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It made specific reference to SA's great state-owned behemoths including Eskom, Transnet and Telkom - the latter of which it identified as "oligopolistic".
"The lack of competition and uncertain decision-making process in network industries impede efficient development in terms of productivity and innovation, with negative spill-over effects for the whole economy," it said.
This, according to the OECD, is magnified by the concentration of ownership and the disproportionate influence of conglomerates.
"In South Africa, much remains to be done in this area. The case of the transport company Transnet is particularly striking, as this public company groups together several network monopolies (rail freight, ports infrastructure and pipelines). The cost of trading across borders - in particular shipping goods from and to South African ports - is identified as a major barrier for businesses," it said.
This competition shortfall also extended to the small- and medium-sized enterprise (SME) sector - which the OECD said was also being stifled. "The economy is rightly seen as suffering," it said.
Mike Schüssler, an economist from T-sec, said the report was good for SA. "It allows us to be compared to the big emerging markets like Brazil, India, China - who are either all part of thew OECD or have had a report done on their country by the OECD.
"This means that we can therefore compare ourselves against them to see where our problems and achievements lie. It's a very serious thing to be compared to the world's rich countries."
Commenting on state-owned utilities, the OECD observed that their continued existence had deep roots in SA's past.
"High concentration is in part the legacy of SA history: under apartheid, the product market was characterised by huge distortions and has been shaped by policies of monopoly concessions, protection of incumbents from foreign competition and state support to key sectors.
The emphasis on industrial policies risks preserving the apartheid-era pattern of protected national champions insulated from foreign competition and enjoying high mark-ups. This runs counter to the acknowledged need to enhance the level of competition in the economy.
SA's problems were "multi-faceted" but sound macroeconomic policies that lifted competition would "unleash the enormous potential of South Africa's labour force," the OECD report said in its executive summary.
Commenting on the country's competitiveness, the report said the overall burden of regulation in SA was "heavy". "Weak competition throughout the state-dominated sectors has translated into higher cost for firms and citizens," it said.
State interference and ownership of some companies created high barriers of entry in many areas in the economy, it said.
South Africa's product market is very restricted by international standards, but the OECD said that strengthening competition could contribute a great deal to the achievement of improved resource allocation and technical efficiency.
"Given the complementarities that exist among different elements of regulatory reform, the creation of a broad, coherent and systematic framework for the conduct of regulatory policy would generate synergies between different product market reforms," it said.
In addition, the report said that more vigorous competition, achieved by depressing excessive margins, would also help contain inflationary pressures - which are expected to remain severe for some while to come.
"Policies to strengthen domestic competition and increase openness to trade and direct investment thus promise substantial payoffs in a range of areas," it said.
- Fin24.com
