beyondbrics

South African elites like to see their country as a potential BRIC, one of those rapidly developing countries whose emergence is changing the shape of the world economy.

And at first glance, the publication this week by the Paris-based Organisation for Economic Co-operation and Development of its first ever report on the country reinforces this orthodox view.

After all, South Africa is one of five significant developing countries (Brazil, India, China and Indonesia) with which the OECD is engaged in what it describes as “enhanced engagement”.

Reading the OECD report, however, provides a useful reminder of how far South Africa has to go. The country – as the World Cup has shown – may have first world roads and football stadiums, but even by developing world standards South Africa has worryingly high levels of structural unemployment. Indeed, the report claims that “few if any countries have seen such high sustained levels of open unemployment.”

Whereas Brazil, India, China and Indonesia on average provide employment for about 65 per cent of their working age population (only slightly less than the average for the OECD countries as a whole), South Africa is able to offer jobs to only about 40 per cent, a number which actually fell during the last decade.

Youth unemployment is especially serious – affecting one in two black South Africans aged between 15 and 24. Apartheid’s legacy – especially its dysfunctional spatial segregation with its “long, expensive, and sometimes dangerous trips for job search and commuting” – have a lot to do with this, but the worrying thing is that the situation has been getting worse over the past 16 years.

For example, the report talks about “growing dualism” in labour markets and – in spite the government’s efforts to promote black economic empowerment – a “low level of entrepreneurialism among the black population”.

Against the scale of these deficits, some of the OECD’s policy suggestions are necessary but hardly sufficient. Yes, stricter Chilean-style counter-cyclical fiscal policy; more active policies to curb the appreciation of the Rand; and labour market policies designed to help the unemployed would all be positive steps forward. It would also help if – as the OECD suggests – the ruling African National Congress persuaded its trades union allies to think a little less about their own members’ narrow self-interest and a little more about the wider interests of the poor.

But above all, South Africa has to grow much faster over a longer period. (At the press conference called to highlight the report Pravin Gordhan, the finance minister, talked about 6-7 per cent growth rates over 20 years compared to recent annual average rates of nearer 3 per cent).

One urgent priority must be to accelerate the recent build-up in infrastructure spending. Here the emphasis must be on tempting the private sector to do more. True, public investment now accounts for about 9 per cent of GDP compared to only about 4 per cent six years ago but private investment is stagnant at about 13 per cent.

With its excellent toll roads South Africa has shown that public private partnerships can work. But the government now needs to act faster in order to attract private capital to areas such as the railways and power plants which have traditionally been fiefdoms of the public sector. That could be politically sensitive but the government has already identified the need for billions of dollars of investments and it is unlikely to raise all the money itself.

Overall the message is clear – plenty of work still needs to be done.

Related:

World Cup 2010 – In depth