Improving the Business Environment for Growth and Job Creation in South Africa : The Second Investment Climate Assessment

The study analyzes some of the policy constraints to growth and job creation in South Africa based on a recent World Bank enterprise survey. The survey and other data show that South Africa'¬"s overall business environment is good relative to its peer group of upper- middle-income economies, and has improved a great deal in recent years. However, despite the advantages this should give it in trade and as a location of investment, South Africa is not exporting or attracting FDI as much as it needs to tackle its twin challenges of high unemployment and widespread poverty. The report argues that South Africa is not doing as well as most in its peer group in terms of manufactured exports because its manufacturing productivity is relatively low, not because its manufacturers are inherently less productive than their counterparts within the peer group, but because allocative efficiency is lower in South Africa industry. This has partly to do with the relatively high concentration of industry in the country. Improving allocative efficiency will therefore require the institution of a more activist and innovative competition policy than has been pursued so far. It also requires improvements in other key elements of the business environment including the provision of infrastructure, skills development, crime prevention and small business access to finance. Business environment reforms should also be aimed at promoting the growth and formalization of promising informal enterprises as an important tool of job creation.