Productivity and long term growth
Going for Growth 2014: South Africa
South Africa has experienced a relatively weak recovery from the great economic crisis compared to other BRIICS countries. Major policy challenges for boosting economic growth include high market concentration in product markets, especially in network industries, low educational attainment, persistently high unemployment hurting youth and low-skilled most, and widespread informality which contributes to strong labour market duality.
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Previous Going for Growth recommendations include:
- Increase provision and efficiency of education by improving teaching quality and infrastructure, as well as access to basic education and to vocational education and training.
- Enhance competition in network industries by applying rigorously competition law to state-owned enterprises and pursuing reforms in electricity, telecom and transportation industries.
- Address the complexity and administrative burdens of regulations through systematic reviews to reduce barriers to entrepreneurship.
- Strengthen active labour market policies targeted to youth employment such as wage subsidy and job-placement assistance.
- Reform the wage bargaining system by reducing administrative extension of collective bargaining in order to boost employment.
Actions Taken: Notable reforms in these areas over the past two years include:
- The Employment Tax Incentive Act which encourages youth hiring through tax break came into effect January 2014 and effectively allows employers to use the tax incentives for new hires on or after 1 October 2013.
The report also discusses possible impact of structural reforms on other policy objectives (fiscal consolidation, rebalancing current account and reducing income inequality). In the case of South Africa, the youth wage subsidy is likely to help reduce inequality through job creation, but puts pressure on the fiscal balance.