Assessment and recommendations

Thanks in part to a better policy framework, growth performance in South Africa has improved over the past two decades. However, this was not sufficient either to offer enough employment opportunities for the young and growing population or to close the aggregate income gap with OECD countries. Despite a strong macroeconomic policy framework, job creation and productivity growth remain too low to underpin sustained rapid GDP per capita growth. Better performance on these fronts is needed to make sustainable the remarkable alleviation in poverty brought about by expanded social transfer programmes by gradually augmenting it by income from economic activity. The overarching challenge for South Africa is to boost its trend growth rate and thereby create jobs. Most successful historical examples of rapid development have been characterised by high savings and investment rates and strong foreign trade growth often kick-started by a period of undervaluation of the currency or at least a reduction in the degree of overvaluation. Despite a favourable endowment of both labour and natural resources, South Africa has in recent years experienced a rather different pattern of economic development, one characterised by strong domestic demand growth, low savings and investment rates, and weak export performance and an overvalued currency. This constellation was accompanied by high capital inflows from portfolio investors, while net foreign direct investment inflows were relatively modest. The financial crisis has highlighted the need for increasing potential growth through a combination of more counter-cyclical macroeconomic policy frameworks and structural reforms leading to higher employment, more competition on product markets and greater innovation.

English Also available in: French

This is a required field
Please enter a valid email address
Approval was a Success
Invalid data
An Error Occurred
Approval was partially successful, following selected items could not be processed due to error