JOHANNESBURG (Reuters) - South Africa should increase export performance and guard against rand strength to boost its long-term economic growth, the OECD said on Monday.
In its first major survey of Africa's biggest economy, the Organisation for Economic Co-operation and Development said South Africa needed to boost growth to create jobs and limit its reliance on local demand.
Most analysts expect South Africa's economic growth to average 3-3.5 percent in the next three years, lower than potential growth, which the South African Reserve Bank (SARB) has put at 4.5 percent.
But the OECD said the economy will have benefited from the World Cup this year and growth will exceed potential in 2011.
South Africa exited its first recession in almost two decades in the third quarter of 2009, helped by monetary and fiscal stimulus.
"There is now a need to ensure a rapid recovery from the downturn and to boost trend growth and thereby create the millions of jobs required to make full use of South Africa's large supply of under-utilised human resources," the OECD said.
"But macroeconomic policy stimulus should be removed only gradually as a self-sustaining recovery, led by the private sector, takes hold."
The National Treasury has spent billions on infrastructure, and the central bank has cut interest rates by 5.5 percentage points since December 2008. Analysts expect rates to be left at a three-decade low of 6.5 percent this week.
Key to boosting growth will be higher exports and savings, factors that have characterised growth in other countries.
"Policy action to increase savings and strengthen export performance are therefore warranted," the report said.
South Africa's exports fell in Q1, partly due to growth worries in key trading partner Europe and the strong rand.
"South Africa should do more to resist waves of real appreciation of the rand associated with surges in private capital inflows, which are largely driven by investor sentiment towards emerging markets in general, and commodity plays in particular," the OECD said.
Unions and some producers have called for the government to take steps to weaken the rand, which is considered relatively strong at current levels of around 7.60 to the dollar after gaining close to 30 percent last year.
The central bank has said it will not target a level for the rand but would build reserves when appropriate.
For its part, the government has raised concern about the gross savings rate, which at 16 percent of GDP in the first quarter leaves South Africa very reliant on foreign investment.
POLICY IMPROVEMENTS
The OECD said South Africa's fiscal prudence, which was eroded during the recession, could be improved.
"South Africa ... would benefit from stronger fiscal institutions to prevent unwarranted fiscal expansion when the economy is strong," the OECD said.
"The monetary policy framework ... could be refined to bolster the credibility of inflation targets and to exploit scope for limiting exchange rate fluctuations," it said.
Central bank governor Gill Marcus has said the rand's volatility makes planning difficult.
Another concern was above-inflation wage increases granted to labour unions, which analysts have said are a constraint to job creation in a country where a quarter of the labour force is unemployed.
The OECD said there should be greater co-ordination between wage bargaining and macro-economic policy.
Co-ordination could help bring about "wage changes with lower nominal increases and an improved inflation performance. Lower and less variable inflation could in turn permit the SARB to maintain lower real interest rates ... which would be supportive for growth," the OECD said.
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