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OECD: SA’s growth is lagging

South Africa’s economic growth was low for a middle-income country, Organisation for Economic Co-operation and Development (OECD) secretary-general Angel Gurría said yesterday.

Releasing the results of the OECD’s third economic survey of the country in Midrand yesterday, he said sluggish growth of about 2.5 percent this year should be “tackled decisively”.

Finance Minister Pravin Gordhan says the OECD's latest economic survey has common themes with the NDP. Photo: Simphiwe Mbokazi. Credit: Independent Newspapers

The survey, the third in the series, identifies weaknesses in the economy and suggests remedies, which Gurría highlighted. In response, Finance Minister Pravin Gordhan noted there were “common themes” between the survey’s conclusions and the National Development Plan, which is now seen as the linchpin of local policy.

The report addressed a number of controversial issues, and effectively accused large companies and organised labour of colluding to keep competitive forces at bay.

Lack of competitiveness and dysfunctional labour markets, Gurría said, were holding back growth and increasing unemployment.

The report notes: “Large firms are able to share their excess returns with employees, via collective bargaining. And in many sectors those bargains, including the setting of sectoral minimum wages, are administratively extended to the whole sector.”

The OECD said this practice represented a barrier to entry for small businesses.

“The result is 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.”

The report notes: “Millions of South Africans are excluded from work, contributing to poverty, inequality and crime.”

It argues for measures to strengthen product market competition and improve the functioning of labour market institutions. It suggests curtailing the legal extension of collective bargaining agreements to the sector and allowing outsiders a greater influence on wages and conditions.

Gurría said these measures would make more inclusive growth possible.

The report notes, however, that “despite the recent high profile mining disputes” wage pressures are easing and collective bargaining agreements in the private sector have been on a down trend since 2008.

The report also argues there is scope to reduce interest rates to support economic growth, while simultaneously reducing the government budget deficit faster than planned.

Gurría said lower interest rates would be less rand supportive, allowing exporters the benefit of a weaker currency. However, he stressed he was not suggesting targeting a certain level for the rand.

Labour market policy, the level of interest rates and the exchange rate have all been the subject of heated debate in recent years. And the suggestion of a faster reduction of the budget deficit could spark a further debate.

Gordhan said in reply that he believed a too-fast deficit reduction could do more harm than good.

The OECD identified education as “a critical problem”, which created a mismatch between available skills and jobs. South African pupils performed poorly in international tests, including against other African countries, Gurría said.

The report identified a positive feature of the economy: the robustness of the financial system through the crisis and beyond. South Africa has an unusually developed and well-supervised financial system, and the banking system came through the 2008/9 recession in relatively good health.

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