Remarks by Angel Gurría
On the occasion of the launch of the 2017 OECD Economic Survey of South Africa
South African Institute of International Affairs, 24 July 2017
(as prepared for delivery)
Good afternoon ladies and gentlemen,
It is a great pleasure to be back in Pretoria, where I launched our fifth Economic Survey of South Africa earlier today. Allow me to thank Elizabeth and the team at SAIIA for hosting us here today.
As professional observers of international affairs, you are all acutely aware that our discussion today is taking place against an uncertain global backdrop. In 2015, the adoption of the 2030 Agenda and the SDGs, the Paris Agreement, and the Addis Ababa Action Agenda, all marked important steps forward for international co-operation, as did the critical steps taken by the G20 to curb tax evasion and avoidance.
However, citizens and taxpayers continue to see the gap between the haves and the have-nots widening, fuelling discontent, mistrust in government, and dissatisfaction with globalization in all its forms. This is contributing to a wave of protectionism, populism, and anti-globalisation sentiment that is threatening the progress we made.
And while the outlook for the global economy has improved slightly – confidence indicators and industrial output are on the rise again in many countries – wage growth is still weak, inequality persists, and imbalances and vulnerabilities in financial markets remain.
Last month, we released the OECD Economic Outlook. It shows a modest pick-up in global GDP growth, projected this year at 3.5 per cent, with an upturn in trade and investment intensity and improving outcomes in several major commodity producers.
One of the central messages of our global Economic Outlook is that collective and co-ordinated responses are needed. And this includes in the area of trade policies, which are vital for sustaining the global recovery.
Trade has been a powerful engine of global economic growth and convergence in living standards between countries. It has helped cut poverty, create new markets, and spread technology and ideas. But trade policy can’t fix everything on its own – and economists and policymakers should stop pretending it can.
The OECD does not champion trade for trade's sake, but as a way of improving people's lives. We have to ensure trade works for all, by providing the right policy settings. Of course we have to regulate efficiently and fairly to promote competition, keep credit flowing, protect the rule of law and make it cheaper and easier for SMEs to trade. But we also have to invest in clean, smart infrastructure, which fosters synergies with inclusive and sustainable growth. And, crucially, we must empower people with education and skills to pursue opportunities in a changing and globalised work environment. This should be delivered with social protection systems that get people back on their feet and prevent lasting hardship.
This is part of promoting the right kind of globalisation, which we discussed in June at the OECD Ministerial Council Meeting (MCM) on Making Globalisation Work: Better lives for all, with South Africa, as a Key Partner around the table. We need to foster a globalisation that benefits all not just the few, and a globalisation that prevents a race to the bottom in terms of standards, particularly when it comes to labour standards and the environment.
Tax is another area in which we have made huge progress in levelling the international playing field. At the MCM, 76 jurisdictions, including South Africa, came to a ground-breaking ceremony at the OECD to sign the Multilateral Convention to Implement Tax Treaty Related Measures related measures to prevent Base Erosion and Profit Shifting. It’s a mouthful to pronounce, but it is another important example of collective action that helps put an end to abusive practices, and that helps make sure that everyone pays their fair share. Every month, more countries are signalling their interest in joining.
How do we see Africa’s role and performance in this global context? Well, first of all, with a lot of prudence. The OECD understands the economic plurality and cultural diversity of this huge continent. We know that talking about Africa as a single unity or an integrated region entails many risks and can easily lead to misinterpretations.
For example, the region’s average real GDP growth has been slowing down year after year since 2013, reaching 2.2% in 2016, in contrast with the 4.7% average growth of the period 2008-2012. But if we look closer, at a sub-regional level: East Africa grew by a buoyant average of 5.3% in 2016 and North Africa by 3%, in contrast with West Africa and Southern Africa where growth reached only 0.4 and 1.1% respectively.
Our 2017 African Economic Outlook foresees a rebound in 2017 and 2018, assuming that the recovery of the world economy and commodity prices is sustained. But also assuming that domestic macroeconomic reforms are entrenched. This is essential.
Most African nations need to keep implementing structural reforms to build the necessary environment for the promotion of national and international investment and local development initiatives. For many of these economies it is important to break their overdependence on exporting commodities, improving their frameworks and infrastructures and supporting their enterprises (both public and private) to better integrate into global value chains.
Thus it is crucial to develop national and even subnational skills strategies, better transport and logistic networks, and bottom-up national development plans, well-cemented by ambitious reforms to promote innovation and entrepreneurship and strengthen competition, law and order and integrity systems. As the experience of South Africa reveals, making progress in these areas is essential to promote stronger regional economic integration. In a continent with the dimensions of Africa, sub-regional integration is essential to make the most of its diversity and complementarities.
Take the experience of Southern Africa. This is a group of countries with enormous potential to develop a single integrated regional market. Seven out of 15 countries in Southern Africa are landlocked, and the number of small countries means many fragmented markets. That is why it made good sense to establish a free trade area among the members of the Southern African Development Community (SADC) in 2008. But free trade agreements sometimes are not enough to trigger integration.
In fact, SADC intra-regional trade has increased only modestly since 2008, reaching just 10% of total trade. This is low compared to around 25% in the ASEAN, or 40% in the European Union. So it is crucial to make integration happen. This will increase the attractiveness of the region as an export platform for foreign investors, boosting growth and job opportunities.
South Africa in particular would stand to benefit. SADC is already the largest export market for South Africa, at 25% of exports, as well as a major investment destination. South African firms tend to be better equipped than others in the region, have better access to capital, and can attract highly skilled workers. Our analysis of value chains in the region also illustrates how South Africa could benefit from deeper regional integration, as well as highlighting the locomotive role played by South Africa. The expansion of South African super-markets across the region and the value chains they bring with them is an example. Another example is the regional poultry value chain.
But we need to be careful. While free trade agreements can help boost trade and investment, they can also concentrate economic activity in traditional business centres, leaving many people disconnected from the positive dynamics of integration. It is therefore essential that any regional integration schemes or programmes are focused on inclusive growth. It is crucial to empower the population and the SMEs to help them make the most of integration.
We believe that South Africa is well placed to bring leadership in these and other issues.
The challenges I have just described are significant. South Africa is a leading emerging economy and we thus look to it to play a leading role in shaping the global and regional economic agenda.
As one of OECD’s five Key Partners, our relationship with South Africa lies at the core of our work with the African continent as a whole. South Africa and other countries in the region participate actively in the work of OECD committees and projects. We are working closely to support governments and stakeholders in a range of policy areas, from trade and investment, to tax, employment and education.
Our annual OECD African Economic Outlook – already in its 16th edition – and the International Economic Forum on Africa held regularly in Paris, the OECD-NEPAD Investment Initiative, and the joint OECD-UNDP initiative Tax Inspectors Without Borders are just a few of the projects that exemplify our growing engagement with Africa.
Our Director for Global Relations, Andreas Schaal, will be happy to comment further on this very special partnership.
We are privileged to work closely with regional institutions too: we are currently partnering with SADC on a Regional Investment Framework and on Regional Guidelines for State-Owned Enterprise Governance and Reform in Southern Africa, and we work hand-in-hand with African policy networks, such as the African Competition Forum and the African Tax Administration Forum.
The potential benefits are huge, and they go both ways. We stand ready to put the evidence, the experiences, and the tools of the OECD at the disposal of countries in the region as they pursue their domestic and regional reform agendas. And we are also acutely aware that in doing so, the OECD stands to learn from Africa, enriching the work of the Organisation further. In all of these efforts, South Africa will be crucial in our joint quest for Better Policies for Better Lives. Thank you.