South Africa Has One Of the Least Competition-Friendly Economies

Shaun Jacobs • 18 June 2025 South Africa has one of the least competition-friendly economies in the world, with onerous regulations making it one of the most challenging countries in which to do business. This lack of competition results in low business dynamism and minimal job creation, despite a much-improved electricity supply and structural reforms gaining momentum. The lack of competition within South Africa’s economy has long been identified as a handbrake on economic growth. In its “Driving Inclusive Growth in South Africa” report, the World Bank stated that easing regulations could significantly boost the local economy. The bank stated that South Africa is now in a far better position than it was before the 2024 national elections, when the country was plagued by intense load shedding and heightened uncertainty. Load-shedding has been significantly reduced, and substantial progress has been made in other areas, such as logistics and telecommunications. Most importantly, the elections at the end of May 2024 created a new political context that offers the country a significant opportunity to drive growth through reforms. “The new political context emerging from the May 2024 elections provides a unique opportunity for South Africa,” the World Bank said. “The alignment of economic and political incentives, in the sense that improving the economy is essential for gaining political power, offers a platform to launch a decisive transformation process.” The World Bank said that such alignment was the key driver of successful economic transformations in China in the 1980s, Vietnam in the 1990s, and Poland in the 2010s. Despite this optimism, South Africa remains one of the most challenging places in the world to do business, ranking last in a study by the International Monetary Fund (IMF) earlier this year. The IMF’s study ranked South Africa last among 49 other countries and said that if the country could just achieve an ease of doing business equal to the average, its economic growth would double. The graph below, courtesy of Stanlib chief economist Kevin Lings using Organisation for Economic Co-operation and Development data, shows how South Africa ranks in terms of product market regulation – a proxy for the ease of doing business. Boosting competition in South Africa To drive structural changes in South Africa, it is vital that there be short-term results that demonstrate the benefits of reform. The World Bank stated that short-term results are crucial to achieving a successful economic transformation. These short-term wins create the momentum necessary to drive structural changes. One easy way to drive short-term results is to strengthen and broaden market competition in South Africa by easing the regulatory burden on businesses. “Today, many of South Africa’s markets lack dynamism. Firm entry and exit are a third of the average of a typical middle-income country,” the lender said. This means that very few new businesses, whether small or large, are being created that can employ South Africans and contribute to the country’s economic activity. The World Bank stated that it is one of the major reasons behind South Africa’s high unemployment rate and the difficulty individuals face in finding stable and productive jobs in the country. An easy way to address this is to improve market competition, which has the potential to dynamise an economy, boost efficiency, and promote innovation. The global institution stated that South Africa could rebalance its economic model by making it easier for investors and young workers to enter the market. One way to achieve this is to reduce the protection of incumbents, including state-owned enterprises, which often operate as monopolies and are highly inefficient. This creates a status quo that negatively impacts the success of small firms, which lack the capacity or financial means to navigate the complex system of rules and regulations. This, in turn, significantly hinders the ability of low-skill workers to find jobs. Even if they do find employment, they face a heavy income tax burden. The World Bank pointed to the example of South Africa introducing competition to the telecommunications market in the early 2000s. This opening of the sector to private competition resulted in South Africa becoming one of the middle-income countries with the highest rates of digital penetration and exports. In parallel, the private sector also benefited. MTN, a South African multinational mobile telecommunications provider, is now operating in 22 countries worldwide. The same approach has been applied in aviation transport, with the emergence of several regional private companies, and more recently, in power generation, where competition has led to an unprecedented increase in renewable energy. The World Bank said there are no obvious reasons why such an approach, coupled with smart regulations, cannot be applied to other sectors. Warm regards Cliff photo CLIFF HALL indlovu@axxess.co.za 0827810544