Page 40 - Energize September 2022

VIEWS AND OPINION

Energy transition key to improve SA’s

living standards

South Africa needs to step up its reform efforts to avoid its economic recovery from the Covid-19
pandemic losing steam, according to a new OECD report.

ersistent weaknesses in productivity growth, and the negative impact of Russia’s war
of aggression against Ukraine on purchasing power through the rise in food and energy
Pprices, continue to weigh on economic activity.
The latest OECD Economic Survey of South Africa says that improving the tax system and
reducing spending inefficiencies would help to put public finances on a more sustainable
path, while taking action to revive productivity growth would help to revive GDP growth and
raise living standards. If needed, the tightening of monetary policy should continue to allow
inflation – which disproportionately affects the poorest households – to return to the SA
Reserve Bank’s target. It is also vital to intensify efforts to raise the country’s low Covid-19
vaccination rate to reduce the health and economic risks from future outbreaks.
“Without a strong and sustained recovery, South Africa risks losing some of its hard-
earned social progress in areas like education, housing, welfare and healthcare,” OECD
Acting Chief Economist Álvaro Pereira said. “Strengthening public finances, creating a
more growth-friendly tax system and fostering higher productivity through enhanced
infrastructure, education and competition and more reliable power supply will be key to get
the recovery back on track and ensure higher living standards.”
The South African government’s decisive response to the pandemic helped to limit its
socio-economic impact. After a rebound of almost 5% in 2021, GDP growth is seen slowing
to 1,8% in 2022 and 1,3% in 2023 and inflation is projected at 6,3% this year, with risks In parallel with fostering economic
remaining from future Covid-19 outbreaks and from the global repercussions of the war in activity, the tax system could be made
Ukraine. more progressive and efficient at raising
the revenues needed to reduce the budget
Electricity shortages deficit and finance investments. For
Electricity shortages remain the most pressing bottleneck to economic activity, with firms hit example, the allowances and deductions
by worsening power cuts following several years of deteriorating energy supply. Proceeding in personal income tax that tend to
with a planned split of state utility company Eskom into three distinct entities for generation, benefit high earners could be reduced
transmission and distribution, and easing regulatory barriers to firm entry would enable other while wealth transfer taxes and estate
producers to enter the market, adding supply as well as bringing down prices, the survey says. duties could be adapted to limit the
Productivity growth is also held back by an insufficient provision of high-quality transmission of wealth inequality. Once
infrastructure, from roads and railways to telecommunications. Improving the effectiveness inflation has abated, there is room to raise
of public investment, in part through strengthening the selection process for large the relatively low VAT rate, balancing that
infrastructure projects, would be a step towards restoring productivity growth. with increased transfers to low-income
Improving skills in line with employer needs will also be key to revive GDP growth. While households.
educational performance has improved in recent years, progress has slowed since 2015 and
the supply of graduates remains limited. Education policy should focus on increasing the Click here for further information
quality of primary and secondary schools and further developing vocational training and on OECD cooperation with
adult learning. Changing the financing formula of universities would reduce the cost per South Africa
student and enable more students to enrol.
Click here to download the
Energy transition complete OECD Economic Survey
Accelerating the green transition by increasing the share of renewable energy would also of South Africa 2022
support growth through investment and reducing electricity shortages. The carbon tax
introduced in 2019 is welcome in a country where coal remains the main energy source, but Send your comments to
the level needs to be gradually increased and exemptions reduced. rogerl@nowmedia.co.za

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