OBG talks to Angel Gurría, Secretary-General, OECD

Interview: Angel Gurría

What can South Africa do to maximise its potential and achieve inclusive growth?

ANGEL GURRÍA: The economy is endowed with vast natural resources, a substantially under-utilised labour pool and a well-developed financial sector that secures easy access to global capital markets. Unlocking this potential will not only lead to stronger growth, but will more importantly help millions of citizens out of poverty.

The South African economy offers firm support to large firms that compete in international markets, or that have strong positions in the domestic market. This reflects both a relatively high reliance on natural resources exploited via economies of scale and scope, as well as an industrial structure that was historically based on self-sufficiency. Consequently, exports are concentrated on relatively few goods and services.

Additionally, the contribution of small and mediumsized enterprises (SMEs) to growth and exports is relatively small, and the role of the informal economy is limited. One of the first priorities for securing more diversified and employment-rich growth must be to develop the SME sector. The support must be broad-based and mutually reinforcing, requiring better education systems, stronger product market competition and less confrontational labour market relations.

What can be done to improve coordination between labour, employers and the public sector?

GURRÍA: South Africa’s industrial structure is biased in favour of activities linked to natural resources, a monopolised telecommunications sector, public ownership of key parts of the economy and highly concentrated oligopolistic product markets. Trade unions have also focused on the extension of wage agreements that allow for little flexibility and that, in practice, act as an entry barrier for new workers.

South Africa should seek to better coordinate wage bargaining, with a greater focus on outsiders, including both job seekers and those who want to establish a business. We believe that the government needs to reach out to the social partners for an encompassing policy dialogue. As a first step, limiting the legal extension of sectoral bargains would contribute to job creation, particularly among SMEs.

However, for this approach to be successful over the longer term, it must be combined with measures to improve educational outcomes, reduce the so-called spatial mismatches that occur when many unemployed people live far away from important job creation centres, and facilitate access to credit for small enterprises. Special attention should be paid to tackling youth unemployment. The government has already introduced a wage subsidy for younger workers, but it could go further by providing better job search assistance, and by introducing age-differentiated minimum wages and longer probationary periods for younger workers.

How can South Africa work to protect its economy against external shocks?

GURRÍA: The first task is to ensure that South Africa is better integrated into global value chains and moves its production upwards. Becoming a diversified provider of a wider range of more sophisticated intermediate manufacturing inputs, as well as an exporter of a broader scope of higher value-added goods, will help in this respect. A key challenge is the development of policies that support the growth of SMEs. Such codes once again point to the need for better education systems, well-functioning labour markets and, probably more importantly, competitive markets with easy entry conditions.

There is scope for the government to make product market regulation less restrictive and more competition friendly, notably by reducing red tape. There is also a strong need to lower barriers to entrepreneurship, simplify regulations and ease compliance rules. To this end, expanding the powers and resources of the competition authority would strengthen relevant law enforcement, which together with renewed efforts to liberalise foreign trade and investment would facilitate the entry of new domestic and foreign competitors.