South Africa has extraordinary growth potential, though low public investment and high costs of doing business have been holding back growth. Major structural reforms are needed to boost productivity and advance the country towards meeting its goals of durably reducing poverty and unemployment, according to a new OECD report.
The latest OECD Economic Survey of South Africa projects that real GDP will grow by 1.3% this year and 1.4% in 2026. Unemployment will remain elevated, at close to 32% in 2026. Inflation is projected to decline to 3.2% in 2025 before increasing to 4.2% in 2026 as economic activity gains momentum.
"Prudent macroeconomic policies and structural reforms are central to durably boost productivity and employment," OECD Director of Country Studies Luiz de Mello said, presenting the Survey in Pretoria alongside South Africa's Deputy Minister of Finance Ashor Sarupen. "Public spending should be controlled through strengthened fiscal rules and refocused, notably to allow for higher public investment while protecting social spending."
To unlock job creation, reform needs to ease barriers to business dynamism and align transport and housing policies and urban planning. This includes prioritising housing near public transport, promoting rental housing near city centres and reforming restrictive building regulations.
Despite major progress, important challenges remain to address electricity shortages. Priority should be given to establishing a competitive electricity market, with higher private investment and a more efficient transmission network. Redefining the role of municipalities, including with greater retail competition and potentially concessions, would improve distribution and services for consumers.
Further action is needed for South Africa to reduce greenhouse gas emissions in line with its climate goals, and to adapt to climate risks. Renewables have a key role to play to ensure both energy security and the green transition. Gradually increasing the net effective carbon price, improving public transport and ensuring municipalities can implement adaptation policies will be key.
