The Organisation for Economic Co-operation and Development (OECD) said the South African government should reduce supply bottlenecks and lower the regulatory burden and entry barriers in network sectors for the private sector.

The OECD is a Paris-based organisation that works with governments, policymakers and citizens to establish “evidence-based international standards and finding solutions to a range of social, economic and environmental challenges”. 

In its latest economic outlook, the organisation projected South Africa’s GDP growth to slow to 0.3% in 2023 before picking up to 1% in 2024. 

It said higher interest rates and inflation are denting consumption, while electricity outages and lower global growth weigh on exports. 

Investment will, therefore, become a “much-needed driver of growth” in the country as the energy crisis requires additional power generation capacity, the OECD recommended. 

“Investment will boost imports and, together with declines in the terms of trade, widen the current account deficit,” the organisation said.

The OECD’s outlook for South Africa looked grim, as it said the energy crisis would slow the pace of fiscal consolidation as necessary public support to the sector results in additional expenditures. 

In addition, falling commodity prices and slower growth will lower the country’s revenues.

It recommended South Africa broaden its income tax base and raise property and environmental taxes to offset revenue decline and improve equity. 

Of the 60 million people in South Africa, only 7.4 million pay personal income tax (PIT). 1.1% of taxpayers – around 164,000 people – pay 30% of the total PIT in South Africa.

Corporate income tax (CIT) has an even smaller tax base. Only 0.09% of companies in South Africa – 770 large corporates – pay 62.5% of the country’s R336.1 billion CIT.

However, the OECD said reducing supply bottlenecks through investments in the electricity sector should be the priority.

“Lowering the regulatory burden and entry barriers in network sectors, namely rail and energy, would increase supply, foster competition, boost private investment in high-quality infrastructure, improve the quality of services and lower consumer prices,” it said.

“Beyond the positive impact on productivity and growth, lower prices for network services would benefit low-income households the most, helping to curb inequality and poverty.”

In addition, limiting power outages would also increase women’s personal safety and security, increasing incentives for female labour force participation and helping to reduce the incidence of gender-based violence. 

The OECD said regular electricity cuts would continue in 2023 and weigh on the country’s exports. 

However, after a weak patch in 2023, private investment will become the main driver of growth over 2024, particularly in power generation. 

“This should reduce the frequency of electricity cuts and relax constraints on growth by the end of 2024,” it said.

“Rising investment will push up imports, which, together with a decline in terms of trade and supply disruptions to exports, will weigh on the current account.” 

Ending the monopoly

The OECD’s comments came in light of Electricity Minister Kgosientsho Ramokgopa reiterating the government’s stance on reducing South Africa’s reliance on Eskom as the sole electricity provider, with private companies encouraged to compete with the utility. 

“We do not want to be exclusively reliant on Eskom,” Ramokgopa said. His ministry is trying to introduce other players to compete with the utility and provide reliable power.

“Eskom will no longer be a monopoly” but will become a dominant market player. 

Ramokgopa’s comments echo those made by other government officials. 

Deputy Finance Minister David Masondo said the National Treasury does not support a state monopoly in the energy sector, and they will not rely only on Eskom to generate energy.

Minister of Mineral Resources and Energy Gwede Mantashe said the government’s “intention is to reform electricity supply from a monopolistic industry to a competitive one”. 

The government aims to diversify electricity generation sources and “remains resolute in ensuring that such an electricity market structure comes to fruition”. 

However, Mantashe added that it would be a mistake to “totally remove the public sector” from electricity generation. 

He said the government must continue to “ensure the energy sector supplies reliable and efficient energy at competitive rates that are socially equitable”.