South Africa: Selected Issues

This Selected Issues paper focuses on structural reforms to bolster South Africa’s business environment. South Africa stands out as having one of the most restrictive business environments among peers. Burdensome government regulations, especially for licensing and permitting, weak procurement practices, and limited competition can pose risks to business confidence and investment, stifle innovation, increase compliance costs. Because they burden small firms disproportionately, they particularly inhibit job creation potential. The econometric analysis, using cross-country firm-level data, finds that product market regulations, notably related to licensing and permitting, hinder firms’ growth and productivity. This is particularly true for South African firms, and especially small firms, where a high regulatory burden is associated with slower sales growth, weaker employment growth, and lower productivity. Building on these results, the paper identifies specific product-market reforms that could help boost business dynamism and job creation, thereby contributing to addressing South Africa’s weak growth and high unemployment.