Foundations for Growth and Competitiveness 2026

South Africa

South Africa has significant scope to boost economic performance, after a decline in GDP per capita over the past decade. Educational outcomes are low, and labour productivity is limited. The large gaps in employment rates vis-à-vis the OECD average have further widened since the pandemic. Investment as a share of GDP has fallen from around 29% over the 2000s to 9.5% in recent years, leading to supply bottlenecks and limited potential growth.

Easing regulatory barriers for businesses, ensuring a level-playing field and boosting the efficiency of state-owned enterprises would support job creation, investment and productivity, improve resource allocation and reduce risks to fiscal consolidation. Improving access to, and the quality of, education and training would help reduce skills shortages and boost labour productivity. Ensuring the swift implementation of electricity and climate policies would support energy security and climate goals while reducing air pollution.

Economic performance

Gaps to the average of the upper half of the OECD countries

Source: Panel A: OECD, Economic Outlook database; Panel B: OECD, Labour Force Statistics database; Panel C: OECD, Economic Outlook and Productivity databases; Panel D: OECD, Economic Outlook and Annual National accounts, GFCF by assets databases.

Selected policy gaps

Source: OECD calculations based on the Foundations for Growth and Competitiveness database.

Infrastructure: Transform the electricity, rail and water sectors

Investment shortfalls weigh on potential growth. Declining electricity generation has led to recurrent outages, notably over 2019-2023, and electricity access is not yet universal. Degraded rail infrastructure has reduced train services, adding pressures to lengthy commutes, the cost of doing business and emissions. The water supply system is under strain. Municipality’s unsustainable financial model, which relies on electricity revenues, has resulted in them underinvesting, notably in the electricity and water sectors.

Recommendations

✓ Strengthen fiscal space for public investment by increasing the VAT rate and recurrent property tax collection, reducing tax expenditures and enhancing the efficiency of the tax administration.

✓ Increase local government investment by revising the municipal funding and managerial model, including by earmarking electricity revenues for investment, considering concessions and building technical capacity.

✓ Attract private investment by continuing reforms to network industries, including through increasing competition, establishing a level playing field and improving the management of state-owned enterprises.

Regulation: Encourage dynamic firm entry, growth and exit and job creation

The economy-wide Product Market Regulation indicator suggests that South Africa’s regulation is the most restrictive amongst OECD and five other G20 emerging-market economies. Firms face significant barriers to expand and create jobs, particularly SMEs, which have relatively less capacity to deal with complexity. Public procurement rules create unnecessary burdens, limiting the ability of smaller firms to participate. The insolvency regime is relatively inefficient, limiting the reallocation of capital and labour.

Recommendations

✓ Use plain language in drafting laws and regulations, create an inventory of all permits and licences businesses need and introduce a “silence is consent” rule where appropriate.

✓ Require contracting authorities to consider dividing public procurement contracts into lots and make the time allotted to bidders and entry requirements proportional to the value or complexity of the tender.

✓ Ease barriers to firm restructuring, including by removing the requirement for management to be dismissed during restructuring and the priority of new financing over secured creditors.

Governance: Improve the efficiency of state-owned enterprises

South Africa has a higher scope of public ownership than most OECD and emerging economies, with many state-owned enterprises (SOEs) operating in heavily regulated network industries. Significant inefficiencies have reduced electricity and freight services and weighed on emission reductions. SOEs weak governance has led to frequent fiscal transfers, yet these have been insufficient to maintain infrastructure. The State Capture Commission revealed widespread corruption in public entities, but prosecution has been slow.

Recommendations

✓ Restructure SOEs to ensure their financial sustainability, enhance SOE management and establish a holding company with international governance standards.

✓ Accelerate the unbundling and restructuring of certain SOEs, notably the electricity utility Eskom and railway utility Transnet.

✓ Strengthen the prosecution process and better enforce sanctions for corruption offences.

Education and training: Enhance infrastructure, vocational training, and tertiary funding

Despite significant progress in recent decades, educational outcomes are low and unequal. Some schools suffer from overcrowded classrooms and lack basic infrastructure, learning materials and access to ICT equipment. Enrolment in higher education and graduation rates are low, severely constrained by insufficient university infrastructure and high costs per student. Technical and vocational education and training fail to align with the skills demanded.

Recommendations

✓ Continue to address basic infrastructure needs in schools and ensure access to sufficient learning materials.

✓ Modify the funding of tertiary education to better account for the number of students, their socio-economic backgrounds and performances.

✓ Enhance collaboration between vocational education providers, industry stakeholders and regional development agencies.

Energy security: Expand electricity supply

Electricity shortages have weighed on economic growth in recent years. While shortages have eased, supply remains well below historical averages, constraining potential growth and incentives to invest. The share of renewable electricity generation has increased, helping to ease tensions, but remains low, partly due to barriers to entry in generation and distribution segments. Insufficient transmission capacity risks limiting progress towards energy security.

Recommendations

✓ Reduce the gap between renewable electricity auction rounds, streamline selection criteria of bidders, and consider phasing out recent tariff increases on solar technologies.

✓ Expand the transmission grid through focusing most public investment in the sector towards this objective and leveraging private finance through Independent Power Transmission projects.

✓ Establish a competitive wholesale electricity market to ease the entry of renewable producers by concluding the reform of trading rules to ensure market integrity and a level playing field.

Recent progress on structural reforms

Under Operation Vulindlela, the government has accelerated the implementation of selected high-impact reforms to drive economic growth and job creation. The first phase focused on supporting electricity supply, a competitive and efficient freight logistics system, a stable quality water supply, a lower-cost and higher-quality of digital communication and a visa regime that facilitates skilled immigration and tourism. The second phase is currently focusing on local government, spatial inequality and digital transformation.