Presentation of the OECD 2017 Economic Survey of South Africa

2017 OECD ECONOMIC SURVEY OF SOUTH AFRICA Finding new ways to boost growth and job creation Pretoria, 24 July 2017

http://www.oecd.org/eco/surveys/economic-survey-south-africa.htm

@OECDeconomy @OECD

Main messages • Short-run fiscal and monetary policies offer limited scope to boost growth.

• Bold structural reforms are needed to increase access to network sectors and services.

• Improving education access and quality, reducing the cost of energy and developing transport infrastructure can boost the economy.

• Deepening regional integration in the SADC will expand market size and open new opportunities for growth.

• Entrepreneurship is low compared to other emerging economies.

• The environment for new and small businesses is more difficult than in other countries, but reducing red tape would create jobs.

2

South Africa performs well on some wellbeing dimensions South Africa

OECD emerging market average

Income and wealth Subjective well-being

10

8

Jobs and earnings

6

Personal security

4

Housing

2 0

Environmental quality

Civic engagement and governance

Social connections

Work and life balance

Health status

Education and skills

Source: OECD (2016), "Better Life Index 2016", OECD Social and Welfare Statistics (database).

3

Social transfers reduce inequality

% 80

Distribution of income and transfers by quintile, entire population, 2015 Share of income

70

Share of transfers

60 50

40 30 20

10 0

Lowest

Second

Third

Fourth

Highest

Source: OECD Income distribution and poverty database (provisional).

4

Growth has slowed GDP index, volume

% 6 4 2

2016

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

-2

2001

0

Source: OECD (2017), OECD Analytical Database.

5

Unemployment is high Unemployment rate % 35 30

25

2016

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

15

2001

20

Source: OECD (2017), OECD Analytical Database.

6

Poverty remains high Poverty rate after taxes and transfers, 2015 or latest

% 40 35

30 25

20 15 10 5 0

OECD

RUS

CHL

MEX

TUR

ZAF

Source: OECD Income distribution and poverty database (Provisional).

7

Fiscal consolidation is limiting debt growth Government debt

% GDP

100

Gross loan debt (LHS)

90

% GDP

5,0

Interest payments (RHS)

4,5

80

4,0

70

3,5

60

3,0

50

2,5

40

2,0

30

1,5

20

1,0

10

0,5

0

0,0

2013/14

2014/15

2015/16

2016/17

2017/18

2018/19

Source: National Treasury (2017), Budget Review 2017

8

Falling inflation would create more room to ease monetary policy Y-o-y inflation, % 10

Core

9

Headline

8 7 6 5 4 Policy target

3 2 1

0

2009

2010

2011

Source: South African Reserve Bank

2012

2013

2014

2015

2016

2017

9

Regional integration is modest Share of intra-regional exports out of total exports for all members % of total exports

35

ASEAN

MERCOSUR

ECOWAS

SADC

30 25

20 15 10 5 0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Source: IMF, Direction of Trade Statistics; World Bank

10

Early-stage entrepreneurial activity is low % of working-age population in entrepreneurial activity, 2014-16 average 30 25 20

15 10

Source: Global Entrepreneurship Monitor.

CHL

COL

BRA

THA

MEX

ARG

IDN

LVA

EST

CHN

CRI

LTU

IND

HUN

ZAF

RUS

0

MYS

5

11

Policy reforms to boost inclusive growth

12

The national minimum wage will reduce inwork poverty Minimum relative to median wages, 2015 or latest 1,2 1,0

0,8 0,6

0,4

ZAF (proposed)

COL

TUR

CRI

IDN

ZAF (current)

CHL

THA

SVN

PRT

ROU

HUN

LVA

POL

OECD

LTU

GRC

SVK

MYS

EST

CZE

MEX

ESP

IND

VNM

0,0

RUS

0,2

Source: OECD; ILO; World Bank.

13

More effective public spending will create fiscal space Compensation of general government employees, 2015 % of GDP 16 14 12 10 8 6 4 2 0

Colombia

Indonesia

Chile

Thailand

Turkey

Russia

OECD

Brazil

South Africa

Source: IMF, Government Finance Statistics.

14

The cost of higher education has been increasing Government subsidy and university personnel costs Billion ZAR 35 30

Personnel costs

Government subsidies

25 20

15 10 5 0

2009

2010

2011

Source: Department of Higher Education and Training (2016); OECD calculations.

2012

2013

2014

15

Main recommendations ➢ Set up an independent commission of experts to advise on minimum wage adjustments. ➢ Develop apprenticeship and internship programmes to increase youth employment. ➢ Limit annual wage increases in the public sector and redeploy civil servants to priority areas. ➢ Deepen implementation of public procurement reform and enforce sanctions for breaches of the Public Financial Management Act. ➢ Ensure that state-owned enterprises respect procurement and expenditure rules. ➢ Set up a scheme of universal student loans contingent on future incomes, with participation from banks and government guarantees.

16

Deepen regional integration

17

Deeper regional integration would expand markets Tariff rate, applied, weighted mean, all products, 2015 %

12 10 8 6 4

United States

EU

Japan

Canada

Brazil

Argentina

India (2)

China

Russia

Indonesia (2)

Mexico (1)

Chile

Angola

Congo, Dem. (1)

Lesotho

Tanzania

Madagascar (1)

Zimbabwe

Swaziland

Malawi

South Africa

Mozambique (1)

Zambia (2)

Seychelles

Namibia

Mauritius

0

Botswana

2

1. Numbers are for 2014.

2. Numbers are for 2013.

Source: World Bank staff estimates using the World Integrated Trade Solution system.

18

Better trade facilitation is key Trade facilitation index 1-7 (best)

6 5 4 3 2

Source: World Economic Forum, Global Enabling Trade Report.

OECD

EU

Mauritius

South Africa

Botswana

Namibia

Lesotho

MERCOSUR

Zambia

Malawi

Mozambique

Madagascar

Tanzania

Zimbabwe

Congo, DR.

0

Angola

1

19

5

0 Angola Zimbabwe Madagascar Congo, Dem. Rep. Lesotho Malawi Swaziland Zambia Mozambique Tanzania Seychelles South Africa Namibia Botswana Mauritius Venezuela Nicaragua Argentina Brazil Bolivia El Salvador Honduras Guatemala Suriname Guyana Paraguay Colombia Costa Rica Ecuador Mexico Peru Dominican Rep. Uruguay Panama Chile Puerto Rico

Customs procedures remain too complex

1-7 (best)

Burden of customs procedures

6

OECD average

4

3

2

1

SADC

Source: World Economic Forum, Global Competitiveness Report 2016-17.

Latin America

20

Main recommendations on regional integration ➢ Reduce non-tariff barriers within South African Development Community (SADC). ➢ Lead the harmonisation of competition rules among SADC countries and promote competition in infrastructure-related services across countries.

➢ Simplify and adopt a single set of rules of origin in the forthcoming tripartite free trade area. ➢ Provide special economic zones with better infrastructure and develop their linkages with local economies. ➢ Upgrade information technology at custom posts and improve the interconnectivity of systems within SADC. ➢ Create a regional fund for infrastructure and increase private sector participation in infrastructure projects.

21

Boosting job creation through more start-ups and SME growth

22

It is key to remove red tape Time required to start a business

Days 90

80 70 60

50 40 30

20

BRA

ZAF

POL

CHN

IND

IDN

RUS

MEX

OECD

HUN

TUR

CHL

LVA

0

EST

10

Source: World Bank (2017), Doing Business database.

23

Opening up access to professional services is important for start-ups Regulation in professional services 0-6 (most restrictive) 5

ZAF OECD EMEs

Non-OECD EMEs OECD average

4 3 2 1 0

All professions

Accounting

Legal

Architect

Engineer

Note: The emerging market economies are 5 non-OECD member countries (Brazil, China, India, Russia and South Africa, with varying coverage) and 5 OECD members (Chile, Hungary, Mexico, Poland and Turkey). Data for 2013 or latest.

Source: OECD, Product Market Regulation Statistics database.

24

Entrepreneurial competencies can be improved Attitudes have become more entrepreneurial, 2014-16 80 70

OECD

ZAF

Non-OECD EME

60 50 40 30 20 10 0

Perceived capabilities

Fear of failure rate

Know start-up entrepreneur rate

Entrepreneurship as desirable career choice

Note: Non-OECD EME is the average of Argentina, Brazil, China, Colombia, Costa Rica, India, Indonesia, Malaysia, Thailand, Russia and South Africa.

Source: Global Entrepreneurship Monitor.

25

Main recommendations on entrepreneurship and SMEs ➢ Enact a package of reforms to reduce red tape.

➢ Introduce a “silence is consent rule” for licensing procedures that have low associated risks. Systematically review and reduce the stock of red tape and licensing requirements. ➢ Open up telecommunications, energy, transport and services sectors to competition. ➢ Evaluate and streamline financial and non-financial support for start-ups and small businesses. ➢ Expand second-chance programmes for early school leavers.

➢ Increase entrepreneurial education and work placements in the post-school education system.

26

For more information

http://www.oecd.org/eco/surveys/economic-survey-south-africa.htm

@OECDeconomy @OECD

27