OECD Economic Surveys: South Africa 2015

Main findings Since 1994 South Africa has made great progress in reducing absolute poverty by rolling out social grants for pensioners, the disabled and children. Access to education, housing, water, electricity and other services has been greatly broadened. As a result, well-being has increased substantially. A sound macroeconomic framework with a stable fiscal position, inflation targeting, a floating exchange rate and largely unimpeded international capital flows underpinned this progress and has earned South Africa the confidence of financial markets. Notwithstanding the successful transition to a democratic system with strong institutions, the legacy of apartheid is still felt by many South Africans. Inactivity is widespread, settlement structures are too remote from economic centres and severe infrastructure bottlenecks prevent economic activity from delivering the benefits of globalisation to all. Moreover, domestic barriers to firms entering markets are still high, in particular for black entrepreneurs despite policies to foster black economic empowerment. The National Development Plan provides an ambitious framework for stronger, more inclusive growth. Growth has not been inclusive due to insufficient employment growth A key factor behind the high income inequality is the low employment rate, especially of black South Africans. The National Development Plan also identifies the need to increase economic growth and expand employment. Job creation is held back by regulatory entry barriers for new suppliers, who could offer better and cheaper services, and by the legal extension of collectively agreed wages, contributing to an insider/outsider divide. Wage formation is complicated by confrontational industrial action. Large numbers of low-skilled job seekers reside where employment opportunities are limited. The lack of a centralised infrastructure for providing active labour market policies means that delivery of existing programmes is fragmented. There is also no national minimum wage, although collective bargaining agreements and sectoral regulations establish widely varying wage floors across much of the economy. Reforms are under way to tackle infrastructure bottlenecks and support SMEs The government has identified SMEs as key to bolstering growth and employment but SMEs face high regulatory burdens, and the pattern of social housing hinders business opportunities.