OECD Economic Surveys: South Africa

English
Frequency
Irregular
ISSN: 
2218-614X (online)
ISSN: 
2218-6131 (print)
http://dx.doi.org/10.1787/2218614x
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OECD's periodic reviews of South Africa's economy.  Each review examines recent economic developments, policy and prospects, and presents a series of recommendations.
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OECD Economic Surveys: South Africa 2017

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Author(s):
OECD
24 July 2017
Pages:
156
ISBN:
9789264279155 (EPUB) ; 9789264279148 (PDF) ;9789264279131(print)
http://dx.doi.org/10.1787/eco_surveys-zaf-2017-en

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Over the last two decades, South Africa has accomplished enormous social progress by bringing to millions of citizens access to key public services. Nevertheless, growth has trended down markedly recently due to constraints on the supply side. Low growth has led to the stagnation of GDP per capita, and persistent high unemployment and inequalities.

The economy faces many structural challenges while high inflation limits room for monetary policy support  and high public debt constrains public spending. South Africa needs structural reforms that would boost the potential of the economy, in particular, broadening competition, limiting the size and grip of state-owned enterprises on the economy, and improving the quality of the education system.

Greater regional integration could provide new opportunities for growth by expanding market size. South African firms are well placed to benefit from deeper integration. However, lowering tariffs and non-tariffs barriers on trade, developing regional infrastructure and harmonising regulations are needed to foster regional integration.
More entrepreneurs and thriving small businesses would contribute to inclusive growth and job creation. Barriers to entrepreneurship include bureaucratic procedures and licensing, which are also an ongoing burden on small firms. An education system that better equippes students with basic and entrepreneurial skills would grow the pipeline of entrepreneurs. A better evidence base is crucial for more effective financial and non-financial support programmes to boost start-up rates and small firms’ growth.

SPECIAL FEATURES: DEEPENING REGIONAL INTEGRATION; BOOSTING ENTREPRENEURSHIP

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  • Basic statistics of South Africa, latest available year

    This Survey was prepared in the Economics Department by Falilou Fall and Christine Lewis under the supervision of Piritta Sorsa. It has benefited from valuable background research by Boingotlo Gasealahwe, seconded from the South African National Treasury. Iris Mantovani and Iza Lejarraga from the directorate for Financial and Enterprise Affairs and Charles Cadestin from the Trade and Industry directorate contributed to the Survey. Statistical research assistance was provided by Taejin Park, Hermes Morgavi and Pedro Herrera Gimenez. General administrative assistance was provided by Brigitte Beyeler, Anthony Bolton, Raquel Paramo and Heloise Wïckramanayake. The previous Survey of South Africa was issued in July 2015.The Survey was discussed at a meeting of the Economic and Development Review Committee on 12 June 2017 with participation of representatives of the South African government and representatives of France and Portugal as lead speakers.The Survey is published under the responsibility of the Secretary-General of the OECD.Information about the latest as well as previous Surveys and more information about how Surveys are prepared is available at www.oecd.org/eco/surveys.

  • Executive summary

    Growth has disappointed in the last few years. Weak consumer demand, persistently falling business investment, policy uncertainty, and the prolonged drought weighed on activity. While power production has improved, important bottlenecks remain in infrastructure and costs of services, which increase the cost of inputs for firms. The economic slowdown has pushed up the unemployment rate and income inequalities remain wide. Reviving economic growth is crucial to increase well-being, job creation and inclusivity. As there is limited room for monetary and fiscal stimulus, bold structural reforms, supported by social partners, are needed to unlock the economy.

  • Assessment and recommendations

    Over the last two decades, South Africa has accomplished enormous social progress by bringing to millions of citizens access to key public services, notably education, health, housing and electricity. Enrolment in primary school is universal for both boys and girls. Almost 90% of households have access to piped water and 84% have access to electricity (Statistics South Africa, 2016). An ambitious policy of redistributive grants has also been put in place, lifting a large share of the population out of poverty. Its legal framework is well regarded and its judiciary is perceived as independent. The advanced banking system and deep financial markets have made South Africa a regional hub for financial services.

  • Progress in main structural reforms

    This annex reviews action taken on recommendations from previous Surveys since the July 2015 Survey.

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  • Expand / Collapse Hide / Show all Abstracts Thematic chapters

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    • Deepening regional integration within the Southern African Development Community

      Deepening regional integration within the Southern African Development Community (SADC) will raise potential growth for all member countries. Integrated economies will increase market size, trade opportunities and improve resource allocation across member countries. Key pillars of functioning regional integration are the free circulation of goods and services, mobility of workers and interconnected infrastructure. To boost regional integration, remaining tariff barriers and non-tariffs barriers should be removed. Ensuring greater compliance to agreements by SADC members will also facilitate intra-trade and cross-investments. More co-operation between competition authorities should facilitate harmonisation of competition rules in particular in services and transport-related services which would ease circulation of good and services. The other key pillars of regional integration (industrial policy, infrastructure, investment, financial integration and tax) are also reviewed.

    • Lowering barriers to entrepreneurship and promoting small business growth

      Lowering high levels of unemployment and inequality are amongst the largest challenges facing South Africa. More entrepreneurs and thriving small businesses would contribute to inclusive growth. Measures of entrepreneurial activity are lower in South Africa than in other emerging economies. Barriers to entrepreneurship include bureaucratic procedures and licensing, which are also an ongoing burden on small firms. Public procurement is being used to overcome the dominance of large incumbents, but so far its net effect on small firms is not clear. An education system that better equipped students with basic skills as well as entrepreneurial skills would grow the pipeline of entrepreneurs. New forms of financing are slowly emerging in a system that is dominated by banks. A better evidence base is crucial for more effective financial and non-financial support programmes to boost start-up rates and small firms’ growth.

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  • Expand / Collapse Hide / Show all Abstracts Annexes

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    • Export products in SADC
    • Estimates of determinants of trade flows

      Bilateral trade patterns are regressed with size and distance between countries in various specifications of the models (see Feenstra 2004, Head and Mayer 2015). In the literature, the best estimation results have been obtained with the Poisson pseudo-maximum likelihood method (Poisson-PML), which is robust to different patterns of heteroskedasticity and measurement errors (Santos Silva and Tenreyro, 2006). Also, introducing exporter and importer fixed effects to capture both market-size effects and multilateral-resistance indexes are now common in the equations (Harrigan 1996, Redding and Venables, 2004). Properly defining the multilateral-resistance variables brings the structural dimension as put forward by Anderson and van Wincoop (2003), Anderson and Yotov (2010), and Balistreri and Hillberry (2007) among others.

    • Participation in Global Value Chains
    • Road infrastructure needs in SADC
    • Detailed information on taxes
    • Determinants of entrepreneurial activity

      Estimates of the determinants of early-stage entrepreneurial activity follow Ardagna and Lusardi (2010). The data source is the 2012 Global Entrepreneurship Monitor, and the results are based on the data from 43 countries. Variable definitions for the individual characteristics generally follow Ardagna and Lusardi except that work status has been aggregated due to the smaller sample here. The logarithm of GDP per capita (PPP-adjusted) is used to control for country fixed-effects but allow for exploration of South Africa-specific fixed effects by interacting a dummy variable for South Africa with key variables of interest.

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