OECD Maps Out Ideas to Fix South Africa's Economic Problems

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Written by Richard Finlayson, Senior International Editor for Industrial Info Resources (Sugar Land, Texas)--The latest Organization for Economic Cooperation and Development (OECD) report on South Africa points to many problems the country is facing as it battles with high unemployment, labor unrest and contention over regulatory directions. But it may have been published at a moment when it could boost the latent local commitment to tackle and find solutions to the problems.

The OECD said that the interaction of weak competition in domestic product markets and dysfunctional labor markets was holding back growth in South Africa and aggravating unemployment.

OECD secretary general Angel Gurria presented the report to the country's finance minister in Johannesburg this week, and he emphasized that the overarching policy objective should be to boost the country's dismally low employment in both the short and long terms.

The report argued that the key to improving the functioning of the labor market was to find ways to ensure that collective bargaining reflects the interests of a wider range of workers than it does at present.

"One way of doing that would be to reduce the extent to which wage bargaining was determined at the sectorial level, which represented a barrier to the entry for small business," said the report.

It suggested that labor market performance tended to be better where the gap between the union membership and the number of workers covered by collective bargaining was small. It added that the most obvious way of reducing this gap in South Africa is to narrow the scope for administrative extension of collective bargains in sectors covered by bargaining councils.

The report recommended simplifying regulations and easing compliance by making product market regulation less restrictive, particularly as regards barriers to entrepreneurship.

Education was a critical problem in addressing the catastrophically high unemployment among the youth, which stood at 51% in the fourth quarter of 2012. South African educational outcomes are poor on average and extremely uneven. This is aggravating the excess supply of unskilled labor and worsening income equality.

The OECD gave top marks to South Africa's National Development Plan as an effective long-term blueprint for the economy, but warned that its breadth risks overtaxing the available implementation capacity.

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