South Africa’s labour markets are not flexible enough to shift workers from one economic activity to another rapidly and at a low cost, and to allow wage fluctuations without much social disruption.
This is one of the findings of the World Economic Forum (WEF) in its Global Competitiveness Report 2012/13, released yesterday.
South Africa dropped 18 places from last year to 113th in labour market efficiency, according to the WEF.
The WEF also singles out rigid hiring and firing practices (143rd), a lack of flexibility in wage determination by companies (140th) and significant tensions in labour/employer relations (144th).
The WEF says efforts must also be made to increase the university enrolment rate in order to develop South Africa’s innovation potential.
“Combined efforts in these areas will be critical in view of the country’s high unemployment rate of almost 25 percent in the second quarter of 2012,” the report says.
In addition, South Africa’s infrastructure, although good by regional standards, requires upgrading, the WEF says.
The poor security situation remains another important obstacle to doing business in South Africa.
However, the country remains the most competitive in sub-Saharan Africa and is placed third among the Brics economies of Brazil, Russia, India, China and South Africa in global competitiveness.
Overall, the country dropped two places in the rankings from 50th in 2011/12 to 52nd this year.
South Africa outranks India, a member of Brics, which is placed 59th, while Switzerland tops the overall rankings for the fourth conservative year.
Singapore remains in second place and Finland in third position, after overtaking Sweden, which falls to fourth.
Northern and western Europe countries dominate the top 10, with the Netherlands (fifth), Germany (sixth) and the UK (eighth). The US (seventh), Hong Kong (ninth) and Japan (10th) complete the ranking of the top 10 most competitive economies.
Scores in the report are calculated by drawing together public and private data in 12 categories – the pillars of competitiveness – that together make up a comprehensive picture of a country’s competitiveness.
The WEF says South Africa benefits from the large size of its economy, particularly by regional standards.
The report says: “It also does well on measures of the quality of its institutions and on factor allocation, such as intellectual property protection (20th), property rights (26th), the accountability of its private institutions (2nd) and its goods market efficiency (32nd).
“South Africa also does reasonably well in more complex areas such as business sophistication (38th) and innovation (42nd), benefiting from good scientific research institutions (34th) and strong collaboration between universities and the business sector in innovation (30th).”