Presentation of the 2020 OECD Economic Survey of South Africa

OECD ECONOMIC SURVEY OF SOUTH AFRICA 31 July 2020, Paris - Pretoria

http://www.oecd.org/economy/south-africa-economic-snapshot/ @OECDeconomy

@OECD

Key messages • Improve the quality of public health care and broaden access to private health care services.

• Restore fiscal sustainability.

• Implement structural policy reforms to boost competition, restructure SOEs and develop infrastructure investment.

• Support and lift barriers in the tourism industry.

2

COVID-19 infections are accelerating Per million inhabitants 120

New confirmed COVID-19 cases Per day, 4-day moving average

100 80 60 40 20 0

Source: OECD calculations based on Ourworldindata.

3

Unemployment is increasing 32

Unemployment rate % of labour force

30 28 26 24 22 20

Source: Statistics South Africa.

4

Inflation has slowed down Year-on-year % change 9

Headline inflation

Core inflationยน

9

8

8

7

7

6

6

5

5

4

4

3

3

2

2

1. Consumer price index excluding food and NAB, fuel and energy.

Source: Statistics South Africa; SARB Database.

5

Growth has collapsed and the recovery will be gradual GDP at constant prices, index 2019Q4=100, seasonally adjusted 105

Single-hit scenario

OECDGraphFakeSeries

100

105

100

95

95

90

90

85

85

Source: OECD Economic Outlook database June 2020 projections.

6

Macroeconomic projections

Growth rates, unless specified

2019

2020

2021

Single-hit scenario Gross domestic product (GDP)

0.2

-7.5

2.5

Unemployment rate (% of labour force)

28.7

33.9

34.9

4.1

3.5

3.7

-3.0

-3.0

-2.5

Consumer price index Current account balance (% of GDP)

Double-hit scenario Gross domestic product (GDP)

0.2

-8.2

0.6

Unemployment rate (% of labour force)

28.7

34.0

35.8

4.1

3.4

3.3

-3.0

-3.1

-3.0

Consumer price index Current account balance (% of GDP) Source: OECD Economic Outlook 107 database.

7

Recommendations to strengthen the response to the crisis • Lower interest rates to further support the recovery.

• Provide temporary financial support to households and businesses to protect livelihoods and employment.

• Increase and extend financial relief support in sectors hard hit by the crisis particularly if there is a renewed virus outbreak later in the year.

• Develop testing, tracking and isolation to limit further infections and augment medical capacity to treat infected people.

8

MACROECONOMIC AND STRUCTURAL POLICIES TO RESTORE GROWTH

9

Public debt is increasing 160 140 120

Gross debt, % of GDP Reform scenario Active scenario, Treasury June 2020 Passive scenario, Treasury June 2020 OECDGraphFakeSeries

160 140 120

100

100

80

80

60

60

40

40

20

20

Note: The Active and Passive scenarios are from the Supplementary budget presented by the National Treasury before the parliament in June. It shows the debt dynamics in a no action configuration versus implementing spending cuts that reduces the deficit. The progressive consolidation scenario corresponds to an improvement of the deficit by 1 pp of GDP each year until 2030 and to a 2% GDP growth from 2025. The reform scenario takes into account the effects of implementing structural reforms that would increase potential growth to 3.5% from 2025.

Source: OECD calculations.

10

The government wage bill is high Compensation of employees, general government; % of GDP, 2019 or latest available year 14

14

12

12

10

10

8

8

6

6

4

4

2

2

0

0

OECD

Brazil

China Costa Rica India

RussiaSouth Africa ZAF

BRA

Source: IMF, Government Finance Statistics database; Budget Review 2020, National Treasury, South Africa

11

The wage bill is driven by high wages A. Employment in general government as a % of total employment, 2017 or latest available year 30 20 10

JP N KOR ZA F CH E D EU C RI LU X TUR N LD IT A IRL PRT USA ES P AUT CZE G BR SVN G RC O ECD CA N BEL SVK IS R LV A FR A HUN LT U ES T FIN SW E DN K N OR

35 30 25 20 15 10 5 0

B. Compensation of senior professional to GDP per capita

Ratio in 2015 6 5 4 3 2 1 0

JPN KOR ZAF CHE DEU CRI LUX TUR NLD ITA IRL PRT USA ESP AUT CZE GBR SVN GRC OECD CAN BEL SVK ISR LVA FRA HUN LTU EST FIN SWE DNK NOR

Ratio in 2015 6 5 4 3 2 1 0

0

Note: Total employment refers to the domestic employment. South Africa number regroups all non-managers on regular pay scale and refers to 2017.

Source: OECD National Accounts database; ILO, ILOSTAT database; Statistics South Africa, Quarterly Employment Statistics (QES), OECD Government at a Glance 2017 and MTBR 2018, National Treasury South Africa

12

SOEs are present in many sectors 55

Government involvement in network sectors from Least (0) to most (6) involved, 2018

44 33 22

00

CHE LTU LUX ZAF SWE LVA NOR FIN TUR SVN POL SVK FRA AUT ISR IRL ARG NZL OECD KOR DEU DNK CZE HUN MEX ISL BEL PRT BRA ITA GRC JPN NLD ESP CAN CHL AUS GBR

11

Note: Network sectors encompass telecommunication, electricity and transport.

Source: OECD 2018 PMR database.

13

The governance of SOEs has to be improved Index scale of 0–6 from least to most involved, 2018 5

4

4

3

3

2

2

1

1

0

0

ARG MEX LTU CAN BEL ZAF BRA NZL LVA ISL CZE IRL LUX GBR AUS ESP FRA POL ITA OECD NLD JPN DNK DEU KOR PRT HUN CHE SWE GRC SVK CHL TUR NOR ISR FIN AUT SVN

5

Source: OECD 2018 PMR database.

14

Regulations are too restrictive Index scale of 0–6 from least to most restrictive, 2018 3.0

2.5

2.5

2.0

2.0

1.5

1.5

1.0

1.0

0.5

0.5

0.0

0.0

GBR DNK ESP DEU NOR LTU SWE AUS NLD NZL LVA CZE HUN SVN ITA PRT CHL OECD ISR FIN IRL JPN POL ISL AUT SVK CHE GRC MEX FRA KOR BEL LUX CAN TUR ZAF BRA ARG

3.0

Source: OECD 2018 PMR database.

15

Investment is declining Economic infrastructure investmentยน General government and public corporations, % of GDP 7

7

6

6

5

5

4

4

3

3

2

2

1

1

0

0

6 2 4 6 2 4 8 0 8 0 0 12 014 016 018 1 9 9 9 9 0 9 0 0 0 0 0 0 9 9 9 1 1 1 19 19 2 2 2 2 2 20 20 20 20 20 1. Roads, bridges, dams, electricity and water supply, etc.

Source: SARB database.

16

Recommendations to improve macroeconomic and structural policies • Implement the budget consolidation strategy and improve spending efficiency • Index wages in the public sector below inflation for 3 years • Separate clearly the responsibilities of the board and the management of SOEs by giving the board the mandate to strategically supervise.

• Restructure SOEs to ensure their financial sustainability including staff reduction and bringing in private participation • Give more independence to regulators in energy, transport and telecom industries vis-à-vis line ministries.

• Increase and improve public investment in transport infrastructure, skills and education More in the Key Policy Insights of the Economic Survey of South Africa 2020

17

BUILDING AN INCLUSIVE SOCIAL PROTECTION SYSTEM

18

Social transfers reduce poverty, which remains high % of population with 60% or less than the median disposable income, 2016 or latest available year After taxes and transfers

50

OECDGraphFakeSeries

50

45

45

40

40

35

35

30

30

25

25

20

20

15

15

10

10

5

5

0

0

OECD

Brazil

China

Costa Rica

India

Russia South Africa

Note: Data for South Africa are 2015 and provisional, Costa Rica are 2018, Brazil are 2013 and China and India are 2011.

Source: OECD Income Distribution and Poverty Database.

19

The number of recipients of social transfers has been increasing Number of recipients Millions 14

Child Support OECDGraphFakeSeries

Old age

Millions 14

12

12

10

10

8

8

6

6

4

4

2

2

0

0

1997/98 1999/00 2000/01 2003/04 2005/06 2007/08 2009/10 2011/12 2013/14 2015/16 2017/18 2018/19

Note: Recipients are only able to claim for one grant at any given time.

Source: South African Social Security Agency: Annual Report 2008/09; South African Social Security Agency: Annual Report 2018/2019.

20

Life expectancy is improving Life expectancy at birth, total population, years 90 85

2006

OECDGraphFakeSeries

90 85 80

75

75

70

70

65

65

60

60

55

55

50

50

45

45

ZAF IND IDN RUS LVA MEX LTU BRA HUN CHN SVK POL TUR EST USA CZE CHL CRI DEU SVN DNK GBR GRC PRT BEL AUT FIN NLD NZL CAN IRL LUX SWE AUS FRA ISR ISL KOR NOR ITA ESP CHE JPN

80

Source: OECD Health Statistics; Statistics South Africa.

21

Pensions are low Gross pension replacement rate of low earners upon retirement % 140

120

120

100

100

80

80

60

60

40

40

20

20

0

0

POL ZAF MEX DEU CHL SVN GBR RUS LVA BEL JPN USA CAN SWE CHE FIN KOR HUN FRA EST IDN NOR OECD GRC IRL TUR ESP SVK CZE PRT ISL AUT NZL ARG AUS ITA BRA IND LUX CHN NLD ISR DNK

% 140

Source: OECD (2017), OECD Pensions at a Glance 2017.

22

Public health expenditure is low Government health spending as % of GDP, 2017 10

9

9

8

8

7

7

6

6

5

5

4

4

3

3

2

2

1

1

0

0

IND IDN MEX CHN RUS TUR LVA CHE BRA LTU ZAF KOR CHL POL LUX ISR HUN EST GRC COL IRL SVK SVN CZE PRT ESP AUS NLD ITA ISL NZL FIN AUT GBR CAN BEL DNK USA FRA DEU NOR JPN SWE

10

Source: WHO Global health expenditure database.

23

Private health spending is high Private health spending as % of GDP, 2017 4.5

4.0

4.0

3.5

3.5

3.0

3.0

2.5

2.5

2.0

2.0

1.5

1.5

1.0

1.0

0.5

0.5

0.0

0.0

NOR LVA LTU SVK EST RUS SWE ISL TUR LUX CZE DNK ITA HUN JPN GRC IND DEU CHN MEX FIN IDN POL GBR ESP BEL PRT KOR CHL AUT NZL COL NLD USA FRA ISR CHE IRL SVN AUS CAN BRA ZAF

4.5

Source: WHO Global health expenditure database.

24

Selected recommendations for building an inclusive social protection system • Consider an additional means-tested support on top of the child support grant for households below the food poverty line.

• Better cover informal workers when introducing the new social protection system • Gradually increase the public financing of health care through a form of public insurance.

• Develop prevention of non-communicable diseases and strengthen the promotion of a healthier lifestyle.

• Entrust an independent body to develop a price schedule for reimbursement of health care.

More in Chapter 1 of the Economic Survey of South Africa 2020 25

BOOSTING TOURISM

26

Global tourism has been hard hit by COVID-19 • OECD estimates a decline in international tourism of 60%-80%.

27

South Africa has the potential to be a global tourism competitor Score from 1 (worst) to 7 (best), 2019 South Africa

7

OECDGraphFakeSeries

7

3

3

2

2

1

1

Source: World Economic Forum (2019), Travel and Tourism Competitiveness Index.

6

4

5

4

4

5

3

5

2

6

1

6

28

140 120 100 80 60 40 20 0

Note: Range of selected competitors include Botswana, Namibia, Mauritius, Kenya and Tanzania.

Source: World Economic Forum (2019), Travel and Tourism Competitiveness Index.

Safety and security

Environmental sustainability

Health and hygiene

Range of African competitors

International Openness

Prioritization of Travel & Tourism

Human resources and labour market

ICT readiness

Tourist service infrastructure

Ground and port infrastructure

Business environment

Air transport infrastructure

Price competitiveness

Cultural resources and business travel

Natural resources

South Africa has great natural resources but many areas can be improved Rank from 1 (best) to 140 (worst), 2019 South Africa

29

The contribution of the tourism sector can be improved In per cent of total GDP, 2018 or latest available year 12

10

10

8

8

6

6

4

4

2

2

0

0

POL JPN COL CAN DNK FIN ROU ISR ZAF SVK CHE USA CZE LTU AUS GBR NOR IND DEU PER IDN EGY NLD LVA OECDยน CRI SVN NZL ITA AUT HUN GRC MAR SWE FRA PRT PHL ISL MEX ESP

12

1. Unweighted average of available countries.

Note: GDP data for France refer to internal tourism consumption. GVA data are used if GDP data are not available. GDP for Greece refer to tourism GVA of industries 55-56 of NACE Rev. 2. GDP data for Spain includes indirect effects.

Source: OECD, Tourism Database.

30

Domestic tourism trips have been declining By purpose, 2007-2018 Millions 40000 OECDGraphFakeSeries

Millions Other personal purposes

40000 Holiday, leisure and recreation

35000

35000

30000

30000

25000

25000

20000

20000

15000

15000

10000

10000

5000

5000

0

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Note: Other personal purposes refer to visiting friends and family.

Source: (World Tourism Organization, 2019).

0 31

Tourist arrivals from high income countries are low 2017 8000 000

8000 000

7000 000

7000 000

6000 000

6000 000

5000 000

5000 000

4000 000

4000 000

3000 000

3000 000

2000 000

2000 000

1000 000

1000 000

0

Africa land

Africa air

Americas

Asia and Australasia

Europe

0

Note: Africa land refers to Botswana, Lesotho, Malawi, Mozambique, Namibia, Swaziland, Zambia, and Zimbabwe. Africa air refers to African countries not included in Africa land.

Source: South Africa Tourism Annual Report, 2017.

32

Selected recommendations for supporting tourism development • Support domestic tourism development to counter seasonality by diversifying products and pricing mechanisms.

• Implement electronic visa programmes on a large scale for emerging target markets.

• Increase the number of countries falling under the visa-waiver agreement.

• Reduce red tape and regulatory burden for entrepreneurs and small enterprises.

• Investments in transport and tourism infrastructure have to be aligned to connect tourists to places.

More in Chapter 2 of the Economic Survey of South Africa 2020 33

For more information Disclaimers: The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law.

This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area.

http://www.oecd.org/economy/south-africa-economic-snapshot/ 34