South Africa Could Do Better, Says OECD

By Richard Johnson | IDN-InDepth NewsReport

PARIS (IDN) – “Despite considerable success on many economic and social policy fronts over the past 19 years, South Africa faces a number of long-standing economic problems that still reflect at least in part the long‑lasting and harmful legacy of apartheid,” according to a new report by the prestigious Organisation for Economic Cooperation and Development (OECD) .

The report titled ‘Economic Survey of South Africa 2013’ finds that unemployment remains excessively high, educational outcomes are poor on average and extremely uneven, which aggravates the excess supply of unskilled labour as well as worsening income inequality. “In addition, the prospects for sustained improvements in well-being are compromised by environmental challenges, notably climate change and water stress.”

The survey by the 34-nation, mostly better-off industrialised countries, tells South Africa that it needs to achieve rapid, inclusive economic growth while at the same time making the transition to a low-carbon economy and managing effectively the country’s scarce water resources.

Tackling the key problems effectively will require continued skilful management of macroeconomic policies, but above all improved implementation of structural policies, with education being a particularly critical area, it adds.

In particular, the OECD asks the South African government to undertake structural reforms in view of achieving faster, more inclusive and more sustainable economic growth. These should be purported, among others, to enable education do a better job in providing equal chances for all South Africans.

In particular, the government is asked to expand its programme to address infrastructure backlogs, improve the delivery of learning materials with priority to the most deprived schools, and increase the number of teachers. “More school leadership training and support staff could be provided to school principals in exchange for stricter accountability,” says the report.

The South African government should further improve the governance of the education system by joining the Programme for International Student Assessment (PISA) – as is customary in Europe – and the Teaching and Learning International Survey (TALIS) and by undertaking an OECD Review of Evaluation and Assessment Frameworks for Improving School Outcomes, the report suggests.

OECD finds that youth employment could be improved by reforms of the vocational education and training as well as apprenticeship systems, for instance by providing tax credits to firms hiring trainees, by simplifying hiring administrative procedures and by building more public‑private partnerships.

The survey adds: Product market regulation should be less restrictive, particularly as regards barriers to entrepreneurship. The within‑sector legal extension of collective bargaining agreements could be curtailed, while the level of centralisation and co‑ordination in collective bargaining could be increased to allow for greater influence of outsiders on wages and conditions.

Praise and Criticism

The report praises the South African policy framework for addressing environmental issues, including climate change and water scarcity, as sound, but it is of the view that implementation has so far been slow, in part due to limited administrative capacity. OECD tells the South African government that in designing climate change mitigation policies, it should favour broad and easy-to-implement instruments, such as a simple carbon tax.

Further: “Implicit and explicit subsidies for energy and coal consumption should be reduced, while other instruments, such as cash transfers or supply vouchers, should be used for protecting the poor. To deal with water scarcity, water-use licenses should be allocated and charges for water should reflect supply costs.”

The survey, presented in Pretoria on March 4, 2013 by OECD Secretary-General Angel Gurría and South African Minister of Finance Pravin Gordhan, stresses also the important advances South Africa has made in recent years. “South Africa has recorded tremendous success in a number of economic and social policies” Gurría said. “Per capita income is rising, public services are expanding, health indicators are improving and public finances are in better shape than in many OECD countries.”

He noted that together with Brazil, China, India and Indonesia, “South Africa is one of our Key Partners”. This partnership, he added, is a two-way engagement: “one that allows us to support South Africa’s policy agenda for inclusive and sustainable growth; one that allows our members and other partner countries to benefit from your insights, expertise and unique experience.”

However, the country is growing at a slower pace than other leading emerging economies, according to the Survey. “A high proportion of the population is out of work; offering people a brighter future by creating jobs is a policy priority,” Gurría said.

“Income inequality remains high, educational outcomes should be improved and access to education needs to be inclusive. Environmental challenges like climate change and water scarcity need to be tackled to make economic growth green and sustainable. There is unfinished business that will require additional reform efforts.”

Priority areas

OECD identifies several priority areas for action. It asks South Africa to make better use of macroeconomic policy to support growth. It argues that the (budgetary) deficit expanded rapidly 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. The rand has fluctuated with international sentiment, and has been overvalued for extended periods.

The survey also urges the South African government to implement reforms to boost competition and improve the functioning of labour markets. Presently, most industries are highly concentrated, with network industries dominated by state‑owned enterprises. Large firms are able to share excess returns with their employees via collective bargaining, and in some sectors the collective agreements are extended to other firms, creating a barrier to entry for small enterprises.

This, says the survey, results in “a sharply dualised labour market”, with a well-paid formal sector covered by collective bargaining and a secondary market where pay is low and conditions poor. Subsequently, many South Africans are excluded from work altogether, contributing to poverty, inequality, and ill health. Strengthening product market competition and improving the functioning of labour market institutions should therefore be high priorities, says the survey. [IDN-InDepthNews – March 5, 2013]

Image: Sipho Ndlovu, ‘Images of South African History No. 4’ | Credit:

2013 IDN-InDepthNews | Analysis That Matters

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