 1990s was driven by a surge in the supply of less-skilled labour, accompanied by a failure of labour demand to keep pace. Growth of the working-age population and the release of pent-up pressures for labour force participation in the majority black population explain the big increase in the supply of less-skilled labour, while negative demand shocks in labour-intensive sectors were an important factor in the slow growth of demand. The combination of these factors means that market-clearing would have required a substantial fall in real wages in the decade after 1994, especially for less-skilled workers. Although some decline in real wages does appear to have taken place, this was insufficient to prevent the jump in unemployment – union power and other features of the labour market prevented a much larger downward move in real wages.
Legacies of the apartheid era can explain at least part of the increase in labour supply and the inability of the economy to absorb it. More could have been done, however, to unwind those legacies, and other features of policies and institutions have contributed to the labour market dysfunction. The failure of unemployment to fall more decisively during the period of robust growth since 2003 suggests that structural factors have been impeding the efficiency of the labour market.
While improvements in the implementation of employment protection legislation could help reduce unemployment, it is probable that bigger gains could be reaped in other areas. Changes in municipal laws and regulations to ease urban migration and facilitate informal employment are likely to be particularly important. Over the longer term, improvements in basic education will be key to reducing the excess supply of less-skilled workers. Efforts to tackle crime could help reduce the brain drain and attract skilled immigrants, which would likely boost labour demand for less-skilled workers via complementarities. And improvements in product market regulation to strengthen competition could help expand formal sector employment.
In the near term, the overriding priority is reducing unemployment. Without further increases in labour force participation rates, however, even cutting the unemployment rate to single digits would leave employment rates very low by international standards. In the longer term, further major benefits can be reaped from raising employment rates towards advanced country levels. Attention may have to shift to delivering continued increases in labour inputs, in order to ensure sustainable economic growth and lasting reductions in poverty and inequality.
How to obtain this publication
The Policy Brief (pdf format) can be downloaded in English. It summarises the OECD assessment. The complete edition of the Economic Assessment of South Africa 2008 is available from:
For further information please contact the South Africa Desk at the OECD Economics Department at firstname.lastname@example.org. The OECD Secretariat's report was prepared by Geoff Barnard and Christian Gianella under the supervision of Andreas Wörgötter. Research assistance was provided by Corinne Chanteloup.