Lilas Demmou
Nikki Kergozou
OECD Economic Surveys: South Africa 2025
Abstract
South Africa’s labour market faces significant challenges, with the lowest employment rate and the highest unemployment rate among OECD and G20 countries. The exceptionally high unemployment rate combined with low worker engagement in the informal sector compared to peers reflect significant barriers to labour market participation, leading to widespread exclusion. The transition from the coal sector is exacerbating labour market challenges in some regions. Job creation and inclusion depend on business dynamism and workers’ ability to connect with suitable employment. This chapter examines how regulatory barriers in the labour and product markets and transport and urban planning, limit employment. Addressing these challenges calls for policies that foster firm growth by reducing regulatory burdens, better connecting workers to jobs by reducing urban sprawl and commuting costs and enhancing the reallocation of workers by scaling up active and passive labour-market policies—such as career guidance, training and mobility support.
Many South Africans struggle more to access the labour market than their peers in other economies, with South Africa displaying distinct patterns compared to OECD and G20 emerging-market countries. At 40%, South Africa's employment rate is among the lowest globally, remaining well below its pre-pandemic level and the G20 emerging-market average of around 60% (Figure 2.1, Panel A). Meanwhile, its unemployment rate exceeds the group’s average by around 25 percentage points (Panel B). Additionally, the share of employees working informally is significantly lower than in peer countries, estimated at 18% by Statistics South Africa and 34% by the ILO (Figure 2.3). This means that unlike in most other emerging economies, where those excluded from formal employment often turn to informal work, South Africans in that situation are more likely to remain unemployed. This signals a high level of exclusion from labour market participation, suggesting that many people do not work at all.
Note: G20EME is the unweighted average of Argentina, Brazil, China, India, Indonesia, Mexico, Russia, Saudi Arabia, South Africa and Türkiye.
Source: OECD Economic Outlook database; OECD Labour force Statistics database; World Bank, World Development Indicators database; and Statistics South Africa.
South Africa's poor labour market outcomes are rooted in both demand- and supply-side challenges, driven by weak economic growth, and some restrictive product market and labour policies. Sluggish economic growth, worsened over the past five years by deteriorating infrastructure and corruption, which intensified in the previous decade, have severely constrained business operations and job creation (see Chapters 1, 3 and 4). The labour market's institutional framework struggles to effectively balance employers' needs for flexibility with workers' demands for job security, fair wages and adequate support during job transitions. The restrictive regulatory environment and high market concentration stifle competition and hinder job creation. This is particularly the case for micro, small and medium-sized enterprises (MSMEs), which employed 59% of South Africa's workforce in 2022, well below the OECD average of 69% in 2020 (Small Enterprise Development Agency, 2023[1]; OECD, 2023[2]).
Beyond insufficient job creation, connecting workers to employment opportunities remains a pressing issue. Urban sprawl and the legacy of apartheid-era spatial planning result in high transport costs and lengthy commutes, further restricting access to jobs and exacerbating mismatches in the labour market. Finally, new challenges are emerging, notably the anticipated job losses associated with the green transition and the need to reallocate coal-mining workers to alternative employment opportunities.
To address the multi-dimensional sources of poor labour market performance, a multipronged answer is needed. First-best policies should prioritise boosting formal employment by establishing labour market friendly institutions, a business regulatory environment supportive of firm creation and expansion, education and training policies supporting upskilling as well as housing and transport policies easing access to job opportunities. At the same time, national authorities and municipalities could consider policies aimed at easing restrictions on informal work while providing incentives for formalisation.
This chapter analyses key barriers to job creation and matching between employers and employees, and potential policy responses. The first section addresses labour market challenges and related policies, building partly on insights from the 2022 Economic Survey. It also explores policies to support workers’ reallocation in response to job losses resulting from the decommissioning of coal-power plants. The second section examines how regulatory restrictions impacting competition and barriers to entrepreneurship impede growth, business dynamism and job creation. The third section explores how shortcomings in transport and urban planning restrict workers’ access to job opportunities.
Weak overall labour market outcomes conceal large differences between individual characteristics and geographical locations (Figure 2.2). For example, the difference in the unemployment and employment rate from the national average can vary by around 15 percentage points for certain regions and 30 percentage points for young people. These 15-24-year-olds make up almost 25% of the working-age population, highlighting that the barriers they face in entering the labour market are a key factor contributing to weak overall labour market performance. The average unemployment rate for black South Africans is almost 30 percentage points higher than for white South Africans, highlighting significant differences in economic opportunities.
Source: Statistics South Africa.
2.1.1. Establishing institutions that support a thriving labour market for all
The 2022 Economic Survey of South Africa analysed the role of various labour market institutions on outcomes, such as the minimum wage, collective bargaining and in-work benefits (OECD, 2022[3]). The analysis highlighted several challenges, and especially the need to ease some rigidities in the labour market while significantly increasing the support to workers and those who are unemployed.
Wage-setting practices are ranked among the most rigid globally. Wage bargaining is often confrontational and occurs at a relatively high industry-wide level. The automatic extension of terms negotiated between larger firms and unions to smaller firms could negatively impact employment in SMEs. Additionally, job dismissal can be overly long, uncertain and costly. The government is preparing labour law amendments, aiming to revise regulation on dismissals, retrenchments, collective bargaining and strike action.
Work does not appear to pay enough. South Africa introduced a national minimum wage in 2019 to combat worker poverty and foster more inclusive growth. Furthermore, low wages give employers little incentive to invest in improved manufacturing methods. The minimum wage is revised annually based on recommendations from the national minimum wage commission. The national minimum wage could potentially apply to nearly half of all wage earners, with full compliance expected to raise the average worker's wage by 65% (DEL, 2024[4]). However, studies suggest that compliance has been low, undermining its intended impact. The government needs to strengthen enforcement while pursuing structural reforms to boost economic growth and productivity and ensure a balanced trade off in necessary minimum wage increases that make work pay without overly straining businesses.
Tax-based initiatives to boost hiring, particularly of young people, have shown limited effectiveness. SMEs hire 60% of the workforce but their uptake of this tax incentive has been minimal, largely due to inadequate information, administrative bottlenecks and the costs associated with claiming the benefit.
Public employment services are under resourced, lacking the personnel to effectively support the millions of job seekers. Additionally, the absence of centralised job vacancy databases also increases job-search costs. Some steps have been taken, for example the “Jobs/Careers Fairs” platform in Cape Town aims to centralise labour demand and supply as well as demand for training. Expanding and strengthening such platforms to cover a larger share of vacancies would significantly improve job matching and labour market efficiency.
Active Labour Market Policies (ALMPs) are numerous and insufficiently integrated and there is insufficient evidence of their effectiveness (World Bank, 2022[5]). Streamlining and increasing their efficiency is key to better support job transitions and job matching. The involvement of the private sector, such as the Youth Employment Scheme, is also welcome to help ensure the programme aligns with their needs.
While important challenges remain, some steps have been taken to address these issues since the previous Economic Survey (Table 2.1).
2.1.2. Addressing the challenge of informality
A distinctive feature of South Africa’s labour market is that beyond the low formal employment rate, the share of people who work informally is relatively low compared to peers such as Indonesia, India or Mexico, and instead appears closer to those observed in some OECD countries, such as Korea and Chile (Figure 2.3). The mirror image of the relatively low informality rate is an exceptionally high unemployment rate. South Africa is unique in that those excluded from formal employment are more likely to be unemployed than working in informal jobs, which occurs in most other emerging economies (Shah, 2022[6]). This signals a high level of exclusion from labour market participation.
Note: OECD is an unweighted average of OECD member countries excluding Australia, Canada, Israel, Japan, New Zealand and the United States.
Source: ILOSTAT, Statistics on the informal economy.
The social transfer system, often blamed for raising workers' reservation wages or discouraging job-seeking, does not seem to provide an explanation. In South Africa, working-age unemployed individuals have not been covered by social assistance until recently. The Social Distress Relief (SDR) grant was introduced during the pandemic to address this gap in the social protection system by covering unemployed working-age individuals, including informal workers. The grant is modest at ZAR 370 (which is below the poverty line) and covers about 13.3% of the population, benefiting mainly young people who have just entered the labour market and are therefore not eligible for unemployment benefits. Likewise, child support grants are also modest (OECD, 2022[3]). The large gap between earnings from formal employment and social benefits suggests that it is unlikely that the system discourages people from searching for jobs (IEJ, 2022[7]).
One explanation behind low informality could be linked to the difficulty to access city centres where there are greater economic opportunities. Under the Reconstruction and Development Programme (RDP), social houses were previously built on the outskirts of areas with high economic activity, forcing informal workers to travel to city centres where business opportunities are more abundant. However, costly and long commutes (see below section on transport) make accessing city centres difficult, and informal traders can travel between 2 and 4 hours to get to trading locations (Asmal et al., 2024[8]). This may reduce the economic gains from informal work.
Another explanation stems from the specific legislative framework governing informality, partly inherited from the apartheid period. Strict laws often hinder self-employment and access to more lucrative markets. Under apartheid, regulations, such as licensing requirements and a ban on street vending, severely restricted Black South Africans from starting businesses. Although these national restrictions were lifted post-apartheid, access to prime trading spaces in central business districts (CBDs) remains tightly regulated. Cities impose uniform, restrictive rules on informal trade, often pushing vendors to less profitable areas like townships, where smaller markets limit businesses’ growth potential (Asmal et al., 2024[8]; Skinner, 2018[9]). Ensuring that zoning restrictions do not unnecessarily limit trading would help those most struggling to access economic opportunities and support inclusive business growth.
Regulation includes obtaining a permit to trade in a particular location and paying a monthly tariff and obtaining a business license and a Certificate of Acceptability to prepare and sell food. Sanction is criminal in the case of violation, resulting in a fine or imprisonment in all the major metropoles. However, these standards and licenses are often unaffordable or overly complex and highly restrictive compared to the approach in most developing countries (Asmal et al., 2024[8]). Reducing digital and financial barriers to applications could lower obstacles for informal businesses. Reforms are underway through the Cities Support Programme (CSP) in the National Treasury, which is launching the City Business Process Optimisation Programme (City BPOP) to streamline regulations and boost business investment and job creation in major cities. Efforts to simplify licensing and improve informal trading permits are being considered as part of this initiative. Additionally, linking administrative and social benefits to business registration and the microbusiness regime could incentivise formalisation.
South Africa has implemented a presumptive tax regime through the Turnover Tax, a simplified system based on a business's turnover (Mas-Montserrat, Colin and Brys, 2023[10]). This regime consolidates multiple taxes (income tax, VAT, capital gains tax and dividends tax) into a single streamlined levy, reducing the administrative burden on small businesses with an annual turnover under ZAR 1 million. Strengthening the regime by integrating social security contributions would provide workers with protection and encourage formal work. To prevent high-earning small business owners from under-reporting turnover, eligibility criteria could be tightened by excluding highly profitable sectors, setting property ownership limits or capping the number of business establishments.
Overall, a key challenge for authorities is to balance expanding economic opportunities with incentivising formalisation through well-designed policies and support mechanisms. These approaches can be complementary when implemented effectively. Governments and municipalities can foster entrepreneurship, better harness productivity and create pathways out of poverty by enhancing support systems, such as improving access to credit, simplifying business registration and further easing tax compliance burdens on small businesses and vulnerable self-employed workers (La Porta and Shleifer, 2014[11]). These measures would stimulate economic activity and lay the groundwork for entry into formal work in the future by putting businesses and employees on a path towards complying with the standard regulations and tax rules as they grow (Mas-Montserrat, Colin and Brys, 2023[10]). For example, the “Micro-Empreendedor Individual” programme in Brazil may provide additional insights to policy makers. The programme reduced micro enterprises’ entry costs as well as their tax rates, leading to significant increases in formalisation (see Figure 2.3, Panel A).
2.1.3. Upskilling the workforce and supporting young people
The labour market is characterised by persistent mismatches between workers' qualifications, fields of study and the available jobs, highlighting a shortage of skilled and semi-skilled workers, which constrains economic growth. Skills shortages mainly result from a lack of quality education. Despite significant progress in recent decades, educational outcomes in South Africa are low and unequal (OECD, 2022[3]). In 2022, 45% of men and 46% of women between 25-64 years old had more than an upper secondary education compared to 81 % of women and 79% of men in the average OECD country.
There are inadequacies in technical and vocational education and training (TVET). An important issue is the system's exclusionary admission criteria as well as its failure to align with the skills demanded by the labour market and a lack of cohesive coordination across programmes. Additionally, more teachers with real-world industry experience and greater use of internships and work placements would better prepare students for the demands of the job market. Making progress in this area will help support a better integration of young people as well as experienced workers transitioning away from coal industries.
Enhancing collaboration between vocational education providers, industry stakeholders and regional development agencies would improve the effectiveness of training programmes, ensuring they are relevant, comprehensive and aligned with the specific demands of the evolving job market. The German vocational education and training (VET) model offers insights on how to strengthen the connection between training and skill needs. Establishing Joint Competence Centres, like Germany's inter-company model (ÜBS), would provide participating firms access to the latest technologies and training methods, while offering continuous feedback to improve and scale training initiatives.
Enrolment in higher education and graduation rates are low, which limits the supply of skills and young people’s labour market outcomes. In 2022, 11% of men and 15% of women aged between 25-34 years old had a tertiary education, slightly below the share in 2017. These shares also remain well below those in the average OECD country of 41% of men and 54% of women. Benefits accrue to those who achieve certain levels of education. In 2019, an individual who completed secondary school had on average 30% more chances to be employed than someone who did not, reaching around 25% for those with a tertiary education (OECD, 2022[3]).
The supply of graduates is severely constrained by the lack of university infrastructure and the high cost per student (OECD, 2022[3]). Public subsidies for low-income students are proportional to tuition fees, creating incentives for universities to set high fees. However, the number of students who qualify for subsidies is higher than the number of seats the Ministry budgets for. Formula-based financing where universities compete for public funding based on a previously determined formula could reduce the cost per student and allow more students to be enrolled and incentivise universities to increase infrastructure.
2.1.4. Improving labour market outcomes for women
South Africa performs well on many gender dimensions. The difference in labour market participation between men and women is much smaller than in many OECD and emerging economies. The World Economic Forum Global Gender Gap Index ranks South Africa 18th out of 149 countries in 2024. South Africa performs well on political empowerment (9th) but less so on economic participation and opportunity (96th). Women still suffer from an elevated level of violence and their access to assets (land for example) and inheritance rights remain unequal (OECD, 2022[3]). There is scope to increase childcare provision, which represents an important barrier to parents, particularly mothers. In 2023, 33.6% of 0–4-year-olds were in some form of formal childcare (General Household Survey, Statistics South Africa). Increasing access to quality and affordable childcare will support mothers to participate in the labour force.
Working women earn over 20% less than men, largely due to occupational differences and overrepresentation in low-skill low-paying jobs (IMF, 2023[12]). Ensuring access to a quality education will help increase access to work opportunities (see above). South Africa’s constitution prohibits pay discrimination by gender. However, policies that enforce the equal pay legislation and support women’s access to higher positions could help increase gender equality (OECD, 2022[3]). For example, in France, firms with over 1 000 employees must publish gender representation across their senior executives and management, with targets on the share of women in senior management and management bodies.
2.1.5. Supporting workers to transition away from the coal mining sector
Climate goals pose significant challenges for various sectors (Chapter 3), particularly for the platinum and coal mining sectors, including job displacement, income losses, reskilling needs and potential relocation. The transformation of the electricity sector towards renewables, with half of its coal plants set to close within 15 years, intensifies these challenges (Chapter 4). A key policy priority is ensuring that coal mining regions create new jobs for dismissed workers and that jobseekers acquire the skills necessary to transition into these roles.
Supporting job creation in coal mining regions
Though the coal mining sector accounts for less than 1% of total employment, 87% of its jobs are in Mpumalanga province, making the regional impact significant (Bhorat et al., 2024[13]). Furthermore, each mining job lost could affect up to four others in related sectors (e.g. retail, restaurants and recreation services) (World Bank, 2020[14]). Against that background, to create resilient transition strategies, consensus among governments, trade unions, social partners and businesses on phasing out certain industries and identifying future economic opportunities for long-term investment is key (OECD, 2023[15]). For example, Germany’s “Coal Commission” (Commission on Growth, Structural Change and Employment) has engaged with key stakeholders to draw up a transition roadmap (OECD, 2025[16]). Australia’s clean energy workforce assessment identified the risks and opportunities for workers in high-emission industries and potential differences in the transition across regions and workers.
Supporting entrepreneurship and MSMEs in regions transitioning away from coal can enhance regional economic resilience (OECD, 2023[15]). Strengthening MSMEs’ capacity through initiatives that foster networks or partnering/mentoring with larger firms, supported by grants or tax benefits, can drive innovation, job creation and economic growth. In Korea, technoparks, established in 1998, have successfully fostered innovation and regional growth. In Germany, the IBA Emscher Park initiative combined public and private resources to launch businesses and climate projects, creating 5 000 local jobs (World Resource Institute, 2021[17]).
Facilitating the geographical relocation of workers to areas with greater economic prospects can also smooth the transition process, in addition to strategies aiming to transform the region's industrial specialisation and create employment opportunities (D’Arcangelo and Galeotti, 2022[18]). This approach helps redistribute workers while mitigating the impact of regional disparities. By aligning workers with emerging industries and growth hubs, relocation policies may accelerate the region’s adaptation to evolving market demands and foster long-term resilience. Support could include grants or low-interest loans for reallocation costs. Access to affordable rental housing in expanding regions and cities, as discussed in the last section, plays a key role in facilitating mobility.
Supporting dismissed workers into other jobs
Aligning job reallocation and training policies will be key to support dismissed workers into new jobs. International evidence suggests that on average workers in non-green jobs have skills that would allow them to transition to green jobs but workers in production roles may struggle (Vona et al., 2018[19]; Tyros, Andrews and de Serres, 2023[20]). The coal industry in South Africa relies on 29% of high-skilled, 63% of mid-skilled and 8% of low-skilled workers (Bhorat et al., 2024[13]). While high- and a portion of mid-skilled workers may transition more easily, industry specific skill losses may require retraining. Low-and part of mid-skilled workers face greater challenges and require more reskilling (OECD, 2025[16]).
Passive and active labour market policies can support the reallocation of coal workers (OECD, 2023[15]; 2025[16]). International experience suggests that substantial unemployment packages have been effective in reducing opposition to change by giving dismissed workers financial security and time to find suitable employment. Public Employment Services can also assist employees to find a new job or transition to a new career through responsive career guidance and job search counselling, working closely with employers and educational institutions to align skills with market needs and future growth sectors. In response to the global financial crisis, a Labour Activation Programmes (LAP) Unit was established in the Department of Labour, funded by the Unemployment Insurance Fund. The programme’s aim was to provide training and reskilling for unemployed workers registered with the Public Employment Services. The programme has increased over time, reaching 69 000 beneficiaries from 33 200 beneficiaries in 2019/20. This programme adds to the myriad of other active labour market policy programmes (World Bank, 2022[5]). Assessing their respective effectiveness and streamlining is key before scaling them up and more generally increasing the resources of employment services, which are under staffed (OECD, 2022[3]).
A thriving economy is characterised by dynamic firm entry, growth and exit, all of which are essential for sustaining long-term economic, innovation and employment growth. Encouraging entrepreneurship and new business creation fuels a competitive environment, which, in turn, benefits from a strong regulatory framework that ensures fair competition. This creates a virtuous cycle, where fair opportunities for growth further stimulate innovation and job creation (Gal and Theising, 2015[21]). Equally important is allowing distressed firms to exit the market smoothly, preventing resources from being locked into unproductive uses. However, South Africa’s private sector has low firm dynamism and is characterised by large firms that account for a large share of employment and revenue. Characterised by the dominance of large SOEs and monopolies, industries are highly concentrated, restricting the growth of small businesses. Job creation is concentrated predominantly in incumbent firms, which are relatively old and large while job creation from entry and exit is negligible (Reyes et al., 2019[22]). As a result, micro, small and medium enterprises employed around 59% of the workforce in 2022, lower than the OECD average of 69% in 2020 (Small Enterprise Development Agency, 2023[1]; OECD, 2023[2]). Micro firms have difficulties to grow, with about two-thirds of South Africa’s MSMEs being self-employed individuals and only one-third with employees (Department of Small Business Development, 2024[23]).
South Africa’s overall regulatory framework does not appear to be conducive to business dynamism. The OECD’s 2023/24 Product Market Regulation (PMR) indicators suggest that the country’s economy-wide regulation is the most restrictive amongst OECD and five other G20 emerging-market economies (Figure 2.4, Panel A) (OECD, 2024[24]). South Africa’s score shows no improvement relative to the previous 2018 update of the PMR indicators. South Africa is far from international best practice in 13 out of 15 low-level indicators that compose the economy-wide PMR indicator (Panel B). Improving the regulatory environment in South Africa has the potential to unlock growth and employment opportunities (Box 2.1). The Survey identifies two broad areas for priority action. Prioritising areas where regulatory barriers could have a significant impact on growth and are furthest away from international best practice would support business dynamism, including simplifying the regulatory framework and easing the administrative burden, further simplifying public procurement and improving the governance of state-owned enterprises (Chapters 1 and 4). South Africa should also accelerate the transformation of energy and the transport sector, including by reducing barriers to entry and strengthening competition (Chapters 3 and 4).
Note: The economy-wide PMR indicator in Panel A is a weighted average of the 15 sub-indicators in Panel B. A higher indicator value reflects more regulatory barriers. G20EME is the unweighted average of Brazil, China, Indonesia, Mexico, South Africa and Türkiye. The indicator for South Africa reflects the laws and regulations in force on 1 January 2023. For some countries, the indicator reflects those in force on 1 January 2024.
Source: OECD Product Market Regulation (PMR) database.
OECD research estimates the impact of some of the key structural reforms proposed in this Survey using a Dynamic Stochastic General Equilibrium (DSGE) model of the South African economy. It estimates a positive impact of pro-competition policy reforms on GDP of around 4.5 percentage points on the level of GDP after 10 years (Table 2.2).
Percentage point deviation in the level of GDP compared to the pre-reform steady state
Source: Fall and Cahu (2022[25]).
2.2.1. Supporting firms’ entry and expansion
Recent studies on firm entry and exit in South Africa are scarce, but some evidence highlights low entry rates and weak SME contributions to job creation, underscoring structural barriers to entrepreneurship. The Global Entrepreneurship Monitor (GEM) survey reveals a decline in business entry since the pandemic, with only 8.5% of adults involved in early-stage ventures in 2022/23, down from 11% in 2019 and below the 14% global average across 49 countries. Similarly, only 10% of adults intended to start a business in the next three years – the lowest in 20 years – compared to higher rates in Brazil (52%), Indonesia (36%) and India (22%) (GEM, 2023[26]).
Easing the licensing and permit regime
Uncertainty around regulation can limit business initiatives. The administrative requirements for limited liability companies and personally-owned enterprises are below the OECD average. However, starting a business is lengthy (40 days in 2020 according to World Bank Doing Business). Additionally, South Africa’s licensing and permit regime is ranked highly restrictive compared to OECD and selected G20 economies, placing unnecessary burdens on firms and increasing compliance costs (Figure 2.5, Panel A). No public up-to-date inventory exists of all permits and licenses businesses need, while all licenses and permits must be periodically reviewed. Additionally, any delay in the licensing process burdens entrepreneurs because there is no “silence is consent” principle, which grants implicit approval after a certain time period. Creating an inventory of permits and licenses and introducing a silence-is-consent rule where appropriate would make product market regulation less of an obstacle to job creation. The regulatory burden is also unnecessarily increased by the lack of any differentiation in the length and complexity of the licensing procedure according to the level of risk associated with the economic activity to which the license or permit is linked. Additionally, public bodies are not required to adhere to the “once-only” principle, which ensures that data and information only needs to be provided to public bodies once. Implementing such measures would ease the burden of administrative and licensing requirements imposed on firms and would help increase firm creation and boost their productivity.
Note: A higher indicator value reflects more regulatory barriers. G20EME is the unweighted average of Brazil, China, Indonesia, Mexico, South Africa and Türkiye. The indicator for South Africa reflects the laws and regulations in force on 1 January 2023. For some countries, the indicator reflects those in force on 1 January 2024. The indicator “Licenses and permits” is one of the two indicators in the “Communication and simplification of administrative and regulatory burden” low-level indicator, shown in Figure 2.4, Panel B. The indicator “Professional services regulation” impacts several low-level indicators including “Involvement in business operations in service sectors”, “Barriers in service sectors” and “Retail price controls and regulation”, shown in Figure 2.4, Panel B.
Source: OECD Product Market Regulation (PMR) database.
Loosening regulations in professional services sectors to support access
Restrictive regulations in professional services stifle business dynamism in services markets by limiting competition and reducing opportunities for innovative entry. The OECD Services Trade Restrictiveness Index for South Africa was above the OECD average in 2023, although below rates in many large emerging economies. South Africa’s retail sector is significantly more heavily regulated than those of OECD and selected G20 economies.
Operating barriers in most professional services in South Africa covered by the PMR indicators are relatively high (Figure 2.5, Panel B). Entry in these professions is generally restrictive compared to the average OECD country, with only one pathway to become a lawyer, civil engineer or real estate agent, and two pathways to become an accountant or architect. Further, nationality is required to practice as a lawyer or real estate agent. Architects and civil engineers who studied abroad must pass a local exam to be allowed to practice. It is also a requirement to be a member of a professional association, which creates an additional burden. These high entry barriers make it more difficult for workers to change occupations and hamper the efficient allocation of labour resources (Bambalaite, Nicoletti and von Rueden, 2020[27]). Simplifying regulatory constraints imposed on professional services would foster entry into these professions as well as improve access to these services, especially for small businesses, through lower prices and more innovative service offerings. Setting clear criteria for recognising foreign qualifications could help address skills shortages (see above) and further increase competition in professional services (OECD, 2020[28]). Changing these criteria could help support the effectiveness of changing the visa regime to facilitate skilled immigration.
Reducing red tape and simplifying administrative requirements
Administrative barriers cost a larger share of turnover for smaller firms than for large ones, discouraging MSMEs from expanding and creating jobs (Christensen, Hegazy and van Zyl, 2016[29]). Red tape can be a particular challenge for South Africa’s MSMEs, with the country recording the lowest ranking in the PMR low-level indicator that measures efforts in communicating and simplifying the regulatory burden (Figure 2.6, Panel A). While South Africa has a public online database of all primary laws, such a database does not exist for subordinate regulations. The country does not have a requirement to use ‘plain language’ in the drafting of new primary laws and subordinate regulations, as is the case in the majority of OECD countries. Such policies would allow entrepreneurs to better understand regulatory requirements and decrease compliance costs.
Note: A higher indicator value reflects more regulatory barriers. G20EME is the unweighted average of Brazil, China, Indonesia, Mexico, South Africa and Türkiye. The indicator for South Africa reflects the laws and regulations in force on 1 January 2023 and does not incorporate changes from the 2024 Public Procurement Act. For some countries, the indicator reflects those in force on 1 January 2024. The indicator “Communication and simplification of the regulatory burden” is one of the two indicators in the “Communication and simplification of the administrative and regulatory burden”, shown in Figure 2.4, Panel B. The indicator “Public procurement” is one of the low-level indicators shown in Figure 2.4, Panel B.
Source: OECD Product Market Regulation (PMR) database.
Several reform plans propose measures to reduce red tape, including the third National Integrated Small Enterprise Development (NISED) Strategic Framework approved in 2023 and the late-2020 Economic Reconstruction and Recovery Plan. A dedicated team has been established in the Presidency under Operation Vulindlela to improve the business environment. The government passed the National Small Enterprise Amendment Bill in mid-2024, which created the Small Enterprise Development Finance Agency, a one-stop shop for aspiring entrepreneurs. The Act also establishes the Office of the Small Enterprise Ombud Service to tackle unfair practices. Although limited progress appears to have been made in recent years (Portfolio Committee on Small Business Development, 2024[30]), swiftly implementing these plans will help improve the regulatory environment for firms to grow.
Unlocking SMEs’ opportunities through simplified public procurement
Simplifying public procurement policies to align with international best practices could open the door for more MSMEs to participate and support competition. The rules on public procurement are among the least competition-friendly among OECD and selected G20 emerging economies (Figure 2.6, Panel B). The government passed the Public Procurement Act in 2024 to unify the framework to the highly decentralised procurement system and increase transparency in processes (see Chapter 1). Nevertheless, continuing reform efforts could further support competition. The time allotted to bidders to prepare their bid and entry requirements could be made proportional to the value or complexity of the tender, as in most OECD countries. Additionally, minimum time periods for procurement procedures beyond open tenders, such as small value and restricted competition procurement, could provide greater clarity and certainty for MSMEs. Requiring contracting authorities to consider dividing public procurement contracts into lots when designing public tenders encourages the participation of smaller firms, as firms can bid for separate lots, and do not need to bid for the whole contract. Removing the need for firms to be registered in a specific registry to be able to submit a bid in a public tender could also help reduce unnecessary burdens. The recent rule change around no longer needing to ensure the availability of funds before a procurement procedure is carried out increases the risk that the procurement procedure will not eventuate into a signed contract due to a lack of funding (MAPS, 2024[31]). This uncertainty reduces the attractiveness of bidding, particularly for smaller firms. Additionally, the high share of invoices not paid on time, estimated at up to 18.5% of total invoices (MAPS, 2024[31]), may also be particularly constraining for MSMEs, limiting their participation. Ensuring that public procurement reforms occur alongside reforms to SOEs and to reduce corruption will help boost their maximum possible benefits.
2.2.2. Helping firms to restructure or exit when distressed
South Africa’s insolvency regime is less efficient than in many OECD and G20 emerging-market economies (André and Demmou, 2022[32]). Moving towards a well-designed insolvency regime could help facilitate the timely exit of non-viable firms, enabling the efficient reallocation of labour and capital to more productive firms, which would strengthen job creation and productivity (Adalet McGowan and Andrews, 2018[33]).
Personal costs to failed entrepreneurs are elevated (Figure 2.7, Panel A). The time to discharge debt is lengthy. Procedures are still managed by regular courts of law, which tend to move slowly (OECD, 2022[3]). Exemptions on personal assets are some of the most limited, with no exemptions except for modest personal items and working equipment and there are relatively few available prevention and streamlining procedures. Additionally, there is no early warning system, unlike in most OECD countries. Pre-insolvency regimes exist, although there are no special insolvency procedures for SMEs.
Barriers to restructuring are also elevated (Figure 2.7, Panel B). While in most countries, creditors can only initiate liquidation, in South Africa creditors can also initiate restructuring, which can help firms that encounter temporary distress to be successfully restructured in a timely manner. However, South Africa has an indefinite length of stay on assets in restructuring, which can slow asset recovery. New financing continues to have priority over secured creditors in the event of restructuring, which could adversely affect the long-term availability of credit and legal certainty (Adalet McGowan and Andrews, 2018[33]; André and Demmou, 2022[32]). Unlike in most OECD countries, management is dismissed during the restructuring process, which does not incentivise early filing. Continuing to streamline insolvency procedures will help to free up resources for new entrants to grow.
OECD insolvency indicator, 2022, zero represents no measured barriers
Note: The more efficient the insolvency regime, the lower the value of the indicators.
Source: André and Demmou (2022[32]).
2.3.1. Maximising agglomeration benefits through urban planning and housing policies
Low-density urban spaces in South Africa pose significant barriers to labour market inclusion and business growth, particularly for MSMEs. Apartheid-era segregation policies have left a legacy of urban sprawl and fragmented communities, with settlements far from city centres (Figure 2.8, Panel A) (Lochman, 2022[34]). This spatial dislocation undermines productivity and inclusion, limiting access to jobs and making it difficult for small businesses, including informal ones, to achieve the critical mass needed to thrive (OECD/UN ECA/AfDB, 2022[35]).
Note: In Panel A, a low entropy index signals a more uniform distribution of income groups across the city and lower levels of segregation. In Panel B, growth is calculated over 2000-14. Built-up statistics are calculated using Florczyk et al. (2019) http://publications.jrc.ec.europa.eu/repository/handle/JRC117104; population per capita is from UN World Population Prospects; "Built-up" is defined as the presence of buildings (roofed structures).
Source: OECD (2021[36]).
Since the end of apartheid, various policies have been implemented to address this challenge. Policies such as the corridors of freedom in Johannesburg aimed to connect underserved remote townships to the city centre via bus rapid transit (BRT) and inclusionary housing programmes, with mixed success. Various public housing programmes have delivered 300 000 houses over the past five years. Yet, subsidies have largely focused on easing access to home ownership and building freestanding homes on the urban periphery, where ineffective transport systems limit access to jobs (see next section). As a result, several policies that focused on improving access to decent housing have had the undesirable effect of isolating segments of the population from labour market opportunities. Meanwhile, the supply of social rental housing in densely populated urban areas has fallen short of demand as it has been difficult to keep up with rapid population growth in large municipalities. A significant housing backlog persists, with over 2.4 million households registered on the National Housing Needs Register in 2023. This has often resulted in the expansion of informal settlements. For example, between 1996 and 2011, population growth in Cape Town was 18 times larger than that of the housing market, resulting in large informal settlements (Horn and Van Eeden, 2018[37]). In 2023, 12.2% of South African households lived in informal dwellings (General Household Survey, Statistics South Africa).
The strong policy focus on homeownership at the periphery of cities compared to renting may have lowered labour mobility and increased the unemployment rate of owner-occupants compared to renters (Caldera Sánchez and Andrews, 2011[38]). Almost 57% of households own their home outright, a further 7.6% own their home with a mortgage and 22.5% rent (CAHF, 2023[39]). The government is increasingly acknowledging the role of the rental market and is developing a plan for its promotion (Department of Human Settlements, 2025[40]).
Social housing programmes are gradually being reformulated as urban development projects that actively counter apartheid-era spatial planning and support urban densification. The White Paper for Human Settlements aims to revamp housing policies, including by facilitating public-private partnerships and encouraging densification. It especially points to the need to implement pro-densification policies, re-develop the inner-CBD and prioritise housing areas close to public transport and development corridors (Department of Human Settlements, 2025[40]). In response, new policies encourage the development of affordable rental housing, including through the Small-Scale Support Framework, which supports rental housing projects, involving partnerships with the private sector and NGOs.
Reforming restrictive local building regulations could help support urban densification and housing supply. Policies such as floor area and building coverage ratios, which cap the maximum allowed built-up area, often prevent high-rise developments. For example, easing such regulations in Paris doubled the construction of apartments from 40 000 to 80 000 units per year (Haussman et al., 2023[41]). These constraints also reduce the housing market's ability to respond to fluctuations in demand, increasing prices and worsening affordability. This challenge is evident in South Africa, where a low increase in urban density has been historically coupled with rapidly rising prices (Figure 2.8, Panel B) (OECD, 2021[36]).
2.3.2. Reducing transport times and costs
Long commutes and costs are a significant barrier for many South Africans to get to work, particularly low-income households. Around 70% of discouraged job seekers cite their location as the key constraint to looking for a job (Mlatsheni and Ranchhod, 2017[42]). For work-related travel, 44% of workers use private vehicles, while 80% of public transport users commute via minibus taxi (Statistics South Africa, 2021[43]). Average commute times reflect why: drivers of private vehicles spent 44 minutes commuting, minibus taxi users spent 63 minutes, bus users spent 84 minutes and train users spent 107 minutes in 2020. Commuting costs are substantial and disproportionately affect low-income households, consuming up to 37% of post-tax income for the lowest quintile and up to 80% when including the time spent commuting (Shah and Sturzenegger, 2022[44]; Mlatsheni and Ranchhod, 2017[42]). Although driving a private car incurs the lowest cost, it is inaccessible for the majority of South Africans.
Policies that reduce the time and cost and increase the safety of public transport would ease the burden of commuting. Currently, most subsidies are allocated to bus and rail public transport, which serve fewer people and have deteriorated in quality in recent years. To improve the availability of safe and quality public transport, national and local governments are undertaking numerous reforms, including the devolution of provincial bus contracts and passenger rail to municipalities under the Cities Support Programme (CSP). This aims to allow municipalities to develop a mix of public transport adapted for local needs while reducing grant inefficiencies. While promising, scaling up municipal capacity will be crucial for success (Chapter 3).
Private minibus taxis are at the core of South Africa's transport system but face regulation issues, resulting in some unsafe vehicles and reckless driving. Despite efforts to formalise the sector and ensure compliance with regulation, progress has been limited. However, ongoing plans to integrate minibus taxies into public transport network under the CSP are promising (Chapter 3).
Aligning transport, urban planning and housing policies and reducing the fragmentation of land use and infrastructure planning will be key to increase workers’ mobility (OECD/UN ECA/AfDB, 2022[35]). The CSP promotes policy coherence and tackles spatial inequalities through initiatives such as the Integrated Public Transport Network (IPTN) corridor densification project, which brings together key departments (land-use planning, transport, economic development and human settlements departments) to develop a metropolitan densification strategy. A pilot project in four major cities aims to unlock land-use applications for residential and commercial developments along these corridors and increase the use of these integrated networks. Initiatives to improve access to timely and granular sub-metropolitian administrative tax data have supported urban planning and economic development. Some lessons could also be drawn from Ireland’s Office of Planning, created in 2018 to implement a "well-enforced top-down spatial planning framework" to mitigate the risk of greater urban sprawl.
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