|
This is
one of three briefing papers prepared for delegation organized Shared Interest
visiting South Africa from April 22 through May 2, 2004. Shared Interest is a U.S. not-for-profit social investment
fund guaranteeing loans to community development financial institutions
engaged in South Africa’s reconstruction process including affordable credit
for small businesses and social housing in South Africa’s lowest income
communities. To see other paper click links below. |
|||
|
Shared Interest South Africa Delegation Briefing Paper April 22 – May 2, 2004 A Decade of Democracy: Economic Policy and
Development in South Africa By Richard Knight, March
19, 2004 South
Africa is the most developed and modern country in Africa with extensive
natural resources, a developed agricultural sector and significant
manufacturing. Gross Domestic Product (GDP) in 2002 was $104.2 billion - larger
than any other country in Africa. Real
GDP growth has averaged 2.7% since 1995. Gross National Income (GNI) per
capita is $2,520, more than 5 times the average for all of Sub-Saharan
Africa. But South Africa has one of the highest income disparities in the
world. The country suffers from chronic unemployment and one the highest
rates of HIV/AIDS in the world. Some
50% of South Africa’s people live in poverty; at least seven million people
live in shacks in informal settlements. Legacy of Apartheid Under
apartheid, the economy was dependent on foreign investment and technology.
The government imposed inward-looking economic polices including
protectionist policies aimed at limiting the impact of sanctions and
promoting white business. Blacks were denied basic economic rights – they
could not own land, accumulate wealth or conduct business in “white” areas.
The apartheid economy was one of white wealth and black poverty.
The
apartheid economy in the 1980s was negatively impacted by political
isolation, sanctions and disinvestment, including the outflow of foreign
capital as companies withdrew and the cut off of international bank loans.
The economic and political crisis of the 1980s resulted in stagnant GDP
growth, falling formal sector employment and a decline total investment as a
percent of GDP from nearly 26% in 1980 to about 15% in 1994, a rate that has
remained fairly constant. Since
the early days of colonial rule, poverty and unemployment have been much
higher for South Africans of color.
Today, according to the South Africa government’s National
Report on Social Development, 1995-2000, 61% of Africans are
classified as poor compared to just 1% of whites. The unemployment rate for Africans is 42.5%
compared to 4.6% for whites. The Congress of South African Trade
Unions (COSATU) noted in 1992: “While Africans make up 76% of the population,
their share of income amounts to only 29% of the total. Whites, who make up
less than 13% of the population, take away 58.5% of total income.” Overview
In
1994 the government of national unity, led by the African National Congress,
inherited a country of gross racial inequities with high chronic
unemployment. The economy has grown
every year since 1994, an improvement over the 1980s. The budget deficit has
been reduced and inflation has declined. Significant progress has been made
in education, health care, housing and providing basic services. But poverty
continues to be widespread, income disparities remain, unemployment has
increased and many people lack necessities. As government notes in its review
the successes and challenges in Towards
a Ten Year Review published in October 2003, “two economies” persist in
the country. “The first is an advanced, sophisticated economy, based on
skilled labour, which is becoming more globally competitive. The second is a
mainly informal, marginalised, unskilled economy,
populated by the unemployed and those unemployable in the formal sector.”[1] The Economy
Today South
Africa’s economy has had positive economic growth every year since 1994. Real
GDP grew an average of 2.7% between 1996 and 2003. With population growth of
about 2% per annum, real per capita growth has been positive, meaning
the average South African grew wealthier, although this benefit has not been
evenly distributed. Income disparity remains - in 2000, the poorest 20% of
households received 1.6% of total income, a smaller percentage than in 1995.
When
the democratic government came to power in 1994 it abandoned the inward
looking policies of the past. Tariffs were cut substantially and local
business faced increasing exposure to foreign competition and the forces of
globalization. The result was that local businesses either closed or had to
modernize (improve business processes and introduce new technologies) and
become more competitive – produce more goods with fewer workers. Jobs and Unemployment The
government notes that the economy has created some 2 million jobs since 1995.
The number of those employed increased from 9,287,000 in 1996 to 11,565,000
in 2003, a 24.5% increase.[*]
But as South African companies were forced to become more productive to
survive and the number of jobs in the formal sector declined.
Despite this increase in
the number of jobs, South Africa suffers from chronic unemployment which has
increased from 20.3% in 1996 to 30.5% in 2002. Using the expanded definition,
which includes discouraged job seekers, unemployment in this period has
increased from 33% to 41.8%. The chronic structural nature of unemployment is
demonstrated by the fact that 70% of the unemployed have been jobless for
over a year and almost 60% have never been employed. People under 30 face an
unemployment rate of 61%. The jobless rate is far higher than in other
lower-middle income countries. There are a number of
reasons for growing unemployment including population growth of about 2% per
year, urbanization and increasing labor market participation by women. The
economically active population using the expanded definition of unemployment
has increased from 13,853,000 to 19,986,000,
a 44% increase. The labour
force participation rate – the percentage of the population aged
15 to 65 years which was economically active – is 56.9%. The
labour absorption rate – the percentage of the working age population
which is employed – is 39%.
Of
those employed, 63.6% work in the formal sector excluding commercial
agriculture. The formal sector includes all businesses that are registered.
Some 16% of those employed work in the informal sector excluding
subsistence and small scale agriculture. The informal sector consists of
those businesses which are unregistered. They are generally small in nature,
and are seldom run from business premises, using instead homes, street
pavements or other informal arrangements. About 8.7% of those employed work
as domestics. There is considerable difference by race - 93.6% of whites work
in the formal sector compared to 62.3% of Africans. More then 25% of employed Africans work in
the informal sector and a further 11.4% as domestic workers where wages are
far lower than the formal sector.
Jobs
are a major issue in South Africa. In its election manifesto the ANC promises
by 2014 to reduce unemployment by half. Partly this will be achieved through
an expanded public works program. The manifesto notes the government can
create some employment in the public service, public works programs and encouragement
of labor-intensive methods in parts of the economy but that “long-term
employment depends largely on higher rates of private investment; it depends
on strategies for growth in key sectors of the economy; it depends on joint
skills development and learnerships in both the
public and private sectors to provide work experience.”[2]
About
40% of those employed earn less than R 1,000 ($143) per month. Wages in the
informal sector are significantly lower than in the formal sector. Nearly 54%
of those employed in the informal sector make less than R500 ($70) per month.
Workers in the informal sector often remain poor since they tend to work in
survivalist activities such as street sellers. Many of those in the informal
sector are small or micro-business owners, 89% of whom are African. Economic Policy and Debates In
its 2004 election manifesto the ANC outlines Vision 2014 – Forward to the Second Decade of Freedom, that
includes a series of targets and objectives including: a) reduce
unemployment by half through new jobs, skills development, assistance to
small businesses, opportunities for self-employment and sustainable community
livelihoods b) reduce poverty by half through economic development,
comprehensive social security, land reform and improved household and
community assets and c) provide the skills required by the economy,
build capacity and provide resources across society to encourage
self-employment with an education system that is geared for productive work,
good citizenship and a caring society. Given
the level of poverty and unemployment, government policy has sometimes been
controversial. Often the strongest critics of government policy have been the
allies and members of the ANC, including the Congress of South African Trade
Unions (COSATU). One expression of that has been the People’s Budget, produced annually for four years by COSATU,
South African Churches Council (SACC) and South African NGO Coalition
(SANGOCO).[3] Reconstruction
and Development Programme In
the early 1990s unions, the civic movement and social organizations began to
develop a plan for social transformation needed for post-apartheid South
Africa. A process developed which
involved extensive consultations within the ANC, its allies and a wide range
of experts that resulted in 1994 in the Reconstruction and Development Programme (RDP).
The RDP aimed at addressing the many social and economic problems
facing the country. A key aspect of
the RDP was that it linked reconstruction and development. The RDP recognized that all the problems
(lack of housing, a shortage of jobs, inadequate education and health care, a
failing economy) are connected. It
proposed job creation through public works — the building of houses and
provision of services would be done in a way that created employment. The five key programs were: meeting basic
needs, developing human resources, democratizing the state and society,
building the economy and implementing the RDP.
Macroeconomic Policy When
the government came to power it saw the need to stabilize the economic
situation. In 1996 the government adopted a five year macroeconomic policy
called the Growth, Employment and
Redistribution (GEAR). GEAR aimed at strengthening economic development,
broadening employment, and redistributing income and socioeconomic
opportunities in favor of the poor. The key goals of the policy as originally
outlined were economic growth of 6% in the year 2000, inflation less than
10%, employment growth above the increase in economically active population,
deficit on the current account and the balance of payments between 2% and 3%,
reduction of the budget deficit to below 4% of GDP. The
government has significantly lowered the budget deficit and inflation. But South Africa’s growth rate remains at
about 3%, far short of the 6% goal which is seen as necessary to reduce
unemployment.
One of the most outspoken critics of GEAR is
COSATU. COSATU says that GEAR has failed to deliver the promised economic and
job growth or significant redistribution of income and socio-economic
opportunities in favor of the poor.
They say GEAR, with its focus on stringent monetary and fiscal
targets, conflicts with the goal of the RDP of growth based on job creation,
meeting people's needs, poverty reduction and a more equitable distribution
of wealth. COSATU notes that the
government is committed to higher spending on basic service and spending did
increase between 1994 and 1996. This, however, was followed by decreased
spending following the adoption of GEAR.
The
government acknowledges GEAR’s stringent limits on
expenditure impacts on the ability to meet social development goals of the
RDP. As the South African National
Housing code notes “The most
significant goals of GEAR in respect of our capacity to implement the housing
programme are those that have to do with
availability of funds for housing.
GEAR is clear about promising tighter fiscal policy measures, which
are being brought about by a cut in government expenditure and a more
cost-effective civil service.” The
debate over macroeconomic policy has quieted as government shifted its policy
to one of increased spending. The budget deficit is projected by the
government to be -3.2% in 2004 and -3.1% in 2005, up from -1.1% in 2003
In
2001 Thabo Mbeki announced the Micro Economic Reform Strategy which states
that, although necessary, macroeconomic stability is not sufficient to
achieve growth and equity in the South African economy. Consequently, it
identifies certain high-level microeconomic reforms that are necessary within
the economy. It focuses on such issues as technology, human resource development,
access to finance and infrastructure (including transport,
telecommunications, energy and water) and on equality issues such as Black
Economic Empowerment, women empowerment, small business development,
employment and geographic spread. Priority growth sectors are clothing and
textiles; mining, metals and minerals; automotives and transport; chemicals;
tourism, agriculture, information and communication technology; cultural
industries; services; and aerospace.
The
Micro Economic Reform Strategy serves as the basis for the Integrated Manufacturing
Strategy that argues that “an integrated and advanced manufacturing sector in
South Africa can be leveraged to generate higher levels of economic growth,
employment creation, and the reduction of economic inequalities throughout
the entire economy.”[4] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||