Remarks by Angel Gurría
Pretoria, South Africa, 24 July 2017
(as prepared for delivery)
Good morning Minister Gigaba,
Ladies and gentlemen,
It is a great pleasure to be back in Pretoria to launch our fifth Economic Survey. South Africa is a Key Partner of the OECD, and in many respects it spearheads our co-operation with Africa.
Over the last two decades, South Africa has mas made huge progress. It has widened access to key public services to millions of citizens, notably education, health, housing and electricity. Enrolment in primary school is now universal for both boys and girls. Almost 90% of households have access to piped water and 84% have access to electricity. An ambitious policy of redistributive grants has also been put in place, lifting a large share of the population out of poverty.
This progress has been underpinned by a sound framework for macroeconomic policy. The conduct of monetary policy in South Africa is aligned with best practices in OECD countries, including an independent, inflation-targeting central bank. Fiscal policy is following a moderate consolidation path justified by the need to limit the growing public debt and maintain the confidence of financial markets.
Despite these important achievements, South Africa also faces challenges. Last year, low investment and the drought reduced GDP growth to 0.3%. Given persistently low business confidence, we forecast GDP growth to remain sluggish at 0.6% this year and to pick up moderately at 1.2% next year.
South Africa remains a highly unequal society. The low employment rate, especially for black South Africans, contributes to high income equality. When inequalities are high, when there remain unmet needs in education, health, and infrastructure, and when there is lack of transparency in the conduct of public affairs, this feeds frustration, as well as perceptions of corruption.
Looking ahead, more needs to be done to achieve growth that is both strong and inclusive. At the OECD, we have a dedicated initiative on Inclusive Growth that is looking at how tackling high inequalities of opportunity can increase the productive capacities of our economies.
The OECD’s 2017 Economic Survey of South Africa 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.
In advance of this visit, we published a report entitled Getting Skills Right: South Africa. Among other suggestions, it highlights the importance of targeting financial incentives for skills development in those areas that are in high demand. It also looks, among other issues, at how information about skills needs can be improved, and at opportunities to improve work-based and life-long learning.
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.
Dear Minister, ladies and gentlemen,
In each of the areas I have just described, our Economic Survey goes beyond the diagnosis to make some recommendations.
First, when it comes to financing higher education, we have highlighted the potential role for students to contribute based on their future revenues. Based on other countries’ experience, we believe it would be reasonable. A financing mechanisms involving banks, government, and students could help to achieve this, without the government needing to advance funds. In addition, we have suggested that developing an effective vocational system will help to address South Africa’s skills shortages and redirect young people back into training.
Second, we understand that a new National Minimum Wage Commission will review the minimum wage annually once it is introduced. Independent experts can and should play a role in this process, helping to ensure that adjustments take into account economic conditions, inflation, productivity growth and employment effects.
Third, when it comes to harnessing the regional integration I mentioned earlier, it will be important that tariff and non-tariff barriers are tackled. This means simplifying and harmonising customs procedures, harmonising transport regulations, and developing regional infrastructure.
Finally, I should say a word about SMEs. I have mentioned the impact that tackling regulatory burdens and entry barriers can have on the competitiveness of these firms. Re-focusing black economic empowerment programmes towards fostering black entrepreneurship could unleash enormous potential. Public procurement is also being used to support small businesses by increasing their access to markets, and further steps could be taken to enable them to participate more easily in such public procurement procedures.
In short, South Africa has come a long way. Implementing reforms will, as always and everywhere, be difficult. But they will be worth the effort.
Minister Gigaba, ladies and gentlemen,
Let me assure you that the OECD stands ready to work with South Africa and for South Africa in the pursuit of our common goal: Better Policies for Better Lives.