OECD ECONOMIC SURVEY OF SOUTH AFRICA 31 July 2020, Paris - Pretoria
http://www.oecd.org/economy/south-africa-economic-snapshot/ @OECDeconomy
@OECD
Key messages • Improve the quality of public health care and broaden access to private health care services. • Restore fiscal sustainability. • Implement structural policy reforms to boost competition, restructure SOEs and develop infrastructure investment. • Support and lift barriers in the tourism industry.
2
COVID-19 infections are accelerating Per million inhabitants 120
New confirmed COVID-19 cases Per day, 4-day moving average
100 80 60 40 20 0
Source: OECD calculations based on Ourworldindata. 3
Unemployment is increasing 32
Unemployment rate % of labour force
30 28 26 24 22 20
Source: Statistics South Africa. 4
Inflation has slowed down Year-on-year % change 9
Headline inflation
Core inflationยน
9
8
8
7
7
6
6
5
5
4
4
3
3
2
2
1. Consumer price index excluding food and NAB, fuel and energy. Source: Statistics South Africa; SARB Database.
5
Growth has collapsed and the recovery will be gradual GDP at constant prices, index 2019Q4=100, seasonally adjusted 105
Single-hit scenario
OECDGraphFakeSeries
100
105
100
95
95
90
90
85
85
Source: OECD Economic Outlook database June 2020 projections.
6
Macroeconomic projections
Growth rates, unless specified
2019
2020
2021
Single-hit scenario Gross domestic product (GDP)
0.2
-7.5
2.5
Unemployment rate (% of labour force)
28.7
33.9
34.9
4.1
3.5
3.7
-3.0
-3.0
-2.5
Consumer price index Current account balance (% of GDP)
Double-hit scenario Gross domestic product (GDP)
0.2
-8.2
0.6
Unemployment rate (% of labour force)
28.7
34.0
35.8
4.1
3.4
3.3
-3.0
-3.1
-3.0
Consumer price index Current account balance (% of GDP) Source: OECD Economic Outlook 107 database.
7
Recommendations to strengthen the response to the crisis • Lower interest rates to further support the recovery. • Provide temporary financial support to households and businesses to protect livelihoods and employment. • Increase and extend financial relief support in sectors hard hit by the crisis particularly if there is a renewed virus outbreak later in the year. • Develop testing, tracking and isolation to limit further infections and augment medical capacity to treat infected people. 8
MACROECONOMIC AND STRUCTURAL POLICIES TO RESTORE GROWTH
9
Public debt is increasing 160 140 120
Gross debt, % of GDP Reform scenario Active scenario, Treasury June 2020 Passive scenario, Treasury June 2020 OECDGraphFakeSeries
160 140 120
100
100
80
80
60
60
40
40
20
20
Note: The Active and Passive scenarios are from the Supplementary budget presented by the National Treasury before the parliament in June. It shows the debt dynamics in a no action configuration versus implementing spending cuts that reduces the deficit. The progressive consolidation scenario corresponds to an improvement of the deficit by 1 pp of GDP each year until 2030 and to a 2% GDP growth from 2025. The reform scenario takes into account the effects of implementing structural reforms that would increase potential growth to 3.5% from 2025. Source: OECD calculations.
10
The government wage bill is high Compensation of employees, general government; % of GDP, 2019 or latest available year 14
14
12
12
10
10
8
8
6
6
4
4
2
2
0
0
OECD
Brazil
China Costa Rica India
RussiaSouth Africa ZAF
BRA
Source: IMF, Government Finance Statistics database; Budget Review 2020, National Treasury, South Africa
11
The wage bill is driven by high wages A. Employment in general government as a % of total employment, 2017 or latest available year 30 20 10
JP N KOR ZA F CH E D EU C RI LU X TUR N LD IT A IRL PRT USA ES P AUT CZE G BR SVN G RC O ECD CA N BEL SVK IS R LV A FR A HUN LT U ES T FIN SW E DN K N OR
35 30 25 20 15 10 5 0
B. Compensation of senior professional to GDP per capita
Ratio in 2015 6 5 4 3 2 1 0
JPN KOR ZAF CHE DEU CRI LUX TUR NLD ITA IRL PRT USA ESP AUT CZE GBR SVN GRC OECD CAN BEL SVK ISR LVA FRA HUN LTU EST FIN SWE DNK NOR
Ratio in 2015 6 5 4 3 2 1 0
0
Note: Total employment refers to the domestic employment. South Africa number regroups all non-managers on regular pay scale and refers to 2017. Source: OECD National Accounts database; ILO, ILOSTAT database; Statistics South Africa, Quarterly Employment Statistics (QES), OECD Government at a Glance 2017 and MTBR 2018, National Treasury South Africa
12
SOEs are present in many sectors 55
Government involvement in network sectors from Least (0) to most (6) involved, 2018
44 33 22
00
CHE LTU LUX ZAF SWE LVA NOR FIN TUR SVN POL SVK FRA AUT ISR IRL ARG NZL OECD KOR DEU DNK CZE HUN MEX ISL BEL PRT BRA ITA GRC JPN NLD ESP CAN CHL AUS GBR
11
Note: Network sectors encompass telecommunication, electricity and transport. Source: OECD 2018 PMR database.
13
The governance of SOEs has to be improved Index scale of 0–6 from least to most involved, 2018 5
4
4
3
3
2
2
1
1
0
0
ARG MEX LTU CAN BEL ZAF BRA NZL LVA ISL CZE IRL LUX GBR AUS ESP FRA POL ITA OECD NLD JPN DNK DEU KOR PRT HUN CHE SWE GRC SVK CHL TUR NOR ISR FIN AUT SVN
5
Source: OECD 2018 PMR database.
14
Regulations are too restrictive Index scale of 0–6 from least to most restrictive, 2018 3.0
2.5
2.5
2.0
2.0
1.5
1.5
1.0
1.0
0.5
0.5
0.0
0.0
GBR DNK ESP DEU NOR LTU SWE AUS NLD NZL LVA CZE HUN SVN ITA PRT CHL OECD ISR FIN IRL JPN POL ISL AUT SVK CHE GRC MEX FRA KOR BEL LUX CAN TUR ZAF BRA ARG
3.0
Source: OECD 2018 PMR database.
15
Investment is declining Economic infrastructure investmentยน General government and public corporations, % of GDP 7
7
6
6
5
5
4
4
3
3
2
2
1
1
0
0
6 2 4 6 2 4 8 0 8 0 0 12 014 016 018 1 9 9 9 9 0 9 0 0 0 0 0 0 9 9 9 1 1 1 19 19 2 2 2 2 2 20 20 20 20 20 1. Roads, bridges, dams, electricity and water supply, etc. Source: SARB database.
16
Recommendations to improve macroeconomic and structural policies • Implement the budget consolidation strategy and improve spending efficiency • Index wages in the public sector below inflation for 3 years • Separate clearly the responsibilities of the board and the management of SOEs by giving the board the mandate to strategically supervise. • Restructure SOEs to ensure their financial sustainability including staff reduction and bringing in private participation • Give more independence to regulators in energy, transport and telecom industries vis-à-vis line ministries. • Increase and improve public investment in transport infrastructure, skills and education More in the Key Policy Insights of the Economic Survey of South Africa 2020
17
BUILDING AN INCLUSIVE SOCIAL PROTECTION SYSTEM
18
Social transfers reduce poverty, which remains high % of population with 60% or less than the median disposable income, 2016 or latest available year After taxes and transfers
50
OECDGraphFakeSeries
50
45
45
40
40
35
35
30
30
25
25
20
20
15
15
10
10
5
5
0
0
OECD
Brazil
China
Costa Rica
India
Russia South Africa
Note: Data for South Africa are 2015 and provisional, Costa Rica are 2018, Brazil are 2013 and China and India are 2011. Source: OECD Income Distribution and Poverty Database.
19
The number of recipients of social transfers has been increasing Number of recipients Millions 14
Child Support OECDGraphFakeSeries
Old age
Millions 14
12
12
10
10
8
8
6
6
4
4
2
2
0
0
1997/98 1999/00 2000/01 2003/04 2005/06 2007/08 2009/10 2011/12 2013/14 2015/16 2017/18 2018/19
Note: Recipients are only able to claim for one grant at any given time. Source: South African Social Security Agency: Annual Report 2008/09; South African Social Security Agency: Annual Report 2018/2019.
20
Life expectancy is improving Life expectancy at birth, total population, years 90 85
2006
OECDGraphFakeSeries
90 85 80
75
75
70
70
65
65
60
60
55
55
50
50
45
45
ZAF IND IDN RUS LVA MEX LTU BRA HUN CHN SVK POL TUR EST USA CZE CHL CRI DEU SVN DNK GBR GRC PRT BEL AUT FIN NLD NZL CAN IRL LUX SWE AUS FRA ISR ISL KOR NOR ITA ESP CHE JPN
80
Source: OECD Health Statistics; Statistics South Africa.
21
Pensions are low Gross pension replacement rate of low earners upon retirement % 140
120
120
100
100
80
80
60
60
40
40
20
20
0
0
POL ZAF MEX DEU CHL SVN GBR RUS LVA BEL JPN USA CAN SWE CHE FIN KOR HUN FRA EST IDN NOR OECD GRC IRL TUR ESP SVK CZE PRT ISL AUT NZL ARG AUS ITA BRA IND LUX CHN NLD ISR DNK
% 140
Source: OECD (2017), OECD Pensions at a Glance 2017.
22
Public health expenditure is low Government health spending as % of GDP, 2017 10
9
9
8
8
7
7
6
6
5
5
4
4
3
3
2
2
1
1
0
0
IND IDN MEX CHN RUS TUR LVA CHE BRA LTU ZAF KOR CHL POL LUX ISR HUN EST GRC COL IRL SVK SVN CZE PRT ESP AUS NLD ITA ISL NZL FIN AUT GBR CAN BEL DNK USA FRA DEU NOR JPN SWE
10
Source: WHO Global health expenditure database. 23
Private health spending is high Private health spending as % of GDP, 2017 4.5
4.0
4.0
3.5
3.5
3.0
3.0
2.5
2.5
2.0
2.0
1.5
1.5
1.0
1.0
0.5
0.5
0.0
0.0
NOR LVA LTU SVK EST RUS SWE ISL TUR LUX CZE DNK ITA HUN JPN GRC IND DEU CHN MEX FIN IDN POL GBR ESP BEL PRT KOR CHL AUT NZL COL NLD USA FRA ISR CHE IRL SVN AUS CAN BRA ZAF
4.5
Source: WHO Global health expenditure database.
24
Selected recommendations for building an inclusive social protection system • Consider an additional means-tested support on top of the child support grant for households below the food poverty line. • Better cover informal workers when introducing the new social protection system • Gradually increase the public financing of health care through a form of public insurance. • Develop prevention of non-communicable diseases and strengthen the promotion of a healthier lifestyle. • Entrust an independent body to develop a price schedule for reimbursement of health care. More in Chapter 1 of the Economic Survey of South Africa 2020 25
BOOSTING TOURISM
26
Global tourism has been hard hit by COVID-19 • OECD estimates a decline in international tourism of 60%-80%.
27
South Africa has the potential to be a global tourism competitor Score from 1 (worst) to 7 (best), 2019 South Africa
7
OECDGraphFakeSeries
7
3
3
2
2
1
1
Source: World Economic Forum (2019), Travel and Tourism Competitiveness Index.
6
4
5
4
4
5
3
5
2
6
1
6
28
140 120 100 80 60 40 20 0
Note: Range of selected competitors include Botswana, Namibia, Mauritius, Kenya and Tanzania. Source: World Economic Forum (2019), Travel and Tourism Competitiveness Index.
Safety and security
Environmental sustainability
Health and hygiene
Range of African competitors
International Openness
Prioritization of Travel & Tourism
Human resources and labour market
ICT readiness
Tourist service infrastructure
Ground and port infrastructure
Business environment
Air transport infrastructure
Price competitiveness
Cultural resources and business travel
Natural resources
South Africa has great natural resources but many areas can be improved Rank from 1 (best) to 140 (worst), 2019 South Africa
29
The contribution of the tourism sector can be improved In per cent of total GDP, 2018 or latest available year 12
10
10
8
8
6
6
4
4
2
2
0
0
POL JPN COL CAN DNK FIN ROU ISR ZAF SVK CHE USA CZE LTU AUS GBR NOR IND DEU PER IDN EGY NLD LVA OECDยน CRI SVN NZL ITA AUT HUN GRC MAR SWE FRA PRT PHL ISL MEX ESP
12
1. Unweighted average of available countries. Note: GDP data for France refer to internal tourism consumption. GVA data are used if GDP data are not available. GDP for Greece refer to tourism GVA of industries 55-56 of NACE Rev. 2. GDP data for Spain includes indirect effects. Source: OECD, Tourism Database.
30
Domestic tourism trips have been declining By purpose, 2007-2018 Millions 40000 OECDGraphFakeSeries
Millions Other personal purposes
40000 Holiday, leisure and recreation
35000
35000
30000
30000
25000
25000
20000
20000
15000
15000
10000
10000
5000
5000
0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Note: Other personal purposes refer to visiting friends and family. Source: (World Tourism Organization, 2019).
0 31
Tourist arrivals from high income countries are low 2017 8000 000
8000 000
7000 000
7000 000
6000 000
6000 000
5000 000
5000 000
4000 000
4000 000
3000 000
3000 000
2000 000
2000 000
1000 000
1000 000
0
Africa land
Africa air
Americas
Asia and Australasia
Europe
0
Note: Africa land refers to Botswana, Lesotho, Malawi, Mozambique, Namibia, Swaziland, Zambia, and Zimbabwe. Africa air refers to African countries not included in Africa land. Source: South Africa Tourism Annual Report, 2017.
32
Selected recommendations for supporting tourism development • Support domestic tourism development to counter seasonality by diversifying products and pricing mechanisms. • Implement electronic visa programmes on a large scale for emerging target markets. • Increase the number of countries falling under the visa-waiver agreement. • Reduce red tape and regulatory burden for entrepreneurs and small enterprises. • Investments in transport and tourism infrastructure have to be aligned to connect tourists to places. More in Chapter 2 of the Economic Survey of South Africa 2020 33
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http://www.oecd.org/economy/south-africa-economic-snapshot/ 34