South Africa has made impressive social progress over the past two decades, lifting millions of people out of poverty and broadening access to essential services like water, electricity and sanitation. Now is the time to build on these successes to reduce inequality further, create badly needed jobs and ensure stronger, sustainable and more inclusive growth for all, according to the latest OECD Economic Survey of South Africa.

The Survey, presented in Pretoria by OECD Secretary-General Angel Gurría and South African Finance Minister Nhlanhla Nene, notes that prudent macroeconomic policies have secured the confidence of financial markets. However, economic growth has been too slow and further measures are needed to overcome infrastructure bottlenecks, strengthen the business environment, improve labour markets and ensure future spending needs can be financed.

“The National Development Plan sets the direction for reforms needed for a strong and inclusive country. Our survey provides targeted recommendations to reach these objectives,” Mr Gurría said. “Millions of young South Africans are eager to work, and their potential must not be wasted. Their future is precious enough to justify tough reforms and hard spending choices.” Read the speech.

Improving infrastructure will be essential for boosting future growth and living standards. Given the large needs, prioritisation and cost effectiveness will be crucial, the OECD said.

The most immediate priority is to secure additional electricity generation capacity by opening the market to independent producers. Opening electricity and transport will require strong and independent regulators to protect households and firms.

Improving the regulatory environment would foster entrepreneurship and growth opportunities for SMEs, which offer the greatest potential for creating jobs and future growth, the OECD said. Reducing barriers to entry, cutting red tape and promoting competition, will be essential.

Labour market reforms can raise employment and incomes. Establishing a public employment service as a one-stop shop for job seekers would make it easier for people to find jobs, and for employers to find the right workers. Costly industrial actions have held back the economy without delivering major gains to workers. To reduce conflict and provide better outcomes for workers and employers, the OECD suggests an increased role for mediation and arbitration.

Meeting public spending needs for infrastructure and the social safety net will require a high degree of public sector efficiency, prioritisation of spending and a strong revenue base, the Survey said. The South African tax system is well designed and well administered, but there is scope to broaden key tax bases by reducing deductions, credits and exemptions. Such tax reform would solidify public finances and make the tax system fairer.

» Treasury responds to OECD’s 2015 Economic report.