Economic transformation, inclusive growth, and competitiveness:  
                       Towards an Economic Strategy for South Africa 
           
                                        
                        Prepared by Economic Policy, National Treasury 
           
                                        
           
           
           
           
           
           
           
           
           
           
                             
                                        
       Abstract: The combination of low growth and rising unemployment means that South Africa’s 
       economic trajectory is unsustainable. Government should implement a series of growth reforms 
       that promote economic transformation, support labour-intensive growth, and create a globally 
       competitive economy. We start by highlighting five fundamental building blocks of sustainable 
       long-run growth and then identify a series of specific and detailed reforms to raise potential 
       growth. These growth reforms are organized according to the following themes: (i) modernizing 
       network industries; (ii) lowering barriers to entry and addressing distorted patterns of ownership 
       through increased competition and small business growth; (iii) prioritizing labour-intensive growth 
       in  sectors  such  as  agriculture  and  services,  including  tourism; (iv)  implementing  focused  and 
       flexible  industrial  and trade policy; and (v) promoting export competitiveness and harnessing 
       regional  growth  opportunities.  We  estimate  the  economy-wide  impact  of  the  proposed 
       interventions over time based on when they can realistically be implemented, and find they can 
       raise potential growth by 2–3 percentage points and create over one million job opportunities.  
        
        
        
        
        
        
        
        
                            
                                                                                                     Contents 
                            
                           Executive summary...................................................................................................................................................... 3 
                               i.       Modernizing network industries to promote competitiveness and inclusive growth .......... 3 
                               ii.      Lowering  barriers  to  entry  and  addressing  distorted  patterns  of  ownership  through 
                               increased competition and small business growth ............................................................................. 5 
                               iii.     Prioritizing labour-intensive growth: agriculture and services ................................................ 6 
                               iv.      Implementing  focused  and  flexible  industrial  and  trade  policy  to  promote 
                               competitiveness and facilitate long-run growth .................................................................................. 7 
                               v.       Promoting export competitiveness and harnessing regional growth opportunities ............ 9 
                               vi.      Quantifying the impact of proposed growth reforms .............................................................. 9 
                           1       Introduction ...................................................................................................................................................... 11 
                           2       Modernizing network industries .................................................................................................................... 18 
                               2.1          Electricity: planning, pricing, and Eskom’s sustainability ................................................. 19 
                               2.2          Telecommunications: competition, spectrum allocation, and broadband roll-out ........ 22 
                               2.3          Transport: regulation, pricing, and competition ................................................................. 24 
                               2.4          Water: infrastructure, regulation, and institutional models ............................................... 26 
                           3       Lowering barriers to entry and addressing distorted patterns of ownership through increased 
                           competition and small business growth ................................................................................................................. 27 
                               3.1          Lower barriers to entry to address distorted patterns of ownership ............................... 28 
                               3.2          Promote the growth of small, micro, and medium enterprises ........................................ 31 
                                   Leverage the role of public procurement...................................................................................... 33 
                                   Reduce red tape ................................................................................................................................ 33 
                                   Broaden financing options .............................................................................................................. 36 
                           4       Prioritizing labour-intensive growth: the role of agriculture and services .............................................. 36 
                               4.1          The role of agriculture in promoting labour-intensive growth ......................................... 37 
                                   Innovative  joint  ventures  can  boost  agricultural  production  and  promote  agrarian 
                                   transformation .................................................................................................................................. 37 
                               4.2          Create an enabling environment for investment in agriculture ........................................ 39 
                                   Implement innovative financing solutions required by farmers ................................................ 39 
                                   Introduce adequate and affordable agriculture insurance .......................................................... 40 
                                   Improve extension services for smallholder and emerging farmers ......................................... 40 
                                   Enhance trade promotion, market access, and access to water for irrigated agriculture ....... 41 
                                   Invest in establishing innovative market linkages for smallholders .......................................... 41 
                               4.3          Harnessing a growing services sector to boost economic transformation ..................... 42 
                                   The importance of growing tourism for inclusive growth and transformation ...................... 42 
                           5       Implementing focused and flexible industrial and trade policy ................................................................ 44 
                           6       Promoting export competitiveness and harnessing regional growth opportunities.............................. 50 
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                    6.1      Implement cross-cutting interventions to boost the export competitiveness of firms 50 
                    6.2      Leverage regional opportunities to promote export growth............................................. 52 
                    6.3      Harness regional opportunities: transport, energy, and construction .............................. 53 
                  7    Quantifying the impact of proposed reforms ............................................................................................. 54 
                    7.1      Short-term scenarios ............................................................................................................... 54 
                    7.2      Medium-term scenarios .......................................................................................................... 55 
                    7.3      Long-term scenarios ............................................................................................................... 58 
                    7.4      Other considerations .............................................................................................................. 59 
                    7.5      Scenario results ........................................................................................................................ 59 
                  References ................................................................................................................................................................... 62 
                   
                   
                                                     
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