OECD Economic Surveys: South Africa 2013

OECD ECONOMIC SURVEYS: SOUTH AFRICA © OECD 2013 Main findings South Africa is advancing, but failing to fully achieve its considerable potential. Per capita incomes are growing, public services are expanding, health indicators are improving, crime rates are falling and demographic trends are favourable. The public finances are in better shape than those of many OECD countries, the financial system is healthy and core inflation is stable and within the central bank’s target zone. At the same time, an extremely high proportion of the population is out of work, as has been the case for most of the past three decades. Moreover, income inequality remains extremely high, educational outcomes are poor on average and hugely uneven, and frustration is growing with public service delivery failures and corruption. Output growth is sluggish compared to most other middle-income economies. Environmental challenges such as climate change and water scarcity threaten the sustainability of economic growth, while high current account deficits represent a point of macroeconomic vulnerability. The macroeconomic policy mix has been insufficiently supportive of growth while allowing large budget deficits to persist. The deficit expanded rapidly in cyclically adjusted terms during the crisis and has been brought down only gradually since. Much of the increase in spending came through large increases in the public sector wage bill, while public investment has fallen as a share of total expenditure. With core inflation remaining well contained, monetary policy has been eased cautiously, but not by enough to prevent an increasing degree of slack in the economy. The rand has swung with international sentiment, and has been overvalued for extended periods. The interaction of weak competition in product markets and dysfunctional labour markets is holding back growth and aggravating unemployment. Most industries are highly concentrated, with network industries dominated by state-owned enterprises, and the weakness of competitive pressures contributes to below-par innovation. Large firms are also able to share the excess returns they make with their employees via collective bargaining, and in many sectors those bargains, including the setting of sectoral minimum wages, are administratively extended to the whole sector, which represents a barrier to entry for small enterprises.