Another call for urgent reform

The Organization for Economic Co-operation and Development (OECD) has released its new economic survey of SA, which comes hot on the heels of the IMF’s article IV annual report on SA published earlier in July.

The basic message is similar and we hardly need multilateral organisations to convey it: the country’s economy is in big trouble, the future welfare of its citizens is looking worse not better and the country urgently needs to do something about it.

As OECD secretary-general Angel Gurria diplomatically put it on Monday: “SA has accomplished many great things in the past two decades, but building stronger and more inclusive growth will require bold action from policy makers.”

Some of SA’s policy makers claim to recognise this, one of whom is Finance Minister Malusi Gigaba, who attended the launch of the OECD report and again trumpeted his 14-point plan as the recipe which would address the challenges of slow domestic growth, emphasising that the government agreed with the OECD’s observations and was doing much to respond to its recommendations.

But is it really? Almost everyone agrees that fiscal and monetary policy cannot get SA out of the hole and that structural reforms will be needed to lift the economy’s potential to grow and create jobs.

“Structural reforms” tend to mean different things to different people, but the OECD focuses on two areas in particular: deepening regional integration in the Southern African Development Community (Sadc) and boosting entrepreneurship and growing small businesses to create jobs. These are reforms to which SA’s policy makers pay plenty of lip service. Whether they actually do anything is another question. The OECD report spells out the ways in which SA has constrained progress in both areas — and makes it clear what kinds of bold action would be needed.

It says, for example, that intraregional trade in SA’s neighbourhood is low compared with other communities and nontariff barriers are “pervasive”, while customs procedures remain costly and complex. It talks of the lack of proper infrastructure and institutions, as well as skills shortages, regulatory barriers and monopolistic practices that lie behind weak trade and production links in the region. It calls for a series of measures such as reducing nontariff barriers within the Sadc, simplifying rules of origin and upgrading IT at customs posts.

SA is not the only country in the region responsible for all of this but, as by far the largest regional power, SA has done little. The absence of action is even more stark when it comes to entrepreneurship and small business. Here, the OECD’s report makes it clear that much more is needed than funding initiatives or procurement rules.

The OECD talks about the red tape and licensing which create large burdens for small firms, as do minimum wages. It cites the regulation of network sectors and the resulting cost and quality issues as constraints, as is SA’s poor education, which hampers entrepreneurship. The OECD calls for reforms to reduce red tape and licensing requirements as well as for SA to open up the telecoms, energy, transport and services sectors to greater competition. None of this features in Gigaba’s 14-point plan. There evidently is no appetite in the government for rolling back the ever more extensive web of regulations and rules that makes life difficult for smaller businesses. Nor is there much sign of that oft-expressed commitment to making trade easier across SA’s borders with its neighbours.

The government can talk structural reform with the best of them. But bold action, especially if it involves anything unpopular, is not on the agenda.

BUILDING MORE INCLUSIVE GROWTH WILL REQUIRE BOLD ACTION FROM POLICYMAKERS