The Oxford Companion to the Economics of South Africa
The Oxford
Companion to
the Economics
of South Africa
Edited by
Haroon Bhorat
Alan Hirsch
Ravi Kanbur
Mthuli Ncube
1
1
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■ PREFACE
In 1994 South Africa saw the end of apartheid. e new era of political freedom was seen
as the foundation for economic prosperity and inclusion. e last two decades have seen
mixed results. Economic growth has been volatile. While inequalities in public services
have been reduced, income inequality has increased, and poverty has remained stagnant.
roughout this period, there has been vigorous debate on economic strategy, with the
appearance of programmes with acronyms like RDP, GEAR and, most recently, NGP.
Behind the acronyms lie basic and unresolved dierences on an appropriate strategy
for an economy like South Africa, with a strong natural resource base but with deeply
entrenched inherited inequalities, especially across race.
As the twentieth anniversary of the transition to democracy approaches in 2014, the
economic policy debates in South Africa are in full ow. ey combine a stock-taking
of the various programmes of the last two decades with a forward-looking discussion of
strategy in the face of an ever open but volatile global economy. is volume contributes
to the policy and analytical debate by pulling together perspectives on a range of issues—
micro, macro, sectoral, country-wide and global—from leading economists working on
South Africa.
e economists invited are from within South Africa and from outside; from academia
and the policy world; from international and national level economic policy agencies;
and from the private sector. e contributors include recognized world leaders in South
African economic analysis, as well as the very best of the younger crop of economists who
are working on South Africa—the next generation of leaders in thought and policy. Other
than the requirement that it be analytical and not polemical, the contributors were given
freedom to put forward their particular perspective on their topic.
We hope that this Companion will contribute to analysis and to the policy discourse as
South Africa looks ahead in the next 20 years to meeting the economic promise of 1994—
rapid and inclusive development which will raise the well-being of all South Africans.
H.B.
A.H.
R.K.
M.N.
■ ACKNOWLEDGEMENTS
e Editors would like to thank Sue Snyder of Cornell University for being the admin-
istrative anchor of the South African Companion project, and for managing the corre-
spondence with over 50 authors. e Companion could not have been produced without
her help.
Haroon Bhorat would like to thank the National Research Foundation of South Afri-
ca,through the South African Research Chair’s Initiative (SARChI),for their support of
his research programme.
■ CONTENTS
LIST OF FIGURES XI
LIST OF TABLES XIII
ALPHABETICAL LIST OF CONTRIBUTORS XIV
OVERVIEW
Economic policy in South Africa—past, present and future 1
Haroon Bhorat, Alan Hirsch, Ravi Kanbur and Mthuli Ncube
PART 1 THE ECONOMICS OF POST-APARTHEID SOUTH AFRICA 27
1 Twenty years of economic policymaking—putting people first 29
Trevor Manuel
2 South Africa’s growth performance 39
Johannes Fedderke
3 Macroeconomic scenarios for South Africa: 2013–25 51
Ben Smit
4 The liberation dividend 61
Ruchir Sharma
5 The political economy of restructuring in South Africa 67
Sam Ashman, Ben Fine, Vishnu Padayachee and John Sender
6 South Africa’s suboptimal political economy equilibrium 75
Sandeep Mahajan
7 Data issues in South Africa 79
Martin Wittenberg
PART 2 SOUTH AFRICA AND THE WORLD ECONOMY 85
8 Trade policy reform in South Africa 87
Lawrence Edwards
9 The evolution and impact of foreign direct investment into South Africa since 1994 95
Anthony Black
10 South Africa’s economic relations with Africa 102
Brendan Vickers
11 South Africa’s exchange rate policy and exchange rate developments 110
Shaun de Jager and Brian Kahn
viii CONTENTS
PART 3 MACROECONOMICS AND FISCAL POLICY 117
12 South Africa’s fiscal framework 119
Kenneth Creamer
13 Intergovernmental fiscal relations in South Africa 127
Tania Ajam
14 (Dis)Saving in South Africa 134
Nicola Viegi
15 Inflation in South Africa 140
Janine Aron and John Muellbauer
16 Monetary policy in South Africa since 1994 148
Stan du Plessis
17 Central Banking after the global financial crisis: the South African case 156
Vishnu Padayachee
PART 4 FINANCE, INDUSTRY AND INFRASTRUCTURE 163
18 Capital markets 165
Shakill Hassan
19 The visible hand: shaping stability and inclusion
in the South African financial sector 172
Penelope Hawkins
20 Banking and credit markets 178
Seeraj Mohamed
21 Industrialization strategy 185
Simon Roberts
22 Industrial structure and competition policy 191
Andreas Wörgötter
23 Investment climate 197
Neil Rankin
24 Commanding heights: The governance of state-owned enterprises
in contemporary South Africa 202
Brian Levy
25 Economic regulation of the energy sector 209
Ethèl Teljeur
26 Technology and innovation: performance, policy and prospects 217
David Kaplan
CONTENTS ix
27 Electricity supply 223
Anton Eberhard
PART 5 LABOUR AND EMPLOYMENT 229
28 Capturing South Africa’s demographic dividend 231
Morné Oosthuizen
29 Unemployment in South Africa 236
Cecil Mlatsheni and Murray Leibbrandt
30 Segmented labour markets in South Africa 244
Gary S. Fields
31 Labour law 250
Paul Benjamin
32 Public employment in South Africa 259
Kate Philip
33 Youth unemployment policy 265
James Levinsohn
34 Informality in South Africa 270
Imraan Valodia
35 South Africa’s migrant labour system 275
Francis Wilson
PART 6 POVERTY AND INEQUALITY IN SOUTH AFRICA 283
36 Poverty and poverty lines in post-apartheid South Africa 285
Vusi Gumede
37 Post-apartheid poverty and inequality trends 291
Arden Finn, Murray Leibbrandt and Vimal Ranchhod
38 Income mobility in South Africa 298
Julian May
39 Gender inequality 303
Dorrit Posel
PART 7 POST-APARTHEID SOCIAL POLICY 311
40 Origins, trends and debates in black economic empowerment 313
Claudia Manning, with assistance from Nokuzola Jenness
41 Health challenges past and future 322
Cally Ardington and Anne Case
x CONTENTS
42 The macroeconomics of AIDS in South Africa 329
Nicoli Nattrass
43 Child development 336
Chris Desmond and Linda Richter
44 Education in South Africa since 1994 341
David Lam and Nicola Branson
45 Social safety nets 349
Katharine Hall and Ingrid Woolard
46 Social Security and Social grants 355
Francie Lund
47 Urbanization 360
Ivan Turok
48 Public financing for housing 366
David Savage
PART 8 LAND, AGRICULTURE AND ENVIRONMENT 375
49 Land and land reform in South Africa 377
Ben Cousins
50 The politics and economics of water in South Africa—1994–2013 385
Rolfe Eberhard
51 Agriculture and rural development in the post-apartheid era 393
Mohammad Karaan and Nick Vink
52 Environmental policy and the state in post-apartheid South Africa 401
Tony Leiman
INDEX 411
■ LIST OF FIGURES
2.1A Growth in real GDP 40
2.1B Ratio of South African GDP growth to comparator countries 40
2.1C Major commodity prices (US$) 41
2.1D Terms of trade (export to import prices) 41
2.2A Corruption 47
2.2B Corruption barometer by sector 47
2.2C Country share in total upper middle income FDI (%) 48
2.2D South Africa/US interest rate dierential—lending rate (%) 48
6.1 Between 1980–2010, the average South African’s real income increased
less than 10 per cent, while the average Chinese became 13 times
richer (PPP constant price GDP in US$, 1980 normalized to 100) 76
6.2 Real rates of return to capital in South Africa have risen sharply
since the early 1990s 77
6.3 A suboptimal political economy equilibrium 78
7.1 Changes in sampling seem to have changed who was enumerated
in the surveys 80
7.2 e 1995 October household surveys show many more households
with inside taps 81
11.1 e nominal eective, real and real equilibrium exchange rate
of the rand 112
11.2 Volatility and the correlation between the South African rand
and peer emerging economy currencies 113
11.3 Headline CPI rates of ination and the valuation of the currency 115
12.1 Trends in expenditure items 120
12.2 Signicant increase in investment by public corporations 122
14.1 Saving, investment and credit in South Africa 1970–2009,
smoothed series 135
15.1 Annual percentage change in CPI, CPIX and PPI (quarterly data) 141
15.2 Annual percentage change in unit labour costs in manufacturing
and remuneration per worker outside agriculture 142
18.1 Monthly net purchases of domestic securities by non-residents
(rand, 1000s) 168
28.1 South Africa’s lifecycle decit 232
xii LIST OF FIGURES
37.1 Distributions of income 1993, 2000, 2010 292
37.2 Lorenz curves and generalized Lorenz curves 1993, 2000, 2010 295
40.1 e generic balanced scorecard 315
40.2 Results from the 2012 KPMG BEE survey 316
41.1 Log-odds of dying by age 323
41.2 Height-for-Age z-scores of Africans from ages 6 to 60 months 325
41.3 BMI of Africans by age, sex and year from ages 15 to 70 326
41.4 Probability of any hypertension against BMI by sex 327
44.1 Mean years of education and proportion with completed secondary
education, by age and population group, 2010 342
50.1 Access to water supply, 1996–2011 387
50.2 Access to sanitation, 2001–11 388
■ LIST OF TABLES
2.1 Knowledge economy summary statistics 45
3.1 BER scenario forecast, 2013–25 52
9.1 Inward FDI ows and FDI stocks (US$ millions) 97
10.1 South Africa’s top 10 trading partners in Africa, 2013 104
13.1 Division of nationally raised revenue, 2010/11–2016/17 128
13.2 Horizontal division of revenue to provinces, 2014/15 130
13.3 Access to basic municipal services, 1994–2011 132
14.1 Saving and investment around the world 2000–10 (GDP percentages) 135
15.1 Average annual percentage rates of ination for dierent periods 141
23.1 South Africa’s ranking in the aggregate doing business indicator 199
35.1 Geographic origins of African mine labour, 1906–2006 277
35.2 Urbanization in South Africa, 1904–96 279
36.1 Income poverty in South Africa, 2005–09 287
36.2 Poverty and human development in South Africa 288
44.1 Enrolment, educational attainment and grade repetition, Africans
aged 7–25, South African General Household Survey, 2009–10 343
■ ALPHABETICAL LIST OF CONTRIBUTORS
Tania Ajam Financial and Fiscal Commission
Cally Ardington University of Cape Town
Janine Aron University of Oxford
Sam Ashman University of Johannesburg
Paul Benjamin Cheadle, ompson & Haysom Inc. Attorneys; and University of Witwatersrand
Haroon Bhorat University of Cape Town
Anthony Black University of Cape Town
Nicola Branson University of Cape Town
Anne Case Princeton University
Ben Cousins University of the Western Cape
Kenneth Creamer University of the Witwatersrand
Shaun de Jager South African Reserve Bank
Chris Desmond Human Sciences Research Council, South Africa
Stan du Plessis Stellenbosch University
Anton Eberhard University of Cape Town
Rolfe Eberhard Independent
Lawrence Edwards University of Cape Town
Johannes Fedderke Pennyslvania State University, Economic Research Southern Africa and
University of the Witwatersrand
Gary S. Fields Cornell University
Ben Fine School of Oriental and African Studies (SOAS), University of London
Arden Finn Southern Africa Labour and Development Research Unit (SALDRU)
Vusi Gumede University of South Africa
Katharine Hall University of Cape Town
Shakill Hassan South African Reserve Bank and University of Cape Town
Penelope Hawkins Managing Director of Feasibility (Pty) Ltd.
ALPHABETICAL LIST OF CONTRIBUTORS xv
Alan Hirsch University of Cape Town
Nokuzola Jenness Independent
Brian Kahn South African Reserve Bank
Ravi Kanbur Cornell University
David Kaplan University of Cape Town
Mohammad Karaan Stellenbosch University
David Lam University of Michigan
Murray Leibbrandt University of Cape Town
Tony Leiman University of Cape Town
James Levinsohn Yale University
Brian Levy Johns Hopkins University and University of Cape Town
Francie Lund University of KwaZulu-Natal
Sandeep Mahajan e World Bank
Claudia Manning Director of Companies
Trevor Manuel Former Minister of Finance and Minister in the Presidency for the National
Planning Commission, Government of South Africa
Julian May University of Western Cape
Cecil Mlatsheni University of Cape Town
Seeraj Mohamed University of Witwatersrand and Corporate Strategy and Industrial Development
Research Programme (CSID)
John Muellbauer University of Oxford
Nicoli Nattrass University of Cape Town
Mthuli Ncube University of Oxford
Morné Oosthuizen University of Cape Town
Vishnu Padayachee Rhodes University
Dorrit Posel University of KwaZulu-Natal
Kate Philip Trade and Industrial Policy Strategies (TIPS)
Vimal Ranchhod Southern Africa Labour and Development Research Unit (SALDRU)
Neil Rankin Stellenbosch University
xvi ALPHABETICAL LIST OF CONTRIBUTORS
Linda Richter University of the Witwatersrand, University of KwaZulu-Natal, and Human
Sciences Research Council, South Africa
Simon Roberts University of Johannesburg
David Savage Independent
John Sender School of Oriental and African Studies (SOAS), University of London
Ruchir Sharma Morgan Stanley Investment Management
Ben Smit Stellenbosch University
Ethèl Teljeur Genesis Analytics
Ivan Turok Human Sciences Research Council
Imraan Valodia University of Witwatersrand
Brendan Vickers Department of Trade and Industry of the Republic of South Africa
Nicola Viegi University of Pretoria, ERSA and MISTRA
Nick Vink Stellenbosch University
Francis Wilson University of Cape Town
Martin Wittenberg University of Cape Town
Ingrid Woolard University of Cape Town
Andreas Wörgötter OECD, Economics Department
Economic policy in South
Africa—past, present
and future
haroon bhorat, alan hirsch, ravi kanbur
and mthuli ncube
1 Introduction
In 1994 South Africa saw the end of apartheid. e new era of political freedom was
viewed as the foundation for economic prosperity and inclusion. e last two decades
have seen mixed results. Economic growth has been volatile. Whilst inequalities in pub-
lic services have been reduced, income inequality has increased and poverty levels have
remained stagnant. roughout this period, there has been vigorous debate on economic
strategy, with the appearance of programmes with acronyms like RDP, GEAR and, most
recently, the NGP. Behind the acronyms lie basic and unresolved dierences on an appro-
priate strategy for an economy like South Africa, with a strong natural resource base but
with deeply entrenched inherited inequalities, in particular across race.
As the twentieth anniversary of the transition to democracy approaches in 2014, the
economic policy debates in South Africa are in full ow. ey combine a stock-taking
of the various programmes of the last two decades with a forward-looking discussion of
strategy in the face of an ever open but volatile global economy. is volume contributes
to the policy and analytical debate by drawing together perspectives on a range of issues—
micro, macro, sectoral, country-wide and global—from leading economists working on
South Africa.
e economists invited are from within South Africa and from outside; from academia
and the policy world; from international and national level economic policy agencies;
and from the private sector. e contributors include recognized world leaders in South
African economic analysis, as well as the very best of the younger crop of economists who
are working on South Africa—the next generation of leaders in thought and policy. Other
than the requirement that it be analytical and not polemical, the contributors were given
freedom to put forward their particular perspective on their topic.
2 OVERVIEW: ECONOMIC POLICY IN SOUTH AFRICA
is overview is not and should not be a mere summary of the 50 or more entries in the
volume. Rather, it represents the editors’ own perspectives on South Africa’s economic
trajectory and the ongoing debates on economic policy. It draws on but goes beyond the
entries in this volume. Section 2 begins with a broad account of the evolution of the econ-
omy since 1994. Section 3 focuses on macroeconomic policy, including scal, monetary
and exchange rate policy. Section 4 turns to the question of structural transformation
and the range of sectoral issues to which it gives rise. Section 5 takes up perhaps the most
important element in the current debates—how to address the problems of unemploy-
ment, inequality and poverty. Section 6 concludes the overview.
2 Economic development in South Africa since 1994
Since the onset of democratic rule, through to the end of 2012, the South African economy
recorded an average annualized growth rate in real GDP of 3.28 per cent. Specically, the
period under review will show that 73 of the 76 quarters in the period 1994–2012 record-
ed positive economic growth. e three-year period 2005–07 represented the economy’s
most successful growth spurt, as annualized real GDP growth rates exceeded 5 per cent
in each consecutive year. It was only in the 2008–09 period that the economy suered
from the consequences of the global nancial crisis, as growth was negative on average
for 2009. e recession, despite being short-lived, has had—as we show in detail later in
this section—signicant labour market consequences which the South African economy
is still trying to recover from. Importantly, however, the period prior to the recession rep-
resents probably the longest period of uninterrupted positive economic growth in South
Africa’s modern history.
is growth, however, belies the key set of structural changes that the economy has
undergone in the post-1994 period. ese structural shis are manifest in four key out-
comes: rst, the share of mining in GDP stood at 11 per cent in 1994, but has steadily
declined over an 18-year period to its current 5 per cent in 2012. In short, the share of
mining in national output has more than halved in the post-apartheid period. Second, the
manufacturing sector has remained stagnant. From constituting 19 per cent of total output
in 1994, it was marginally below this, at 17 per cent of real GDP in 2012. ird, the key
sectoral growth engine in this period has been the nancial and business services sector,
as the latter witnessed a rise in its share of national output, from 17 per cent in 1994 to 24
per cent in 2012—a 7 percentage point increase. Finally, one other subtle increase in the
share of GDP emanated from the transport and telecommunications sector, driven in large
part by the revolution in the mobile phone industry in South Africa and the rest of Africa.
In essence, then, the South African economy has moved from its dependence on
the non-renewable sector—historically a key contributor to employment and growth
OVERVIEW: ECONOMIC POLICY IN SOUTH AFRICA 3
generation—to an economy now very much dened by a globally competitive and highly
sophisticated nancial and business services sector. Indeed, the Global Competitiveness
Index of the World Economic Forum ranks South Africa 3rd of the 144 economies in
the world in terms of nancial market development (World Economic Forum, 2013). In
contrast, the economies of Brazil, Russia, India and China—rank 46th, 130th, 21st and
54th respectively. Despite this high level of nancial sophistication, South African manu-
facturing remains an inadequate contributor to both employment and GDP. Whilst the
average middle-income country yielded a manufacturing share of GDP at 21.2 per cent,
and the estimate for upper middle-income economies was 22.5 per cent (World Bank,
2013), the gure for South Africa as noted above is 17 per cent, having declined from its
contribution in 1994. e lack of a dynamic, job-generating and competitive manufactur-
ing sector must therefore remain one of the key growth challenges in the South African
economy.
e period since 1994 was marked most notably by South Africa’s full re-entry into the
global economy. is re-entry also saw South Africa embark on a rapid process of trade
liberalization, which yielded a sharp increase in export and import volumes. Data for the
1994–2012 period show that on the basis of the index of real export volumes, non-gold
exports more than doubled over these years. It remains true, however, that even outside of
South Africa’s high share of commodity exports, manufactured exports from South Africa
readily contain a high share of primary commodities as inputs. In essence, South Africa’s
export prole continues to be natural resource and capital-intensive in nature. An export
strategy and trajectory based on labour-intensive, job-creating products, is certainly not
a feature of the South African economy. Import demand continues to be procyclical with
investment and GDP, as imported inputs nance South Africa’s growth cycle.
Compounding this truncated export prole is a growth cycle in South Africa, built
on running regular current account decits, nanced through short-term capital ows.
Short-term capital ows, in turn, have oen aided the appreciation of the rand, which has
hurt exporters. e presence of such Dutch Disease eects in the South African economy,
together with an oen highly volatile currency, serve as important externally driven con-
straints on the economy’s growth trajectory.
Ultimately, then, despite an apparently impressive growth record in the post-1994
period, South Africa continues to suer from signicant real economy constraints. e
changing structure of the economy, wherein the manufacturing industry is essentially
employment-dormant; a homogenous export prole; and an unstable currency are only
some of the growth dynamics which have beleaguered this economy.
e upshot of the above growth pattern though has been to generate very particular
employment, poverty and inequality outcomes for the economy. We turn rst to some of
the data on employment in the post-1994 period. Over the period 2000–08, for example, the
data show that the simple output employment elasticity stood at about 0.69, meaning that
for every 1 per cent increase in GDP, employment increased by 0.69 per cent. is stands
4 OVERVIEW: ECONOMIC POLICY IN SOUTH AFRICA
in sharp contrast to the post-crisis period (2008–12), where a 1 per cent increase in growth
led to a 0.16 per cent decline in employment. Put dierently, the data show that—for the
post-crisis period—whilst average annual GDP growth stood at 1.9 per cent, employment in
this period declined by 0.3 per cent. In absolute terms the data show that the period 2001–12
has seen considerable growth in total employment, from 11.2 million in 2001 to 13.7 mil-
lion in 2012. e impact of the recession on the labour market though was profound: from
a peak in employment of almost 14.1 million in 2008Q4, the economy lost more than 1
million jobs, and by 2010Q3 employment had plummeted to levels last seen in 2006. us,
the global crisis of 2008/09 resulted in the expansion of employment in the South African
economy over the 2006–08 period being completely nullied by the end of 2010.
Employment growth trends in South Africa thus broadly followed GDP growth trends
in the post-2000 period, though employment growth was generally lower than GDP
growth. Furthermore, it appears that during harsh economic times such as the 2008/09
recession, the negative growth response of employment is much more pronounced than
the shrinkage in GDP. e results above imply that GDP growth rates would have to
accelerate to much higher levels in order to deal adequately with South Africa’s pover-
ty and unemployment problems, and that global economic diculties appear to have a
sharp and relatively long-lasting impact on South Africa’s labour market.
Despite this labour market churn, South Africa’s key labour market constraint—that
of the economy’s inordinately high unemployment rates—remains. Unemployment rates
in 2001 thus stood at almost 30 per cent of narrowly dened labour market participants
and 41 per cent of broadly dened labour market participants. Importantly, though, both
narrow and broad unemployment rates declined between 2001 and 2007 when the econ-
omy was growing relatively quickly. By 2007, the narrow rate of unemployment stood six
percentage points lower at 23 per cent whilst the broad rate of unemployment stood ve
percentage points lower at 36 per cent. In turn, in the period between 2008 and 2012,
when the economy was severely hit by the global recession, both the narrow and broad
rate of unemployment rose from 23 to 25 per cent and 27 to 33 per cent respectively. Put
dierently, by 2012, a third of those who were willing and able to work but not necessarily
actively searching for work could not nd jobs in the South African economy.
Employment estimates over the period 2001–12 suggest ve broad trends. First, that
workers in the primary sectors were losers in the period: the agriculture and mining sec-
tors were the only two sectors which experienced declines in employment in the period
as more than half a million jobs were lost in agriculture in the period between 2001 and
2012, whilst more than 200,000 jobs were lost in mining. Job losses in agriculture were
driven in the main by the promulgation of the minimum wage in this sector (Bhorat, Kan-
bur and Stanwix, 2013). Second, this period (and indeed that for the post-1994 period
ere is also a view that the rapid growth of domestic household credit may have also contributed to the
real economy eects of the recession.
OVERVIEW: ECONOMIC POLICY IN SOUTH AFRICA 5
as a whole) is characterized by a lacklustre performance in the manufacturing sector.
Manufacturing employment grew by just over 100,000 jobs in the 11-year period, and as
a consequence the sector’s share of employment dropped from 14.5 per cent to 12.7 per
cent in the period. ird, the real driver of relative and absolute employment growth in
this period has been within the tertiary sector. Hence, the nancial services and com-
munity services sectors created 782,000 and 1 million jobs respectively in the period. e
community services sector must be singled out here: this sector employed almost 18 per
cent of the workforce in 2001, and its relative growth performance resulted in the sector
accounting for more than 40 per cent of the increase in employment in the period. e
results for the tertiary sector give way to a fourth important sub-trend since 2000, namely
that public sector employment (which is dominant in community services) has grown
very rapidly, at the expense of private sector employment. Fih, and nally, nancial
services employment growth reveals, upon more detailed statistical analysis, the growth
of temporary employment service providers as a source of ‘alternative contract’ employ-
ment amongst rms wanting to bypass the labour regulatory regime.
ese sectoral employment shis in turn were matched by employment shis at the
occupational level, which remained biased towards highly skilled workers. Data for the
period 2001–12 thus indicate that the employment growth rate for high-skilled occu-
pations was double the overall employment growth rate, whilst the growth rates for
medium and unskilled jobs were at 0.6 and 0.8 of the overall growth rate respectively.
e absolute numbers show that 1.1 million high-skilled jobs were created in the econ-
omy between 2001 and 2012, whilst the number of medium and unskilled jobs grew
by 768,000 and 613,000 respectively. us, although workers across the skills spectrum
shared in employment growth in the period, skilled workers in particular beneted most,
in both absolute and relative terms. In turn, medium-skilled workers were the relative
losers in the period.
Given the above sectoral and skills-biased employment shis (in many senses a contin-
uation of a long-run trend for the South African economy) and the pattern of economic
growth noted above, it is important to assess the impact of this growth and employ-
ment dynamic on poverty and inequality outcomes in the society. Utilizing income and
expenditure survey data based on two national poverty lines, the derived estimates sug-
gest that at the aggregate level, as well as for individuals living in African- and coloured-
headed households, poverty as measured by the headcount index declined signicantly
(yet modestly) between 2005 and 2010. Specically, at the upper bound poverty line, the
All poverty measures have been calculated using individual per capita household consumption expendi-
ture, and the indicators are based on the standard Foster, Greer and orbecke (FGT) class of poverty meas-
ures. Two national poverty lines have been utilized, an upper-bound line of R577 (in March 2009 prices) per
person per month and a lower bound line of R416 (again in March 2009 prices) per person per month.
6 OVERVIEW: ECONOMIC POLICY IN SOUTH AFRICA
aggregate headcount rate declined by close to 7 percentage points from 52.7 per cent to
45.9 per cent. At the lower line the decline was slightly smaller at just more than 6 percent-
age points, from 39.6 per cent to 33.4 per cent.
Relative poverty, as measured by the poverty gap ratio also declined over the ve-year
period. At the R577 line, the poverty gap at the national level declined by 4 percentage points
to 20.4 per cent in 2010, whilst the poverty gap according to the lower bound line declined
by 3 percentage points to 12.7 per cent. Overall, these results suggest that the average poor
person’s position relative to the poverty line improved irrespective of the choice of poverty
line. e slightly magnied decline in both poverty measures at the higher line, however,
suggests that the poorest of the poor did not experience the largest relative improvement
in their levels of consumption expenditure, but rather those who were considered poor at
a higher poverty line.
Whilst individuals living in African households experienced an improvement in their
levels of poverty relative to the other three race groups, African individuals still account
for the majority of the poor in the country, irrespective of the choice of poverty line.
For example, in 2010, almost 55 per cent of this population group were considered poor
according to the upper bound line, whilst 28 per cent of coloureds were considered poor
at that line. In addition, the data show that in 2010, of the just more than 23 million South
Africans who were poor according to the R577 a month poverty line, more than 94 per
cent, or almost 22 million individuals, resided in African-headed households. e results
according to the gender of the household head conrm that those living in female-headed
households remain relatively poorer than individuals living in households headed by
males. In fact, by 2010, the headcount rate for households headed by females was at both
lines almost 15 percentage points higher than the corresponding rate for male-headed
households.
e trends in income inequality based on post-2000 data for South Africa have consist-
ently pointed to a sharp rise in the Gini coecient, using various measures of income and
expenditure across a series of nationally representative surveys. Specically, Bhorat and
Van der Westhuizen (2012) found that the Gini coecient, calculated using per capita
expenditure estimates from the 1995 and 2005/06 IES, increased from 0.64 in 1995 to 0.69
in 2005. Using alternative datasets and per capita income, Leibbrandt, et al. (2009) found
that the Gini coecient increased from 0.66 in 1993 to 0.70 in 2008. Whilst the estimates
were slightly dierent, the trends were similar.
e results, however, based on the IES data for 2005–10, very tentatively suggest a pos-
sible reversal of the post-apartheid trends in inequality. Based on per capita expenditure,
the data suggests that South Africa experienced a decline in inequality between 2005
e 1993 South African Integrated Household Survey from the Project for Statistics on Living Standards
and Development (PSLSD), conducted by the Southern African Labour and Development Research Unit
(SALDRU) and the 2008 National Income Dynamics Survey, also conducted by SALDRU.
OVERVIEW: ECONOMIC POLICY IN SOUTH AFRICA 7
and 2010. Specically, the Gini coecient decreased from 0.696 in 2005 to 0.66 in 2010.
e data by race, however, show no statistically signicant changes between 2005 and
2010, implying that the inequality within the four population groups did not change over
the period. In 2010, the dierence in the Gini coecients for Africans and coloureds is
not statistically signicant, suggesting that the levels of inequality within these two race
groups were relatively similar. e values of the Gini coecients are 0.581 for Africans
and 0.542 for coloureds. Both these cohorts display signicantly higher levels of inequal-
ity than Asians and whites, with the Gini coecients for the white population the lowest
at 0.450.
In line with the result at the national level, all individuals irrespective of the gender
of the household head experienced a decline in their levels of inequality between 2005
and 2010. e Gini coecient for male-headed households declined from 0.689 to 0.647,
whilst the estimate for female-headed households declined from 0.653 to 0.619. In both
years the dierence between the two Gini coecients was not statistically signicant,
suggesting that the distribution of expenditure was relatively similar in male- and female-
headed households.
3 Macroeconomic policy
Following Section 2, which presents the overall economic development of South Africa
since 1994, it is pertinent to outline the macroeconomic policies that created the macro-
environment for implementation of development objectives. In this regard we outline the
scal, monetary, ination, exchange rate and balance of payments aspects of macroeco-
nomic policy.
Fiscal policy in South Africa is anchored on the principles of being countercyclical and
ensuring long-term sustainability in an environment of weakening economic growth. e
budgeting framework is typically based on a three-year horizon in the quest to balance
these two principles. e budget framework, as pronounced in the Medium Term Budget
Policy Statement 2013, seeks to support programmes that enhance the social wage, cap
spending, limit the growth of the wage bill of government, improve eciency, and shi
borrowing to capital and investment expenditure. e impact of this would be to reduce
the budget decit over the medium term.
South Africa’s debt prole remains sustainable due to an eective debt management
strategy. e net debt is expected to stabilize at 44 per cent of GDP in 2017/18. However,
the scal decit needs to be monitored closely. In the scal year 2012/13 the budget decit
was 4.2 per cent of GDP and expected to be 4.2 per cent again for the scal year 2013/14.
Total government revenue was 28.3 per cent of GDP in the 2012/13 scal year, com-
pared to 27.9 per cent in 2011d12. Government expenditure was 32.5 per cent of GDP in
8 OVERVIEW: ECONOMIC POLICY IN SOUTH AFRICA
2012–13, up from 29.9 per cent in the previous scal year. It seems the increased decit has
to do with the implementation of countercyclical measures designed to support economic
growth and employment creation.
e single most important source of government revenue is tax revenue, which amount-
ed to 89.6 per cent of total revenue in the scal year 2012/13, for example. In monetary
terms, tax revenue collected through the South Africa Revenue Services (SARS) was R
813 billion in the scal year 2012/13. Within tax revenue, the three largest contributors
are personal income tax, company income tax and value added tax, which contributed
33.9 per cent, 19.5 per cent and 26.5 per cent, respectively, in the scal year of 2012/13.
Personal income tax remains strong due to high wage settlements. Reduced consumer
demand due to slower economic growth and weaker tax collection has capped domestic
VAT and excise duties. At the local government level, local government revenues come
largely from grants from central government and municipal utilities, and other charges.
e largest component of current expenditure remains the wage bill which the gov-
ernment aims to cap, going forward with the three-year public sector wage agreement
suggestive of this intention. e wage bill for both national and provincial government
employees was 35 per cent of total expenditure in 2012/13. In the planned implementa-
tion of the National Development Plan (NDP), expenditure will supposedly focus on
investment in infrastructure, spatial development, rural development and enhancing
competitiveness. Expenditure on infrastructure is expected to rise over time to R 3.2 tril-
lion over the next 10 years. e Presidential Infrastructure Commission will oversee the
delivery of the various projects.
Prior to 1981, South African monetary policy consisted mainly of direct controls, which
ranged from credit ceilings, cash reserve requirement and interest rate controls. Between
1960 and 1981, the liquidity asset ratio-based system was used with quantitative restric-
tions on interest rates and credit. e aim of these direct controls was to deal with ina-
tion by curbing the growth of monetary aggregates (see Aziakpono and Wilson (2010)
and Ncube and Ndou (2013)). In the year 1977, the De-Kock Commission was formed,
which resulted in the shi to market oriented monetary policies. e De-Kock Commis-
sion’s recommendations included the use of an accommodation monetary policy, which
was complemented by open market operations, and variable cash reserve requirements.
ere was, therefore, a mixed system during this transition period of 1981–85 (Leape and
Ncube (2009)).
From 1986 to 1998 a pre-announced M3 monetary target was used, with the use of
the discount rate in inuencing the market interest rate. From 1998, the Reserve Bank
e accommodation policy included variations in terms and conditions taking the form of changes in
quantities of liquidity provided to market and the interest rates costs of accommodation. is included using
discount policy known as accommodation policy, which was complemented by open market operations and
variable cash reserve requirements.
OVERVIEW: ECONOMIC POLICY IN SOUTH AFRICA 9
shied to using daily tenders of liquidity through repurchase transactions. Monetary
growth guidelines and target ranges, or core ination, were announced every three years.
It became more dicult to target money supply due to nancial liberalization and the
increasing openness of the capital account since 1995 (Aziakpono and Wilson (2010) and
Ncube and Ndou (2013)).
In February 2000, the South Africa Reserve Bank (SARB) adopted a new framework
based on ination targeting. Initially, the ination target was consumer price ina-
tion, excluding mortgage rates, and the use of a repo system. e target was changed to
headline-ination in January 2009. e South African government sets and adjusts the
ination target, meaning that the central bank does not have goal independence but has
operational independence in monetary policy. us the central bank can use any avail-
able monetary policy instrument in the pursuit of the ination target. At the time of
adopting ination targeting, the central bank also changed its exchange rate policy and
moved away from intervening in the foreign exchange market, except in continuing to
buy foreign exchange to supplement the foreign exchange reserves.
On recent developments, the slight improvement in real economic activity, in the sec-
ond quarter of 2013, led to an acceleration on money supply growth to 12.5 per cent
annualized compared to 7.7 per cent in the rst quarter. Over a 12-month period, broad
money growth (M3) accelerated to 10 per cent in April 2013 compared to 5.2 per cent in
December 2012, but then moderated to a level of 7.4 per cent in July 2013. is general
growth in M3 deposits was due to growth in deposits by households and the corporate
sector, in an environment of nancial market volatility, where cash holdings were pre-
ferred to risky securities holdings. Growth in deposit holdings grew negatively in the
fourth quarter of 2012, but then grew positively by 14 per cent and 15.8 per cent in rst
and second quarters of 2013 respectively.
In the rst and second quarters of 2013, banks’ total loans and advances to the private
sector saw moderate quarter-to-quarter growth rates of 8.5 per cent and 8.7 per cent
respectively. is was a slowdown in credit extension growth from what has been experi-
enced in the last four years. e household sector accounted for 53 per cent of the overall
increase in total loans and advances in the second quarter of 2013, and the corporate sec-
tor for 47 per cent. e general slowdown in credit extension was due to the high level of
personal debt, uncertain global and domestic growth prospects, and weak labour market
conditions.
On interest rates, the Monetary Policy Committee (MPC), by July 2013, had kept inter-
est rates to a three-decade low level of 5 per cent per annum. e objective of the MPC, in
e repo system involves regular repurchase transactions between SARB and the bank’s clients and
caters for shortfalls in bank liquidity using a borrowing window for the Reserve Bank related to various secu-
rities which are tendered to the bank on daily or intraday basis.
See South African Reserve Bank Quarterly Bulletin, September 2013.
10 OVERVIEW: ECONOMIC POLICY IN SOUTH AFRICA
this tough economic period, has been to balance the need to support the weak economic
recovery against the risk of rising ination in the face of a weaker and volatile domestic
currency. Short-term money-market rates remained fairly constant during the rst eight
months of 2013. On the other hand, longer-term and forward-looking money-market
rates rose sharply, in May 2013, due a deteriorating ination outlook, and domestic cur-
rency depreciation. e yield curve slope thus steepened.
Coming to the prime lending rate and the predominant rate on mortgage loans, this
has remained at 8.50 per cent since July 2012. e announcement of possible QE tapering
in the United States saw the South African government bond yield rise to 8.05 per cent
(R208 maturing in 2021) from an all-time low of 5.78 per cent in mid-May 2013. Going
forward, the risk of QE tapering in the United States may put upward pressure on yields
of long-term government bonds.
Prior to 1979, South Africa followed a xed exchange rate regime with the rand pegged
either to the US dollar or British pound sterling. From 1979, a more exible exchange rate
and dual exchange rate system was adopted. e process was based on the announcement
of the ocial exchange rate daily, as determined by market forces, whilst the nancial
exchange rate was applied to non-resident portfolio and direct investment transac-
tions. e introduction of the dual exchange rate system was meant to break the direct
link between domestic and foreign interest rates, and insulate the capital account from
unmanageable outows. Subsequently, the dual exchange rates were unied, following
De-Kock Commission recommendations. In 1983–85, South Africa experienced a debt
standstill crisis, which resulted in the reintroduction of the dual exchange rate system and
reintroduction of the nancial rand and the tightening of capital controls for residents.
e dual currency lasted until March 1995.
e South African Reserve Bank had a policy of intervention in the foreign exchange
market. It intervened in both the spot and forward foreign exchange markets. On some
occasions, it made use of an oversold foreign exchange position (NOFP) as an interven-
tion tool, which has since been abandoned. During the period 1979–88, the SARB inter-
vened, partly to maintain protability and stability in the gold mining industry. However,
aer August 1989, the objectives of SARB changed as it actively sought to stabilize the real
eective exchange rate to support the international export competitiveness of the coun-
try. e eectiveness of the intervention was tested in 1994 when the country experienced
huge capital outows.
With the introduction of the ination-targeting framework in February 2000, exchange
rate management ceased to become a priority. e exchange rate is market determined,
with volatility being inuenced by terms of trade and capital ow shocks due to quantita-
tive easing globally, and also domestic factors such as political and economic shocks (see
de Jager and Kahn in this volume). e rand seems prone to overshooting its fair value.
Short-term portfolio ows have funded a persistent current account decit. For example,
OVERVIEW: ECONOMIC POLICY IN SOUTH AFRICA 11
the investment by foreigners in domestic government bonds increased from 13 per cent
in 2008 to about 36 per cent in September 2013.
Looking at the valuation of the rand, de Jager and Kahn (this volume) show that the
currency, relative to the equilibrium exchange rate, was undervalued at the beginning
of the nancial crises in 2008, and has depreciated since, to an undervalued position of
10 per cent in the second quarter of 2013. e degree of undervaluation seems to have
inationary consequences. e currency is expected to remain volatile and face deprecia-
tion risk as the United States institutes QE tapering. Risks of lower growth, credit-rating
downgrades, and domestic political issues and labour unrest, all put pressure on currency
volatility going forward.
Aer the Soweto 1976 uprisings, import surcharges were applied above the normal
taris on imports in order to alleviate pressure on the current account. e surcharges
were removed in 1980 when the gold price increased substantially, bolstering the current
account. e import surcharges were reintroduced in February 1982 to November 1983,
which did not alleviate pressure enough on the current account, as it remained in decit.
e current account decit led to sharp depreciation on the rand. e import surcharges
were only phased out aer 1995 during a much broader trade liberalization programme
following the Uruguay Round of the GATT.
Aer the elections of 1994, which ushered in a new South Africa and the removal of
international trade sanctions, capital inows increased, and this was accelerated by the
removal of exchange controls for non-residents in March 1995. e adoption of a new
growth plan in around 2010, suggests that net trade balance could be the main driver of
economic growth. e plan identied the exchange rate as being important, with mon-
etary policy playing a much bigger role in driving growth.
On recent developments, the trade decit over the rst half of 2013 was 2.6 per cent of
GDP and the terms of trade declined. e value of imports increased by 15.8 per cent over
the rst half of 2013, whilst the value of exports only increased by 14.2 per cent. e main
contributors to import growth are mineral products (fuel), chemicals, plastics, rubber,
machinery and transport equipment. On exports, exports to China have been increasing
and now match exports to the Southern Africa Development Community (SADC) at
about 12 per cent of total exports, in the rst half of 2013. SADC accounted for 22.4 per
cent of manufactured exports in the rst half of 2013. Exports to the European Union are
still the largest share at about 20 per cent of total exports, as of the rst half of 2013, having
declined from over 30 per cent in 2000.
e current account decit stands at about 6.5 per cent of GDP and is expected to
remain above 5 per cent into the medium term due to investment growth staying above
growth in domestic savings. Over the medium term, transfers to the South African Cus-
toms Union (SACU) members, namely Botswana, Lesotho, Namibia and Swaziland, will
amount to about 1 per cent of GDP.
12 OVERVIEW: ECONOMIC POLICY IN SOUTH AFRICA
e rst nine months of 2013 also saw a drop in net purchase of domestic bonds by
foreign investors, dropping to R37 billion, compared to R76 billion over the same period
in 2012. On the equity market, the same period saw a net inow of R26 billion in 2013,
compared to a net outow of R5 billion in 2012. e general decline in inows is due to
the possibility of tapering of quantitative easing in the United States, which resulted in a
rise in US bond yields and an outow of capital out of emerging markets in general, cou-
pled with a weaker domestic economy in South Africa. FDI into South Africa, in the rst
half of 2013 amounted to R16.9 billion, largely driven by long-term loan nancing that
international companies are extending to their domestic subsidiaries.
On February 23, 2000, South Africa adopted ination targeting as a monetary poli-
cy framework. From 2003, the SARB adopted a continuous target to be achieved on a
monthly basis. During this period, the bank targeted consumer price ination exclud-
ing mortgage interest costs. In October 2008, the SARB announced that it would target
changes in consumer price ination, as from January 2009. An ination band of 3–6 per
cent is targeted, with variable success. A low of 1.4 per cent was recorded in 2004 and a
high of 11.5 per cent in 2008. e ination-targeting period has seen a period of pro-
longed economic growth, suggesting a negative relationship between the two variables.
On recent developments, in July 2013, consumer price ination breached the 3–6 per
cent target band for the rst time since April 2012, reaching a level of 6.3 per cent. Major
contributors to ination included higher transport costs and food prices, amongst others.
Whilst ination is expected to decline going forward, the weaker domestic currency risks
higher ination.
Overall, South Africa’s economic growth is expected to remain modest in 2013, and
was 2.5 per cent in 2012, down from 3.5 per cent in 2011 (see Africa Economic Outlook,
AfDB, 2009–13). e economy is still experiencing pressure from the global economic
slowdown, and domestic structural bottlenecks, including labour unrest. e SARB has
limited room to manoeuvre in stimulating economic growth through easier monetary
policy. In the long run, success in the implementation of the National Development Plan
could unlock the economy’s potential within an inclusive growth agenda.
4 Structural transformation
It is widely agreed that the economic and social order which prevailed during the apart-
heid era of 1948–94, as well as the period of segregation which preceded it, favoured a
cheap labour system for South Africa’s mines and farms and blocked the structural trans-
formation of the South African economy. It was hoped by many that the transition to
democracy in 1994 would loosen the economic shackles of apartheid and herald an era of
stronger economic growth, based on a transforming economy. However, transformation
OVERVIEW: ECONOMIC POLICY IN SOUTH AFRICA 13
achieved under democracy has been below expectations. Particularly since the onset of
the global nancial crisis, South Africa has returned to a familiar pattern of underper-
formance. is could be a result of poor policies leading up to and/or in response to the
crisis, and it could also be a product of the fact that the structural transformation that
many had hoped for has not yet happened.
What are we looking for in the structural transformation of South Africa? In the tra-
dition of development economics, some of the key changes would be a shi from agri-
culture to industry, increasing scale of productive units and shis in the structure of
consumption. In South Africa these transitions are long completed—indeed many would
argue that the increasing average size of enterprises and the shi in consumption patterns
have gone further than they should have (Worgetter, this volume, on rm size). And yet,
as noted in previous sections, South Africa remains a country where poverty is declining
slowly, inequality is extremely high, and production and trade patterns have not shied
from the relative predominance of raw materials, exports, and the importation of high
value added manufactures.
Probably the most important structural shi that symbolizes the movement of an
economy from factor-driven to eciency-driven to innovation-driven in the language of
the world competitiveness index (Sala-i-Martin and Artadi, 2004), or from extractive to
inclusive growth in the typology of Acemloglu and Robinson (2012), is the deepening of
investment in capital, both in physical capital and human capital.
We will take up the issue of education in detail in the next section, pointing to the
disappointing performance in education despite signicant public expenditure. e
very substantial racial and gender imbalances in skilled and managerial roles in the
workplace in no small part result from the poor quality of supply of skills, though they
certainly result from residual racial and gender prejudices (Posel, this volume). e role
of women in the economy grew rapidly in the rst decade aer apartheid, but the poor
representation of women in management and the large wage gap between men and
women in similar roles point to the prevalence of prejudice (Posel, this volume). Equally
pertinent is the concentration of women in more precarious forms of employment. For
black men and women, and for women in general, South Africa is far from meeting
the Spence Commission test of equality of opportunity (Commission on Growth and
Development, 2008).
Investment in capital stock fell to astonishingly low levels in the late apartheid period,
with gross xed capital formation (GFCF) falling to a low level equilibrium of about 15
per cent of GDP. A signicant part of the decline came from the withdrawal of the public
sector from infrastructure investment, as rising current expenditure obligations and stag-
nating revenue squeezed the capital budget. It took a long time for this to turn around in
the post-apartheid period, and GFCF only began to rise 10 years aer the transition. is
led to constraints on growth in several ways, including electricity shortages that emerged
in 2008, which have held back investments in energy-intensive economic activities.
14 OVERVIEW: ECONOMIC POLICY IN SOUTH AFRICA
Investment rose to over 20 per cent of GDP briey in 2009 and 2010, but has dried
down again, though still above late apartheid era levels. Huge backlogs remain, and even
aer building around 3 million low-income houses, housing conditions for the poor
are inadequate and 2.1 million households do not have adequate homes (Savage, this
volume). Poor spatial development plans, the cheap-outlay, high long-term social cost
model of apartheid, and poor public transport facilities, have led to a high cost of repro-
ducing labour.
Perhaps the clearest symptom of the lack of transformation of the South African econ-
omy is the mediocre performance of the manufacturing sector which has continued to
decline as a proportion of GDP since 1993. Few high value added manufactures are pro-
duced or exported; the motor industry is an exception having received systematic indus-
trial policy support from government.
Several of our authors argue or show that one of the main causes of the lack of competi-
tiveness of the industrial sector is the highly concentrated oligopolistic structure of the
South African economy (Manuel, Sharma, Worgotter, Fedderke, this volume). Fedderke
points out that margins for the oligopolies have grown since 1994, along with the shrink-
ing of margins for smaller businesses. Worgotter notes that the industrial structure has
contributed to very poor levels of competition by OECD standards. Other contributors to
the poor environment are the nature of the involvement of the state in network industries
(also discussed by Levy), and heavy product market regulation.
Worgotter argues that in the rent distributing industries high margins are shared with
unionized workers, a point that Fedderke makes too. In addition, Worgotter argues that
South Africa raises much less revenue from non-renewable resource extraction, which
adds to the other eects of ‘Dutch Disease’. Unless the incentive structure of the econ-
omy shis, competitive industrialization will elude South Africa. Competition law was
strengthened and the Competition Commission is eective, but Worgotter suggests that
its mandate is too limited and its tool-kit is too small.
Outside of the extractive sector, innovation is limited in its impact on economic growth
and job creation. ough South Africa has a reasonable share of GDP devoted to research
and development, both Kaplan and Fedderke point out that this has not had a signicant
impact on output. Government has not steered funds suciently eectively to encourage
industrial innovation and the emergence of a signicant number of innovation-based
rms. is is in spite of a relatively high scientic output.
One of the most overtly transformative policies of the democratic South African gov-
ernment was the Black Economic Empowerment (BEE) strategy. Initially the government
focused on the promotion of black people into positions of greater responsibility in the
economy, in the public and private sector. Later, more attention was given to the transfer
of ownership of economic assets to black South Africans on the legitimate grounds that
apartheid articially blocked accumulation by black people, that broadening ownership
OVERVIEW: ECONOMIC POLICY IN SOUTH AFRICA 15
would underpin democracy, and that it could also give a new dynamism to the economy
as Mandela had hoped as early as 1955:
. . . the breaking up and democratisation of these monopolies would open up fresh elds for
the development of a prosperous, non-European bourgeois class. For the rst time in the
history of this country, the non-European bourgeoisie will have the opportunity to own in
their own name and right mills and factories, and trade and private enterprise will boom as
never before. (Mandela, 1956: 49)
Manning (this volume) shows in her entry that the BEE strategy has had very limited suc-
cess because empowerment is far too narrow in scope and because it engenders a cluster
of rent-seeking rather than entrepreneurship. Notably, BEE has failed to produce a sig-
nicant number of successful entrepreneurs in the manufacturing sector. Sharma refers
to South Africa as the ‘cappuccino economy . . . white cream over a large black mass, with
some chocolate sprinkled on top’.
Small business development remains a stated objective of government, but the resourc-
es devoted to it have had little impact and the oligopolistic structure of the economy has
not created an environment conducive to fast growing small and medium businesses.
In addition to facing the power of oligopolies and cartels, small businesses have to con-
tend with a regulatory environment that poses risks to employers of labour in regard
to dismissal procedures. Red tape, corruption and crime provide further disincentives
(Rankin, this volume), especially in poorer communities.
One of the chief strategies used by the democratic government to raise the competi-
tive temperature in South Africa was to reduce taris in line with its commitment to the
Uruguay Round of the GATT. Analysts looking at the outcomes of the reforms found
links between tari reform and greater dynamism in manufacturing (Jonsson and Subra-
manian, 2000 and Edwards, this volume), but the eects were limited. e limited impact
on competition and dynamism might be because tari reforms in the 1990s were not con-
tinued during the 2000s, and/or because other factors such as labour market constraints
and/or the volatile exchange rate discouraged investment in export-oriented manufactur-
ing. At the same time, trade reform in wage goods sectors motivated by the general wel-
fare eects on living standards led to a sharp decline in employment in labour-intensive
industries such as clothing, textiles and footwear. So whilst wage goods were cheaper to
the extent permitted by oligopolistic markets, the positive dynamic eects were limited
and the negative eects on employment were severe.
As a result, non-traditional exports are weak with the exception of the motor industry
which operates under an unusually strong incentive regime. Commodities are still a large
proportion of exports and trade is extremely pro-cyclical in relation to global growth
trends. Overall, exports are relatively weak. e result is that growth which requires high-
er levels of investment is reliant on capital inows, and as there is hardly any green-eld
16 OVERVIEW: ECONOMIC POLICY IN SOUTH AFRICA
FDI (Black, this volume), most investment is portfolio investment in bonds and stocks.
e dependence of the economy on short to medium-term capital inows for growth
tends to reproduce dependence on the resource sector and powerful, publicly quoted
oligopolies in the services sector.
e result as Rankin, Fedderke and others point out is a low rate of improvement of
productivity, low levels of competition and low levels of innovation. Except in periods of
exceptional economic growth, employment creation is limited and the condition of struc-
tural unemployment inherited from the late apartheid period remains.
To draw on the language of Acemoglu and Robinson (2012), whilst it would appear
that inclusive political institutions have emerged in South Africa, economic institutions
remain extractive. e process of economic reform began in 1994 with the transition to
democracy, but structural transformation still has a long way to go.
5 Poverty, inequality and unemployment
Human development indicators in South Africa show a contrasting picture when com-
paring income and non-income dimensions. Many non-income dimensions of welfare
have improved. Access to basic services—housing, water, sanitation and electricity—has
increased. Measures of poverty and inequality based on asset indices that incorporate
these factors show an improvement in the post-apartheid period. However, the picture
for income dimensions is somewhat dierent. As shown in Section 2, inequality has
increased over most of the post-apartheid period, and the poverty reduction performance
has been lacklustre. Further, racial imbalances in the income dimensions of well-being
continue to be severe.
e inability to move poverty, inequality and unemployment, and continued racial
imbalances in these, is a major feature of South Africa over the past 20 years and a central
focus of debate on economic policy. e persistence of poverty and inequality has hap-
pened despite eorts by the state to address the issue through transfers. Several papers
show that without state grants poverty and inequality, and inter-racial dierences, would
be even higher. Why is the market distribution of income in South Africa so unequal,
and what policy interventions other than transfers could improve the situation?
A simple framework for understanding the distribution of income begins by thinking
of income as a combination of assets and the returns to these assets. e major asset, in
general and particularly for the poor, is their labour power. Labour income explains the
bulk of household income. is is true around the world, and South Africa is no exception.
Bhorat et al. (2006), Leibbrandt et al. (2006) and Woolard and Woolard (2007).
Leibbrandt and Levinsohn (2011), Bhorat and van der Westhuizen (2012) and Leibbrandt, Finn and
Woolard (2012).
OVERVIEW: ECONOMIC POLICY IN SOUTH AFRICA 17
In South Africa wage income (including self-employment income) accounts for 70 per
cent of income. Decompositions of inequality by income source show that labour income
accounts for 85 per cent of inequality. us the evolution of income inequality and pov-
erty depends on a combination of trends in access to labour income, and inequality of the
labour income itself. Access to labour income earning opportunities is of course related
to unemployment and the role of the informal sector, whilst inequality of labour income
itself depends on the distribution of skills and the distribution of returns to skills.
e structural reasons for persistence of income poverty and inequality in South Afri-
ca thus boil down to (i) inequality in skills, primarily education, (ii) inequalities in the
returns to skills, (iii) unemployment and (iv) low productivity and low labour income in
the self-employed informal sector. Correspondingly, the policy responses to address the
issues can also be classied under the same headings. ere are of course cross-linkages
between these entry points—for example, levels of education are strongly correlated with
unemployment.
Of the four explanations of the evolution of income distribution, perhaps the one over
which the government has least control is the distribution of returns to education. South
Africa is part of a global trend of growing inequality in these returns. Whilst there is a
debate on the relative contribution of this phenomenon to growing income inequality
in the United States and elsewhere, there is consensus that it is a signicant explanatory
factor in rising inequality. And whilst the phenomenon is not fully understood in detail,
skills-biased technical progress has been identied around the world as the cause for
sharply rising wage premiums for educated labour.
Given the global trend in returns to education, a policy priority for the government
must be to li up the lower end of the distribution of educational attainment so that those
currently at lower incomes can benet from the rising returns. e government’s record
on this front is decidedly mixed. Whilst the government spends a relatively high share of
GDP (4 per cent) on education, the outcomes are disappointing. Since the end of apart-
heid more Africans are moving from primary to secondary school, but the rates of gradu-
ation from secondary school have barely shied since 1994. Test scores on average are low
relative to other countries, but at the same time there are enormous inequalities between
schools in rich and poor areas. In poor areas there is considerable grade repetition, which
in turn leads to overcrowding. Measured in standard school quality benchmark tests,
South Africa’s schools have very poor performance by global standards; measured in pro-
portion to the cost of education, the result is particularly poor (Muller, 2013).
e structural inequalities across race and income groups are only further exacerbated
in higher education. e post-school systems are also weak. Whilst there are some good
Leibbrandt, Woolard, Finn and Argent (2010).
See e.g. Kanbur and Zhuang (2012).
Lam and Branson (this volume).
18 OVERVIEW: ECONOMIC POLICY IN SOUTH AFRICA
universities, the system as a whole is not producing sucient graduates in key skill cat-
egories; this was undoubtedly a constraint on growth in the rst decade of the twenty-rst
century. Even more serious is the relatively small number of suitable graduates emerging
from vocational and technical training colleges.
Education has an eect on income only when the person with that education becomes
employed. But high unemployment remains a scourge and, not surprisingly, is correlated
with poverty and is a major contributor to inequality. Further, youth unemployment is a
major driver of the overall level—the unemployment rate for 15- to 30-year-olds in 2010
was a staggering 42 per cent. ere is vigorous debate in South Africa on the causes of
high levels of unemployment, with some emphasizing demand-side factors and others
highlighting supply-side reasons.
One straightforward way of increasing demand for labour is through public sector
employment. ere is much discussion of, and support for, public works schemes as a
temporary safety net. e dierent components of the Expanded Publics Works Pro-
gramme, including the Community Works Programme that is being piloted, are being
assessed. It is likely that they will be expanded along the lines of India’s Mahatma Gandhi
National Rural Employment Guarantee Act. However, it is also recognized that Public
Works Programmes are a safety net and cannot be a permanent solution to absorbing the
growing number of entrants to the workforce, where attention will have to focus on the
private sector.
On the private sector demand side, the issue in South Africa is not just the relatively
low economic growth rate over the post-apartheid period, but also its low employment
intensity. It is a well-known argument in South Africa and elsewhere that various labour
market rigidities, in particular high wages and constraints on dismissing workers once
hired, lead to low employment elasticities and prevent growth from being translated into
employment gains. A counter-argument is that the laws themselves are not unusually
rigid relative to global benchmarks, but that the institutions of implementation are inef-
cient (Bhorat and Van Der Westhuizen, 2009). e political economy of South Africa
means that this is a contentious issue, and policy attempts to address the high wages indi-
rectly, for example through employment subsidies for youth employment, will be hotly
debated. Amongst the technical arguments deployed are that a youth wage subsidy will
not create new employment but will simply change the composition of unemployment by
displacing adult workers by youth workers. However, measures to introduce such subsi-
dies have recently been passed.
Attention has also naturally turned to more supply-side-oriented explanations and
interventions. One such explanation is that of a skill mismatch. e idea here is that
South African unemployment is higher than it should be because the skills demanded
Mlatsheni and Leibbrandt (this volume).
Philip (this volume).
OVERVIEW: ECONOMIC POLICY IN SOUTH AFRICA 19
by employers are not those being produced by the schooling and training system. e
poor functioning of the colleges of Further Education and Training is a major concern
in this regard, and the contribution of the Sector Education and Training Authorities is
much discussed in policy circles. If the demand-side route to reducing unemployment is
blocked, then these supply-side interventions are bound to be the major focus of interest.
A key concept in supply-side explanation of unemployment is that of the reservation
wage. Simply put, the wage being oered in employment is not high enough to attract the
unemployed person to take up the job—unemployment is preferable. us it is not that
the wage is too high to reduce unemployment by increasing demand for labour, but that
it is too low to reduce unemployment by inducing the unemployed to move to employ-
ment. One study found that with appropriate controlling of other factors, more than
three-quarters of males and more than half of females have stated desired wages that are
above those they could get (with their skills and background) in a moderate-sized rm.
But such ndings are also disputed by technical researchers, and in general by the seem-
ing absurdity of the notion that the unemployed would not be prepared to work for wages
that paid them more than the next best alternative.
ere is, however, a structural reason linked to the particular history of South Africa
which makes the reservation wage hypothesis particularly relevant. As is well known,
the residential and work patterns in South Africa owe a lot to apartheid period segre-
gation policies. e African population was conned to certain areas, from where they
undertook oen long commutes to work. e transportation structure and patterns con-
formed to this basic design. is residential pattern has not changed much in the 20 years
since the end of apartheid. Employment opportunities are mainly to be found outside the
townships where most Africans in urban South Africa live. e high pecuniary and non-
pecuniary costs of transportation require that the wage in employment be high enough to
be compensated for these costs. Hence the seemingly peculiar outcome that despite there
being/having only low-earning opportunities in the townships, the residents are not will-
ing to take up jobs that pay high in gross terms, but not suciently high once the costs of
transportation are subtracted.
e answer to this structural problem is not easy, and not likely to be solved overnight,
since it was created over several decades in deliberate fashion. Investing and job creation
in the townships themselves is problematic, again because of the structural feature that
little of the income spent in the townships stays there. An assessment of the impact of
the Community Work Program in Diepsloot shows signicant direct eects, but that the
multiplier impacts are relatively small because of the leakages of demand to outside the
township. ere is hope, however, that these multipliers may increase over time through
Rankin and Roberts (2010).
World Bank (2012).
Davies and Van Seventer (2012).
20 OVERVIEW: ECONOMIC POLICY IN SOUTH AFRICA
these and other interventions such as the setting up of industrial parks nearby. In any
event, reducing the distance to work is an important element in addressing the supply-
side of South Africa unemployment.
e high levels of open unemployment in South Africa are a surprise to many working
in other developing countries such as India, where the informal sector is much larger. In
these countries, policies towards the informal sector and informal employment is a major
component of the policy discourse, and this is increasingly so in South Africa. ere is
now a consensus that there are a whole range of barriers to setting up in the informal sec-
tor, with a particular focus on national and local regulations, many of them dating to the
apartheid era. ese discriminate against self-employed activities, activities which could
provide income-earning opportunities for the unemployed. A number of specic policy
interventions are possible, as exemplied in the transformation of the Warwick Junction
area of Durban, but this must begin with a change in the policymaking mindset, which
views informality as a ‘problem’ to be swept aside, rather than a sector to be engaged with
to generate employment possibilities.
Addressing poverty, inequality and unemployment in South Africa will require many
policy instruments and interventions. High rates of growth, and employment intensity of
that growth, are central. Encouraging employment intensity requires demand-side and
supply-side policy reforms and direct interventions. e supply-side encompasses eorts
in skill matching as well as addressing the particular spatial pattern of work and resi-
dence in South Africa. e demand side includes a change in the mindset which restricts
informal employment, as well as introducing temporary safety nets through public works
programmes. Finally, redistribution of market incomes through state grants, and bet-
ter deployment of public expenditure for access to services is also key. South Africa has
had signicant successes in some areas, but education remains a channel through which
inequalities continue to be perpetuated and strengthened.
6 Conclusion: challenges and policies for the future
e end of apartheid in 1994 promised a new beginning for South Africa, with political
freedom and inclusive development for all South Africans. e focus of this volume, and
of this overview, is on the economic record and the economic prospects of post-apartheid
South Africa. e record is a mixed one. A start has been made in addressing many of the
basic inequalities in health, education and housing that were the hallmark of apartheid
economics. Growth is stronger than before and poverty is lower, access to education and
Valodia (this volume).
Skinner (2008).
OVERVIEW: ECONOMIC POLICY IN SOUTH AFRICA 21
health care is much stronger, access to infrastructure services is hugely improved and a
strong social safety net cushions poverty for the very poor. But unemployment remains
high, especially amongst young Africans, and income inequality has increased. Economic
growth has been volatile and lacklustre as South Africa has had to cope with the conse-
quences of global crises.
During the post-apartheid period a series of economic policy packages has been intro-
duced, including the GEAR, ASGISA, the New Growth Path and the National Develop-
ment Plan. Several others have been stillborn, including the thoughtful report prepared
by the team assembled by Dani Rodrik and Ricardo Haussmann in 2006–07, the National
Growth and Development Plan developed in the RDP oce in 1995–96 and the report
of the Labour Market Commission, also delivered in 1996. e GEAR was implemented
over a period of time, but only in part.
Considering that South Africa is a young nation built on a complex and very chal-
lenging political economy, expectations that the new government would get every-
thing right quickly were naïve. e rest of the packages which were actually launched
have not been driven consistently by government. Whilst the National Development
Plan appears to have the support of the ANC government and many in the broader
community (though not those on the le of the trade union movement), its limita-
tions are that it is not much more than a framework to guide policy to 2030, and that
it is not yet evident that the government or the ANC have a systematic approach
towards its implementation.
Regulatory uncertainty has aected investment levels in sectors such as mining and
networked industries in particular. e shortfall in electricity generation since 2008 was
the most dramatic outcome of this uncertainty. High telecommunications costs and lim-
ited broadband access have also been symptoms of weak regulation. Alongside this, in
the rhetoric of government and the ruling party, the concept of a developmental state
is oen conated with increasing state participation in the economy. e combination
of the waning credibility of government’s economic plans with regulatory uncertainty
and confusion about the role of government in the economy has weakened the credibil-
ity of government plans and has reduced investors’ condence in the leadership of the
South African economy. e challenge to roll back poverty, unemployment and inequal-
ity becomes all the more dicult in this context.
Perhaps the most important short-term challenge of government is to win back credi-
bility in its economic policymaking and implementation. e easiest way to do this would
be the same way as its credibility began to be won, at great cost, in the 1990s—though
the rmer implementation of macroeconomic commitments, especially in the realm of
scal policy. Budget decit targets have been exceeded every year since 2009—this pat-
tern needs to be broken. Monetary policy is now more credible—the system of ination
targeting has been consistently followed, though there was greater exibility in the appli-
cation of the policy aer the global nancial crisis began. However, a real commitment to
22 OVERVIEW: ECONOMIC POLICY IN SOUTH AFRICA
reserve accumulation and the introduction of some targeted macro-prudential measures
could reduce the volatility of the price of the currency and lessen its impact on the domes-
tic economy, especially for the non-traditional tradable sector.
It would also be valuable if it were clear that government was prioritizing capital
expenditure and was rmly committed to limit the growth of current expenditures, espe-
cially on the government wage bill. But this needs to be taken further, towards greater
coherence in economic policy as a whole. e appearance that economic policy is made
sector by sector without any strong centre needs to be reversed. Strong leadership is need-
ed on regulatory coherence in order to ensure that infrastructure services are good, cheap
and reliable, and certainty should be established on what exactly the government means
by a ‘developmental state’. It should not necessarily mean more state ownership in the
economy, which some in the ruling alliance say it should, but it should include eective
measures to counteract the oligopolistic forces in the economy that restrict competition
and innovation.
An appropriate denition of the developmental state would in South Africa necessarily
include an overarching social pact and perhaps a series of sub-pacts between business,
government and labour to support investment, innovation, and the emergence of dynam-
ic small and medium enterprises. is could lead to a new, more meaningful form of
economic empowerment. A well-designed and strongly led social pact could conceivably
also remove some of the key obstacles to investment such as the antagonistic industrial
relations environment in the private and public sectors.
Perhaps the biggest challenge is to x the basic education system and, further, to
expand post-school training opportunities in colleges and universities. Evidence increas-
ingly suggests that not only do resources need to be allocated better, from salaries to
learning materials, but also that the total envelope for education is not high in compara-
tive terms—certainly when measured in expenditure per learner. So education com-
mitments could increase. But the fundamental challenge is to improve the quality of
management of schools and the provincial administration systems, which will allow for
more rapid improvements in teacher performance.
e extraordinarily damaging legacy of the apartheid spatial framework is a further
key challenge that has not yet been adequately addressed. Cities need to be made into
more liveable places for the poor and more ecient economic activity hubs. e eective
implementation of good housing and public transport policies within a reforming spatial
development framework is absolutely critical, city by city.
As long as the gap between the demand and supply of labour remains so wide, special
measures must be taken to reduce the negative social eects of widespread unemploy-
ment, especially amongst young people. Eective public employment programmes, pub-
lic works programmes and community work programmes, which are able to build social
OECD (2013) Economic Survey South Africa 2013 and Muller (2013).
OVERVIEW: ECONOMIC POLICY IN SOUTH AFRICA 23
capital, need to be strengthened and expanded. Other medium-term interventions such
as special training and employment promotion schemes for young people should be well
designed and well managed.
ere has been vigorous debate on economic policies, for a country with a unique
historical legacy of structural inequality having to navigate the oen unforgiving
forces of globalization and global markets. e entries in this volume reect that debate
and those uncertainties. Our task has not been to summarize those entries. Rather, we
have provided our own perspective on the challenges faced by South Africa. Our con-
clusion is that clarity on goals combined with pragmatism in means is the best stance
for South African policymakers. e basic economic goal is clear—it is to generate
inclusive economic growth, which leads to broad-based development and addresses
the inequalities which are the burden of apartheid. It means we do not think it serves
South Africa well to be dogmatically ‘statist’ or ‘marketist’. e real issue is in what
combination South Africa should choose, and this will vary across time, space and
sectors. ere are some areas, such as health and education, where state involvement
is crucial, but ecient implementation, and learning through experimentation, is key.
ere are other areas, primarily in production, which are best le to market forces, but
appropriate regulatory frameworks are essential.
Of course this broadly pragmatic stance leaves open ample room for debate, discussion
and disagreement. is is bound to be the case, especially for a country with a history like
that of South Africa. We hope that this volume will contribute to this lively discourse as
South Africa enters its third decade of freedom.
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Twenty years of economic
policymaking—putting
people first
trevor manuel
1
1 Introduction
e South African economy under apartheid, in many respects, displayed patterns similar
to that of a typical colony but with some notable dierences. e major driver of growth
was the extraction of minerals. In many areas, industrial policy supported a transition
into early stage manufacturing. e rents from the minerals sector funded a small but
relatively sophisticated services sector dominated by nancial services. e social pol-
icies under apartheid and its precedents consciously skewed the rents from the economy
towards white South Africans and therein lies the dierences with a typical colonial set-
ting. e key beneciaries of mineral extraction live inside South Africa.
In the late 1980s, as the apartheid government was in its death throes, the liberation
movement under the leadership of President Tambo set about dening the principles
upon which a new post-apartheid society would be built. ere were several strands of
this work focusing on international relations and legal, economic, social and political
issues. e legal aspect of this work culminated in the constitutional principles which
ultimately shaped South Africa’s post-apartheid constitution. At the centre of these prin-
ciples was the concept of a people-centred democracy, a thriving and open society prem-
ised on mutual respect, trust and human dignity.
It was these same principles that shaped economic policymaking in the African Nation-
al Congress (ANC) and then in government over the past 20 years. e ANC sought to
transform the economy into one that beneted all the people of South Africa. To achieve
this objective, the economy would have to be fundamentally reshaped and restructured.
But it also had to grow faster to generate the domestic and foreign resources to rebuild the
post-apartheid society.
30 THE ECONOMICS OF POST-APARTHEID SOUTH AFRICA
2 Early policymaking—ready to govern and the RDP
Early economic policy thinking in the ANC in the late 1980s and early 1990s was heavily
inuenced by the post-World War II experience of Europe and Japan. e Reconstruction
and Development Programme (RDP) built on those experiences and set out an ambitious
investment programme in both physical and human capital. Key objectives were to build
1 million houses in ve years, to provide water and electricity to all households, to get all
children into school, to build a primary health care infrastructure and to redistribute land
to small-scale black farmers.
e rst major choice of the democratic government was how to fund these invest-
ments. e World Bank was actively lobbying the ANC to take a suit of loans to nance
the RDP. e ANC was hesitant to take the nance for two reasons. First, the experience
of many African countries (which hosted a large number of ANC cadres) was that World
Bank nance caused more harm than good. Second, the ANC wanted to jealously guard
its policy space and autonomy. It did not want its policies to be dictated to by the World
Bank. Policy autonomy was exactly how the ANC dened sovereignty and sovereignty
was what the ANC had just won.
To nance the RDP, the ANC understood that it would have to attract international
resources and generate additional resources domestically. It campaigned internationally
to mobilize donor assistance. While some donor assistance was forthcoming from the
ANC’s traditional allies, the scale of resources required was far larger than anything that
donors could or would provide.
at le the public nances. To free up resources to fund the RDP, the ANC would have
to restructure the public nances, improve eciency and reduce waste. Again, the short-
term solution would have been to simply increase borrowing. However, given that ina-
tion was in the mid-teens and borrowing costs were prohibitive, government would have
to source additional revenue by growing the tax base, improving tax collection, improv-
ing the eciency of allocations, reducing subsidies to farmers and industry and reducing
debt interest payments.
In addition, the ANC recognized that only a growing economy could generate the
resources to fund the RDP. Growing the economy faster meant attracting foreign invest-
ment and improving the competitiveness of South Africa’s rms, rms which grew under
conditions of sanctions, isolation and large implicit and explicit subsidies that were no
longer aordable. To deal with these challenges, the ANC government sought to restruc-
ture the public nance, provide investors with the policy clarity that they sought and
began opening the economy up to competition.
South Africa was a late entrant into the General Agreement on Taris and Trade
(GATT, the precursor of the WTO). A condition of late entry into the negotiations was
that South Africa was classied as a developed country. As a result, South Africa entered
TWENTY YEARS OF ECONOMIC POLICYMAKING 31
into agreements which saw sizeable reductions in taris and non-tari barriers. ese
tari reductions were only in part externally imposed as the price of re-entry into the
global trading system. e ANC government also needed to raise the level of competitive-
ness of the economy, reduce inationary pressures and raise exports. e government saw
tari reduction as a means of reducing inationary pressures and forcing South African
rms to become more competitive. In addition, in most exporting industries, taris on
imports impeded exports.
e ANC government had also over-estimated the capacity of the state to deliver on the
RDP priorities. e reality was that the state was weak and was weakest where the poor
lived (in the former homelands).
3 The introduction of GEAR
Faced with the challenge of nancing the RDP and raising the growth potential of the
economy, the government introduced the Growth, Employment and Redistribution
Strategy (GEAR) in 1996. GEAR sought to reduce ination pressures, bring down real
interest rates, promote competitiveness and enable the economy to attract foreign capital
inows. To achieve these objectives, GEAR focused on reducing the budget decit, high
company tax rates and taris. GEAR also called for a competitive exchange rate, higher
infrastructure spending, improved education and training and ‘regulated exibility’ in
the labour market.
Initially, GEAR succeeded in bringing down ination and the decit and improved the
country’s ability to attract foreign capital inows. In 1998, the Asian crisis slowed global
growth and resulted in a sudden stop to capital inows. e rand exchange rate weakened
sharply. At the time, the government’s monetary policy prioritized defending the rand
exchange rate. Interest rates were increased sharply and the country eectively borrowed
dollars to protect the rand exchange rate. Growth slowed signicantly.
In response to the Asian crisis and slower growth, the government adjusted its scal
plans but the broad thrust of decit reduction remained. Once growth had resumed, scal
consolidation continued through broadening the tax base, improving tax collection and
curbing spending growth.
e government understood that improvements in macroeconomic performance were
only a necessary condition for growth, but on its own was insucient to drive higher
and more inclusive growth. In 2005 the government adopted a microeconomic reform
strategy. is strategy was aimed at enhancing competition in the economy, reducing
red-tape which was hobbling business and lowering the costs in key network industries.
Very little of this strategy was implemented. While competition law and the competition
authorities have been vigilant and successful in overseeing mergers and acquisitions, a
32 THE ECONOMICS OF POST-APARTHEID SOUTH AFRICA
broader range of instruments were not used and regulatory reform was not implemented
to enhance economic eciency. Furthermore, the government had failed to adequately
support small and medium-sized businesses to break into sectors that were dominated
by oligopolies.
e net eect of these failures was that there was too much reliance on macroeconomic
policy to drive higher growth. Macroeconomic policy is not useful in changing the eco-
nomic structure or in changing the distribution of rents in an economy.
In addition to the microeconomic reform priorities outlined above, the government
also implemented a range of policies to support black economic empowerment. ese
policies were successful in forcing the private sector to diversify ownership towards his-
torically disadvantaged groups but were less successful in promoting new entrepreneurs
or black ownership in new and growing sectors. In most established sectors, black people
and women now own about a h of the shares on oer. A major problem, however, was
that these share purchases were oen funded by debt. is implied that as long as the
share price was rising and corporates were paying out dividends, these Black Economic
Empowerment (BEE) schemes were successful. However, when share prices fell or inter-
est rates increased or corporate prots slowed down, these schemes came under enor-
mous pressure. Furthermore, most of these deals involved a small number of individuals,
oen politically connected. Broad-based share ownership schemes were the exception
rather than the norm.
A key choice facing the government in the mid-1990s was the pace at which it could lib-
eralize capital controls. A related challenge was what to do about South Africa’s conglom-
erates. Under apartheid-induced sanctions, South African corporates could not invest
abroad. As a result, they invested in sometimes unrelated markets. For example, Anglo
American (a mining company) had investments in banking, beverages, retail, autos and
even in the fast-moving consumer goods sector. ese conglomerates were inecient
structures in a new economic dispensation. e sensible thing to do was to force these
conglomerates to unbundle, to divest from non-core assets and to invest the proceeds in
their core business areas outside the country.
If the government was to allow these companies to sell their assets and take the pro-
ceeds o-shore, it would result in a signicant capital outow, something the economy
could not aord. e choice facing the government was whether to li exchange controls
or to maintain exchange controls but allow these companies to raise capital abroad. Given
the risk of premature liing of exchange controls, the government allowed several South
African companies to list abroad. is enabled these rms to raise capital abroad to invest
in mining (or an area in their core competence).
is strategy has been only moderately successful. e conglomerates were broken up
and today South Africa’s corporate structures are less concentrated and more ecient. e
strategy did enable these rms to raise capital abroad and to grow their asset base. South
African Breweries have probably been the most successful exponent of this strategy. ey
TWENTY YEARS OF ECONOMIC POLICYMAKING 33
divested from non-core assets in South Africa, listed in London and made several acqui-
sitions in the brewing business globally. In 1996, South African residents owned close to
100 per cent of a relatively small company. Today, South Africans own about a third of a
company which is now about ten times larger.
On the other hand, some companies raised capital abroad and invested poorly. In the
worst case, a South African life insurance company invested so poorly that prots from
South Africa had to be used to cover losses in foreign subsidiaries.
South Africa has continued down the path of slow but steady capital account liberaliza-
tion, the pace of which was dependent on local and global economic conditions. Today,
exchange controls have morphed into prudential regulations on South African rms
(mainly nancial services and investment rms). South Africa corporates are still limited
in the quantum of money that they can take out of the country. Supporters of this gradual
approach argue that it has served South Africa well in times of global volatility. Critics
argue that it limits two-way trade in the rand and hence causes a bias towards a stronger
rand (because rms cannot take money out when conditions dictate).
In 1996 and again in 1998, the rand exchange rate fell sharply in a short period time.
On both occasions, the monetary authorities intervened to stabilize the exchange rate, at
huge cost to the country. e diagnosis of the problem was that South Africa was a small
open economy reliant on foreign capital inows. Its lack of foreign exchange reserves
made it more vulnerable. e exchange rate was in part determined by commodity prices
and in part by global sentiment. What was missing was a clear monetary policy.
Economic policymakers faced a quandary. What was the best strategy to anchor ina-
tion expectations over the longer term? Anchoring ination expectations was seen as key
to preventing excessive volatility on the exchange rate. e country faced two options.
e rst option was to target the exchange rate. To achieve price stability, it could adjust
interest rates and foreign exchange reserves to keep both prices and the exchange rates
relatively constant. e advantage of this option was that it would provide certainty to
importers and exporters and certainty to foreign investors. e disadvantage was that
households and corporates would face volatile interest rates and volatile interest rates
were likely to depress domestic investment. e second option was to target ination. e
intent would be to achieve price stability and relatively stable interest rates but to allow
the currency to oat freely when external prices changed. e advantage of this approach
would be that it provides some stability in interest rates for households and rms (which
should support domestic investment decisions) but it creates a degree of uncertainty for
importers and exporters (and import competing rms).
is was a dicult decision. Economic policymakers knew that there were no right or
wrong answers. e negative experience of 1998 when interest rates were from 14 per cent
to 21 per cent in a few weeks was fresh in the minds of policymakers (and households).
Taking into account South Africa’s low savings rate, lack of foreign exchange reserves
and its level of economic development, the government adopted ination targeting as its
34 THE ECONOMICS OF POST-APARTHEID SOUTH AFRICA
anchor for monetary policy. e intent of the policy would be to achieve price stability
while keeping interest rates relatively stable.
e rst test of this policy came in December 2001 when the rand crashed. e rand-
dollar exchange rate went from about R6 to the US dollar to about R13 to the dollar.
is time, policymakers did not panic. e government did not intervene in the foreign
exchange market and while interest rates were increased, they were only increased by a
small amount and not immediately (they were increased later to reduce the second-round
eects of ination). e country and the ination targeting framework withstood the cri-
sis well. Growth did not crash, as in 1998. e rand exchange rate returned to more nor-
mal levels fairly quickly. Foreign currency speculators learnt a lesson too, that the rand
was no longer a one-way bet.
4 The boom period 2003–08
e combination of sound scal policy, a clearer and more transparent monetary policy
framework and lower ination enabled South Africa to capitalize on rapid global growth
and a rise in demand for commodities. During the period 2003–08, economic growth
averaged 5 per cent a year, employment increased by about 2 million (a scale of job cre-
ation not experienced in three decades) and the poverty rate (using a poverty line of about
R419 per person per month in 2010 rands) fell by about ten percentage points.
Strong growth lled the scal coers allowing a virtuous cycle of rising public spend-
ing, falling debt and debt interest costs and signicant tax cuts to the middle class. Public
infrastructure spending increased from a low of about 4 per cent of GDP to a high of 9 per
cent of GDP (partly induced by the 2010 football World Cup). e government signi-
cantly expanded its social grants programme (unconditional cash transfers to households
with children, disabled people or pensioners).
e boom was a good one for South Africa. It generated jobs, revenue for the govern-
ment to tackle poverty and it induced public and private investment on a scale not seen
in decades. ere were also some negative eects. Consumption grew even faster than
investment. Savings did not increase. e current account decit ballooned. Network
infrastructure could not cope with the growth in demand and house prices increased to
near bubble levels.
In 2005 and 2006, the government commissioned a team of international experts to
advise on economic policy. is team, headed by Riccardo Hausmann, identied many
of the obstacles to growth that were not apparent at the time but which would become
more apparent in the nancial crisis. eir main ndings were that South Africa did
not have a suciently strong export engine to drive growth, that scal policy should be
more counter cyclical and that urgent steps were required to break the insider–outsider
TWENTY YEARS OF ECONOMIC POLICYMAKING 35
relationship in both labour and product markets. On the basis of their recommendations,
the government adopted the Accelerated and Shared Growth Initiative (AsgiSA) to guide
economic policy. AsgiSA used a binding constraints methodology. Key constraints that
were identied included a shortage of infrastructure, excessive volatility of the exchange
rate, poor education and labour market stasis.
AsgiSA was not eectively implemented, partly due to poor coordination within gov-
ernment and partly because of internal dierences within the ruling party. Again, far too
big a burden was placed on macroeconomic policy. While macroeconomic policy has
been supportive of growth, it is limited in its ability to raise competitiveness or in chan-
ging the redistribution of rents in an economy.
Even before the global nancial crisis, there were signs that the economy was slowing.
Key lessons include the fact that while investment growth was strong, it was not strong
enough. Supply capacity expansion did not match demand growth. Households, feeling
the wealth eect of rising house and other asset prices, borrowed heavily to fuel a con-
sumption boom. In hindsight, monetary policy was pro-cyclical in that interest rates were
not increased early enough to prevent asset price bubbles and excessive consumption.
Fiscal policy was also too expansionary. Even though the government ran budget sur-
pluses in 2007 and 2008, it should have saved even more of the revenue both to prevent
the economy from overheating and to prepare for leaner times.
5 The global financial crisis
When the global nancial crisis hit, the economy was hit particularly hard, partly because
it was already slowing when the global crisis hit. e main mechanism by which the crisis
aected South Africa was sharply lower demand for major exports (so both prices and
volume fell) and an abrupt halt in global capital inows.
In one sense, South Africa managed the crisis relatively well. A oating exchange rate
came to the rescue, with a depreciation cushioning the economy from falling commod-
ity prices. South Africa’s well-regulated nancial sector came through the storm intact,
unlike in many other countries where governments had to bail out the banks using tax-
payers’ money. Fiscal policy was adjusted quickly to protect public spending.
In another sense, the global nancial crisis was disastrous for South Africa. Employ-
ment fell by 9 per cent or 1 million jobs, even though GDP fell by just 2 per cent in
2009. Private xed investment crashed and the public sector was not able to quickly ll
the shortfall. Private sector credit extension fell, further depressing consumption and
investment.
ere are at least two explanations oered for the large-scale job losses and fall in pri-
vate investment in the crisis. e rst is simply an economic one. e South African
36 THE ECONOMICS OF POST-APARTHEID SOUTH AFRICA
economy was overheating. Households and corporates were heavily indebted. e public
sector was growing spending too rapidly, even recklessly, and the monetary authorities
were asleep. Financially induced crises take the form of a sharp contraction in credit
and deleveraging by households and corporates. is reduces demand, which further
depresses earnings and prots. Employment falls because rms cannot aord to keep
people, which further depresses demand.
In South Africa’s case, an irony in the labour laws is also used to explain the large job loss-
es. It is very dicult to dismiss someone for poor performance in the workplace but it is very
easy to retrench someone for reasons of economic stress. is leads to rms taking a worst
case scenario when a crisis hits. ey retrench as many people as they can, simply because
they can. When many rms do this, it lowers demand, forcing other rms to follow suit.
e second explanation for the large-scale job losses and fall in private investment is a
political economy one. Changes in the ANC’s leadership in December 2007, widespread
electricity outages in January 2008 and large-scale xenophobic violence in May of 2008
(about 58 deaths) shook condence amongst domestic and foreign corporates and even
households. e ‘recall’ of the President in September 2008 (about a week before Lehman
Brothers fell) created a political vacuum, increasing the sense of unease in the private sector.
To many in the private sector, it felt as though the world had been confronted with its big-
gest economic crisis since the Great Depression and the government was ‘missing in action’.
ere was an attempt to negotiate a compact between government, business and
unions in Nedlac to stem job losses. However, the agreement was mainly observed in the
breech. Mistrust between the three social partners was heightened. A massive public sec-
tor strike in 2009, with workers demanding double-digit salary increases in the middle
of the worst economic crisis in 80 years, further darkened the mood. ese large salary
increases quickly fed through to the private sector. When other countries where lowering
wages to save jobs, South African workers received sizeable salary increases, exacerbating
the jobs crisis.
e coincidence of a major global economic crisis and a period of political interregnum
led to rms taking the most extreme position and retrenching as many people as possible
and cancelling any capital expansion that could be cancelled. By the time that the newly
elected government took oce in May 2009, the trend was already set and retrenchments
and cuts in capital projects became a self-fullling cycle.
While scal policy has been expansionary and supportive of growth, the length of the
crisis is putting the public nances under undue pressure. Today, slow corporate invest-
ment is a function of an uncertain global economic outlook, slow domestic demand and
at least in part by a lack of condence in government’s ability to manage the complex
social tensions present in South Africa. e problem is that this is a self-eacing argu-
ment. Slower corporate investment weakens growth, reducing the likelihood of higher
investment and growth.
TWENTY YEARS OF ECONOMIC POLICYMAKING 37
6 The Marikana massacre and the National
Development Plan
Between August 10 and 16, 2012, South Africa suered from its most violent labour dis-
pute. About 45 mineworkers were killed in Marikana in the midst of a labour dispute
between workers and a platinum mining company.
On August 15, 2012, the National Planning Commission released its National Devel-
opment Plan (NDP). In one sense, the two events are completely unrelated. In another
sense, they are completely intertwined. While the precise causes of the Marikana mas-
sacre may take years to emerge, many of the underlying causes are obvious. High levels
of inequality, poor municipal services, the lack of housing for low-income workers, the
competence of the police force, the failure of BEE in mining to transform methods of pro-
duction and a tense labour relations environment are all causes of the massacre. In add-
ition, low levels of trust between the government, the private sector and labour unions
contributed to the environment within which the labour dispute arose and the massacre
took place.
e National Planning Commission was appointed by President Zuma in May 2010 to
take a broad, cross-cutting view of South Africa, to identify and make recommendations
on how the country can address its key problems and to mobilize society behind the plan.
A diagnosis report released in June 2011 highlighted many of the issues brought to the
fore so starkly by Marikana. High levels of inequality and poverty, weak state capacity,
anaemic economic growth, infrastructure backlogs, inferior education for black students
and a stark lack of trust between the major social partners were identied as key problems.
e NDP set out to address poverty and inequality through wide-ranging reforms in
government and in society more broadly. Key themes included the need for citizens to be
active in their own development, for a capable state and for strong leadership amongst
the major social partners to come together for the sake of the country, to put aside their
sectarian interests to grow the economy, improve education and training and to raise
employment.
e NDP is arguably the most coherent plan tabled in South Africa to tackle inequal-
ity and poverty on a sustainable basis. It also recognizes the need for trust, cooperation
and collaboration between the major social partners. Critically, it identies key levers to
improve the eectiveness of the state. In these respects, the NDP goes to the heart of tack-
ling the root causes of the Marikana massacre.
Since the tabling of the NDP there has been broad consensus in society on these three
facets—the need to directly tackle poverty and inequality, the need for trust and collab-
oration amongst social partners and the need to x the state. e plan has been endorsed
by all major political parties and trade unions. While there are criticisms of aspects of the
plan, there is almost universal consensus on the key themes of the plan outlined above.
38 THE ECONOMICS OF POST-APARTHEID SOUTH AFRICA
South Africa has never been short of good plans. It has been in the implementation
where the country has failed. While it is still too soon to judge whether the NDP will end
up as many other good plans have ended up, the early signs are immensely positive. ere
is a strong political will to implement the plan and the plan enjoys broad social support.
In terms of economic policy, the NDP provides a coherent plan to raise employment.
Crucially, it prioritizes job creation as the main solution to inequality and poverty but
also locates the role of a broad social wage and social services in contributing to human
dignity. It recognizes the need to boost exports to generate the resources for investment.
It is informed by the need for greater investment in human and physical capital. It draws
together several strands, from spatial re-orientation of our cities to environmental resil-
ience, to present a plan fundamentally aimed at growing employment.
7 Conclusion
Economic policy in South Africa has had a constant theme—managing the relationship
between growth and poverty reduction. e foundation stones of economic policy are
now in place. ese include sound scal and monetary policy frameworks, strong institu-
tions, well-regulated nancial services and an appropriate degree of openness for the level
of development.
ere are of course many areas where this policy is not succeeding. ese include enab-
ling new entrants to enter the labour market and the presence of dynamic exporting rms.
It is also clear that failure to implement a sound microeconomic reform strategy has le
the economy unbalanced, insuciently competitive and therefore less inclusive than it
should be. Some of the causes of weak economic performance lie outside of economic
policy, such as in education and training.
On balance, South Africa has successfully navigated 20 turbulent years, making slow
but steady progress, oen taking two steps forward before taking one step backwards.
If Marikana showed us our worst side, the NDP is an opportune reminder that it is in
our power to transform the economy to make it more inclusive while promoting faster
growth.
South Africa’s growth
performance
johannes fedderke
2
1 Introduction
At rst glance, South Africa’s growth performance aer the democratic transition seems
custom-made for benign inferences: aer a long period of decline, from 1994 through
the 2000s growth rates recovered to levels not seen since the 1960s and the economy once
again created appreciable employment opportunities. Only the world nancial crisis has
slowed the growth recovery since 2008 (see Figure 2.1A).
Yet closer examination of the evidence suggests that the growth recovery was fortuitous
and less dramatic than it might have been. Growth in sub-Saharan Africa in general has
received strong positive support from the strong world demand for commodities, fuelled
by strong East Asian (Chinese) growth. e result has been a reversal of the poor Afri-
can growth performance remarked upon by much of the growth literature. Despite the
fact that its export sector remains strongly inuenced by commodities exports, relative
to the recovery of growth in the rest of Africa, South Africa’s growth recovery has been
below average. Figure 2.1B shows the ratio of South African growth in GDP (average ann-
ual growth rates for the decades shown) relative to sub-Saharan Africa excluding South
Africa (SSA) and Upper Middle Income (UMI) countries. Both comparisons conrm
that South Africa’s growth performance has lagged behind that of both sets of compara-
tor countries, and despite the slight improvement of the 2000s, continues to do so. South
Africa’s growth performance in the 2000s ranked only 33rd in sub-Saharan Africa.
e growth recovery was also fortuitous. e strong expansion of demand for com-
modities meant that South Africa’s terms of trade improved dramatically through the
2000s. Figure 2.1C shows the strong improvement in gold, platinum and South African
coal prices through the 2000s, while gure 2.1D, reporting the ratio of export to import
prices, shows that these price increases shied the terms of trade as a whole.
Pennsylvania State University, Economic Research Southern Africa, and University of the Witwa-
tersrand, jwf15@psu.edu.
–1.00
0.00
1.00
2.00
3.00
4.00
5.00
6.00
1969/04
1970/04
1971/04
1972/04
1973/04
1974/04
1975/04
1976/04
1977/04
1978/04
1979/04
1980/04
1981/04
1982/04
1983/04
1984/04
1985/04
1986/04
1987/04
1988/04
1989/04
1990/04
1991/04
1992/04
1993/04
1994/04
1995/04
1996/04
1997/04
1998/04
1999/04
2000/04
2001/04
2002/04
2003/04
2004/04
2005/04
2006/04
2007/04
2008/04
2009/04
2010/04
2011/04
Figure 2.1A. Growth in real GDP
Source: SARB.
0.3
0.5
0.7
0.9
1.1
1.3
1.5
1960s 1970s 1980s 1990s 2000s
UMI SSA_Dev
Figure 2.1B. Ratio of South African GDP growth to comparator countries
Source: World Development Indicators.
40 THE ECONOMICS OF POST-APARTHEID SOUTH AFRICA
60.00
80.00
100.00
120.00
800.00
1000.00
1200.00
1400.00
1600.00
1800.00
Coal
Gold & Platinum
0.00
20.00
40.00
0.00
200.00
400.00
600.00
1984M01
1984M11
1985M09
1986M07
1987M05
1988M03
1989M01
1989M11
1990M09
1991M07
1992M05
1993M03
1994M01
1994M11
1995M09
1996M07
1997M05
1998M03
1999M01
1999M11
2000M09
2001M07
2002M05
2003M03
2004M01
2004M11
2005M09
2006M07
2007M05
2008M03
2009M01
2009M11
2010M09
2011M07
2012M05
Gold Platinum SA Coal
Figure 2.1C. Major commodity prices (US$)
Source: World Bank Commodity Market Series.
90
95
100
105
110
115
120
1990/01
1990/04
1991/03
1992/02
1993/01
1993/04
1994/03
1995/02
1996/01
1996/04
1997/03
1998/02
1999/01
1999/04
2000/03
2001/02
2002/01
2002/04
2003/03
2004/02
2005/01
2005/04
2006/03
2007/02
2008/01
2008/04
2009/03
2010/02
2011/01
2011/04
2012/03
125
ToT excl. Gold ToT incl. Gold
Figure 2.1D. Terms of trade (export to import prices)
Source: SARB.
42 THE ECONOMICS OF POST-APARTHEID SOUTH AFRICA
e implication that follows is that South Africa’s post-democratization growth recov-
ery comes as a result of the buoyant demand for commodities rather than fundamental
structural reform that has improved the competitiveness of the economy in international
markets.
Since there exist a number of studies that report synoptic coverage of research on
South African growth drivers and constraints, this chapter will focus on what I believe
to be the three principal constraints on growth. e constraints fall into three broad cat-
egories: market distortions; inadequate human capital provision; and political economy
questions.
2 Market distortions
Market distortions characterize the South African economy both in output and in labour
markets. Both sets of distortions are signicant in terms of constraining growth.
A number of papers have reported evidence of a substantial mark-up of price over
marginal cost of production for South Africa—approximately twice as high as that
reported for the United States—see the review of the evidence in Fedderke (2013). e
same study demonstrates that high mark-ups are not just an artefact of a few sectors
with exceptionally high mark-ups biasing the average mark-up for the manufactur-
ing sector upward, that mark-ups are high not only with respect to the United States
but relative to a much broader set of 56 comparator countries, and that the high rates
of return on assets are not restricted solely to the manufacturing sectors. Over time
the structure of returns on assets (and by inference the mark-up) in South Africa has
changed from favouring small rms to dramatically favouring large producers. e
ratio of the Net Income to Sales of large relative to small South African listed rms, for
the 1980–94 period, was lower for large than for small rms. However, during the 1990s
the pattern began to reverse and by the 2000s, the ratio was between two and six times
as high for large as for small rms. is pattern is not simply a reection of increased
rates of return on large rm assets internationally. While the Net Income to Sales ratio
of large to small rms rose on average across the world, the increase in South Africa was
considerably stronger with the result that the dierential rate of return between large
and small rms was three times as great in South Africa relative to the rest of the world
by the mid-2000s.
Two separate studies have explored the impact of the mark-up on productivity growth
for South Africa. Both Aghion et al. (2008), testing directly for the impact of the mark-
up on TFP productivity growth, and Aghion et al. (2013), which also controls for the
See Du Plessis and Smit (2009), Faulkner et al. (2013) and Fedderke (2010).
SOUTH AFRICA’S GROWTH PERFORMANCE 43
impact of the level of trade protection, nd a strong growth impact of pricing power.
e implication of these studies is that an increase in the mark-up of 10 percentage
points would result in an annual productivity growth loss of between 1 and 2 percent-
age points.
e simulations of Fedderke (2013) demonstrate how dramatic this nding is. Under
a 10 percentage point reduction of the mark-up (for the 1970–2012 period), the share
of the manufacturing sector in total South African GDP by the close of the 2000s would
have approximated 30 per cent, while for a 20 percentage point reduction, it would have
approximated 40 per cent—in contrast to its de facto share of 15 per cent. e growth
impact on the economy as a whole is also substantial: for the 10 percentage point reduc-
tion in mark-ups aggregate GDP would have been 21 per cent higher, while the 20 per-
centage point reduction would have increased GDP by 50 per cent.
Inevitably, the foregone growth generated by pricing power in output markets also car-
ries labour market implications. e Fedderke (2013) simulations suggest that manufac-
turing employment under the lower mark-up scenarios could have been 2,564,279 rather
than 1,275,508—twice as large (with the result that the narrow unemployment rate would
have been 10.7 per cent rather than the actual 28.1 per cent, and the broad unemployment
rate 28.1 per cent rather than 41.1 per cent in 2005).
Nor does the labour market impact end with foregone employment creation. Fedderke
and Hill (2011) demonstrate that output and labour market rigidities are linked, with
the implication that the changing mark-up structure in South Africa over time is asso-
ciated with an increasing proportion of the labour force subject to labour market rigidi-
ties (eectively becoming part of xed rather than variable cost). e implication is that
the proportion of the labour force associated with rigidities rose from 60 per cent for
the 1977–91 period, to 73 per cent for the 1988–2003 period. Such rigidities carry sig-
nicant implications for the functioning of the South African labour market. Consider
the employment response to the downturn in output following the sub-prime nancial
crisis of 2007/08. e evidence shows that South African output was negatively impact-
ed by the international nancial crisis, with a decline in real output from the middle of
2008 to the middle of 2009. e decline in real aggregate output in South Africa was of
the order of 1.5 per cent. By contrast, aggregate employment fell by 6.7 per cent. Ironi-
cally, it is precisely this strong association between output growth and employment that
makes a growth strategy the single most important policy tool as a means of lowering
both unemployment and poverty.
South African market rigidities stretch across output and labour markets and the two
sets of rigidities are linked. Both constrain the capacity of the economy to grow and to
create employment.
For a full exposition of the labour market implications, see Fedderke (2012).
44 THE ECONOMICS OF POST-APARTHEID SOUTH AFRICA
3 The failure of the knowledge economy
A core nding on drivers of economic growth in South Africa is that investment in
research and development (R&D) and human capital focused on mathematics, the nat-
ural sciences and engineering have strong impacts on productivity growth—see Fedderke
(2006). Specically, the nding was that the rate of return on R&D in terms of productiv-
ity growth was approximately proportional, while overall quantity measures of education
in South Africa were either negatively or statistically insignicantly related to product-
ivity growth. Only education measures related to mathematics, science and engineering
reported a statistically signicant association with TFP growth.
Given that South African growth has switched increasingly from capital accumulation
to TFP-based growth, investment in R&D and the appropriate forms of education are
rendered particularly important.
Policy interventions in South Africa certainly reect awareness of the importance of
R&D and human capital creation. e result has been a strong increase in the inputs into
R&D and human capital creation. South Africa spends a high proportion of GDP on edu-
cation (see Table 2.1 column 1). During the 2000s South Africa introduced tax incentives
for private sector R&D and aer a long period of decline the proportion of GDP spent on
R&D has increased (see Table 2.1 column 2) as did the number of R&D researchers per
million of population (see Table 2.1 column 3).
e problem is not one of inputs. As Table 2.1 demonstrates, South Africa’s inputs are
comparable to those of similar countries and above African competitors. e problem
lies with outputs.
We illustrate this by means of a number of measures. First, the per capita output of
scientic and technical journal papers has been on a sharp downward trend since the
1980s (from 76 to 53), and in sharp contrast to countries such as Korea, Singapore, Tur-
key and Brazil where the trend is not only upward, but in the case of Korea started o at a
much lower base and has now reached a much higher level (from 15 to 325) (see Table 2.1
column 4).
Second, while South Africa has generated a high number of total patent applications
(per million of population) and continues to do so relative to our middle-income com-
parator countries, since the 1980s the number of patent applications has declined sharply
(the number per million of population has more than halved), and is now dwarfed by the
applications registered by Korea (see Table 2.1 column 5).
ird, the proportion of patents registered by residents (rather than non-residents) has
also declined dramatically since the 1980s (from 43 per cent to 14 per cent) (see Table 2.1
column 6).
Finally, the quality of mathematics and science education has not only been historic-
ally poor in South Africa, but has not shown any signs of improvement. In the Trends in
Table 2.1 Knowledge economy summary statistics
Public spending on
education
R&D Expenditure Researchers in R&D Scien. & tech.
journal art.
Total Patent Applications Proportion of Patent Applications by
Residents
Total (% of GDP) Total (% of GDP) (per million people) (per million people) (per million people)
Country Name 1980s 1990s 2000s 1980s 1990s 2000s 1980s 1990s 2000s 1980s 1990s 2000s 1960s 1970s 1980s 1990s 2000s 1960s 1970s 1980s 1990s 2000s
Argentina 1.67 3.34 4.62 – 0.43 0.45 – 703 815 44 57 82 331 194 131 123 139 0.25 0.33 0.28 0.21 0.16
Brazil 4.73 4.44 4.59 – 0.72 1.00 – – 546 13 23 52 114 85 54 62 108 0.43 0.31 0.30 0.29 0.18
Chile 4.22 2.91 3.76 – 0.51 0.54 – 398 508 53 63 92 138 80 62 124 169 0.15 0.24 0.15 0.12 0.14
China 1.98 1.86 – – 0.66 1.21 – 433 800 3 8 32 0 0 7 20 143 – – 0.47 0.53 0.58
Egypt, Arab Rep. 4.86 4.43 4.31 – 0.20 0.24 – – 500 22 21 23 40 28 26 30 37 0.09 0.09 0.17 0.36 0.34
Ghana 2.71 4.11 5.96 – – 0.23 – – 17 3 4 4 47 29 6 6 0 0.00 0.00 0.00 0.00 –
India – 3.62 3.41 – 0.70 0.75 – 134 123 13 10 13 172 88 66 95 294 0.18 0.36 0.32 0.30 0.22
Indonesia 0.83 1.04 3.00 – – 0.07 – – 166 0 1 1 23 45 52 168 179 0.04 0.01 0.06 0.03 0.06
Israel 7.35 6.69 6.33 – 3.11 4.47 – – – 1107 1021 917 4 4 4 4 6 0.17 0.18 0.23 0.35 0.17
Kenya 5.65 5.98 6.36 – – 0.42 – – 56 14 10 7 1 1 1 0 1 0.00 0.00 0.00 0.35 0.35
Korea, Rep. 3.94 3.61 4.37 – 2.37 2.75 – 2177 3624 15 88 325 491 904 2741 10715 20424 0.84 0.47 0.26 0.62 0.75
Malaysia 6.30 4.86 6.01 – 0.31 0.59 – 121 356 13 16 26 24 31 86 154 147 0.02 0.01 0.05 0.04 0.12
Mexico 2.27 3.67 5.02 – 0.37 0.40 – 218 359 11 20 35 254 157 115 152 295 0.17 0.10 0.15 0.08 0.04
Nigeria – – – – – 0.22 – – 39 10 5 3 16 31 28 0 0 0.00 0.01 0.02 0.05 –
Philippines 1.80 3.45 2.78 – – 0.10 – – 77 3 2 2 21 21 21 28 26 0.06 0.08 0.06 0.07 0.07
Russian Federation – – 3.61 – 0.99 1.15 – – 3295 – 89 104 0 0 0 242 254 – – – 0.74 0.71
Saudi Arabia 5.28 6.02 6.54 – – 0.06 – – – 202 194 131 0 0 1 12 8 – – 0.17 0.04 0.16
Singapore 3.21 – 3.21 – 1.59 2.18 – 2874 5113 27 60 137 2 4 6 48 62 0.01 0.00 0.00 0.04 0.07
South Africa 5.27 5.84 5.34 – 0.60 0.87 – 199 356 76 61 53 3836 3634 3543 1689 1481 0.29 0.33 0.43 0.12 0.14
Sri Lanka 2.59 2.96 2.06 – 0.18 0.15 – 188 115 6 5 6 39 21 8 9 16 0.15 0.27 0.19 0.34 0.38
Tanzania 2.25 2.14 6.50 – – 0.43 – – – 3 3 3 4 2 1 0 0 0.00 0.00 0.00 – –
Thailand 3.05 3.82 4.25 – 0.12 0.25 – 113 294 5 6 19 0 2 44 195 273 – 0.32 0.07 0.06 0.19
Turkey 1.74 2.35 2.84 – 0.45 0.60 – 310 553 9 30 99 63 41 33 54 50 0.12 0.15 0.22 0.12 0.62
Upper Middle
Income AVG.
– 3.98 4.35 – 0.56 0.86 – 677 894 – – – – – – – – – – – – –
Source: World Development Indicators
International Mathematics and Science Study of 1995, 1999, 2003 and 2011, South Africa
has consistently been placed either at the bottom or close to the bottom of the countries
sampled, and student performance has been considerably below the international aver-
age, let alone the performance of the top-ranked nations such as Korea and Singapore.
In eect, while there has been an attempt to institute policy designed to stimulate
technological innovation, and considerable resources have been devoted to the initiatives
(particularly in education), the interventions have not led to appreciable success. Too
much attention has focused on inputs, not enough on outputs.
4 The return of political economy issues
South Africa’s apartheid policies were costly not just in human but in economic terms.
e resultant political instability generated strong and very negative drivers both of
investment in physical capital, as well as international capital ows. e political transi-
tion of 1994 brought with it welcome relief, lowering the level of perceived risk in capital
markets and raising the ability of the economy to attract foreign capital.
However, political economy issues are making a return as factors relevant to economic
growth in South Africa. Figure 2.2A considers the summary statistics concerning per-
ceived corruption reported by Transparency International (TI) (a high score denotes low
corruption), and the international rank of South Africa (high rank indicates poor per-
formance relative to comparator countries). South Africa’s score on the corruption per-
ceptions has steadily worsened over the past one-and-a-half decades (by 1 unit on the 10
TI point scale), with the result that South Africa’s rank has fallen from 21st to 64th in the
world.
What is more, the worsening performance is predominantly a public sector problem,
and a pervasive one. Figure 2.2B reports TI corruption perceptions across a range of sec-
tors of society over the 2004–11 period (here lower scores designate lower perceived cor-
ruption, higher worse). What emerges is that not only is the level of perceived corruption
higher in the public sector than in the private sector and civil society, but it is the public
sector that reports the worsening trend in corruption, while the private sector and civil
society report improvements over time. In addition, what is startling is that the percep-
tions of worse and worsening corruption in the public sector, while particularly stark in
the police, parliament and political parties, also extends to the judicial system so oen
e rst two sample points had many fewer countries and are not strictly comparable.
Disaggregated data are not available for earlier years.
See the discussion in Faulkner et al. (2013).
See the discussion in Fedderke (2009) and Fedderke and Liu (2002).
See Fedderke and Pillay (2010).
46 THE ECONOMICS OF POST-APARTHEID SOUTH AFRICA
20
25
30
35
40
45
50
55
60
65
70
4
4.2
4.4
4.6
4.8
5
5.2
5.4
5.6
5.8
6
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Country rank
Corruption score
Score Rank
Figure 2.2A. Corruption
Source: Transparency International.
2
2.5
3
3.5
4
4.5
2004 2005 2006200
72
011
Political parties Parliament/legislature Legal System/judiciary Police
Public officials Education system Business/private sector Media
NGOs Religious bodies
Figure 2.2B. Corruption barometer by sector
Source: Transparency International.
–1
4
9
14
19
24
29
34
39
44
49
CHN
BRA
MEX
TUR
KAZ
ROM
THA
ARG
CHL
BGR
COL
PER
ZAF
MUS
LBN
JOR
DOM
PAN
TUN
CRI
URY
DZA
BLR
SRB
VEN
LTU
LVA
BIH
JAM
ECU
NAM
BWA
RUS
MKD
ATG
LCA
MDV
AZE
SYC
GRD
VCT
LBY
GAB
DMA
IRN
SUR
AGO
MYS
Figure 2.2C. Country share in total upper middle income FDI (%)
Source: World Development Indicators.
–4
–6
–2
0
2
4
6
8
10
12
14
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Figure 2.2D. South Africa/US interest rate differential—lending rate (%)
Source: World Development Indicators.
48 THE ECONOMICS OF POST-APARTHEID SOUTH AFRICA
vaunted as an example of eciency, transparency and fairness. Finally, the increase in
perceived corruption in public ocials aer 2007 is also noteworthy.
ese indications of risk are reected in interest rate dierentials between South Africa
and the United States which have declined since the 1980s, but remain relatively high
(between 5 and 10 per cent), and certainly considerably above the levels of the 1960s (see
Figure 2.2D). Further, foreign direct investment (FDI) ows, while recovered from the
lows of the 1980s in levels terms, still remain at a proportion of upper middle-income
country FDI ows which is relatively low given the size of its economy (see Figure 2.2C)—
Mauritius attracts approximately as much of the FDI directed at upper middle-income
countries, while Turkey, Chile and even risk-prone Argentina attract considerably more.
In short, risk arising from political economy factors in South Africa has not been miti-
gated to the extent that is either feasible or desirable for growth purposes.
5 Conclusion
Despite the democratic transformation, the structure of the South African economy has
changed less than one might suppose. e economy continues to be dominated by an
interaction of big business, big labour and big government which impedes competitive
pressure on markets and the innovation this fosters.
Combined with meagre results in human capital and technology creation, this has
resulted in less of a shi from primary resource dependence in economic structure than
a truly sustainable growth strategy requires.
Together with the continued risk factors implied by South Africa’s political economy,
these conditions make it dicult to forecast the emergence of the strong growth perform-
ance that South Africa’s unemployment and poverty conditions demand.
■ REFERENCES
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Faulkner, D., C. Loewald and K. Makrelov (2013), ‘Achieving Higher Growth and Employment: Policy
Options for South Africa’, Economic Research Southern Africa Working Paper No. 334.
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50 THE ECONOMICS OF POST-APARTHEID SOUTH AFRICA
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nomic Studies, 54: 809–42.
Fedderke, J.W. (2013), ‘Competition, Industrial Structure and Economic Growth’, in Monetary Policy and the
Challenge of Economic Growth: South African Reserve Bank Conference Series 2012, South African Reserve
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Manufacturing Sector: A Time Series and Panel Data Approach’, Economic Modelling, 28: 1291–302.
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Application to South African Data from 1960–95’, Economic Modelling, 19: 419–44.
Fedderke, J.W. and N. Pillay (2010), ‘eory-Consistent Formal Risk Measures: Using Financial Market Data
from a Middle Income Context’, Oxford Bulletin of Economics and Statistics, 72(6): 769–93.
Macroeconomic scenarios
for South Africa: 2013–25
ben smit
3
1 Introduction
e focus of this chapter is on South Africa’s expected macroeconomic performance up to
the year 2025. e uncertainties governing economic projections, particularly over longer-
term horizons, motivate the specication of a number of alternative scenarios rather than
just a simple baseline forecast. Consequently, three alternative macroeconomic scenarios
for the South African economy over the period 2013–25 are considered below. e sce-
narios were generated with the aid of the Bureau for Economic Research (BER)’s macro-
econometric model of the South African economy by the BER’s forecasting team.
2 Baseline scenario
e baseline scenario constitutes the BER’s most probable economic outlook for the per-
iod 2013–25 as of April 2013 (see Table 3.1). In essence, the baseline scenario provides for
a slow but sustained recovery of the world economy from the ravages of the Great Reces-
sion and the European sovereign debt crisis. For the advanced economies, the outlook is
one of below par growth for many years. e emerging market and developing countries,
however, are expected to continue to outperform, providing the basis for sustained, albeit
subdued, increases in commodity prices. Under these conditions, and assuming relatively
positive domestic politics and improved economic policies, South Africa’s growth perfor-
mance is expected to revert to the long-term average of about 3½ per cent.
Ben Smit, Bureau for Economic Research and Department of Economics, University of Stellenbosch.
For this exercise the forecasting team consisted of Christelle Grobler, Hugo Pienaar and Ben Smit. See
BER (2013) for a brief description of the model.
52 THE ECONOMICS OF POST-APARTHEID SOUTH AFRICA
Table 3.1 BER scenario forecast, 2013–25
Baseline Low road High road
Real GDP and components (% change)
GDP 3.6 2.1 4.7
Household consumption expenditure 3.8 2.0 4.7
Government consumption expenditure 3.9 2.9 4.7
Gross domestic fixed investment 4.9 1.6 7.2
Gross domestic expenditure 4.0 2.1 5.2
Exports 4.9 2.9 6.6
Imports 5.8 2.7 7.6
Inflation rates
CPI 5.5 6.5 4.9
PPI 5.1 6.1 4.5
Interest rates
Prime rate 10.35 12.52 9.94
Real prime rate 4.89 6.02 5.03
10-year bond 8.66 11.69 7.91
Exchange rates
R /$ — level 10.34 13.48 9.42
R /$ — % change 3.20 5.15 1.63
Effective exchange rate — % change –3.01 –4.43 –1.93
Real effective exchange rate — % change –0.05 –0.33 0.17
R /Euro — level 13.27 16.50 12.43
International assumptions
$/Euro — level 1.28 1.23 1.32
G7 Real GDP — % change 2.0 1.6 2.5
US CPI —% change 2.4 1.9 2.7
Commodity price index in US$ — % change 3.6 2.1 4.5
Gold price in US$ — % change –0.2 0.2 –0.8
Oil price (Brent) in US$ — % change 2.4 0.1 3.5
Employment and consumer income
Total employment — % change 1.7 0.5 2.4
Nominal private sector wage — % change 7.8 8.8 7.5
Real disposable income — % change 3.8 2.0 4.8
Unemployment rate 22.9 28.2 19.9
Ratios
Current account balance as % of GDP –4.6 –3.9 –4.6
Total capital flows as % of GDP 4.7 3.9 4.8
continued
MACROECONOMIC SCENARIOS FOR SOUTH AFRICA 53
A. INTERNATIONAL ECONOMIC ASSUMPTIONS
e baseline scenario on the international economy is for a sustained growth recovery.
However, for the advanced economies the outlook is one of below par growth for many
years. e need to reduce high debt levels (public and private) and unwelcome demo-
graphics (ageing populations) are two of the key factors likely to depress advanced coun-
try growth for a number of years. In the case of the emerging market and developing
countries, continued industrialization and urbanization are set to fuel sustained growth
outperformance. In terms of numbers, the baseline scenario provides for an average
growth rate of 2 per cent for the G7 countries and about 4 per cent for the global economy.
e implication of this growth scenario for industrial commodity prices is one of sus-
tained, albeit subdued, price gains. e fortunes of the Chinese economy will remain
important for the commodity price outlook. Assuming that the country’s future growth
will be more consumer-driven, the commodity intensity of global growth may be less
than was the case in the boom years leading up to the 2008/09 recession. A number of
commodity markets, including oil and base metals, are also faced with new supplies com-
ing on stream in the next few years. is should prevent a sharp price reaction in an envi-
ronment of improved global demand.
e fairly modest projected G7 growth and sustained (but moderate) commodity price
gains should be accompanied by contained global inationary pressures. While acknowl-
edging that the unprecedented global liquidity creation of recent years holds a potential
ination threat, this is unlikely to be realized in an environment of below trend GDP
growth in some of the world’s largest economies. Monetary authorities are also assumed
to remain vigilant and guard against broad-based inationary pressures taking hold. G7
consumer prices are consequently forecast to average more or less 2 per cent between
2013 and 2025.
e assumptions on the international economy are partly based on the forecasts presented in Consensus
Forecasts (2013).
Baseline Low road High road
Cum. total capital flows as % of GDP 55.9 62.9 52.4
Government deficit as % of GDP –3.0 –5.2 –2.3
Cum government deficit as % of GDP –41.6 –54.6 –37.2
Total investment as % of GDP 21.9 19.2 24.6
Government consumption as % of GDP 21.8 23.3 21.2
Other (% change)
Potential GDP 3.4 2.1 4.4
Table 3.1 (continued)
54 THE ECONOMICS OF POST-APARTHEID SOUTH AFRICA
B. POLITICAL ECONOMY ASSUMPTIONS
Post-apartheid macroeconomic policies have done well to ensure a sound footing for
the South African economy, contributing signicantly to the relatively good growth per-
formance in the years 2004–07. Domestic politics, however, has become less conducive
to supporting growth and employment generation, despite the latter being identied as
the government’s primary economic goal. e baseline assumption in this respect is that
there will be some improvement in the political environment in which the economy oper-
ates, but not enough to support the growth and employment levels the South African
economy could (and should) deliver.
In terms of economic policies, the baseline assumption is that the government will use
the National Development Plan as a basis for a broadly consistent (more so than over the
past few years) approach. In the case of macroeconomic policies, it is assumed that the
government will remain cognizant of the importance of continued larger-scale foreign
investment and thus continue to adhere to mainstream monetary and scal policies. is
implies that both price stability and conservative public nances will remain priorities.
C. DOMESTIC ECONOMIC PERFORMANCE
e baseline outlook for the South African economy consists of a gradual return to the
country’s long-term average growth performance. is is expected to be associated with
an ination rate (CPI) that averages close to the upper target range band of 6 per cent
and a current account decit that remains very high by historical measures. Under these
conditions the unemployment rate will decline, but not to the levels the policymakers
would want to see.
e expected average real GDP growth rate is 3.6 per cent over the full period 2013–15.
Over the rst three years (2013–15) growth is expected to average only 3.3 per cent—
reecting the continued slow recovery of the South African economy from the impact of
the Great Recession. is is expected to improve to an average of 4 per cent over the fol-
lowing ve years. In terms of the dierent expenditure components of GDP, xed invest-
ment and exports are projected to lead the way, both expanding by 4.9 per cent in real
terms over the full period. In the case of investment, this implies an increase in the invest-
ment to GDP ratio from current levels of about 20.2 per cent to 23.6 per cent by 2025. e
government’s infrastructure development programme is assumed to contribute substan-
tially to the growth in investment outlays. is programme is also expected to support
the relatively strong export performance by signicantly relieving some of the current
National Planning Commission (2012).
MACROECONOMIC SCENARIOS FOR SOUTH AFRICA 55
non-price constraints on investment. e expected sustained increase in export volumes
is substantially higher than South Africa’s performance in recent years.
Private consumption expenditure is expected to increase on average by 3.8 per cent in
real terms over the forecast period. Its relatively subdued (by historical standards) contri-
bution to GDP growth follows from the expected increase in employment of only 1.7 per
cent per annum and the increase in real interest rates. e real prime rate increases from
an average of 3.1 per cent in the rst three years to 5.4 per cent in the following ve years.
is reects both the normalizing of interest rates from their current low levels, the need
to keep ination in check and to attract the foreign capital inows required to nance the
continued large current account decit.
e CPI ination rate is expected to average 5.5 per cent over the full forecast period. In
addition to the assumed continued conservative monetary policies (resulting in the real
interest rate increases noted above), this follows from a reasonably strong R/$ exchange
rate (an average annual depreciation of 3.2 per cent per year) and continued subdued
global ination.
Fiscal policy is also expected to be well managed, resulting in a declining decit to GDP
ratio of about 2 per cent in the period 2021–25 and a government debt to GDP ratio that
does not exceed 45 per cent at any time during the forecast period and declines noticeably
over the last ve years.
3 Low-road scenario
e low-road scenario consists of a combination of a weaker global economy and a
domestic economy that reects both the relatively poorer international conditions and
decidedly less favourable political conditions and labour relations coupled with problem-
atic scal outcomes. e likelihood of this low-road scenario actually materializing has,
unfortunately, increased signicantly over the past few years.
A. INTERNATIONAL ECONOMIC ASSUMPTIONS
In the low-road scenario, the international economy is assumed to be even weaker than
the already somewhat subdued baseline outlook. is is motivated by the frequency and
the magnitude of large-scale adverse shocks over the past few years and the possibility
that these may become a more regular feature over the next decade and beyond.
Without being specic about the details of such (unknown) shocks, the low-road
assumption is specied in terms of G7 GDP growth that is 0.5 percentage points lower on
average than the 2.0 per cent in the baseline over the full 2013–25 period. What we are in
56 THE ECONOMICS OF POST-APARTHEID SOUTH AFRICA
eect assuming in the low-road scenario is that along the way to dealing with the prob-
lems of over-indebtedness and global imbalances, the world economy suers periodic
setbacks. In the low-road scenario, G7 growth between 2013 and 2025 is only marginally
better than the 1.4 per cent achieved between 2001 and 2010. e period included two
global downturns (2001 and 2008/09). Bear in mind that the view on especially advanced
country growth in the baseline scenario is already not particularly upbeat. While the
downside potential may be signicant in the short term, over the full forecast period the
low-road global growth scenario is not materially weaker than the base.
e soer developed country growth will mean less demand for the goods that espe-
cially mineral rich emerging markets export, weighing in on their growth performance.
Naturally, commodity prices and global ination are more subdued in the low-road sce-
nario. Because the world economy is still expected to (on average) grow over the forecast
period, key commodity prices are forecast to rise. However, the rate of increase is set to be
less than in the baseline forecast. Similarly, G7 CPI ination is projected to average below
2 per cent through to 2025. In this scenario, leading global central banks are forecast to
keep interest rates at the current lows for even longer than assumed in the base run.
In terms of the major currency markets, recent history has shown that in times of
heightened concern about global growth prospects, investors ock back to US assets
(mainly US Treasuries) which are seen as the ultimate safe haven investment. e more
subdued global growth/nancial environment assumed in the low road is likely to be
accompanied by a more robust US dollar, particularly during 2013–17. From 2018, as in
the base, the dollar is forecast to revert to a gradual depreciating trend.
B. POLITICAL ECONOMY ASSUMPTIONS
On the domestic front, an important feature of the low-road scenario is that of less favour-
able political conditions. ese include a further decline in levels of trust and continued
power struggles between various political factions, weak political leadership and poorer
service delivery. e result is a more authoritarian government which then attempts to
stimulate growth more directly through government spending. is initially contributes
to increased levels of current (at the cost of investment) spending by government, result-
ing in a major scal problem in the form of a sharply increased budget decit and debt
levels. is, in turn, severely compromises the government’s ability to continue to con-
tribute to growth and employment via the spending channel.
Another distinct feature of this scenario is that of continued very poor labour relations.
e assumption is that the recent breakdown in labour relations in the mining sector will
spread more widely and will remain largely unresolved for a number of years. is will
substantially compromise job creation and contribute to the scal problems via the asso-
ciated adverse growth impacts.
MACROECONOMIC SCENARIOS FOR SOUTH AFRICA 57
C. DOMESTIC ECONOMIC PERFORMANCE
In this scenario domestic events dominate. e weaker global economy obviously impacts
negatively on the South African growth performance. However, the more adverse politi-
cal and labour conditions and the associated adverse scal conditions play a much bigger
role. e primary impact of these adverse developments is on investor condence, both
domestic and foreign. e net result is very poor GDP growth, a weak currency, higher
ination and unemployment levels that continue to rise.
From a growth and employment perspective, the most important eect of adverse
political economy conditions assumed in this scenario is on investment outlays. Total
real xed investment growth averages only 1.6 per cent over the forecast period. is is
fully 3.3 percentage points lower than that of the baseline scenario and emanates from
both the private and public sectors. Private sector investment is hit hard by the negative
condence eects. However, the government’s contribution in terms of infrastructure
and other public investment outlays is also much lower than in the baseline. is follows
from the relatively high government spending on employment and other consumption
goods and services—in a populist drive to generate growth and employment. e strat-
egy fails as the government’s decit before borrowing increases to above the 6 per cent
of GDP level during the years 2015–19, necessitating a sustained cut-back in current
government spending. Despite the much slower increases in government spending in
the later years, the overall government debt as a percentage of GDP increases to more
than 60 per cent.
Another important implication of weak public sector xed investment is that South
Africa continues to face constraints in key export infrastructure, which along with unin-
spiring global economic conditions limits export growth to less than 3 per cent on average.
Under these (scally irresponsible) conditions foreign capital inows slow, i.e. the coun-
try struggles to nance the current account shortfall. As a result the rand exchange rate
depreciates sharply (particularly during the years 2013–16) and ination (CPI) increases
(to above the 7 per cent level in the years 2014–17). is results in sharp increases in inter-
est rates (real prime exceeds the 6 per cent level in the years 2016–22).
4 High-road scenario
e high-road scenario is characterized by both relatively improved international eco-
nomic conditions and a decidedly better domestic political and economic policy context,
resulting in substantially improved private sector condence as well as xed investment
and GDP growth performance. e likelihood of this scenario, which seemed to increase
aer 1994, and especially in the years 2004–07, has declined in recent years.
58 THE ECONOMICS OF POST-APARTHEID SOUTH AFRICA
A. INTERNATIONAL ECONOMIC ASSUMPTIONS
Whereas the base—and especially the low-road scenario—assumes that the world econ-
omy will continue to face bumps along the way to making a full recovery from the Great
Recession, the high road sketches a more optimistic picture.
In particular, it assumes that the euro currency remains intact, i.e. all 17 member coun-
tries remain in the bloc. e recent decline in periphery Eurozone bond yields is assumed
to continue as condence in the future of the Eurozone improves. Importantly, the high-
road scenario is one where credit starts to ow again in the Eurozone and also the Unit-
ed States. Especially in the Eurozone, an important missing link to date has been the
transmission of an ultra-low policy interest rate to the real economy. With the high road,
the EU banking sector is expected to return to health. Amongst other factors, it would
also entail that the Japanese authorities are fairly successful in generating improved GDP
growth through their unprecedented monetary stimulus measures. Improved developed
country growth translates into faster emerging country growth than assumed in the base-
line international scenario.
To put the scenario into numbers, the result is that G7 GDP growth is 0.5 percent-
age points better in the high road. e improved growth performance results in more
elevated commodity prices, which feed into higher global ination. In the high road, the
nominal Brent crude oil price rises to above $175/bbl by 2025 compared to a level closer
to $150/bbl in the base case. None of the scenarios make provision for prolonged military
conict in the Middle East, which has the potential to (temporarily) push the oil price
signicantly higher than assumed even in the high-road scenario.
Importantly, global ination is not expected to get out of hand as major global central
banks are set to tighten monetary policy earlier in this scenario as opposed to the base and
low-road scenarios. At 2.5 per cent for the entire forecast period, G7 CPI ination is only
0.4 percentage points higher in the optimistic scenario.
On the currency front, the high road should be accompanied by the greatest amount of
risk-taking as investors chase growth rather than trying to preserve capital from losses. In
such an environment, the re-allocation of investor portfolios from developed to emerging
markets should accelerate. e US dollar is the weakest against the euro in this scenario.
However, the losses should again be contained as US growth is set to outpace the perfor-
mance of both Europe and Japan through to 2025.
B. POLITICAL ECONOMY ASSUMPTIONS
e domestic political scene is characterized by sharply improved political leadership
within the ruling party and cooperation between government, labour unions and private
business. is is associated by substantially less contested and more focused economic
MACROECONOMIC SCENARIOS FOR SOUTH AFRICA 59
policymaking and generally more ecient government. ese conditions are expected to
contribute to a substantial improvement in private sector condence and consequently
domestic xed investment.
C. DOMESTIC ECONOMIC PERFORMANCE
e assumed improvements in the global economy and domestic political conditions and
more coordinated economic policy result in improved levels of condence, especially
amongst private sector business people. is, in turn, supports substantially improved
levels of growth in xed investment (7.2 per cent per annum on average over the period
2012–25 compared to 4.9 per cent in the baseline scenario), emanating from both the
public and private sectors. South Africa’s export performance also improves (6.6 per cent
per annum compared to 4.9 per cent in the baseline) on account of both the improved
global economy and more ecient delivery on the domestic infrastructure programme.
Under these conditions, real GDP growth accelerates to an average of 4.7 per cent for
the whole forecast period and employment growth to 2.4 per cent (from 3.6 per cent and
1.7 per cent respectively in the baseline). Unfortunately, while the growth performance
improves, it does not solve South Africa’s unemployment problem. e unemployment
rate is 3 percentage points lower on average in this scenario compared to the baseline, but
still stands at about 14 per cent by the end of the forecast period. Even in the high road,
we assume that the economy continues to face constraints that limit our ability to con-
sistently grow by 5 per cent plus. ese include the long-term nature of turning around
the weak education system and the constraint that a sustained very high current account
decit places on growth.
On the nancial side, the high-road scenario also compares well to the baseline. e
currency is stronger, ination lower (by about 0.6 per cent per annum on the CPI meas-
ure on account of both the rmer rand exchange rate and improved labour productivity
levels) and nominal interest rates lower (by about 0.75 percentage points on the ten-year
bond). Government nances are also in a better shape with the decit before borrowing
(and thus government debt levels) improving by about 0.7 per cent of GDP on average
compared to the baseline case.
5 Conclusions
e alternative scenarios on South Africa’s expected economic performance over the next
13 years focus on mainly two elements: the global economy and domestic political econ-
omy developments. ese are obviously not the only alternatives that could be considered,
60 THE ECONOMICS OF POST-APARTHEID SOUTH AFRICA
but given the global and domestic shocks experienced over the past few years, the ones
that most readily spring to mind.
e baseline scenario assumes that both the global and the South African economies
will continue to recover from the global nancial crisis and the Great Recession. Also
(perhaps somewhat optimistically) that domestic political conditions (including the
recent worsening in labour relations in the mining sector) will stabilize and improve suf-
ciently to allow for more focused and coordinated economic policies and for sustained
foreign capital inows.
In the case of the low-road scenario, international conditions improve less and domes-
tic political and labour relation conditions improve very little from current positions.
Under these circumstances the government’s assumed populist response fails to improve
the economy. is then results in a scal crisis which sharply constrains the government’s
spending ability, economic and employment growth as well as the size of the current
account decit that can be nanced with the available foreign capital, for an extended
period of time.
e high-road scenario is based on both improved (relative to the baseline view) global
economic climate and a much better domestic political and economic policy context.
Although recent domestic political and labour market developments make it dicult to
envisage how these changes will come about, this would be essential to generate a sce-
nario where South Africa could perform closer to its socio-economic potential.
■ REFERENCES
BER (2013), ‘e BER’s Annual Macroeconometric Model: A Non-Technical Description and a Practical
Application Illustrating the Impact of a Sudden Halving of Foreign Capital Inows’, BER Research Note
No. 1, 2013 (mimeo).
Consensus Forecasts (2013), A Digest of International Economic Forecasts, Consensus Economics Ltd, April
8, 2013.
National Planning Commission (2012), National Development Plan 2030: Our Future—Make It Work, e
Presidency, Republic of South Africa (<http:/www.npc.gov.za>).
The liberation dividend
ruchir sharma
4
When my team and I visited Johannesburg two years ago, a black union leader told us that
South Africa remained a ‘cappuccino economy’ with ‘white cream over a large black mass,
sprinkled with some black chocolate on top’. at’s certainly how it looked in the better
hotels and restaurants of Johannesburg where the black majority was conspicuous by its
absence, despite a concerted government campaign to bring blacks into the entrepreneur-
ial and middle classes. So following a recent return trip, it was encouraging to hear that
blacks, whites, Asians and people of mixed race were now mingling in at least some of the
trendy newer establishments—a rare sign of progress in a country that needs a lot more.
e critical divide in South Africa is now economic, not racial. Many liberation move-
ments enjoy an enduring popularity once they attain power, but few have cashed in on
the ‘liberation dividend’ for as long as the African National Congress (ANC), despite its
failure to deliver on promises of economic growth and justice. Youth unemployment is at
50 per cent, the worst in the emerging world and the overall unemployment rate is 2 per
cent higher than it was in 1994 when the ANC toppled white rule. Inequality is also stuck
at one of the highest levels in the world (0.6 on the Gini scale). e best way to address
inequality is by educating workers so that they can command higher wages, but by all
accounts the school system is deteriorating, with disheartening results for the economy.
Over the past couple of years, South Africa’s GDP growth rate has slowed down to 2.5 per
cent a year, about half the emerging market average, and that seems like the new norm
for the country.
A World Bank ocial once described South Africa’s economy to me as an ‘insider–
outsider’ model, in which GDP growth is constrained by the oligopoly power of the rul-
ing party, of corporations that endure from the apartheid era and of the unions allied
to the ruling party. South Africa has some of the strongest institutions in the emerging
world—a free press, independent courts and a nancial system that the World Economic
Forum ranks among the best in the world—but they are not strong enough to change the
oligopoly structure of the economy.
e author is head of emerging markets and global macro at Morgan Stanley Investment Management
and the author of the international bestseller, Breakout Nations: In Pursuit of the Next Economic Miracles
(Norton, 2012).
62 THE ECONOMICS OF POST-APARTHEID SOUTH AFRICA
1 The ruling party
For many years it struck me as remarkable that most black South Africans were so deter-
mined to put apartheid behind them—the grace and statesmanship for which Nelson Man-
dela became internationally famous appeared to spring from a steadfast national character.
Now, aer many years without real progress, that statesmanship is starting to look like
stagnation. e economy needs to grow at least twice as fast as the current rate to solve its
most basic aw, the severe unemployment problem, but precious little has happened. e
economic justice that was a chief promise of Mandela and the ANC remains a distant hope.
us the surreal calm of South Africa grows more dicult to explain every year.
e peace and quiet dees the momentum of an age when the internet is accelerat-
ing the pace of social revolts, even in repressive dictatorships. Instead, South Africa is
a real democracy with a progressive constitution, an independent judiciary and free
media. Despite the dominance of a single party, there is no censorship, no vote rigging
and no suppression of debate in the Parliament or press. e traditional democratic tools
employed to hold leaders accountable are all in place, but they remain largely unused. e
only similar situation I can think of is postcolonial India, where the Congress Party led
the ght for independence and traded o that achievement to remain in power from 1950
until 1977, with limited economic gain to show for it.
e black majority is forever grateful to the ANC for overcoming the singular evil of
apartheid and it may take a new generation to adopt a critical view of the ANC leader-
ship. is too is reminiscent of India: aer the demise of the repressive old regime the
sense of relief endures and it can take decades for a real opposition to materialize. In
India, that did not happen until internal dissidents began to break away from the Con-
gress Party, but still enjoyed the benet of a connection to its liberation struggle. Today,
some dissenters have broken away from the ANC, but they were not yet strong enough to
break the hold of ANC president Jacob Zuma, who was re-elected—albeit with a reduced
majority—in May.
So South Africa has stabilized at a remarkably low equilibrium growth rate and seems
stuck in a kind of time warp. e legacies of the apartheid years still distort the system
and stie change. During the 1980s and 1990s, when the apartheid regime was under
international sanctions, it developed one of the most top-heavy forms of capitalism on the
planet, with much of the economy under state control and the rest in the hands of a few
dominant cartels. e ANC has not only kept that basic structure but has also replaced
the whites-only Nationalist Party with itself as the dominant ruling party, backed by its
allies in perhaps the most powerful union movement in the developing world.
In politics, there is no real national opposition to the ANC, an umbrella organization
that houses the whole range of forces that opposed apartheid. When we met Helen Zille,
leader of the chief opposition party, the Democratic Alliance, even she saw no real chance
of ousting Zuma and the ANC in 2014.
THE LIBERATION DIVIDEND 63
In recent years many emerging markets, including Brazil and Turkey, have seen lead-
ers come to power on a wave of radical rhetoric, only to moderate once they are in oce.
Global competition seems to be forcing leaders into the economic mainstream. South
Africa has seen this happen three times, starting with Mandela, who backed o early
threats to nationalize the mines, then with his successor abo Mbeki, and lately with
Zuma, a charismatic populist who frightened international markets when he took power
in 2008 but proved more moderate in his early years in oce.
e key problem with the Zuma government today is that has begun to undo the main
achievement of its ANC predecessors, who had created a platform of macro stability—
controlling debt and ination—that at least gave South Africa a chance to grow. Like
many emerging markets, it needed to push a new generation of micro reform, creating a
more competitive business environment for its companies, but instead Zuma has gone in
the opposite direction.
e big ANC government has grown bigger. Since 2008 government spending has
risen from 28 per cent of GDP to more than 31 per cent, driven up primarily by a 15 per
cent increase in the number of government jobs, coupled with big salary rises for pub-
lic employees, and by outlays for social programmes. South Africa is now rmly a twin
decit country, with government spending driving up the government decit and wage-
driven consumer spending driving up the current account decit, a broad measure that
includes trade in goods and services, and returns on investments. South Africa also has
very rigid minimum wage regulations within many industry sectors—there are nine lev-
els just for civil engineers as well as one of the highest starting wage levels, when adjusted
for productivity.
So it is no surprise that, even as the government adds jobs, the private sector is one of
the weakest job creators in the emerging world—leaving total employment at 13.5 mil-
lion, well below its peak in 2008. Business condence fell sharply in that year and has not
recovered, and executives still see little reason to invest at home.
2 The oligopolies
e economic picture in South Africa does not matter all that much to its stock market
because so much of its corporate prot is earned outside the country. e top South Afri-
can companies have smart managers, oer high dividends and enjoy strong prots earned
mainly in foreign countries. Among the top-60 companies, 56 per cent of their earnings
come from oshore—one of the highest shares in the world.
e sight of local companies ‘going global’ is oen celebrated in emerging countries as
a national success, but the more accurate interpretation depends on the circumstances.
In Singapore, where businesses cannot make all that much money at home because the
64 THE ECONOMICS OF POST-APARTHEID SOUTH AFRICA
population is so small, it is not alarming that more than 50 per cent of earnings are made
overseas. In nations with sizeable domestic markets like Mexico and Russia, it can be
read as a vote of no condence in the local economy. South Africa is perhaps the leading
example of this negative phenomenon.
Apartheid has le South Africa a relatively closed and protected economy. As in Mex-
ico, the oligopolies that dominate many sectors, including nance, retail and media, make
large prot margins and have the cash on hand to expand aggressively in their underserved
region. ese private-sector companies are heavily protected yet extremely well run and
they are the source of whatever global economic success South Africa enjoys. Although
South Africa has the most sophisticated nancial market in the emerging nations—the
World Economic Forum ranks it the h most sophisticated in the world—much of the
money is trapped at home, a legacy of capital controls imposed by the apartheid regime to
prevent money leaving the country.
e apartheid regime was so intent on keeping the black population down, it refused to
deploy any of this readily available money in the black homelands, a decision that le the
national networks of everything from schools to water supply lines in very bad shape. Cit-
ies were designed to cater to whites driving to work in cars, and the lack of public transport
forces many blacks to rely on private mini-buses, which are one of the largest daily expen-
ses for many of the urban poor. To this day, South African businesses have not invested
much inside the country—the value of the capital stock (e.g. heavy machinery and factory
equipment) is actually falling as a share of GDP. at is one reason why productivity is
declining too: South Africa has powerful private companies that still avoid South Africa.
Many South African executives talk about plans to replace workers with machinery, and
about the hot ‘African opportunity’, by which they mean other African countries. Back in
the 1940s, apartheid leaders wanted to be seen as part of the white European world and
they steered investment mainly to Europe. Today, South African companies are expanding
aggressively in southern African countries such as Zambia, Mozambique and Namibia, and
further north in Nigeria and Tanzania—a sure sign that the opportunity in Africa lies outside
South Africa. e big mining companies have been focused abroad for years, and some of the
largest, including BHP Billiton and Anglo American, have moved headquarters and opened
mines outside South Africa. Now consumer and agricultural businesses are moving out too.
3 The powerful unions
South Africa may be the only major country in which the mainstream unions, as formal
political allies of the ANC, are also true insiders. ey use this clout to win pay rises for
their members that are well above the rate of growth in labour productivity, even if this
means fewer jobs and fewer union members. Less than 20 per cent of the population
THE LIBERATION DIVIDEND 65
has a job—the second lowest employment level among the large emerging markets, aer
Argentina. Even the teachers’ union has focused on expanding its share of the pie—an
astonishing 85 per cent of school spending goes on teacher pay despite deteriorating
graduation rates and graduation standards.
In most economies, wages rise in line with ination or labour productivity, but not in
South Africa. e average wage hike was more than 9 per cent in 2009 and 2010, even as
ination rose at around 5.5 per cent. By now both global and local markets have come
to understand that when the gold price rises, the South African unions will demand a
larger share of the higher price in higher wages and they punish South African companies
accordingly. In the last decade, South Africa faced a bizarre situation: as gold prices rose,
the stock price of South Africa’s leading gold companies actually declined.
South Africa is deindustrializing at a point in its development when basic industry
should still be growing. Despite the world’s largest platinum and manganese reserves,
along with abundant deposits of gold, iron ore and coal, employment in the mining indus-
try is falling. According to a study by the Chamber of Mines of South Africa, during the
global commodity boom between 2001 and 2008, the mining industry grew in real value
by 5 per cent per year worldwide, but fell in value by 1 per cent a year in South Africa.
Eectively, South Africa missed out on the once-in-a-generation commodity boom. Min-
ing now accounts for 3 per cent of GDP, down from 14 per cent in the 1980s, and South
African manufacturing is hollowing out as well. e share of manufacturing has fallen
from a peak of 17.4 per cent of GDP in 2000 to 15.5 per cent today, and South Africa’s
ability to create jobs is in decline as factories fall idle.
e South African union movement has yet to wake up to this new reality and remains
more focused on raising its members’ wages than on creating new jobs. e union lead-
ers came out of the anti-apartheid struggle heavily focused on social justice, on ‘decent
work at a decent wage’ and the Zuma government is trying to change the union focus to
just plain ‘jobs’, but so far without much success. ere is more strike activity now than
when the ANC took power: in 2011 South Africa lost 14.6 million workdays to strikes,
compared with 4 million in 1994.
Tension is rising between the unemployed and workers who have secured protected
union jobs—the so-called “black diamonds”. Adcorp, South Africa’s largest employment-
services company, calls this split a ‘new apartheid’ and warns that, in the worst-case sce-
nario, it could lead to an upheaval that pits the unemployed rural masses against the
privileged urban job holders. Today the 2 million COSATU members are greatly out-
numbered by the 6.4 million unemployed, the 3.7 million who do freelance work through
labour contractors, and the 2 million-plus working in the informal economy.
To date, however, the unemployed are unorganized and represent no political threat
to the ANC. e sprawling black market for labour may be siphoning o some of the
discontent. As many as one in four workers has a job in the informal economy. At every
trac light and street corner, hawkers sell just about anything from jeans to sunglasses,
66 THE ECONOMICS OF POST-APARTHEID SOUTH AFRICA
or hire themselves out as day labour. Another basic source of ANC political resilience
is its welfare state. Under apartheid the state spent nine times more on whites than on
blacks, but now that bias is gone and the government spends twice as much on blacks as
on whites. Since 1998 the number of people receiving social grants (a category that ranges
from child and elder-care support to unemployment benets) has risen sixfold to 16 mil-
lion, and South Africa is the only major country with more people receiving social grants
than holding down jobs.
Anyone with a job in government, a favoured union or a corporate oligopoly also
has the inside track on a generally stagnant pool of credit. e one area of strong credit
growth is in unsecured loans, which has been helping to fuel a boom in consumption.
at explains why consumer staples in South Africa have been one of the hottest sectors
in any emerging market, but it also helps explain why South Africa has become a solid
twin decit country. Imports are rising faster than exports and the trade decit has been
rising alongside the government decit. Both decits are still manageable—at just over 5
per cent of GDP—but the rate of increase is such that South Africa is one of the few major
developing countries to suer debt ratings downgrades in recent months.
4 The current grumbling
When we visited, there was more and more grumbling about the economic performance
of the ANC. In 2012 strikes by angry miners, once stalwart supporters of the ruling party,
oered an early sign of fragmentation in the ANC coalition. Every week, all over the
country, there were new protests against ANC township leaders for failing to deliver basic
services like rubbish collection. By vowing to deliver more competent administration, the
opposition Democratic Alliance, once seen as the ‘white party’, was gaining momentum,
even among black voters, en route to winning 24 per cent of the vote in the 2014 election.
at was double its total in 2004, the high mark of ANC strength at the polls.
But none of these cracks have proven wide enough to threaten the edice of ANC
power. e ruling party still won comfortably, its share of the vote slipping from 69 per
cent in 2004 to 62 per cent in 2014, extending its hold on the presidency to at least 2019.
By that time the ANC will have been in power for 25 years, nearly matching the record set
by India’s Congress Party for surviving o the liberation dividend.
The political economy
of restructuring in South Africa
sam ashman, ben fine, vishnu padayachee
and john sender
5
Assessment of two decades of post-apartheid economic development cannot ignore stark
realities. Most shocking is that income inequality has increased since 1994 with South
Africa remaining one of the most unequal societies in the world. Wealth has become even
more concentrated in the top decile of the population. According to Leibbrandt et al.
(2010:33) across 1994, 2000 and 2008 the richest 10 per cent of the population took 54,
57 and 58 per cent of total income. e share of wealth of the ‘bottom’ 50 per cent of the
population decreased from 8.3 per cent in 1993 to 7.8 per cent in 2008. Poverty gures are
more debated than those of inequality, with the impact of the introduction of social grants
(the child support grant, the disability grant and the old age pension) leading some to
conclude that South Africa is ‘less poor, more unequal’ (Marais, 2011: 208). Nevertheless,
poverty remains endemic, especially in the rural areas of the former homelands (Noble
and Wright, 2012). ere are other extremes as well as poverty amidst wealth, including
unprecedented levels of unemployment, HIV infection, maternal mortality and brutally
repressed protest, frequently sparked by wage inequalities as well as by the inability to pay
for (commodied) services such as increasingly costly water and electricity.
To understand this turbulent history, we will focus on the restructuring of South Africa
in order to address the complex balance between continuity and change since the defeat
of apartheid. But even if we conne ourselves to economic restructuring (which we do
not, as economic and social restructuring are intimately related to one another), the task
remains complicated. ere are many possible interpretations of the structure of an econ-
omy, ranging over dierent dimensions. It has, for example, become commonplace to
discuss structural unemployment, structural poverty, structured gender and racial dis-
crimination, and so on. What do these appeals to the structural signify beyond the notion
of being both deep-rooted and dicult to shi? Each of these structures, and more, oers
insight into aspects of the South African condition. But to dene ‘structures’ in terms of a
set of inequalities, and chart their trajectories over the last two decades, oers little by way
68 THE ECONOMICS OF POST-APARTHEID SOUTH AFRICA
of causal explanation. Have we focused on the decisive, most salient structures and how
do we locate these analytically in relation to broader economic and social restructuring?
For us, the political economy of restructuring in South Africa concerns the accumulation
of capital, how it takes place, in whose evolving interests and with what eects.
Furthermore, we place emphasis on the extent to which national economies are inu-
enced by global forces, with these increasingly tied to nance. is is captured by the
notion of ‘nancialization’ that has been analysed by heterodox political economists over
the last decade or so. It has been variously understood in terms of what it is and what are
its eects, but there has certainly been an unambiguous structural global shi to nance
over the past 30 years during which the ratio of global nancial assets to GDP has grown
threefold. Financial assets have proliferated at an astonishing speed and speculation has
overshadowed real investment. Yet the latter is critical to any strategy to promote employ-
ment and reduce inequality.
Financial restructuring has deep and profound implications:
• Firstandforemost,nancializationhasunderpinnedtheemergenceand/orstrengtheningof
nancial elites at both national and international levels.
• Second,thishasbeencriticalinchangingthesubstanceofpolicymakingtowardstheneo-
liberal diktats of the Washington Consensus, and it has also transformed the way in which
policy is made, with both a displacement of decision making to nancial authorities at the
expense of broader and popular participation and the erosion of the institutional capacities
to formulate and deliver alternative policies.
• ird,thesedevelopmentshavehelpeddrivewidespreadincreasesininequalitygiventhe
spike in rewards to those working within, or gaining access to, nance compared to the
incomes and well-being of those who cannot and who have been increasingly disenfran-
chised both economically and politically (even if within a shell of formal democracy). Moreo-
ver, such structured inequality generates impoverishment and multiple forms of deprivation
as an integral, not separate or residual, part of structured inequalities.
ese are broad observations about neoliberalism and nancialization in general. How
they aect economic and social development more specically, in both developed and
developing countries, requires closer examination. In South Africa’s case, the nanciali-
zation of the economy has been a key feature of the past 20 years. Indeed, nance has been
the fastest growing sector within the economy, now accounting for as much as 20 per cent
of GDP on a broad denition. e South African economy has been sustained by con-
sumer credit and an accompanying housing bubble, while 40 per cent of the population
have had no access to formal nancial services whatsoever. While the orthodox account
of nance assigns it the role of mobilizing and allocating funds for investment, the South
African economy has suered from miserably low levels of domestic investment, well
below 20 per cent of GDP—although well over 20 per cent is required for there to be any
prospect for developmental policy to be able to be successfully implemented.
THE POLITICAL ECONOMY OF RESTRUCTURING 69
is important failing warrants further diagnosis: the South African economy does not
fail to achieve adequate levels of investment because of an inadequately generated level of
surplus from the domestic economy. High proportions of that surplus are simply taken
out of the country, much of it illegally. Calculations of such export of capital reveal that
it peaked at well over 20 per cent of GDP in 2007 (Ashman et al., 2011). So capital ight
is on a par with levels of domestic investment which could therefore be doubled in its
absence!
Such capital ight is not unique to (post-apartheid) South Africa (Ndikumana and
Boyce, 2011), but it has attained extreme proportions. Moreover, it highlights important
aspects of South African nancialization. First, there have been important and largely
ignored consequences for macroeconomic policy. Any economy deprived of such levels
of resources and oriented towards nancial activity will necessarily come under strain.
For South Africa, the long-run outow of capital has been supported by an overvalued
exchange rate (that makes such outows more valuable in foreign currency) and has been
funded through short-run inows of hot money, attracted by high interest rates. But high
interest and exchange rates both have a dampening eect on the domestic economy, espe-
cially when aggravated by an austere scal stance and tight monetary policy, albeit in
a context of lax (external) nancial regulation. Signicantly, far from investigating and
remedying (illegal) capital ight, the government has been complicit in it, seeking to lib-
eralize the foreign account as rapidly and as far as macro-balances will allow. While the
government continues to represent its macro-policy as successfully stabilizing in terms of
traditional goals—targeting ination and scal balance even if at the expense of sacric-
ing other policy goals as necessary for these prior aims—we suggest what has been man-
aged has been the long-term outow of capital on behalf of that small minority who are,
or have recently become, the beneciaries of conglomerate ownership and control, while
simultaneously making the economy vulnerable to volatile levels of short-term portfolio
inows.
ese perspectives frame our understanding of post-apartheid restructuring of ‘South
African’ industry and agro-industry. Such restructuring has given rise to the internation-
alization of South African conglomerates (most notably but not exclusively through capi-
tal ight and permitted foreign listings) and the penetration of internationalized interests
across South African capital. Conservative macro-policy has been justied as a way of
attracting foreign capital and avoiding the punitive reaction of the markets should more
ambitious growth policies be adopted. Yet, a very dierent reality has been unfolding,
quite apart from the failure to attract long-term foreign direct investment. South Afri-
can capital has been increasingly detached from South Africa other than as a domestic
location of supportive policy, distinct from the pursuit of national developmental goals.
Such changes, dramatically accelerated by the liing of sanctions, are complemented by
elements specic to South Africa. ere are varying approaches to understanding South
African economy and society, and the historical relationship between capitalism and
70 THE ECONOMICS OF POST-APARTHEID SOUTH AFRICA
apartheid. Recently, the idea that the South African economy continues to be dominated
by a minerals-energy complex (MEC) has gained currency among trade union, le-wing
and some mainstream analysts, even gracing establishment documents, as with African
National Congress (ANC) proposals for state intervention in the minerals sector (SIMS)
(see <http://www.anc.org.za/docs/reps/2012/simssummaryz.pdf>).
MEC analysis suggests that at the core of the economy have been a number of
mining- and energy-related sectors straddling public and private enterprise. These
have been extremely capital-intensive and have made a major contribution to exports.
But for different reasons over different historical periods the MEC has failed to pro-
mote or allow for the growth of intermediate and capital goods sectors, foreclosing
opportunities for broader industrial development along value chains through to final
consumption. Accordingly, much has been lost in potential employment creation let
alone prospects for more broadly based export promotion and industrialization. This
prognosis has begun, if only partially, to be recognized in the Industrial Policy Action
Plans produced by the DTI. But there must remain strong doubts as to the extent to
which the negative ramifications of the structures, dynamics and vested interests of
the MEC have been fully recognized, and whether the institutional capacity, resourc-
es and political determination exist to adopt alternative policies.
MEC analysis also sheds light on the issue which remains at the heart of South Africa’s
economic failure: unemployment. Any economic strategy must genuinely address this
issue, overall and in detail, and in proximate as well as deeper, underlying causes. Past
attempts to do so have been marred by half-baked initiatives that treat unemployment as
if it were residual, rather than systemic. e diagnosis has too oen been based on preju-
diced assumptions about the pathology of the unemployed, blaming them for their own
predicament as a result of too high wages, inadequate skills or their excessive psychologi-
cal ‘dependence’ on government social welfare grants.
None of these assumptions can be supported by detailed reference to evidence on the
performance of the South African labour market, in part because the statistics on wage
and employment trends outside the regulated sector are so inadequate, but also because
the media-hyped publications of the econometricians and ideologues who attempt to
establish a causal link between ‘excessive’ wages (or the introduction of minimum wages)
and unemployment are, on closer examination, so technically awed. Apart from advo-
cating policies to limit wage growth (by reducing legislated protections to weaken the
bargaining power of workers), there have been continuing eorts on the supply side to
increase both the skills said to be required for ‘employability’ and the rate of growth of
‘entrepreneurial’ self-employment. ese eorts, while absorbing a signicant propor-
tion of nancial and policymaking resources, have been misguided and ineective. e
attempt to develop skills by providing a complex array of certication in response to the
short-term needs of employers has failed (Allais, 2012), and there is no evidence that
the rate of growth of viable small-scale enterprises is constrained either by inadequate
THE POLITICAL ECONOMY OF RESTRUCTURING 71
training in ‘entrepreneurship’ or by a shortage of micro-credit institutions. e train-
ing components, as well the total number of jobs created through the Expanded Public
Works Programme, have failed to make an impact on the scale of unemployment. Prob-
ably less than 5 per cent of the unemployed have been oered some temporary employ-
ment (McCord and Meth, 2007).
e Government’s proposed ‘New Growth Path’ (NGP) trumpets a commitment to
address the creation of decent work, poverty alleviation and labour absorption. It does
point to some of the key features of the present growth path: dependence on the miner-
als value chain; weaknesses in the state’s use of commodity-based revenues; dependence
on short-run capital inows attracted by high interest rates; bottlenecks and backlogs in
infrastructure, particularly energy; and continued economic concentration in key sec-
tors, combined with monopoly pricing at the expense of industrial development. How-
ever, the remedies proposed to address these structural issues are unconvincing.
For example, proposals for job creation in the NGP are heavily dependent on the
actions and policy demands of a private sector that has shown a very limited commit-
ment to structural change or developmental outcomes. Although the NGP does recog-
nize that the prot share is already high and has been increasing—the share of prots rose
from 40 to 45 per cent between 1994 and 2009 (with a corresponding fall in the share of
wages)—the document makes an explicit commitment to moderate wage settlements in
the naïve hope that cutting labour costs will reduce unemployment. is ignores impor-
tant evidence from Brazil where national minimum wage policies combined with a radi-
cally overhauled and expanded labour inspectorate (and new forms of state intervention
to promote formalization and the bargaining power of workers) have had considerable
success in reducing unemployment and inequality (COSATU, 2012).
While there has been some moderation of the apartheid wage structure, especially in
the public sector, huge inequalities persist. ere are massive inequalities between so-
called unskilled, semi-skilled and skilled workers, blue collar and white collar, dierent
levels of management and workers, and the gap between these dierent levels, and par-
ticularly the top and the bottom, is widening. Huge wage gaps also exist between dierent
industries and sectors. It is not only workers in unorganized sectors such as agriculture
and domestic services that receive very low wages.
A positive impact of restructuring is at least as hard to discern in agricultural as in
industrial and labour market performance. Government documents pay relatively little
attention to the impact of policy measures on rural people, especially women, ignoring
the deepening deprivation and inequality in South Africa that are most blatantly evi-
dent in rural areas (Sender, 2012). e failure to achieve adequate levels of investment
and wage employment in the agricultural sector may have been exacerbated by the new
opportunities for capital ight and the inadequate rate of growth of domestic demand
associated with the macroeconomic policies already discussed. But a more proximate
cause of the disastrous investment record on farms and in agri-business has been the
72 THE ECONOMICS OF POST-APARTHEID SOUTH AFRICA
rushed, ideologically driven and unilateral removal of state support for agriculture, with
the result that the level of support to farms, measured by the Producer Support Estimate,
has declined substantially and is now at a very low level (3 per cent in 2008–10), well
below the OECD average of 20 per cent. Unlike South Africa, most middle-income devel-
oping economies have adopted policies that increased their support for agriculture over
the last decade. eir record of agricultural export growth is, unsurprisingly, far superior
to that achieved in South Africa.
Debates on rural development are, as in other areas of economic policy, dominated
by the short-term interests of an aspirant black bourgeoisie that is more parasitical than
developmental. e ‘hollowing out’ of policy and policymaking is reected in: reduced
state expenditures on Agricultural Research Development; the failure of Statistics
South Africa to collect any reliable data on rural labour markets and crop production;
the expanded role of unaccountable NGOs and consultants in policy formulation and
implementation; and the emphasis on private participation in nancing all future rural
infrastructure investment. In this context, and with the full support of the Washington
Institutions, unrealistic rhetoric and populist proposals have continued to dominate rural
development policy debate. South Africans are encouraged to believe that ‘small farmers’,
especially the elite who have captured, or hope to capture, resources as a result of botched
land reforms, can and should make a major contribution to the growth of output, exports
and wage employment in the agricultural sector.
In short, over the post-apartheid period, the government has oered a bewildering and
shiing array of policy perspectives, moving from the Freedom Charter, through RDP to
GEAR, and from there through AsgiSA to the developmental state, the NGP and most
recently the National Development Plan. Incorrigible optimists may regard more recent
initiatives as representing a move towards more interventionist policies and a politicized
rejection of past failures. We do not doubt that the ideological shi in debate has indeed
been marked by a more interventionist ethos, but we remain extremely cautious over the
signicance of this in practice for the following three reasons. First, as already empha-
sized, policy debate and government postures remain too far removed from the realities
that underpin the restructuring and dynamic of the South African economy. For much of
the time it is as if capital ight, nancialization, the MEC, conglomeration, unbundling
and internationalization, etc., simply do not exist.
Second, it is not just that presentation of policy and policies themselves have had a
distorted relationship both to the trajectory of the South African economy and develop-
mental goals, much the same has been true of policy debate more generally. e pervasive
inuence of orthodox economics has served as the most constraining of straitjack-
ets, especially through the inuence of the World Bank and the IMF either at one step
removed or within the Treasury and Presidency. Yet this orthodoxy has long been known
to be analytically and empirically decient, such has been unambiguously shown in the
wake of the crisis, even to its own proponents; and it is endlessly capable of reinventing
THE POLITICAL ECONOMY OF RESTRUCTURING 73
itself in order to promote particular interests and policies in changed circumstances while
foreclosing consideration of more radical alternatives.
Third, neoliberalism has always been underpinned by extensive state interven-
tion to promote its policy measures in general and financialization in particular as
is evident in the unprecedented state support given to finance throughout the global
crisis. In this, and other respects, neoliberalism is not about the withdrawal of state
intervention but has brought about other forms of state intervention. In South Africa,
expenditure on social grants must be seen in this light, introduced to temper the
worst consequences of apartheid and neoliberalism’s effects on economic and social
restructuring. As a result, we have to be wary in assessing new policy initiatives that
present themselves as a departure from neoliberalism. Although they may be inter-
ventionist, these polices can certainly be geared towards using the state more overtly
to restore and sustain the financialized forms of accumulation that have been hit by
the current crisis.
■ REFERENCES
Allais, S. (2012), ‘Will Skills Save Us? Rethinking the Relationships between Vocational Education, Skills
Development Policies, and Social Policy in South Africa’, International Journal of Educational Develop-
ment, 32(5): 632–42.
Ashman, S., B. Fine and S. Newman (2011), ‘Amnesty International?: e Nature, Scale and Impact of Capital
Flight from South Africa’, Journal of Southern African Studies, 37(1): 7–25.
COSATU (2012), ‘Concept Paper: Towards New Collective Bargaining, Wage and Social Protection Strat-
egies, Learning from the Brazilian Experience’, <http://www.cosatu.org.za/docs/discussion/2012/cec_
conceptpaper.pdf>.
Leibbrandt, M., I. Woolard, A. Finn and J. Argent (2010), ‘Trends in South African Income Distribution and
Poverty Since the Fall of Apartheid’, OECD Social, Employment and Migration Working Papers, No. 101,
OECD Publishing, <http://dx.doi.org/10.1787/5kmms0t7p1ms-en>.
Marais, H. (2011), South Africa Pushed to the Limit: e Political Economy of Change, Claremont, South
Africa: UCT Press.
McCord, A. and C. Meth (2007), ‘e Function of Infrastructure Spending and Public Works in the
Developmental State: Will Increases in Infrastructure Spending and Labour Intensication Con-
tribute to the Distribution of Benets from Infrastructure Investment to the Poor? Some Critical
oughts to Stimulate Debate’, SALDRU, School of Economics, University of Cape Town, <http://www.
saldru.uct.ac.za/documentation/evaluation-of-public-works/328-the-function-of-infrastructure-
spending-and-public-works-in-the-developmental-state-will-increases-in-infrastructure-spending-and-
labour-intensication-contribute-to-the-distribution-of-benets-from-infrastructure-investment-to-
the-poor-some-critical-th/le>.
Ndikumana, L. and J. Boyce (2011), Africa’s Odious Debts: How Foreign Loans and Capital Flight Bled a Con-
tinent, London: Zed Press.
Noble, M. and G. Wright (2012), ‘Using Indicators of Multiple Deprivation to Demonstrate the Spa-
tial Legacy of Apartheid in South Africa’, Social Indicators Research, <http://www.carnegie3.org.za/
74 THE ECONOMICS OF POST-APARTHEID SOUTH AFRICA
papers/203_Noble_Using%20indicators%20of%20multiple%20deprivation%20to%20demonstrate%20
the%20spatial%20legacy%20of%20apartheid%20in%20SA.pdf>
Sender, J. (2012), ‘Fictions and Elephants in the Rondawel: A Response to a Brief Chapter in South Africa’s
National Development Plan’, Transformation, 78: 98–114.
South Africa’s suboptimal
political economy equilibrium
sandeep mahajan
6
South Africa appears to be mired in a cycle of modest growth, high inequality and record
unemployment. is despite an exemplary record on macroeconomic management and
steadily deepening integration with the global economy. Ination remains nestled within
the South African Reserve Bank’s target range of 3–6 per cent and scal and debt manage-
ment outcomes have been impressive, despite scal expansion since the start of the global
nancial crisis. ere is broad political consensus on the issue of macroeconomic stabil-
ity, calls for a looser stance by the labour unions notwithstanding.
A sustained pattern of high, broad-based and inclusive growth is yet to emerge, how-
ever. Despite a pick-up in per capita GDP growth from negative rates to an average of 1.6
per cent per annum since 1994, per capita GDP is only about 10 per cent higher than it
was in 1980, a period over which other developing countries have seen much more mean-
ingful increases in their income levels (see Figure 6.1). Growth has been insucient, and
insuciently inclusive to absorb the massive wave of new entrants into the labour mar-
ket since the end of apartheid restrictions, resulting in unemployment rates persistently
above 20 per cent.
Among the main factors holding back a growth take-o are the country’s relatively low
xed investment rates. Currently at just under 20 per cent, they are well below that of
comparator countries, having dropped considerably since the late 1980s. is, in part, is
explained by South Africa’s even lower national savings rates which have also been on a
declining trend, as well as the tepid interest shown by foreign long-term investors. For-
eign Direct Investment (FDI) as a share of GDP averaged only around 1.5 per cent in the
2000s, being especially low in green-eld areas with the potential to become a conduit for
job creation.
Why is the private sector hesitant to invest in South Africa’s future? Could it be that real
returns on oer are not attractive enough? On the contrary, calculations of real returns
Reasons for the declining trends may be found in World Bank, 2011.
76 THE ECONOMICS OF POST-APARTHEID SOUTH AFRICA
to capital clearly show that South Africa is an attractive place to invest. Real returns are
high, have been rising sharply since the mid-1990s (as distortions linked to apartheid
and South Africa’s isolation from the global economy came to an end) and appear to
be globally competitive, recent decline on account of the global crisis notwithstanding
(see Figure 6.2). Moreover, the cost of borrowing (proxied by the real prime lending
rate) has fallen sharply since the late 1990s. Clearly, something other than real returns on
investment is impeding private investment.
An important impeding factor appears to be industrial competition, which is far weak-
er in South Africa than its international peers (as established by Aghion et al., 2008).
e three major (and most vocal) players in the political economy of reforms in South
Africa—the government, organized labour and existing business—have been insu-
ciently responsive. In large part, this could be because the status quo of industrial con-
centration and the associated exceptional returns work in favour of big business and
organized labour.
e triumvirate of big business, government and organized labour is locked in a con-
tinual, boisterous public tussle over the distribution of the high rents being generated
under the system. Big business is ever keen to carve out a bigger share of the pie for
Details may be found in World Bank, 2011 which also contains the sectoral breakdown of the real returns
to capital.
100
South Africa
Mexico
Brazil
Argentina
OECD
Turkey
UMIC
Chile
Malaysia
India
China
150
200
250
300
350
400 Peak Value of 1300
Figure 6.1. Between 1980 and 2010, the average South African’s real income increased less than
10 per cent, while the average Chinese became 13 times richer (PPP constant price GDP in US$,
1980 normalized to 100)
Source: World Development Indicators, World Bank.
SOUTH AFRICA’S SUBOPTIMAL POLITICAL ECONOMY 77
itself by retaining larger operating surpluses, while organized labour, keen to increase
its own share, raises its head on an annual basis and demands higher worker compensa-
tion levels. For its part, the government seems keen to keep its share intact by suciently
taxing prots while otherwise preserving the stability of the existing system. e distri-
bution process is further shaped by a number of conditioning variables (see Figure 6.3).
For example, stricter labour regulations strengthen the hands of organized labour, while
relatively relaxed implementation of competition policy laws supports the cause of big
business, and stronger tax policy nets enable the government to increase its share of the
pie. Outcomes are equally shaped by a strong sense of fairness and equity and the need to
correct the wrongs of the past that pervades much of the discourse.
How these conditioning variables interact to yield the outcomes (division of rents)
needs much deeper analysis. What is clear, however, is that the process, noisy and oen
acrimonious as it is, operates within a tightly sealed political box. is tight-knit process
does not call for entry of new businesses to normalize returns, and the noise it generates
unintentionally drowns out the voices of the masses who are unemployed and other-
wise marginalized and would like to see these exceptional returns to capital translate into
much higher investment, growth and job creation. A sizeable social grant system (around
0
5
10
15
20
25
1950s
1960s
1970s
1980s
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
per cent
Real returns
Real prime lending rate
Figure 6.2. Real rates of return to capital in South Africa have risen sharply since the early 1990s
Source: South African Reserve Bank data and World Bank staff calculations.
78 THE ECONOMICS OF POST-APARTHEID SOUTH AFRICA
3.5 per cent of GDP in recent years) gives a measure of inclusion to those le out and helps
preserve stability of the system despite the inherent wide disparities.
e end result, however, is a suboptimal equilibrium that is hard to shi but may be at
the heart of unlocking the much-desired path of higher, inclusive growth in South Africa.
■ REFERENCES
Aghion, Philippe, Matías Braun and Johannes Fedderke (2008), ‘Competition and Productivity Growth in
South Africa’, Economics of Transition, 16(4): 741–68.
World Bank (July 2011), South Africa Economic Update: Focus on Savings, Investment, and Inclusive
Growth, Washington DC <http://siteresources.worldbank.org/INTSOUTHAFRICA/Resources/SAEU-
July_2011_Full_Report.pdf>.
Firm Owners
Organized labour
Government
Labour
regulations
Considerations of
equity and
fairness
Tax policy
Competition
policy
Division of
rents between
labour, business,
and
government
New business
entrants?
Unemployed
and
marginalized
Social
transfers
Figure 6.3. A suboptimal political economy equilibrium
Data issues in South Africa
martin wittenberg
7
Measuring development in South Africa since the end of apartheid ought to be relatively
straightforward. ere are dozens of cross-sectional datasets covering this period ranging
from the standard national Labour Force Surveys and the General Household Surveys,
to special purpose instruments such as the Time Use Survey, Victims of Crime Surveys
and Demographic and Health Surveys. ere are also some panel datasets, such as the
KwaZulu-Natal Income Dynamics Study and the Cape Area Panel Study as well as the
National Income Dynamics Study. e DataFirst Archive (<http://www.datarst.uct.
ac.za>) lists 197 dierent datasets dealing with South Africa since 1994. Indeed, there
have been some path-breaking studies using the ‘unnatural experiment’ of apartheid to
reect on social processes within education (Case and Deaton, 1999) or the household
(Duo, 2003). Nevertheless, despite this embarrassment of riches, getting solid informa-
tion about the direction of progress can be remarkably tricky even when one restricts
attention to the nationally representative surveys on labour market issues conducted by
Statistics South Africa since 1994.
1 Sampling practice and coverage
Sampling practice has evolved over the post-apartheid period. e early October House-
hold Surveys (OHSs) did not adequately cover the hostel population. As Kerr and Witten-
berg (2012) show, there is also an important break between the 1998 OHS and subsequent
ones induced by the change from running independent cross-sectional surveys, to work-
ing o a ‘master sample’. Two key practices changed: if multiple households were encoun-
tered at one dwelling all of them were enumerated (previously only one was) and no
households were substituted following a refusal. e impact of these changes can be seen
in Figure 7.1 which shows precipitous increases between 1997 and 2000 in the proportion
of South Africans living in single-person households or in backyard shacks. Evidence
from a demographic surveillance site (Wittenberg and Collinson, 2007) suggests that
these are not ‘real’ cataclysmic changes. It is dicult to know how to ‘correct’ for these
shis. It seems obvious that they will, however, aect substantive conclusions that are
drawn from these data.
80 THE ECONOMICS OF POST-APARTHEID SOUTH AFRICA
2 Fieldwork practice
Incentives of eldworkers may not be aligned with those of the researchers running a sur-
vey. Outright fraud has been diagnosed in a few cases. For instance, 39 households were
fabricated in the Project for Statistics of Living Standards and Development and the panel
built on it, the KwaZulu-Natal Income Dynamics Study (Carter et al., 2001: 7). Other
forms of eldworker inuence may be more insidious. A spectacular case is provided by
the Labour Force Survey (LFS) of February 2001 which served as ‘screener’ questionnaire
for the ‘Survey of Employers and the Self-employed’ (SESE). Individuals agged as self-
employed in the LFS were then asked to complete the SESE. However, eldworkers in
2001 were paid by completed questionnaire whereas subsequently they were paid a xed
salary. e incentives for nding self-employed individuals were therefore much higher
in 2001 than in later years. Indeed, with xed salaries the incentives to nd self-employed
individuals arguably decreased since this would involve additional work. Not coinciden-
tally the 2001 LFS (and associated SESE) found much higher levels of self-employment
than any other Statistics South Africa dataset before or aer. Given the contrasting incen-
tives, one can be sure that the ‘true’ level of informal businesses is somewhere between the
two. What is crystal clear is that one does not want to draw any inferences about trends
from surveys done under such diering conditions. Unfortunately, eldwork practices
and incentives are not properly documented in most surveys.
0.02 0.03 0.04 0.05 0.06 0.07
proportion
1994h2 1997h2 2000h2 2003h2 2006h2
time
single hh 95% band
Single person households
0.01 0.02 0.03 0.04
proportion
1994h2 1997h2 2000h2 2003h2 2006h2
time
backyard shacks 95% band
Backyard shacks
Own calculations using PALMS v1.0.9 and cross-entropy weights
Standard errors are robust to clustering
South Africans living by themselves or in backyard shacks
October Household Surveys and Labour Force Surveys
Figure 7.1. Changes in sampling seem to have changed who was enumerated in the surveys
DATA ISSUES IN SOUTH AFRICA 81
3 Changes in the instrument
Several authors have remarked on the inuence of changes in the questionnaires. Casale
et al. (2004), for instance, discuss changes in the denition of who was employed and the
sequence of qualifying questions that were asked. Consequently, the level, particularly of
marginally or informally employed individuals who were recorded in the surveys, went
up with the introduction of the LFSs. Daniels (2012) discusses the changes in the income
question in the OHSs and LFSs over the period 1997 to 2003.
4 Choice of baseline
Any discussion of ‘progress’ over the post-apartheid period has to decide on a good meas-
ure of the baseline conditions. As Branson and Wittenberg (2007) noted, the most com-
monly chosen dataset in the literature has been the 1995 OHS. As they also noted, however,
this survey looks anomalous, in particular in terms of the employment status of African
men. It seems to nd higher levels of employment and lower levels of unemployment than
the other surveys in that early post-apartheid period. Choosing this survey as a baseline
will imply that changes over the period will look less impressive. Some other anomalous
features of 1995 have emerged. Heap (2008) found that the ‘gender gap’ in earnings was
0.35 0.4 0.45 0.5
proportion
1994 1996 1998 2000 2002 2004
year
inside 95% band
Water inside house
0.15 0.2 0.25 0.3 0.35
proportion
1994 1996 1998 2000 2002 2004
year
yard 95% band
Water in yard
Own calculations using PALMS v1.0.9 and cross-entropy weights
Standard errors are robust to clustering
Household water supply
October Household Surveys and September Labour Force Surveys
Figure 7.2. The 1995 October household surveys show many more households with inside taps
82 THE ECONOMICS OF POST-APARTHEID SOUTH AFRICA
much smaller in 1995 than in other years. Ardington (2009) nds that orphanhood in
that survey is markedly dierent with higher levels of paternal orphanhood. Figure 7.2
shows that service provision in 1995 looks more favourable. e reduction in water con-
nections in the house, but increase in connections on the plot between the early OHSs
and the later surveys, is probably in part also explained by the underenumeration of back-
yard shacks referred to earlier.
5 Inconsistent weights
Branson and Wittenberg (2012) show that the household weights and the person weights
released with the Statistics South Africa datasets are internally inconsistent. is can
introduce shis in series (such as employment) which are induced simply by changes in
the demographic model to which the samples are calibrated.
6 Imputations and other data manipulations
In some cases there are post-eld data adjustments which may not be optimal. Witten-
berg (2008) discusses extensive manipulation of the earnings data in the 1994 OHS. More
recently, food expenditures in the Living Conditions Survey of 2008/09 were adjusted
upwards by 40 per cent (Statistics South Africa, 2011: 59) because the micro data did not
agree with the macro aggregates. At least this adjustment is noted in the documentation.
One does not know whether earlier Income and Expenditure Surveys were adjusted in
any way and documentation of the early OHSs (such as 1994) is largely non-existent.
In this regard the data have improved immeasurably over the post-apartheid period.
Data from the apartheid period itself are largely not available. All these quality changes
bedevil attempts to draw robust conclusions about the ‘real’ progress during the post-
apartheid period. Openness about the data issues and ways of addressing these is essential
to move the research forward. One attempt in that direction has been the construction of
PALMS (Post-Apartheid Labour Market Series) within DataFirst (Kerr and Lam, 2012).
Undoubtedly further work is required.
■ REFERENCES
Ardington, Cally (2009), Parental Death and Schooling Outcomes in South Africa, PhD esis, University of
Cape Town, South Africa.
Branson, Nicola and Martin Wittenberg (2007), ‘e Measurement of Employment Status in South Africa
Using Cohort Analysis, 1994–2004’, South African Journal of Economics, 75(2): 313–26.
DATA ISSUES IN SOUTH AFRICA 83
Branson, Nicola and Martin Wittenberg (2012), ‘Re-weighting South African National Household Survey
Data to Create a Consistent Series Over Time: A Cross Entropy Estimation Approach’, SALDRU Working
Paper No. 54, Cape Town: SALDRU, available at <http://www.saldru.uct.ac.za>.
Carter, Michael et al. (2001), ‘Kwazulu-Natal Income Dynamics Study (KIDS) 1993–1998: Overview
and Description of Data Files. Release Version 2’, Technical document, IFPRI, University Wisconsin-
Madison and SALDRU, available at <http://www.datarst.uct.ac.za/catalogue3/index.php/ddibrowser/93/
download/1081>.
Casale, Daniela, Collette Muller and Dori Posel (2004), ‘ “Two Million Net New Jobs”: A Reconsideration of
the Rise in Employment in South Africa, 1995–2003’, South African Journal of Economics, 72(5): 978–1002.
Case, Anne and Angus Deaton (1999), ‘School Inputs and Educational Outcomes in South Africa’, Quarterly
Journal of Economics, 114(3): 1047–84.
Daniels, Reza (2012), ‘Questionnaire Design and Response Propensities for Employee Income Micro Data’,
SALDRU Working Paper No. 89, Cape Town: SALDRU, available at <http://www.saldru.uct.ac.za>.
Duo, Esther (2003), ‘Grandmothers and Granddaughters: Old Age Pensions and Intrahousehold Allocation
in South Africa’, World Bank Economic Review, 17(1): 1–25.
Heap, Anthea (2008), ‘Earnings Inequality in South Africa: Decomposing Changes Between 1995 and 2006’,
unpublished Master’s dissertation, School of Economics, University of Cape Town.
Kerr, Andrew and David Lam (2012), ‘Post-Apartheid Labour Market Series 1994–2007’ (dataset), Version
1.0.9. of the harmonized dataset based on Statistics South Africa’s OHS and LFS surveys, 1994–2007. Cape
Town: DataFirst (data producer and distributor).
Kerr, Andrew and Martin Wittenberg (2012), ‘e Impact of Changes in Statistics South Africa’s Enumera-
tion Practice on Average Household Size’, paper presented to CSAE conference ‘Economic Develop-
ment in Africa’, Oxford, available at <https://editorialexpress.com/cgi-bin/conference/download.cgi?db_
name=CSAE2012&paper_id=565>.
Statistics South Africa (2011), Living Conditions of Households in SA 2008/2009, Statistical Release P0310,
Pretoria: Statistics South Africa.
Wittenberg, Martin (2008), ‘Income in the October Household Survey 1994’, DataFirst Working Paper.
Wittenberg, Martin and Mark Collinson (2007), ‘Household Transitions in Rural South Africa, 1996–2003’,
Scandinavian Journal of Public Health, 35(69) (supplement): 130–7.
Trade policy reform in South
Africa
lawrence edwards
8
1 Introduction
Trade policy has been widely used as an instrument to promote industrial development.
South Africa is no exception. is chapter presents an overview of trade policy reform in
South Africa, from its early inception to its recent formulation. e chapter also assesses
the economic consequences of the trade liberalization programme implemented in South
Africa from the early 1990s.
2 A brief history of trade policy reform
Prior to the 1970s, South Africa pursued an explicit import substitution industrializa-
tion policy, focusing initially on consumer good sectors and then on import replacement
in upstream industries such as the chemical and basic metals sub-sectors. But by the
end of the 1960s, growth through import substitution had run its course and had led to
high levels of industrial concentration, a rising dependency on imported capital inputs, a
marked anti-export bias in manufacturing and dependence on gold as a source of foreign
exchange (Jenkins et al., 1995).
Concerns about these outcomes, particularly the dependence on gold exports, initiated
a process of trade policy reform over the subsequent two decades (1970–90). Policies
implemented included export incentives, rail freight concessions, rebates of import duties
on imported intermediate goods and the relaxation and replacement of the vast range
of quantitative restrictions with taris. While the impact of these reforms on the level
of protection is contested (Bell, 1993; Holden, 1992), the trade regime remained highly
Reference is made to South African trade policy not that of the Southern African Customs Union
(SACU) of which South Africa is a member, as SACU tari policy was dened by South Africa under the
1969 SACU Agreement.
88 SOUTH AFRICA AND THE WORLD ECONOMY
restrictive. e objective of the reforms was not liberalization; rather they were an attempt
to simultaneously pursue export expansion together with import substitution.
e 1990s heralded a major shi in South Africa’s trade policy regime from export pro-
motion with import controls to openness through tari liberalization. South Africa com-
mitted under the GATT Uruguay Round to bind 98 per cent of all tari lines, rationalize
the over 12,000 tari lines and replace quantitative restrictions on agricultural products
with taris. Contrary to some expectations, representatives of the future African National
Congress (ANC)-led government, including members of the Congress of South African
Unions (COSATU), who participated in the formulation of South Africa’s oer to the
GATT/World Trade Organization (WTO), actively promoted a policy of import liberali-
zation (Bell, 1997; Hirsch, 2005).
Once in power, the ANC-led government initiated further policies to open the econo-
my, including a new macroeconomic policy, ‘Growth, Employment and Redistribution’
(GEAR) that had the intention of transforming South Africa into a ‘competitive, outward
orientated economy’ (Republic of South Africa, 1996) and the deregulation of agricultural
marketing and control boards. Import surcharges, imposed in the late 1980s in response
to the balance of payments crisis, were also phased out. On top of these domestic policies,
international trade and nancial sanctions were dismantled.
ese policies heralded a process of tari reform unprecedented in South Africa’s his-
tory. e tari book was rationalized with the number of tari lines reduced from over
11,000 in 1994 to 6,701 in 2009. Transparency was improved through the increased use
of ad valorem rates and reductions in the number of international tari spikes (taris in
excess of 15 per cent), although less progress was made in realizing the goal of six tari
bands (0, 5, 10, 15, 20 and 30 per cent). By 2009, there were still 40 distinct ad valorem
‘most-favoured nation’ (MFN) tari rates (plus 60 other rates) (Edwards, 2011). e level
of protection also fell. e simple average import tari fell from 21.4 per cent (inclusive of
import surcharges) in 1994 to 8 per cent in early 2000. Eective protection rates in manu-
facturing declined from 48 per cent in 1993 to 12.7 per cent in 2004 (Edwards, 2005).
is process of multilateral tari reform, however, was almost entirely conned to
the 1990s with very little progress made in reducing MFN tari rates subsequently. e
average 2009 MFN tari, for example, is almost identical to its 2000 value (Edwards
et al., 2009). Where further progress in reducing taris was made was through Free Trade
Agreements: from 2000 for the European Union (EU) and the Southern African Devel-
opment Community (SADC), and from 2007 for the European Free Trade Association
(EFTA). By 2009, average protection on imports from SADC, EFTA and EU countries
was 0.2, 3.3 and 5.5 per cent, respectively.
Taris are not the only trade policy instrument administered by the government.
South African rms have used anti-dumping duties widely as an instrument to protect
Bell (1997) provides a political economy perspective on South Africa’s trade reform during the 1990s.
TRADE POLICY REFORM IN SOUTH AFRICA 89
themselves from disruptive price competition (Holden and Casale, 2002; Edwards, 2011).
By the end of the 1990s, South Africa was estimated to be the h largest user of these
measures aer the United States, the EU, India and Argentina. As is the case with many
other countries, Chinese exporters have increasingly become the target of anti-dumping
duties.
One explanation for the increased use of anti-dumping measures during the 1990s is
that they were used to oset the WTO-negotiated decline in tari protection (Holden,
2002; Brink, 2005). However, a closer look at the products on which anti-dumping duties
were imposed reveals that they are the same products on which tari rates remained
relatively high throughout the 1990s (Edwards, 2011). Anti-dumping measures were not
primarily used as a substitute for tari protection. Rather, those industries that were suc-
cessful in negotiating more moderate reductions in MFN rates in the early 1990s were
also those that were more active in initiating anti-dumping investigations. Protection
through taris and anti-dumping measures appears to have common political economy
determinants.
Since 2002, the number of anti-dumping duties imposed has declined considerably, in
part because of the promulgation of anti-dumping regulations and the establishment of
a new body, the International Trade Administration Committee (ITAC), to administer
trade remedies and tari changes within South Africa in 2003. Not only did this process
lead to a decline in the proportion of investigations leading to anti-dumping duties being
imposed, but also a decline in the number of applications for investigations by rms. e
new regulations and institution appear to have been eective in altering the expectations
and behaviour of South African rms.
3 The economic consequences of trade reform
As in other economies, trade policy reform in South Africa is highly contested. e
impact of trade policy reform falls on workers and rms dierentially—there are winners
and losers. While the net gains to society may be positive, the distributional consequences
have important social and political economy ramications. A careful consideration of the
eects of trade reform outcomes is therefore important.
ere is broad agreement that lower taris raised imports. More contentious is the
eect that trade reform has had on export ows. e DTI (2010), for example, argues that
trade reform reinforced specialization in resource-based products. e inability of trade
reform to boost exports was also a concern raised by Bell (1993). ese outcomes are
contested by Edwards and Lawrence (2008a) who nd a close association between lower
For a review of the economic impact of trade reform in South Africa, see Edwards et al. (2009) and
Edwards (2006).
90 SOUTH AFRICA AND THE WORLD ECONOMY
taris on intermediate inputs and manufacturing export growth. e eect is strong-
est for non-commodity manufactured exports that rely heavily on traded intermediate
inputs. ey conclude that South Africa developed a comparative advantage in capital-
intensive primary and commodity-based manufactures in part because of its natural
resource endowments, but also because of a pattern of protection that was particularly
detrimental to exports of non-commodity manufactured goods.
Most important in the South African context, where unemployment rates are extre mely
high, is the impact of trade reform on employment and poverty. However, conclusively
identifying this impact has proven to be dicult, primarily because the employment data
are weak and there is a lack of panel data to evaluate rm-level adjustments to liber-
alization. Studies that look at the labour content of exports and imports nd that rising
imports reduced employment, but these losses were oset by rising exports (Dunne and
Edwards, 2007; Jenkins, 2008). e net impact of trade on employment has been small,
although the structure of trade has shied towards skilled labour (Edwards, 2001). e
dominant source of change in demand for labour during the reform process, according to
these factor content studies, is technological change, although this technological change
could itself arise from liberalization as rms adopt new technologies or restructure pro-
duction in response to increased international competition.
Other studies have looked at whether relative prices in response to liberalization have
shied against labour-absorbing sectors of the economy. Fedderke et al. (2012) argue
that trade liberalization and openness induced relative price changes that increased the
returns to labour relative to capital in South African manufacturing industries between
1970 and 1997. In contrast, Edwards (2006) provides alternative estimates for the period
1994–2003 using more direct measures of tari protection, namely the scheduled tari
rates, and nds that tari protection fell relatively sharply in manufacturing sectors using
semi-skilled and unskilled labour intensively. is is estimated to have reduced real wages
of all workers by 19 per cent and unskilled workers by 37 per cent. Similarly, Rodrik
(2008) argues that trade liberalization since 1994 contributed towards a decline in the
protability of manufacturing relative to services and hence to the declining contribu-
tion of manufacturing to employment and output in the economy. General equilibrium
simulations of the trade reform process by urlow (2007) suggest that both these eects
contributed towards rising wage inequality.
Trade reform has also had other impacts on the economy. Lower taris have helped
reduce prices both directly and indirectly by disciplining the mark-up pricing behav-
iour of South Africa’s concentrated industries (Aghion et al., 2008). Better access to
intermediate inputs and foreign technology has spurred aggregate productivity growth
(Jonsson and Subramanian, 2000). Taris are also a regressive tax as poor households
disproportionately spend their income on traded products. Tari reform has therefore
helped reduce the indirect consumption tax burden of poorer households (Daniels and
Edwards, 2007).
TRADE POLICY REFORM IN SOUTH AFRICA 91
As expected, the eect of trade reform on the South African economy is mixed. Overall,
welfare has been enhanced but distribution of these gains has not been equal. is in part
explains some of the resistance to further liberalization as well as the implementation of
the new trade and industrial policy that is discussed in the following section.
4 Trade policy reform in the future
Very little direction was given to trade policy during the rst half of the 2000. However, in
2007 the DTI published the National Industrial Policy Framework (DTI, 2007), followed
in 2010 by the Trade Policy and Strategy Framework (TPSF) (DTI, 2010). ese docu-
ments outline the future trajectory for trade policy. Tari determinations in future are to
be ‘conducted on a case-by-case basis, taking into account the specic circumstances of
the sector involved’ (DTI, 2010: 3). In addition, the TPSF outlines a narrower and more
‘strategic’ objective with respect to trade and investment agreements. Less emphasis will
be placed on negotiating free trade agreements, rather the focus will be on partial trade
agreements.
While the new policy articulates a closer alignment between trade and industrial policy
and importantly provides a clearer direction of future policy, it faces a number of impor-
tant challenges.
e case-by-case approach provides scope for dierential treatment of products, but
potentially re-exposes the tari setting board to the intense industry lobbying that char-
acterizes South Africa’s trade policy history (Holden and Casale, 2002). Case-by-case
reform is also unlikely to coherently alter the current structure of taris that is shown
by Edwards and Lawrence (2008b) to preserve jobs at a high cost to consumers, tax poor
households relatively heavily and provide protection to products that are unlikely to
enhance competitive capabilities in the future. An alternative approach to consider is
the adoption of a more rationalized tari structure with one or two tari bands that are
applied for industrial policy exceptions. is approach would also provide a clearer ‘rule’
for the setting of taris that are not to be targeted for industrial policy interventions.
e second challenge is that the TPSF is in danger of placing South African exporters
at a disadvantage in accessing the growing emerging economies that are rising in impor-
tance as a source of global production and consumption.
In the Doha Round of the WTO, South Africa has aligned itself with other emerging
economies with the goals of preserving domestic policy space for developmental objec-
tives, enhancing market access to developed countries and the elimination of industrial
countries’ subsidies and support to agriculture (DTI, 2010: 42). Absent from the state-
ment of goals is the objective of improving market access to the dynamic, fast-growing
emerging economies.
92 SOUTH AFRICA AND THE WORLD ECONOMY
Yet, tari barriers on South African exports to developing countries far exceed those
to developed countries. e average applied tari imposed on South African exports to
BRICs (excluding Russia which only joined the WTO in 2012) ranges from 8.37 per cent
in China to 12.4 per cent in Brazil, but only 0.26 per cent in the EU, 1.66 per cent in the
United States and 3.62 per cent in Japan (Edwards and Lawrence, 2012). Further, South
Africa’s Doha round goal of enhanced market access into developed country markets for
all developing countries has the potential to erode South Africa’s preferential access to the
EU and the United States. South Africa’s interests are therefore not necessarily aligned
with those of other developing countries in all cases.
Improved market access into emerging economies is also unlikely to be achieved
through the partial trade agreements prioritized in the TPSF. Importantly, the intention
of these agreements is broader than simple tari reductions and includes the removal
of non-tari barriers and the conclusion of sectoral cooperation agreements. However,
partial agreements have limitations with regard to promoting trade as sensitive products
are easily excluded and high preference margins tend to be granted on products with low
applied tari rates. ese inherent problems are demonstrated in the SACU-Mercosur
Agreement that has gone the furthest in the direction of a binding agreement under the
new approach. Only a sixth of all product lines are covered, reecting the narrow scope of
the agreement. Further, in general low preference margins were granted on products fac-
ing relatively high applied rates or products that made up a large share of South African
exports (Edwards and Lawrence, 2012). Unless the focus is on negotiating comprehensive
trade agreements that match those signed by other developing countries, South African
exporters will remain relatively disadvantaged in the emerging markets.
e third challenge for South African trade policy is the inherent tension between
the interests of South Africa and the African region in trade negotiations. South Africa’s
engagement with the region is extremely important as this is a major export market for
its non-commodity manufactured goods and its services. However, South Africa’s desire
to make its tari structure subservient to its industrial policy needs conicts with the
requirement of establishing a common external tari, and the loss of national sovereignty
it entails, under the proposed SADC customs union. Further, the emphasis placed by
South Africa on regional industrial policy under the proposed new Trilateral Free Trade
Agreement (TFTA) between the East African Community (EAC), the Common Market
for Eastern and Southern Africa (COMESA) and SADC adds further complexity as South
Africa’s industrial needs dier enormously from those of its less-developed neighbours.
e nal challenge relates to the future of the Southern African Customs Union (SACU).
Under the 2002 SACU Agreement a new tari revenue-sharing formula was adopted and
new institutional structures to administer tari policy were to be created. e Agreement,
however, resulted in a number of unintended consequences that inhibit cross-border
trade and tari reform. Under the revenue-sharing formula the customs pool is allocated
according to each country’s share of total intra-SACU trade, excluding re-exports. SACU
TRADE POLICY REFORM IN SOUTH AFRICA 93
economies are now required to monitor trade ows, which has led to the introduction
of more stringent border procedures that delay the movement of goods across borders.
Furthermore, the revenue-sharing formula has perpetuated a dependency on customs
revenue as a source of government revenue in the other SACU members with customs
revenue exceeding 40 per cent of total revenue in Lesotho, Swaziland and Namibia (Flat-
ters and Stern, 2006). is dependence on revenue creates perverse incentives for trade
policy. e BLNS countries may be less willing to tolerate further tari reform if this leads
to reductions in customs revenue, while South Africa has the incentive to make extensive
use of rebates as the benets are captured by domestic rms, but the costs in terms of rev-
enue reductions are disproportionately borne by the other SACU countries (Flatters and
Stern, 2006).
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State and Market in Post Apartheid South Africa, Johannesburg: Witwatersrand University Press.
Bell, T. (1997), ‘Trade Policy’, in J. Michie and V. Padayachee (eds), e Political Economy of South Africa’s
Transition, London: Dryden Press.
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Edwards, L. (2001), ‘Globalisation and the Skill Bias of Occupational Employment in South Africa’, South
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The evolution and impact
of foreign direct investment
into South Africa since 1994
anthony black
9
e democratization of South Africa in 1994 introduced the prospect of large inows
of foreign direct investment (FDI) providing a boost to growth and employment. While
there has indeed been a signicant increase in FDI, this was from a negligible base and the
overall impact has been disappointing for two main reasons. First, the quantum of invest-
ment has been below expectations and below that received by comparator countries. Sec-
ond, FDI has not had the transformative characteristics which policymakers hoped for.
To use Dunning’s terminology, much of it has been ‘market seeking’, and there has been
relatively little investment in higher technology production for export or, for that matter,
in labour absorbing sectors, which under dierent circumstances may have had a signi-
cant impact on South Africa’s very high unemployment rate.
is chapter outlines the dimensions and characteristics of FDI into South Africa since
1994. Citing examples, it then goes on assess its impact on the economy with respect to
indicators such as export growth, employment and technological upgrading.
1 The dimensions of inward FDI
Prior to the democratic transition, FDI was at a very low ebb. Aer rapid growth in the
1960s, inward FDI slowed signicantly in the 1970s. During the 1980s, political instabil-
ity, very low growth and the growing sanctions campaign against apartheid led many
multinational rms to exit the country. is exodus included over 200 US companies
along with some 20 per cent of UK-based rms, although in 1990 there were still over 450
foreign rms in the country (Gelb and Black, 2004). Portfolio investment also virtually
ceased.
96 SOUTH AFRICA AND THE WORLD ECONOMY
e climate started to change with the unbanning of the African National Congress
(ANC) and other organizations in 1990, culminating in the rst democratic election in
1994. Eorts to restore macroeconomic stability and other reforms such as trade and par-
tial capital market liberalization, together with limited privatization, further contributed
to a more welcoming environment for foreign investment in spite of the fact that domes-
tic growth rates remained unimpressive. Indeed, the new government’s 1996 Growth,
Employment and Redistribution (GEAR) strategy was predicated to a large extent on cap-
ital inows, with a stated preference for FDI compared to more volatile portfolio inows.
Multinational rms returned to South Africa and many adopted the country as a regional
base. e return of foreign-based rms was accompanied by signicant outward invest-
ment as the large mining companies, led by Anglo American, sold o their non-core
South African assets and invested internationally.
FDI did rise sharply aer 1994, averaging $1.8 billion per annum from 1994–2002,
but this still only represented 1.4 per cent of South African GDP while in the develop-
ing world as a whole FDI amounted to approximately 3.5 per cent of GDP. It should be
further noted that much of this inward investment was a reshuing of assets as foreign
rms entered (or re-entered) the country. Annual inows varied widely as a result of very
large transactions such as the partial privatization of Telkom in 1997, the unbundling of
Anglo American and de Beers in 2001 and the Barclays acquisition of a majority stake in
ABSA in 2005.
From 2003–11 the average annual net inow of FDI was less than 1.5 per cent of GDP,
well below the average for upper middle-income countries and for other members of
the BRICS group (see Table 9.1). However, according to Leape and omas (2009) these
relatively low inows do not necessarily imply that there were major barriers to FDI. First,
the inow of portfolio investments into South Africa has been high relative to comparator
countries with a high percentage of these portfolio ows being in equities, which are more
stable than bond market inows. Leape and omas (2009) thus argue that relatively
low rates of FDI inows may, at least in part, reect the relative sophistication of South
Africa’s capital markets. In a similar vein, the maturity of South Africa’s market for corpo-
rate control partly explains the fact that the mode of entry by foreign rms undertaking
direct investments in South Africa has been based more on acquisitions than green-eld
investments (Gelb and Black, 2004). According to Leape and omas (2009), a second
factor that needs to be noted in assessing the overall level of FDI is that the stock of FDI in
South Africa is quite high compared to other middle-income countries and has increased
enormously. In 2009 it was 43.7 per cent of GDP compared to the upper middle-income
average of 28.2 per cent (RSA, 2011: 4). However, this high level is partly accounted for by
the relocation of the domicile of major corporations such as Anglo American, Old Mutu-
al, Billiton and South African Breweries so that their South African operations became
reclassied as FDI liabilities.
EVOLUTION AND IMPACT OF FOREIGN DIRECT INVESTMENT 97
ese caveats aside, it is clear that the growth rate of FDI has been signicantly below
other major emerging markets, especially since 2003 (see Table 9.1). Inward FDI into
South Africa also lags behind that in a number of smaller African economies. A number
of factors account for this. e World Bank’s (2011) Second Investment Climate Assess-
ment which draws on 2008 survey data, provides some pointers, even though it is based
on the views of all rms, not just foreign enterprises. In terms of ease of doing business,
South Africa ranked highly and the overall business environment had improved com-
pared to the previous 2003 study. ere were substantial dierences in the major con-
straints cited in the two studies. In 2003, the most important constraint was the shortage
of skilled workers closely followed by macroeconomic instability, labour regulations and
then crime. In 2008, the overall perception of constraints was lower. Crime topped the list
with a third of managers rating it as a major or severe obstacle to business expansion. is
was followed in importance by concerns over electricity, corruption and access to nance.
Undoubtedly, a slow recovery from the recession of 2009, combined with growing
policy uncertainty and infrastructure bottlenecks, have also placed a brake on inward
Table 9.1 Inward FDI flows and FDI stocks (US$ millions)
Flows (annual averages) Stock
1991–93 1994–96 1997–99 2000–02 2003–05 2006–08 2009–11 2011
South Africa 87 813 1961 3080 2726 4725 4134 129,890
0.1% 0.6% 1.4% 2.6% 1.3% 1.7% 1.2% 31.8%
Brazil 1485 5782 25,476 23,942 14,452 32,822 47,038 669,670
0.4% 0.8% 3.3% 4.2% 2.1% 2.4% 2.3% 27.7%
China 14,296 37,671 43,680 46,778 62,180 88,183 111,240 711,802
2.7% 5.1% 4.2% 3.5% 3.2% 2.5% 1.9% 10.1%
India 286 1883 2807 4898 5907 29,747 30,436 201,724
0.1% 0.5% 0.7% 1.0% 0.8% 2.6% 1.8% 10.4%
Russia 1186 1778 3645 2975 12,096 53,259 44,222 457,474
0.3% 0.5% 1.3% 1.0% 2.0% 4.0% 2.9% 24.9%
Chile 931 3451 6220 3870 6224 11,839 15,186 158,102
2.1% 5.1% 7.9% 5.5% 6.5% 7.4% 7.6% 67.6%
Malaysia 4974 5898 4311 2515 3721 7276 7507 114,555
8.2% 6.5% 5.0% 2.6% 3.0% 3.9% 3.2% 41.3%
Thailand 2002 1926 5827 3946 6382 9772 8053 139,735
1.8% 1.2% 4.5% 3.2% 4,0% 4.0% 2.6% 40.4%
Note: Percentages are FDI flows and stocks as a percentage of average GDP.
Source: UNCTAD statistics.
98 SOUTH AFRICA AND THE WORLD ECONOMY
investment. For example, the shortage of electricity led to the metals rm, aria, decid-
ing in 2011 to relocate a planned ferrochrome smelter to China. In 2012, violent mining
strikes, culminating in the Marikana massacre, were then followed by a bitter farmwork-
ers’ strike in the Western Cape. All these factors have negatively impacted on the invest-
ment climate.
2 The impact of FDI
Studies of the impact of FDI on the South African economy are generally positive. Fed-
derke and Romm (2006), for instance, nd complementarities between foreign and
domestic capital in the long run implying positive technological spillovers from foreign
to domestic rms. In their study of the impact of FDI, Lederman et al. (2010) come to
similar conclusions. But it would be dicult to argue that FDI has eected signicant
structural change in the South African economy. For example, while foreign-owned rms
are more likely to export than domestic rms, much FDI has been primarily ‘market
seeking’, aimed at the domestic market and to a lesser extent at the regional market. An
obvious exception would be investment in the resource sector but this sector has always
been export oriented. e other exception is the automotive industry. But South Africa’s
overall export performance has been poor and there is little evidence of a strong shi to
manufactured exports or to more high technology exports.
Investment in labour-intensive manufacturing for export has also been minimal.
Many developing countries have encouraged FDI in light manufacturing as a way of
generating exports and employment. is group includes not only low-income countries
but upper middle-income countries with per capita incomes equivalent to or higher than
that of South Africa. Examples include Turkey which exported garments to the value of
$16.2 billion in 2011 or Malaysia whose exports of electrical products and electronics
exceed $75 billion. In some countries special institutional arrangements have played a
signicant role in the exports of light manufactures. ese include the Mexican maqui-
ladora, export processing zones in Mauritius and special economic zones in China. But
South Africa has eschewed this growth path, establishing industrial development zones
focused more on attracting heavy industry. ese zones, the largest of which is Coega
in the Eastern Cape, have oered few incentives and these have mostly been oriented to
large-scale capital-intensive, rather than labour-demanding investment. e orientation
of industrial policy combined with an unfriendly labour dispensation has had dismal
results in terms of employment creation. Not only has there been insignicant expan-
sion in light manufacturing sectors such as consumer electronics but established sectors
such as garments have been in retreat, contributing further to South Africa’s sky-high
unemployment rate.
EVOLUTION AND IMPACT OF FOREIGN DIRECT INVESTMENT 99
Another feature of the international investment landscape has been the high level of
outward FDI by South African rms and the country ranks among the top 10 emerging
market investors. While the large bulk of this investment stock is in Europe, the share
going to Africa has been growing rapidly. South Africa is the single biggest international
investor in a number of African economies and, by 2005, 34 of South Africa’s largest listed
companies had invested in 232 projects in 27 countries in the rest of Africa. Since then
there has been further rapid expansion in sectors such as mobile telecommunications,
mining, retail and nancial services.
Apart from the resource and energy sectors, the largest recipient of FDI has been the
automotive industry and the sector now has a very high level of foreign ownership. It has
also become a very signicant exporter and exports of vehicles and components grew
from less than R5 billion in 1994 to R82.2 billion in 2011. It is therefore worth examining
this experience in some detail.
Two issues are relevant here. e rst is the role that foreign equity links may play in
enabling existing rms to successfully integrate themselves into global networks. e sec-
ond is the related question of the impact of increasing foreign ownership on the capabili-
ties of the domestic industry including the purchase of inputs from this sector.
e globalization of the industry has been driven by the introduction of the Motor
Industry Development Programme, which was introduced in 1995 and made provision
for gradually declining taris and a system by which automotive exports earn import
credits which allow them to oset import duties (Black, 2009). e change in trade pol-
icy and resulting internationalization of the industry manifested in growing exports and
imports had major implications for ownership. It became increasingly important for local
rms to have links to global networks as a way of facilitating access to international mar-
kets. In South Africa, and indeed in other emerging markets, foreign-owned assemblers
increasingly prefer to source components from joint ventures and subsidiaries rather
than domestically owned rms.
Growing foreign ownership has accelerated technological upgrading but this has been
through transfers from foreign sources rather than an increase in domestic R&D. ere
is plenty of evidence that when local rms have come under the control of transnation-
als, existing R&D establishments are downsized or shut down (Lorentzen, 2005; Black,
2011). It does not follow, however, that these rms downgrade technologically because
the shutting down of formal R&D facilities can be accompanied by the introduction of
new specialized product and process technologies which bring host rms closer to the
world frontier.
Multinational car-makers operating in South Africa have actively sought out compo-
nent suppliers who are able to export and to supply components which meet the exact-
ing standards of their own increasingly export-oriented assembly operations (Gelb and
Black, 2004). As a result they have played a major role as conduits between domestic com-
ponent rms and the international market by arranging export contracts for component
100 SOUTH AFRICA AND THE WORLD ECONOMY
suppliers into their global networks, brokering new investment, bringing in new technol-
ogy and accelerating the transfer of industry best practices to their suppliers. However,
it would be an exaggeration to assume that the growth of FDI and exports in the sec-
tor implies ‘eciency seeking’ investment and the establishment of a successful export
platform. Access to the domestic market has required the osetting of import duties by
exporting so multinationals have, at least in part, been motivated by ‘market seeking’
motives.
ere is no doubt that foreign ownership, as opposed to licensing arrangements, has in
many cases been critical for vehicle producers to obtain major export contracts but the
question is more complicated for component producers. Prior to the liberalization phase,
it was clear that many locally owned rms were heavily constrained in export markets
by conditions imposed by foreign licensors. Since then, many rms have been able to
renegotiate the terms of their licence agreements. Data collected by the South African
Automotive Benchmarking Club, indicate that the level of export orientation for foreign
and locally owned rms was the same, with both types of rms exporting 17 per cent of
their output (Black, 2011). Part of the reason for this surprisingly low orientation towards
exports by foreign-owned rms is the fact that a number of foreign-owned suppliers have
established facilities in South Africa with the sole purpose of supplying component sub-
systems to domestic assemblers.
A key form of linkage with the domestic economy is through purchases of inputs.
ere is a considerable international literature, which cites the limited linkages of for-
eign rms in developing countries. Nevertheless, there is also evidence that where large-
scale assembly plants are established by foreign rms, considerable backward linkages do
develop (Carillo, 2004; Domanski and Gwosdz, 2009).
In the South African automotive component sector, aliates of multinationals import-
ed 53.7 per cent of their requirements compared to only 29.4 per cent by local rms. e
main explanation is that many new foreign component rms are ‘systems integrators’,
supplying entire sub-assemblies to the vehicle manufacturer. is is more of an assembly
than a manufacturing activity. Foreign rms are also clearly less embedded in the domes-
tic economy, although this may also reect the fact that many of them are fairly new and
so have not yet developed local sources of supply (Black, 2009).
3 Conclusion
e South African economy has become much more internationally integrated since
1994 and FDI has grown signicantly. But the pace of inow has been modest and reects
the pedestrian growth rates that the country has achieved over the last two decades.
See e.g. Morrissey (2012) for Africa.
EVOLUTION AND IMPACT OF FOREIGN DIRECT INVESTMENT 101
Much of this investment has been aimed at production for domestic markets. FDI in the
mining sector is aimed primarily at export markets but the low level of investment from
both foreign and domestic sources has meant that the huge potential of this sector is far
from being realized. A key question is whether policy could have eectively encouraged
large-scale FDI in job-creating sectors such as light manufacturing for export. e lack
of domestic interest in this sector provides one answer. More focused incentives, much
more eective training support and some attention to labour regulation are required to
advance in this area.
While progress has been made in harnessing foreign capital for development, lost
opportunities abound. A major positive change is the economic turnaround in the rest
of Africa, now recognized as one of the world’s fastest growing regions. To participate in
this rapid expansion, South Africa needs to urgently address the weaknesses in policy and
implementation that are retarding foreign and domestic investment.
■ REFERENCES
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the Global Automotive Industry Since 1995’, Growth and Change, 40(3): 483–512.
Black, A. (2011), ‘Trade Liberalization, Technical Change and Firm Level Restructuring in the South Africa
Automotive Component Sector’, International Journal of Institutions and Economies, 3(2): 173–202.
Carrillo, J. (2004), ‘Transnational Strategies and Regional Development: e Case of GM and Delphi In Mex-
i c o’, Industry and Innovation, 11(1/2): 127–53.
Domanski, B. and K. Gwosdz (2009), ‘Toward a More Embedded Production System? Automotive Supply
Networks and Localized Capabilities in Poland’, Growth and Change, 40(3): 452–82.
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South Africa 1956–2003’, Economic Modelling, 23: 738–60.
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Investment Strategies in Emerging Markets, Cheltenham: Edward Elgar.
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S.B. Kahn and G. Kingdon (eds), South African Economic Policy since Democracy, Oxford: Oxford Univer-
sity Press.
Lederman, D., T. Mengistae and L.C. Xu (2010), ‘Microeconomic Consequences and Macroeconomic Caus-
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Development, 33(7): 1153–82.
Morrissey, O. (2012), ‘FDI in Sub-Saharan Africa: Few Linkages, Fewer Spillovers’, European Journal of Devel-
opment Research, 24(1): 26–31.
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Pretoria: National Treasury.
World Bank (2011), Improving the Business Environment for Growth and Job Creation in South Africa: e
Second Investment Climate Assessment, Washington: World Bank.
South Africa’s economic
relations with Africa
brendan vickers
10
1 Introduction
South Africa was until recently the largest economy in Africa, until the much-anticipat-
ed rebasing of Nigeria’s gross domestic product (GDP) repositioned that country as the
economic frontrunner on the continent. However, South Africa still remains the most
industrialized and diversied economy in Africa and a ‘gateway’ or ‘springboard’ for busi-
ness and investors into the Southern African market. South Africa is the economic pow-
erhouse of the Southern African region, generating almost two-thirds of the GDP of the
15-member Southern African Development Community (SADC). Over the past decade,
there have been vast improvements in Africa’s economic prospects, with the African con-
tinent emerging as the next major growth pole in the world economy. It is projected that
seven of the top 10 fastest-growing economies in the global economy between 2011 and
2015 will be from Africa, albeit growth from a low base. Yet notwithstanding the conti-
nent’s abundant natural resources, growing consumer power and favourable demograph-
ics, Africa is still the world’s poorest continent and home to more than 30 least-developed
countries (LDCs). Clearly, the continent’s development project remains frail and rapid
economic growth has not translated into sustainable development or structural economic
transformation onto an industrial development path, as envisaged by the New Partner-
ship for Africa’s Development (NEPAD).
Since 1994, Africa has been the centrepiece of South Africa’s post-apartheid foreign
policy. From an economic diplomacy perspective, deepening trade and investment rela-
tions with African countries and strengthening and extending regional and continental
integration are key objectives of the South African government. Given the country’s pre-
ponderant economic power, there are also expectations that South Africa should act as
e Economist, ‘Africa’s impressive growth’, January 6, 2011, <http://www.economist.com/blogs/
dailychart/2011/01/daily_chart.
SOUTH AFRICA’S ECONOMIC RELATIONS WITH AFRICA 103
an engine for regional growth and development and contribute signicantly to regional
public goods. In this role as a development partner, South Africa has entered into a range
of strategic bilateral frameworks with many African countries, including commitments
to provide technical assistance and capacity support. e South African government also
intends to establish the South African Development Partnership Agency and a Partner-
ship Fund for Development to support Africa’s development agenda. is reects sen-
sibilities that South Africa’s own development and security are integrally entwined with
the reconstruction and revitalization of the Southern African region. It is indeed a foreign
policy axiom that South Africa cannot hope to become an ‘island of prosperity’ in a ‘sea
of poverty’, a scenario that could lead to unfettered migration as well as trac in illegal
arms, contraband and drugs.
2 Trade and investment relations with Africa
South Africa’s trade and investment with the African continent are growing rapidly. In
2013, South Africa’s total trade with Africa exceeded R380 billion, representing 14 per cent
of South Africa’s overall trade with the world. Approximately 30 per cent of South Africa’s
exports are destined for Africa (R265 billion in 2013), while imports from the continent
lag at 12 per cent (R115 billion in 2013). ere are three important features that character-
ize South Africa’s trading pattern with Africa. First, whereas South Africa’s export prole
to the rest of the world is dominated by minerals and commodities, its exports to Africa
are mainly value-added manufactured goods. e latter includes machinery, mechanical
appliances, iron and steel products, transport goods, chemicals, and plastic and rubber
goods. An important determinant of South African manufacturing rms’ advantage in
the continent is their proximity to African markets, as well as the fact that they provide
services related to the assembly, maintenance and repair of goods and facilities. In return,
South African imports from its African trading partners are mainly mineral fuels (espe-
cially from Nigeria and Angola), raw materials and other commodities.
Second, it is signicant that South Africa consistently runs a trade surplus in Africa (R145
billion in 2013), which reects structural factors such as South Africa’s relative size, level
of development and productive capabilities. It also reects historical trade relationships
that naturally cast the region in a ‘hub-and-spoke’ relationship to South Africa. But South
Africa is also an important export destination for many African countries—28 per cent
B. Vickers, ‘Towards a New Aid Paradigm: South Africa as African Development Partner’ Cambridge
Review of International Aairs (2012), 25(4): 535–56.
Department of International Relations and Cooperation, ‘Building a Better World. e Diplo-
macy of Ubuntu’, White Paper on South Africa’s Foreign Policy, May 2011, <http://www.pmg.org.za/
policy-documents/2011/08/31/white-paper-south-africas-foreign-policy-building-better>.
104 SOUTH AFRICA AND THE WORLD ECONOMY
of Zimbabwean exports and between 6 and 10 per cent of exports from Malawi, Zambia,
Botswana and Namibia are destined for South Africa. South Africa is seeking to address
this trade imbalance and build a more sustainable trade relationship by promoting ‘devel-
opmental regionalism’ in Africa, which gives priority to infrastructure and industrial devel-
opment to support and grow more diversied intra-African trade.
ird, as Table 10.1 demonstrates, the bulk of South Africa’s trade (and outward
foreign direct investment (FDI)) takes place predictably with neighbouring Southern
African Customs Union (SACU) countries and within the SADC region, where a Free
Trade Agreement (FTA) among 12 of the member states has been in operation since
2008. Beyond these immediate markets, South African rms are increasingly diversify-
ing their product and market coverage to take advantage of the emerging commercial
opportunities presented by the growing economies of Central, Eastern and Western
Africa.
While precise data on FDI ows to Africa are dicult to obtain, it is clear that South
African companies are among the top investors in Africa in a wide range of sectors
covering mining, manufacturing, retail, communications, construction, nancial ser-
vices and tourism and leisure. From the available data, South Africa is placed among
L. Edwards and R. Lawrence, ‘South African Trade Policy and the Future Global Trading Environment’,
Occasional Paper No. 128, South African Institute of International Aairs, Johannesburg, 2012.
Table 10.1 South Africa’s top 10 trading partners in
Africa, 2013
Country Value (R’ Million)
1 Botswana 49,241,968
2 Namibia 47,311,508
3 Nigeria 42,488,947
4 Mozambique 39,383,439
5 Zambia 29,601,955
6 Angola 28,473,298
7 Zimbabwe 26,331,844
8 Swaziland 25,753,529
9 Lesotho 15,890,228
10 Democratic Republic of the Congo 13,222,747
Source: ITC calculations based on UN COMTRADE.
N. Grobbelaar and H. Besada (eds), Unlocking Africa’s Potential: e Role of Corporate South Africa in
Strengthening Africa’s Private Sector, Johannesburg: South African Institute of International Aairs (SAIIA),
2007.
SOUTH AFRICA’S ECONOMIC RELATIONS WITH AFRICA 105
the ve largest investors in sub-Saharan Africa and holds rst place in many countries,
particularly in SADC. According to a recent study, South African direct investment in
Africa has increased at four times the rate of overall South African FDI since 1994. Total
South African direct investment in Africa has increased from R3.8 billion in 1994 to
R115.7 billion in 2009, or by 31 times. e study shows that 76 per cent of all South
African investment in Africa is direct investment. Many international investors also
regard South Africa as a ‘gateway’ or ‘springboard’ into Southern Africa and beyond
for their operations, owing to the country’s sound nancial markets, regulatory regime
and infrastructure. However, it should be appreciated that South Africa’s gateway status
is increasingly contested as the nature of business transactions, investment models and
technology platforms change, while countries such as Angola, Egypt, Ethiopia, Ghana,
Kenya, Nigeria and Rwanda increasingly operate as ‘gateways’ into their respective
regions too.
e scale and extent of South African capital expansion into Africa is not without
controversy and reects general discontents in Africa (held by many South Africans too)
about globalization and its eects. e presence of heavily invested South African rms
on the continent has led some analysts to depict South African capital as ‘new exploiters’,
‘hegemons’ or ‘neo-colonialists’ that displace or crowd out local businesses, while others
argue that these rms are the ‘market developers’ and ‘market leaders’ that increase com-
petition and trade in underdeveloped markets. Many of these concerns are largely due
to a perception decit about the role and impact of South African investment in Africa.
Certainly there may be challenges related to local pricing, labour and supplier develop-
ment in particular sectors, such as retail. Overall, however, there are many developmen-
tal dividends associated with South African operators investing in Africa. ese include
employment creation; upgrading of existing and building new infrastructure, includ-
ing investment in network services such as nance, transport and telecommunications;
technology transfer through human resource development; increased tax revenues for
the state; increased consumer choice; and boosting general investor condence in host
countries. Nonetheless, in order to encourage and promote more socially responsible
corporate behaviour and investment in Africa, the South African government is cur-
rently nalizing a voluntary Code of Conduct for South African business operators in
Africa.
South African Institute of Race Relations, ‘South African Investment in Africa Increasing Four
Times Faster than Overall Foreign Investment’, February 7, 2012, <http://www.sairr.org.za/media/media-
releases/07Feb12.Investment_in_Africa.pdf/view?searchterm=investment.
J. Hudson, ‘South Africa’s Economic Expansion into Africa: Neo-colonialism or Development?’, in
A. Adebajo, A. Adedeji and C. Landsberg (eds), South Africa in Africa: e Post-Apartheid Era, Scottsville:
University of KwaZulu-Natal Press, 2007.
P. Draper, A. Phillip and M. Kalaba, ‘South Africa’s International Trade Diplomacy. Implications for
Regional Integration’, Regional Integration in Southern Africa, Gaborone: Friedrich Ebert Foundation, 2006: 1.
106 SOUTH AFRICA AND THE WORLD ECONOMY
3 Promoting ‘developmental regionalism’
South Africa has consistently championed broader regional integration through SACU,
SADC and the envisaged Tripartite Free Trade Area (T-FTA) that spans Eastern and
Southern Africa, in order to correct imbalances in inherited trade relations and generate
growth and reduce poverty. Recognizing the limits of conventional customs union theo-
ry and the market integration paradigm modelled on the European Union’s experience,
South Africa has played a pivotal role in advancing an alternative approach for regional
integration, namely ‘developmental regionalism’. is approach argues that the barriers to
intra-regional trade in developing countries (and Africa in particular) are more to do with
underdeveloped production structures and inadequate infrastructure, rather than taris
or regulatory barriers. Developmental regionalism therefore combines trade integration,
cross-border infrastructure development and policy coordination to build and diversify
production, broaden regional and continental markets, and boost intra-African trade.
is developmental regionalism approach is currently being implemented in SACU,
SADC and the T-FTA negotiations. From South Africa’s perspective, SACU—the world’s
oldest functioning customs union established in 1910 between South Africa and Botswa-
na, Lesotho, Namibia and Swaziland (BLNS)—remains the anchor for deeper integration
in Southern Africa. Following the acrimonious experience of the Economic Partnership
Agreement (EPA) negotiations with Europe, which threatened to undermine SACU, South
Africa has led a process to review, consolidate and strengthen the customs union. e
SACU member states have adopted a work programme with ve priority areas, namely
regional industrial policy (specically identifying sectors and interventions to promote a
wider spread of industrial development among SACU members, such as agro-processing);
review of the revenue-sharing formula; development of a trade facilitation programme
to improve border eciencies; unied engagement in external trade negotiations; and
establishing common institutions, such as the SACU Tari Board and the SACU Tribunal.
However, a major challenge for modernizing SACU is the continued scal dependence of
some BLNS member states on revenue transfers, which are subsidized by South Africa,
and limited engagement on the broader development integration agenda.
At the SADC level, implementation of the Trade Protocol establishing the FTA
began in 2000, spearheaded by South Africa and its SACU partners. To support
regional industrial development, South Africa negotiated an asymmetrical FTA that
granted the non-SACU FTA Parties longer periods of time to protect their economies,
up to 2015 for Mozambique. In other words, tariff liberalization has taken place
at different speeds, with SACU removing most industrial tariffs in 2000 in order
to provide impetus to building the wider SADC region’s industrial capabilities and
Department of Trade and Industry (DTI), South African Trade Policy and Strategy Framework, Pretoria:
DTI, 2010.
SOUTH AFRICA’S ECONOMIC RELATIONS WITH AFRICA 107
promoting higher levels of intra-SADC trade ows. is would also help to reduce
South Africa’s trade imbalance with the region.
e SADC FTA has been fully implemented since 2012, with 92 per cent of product
lines traded at 0 per cent against the baseline of 85 per cent in 2008. Beyond goods trade,
there has also been some progress in the negotiations to liberalize SADC trade in services.
South Africa’s next priority is to consolidate the SADC FTA before considering deeper
forms of integration, such as a SADC-wide customs union, common market or monetary
union, which are envisaged by the SADC Regional Indicative Strategic Development Plan
(currently under review). e work programme to consolidate the SADC FTA seeks to:
facilitate the accession of member states that are not yet participating in the SADC FTA
(mainly Angola and the Democratic Republic of the Congo); fully implement the FTA,
given that some SADC member states are unilaterally reinstating taris or reneging on
their Trade Protocol commitments; promote trade facilitation; reduce non-tari barriers;
simplify Rules of Origin; harmonize regional standards and technical regulations; and
implement harmonized regional customs documentation and procedures.
In June 2011, South Africa also hosted the launch of the T-FTA negotiations between
SADC, the Common Market for Eastern and Southern Africa and the East African Com-
munity. e tripartite initiative comprises three pillars (i.e. market integration, infrastruc-
ture development and industrial development), which are being pursued concurrently in
order to ensure an equitable spread of the benets of regional integration. e T-FTA will,
as a rst phase, cover only trade in goods and the movement of business persons; services
and other trade-related areas may be covered in a second phase. Once established, the
T-FTA will combine the markets of 26 countries with a population of nearly 600 mil-
lion people and a combined GDP of US$1 trillion, providing the market scale that could
launch a sizeable part of the continent onto a new developmental trajectory. e T-FTA
will also form the basis for an Africa-wide FTA, which is expected to create a market of
US$2.6 trillion.
Complementing this ambitious integration agenda is an extensive work programme to
address Africa’s chronic infrastructure challenges. As far back as 1996, South Africa’s
Department of Trade and Industry pioneered the Spatial Development Initiative (SDI)
model, which has expanded across the region due to strong backing from SADC, the AU
and NEPAD. e SDI model seeks to develop geographic zones with latent economic
potential by attracting investment into ‘anchor projects’ such as ports, parks, tourist facili-
ties, mining areas or major industrial developments. e idea is to stimulate economic
Seychelles is currently negotiating its tari oer with the SADC FTA Parties.
e World Bank estimates that Africa needs US$93 billion annually over the next decade to overcome
its infrastructure decits, particularly in the power sector, which is more than twice previous nancing esti-
mates. e new estimate amounts to roughly 15 per cent of the continent’s GDP, comparable to what China
invested in infrastructure over the last decade. See V. Foster and C. Briceño-Garmendia (eds), Africa’s Infra-
structure. A Time for Transformation, Washington, DC: World Bank, 2010.
108 SOUTH AFRICA AND THE WORLD ECONOMY
densication activities within the trans-boundary corridors. e success of the model
has led South Africa to prioritize ve SDIs over the medium term, covering Angola-
Namibia-South Africa (ANSA), the Democratic Republic of the Congo (DRC), Mozam-
bique, Tanzania and Zimbabwe. It is not unimportant that Angola and South Africa
recently concluded a memorandum of understanding to develop an industrial complex
in Angola’s Soyo region under the auspices of ANSA. e latter project points to the pos-
sibility of linking regional infrastructure investment and industrialization.
At the continental level, South Africa chairs the AU’s Presidential Infrastructure Cham-
pioning Initiative (PICI), which consists of seven major Presidential infrastructure pro-
jects across Africa. South Africa specically champions the North-South Corridor, which
aims to rehabilitate Africa’s rail and road infrastructure from Durban to Dar-es-Salaam.
4 Conclusion
Looking ahead, three challenges loom large for South African economic diplomacy in
Africa. First, there is intensifying competition for access to Africa’s resources and growing
markets, from both traditional trading partners and emerging economies. South African
companies in Africa compete increasingly with public and private operators from Brazil,
China and India, among others. ere is also the possibility that extra-continental FTAs
among subsets of African countries (such as the Economic Partnership Agreements that
will provide reciprocal market access preferences to Europe) could undermine Africa’s
integration objectives or even place South African business at a competitive disadvantage
to traders from outside the continent.
Second, set within that context, the South African government should improve its
coordination of South Africa’s trade, investment and development cooperation activities
in Africa. ere are many South African actors operating in Africa, ranging from the pri-
vate sector to public entities such as the state-owned enterprises and development nance
institutions. Without proper coordination, there is the risk that these actors will pursue
disparate objectives and strategies in Africa. e role and activities of the South African
Development Partnership Agency, once established, should also be aligned to support
South Africa’s broader economic and commercial diplomacy objectives in Africa.
Finally, it is imperative to strengthen dialogue between the state and business, particu-
larly regarding the role of South African business in Africa. e South African government
Examples of key regional SDI projects include the Maputo Development Corridor connecting South
Africa’s industrial heartland, Gauteng, to the Mozambican port of Maputo; the Beira Corridor linking Malawi
and Zimbabwe to the Mozambican port of Beira; the Benguela Corridor connecting Angola to southern DRC
and Zambia; and the Nacala Corridor, which links Malawi and Zambia to the Mozambican port of Nacala, the
deepest natural port on the east coast of Africa.
SOUTH AFRICA’S ECONOMIC RELATIONS WITH AFRICA 109
is now nalizing Guidelines for Good Business Practice by South African Companies Oper-
ating in Africa. e latter are a voluntary set of principles and standards that aim to pro-
mote responsible business conduct by South African operators in Africa. Some analysts
have also proposed the establishment of a consultative government-business forum on
doing business in Africa. is could help to bridge the gap and to build trust between
the predominantly black-led government and the predominantly white (multinational)
corporate interests in South Africa. With greater mutual trust and understanding, the
state could, through a range of support measures including public–private partnerships,
export nance, risk insurance and commercial intelligence, more strategically assist the
private sector’s expansion into the continent’s emerging growth hubs such as Angola,
Egypt, Ethiopia, Ghana, Kenya, Nigeria and Rwanda. is would give practical eect to
the notion of a coordinated ‘South Africa, Inc.’ in Africa and help to build a more strategic
and mutually benecial trade and investment partnership with the continent.
M. Qobo, ‘Refocusing South Africa’s Economic Diplomacy: e “African Agenda” and Emerging Pow-
e r s ’, South African Journal of International Aairs (2010), 17(1): 13–28.
South Africa’s exchange rate
policy and exchange rate
developments
shaun de jager and brian kahn
11
South Africa’s openness and dependence on commodity-based exports underlines the
importance of the real and nominal exchange rates as determinants of competitiveness,
resource allocation within the economy and ination outcomes. e rand exchange rate
is relatively volatile, inuenced not only by terms of trade and capital ow shocks, but
also domestic factors. e exchange rate has traditionally acted as a shock-absorber to the
political and economic shocks to which the country has been exposed. During the post-
crisis period, South Africa’s exchange rate developments were initially dominated by the
impact of capital ows in response to quantitative easing by the United States on emerg-
ing markets, but during 2012 more idiosyncratic domestic factors came more to the fore.
Nominal exchange rate movements are an important determinant of ination outcomes,
but the degree of pass-through has declined over time. is chapter outlines the evolution
of exchange rate policy in South Africa and the factors that have caused currency move-
ment since the mid-1990s. ere is also a focus on the measurement of the over- or under
valuation of the currency.
South Africa has a long history of controls on capital outows. By 1996, however, con-
trols on non-residents were lied, and, while controls on residents remain, these have
been progressively eased in recent years. Restrictions on residents still exist, but the gen-
erous limits mean that the majority of individuals, apart from the very wealthy, are not
signicantly aected. Outward investment allowances for companies have also increased
markedly, particularly into Africa, while controls on institutional funds have changed
to prudential requirements which allow between 25 and 35 per cent of retail assets to be
invested abroad, depending on the type of funds. South Africa did not follow a number
of other emerging markets in imposing restrictions or taxes on capital inows in the face
of large capital inows in the post-crisis period, but rather further relaxed controls on
outows by residents.
e views expressed are our own and do not necessarily reect those of the South African Reserve Bank.
SOUTH AFRICA’S EXCHANGE RATE POLICY DEVELOPMENTS 111
South Africa’s foreign exchange market is relatively deep and liquid. Net average daily
turnover against the rand in the South African foreign exchange market amounted to
US$18 billion in August 2013. e accessibility of the market means that the rand is oen
used for hedging emerging market risk generally, contributing to exchange rate volatil-
ity. e size of the market also impacts on the ability of the monetary authorities to lean
against excessive exchange rate movements.
Exchange rate policy by the South African Reserve Bank has been relatively hands-
o, with the exchange rate being generally market determined, since the adoption
of the ination targeting monetary policy framework in early 2000. e ecacy of
direct intervention has also been constrained by the country’s low level of interna-
tional reserves. During the 1990s, intervention was mainly conducted by running up
an oversold forward book, particularly around the 1994 elections and the 1998 Asian
crisis. In May 1994, gross reserves stood at US$7 billion, but the oversold forward
book meant that net reserves were negative at US$20 billion and deteriorated further
to a peak of around US$27 billion in 1995. From around 2000, the focus of exchange
rate policy became the expunging of the oversold forward book, and this was achieved
in February 2004. Since then the objective has been to increase the level of reserves
to more prudent levels, but not with the intention of achieving a particular exchange
rate outcome. is approach has meant that accumulation has been more intense dur-
ing periods of strong inows, which may have moderated the degree of appreciation,
while the Bank has generally stayed out of the market during periods of rand weakness.
Although selling of foreign exchange to support the currency during times of weak-
ness has not been ruled out, such action has not been undertaken since the late 1990s,
when direct intervention was aimed at stemming the depreciation in the wake of the
Asian crisis.
As of end September 2013, the level of gross gold and foreign exchange reserves stood
at US$50 billion, just over 130 per cent of short-term debt, with much of the recent move-
ments being related to valuation adjustments. South Africa’s foreign exchange reserves
are considered by the IMF to be at the low end of their adequacy metric. e ability to
accumulate reserves has been constrained by the cost of sterilization, which has been par-
ticularly acute during the post-crisis period when interest rates in advanced economies
have been abnormally low, while the cost of withdrawing liquidity is around the repur-
chase rate of 5 per cent.
e rand has been prone to overshooting and has been one of the more volatile curren-
cies. However, given that government as well as domestic corporates and individuals have
relatively limited foreign exchange liabilities, the negative balance-sheet eects usually
associated with large exchange rate depreciations in emerging markets are less of an issue,
and movements of the rand exchange rate have been an eective absorber of shocks to the
economy. Nevertheless, the longer-term real volatility has caused problems for competi-
tiveness, in particular of manufactured exports.
112 SOUTH AFRICA AND THE WORLD ECONOMY
Figure 11.1 shows the behaviour of the nominal and real eective exchange rate from
1992 onwards and how potential real exchange rate benets are eroded over time by high-
er ination or, particularly since the 2000s, also by nominal reversals following periods of
marked nominal depreciation. All indices are rebased to annual 1995 = 100. Episodes of
signicant rand depreciation include the depreciation in response to the Asian crises in
1998; the speculation against the rand towards the end of 2001 and the subsequent appre-
ciation of the currency thereaer; the moderate depreciation from mid-2006 onwards,
before ending 2008 at a severely undervalued level during the height of the global nan-
cial crisis. Both the nominal and real values of the currency appreciated between 2009
and 2011 before depreciating again since mid-2012.
In the aermath of the global nancial crisis, the exchange rate was initially dominated
by terms of trade changes, capital ows and changing risk perceptions. e 2000s saw a
marked increase in commodity prices, mainly as a result of demand from China, followed
by a brief collapse during the global nancial crisis. e relatively fast recovery in the
emerging markets saw a resumption of the commodity supercycle, although more recent-
ly we have seen some moderation in these prices and in South Africa’s terms of trade.
Portfolio capital ows have tended to fund a persistent current account decit. In the
pre-crisis period this was mainly in the form of equity ows, but following the unconven-
tional monetary policies in the advanced economies, South Africa, along with many other
emerging market economies, became a recipient of large-scale inows into the bond mar-
ket. is resulted in non-resident ownership of government bonds increasing from 13 per
cent in 2008 to 36 per cent by the end of September 2013. is has the potential of making
the exchange rate and bond yields more vulnerable to potential capital account reversals.
Figure 11.2 shows the co-movement of the rand exchange rate with an index of emerg-
ing market currencies. For much of the post-crisis period, global factors dominated with
the strong capital ows causing generalized currency appreciation. However, these ows
140
120
100
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60
40
20
92 94 96 98 00 02 04 06 08 10 12
Real effective exchange rate
Index 1995=100
Nominal effective exchange rate
150
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100
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90
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60
1985 1990 1995 2000 2005 2010
120
Real effective exchange rate
Index 2005=100
Equilibrium real exchange rate
Figure 11.1. The nominal effective, real and real equilibrium exchange rate of the rand
Source: SARB calculations.
SOUTH AFRICA’S EXCHANGE RATE POLICY DEVELOPMENTS 113
were volatile due to changes in global risk perception, particularly the so-called ‘risk-on’,
‘risk-o’ scenarios associated with the Eurozone crisis.
Since May 2012, the rand decoupled from its emerging market peers, rst due to a
widening current account decit in excess of 6 per cent of GDP, and later in the year due
to a protracted period of labour unrest, including the tragic events at Lonmin’s Marikana
mine where over 40 people, most of them striking miners, were killed. In May 2013, the
announcement by the US Federal Reserve (Fed) that tapering of its US$85 billion per
month asset purchase programme (quantitative easing) was being considered saw the
rand start to depreciate once again in tandem with other emerging market currencies
with rising long-term bond yields. e inaction of the Fed at the September meeting
surprised the nancial markets, and emerging market currencies recovered somewhat.
However, these currencies, particularly those with twin decits, remain vulnerable to
speculation of future changes in US monetary policy.
Even though the South African Reserve Bank has no explicit exchange rate target, it
does remain concerned with the extent of over- or undervaluation of the currency since
it plays an important role in inuencing price expectations as well as resource allocation
within the economy. ere are various techniques to determine currency misalignment,
and one such method is to identify the structural long-run relationship estimated by the
use of a Vector Error Correction Model (VECM). According to de Jager (2012), the key
80
90
100
110
120
130
140
150
160
10
20
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40
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90
Volatility : VIX (rhs)
US$/ZAR : (lhs)
Peer emerging markets : (lhs)
2008/01 2009/01 2010/01 2011/01 2012/01 2013/01 2014/01
QE tapering
announcement
22 May 2013
Index : Jan 2010 = 100
Figure 11.2. Volatility and the correlation between the South African rand and peer emerging
economy currencies
Source: Datastream and SARB calculations.
114 SOUTH AFRICA AND THE WORLD ECONOMY
economic fundamentals considered important in deriving the equilibrium estimate are a
real interest rate dierential, including a risk premium; a productivity dierential; terms
of trade changes; the openness of the economy; the scal decit as a percentage of GDP;
and capital ows as a percentage of GDP. Of these, the commodity terms of trade and
capital ows were the most inuential in determining the equilibrium.
Although the study provides a clear indication of whether the level of the exchange
rate is inconsistent with a set of given fundamentals, the estimated equilibrium should be
considered as an unobservable due to its measurement diculty. It is also oen dicult
to distinguish between deviations from equilibrium and changes in the equilibrium from
a policy perspective.
e deviation of the actual real eective exchange rate from some equilibrium level
therefore provides valuable information on the currency based on certain fundamentals,
i.e. once the short-run volatility or ‘noise’ has been excluded. It oers a suitable theo-
retically consistent indication of the extent of misalignment, and an important gauge of
the ‘real’ competitiveness of the currency. e breakdown of these fundamentals also
provides valuable insight into the trends of the factors that are currently inuencing the
value of the currency. An accurate analysis of the real exchange rate is even more criti-
cal for resource-dependent economies that oen experience large shocks to their terms
of trade and relative productivity dierentials. As a result, their currency values may
be prone to extreme volatility, and the equilibrium level should therefore be monitored
constantly.
Figure 11.3 shows the estimated equilibrium and the real eective exchange rate, and
the distinct phases of marked misalignment that occurred since 1982 onwards. Although
there were protracted periods in the early 1990s and mid-2000s where the currency was
overvalued relative to its equilibrium, the graph suitably highlights the periods in which
the currency was far more depreciated (undervalued) relative to its fundamentals. ese
include the periods of largest deviation from equilibrium that occurred during the 1985,
2001 and the 2008 global nancial crises period.
e evidence suggests that the currency was 20 per cent undervalued towards the end
of 2008, at the peak of the nancial crisis, and although the currency has been continually
depreciating since 2012, it was 10 per cent undervalued in the second quarter of 2013.
Given the slow pace of domestic real economic activity over this period, the results fur-
thermore suggest that the weakness of the currency does not necessarily imply a stronger
domestic real GDP growth prole, especially in an environment of weak global demand.
However, it may well add impetus to ination expectations and the initiation of an aggra-
vated ination cycle.
Historical evidence suggests that the degree of undervaluation does have inationary
consequences, and Figure 11.3 shows the extent to which headline CPI rates of ina-
tion react to the valuation of the currency. is is particularly evident from the invert-
ed relationship aer the fourth quarter of 1985, i.e. when the currency was 25 per cent
SOUTH AFRICA’S EXCHANGE RATE POLICY DEVELOPMENTS 115
undervalued and ination rose to 18 per cent over the next three quarters. In early 2002
the currency was 20 per cent undervalued and ination rose from 6 per cent to a high of
11.1 per cent by the end of the year. ereaer, the currency was roughly 10 per cent
overvalued to early 2006 and this largely contributed to ination declining from 11 per
cent to 4 per cent over much of the 2004–06 period. ere was another spike to 20 per cent
undervaluation by the middle of 2008 and ination once again rose to 13.2 per cent in
the third quarter of 2008. Although the real value of the currency was undervalued from
the middle of 2012 (increasing gradually to a currency weakness of 10 per cent by the
second quarter of 2013), the pace of increase in CPI ination remained relatively benign.
is may suggest that the exchange rate pass-through has become somewhat more muted
than previously.
Although the nominal exchange rate has been an important determinant of ination,
the degree of pass-through from ination to consumer prices has declined over time.
During the ination targeting period, monetary policy has not attempted to impact
directly on the exchange rate but has rather responded to the expected impact of exchange
rate changes on ination, and has therefore tried to ‘look through’ periods of overshoot-
ing. e Bank’s estimate of the pass-through coecient is 0.2, but it does appear that the
1985
–30
–20
–10
0
10
% deviation
20
1990
Positive = “over” valuation
Negative = “under” valuation
1995 2000 2005 2010
0
4
8
12
16
20
%
Deviation of real exchange rate from its equilibrium (LHS)
Headline CPl rate of inflation
Figure 11.3. Headline CPI rates of inflation and the valuation of the currency
Source: SARB calculations.
116 SOUTH AFRICA AND THE WORLD ECONOMY
pass-through during the most recent depreciation episode has been even more muted,
due to the negative output gap prevailing over the period and the associated relatively
weak pricing power of retailers. While since 2012 the depreciating exchange rate has been
seen as the main upside risk to the ination outlook, the monetary policy stance has
remained accommodative and unchanged since July 2012, with a slightly negative policy
rate, despite the marked depreciation of the rand. is was against a backdrop of ination
expected to be within the target range of 3–6 per cent for the forecast period ending 2015,
and ination expectations relatively anchored, albeit at the upper end of the target range.
Nevertheless, the exchange was assessed as being the main upside risk to ination.
e rand is expected to remain volatile as speculation regarding possible Fed taper-
ing continues. However, the risks to the exchange rate are for further depreciation when
tapering does indeed begin, and given the domestic pressures, particularly coming from
the current account of the balance of payments, the scal decit and the possibility of
further ratings downgrades. e ability of the monetary authorities to intervene directly
remains constrained by the relatively low level of reserves, as well as doubts about the
ecacy of such intervention on a sustained basis.
■ REFERENCES
De Jager, S. (2012), ‘Modelling South Africa’s Equilibrium Real Eective Exchange Rate: A VECM Approach’,
South African Reserve Bank Working Paper series No. WP/12/02, South African Reserve Bank Research
Department, April 2012.
South Africa’s fiscal framework
kenneth creamer
12
1 Post-apartheid challenges
Since the advent of democracy in South Africa in 1994 some economic gains have been
made. Nevertheless, very high levels of racialized inequality, poverty and unemployment
persist.
A key challenge for South Africa’s democratic government has been to put in place an
eective programme of reconstruction and development.
South Africa’s scal framework post-1994 has been built on two key pillars. First, a sig-
nicant expansion in social expenditure, including on education and health services, as
well as on welfare transfers, aimed at improving life opportunities and ameliorating poor
living conditions for the majority of South Africans. Second, and more recently, there
has been an emphasis on infrastructure expansion to create the necessary conditions for
economic development.
On the expenditure side (as referenced in Figure 12.1), there has been an ongoing re-
prioritization of spending away from the apartheid government’s defence allocations and,
less eectively, away from inherited racialized patterns of service delivery, as the demo-
cratic government has attempted to extend services to historically excluded communities.
In particular, a signicant welfare system—hinged mainly on old age pensions and a child
support grant—has been rolled-out since 1994 with 17 million beneciaries receiving
welfare grants to the value of over 4 per cent of GDP in 2013 (up from just over 2 per cent
of GDP in 1994). Many poor households have beneted from the provision of limited
levels of free access to education, health, electricity and water services. Nonetheless, poor
service levels have emerged as a key source of conict and protest.
Aer years of underinvestment in key infrastructure during the late-apartheid and
early democratic period (roughly the 1980s and 1990s) large-scale, essentially catch-up,
investment in electricity and transport infrastructure from 2009 onwards has generally
not been funded directly from the scus, as the nancing model has been based on the
Dr Kenneth Creamer is an economics lecturer at the School of Economic and Business Studies at the
University of the Witwatersrand, Johannesburg, South Africa.
120 MACROECONOMICS AND FISCAL POLICY
issuance of bonds to be funded by user-pays income streams, usually with indirect state
backing in the form of guarantees.
Ocial borrowing by the scus has been cautious, informed by the view that it
would be more prudent to avoid increasing the national debt than it would be to use
the resources from borrowing to attempt to stimulate increased investment, growth and
related tax revenues. In fact, South Africa’s democratic government reduced the national
debt quite considerably from just under 50 per cent of GDP in 1996 to just over 20 per
cent of GDP in 2008 and only with the coming of the global recession in 2008 did bor-
rowing increase. By 2013, the national debt was projected to increase to the level of 39.8
per cent of GDP in 2014/15, still a relatively low debt to GDP ratio when compared to
many other countries.
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
1984
1985
1986
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1997
1998
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2003
2004
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2007
2008
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2010
Percentage of GDP
DefencePublic order and safety
EducationHealth Social protection
Figure 12.1. Trends in expenditure items
SOUTH AFRICA’S FISCAL FRAMEWORK 121
2 Ideological contest over fiscal policy
Underlying the decision in the early stages of South African democracy to run a tight s-
cal policy and avoid public debt (an approach articulated in the Growth Employment and
Redistribution policy announced in 1996) were two ideological perspectives that proved
to be complementary. First, a neoliberal perspective that held that reduced public invest-
ment would open the way for private sector investment, which would be more ecient
and would present business investment opportunities. Second, a national democratic
perspective, which understood that opening the way for private investment would serve
to create space for a new emerging class of black-owned businesses oen operating as
partners of existing South African or foreign businesses.
Increased participation in the economy by black-owned companies was regarded as a
political imperative given that, under apartheid, capital was almost exclusively white-
owned. Further, from the national democratic perspective, avoidance of a debt trap was
viewed as essential in order for South Africa to retain a degree of economic policy sover-
eignty. Signicant weight was given to the objective of avoiding the imposition of the kind of
external constraints and conditionalities which are routinely imposed on indebted nations.
A third ideological perspective rallied against the constrained approach to scal policy
that had been adopted, arguing that public-sector-led investment should be regarded as
the key to stimulating inclusive employment-creating economic growth. State borrow-
ing could be used to fund investment in infrastructure and people, which in turn would
‘crowd-in’ further investment, simulating growth, increased tax revenues and the avoid-
ance of a debt-trap. is argument, initially championed primarily by the leading labour
unions, generally fell on deaf ears for the early part of the democratic period, but from
2009 onwards there was increasing recognition that continuing structural inequality in
the economy meant that state and public entities should play a greater role in mobilizing
infrastructure investment.
As per Figure 12.2, it can be seen that investment by public corporations rose sharply
from 2009 onwards. Investment by general government also rose, but not as sharply as the
rise in investment by public corporations. e slower rise in general government invest-
ment can be explained by the fact that there were competing claims, for example, rising
public sector wages, a nite quantity of public resources as well as by weaknesses in the
state’s capacity to implement investment programmes eectively.
The emphasis on public investment is expected to continue into the future, with
projections that over the three years from 2013 to 2015 the public sector will spend
about R827 billion on infrastructure. Over the longer term, it is expected that
At the equivalent of just less than US$100 billion, South Africa’s planned infrastructure spend over the
three-year period is sizeable. By way of comparison, the Japanese government announced in early 2013 a
US$150 billion infrastructural expansion programme.
122 MACROECONOMICS AND FISCAL POLICY
between 2013 and 2023 public infrastructure projects valued at R3.6 trillion will be
undertaken.
Two important developments assisted in tilting post-2009 policy in the direction
of a large-scale programme of public-sector-led infrastructure expansion. The first
was that there was insufficient private sector take-up of the opportunity to invest in
infrastructure, due in part to a lack of clearly profitable business opportunities (for
example because electricity prices were being held artificially low) and in part to
policy uncertainty as mixed signals were sent regarding whether a private or public
investment path would be followed. In particular, the lack of investment in power
generation capacity, exacerbated by problems in the delivery of coal to power sta-
tions often by new entrant mining companies, resulted in highly disruptive electric-
ity outages in 2008. Second, the state-owned rail and port company, Transnet, began
expanding rail capacity, particularly after South Africa’s suboptimal participation in
the global commodities boom due in part to rail and port bottlenecks which limited
export capacity.
0
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2001/01
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2012/01
Index 1Q2000 = 100
General government Public corporations Private entities
Figure 12.2. Significant increase in investment by public corporations
According to South Africa’s Budget Review 2013, of the R3.6 trillion, electricity projects make up 55.7
per cent, transport 22.9 per cent, liquid fuels 6.8 per cent, water 3.6 per cent, education 3.6 per cent, health 3.2
per cent, human settlement 3.2 per cent and telecommunications 1 per cent (p. 97).
SOUTH AFRICA’S FISCAL FRAMEWORK 123
3 A reconstructive fiscal framework
Ironically, while most of South Africa’s economic challenges are necessarily long term and
structural, much of the policy debate about scal policy has been short term in nature and
has been focused on how scal policy impacts on the demand-side, rather than on longer-
run supply-side aspects.
e presence in South Africa of signicant levels of relatively advanced primary, sec-
ondary and tertiary economic activity means that the South African state has signicant
scal potential. It has the potential to put in place measures to correct the under-servicing
and marginalization of poor communities and to strengthen and widen the infrastructure
base of the economy.
South Africa’s overall macro stance should prioritize scal policy. e policy mix should
be one of reconstructive scal policy—stabilizing monetary policy—oating exchange rate.
In this approach the scal instrument is prioritized due to its ability to shape the social
and infrastructure environment. Government programmes impact on capital formation,
labour enhancement and productivity and technology improvements—factors which
would impact positively on the long-run growth potential of the South African economy
and on the degree of inclusivity of such growth. Monetary policy is used primarily to
moderate ination and the oating exchange rate serves as a shock-absorber and regu-
lates integration with the global economy.
A critique of this policy mix is that scal expansion might put upward pressure on inter-
est rates, crowding-out private sector investments. Such a scenario is likely to be mitigated
if investment decisions are determined not so much by interest rate levels (the interest
rate transmission mechanism being weakened due to the large cash balances and retained
earnings held by South African rms), as by non-interest-rate factors, such as investor
condence which, in turn, are positively linked to economic growth and reconstruction.
Another potential criticism of the macroeconomic policy stance led by scal policy
is that it is unsustainable if it leads to increasing government debt. is is a real danger
unless the increased expenditures are made on projects and programmes with economic
merit and which spawn further growth, investment and tax revenues.
It is interesting to compare the reconstructive scal policy—stabilizing monetary
policy—oating exchange rate stance with a tight scal policy—easy monetary policy—
competitive exchange rate stance. is latter approach having been recommended for
South Africa in 2008 by an International Panel of economists convened by Harvard’s
Center for International Development as well as more recently, in 2013, by an OECD
Economic Survey of South Africa.
See Final Recommendations of the International Panel on Asgisa by Ricardo Hausmann (2008) (Centre
for International Development (CID) Working Paper No. 161) and OECD Economic Surveys: South African
2013 (OECD Publishing).
124 MACROECONOMICS AND FISCAL POLICY
For the International Panel the key objective is to put in place a macroeconomic policy
that is supportive of South African exports. As a result it proposes low interest rates, a
competitive exchange rate and the curbing of scal policy. e OECD Survey states that,
‘[T]he macroeconomic policy mix should aim to boost domestic demand. is would
best be achieved via a combination of tighter scal policy and monetary easing, as this
would deliver policy stimulus while avoiding upward pressure on the exchange rate, sup-
porting national savings and safeguarding scal sustainability’.
A potential weakness with this policy is that due to the openness of the economy to
nancial inows and outows, its stimulatory eorts are likely to be short-lived and inef-
fective. For example, a tightening of scal policy would lead to a fall in interest rates and
such a fall in the interest rate is likely to lead to a weakening of the nominal exchange rate
of the rand. Initially, this will make exports more competitive, but these competitive gains
are likely to be short-lived if the nominal currency depreciation results in ination.
In the extreme case, if price rises are proportional to the size of the nominal exchange
rate depreciation, there will be no real currency depreciation. If the nominal currency
depreciation is accompanied by a less than proportional rise in domestic prices, this will
result in a more limited depreciation of the real exchange rate, reducing in the medium-
to long-run, competitiveness gains. Furthermore, increased ination will lead to mon-
etary tightening and further exchange rate appreciation. e net eect of this approach
is likely to be tight scal policy, tight monetary policy and limited real exchange rate
depreciation—hardly a recipe for reconstruction and development.
To some extent the dierence between the reconstructive scal policy stance and the
tight scal policy stance can be ascribed to a dierence in emphasis. Both approaches
favour increased levels of infrastructure investment, but the latter proposes increas-
ing infrastructure expenditure while limiting growth in overall expenditure. Further, a
reconstructive policy will not necessarily result in an increased budget decit if the tax
base and tax revenues are expanded to keep pace with growing expenditures.
e two policy stances are based on distinct visions of how best the growth potential
of the South African economy can be developed. e reconstructive scal policy approach
seeks to build on the South African economy’s strengths as they actually are, rather
than on what policymakers would prefer them to be. e tight scal policy approach is
informed by the overriding objective of the need to reshape the South African economy
as a manufacturing hub capable of export-led growth.
e reconstructive scal policy approach is based on the recognition that it is unlikely
that South African economic success will be built on the ability to generally compete in
At p.18.
e rst of 21 recommendations by the International Panel reads: ‘Fiscal policy should make a greater
contribution to national savings in order to bring down the growth of domestic demand. In addition, this
should permit SARB to achieve the ination target with a lower interest rate and hence with a more competi-
tive exchange rate.’
SOUTH AFRICA’S FISCAL FRAMEWORK 125
a wide range of global manufactured-goods markets. Rather, South Africa is more likely
to succeed as an economy undergoing internal expansion of its consumption and invest-
ment levels, energized by growing mining outputs and exports, strong construction and
project management capabilities, signicant agricultural and tourism potential, a capable
nancial sector and an expanding services sector. All these sectors benet from their
growing linkages to a vast and strengthening African continent. Certain targeted manu-
facturing sectors, such as the automotive sector and the sector supplying mining technol-
ogy, have the potential to expand exports, but a generalized expansion of manufacturing
exports is more dicult to achieve. It is therefore not advisable to adopt a macroeco-
nomic framework that eectively neutralizes scal policy in order to attempt to pursue an
unlikely vision for development.
4 Risks associated with reconstructive fiscal policy
ere are signicant risks associated with the reconstructive scal policy approach. e
primary risk is that of aordability and potential indebtedness. e policy shi towards
signicant public-sector infrastructure expansion coincided with a period of slow growth
and the related shrinking of scal space aer the 2008 global recession. A budget surplus
of 1.7 per cent of GDP in 2007/08 was replaced by a budget decit of 5.2 per cent of GDP
in 2012/13.
e budget decit measure does not reveal the whole picture because a substantial
portion of South Africa’s infrastructure spend is funded by public corporations, such as
Eskom, Transnet and Sanral, which have borrowed from capital markets in order to fund
infrastructure expansions and are expected to repay these loans from fees paid by the
users of electricity, rail and road infrastructure.
Government has supported public sector infrastructure investment in the form of some
injection of nance, such as a R60 billion loan to Eskom in 2011, and also in the form of
guarantees. ese guarantees, regarded as contingent liabilities by the state, are substan-
tial (such as the R350 billion in guarantees to support Eskom’s loans) and once these
liabilities are taken into account the national debt projected for 2014/15 rises sharply
from 39.8 per cent of GDP to 53.4 per cent of GDP.
e situation is complicated by the fact that public corporations wishing to increase
user fees are required to apply for the right to increase such fees to regulatory bodies, such
as the National Energy Regulator (Nersa) and the Ports Regulator. In a recent nding, in
the context of intense lobbying by business, unions and electricity users, Nersa limited
Eskom’s price increases to 8 per cent a year for ve years, instead of the 16 per cent a year
for which Eskom had applied. As a consequence, Eskom’s infrastructure programme will
have to be funded with less, or from dierent resources, than the enterprise had planned
126 MACROECONOMICS AND FISCAL POLICY
to utilize. e stipulation of lower price increases will possibly put pressure on Eskom to
operate more eciently, but a likely scenario is that further government guarantees will
need to be oered to assist Eskom in its fund-raising eorts making it likely that Eskom
and the government’s credit ratings will both be negatively aected.
Given the funding requirement for expanded infrastructure and social expenditures, it
is likely that in the years ahead other funding methods will need to be explored, such as,
a review of taxation policies with an eye to increasing certain tax rates and opening new
sources of revenue, as well as the possible implementation of a requirement that a certain
percentage of retirement fund investments be directed towards infrastructure projects,
with the promise of a moderate ination-linked return on such investments.
An external risk facing the South African economy is the potential for a reversal of cap-
ital inows. Given that on its balance of payments the country tends to run a signicant
decit (around 6 per cent of GDP in 2012) compensated for by a surplus on its nancial
account, a sudden stop or reversal of capital inows would result in signicant adjustment
costs, as the currency would depreciate sharply, resulting in ination and rising interest
rates. Access to foreign nancial ows which push down interest rates and allow access
to a pool of savings larger than the one that exists in the country, is essential to the infra-
structure investment phase that South Africa is undertaking.
Key internal risks include labour unrest which has the eect of damaging investor
condence and disrupting and delaying infrastructure expansion projects, and the weak
capability of the state and public corporations to implement projects eectively with a
positive return on investment, free of wastage and corruption.
5 Mobilization for improved outcomes
South Africa’s reconstructive scal framework should be built on the pillars of increased
social spending and expanded public infrastructure. e key challenge for social expend-
iture is to ensure the quality of service delivery, particularly to under-serviced com-
munities. With regard to infrastructure, sustainable funding mechanisms and positive
growth-inducing returns on investment are required.
Low rates of economic growth make reconstruction and development more dicult,
but such periods oer an opportunity to focus on improved outcomes. A process of social
and political mobilization, which poses the question as to how better outcomes can be
achieved with the limited resources available, for example, in public education and health,
would be a fundamentally healthy and helpful process for a democratic society to under-
take. Improved outcomes in the delivery of public services and the expansion of public
infrastructure, as well as the achievement of eciency gains, would ultimately serve to
sharpen the eectiveness of South Africa’s reconstructive policies.
Intergovernmental fiscal
relations in South Africa
tania ajam
13
Intergovernmental scal relations (IGFR), or ‘scal federalism’ as it is sometimes referred
to, is concerned with the structure of public nances in a state with more than one tier
of government: how taxing, spending and regulatory functions are allocated among the
various levels, as well as the nature of transfers between national, provincial and local gov-
ernments (Gramlich, 2003; Oates, 1972; Oates, 1994). As more countries, both developed
and developing, have begun to devolve more functions to regional and local government
through scal decentralization initiatives, IGFR has played an increasingly prominent
role in policy discourse as well as in academic literature.
Although IGFR may appear to be abstract and bureaucratically technical, it has a sig-
nicant impact not only on public service delivery and developmental outcomes, but
also economic growth, macroeconomic stability and good governance (scal transpar-
ency and accountability). How IGFR arrangements and institutions are structured creates
incentives which inuence the equity, allocative and operational eciency of critical pub-
lic services (such as health and education delivered by the nine provincial governments in
South Africa) as well as infrastructure delivery (such as roads, housing, public transport,
water and energy supply which are delivered by the 278 municipalities).
1 National–provincial fiscal relations
In South Africa, the 1996 constitution has established three distinct but inter-related and
interdependent spheres of government: national government, nine provincial govern-
ments and local government (South Africa, 1996). While certain of the more auent
provinces had been part of the four provincial administrations of ‘white’ South Africa
(such as Gauteng and the Western Cape), many of the poorer provinces had to establish
administrations from scratch post-1994, incorporating a plethora of ‘homelands’ and so-
called independent states such as Transkei, Ciskei, Venda and Bophutatswana.
128 MACROECONOMICS AND FISCAL POLICY
While policy formulation occurs mainly within the national sphere, provincial gov-
ernments play a major implementation role in the delivery of public services. Despite
this, revenue collection remains centralized in the South African Revenue Services at the
national level. Provincial governments in South Africa do not have signicant own rev-
enue sources, which comprised on average under 5 per cent of provincial expenditure in
2011/12 (South Africa, National Treasury, 2012).
To bridge this vertical scal imbalance between their extensive expenditure respon-
sibilities and their limited own revenue sources, provincial governments rely heavily on
intergovernmental grants from national government. Section 214 of the Constitution
entitles provincial governments and municipalities to an ‘equitable share’ of nationally
collected revenue. In addition to this unconditional lump-sum grant which serves as a
substitute for provincial own revenues which provincial governments may utilize at their
discretion, section 214 also makes provision for conditional grants (i.e. earmarked trans-
fers for specic purposes) which maintain minimum standards of service delivery across
all provinces, fund national priorities implemented by provincial governments or deal
with the spillover/externality eects of public services (e.g. specialized medical services
in academic hospitals which benet not only provincial residents but the country as a
whole).
As illustrated in Table 13.1, provincial governments in 2013/14 received roughly
44 per cent of the pool of nationally collected revenue aer debt service obligations
and the contingency reserve have been top-sliced. National government received
about 47 per cent and municipalities just under 9 per cent of nationally collected rev-
enue in 2013/14 respectively.
Table 13.1 Division of nationally raised revenue, 2010/11 to 2016/17
2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17
R million Outcome Revised
estimate
Medium-term estimates
Division of
available funds
National
departments
356 027 382 712 412 706 449 251 489 424 522 257 552 983
of which:
Indirect
transfers to
provinces
–76 860 2 693 5 413 5 044 4 127
continued
INTERGOVERNMENTAL FISCAL RELATIONS IN SOUTH AFRICA 129
2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17
R million Outcome Revised
estimate
Medium-term estimates
Indirect
transfers
to local
government
2 939 2 770 4 956 5 697 7 726 9 467 10 221
Provinces 322 822 362 488 388 238 414 932 444 423 477 639 508 254
Equitable
share
265 139 291 736 313 016 338 937 362 468 387 967 412 039
Conditional
grants
57 682 70 753 75 222 75 995 81 955 89 672 96 215
Local
government
60 904 68 251 76 430 83 670 90 815 100 047 105 187
Equitable
share
30 541 33 173 37 139 39 789 44 490 50 208 52 869
Conditional
grants
22 821 26 505 30 251 34 268 36 135 39 181 41 094
General
fuel levy
sharing with
metropolitan
municipalities
7 542 8 573 9 040 9 613 10 190 10 659 11 224
Non-interest
allocations
739 752 813 451 877 374 947 853 1 024 662 1 099 943 1 166 424
Percentage
increase
7.2% 10.0% 7.9% 8.0% 8.1% 7.3% 6.0%
Debt-service
costs
66 227 76 460 88 121 101 256 114 901 126 647 139 201
Contingency
reserve
––––3 000 6 000 18 000
Main budget
expenditure
805 979 889 911 965 496 1 049 109 1 142 562 1 232 590 1 323 624
Percentage
increase
7.9% 10.4% 8.5% 8.7% 8.9% 7.9% 7.4%
Percentage
shares
National
departments
48.1% 47.0% 47.0% 47.4% 47.8% 47.5% 47.4%
Provinces 43.6% 44.6% 44.3% 43.8% 43.4% 43.4% 43.6%
Local
government
8.2% 8.4% 8.7% 8.8% 8.9% 9.1% 9.0%
Source: South Africa, National Treasury (2014) Budget Review 2014.
Table 13.1 (continued)
130 MACROECONOMICS AND FISCAL POLICY
Once the political process of the vertical division of revenue among the three spheres
is completed, the horizontal division of the pool of funds available to provinces is split
among the individual provinces on the basis of an objective formula which is driven pri-
marily by provincial demographics (see Table 13.2 for the formula-generated equitable
share outcomes).
One of the major policy concerns at provincial government level is that while access
to basic education and health services has improved markedly, service quality outcomes
have remained disappointing, despite the considerable scal resources directed at them
since the advent of democracy in 1994 (South Africa, Presidency, 2009). Increased fund-
ing directed at poorer provinces has not generally translated into commensurate increas-
es in the quantity and quality of public services. One manifestation of this was a recent
2012 constitutional court case initiated against the national and Eastern Cape provincial
basic education departments by the NGO, Equal Education, which drew attention to the
fact that national norms and standards for education are not being adhered to by certain
provincial governments.
e provincial grant system has largely overcome the legacy of discriminatory race-
based funding for operating costs which prevailed in the apartheid era, creating conver-
gence to equity in poverty-weighted per capita funding since 1994. However, it has not,
by and large, incentivized provincial service delivery performance, a trend exacerbated by
uneven institutional capacity and poor accountability systems. is lack of emphasis on
performance is also a feature of the local government scal framework.
Since 1994, many provincial governments have also not been able to spend signi-
cant proportions of the conditional grants they have received for construction of schools,
Table 13.2 Horizontal division of revenue to provinces, 2014/15
R million Equitable share Conditional grants Total transfers Percent of total pool
Eastern Cape 52 154 9 846 62 000 14.0%
Free State 20 883 6 158 27 041 6.1%
Gauteng 68 673 16 935 85 608 19.3%
KwaZulu-Natal 78 138 15 941 94 080 21.2%
Limpopo 43 274 7 580 50 854 11.4%
Mpumalanga 29 355 6 352 35 707 8.0%
Northern Cape 9 652 3 406 13 057 2.9%
North West 24 707 5 621 30 328 6.8%
Western Cape 35 631 9 917 45 549 10.2%
Unallocated – 197 197
Total 362 468 81 955 444 423 100%
Source: based on South Africa, National Treasury (2014) Budget Review 2014.
INTERGOVERNMENTAL FISCAL RELATIONS IN SOUTH AFRICA 131
hospitals, public housing and provincial roads and other infrastructure projects because
of poor infrastructure planning and management, poor and oen corrupt tendering sys-
tems and skills constraints. is inability to translate conditional grants into eective and
ecient public spending has meant that in certain areas the backlog of public services
to low-income, black communities has persisted. is is a feature not only of provincial
governments, but also—to an even greater extent—of local government (especially low
capacity and rural municipalities).
Furthermore, chronic underspending of capital budgets for service delivery extension
oen co-exists with overspending on provincial departments’ operating budgets. e
main underlying driver tends to be the personnel budget pressures, borne out of the ten-
sion between centralized wage bargaining and decentralized provincial budgeting pro-
cesses in an environment of labour legislation constraints which limit personnel numeric
exibility in the short and medium term. Unaordable personnel establishments, vacan-
cies in relation to scarce skills and an inappropriate balance between back oce sta and
those directly involved in core service provision is also a feature of the local sphere.
ere has also been a substantial degree of prolonged policy uncertainty as to the future
of provincial governments. In 2007, the then Department of Provincial and Local Gov-
ernment (DPLG) initiated a policy process to review the provincial and local government
system which was to culminate in a White Paper on Provinces and a revision of the Local
Government White Paper (South Africa, Department of Provincial and Local Govern-
ment, 2007). Five years, two ministers and two departmental name changes later (from
DPLG to COGTA to DCOG, the Department of Cooperative Government), there has
still been no resolution to this policy process, exacerbating the policy vacuum.
2 National–local fiscal relations
e local government sphere comprises eight metropolitan municipalities (category A),
46 district municipalities (category B) and 229 local municipalities (category C). In con-
trast to provincial governments, municipalities in principle do have access to signicant
own revenue sources such as property rates and revenues earned from the sale of services
such as water, electricity and sanitation. In practice, however, the underlying distribution
of economic activities in South Africa (as measured, for example, by municipal gross
value added (GVA)) and hence the economic base and scal capacity is severely spatially
skewed across municipalities.
Economic growth and wealth are concentrated in some areas of the country (pre-
dominantly metros) with concentrations of unemployment, poverty and service
backlogs in others (rural municipalities and small towns). Largely outside the con-
trol of individual municipalities, these structural socio-economic attributes coupled
132 MACROECONOMICS AND FISCAL POLICY
with other variables (such as population density, settlement patterns, migration ows and
topography) shape their developmental needs and drive expenditure outlays, the unit
costs of service delivery, the scal capacity of municipalities and their potential for long-
term nancial sustainability.
ese huge economic disparities and dierences in the social, demographic and spatial
proles of the various categories of municipalities are inevitably reected in their nancial
proles as well. Rural municipalities tend to have weak economic bases and hence severe-
ly constrained revenue bases, land tenure systems which are not easily amenable to prop-
erty rating instruments, limited revenue self-suciency and revenue collection capability,
greater dependence on intergovernmental grants and limited borrowing capacity. Metro-
politan municipalities, on the other hand, with well-developed property rates bases and
signicant other own revenue sources, are also able to borrow on private capital markets.
ese structural factors external to municipalities also tend to be correlated with, and
compounded by, institutional internal weaknesses such as poor governance and account-
ability, ineective nancial management and outright corruption, high vacancy rates in
key senior management posts, technical skills shortages such as engineers, poor planning
skills, ineective internal controls etc. While these problems are pervasive throughout the
local government sphere, they tend to be especially acute within rural municipalities and
localities containing only one or two small towns.
Despite these challenges, access to basic services such as water, sanitation and elec-
tricity has improved markedly since 1994, as evidenced in Table 13.3, which shows that
an increasing proportion of households have access to key municipal services. is is
impressive given that the number of households has also increased substantially over the
period due to population growth and smaller household sizes.
As in the case of many of the provincial governments, audit outcomes by the Auditor
General have consistently illustrated that nancial management in municipalities is weak.
Table 13.3 Access to basic municipal services, 1994–2011
Percentage of households: 1994 2011
With access to water at RDP
standards or above
61.7% 94.5%
With access to sanitation 50.9% 82.0%
With access to electricity 50.9% 75.8%
In formal dwellings* 64.0% 76.9%
RDP standards: a minimum of 25 litres of potable water per person per day within 200 metres of a household.
* The figure for electricity access cited is for 1996.
Source: South Africa, Presidency (2012).
INTERGOVERNMENTAL FISCAL RELATIONS IN SOUTH AFRICA 133
For the 2010–11 nancial year, for example, only 5 per cent of municipalities and 7 per cent
of municipal entities received clean audits (i.e. nancially unqualied and no ndings).
In addition, the nancial sustainability of many, particularly small and rural municipal-
ities, remains a cause of grave concern. Given the few geographic locations with vibrant
economic potential, there is a limit to what can be achieved through re-demarcation
of municipal boundaries. Intergovernmental transfers to local government (to fund the
national government policy of free basic services) have been increasing over the last few
years (albeit o a very low base), as illustrated in Table 13.1. However, municipal own rev-
enue sources have dwindled (with the dis-establishment of the Regional Services Coun-
cil Levy System) and the impact of the lingering aermath of the 2008 global nancial
crisis on unemployment, poverty and the aordability of municipal services. is has
resulted in increased grant dependency by municipalities (Financial and Fiscal Commis-
sion, 2012). Policymakers will have to grapple over the medium to long term with several
challenges in relation to the local government scal framework and its intergovernmen-
tal grant components. ese relate to: adequacy and targeting of funding to the local
sphere, identication of buoyant new revenue sources for municipalities and increasing
their mobilization of existing revenue basis, the ability to spend infrastructure grants
eectively and to nance the massive refurbishment of the municipal infrastructure as a
result of the deterioration in the condition of these assets due to neglected routine main-
tenance. Other challenges to the sustainability of the local government scal framework
include: containing personnel costs, curtailing bloated municipal sta establishments,
curbing corruption and misappropriation of funds, improving institutional capacity and
strengthening accountability.
■ REFERENCES
Financial and Fiscal Commission (2012), Options Analysis Associated with the Local Government Fiscal Frame-
work Public Hearings, <http://www.c.co.za/index.php/media-a-events-interactive/public-hearings/local-
government>.
Gramlich, E. (2003), ‘A Policymaker’s Guide to Fiscal Decentralization’, National Tax Journal, 46(2): 229–235.
Oates, W. (1972), Fiscal Federalism, New York: Harcourt Brace Jovanovich.
Oates, W. (1994), ‘Federalism and Government Finance’, in Modern Public Finance, Cambridge, MA: Harvard
University Press.
South Africa (1996), Constitution of the Republic of South Africa, s.l., s.n.
South Africa. Department of Provincial and Local Government (2007) Policy Process on Provincial and
Local Government, <http://www.cogta.gov.za/index.php/documents/cat_view/109-policy-papers.htm>
South Africa, National Treasury (2012), Provincial Budgets: 2011/12 Financial Year Fourth Quarter Year to
Date Provincial Budgets and Expenditure Report, press release, May 30, 2012.
South Africa, Presidency (2009), Improving Government Performance: Our Approach, Pretoria, Government
Printers.
(Dis)Saving in South Africa
nicola viegi
14
In its analysis of sustained growth experiences in the postwar period, the Commission
on Growth and Development argues that one of the components of successful growth
experiences is that ‘they all mustered high rates of saving and investment, not least public
investment in infrastructure. ey were all “future-oriented,” forgoing consumption in
the present in pursuit of a higher level of income in the future’ (Commission on Growth
and Development, 2008: 24).
Today South Africa does not show a strong future orientation. Domestic saving rate is
low compared with the highest point in its history and it is signicantly lower than any
other country at the same stage of development and with the same economic growth
ambitions. Table 14.1 shows the average gross saving and gross investment rates for a
selected group of countries during the rst decade of the century. It shows not only that
the South African saving rate is low in comparative terms but, more importantly, the dif-
ference between investment and saving to be nanced by inow of capital is greater than
any other country except Australia and the United States.
Figure 14.1 shows instead the composition of this gap. Private investment has been
for a long time well below the domestic saving rate and the gap between investment and
savings is mainly due to a dramatic increase in public investment. e gure also shows
the large increase of domestic credit provided by the banking sector aer democratiza-
tion. is dramatic increase has fuelled an internal consumption boom that has largely
sustained South African growth performance.
e main argument of this chapter is that in analysing the determinants of savings in South
Africa we understand some of the fault lines characterizing the South African economy which
constrains its growth potential. e objective of this chapter is twofold: rst to review the evi-
dence available of the causes of the low saving rate in South Africa and, second, to suggest
a unied interpretation that centres on the combined eects of inequality and uncertainty.
1 Macro correlations and micro observations
A large part of a not large literature looks at the correlations between macro aggregates
in order to identify causal patterns and possible policy prescriptions. e one result that
is robust to dierent specication and methodology is that the reduction in household
(DIS)SAVING IN SOUTH AFRICA 135
0
5
10
15
20
25
30
35
40
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
0
50
100
150
200
250
Gross fixed capital formation, private sector (% of GDP) Gross fixed capital formation (% of GDP)
Gross domestic savings (% of GDP) Domestic credit provided by banking sector (% of GDP)
Figure 14.1. Saving, investment and credit in South Africa, 1970–2009, smoothed series
Table 14.1 Saving and investment around the world, 2000–10 (GDP percentages)
Country Gross domestic saving average 2000–10 Gross domestic investment average 2000–10
South Africa 15.3 18.5
China 47.0 41.9
Malaysia 34.7 21.7
Korea, Rep. 31.5 29.4
India 31.4 31.3
Japan 26.4 23.1
Indonesia 26.1 25.7
Mexico 22.6 24.8
Australia 22.5 26.9
Germany 22.4 18
Chile 22.2 22.6
Argentina 21.3 19.6
Brazil 16.3 17.5
Turkey 16.0 19.1
United Kingdom 14.3 16.7
United States 14.0 18.8
Source: IMF, WEO Database.
136 MACROECONOMICS AND FISCAL POLICY
savings of the last 20 years is strongly correlated to the liberalization and expansion of
the credit market. For example, Aron and Muellbauer (2012) show convincingly that the
increase in credit market access counts for up to 20 per cent in the reduction in the South
African personal saving ratio.
Moreover, the experience with capital account liberalization in many emerging coun-
tries has shown the importance of external nancial ows in determining internal nan-
cial balance. Aer the Asian crisis, several developing countries have explicitly sought
to achieve high domestic saving rates as a shield from the volatility of foreign nancing
of domestic investment, as well as to amass a stock of liquid claims on the rest of the
world as self-insurance against a repeat of the crisis. Because a high saving rate tends to
depress domestic demand, these countries have been able to sustain internal balance only
by maintaining a depreciated real exchange rate.
e South African experience is diametrically opposed. Historically, investment in
South Africa has been linked to a signicant inow of foreign capital provided by the
presence in the country of an advanced and internationally well-connected nancial mar-
ket. is characteristic of the country has been magnied in a world of free movement of
capital so that international capital ow cycles have come to determine the internal allo-
cation of resources away from the saving and international trade sector and towards con-
sumption and non-traded sectors of the economy through their eect on relative prices
and real exchange rate.
It is possible that the savings rate of South Africa is perfectly in line with its level of
income per capita, its level of nancial development, its demographic characteristics and
its institutional settings. For example, Ferrucci and Miralles (2007) study the savings
behaviour across the world against a benchmark model including all the typical demo-
graphic and economic variables. e study shows that South Africa has saved signi-
cantly more than the model would have predicted.
e contradiction is only apparent. As Aron and Muellbauer (2000) argue, ‘South
Africa is a dualistic economy, with a highly unequal income distribution. With such
unequal income and expenditure distributions, the bulk of aggregate saving will be
accounted for by the most auent households.’ us any analysis of savings that con-
centrates only on aggregates will essentially look only at the nancial balance of the for-
mal economy that is not structurally very dierent from other advanced Anglo-Saxon
economies.
If the rst economy is structurally incapable of providing the necessary saving rate, a
possible answer to the aggregate low saving rate could be in the rapid development of the
‘second economy’. is objective motivates the attention to the saving behaviour of the
Similar results are found by Harjes and Ricci (2008), who point also to the eect of commodity prices and
by the World Bank (2011) which points also to the dependency of unemployed youth.
(DIS)SAVING IN SOUTH AFRICA 137
poor. For example, Collins (2005) studies the range of nancial instruments used by poor
households in Cape Town townships using a nancial diary methodology. Contrary to
common belief, the study shows that poor households are actively using a wide range of
formal and informal nancial instruments, in most cases to insure against short-term
uncertainty. e picture that emerges from this research is of poor households that are
using any possible nancial instrument available to them to cope with income and life.
But, as analysed by Deaton (1989), the problem of allocating income over time looks
very dierent in the context of poor households: the poor are neither irrational nor in
need of change (more than any other wealth group). What they have is a very limited
margin for error which aects their behaviour around choice as outcomes are more dra-
matically felt.
To reduce the nancial uncertainty of the poor, two instruments have been used: on the
one hand the state has intervened with a large increase in the provision of social grants;
on the other hand, there has been an emphasis on the importance of access to nance as
a way to reduce life uncertainty through well-designed ‘credit’ instruments. Neither of
these two instruments is likely, at least in the short run, to contribute to an increase in
aggregate savings.
ere is a sense in the literature that the condition of low aggregate saving rate is
inevitable unless a dramatic change of the structural characteristics of the economy is
engineered.
2 Inequality, uncertainty and savings
Is there a unifying framework that can be used to understand South African saving behav-
iour? In the wake of the nancial crisis there has been a renewed interest in the role that
income inequality plays in determining aggregate outcomes. e fact that this literature
has not found an echo in South Africa is quite surprising, given that inequality is the sin-
gle most relevant characteristic of the society that came out of apartheid.
Inequality aects macroeconomic dynamics in three connected ways: the rst eect
of inequality is to put pressure on a democratic government to provide support for the
consumption needs of the poor (Alesina and Rodrik, 1994). e need to guarantee the
dignity of any individual, and give equal access to education, housing, health and wealth,
has produced an increasing expansion of state intervention in social areas. Direct trans-
fers to households now aect around 15 million individuals, and social expenditure totals
almost 30 per cent of the overall scal budget, equivalent to almost 5 per cent of GDP.
is large policy of transfers is an extraordinary intervention in support of present con-
sumption. While this intervention is desirable, it comes at the expense of other forms of
intervention directed towards long-term investment and growth.
138 MACROECONOMICS AND FISCAL POLICY
Second, when the inequality is high, the credit market does provide a mechanism for
closing the gap in the accumulation of assets and in consumption levels. As shown by
Kumhof et al. (2012), access to credit has been used in many developed countries to coun-
teract the eect of increasing inequality. A similar process is in operation in South Africa.
While the state operates a certain degree of redistribution towards the poorest in society,
which are also to a large extent those who do not use credit facilities, the credit market
has been delegated the function of absorbing the increase in inequality between other
social groups and to satisfy the aspirations of a new emerging middle class. us access
to housing, transport and consumption is all mediated by the credit market. While this is
a normal function of the credit market, in conditions of high inequality it puts excessive
downward pressure on aggregate savings and on the external position of the country.
e nal eect of inequality is to create uncertainty about the future value of assets, so
reducing the propensity of the wealthy classes to save. is mechanism has a clear parallel
in the investment dynamics. Although the real return to capital is high by international
standards (World Bank, 2011), South African rms seem reluctant to invest. As shown
by Fedderke (2004), a possible cause is a generalized uncertainty about the economic and
legal framework the rms will have to operate in the future. If this uncertainty aects the
evaluation of future asset returns it can induce a reduction of savings if the income eect
is inferior to the substitution eect (Sadmo, 1970), which is more likely at the highest end
of the income distribution.
Rising inequality, increasing scal intervention and uncertainty about returns of assets
all contribute to the lack of future orientation of the South African economy. e analy-
sis therefore suggests searching solutions in public nance instruments that compress
the income distribution, move resources from present consumption to investment and
reduce uncertainty on future asset returns.
■ REFERENCES
Alesina, A. and D. Rodrick (1994), ‘Distributive Politics and Economic Growth’, Quarterly Journal of Econom-
ics, 109(2): 465–90.
Aron, J. and J. Muellbauer (2000), ‘Personal and Corporate Saving in South Africa’, World Bank Economic
Review, 14 (September): 509–44.
Aron, J. and J. Muellbauer (2012), ‘Wealth, Credit Conditions and Consumption: Evidence from South
Africa’, CEPR Discussion Paper No. 8800.
Commission on Growth and Development (2008), e Growth Report, e World Bank.
Collins, D. (2005), ‘Financial Instruments of the Poor: Initial Findings from the Financial Diaries Study’
CSSR-SALDRU Working Paper No. 130, Cape Town, South Africa.
See also Rajan, 2010 for an analysis of the role of credit market access in the housing boom and bust
of 2007.
(DIS)SAVING IN SOUTH AFRICA 139
Deaton, A. (1989), ‘Saving in Developing Countries: eory and Review’, World Bank Economic Review,
Proceedings of the World Bank Annual Conference on Development Economics, 61–96.
Fedderke, J. (2004), ‘Investment in Fixed Capital Stock: Testing for the Impact of Sectoral and Systemic
Uncertainty’, Oxford Bulletin of Economics and Statistics, 66(2): 165–87.
Ferrucci, G. and C. Miralles-Cabrera (2007), ‘Saving Behaviour and Global Imbalances: e Role of Emerg-
ing Market Economies’, ECB Working Paper No. 842.
Harjes, T. and L.A. Ricci (2005), ‘What Drives Savings in South Africa?’, in Michael Nowak and Luca Antonio
Ricci (eds.), Post-Apartheid South Africa: e First Ten Years, Washington, DC: IMF.
Kumhof, M., C. Lebarz, R. Ranciere, A.W. Richter and N.A. rockmorton (2012), ‘Income Inequality and
Current Account Imbalances’, IMF Working Paper No.12/08.
Rajan, R.G. (2010), Fault Lines: How Hidden Fractures Still reaten the World Economy, Princeton: Princeton
University Press.
Sadmo, A. (1970), ‘e Eect of Uncertainty on Saving Decisions’, Review of Economic Studies 37: 353–60.
World Bank (2011), South Africa Economic Update: Focus on Savings, Investment and Inclusive Growth,
Washington, DC, USA.
Inflation in South Africa
janine aron and john muellbauer
15
1 Introduction
In many countries, ination has been on a downward trend since the early 1980s, and
fairly at since the early 1990s. Despite considerable success in bringing down the rate
of increase of consumer prices, particularly aer the introduction of ination targeting
in 2000, ination remains a perennial problem in South Africa. Figure 15.1 shows the
four-quarter percentage rate of change of two measures of consumer prices, the Con-
sumer Prices Index (CPI) and CPIX (which is CPI excluding mortgage interest), and
the corresponding change in the Producer Price Index (PPI). e ination peak over the
last 40 years in all three measures occurred in 1986 when ination began a downward
trend, despite temporary resurgences in 2002 aer major currency depreciation, and in
2008 aer sharp oil and food price rises. Table 15.1 shows average ination rates for three
periods: from 1979Q3, when the rand began to oat to 1994Q1 just before the ANC gov-
ernment came to power; from 1994Q2 to 2000Q1 when ination targeting began; and
from 2000Q2 to 2012. Table 15.1 conrms the decline in ination in South Africa, most
dramatic for the pre- and post-1994 comparison, and also for the period since ination
targeting.
Research on price determination in industrial countries generally nds that unit labour
costs are one of the major drivers of consumer prices. is is also true for South Africa, see
Section 3. Figure 15.2 shows two measures of labour costs: the four-quarter percentage
rate of change of the index of unit labour costs for manufacturing (ULC) and an index of
average remuneration of employees in the (broader) non-agricultural sector (REMUN).
e average rate of increase of unit labour costs in manufacturing is substantially below
that for average remuneration, since the latter measure does not adjust for the growth
We are grateful to Greg Farrell for advice, but we are entirely responsible for the views expressed. is
research was supported in part by grants from the Open Society Institute and the Oxford Martin School.
South Africa’s adoption of ination targeting in 2000 aimed to enhance policy transparency, account-
ability and predictability, and has seen several improvements with evolving institutional design (Aron and
Muellbauer, 2009; Van der Merwe, 2004). South Africa’s ination target aims to achieve a rate of increase in
the overall consumer price index, CPI (before 2009, CPI excluding the mortgage interest cost, the so-called
CPIX), of between 3 and 6 per cent per year.
INFLATION IN SOUTH AFRICA 141
Table 15.1 Average annual percentage rates of inflation for different periods
Pre-ANC government Post-ANC government Inflation targeting era
1979Q3–1994Q1 1994Q2–2000Q1 2000Q2–2012Q4
CPI 14.2 7.3 5.2
CPIX 14.6 8.1 6.4*
PPI 12.5 7.5 6.9
ULC 15.0 5.4 5.6
REMUN 15.3 11.4 9.3
*For 2000Q1 to 2008Q4.
Note: ULC is the labour cost per unit of manufacturing output; REMUN is average remuneration of employees in the non-
agricultural sector.
1975
0
5
10
15
20 CPI CPIX
PPI
1980 1985 1990 1995 2000 2005 2010
–5
Figure 15.1. Annual percentage change in CPI, CPIX and PPI (quarterly data)
Note: The overall CPIX had to be constructed back to 1979Q2 from seasonally unadjusted CPI ‘metropolitan’
data following the method in Aron and Muellbauer (2004), and then spliced in 2000 (when CPIX became policy-
relevant) to Statistics South Africa’s seasonally unadjusted CPIX. We then seasonally adjusted this spliced CPIX
series.
142 MACROECONOMICS AND FISCAL POLICY
in output per head (labour productivity). e gap between the measures is most pro-
nounced from the early 1990s to 2007, given the higher productivity growth associated
with greater openness of the economy. Sharp spikes in the percentage change in ULC in
1983, 1990, 1998 and 2009 are partly explained by sudden declines in output. Adjustment
of employment is typically more gradual than that of output (e.g. because of labour hoard-
ing), causing a fall in output per head.
e decline in the percentage change in average remuneration from 1986 to the present,
seen in Figure 15.2, is rather less pronounced than the decline in ination rates shown in
Figure 15.1. Table 15.1 also shows smaller declines aer 1994. is partly reects a likely
genuine improvement in output per head, but also the power of trade unions in the new
South Africa, probably enhanced by the moral stature trade unions gained during the
struggle against apartheid.
e ULC data for manufacturing probably understate the labour cost rises since productivity growth
in manufacturing was overstated in this period. Statistics South Africa used out-of-date sampling frames to
measure employment at the company level, thus missing some of the new rms created during this time of
structural change. e measurement problem is worse at the level of the whole economy, reected in major
discontinuities in ocial employment data at the time.
1975
0
5
10
15
20
25
30
ULC
RENUM
1980 1985 1990 1995 2000 2005 2010
Figure 15.2. Annual percentage change in unit labour costs in manufacturing and remuneration
per worker outside agriculture
INFLATION IN SOUTH AFRICA 143
2 Measuring consumer prices
e CPI in South Africa is based on prices recorded at retail outlets, for online transac-
tions and for other payments such as insurance premia, electricity bills, school fees and
rents. Some 1,500 items are priced monthly and the prices are weighted by expendi-
ture shares for the total of all households for each item recorded in regular income and
expenditure surveys (IES), with some weights adjusted for under-recording. e weights
are replaced approximately every ve years. It takes over a year to process the survey data,
so the weights are applied about two years following the survey. On average, therefore,
the weights are out of date by about four-and-a-half years. One of the most powerful
inuences on weights is the change in relative prices. Major rises in the relative prices of
electricity and petrol between the 2005–06 IES and the 2010–11 IES (respectively used for
weights for 2008–12 and for 2013), mainly explains these categories’ rising weights in the
CPI. To illustrate, the new weights introduced in January 2013 increased the weight on
‘electricity and other fuels’ from 2.1 to 4.1 per cent; the weight on petrol increased from
3.6 to 5.4 per cent; and the weighting on ‘food and non-alcoholic beverage’ fell from 18.3
to 17.5 per cent. Further, as average household incomes change, so proportions spent on
dierent items change, and this also more gradually changes the weights. For example,
the expenditure share of food typically declines with higher real incomes. Changes in
inequality and demographic composition could also inuence expenditure shares.
A contentious issue for many countries has been how to measure owner-occupiers’
housing costs. In South Africa, until January 2009 the mortgage interest rate was used as
a proxy for the price of owner-occupation, weighted by the expenditure share in the IES
of mortgage payments. is was a doubly unfortunate way of measuring costs of owner-
occupation. First, with a CPI-weight of around 11–12 per cent in the late 1990s and 2000s,
increases in the interest rate to head o ination had the immediate eect of increasing
the CPI (heavily used in wage negotiations). Second, among countries taking account of
mortgage interest costs in the CPI, e.g. the United States before 1983, South Africa was
unique in ignoring the role of house prices. e share of mortgage debt service costs in
total spending is measured approximately by the mortgage interest rate multiplied by the
debt level divided by total expenditure. With a given loan-to-house value ratio of, say, 0.6,
the share of debt service costs for a household with a mortgage would be 0.6 times the
price of an average home multiplied by the mortgage rate divided by household expendi-
ture. e unique South African formula implicitly assumed no change in nominal house
prices and so understated long-run trends in ination. is is apparent in Table 15.1, with
a lower average rate of increase for the CPI (including the mortgage interest rate) than
that of CPIX. Before 1994, when the CPI mortgage cost weight was lower, the discrepancy
was less.
Statistics South Africa (2009) is a useful review of various developments in the measurement of the CPI.
144 MACROECONOMICS AND FISCAL POLICY
e decision to switch to an imputed rent basis for measuring owner-occupier housing
costs was surely the correct one because it dealt with both problems. Imputed rents, linked
to market rents, adjust slowly to interest rate rises and to house prices, but take both into
account in the long run. However, the timing of the switch in January 2009 was regret-
table (as in the United States in 1983). Occurring at the peak of the interest rate cycle,
previous rises in interest rates were still pushing up measured rents, while the subsequent
fall in interest rates only had a long-delayed eect on the CPI. On the old denition, the
CPI would have declined dramatically with the sharp fall in interest rates in 2009–11. An
earlier switch to the imputed rent basis would have moderated the inationary pressures
during 2006–09 that was, shown in Figures 15.1 and 15.2.
3 The drivers of inflation
Our referenced research has thrown a light on the drivers of ination in South Africa,
improving on models developed at the South African Reserve Bank (SARB). Models that
forecast PPI ination identify seven major inuences on the level of PPI in the medium-
run (Aron and Muellbauer, 2009a). Increases in the cost elements, unit labour costs,
import prices and the rand price of oil, raise the PPI. Increased trade openness since the
early 1990s substantially lowers the PPI through the direct eect of stronger international
competitive pressure. A secondary eect, already measured through ULC, stems from the
higher productivity growth induced by trade liberalization. In forecasting PPI, an impor-
tant inuence is the switch to ination targeting in 2000: a dummy which is zero before
2000, and then 1, is highly signicant in 1- to 4-quarter-ahead forecasting models for
PPI. e spread between short-term interest rates in South Africa and the United States
reduces ination, probably through appreciating the exchange rate. Finally, the output
gap—a proxy for excess domestic demand—proves important in explaining movements
in the PPI.
We developed forecasting models for CPIX and its main price sub-components in Aron
and Muellbauer (2012). e ndings for PPI are mostly conrmed. e dominant driver in
the long run is ULC, with foreign prices converted at the exchange rate having just under
half the eect and oil prices less than one-tenth. Trade openness and the output gap are
strongly signicant and the terms of trade have a positive eect on CPIX in the long run,
controlling for foreign prices and the exchange rate. Terms of trade booms raise housing
e importance of import prices is around half that on ULC, while that on oil prices is less than one-
tenth of that on ULC.
is is measured by a moving average of constant price imports plus exports divided by real GDP. e
constant price measure avoids distortions caused by terms of trade changes to which South African exports
are sensitive given the large share of primary commodities in exports.
INFLATION IN SOUTH AFRICA 145
and other non-traded costs, with inationary eects. e feed-through from unit labour
costs to CPIX is quite slow, consistent with a chain of transmission to PPI and then to
CPIX. e feed-through from the exchange rate via import prices, see Aron et al. (2014a),
is as expected, larger and faster than for CPIX. Moreover, an analysis of pass-through at the
level of particular prices, covering around 63 per cent of the CPIX, suggests that aer two
years, around 30 per cent of an exchange rate depreciation has been passed through (Aron
et al., 2014b). Pass-through proves higher for food prices but lower for health products
and clothing prices.
e major drivers are thus the ULC and the exchange rate. ese drivers are partly
explained by feedbacks from lagged price ination (i.e. they are endogenous). ey are
also subject to shocks with little connection to standard macroeconomic variables. As an
example, trade union militancy could be triggered by events such as inter-union strife, as
seen among mine workers in 2012, or as part of the struggle against apartheid before 1994.
Another example is the unforeseen exchange rate shock in 2001, triggered by a change
in liquidity requirements in the forex market, combined with the announced intention
of the Reserve Bank to eliminate the overhang from previous interventions in the forex
market, in an unsuccessful attempt to stem the decline in the rand. Market participants
received the impression that eventual rand depreciation was a ‘one way bet’, see Aron and
Muellbauer (2009b) for further discussion.
Despite such shocks, the evidence supports a clear causal relationship between lagged
changes in CPI and current labour costs. is is, in practice, a backward indexation with
a margin of increase on top of lagged CPI ination. is makes sense from the perspective
of workers as it ensures the protection of living standards, except for brief periods where
price ination runs ahead of wages. But then there is a relatively quick catch-up. is pro-
cess of wage determination runs the risk of wage-price-exchange rate spirals of the kind
that were a major concern in parts of Europe in the 1970s. Ination targeting, supported
by hard-won central bank independence and credibility, is then a crucial anchor.
Finally, the exchange rate is also predictably inuenced by the terms of trade, interest
rate spreads, the trade balance, growth dierentials between South Africa and the outside
world and, in the medium run, by the deviation of the real exchange rate from its long-
run fundamentals (Aaron et al., 2004).
4 Prospects
e basket of goods in the CPI contains components with oen rather dierent ‘drivers’.
It is thus important to be aware of the many inuences on the price level. On the one hand
there are various ‘micro-drivers’ of ination, from the inuence of regulators and gov-
ernment micro-decisions. From 2013, administered prices make up around 18 per cent
146 MACROECONOMICS AND FISCAL POLICY
of the CPI basket. For instance, sharp rises in administered electricity prices (16 per cent
per annum), agreed by the regulator for the next ve years, relate to underinvestment
and ineciencies at ESKOM, the South African electricity public utility, and the required
nancing of new investment. As an important cost both for households and business, this
gives future impetus to ination. Mobile phone charges, also administered, are a signi-
cant element in the baskets of all, even poor, households. ese were elevated through
poor regulatory decisions about the privatization of telecoms, forfeiting the strong com-
petition from which consumers in the United States and much of Europe have beneted.
Tougher competition regulation can improve prospects for ination. Similarly, on alcohol,
tobacco and gambling, indirect ‘sin’ taxes are important revenue sources for government.
Large government decits (the decit in 2013 exceeded 7 per cent of GDP) may therefore
signal future rises in ‘sin’ taxes and in general in VAT, and hence on future ination.
On the other hand, we have the ‘macro-drivers’ discussed in Section 3. A large output
gap is inationary in the short run, but high longer-term growth rates compared to other
economies tend to lead to exchange rate appreciation which is disinationary. Economic
circumstances do not auger well for a strong rand. Relatively weak terms of trade pros-
pects for South Africa due to the slowing Chinese economy, combine with weak relative
growth prospects due to resource depletion, infrastructure and energy constraints and
poor publi-sector service delivery, including of education. With the ever-present threat
of a wage-price-exchange rate spiral, policymakers will have to be on their guard and use
all tools at their disposal, and not just monetary policy, to keep down ination. Policies
to enhance productivity growth and so limit the rise in ULC should be a key element in a
long-term strategy to hold down ination.
■ REFERENCES
Aron, Janine, Greg Farrell, John Muellbauer and Peter Sinclair (2014a), ‘Exchange Rate Pass-through and
Monetary Policy in South Africa’, Special Focus on Exchange Rate Pass-through, Journal of Development
Studies, 50(1): 144–64.
Aron, Janine, Kenneth Creamer, John Muellbauer and Neil Rankin (2014b), ‘Exchange Rate Pass-through
using CPI Micro-data for South Africa’, Special Focus on Exchange Rate Pass-through, Journal of Develop-
ment Studies, 50(1): 165–85.
Aron, Janine, John Muellbauer and Ben Smit. (2004), ‘A Structural Model of the Ination Process in South
Africa.’ CSAE WPS/2004-8. (Keynote Address, Eighth Annual Conference on Econometric Modelling for
Africa, Stellenbosch University, 1-4th July, 2003)
Aron, Janine and John Muellbauer (2004), ‘Construction of CPIX Data for Forecasting and Modelling in
South Africa’, South African Journal of Economics, 72(5): 1–30.
e weight was 14.7 per cent in the CPI for urban areas for 2008–12 and was 17.9 per cent for 2000–08,
see South African Reserve Bank (2009), 5–6.
See NEDLAC (2011) for a comprehensive review of administrative price setting.
INFLATION IN SOUTH AFRICA 147
Aron, Janine and John Muellbauer (2009a), ‘Monetary Policy and Ination Modeling in a More Open Econ-
omy in South Africa’, Chapter 15 in Gill Hammond, Ravi Kanbur and Eswar Prasad (eds), New Monetary
Policy Frameworks for Emerging Markets: Coping with the Challenges of Financial Globalization, Chelten-
ham, UK: Bank of England/Edward Elgar, 275–308.
Aron, Janine and John Muellbauer (2009b), ‘e Development of Transparent and Eective Monetary and
Exchange Rate Policy’, Chapter 3 in J. Aron, B. Kahn and G. Kingdon (eds), South African Economic Policy
Under Democracy, Oxford, UK: Oxford University Press, 58–91.
Aron, Janine and John Muellbauer (2012), ‘Improving Forecasting in an Emerging Economy, South Africa:
Changing Trends, Long-Run Restrictions and Disaggregation’, International Journal of Forecasting, 28(2):
456–76.
NEDLAC (2011), Trade and Industry Chamber, Fund for Research into Industrial Development, Growth and
Equity, ‘Study to collate all research work done on administered prices’, Final Report, November.
South African Reserve Bank (2009), Monetary Policy Review, May, 5–6 (see footnote 7).
Statistics South Africa (2009), ‘Shopping for Two. e CPI New Basket Parallel Survey: Results and Compari-
sons with Published CPI Data’, February, 3.
Van der Merwe, E. (2004), ‘Ination Targeting in South Africa’, Occasional Paper No. 19, July, South African
Reserve Bank.
Monetary policy in South
Africa since 1994
stan du plessis
16
South Africa’s successful political transition 20 years ago occurred against the backdrop
of serious economic diculties. Unemployment was high and rising, poverty widespread,
economic growth anaemic, and government’s ability to respond to these challenges was
constrained by mounting debt and a rising interest bill. Meanwhile, ination had been
relatively high for a generation and had become entrenched in local ination expecta-
tions, as seen in wage and price decisions. e eects were eroded unindexed income—a
cost borne most heavily by the elderly and the poor—and an appreciated international
value of the rand in real terms, leaving goods and services produced in South Africa pro-
gressively less competitive internationally.
Monetary policy did not, therefore, start the new political dispensation with an envi-
able recent track record, and it has remained controversial ever since. is chapter starts
with a critical discussion of what the South African Reserve Bank (SARB) did over this
period and follows with a discussion of what they did not do.
1 The track record of monetary policy since 1994
e primary objective of the SARB is ‘. . . to protect the value of the currency of the
Republic in the interest of balanced and sustainable economic growth in the Republic’
(Republic of South Africa, 1989). Over the course of 20 years, this mandate has acquired
more precise content, especially with the adoption of explicit ination targeting in 2000.
e last formal update to the SARB’s mandate was in an open letter by Finance Minister
Gordhan (2010) to SARB Governor Marcus in early 2010 where the Minister empha-
sized three priorities for the SARB, namely, ‘. . . the crucial role of monetary policy and
ination management in supporting sustainable growth and employment, and in pro-
tecting real incomes’. Secondly, that monetary authorities ‘. . . target a low and stable rate
of ination to reduce the long-term cost of borrowing and provide condence about the
f u t u r e’.
MONETARY POLICY IN SOUTH AFRICA SINCE 1994 149
is much-anticipated statement ran into immediate trouble with the labour move-
ment in South Africa. e Congress of South African Trade Union (Cosatu) spokesman,
Patrick Craven, expressed his disappointment that the ‘. . . minister failed to move an inch
from the failed monetary policies of the past administration’ (Brown, 2010: 4). His criti-
cism was aimed at the supposed inexibility of ination targeting, and it follows that this
is one dimension along which the performance of monetary policy in South Africa has
to be evaluated.
But there is also a deeper line of criticism against ination targeting, namely, that the
system places too little emphasis on the goals of job creation and higher economic growth.
Indeed, the Gordhan letter quoted above followed a review of ination targeting commis-
sioned by a disillusioned ANC (African National Congress), who felt—in the words of the
ANC’s Secretary General, Gwede Mantashe—that ‘. . . we can’t just say the [monetary] pol-
icy is right’, to which he added ‘. . . the primary issue is employment creation’ (Brown, 2009:
1). At stake here is the SARB’s mandate, which is the topic of the second part of this chapter.
From Minister Gordhan’s list it is clear that we also need to see whether ination has in
fact been kept low and stable. Finally, since 1994 the SARB had to implement its mandate
in a democratic dispensation and during an era when central bank independence had to
be balanced by unprecedented openness and accountability and ‘condence about the
future’. e transparency of monetary policy, therefore, also requires investigation.
A. LOW AND STABLE INFLATION
South Africans lived with double-digit ination for 20 years until the early 1990s, while
their real per capita income declined as well. Stagation was not unique to South Arica
and undermined condence in monetary policy regimes internationally (Burns, 1979;
Goodfriend, 2005). It was the Bundesbank, the Swiss National Bank and later the Federal
Reserve Board that showed that monetary authorities can assume responsibility for ina-
tion without paying a penalty in terms of lower gross domestic output (GDP) growth.
Advances in economic theory explained these successes and emphasized the impor-
tance of expectations in the process of ination and the role of transparent and credible
policy commitments by monetary authorities (Goodfriend, 2007). In South Africa the De
Kock Commission (1978; 1984) incorporated these lessons into a framework for mon-
etary policy whereby the SARB would assume explicit responsibility for low and stable
ination and employ market-based instruments to that end. is laid the groundwork for
an explicit nominal anchor for South African monetary policy, and an evolutionary pro-
cess would move the SARB from monetary growth guidelines in the late 1980s, through a
phase of eclectic ination targeting in the middle to late 1990s to explicit ination target-
ing from 2000 onwards.
150 MACROECONOMICS AND FISCAL POLICY
e outstanding features of an ination targeting system are an explicit commitment to
a numerical target for the ination rate and a forward-looking strategy to ensure mon-
etary conditions consistent with that target. In this strategy the explicit target has the
role of a focal point for ination expectations, and ination targeting central banks have
been successful in anchoring expectations on their targets without imposing real output
costs (Simon et al., 2013). Since this strategy aims to anchor ination expectations, it
requires that monetary policy be conducted with unprecedented transparency requiring
a far-reaching communication strategy (which also delivers political accountability in a
democratic dispensation).
At the time of writing, 155 months of ination data were available with which to evalu-
ate the SARB’s performance, during which time the median (CPI) ination rate was 5.4
per cent, and within the SARB’s target band for 78 months. By missing their target just less
than half of the time, the SARB performed comparably with the international experience,
where ination-targeting central banks had missed their targets on average 43 per cent of
the time, though the SARB missed the target rather more frequently on the high side. e
SARB also missed the target further than its international peers, with the average size of
misses above and below the target at 2.5 percentage points compared with 1 percentage
point internationally (Roger, 2010).
ough the average ination rate since 2000 has been consistent with the target, it is
clear that the SARB has, as have other ination-targeting central banks, been willing to
tolerate prolonged deviations from the target range. In January 2010, for example, with
ination moving above 6 per cent, the SARB’s governor played down the event and poin-
ted to the long impact lag for monetary policy, emphasizing that over this longer-term
horizon forecasted ination was consistent with the target range (Hazelhurst, 2010). at
episode also demonstrated the forward-looking nature of ination targeting, with the
emphasis falling squarely on the forecasted ination rate.
B. THE FLEXIBILITY OF INFLATION TARGETING
is tolerance for ination outside the target band is partly explained by the exibility
with which ination targeting is implemented in practice. Proponents of ination tar-
geting have long maintained that this framework allows for appropriate consideration
e SARB’s ination target is a range of 3 to 6 per cent for headline ination, which is to be achieved
continuously, but with the understanding that monetary policy only aects observed ination with long and
variable lags. is detail of the target has evolved since its inception in March 2000. Amongst ination target-
ing central banks, the SARB has a relatively high target range (Roger, 2010). e initial intention was to move
towards a lower and narrower range, but this was abandoned following the ination scare in the wake of the
2001 depreciation.
MONETARY POLICY IN SOUTH AFRICA SINCE 1994 151
of real output uctuations. Scholars of ination targeting distinguish exible from strict
ination targeting, a distinction which turns on the presence (exible) or absence (strict)
of real output in the objectives of the policymaker (Svensson, 2009). All known cases of
ination targeting are of the exible kind.
Since 2000 the South African economy has grown by an average annualized rate of
3.5 per cent, which is consistent with recent estimates of the economy’s potential growth
rate. Real output growth has also become notably more stable since the adoption of ina-
tion targeting, consistent with the evidence of other emerging market ination targeters
(Gonçalves and Salles, 2008). Further evidence that monetary policy has not unduly dis-
rupted real economic activity can be gleaned from the Bureau for Economic Research
(BER) at Stellenbosch University’s quarterly manufacturing sector survey. is survey
enquires about factors that discourage rms from expanding capacity in the manufactur-
ing sector, and since 2000, interest rates were mentioned as the dominant constraint in
this survey in only eight quarters.
Apart from observing these macroeconomic outcomes, we can also examine the ex-
ibility of the policy procedure followed at the SARB. Here one nds a prominent role for
core ination in the SARB’s policy process (Du Plessis, 2009), another sign of exible
ination targeting. It is core ination that helps central banks avoid overreacting to tem-
porary price shocks (Walsh, 2009). Direct statistical estimates of the SARB’s policy pro-
cess will also indicate the degree of policy exibility. In the South African literature, Ortiz
and Sturzenegger (2007) showed that the SARB had a stable policy reaction function
consistent with exible ination targeting, with an even greater weight on output than in
other emerging market ination targeters. Finally, a recent estimate of where in the 3–6
per cent band the SARB targeted the ination rate in practice found that the SARB had
most likely targeted the upper band, with the implicit target driing towards the upper
end of the target band since the international nancial crisis (Klein, 2012).
C. THE OPENNESS OF INFLATION TARGETING
Having considered the SARB’s performance with respect to ination and policy exibil-
ity, it remains to consider the transparency with which the system has been implemented.
e SARB launched an extensive communication strategy to explain its policy decisions
and help anchor the public’s ination expectations. It is possible to evaluate both the con-
tent and the results of this extensive communication strategy.
Ehlers, Mboji and Small (2013), Kemp (2012) and Klein (2011) all arrived at an estimate of 3.5 per cent
for the potential growth rate.
e SARB has also been a leader in the practical estimation of core measures of ination in South Africa,
for example Blignaut, Farrell, Munyama and Rangasamy (2009) and Ruch and Bester (2012).
152 MACROECONOMICS AND FISCAL POLICY
Where the results are concerned, both Aron and Muellbauer (2007) and Reid (2009)
used nancial market data to show that the SARB had succeeded in anchoring ination
expectations under ination targeting. An alternative indicator of the extent to which
local ination expectations have been anchored is a measurement of the pass-through of
nominal exchange rate uctuations to local ination. Here too, the local evidence suggests
considerable success since the advent of ination targeting (Aron et al., 2010 and 2012).
But these data cannot reveal the role played by the SARB’s communication strategy. To
identify the link between the favourable outcomes and the SARB’s communication strategy,
Reid and Du Plessis (2010) studied the content of each monetary policy statement (released
aer every meeting of the monetary policy committee) and related it to subsequent interest
rate decisions. ey found that the SARB’s monetary policy statements provided consist-
ent information about likely subsequent decisions in an overwhelming majority of cases.
Less happily, the same authors found that the South African media provided relatively little
critical analysis of the SARB’s communications (Reid and Du Plessis, 2011).
In summary, there is abundant evidence—from econometric estimates, the observed
tolerance for ination outside the target band, the role of core ination, observed GDP
growth consistent with its potential and business surveys—that the SARB has pursued
its ination target exibly. is policy has also been implemented with unprecedented
transparency, as has been the case with other ination-targeting central banks.
2 The Reserve Bank’s mandate
Finance Minister Gordhan’s (2010) open letter was intended to clarify the SARB’s man-
date in the face of such criticism, but the waters were muddied soon aer the letter when
the Minister claimed in an interview with the Financial Mail that he had not ‘claried’ the
SARB’s mandate, but had articulated a new mandate (Bisseker, 2010). Despite the Minis-
ter’s revisionism, there is little evidence of a new mandate in his letter. Flexible ination
targeting was emphasized, but was not a break with the existing mandate. In the aer-
math of the international nancial crisis, the Minister emphasized the need to be ex-
ible also with respect to asset market imbalances and to be vigilant on nancial stability,
neither of which broke new ground for ination targeting (Bernanke and Gertler, 1999).
However, a new item that did emerge on the Minster’s agenda during the interview was
the option of using the SARB’s balance sheet to accumulate foreign exchange rate reserves
to stabilize the currency (Bisseker, 2010). While the use of the central bank’s balance sheet
clearly expands the bank’s instrument set, it does so in a manner consistent with ination
targeting, as Charles Goodhart (2011) has argued. In fact, the SARB had used its balance
sheet aggressively to intervene in the foreign exchange market for many years, as shown
in Brink and Kock (2009) and Du Plessis (2012). Cumulatively, the SARB’s balance sheet
MONETARY POLICY IN SOUTH AFRICA SINCE 1994 153
expansion since 2003 was as large relative to South African GDP as the second round of
the Federal Reserve Board’s quantitative easing policy (QE 2) in the United States. Even
on this point, the Minister claried what the SARB had already done, rather than articu-
late a new mandate.
More crucially, this expanded understanding of the instrument set available to the
SARB did not amount to an expansion of its mandate to include a target for real GDP
growth or employment. ere is good reason why the SARB’s mandate is stated as low
and stable ination in the interest of sustainable economic growth: namely, this is what
the central bank can deliver.
Whether the central bank can also deliver the nancial stability, which is now more
explicitly articulated in its mandate, remains to be seen. But it is clear, both from theory
and from the empirical evidence locally and internationally, that monetary policy cannot
be used to raise the sustainable rate of real GDP growth or boost employment beyond the
level consistent with sustainable growth. Accepting higher ination would not achieve
either of these goals, as can be seen from the Phillips curve literature in South Africa,
where 40 years of published evidence provides no comfort for those seeking an exploitable
trade-o between ination and growth or employment (e.g. Burgher and Marinkov, 2006).
3 Conclusion
In considering the last two decades of monetary policy in South Africa one is le with the
impression that it has been largely successful, despite the intermittent controversy about
the SARB’s mandate and the exibility of its conduct. If anything, the SARB has been
less single-minded about keeping ination inside its already high target range than most
other ination-targeting central banks. At the same time, the SARB also used its balance
sheet aggressively to pursue complementary goals.
is generally favourable assessment of monetary policy in South Africa is somewhat
diminished by its track record on ination. It is not just that the SARB’s target range was
higher than most developed and emerging market economies, but that it missed its tar-
get slightly more persistently and with larger deviations compared with its international
peers. Ironically, the SARB was accused of being too hawkish on ination at precisely the
point where its track record was most dovish.
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Monetary Policy in South Africa’, Pretoria, South African Reserve Bank Working Paper No. WP/12/08.
154 MACROECONOMICS AND FISCAL POLICY
Aron, J. and J. Muellbauer (2007), ‘Review of Monetary Policy in South Africa Since 1994’, Journal of African
Economies, 16(5): 705–44.
Bernanke, B. and M. Gertler (1999), ‘Monetary Policy and Asset Price Volatility’, Federal Reserve Bank of
Kansas City Economic Review (4th quarter): 17–51.
Bisseker, C. (2010), ‘Putting Out Fires on Ination Targeting’, Financial Mail, Johannesburg, February 26,
2010: 1.
Blignaut, Z., G. Farrell, V. Munyama and L. Rangasamy (2009), ‘A Note on the Trimmed Mean Measure of
Core Ination in South Africa’, South African Journal of Economics, 77(4): 538–52.
Brink, N. and M. Kock (2009), ‘Central Bank Balance Sheet Policy in South Africa and its Implications for
Money-Market Liquidity’, Pretoria, South African Reserve Bank Working Paper No. WP/10/01.
Brown, K. (2009), ‘ANC, Allies “Reviewing” Reserve Bank’s Role’, Business Day, Johannesburg, November 16,
2009: 2.
Brown, K. (2010), ‘Cosatu Says SA Needs New Monetary Policy’, Business Day, Johannesburg, February 18,
2010: 1.
Burger, P. and M. Marinkov (2006), ‘e South African Phillips Curve: How Applicable is the Gordon Model?’,
South African Journal of Economics, 74(2): 172–89.
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Polak, Belgrade, e Per Jacobsson Foundation.
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Central Banking after
the global financial crisis:
the South African case
vishnu padayachee
17
1 Central Banking developments in South Africa,
c
.1990–2008
e South African Reserve Bank, which for most of its long history was largely subservi-
ent to political agendas, was granted constitutional independence as part of the political
negotiations process which brought the apartheid system to an end in 1994. Both the
1994 interim Constitution and the nal 1996 Constitution granted the South African
Reserve Bank full independence. Its primary goal and mission, as set out in the 1996
Constitution, is ‘to protect the value of the currency’.
South Africa adopted ination targeting as a monetary policy framework on February
23, 2000. Since the adoption of ination targeting in South Africa, the specication of
the target has been revised from time to time. e target range set by the government was
initially set as 3 to 6 per cent for achievement by 2002. is implies that the Bank does
not have goal independence in its conduct of monetary policy, but operational independ-
ence in as much as it can elect the use of any available monetary policy instruments in the
pursuit of the target.
e average ination rate since the adoption of ination targeting (up to the middle of
2010) was, at about 6.2 per cent per annum, marginally above the target range. Ination
moved in this period between a low point of 1.4 per cent in 2004 and a high point of 11.5
per cent in 2010 (Rossouw and Padayachee, 2011).
Relative price stability and scal discipline for most of the period since the advent
of democracy was not, however, accompanied by signicantly robust and sustainable
growth in either the GDP or employment, and levels of poverty and inequality remained
stark and high. e uptick in ination as the 2008 crisis loomed added to concerns about
the performance of the real economy.
CENTRAL BANKING AFTER THE GLOBAL FINANCIAL CRISIS 157
2 Impact of the 2008 crisis
Given its deep albeit troubled historical engagement in global economics, expectations
were that South Africa would feel the eects of the global recession both quickly and
deeply, and in ways which added to the economic problems created by race, inequality
and the structural problems associated with the nature of its brand of capitalism. e
Chilean-born Cambridge economist, Gabriel Palma, speaking to an audience in Cape
Town in September 2009, observed that ‘unlike almost all other middle-income coun-
tries, [South Africa] had entered the crisis with a greater degree of vulnerability, namely
a very large current account decit, high interest rates and high ination’. He argued that
South Africa had to re-impose capital controls, relinquish the independence of its central
bank, jettison ination targeting and address the problem of its over-sized and unproduc-
tive nancial sector, a legacy of a long period of (US-type) nancialization of its economic
activity (Business Day, September 14, 2009).
In contrast, top South African ocials initially took a dierent position to the emerg-
ing crisis. Trevor Manuel, the former Finance Minister, now Minister in the Presidency
in charge of the National Planning Commission, reacted to the crash in global markets in
late 2008 with the view that South Africa would not be badly aected. Even when signs in
the real economy were pointing to serious problems in early 2009, Trevor Manuel insisted
that South Africa was not in a recession!
Part of the reason for this more optimistic picture arose from the experience of the
late 1990s’ Asian nancial and currency crisis, which South Africa weathered very well.
e government attributed that earlier success to the soundness of its home-spun struc-
tural adjustment programme, the Growth, Employment and Redistribution programme
(GEAR), which saw key macroeconomic balances quickly fall within IMF norms aer the
democratic elections of 1994.
But things then begin to change aer 2007 in the key macroeconomic balances and
the fragility and vulnerability in the real economy that had been evident for some time
could not easily be swept away with technical talk about the macroeconomic fundamen-
tals being right.
e country fell into a technical recession at the end of the rst quarter of 2009. Manu-
facturing output in the rst quarter of 2009 declined by 6.8 per cent relative to the previ-
ous quarter, while mining production declined by 12.8 per cent over the same period.
Similar contractions were apparent in the retail and wholesale trade sales, with motor
vehicle sales (domestic and export) in particular falling sharply (SARB Quarterly Bul-
letin, various). In the third quarter of 2009, 484,000 workers lost their jobs, the largest
number being in manufacturing (about 150,000): the total job losses were more than
the combined total of the rst two quarters of that year taking the ocial unemploy-
ment rate to 24.5 per cent and total (ocial) job losses up to the end of the third quarter
158 MACROECONOMICS AND FISCAL POLICY
over the million mark. To these gures should be added some 1.6 million workers who
are excluded from the calculations because they have ceased actively searching for work,
i.e. the so-called ‘discouraged workers syndrome’, taking the real unemployment rate to
about 32 per cent (Business Day, October 30, 2009).
Turning to other macroeconomic balance indicators, ination breached the outer limit
of the target range (3–6 per cent) and CPIX stood at an average 9.9 per cent for 2008. e
current account decit as a percentage of GDP rose from a very modest and manageable
1.1 per cent in 2003 to a disconcerting 5.8 per cent in 2008, and an alarming 7 per cent
in the rst quarter of 2009. ough initially this decit was easily nanced by steady for-
eign capital inows (mainly portfolio investment but also some foreign direct investment
(FDI)) the tremors in global nancial markets from around September 2008 threatened
the sustainability of this key ratio, for long regarded as the ‘achilles heel’ of the modern
South African economy (SARB Quarterly Bulletins, March 2009, June 2009 and Septem-
ber 2009).
Macroeconomic performance in 2011–13 has remained disappointing. Growth rates
have been sluggish and falling. Employment has ticked up only marginally, but still hov-
ers around the 25 per cent mark using ocial estimates, and is estimated to be around
40–45 per cent if discouraged former job-seekers are added. Poverty rates may have fall-
en marginally because of the impact of social grants, but they remain stark and racially
determined, while inequality levels are now the highest in the world (Ashman et al., 2013,
entry in this volume).
3 South Africa: the banking sector after the 2008 crisis
Financial analysts were mostly in agreement that one reason why South Africa would
weather the 2008 global turbulence better than most was its eectively regulated and well-
capitalized banking and nancial sector. Retaining some exchange control measures over
residents and a relatively stable macroeconomic management combined to insulate South
African banks from the shocks originating in the US sub-prime market (Financial Mail,
March 13, 2009). Former Reserve Bank Governor, Tito Mboweni, pointed out in early
2009 that South African banks had improved their capital ratios in the past year, noting
that the country’s banks were ‘strong and healthy’ and that the capital adequacy ratio was
increased from 11.8 per cent in January 2008 to 13 per cent in December 2008 (Business
Day, March 2, 2009).
e 2008 SARB banking supervision annual report showed that economic stress in
the household sector had an adverse eect on banking business but that banks remained
sound in terms of liquidity and solvency. e report highlighted the buers that have
protected the local banking industry, including that banks had not been allowed to use
CENTRAL BANKING AFTER THE GLOBAL FINANCIAL CRISIS 159
hybrid structures in their capital base (as US/UK banks); they had not relied on derivative
structures for funding; they were required to increase capital adequacy in good times; and
capital adequacy requirements were raised on home loans when banks granted more than
80 per cent of the value of the property, a factor which limited banks from giving loans
simply to fund high lifestyles.
To the question, ‘what protected South Africa during this period of extreme global
turbulence?’, the SARB’s senior deputy Head of the Research Department, Brian Kahn,
responded as follows:
Itturns out thatwe were protected to some extent by prudent regulation by the Bank regula-
tors, but more importantly, and perhaps ironically, from controls on capital movements of
banks.Despite strong pressure to liberalise exchange controls completely, the Treasury has
adopted a policy of gradual relaxation over the years . . . With respect to banks, there are
restrictions in terms of the exchange control act, on the types of assets or asset classes they
may get involved in (cross-border). ese include leveraged products and certain hedging
andderivative instruments. For example banks cannot hedge transactions that are not SA
linked. Eectively it meant that our banks could not get involved in the toxic assets oating
that others were scrambling into. ey would have needed exchange control approval which
would not have been granted, as they did not satisfy certain criteria. e regulators were
oen criticised for being behind the times, while others have argued that they don’t under-
stand the products, butit seems there may beadvantages to that! (2008: 1)
However, local banks did experience some stresses, especially in their earnings as credit
growth to the private sector fell to 2.34 per cent year on year in September 2009, the weak-
est growth since October 1966 (Business Report, October 1, 2009).
South African corporates responded to the general tightening of bank credit and
loans by accumulating vast sums of cash on their balance sheets in order to reduce
possible reliance on borrowing from the banks. e result according to a recent SARB
report is that cash in corporates now exceeds R1.2 trillion! (SARB Quarterly Bulletin,
December 2011).
4 SARB policy responses after 2008
As pointed out in discussion by Princeton Professor Jean Pierre Landau at the 2012 SARB
Monetary Policy workshop, a return to the status quo ante in respect of central bank
policy, mandates and operations (post-crisis) is neither desirable nor indeed feasible
(November 2012). So in what ways, if at all, has the SARB responded in terms of its opera-
tions and mandate?
e South African Reserve Bank’s response, within the limits of its current constitu-
tional mandate, focused on the following interventions:
160 MACROECONOMICS AND FISCAL POLICY
• successivelybutgraduallyloweringthereporate(soinuencingonwardlendingrates);
• furtherimprovingbankingregulationandsupervision,improvingitsinstitutionalcapacity
to ensure nancial stability, while avoiding the dangers of over-regulation;
• usingmoralsuasiontogetthebankstotightentheirlendingcriteria,whilelettingcreditow.
Even notable critics of the Bank’s policy stance such as Hassan Comert and Jerry Epstein
argue that the Bank reacted fairly well. ey point out that ‘the SARB policy regime as
well as its rhetoric about monetary policy signicantly changed in response to the crisis of
2008’ (2011: S94). In essence, exibility and pragmatism have characterized its approach.
e rest of this discussion will focus on the rst two responses.
e repo rate: e Monetary Policy Committee (MPC) now meets more frequently in
order to be able to respond rapidly to changing domestic and international circumstanc-
es. e MPC reduced the repo rate sharply in the rst half of 2009 and has since gradu-
ally lowered the repo rate to reach 5 per cent by July 2012 (the lowest in over 30 years).
e Bank’s Head of Research, Dr Rashad Cassim, refers to this as a ‘protracted monetary
stimulus’ which (he argued) has been the stand-out monetary policy response to the crisis
(interview, November 9, 2012).
e political context within which the Bank conducts monetary policy also changed
following the crisis, though not as a result of any constitutional amendment. In the 2010
budget, Finance Minister Pravin Gordhan requested that the Bank apply monetary policy
within a ‘exible ination targeting framework’, i.e. that in achieving its ination target
the ‘Bank is expected to take cognisance of the implications of its actions for the gap
between actual and potential economic growth, asset bubbles, employment, and the sta-
bility and competitiveness of the exchange rate’ (Kahn and de Jager, 2011: S78). What
this means in practice is that the MPC will no longer automatically raise interest rates if
the ination rate breeches or threatens to breech the upper limit of the ination target.
Consideration will have to be given to the output gap. If this is considered wide enough,
interest rates may be retained rather than raised.
More attention appears to be paid to the volatility and level of the exchange rate, though
it has been made clear that there is no implicit or explicit exchange rate target. at more
attention is paid to the exchange rate though is evident from various speeches by high
ranking SARB ocials. Former Chief Economist and MPC member, Monde Mnyande,
argued that ‘the Bank is very aware of the impact of both the current level and volatility of
the rand on the economy, particularly the manufacturing, export and import-competing
sectors. Discussions with the National Treasury about the various options to address
these issues, as well as the availability of resources to do so are on-going’ (Comert and
Epstein, 2011: S102).
Financial stability: e second signicant response of the SARB has been in respect of
nancial stability. Prior to 2008 most central banks, including the SARB, had an implicit
nancial stability mandate, and the view was that price stability would ensure nancial
CENTRAL BANKING AFTER THE GLOBAL FINANCIAL CRISIS 161
stability. However, as Kahn and de Jager observed, ‘there is no guarantee that low ina-
tion guarantees nancial stability’. A letter from the Minister of Finance to the SARB at
the onset of the crisis reinforced ‘the central role that the Bank should play in maintaining
nancial stability’ (SARB Annual Report, 2009/10: 3). is led the SARB in that year to
make nancial stability a more explicit and complementary mandate (Monetary Policy
Review, October 2012: Preface) and to make this an explicit focus of the deliberations
of the MPC, and then to enhance the mandate of and reconstitute the membership of
the Financial Stability Committee (FSC), which now has a major overlap in membership
with the MPC. e FSC meets every two months in between the meetings of the MPC.
However, no public statement is issued aer every FSC, and this remains a challenge. One
key issue here, among other issues of coordination and governance, is the implications
of this revised SARB mandate for the Financial Services Board (FSB), i.e. whether South
Africa is de facto moving to a single regulator (SARB) or not. is is largely ‘unchartered
territory’, as Governor Marcus observed (Annual Report, 2010/11: 3). Within the Bank, it
would appear that the central issues for debate in respect of nancial stability is, as Kahn
and de Jager suggest, that of ‘focussing on the instruments and governance structures to
implement macro-prudential oversight in order to ensure nancial stability within a con-
text of price stability and sustainable growth’ (2011: S91).
South Africa’s nancial system is rated among the best in the world. In the 2012 World
Economic Forum (WEF)’s Competitiveness Survey, South Africa ranked third on overall
nancial market development, rst in the regulation of securities exchanges and rst in
the strength of auditing and reporting standards. But, as SARB Deputy-Governor Daniel
Mminele observes, ‘there is no room for complacency . . . While South Africa’s nancial
sector may have come through the crisis relatively unscathed, we are part of the global
community and are also undertaking various regulatory reforms to ensure that our nan-
cial sector is further strengthened’ (Mminele, 2012).
5 Conclusion
e global nancial crisis may not have sparked calls for the scrapping of ination tar-
geting or for the ‘nationalization’ of the SARB. However, the crisis does appear to have
intensied the debate for such reforms, especially from COSATU and its metal aliate
NUMSA. While buying out the SARB’s private shareholders may not represent a radical
change—aer all the SARB is one of the few central banks in the world that is privately
owned (Rossouw and Breytenbach, 2011)—it is dicult to understand how it will bring
about the kind of changes in governance and policymaking which its proponents expect
or hope for. e current Governor has been forceful and unambiguous in defending the
current status of the Reserve Bank. Perhaps a much more productive and less damaging
162 MACROECONOMICS AND FISCAL POLICY
debate (for the Bank and the country) could revolve around how the SARB can play a
more progressive and coordinating role within the complex of the state’s policy depart-
ments in promoting growth and employment in line with its current constitutional struc-
ture and mandate, something I do believe is both necessary and possible.
■ REFERENCES
Ashman, Sam, Ben Fine, Vishnu Padayachee and John Sender (2013), ‘e Political Economy of Restructur-
ing South Africa’, in this volume.
Comert, Hassan and Gerald Epstein (2011), ‘Ination Targeting in South Africa: Friend or Foe of Develop-
m e n t’, Economic History of Developing Regions, 26 Supplement 1.
Kahn, Brian (2008), ‘Challenges of Ination Targeting for Emerging-Market Economies: e South African
Case’, in Challenges for Monetary Policy-Makers in Emerging Markets, South African Reserve Bank, Confer-
ence Series.
Kahn, Brian and Shaun de Jager (2011), ‘An Assessment of Ination Targeting and its Application in South
A f r i c a’, Economic History of Developing Regions, 26 Supplement 1.
Mminele, D. (2012), Address by SARB Deputy-Governor at the Gordon Institute of Business Science,
Johannesburg.
Rossouw, Jannie and Adele Breytenbach (2011), ‘Identifying Central Banks with Shareholding: A Review of
Available Literature’, Economic History of Developing Regions, 26 Supplement 1.
Rossouw, Jannie and Vishnu Padayachee (2011), ‘Reecting on Ninety Years of Intermittent Success: e
Experience of the South African Reserve Bank with Ination Since 1921’, Economic History of Developing
Regions, 26 Supplement 1.
Capital markets
shakill hassan
18
South Africa has non-trivial capital markets. is chapter presents the basic facts, places
the domestic markets within the global context and discusses some research-based micro
and macro aspects of the markets for equities, bonds, currency and derivatives.
1 Equities
e Johannesburg Stock Exchange (JSE) was founded in 1887, one year aer the discov-
ery of gold in the Witwatersrand area, in response to the need for capital to fund burgeon-
ing investments in the mining sector. It is one of the world’s 20 largest stock markets; the
sixth largest among emerging economies (aer China, Brazil, India, Taiwan and South
Korea); and by far the largest in Africa, with over 400 rms listed, and market capitaliza-
tion in excess of US$900 billion in early 2013. It represents 8 per cent of the benchmark
MSCI Emerging Markets index, the h largest country weight, and its aggregate value
is therefore rapidly aected by the global ow of funds, to and from emerging markets.
e JSE’s signicance in the national economy, measured, admittedly crudely, by the
ratio of market capitalization to GDP, is close to 190 per cent. is is unusually large and
is only exceeded by Hong Kong where the ratio is a staggering 914 per cent, and Singa-
pore at 224 per cent, and suggests that sustained movements in the aggregate valuation
of the stock market can have signicant eects on aggregate spending and the share of
consumption in domestic output.
Existing research documents similar ndings regarding eciency, risk-return trade-
o, and pricing behaviour to stock markets in advanced economies. e long-term
For a more extended treatment, including some basic denitions, illustrative tables and gures, see Has-
san (2013).
A listed company’s capitalization is the market price of its shares multiplied by the number of shares
issued. Summing this number over all companies listed in a given exchange gives that exchange’s market
capitalization. South Africa has the world’s third most highly capitalized economy.
e views expressed herein are those of the author and not necessarily those of the South African
Reserve Bank.
166 FINANCE, INDUSTRY AND INFRASTRUCTURE
average equity premium, dened as the return on the aggregate stock market in excess
of a proxy for the risk-free interest rate, is approximately 6 per cent—among the high-
est when compared to advanced economies, but in the same order of magnitude despite
higher perceived risk (Hassan and Van Biljon, 2010). e equity risk premium largely
determines the cost of equity capital. Combined with the level of interest rates, it is an
important determinant of the overall cost of capital in South Africa—which in turn deter-
mines investment, and hence growth and employment.
Research on the cross-section of individual stocks on the JSE documents the ex-
post predictive power of market capitalization, scaled-price ratios and one-year lagged
returns. e associated in-sample outperformance is not easily explained by measures of
covariance risk given by portfolio-based asset pricing models. Since there is no theoretic
basis for the identied factors to represent sources of systematic risk, evidence that port-
folios based on such ad-hoc characteristics earn abnormal returns implies violations of
market eciency, in the sense that ‘prices are not right’. at is, shares are not consistently
priced as discounted expected future cash ows, where the expectations take into account
all available information and discounting uses rates consistent with risk as determined by
an equilibrium asset pricing model.
Such violations of pricing eciency do not imply the existence of abnormally protable
(riskless) trading opportunities (i.e. that ‘prices are not right’ need not imply ‘free lunches’ in
the market). e anomalies may be due to any of the factors that impose limits and risks to
(quasi-) arbitrage trades, which would otherwise correct mispricing of non-replicable secu-
rities, including common stocks (e.g. horizon risk, positive-feedback trading, costs and risks
of short selling). Bartens and Hassan (2010) show that the evidence of in-sample predictabil-
ity does not guarantee predictability which can be mechanically exploited in real time, and
suggest that this may be due to a combination of some data snooping in the identication of
the anomalies, and an unstable relationship, limiting the predictive content of patterns iden-
tied in-sample. is is consistent with evidence from advanced economies and indicative of
a level of informational eciency (‘no free lunches’)—though not necessarily fundamental
eciency. From an economics viewpoint, the fact that prices can deviate substantially from
fundamentals is more important than whether there are no free lunches. Such deviations
can imply ineciency in the allocation of capital to the most productive investment projects.
2 Bonds and currency
e bond market as of 2012 is worth (amount outstanding) approximately US$181 bil-
lion. Government bonds account for the bulk of the market (currently approximately
US$116 billion), and are highly liquid, with total turnover exceeding US$2 trillion in
See Bartens and Hassan (2010) on this literature and its limitations.
CAPITAL MARKETS 167
2011 (mainly through repo trades)—recently assessed as the world’s sixth most liquid by
turnover (BIS, 2007; SARB, 2013). Participation in primary auctions of government debt
is restricted to authorized dealers. Secondary trading is through the JSE, aer its acquisi-
tion of the Bond Exchange of South Africa in 2009. e corporate portion of the market
remains smaller and less liquid, with issuance dominated by a few large rms—mainly
banks and nancial rms—which have replaced state-owned enterprises as the main ‘cor-
porate’ issuers. It grew rapidly between 2003 and 2008, when South Africa experienced
rapid economic growth and moderating interest rates, and a reduction in government
bond nancing needs.
Non-government issuance as a percentage of total increased from 13 per cent in 2002
to 48 per cent in 2008, when corporate bonds reached close to a third of the domestic
bond market’s value—its current weight, aer decline and recovery. Relatively low lever-
age ratios in the domestic corporate sector allow scope for further growth in the market,
which saw record issuance in 2012, supported by low interest rates, but despite low eco-
nomic growth (RMB, 2008, 2013; SARB, 2013).
Non-resident trading in domestic securities has risen substantially, especially in the
xed income market where foreign ownership of government bonds (included in the Citi
World Government Bond Index in September 2012) exceeded 30 per cent during 2012.
Figure 18.1 illustrates the extent of the increase in non-resident activity in the domestic
securities market. e increase in bond trading is particularly noteworthy.
South African debt is mainly denominated in domestic currency, widely traded
under a exible exchange rate regime. e threat to nancial stability from sudden
stops in inows is increasingly non-negligible, but still remains comparatively limited
compared to Latin America and South East Asia in the 1980s and 1990s. e rand’s
volatility (discussed below), reduces the incentive for South African borrowers to raise
foreign currency liabilities.
Interest rates and risk determine securities prices in the xed-income market. e
SARB directly inuences short-term rates by setting the reference policy rate—the repo
or repurchase rate—which is determined, exibly, in response to forecasted deviations
of ination from a target. e term-structure of interest rates describes how these relate
to long-term yields. Monetary policy eectiveness is limited when changes in the policy
rate have little eect on long-term rates, because the latter determine productive invest-
ment. e interaction between arbitrage, risk and demand and supply forces in the South
African xed-income market, which in turn inuence the term structure, have so far been
insuciently well understood.
Average daily rand turnover, consistently among the world’s 20 heaviest, is estimated at
US$60 billion for 2013, of which US$19 billion represents spot transactions—exceeding
Fedderke and Pillay (2010), Aling and Hassan (2012).
168 FINANCE, INDUSTRY AND INFRASTRUCTURE
the Brazilian and Indian currencies (based on BIS, 2010, 2013). Average daily turno-
ver in South Africa is, however, US$21 billion. Local trade accounts for approximately
34 per cent of spot, 48 per cent of forward and 35 per cent of swap transactions. e rest
is cross-border trade—65 per cent of combined rand spot, forward and swap turnover.
e main currency pairs are formed with the US dollar and Japanese yen, accounting
for, respectively, US$51 and ¥4 billion of average daily turnover. For the period 2000–09,
the standard deviation of the rand–dollar rate is approximately 16 per cent—exceeded,
among the substantially traded emerging market currencies, with comparable turno-
ver, over the same period, only by the Turkish lira (27 per cent) and the Brazilian real
(20 per cent).
High currency volatility is typically matched by large interest rate dierentials, and
indirect evidence suggests the rand is a common currency speculation target. Average
cumulative returns from Japanese yen-funded rand-targeting speculation through the
forward market are volatile but high, though highly sensitive to trade initiation date, with
a particularly attractive risk-return prole (same volatility but higher mean return and
lower probability of rare but large losses than buy-and-hold in the stock market) aer
crashes in the rand. Prior to the 2008 sub-prime crisis, the currency experienced crashes
in 1996, 1998 and 2001 (Duncan and Liu, 2009; SARB, 2013). e cumulative returns
Gagnon and Hinterscweiger (2011).
Figure 18.1. Monthly net purchases of domestic securities by non-residents (R1000s)
Notes: CUM_NBP is cumulative net bond purchases, over four weeks; CUM_NSP is cumulative net stock purchases.
Data: SARB.
CAPITAL MARKETS 169
from rand-targeting speculation initiated aer such crashes can be very large, and partly
explain the attractive risk-return prole for carry strategies (documented in Hassan and
Smith, 2011). Subsequent periods of high volatility can quickly erode these gains.
3 Derivatives
Derivatives are the most innovative and fastest-growing segment of the capital markets—
locally and globally. Derivatives are traded in exchanges (in South Africa all under the
umbrella of the JSE) and over-the-counter (OTC). Exchange-traded products are stand-
ardized and free of counterparty risk. e JSE oers trading in equity, commodity (main-
ly agricultural), currency and interest rate derivatives. By annual number of contracts
traded from 2010 (about 170 million), it was among the world’s 20 largest, but far smaller
than the main derivatives exchanges, including those of emerging markets such as South
Korea, India, Brazil and Russia, which normally trade between 1 and 4 billion contracts
annually, and match advanced economies in exchange-traded turnover (based on Futures
Industry Association data).
e South African market, like the spot markets for the underlying securities, is small
compared to the main nancial centres, but is one of the more signicant among the
emerging economies. OTC turnover in rand-denominated interest rate derivatives, at
US$16 billion (daily average), is the eighth largest worldwide, on a par with Brazilian real
denominated instruments (see BIS, 2010, 2013). It increased by approximately 60 per cent
between 2007 and 2010; and more than threefold between 2010 and 2013.
Turnover in forward rate agreements (world’s sixth largest, on a par with Australia)
accounts for 70 per cent of total rand interest rate derivatives turnover, and for most of
the exponential recent growth in the market. Swaps and options explain the bulk of the
remainder. Also, 70 per cent of OTC rand interest rate derivatives trading is based in
South Africa, in contrast to turnover in rand foreign exchange contracts, two-thirds of
which is oshore. Considering only domestic trade, OTC turnover in interest rate deriva-
tives in South Africa (US$11 billion of the US$16 billion per day) is far larger than, for
example, in Brazil (US$4 billion), India and New Zealand (US$3 billion) or Mexico (US$2
billion); in interest rate options, which can be very complex instruments to value, it was
larger than in Australia or Canada in 2010. (Data from BIS, 2010, 2013.)
Interest rate derivatives are predominant in the OTC market on the basis of notional
amounts, consistent with world data. However, average daily turnover in rand foreign
According to SARB (2013), exchange-traded derivatives turnover in the JSE for 2012 is approximately
US$504 billion. Equity derivatives account for 81 per cent of this; commodity, interest rate and currency
derivatives account for, respectively, 10, 7, and 2 per cent. Some sub-segments are globally signicant: volume
of trading in single stock futures was the sixth largest worldwide.
170 FINANCE, INDUSTRY AND INFRASTRUCTURE
exchange derivatives, OTC, domestic and o-shore trade combined, is US$40 billion as
of April 2013—far larger than turnover in rand interest rate derivatives.
is split, with heavier foreign exchange than interest rate turnover, is consistent
with other emerging economies, naturally due to greater exchange rate volatility, which
increases both the need to hedge exposure, and the attractiveness of speculating. In con-
trast, in advanced economies with deeper bond markets and more stable currencies,
turnover (and notional amounts) in interest rate derivatives markets far exceeds that in
foreign exchange derivatives (see Deutsche Börse, 2008; Mihaljek and Packer, 2010). at
is, although underlying amounts in the South African interest rate derivatives market far
outweigh those in foreign exchange, there is more issuance and trading activity in rand
foreign exchange derivatives (largely abroad), suggesting wide scope for the management
of foreign exchange risk in the country.
At the time of writing, there is an active discussion in international policy and aca-
demic circles regarding the desirability of capital controls under certain circumstances,
and on how to design and implement such controls appropriately. e facts reported here
suggest that any such measures would have to consider carefully the scope for evasion
through the foreign exchange and interest rate derivatives markets—it is ample.
■ REFERENCES
Aling, Peter and Shakill Hassan (2012), ‘No-Arbitrage One-Factor Models of the South African Term Struc-
ture of Interest Rates’, South African Journal of Economics, 80(3): 301–18.
Bartens, Ryan and Shakill Hassan (2010), ‘Value, Size and Momentum Portfolios in Real Time: e Cross
Section of South African Stocks’, Australian Journal of Management, 35(2): 181–202.
BIS (2007), ‘Financial Stability and Local Currency Bond Markets’, Committee on Global Financial System
Papers No. 28, Bank for International Settlements.
BIS (2010, 2013), Triennial Central Bank Survey, Bank for International Settlements.
Deutsche Börse (2008), ‘e Global Derivatives Market’, White Paper, Deutsche Börse Group.
Duncan, Andrew and Guangling Liu (2009), ‘Modelling South African Currency Crises as Structural Chan-
ges in the Volatility of the Rand’, South African Journal of Economics, 77(3): 363–79.
Fedderke, Johannes and Neryvia Pillay (2010), ‘A Rational Expectations Consistent Measure of Risk: Using
Financial Market Data from a Middle Income Context’, Oxford Bulletin of Economics and Statistics, 72(6):
769–93.
Gagnon, Joseph and Marc Hinterscweiger (2011), Flexible Exchange Rates for a Stable Economy, Washington,
DC: Peterson Institute for International Economics.
Hassan, Shakill (2013), ‘South African Capital Markets: An Overview’, South African Reserve Bank, Working
Paper No. 13/04.
Hassan, Shakill and Andrew Van Biljon (2010), ‘e Equity Premium and Risk-Free Rate in a Turbulent
Economy: Evidence from 105 Years of Data from South Africa’, South African Journal of Economics, 78(1):
23–39.
Hassan, Shakill and Sean Smith (2011), ‘e Rand as a Carry Trade Target: Risk, Returns and Policy Implica-
tions’, South African Reserve Bank, Working Paper No. 11/01.
CAPITAL MARKETS 171
Mihaljek, Dubravko and Frank Packer (2010), ‘Derivatives in Emerging Markets’, BIS Quarterly Review,
December.
RMB (2008), ‘Financial Markets Research: Corporate Indebtness in South Africa’, Rand Merchant Bank,
Credit Research, June.
RMB (2013), ‘Credit Quarterly’, Rand Merchant Bank, Global Markets Research, January.
SARB (2013), Quarterly Bulletin, March. Pretoria: South African Reserve Bank.
The visible hand: shaping
stability and inclusion
in the South African
financial sector
penelope hawkins
19
1 Introduction
e South African nancial regulatory authorities have the concurrent stated aims of
macroeconomic stability (SA Reserve Bank), nancial inclusion and development
(National Treasury), prudential soundness (the Registrar of Banks and the Financial Ser-
vices Board), the protection of consumers (Financial Services Board and the National
Credit Regulator), access to credit (National Credit Regulator), competition in the sec-
tor (Competition Commission) and anti-money laundering and anti-nancial terrorism
(the Financial Intelligence Centre). Moreover, these authorities fall within the remit of
three national departments, the National Treasury, the Department of Trade and Indus-
try and the Department of Economic Development.
Over the past 20 years the nancial sector has been characterized both by a plethora of
new legislation with these diering mandates, as well as relative stability.
Regarding the former, rms operating in the nancial sector—be they in provision of credit, sav-
ings, payments or insurance services—have found themselves subject to an increasingly broad array
of legislation and regulation. is is perhaps unsurprising as study aer study has identied gaps in
the regulatory framework. e process has served to reduce the space for ‘informal’ activity—as
even small micro-lenders and funeral parlours are subject to regulation and legislation.
Including the following reports: e Cost Volumes and Allocation of Consumer Credit (Feasibility, 2003);
e Competition in South African Banking (Falkena et al., 2004); e Appropriate Framework for Financial
Regulation (Feasibility, 2005); e Future of Micro-Insurance Regulation (National Treasury, 2008); Treating
Customers Fairly (Feasibility, 2010); and A Safer Financial System for All (National Treasury, 2011).
While the National Credit Act (NCA), for example, does not require micro-lenders with fewer than 100
credit agreements to register with the regulator, it does require them to comply with the provisions of the
NCA. Regulation has also caught up with small cooperatives and funeral parlours.
THE VISIBLE HAND 173
Regarding the latter, the South African nancial sector has achieved relative stability
at a time when the nancial crisis has wreaked havoc in other jurisdictions. e nancial
stability in South Africa has been partly attributed to exchange controls, but also to a
regulatory approach that has encouraged and engendered stability.
While the financial crisis showed that access to inappropriate credit may under-
mine financial stability, poor people nevertheless have a need for appropriate finan-
cial services products that innovatively meet their needs. This chapter explores the
need to reassess the emphasis on stability and how best the goals of stability and
innovation for inclusion can be simultaneously pursued by the financial regulatory
authorities.
Section 2 sets out the theoretical underpinnings of the discussion. Section 3 sets out the
general trends discernible in nancial regulation over the past 20 years that have created
the existing institutional framework. Section 4 concludes with suggested guidelines for
regulation in a world where innovation and access matters.
2 The ‘visible’ hand behind the invisible hand
Over 200 years ago, Adam Smith put forward the idea that individuals seeking to ben-
et themselves through trade were led as if by an invisible hand to a situation in which
society as a whole could benet. e invisible hand metaphor has been used to symbol-
ize the operation of free markets. What should be immediately obvious, however, is that
markets will operate dierently, and will have dierent outcomes, if dierent laws govern-
ing behaviour are in place. Markets can be seen as delicate mechanisms that need to be
supported by institutions such as the legal system, and equally can be destroyed by them.
Extending the metaphor a bit further, we can envisage a visible hand behind the invisible
hand. at visible hand, which encompasses the role of government and its legislation
and regulations, provides the environment in which economic activity takes place (see
Mittermaier, 1986).
Pragmatic free marketeers thus argue that the kind of institutions that free markets
require in order to operate do not emerge spontaneously through market forces. Such
institutions (including legal structures) have to be purposefully created in order to full
that function. ere must be a visible hand (appropriate legal environment) behind the
invisible hand in order for markets to operate fairly and eciently.
e outcomes in the South African nancial sector can be described as a balance
between varying regulatory agendas and legislation, as well as between regulation and
market forces. e following section sets out some of the discernible trends inuencing
regulation of the nancial sector.
174 FINANCE, INDUSTRY AND INFRASTRUCTURE
3 Regulatory trends over the past 20 years
ree discernible trends of the visible hand that will concern us here are: the alignment
with international standards; conservatism towards new participants; and the rise of con-
sumer protection regulation.
A. ALIGNMENT WITH INTERNATIONAL STANDARDS
Following democracy, the opening of the economy to nancial ows and global inu-
ences facilitated and encouraged alignment with international norms and standards. is
is evidenced in South Africa’s early adoption of the relevant standards, even where local
voices suggested a more cautious and sequenced application in keeping with other devel-
opmental priorities.
e early application of the Basel requirements set by the Bank for International Set-
tlements (BIS) is a particular case in point (at one stage South Africa took pride in being
one of the rst countries to implement Basel II for all its registered banks). South Africa
was also ahead of other more developed nations in the application of the International
Organization of Securities Commissions (IOSCO) early settlement requirements for
both bonds (t + 3) and equities (t + 5). Other standards adopted include those of the
International Association of Insurance Supervisors (IAIS) and the Financial Action Task
Force against Money Laundering (FATF).
While the adoption of such standards did much to enhance the prole of the sector as
a sophisticated and stable one, they have also been seen to undermine some of the other
policy goals of inclusion and access.
A case in point is the Financial Intelligence Centre Act (FICA), designed initially as
‘know-your-customer legislation’. It was quickly discerned that operation of such legisla-
tion in South Africa would be dicult in areas (such as in informal settlements) where
no municipal rates were levied or collected. Exemption 17 was provided as a solution.
It exempted nancial institutions from having to obtain proof of address from low-income
Interviews with regulators and key nancial stakeholders in 2004 showed that there were some dissenters
regarding the adherence to the need for this alignment. Views ranged from those who saw adherence to inter-
national best practice as a national obsession, to those who suggested that the drive to adhere to international
standards deected energy from other imperatives such as market conduct and improved access to nancial
services. (See Appropriate Framework for South African Financial Regulation, 2005: 50.)
e following quote is attributed to Jacko Maree, head of South Africa’s Standard Bank, by e Banker
(January 2013): ‘With Basel III coming in, mortgage lending will become harder’, he says. ‘It’s all very well to
talk about matching assets and liabilities if you’re operating in a country with deep bond markets. In South
Africa, the situation is not so simple.’
THE VISIBLE HAND 175
individuals (with low-value accounts). When FICA was amended in 2004, Exemption 17
was not amended and, as it stands, accounting ocers in nancial institutions are not
protected from liability relating to nancial terrorist activity on such accounts. For this
reason, there is still uncertainty as to what constitutes good practice and FICA remains
a barrier to access savings accounts, for example, where no proof of residence can be
provided.
B. CONSERVATISM TOWARDS NEW PARTICIPANTS
For most of the period since democracy, a conservative approach to new entrants is dis-
cernible. is is apparent in the entry criteria into the sector—such as in banking or par-
ticipation in the clearing system—but also the regulatory stance towards new entrants
and innovations. Regarding the latter, for the most part this has favoured the incum-
bents—for example, as was borne out by the transcripts of the Banking Enquiry (2008),
membership of the of the Payment System Association (PASA) was subject to member-
ship of the Banking Association and registration with the Registrar of Banks, and so on.
Apart from a brief spring following 1994, when the exhilaration of the opening of the
economy encouraged new participation in the sector, entrance has been almost exclu-
sively through the acquisition of new shares of incumbents rather than new licences. e
banking sector is a case in point, where following the failure of the ‘middle-sized banks’—
Saambou and BOE—in 2002, the number of banks declined from 45 to the current 17
registered banks. No new bank licences have been issued since 2002. Moreover, there
has been little progress with second-tier banking in spite of the publication of a dra Bill
in 2005.
In the case of payments system participation, there has been little change since the
Banking Enquiry (2008) identied structural barriers to non-bank entry. South Africa
still restricts the issuance of e-money to registered banks, for example, and those who
wish to oer mobile transactions services, such as Wizzit or MPESA, must operate
through a registered bank.
See ‘Agency Banking in South Africa’, a document prepared for the National Treasury by FinMark Trust.
e view that the regulatory stance is overcautious in allowing for new innovation is regularly recorded
for the Banking sector in particular (see FinMark Trust, 2012, Agency Banking in South Africa).
Since the Banking Enquiry, this has been waived, but given that clearing remains the preserve of the
registered banks, this change has failed to engender more entry into the payments space (Competition Com-
mission, 2008).
A new mutual bank licence was granted to Finbond, a micro lender, in 2012. ere are now three mutual
banks licensed in South Africa.
e Dedicated Banks Bill 2005. e Bill has never been promulgated.
e success of MPESA as an innovative transmission mechanism in Kenya, where a less conservative
approach to regulation exists, has been well-documented (see e.g. Hawkins, 2011).
176 FINANCE, INDUSTRY AND INFRASTRUCTURE
C. RISE OF CONSUMER PROTECTION
A third trend in regulation of the nancial sector since 1994 has been the increasing emphasis
on consumer protection. e impetus for this has come from: (i) policymakers who acknowl-
edged that the historical emphasis on the stability of nancial rms had given little regard to
how the protability underlying such stability was achieved; (ii) rms that were faced with a
growing imperative to provide services beyond the narrow and privileged customer enclave
of the past; and (iii) customers whose desire to break away from the living standards of the
past thrust them into contractual arrangements with nancial services providers.
Specic consumer protection legislation that has been promulgated in the sector includes
the Financial Advisory and Intermediaries Services Act (FAIS Act) 2002, the Financial Ser-
vices Ombud Schemes Act 2004 and the National Credit Act (NCA) 2005. Consumer pro-
tection was explicitly made part of the remit of the Financial Services Board (FSB) as the
Market Conduct Peak of the Twin Peaks framework for nancial regulation, with the adop-
tion of the Treating Customers Fairly (TCF) programme for retail rm supervision (in 2011).
e inuence of the visible hand on the market is evident in the case of unsecured
credit. Since the advent of the NCA, unsecured credit has become more popular with
providers—primarily because the pricing thresholds set by the NCA favour unsecured
credit. e ow value of new unsecured credit regularly exceeds the value of new mort-
gages, and unsecured credit now makes up 11 per cent of the total credit extended to
households. e latest data from the NCR show that around 65 per cent of the unsecured
credit accounts are current. Given the high levels of distress, it is likely that at least some
of this growth represents inappropriate access.
While data on nancial inclusion show some progress over the past two decades (access
to transaction accounts now exceeds to 60 per cent of the South African adult population,
from around 51 per cent in 2004), it is also true that the data suggest that the inclusion
levels have plateaued. Moreover, the use of certain nancial services remains very low
(20 per cent of the adult population save, 25 per cent have short-term insurance and 4 per
cent use non-bank remittance facilities).
4 Balancing stability and innovation: the way forward?
e policies that national departments and regulators adopt need to take into account
both the need to balance stability and innovation, as well as the fact that inappropriate
access may increase the risk of instability.
e Consumer Protection Act 2008 was also promulgated, but this had a broader focus than nancial
services.
Announced by the National Treasury in February 2011.
NCR, Consumer Credit Market Report, December 2012.
FinScope, 2012: 6.
THE VISIBLE HAND 177
Regulators need to recognize that new technologies may enable new rms to spread
nancial services to a large number of poor households. Regulators can play a role in
ensuring that this wider access is appropriately designed and not at odds with the stability
mandate of the policymakers.
Regulators also need to play a risk-proportionate role and an enabling role in allowing
and monitoring innovations that address other policy mandates. is, together with pro-
motion of responsible provision, will place additional burdens on regulators.
Perhaps most importantly, policymakers and regulators need to be more explicitly
aware of the role they play as the visible hand and be more sensitive to how they help
shape the outcomes of the market.
■ REFERENCES
Competition Commission (2008), e Banking Enquiry into Competition in South Africa, Transcripts and
nal Enquiry Panel Report.
Falkena, H. et al. (2004), ‘Competition in SA Banking’, A report for the National Treasury and the SA Reserve
Bank, April, Pretoria.
Feasibility (Pty) Ltd (2003), ‘e Cost, Volume and Allocation of Consumer Credit in South Africa’, A report
prepared for the Credit Law Review, mandated by the Department of Trade and Industry and the Micro
Financial Regulatory Council, March.
Feasibility (2005), ‘Appropriate Framework for South Africa Financial Regulation’, A report prepared for the
Financial Regulatory Issues Standing Committee (FRISC) Task Team of the National Treasury and the
South African Reserve Bank, January.
Feasibility (2010), ‘Treating Customers Fairly’, A discussion paper prepared for the Financial Services Board,
April.
FinMark Trust (2012), ‘Agency Banking in South Africa’, A report for the National Treasury.
Hawkins, P. (2011), ‘Financial Access: What Has the Crisis Changed?’, in Central Banking in Africa: Prospects
in a Changing World, BIS Papers No. 56, September.
Mittermaier, K.H.M. (1986), ‘e Hand Behind the Invisible Hand: Dogmatic and Pragmatic Views on Free
Markets and the State of Economic eory’, Unpublished PhD dissertation, University of Witwatersrand.
National Treasury (2008), ‘e Future of Micro-Insurance Regulation’, Discussion Paper, April 7.
National Treasury (2011), ‘A Safer Financial Sector to Serve South Africa Better’, February 23.
Banking and credit markets
seeraj mohamed
20
1 Background and history
Mainstream economists’ accounts usually ignore the specic history and development
trajectory of nancial institutions and systems. However, to understand the particu-
lar nature of the South African nancial system and, for example, why approximately
one-third of adult South Africans do not have bank accounts, one cannot ignore history.
Reasonable analysis of South Africa’s banking and credit markets cannot consider only
current supply and demand for credit or banking regulations. e answer has to include
reference to the historical legacy of colonialism and apartheid and the recent past.
e South African banking system was dominated by British-owned banks from the
middle of the nineteenth century until the 1970s (Verhoef, 2009). e discovery of dia-
monds and gold led to the imperial banks spreading geographically and into the South
African Republic. e role of the imperial banks was to service British business and Brit-
ish settler requirements. e colony and its businesses, particularly mining interests,
were important for British institutional investors and banks seeking increasing returns
for British savers. Kubicek (1979) says that aer Russia, South Africa was the second
largest destination for European capital aer the discovery of gold there. e imperial
banks consolidated their domination of the South African banking market aer the South
African War with increasing concentration in nancial markets aer the formation of the
Union of South Africa in 1910.
e banks and nancial institutions that were set up by Afrikaner business thrived as
the Afrikaner nationalist movement grew. e increased state support with the victory
in the 1924 elections of a coalition of the Nationalist Party and Labour Party with Her-
zog as Prime Minister was a boon to these institutions. e insurance company Sanlam,
which started in 1918, and Volkskas Bank, which started in 1934, were some important
examples of Afrikaner nance that beneted from the increasing political inuence of
Volkas: Volk means people or nation (the Afrikaner people) and kas is a chest or vault where one sup-
poses the volks’ savings would be safeguarded.
BANKING AND CREDIT MARKETS 179
the Afrikaner Nationalist movement. e Afrikaner nancial institutions became a way
for government and big business to draw in the savings of Afrikaners to build Afrikaner
business interests (Fine and Rustomjee, 1996). e Afrikaner banks became the bankers
for the South African state aer the victory of the Nationalists in 1948 and the institution
of apartheid. e role of Afrikaner banks and nancial institutions, therefore, was to ser-
vice the state, Afrikaner business and Afrikaner households.
e current structure of the South African banking system, characterized by high
levels of concentration, was shaped by the particular colonial and apartheid economy.
ere was continuity in the approach to regulation and liberalization from the 1980s’
apartheid government through to 2007 and the nancial crisis. e role of non-banking
nancial institutions, including formal and informal lenders, has grown as has the role
of other institutional investors such as hedge funds, venture funds and private equity
funds.
Using the Financial Services Board’s denition, the size of the shadow banking system
has grown signicantly in South Africa during the post-apartheid period. Also, aer 1994
foreign banks were allowed to play a much larger role in the South African economy.
e banks retained their ethnic identities through most of the 1900s until the adoption
of the DeKock Commission’s recommendations, which were adopted in the Financial
Institutions Amendment Act, No. 106, of 1985. e deregulation of the banks included
removal of activity constraints of the banks and the demutualization of building soci-
eties. is deregulation, combined with disinvestments for political reasons during the
1980s, led to restructuring and consolidation in the formation of new banking groups but
the market remained concentrated. e deregulation led to the South African banking
market resembling that of the United States with its multi-function ‘supermarket banks’
by 1994.
Reform during the post-apartheid period conformed to the adequacy requirements
required by Basel. Aer the global nancial crisis there was an announcement of a policy
shi towards a ‘twin peaks’ approach, separating regulation of capital adequacy and bank
behaviour with regard to their clients. e twin peaks approach may help deal with the
high level of fragmentation in the South African regulatory environment. is approach,
however, does not address the legacy of historical inequality and need for a more direct
developmental role for banks in South Africa. As a result, the focus of the banks and other
nancial institutions in South Africa is still to serve the same business, and predomin-
antly the white groups they served in the past. At the same time, they play an important
Sanlam set up Federale Volksbelegings (‘people’s investments’) in 1940 and Bonuskor, which according
to the Sanlam website, was ‘. . . for reinvestment of policyholders’ bonuses, allowing Sanlam to mobilise capi-
tal for the development of Afrikaner businesses’, <http://www.sanlam.co.za/wps/wcm/connect/sanlam_en/
Sanlam/About+Sanlam/Our+Heritage/Timeline+1918+-+Current />.
180 FINANCE, INDUSTRY AND INFRASTRUCTURE
role in the nancialization of the South African economy. e banks will continue to
be regulated largely by the Reserve Bank while non-bank lenders will register with the
National Credit Regulator.
2 The role of the banks
Financial development of a country should not be confused with economic development.
is point is pertinent in South Africa where the goals of economic development are to
address poverty and the legacies of past oppression and exploitation. In Mohamed (2010)
I explain why nancialization of the South African economy has been negative for eco-
nomic development.
e recent 2013 Global Financial Development Report of the World Bank considers
four criteria for assessing the nancial systems of countries: depth, access, eciency and
stability (World Bank, 2012). It raises important issues about access to the nancial sector
and, in light of the global nancial crisis, raises the issue of stability. While the approach
taken in the World Bank report does indicate progress from the narrow mainstream focus
on transaction costs and enforceability of contracts, it does not go far enough beyond
mainstream views in questioning the role of banks and nancial institutions in econo-
mies. ey refer to the important studies by Levine (2005), which argues that there is a
relationship between economic development and nancial development, and Demirguc-
Kunt and Levine (2008), which argues that there is a causal relationship between a well-
functioning nancial sector and long-run economic growth. e key lesson drawn in the
World Bank report from these papers is that a well-functioning nancial sector promotes
better allocation of capital. ey also argue that a well-functioning nancial sector can
expand economic opportunities and reduce inequality.
Unfortunately, the 2013 World Financial Development Report of the World Bank misses
key concerns about the development of domestic and global nancial systems aer the
widespread liberalization of nance and cross-border ows since the 1970s. ese devel-
opments have meant that the nancial sector is likely to worsen allocation of capital,
Financialization is the growing role and inuence of nance in all aspects of society. With regard to non-
nancial corporations, nancialization refers to their greater involvement and a greater share of their prots
and revenues being earned from nancial subsidiaries and speculation in nancial assets. Households are
also seen to be aected by nancialization with the state’s withdrawal from, and increased privatization of,
welfare and basic services. Households have increasingly invested in nancial assets and consumed nancial
services to build pension funds and acquire risk mitigation and insurance services. Overall, neoliberal pol-
icies to reduce the role of the state in the economy and to liberalize trade and nancial markets are seen as
responsible for creating the conditions for the growth of nance and nancialization (see Epstein, 2005 for
discussion of nancialization and denitions).
BANKING AND CREDIT MARKETS 181
reduce economic opportunities and increase inequality. ese views are well summarized
by Singh (2011): ‘. . . nancial globalization changes the very nature of capitalism from
managerial to nance capitalism. is profoundly aects at the micro-economic level
corporate governance, corporate nance and income distribution’ (ii).
e role of banks as providing ecient intermediation between savers and borrowers
has changed to origination of loans, securitization and selling securitized debt. e nan-
cial services businesses of banks have grown, including investment advisory services,
private equity functions and through subsidiary developers of increasingly exotic nan-
cial instruments. In addition, the banks have sought to control increasingly larger glo-
bal markets. Deregulation of nancial institutions, foreign investment and cross-border
nancial ows have created a global economy with an increasingly large and concentrated
banking industry and present countries with the real problem of banks that are too big to
fail. ere has been large-scale global restructuring of the banking industry with unpre-
cedented levels of mergers and acquisitions. Furthermore, the process of nancialization
has changed the banks. Banks and other nancial institutions have become key inuences
on nancialization of non-nancial sectors of society.
A question one could ask with regard to South Africa is what role do banks play in a
developing country? More specically, one could ask what role banks play in a highly
divided, unequal country that remains dependent on exports of mineral resources? Here
the quick answer seems to be that the banks, other than involvement in relatively small
projects to increase services to previously unbanked people, seem to behave similarly
to those in the United States and Britain where the moves away from intermediation to
securitization, investment services and trading in exotic nancial instruments and nan-
cialization, in general, have advanced most. South African banks have also become too
big to fail, concentrated the market for nancial services in the domestic economy and
further internationalized their activities. In fact, the largest South African banks are now
not only actively pursuing expansion into other countries but have become part of or
closely aligned to larger global banking groups, such as Barclays and the Industrial and
Commercial Bank of China. e change in their business, their internationalization and
nancialization raises many questions about South African banks and what role they can
play in addressing the backlog of the large group of unbanked people and more generally
how they can contribute to the development of the South African economy?
e government says that the South African banks are safe and that their resilience
during the nancial crisis shows that they are safe. I believe that they are asking the wrong
questions. eir denitions of safe are those that have emerged in a context where the
e view that South Africa’s banks are too big to fail is shared by analysts in the nancial sector. For
example, an article by Bloomberg (2010) titled ‘Is Standard Bank too big to fail’ (Bloomberg, August 13, 2010,
<http://www.moneyweb.co.za/moneyweb-nancial/standard-bank-is-too-big-to-fail>) quotes Tracy Brod-
ziak, a banking analyst at Old Mutual, as saying that Standard Bank is ‘. . . denitely a systemically important
bank in South Africa’.
182 FINANCE, INDUSTRY AND INFRASTRUCTURE
business of banking has shied towards increasingly risky activities where they are inad-
equately regulated and many have become too big to fail. e South African banks may
have weathered the storm but they have become more risky and too big to fail. ey
weathered the crisis during 2008 because the remaining capital controls at that time had
limited their exposure to US toxic debt. However, the increased nancial systemic risk
has occurred because deregulation of nance and banking during the 1980s and 1990s
allowed the South African banks to emulate the US banks in terms of their changing func-
tions and behaviour.
3 Financialization and the South African credit markets
How has nancialization aected the nature of the South African credit markets? What
happens to South Africans’ savings? A review of the SARB’s ow of funds data shows that
on average South African households appear to be setting aside for the future through
acquisition of nancial assets. However, these savings occur without forgoing current
consumption, which was nanced by debt (Ashman and Newman, 2012). It is important
to understand that the aggregate numbers in the ow of funds tables do not give the whole
picture. Financialization and the history of racial inequality mean that the shiing sav-
ings and investment behaviour of households is a story of only a small wealthy minority
in South Africa. Inequality has increased since 1994 as the wealthiest South Africans have
enjoyed increasing incomes from dividends and interest payments.
ere has been some eort by the nancial sector and government to increase access
to formal banking by poor South Africans. Government pressure and the move towards
bank cards for welfare provisions has contributed to increases in the number of the
‘banked’. Finmark Trust (2012) in their Finscope Report says that 67 per cent of those who
should have access to banking are ‘banked’ in the formal sector. is is a vast improve-
ment from 46 per cent in 2004. However, the poorest in South Africa still have far from
adequate access to nancial institutions. Finmark Trust (2012) says that it takes people
in the LSM (living standard measure groups) 1–4 twice as long to access a cash machine
or bank branch than the average South African. ey say it takes people in LSM 1–4 47
minutes to get to an ATM and 50 minutes to get to a bank branch. Finscope also reports
that 6.6 million (close to 20 per cent) of those who should have access to nancial services
have no access at all and 2.7 million have access to only informal nance options. From
Finscope’s data one gets the impression that non-auent South Africans’ engagement
with nance has been largely to get funeral cover (about 25 per cent) and membership to
funeral societies (close to 33 per cent).
Unfortunately, the period (2004–12) when the number of the ‘banked’ increased is a
period when the word ‘sub-prime’ became part of everyday language. It seems that South
BANKING AND CREDIT MARKETS 183
Africa is facing similar problems to the sub-prime problems in the United States with
shockingly high levels of exploitative lending to the poor. Financialization and the new
relationships between households and banks (and other nancial institutions) benet
relatively few South African households and leaves the majority of the population facing
a more precarious future. e National Credit Regulator (NCR) reported that at the end
of March 2013 credit bureaus held records for 26.1 million credit active South Africans.
ey report that 9.53 million (47.5 per cent) of these have credit ‘impaired’ records (NCR,
2013). e growth of unsecured debt books has led to the equivalent of a sub-prime prob-
lem in South Africa with increasing numbers of middle-class and working-class house-
holds becoming increasingly indebted.
e rising indebtedness poses real risks to society’s stability and industrial peace. e
massacre of striking platinum mineworkers at Marikana on August 16, 2012 brought to
national attention the high levels of indebtedness of the mineworkers and the extensive
use of garnishee orders (many not legal), which allowed the creditors to receive debt
repayments directly from employers. Bloomberg (January 9, 2013) reported that ‘Rising
indebtedness from interest rates of as much as 80 percent a year may have contributed to
a series of strikes that led to the worst mining industry violence since apartheid ended in
1994 . . . .’ ey add that ‘Between 10 percent and 15 percent of workers at Lonmin and
Anglo American Platinum Ltd. (AMS) had at least one garnishee order against them’.
4 Conclusion
e roots of South African banking and credit markets are imperial banks and banks that
grew out of Afrikaner nationalism. ey served the colonial masters, the apartheid state
and parts of the white population and their businesses. e wave of nancial deregula-
tion during the 1980s and transition to democracy during the 1990s led to integration of
Afrikaner and English banking groups, concentration of the nancial sector, growth and
inuence of the nancial sector, internationalization of South African banks and nan-
cialization of the economy.
Other than relatively small investments to increase banking services to the black
population, the overall impact of the banks has been to precipitate a domestic problem
reminiscent of the sub-prime problems in the United States that were a catalyst to the
global nancial crisis. Middle-class households have become increasingly indebted as
they save for the future but do not sacrice current, debt-driven consumption. Working-
class households, who are part of the 67 per cent of the population with bank accounts,
e 67 per cent gure is from Finscope (2012). According to the World Bank’s Finance Development
Database, 53.5 per cent of South Africans have an account at a formal nancial institution.
184 FINANCE, INDUSTRY AND INFRASTRUCTURE
have been inundated with unsecured debt which has led to rapidly rising debt levels and
increasing social and labour instability. Financialization has not only aected households,
non-nancial corporations have taken on more debt to speculate in nancial markets and
xed investment has suered.
In Mohamed (2010), I show that net acquisition of nancial assets has grown and been
higher than net xed investment over the past two decades. e increased acquisition of
nancial assets has been nanced through debt expansion. Financialization has changed
the behaviour of non-nancial corporations in South Africa, increased indebtedness and
diverted capital away from investment in the real economy towards speculation.
■ REFERENCES
Ashman, Samantha and Susan Newman (2012), ‘Finance, Financialization and Accumulation in South
Africa’, paper presented at the third international conference of IESE, Maputo, September 4–5, 2012.
Bloomberg (2010), ‘Is Standard Bank Too Big to Fail?’ (Bloomberg, August 13, 2010, <http://www.moneyweb.
co.za/moneyweb-nancial/standard-bank-is-too-big-to-fail>).
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erg, January 9, 2013, <http://www.bloomberg.com/news/2013-01-09/mineworkers-buried-in-debt-as-s-
african-unsecured-lending-booms.html>).
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Financialization and the World Economy, Cheltenham and Northampton: Edward Elgar.
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launch-of-nscope-consumer-2012-survey-results/>.
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ing Finance, 1886–1914, Durham, North Carolina: Duke University Press.
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(eds.), Handbook of Economic Growth, Amsterdam: Elsevier: 865–934.
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J. Daniel, New South African Review 1: Development or Decline, Johannesburg: Wits University Press.
National Credit Regulator (2013), ‘Credit Health of Consumers Deteriorates’, Media Release, June 2013,
National Credit Regulator, Johannesburg, <http://www.ncr.org.za/press_release/latest_news/jun_
immediate/March%20CBM%20Updated%20Press%20Release%20-%2018%20June.pdf>.
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Business Research, University of Cambridge.
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South Africa, 1970–2007’, South African Journal of Economic History, 24(2): 157–97.
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Washington, DC: World Bank.
Industrialization strategy
simon roberts
21
Industrialization strategy in South Africa has aimed for more ‘advanced’ manufactur-
ing through integrated and coordinated policies (see Machaka and Roberts, 2003; Zalk,
2014). e strategies set out in the Integrated Manufacturing Strategy (DTI, 2002), the
Advanced Manufacturing Technology Strategy and the National Industrial Policy Frame-
work (DTI, 2007) oered a high road of competitiveness based on productivity rather
than low labour cost. To review South Africa’s industrialization and the policies pursued,
I initially provide a brief introduction to what is meant by industrialization and South
Africa’s relative performance before considering strategies in terms of (a) liberalization
and restructuring, and (b) industrial policies. I conclude by reecting on the importance
of building industrial capabilities as part of structural economic change.
1 Introduction
Industrialization is the move to employ people and capital in activities of greater sophis-
tication with higher levels of productivity. It is about processes of changing capabilities.
It is not therefore about extracting greater volumes of natural resources or simply about
higher levels of construction activity, although these would fall within the wide category
of industry. e development of productive capabilities in manufacturing is at the core of
industrialization, however, it is important to understand the process of improved produc-
tive capabilities across the economy including in related services.
e challenge of industrialization might be considered relatively straightforward—of
catching-up by adopting available technologies and making the necessary investments in
physical and human capital. e reality, however, is a much more complex set of process-
es of the formation of productive capabilities which involves learning, investment and
eort—across and within rms. Acquiring the tacit knowledge and building the capacity
is risky and subject to a range of market failures and coordination problems. Addressing
these requires institutions providing shared services and knowledge generation such as in
supporting research and development.
186 FINANCE, INDUSTRY AND INFRASTRUCTURE
ese complex processes of industrialization are evident in the development of indus-
tries under apartheid, with substantial levels of state support and protection. In 1994
some areas of industry were quite advanced, such as basic chemicals, associated with
key interests and constituencies such as white farmers and the mines, for example in the
development of fertilizer and explosives (Fine and Rustomjee, 1996). Advanced niche
capabilities were also stimulated by requirements of the defence and mining industries
(such as in engineering textiles), whilst a yacht construction cluster developed for buyers
that sought to sidestep capital controls by earning foreign exchange from yacht charter
(Roberts and oburn, 2003; Black and Roberts, 2009).
Whilst there was considerable depth in certain activities, there was not breadth, as there
could not be given the economic exclusion of the majority of the population under apartheid.
e economy inherited in 1994 was thus shaped by the economic and social policies
of successive governments, ranging from protection to the provision of economic infra-
structure and the shaping of urban centres.
e performance since 1994 has been relatively poor, especially when viewed against
the need for a structurally dierent, and broader, development path. South African indus-
try growth has averaged 2.1 per cent per annum, whilst the narrower category of manu-
facturing has grown at 2.7 per cent. is is lower than the average GDP growth of 3.3
per cent. By comparison, South Africa’s peer group of upper-middle income countries
recorded industry growth of 6.2 per cent and manufacturing growth 6.7 per cent, which
led GDP growth of 5.4 per cent.
Moreover, investment rates in South Africa have been poor and, far from becoming
more diversied, the best performing sectors have broadly been the capital-intensive,
resource-based sectors to which the economy was already skewed. e heavy industries
of Coke and Reneries, Basic Chemicals, Other Chemicals, Basic Iron and Steel and Basic
Non-ferrous Metals grew value-added at compound average annual rates of 6.5, 4.0, 4.1,
3.7 and 2.9 per cent respectively from 1994–2013. e one major outlier is the Motor
Vehicle sub-sector which grew by 4.7 per cent, notable for the fact that it had a targeted
strategy. By comparison, the rest of manufacturing (which accounted for 60.1 per cent
of value added in 2013) grew at just 1.6 per cent. is is the reverse of the diversication
expected in a growing middle-income country (see Tregenna, 2009; Page 2012).
2 Liberalization and restructuring
e overriding strategic thrust of economic policy since 1994 has been one of liberaliza-
tion premised on a belief in ecient markets and relatively mobile factors of production.
Compound average annual growth rates computed from World Bank World Development Indicators,
US$ constant 2005 prices. e latest available data for upper-middle income countries are for 2010 hence the
average growth rates are calculated for 1994 to 2010.
INDUSTRIALIZATION STRATEGY 187
us, alongside manufacturing policies to support innovation and technological upgrad-
ing, was the programme of trade liberalization, eliminating non-tari barriers and reduc-
ing tari levels.
Other factors reinforced continuity, in addition to the existing provision of infrastruc-
ture and the eects of large sunk investments already made. In particular, very low elec-
tricity prices persisted, favouring energy-intensive activities. To the extent that these are
also capital-intensive and resource-based, the bias remained in favour of such invest-
ments. Indeed, the extremely low energy prices based on low variable costs were eec-
tively a subsidy to tradable goods production by heavy industries.
Development nance from the Industrial Development Corporation continued to be
allocated to large projects, whilst there were also ongoing incentive schemes for these
projects (such as the 37E tax incentive, and the Strategic Investment Programme) (Black
and Roberts, 2009; Roberts, 2007).
In 2009 the need to invest in additional generation capacity resulted in electricity prices
more than doubling over three years, making evident the size of the previous implied
subsidy to energy-intensive activity. Less well appreciated is that, to the extent that cheap
energy distorted production costs in favour of exports (and tradables more generally), the
exchange rate has been systematically overvalued.
e adjustment to appropriate electricity prices highlights the need for coordination
and anticipation in industrialization strategy. Neither has been much in evidence as pol-
icy initiatives for manufacturing have not been part of an overarching strategy. Macro-
economic policy, in particular, has not taken the desired structural changes into account.
Instead, monetary policy set in terms of ination targeting has ignored the implications
of the huge changes in relative prices for the economy. is was equally the case in the
adjustment required by trade liberalization (which necessarily implies exchange rate
depreciation).
3 Policies
Alongside the overall liberalization thrust the main policy emphasis for industry,
post-1994, was the provision of supply-side measures to assist rms in becoming
more ecient to meet the rigours of international competition. is was in line with
the Industrial Strategy Project’s recommendation (Joe et al., 1995: 15) that interven-
tion should be ‘limited to the situation where it is clear that market imperfections
and market failures produce sub-optimal outcomes’. e ra of incentive programmes
included the Competitiveness Fund, Support Programme of Industry Innovation, Low
Interest Finance for Export and Technology and Human Resources for Industry Pro-
gramme, some of which had already been put in place in the early 1990s (Hanival and
Hirsch, 1998).
188 FINANCE, INDUSTRY AND INFRASTRUCTURE
e strategy was premised on the gains from integration into the global economy. At
the same time the very largest South African corporations were allowed to move their
primary listings overseas apparently based on the expected benets in raising capital
(Chabane et al., 2006). It soon became evident that these expectations were misplaced.
e nature of integration into the international economy in terms of trade, technology
and ownership is at least partly a product of domestic capabilities. ese determine the
evolving basket of exports, as part of structural changes in the economy.
ere were two substantial policy thrusts that aimed to change the pattern of industrial
development.
e rst was Spatial Development Initiatives (SDIs). ese sought to change the geo-
graphic landscape of industry location through major investments in infrastructure
combined with identied industries. e main SDIs were the Maputo Development Cor-
ridor and Coega Industrial Development Zone. Both were closely associated with mega-
industrial projects in the form of aluminium smelters. e Mozal plant went ahead in
Mozambique, but the planned smelter at Coega was rst put on hold and then cancelled
due to the anticipated electricity constraints. e investments in transport and port infra-
structure were meant to ‘crowd-in’ diversied private investment but have largely failed
to do so in the absence of targeted industry strategies.
e second is the Motor Industry Development Programme, and its subsequent revi-
sions. is was conceptualized to assist the industry achieve the scale economies and
backward linkages to local components to improve competitiveness in response to the
scheduled reduction in import duties. It incentivized specialization and investment
through an import–export complementation scheme coupled with local content and
investment allowances (Black and Roberts, 2009). A scheduled adjustment allowed rms
to plan ahead. e positive impact of the programme is evident in the growth of the
industry and its export performance. is is far wider than appears at rst sight, due to
some auto components not being classied under motor vehicles. ese include catalytic
converters and engines (under machinery), and seat leather (under leather products).
In 2007 an overarching National Industrial Policy Framework (NIPF) was adopt-
ed (Zalk, 2014). is was implemented through rolling industrial policy action plans
(IPAPs). Four strategic industrialization objectives were identied in the NIPF: diver-
sication beyond commodity exports into non-traditional tradable goods and servic-
es; long-term intensication of the industrialization process and movement towards a
knowledge economy; promotion of a more labour-absorbing industrialization path; and
a broader-based industrialization path characterized by greater levels of participation of
historically disadvantaged people and regions.
In practice, there has not been consistency with macroeconomic policies. Government
nance for industrial policy programmes has also been very modest.
Trade and competition policies have been identied in successive IPAPs as critical pol-
icy areas. ere has been an impact in reducing market power through lowering taris
INDUSTRIALIZATION STRATEGY 189
and punishing cartels in concentrated upstream industries. However, there has been little
success in the competition authorities addressing unilateral abuse of dominance (Rob-
erts, 2012). Competition law is a relatively weak tool for such conduct as it is premised
on markets functioning in the absence of anti-competitive arrangements. Instead, com-
petitive outcomes require more eective industrial policies to discipline the conduct of
dominant rms, such as through conditionalities for incentives and ‘reciprocal control
mechanisms’ (Amsden, 2003).
4 Capabilities and competitiveness
Improved production capabilities result in increased productivity, quality and design of
products. Extensive rm and industry level analysis makes clear that these capabilities are
not simply about acquiring technology or skills but are to do with the internal ‘know-how’
of the rm including routines and working practices, and the linkages within clusters and
supply chains (see e.g. Sutton, 2012). ere are positive externalities from drawing on a
pool of skilled labour and facilities including other rms for design and product devel-
opment. Firms also share knowledge and practices vertically through the supply chain.
ese all mean cumulative causation at work in the growth and decline of industries.
A country’s capacity to make the catch-up depends on the institutions and governance
arrangements which in turn depend on the political economy (Fagerberg et al., 2007;
Khan, nd). e capabilities also depend on a demand base which for South African indus-
try includes countries in southern and East Africa. Whilst the overall picture for South
African industry reects a lack of diversication, non-resource-based exports have been
growing strongly to these countries.
e overall dynamic of industrialization in South Africa, however, continues to be
driven by the inuence of resource and nance-based interests able to continue to earn
rents from their entrenched positions. An industrialization strategy to change from this
path requires much more concerted action through cross-cutting government policy.
■ REFERENCES
Amsden, A. (2003), e Rise of ‘e Rest’: Challenges to the West from Late-Industrializing Economies, Oxford:
Oxford University Press.
Black, A. and S. Roberts (2009), ‘e Evolution and Impact of Industrial and Competition Policies’, in J. Aron,
B. Kahn and G. Kingdon (eds), South African Economy Policy Under Democracy, Oxford: Oxford Univer-
sity Press, Ch. 8.
Chabane, N., A. Goldstein and S. Roberts (2006), ‘e Changing Face and Strategies of Big Business in South
Africa: More an a Decade of Political Democracy’, Industrial and Corporate Change, 15(3): 549–78.
190 FINANCE, INDUSTRY AND INFRASTRUCTURE
Department of Trade and Industry (DTI) (2002), Accelerating Growth and Development: e Contribution of
an Integrated Manufacturing Strategy, Pretoria: Government Printers.
Department of Trade and Industry (DTI) (2007), A National Industrial Policy Framework <http://www.dti.
gov.za/industrial_development/docs/niPF-3aug.pdf>.
Fagerberg, J., M. Srholec and M. Knell (2007), ‘e Competitiveness of Nations: Why Some Countries Pros-
per While Others Fall Behind’, World Development, 35(10): 1595–620.
Fine, B. and Z. Rustomjee (1996), e Political Economy of South Africa—from Minerals—Energy Complex to
Industrialisation, London: Hurst.
Hanival, S. and A. Hirsch (1998), ‘Industrial Policy and Programmes in South Africa’, TIPS Forum Paper,
April 1998.
Joe, A., D. Kaplan, R. Kaplinsky and D. Lewis (1995), Improving Manufacturing Performance in South Africa:
e Report of the Industrial Strategy Project, Cape Town: UCT Press.
Khan, M. (nd), ‘Learning, Technology Acquisition and Governance Challenges in Developing Countries’,
mimeo.
Machaka, J. and S. Roberts (2003), ‘e DTI’s New “Integrated Manufacturing Strategy” Comparative Indus-
trial Performance, Linkages and Technology’, South African Journal of Economics, 71(4): 679–704.
Page, J. (2012), ‘Can Africa Industrialise?’, Journal of African Economies, 21(2): ii86–ii125.
Roberts, S. (2007), ‘Patterns of Industrial Performance in South Africa in the First Decade of Democracy—
e Continued Inuence of Minerals-Based Activities’, Transformation, 65: 4–34.
Roberts, S. (2012), ‘Administrability and Business Certainty in Abuse of Dominance Enforcement: An Econ-
omist’s Review of the South African Record’, World Competition, 35(2): 269–96.
Roberts, S. and J. oburn (2003), ‘Adjusting to Trade Liberalisation: e Case of Firms in the South African
Textile Sector’, Journal of African Economies, 12(1): 67–96.
Sutton, J. (2012) Competing in Capabilities—e Globalisation Process, Oxford: Oxford University Press.
Tregenna, F. (2009), ‘Characterising Deindustrialisation: An Analysis of Changes in Manufacturing Employ-
ment and Output Internationally’, Cambridge Journal of Economics, 33(3): 433–66.
Zalk, N. (2014), ‘Industrial Policy in a Harsh Climate: e Case of South Africa’, in J.M. Salazar-Xirinachs,
I. Nübler and R. Kozul-Wright (eds), Transforming Economies—Making Industrial Policy Work for Growth,
Jobs and Development, Geneva: International Labour Oce.
Industrial structure
and competition policy
andreas wörgötter
22
1 Introduction
Twenty years of the democratic regime have brought South Africa a lot of achievements.
However, the high degree of inequality as well as the excessive rate of inactivity are reason
enough for not being satised. As a result, catch-up to higher standards of living for all is
processing less rapidly than wished and possible. e low degree of competition on prod-
uct markets, a biased industrial structure, insider–outsider-oriented wage setting and the
bias of the nancial sector in favour of real estate and consumption spending needs of
the wealthy along with the high degree of public sector ownership in network industries
contribute to a replication of ‘Dutch disease’ symptoms.
In such an environment rent-seeking is becoming more protable because the indus-
trial structure is biased in favour of generating rents, either linked to natural resources,
monopolized network industries, a high share of state ownership as well as highly con-
centrated, oligopolistic product markets. Competition is the natural enemy of rents and
fostering it is a challenging but promising task for policy. Whilst rent-sharing is a static
redistribution of gains with no outlook for growth, competition has been found in the
literature and in practice to be conducive to embarking an investment, innovation and
skills-driven growth path (Nicoletti and Scarpetta, 2003).
However, South Africa’s remote location makes it cumbersome to reap the benets
from globalization associated with foreign competition. is is further aggravated by an
atypical settlement structure, with the main economic activity and settlements located
far away from the coast. Even when competition arrives at South Africa’s coasts, it still
has—physically—a long way to go to reach the main settlement areas where the bulk of
economic activity is taking place.
As a consequence, existing workers and businesses are well protected by entry barri-
ers. Employed workers earn above equilibrium wages, whilst operating businesses reap
is contribution is the personal responsibility of the author. Its content is not necessarily shared by the
OECD or its member countries.
192 FINANCE, INDUSTRY AND INFRASTRUCTURE
above equilibrium prots. In current South Africa the industrial structure determines the
degree of competition and where it is allowed to work. e price is the outstanding high
rate of inactivity and unemployment and sub-par growth.
Described along these lines South Africa is more similar to Russia than Brazil or Tur-
key. e aim would be to achieve the same turnaround as Australia or Chile. Both coun-
tries were moving away from an unsuccessful import substitution policy, which relied on
infant industry protection and instead introduced reforms, which widened the scope for
competition.
A way out is possible and necessary, but requires a comprehensive reform package,
which has to survive the resistance of the numerous as well as powerful rent-seekers.
Other country experiences show that this is dicult, but possible. However, no ready-
made blueprints exist. South Africa will have to develop its own way.
Competition enhancing regulatory reform is at the heart of such a reform package.
Removing entry barriers and eliminating red tape promises to boost job creation, provide
incentives for innovation and strengthens the purchasing power of consumers through
lowering costs and prices. In a more dynamic economy it could also be expected that
human capital accumulation is better rewarded than is currently the case.
Competition can also play a role to improve the eciency of policy implementation.
South Africa suers from a lack of administrative capacity and accountability, which hin-
ders the correction of underperforming service. Monitoring, evaluation, benchmarking
and assessment of public service delivery could provide the necessary information for its
governance. Ecient public service providers would then get a better chance of recogni-
tion. is could help with improving overall service delivery despite scarce availability of
resources.
More competition would therefore not only make the economy work better, but it
would also help the government to achieve its goals for a better life for all South Africans.
e following sections of this chapter argue that competition is weak, the economy is
distorted and available adjustment mechanisms blocked. It therefore does not come as a
surprise that the conclusion ends with a call for a comprehensive reform package which
widens the scope for competition.
2 Competition is weak, hampering job creation,
innovation and productivity growth
Endogenous drivers of competition are weak. Foreign trade is an incomplete generator
of competition and the informal economy is underdeveloped. Furthermore, there are
important headwinds for competition. e historical legacy of decades under embargo
and apartheid paved the way for ‘national champions’, a high degree of public ownership
INDUSTRIAL STRUCTURE AND COMPETITION POLICY 193
and regulation, which aimed primarily at protecting insiders through entry barriers.
Rent-seeking, including corruption, is more attractive and less cumbersome than outper-
forming incumbents with better products and services produced at lower costs.
e government has made eorts to open the country to foreign suppliers and reduced
taris beyond its WTO obligations. However, the expected positive results have not mate-
rialized to the expected extent whilst cost-sensitive domestic industries have come under
signicant pressure. One explanation for this observation could be that trade openness
alone is not enough and should be complemented by a comprehensive reform package
aiming at higher savings, better education and lower network taris. In other words, for
South Africa to benet from international integration and the opportunity for a skills-
driven specialization, which increases employment and productivity, open borders for
trade and investment alone are not enough.
OECD (2008) provides evidence that the then in place product market regulation was
restricting competition. e OECD Product Market Regulation indicator is estimated
to be higher than in most OECD countries. e strictness of regulation is more similar
to countries with a more interventionist approach, like India or Ukraine, than countries
relying more on market solutions, like Chile or Brazil.
A high degree of state ownership, in particular for network industries, makes the
engagement of service providers and suppliers from the private sector more complicated.
Network industries are characterized by a combination of public ownership and vertical
integration. is structure is not conducive to competition, leading to high prices and low
service quality.
Poor service quality and—in the extreme case—the unavailability of services can
impose high costs on the economy if such services are used as inputs as is the case for
electricity and transport, but also information services.
Furthermore, strict licensing and zoning regulation reduces the scope for informal sec-
tor activity, thereby increasing the risk of benet programmes contributing to inactivity
and poverty traps.
e low level of competition on product markets generates negative feedback loops,
which keep employment low, reduce the scope for higher education and limit the benets
of market entry and innovation. is makes rent-seeking and redistribution of wealth
more protable than creating new income generation capacity.
Consistent with this assessment is the observation that understandable eorts to
counter the legacy of apartheid with armative action-style programmes, like Black
Chang, Simo-Kengne and Gupta (2013) nd that economic activity and exports are not related except
in the Gauteng and Mpumalanga provinces. Edwards and Lawrence (2012) argue that South African trade
policy is not suciently strategically motivated and coordinated with industrial policy.
See, for instance, Faulkner, Loewald and Makrelov (2013), who estimate that a comprehensive policy
package including lower network taris, reducing mark-ups as well labour costs could help to achieve poten-
tial growth rates of up to 7–8 per cent and bring up to 1.7 million additional workers into employment.
194 FINANCE, INDUSTRY AND INFRASTRUCTURE
Economic Empowerment (BEE), have achieved some redistribution of rents, but have
not suciently boosted the development of entrepreneurship amongst the black Afri-
can population. It should be noted in this context that South Africa raises much less
revenues from taxing non-renewable resources in comparison with other commodity-
exporting countries (OECD, 2010). e ip-side of low taxation of raw material rents
is the high attractiveness of rent-seeking and redistribution, which has all aspects of
a zero-sum game without the outlook for dynamic employment, productivity and
income eects.
3 The industrial structure is distorted
e structure of the South African economy is distorted both on the supply and demand
side. A high share of mining is neither surprising for a resource rich country, nor does
it necessarily need to exercise negative spillover eects. However, heavy product market
regulation, low taxation of resource rents and insider-driven wage-setting impose con-
straints on economic activity.
South Africa’s industrial structure is shaped by the resource wealth of the country,
coupled with an uncompetitive manufacturing sector. is combination is the standard
outcome of ‘Dutch disease’. High wages in rent-creating industries set the standard for
manufacturing and limit its competitiveness. e exible exchange rate system is of no
help here because the revenues from mining—especially during periods of high and ris-
ing raw material prices—and capital inows following investor sentiment on the search
for return dominate the exchange rate movements. Exporters can therefore not be sure
about the sustainability of external competitiveness which can be overruled by volatile
exchange rate changes.
e low taxation of resource rents increases the surplus which is available for distribu-
tion. However, prots from mining are not reinvested for reasons of natural constraints
and the perceived uncertainty about property rights. High resource rents contribute to
income and wealth inequality.
As a consequence, the South African economy is characterized by high consumption,
low savings and low job-creating investments. Investment projects in export-oriented
manufacturing also depend in part on subsidies or other government-sponsored support.
e situation is further aggravated by largely state-controlled network industries,
which underperform in terms of service quality but charge higher prices than necessary.
In other words, the attractiveness of producing in South Africa is hampered by high
costs, which are not matched by productivity, because of low incentives for innovation
and human capital accumulation. South Africa is caught in a low-employment equilib-
rium of a dual economy with high rents distributed to insiders.
INDUSTRIAL STRUCTURE AND COMPETITION POLICY 195
4 Adjustment mechanisms are blocked
Whilst important drivers of these outcomes have their roots in the apartheid system, it is
worrying that 20 years aer the transition to democracy still so many and signicant dis-
tortions persist. Error-correction mechanisms are not properly working for a number of
reasons. Heavy product market regulation hampers the entry of new suppliers into con-
testable markets. Job-creation and innovation spending is limited by a lack of nancial
resources, which are more likely to be provided for real estate and consumption needs of
wealthy households with collateral. Reallocation of workers from low-productivity activ-
ities/regions to locations with a better chance of making a living is constrained by low
labour mobility. Wage-setting does not suciently take into account the interests of job
searchers. Informal activity does not act as an entry point for formal jobs or businesses.
Labour mobility is hampered by the absence of safe and aordable transport oppor-
tunities. Special arrangements for tribal areas contribute further to low labour mobility
while townships and informal settlements do not provide a stable environment.
e relatively large nancial sector prefers nancing real estate and consumption needs
of well-o households with collateral instead of providing loans for start-ups, spin-os
from academic institutions and other innovation and skills-driven investments with a
potential to contribute to a growing productivity trend.
e education sector perpetuates inherited inequality and vocational training is nei-
ther attractive nor eective. High entry wages for school leavers make it unattractive
for employers to hire and train unexperienced youngsters, slowing down exit from the
unemployment pool and wasting human capital.
5 A comprehensive reform package is needed
Experiences in other countries are certainly useful. In particular, experiences which gen-
erated a sustainable combination of external competitiveness, high labour force partici-
pation and increasing living standards, like Japan and Germany aer the war, should be
closely studied. Furthermore, Korea oers a lot of insights into how support of techno-
logical advance can be implemented without picking winners. Australia showed how to
identify and remove regulatory entry barriers into contestable markets. Austria devel-
oped informal institutions—without legal basis—to reduce transaction costs of wage set-
tlements (average labour input lost through strikes is measured in minutes!) and combine
productivity growth with full employment. Turkey is interesting because of the way infor-
mality acts as a crisis absorption buer.
e way out is not easy, but requires a courageous combination of structural, nancial
and macroeconomic policies. It involves a more complete taxation of resource rents, a
196 FINANCE, INDUSTRY AND INFRASTRUCTURE
redirection of nancial ows from nancing consumption to SME nancing, a systematic
reform of product market regulation to reduce entry barriers and foster competition and
innovation, and—last but not least—network industries which are open to more private
sector engagement. Obstacles in form of vested interests are considerable, but so are the
likely benets in terms of a better future for all South Africans.
Competition policy is important in South Africa, but is ghting an uphill battle. Tradi-
tional competition policy—when successful—facilitates and accelerates the re-allocation
of scarce resources from low to high productivity rms, sectors and regions. Implicitly,
this approach assumes full employment over the cycle. In South Africa, however, a large
part of the working-age population does not participate in market economic activities.
e task for competition policy is therefore considerably widened and complicated at
the same time. What is an appropriate, feasible and promising response to this challenge?
Increasing resources and enriching the tool-kit for the Competition Commission—whilst
necessary—will be limited to those who are actively contributing to the economy. Step-
ping up the developmental state eorts for more employment, less inequality and better
lives for all South Africans—whilst commendable and well formulated in the National
Development Plan and the New Growth Path—will hit the glass ceiling of limited admin-
istrative capacity.
Widening the scope for competition in all areas of the economy should become a policy
priority. Not only will this be benecial in itself, but it will also make government policies
directed at higher growth and less inequality more eective.
■ REFERENCES
Chang, T., B.D. Simo-Kengne and R. Gupta (2013), ‘e Causal Relationship between Exports and Economic
Growth in the Nine Provinces of South Africa: Evidence from Panel-Granger Causality Tests, University
of Pretoria’, Department of Economics Working Paper Series, 2013–April 9, 2013.
Edwards, L and R.Z. Lawrence (2012), ‘A Strategic View of South African Trade Policy in Relation to the
Future Global Trading Environment’, South African Journal of International Aairs, 19(3): 277–98, DOI:
10.1080/10220461.2012.740176.
Faulkner, D., Ch. Loewald and K. Makrelov (2013), Achieving Higher Growth and Employment: Policy
Options for South Africa, ERSA Working Paper No. 334, March 2013.
Nicoletti, G. and S. Scarpetta (2003), ‘Regulation, Productivity and Growth: OECD Evidence’, Economic Pol-
icy, 18(36): 9–72.
OECD (2008), OECD Economic Surveys: South Africa, Economic Assessment, Paris: OECD Publishing.
OECD (2010), OECD Economic Surveys: South Africa, Paris: OECD Publishing.
Investment climate
neil rankin
23
e reduction of unemployment is a key challenge in the South African economy and
requires the creation of large numbers of jobs which the unemployed can ll. But jobs
do not create themselves, businesses do, in at least one of three ways: a rm expands
keeping the mix of inputs (its technology) the same; it changes its technology to become
more labour-intensive; or new rms enter. Owners and managers of rms respond to the
incentives they face when making these decisions. ese include the relative prices for
inputs, the market conditions for their products and services and the broader economic
environment in which they operate. is broader economic environment—including
the regulatory environment, government policies, the provision of government services,
infrastructure, institutions and a host of other factors—and anything else which inu-
ences the decisions of rms to invest is termed the ‘investment climate’. Investment is
important since investment generally accompanies any major change in a rm’s organi-
zation or behaviour. Expansion generally requires investment, as does the entry of new
rms and even a movement towards a more labour-intensive production technology may
require dierent capital. e investment climate is thus key for rm performance and the
creation of jobs.
Which parts of the investment climate matter for economic growth and job creation?
Dollar et al. (2005) suggest that local governance matters as do things like delays in get-
ting phone lines, customs delays, losses through power outages, the inspection (or more
broadly ‘red-tape’) burden and access to nancial services. ey argue that ‘government’s
role in providing a good regulatory framework for infrastructure and access to the inter-
national market is particularly important’. Bastos and Nasir (2004) nd that it is com-
petitive pressure which is the most important, rather than infrastructure or other factors
related to government behaviour, for rm level productivity. ese, and other studies,
suggest that four core areas are important for the investment climate and rms. e rst
is that government, and government agencies, need to focus on delivering services such
as electricity, communications and infrastructure eectively. e second is government
regulation needs to minimize uncertainty and bureaucratic red-tape. e third is that the
Governments can also create jobs but it is very unlikely that South Africa’s unemployment problem will
be solved by large-scale job creation by government.
198 FINANCE, INDUSTRY AND INFRASTRUCTURE
investment climate must facilitate access to the international market. Lastly, and poten-
tially most importantly, the investment climate must facilitate competition. Competition,
through reducing barriers to entry and creating open markets, encourages and rewards
innovation, allows the most productive rms to expand and facilitates the evolution of
the economy.
How is South Africa’s performance in terms of its investment climate? ere are at
least three ways to measure the investment climate in South Africa. e rst is through
observed levels outcomes, such as investment, rm growth and employment which are a
result of the investment climate. By this measure, the South African investment climate is
poor. Since 1994, foreign direct investment has been sporadic and largely in existing rms
in sectors like banking and telecoms. Big deals, such as the purchase of ABSA by Barclays
predominate. Private-sector employment growth has also been subdued. Research such
as Zhan (2011) shows that since 2000 South African job creation has averaged 0.7 per cent
a year and ranks very poorly compared to its peers. Furthermore, this growth has been
accompanied by a declining employment to output ratio—fewer people are now required
to make a unit of output in South Africa than ten years ago. In addition to this, the crea-
tion of new rms and expansions of existing rms, particularly rms in the smallest part
of the size distribution, have also been limited. Kerr et al. (2013), although using data
which may undercount rm births, nd that over the period 2005–11 rm deaths were
ten times more common than rm births. ey also nd that the bulk of job creation is
by rms with more than 250 employees. is is in line with the broader trend from labour
force statistics which indicates that a smaller share of people are now employed in rms
with less than 50 employees than in 2000.
e second way of measuring the investment climate is to ask rms for their own per-
spectives. Although oen derided as subjective, these measures have merit because they
are oen what managers base their decisions on. A number of aspects of the business
environment are commonly mentioned in these types of surveys, including crime, cor-
ruption, electricity provision and prices, the lack of skills, labour market regulations and
the volatility of the exchange rate. It is dicult to know the broad trends in these obstacles
since the questions asked and sample characteristics dier between surveys but the most
recent survey to ask questions of this nature, SBP’s 2012 SME Growth Index, which only
surveyed rms in the 10–50 employee size group, suggests that these types of issues still
remain constraints to growth.
Objective measures, such as the World Bank’s Doing Business indicators, are the third
way to measure the investment climate. ese include: the time it takes to start a business
(where South Africa performs relatively well); the amount of days to export or import
(where South Africa does badly); and transport costs and concentration or mark-ups in
markets (where South Africa also does badly). Table 23.1 indicates South Africa’s ranking
in the aggregate Doing Business indicator. Overall, South Africa performs relatively well
INVESTMENT CLIMATE 199
but these rankings also indicate that rapidly growing countries do not necessarily have
highly ranked investment climates.
What can we say about the South African investment climate in the four key areas
mentioned earlier? In terms of service delivery by government, the South African rms
highlight at least three concerns—crime, corruption and electricity provision. Crime and
lower levels of employment growth at a rm level are strongly correlated. Perceptions of
corruption as an obstacle seem to be increasing over time. Electricity provision was the
most-mentioned business constraint in the World Bank’s 2007–08 Investment Climate
Survey, although this did take place at the time of Eskom’s rolling blackouts. Government
also does poorly in terms of delivering transport infrastructure cheaply. South African
rail transport is relatively expensive and slow and South African ports are some of the
most costly in the world.
South Africa also performs poorly in terms of the certainty of policy and the ‘red-tape’
burden. e opaque nature of the policy process within, and the broad church nature
of, the African National Congress (ANC) provide the impression that the ANC’s eco-
nomic policy is neither coherent nor certain. is is also manifest in the various economic
plans of the government—the manager of a typical rm does not understand how the
Department of Economic Development’s New Growth Plan ts with the National Plan-
ning Commission’s National Development Plan. Scrambled messages on nationalization
and policies like the youth wage subsidy also create uncertainty. Added to this uncertainty
about policy is the cost of regulatory compliance. is cost in South Africa is relatively
high. An estimate of these costs for 2004 (SBP, 2005) suggest that regulatory compliance
costs amount to 6.5 per cent of GDP, compared to an average of about 3 per cent for
Table 23.1 South Africa’s ranking in the aggre-
gate doing business indicator
Ease of doing business rank 2012
Botswana 59
Brazil 130
Chile 37
China 91
India 132
Indonesia 128
Kenya 121
Malaysia 12
Russia 112
South Africa 39
Source: World Bank’s Doing Business.
200 FINANCE, INDUSTRY AND INFRASTRUCTURE
other countries. SBP’s 2012 SME Growth Index indicates that non-productive spending
of this nature costs rms approximately 5 per cent of turnover, further reducing margins
and taking resources away from other more productive uses. Proposed future regulations
such as amendments to labour regulations are likely to increase regulatory compliance
costs further, particularly disadvantaging smaller rms.
e ability to access and compete in international markets is a way for South African
business to expand beyond the domestic market. Imported intermediate imports can also
be an important channel for improving productivity. is requires an investment climate
which facilitates access to the international market. South Africa performs poorly on this
measure too. e amount of time needed to import and export is relatively long when
compared to other similar countries; port and transport costs are high; and the bulk of
the value of exports is dominated by a relatively small number of big exporters (Cebeci
et al., 2012). Government departments which are sympathetic to the restriction of trade,
as illustrated by the voluntary export restrictions for Chinese clothing and textiles negoti-
ated by the Department of Trade and Industry, are also indicative of a broader scepticism
of the benets of international trade which pervades government.
Restrictions on trade restrict competition in domestic markets which are already rela-
tively uncompetitive. South African industries have relatively high mark-ups, a proxy for
competition, when compared to the United States (see Fedderke et al., 2007; Edwards
and van de Winkel, 2005). e World Bank’s 2009 report on their second Investment
Climate Assessment also argues that allocative eciency within South African industry
is low—less productive rms have a higher market share than they would have in other
countries. ere are obvious historic reasons for this, including economic sanctions dur-
ing apartheid. However, some post-1994 regulations and institutions have had the unin-
tended consequence of limiting competition. One archetypal example is the extension
of agreements on wages and working conditions agreed in Bargaining Councils to non-
parties. is eectively creates a barrier-to-entry and entrenches larger incumbent rms
contributing to ‘cartelization’ of the sectors where this occurs. e dynamics of the New-
castle clothing producers illustrate this perfectly. Nattrass and Seekings (2013) eloquently
summarize the negative impact on the investment climate:
the story illustrates how, under the hypocritical guise of promoting ‘decent work’, labour-
market institutions and industrial policies can create an unholy coalition of the state, a trade
union, and metro-based, relatively capital-intensive employers whose actions can inict
massive job-destroying structural adjustment on a labour-intensive industry.
When considered across these important dimensions, despite some measures indicat-
ing that South Africa’s investment climate is fair, it still faces a challenge in creating
ere is a relatively large international literature on this (see e.g. Salop and Scheman, 1983, 1987 and
Williamson, 1968) which has not oen been cited in the South African debate.
INVESTMENT CLIMATE 201
an investment climate which is more attractive to business. Without widespread reform
and policy coherence it seems unlikely that the investment climate will improve in the
near future and without improvement it is dicult to foresee the increases in invest-
ment, productivity and job creation which South Africa requires to substantially reduce
unemployment.
■ REFERENCES
Bastos, F. and J. Nasir (2004), ‘Productivity and the Investment Climate: What Matters Most?’, World Bank
Policy Research Working Paper No. 3335.
Cebeci, T., A.M. Fernandes, C. Freund and M.D. Pierola (2012), Exporter Dynamics Database, Washington,
DC: World Bank.
Dollar, D., M. Hallward-Driemeier and T. Mengistae (2005), ‘Investment Climate and Firm Performance in
Developing Economies’, Economic Development and Cultural Change, 54(1): 1–31.
Edwards, L. and T. Van de Winkel (2005), ‘e Market Disciplining Eects of Trade Liberalisation and
Regional Import Penetration on Manufacturing in South Africa’, Trade and Industry Strategies Working
Paper No. 1-2005.
Fedderke, J., C. Kularatne and M. Mariotti (2007), ‘Mark-up Pricing in South African Industry’, Journal of
African Economies, 16(1): 28–69.
Kerr, A., M. Wittenberg and J. Arrow (2013), ‘Job Creation and Destruction in South Africa’, A Southern
Africa Labour and Development Research Unit Working Paper No. 92.
Nattrass, N. and J. Seekings (2013), ‘Job Destruction in the South African Clothing Industry. How an Alliance
of Organised Labour, the State and Some Firms is Undermining Labour-Intensive Growth’, Johannesburg:
e Centre for Development and Enterprise.
Salop, S.C. and D.T. Scheman (1983), ‘Raising Rivals’ Costs’, e American Economic Review, 73(2): 267–71.
Salop, S.C. and D.T. Scheman (1987), ‘Cost-Raising Strategies’, e Journal of Industrial Economics, 36(1):
19–34.
SBP (2005), Counting the Cost of Red Tape for Business in South Africa, Johannesburg: SBP.
Williamson, O.E. (1968), ‘Wage Rates as a Barrier to Entry: e Pennington Case in Perspective’, Quarterly
Journal of Economics, 28(1): 85–116.
World Bank (2009), South Africa: Second Investment Climate Assessment. Business Environment Issues in
Shared Growth, Washington, DC: World Bank.
Zhan, Z. (2011), What Do Fast Job Creators Look Like?: Some Stylized Facts and Perspectives on South Africa,
Washington, DC: International Monetary Fund.
Commanding heights: The
governance of state-owned
enterprises in contemporary
South Africa
brian levy
24
Aer almost a quarter century of eclipse, state-owned enterprises (SOEs)—seemingly
written o globally as remnants of outmoded state-centric approaches to development—
have re-emerged as central players in the contemporary development discourse.1,2 Within
South Africa, this renewed focus on state-owned enterprises intersects with ongoing ide-
ological debates as to the appropriate balance between the public and private sectors, the
pros and cons of nationalization and the potential for a ‘developmental state’. is chapter
contributes to this discussion via a conceptually anchored review of how South African
SOEs have performed in practice over the past two decades.
1 Preliminaries
A. SOME HISTORY
e role of SOEs in the South African economy can be broken down into four broad
phases:
Brian Levy is Academic Director of the Graduate School of Development Policy and Practice at the Uni-
versity of Cape Town, and senior adjunct professor at the School of Advanced International Studies, Johns
Hopkins University. I am grateful to Charlotte Ellils, Chipo Hamukoma, Lucy Martin, Elizabeth Lwanga
Nanziri, Mihir Patel, Claire Pengelly, Tracy van der Heever, Lene Vastveit and Jessicah Zulu for the case stud-
ies on which this chapter draws.
SOEs comprise one node along a spectrum of organizations, with private, for-prot companies at one end,
government departments within the public bureaucracy at the other, and publicly funded agencies which are
granted substantial operational autonomy to deliver pre-specied goals in between. SOEs oen are (like private
rms) subject to corporate law, have the state as the dominant (or only) shareholder, enjoy (like public agencies)
operational autonomy but, unlike public agencies, are nanced largely from revenues earned in the marketplace.
For two recent examples of the renewed global interest in state-owned enterprises, see World Bank, Guiding the
Visible Hand (2005) and ‘Special Report: State Capitalism—e Visible Hand’, e Economist, January 21, 2012.
COMMANDING HEIGHTS 203
• Aninitialphase,spanningsevendecades,inwhichSOEsplayedacentralroleinSouth
African development—from the state taking control of the railways in the immediate aer-
math of the 1899–1902 Anglo-Boer War, to the establishment in the 1920s of dominant
state-owned electricity and steel companies (ESKOM and ISCOR), to the aggressive use
in the immediate aermath of World War II of the state-owned Industrial Development
Corporation (the IDC) to nance accelerated import-substituting industrialization—
and then, in the 1960s, when the international tide turned against the country to the
establishment of more security-oriented SOEs, such as the oil-from-coal company,
SASOL.
• Asecondphaseinthelate-apartheidyearsofthe1980swhentheNationalPartygovernment
embraced global trends towards commercialization and privatization of SOEs, including the
1989 privatization of ISCOR. (Perhaps not coincidentally, one of the subsequent side ‘ben-
ets’ for the established elite was that the reforms rolled back the reach of the state just prior
to the 1994 transition to democratic, majority rule.)
• Athirdphase,duringtherstdozenyearsorsoofdemocracywhen,notwithstandingearlier
assertions of support for further nationalization, the ANC government seemingly embraced
further commercialization and ‘restructuring’ (which, for some, was code for privatization)
of SOEs. is turn responded both to the global political climate, notably the collapse of
Soviet rule and with it the credibility of a centrally planned economy, and a determined com-
mitment on the part of the ANC government to signal to the world that it would be a respon-
sible steward of South Africa’s economy.
e fourth, contemporary phase can be dated to about 2007 when the surging growth of
China coupled with the unexpected international nancial crisis put an end to comfort-
ably complacent nostrums as to the superiority of market capitalism—and when abo
Mbeki, a key champion and architect of South Africa’s re-entry into the international
economy, was forced out of the country’s Presidency.
B. SOME CONCEPTUAL CONSIDERATIONS
A useful point of departure for assessing SOE governance is the classic distinction between
the interests of a rm’s owner (its principal) and its managers (the agents). In any principal–
agent relationship, the tasks of the principal are to set the goals which the agent is to
achieve; and to try and ensure that the agent indeed pursues these goals. Viewed from
the perspective of private, for-prot companies the principal goal is the straightforward
one of achieving the best bottom-line nancial performance. By contrast, SOEs oen also
pursue non-pecuniary goals.
In principle, having multiple goals need not be inconsistent with clear principal–agent
governance, so long as each is clearly specied, weighted and costed. Indeed, South
Africa’s post-1994 reform of SOE governance has been highlighted as a good practice
204 FINANCE, INDUSTRY AND INFRASTRUCTURE
example of how this can be done. But the challenge of reconciling SOE governance with
principal–agent logic is not just technical: SOEs have ‘multiple principals’ with distinctive
goals and constraints. ese are not necessarily reconciled for consistency—but rather
shaped by competing interest groups, coalitions and ideas. In democratic South Africa,
the challenge posed by political contestation for SOE governance has proven especially
formidable.
Formally governance seems straightforward: the country has a robust democratic con-
stitution, strong checks and balances institutions, and a de facto dominant political party.
But the country also has amongst the most unequal distributions of income and wealth
in the world—with these disparities continuing to be correlated with the racial dispari-
ties which underpinned apartheid. Governance thus requires a continuing balancing
act between responding to the interests of the poorer majority, and providing enough
assurance to the established private sector to sustain a sophisticated middle-income
economy—all made especially challenging by a well-organized, politically powerful and
oen militant labour movement. Meanwhile, aspirant new elites continue to seek political
support for their ambitions. is is pursued both via formal, rule-bound ‘black econo-
mic empowerment’ (BEE), and via the use of discretionary control over public resourc-
es (including jobs procurement and ownership rights). Contestation amongst multiple
principals with widely divergent goals, and weak mechanisms for addressing and resolv-
ing conicts, is endemic.
2 Governing South Africa’s SOEs—some recent
patterns
A common refrain within South Africa (especially amongst historically privileged
groups) is to bemoan the decline in the performance of South Africa’s SOEs, and ascribe
this decline in performance to aggressive policies to foster BEE. Indeed, many SOEs have
confronted dicult challenges over the past two decades. And, indeed, SOEs generally
have been very pro-active in their BEE transformation. But many of the most formidable
World Bank, Held by the Visible Hand: e Challenge of SOE Corporate Governance for Emerging Markets,
Corporate Governance Department, May 2006. e publication features (on p.21) the ‘Protocol on Corporate
Governance in the Public Sector’ issued in 2002 by South Africa’s Department of Public Enterprises.
For a general statement of this approach to the analysis of public service provision, see Brian Levy and
Michael Walton, ‘Institutions, Incentives and Service Provision: Bringing Politics Back In’, ESID Working
Paper No. 18, Eective States and Inclusive Development Research Center, University of Manchester, February
2013. For an early literature on SOEs which adopts this approach, see Yair Aharoni, e Evolution and Man-
agement of State-owned Enterprises (Ballinger, 1986) and Brian Levy, ‘A eory of Public Enterprise Behavior’,
Journal of Economic Behavior and Organization (1987), 8: 75–96.
COMMANDING HEIGHTS 205
challenges can be traced less to internal management issues than to the diculties of
principal–agent governance.
ree distinct patterns of principal–agent governance are evident: eective governance
with a strong developmental principal, and a high performing, responsive agent; autono-
mous agents, who are at least as powerful as their purported principals; and governance
complicated by multiple (or captured) principals. Assessing the relative importance of
each pattern amongst South Africa’s 200+ SOEs goes beyond the scope of this chapter.
Rather, the focus will be on illustrating the dierent patterns, using as examples some of
the country’s largest SOEs.
A. STRONG, DEVELOPMENTAL PRINCIPALS
e Industrial Development Corporation (IDC) and the South African National Roads
Authority (SANRAL)—at least up to 2008—oer good practice examples of eective
principal–agent governance:
• Overtwodecades,theboardofdirectorsoftheIDCskilfullyandcumulativelyrealignedthe
objectives of the organization to reect an agenda of inclusive development, without under-
mining the professionalism and esprit-des-corps of the IDC’s management and sta. Even
as the relative weighting of development objectives (BEE, job creation and regional develop-
ment) in the overall performance indicators set for the organization rose from less than 15
to 40 per cent, the balance sheet remained strong with positive nancial returns, and capital
employed rising almost nine-fold from R10 billion in the early 1990s to R90 billion two
decades.
• SANRAL,establishedin1998onthebasisofinstitutionalarrangementsexplicitlymodelled
on New Zealand’s autonomous roads agency, made major investments in upgrading South
Africa’s roads system, with 15,000 kilometres nanced directly through the budget, and a
further 3,000 kilometres nanced on the basis of public bond issues, supported by tolls. On
the basis of performance, SANRAL received the highest possible rating from bond ratings
agencies.
But SANRAL’s subsequent experience was much more dicult, and illustrates the chal-
lenges of principal–agent governance in contemporary South Africa. In 2007, it issued
$2.5 billion in bonds to upgrade the roads surrounding the country’s largest metropol-
itan area (Gauteng/Johannesburg), to be repaid via toll payments. But it took a hands-o
approach to stakeholder engagement; from its business-oriented perspective, this was the
responsibility of its political principals. is approach backred. In 2012, the organiza-
tion confronted a broad coalition (including the leader trade union federation, a political
As per the denition in footnote 2, strictly speaking SANRAL are public agencies, not SOEs.
206 FINANCE, INDUSTRY AND INFRASTRUCTURE
partner of the ruling party; a group of civil society organizations; and the opposition pol-
itical party) all opposed to tolling in the metropole. In the face of these pressures, SAN-
RAL’s bond rating collapsed; even aer renewed support from government principals, its
business model remains under stress.
B. AUTONOMOUS AGENTS
SOE governance confronts a paradox. In principle, it is desirable for SOEs to perform well
nancially (subject, of course, to their social mandate). But nancially autonomous SOEs
can break loose almost entirely from oversight from their purported principals. Consider
two examples from South Africa’s transport sector:
• In1989,anewSOEholdingcompany,Transnet,tookresponsibilityforthegovernanceand
management of almost all of South Africa’s transport infrastructure. Since 1994 a central
guiding principle for Transnet’s management has been a consistent eort to achieve nancial
autonomy from government subsidy—and, in the process, a consistent willingness and abil-
ity to trade o social/developmental goals in service of this objective.
• eNationalPortsAuthority(NPA),undertheTransnetumbrella,servedasacash-cow
for its corporate parent. South Africa’s ports consistently have been criticized as being high-
priced, undercutting eorts to diversify exports—but these high prices were only partial-
ly a consequence of internal ineciencies. In 2011, for example, NPA revenue amounted
to almost R8 billion—of which R4 billion took the form of prots, which went directly to
Transnet’s bottom-line.
C. MULTIPLE (OR CAPTURED) PRINCIPALS
South Africa’s contradictory political settlement has meant that many SOEs confront
multiple principals. e consequences have included continuing autonomy-seeking
manipulation by SOE managers, capture by political interests and incremental (and in
some instances disastrous) declines in performance. ree examples illustrate.
e rst example is the dominant electricity SOE, Eskom. Back in the 1980s, Eskom
had already been castigated by a government commission as arrogant and unaccount-
able. A 1998 policy paper, endorsed by cabinet, enunciated a plan to decisively transform
the electricity sector—unbundling Eskom’s generation, transmission and distribu-
tion units, and (with projections showing that within a decade the country’s electricity
It could be argued that in the absence of any clear signal to the contrary, this pursuit of nancial auton-
omy was in fact responsive to the preference of the political principal.
COMMANDING HEIGHTS 207
supply–demand balance would be in decit) turning to independent power projects for
new capacity. But the policy document papered over deep-seated unresolved conicts
over public versus private ownership, municipal versus agency governance of urban elec-
tricity distribution, monopoly versus competitive approaches in the sector, the sources of
nance for new capacity.
Within government, these conicts were reected in dierent policy emphases amongst
the Department of Minerals and Energy (formally responsible for setting the strategic
direction of the sector), the Department of Public Enterprises (with ‘shareholder’ respon-
sibilities over Eskom), NERSA, the national electricity regulator, and the ministry respon-
sible for local government. Outside of government, whilst many in the private sector were
intrigued by potential new opportunities, the Congress of South African Trade Unions
(COSATU) was vociferously opposed to any expansion of private participation in the
sector. Also, Eskom itself was not especially enthused at the prospect of presiding over its
own dismemberment. In the event, most of the conicts were resolved largely by aban-
doning the 1998 policy vision in favour of the status quo of Eskom’s continuing monopoly
dominance—but only aer a turbulent, uncertain dozen years between 1998 and 2010
of internecine conict and institutional uncertainty, including a set of power outages in
2008 which took much of the country by surprise, and resulted in losses amounting to
almost 2 per cent of GDP.
Telecommunications comprises the second example. Far-reaching sectoral reforms in
the mid-1990s—including the partial privatization of the state-owned xed line provider
Telkom, the introduction of new mobile providers and the creation of an independent
regulatory authority—had seemingly put South Africa on the global cutting edge. But over
the next decade this seeming success was superseded by an increasingly troubling pattern.
Telkom’s strategic foreign private investor exited. e remaining mixed public–private local
shareholding retained sucient political inuence to block further introduction of com-
petition into the market—but not enough to be given the mandate needed to expand the
broadband ‘backbone’ of the network. Investment lagged; South Africa risked becoming
something of a sectoral backwater, leapfrogged by Kenya and other developing countries.
e third and nal example comprises urban passenger rail. Between 1990 and 1997,
management of urban passenger rail was consolidated under a new agency, Metrorail,
which was jointly governed by the Department of Transportation and Transnet. From
1997 to 2006, Metrorail was shied entirely to Transnet—but, given Transnet’s object-
ive to achieve nancial break-even, Metrorail tted uncomfortably into the Transnet
empire. In 2006, Metrorail was again shied entirely under the control of the Department
of Transportation—and in 2008/09 it was incorporated into a new consolidated long-
distance and urban state-owned enterprise, the Passenger Rail Authority of South Africa
(PRASA). is cumulative failure to set, monitor and enforce clear performance object-
ives resulted in a progressive worsening, in most cities, of urban passenger rail service,
with increasing delays and cancellations of trains.
208 FINANCE, INDUSTRY AND INFRASTRUCTURE
3 Concluding reflections
At the outset of South Africa’s democracy, some fundamental issues which are central to
SOE governance had barely been engaged. Which parts of South Africa’s mixed economy
should be public, and which private? What balance should SOEs strike between being
self-nancing and pursuing non-monetizable developmental objectives? What weights
should be given to dierent developmental goals? How should developmental object-
ives (and investment by SOEs more broadly) be nanced? What was the proper balance
between autonomy and control?
e technocratic xes of the 1990s which were intended to balance development object-
ives and operational autonomy have not taken hold irreversibly. From the perspective
of contemporary proponents of a developmental state, they are perceived to have facili-
tated excessive managerial autonomy—including with respect to goal-setting. But what
comes next could all too easily shatter a delicate balance from the opposite direction—
undercutting autonomy, but not necessarily in service of developmental objectives.
So perhaps SOE governance needs to, again, be fundamentally re-thought—in ways
which turn into a virtue the continuing contestation over goals. Rather than continuing
the fruitless pursuit of perfect arrangements for principal–agent governance, perhaps the
focus could better be on the orchestration of micro-level institutional arrangements with-
in which contestation could transform into genuine win-win problem-solving amongst
the multiple contending factions which seem destined to characterize South Africa’s pol-
itical economy into the indenite future.
Economic regulation
of the energy sector
ethèl teljeur
25
1 Introduction
e challenges facing regulated network industries in South Africa are similar in nature,
and the energy sector, which for the purposes of this analysis will focus on the electricity,
the piped-gas and the petroleum pipelines sector, is no exception. Key concerns involve:
expansion, maintenance and upgrading of infrastructure; third party access; equity; and
aordability of the services provided, particularly in context of the government’s identi-
cation of the ‘triple challenge of poverty, unemployment and inequality’.
e post-apartheid economic restructuring approach varied across sectors, albeit with
common themes and objectives. Aer 1994, several State-Owned Enterprises (SOEs),
were restructured and corporatized, with mixed results. e restructuring aimed to:
promote competition; develop appropriate regulatory frameworks; ensure social wel-
fare pricing; promote empowerment of previously disadvantaged South Africans; and
improve corporate governance of SOEs.
e more recent emergence of the policy imperative of a ‘developmental state’ has
resulted in calls for a review of the mandate of and shareholder compacts with these
SOEs. Balancing the at times conicting roles of prot-maximizing corporate entities on
the one hand, and implementers of socio-economic government policies on the other, is
proving to be a dicult juggling act.
South African Government News Agency, January 8, 2012 ‘Unemployment, Poverty, Inequality Need
Attention’, <http://sanews.gov.za>.
D. Van Seventer and R. Goode, 2005 ‘Determining an Appropriate Methodology for Economy Wide
Study of the Impact of Restructuring and Privatisation on the SA Economy’, TIPS, Working Paper No.
6–2005, <http://www.tips.org.za>.
Ministry of Public Enterprises, August 2000 ‘An Accelerated Agenda Towards the Restructuring of State-
Owned Enterprises; Policy Framework’, <http://www.polity.org.za>.
‘Address of the President of South Africa, abo Mbeki, on the occasion of the Budget Vote of the Presi-
dency: National Assembly, Cape Town, June 7, 2006’, <http://www.dfa.gov.za>.
210 FINANCE, INDUSTRY AND INFRASTRUCTURE
e current investment plans of the SOEs in the regulated network industries are rela-
tively oversized, in some cases requiring asset investments with a combined value of four
or ve times the historical cost-value of the existing asset base. ey require a sound
funding model that balances sustainability and viability of the industry—or more speci-
cally the SOE concerned—whilst remaining aordable. SOEs such as Eskom have been
deprived of equity injections by the shareholder resulting in balance sheets that are too
weak to support massive infrastructure roll-out. Despite the government’s repeated call
for private funding for infrastructure investment, the bulk of the investment in infra-
structure in the electricity and transport sectors is to be undertaken by the SOEs.
Another common challenge is how to introduce and sustain competition in these
industries. From a policy perspective, the desire for increasing competitive pressures and
‘protecting consumers from monopolistic practices’ has been prominent in the energy
sector from the outset. e degree to which and the manner in which such competition
was to be introduced varied across sectors. However, the desire to move away from state-
owned provision of infrastructure services to partly privately owned, albeit regulated,
infrastructure services or public private partnerships (PPPs) was embraced in the 1990s
and enshrined in the suite of energy legislation that followed in the 2000s.
2 Energy regulation
e regulatory framework for energy in South Africa features both concurrent and adja-
cent regulatory jurisdictions. Economic regulation of the electricity, piped-gas and petrol-
eum pipelines industries is implemented by the National Energy Regulator of South Africa
(NERSA), whereas petroleum products are regulated by the Minister of Energy. Licences
for oil and gas exploration are awarded by the state-owned Petroleum Agency of South
Africa, and mining exploration licences are issued by the Department of Mineral Resourc-
es. Moreover, regulation of environmental, health and safety aspects of the energy sector
are governed by local, provincial and national environmental and labour authorities.
Concurrent jurisdiction exists between the industry-specic energy regulator and the
economy-wide application of the Competition Act by the competition authorities, which
in terms of the Competition Amendment Act (2009), requires sector regulators to enter
agreements with the Competition Commission regarding the exercise of concurrent
jurisdiction.
Eskom, 2013, ‘MYPD3 Application 2014–2018’, <http://www.eskom.co.za>.
‘Given the government’s limited nances, private funding will need to be sourced for some of these
investments’ (National Planning Commission 2012, National Development Plan 2030, <http://www.npcon-
line.co.za>).
Department of Minerals and Energy, 1998, White Paper on the Energy Policy of the Republic of South
Africa, <http://www.info.gov.za/whitepapers/1998/energywp98.htm>.
e Presidency, 2009, Competition Amendment Act, <www.gov.za>.
ECONOMIC REGULATION OF THE ENERGY SECTOR 211
3 Energy policy
e overarching policy framework is contained in the 1998 White Paper on Energy Pol-
icy, which was subsequently reected in energy legislation. e policy envisaged fun-
damental changes to the structure and governance of the energy industry, emphasizing
the introduction of competition and a role for the private sector in addition to, inter alia:
• theneedto‘restructurestateenergyassets’;
• the‘unbundlingofEskom’stransmissionandgenerationgroups’;
• ‘adjustelectricitymarketstructurestoachieveeectiveformsofcompetition’;
• ‘restructuretheelectricitydistributionindustry’;
• ‘re-regulatetheliquidfuelsindustrytoachievehigherlevelsofcompetitionandunrestricted
market access’.
Many of these interventions were never implemented. For instance, a mooted vertical and
horizontal unbundling of the state-owned electricity utility Eskom and the introduction
of competitive electricity markets was all but abandoned and replaced with a single
buyer model within which the SOE’s system operator is to be unbundled. However, the
Independent System and Market Operator Bill that would establish such an independ-
ent transmission operator has been in the making for several years. Restructuring of the
electricity distribution industry was also terminated in 2010.
In the latter half of the 2000s, fresh on the heels of the actual implementation of many
of the above-mentioned changes in the institutional and governance arrangements in
the energy sector, such as the promulgation of required legislation and the establishment
of NERSA in late 2005, a policy shi became discernible. In broad brush strokes, the
emphasis shied from the encouragement of private-sector participation and increased
competition to an enhanced role of SOEs as drivers of economic growth in the devel-
opmental state. Disappointment with the slow pace of private-sector participation
can be cited as a possible reason, although the opportunities for the private sector to
Department of Minerals and Energy (n 7).
D. Newbery and A. Eberhard, 2007, ‘South African Infrastructure Network Review: Electricity’, <http://
www.gsb.uct.ac.za/les/SAElectricityPaper08.pdf>.
Government Communications, Statement on Cabinet Meeting of September 5, 2007, <http://www.gcis.
gov.za>.
Government Communications, Statement on Cabinet Meeting of December 9, 2010, <http://www.gcis.
gov.za>.
e articulation of this policy shi was only documented several years later (Presidency, undated, ‘e
Place of SOEs in a Developmental State’, <http://www.presidency.gov.za>, and Presidency, 2013, ‘e Balanc-
ing of Social, Political and Economic Imperatives in Delivering Objectives for State Owned Entities SOES’,
<http://www.presidency.gov.za>).
212 FINANCE, INDUSTRY AND INFRASTRUCTURE
participate in the energy sectors remained dampened by delays in policy clarity regard-
ing IPP participation in electricity generation; the absence of consistent signals regard-
ing the country’s integrated energy plan; and perceived obstruction by and dominance
of SOEs.
Despite a changing policy environment, the legislation that underpinned the regula-
tory framework of the energy industries was not adjusted accordingly. Hence gas and
petroleum legislation remains focused on level playing elds aimed at attracting private
investors and the electricity legislation does not provide for a dierential treatment of
Eskom as an SOE vis-à-vis IPPs.
e transition from the implicit view of SOEs as dominant inecient hindrances to
competitive markets to one of SOEs as ‘drivers of economic growth’ and entities that
would ‘create much needed jobs’ through infrastructure investment, constitutes a pro-
found policy shi, and warrants an overhaul of the government’s 1998 Energy Policy.
Current policy tensions include the dichotomy between several objectives:
• thedevelopmentalstatewithstate-ledinfrastructureinvestmentvsprivatesectorinvestment
as assumed in energy legislation;
• theprojectnancemodelofprivateentitiesvstheSOEfundingmodelforinfrastructure
expansion;
• aordabilityvsenvironmentalobjectives;and
• competitionvsdominantSOEs.
As the role of the private sector has been re-emphasized by a successful renewable energy
procurement programme (REIPPP) by the government, it would be in the interest of
regulatory and policy certainty to provide policy clarity on these areas of tension.
4 Prices and politics
Although NERSA is an autonomous statutory body, tasked with implementing ener-
gy legislation, the gaps and changes in the energy policy have oen led to a blurring of
responsibilities, especially given the fact that the Department of Public Enterprises—the
shareholder—the Department of Energy—the policy department–,and the National Treasury
E. Teljeur, A. Gillwald, G. Steyn and D. Storer, June 2003, ‘Regulatory Frameworks: Impact and E-
ciency. Volume II: Detailed Sectoral Reports’, <http://www.tips.org.za>.
Department of Transport, February 28, 2012 ‘e Infrastructure Development Cluster Media Brieng’,
<http://www.transport.gov.za>.
e Renewable Energy Independent Power Producers Procurement Programme (REIPPPP) is a compet-
itive IPP procurement programme that was introduced in August 2011(Department of Energy, <http://www.
ipprenewables.co.za>).
ECONOMIC REGULATION OF THE ENERGY SECTOR 213
–the scal authority–have diering and at times inconsistent priorities, leaving NERSA to
make certain dicult trade-os.
e electricity price, for example, is determined by NERSA using a specied multi-
year rate of return methodology as is eectively required by the Electricity Regulation
Act (2006). Generation capacity expansion is programmed according to the Integrated
Resource Plan, as developed by national government, and in theory the implementation
of these additions to capacity should be a straightforward exercise. However, due to the
renewed emphasis on Eskom as the supplier of choice–now responsible for approximately
70 per cent of all new build–the question of what is an appropriate funding model for the
required capacity expansion has become a vexatious one.
For instance, IPPs were required to contribute 30 per cent of total capital expenditure
as equity in the REIPPP process, yet Eskom is not adequately resourced with equity injec-
tions or retained earnings to provide a similar contribution. During the recent third Mul-
ti-Year Price Determination application, Eskom indicated that the shareholder would
not increase its contribution from previously committed R60 billion of subordinated
loans and R350 billion in government guarantees. e capacity expansion plan between
2013 and 2018 alone will require in excess of R330 billion from Eskom, to be primarily
funded by debt.
Given the dearth of equity, Eskom argued that it needed to pursue a ‘standalone invest-
ment grade’ rating from credit-rating agencies to enable it to borrow the required amount.
is required certain targets on interest cover and the Debt/Equity ratio, which led it
to request large increases in electricity prices to be implemented over a period of ve
years. e price increase application for 2013–18 came aer three years of dramatic
price increases during the MYPD2 period and led to an outcry by civil society, large
energy users, SMMEs and households alike.
If Eskom is required to build only 65 per cent of new capacity up to 2030, it predicts a
price path with increases of 20 per cent year-on-year in the current period, followed by 9
per cent year-on-year in the next ve-year period, and thereaer increases based on ina-
tion rates could apply.
e expansion requires 41,346 additional MWs over the 20 years between 2010 and 2030 against an
installed capacity of approx. 41,000 MW (2012) of a largely amortized and ageing plant.
Known as MYPD3, Eskom applied for price increases for a ve-year period from April 2013 to March
2018.
e ratio of total debt to EBITDA is below 3.
As much as 16 per cent p.a., cumulatively more than 109 per cent in nominal terms or 57.3 per cent in
real terms. (Eskom MYPD application).
e period was between April 2010 and March 2013. e increases were in excess of 80 per cent cumu-
latively over three years in nominal terms.
Source: Eskom, MYPD3 application 2013–18, <http://www.eskom.co.za>.e actual increase in the
application of 16 per cent year-on-year is based on limited responsibility for new-build generation.
214 FINANCE, INDUSTRY AND INFRASTRUCTURE
Interestingly, various government departments responded dierently to the applica-
tion by the SOE. e Department of Trade and Industry, for instance, expressed concern
over the detrimental impact such increases could have on the country’s economy.
NERSA thus found itself torn between various legislative prescripts and policy state-
ments. First of all, the establishing statute of NERSA requires it to act in accordance
with the rule of law and to implement the relevant energy legislation. Further, it requires
NERSA not to ‘take decisions that are at variance with published government policy’.
What constitutes policy is a moot point. However, this question becomes important when
various published government policies go in divergent directions. For instance, the ‘Elec-
tricity Pricing Policy’ requires NERSA to revalue Eskom’s asset base, which is at the heart
of Eskom’s price increases, whilst the industrial policies emphasize competitive input
costs as a requirement for attaining its industrial policy objectives. Clearly, policy cohe-
sion is a prerequisite for the unambiguous regulation of the energy industry.
5 The funding model and the user-pay principle
e funding model for infrastructure investment is a combination of vague guiding prin-
ciples, such as ‘the user-pay principle’, with explicit shareholder decisions regarding debt
nancing and a startling absence of equity funding by the shareholder—other than to
provide guarantees.
e socio-economic and regressive impact of forcing current customers to pay for
future capacity appears to be largely ignored. is can lead to the undesirable situation
in which an economic regulator is not simply the duly authorized implementer of gov-
ernment policy, but is forced to balance conicting policy imperatives and prescripts
and, in doing so, inadvertently becomes the maker and not merely the implementer of
public policy.
6 Competition and dominant SOEs/incumbents
e introduction of competition is a central theme of the Energy Policy and legislation,
but has thus far been rather elusive. In the petroleum pipelines industry some competi-
tion ‘for the market’ did indeed occur, most notably when a construction application for
Department of Trade and Industry, 2007, Industrial Policy Action Plan, <www.gov.za/documents/
download.php?f=72,531>.
National Planning Commission, November 2011, ‘National Development Plan: vision for 2030’.
Department of Trade and Industry, 2013, Administered Prices and the Manufacturing Sector, <http://
www.thedti.gov.za/parliament/administered_prices.pdf>.
ECONOMIC REGULATION OF THE ENERGY SECTOR 215
a new pipeline to transport petroleum products from the coast to the industrial heartland
of Gauteng was submitted to NERSA almost simultaneously with a similar application by
the state-owned owner and operator of the existing petroleum pipeline (Transnet).
NERSA declined the new entrant’s application, mainly on technical grounds. At the
same time Cabinet approved the ‘liquid fuels master plan’, which outlined the building
of such a new pipeline by Transnet and indicated that for security of supply reasons the
capacity of the pipeline should be increased.
e funding arrangements for the ‘strategic security of supply’ requirements were hast-
ily drawn up aer the operating licence was granted to the incumbent and provided for
a new type of ‘equity’ in which a levy on petroleum products would be imposed and
the proceeds thereof be channelled to Transnet. is state support for Transnet together
with NERSA’s decision to allow Transnet to charge a so-called ‘bundled tari’ (one in
which dierent pipelines are combined to calculate a single transportation tari) has led
to claims of unfair competition by potential new entrants who point to the lack of a level
playing eld in the petroleum pipelines industry.
In electricity, the introduction of renewables has been fast-tracked by the Department
of Energy which spearheaded three competitive bidding rounds in which many competi-
tors vied for the rights to build solar, wind and landll gas electricity generation plants.
e designated buyer for the electricity thus produced is Eskom, thereby precipitating the
need for the establishment of the independent system and market operator to ensure a
level playing eld.
Recent ministerial determinations pave the way for further participation of IPPs in
electricity. e expectation is that given Eskom’s weak balance sheet and lack of equi-
ty, IPPs will indeed become more important in the electricity supply industry in South
Africa.
In the piped-gas industry, the paucity of domestic gas discoveries; historically low elec-
tricity prices; dominance by the incumbent; and the lack of gas infrastructure are amongst
the many reasons for an underdeveloped gas market in South Africa. e gas market is
dominated by Sasol Ltd, which is the sole importer of natural gas from Mozambique,
the only manufacturer of synthetic gas in country, as well as the only gas transportation
company. Opportunities for gas use, particularly in industrial applications and electri-
city generation, do exist, and as electricity prices rise and environmental concerns gain
prominence, the business case for gas is steadily improving.
A global glut of LNG and a recently lied moratorium on shale gas exploration licens-
ing fracturing in South Africa have shied the focus from traditional pipeline gas imports
towards additional importation of LNG and/or the development of domestic unconven-
tional gas. LNG importation could radically change the share of gas in South Africa’s
energy mix, yet the absence of a suciently large credit-worthy anchor customer has
Department of Energy, 2007, Energy Security Master Plan—Liquid Fuels, <www.energy.gov.za>.
216 FINANCE, INDUSTRY AND INFRASTRUCTURE
hindered the development of LNG import facilities. Recent Ministerial determinations
regarding the provision of additional gas-red electricity generation capacity could prove
to be the much-vaunted catalyst for growth of the gas sector in South Africa.
7 Conclusion
Although South Africa’s energy policy and legislation provides for a transparent, com-
petitive and well-governed energy industry, policy delays; tensions between conicting
policy priorities; and unforeseen circumstances have led to disappointing results. Regula-
tory certainty and predictability are undermined when policy shis occur and legislative
and executive mandates are carried out in an uncoordinated fashion.
Necessary conditions for the successful economic regulation of the energy industry in
pursuit of the developmental state include the formulation of coherent and unambiguous
policies; the development of a sound and internally consistent funding model for SOE-
led infrastructure investment; a commitment to providing policy certainty to potential
entrants and private investors; and political will to support independent regulation. Aer
all, a developmental state needs rst and foremost to be a capable one.
Technology and innovation:
performance, policy
and prospects
david kaplan
26
1 Introduction
In the post-apartheid era, South Africa has developed a national system of innovation that
is more integrated and that relates far more closely to social and economic development.
Increasing resource allocation has been accompanied by considerable policy experimen-
tation and development that accords with global best practice. However, despite some
specic successes, overall progress has been slow. Further progress will require that the
factors that currently constrain the system are confronted.
2 Performance indicators
A. INPUTS
Gross Expenditure on R&D (GERD) in 2009/10 was R21 billion—in real terms more
than a three fold increase as compared with the early 1990s. In the early 1990s, GERD was
around 0.75 per cent of GDP. Over the last four years, GERD has been just below 1 per
cent of GDP, with a slight decline following the recession of 2008.
e business sector accounts for two-thirds of the increase in GERD. Fiy-eight per
cent of total R&D expenditures are now incurred by business—a proportion that is com-
parable with many of the industrialized countries.
B. OUTPUTS
Patents
International patenting is recognized as a key proxy measure of a nation’s performance in
innovation. e number of patents registered by South Africa at the Unites States Patent
218 FINANCE, INDUSTRY AND INFRASTRUCTURE
and Technology Oce (USPTO) has shown no discernible trend and is only marginally
higher in 2011 than it was in the mid-1990s. By contrast, Brazil’s patenting at the USPTO
has increased consistently and is now more than three fold higher. Pre-1998, South Africa
had almost as many patents at the USPTO as the BRIC countries combined. At the end
of 2011, the number of South African patents was 13 per cent of all the BRIC countries
combined.
An examination of South African patents at the USPTO reveals only two signicant
patent clusters, in mining-related technologies and in fuel technologies. Based on cita-
tions received, mining-related technology patents were of greater value than for South
African patents in general and were comparable with mining-related patents in Austral-
ia, Canada and the United States. Fuel technology-related patents, by contrast, were of
a signicantly lower value (Kaplan et al., 2011: 12). South African global expertise in
mining-related technologies is of very long standing. South Africa has not succeeded in
developing a signicant presence at the global technology frontier in any major new area.
Patents registered in the name of a national do not tell the whole story. Globally, there
has been an increasing trend towards international co-invention whereby nationals of
dierent countries engage in joint research resulting in co-invented patents. Co-invented
patents are important because they generally are of higher quality and closer to the global
technology frontier than other patents. ey are also an indication of the willingness of
foreigners to undertake joint research with locals. Emerging markets and the BRIC coun-
tries, in particular, have experienced a rapid growth in international patenting. For South
Africa the share of co-invented patents is far lower and, by contrast, has not expanded
rapidly.
Whilst data are limited, domestic patent applications have shown a tendency to
decrease—indeed domestic patent applications were lower in 2006 than in 1995. Moreo-
ver, the share of domestic patents accounted for by foreign rms increased signicantly
from 33 per cent in 2000 to 62 per cent in 2006 with a consequent steep decline in the
share of patent applications by locals.
Technology Balance of Payment (TBP)
A country’s receipts from the sale of technology to foreign nationals are a signicant
measure of a country’s technological strength and, in particular, of technological and
innovative activity located at or close to the global technological frontier. In the period
1991–95, South African royalty and licence fee receipts signicantly exceeded that of all
the other BRIC countries combined. By contrast, in the period 2000–10, South African
royalty and licence fee receipts were very signicantly less than that of any of the other
For an examination of patents and other technology indicators and the factors that account for South
Africa’s performance, see Kaplan et al., 2011.
TECHNOLOGY AND INNOVATION 219
BRIC countries. Whereas all the other BRIC countries have signicantly increased their
royalty and licence fee receipts over the last two decades, South Africa’s fee receipts have
declined by 30 per cent.
Countries that are enhancing their indigenous technological capacities are simultane-
ously increasing their import of technology. Royalty and licensing payments are a key
indicator of the extent to which a country is securing technology from abroad. South Afri-
ca’s payments increased steadily post-1990. However, South Africa’s payments increased
much less rapidly than for Brazil and the BRIC countries.
High technology exports
South Africa’s exports of high technology products have been increasing but at a slower
rate than the global trend and at a much slower rate than other comparable countries.
Currently, high technology exports are a far smaller share of manufactured exports in
South Africa than in the other BRIC countries. In 2010, the latest year available, high
technology exports as a share of manufactured exports was 7.2 per cent for India; 8.85
per cent for Russia; 11.4 per cent for Brazil; and only 4.28 per cent for South Africa.
Moreover, high technology exports as a share of manufactured exports in South Africa
have been declining.
High technology clusters
Whilst there are new technology-based rms in a number of areas, and whilst develop-
ment has drawn in rms in a few new areas such as ICT and medical devices, overall there
is only a very limited development of clusters of new high-value technology-based rms
(Kaplan, 2013).
Foreign investment
Outside of mining-related activities, there are few foreign rms undertaking signicant
R&D in South Africa aimed at supporting products elsewhere or as part of a global inno-
vation network. Overall growth in inward FDI in R&D activity has been very limited. By
contrast with many other middle-income countries, there are very few foreign-funded
R&D dedicated centres in South Africa.
Scientic publication counts
By contrast with South Africa’s technology indicators, the key indicator of scientic
advancement, namely scientic publications, shows a distinct upward trend. Scientic
220 FINANCE, INDUSTRY AND INFRASTRUCTURE
publications increased slowly from the early 1990s until 2004. Aer 2004, following a
signicant increase in incentives to publish on the part of academics, the rate of increase
in scientic publications accelerated sharply. Publications are currently double what they
were in 2004.
However, part of the increase represents the additions of new journals that were not
counted previously. Moreover, globally, publication counts are rising more rapidly.
According to National Science Foundation data, South Africa’s world share declined from
0.416 per cent in 1995 to 0.369 per cent in 2007 (Kahn, 2011: 5); it increased only moder-
ately thereaer. Finally, the number of academic researchers is increasing very marginally.
As a result the rate of increase in South African scientic publications is unlikely to be
sustainable.
e Square Kilometre Array (SKA) radio telescope
In 2012, South Africa secured the largest part of the Square Kilometre Array (SKA) radio
telescope project. is, the world’s largest radio telescope, will give a boost to South Afri-
ca’s scientic output.
Conclusion
All the technology indicators tell essentially the same story. e increases in GERD and
the growing share of GERD accounted for by business, the most productive R&D per-
former, has not been matched by similar increases in output. Moreover, South Africa has
performed poorly by comparison with other comparable countries in respect of economy-
wide technology and innovation performance indicators.
South Africa has performed far better in terms of scientic publications. However,
South Africa’s relative position has improved, at best, only marginally and the increase in
scientic publications is unlikely to be sustained.
3 Policy
is has been a vigorous domain of government policy led by an active, albeit small,
department—the Department of Science and Technology (DST). Four major documents
have set the broad strategic directions:
Data supplied by Michael Kahn.
TECHNOLOGY AND INNOVATION 221
• In1996,theWhitePaperonScienceandTechnologybuildingontheconceptofanational
system of innovation (NSI) sought to improve quality of life, ensure redress and enhance job
creation and competitiveness.
• In2002,anationalresearchanddevelopmentstrategysetoutawayforwardforpublicly
funded S&T and the creation of an enabling environment for the operations of the NSI.
• In2008,a10-yearinnovationplansetouttheobjectivesandoverallstrategyforthesystem
to 2018.
• In2012,aMinisterialCommitteewassetuptoreviewtheS&Tsystemandtomakerecom-
mendations for its further development.
In addition, there have been a number of signicant reviews and planning exercises:
• 1998AreviewofpubliclyfundedS&Tinstitutions;
• 1997–99NationalResearchandTechnologyForesight;
• 2003ReviewoftheNationalAdvisoryCouncilonInnovation;
• 2007OECDReviewofSouthAfrica’sInnovationPolicy.
ere have been a signicant number of concrete policy initiatives that have been aligned
with global best practice. Amongst the most signicant areas for policy have been:
• changesingovernance,particularlydesignedtosecurehigherlevelsofintegrationofthe
diverse institutions that compose the national system;
• competitivefundinginstrumentsintheallocationofresourcestopubliclyfundedinstitu-
tions of research;
• humanresourcedevelopmentprogrammes,forbothgraduatestudentsandforfaculty;
• signicantamendmentstothelegalframeworks,notablyinintellectualproperty;
• newpoliciesandinstitutionstobridge‘theinnovationgap’betweenknowledgeandcom-
mercial application;
• taxrebatesforR&Dandotherincentivestoencourageoutput.
4 Systemic constraints
e allocation of additional resources without a commensurate increase in output, partic-
ularly in the context of an improved policy environment, indicates that there are systemic
constraints leading to diminishing returns. e DST has called for a three-fold increase in
funding over 10 years. However, the rst order task is not to allocate more resources, but
to improve the eciency of the system by addressing these systemic constraints.
ere is universal agreement that the key binding constraint is the scarcity of skills. Skill
scarcities constrain output in all parts of the national system. Any signicant increase in
222 FINANCE, INDUSTRY AND INFRASTRUCTURE
technology or science output will not be possible without expanding the supply of skills.
However, current graduate output rates, and projected output rates, are far below what is
required to reach the DST’s ambitious targets for innovation (Kaplan et al., 2011: 17–20).
A rising science output and a falling technology output have reinforced the view that
there is what the DST has termed ‘an innovation chasm’. New knowledge is said not to be
nding its way into commercial application. A number of new policies and a new institu-
tion, the Technology Innovation Agency (TIA), have recently been established to meet
this gap. Whilst it is still far too early to make any assessment, there have been signs that
this is not proving fully eective and the recent report of the Ministerial Committee rec-
ommended that TIA be reviewed.
e number of technology-based start-up rms in South Africa is limited. One major
constraining factor is the diculties rms have in securing nance via the market. Gov-
ernment has accordingly sought to meet this ‘market failure’ but with limited success.
Finally, in common with many other countries, despite much institutional innovation,
South Africa has achieved only very limited coherence and integration as between the
dierent agencies of the NSI (DST, 2012: 11).
5 Conclusion
Technology indicators, and patenting activity in particular, are suggestive of likely future
technology-based economic activity. Particularly given relatively high wages, enhanc-
ing technology development and innovation will be critical to South Africa’s future
competitiveness and economic growth.
■ REFERENCES
Department of Science and Technology (DST) (2012), Ministerial Review Committee on the Science and
Technology and Innovation Landscape in South Africa. Final report (March) DST, Pretoria.
Kahn, Michael (2011), ‘A Bibliometric Analysis of South Africa’s Scientic Outputs—Some Trends and Impli-
c at i o n s’, South African Journal of Science, 107(1)–(2).
Kaplan, David (2013), A Study on Manufacturing, Productivity and Innovation in South Africa: A Comparison
with the BRIC Countries, e African Development Bank.
Kaplan, David, Itzhak Goldberg, Smita Kuriakose and Lee Bransetter (2011), ‘Inputs and Performance of
Technology Innovation. Closing the Skills and Technology Gap in South Africa’, Background Paper No. 1
(October), Human Development Group, Africa Region, e World Bank.
Electricity supply
anton eberhard
27
South Africa’s electricity sector is predominantly public-sector owned and the structure
of the electricity market has changed remarkably little over the past half-century. Never-
theless, there have been some important developments: the number of households with
access to electricity has increased dramatically over the past two decades; an independ-
ent regulator was established; and from 2013, independent power producers are entering
the market, mostly in the eld of renewable energy. e power sector faces a number
of challenges, including security and reliability of supply, attracting new investment in
power generation and networks, aordability of electricity services for poor households
and reduction of greenhouse gas emissions.
1 Introduction
As South Africa approached its rst democratic elections in 1994, its electricity supply
industry reected the dichotomies that were starkly evident in the broader society and
economy: almost all of the white population had access to electricity, including house-
holds, commercial enterprises, industry, mining and even remote white-owned farms.
Few black households had access to electricity. Ironically there was no shortage of elec-
tricity. Eskom, the dominant, state-owned electricity corporation, had surplus genera-
tion capacity as a result of large investments in the 1970s and 1980s. e problem was
at the distribution end of the network, where the supply of electricity was compromised
by a highly fragmented and racially-based system of local government with inadequate
resources for service delivery.
e rst challenge for the new government was to accelerate access to electricity. e
initial focus was on rationalizing and reforming the electricity distribution industry.
Eventually, attention also turned to restructuring Eskom as part of a broader drive to
increase eciencies in state-owned enterprises. In line with international trends, the
Professor at the University of Cape Town’s Graduate School of Business, eberhard@gsb.uct.ac.za;
www.gsb.uct.ac/mir.
224 FINANCE, INDUSTRY AND INFRASTRUCTURE
1990s also saw the introduction of new thinking on the reform of electricity markets.
However, as electricity demand grew and excess supply capacity eroded, the brief experi-
ment in designing a competitive market was quickly abandoned and Eskom once again has
assumed primary responsibility for new generation investments, with private independ-
ent power producers permitted to operate only at the margin. However, delays in decid-
ing on new investment during this period of reform later came to haunt the industry and
South Africa would run out of power before new power stations could be commissioned.
In this chapter, the key features of the power sector in South Africa are described fol-
lowed by a discussion on power sector reforms and future challenges.
2 Overview of the electricity industry
Eskom ranks in the top ten of utilities gloablly in electricity sales. With capacity of
around 43GW, Eskom generates 96 per cent of South Africa’s electricity requirements,
which amounts to more than half the electricity generated in Sub-Saharan Africa. Private
generators contribute about 3 per cent of national output (mostly for their own use) and
municipalities contribute an additional 1 per cent. South Africa’s electricity infrastruc-
ture is heavily dependent on coal (over 90 per cent) with nuclear, bagasse, hydro and
emergency gas turbines accounting for the balance.
South Africa is largely self-sucient in electricity production. While Eskom imports
some power from the region, notably Mozambique, it also sells electricity to neighbour-
ing countries: Botswana, Lesotho, Mozambique, Namibia, Swaziland, Zambia and Zim-
babwe. is amounts to less than 5 per cent of total net energy produced.
Eskom also owns and controls the high voltage national transmission grid and supplies
about half of the electricity produced direct to customers. e other half is distributed by
local authorities. ey buy bulk-supplies of electricity from Eskom, with some generating
small amounts for sale in their own areas of jurisdiction.
Eskom, supported by some of the better functioning muncipalities, has led an impres-
sive national electrication drive. e proportion of households with access to electricity
rose from about one-third in 1990, to above 80 per cent in 2012.
3 Power sector reform
Two areas have been the focus of reform eorts in the power sector over the past two
decades: restructuring of a fragmented electricity distribution industry and a possible
Eskom Annual Reports.
ELECTRICITY SUPPLY 225
break-up of Eskom to facilitate private investment in power generation. Neither area has
seen much progress.
A. ELECTRICITY DISTRIBUTION INDUSTRY (EDI) REFORM
Reform of the EDI has been discussed seriously since an ANC Electricity Conference in
1992, which for the rst time brought all the relevant stakeholders together. Subsequently,
the National Electrication Forum was established and, in later years, the Electricity Work-
ing Group and the Electricity Restructuring Inter-Departmental Committee. is work
culminated in the PWC Restructuring Blueprint Report and a number of Cabinet decisions
to amalgamate more than 180 municipal distributors and Eskom’s distribution regions into
six, adequately resourced, Regional Electricity Distribution Companies (REDs).
In 2004, government established the EDI Holding Company to implement these merg-
ers. However, despite nearly 15 years of talks, studies and Cabinet decisions, very little
progress has been made towards the establishment of the REDs. Local government has
been loath to give up its constitutional right to distribute electricity. In 2010, Cabinet
nally decided to abandon the RED model and it disbanded the EDI Holdings Com-
pany. Nevertheless, the initial drivers for change remain. Many municipal distributors are
inecient. ey have been extracting large surpluses on their sales of electricity without
reinvesting in maintenance, refurbishment or expansion of networks. e maintenance
backlog has been estimated at more than R35 billion. Billing and collection systems have
been poor.
Twelve of the largest municipalities account for about 80 per cent of electricity distrib-
uted by all municipalities. Going forward, a pragmatic approach to restructuring might
focus mainly on these large municipalities through providing intensive and sustained
support for them to develop ring-fenced, corporatized, eectively regulated and well-
managed electricity utilities, with adequate investment in physical and human capital.
Eskom might be required to transfer, on a proportional basis, those networks, sta and sys-
tems that serve customers within the boundaries of these large municipalities, while being
allowed to retain the balance of its distribution business: i.e. in rural areas, small towns and
to qualifying large customers. Finally, Eskom, or larger municipalities, might be allowed to
take over failing electricity businesses from smaller municipalities. ese municipalities
are, in many instances, not making any money from electricity sales, and attractive nan-
cial incentives could be oered for them to transfer their electricity divisions.
e above approach was advocated in the National Development Plan published in
2012. Unlike generation power failures, which impact the entire national transmission
National Planning Commission (2012), ‘Our Future—Make it Work’, National Development Plan 2030,
Department of the Presidency, Pretoria.
226 FINANCE, INDUSTRY AND INFRASTRUCTURE
network, distribution failures are specic to local areas and are experienced by smaller
communities. However, as the frequency of these distribution failures increases, the pol-
itical drivers for reform will strengthen and action will need to be taken.
B. REFORMING THE GOVERNANCE, STRUCTURE AND
COMPETITIVENESS OF THE ELECTRICITY SUPPLY INDUSTRY (ESI)
South Africa has not been subject to any direct World Bank or IMF structural adjust-
ment programmes. Nevertheless, in the mid-1990s, the government adopted a process of
‘self-imposed structural adjustment’. Following a period of attention to macro economic
reforms, the emphasis moved to micro economic reforms, including a new focus on
improved eciencies and governance in government-owned entities. In 2000, the
Department of Public Enterprises (DPE) published ‘A Policy Framework: An Accelerated
Agenda towards the Restructuring of State Owned Enterprises’. e Eskom Conversion
Act of 2001 followed. As a consequence, Eskom became a state-owned public corporation
subject to the Companies Act. Eskom, along with other state-owned enterprises, had to
pay taxes and dividends and was subject to a shareholder performance contract.
During this period, Cabinet also approved a White Paper on Energy Policy, released
in December 1998. is new policy framework was consistent with the government’s
macroeconomic policy in that it emphasized the need to attract private investment into
the energy sector and to promote eciency through competition. It marked a sharp
break from the earlier apartheid-era energy policy that focused on national energy
security and the provision of low-cost energy supplies to mines, primary industry and
the white population. e objectives of the new energy policy were improvements in
social equity, economic competitiveness and environmental sustainability. Remarkably,
the White Paper also emphasized the importance of giving customers the right to choose
their electricity supplier, introducing competition into the industry especially in the gen-
eration sector, permitting open non-discriminatory access to the transmission system,
encouraging private-sector participation in the industry and establishing an independ-
ent regulator.
While an electricity regulator was established, few of the other proposals in the Energy
White Paper were implemented, even though consultants were hired initially by govern-
ment to design an electricity market not dis-similar to Nordpool in Scandinavia or PJM
Department of Public Enterprises (2000), ‘A Policy Framework: An Accelerated Agenda towards the
Restructuring of State Owned Enterprises’, Pretoria.
Department of Minerals and Energy (1998), White Paper of Energy Policy for the Republic of South Africa,
Pretoria.
ELECTRICITY SUPPLY 227
on the east coast of the United States. During this time Eskom was prohibited by govern-
ment from building new generation capacity as it was envisaged that the market would
be opened to private sector investors. However, by 2004 government realized that reserve
margins in generation capacity were running out and that new investment was urgently
required. It decided to abandon ESI reform and Eskom was told to bring new power gen-
eration online as soon as possible.
Despite Eskom’s eorts to re-commission some of its old mothballed plant, and plans
for new mega coal-red plant, demand outstripped supply in 2008 and major rolling
power blackouts crippled mining and industrial production. e economic recession
that followed the 2008 nancial crisis subsequently resulted in supressed demand and a
breathing space for Eskom, but delays in comissioning the new power plants once again
led to a precarious supply position from 2013. e new cycle of investment also resulted
in a doubling of electricity prices.
C. COAL, CLIMATE CHANGE AND THE SHIFT TO RENEWABLE ENERGY
As a result of its dependency on coal, South Africa is a signicant emitter of greenhouse
gases. At the Copenhagen Climate Change summit in 2009, South Africa pledged to
reduce its ‘business-as-usual’ emissions trajectory by 42 per cent by 2025. e power sec-
tor contributes approximately half of South Africa’s CO2 emissions. New power plans now
envisage an increased share of renewable energy technologies. In 2012, a competitive bid
was launched for 3750 MW of mainly wind and solar power. e rst round attracted 28
successful bids worth R47 billion. Subsequent rounds were competitive and saw dramatic
price reductions.
4 Conclusion
ere are elements of power sector reform in South Africa that are peculiar to its recent
history, namely its transformation into a democratic state aer decades of apartheid.
Within this context, it was inevitable that energy policy would be transformed from a
defensive obsession with security to a new focus on promoting social equity and improv-
ing economic competitiveness as South Africa re-integrated with the global economy.
e Energy Policy White Paper gave expression to this policy shi, but it was already
evident in the launch of an impressive electrication programme that sought to tackle the
huge backlog of the previously disenfranchised’s demand for aordable access to electric-
ity. ere was also the intent to consolidate and reform the highly fragmented and inef-
cient electricity distribution sector.
228 FINANCE, INDUSTRY AND INFRASTRUCTURE
Surplus and cheap electricity was available in the 1990s as a result of over-investment
in the previous decades, and a strong, large industrial consumer base enabled the ESI
to cross-subsidize the electrication programme without the necessity of imposing
unaordable price hikes. However, by 2008 these surpluses had diminished and the large
investments being made in new generation plant led to sharp price increases.
e process of reform of the distribution sector has been slow and has been frustrated
by the complex web of political interests at local government level and the fear of loss of
control of an important infrastructure service and large income streams.
Following a irtation with market restructuring ideas, the government has re-asserted
the developmental role of Eskom and has been reluctant to proceed with sector unbun-
dling, competition and privatization. However, the power shortages and price hikes since
2008 have highlighted problems with the performance of Eskom and the need to once
again consider ESI reform. e competitive tenders for renewable energy demonstrated
the potential for private investment in generation capacity. As future procurement pro-
cesses build on this experience, and further IPPs are contracted, a de facto restructuring
of the power market has begun to emerge.
Capturing South Africa’s
demographic dividend
morné oosthuizen
28
Around the world, societies are characterized by extended periods of dependency: the
very young and the very old consume more than they produce through their own labour.
However, during the prime working ages, adults generally produce more than they con-
sume. is economic lifecycle—which sees an individual move from decit, to surplus,
and back to decit over his or her lifetime—can only be sustained in the presence of
institutions that allow resources to ow across generations and over time. Using house-
hold surveys, national accounts and administrative data, the National Transfer Accounts
(NTA) methodology focuses on quantifying these resource ows: sharing between age
groups via transfers (typically mediated by governments and households), and using
assets to transfer resources over time (typically mediated by private institutions). Togeth-
er, these two types of ows nance the lifecycle decit (consumption less labour income).
South Africa’s particular socio-economic context is reected in the shape of its lifecycle
decit (LCD) across each age cohort, calculated using 2005 data (see Figure 28.1). e
South African population enjoys 30 years of surplus, between the ages of 30 and 59 years.
Although this is not far o the mean internationally, it places South Africa around the
25th percentile of NTA countries, with just six countries experiencing shorter surplus
periods. However, the transition to surplus comes unusually late: of the 23 countries with
data, only Nigeria and Senegal have later transitions to surplus, whilst Brazil’s transition
is also at age 30. Similarly, only three other NTA countries produce surpluses at older ages
than South Africa. Not only does the surplus come relatively late, but it is also relatively
shallow—particularly up to the mid-40s—ranging around one-quarter of mean labour
income for 30-to 49-year-olds.
e shape of the LCD prole is the result of the combination of the labour income and
consumption proles. e prole of labour income—from employment and self-employ-
ment—has two distinct features. First, labour income in South Africa rises relatively late:
South Africa is one of the last countries to see labour income rise above zero and remains
in the bottom quartile of countries until the early 30s. is late rise is certainly related to
high unemployment rates amongst young South Africans and, in particular, a distinct
232 LABOUR AND EMPLOYMENT
lack of remunerative labour market opportunities for those that exit the schooling system
prior to completing secondary school. Most recent labour market data puts the unem-
ployment rate amongst 15- to 24-year-olds at 51.0 per cent, more than twice the national
average of 24.9 per cent, whilst there is a steep gradient in unemployment rates across
educational categories (own calculations, Statistics South Africa, 2013). e second fea-
ture is the rapid decline in labour income around the age of retirement: between the ages
of 60 and 70 years, the decline is so steep that South Africa falls from the top quartile to the
bottom quartile of NTA countries. Consumption—privately and publicly funded, includ-
ing in-kind consumption—rises gradually and consistently, apart from a dip around age
20, and peaks (at around 80 per cent of mean labour income for 30- to 49-year-olds) for
individuals in their early 50s. ereaer, consumption declines gradually and, somewhat
unusually in an international context, continuously.
e existence of the economic lifecycle means that demographic change can have
important economic implications for a country through its eects on the relative shares
of economically active and economically inactive groups within the population. One of
the NTA summary measures is the support ratio, which relates the number of eective
producers or total labour income (the numerator) to the number of eective consumers
−1.00
−0.75
−0.50
−0.25
0.00
0.25
0.50
0.75
1.00
1.25
1.50
Relative to mean labour income for 30−49 year olds
01020304050607080 90+
Age (years)
Labour income
Consumption
Lifecycle deficit (LCD)
LCD range
Figure 28.1. South Africa’s lifecycle deficit
Source: Own calculations; Lee and Mason (2011).
Notes: (1) Data for South Africa is for 2005. The LCD range is based on estimates for 23 developed and developing
countries, between 1994 and 2006.
(2) All profiles are normalized by dividing by that particular country’s mean labour income for 30- to 49-year-olds.
(3) Profiles are averaged across the total number of individuals within an age group.
CAPTURING SOUTH AFRICA’S DEMOGRAPHIC DIVIDEND 233
or total consumption (the denominator), given specic labour income and consumption
proles and a particular age structure (Mason and Lee, 2006). e higher the ratio, the
larger the number of eective producers to eective consumers. Combining the labour
income and consumption proles with demographic projections to create synthetic
cohorts, it is possible to project the path of the support ratio into the future. e rate of
change of the support ratio is known as the rst demographic dividend, the benet that
accrues to the economy as the population ages and the working age population grows
rapidly relative to other age groups, raising the number of eective producers relative
to the number of eective consumers, creating nancial space for greater human capital
investment and boosting per capita economic growth.
NTA estimates show, unusually, two positive periods of the rst demographic dividend
in South Africa. e rst began in 1977, following more than 25 years of negative divi-
dend as a result of relatively high population growth, and peaked at over one percentage
point during the early 1990s. e dividend then turned negative in 2007. e second
period of positive dividend is expected to last from 2014 to beyond 2050, but is more
moderate, raising the per capita economic growth rate by up to around 0.4 percentage
points per annum at its peak around 2030.
Demographic change, then, is expected to impact favourably on economic growth over
the coming 40 years or more in South Africa, the result of slowing population growth.
e estimation of the rst demographic dividend, though, assumes particular labour
income and consumption proles. Since the labour income prole is the outcome of the
interaction between age-specic labour force participation and unemployment rates and
mean remuneration levels, the extent to which the rst demographic dividend is realized
depends on future labour market performance. e demographic dividend is, therefore,
not assured; rather, the ‘dividend period is a window of opportunity rather than a guaran-
tee of improved standards of living’ (Lee and Mason, 2006).
South Africa’s current socioeconomic context, though, with the labour market at the
core, serves as a real constraint on the country’s ability to capitalize on this opportunity.
NTA estimates highlight two areas of concern for South African policymaking, both of
which impact on the country’s labour income prole. Maximizing the estimated benets
associated with the rst dividend requires improvements in the proportion of individuals
in each cohort that are employed, as this will increase the number of eective producers
and raise the labour income prole. In fact, a rising employment rate amongst the working-
age population relative to 2005 could raise the demographic dividend beyond its pro-
jected level, ceteris paribus. Second, an increase in average remuneration levels for those
who are employed would have the same eect. Greater employment and higher wages are
already key policy objectives in South Africa and there is considerable scope for improve-
ments in these areas, with just 41.0 per cent of the working-age population employed at
the end of 2012 (own calculations, Statistics South Africa, 2013). However, the attainment
of these objectives requires more rapid economic growth, a more labour-intensive growth
234 LABOUR AND EMPLOYMENT
path, and a exible and ecient education and training system that improves the skills
prole of the labour force, amongst other things.
Of particular concern is the level of youth unemployment and the inability of the edu-
cation system to produce the skills required by the economy in sucient numbers. e
immediate eect of high levels of youth unemployment is the delayed rise of the labour
income prole, which in turn delays the transition to surplus and constrains the dur-
ation of the period of surplus generation. Over the longer term, however, international
evidence suggests a scarring eect of youth unemployment on labour market outcomes,
notably wages, in later life. is lowering of future earnings potential may constrain the
ability of prime working-age cohorts to generate sucient surpluses going forward, with
negative implications for privately and publicly funded consumption, including educa-
tion and health.
Widespread unemployment, the potential wage scarring for the large cohort of
unemployed youth and the possibility of weakened human capital investment (the lat-
ter in the form of diminished education and health consumption) not only threaten the
realization of the rst demographic dividend, but also that of the second dividend. e
second dividend occurs as the population structure becomes more concentrated at older
working ages. Longer life expectancy and the prospect of a signicant period of retire-
ment create a strong incentive to save, particularly where reliance cannot be placed on
younger cohorts—through households or governments—to nance consumption in old
age. e savings accumulated by these cohorts may substantially raise the capital-to-
GDP ratio, enhancing productivity and boosting economic growth and living standards.
Whilst this outcome is also predicated on employment and earnings from employment, it
also requires a policy environment favourable to saving. International evidence suggests
that the second demographic dividend is typically larger than the rst and, unlike the
latter, may continue indenitely (Lee and Mason, 2006), underlining the importance of
timeously implementing appropriate policies.
South Africa stands at a crucial point in its economic development, with significant
challenges of poverty and inequality. Demographic trends over the past few decades
mean that the country’s working-age population will grow relatively rapidly, poten-
tially providing a 40-year boost to per capita economic growth. At the same time,
the next few decades will strongly determine the magnitude of the country’s second
demographic dividend. The NTA framework provides important insights into the
flows of resources across cohorts and over time and these estimates reinforce the
urgency with which current labour market challenges need to be addressed. In par-
ticular, the educational and labour market challenges confronting young people, if
unresolved, will act as significant constraints on the country’s ability to capitalize
on the first and second demographic dividends and, by extension, will slow down
progress towards the overarching policy goals of poverty eradication and reduced
inequality.
CAPTURING SOUTH AFRICA’S DEMOGRAPHIC DIVIDEND 235
■ REFERENCES
Lee, R. and A. Mason (2006), ‘What is the Demographic Dividend?’, Finance and Development, 43(3), <http://
www.imf.org/external/pubs//fandd/2006/09/index.htm>.
Lee, R. and A. Mason (2011), Population Aging and the Generational Economy: A Global Perspective, Chelten-
ham, UK: Edward Elgar, and National Transfer Accounts Website, <http://www.ntaccounts.org/>.
Mason, L. and R. Lee (2006), Reform and Support Systems for the Elderly in Developing Countries: Captur-
ing the Second Demographic Dividend, GENUS LXII(2): 11–35.
Statistics South Africa (2013), ‘Quarterly Labour Force Survey (2012Q4)’, Dataset, Pretoria.
Unemployment in South Africa
cecil mlatsheni and murray leibbrandt
29
1 Introduction
e level of unemployment in South Africa has long been a humbling statistic. Over the
past 20 years the unemployment rate has not dipped below 20 per cent and stands at 25 per
cent in 2013. e Post-apartheid Labour Market Series 1994–2007 data indicate that gen-
der dierences in unemployment rates have ranged between 5 and 10 per cent for most of
the 2000s, with men enjoying the advantage over women. Racial inequality in unemploy-
ment is also stark. e unemployment rates of Africans in 1994 was 26 per cent, it reached
a peak of 37 per cent in 2002 and was at 27 per cent in 2007. In contrast, unemployment
of whites consistently remained below 10 per cent at 4 per cent in 1994 and 2007, with a
peak of 6 per cent in 2002. Arguably, one of the more important markers of disadvantage
is age. In 2010 the unemployment rate of youth 15 to 30 years old was 42 per cent whilst
the corresponding rate for adults over 30 years was 17 per cent. Youth unemployment
is a key driver of the high unemployment rate in South Africa. In addition, unemploy-
ment is oen of long duration. In the mid-1990s nearly two-thirds of the unemployed
had never worked for pay (Standing et al., 1996). is feature of the unemployed has
persisted as the 2005 Labour Force Survey indicates that 40 per cent of unemployed indi-
viduals (by the strict denition) have unemployment durations exceeding three years,
whilst 59 per cent of the unemployed have never had a job at all. is is a particular
concern given the well-documented ill-eects and high social costs of prolonged bouts
of unemployment. ere is a large literature linking long-term unemployment with anti-
social attitudes, delinquent and criminal activities as well as rebellious behaviour (Wine-
eld et al., 1993, Scarpetta et al., 2010) and also apathy and helplessness (Coleman and
Hendry, 1990). Frustration builds as a result of nancial anxiety, insecurity about the
future and failure to acquire social standing. In the South African context, Africans living
in urban areas have been found to suer nancial and psychological deprivation (Fryer,
1997; Moller, 1992) and the unemployed have been found to have signicantly lower
e issue of youth unemployment is given focused attention elsewhere in this volume (see Levinsohn at
Ch. 33) and is not specically addressed here.
UNEMPLOYMENT IN SOUTH AFRICA 237
levels of subjective well-being than either the employed or the not economically active
(Lloyd and Leibbrandt, 2013).
e fact that unemployment spells are of lengthy duration makes it clear that the rigidi-
ties in employment entry and re-entry are potentially important dimensions of South
African unemployment. is highlights the need for a central focus on an eciently
functioning labour market that promotes access to employment. Facilitating such access
reduces unemployment and also reduces the scarring eects of prolonged unemployment.
We return to these concerns in the conclusion. In the next section, we review the
reasons for the high level of unemployment and then assess the current policy options
against this context.
2 Reasons for high unemployment in South Africa
One of the chief determinants of job creation is the aggregate level of growth of the South
African economy. At the start of the post-apartheid period and periodically since then, it
has been estimated that the South African economy would have to grow at an annual rate
in excess of 5 per cent in order to signicantly reduce the unemployment rate (MERG,
1993; Pollin et al., 2006; Hausman, 2008). e average GDP growth rate between 1993
and 2012 was 3.2 per cent and all sub-periods are well short of the 5 per cent target.
Our strongest period of growth was between 2002 and 2007 and Bhorat and Oosthuizen
(2008) and Hausman (2008) show that there was some employment response to this high
growth.
e fact remains though that the employment response to a given quantum of growth
has been sluggish and very uneven across sectors (Altman, 2012). is has led some ana-
lysts to characterize the nature of unemployment in South Africa as structural for the
most part, with the notable feature of a mismatch between the skill endowments of the
majority of the labour force and the nature of skills demanded by employers (Bhorat
et al., 2013; Kraak, 2003). Support for the skills mismatch hypothesis is garnered from the
fact that rms themselves have oen cited a shortage of appropriately skilled personnel
as a constraint on increased business activity within the economy (Chandra and Nganou,
2001). at said, the skills mismatch hypothesis has to be carefully justied because, as
noted a number of years ago by Standing et al. (1996), the apparent fact that most the
unemployed are unskilled does not necessarily mean that unemployment is due to a lack
of skills. A decade later the Harvard group (Hausman, 2008) re-state this point by argu-
ing that the skills shortage is a consequence, rather than a cause, of the structure of our
growth.
Importantly too, the lack of work-readiness is not exactly the same thing as the shortage
of specic skills categories and there is no doubting the importance of constraints around
238 LABOUR AND EMPLOYMENT
work-readiness for successful entry into the labour market. Countries that have trad-
itionally been successful in integrating new entrants into the labour market have achieved
success through ensuring early contact with the workplace (Bowers et al., 1999). In most
countries, however, the system that prevails is a sequential one of education rst and then
entry into the labour market aer schooling. ere is little tradition of vocational orien-
tation within the secondary school education system. In contrast, a key component of
the famed German dual system is the involvement of the private sector and community
(in this case workers and unions) in the content and certication of vocational training
as well as the content and conditions governing on-the-job training. e Department of
Higher Education and Training’s (DHET) establishment of a unit tasked with work inte-
grated learning partnerships and innovation is a step in this direction (Department of
Higher Education and Training 2012).
Given widespread concerns over education and training systems, employers experi-
ence hiring as a risky undertaking. ey speak of a high variance in potential productivity,
even within a given qualication such as complete secondary schooling and they express
concerns about their discretion to manage this information risk. Oen their concerns
focus on labour regulations around hiring and ring (Bhorat et al., 2013; Benjamin et al.,
2010). ese concerns emerge too in debates over entry-level wages with rms arguing
that these wages are too high relative to expected productivity. Empirically this is a di-
cult question to close out, especially given the broader South African history and context.
Holding all other factors constant, higher real wages for unskilled or entry-level workers
will narrow the gap between skilled and unskilled wages and promote poverty reduction.
On the other hand, unskilled wages that are not justied by productivity, shortage or
occupational hazard contribute to a lower level of hiring and thus greater unemployment.
A rough indication of the substance of these arguments can be garnered from a com-
parison of the trends in earnings growth versus employment growth in major industries.
e Quarterly Employment Statistics published by StatsSA indicate that between March
2008 and December 2011 employee numbers in the manufacturing industry fell by 12
per cent whereas gross earnings rose by 45 per cent. In mining and quarrying, gross earn-
ings increased by 83 per cent compared to a mere 2 per cent increase in employment. In
electricity and gas, gross earnings rose by 96 per cent whilst employment increased by 3
per cent. Overall public and private sector employment, excluding agriculture, was down
by 0.5 per cent whereas earnings were up 55 per cent. ese are not entry level wages spe-
cically and precise conclusions about the disincentive eects of wage levels on employ-
ment cannot be drawn directly from these statistics. However, they show clearly a growth
in real earnings alongside tepid employment growth. Given this, it is important to note
that the voices of those trying to enter the labour market are not nding their way into the
discussion of this situation with its complicated set of trade-os and possibilities.
Some have asserted that, even if the labour market was more exible and the
unemployed had more voice, reservation wages are too high to expect a downward wage
UNEMPLOYMENT IN SOUTH AFRICA 239
adjustment and a large increase in entry-level employment. Earlier literature (Nattrass
and Walker, 2005) disputes this. However, Rankin and Roberts (2010) nd that between
73–81 per cent of males and 55–71 per cent of females have desired wages that are above
those they could expect to earn in a rm with 50 employees or less. Sometimes the
claim is made that reservation wages must be too high otherwise there would be more
self-employed participants in the informal sector. However, as discussed in Section 3,
under entrepreneurship, this ignores real constraints restricting the unemployed from
becoming entrepreneurs. In general, whilst not denying that the lengthy duration of
unemployment can lead to a variety of counter-productive community and social pro-
cesses, it is hard to see the reservation wage issue as the right place to focus attention.
An important caution about blaming South Africa’s unemployed for their status is pro-
vided in recent work by Lloyd and Leibbrandt (2013) showing that the subjective well-
being of the unemployed, and the discouraged unemployed in particular, is the lowest
of all of the economically active population.
3 Measures to combat high unemployment
It is clear from the previous section that the reasons for high unemployment are too
complicated for there to be a single, simple policy solution to this problem. Broader
macroeconomic and sectoral economic policies will determine economic growth and
robust growth is a necessary condition for employment creation. e labour market
is one factor in these macro and meso frameworks. However, the functioning of the
labour market becomes central in mediating the employment intensity of growth. At
this micro level, our preceding discussion of the concerns over the rigidity of wages
and entrance into the labour market give the context to understand why, over the past
couple of years, the most topical policy initiative has been the youth wage subsidy. is
is discussed at length elsewhere in this volume (see Levinsohn at Ch. 33). Less con-
tentious than a wage subsidy are a range of possible micro interventions to improve
information ows to the unemployed and/or to lower the nancial costs of job search.
As discussed in Bhorat and Mayet (2012) transport subsidy programmes are promising
enough to be worthy of piloting and they are receiving policy attention. e same is
true of possible interventions to increase the eectiveness of existing labour informa-
tion centres.
Promotion of entrepreneurship and especially small, medium and micro enterprises
(SMMEs) has also been a focus area in South Africa. However, early-stage entrepreneur-
ial activity is relatively low at 7 per cent (the lowest of the surveyed sub-Saharan countries)
(Xavier et al., 2013; Turton and Herrington, 2013). Evidence from South African surveys
indicates that many young people are motivated to start their own businesses because
240 LABOUR AND EMPLOYMENT
of the limited opportunities in the labour market but that sustainability is a major con-
straining factor (Mlatsheni and Leibbrandt, 2011). Furthermore, SMMEs are not cur-
rently the biggest generators of employment (Kerr et al., 2013). However, with low rates
of both necessity entrepreneurship (2.24 per cent of the population) and opportunity
entrepreneurship (2.8 per cent), there has to be potential for employment creation in
this area (Xavier et al., 2013; Turton and Herrington, 2013). e Global Entrepreneur-
ship Monitor (2008) reports that only a small percentage of start-up entrepreneurs
can expect to create 20 jobs in their rst ve years of business. e reason for this is
that entrepreneurship in South Africa tends to be skewed towards low-impact, or low-
expectation entrepreneurship. is is because it is driven by necessity or the absence of
other viable sources of income rather than being driven by vision. It seems clear from this
as well as the analysis of formal sector rm data (Kerr et al., 2013) that entrepreneurship is
hard and even when it happens it does not necessarily have large employment multipliers.
In addressing possible skill shortages and the misalignment of our training systems,
policy attention has focused on the provision of training in intermediate-level tech-
nical and vocational skills through the Further Education and Training (FET) colleges.
However, currently these are functioning very poorly. ey have been reported to be
under resourced and oen not situated where they are most needed and, as of 2013, more
resources have been earmarked for improving the infrastructure and management of
FETs (Department of Higher Education and Training Strategic Plan, Revised Version
2012). In addition, coordination between the vocational education strategy and on-the-
job training has been very poor. Research by the South African Qualications Authority
(SAQA) reports that technical skills acquisition has declined since the introduction of the
SETA system that bears primary responsibility for on-the-job training. Apprenticeships
through the FET institutions have declined because employers mistakenly believe that
they have been replaced by learnerships through the SETAs. at said, a learnership con-
tract requires a willing employer and many employers say that they are discouraged by the
heavy administrative burden involved in the process. us training initiatives have been
disappointing in South Africa.
e nature of employment in South Africa has changed over the time, specically
through the growth of temporary employment facilitated by temporary employment
agencies. Temporary employment services, more commonly known as labour brokers,
can be viewed as either contributing to the problem of high unemployment or as help-
ing to alleviate it. Research indicates that around 25 per cent of jobs created in South
Africa since 1994 have been created through labour brokers (Benjamin et al., 2010). How-
ever, COSATU amongst others see labour brokerage as a potentially destructive force in
that it provides temporary and relatively less secure employment. Nevertheless, there is
widespread recognition that doing away with labour brokers would lead to job losses at
least in the short term. A popular compromise is to better regulate the labour brokerage
environment.
UNEMPLOYMENT IN SOUTH AFRICA 241
Another avenue for combating the high level of unemployment in South Africa is pro-
vision of temporary public sector jobs. Internationally, there has been a marked move
away from public sector job creation programmes in favour of other active measures
because of the disappointing results that are achieved in terms of helping unemployed
people get permanent jobs in the labour market (Martin and Grubb, 2001). South Afri-
can literature reaches a similar conclusion (McCord, 2012). However, there is still a great
deal of debate around the use of these programmes as they can full objectives other than
just creation of permanent jobs. Public sector employment creation programmes can be
used to help the most disadvantaged unemployed maintain contact with the labour mar-
ket especially in times of weak aggregate demand and scarcity of vacancies (Fay, 1996). In
this regard and in the South African context, there has been serious piloting of a Commu-
nity Works Programme. is is modelled on the Indian employment guarantee scheme
(Philip, 2013; Stanwix and Van der Westhuizen, 2012). Given initially positive results,
scalability is being assessed.
4 Conclusion
e unemployed do not appear to have enough of a voice either through the operation
of the labour market or in discussions over the reform of labour market policies. is is a
tough structural issue in any environment. Self-employment is supposed to be an avenue
for facilitating employment acquisition, however, too few people engage in it to have a sig-
nicant impact. e lack of entrepreneurial activity is sometimes blamed on reservation
wages, however, this fails to recognize that there are many signicant challenges in setting
up a business venture. Rather than being distracted by the reservation wage argument,
policy should focus on addressing the challenge of facilitating ecient, cheap job search
and ecient matching for those who are looking hard for employment. ere has to be
follow through on plans to improve the functioning of FET colleges and plans to forge
work-integrated learning partnerships. Furthermore, temporary jobs provided through
Community Works Programmes must continue as they at least help individuals maintain
contact with the workplace. However, such work has to be designed as a stepping-stone
to more secure employment otherwise the benets of this expensive form of intervention
become diluted as the post-programme-participation unemployment spell lengthens.
■ REFERENCES
Altman, M. (2012), ‘e Challenge of Employment Creation in South Africa’, in U. Pillay, G. Hagg and
F. Nyamnjoh (eds), State of the Nation: South Africa 2012–2103, Cape Town: HSRC Press.
Benjamin, P., H. Bhorat and H. Cheadle (2010), ‘e Cost of “Doing Business” and Labour Regulation: e
Case of South Africa’, International Labour Review, 149(1): 73–91.
242 LABOUR AND EMPLOYMENT
Bhorat, H., S. Goga and B. Stanwix (2013), ‘Occupational Shis and Shortages: Skills Challenges Facing the
South African Economy’, Paper presented at the UNU-WIDER Conference on ‘Inclusive Growth in Africa:
Measurement, Causes, and Consequences’, September 20–21, 2013, Helsinki: Finland.
Bhorat, H. and N. Mayet (2012), ‘A Nation in Search of Jobs: Challenges in Employment Creation in South
African Labour Market and Policy Suggestions’, in U. Pillay, G. Hagg and F. Nyamnjoh (eds), State of the
Nation: South Africa 2012–2103, Cape Town: HSRC Press.
Bhorat, H. and M. Oosthuizen (2008), ‘Employment Shis and the Jobless Growth Debate in South Africa’,
in A. Kraak and K. Press (eds), Human Resources Development Review, Cape Town: HSRC Press: 50–68.
Bowers, N., A. Sonnet and L. Bardone (1999), Giving Young People A Good Start: e Experience of OECD
Countries, OECD Secretariat, Paris.
Chandra, V. and J. Nganou (2001), ‘Obstacles to Formal Employment Creation in South Africa: Evidence
from Recent Firm Surveys’, Paper presented to the Development Policy Research Unit conference,
Johannesburg.
Coleman, J. and L. Hendry (1990), e Nature of Adolescence, Routledge: London.
Department of Higher Education and Training (2012), Strategic Plan, Revised Version.
Fay, R. (1996), ‘Enhancing the Eectiveness of Active Labour Market Policies: Evidence from Programme
Evaluations in OECD Countries’, OECD Labour Market and Social Policy Occasional Papers, No. 18,
OECD Publishing.
Fryer, D. (1997), ‘International Perspectives on Youth Unemployment and Mental Health: Some Central
Issues’, Journal of Adolescence, 20: 333–42.
Hausman, R. (2008), ‘Final Recommendations of the International Panel on ASGISA’, CID Working Paper
No. 161, May, Harvard University.
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ing Paper No. 92.
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Employment, and Skills in South Africa’, Human Sciences Research Council and East Lansing: Michigan
State University Press.
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ment in South Africa’, SALDRU Working Paper No. 94.
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with Active Labour Market Policies’, Swedish Economic Policy Review, 8(2).
McCord, A. (2012), Public Works and Social Protection in Southern Africa: Do Public Works Work for the
Poor?, UCT Press, South Africa.
MERG (1993), Making Democracy Work: A Framework for Macroeconomic Policy in South Africa, Centre for
Development Studies, Cape Town: Oxford University Press.
Mlatsheni, C. and M. Leibbrandt (2011), ‘Youth Unemployment in South Africa: Concepts, Challenges and
Opportunities’, Journal of International Research and Development, 14: 118–26.
Moller, V. (1992), Quality of Life in Unemployment, Pretoria:Human Sciences Research Council.
National Government of South Africa (1995), ‘White Paper on the National Strategy for the Development
and Promotion of Small Business in South Africa’, Pretoria: Government Gazette.
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Development Southern Africa, 73(3).
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No. 1/2013, Graduate School of Development Policy and Practice, University of Cape Town.
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South Africa, New York: UNDP.
UNEMPLOYMENT IN SOUTH AFRICA 243
Rankin, N. and G. Roberts (2010), ‘Youth Unemployment, Firm Size and Reservation Wages in South Africa’,
African Micro-Economics Research Unit.
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Prevent Negative Long-Term Consequences on a Generation?’, OECD Social Employment and Migration
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An ILO Country Review, International Labour Oce, Geneva.
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Policy Strategies Working Paper.
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tor: 2012 Global Report’, <http://www.gemconsortium.org/docs/2645/gem-2012-global-report>.
Segmented labour markets
in South Africa
gary s. fields
30
1 Labour markets, employment and unemployment
Labour markets are where labour services are bought and sold. In an employer—employee
relationship, the employer buys the labour services of an employee. In a self-employment rela-
tionship, an individual buys one’s own labour services. Employees include those in the pub-
lic and private sectors, regular and casual employees, and formal and informal workers. e
self-employed include those operating individual enterprises and those working in household
enterprises, be they in urban or rural areas and in agriculture or outside of agriculture. At times,
‘own-account work’ is used synonymously with ‘self-employment’; other times, ‘own-account
work’ is used more specically to denote the self-employed who operate without employees.
Following standard international denitions prescribed by the International Labour
Organization and adopted with minor modications by Statistics South Africa, the South
African population breaks down as follows as of the rst quarter of 2013 (Stats SA, 2013):
• 13.6millionSouthAfricansareemployed;
• 4.6millionSouthAfricans—25.7percentofthelabourforce—areunemployed;
• eexpandedunemploymentrateis36.7percent.
By international standards, South Africa has an exceptionally high rate of unemployment
and an exceptionally low rate of self-employment. Agreement is widespread that the main
factors responsible are the underperformance of the formal sector and barriers to entry in
the informal sector (e.g. Kingdon and Knight, 2004; Davies and urlow, 2009).
2 Segmented labour markets and stratified labour
markets
e textbook labour market model aggregates all workers, all employers and all sectors
of the economy into a single labour market. In this single labour market, workers supply
SEGMENTED LABOUR MARKETS IN SOUTH AFRICA 245
labour, employers demand labour and the rate of pay (termed ‘wage’ for shorthand) is
determined by the intersection of supply and demand.
Segmented labour market analysis proceeds from a dierent starting point. Workers,
employers and sectors are not aggregated together. Rather, two or more labour market
segments are identied, the groupings reecting fundamental dierences in how labour
supply, labour demand and wage-determination mechanisms operate in dierent seg-
ments. For example, in the South African context, it is meaningful to segment the labour
market according to whether or not the workers belong to trade unions, and the unions
succeed in raising wages, benets and other working conditions for their employed mem-
bers above what they otherwise would be. In the unionized segment of the South African
labour market, compensation is determined by bargaining or contract extension, and the
terms agreed to are extended to all rms in the industry or region irrespective of size.
Otherwise, compensation is determined by supply and demand.
is, then, leads to the fundamental characterization of a segmented labour market.
Labour markets are segmented when, for workers of a given type (a) some jobs are better
than others in terms of wages, benets and/or other working conditions, and (b) access to
the good jobs is rationed, meaning that some workers who would like jobs in the better-
paying segments and who are capable of performing those jobs are able to get such jobs
but others who also would like such jobs and are capable of performing them cannot.
Note the qualier ‘for workers of a given type’. What South Africa also has is a stratied
labour market—that is, one in which some jobs are better than others, the workers in the
better jobs are better-trained and more skilled than the workers in other jobs, the workers
in the upper strata could get employed in the lower strata but typically choose not to, and
the workers in the lower strata lack the skills to get employed in the upper strata and so are
not found there. Readers of this chapter—people like university professors and govern-
ment ocials—belong to the upper stratum, whilst the people who support us by serving
us meals and cleaning the oces in which we work belong to the lower stratum.
3 South Africa’s segmented labour market
What is the evidence that South Africa’s labour market is segmented? Here are some of
the dimensions.
When in 2002 the University of Cape Town posted an advertisement for gardeners
and cleaners, 39,000 persons applied. As it turned out, the university decided to hire only
20 new sta, which they did (Wittenberg, 2002). A straightforward explanation for the
huge number of applicants is that UCT was oering better pay and working conditions
than these applicants could obtain elsewhere, which is why so many of them applied for
employment there.
246 LABOUR AND EMPLOYMENT
Large rms and unionized rms pay substantially higher wages than smaller rms and
informal employers do, controlling for worker characteristics (e.g. Schultz and Mwabu,
1998; Butcher and Rouse, 2001; see Freeman, 2010 for references to these and other
studies).
Labour incomes are higher in some sectors of the South African economy than others,
and income change is a function of sector change—for example, regular employment
pays more than self-employment or casual employment. But only some of the studies
reporting wage dierentials have held worker characteristics constant (an example of a
study that does is Heintz and Posel, 2008), so that it can be said that workers of the same
type earn more in some parts of the labour market than others.
But the nding that some types of employment are better-paying than others does not
mean that individual workers necessarily remain xed in place. e latest data (Nation-
al Income Dynamics Study, 2008 and 2010 waves, summarized in NIDS, 2012) reveal
substantial movements of workers between employment statuses (employed, active
unemployed and out of the labour force), employment type (regular employment, cas-
ual employment and self- employment), employment industry (primary, secondary and
tertiary sectors) and geographic locations. e NIDS also reveals signicant earnings
change alongside signicant non-change for individual workers.
4 The multi-faceted labour market challenges in South
Africa
e unemployed are a target for public policy in South Africa, and rightfully so. How-
ever, it is not enough just to be concerned about unemployment, as high as it is in
South Africa. e essence of segmented labour market analysis is that some jobs are
much better than others, and indeed the evidence reviewed in Section 3 shows this.
us a second challenge for labour market policy in South Africa is to seek higher
wages and better working conditions for workers who have jobs but whose earnings
are below a South Africa-specic low-wage line—that is, an amount which, by South
African standards, leaves the worker and his/her family in poverty (Kingdon, Sand-
efur and Teal, 2006). Research has shown that about half of South Africa’s labour force
earn less than the low-wage line and that about half of the low-earners are unemployed
(dened broadly) whilst the other half earn too little to escape poverty (Bhorat and
Leibbrandt, 2001).
A third policy challenge is to address the low labour market earnings of South Africa’s
self-employed. In some places, self-employment is actively discouraged (e.g. Skinner,
2008). Moreover, when South Africans do engage in self-employment, they earn consid-
erably less than do wage employees, and so constitute a disproportionate number of the
SEGMENTED LABOUR MARKETS IN SOUTH AFRICA 247
poor (Kingdon, Sandefur and Teal, 2006). In the international literature, various policies
have been suggested for raising self-employment earnings: designing products to help
raise the productivity of the self-employed; adopting a positive policy stance towards the
self-employed and avoiding hassling them; providing the poor in agriculture with more
to work with; facilitating supplemental o-farm wage-employment and self-employment;
making capital available to the poor at aordable rates; building skills and business know-
how; and stimulating microfranchising and microconsignment. All have exhibited suc-
cesses in other contexts and are worthy of consideration in South Africa.
And fourth, for the young South Africans who have not yet entered the labour market,
serious attention needs to be given both to hard skills and to so skills. (Hard skills are
about a person’s general ability to perform tasks and specic ability to perform particular
tasks. So skills are behavioural competencies which may enhance job performance, car-
eer prospects or the quality of one’s interactions with others.)
In sum, South Africa faces an enormous employment problem, comprising not only
those who are unemployed but also those with low labour market earnings by South Afri-
can standards. Once the problem is conceived of as more than an unemployment prob-
lem, dierent policy analysis and prescriptions follow. e goal is no longer just to create
jobs. e goal is to create good jobs. It is as important to raise the earnings of the working
poor as it is to get the poor working.
5 Choosing amongst possible policy interventions
e challenges of South Africa’s segmented labour market are many, the resources required
to meet these challenges vast, and the resources available to meet these challenges limit-
ed relative to the size of the challenges. How are policymakers to choose where best to
intervene?
To view labour union bargaining as the continuation of South Africa’s liberation strug-
gle and every new union contract as a victory against oppression is to ignore the well-
established fact that employers in South Africa hire fewer workers at higher wages than
they would have at lower wages. Wage elasticity studies indicate that a 10 per cent increase
in wages in South Africa results in a 5 to 7 per cent decrease in employment; see Fourie
(2011) for a review of a large number of these. On the other hand, more recent studies
(Dinkelman and Ranchhod, 2012; Bhorat, Kanbur and Mayet, 2013) found that the intro-
duction of minimum wage laws in various sectors of the South African economy (retail,
domestic work, forestry, security and taxi) produced signicant reductions in hours in all
sectors but a signicant reduction in employment only in agriculture. To maintain in light
of the evidence that wages can be raised without causing a reduction in employment and
hours is wishful thinking.
248 LABOUR AND EMPLOYMENT
Moving forward, the approach I urge for choosing amongst various uses of limited
resources is social cost-benet analysis; for further elaboration, see Fields (2012, Ch. 6).
Social cost-benet analysis asks questions such as:
1. What are the extra social benets from each possible use of an available budget?
2. What are the extra social costs of each possible use?
3. For each possible use, how do the extra social benets and extra social costs compare?
4. For which activity is the dierence between benets and costs the greatest?
To decide what to emphasize, it would be best for all interested groups in South Africa—
employers, the minority of workers in ‘insider’ positions, the majority of workers in ‘out-
sider’ positions, government ocials and concerned citizens—to have a dialogue aimed
at setting priorities. South Africa must choose carefully between policies aimed at raising
the labour market earnings of the employed and policies that would raise employment by
holding down the growth of real wages. at debate is worth having.
■ REFERENCES
Bhorat, Haroon and Murray Leibbrandt (2001), ‘Correlates of Vulnerability in the South African Labour
Market’, in Haroon Bhorat, Murray Leibbrandt, Muzi Maziya, Servaas van der Berg and Ingrid Woolard
(eds), Fighting Poverty: Labour Markets and Inequality in South Africa, Cape Town: University of Cape
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Sector: Domestic Workers in South Africa’, Journal of Development Economics, 99: 27–45.
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SALDRU Working Paper No. 63.
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Market Distortions or Ecient Institutions?’, in Handbook of Development Economics Vol 5, Ch. 70,
Amsterdam: Elsevier.
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African Labour Market’, South African Journal of Economics, 76(1): 26–44.
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Development, 32(3): 391–408.
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Sub-Saharan Africa in the 1990s’, African Development Review, 18(3): 392–427.
National Income Dynamics Study (NIDS) (2012), Wave 2 Overview.
SEGMENTED LABOUR MARKETS IN SOUTH AFRICA 249
Schultz, T. Paul and Germano Mwabu (1998), ‘Labor Unions and the Distribution of Wages and Employment
in South Africa’, Industrial and Labor Relations Review, 51(4): 680–703.
Skinner, Caroline (2008), ‘e Struggle for the Streets: Processes of Exclusion and Inclusion of Street Vendors
in Durban, South Africa’, Development Southern Africa 25(2): 247–252.
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Wittenberg, Martin (2002), ‘Job Search in South Africa: A Nonparametric Analysis’, South African Journal of
Economics, 70(8): 1163–97.
Labour law
paul benjamin
31
1 Definition
‘Labour law’ is conventionally understood to refer to the laws governing workplace rela-
tionships. In the main, it covers the right to establish and run trade unions and employers’
organizations, the regulation of collective bargaining and industrial action; protection
against unfair dismissal and other unfair labour practices, basic conditions of employ-
ment, including minimum wages; and protection against unfair discrimination.
2 History
e evolution of South African labour law can be traced to the Industrial Conciliation
Act of 1924 enacted in the wake of the General Strike of 1922. e institutions established
by that Act have proved to be remarkably enduring with industrial councils (renamed
bargaining councils in 1996) remaining a signicant feature of the labour relations frame-
work. e 1924 Act entrenched racial separation as the dominant feature of South Afri-
can labour relations by excluding most black workers (dened as ‘pass-bearing Africans’)
from its ambit. ese racially based exclusions were tightened aer 1948 as the National-
ist Party government enforced its apartheid ideology in the labour arena. Plant-based
works committees were promoted as a means of undercutting the trade unions organiz-
ing African workers and responsibility for labour legislation was transferred to the nom-
inally ‘independent’ homelands from 1960 onwards.
Trade unions organizing African workers faced intense repression in the 1950s and
early 1960s. However, a wave of strike action in 1973 foreshadowed the re-emergence
of an independent trade union movement organizing predominantly black workers. In
1980, following the recommendations of the Wiehahn Commission of Inquiry, the statu-
tory industrial relations system was opened to all trade unions. At the same time, an
industrial court with unfair labour powers was established. Whilst the Wiehahn Com-
mission had recommended the introduction of the unfair labour practice as a means
of protecting the job security of white workers in the face of the abolition of racial job
LABOUR LAW 251
reservation, the industrial court used its unfair labour practice powers to fashion a mod-
ern labour law for all employees. It articulated an unfair dismissal and unfair labour prac-
tice jurisprudence that placed extensive curbs on the exercise of managerial prerogative
and introduced security of employment on an unprecedented level. In the early 1990s,
under intense pressure from the independent trade union movement, legislation was
enacted to extend the labour relations system to public servants and educators, as well as
farm and domestic workers.
Within two months of taking oce in April 1994 (and before it had appointed a labour
market commission), the new government appointed a ministerial draing committee
to develop dra legislation to regulate labour relations. e committee, which included
lawyers linked to the powerful trade union movement and the country’s major employ-
ers, prepared a dra bill that served as the text for tripartite negotiations between gov-
ernment, organized labour and the major trade union federations conducted under the
auspices of the newly established National Economic Development and Labour Council
(NEDLAC). is process led to the enactment of the current Labour Relations Act, 66
of 1995 (LRA), which came into eect in late 1996. Parliament has enacted signicant
amendments in 2002 and 2014.
3 Institutions
A range of institutions are responsible for the governance and regulation of the labour
market. At the apex, the National Economic, Development and Labour Advisory Coun-
cil provides a forum for social dialogue and tripartite negotiation over labour market
policies and legislation. e enactment of Labour Relations Act of 1995 is generally con-
sidered to be NEDLAC’s most signicant achievement. Negotiations over legislation in
subsequent years have shown that a diminishing level of consensus over many key aspects
of labour market regulation.
e key labour market institution established in the post-apartheid era is the Commis-
sion for Conciliation, Mediation and Arbitration (CCMA). e CCMA is independent
and governed by a tri partite Governing Body. Its functions include dispute resolution,
dispute management and institution building and training within the labour arena. It is
also regulates the performance of dispute resolution functions by bargaining councils and
private dispute resolution agencies (Benjamin, 2013a).
e CCMA is required to conciliate all disputes referred to it. is poses two distinct
sets of challenges. On the one hand, it is required to provide expeditious conciliation in a
e Labour Relations Amendment Bill which had been tabled in 2012 was approved by Parliament on
March 4, 2014. At the time of going to press, the President had not yet assented to it but it had not yet come
into force.
252 LABOUR AND EMPLOYMENT
very large number (currently in vicinity of 125,000 annually) of ‘rights’ disputes that may,
if not settled, be referred to arbitration or, in certain instances, adjudication by the Labour
Court. e majority of these cases (a remarkably consistent gure of approximately 80
per cent annually) are claims of unfair dismissal. In addition, the CCMA is required to
mediate unresolved collective bargaining disputes ranging from disputes involving single
employers to disputes arising out of sectoral bargaining in major sectors of the economy
(Benjamin, 2013a).
Sectoral bargaining councils perform collective bargaining and dispute resolution
functions in certain economic sectors covering some 2.5 million workers. Bargaining
councils established for national, provincial and local government cover approximately
1.3 million workers (Godfrey et al., 2010). e establishment of bargaining councils is
voluntary and bargaining councils cover some 15 per cent of workers in the private sector.
However, the extension by the Minister of Labour of collective agreement concluded by
bargaining councils within the private sector to non-parties remains a matter of consid-
erable controversy.
e labour inspectorate, located in the Department of Labour, is responsible for pro-
moting, monitoring and enforcing of basic conditions of employment, including min-
imum wages established under sectoral determinations. ere is general consensus that
the capacity of the labour inspectorate to enforce and promote compliance with min-
imum standards requires signicant strengthening (Benjamin, 2011).
e Labour Court is a specialist court with the same status as the High Court. It has
the power to review arbitration awards by the CCMA and bargaining councils and this
enables the Court to supervise the conduct of these institutions. It hears, as a court of rst
instance, more complex dismissal cases, claims of unfair discrimination and applications
to interdict unprotected industrial action. e Labour Appeal Court hears appeals from
judgments of the Labour Court. NEDLAC plays a signicant role in the appointment of
Labour Court judges.
4 Collective bargaining
South African legislation seeks to minimize the role of law in regulating collective bar-
gaining. e Labour Relations Act does not contain an enforceable duty to engage in col-
lective bargaining nor does the law regulate the conduct of collective bargaining through
a concept such a good faith bargaining. Rather, it uses a system of statutory organizational
rights to promote the recognition and eective operation of representative trade unions.
e gures for the CCMA are for the 12 months ending March 31, 2014 and were provided by
the CCMA.
LABOUR LAW 253
is system, coupled with a protected right to take industrial action (strike or lock-out)
aer a dispute has been referred to conciliation, constitute the primary legal mechanisms
for promoting collective bargaining.
Trade unions that are suciently representative in a workplace are entitled to obtain
the basic organizational rights: requiring the employer to deduct and pay over union
subscriptions and grant reasonable access by union ocials to the employer’s premises
to conduct union business. Trade unions may acquire these rights individually or acting
together. If a dispute about acquiring organizational rights cannot be resolved at concili-
ation before the CCMA, the trade union may refer it to arbitration or call a strike.
Trade unions with majority representation in a workplace are entitled to have their
elected trade union representatives recognized by the employer; for oce-bearers to have
time o for union business and training; and to receive information for collective bar-
gaining. In addition, they may conclude a collective agreement with the employer setting
the threshold at which trade unions can obtain basic organizational rights and conclude
agency shop agreements requiring non-members who benet from collective bargaining
to contribute to the union.
ere are a number of criticisms of this approach to promoting collective bargaining.
e denition of a workplace is suciently elastic to allow large national employers (for
instance, a major national chain store) to argue that its entire business constitutes a single
workplace. It also does not take account of bargaining units within a workplace making
it dicult for unions, such as cra unions, that represent limited categories of workers
to establish their presence in a workplace. ere is also uncertainty as to the threshold at
which trade unions will be granted basic organizational rights.
ese criticisms intensied aer the wave of unprocedural strike action in the sec-
ond half of 2012 staged by mine workers, particularly in the platinum mines, and by
farm workers in Western Cape. However, much of the criticism ignores the latitude
that employers have to determine bargaining arrangements. Whilst majority unions are
entitled to insist on certain organizational rights, the law does not compel a majoritarian
approach and many employers utilize an ‘all-comers’ system bargaining with all trade
unions that meet a representivity threshold. A signicant legislative amendment, enact-
ed by Parliament in 2014, will allow an arbitrator to overrule the provisions of collective
agreement concluded between an employer and a majority trade union setting thresholds
to acquire basic organizational rights.
Whilst there was a decline in industrial action in the rst decade of democracy, the
collective bargaining climate has become increasingly adversarial, particularly since
2007. Contributing factors include a decline in negotiating capacity and a lack of trust
between the parties, the increasing inequality of earnings within the workforce, demands
for social benets triggered by poor service delivery in working-class communities and
rising expectations, oen triggered by wage settlements by above-ination increases in
the public sector. e LRA’s vision that workplace forums would serve as a vehicle for
254 LABOUR AND EMPLOYMENT
developing long-term cooperative dialogue between employers and trade unions did not
materialize as trade unions rejected the workplace forum route and distributive collective
bargaining remains the primary mode of interaction (Benjamin, 2013a).
As a consequence, the challenges facing collective bargaining are fundamentally about
the practice and quality of collective bargaining, and its social and economic context,
rather than the manner in which it is regulated. e signicant realignment occurring
within the trade union movement is likely to place further pressure on collective bargain-
ing structures and negotiations in the immediate future.
Industrial action staged aer compliance with the statutory requirements is protected.
Employees cannot be dismissed for participating in a protected strike and participation
in a protected strike or lockout does not amount to a breach of contract or delict (tort).
Disputes of interest must be referred to conciliation prior to any party giving notice of a
strike or lockout. Conciliation may take place at the CCMA, a bargaining council or in
accordance with a collective agreement. e relative ease of referral to the CCMA has
had the consequence that many disputes are referred to conciliation without extensive
negotiation between the parties; in addition, there is a tendency for trade unions to give
strike notices before exhaustive bargaining has taken place. e absence of a manda-
tory requirement to conduct secret ballots of members before strikes has been widely
criticized.
Industrial action is prohibited in sectors that are dened or classied as essential ser-
vices and unresolved disputes in these sectors may be referred to compulsory arbitration.
Employees in an essential service may only strike if permitted by a minimum services
agreement ratied by the Essential Service Committee. Few such agreements have been
concluded and there is infrequent recourse to compulsory arbitration in essential services.
Large numbers of essential service workers in the municipal and health sectors have par-
ticipated in strike action (Benjamin, 2013a). A number of legislative changes were enact-
ed in 2014 to enhance the ecacy and legitimacy of the Essential Service Committee.
5 Minimum wages
ere has also been a massive increase in the number of workers covered by minimum
standards and in 2008 an estimated 3.7 million workers in the private sector were covered
by statutory minimum wages in sectoral determinations (Benjamin, 2011). ese min-
imum wages are set by the Minister of Labour, on the advice of the Employment Condi-
tions Commission. Minimum wages have been established for the rst time in a number
of sectors of the economy such as agriculture, domestic work and the taxi sector. In cer-
tain instances, most notably the private security sector, the minimum wages are the result
of collective bargaining between trade unions and employers’ organizations in the sector.
LABOUR LAW 255
e impact of minimum wages on employment has been a subject of much debate.
Whilst there has been a signicant reduction in employment in agriculture since the
introduction of the minimum wage, it is not clear to what extent this may be a response
to other factors such as legislation increasing the security of tenure of farm dwellers.
However, studies of other sectors (retail, domestic work, taxi and private security) show
that minimum wage laws have not had a signicant impact on employment but have been
associated with a signicant increase in wages within the sector (Bhorat et al., 2013). e
studies also note that there has been an increase in wages on average and no signicant
change in hours worked. Research also shows that there is inadequate enforcement of,
and signicant non-compliance with, statutory minimum wages (Bhorat et al., 2012).
6 Security of employment
e security of employment of employees in South Africa has grown signicantly since
the 1970s when most African workers were employed on annual contracts concluded
through the apartheid-era labour bureaux. Protection against arbitrary dismissal rst
emerged in ‘just cause’ clauses in collective agreements covering small numbers of union-
ized workers. Aer 1980 this was extended through the unfair dismissal jurisprudence of
the industrial court. e establishment of the CCMA as an accessible forum for expedited
and cheap dispute resolution has provided unprecedented access to justice for employees
complaining of unfair dismissal and unfair labour practices.
e model reects its origins in the negotiations in which the LRA’s architecture was
designed. Trade unions and employees favour quick arbitrations without the expense of
lawyers and with reinstatement as the preferred remedy. Employers saw their gains as the
simplication of their obligations in respect of internal disciplinary inquiries, the short
referral period, and the cap on compensation awards at 12 months for most dismissal
cases.
e Act’s combination of core statutory provisions with a ‘so law’ Code of Good Prac-
tice sought to promote certainty whilst allowing for a exible application of the law by
permitting small businesses to comply with less formalized procedures. e Code indi-
cates that the strict requirements of procedural fairness developed by the industrial court
prior to 1995 did not necessarily continue to apply. However, many employers did not
adjust their disciplinary procedures and many arbitrators continued to apply a stricter
standard than that required by the Code (Cheadle, 2006). However, the Labour Court has
claried that the old model no longer applies and the CCMA has taken decisive steps to
ensure that arbitrators make awards that are consistent with the Code of Good Practice.
Access to dispute resolution has been greatly enhanced: the number of dismissal
cases has risen from an estimated 3,000 in the nal years of the old system (1994–95)
256 LABOUR AND EMPLOYMENT
to in excess of 100,000 per year currently. Roughly 60 per cent of dismissal cases are
settled through conciliation, generally within a month of the dispute being referred.
Unresolved cases referred to arbitrations are concluded on average within a further
40 days. Whilst one-third of employees succeed with a claim of unfair dismissal in
arbitrations, less than 10 per cent receive a reinstatement award in their favour. ere
are no available gures indicating what proportion of workers who receive reinstate-
ment orders actually return to their workplace. e vast majority of workers who are
found to have been unfairly dismissed receive an award of nancial compensation,
despite the Act articulating reinstatement as the primary remedy. e average award
is estimated as the equivalent to four months’ pay. However, it may take employees
considerably longer to receive the benet of an award. Employers can utilize review
proceedings to resist the claim and it can be several years before the worker sees any
money or returns to work. In addition, a substantial proportion of employers do not
comply with orders in the hope that unemployed workers will not have the resources
to enforce them (Benjamin, 2013a).
Whilst empirical studies, particularly those conducted by Organization for Econom-
ic Co-operation and Development, show South Africa’s labour laws are not particular-
ly onerous when compared to other middle-income countries (OECD, 2013), there is a
widespread perception (particularly amongst employers and within the media) that it is
more dicult to dismiss an employee in South Africa than virtually anywhere else in the
world. is perception has had a major inuence on the labour market behaviour of both
local and international rms and has been a key driver of externalization. It is probable
that these perceptions are held more because of the ease with which employees are able
to refer disputes to arbitration, and perceptions of inconsistent decision-making by arbi-
trators, rather than the strictness of the legal rules. e criticism has increasingly focused
on the law diculties associated with dismissing employees on account of misconduct
or poor performance. Proposals to change the law emerging from commentators, as well
as the National Planning Commission, include the introduction of a qualifying period
before employees acquire full protection against unfair dismissal and the clarication of
the law on probation (Benjamin, 2013a).
Before dismissing an employee because of its operational requirements, an employ-
er must consult with trade unions (or, in their absence, other representatives or the
employees directly) over retrenchment. e law requires that the parties undertake a
‘meaningful joint consensus-seeking process’ to explore alternatives to retrenchment
and, if it cannot be avoided, to minimize the number of dismissals and ameliorate the
consequences for employees. e consultation process must also cover the method
used to select which employees are retrenched and the severance pay they will receive.
Whilst a retrenchment can be challenged on grounds of both procedural and substan-
tive fairness, there is a marked reluctance by judges to ‘second guess’ the rationale given
by an employer. e high level of job destruction and creation within the economy
LABOUR LAW 257
indicates that the laws regulating retrenchment do not constitute as signicant a rigid-
ity in the labour market as is oen claimed (Kerr et al., 2013).
Since 2002, employers of more than 50 employees contemplating a large-scale retrench-
ment must refer the matter to the CCMA for facilitation before issuing termination
notices. is has signicantly enhanced the potential for the CCMA to play a constructive
role in combating job losses. During the recession, a training lay-o scheme was intro-
duced and the CCMA has adopted an integrated job saving strategy to assist employers
and trade unions explore substantive alternatives to retrenchment (Benjamin, 2013a).
7 Non-standard employment
Many employers have responded to the rise of collective bargaining and protective labour
law (typied by unfair dismissal protection) by restructuring their businesses or using a
range of strategies to disguise employment and to break up bargaining units. In addition,
xed-term contracts have been increasingly used to restrict protection against unfair
dismissal. Since the mid-1980s, practices such as outsourcing and sub-contracting have
been common. Many employers sought to reclassify employees as independent contrac-
tors but the introduction of a presumption of employment into labour legislation in 2002
made this strategy less eective (Benjamin, 2013b).
Triangular employment through temporary employment services (commonly referred
to as labour brokers) has been used to create a class of workers who lack security of
employment and earn considerably less than ‘direct’ employees performing the same
work. is has contributed to the worsening inequality of earnings and reduced the
employment security of a signicant portion of the workforce. is has been possible
because the legislative provisions recognizing triangular employment are not restricted to
‘temporary employees’. e vulnerability of low-paid employees to abuse by labour brok-
ing agencies is exacerbated by inadequate statutory requirements for the registration and
control of these agencies. However, the Labour Court has increasing required employers
to extend protection against unfair dismissal to long-term employees engaged through
labour brokers.
Proposals for legislative reform were rst submitted by the Department of Labour to
NEDLAC in 2004 but little headway was made and the call to prohibit labour broking
was adopted by some trade unions and politicians. It was not until 2014 that legislative
changes responding to the abusive practices associated with non-standard employment
were enacted by Parliament. ese seek to remedy the abuses associated with labour brok-
ing, xed-term contracts and part-time work. A temporary employment service may place
employees with a client as temporary substitutes or for periods of up to three months; there-
aer the employees will be deemed to be employees of the client. In addition, employers
258 LABOUR AND EMPLOYMENT
may not provide non-standard employees with less favourable terms and conditions of
employment than other employees. A new Employment Services Act, 4 of 2014 has been
enacted to regulate the operation of businesses placing employees with clients.
Conclusion
e achievements of the post-apartheid labour legislation framework include a signi-
cant level of institutionalization of expedited dispute resolution, particularly in the area
of unfair dismissal, and a substantial extension of basic conditions of employment, par-
ticularly statutory minimum wages. However, its vision has been confronted by labour
market restructuring which has exacerbated the levels of informalization and inequality
within the workforce leading to the persistence of adversarial collective bargaining and
prolonged industrial action. e future direction of the labour law framework remains a
subject of contested debate.
■ REFERENCES
Benjamin, P. (2011), ‘Enforcement and Sanctions to Promote Compliance with South African Labour Legis-
l at i o n’, Industrial Law Journal, 32: 805–33.
Benjamin, P. (2013a), ‘Assessing South Africa’s Commission for Conciliation, Mediation and Arbitration
(CCMA)’, ILO Dialogue Working Paper 47, <http://www.ilo.org/wcmsp5/groups/public/---ed_dialogue/---
dialogue/documents/publication/wcms_210181.pdf>.
Benjamin, P. (2013b), ‘e Persistence of Unfree Labour: e Rise of Temporary Employment Agencies in
South Africa and Namibia’, in J. Fudge and K. Strauss (eds), Temporary Work, Agencies, and Unfree Labour:
Insecurity in the New World of Work, New York, Abingdon: Routledge, 118–42.
Bhorat, H., R. Kanbur and N. Mayet (2012), ‘Minimum Wage Violation in South Africa’, International Labour
Review, 151(3): 277–87.
Bhorat, H., R. Kanbur and N. Mayet (2013), ‘e Impact of Sectoral Minimum Wage Laws on Employment,
Wages, and Hours of Work in South Africa’, IZA Journal of Labor and Development, 2(1).
Cheadle, H. (2006), ‘Regulated Flexibility: Revisiting the LRA and the BCEA’, Industrial Law Journal, 27: 663.
Godfrey, S., J. Maree, D. Du Toit and J. eron (2010), Collective Bargaining in South Africa: Past, Present and
Future, Cape Town: Juta.
Kerr, A., M. Wittenberg, and J. Arrow (2013), ‘Who Creates Jobs, Who Destroys Jobs? Small Firms, Large
Firms and Labour Market Rigidity’, <http://www.econ3x3.org/article/who-creates-jobs-who-destroys-
jobs-small-rms-large-rms-and-labour-market-rigidity#sthash.SS5n0rH5.dpuf>.
OECD (2013), Employment Outlook 2013, OECD Publishing, Ch. 2.
Public employment in South
Africa
kate philip
32
1 Introduction
Support for public employment is a strong component of government policy in South
Africa. In 2003, at a Growth and Development Summit convened by NEDLAC, agree-
ment was reached on a framework for what was called the Expanded Public Works Pro-
gramme (EPWP). Public Employment Programmes (PEPs) have enjoyed a high level
of tri-partite support ever since, with criticism and debate focused on how to scale-up
EPWP and improve its poverty impacts and economic multipliers, rather than any seri-
ous argument that a public employment strategy is not needed.
Debate is instead focused on the scale, scope and design of PEPs in South Africa, and
takes place against a backdrop of wider policy innovation in this area: most notably with
the advent of the world’s rst statutory employment guarantee, in the form of India’s
Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA): which rais-
es the question of whether South Africa should take public employment to another level,
with an employment guarantee policy.
2 Overview of the EPWP
e EPWP is not, in fact, ‘a programme’ but a collection of dierent programmes that cur-
rently includes the Infrastructure Sector, the Social Sector, the Environment and Culture
Sector, the Community Work Programme and the Non-State Sector. Whilst the Depart-
ment of Public Works (DPW) was given the overall task of co-ordinating EPWP, no direct
implementation function is attached to this role. Instead, each of these programmes has
dierent institutional arrangements and dierent funding and operational modalities.
In Phase One, from 2004–09 EPWP exceeded its target to reach a million participants
cumulatively over the period, and was one of the government’s largest economic pro-
grammes targeted at the poor. At the same time, however, it was also recognized that the
260 LABOUR AND EMPLOYMENT
target was low relative to the scale of need, and in EPWP’s second phase, it was ramped
up considerably—to 4.5 million participants cumulatively over the next ve-year period
to 2014 (see <http://www.epwp.gov.za>).
Phase Two also saw the introduction of an innovative form of intra-governmental
incentive, intended to allow government ocials to secure larger budgets for employ-
ment creation based on their performance on EPWP. Whilst take-up has been une-
ven, it has, for example, been a factor allowing the Social Sector to expand at a more
rapid rate.
A. THE INFRASTRUCTURE SECTOR
e Infrastructure Sector has always been the backbone of EPWP, and makes the
greatest contribution to EPWP’s targets. Its focus is to increase labour intensity wher-
ever technically feasible within government’s existing budgetary commitments for
infrastructure—making these extra jobs technically ‘free’ in budgetary terms. e
majority of job opportunities are created within the framework of the Infrastruc-
ture Grants to Provinces (IGPs) and the Municipal Infrastructure Grants (MIGs).
e 2004 Division of Revenue Act (DORA) requires provinces and municipalities
to execute public works such as low-volume roads, stormwater drains, trenches and
pavements using labour-intensive methods in accordance with guidelines produced
by DPW.
In practice, however, signicant increases in labour intensity have not been achieved,
and labour intensity in projects reported as EPWP has been in steady decline, from 27
per cent in 2004/05 to its lowest level of 5.8 per cent in 2010/11. It has since risen back up
to 10.25 per cent in 2012: still low for a programme intended to deliver labour-intensive
infrastructure (EPWP Quarterly Reports, <http://www.epwp.gov.za>).
e reasons for this are not entirely clear, particularly given the high level of policy sup-
port, the existence of enforcement mechanisms through DORA, as well as a scal incen-
tive and a dedicated technical support unit in government. e reasons given include a
spectrum from poor capacities at the local level to active resistance from within the con-
struction sector (Gamoo and Johannessen, 2011). EPWP also argues that the gures are
distorted by large infrastructure projects in which the full investment cost is reported—
not just the labour-intensive component.
e gures have, however, raised debate over the number of jobs that are really ‘addi-
tional’ in EPWP’s gures, how these are dierentiated from jobs that would have been
created anyway and whether some infrastructure projects are being reported as part of
EPWP simply to benet from the lower rates of pay that this allows them to pay workers
on site.
PUBLIC EMPLOYMENT IN SOUTH AFRICA 261
In this sector, the question to be addressed is whether and to what extent increases in
labour intensity are still a realistic goal, and if so, how this can be eectively incentivized—
or enforced.
B. THE SOCIAL SECTOR
South Africa is still the only country in the world with a signicant social sector focus
on its menu of public employment work. is has been focused rstly on the delivery of
home-based care, mainly to people suering from AIDS and/or TB. e programme was
developed at the height of ocial AIDS denialism in South Africa and was a brave initia-
tive from within government to enhance the social support systems for those aected.
e second main area of social sector work has been through support to Early Childhood
Development Centres. More recently, the Social Sector has expanded into literacy train-
ing through a programme called Kha re Ghudi, and has developed a menu of other new
areas of work into which it plans to expand.
C. THE ENVIRONMENT AND CULTURE SECTOR
e environmental sector in EPWP began with a programme based in the Department
of Water Aairs, called ‘Working for Water’, which clears invasive alien species that con-
sume excessive amounts of water. It was followed by Working for Wetlands, Working for
Woodlands, Working on Fire, LandCare and CoastCare, amongst others. Most of these
have since been brought together under a new entity called the Natural Resource Man-
agement Programme which is a ‘government component’ linked to the Department of
Environmental Aairs.
In a context of growing policy focus on green jobs as well as climate mitigation and
adaptation, there is scope for greater policy convergence in this area and greater growth
in the sector. Institutionally, the question arises why these programmes are organized
around such narrow environmental themes, and whether an area-based approach to
environmental management would not be more ecient and eective.
D. THE COMMUNITY WORK PROGRAMME
e CWP is a new component of EPWP Phase Two, located in the Department of Coop-
erative Governance, and designed in part as a response to the structural nature of unem-
ployment in South Africa, and to the problem that many EPWP participants ‘exit back
262 LABOUR AND EMPLOYMENT
into poverty’ aer short-term employment because the economy cannot absorb them.
e CWP is an area-based programme that provides regular part-time work of two days
per week to provide an income oor.
In CWP, participatory local processes are used to prioritize the work, which must
improve the quality of life at local level. In practice, CWP undertakes a multi-sectoral
menu of work. CWP is implemented by non-prot agencies and must have an average
labour intensity of 65 per cent.
e CWP has had strong policy support partly because it is designed to go to scale, but
also because of its emphasis on building new forms of partnership between government,
civil society and communities, intended to unlock new forms of ‘agency’ at community
level.
E. THE NON-STATE SECTOR
is new component of EPWP provides a mechanism for non-prot organizations to
access a form of wage subsidy to enable them to employ more people. is wage subsidy
does not include any form of contribution to overheads or to the increased costs non-
prot organizations bear as a result of expanding their workforce—a design feature that
has inhibited expansion.
3 Policy issues for PEPs in South Africa
A. PEPS AND SOCIAL PROTECTION FOR THE UNEMPLOYED
Whether public employment is dened as part of social protection or not, the scale at
which it is available will impact on the scale of need for social assistance by unemployed
people, and at present the lack of such assistance is a major gap in South Africa’s otherwise
impressive social protection system.
Internationally, there are a growing number of examples in which public employment
and cash transfer programmes are designed in complementary ways, such as in Ethiopia
and Kosovo. In Brazil, Bolsa Familia is now being complemented by a focus on ‘produc-
tive inclusion’. Whilst incomes for the poor certainly matter, work matters too: providing
structure in people’s lives, access to social networks, dignity and social recognition: the
counterfactuals of the damaging psychological eects of unemployment which translate
all too easily into damaging social eects.
Whilst there does not have to be a binary choice between these two anti-poverty instru-
ments, there is probably no escaping some hard policy and scal choices and trade-os.
PUBLIC EMPLOYMENT IN SOUTH AFRICA 263
B. AN EMPLOYMENT GUARANTEE?
In rural India, MGNREGA provides a guarantee of 100 days of work for each household
with unemployed adult members as part of social protection. Is there a rationale for a
form of employment guarantee in South Africa?
Whilst the National Planning Commission considered this option, it recommended
instead that public employment should aim to reach 50 per cent of the unemployed, using the
expanded denition. is is still an ambitious target; on current gures, it would entail reach-
ing about 3.4 million participants on an annual basis (National Planning Commission, 2012).
Whilst scal issues certainly arise as a concern in the discussion on the merits of a
guarantee, a second concern has related to the absorptive capacity of public employment.
Could enough meaningful work be identied at this scale of demand? (National Planning
Commission, 2012).
C. ERODING LABOUR STANDARDS OR CREATING A LABOUR
STANDARDS FLOOR?
Wages and working conditions in PEPs strongly inuence their impact on poverty and
on the other positive benets of participation in work. ere is, however, debate over the
principles that should be applied to setting the conditions in PEPs.
One argument, associated mainly with the World Bank, is that wages should be at or
below prevailing market rates in order to avoid distorting labour markets by attracting
people out of existing jobs. By contrast, the International Labour Organisation has argued
conditions in PEPs should set a labour market oor in a given society, even if this is above
prevailing market rates—such as has happened in India, where wages in MGNREGA
have placed upward pressure on agricultural wages—an eect that government claims as
a policy success against poverty wages (Lieuw Kie Song et al., 2010).
In South Africa, working conditions in EPWP are covered by a ‘Code of Good Prac-
tice’, agreed at NEDLAC, and also by a Ministerial Determination that sets the minimum
wage. Workers are covered by the Compensation for Occupational Injuries and Diseases
Act and by unemployment insurance. Fair conditions for hiring, ring and disciplinary
procedures are in place. ese protections are, however, still minimum conditions. In
2012, the minimum wage was R65 a day: just below the minimum wage for farmworkers
that caused waves of strikes and public condemnation, leading to a new minimum wage
of R105 a day being promulgated for the agricultural sector.
So, whilst South African policy is guided by the principle that wages and working con-
ditions should reect the minimum acceptable level in the society at large, the question of
what that minimum level should be remains hotly contested.
264 LABOUR AND EMPLOYMENT
4 Conclusion
ere is strong policy support for PEPs, and EPWP is characterized by innovation on a
range of fronts. e big question is why it has thus far proved so dicult to reach the level
of scale required to make a more meaningful impact. Arguably, the reasons have less to do
with political or scal will than with institutional issues. Addressing these is likely to be a
strong focus in the design of EPWP’s ird Phase.
■ REFERENCES
EPWP, ‘4th Quarter Report 2011/12’, <http://www.epwp.gov.za/Downloads/Q4_2011-2_Annexure_A-E.pdf>.
Gamoo, L. and B. Johannessen (2011), ‘Study on Enhancing Labour Intensity in the Expanded Public Works
Programme Road Infrastructure Projects’, DPW and ILO, Pretoria.
Lieuw-Kie-Song, M., K. Philip, M. Tsukamoto and M. Van Imschoot (2010), ‘Towards the Right to Work:
Innovations in Public Employment Programmes (IPEP)’, Employment Sector Working Paper No. 69, ILO,
Geneva.
National Planning Commission (2012), ‘National Development Plan 2030: Our Future, Make it Work’, e
Presidency, Pretoria, <http://www.npconline.co.za>.
Youth unemployment policy
james levinsohn
33
1 Introduction
In 1994, the new South African government inherited an economy that had systemati-
cally disadvantaged most of the population. Non-whites had been subject to an inten-
tionally second-class education, labour laws that precluded their advancement, business
regulations that outlawed many forms of rm ownership and laws that kept them from
living in the metropolitan areas that were the centre of commerce. Unemployment was
about 15 per cent. Almost 20 years later, all these restrictions are long gone. Over this
same period, unemployment has almost doubled and youth unemployment in particular
has skyrocketed.
2 Context
ere are multiple reasons behind the broad rise in unemployment. South Africa was
subject to the same skill-biased technical change that impacted many other parts of the
world and this has hit especially hard in the mining and agriculture sectors—precisely
where many non-whites worked. Concurrently, there was a huge inux of mostly under-
educated African women into the labour market just as the demand for less-skilled work-
ers declined. is increase in labour supply coupled with a decline in labour demand
would have led to socially unacceptable wage declines. e result instead was a sub-
stantial increase in unemployment. While unemployment impacts all segments of the
South African population, youths have fared the worst. e youth unemployment picture
depends on how one denes unemployment (narrowly or broadly) and the age cohorts
that encompass ‘youth’, and whether one separates out rates by population group. Using
a broad denition of unemployment to include workers who would take a job but have
is chapter draws from my unpublished paper ‘Two Policies to Alleviate Unemployment in South
A f r i c a’.
266 LABOUR AND EMPLOYMENT
become discouraged from searching and restricting the sample to 20–24-year-old Afri-
can youth, the unemployment rate in the second quarter of 2012 was about 66 per cent—
a gure that has slowly but steadily been increasing since 2009.
e unemployment rate for individuals in their 20s is almost twice that of individuals
in their 40s. Hence, there is something in addition to the factors mentioned above that
particularly disadvantages youth in the job market. A likely explanation has to do with
the quality of post-apartheid secondary education. In a well-functioning labour mar-
ket, schooling provides important information with which employers can sort potential
workers. In South Africa, it’s not just that the quality of schooling is poor (though it oen
is), but rather that there is tremendous variance in this quality across schools. Simply
holding a matric does not convey sucient information to employers. Uncertain worker
quality by itself need not be a huge problem if rms can hire workers and then keep those
who are good while dismissing those who are not. In South Africa, though, regulations to
protect worker job security make dismissing workers potentially dicult and/or costly.
e existing evidence highlights the importance of obtaining that rst job in the formal
sector. Although there is substantial churning in the South African labour market, analy-
sis of employment transition matrices for youth suggest that those who obtain a job in the
formal sector are quite likely to remain employed in the formal sector. e trick seems to
be somehow getting that rst job. is is consistent with the hypothesis that workers need
to demonstrate their quality on-the-job and that once they have done so they are likely to
remain employed.
Unemployment generates an economic cost to workers and the economy even in the
short term. From a macroeconomic viewpoint, unemployed workers represent poten-
tial but unrealized output. From a microeconomic viewpoint, unemployed workers leave
households with fewer resources and hence more vulnerable. In the longer term, unem-
ployment for workers in their twenties carries additional costs. is is the decade dur-
ing which workers typically begin to accrue the on-the-job human capital that they will
use during ensuing decades. Missing this opportunity may convey costs that remain for
decades. is is also the decade during which individuals are most likely to have young
children and so the costs of unemployment are borne not just by the young adults but also
by children in their most formative years.
Finally, the very high unemployment rate for young South African adults contributes
to the social ills that accompany a loss of hope. ese include crime, disengagement with
the political process and a lack of investment in one’s future well-being. Especially among
young adults (where unemployment is highest), disillusionment with the ‘new’ South
Africa carries with it a particular threat to the future of the country.
e label ‘African’ refers to the population group so named in South African surveys. is group com-
prises about 80 per cent of the population.
YOUTH UNEMPLOYMENT POLICY 267
3 Policy
e causes of the very high levels of youth unemployment, then, include a mix of skill-
biased technical change, an inux of under-educated workers into the labour market, a
social unease about the wage that might otherwise clear labour markets, uneven and oen
poor schools and worker dismissal rules that inhibit more uid labour market dynamics.
Pragmatic policy proposals must work on those margins where change is most feasi-
ble and accept constraints that are unlikely to yield in the near term. Better schools, for
example, are a ne proposal. (is applies pretty much generically around the globe and
one hears it in rural Kwa-Zulu Natal as well as Palo Alto.) But reforming the education
sector, however wonderful the suggestion, is not likely to happen quickly enough to really
impact youth unemployment in, say, the next ve years. Similarly, a broad overhaul of
dismissal rules and other labour regulations that contribute to a sclerotic labour market
is another ne idea that is not likely to happen any time soon. e relationship between
the major unions (which have steadfastly and eectively opposed broad reform of worker
dismissal rules) and the ruling African National Congress is still strong.
A policy which is not only do-able but is in fact actively being considered is a tar-
geted wage subsidy to facilitate the school-to-work transition. e targeted population is
recent school-leavers. A critical component of the targeted wage subsidy is a probation-
ary period during which subsidized workers may be dismissed at will. I proceed by rst
describing how a target wage subsidy works. I then present the economic argument for
this policy and nally discuss some implementation issues.
A tax on formal sector wages (oen through payroll deduction) is the norm in many
developing countries. is very standard scal policy discourages employment in the for-
mal sector and, on the margin, encourages investment in capital instead of labour. Finally,
a wage tax raises revenues for the Treasury. A wage subsidy turns all of these results on
their head. By lowering the cost of labour employed in the formal sector, a wage subsidy
increases the demand for labour in the formal sector, increases employment in the formal
sector, favours labour over capital and costs the Treasury. A targeted wage subsidy does
this for only a subset of workers, thereby increasing the relative attractiveness of hiring
the targeted group relative to those who are not targeted.
A wage subsidy targeted at youth addresses several imperfections in the South Afri-
can labour market. e data overwhelmingly suggest that there is something that is pre-
venting young school leavers from entering the labour market, but that once employed,
they tend to stay employed albeit not necessarily in the same job. is might be because
rms are unwilling to incur the costs of training workers if the workers will then be hired
eleswhere. A wage subsidy, while not ideal, addresses this issue. e subsidy also address-
es the externalities associated with high youth unemployment—crime and the fuzzier
but still important notion of disengagement. Finally, the subsidy addresses the market
imperfection that arises due to negotiated wages that are just too high to clear the market.
268 LABOUR AND EMPLOYMENT
A targeted wage subsidy that allows for easy dismissal addresses yet another imperfec-
tion in the labour market. When dismissal is dicult, it is risky to take on a new worker
if that worker’s ability is unknown before hiring. is is most likely to be acute for new
entrants to the labour force. When dismissal is easy, rms can oer a job at a wage that, in
expectation, is appropriate to the worker’s expected productivity and then dismiss those
workers who are sub-par while retaining and adjusting upwards the wages of those who
are acceptable. When dismissal is dicult, this sort of ‘experimentation’ on the part of the
rm is curtailed.
As noted above, there is uncertainty about how productive a recent school-leaver will
be because for many jobs school performance is not particularly informative. And, as
noted above, even when schools are teaching the relevant skills (e.g. mathematics), the
huge variance in the quality of South African secondary schools contributes to the uncer-
tainty employers face when judging the productivity of a prospective employee.
Dismissal costs in South Africa are also perceived to be high. ere are compelling
historical reasons for many of the rules governing dismissal. Furthermore, in many cases
rms can in fact dismiss workers in the rst several months of employment. Workers,
though, oen have a right of appeal and the process is perceived by many rms as bur-
densome—especially so for smaller rms. A targeted wage subsidy on its own will, on the
margin, encourage a bit more risk-taking but a much more direct policy response is to tie
the targeted wage subsidy to revised rules for dismissal for those workers receiving the
subsidy. For this reason, it is important that the targeted wage subsidy entail a probation-
ary period during which a ‘no-questions-asked’ dismissal policy is in eect.
ere are several caveats associated with a targeted wage subsidy for youth. First, the
free dismissal provision is subject to abuse and this may give rise to destructive job churn-
ing. is concern is alleviated because it is lousy business to re good workers as any
training costs would need to be re-incurred and because, even if this happens, the worker
still picks up some potentially valuable experience. Second, the targeted wage subsidy
favours young workers so there is the possibility that rms might just substitute the sub-
sidized workers for the existing non-subsidized workers. But the same dismissal rules
that make it hard to dismiss workers alleviate this concern. It is also possible that the sub-
sidy might stigmatize subsidized workers, but if it is nationally implemented this seems
unlikely. Finally, the policy might be subject to potential fraud. is is a real concern but
careful programme design can minimize the problem.
A well-craed wage subsidy for recent school-leavers might be implemented as follows.
Every South African would become eligible for the wage subsidy upon turning 18 years
old. e subsidy would be for a xed amount of money and would not expire. Each youth
would be given an individual subsidy account with a given balance in it. When the youth
took a job for a registered rm, a fraction of the individual’s wage (up to a limit) would
be drawn from the individual’s account. For a youth earning the average minimum wage,
the subsidy might comprise up to half of the wage. e subsidy would be completely
YOUTH UNEMPLOYMENT POLICY 269
portable. If the individual le a job or was dismissed, the remaining subsidy balance could
be used with another employer. e subsidy would not expire so as to lessen the incentive
to leave school early. Finally, employment with the subsidy would allow for a probation-
ary period during which a ‘no-questions-asked’ dismissal policy would be in eect. e
period should be long enough for the rm to ascertain whether the worker is a good t.
Over the longer term, it is important not to lose sight of the underlying issues around
school quality and labour market regulations, but in the near term, a targeted wage sub-
sidy for recent school-leavers coupled with a probationary period allowing free dismissal
is a step in the right direction.
Informality in South Africa
imraan valodia
34
1 Introduction
e level of informal employment in South Africa is somewhat at odds with the trend in
other developing countries. Unlike other developing countries, employment in the for-
mal sector accounts for approximately 70 per cent of total employment. Informal employ-
ment accounts for just over 15 per cent of total employment. A further and more unusual
phenomenon in South Africa is that the relatively small informal sector co-exists with
extremely high levels of unemployment. According to the ocial, or strict, unemploy-
ment denition approximately 25 per cent of the labour force is unemployed. Includ-
ing discouraged work-seekers, the unemployment rate is approximately 38 per cent. is
‘puzzle’ in the labour market, that high levels of open unemployment co-exist with a rela-
tively small informal sector, continues to be an intriguing issue.
In much of the developing world, consistent with predictions of the Lewis surplus
labour model, economic growth has been associated with large numbers of rural migrants
entering the cities. However, contrary to the Lewis model, these migrants have not been
able to nd work in the formal economy and instead earn their livelihoods in the large
and growing informal sector. is does not appear to be the case in South Africa. Whilst
large numbers of the population have moved into the cities, a signicant proportion
have not found employment in the formal sector and not entered the informal economy
either.
e co-existence of high open unemployment and a small informal sector is
perplexing—why do the unemployed not enter a sector of the economy with suppos-
edly low barriers to entry, given that it is a pathway to income growth? e rest of this
chapter explores the literature that has sought to answer this puzzle.
2 Barriers to entering the informal sector
Kingdon and Knight (2001) rst explored the issue of why South Africa has high open
unemployment and a small informal sector. e authors suggest that apartheid had,
INFORMALITY IN SOUTH AFRICA 271
through the Group Areas Act, city bye-laws racially determined zoning legislation,
restrictions on rural–urban migration, and harsh enforcement signicantly restricted
most blacks from trading in the cities. Consequently, as the legislative provisions that
governed apartheid’s restrictions on the mobility and economic rights of black South
Africans are relaxed, so we should see an increase in employment in the informal
sector.
ere is little doubt that apartheid undermined and restricted black-owned economic
enterprises, including small-scale activities typically seen in the informal sector. Bundy’s
(1979) epic historical account argued that apartheid and capitalist development in South
Africa had systematically and with great hostility undermined peasant producers in
South Africa. Maylam and Edwards’ (1996) study of the urban life in the 1950s in the city
of Durban is one amongst a number of others that explores how apartheid undermined
and restricted urban economic activity amongst black South Africans. Lund and Skin-
ner (2004), Skinner (2008) and Dobson and Skinner (2008) highlight the importance of
local government regulations in impeding and promoting the informal economy. eir
work documents and analyses policy towards the informal economy in the city of Dur-
ban. In a highly innovative approach to the informal economy, the city incorporated the
informal economy fully into urban planning models. e impact is best highlighted in
the Warwick Junction area of Durban, a transport hub in the city where innovative, con-
sultative and integrative urban planning facilitated the development of a vibrant informal
economy.
A second barrier to entry that has been explored is that of labour legislation. e argu-
ment is made that labour legislation places an undue burden on small business and may
thus impede entry and growth of small rms in the informal sector. ere are a num-
ber of issues to consider here: First, whilst labour legislation may impact on enterprises
in the informal sector that employ workers, it will have no impact on self-employment
and enterprises that rely on a combination of self-employment and unpaid family labour,
by far the bulk of enterprises in the informal economy elsewhere. Second, whilst South
Africa does have minimum wage legislation that applies to sectors such as retailing and
the taxi industry, Bhorat et al. (2012a, b) show that there is very little evidence that the
legislation has traction in the informal sector (for retail) or that it is enforced (for the taxi
industry). ird, the evidence on the impact of the legislation on employment levels is
mixed (Bhorat et al., 2012).
A number of other barriers to entry related to apartheid are important factors too. For
the self-employed, access to capital remains an important barrier to entry into the infor-
mal economy, and probably more important, to expansion. Cichello et al. (2006) explore
this and a number of related barriers to entry. Based on panel data for Khayelitsha in Cape
Town, they nd evidence that the lack of start-up capital is a signicant barrier to entry.
e most important hindrance to entry into self-employment found by Cichello et al. is,
however, high levels of crime.
272 LABOUR AND EMPLOYMENT
3 Data issues
No less an authority as former President Mbeki questioned the reliability of the unem-
ployment estimates in South Africa (ANC Online, 5(20), May 20–26, 2005).
A number of studies, primarily qualitative, highlight inconsistencies between LFS-type
estimates of unemployment and ‘on the ground’ evidence of work and unemployment.
One such study is the Socio-economic Study of the Persistence of Poverty and Inequal-
ity (SEPPI), which going back to the same households in the KwaZulu-Natal Income
Dynamics (KIDS) survey, ‘found some formal work and a great deal of informal work that
was . . . missed by KIDS’ (Adato et al., 2007: 257). SEPPI found a lot of very short-term,
informal and casual work which respondents did not report even though the KIDS study
used questions very similar to that in the LFS. Similar studies suggest that the LFS may
underestimate informal employment.
In 2008, aer an extensive evaluation of the LFS, Statistics South Africa replaced the
biannual LFS with the Quarterly Labour Force Survey (QLFS). Yu (2009) outlines the
important changes made to the manner in which the estimates of informal sector employ-
ment are derived. Employees in the informal sector need now to meet two criteria: rst,
whether income tax is deducted by the employer, and second, whether the enterprise
employs more than ve workers. A negative answer to these questions means that the
worker is classied as employed in the informal sector. If both these questions are not
answered in the negative, the worker is classied as employed in the formal sector. Not-
withstanding the changes in the denition, the estimates of informal employment gener-
ated by the QLFS are consistent with those of the LFS, with informal sector employment
remaining around the 2 million gure over the LFS and all of the QLFS to date. us, the
ocial estimates of informal sector employment appear to be reliable and robust.
4 An economy-wide approach
e bulk of the literature outlined explores the puzzle from the perspective of the labour
market—that is, to identify some or other barrier that serves as a hindrance to entry into
the informal sector.
Another interesting line of research explores the puzzle from an economy-wide per-
spective, linking up the informal sector with the formal sector. From this perspective, the
reason for the relatively small size of the informal economy in South Africa is a result of
the nature of formal economy, which is large and powerful. is explanation introduces
the idea of competition between the formal and informal economy and market power (see
Devey et al., 2005; Valodia, 2007). Unlike most developing countries where small-scale,
informal producers are able to capture a signicant proportion of domestic consumption,
the South African economy is dominated by large-scale producers with deep reach into
INFORMALITY IN SOUTH AFRICA 273
the consumption basket of South Africans of all income classes. Even in the most remote,
rural and low-income communities, the basic consumption basket is dominated by goods
produced in the formal economy with very little capacity for local, informal producers to
capture a segment of local demand. Surveys of informal retailers by Valodia (2007) and
Valodia et al. (2007) show very little scope for small producers being able to compete with
the formal economy. is perspective is more formally captured by Davies and urlow
(2010) who develop a general equilibrium model for South Africa with formal and infor-
mal linkages in the product and labour markets. is approach highlights the imperative
for policies to consider impacts and linkages in the formal and informal economy simul-
taneously. For example, Davies and urlow’s model shows that policies that favour only
formal employment may result in a reduction in informal employment and consequently
in net employment.
5 Conclusion
e key economic challenge facing South Africa is the extremely high levels of unem-
ployment. Given the extent of the challenge and the urgency with which policymakers
need to address the issue, it is somewhat surprising that the informal economy has not
received more policy attention. Unlike much of the rest of the developing world where
the informal economy has served to generate economic opportunities for large numbers
of the population, this has not been the case in South Africa. is chapter has outlined
some of the reasons why this may be the case, and this provides some useful pointers for
policy action. However, the key missing ingredient appears to be a change of mindset on
the part of key agents and policymakers—to see the possibilities for the informal sector to
play a role in generating employment opportunities for large segments of the urban and
rural working poor.
■ REFERENCES
Adato, M., F. Lund and P. Mhlongo (2007), ‘Methodological Innovations in Research in the Dynamics of Pov-
erty: A Longitudinal Study of KwaZulu-Natal, South Africa’, World Development, 35(2): 247–63.
Bhorat, H., R. Kanbur and B. Stanwix (2012a), ‘Estimating the Impact of Minimum Wages on Employment,
Wages and Non-wage Benets: e Case of Agriculture in South Africa’, DPRU Working Paper, WP 12/149.
Bhorat, H., R. Kanbur and B. Stanwix (2012b), ‘Costs, Benets and Compliance: e Case of the Agricultural
Minimum Wage in South Africa’, MASA Conference Paper, Durban.
Bhorat, H., R. Kanbur and N. Mayet (2012), e Impact of Sectoral Minimum Wage Laws on Employment,
Wages, and Hours of Work in South Africa.
Bundy, C. (1979), e Rise and Fall of the South African Peasantry, London: Heinemann.
274 LABOUR AND EMPLOYMENT
Cichello, P., C. Almeleh, L. Mncube and M. Oosthuizen (2006), ‘Hindrances to Self-employment: Evidence
from the 2000 Khayelitsha/Mitchell’s Plain Survey’, Working Paper No. 101, Centre for Social Science
Research, University of Cape Town.
Davies, R. and J. urlow (2010), ‘Formal-Informal Economy Linkages and Unemployment in South Africa’,
South African Journal of Economics, 78(4).
Devey, R., C. Skinner and I. Valodia (2005), ‘e State of the Informal Economy’, in S. Buhlungu, J. Daniel,
J. Latchman and R. Southall (eds), e State of the Nation 2005–6, Cape Town: HSRC Press.
Devey, R., C. Skinner and I. Valodia (2006), ‘Denitions, Data and the Informal Economy in South Africa: A
Critical Analysis’, in V. Padayachee (ed.), e Development Decade? Economic Social and Change in South
Africa, 1994–2004, Cape Town and London: HSRC Press and Zed Books.
Dobson, R. and C. Skinner (2009), Working in Warwick: Integrating Street Traders into Urban Plans, Durban:
University of KwaZulu-Natal.
Lund, F. and C. Skinner (2004), ‘Integrating the Informal Economy in Urban Planning and Governance: A
Case Study of the Process of Policy Development in Durban, South Africa’, International Development
Planning Review, 26(4): 431–56.
Kingdon, G. and J. Knight (2001), ‘Why High Unemployment and Small Informal Sector in South Africa’,
Centre for the Study of African Economies, Department of Economics, University of Oxford.
Maylam, P. and I. Edwards (eds) (1996), e People’s City: African Life in Twentieth-Century Durban, Pieter-
maritzburg: University of Natal Press.
Skinner, C. (2008), ‘e Struggle for the Streets: Processes of Exclusion and Inclusion of Street Traders in
Durban, South Africa’, Development Southern Africa, 25(2).
Valodia, I. (2007), ‘Exploring Economic Behavior in South Africa’s Informal Economy’, School of Develop-
ment Studies, University of KwaZulu-Natal.
Valodia, I., R. Davies, M. Altman and J. urlow (2007), Exploring Economic Behavior in South Africa’s Infor-
mal Economy, Especially in Relation to the Formal Economy, Pretoria: Human Sciences Research Council.
Yu, D. (2009), ‘e Comparability of Labour Force Survey (LFS) and Quarterly Labour Force Survey (QLFS)’,
Stellenbosch Economic Working Papers: 08/09, Department of Economics, Stellenbosch University.
South Africa’s migrant labour
system
francis wilson
35
South Africa’s industrial revolution, which began with the discovery of diamonds and
gold towards the end of the nineteenth century, was unique in one crucial respect. No
other country in the world has industrialized for a full century, with the proportion of
agricultural output falling from 80 or 90 per cent to under 10 per cent of Gross National
Product, whilst at the same time ensuring that 50 per cent on average of its industrial
labour force—but up to 90 per cent or more in mining—was drawn in from rural areas on
a single-sex, male-only, basis and accommodated in anything from huge labour batteries
housing 10,000 or more men to smaller ‘hostels’ with 2–4 men in a room.
Men were employed on contracts that varied from a few months up to 18 months or
more before they were compulsorily returned to their rural areas under a system of oscil-
lating (or ‘circular’) migration enforced by pass laws enacted as early as the 1890s to con-
trol the movement of population. e system applied to blacks only.
e beginnings of this labour system was in the diamond mines during the 1870s.
Essentially what happened was that as the original small claims of both black and white
diggers were bought up to facilitate mining at deeper levels, individuals like Cecil Rhodes
and Barney Barnato were able to create big mining companies employing large numbers
of men as miners. An immediate source of conict was the possibility of an individual
miner nding and hiding a valuable diamond which he could then sell illegally for con-
siderably more than his daily, even monthly, wage. So the mine owners introduced strip
searching. Miners were incensed and, in the context of the time, a riot by white miners
which led to the deaths of several men caused a political crisis. Conict between capital
and labour was one thing but shooting white men dead was quite another. Strip searching
was abolished. For whites only. e power structure was such that black miners had to
continue to endure strip searching. To facilitate this process and to make it more eective,
R.V. Turrell, Capital and Labour on the Kimberley Diamond Fields 1871–1890, Cambridge: Cambridge
University Press, 1987 and William H. Worger, South Africa’s City of Diamonds: Mine Workers and Monopoly
Capitalism in Kimberley, 1867–1895, New Haven: Yale University Press, 1987.
276 LABOUR AND EMPLOYMENT
black miners were required to enter a contract for a stipulated period of time and to stay,
without their families, in a closed mine compound which they were not able to leave until
the end of their contract when they could be thoroughly searched.
Kimberley then became the model for Johannesburg because when gold was discovered
on the Witwatersrand in 1886 the entrepreneurs who had the capital and local knowledge
to develop the deep level mines that were required were the capitalists from the diamond
elds who brought with them not only nancial resources but also the model of labour
organization that had served them so well. e new compounds did not have to be closed
as there were no ingots of gold lying in the dust to be picked up by workers but, from an
employer’s perspective, single-sex compounds were the ideal way to house the tens of
thousands of men now needed to mine for gold. Not only did they do much to minimize
labour costs but they were also ideal for purposes of control. us the pattern of hiring
men only drawn in from rural areas, without their families, to be housed in purpose-built
labour compounds under xed-period contracts was embedded at the heart of South
Africa’s industrial revolution. Again, for black miners only.
But there was a second step taken in the process to minimize labour costs. is was to
organize the recruitment and hiring of labour under the umbrella of a single buyer. us
the Chamber of Mines was set up with the explicit objective of taking ‘active steps for
the gradual reduction of native wages to a reasonable level’ by preventing competition
for labour; in other words by the establishment of a monopsony which—over time—
became operational through its two recruiting arms: the Native Recruiting Corporation
(KwaTeba) and the Witwatersrand Native Labour Association (Wenela). Competitive
bidding between individual mines or between mining houses was curbed by agreement
enforced by the fact that it was in the interests of all mining employers to maintain the
monopsony.
e organization of labour supply to maintain the monopsonistic power of the Cham-
ber of Mines thus became a central feature of South Africa’s emerging industrial econo-
my. Population density was sparse in the rural hinterland of the new goldelds and a lot
of labour was needed in a hurry. us the recruiting organizations moved into remoter
more densely populated rural areas particularly in the eastern Cape as well as into Basu-
toland, then a British Protectorate. But recruiting did not stop there and already by the
mid-1890s no less than 60 per cent of the black labour force on the gold mines came from
southern Mozambique. us was established a second peculiar feature of South Africa’s
industrial revolution. For the rst 100 years both the diamond and the gold mines drew
a very large proportion of their labour force from beyond the borders of the country. e
geographic bias in the subsequent pattern of accumulation over the century was to have
profound consequences, as we shall see, for countries like Lesotho as well as for internal
rural areas such as the Transkei.
e Chamber of Mines was able to achieve its objective. Despite some hiccups at the
time of the South African war (1899–1902) and a short-lived experiment to import some
SOUTH AFRICA’S MIGRANT LABOUR SYSTEM 277
50,000 workers from northern China, aer the war it was able through intensive and exten-
sive recruiting within and beyond South Africa—ultimately as far north as Tanzania—
to keep black mine wages static for about 60 years if not longer. Not until the early 1970s
did black mine wages begin to rise signicantly in real terms when the industry—with
a labour force of which, by then, no less than 80 per cent was drawn from outside South
Africa—decided that it had no option but to raise wages to compete with secondary
industry which had no such privileged access to cheap labour from beyond the borders.
Table 35.1 shows the changing pattern of migrant labour for the gold mines during
the twentieth century when employment rose steadily to a peak of well over half a mil-
lion men in the mid-1980s before declining sharply as the mines themselves began to
wear out.
Table 35.1 Geographic origins of African mine labour, 1906–2006
Year Total1000s % from
South Africa BLS Mozambique N of lat. 22°S.
1906 81 23 4 65 8
1916 219 49 12 38 1
1926 203 41 14 45 0.2
1936 318 52 19 28 1
1946 305 41 17 32 11
1956 334 35 17 31 18
1966 383 34 23 28 15
1971 386 22 23 27 28
1976 365 33 30 32 4
1986 560 60 27 10 4
1996 284 42 38 20 –
2006 268 62 20 18 –
Sources: 1906–66, Francis Wilson, Labour in the SA Gold Mines, 1911–1969, Cambridge, 1972: 70; 1971–86, Francis
Wilson, ‘How the Mining Industry Shaped South Africa’, Daedalus, 130(1), Winter 2001: 111; 1971–86, Annual Reports of
Wenela and Teba (originally WNLA and NRC); 1996–2006, J. Crush and V. Williams, ‘Labour Migration Trends and Policies
in Southern Africa’, SAMP Policy Brief, No. 23, March 2010.
Notes: Figures refer generally to those employed by mines, members of the Chamber (mainly gold mines), including con-
tractors, December 31.
1981–91: Av no of migratory employees, Chamber of Mines, Annual Report, 1991: 60.
Figures for 1996, 2006, refer to all those recruited through Teba in those years.
Most BLS workers come from Lesotho with far smaller proportions from Botswana and Swaziland. Workers from north of
latitude 22° south came primarily from Malawi but, particularly during the 1940s and 1950s, included men from Tanzania
and Zambia. In the late 1980s all recruiting from Malawi for the South African mines ceased.
Peter Richardson, Chinese Mine Labour in the Transvaal, Basingstoke: Palgrave Macmillan, 1982.
278 LABOUR AND EMPLOYMENT
Whilst the gold mining industry continued to rely almost entirely on oscillating
migrants for its black labour force aer World War II, whites (who constituted approxi-
mately 11 per cent of all miners) were housed on the new gold mines in the Free State and
elsewhere in housing estates with hostels for unmarried men and family homes for those
with wives and children.
It was this pattern, set by the mining industry over a period of two generations before
1948, that the new apartheid government was to take as its model for the control of labour
over the next 40 years. In the words of an earlier Transvaal commission it argued that:
e native should only be allowed to enter the urban areas, which are essentially the white
man’s creation, when he is willing to enter and to minister to the needs of the white man and
should depart therefrom when he ceases so to minister.
is explicitly anti-black urbanization policy was enforced by ever stronger pass laws to
ensure that only workers (primarily male) under contract could come to town. e inher-
ent contradiction in apartheid policy which aimed for economic growth whilst building
independent ‘Homelands’ for blacks in rural areas of the country was to come under
increasing pressure as the economy expanded in the 1950s and 1960s and more and more
workers were required in town. To prevent wives and unemployed workseekers also mov-
ing in, the pass laws had to trap more people. Arrests rose astronomically. In 1947 some
174,000 persons were convicted under the pass laws for being somewhere without per-
mission. By 1962 the number had more than doubled and the gures went on rising until
in the rst half of the 1970s an average of more than half a million [542,000] people were
being prosecuted every year under the much hated laws.
1 Urbanization in South Africa: 1904–96
Whilst more and more black workers were drawn into the expanding industrial economy
of the 1960s and 1970s, the eectiveness of the pass laws in preventing the normal process
of family urbanization may be seen in the fact that between 1960 and 1980 there was vir-
tually no change in the proportion of Africans living in urban areas (see Table 35.2). Dur-
ing this period urban employers in secondary industry, construction and elsewhere, were
compelled to build single-sex hostels or compounds for their black workers until by 1969
it was estimated that one out of every two African workers in town was there as an oscil-
lating migrant. In Langa, Cape Town’s black township the ratio of men to women was
no less than 11:1 whilst in Alexandra, Johannesburg the state erected massive single-sex
Transvaal Local Govt Commission (Stallard), 1921 cited and discussed in Francis Wilson, Migrant
Labour in South Africa, Johannesburg: SACC & Spro-Cas: 1972, 160–2.
Francis Wilson (n 3): Migrant Labour in South Africa, 77.
SOUTH AFRICA’S MIGRANT LABOUR SYSTEM 279
hostels for both men and women on the assumption that all black workers in town would
be there without their families. But the net reached breaking point as more and more
wives and mothers and work-seekers insisted on moving to the cities despite guns, laws
and bulldozers pitted against them. In 1986 the pass laws were abolished.
But the migrant labour system was by no means dead. Whilst millions of women and
men were now free to move to live with their families near places of potential work in
town, the system continued through 1994 and beyond to exert its damaging impact in the
new South Africa. is impact manifested itself in two key ways.
First, in terms of what one might call its historical shadow. ere is not space in a
brief chapter to describe adequately the full impact of South Africa’s oscillating migrant
labour system drawing into the growing cities a large proportion of able-bodied men
from rural areas for a hundred years and more. ere was the enormous long-term
pressure on gender relations and on family life with destructive consequences that are
manifest to this day; there was the lack of investment in housing, schools and other
infrastructure required in any normal process of urbanization; there was the fact that
women were prevented from moving to town to learn skills and to work in factories thus
helping their families to manage as, for example, white Afrikaans-speaking women had
done before them. And there was also the crucial fact that the system put in place by the
mine owners and subsequently expanded and consolidated by the policies of apartheid
eectively ensured that the very process which generated wealth in South Africa simulta-
neously generated poverty. For as workers moved to town to enable the accumulation of
capital and infrastructure that saw places like Johannesburg grow from virtually nothing
to huge cities, the productive capacity of the rural areas whence they came and where
their families still lived—whether from Reserves in the Eastern Cape or countries like
Lesotho—diminished steadily.
Francis Wilson (n 3): Migrant Labour in South Africa, 42–3.
Table 35.2 Urbanization in South Africa, 1094–96
Section 1.01 1904 1936 1960 1980 1996
Black (African) 10 17 32 33 43
Coloured 51 54 68 77 83
Asian 37 66 83 91 97
White 53 65 84 88 91
TOTAL 23 31 47 47 54
Sources: South African Statistics, 1974, South African Statistics, 2000, Charles Simkins Four
essays on the Past, Present and Possible Future of the Distribution of the Black Population of
South Africa, Cape Town, 1983, p.143.
280 LABOUR AND EMPLOYMENT
In terms of agriculture production, as Colin Murray has shown, Lesotho produced all
the grain it needed until the end of World War I. Indeed, it was generally able to produce
a surplus for export. During the 1920s it was more or less able to feed itself but aer the
great drought at the beginning of the 1930s it became an importer of increasing quantities
of grain. Similarly, in South Africa the evidence all points to a steady decline in agricul-
tural output in the reserves or Bantustans whence the mines drew their labour.
Such evidence does not by itself, as has been argued in a previous essay, necessarily
imply an increase of poverty. Just as Britain, aer the abolition of the Corn Laws, moved
out of food into textile production whilst increasing its imports of American wheat paid
for by industrial exports. It arguably made economic sense, therefore, for the people of
Basutoland to shi productive resources (that is, labour) from agriculture into mining and
to pay for grain imports with the earnings from diamonds and gold. But analogies, like
truths, can be misleading if they come in halves. And this particular half-analogy obscures
the fundamental question as to the geographic location and control of the accumulation,
over a long period of time, of productive capital and infrastructure. For the diamond and
gold mines in which the workers of Basutoland/Lesotho (as well as others) produced so
much wealth were situated in another country to which neither they nor their families had
any rights of citizenship or access. And the common wealth of that other country derived,
inter alia, from the taxes on those same diamond and gold mines was used to build the
vital economic infrastructure, such as roads and telecommunications, on only one side of
the border. What was true of the independent country of Lesotho was no less true of those
rural areas such as the labour reserves or Bantustans of the Eastern Cape where, by means
of pass laws and the politics of a racist state, populations were conned to places in which
there was little investment whether private or public and from which people could only
get permission to leave as oscillating migrants without their families.
And so, over the years, the process of ‘development’ in South (and southern) Africa had
an in-built bias which distorted the pattern of accumulation in such a way as to exacerbate
the imbalance between rural people in the reserves and the capital and infrastructure to
which they had access. is led in time to rural situations all over the country where the
capacity of sending areas to generate wealth for those who lived there seems over time
to have declined on a per capita basis as the areas became increasingly dependent on the
urban areas for jobs and remittances to meet basic consumption needs.
e consequences of this process became all too clear at the beginning of the 1970s
when the Kimberley diamond mines decided to end their use of the migrant labour
Francis Wilson, ‘Understanding the Past to Reshape the Future: Problems of South Africa’s Transition’
in Paul A. David and Mark omas (eds), e Economic Future in Historical Perspective, Oxford: Oxford
University Press, 2003.
Colin Murray, Families Divided: e Impact of Migrant Labour in Lesotho, Cambridge: Cambridge Uni-
versity Press, 1981.
SOUTH AFRICA’S MIGRANT LABOUR SYSTEM 281
system by providing family accommodation for all their workers. But there was a catch.
To qualify for housing workers had to be South African citizens. And so the people of
Lesotho who had done more than anybody else to develop the diamond mines over the
previous century found themselves gradually excluded from one of the major sources of
employment in the region.
A similar process of impoverishment exacerbated by the apartheid policy of forced
removals which led to tens of thousands of people being moved o white-owned farms
or from ‘black spots’ in both urban and rural South Africa to the old reserves, now desig-
nated ‘Homelands’ has resulted in a pattern of poverty which clearly reect these historic
processes. Overcoming the poverty now embedded in the densely populated rural areas
of the old Bantustans is now one of the major challenges facing South Africa.
But oscillating migrant labour remains alive not only in terms of its historical shadow.
e system persists even with the mining industry which despite the political democra-
tization that accompanied the fall of apartheid has not moved to a systematic restructur-
ing of its labour system in the way that, for example, took place in Zambian copper mines
at the time of independence in 1964 or indeed on the South African diamond mines in
the early 1970s.
e consequences of the failure of both gold and platinum mines which by 2006
employed approximately the same number of workers—and of the new democratic
government—to make determined eorts to end the migrant labour system by adopting a
crash housing programme for, say, 5 per cent of its workers every year aer 1994 became
glaringly obvious in the tragedy which unfolded at Marikana, north-west of Johannes-
burg in August 2012 when 34 striking miners at a platinum mine were shot dead by police
at the end of a week in which two policemen and up to a dozen others, including miners,
were killed in violent clashes. e unfolding of events and responsibility for the tragedy
is, at the time of writing (June 2014), being investigated by a judicial commission but the
deeper underlying causes are already clear. In a well-informed analysis of the strike wave
in the mining industry during 2012, Gavin Hartford argues that ‘at the heart of the eco-
nomic and social crisis is the migrant labour system which has remained unaltered post
apartheid’. In fact there was one important change within the system which exacerbated
Laurine Platzky and Cherryl Walker, e Surplus People: Forced Removals in South Africa, Johannesburg:
Ravan Press, 1985.
Michael Noble and Gemma Wright, Using Indicators of Multiple Deprivation to Demonstrate the Spatial
Legacy of Apartheid in South Africa, Social Indicators Research, 2013, 112(1) See also Michael Noble,Wanga
Zembe and Gemma Wright, ‘Poverty May Have Declined But Deprivation and Poverty are Still Worst in
Former Homelands’, 27 May 2014, <http://www.econ3x3.org>.
Raphael Chaskalson, ‘Platinum, Politics and Popular Resistance: Changing Patterns of Worker Organi-
sation on South Africa’s Bushveld Igneous Complex, 1994–2012’, BA Hons esis, University of Cape Town,
2013.
Gavin Hartford, e Mining Strike Wave: What Are the Causes And What Are the Solutions?, written
October 2012, unpublished but available online by Googling the author.
282 LABOUR AND EMPLOYMENT
the problem. Aer 1994 the mining industry simply issued living-out allowances to its
migrant miners coming from Pondoland, Mozambique and elsewhere so that they could
move out of the mine compounds. is they did, but into the cheapest shack accommo-
dation that they could nd so as to save money to support not only the family at home
but also, for some, a second partner (and children) at the place of work. us, despite
real wage increases, ‘the migrant became signicantly worse o in respect of the actual
amount of remittances to their rural homes post apartheid’.
Overcoming both the legacy and the ongoing reality of the migrant labour system is the
huge challenge now confronting South Africa, aer Marikana, as it seeks to build a polit-
ical economy consistent with the ideals and aspirations of its great constitution.
Gavin Hartford, e Mining Strike Wave (n 11).
Poverty and poverty lines
in post-apartheid South Africa
vusi gumede
36
1 Introduction
In 2007, the South African government explicitly attempted a new approach to reducing
poverty. e approach, or the methodology, that was experimented with from 2007 was
known as ‘War on Poverty’ within the context of a new anti-poverty programme. During
2005 and 2006, internal policy and programme review processes within government con-
cluded that the numerous projects and programmes of the post-apartheid government,
such as public works and cash transfer programmes, had not dented poverty enough.
Prior to 2007, the general perspective of the government was that all economic and social
policies were implicitly addressing poverty.
e new methodology opted for targeting on the premise that households should be
primary units of analysis and policy intervention. In addition, the new approach prior-
itized community cohesion—that, through strengthening communities, poverty would
be sustainably reduced. e War Room—the war on poverty ‘regiment’—was set up in the
Presidency. e government, led by the then Deputy President, would ‘descend’ to a par-
ticular locality and spend time working with the community and visiting each household
identied to be poor or aicted by some social ill. However, it would seem, either because
the approach that was pursued was not sustainably and vigorously pursued or because the
approach was not sound enough, results remain disappointing.
Perhaps amongst the most important reasons South Africa remains with high poverty
rates is that interventions on poverty in South Africa are not informed by a clear policy
and, most importantly, there is no ocial poverty line—without an ocial poverty line,
it is dicult to tell whether there is real progress with any poverty reduction programme.
Statistics South Africa had proposed, in 2004, an upper bound poverty line of R593 per
capita and a lower bound poverty line of R322 per capita (in 2000 rands)—part of the
challenge, ideologically related, was that the poverty lines proposed by Statistics South
Africa (Stats SA) were calculated with the World Bank.
e poverty lines proposed by Stats SA were later published in Hoogeveen and Özler (2005).
286 POVERTY AND INEqUALITY IN SOUTH AFRICA
Researchers in South Africa have been using largely similar poverty lines for assessing
headcount poverty in South Africa—and the ‘cost-of-basic needs’ method is the stand-
ard approach used to determine poverty lines in South Africa, as elsewhere. It might be
worth highlighting, also, that the poverty lines this chapter is about are essentially income
poverty lines based on money-metric measures of poverty discussed in section 2 below.
Recently, the National Planning Commission (NPC) has proposed a poverty line of R418
per capita in 2009 prices (NPC, 2012). Still, there is no ocially agreed upon poverty
line in South Africa. South Africa needs to nd a way to address this conundrum. As the
Foster-Greer-orbecke (FGT) family of poverty measures show, all poverty measures
require some poverty line.
2 Poverty in South Africa
e post-apartheid South African government has, broadly, viewed poverty from the per-
spective that poverty is multidimensional. ere are, therefore, programmes aimed at
addressing income poverty on one hand and programmes addressing asset, service and
social capital poverty on the other. With regard to measurement, there are diculties per-
taining to comparative data in South Africa, deriving in the main from the fact that prior
to 1994 a number of regions in the country—largely the poorest areas—were classied as
‘independent homelands’ and therefore excluded from the country’s main datasets.
ere are numerous reports and documents on poverty in South Africa, post-1994,
which have been instrumental in directing policies in government. Everatt (2003) con-
tends that the most common feature of these reports and documents is the inconsistency
in the choice of poverty denition and measurement reecting the ‘many meanings of
poverty within government’. ere has also been a growing body of research on poverty
Gumede (2008) explains and demonstrates this point in detail.
For instance, as others have indicated, the 1995 Income and Expenditure Survey (IES) was not based on
clearly demarcated and adequately mapped enumeration areas, whereas the 2000 IES was based on improved
demarcation and listing of households, based on Census 1996. In other words, 1995 and 2000 IESs are not
comparable as an example, as many have indicated.
For example, in 1995 the President’s oce assembled a commission to investigate labour market policy
in South Africa. e result was Restructuring the South African Labour Market report which also based its
understanding of poverty and estimation of poverty levels on Key Indicators of Poverty in South Africa (1995).
e Report of the Lund Committee on Child and Family Support (1996) based its understanding, denition
and levels of poverty in South Africa on the Minimum Living Level (MLL). e White Paper on Population
Policy (1997) mentions the eradication of poverty as one of the guiding principles of population policy and
uses the MLL in dening and measuring poverty. A relatively more comprehensive approach to understand-
ing poverty in South Africa was presented in Statistics SA’s Measuring Poverty in South Africa (2000). e
Taylor Commission’s report of Committee of Inquiry into a Comprehensive System of Social Security for South
Africa (2002) approached poverty dynamics in South Africa from a legal and constitutional perspective,
using the constitutional framework as the basis for understanding poverty and state intervention through
social protection measures. Lastly, the National Spatial Development Perspective (2003) document also used
MLL measures when analysing poverty in South Africa.
POVERTY AND POVERTY LINES IN SOUTH AFRICA 287
in South Africa showing levels of poverty and trends over time and also examining pov-
erty dynamics in specic localities. Most studies show that poverty is declining in South
Africa. For instance, van der Berg et al. (2005) found that poverty decreased since 2000.
Bhorat and van der Westhuizen (2010) also concluded that during 1995–2005 both abso-
lute and relative poverty declined.
Table 36.1, representing calculations done using the General Household Surveys of
2005 and 2009, shows very high levels of poverty although the share of those below the
various poverty lines is declining. For instance, for an income poverty line of R551.78 per
person per month there are about 46 per cent of people living below the poverty line as
Table 36.1 indicates.
e main point is that poverty remains very high in South Africa—and the 2009 gures
might have increased due to the recent global economic recession and the general poor
state of the economy and the labour market. e 2011 Census indicates that there are
5.6 million unemployed persons in South Africa; an unemployment rate of 29.8 per cent
(Stats SA, 2012).
Lastly, calculations based on the National Income Dynamics Study 2008 and 2010
(NIDS) conrm that income poverty remains high in South Africa. e poverty line
I used is R515 per capita in 2008 prices. Similarly, human poverty—measured by the
Human Poverty Index (HPI-1)—remains high too, although the aggregate gures
Most of the studies that examine poverty dynamics until recently predominantly focused on or used the
KwaZulu Natal Income Dynamics Study data, now the National Income Dynamics Study data are available.
Table 36.1 Income poverty in South Africa, 2005–09
Percentage of population living below various
poverty lines (in 2009 constant Rand from GHS)
2005 2009
Expenditure poverty line (R551.78 per person per month) 70% 65%
Income poverty line (R551.78 per person per month) 59% 46%
Expenditure poverty line (R298.17 per person per month) 54% 49%
Income poverty line (R298.17 per person per month) 40% 27%
Expenditure poverty line (R149.08 per person per month) 31% 25%
Income poverty line (R149.08 per person per month) 23% 12%
Source: Development Indicators (2012).
Wave I had 28,247 respondents and Wave II had 28,641. For more details, see <http://www.nids.uct.
ac.za/home>.
HPI-1 is made up of probability of surviving to age 40, knowledge and decent standard of living (i.e.
access to clean water source and children nutrition status).
288 POVERTY AND INEqUALITY IN SOUTH AFRICA
imply some improvement. Table 36.2 also shows the Human Development Index (HDI)
which is made up of three measures: life expectancy, education and standard of living.
Table 36.2 presents estimates of income poverty, HDI-1 and HDI by gender, race and
geography.
Overall, those below the poverty line remain high (46 per cent in 2008 and 45 per cent
in 2010). e share of whites who are below the poverty line increased slightly from 1 to
2 per cent whilst there are declines for all other races. With regard to provinces, there is a
marginal increase in those below the poverty line in the Western Cape and the HDI in the
Western Cape declines slightly. Another province that stands out is KwaZulu Natal where
there is a signicant decline in those below the poverty line and a relatively signicant
increase in the HDI from 0.49 in 2008 to 0.54 in 2010. Lastly, the HPI-1, in the aggregate,
declines from 27.11 in 2008 to 21.42 in 2010 and the HDI marginally improves by 0.01
during 2008–10.
Table 36.2 Poverty and human development in South Africa
% Below poverty line HPI-1 HDI
2008 2010 2008 2010 2008 2010
Total 46% 45% 27.11 21.42 0.58 0.59
Gender
Male 43% 41% 25.88 20.80 0.58 0.60
Female 49% 48% 28.14 22.12 0.58 0.57
Race
African 55% 53% 31.25 24.20 0.52 0.54
Coloured 26% 23% 10.51 16.58 0.64 0.58
Asian/Indian 9% 8% 4.92 3.85 0.78 0.74
White 1% 2% 10.13 8.12 0.80 0.73
Province
Western Cape 23% 25% 14.40 10.52 0.64 0.63
Eastern Cape 63% 62% 23.35 29.36 0.54 0.54
Northern Cape 33% 38% 27.23 12.96 0.58 0.62
Free State 45% 44% 37.27 26.90 0.52 0.57
KZN 62% 56% 48.11 28.68 0.49 0.54
North West 42% 42% 25.59 16.03 0.57 0.57
Gauteng 28% 27% 10.28 28.89 0.68 0.64
Mpumalanga 42% 41% 40.43 29.00 0.57 0.55
Limpopo 63% 62% 19.44 23.18 0.57 0.56
Source: Own calculations from the National Income Dynamics Study 2008 and 2010 data.
POVERTY AND POVERTY LINES IN SOUTH AFRICA 289
3 Closing remarks
South Africa has no ocial poverty line (or there was still no ocial poverty line at the
point of nalizing this chapter). e main conclusion reached in this chapter is that pov-
erty remains high in South Africa as the various (unocial) poverty lines show and also
from the perspective of the HPI-1. e argument that I make, in this concluding section,
is that the main reason for high poverty in South Africa is fundamentally related to policy
and/or reforms (refer to Gumede 2011 for a recent review of policies and policymaking
in South Africa and Gumede 2013 examines policy challenges in the case of education).
e necessary reforms in the economy, in particular, have been weak because of
poor policy development and lack of vision for the economy. In human development
context, lack of or weak social policy has constrained the advancement of wellbeing.
Broadly, from the mid-2000s South Africa has eectively been standing still aer robust
reforms of the 1990s. erefore, the answer to South African woes, from a policy per-
spective, is policy and/or policy reforms in the economy in particular. e strategies
and programmes that have been introduced since the mid-2000s have not addressed
the fundamental policy constraint that needed policy reforms instead of introducing
programmes and strategies not informed by policy. erefore, more policy thinking
should be exercised for both social and economic transformations. And, most impor-
tantly, policy should be pursuing the vision for the economy that should be agreed upon
through national consensus.
■ REFERENCES
Bhorat, H. and C. van der Westhuizen (2010), ‘Poverty, Inequality and the Nature of Economic Growth in
South Africa’, in N. Misra-Dexter and J. February, Testing Democracy: Which Way is South Africa Going?
Cape Town: IDASA.
Everatt, D. (2003), ‘e Politics of Poverty’, in D. Everatt and V. Maphai (eds), e Real State of the Nation:
South Africa aer 1990, Development Update Special Edition, 4: 75–100.
Gumede, V. (2008), ‘Poverty and Second Economy Dynamics in South Africa: An Attempt to Measure the
Extent of the Problem and Clarify Concepts’, Development Policy Research Unit Working Paper No.
08/133, University of Cape Town.
Gumede, V. (2011), ‘Policy Making in South Africa’, in C. Landsberg and A Venter, South African Government
and Politics (4th edn), Pretoria: Van Schaik Publishers.
Gumede, V. (2013), ‘Public Sector Reforms and Policy-Making: A Case of Education in an Emerging Devel-
opmental South Africa’, in A. Kanjee, M. Nkomo and Y. Sayed (eds), e Search for Quality Education in
Post-Apartheid South Africa, Pretoria: HSRC Press.
Hoogeveen, J.G. and B. Özler (2005), Not Separate, Not Equal: Poverty and Inequality in Post-Apartheid South
Africa, William Davidson Institute Working Paper No. 739, University of Michigan, <http://deepblue.lib.
umich.edu/bitstream/handle/2027.42/40125/wp739.pdf;jsessionid=3CDB56B52D4D8B7A84BCE10458
0435D6?sequence=3>.
290 POVERTY AND INEqUALITY IN SOUTH AFRICA
Ministry of Monitoring and Evaluation (2012), ‘Development Indicators 2011’, Pretoria: e Presidency,
<http://www.thepresidency-dpme.gov.za/MediaLib//Home/Publications2/Dev%20Ind%20For%20
Print%201-83_%2016032012%20print%20to%20cab.pdf>.
National Planning Commission (2012), ‘e National Development Plan 2030’, Ministry of Planning, e
Presidency, Pretoria.
Statistics South Africa (Stat SA) (2012), Census 2011, Pretoria.
e Presidency (2008), Towards an Ani-Poverty Strategy for South Africa: A Discussion Document on the
Framework, Pretoria, <http://www.info.gov.za/view/DownloadFileAction?id=92543>.
Van der Berg, S., R. Burger, M. Louw and D. Yu (2005), ‘Trends in Poverty and Inequality Since the Political
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workingpapers/WP-01-2005.pdf>.
Post-apartheid poverty
and inequality trends
arden finn, murray leibbrandt
and vimal ranchhod
37
Arden Finn is a Research Ocer in the Southern Africa Labour and Development
Research Unit. He acknowledges support from the National Research Foundation’s
Human and Social Dynamics in Development Grand Challenge.
Murray Leibbrandt holds the NRF Research Chair in Poverty and Inequality Research
and is the Director of the Southern Africa Labour and Development Research Unit. He
acknowledges the Research Chairs Initiative of the Department of Science and Technol-
ogy and National Research Foundation for funding his work.
1 Introduction
is chapter examines trends in poverty and income inequality in post-apartheid South
Africa. Given its colonial and apartheid history, South Africa has had high levels of
both poverty and inequality for a very long time. ough our focus here is on the post-
apartheid era, it is important to recognize this inherited legacy. is is reected directly
in the extremely high levels of poverty and inequality at the start of the post-apartheid
era. In addition, there is no doubt that the drivers of these unfavourable initial conditions
continued to cast a long shadow over the post-apartheid trends that we describe.
In two sections, we detail these trends by comparing data from the SALDRU/PSLSD
1993 survey, the IES 2000 survey and the NIDS wave 2:2010 survey. is allows us to infer
trends over the period from 1993 to 2010. All values in the analysis that follows have been
adjusted for ination, with the base set at the average CPI for 2010. ere is a fairly exten-
sive literature that measures and starts to explain poverty and inequality using these and
other data. We make reference to this literature in the course of the discussion.
Vimal Ranchhod is a Chief Research Ocer in the Southern Africa Labour and Development Research
Unit. He acknowledges support from the Research Chairs Initiative of the Department of Science and Tech-
nology and National Research Foundation for funding this work.
292 POVERTY AND INEqUALITY IN SOUTH AFRICA
2 Poverty trends in South Africa—1993–2010
We begin in the broadest possible manner by considering changes across the entire
income distribution between 1993 and 2010. In Figure 37.1, the income distributions for
1993, 2000 and 2010 are all plotted on the same set of axes. Analysing poverty necessitates
choosing a poverty line as a reference point. e choice of which poverty line to use is
always somewhat arbitrary, but in this section we maintain the trend of recent research
and use the cost-of-basic-living poverty lines developed by Hoogeveen and Özler (2006).
is means that we have a lower poverty line of R573 per person per month and an upper
poverty line of R1,056 per person per month in real 2010 rands. e lower poverty line
of R573 is superimposed on the graph. e graph shows that the distribution of income
shied rightwards at almost all points between 1993 and 2010. is is in line with the gen-
eralized Lorenz curves presented in the next section, which show that average real income
increased for the population as a whole over the period. At the bottom of the distribu-
tion, the major shi took place between 1993 and 2000, with relatively little movement
is, in fact, is very close to Statistics South Africa’s poverty line of R564 per capita per month in 2010
prices.
20
0 0.1 0.2
Density
0.3 0.4
46
Log of real household income per capita
8
Poverty line R573 (2010 Rands)
10 12
1993 2000 2010
Figure 37.1. Distributions of income 1993, 2000, 2010
Source: PSLSD 1993, IES 2000, NIDS Wave 2 2010. Own calculations.
POST-APARTHEID POVERTY AND INEQUALITY TRENDS 293
between 2000 and 2010. is pattern is reversed as we move up the distribution (but
remain below the poverty line) where we see that there was a signicant rightward shi
from 2000 to 2010.
ere is evidence of a signicant rightward shi at the very bottom of the distribution
and poverty dominance analysis conrms a reduction in poverty. However, this shi does
not represent a dramatic decrease in poverty. According to the poverty head count ratio—
simply the proportion of the population living below the poverty line—the poverty rate
at the lower poverty line stood at 56 per cent in 1993 and remained steady at around 54
per cent for the later years in our analysis. e reduction in poverty incidence using the
upper poverty line also stands at 2 per cent—from 72 per cent in 1993 to 70 per cent in the
late 2000s. e rightward shi at the bottom of the distribution is reected by consistent
decreases in the poverty gap rate, which gives us a broad measure of the depth of poverty
in society. e main driver behind increasing incomes at the bottom of the distribution
is the rapid expansion of the government social support programme. e importance of
state grants in raising these incomes is highlighted in Leibbrandt et al. (2010) who note
that in 1993 one-h of households were beneciaries of state grants, whilst in 2008 this
proportion had climbed to one half and Leibbrandt and Levinsohn (2011), Bhorat et al.
(2012) and Leibbrandt et al. (2012) show clearly that social grants reduced both poverty
and inequality.
e expansion of government grants was not complemented by a reduction in the
unemployment rate. e labour market is by far the most important factor to consider
when poverty is decomposed into its constituent parts. Whilst the expansion of state sup-
port has helped to lower poverty, the persistently high levels of unemployment have pre-
vented poverty reduction on a substantial scale. Decomposing poverty rates by the labour
market status of household members emphasizes the crucial role of nding employment
in reducing poverty. In 1993, almost 90 per cent of individuals living in a household
where nobody had a job were living below the poverty line. is reduced somewhat to
around 80 per cent in the period under study, but it remains very high. In fact, almost half
of all the poor in the country live in a household where not one person is employed. is
is in contrast to the poverty share of those living in households with two or more workers,
which stands at around 17 per cent.
Decomposing poverty by dierent groups reveals some interesting trends. Leibbrandt
et al. (2010) nd that the decrease in poverty in post-apartheid South Africa is driven
mainly by a fall in the poverty incidence amongst Africans, and particularly African males.
Poverty rates for this group fell from 66 to 60 per cent, whilst the corresponding gures
for African females are 72 and 68 per cent. Despite these changes, the African share of
overall poverty, however, remained constant at 93 per cent in 1993, 2000 and 2010. is
far outweighs the African share in the overall population, which is close to 80 per cent.
See Leibbrandt et al. (2010).
294 POVERTY AND INEqUALITY IN SOUTH AFRICA
A great deal of rural-urban migration took place in South Africa in the period under
study. Our data reect that the share of urban residents in the population rose from 49 per
cent in 1993 to 60 per cent in the late 2000s. As a result of this movement, the urban share
of total poverty rose from 30 to about 43 per cent. at said, the poverty rate in rural areas
was higher than in urban areas for any choice of poverty line.
3 Trends in income inequality in South Africa
In our second section, we focus on trends in inequality over the same time period and
using the same datasets. South Africa has been recognized for a long time as having
amongst the highest levels of inequality in the world. Estimated Gini coecients over
this period range from 0.655 using the IES 1995 dataset to 0.825 using the 2001 Census.
Of all countries that have reasonably good survey data, the only countries with similar
levels of inequality are a handful of comparable countries from the two ‘extra-high’ ine-
quality regions of the world, namely Latin America and Southern Africa.
In panel A of Figure 37.2, we plot three corresponding Lorenz curves. In panel B, we
do the same but with Generalized Lorenz curves. e former gives a graphical measure of
income inequality whilst the latter provides a graphical measure of social welfare through
its inclusion of both inequality and mean income.
Lorenz curves plot the cumulative distribution of total income against the cumulative
fraction of the population sorted from poorest to richest. Lorenz curves always lie below
the 45 degree line, which represents a hypothetical society that is perfectly egalitarian.
An intuitive way to understand these graphs is to ask whether the curve is ‘closer’ to the
45 degree line of an equal society or the right-angled triangle of a highly unequal society.
South Africa’s Lorenz curves suggest a high level of inequality. e richest 20 per cent of
people earn about 70 per cent of the total income, and the second richest about 20 per
cent of total income. us the poorest 60 per cent together only earn about 10 per cent of
the total income in the population. is is approximately true regardless of which dataset
is being used, and is exceptionally high by international standards. Across the three data-
sets, the primary observation is that the distributions do not vary much with time. In this
case, the 2000 graph lies slightly below 1993 and the 2010 distribution almost perfectly
overlaps with 1993. Looking across all of the evidence, the most balanced big picture
conclusion is that inequality has remained mostly stable and stubbornly high over the
post-apartheid era.
See Leibbrandt et al. (2010), Hoogeveen and Özler (2006), van der Berg, Louw and Yu (2008).
Yu (2010) undertakes a detailed comparison using close to 40 dierent datasets and obtains this range.
ere remains considerable debate about the actual value of the Gini for South Africa, but all estimates are
extremely high on a global scale.
See Leibbrandt et al. (2010) and van der Berg (2011).
POST-APARTHEID POVERTY AND INEQUALITY TRENDS 295
0
0 500 1000 1500 2000
0.2
Cumulative proportion of population
Cumulative proportion of population
Mean scaled cumulative proportion of income
0.4 0.6 0.8 1
0 0.2 0.4 0.6
Panel A
Panel B
0.8
0 0.2
Cumulative proportion of income
0.4 0.6 0.8 1
1
20001993 2010
1993 20102000
Figure 37.2. Lorenz curves and generalized Lorenz curves 1993, 2000, 2010
Source: PSLSD 1993, IES 2000, NIDS Wave 2 2010. Own calculations.
296 POVERTY AND INEqUALITY IN SOUTH AFRICA
In panel B, the Generalized Lorenz curves have the same variable on the x-axis but
plots the ‘mean scaled’ cumulative total income on the y-axis. To implement this, we
take the original Lorenz curve from panel A and multiply the y-values of each distribu-
tion by the corresponding overall mean of that income distribution. Whereas Lorenz
curves are unaected by the mean of the income distribution, these curves are shied up
by mean income. If everyone in a society earned twice as much as they previously did,
the new Generalized Lorenz curve would rotate upwards, whereas the corresponding
Lorenz curve would remain unchanged. What we observe from panel B is that the 1993
distribution is always below the 2000 distribution, which in turn is always below the 2010
distribution. us, panels A and B together reect a society with stable inequality but with
rising mean incomes amounting to an improvement in aggregate welfare over this time
period.
However, an increasingly pressing policy focus has developed as to ‘why’ South Africa’s
inequality seems to be so stubbornly persistent. Some of the evidence points to the emer-
gence of a small but well-paid black professional class. Some researchers have emphasized
the importance of unemployment and earnings. A third line of thinking has considered
the high rates of return to tertiary qualications in conjunction with wide variations in the
quality of primary and secondary schooling.
4 Conclusion
High levels of poverty and inequality are undesirable on normative grounds and are
increasingly considered problematic if one is concerned with either social cohesion or
economic eciency. is chapter details the progress that is being made on the research
front. However, several practical questions remain unanswered. ese include questions
about the role of scal policy, the schooling system in South Africa, how to alleviate the
high unemployment problem, the role of capital and credit markets, geographic exclusion
in South African cities and the importance of social externalities. Given the central role
of the labour market in both poverty and inequality in South Africa, future trends in the
Hoogeveen and Özler (2006) nd increases in inequality between 1995 and 2000, and attribute this
mostly to increases in inequality amongst the African subpopulation. ey also observe that the returns to
education increased during this time period, particularly for Africans with high levels of education. See also
van der Berg and Louw (2004). Leibbrandt et al. (2012) support the contention that the share of within racial
group inequality has risen over the post-apartheid period but caution that the between group component
remains exceedingly high by international standards.
See Leibbrandt et al. (2011) for decomposition work supporting this argument and Leibbrandt et al.
(2010) for a review of this literature on this issue.
See e.g. van der Berg (2009), Branson and Leibbrandt (2013a, b) and Pellicer and Ranchhod (2012).
is literature is vast. A very useful starting point for interested readers would be Bowles (2012).
POST-APARTHEID POVERTY AND INEQUALITY TRENDS 297
labour market are likely to strongly determine how future trends in poverty and inequal-
ity evolve. Also, given the fact that about 80 per cent of the population is African, intra-
African income dynamics will play an increasingly dominant role in driving changes to
this national poverty and inequality picture.
■ REFERENCES
Bhorat, H., M. Oosthuizen and C. van der Westhuizen (2012), ‘Estimating a Poverty Line: An Application to
Free Municipal Services in South Africa’, Development Southern Africa, 29(1): 77–96.
Bowles, S. (2012), ‘e New Economics of Inequality and Redistribution’ (Federico Caè Lectures), Cam-
bridge: Cambridge University Press.
Branson, N. and M. Leibbrandt (2013a), ‘Educational Attainment and Labour Market Outcomes in South
Africa, 1994–2010’, OECD Economics Department Working Papers, No. 1022, OECD Publishing.
Branson, N. and M. Leibbrandt (2013b), ‘Education Quality and Labour Market Outcomes in South Africa’,
OECD Economics Department Working Paper No. 1021, OECD Publishing.
Hoogeveen, J. and B. Özler (2006), ‘Poverty and Inequality in Post-Apartheid South Africa: 1995–2000’, in
H. Bhorat and R. Kanbur (eds), Poverty and Policy in Post-Apartheid South Africa, Cape Town: HSRC
Press: 59–94.
Leibbrandt, M., I. Woolard, A. Finn and J. Argent (2010), ‘Trends in South African Income Distribution and
Poverty since the Fall of Apartheid’, OECD Social, Employment and Migration Working Paper No. 101,
OECD Publishing.
Leibbrandt, M., H. Bhorat and I. Woolard (2001), ‘Understanding Contemporary Household Inequality in
South Africa’, Chapter 2, in H. Bhorat, M. Leibbrandt, M. Maziya, S. van der Berg and I. Woolard (2001),
Fighting Poverty: Labour Markets and Inequality in South Africa, Cape Town: UCT Press.
Leibbrandt, M. and J. Levinsohn (2011), ‘Fieen Years On: Household Incomes in South Africa’, National
Bureau of Economic Research Working Paper No. 16661, Cambridge, January.
Leibbrandt, M., A. Finn and I. Woolard (2012), ‘Describing and Decomposing Post-Apartheid Income Ine-
quality in South Africa’, Development Southern Africa, 29(1): 19–34.
Pellicer, M. and V. Ranchhod (2012), ‘Inequality Traps and Human Capital Accumulation in South Africa’,
SALDRU Working Paper No. 86.
Van der Berg, S. (2009), ‘e Persistence of Inequalities in Education’, in J. Aron, B. Kahn and G. Kingdon
(eds), South African Economic Policy under Democracy, Oxford: Oxford University Press.
Van der Berg, S. (2011), ‘Current Poverty and Income Distribution in the Context of South African History’,
Economic History of Developing Regions, 26(1): 120–40.
Van der Berg, S. and M. Louw (2004), ‘Changing Patterns of South African Income Distribution: Towards
Time Series Estimates of Distribution and Poverty’, South African Journal of Economics, 72(3): 546–72.
van der Berg, S., M. Louw and D. Yu (2008), ‘Post-transition Poverty Trends Based on An Alternative Data
Source’, South African Journal of Economics, 76: 58–76.
Yu, D. (2010), ‘Poverty and Inequality Trends in South Africa Using Dierent Survey Data’, Stellenbosch
Economic Working Paper No. 04/10.
Income mobility in South Africa
julian may
38
Income mobility can mean several things in the South African context. At one level
this can simply refer to changes in average real income (nominal income adjusted for
ination to an agreed base using appropriate deators) for the country as a whole, as
well as for sub-groups within the country. Statistics South Africa (Stats SA), the ocial
statistics agency, undertakes regular large sample cross-sectional surveys as part of the
National Statistics System. Income and Expenditure Surveys (IES) are conducted every
ve years and provide detailed information on the income prole of South Africa in addi-
tion to the expenditure data required for adjustments to the Consumer Price Index (CPI)
basket. Since 2005/06 these surveys have adopted comparable methodologies and show
that average annual household income experienced real growth of 16.7 per cent between
2005/06 and 2010/11 (Stats SA, 2012: 5). is increase in income diered by population
group and sex of the household head.
e average annual income of households in which the head of the household was
categorized as ‘black African’ increased by 34.5 per cent from R51,773 to R69,632 in 2011
prices, whilst that for white households increased by 0.4 per cent. Increases in the aver-
age incomes for the Indian and coloured population groups were also much higher than
that for the white population at 36.8 per cent and 27.7 per cent respectively. ese trends
marginally narrowed the gap between population groups although the average annual
income of the white households remains far higher than that of any other group, but has
fallen to 5.5 times that of African households in 2010/11 from 7.4 times in 2005/6 (Stats
SA, 2012: 5). Furthermore, the average per capita incomes of the poorest 10 per cent of
South Africans grew most rapidly throughout the period 2000–10/11, with the change in
income between 2000 and 2005/06 reaching a noteworthy 79 per cent (Republic of South
Africa, 2006: 9; 2011: 14).
By contrast, changes in the average income of households headed by women are modest.
Whilst these increased by 13.5 per cent from R62,397 per annum to R70,830 in 2010/11,
the average incomes of male-headed households experienced an 18.2 per cent growth and
were more than twice those of female-headed households in 2010/11 (Stats SA, 2012: 5).
Director, Institute for Social Development, University of the Western Cape.
INCOME MOBILITY IN SOUTH AFRICA 299
ese income trends, together with the higher poverty rates, gaps and severity measures
of female-headed households have led some analysts to point to a ‘feminization of pov-
erty’ in South Africa, implying that gender inuences income mobility in South Africa
(Posel and Rogan, 2012).
Unocial data collected more frequently for market research show similar trends. e
All Media Products Survey (AMPS) is an annual survey that makes use of a composite
indicator of consumer behaviour based on ownership of durables, the Living Standards
Measure (LSM). Analysts using these data report a general increase in per capita income
in South Africa since 1994 and declining poverty rates (Demacon, 2010: 34; Van der Berg
et al., 2008). e share of Africans, coloureds and Indians in Income Tier 1 (per capita
income above R280 per day) increased from below 20 per cent of adults in 2000 to almost
40 per cent by the end of the decade. Further, the share of the population in the top half
of the LSM segments is shown to have increased by over 10 percentage points between
2006 and 2010 whilst the middle and top tiers of the LSM pyramid have become increas-
ingly diverse in terms of race (Demacon, 2010: 35). Results such as these are argued to
represent the rapid growth of a black middle class which has been estimated to have
grown from 1 million people in 2005 to 3 million in 2008. is is a group whose average
personal incomes have rapidly increased to a level now greater than that of the average
white population, and who are spending a larger share of their income on household
appliances, vehicles and ‘aspirational assets’ such as real estate investments or private
equity funds. e UCT Unilever Institute formulated the term ‘Black Diamond’ in 2007
to describe this rapidly expanding market segment, and the conspicuous consumption
believed to be associated with it. e term has since been criticized as stigmatizing and
concealing the manner in which income mobility brings about changes in class structure
(Chevelier, 2010).
Whilst having the advantage of being simple to calculate given the availability of data,
results from cross-sectional studies cannot show changes in income amongst the same
people over time. As a result, some of the changes reported might reect demographic
shis in the population such as the aging of the population, or rising economic depend-
ency due to the number of young people entering the constrained labour market, rather
than mobility. For this reason, an alternative view on income mobility refers to change
over time that is observed for the same people or households. Such analysis requires panel
data in which households and/or individuals are interviewed more than once in repeated
waves of surveying. Fortunately such data are available in South Africa for the KwaZulu-
Natal province (the KwaZulu-Natal Income Dynamics Survey/KIDS, 1993, 1998, 2004)
and for the country as a whole (the National Income Dynamics Study/NIDS, 2008, 2010
and continuing). ese data can be used as repeated cross-sections in order to depict
the aggregate trends already discussed. Finn et al. (2012: 9) do this for the two available
waves of NIDS and conrm that the increase in the average real incomes of African and
coloured households is much higher than that for the white population. Indeed, they
300 POVERTY AND INEqUALITY IN SOUTH AFRICA
nd that average white incomes fell between 2008 and 2010 although observe this may be
due to higher levels of attrition amongst the white sample who were not interviewed in
the second wave of data collection. ey also observe that the incomes of the bottom two
quintiles of the NIDS sample grew rapidly during this period, whilst those of the wealth-
ier quintiles declined.
More usefully, income mobility can be investigated using the matched or balanced
sample over time by including only those households/individuals who are interviewed
in all waves of the survey. When so doing, it is important to remember that attrition in
panel surveys can introduce bias if some people are systematically not included in the
follow up waves. Several approaches have been used in South Africa for such analysis
including transition matrices that depict the position of households or individuals in
each year of the survey in terms of a poverty threshold or percentile. A simple method
based on the transition matrix measures chronic poverty and is concerned with the
absence of income mobility over time. e chronically poor are people who are like-
ly to remain poor all of their lives, and who are also likely to transfer their poverty
to their children, and thus chronic poverty has inter-generational consequences. On
the basis of the two waves available for NIDS, Finn et al. (2012: 13) report that 34 per
cent of the sample was observed to be below a poverty line of R515 in 2010 prices in
both 2008 and 2010, and that 70 per cent of those found to be poor in 2008 were still
poor in 2010. At the time of writing, longer-running trends can only be calculated
for KwaZulu-Natal although this will soon change with the release of further waves
of NIDS. Between 1993 and 2004, May et al. (2011: 193) report that just under 23 per
cent of households successfully surveyed in all three waves were chronically poor in
that their incomes were always observed to be below the same poverty line. Using the
same data, Agüero et al. (2007) show that the incomes of those adult children who
had been able to establish their own households by 2004 were higher than the original
group surveyed.
It is also possible to depict changes in income graphically using histograms, kernel
density diagrams, contour plots or heat plots showing the joint density of income in each
wave of data collection. Such charts have the advantage of depicting changes in income
across the full distribution and do not require that a decision be made concerning the
appropriate threshold income or income band. As can be seen in the gures provided
by Leibbrandt et al. (2010) and Finn et al. (2012: 12), whichever the approach adopted,
income mobility in South Africa between 2008 and 2010 was concentrated in the middle
of the income distribution and there has been a good deal of churning around the pov-
erty line. Finally, Finn et al. (2012: 13) calculate the degree of income mobility based on
the percentage of households on the leading diagonal of the decile transition matrix. is
can range from 0 per cent representing total mobility to 100 per cent representing total
immobility, and is 27 per cent for the balanced sample of NIDS between 2008 and 2010. In
other words, just over one quarter of the sample are in the same income group two years
INCOME MOBILITY IN SOUTH AFRICA 301
aer rst being surveyed, suggesting a relatively high degree of income mobility. Similar
results have been found for the 1993–2004 period.
A third approach to the analysis of income mobility attempts to identify the underlying
structural shis that bring about mobility. First used by Carter and May (2001) in the
context of South Africa between 1993 and 1998, this analysis distinguishes mobility that
is structural, and thus persistent, from that which is stochastic and transitory. To achieve
this, the underlying changes in asset holdings and how these are used must be analysed
to reveal the long-term stream of income that can be produced from these assets. May
et al. (2011: 206) make use of the three waves of KIDS and conclude that between 1993
and 2004 some 30 per cent of the households sampled could be classied as structural-
ly poor, 9 per cent structurally upwardly mobile and 7 per cent structurally downward.
Living in large households and low initial level of education are identied as likely causes
of structural poverty and thus income immobility, whilst the impact of premature adult
mortality, most likely arising from HIV/AIDS, has been found to induce an income shock
and to reverse positive trends (Carter et al., 2007).
Overall, the data available concerning income mobility may signal important and pos-
sibly structural changes in the dynamics of income generation in South Africa following
the end of the apartheid era. Some of this is likely due to the social protection policies that
have been adopted and others to the removal of discriminatory practices in the labour
market and the provision of education. Underlying demographic changes should also be
recognized including the changing age composition of the population and the impact of
HIV/AIDS, whilst measurement error and the comparability of data is always a concern.
ere are also indications that for at least some groups this income mobility may be trans-
forming the class structure of South Africa.
■ REFERENCES
Agüero, J., M.R. Carter and J. May (2007), ‘Poverty and Inequality in the First Decade of South Africa’s
Democracy: Evidence from KwaZulu-Natal’, Journal of African Economies, 16(5): 782–812.
Carter, M.R. and J. May (2001), ‘One Kind of Freedom: e Dynamics of Poverty in Post-Apartheid South
A f r i c a’, World Development, 29(12): 1987–2006.
Carter, M.R., J. May, J. Agüero and S. Ravindranath (2007), ‘The Economic Impact of Severe Illness
and Prime Age Mortality: Evidence from Panel Data from KwaZulu-Natal, South Africa’, AIDS, 21:
S67–73.
Chevelier, S. (2010), ‘Les Blacks Diamonds existent-ils? M é dias, consummation et classe moyenne noire en
Afrique du Sud’, Sociologies Pratiques, 20: 75–86.
Demacon, (2010), Impact of Township Shopping Systems: Market Research Findings and Recommendations,
Demacon Market Studies, Waterkloof, <http://www.urbanlandmark.org.za>.
Finn, A., M. Leibbrandt and J. Levinsohn (2012), ‘Income Mobility in South Africa: Evidence from the First
Two Waves of the National Income Dynamics Study’, South African Labour and Development Research
Unit Working Paper No. 82/NIDS, Discussion Paper 2012/5, University of Cape Town.
302 POVERTY AND INEqUALITY IN SOUTH AFRICA
Leibbrandt, M., I. Woolard, A. Finn and J. Argent (2010), ‘Trends in South African Income Distribution and
Poverty since the Fall of Apartheid’, OECD Social, Employment and Migration Working Paper No. 101.
May, J., I. Woolard and B. Baulch (2011), Chapter 6: ‘Poverty Traps and Structural Poverty in South Africa:
Reassessing the Evidence from KwaZulu-Natal, 1993–2004’, in B. Baulch (ed.), Poverty Dynamics and Per-
sistence, Cheltenham: Edward Elgar.
Posel, D. and M. Rogan (2012), ‘Gendered Trends in Poverty in the Post-Apartheid Period, 1997–2006’,
Development Southern Africa, 29(1): 97–113.
Republic of South Africa (2006), Millennium Development Goals—Goal 1: Eradicate Extreme Poverty and
Hunger, Pretoria: Government Printer.
Republic of South Africa (2011), Millennium Development Goals: Country Report 2010, Statistics South
Africa, Pretoria.
Stat SA (2012), Income and Expenditure of Households 2010/2011: Statistical Release P0100, Statistics South
Africa, Pretoria.
Van der Berg, S., M. Louw and D. Yu (2008), ‘Post-Transition Poverty Trends Based on an Alternative Data
Source’, South African Journal of Economics, 76(1), 58–76.
Gender inequality
dorrit posel
39
1 Introduction
Before the transition to democracy, the South African economy was characterized by sig-
nicant gender imbalances in access to opportunities and resources. Women were far less
likely than men to be employed; amongst the employed, women were over-represented
in low-paid and unprotected forms of work; and women faced considerably higher risks
of poverty than men (Casale and Posel, 2002; Posel and Rogan, 2012). In this chapter, I
investigate how gender dierences in access to resources have changed during the post-
apartheid period, both to earned income in the labour market and to non-labour income
provided in social assistance programmes. I then consider the implications of gender
inequality in the context of low and falling marriage rates, high rates of non-marital child-
birth and an increase in the incidence of female-headed households. e statistics used
to describe changes in economic participation, resource access and family formation, are
derived from a series of nationally representative household surveys conducted regularly
since 1994.
2 Access to income
A. LABOUR MARKET INCOME
During the decades preceding the democratic transition in South Africa, women’s labour
supply increased considerably. According to data from the Population Census, women
accounted for 23 per cent of the economically active population in 1960 and 41 per cent
in 1991 (Standing, Sender and Weeks, 1996). is dramatic increase led Standing et al.
(1996: 60) to comment that ‘(p)erhaps the most important change in labour supply over
recent years has been the rising labour force participation rate of women’.
ese gures do not include the TBVC states (Transkei, Bophuthatswana, Venda and Ciskei) and they
therefore are not directly comparable to the subsequent statistics derived from household surveys conducted
since 1993.
304 POVERTY AND INEqUALITY IN SOUTH AFRICA
Women’s labour force participation continued to grow in the post-apartheid period. In
1995, approximately 44 per cent of the economically active population (those between the
ages of 15 and 65 who were working or wanting to work) were women (Casale and Posel,
2002). By 2001, this had risen to 49.7 per cent (Casale, 2003), and in subsequent years,
women’s share of the labour force stabilized at approximately 49 per cent.
ere are likely to be a number of interrelated factors that account for this ‘femi-
nisation of the labour force’ (Casale and Posel, 2002). Increasing levels of education
amongst women would have increased women’s expected employment opportunities
and therefore also the opportunity costs of having children. In 1995, less than a quarter
of all working-age women, and 18 per cent of African women specically, had com-
pleted secondary (or matric) education. By 2007, this had risen to 31 and 25 per cent
respectively. A fall in fertility rates has also been documented since the 1960s. Moultrie
and Timaeus (2003) estimate that in the 1960s the total fertility rate was approximately
six children per female, but by the 1990s this had dropped to between three and four
children.
Recent decades have also witnessed a decline in marriage rates and an increase in age
at rst marriage (Garenne et al., 2001). e fall in marriage rates has been particularly
dramatic amongst African women during the post-apartheid period. From 1995 to 2008,
the percentage of ever-married African women fell by 10 percentage points to 38 per
cent (Posel and Rudwick, 2014), with young African women in 2008 being only half as
likely as young white women to be married (Posel and Casale 2013). Marriage decline
has coincided with changes in household composition and notably an increase in the
proportion of female-headed households (Posel and Rogan, 2012); and a decrease in the
proportions of women, and of children, living with men and fathers, respectively (Casale
and Posel, 2002; Posel and Devey, 2006). ese changes would have forced or encouraged
more women to enter the labour market to earn or generate an income to support them-
selves and their children.
Changes in the institutional and legislative environment would also have facilitated
women’s entry into the labour force. e late 1980s saw the removal of structural con-
straints that inhibited the labour force participation of African women under apartheid,
including their ability to migrate to urban areas to nd employment. A range of equal
opportunity and protective labour legislation, including the Employment Equity Act 55
of 1998 which seeks to promote the employment of ‘previously disadvantaged groups’
Own calculations from the September 2003, 2005 and 2007 Labour Force Surveys.
Own calculations from the 1995 October Household Survey and the September 2007 Labour Force
Survey.
In 1997, approximately 35 per cent of all households were female-headed; by 2006 this had increased to
37.5 per cent (Posel and Rogan, 2012: 106).
Between 1993 and 2002, the percentage of children not living with their father increased from 43.5 to
57.3 per cent (Posel and Devey, 2006).
GENDER INEQUALITY 305
(including women), may also have encouraged more women to look for employment
during the post-apartheid period.
With the increase in female labour supply, women’s employment increased. From 1995
to 2007, total employment in South Africa, measured using the October Household Sur-
veys and Labour Force Surveys, grew by about 3 million jobs. Over this period, women’s
employment increased by more than men’s employment, accounting for about 56 per
cent (or 1.7 million) of the new jobs created, and as a result women’s share of employment
grew, from 39 per cent of all those with employment in 1995, to 43 per cent in 2007.
However, the rise in women’s labour supply was far in excess of the rise in their employ-
ment and, consequently, women’s unemployment rates also increased considerably over
the period. In the early 2000s, there were as many unemployed women as there were
employed women, meaning that a female labour force participant was as likely to be
unemployed as employed (Casale and Posel, 2005). Women were also more vulnerable
to unemployment than men: by 2007, the unemployment rate broadly dened (including
the non-searching unemployed) was 45 per cent amongst women, compared to 31 per
cent amongst men, with women comprising 58 per cent of all the broadly unemployed.
Historically, employment in the South African labour market was segmented along
both race and gender lines (Standing et al., 1996), with most high-earning jobs occupied
by white men. e feminization of the labour force during the post-apartheid period was
associated with the upward occupational and earnings mobility of some women, with the
number of women employed in professional occupations, or as legislators, senior ocials
and managers growing considerably, albeit from a low base (Casale and Posel, 2005).
However, a far larger part of the rise in women’s employment derived from the growth
in work typically associated with low earnings and few opportunities for advancement
(Casale and Posel, 2005). Of the 1.7 million additional jobs recorded amongst women
from 1995 to 2007, almost 40 per cent (or approximately 666,000 jobs) were in self-
employment in the informal sector, employment that includes subsistence or survivalist
activity and that typically is associated with very low and insecure earnings.
Given the legacy of apartheid, most of the research on economic inequality in the South
African labour market has focused on estimating the nature of, and changes in, the race
gap in earnings, and there are relatively few studies which have investigated the gender
Other legislative changes in the work place include the 1995 Labour Relations Act, which secured
the rights of workers to unionize; and the Basic Conditions of Employment Act (BCEA), which sought
to regulate hours worked and conditions of employment (including paid leave, a written contract with
employers and notice prior to dismissal) (Department of Labour, 1997). e BCEA, which also permits
the Minister of Labour to determine sectoral minimum wages, was extended to cover domestic services in
2002 (Muller, 2010).
Own calculations from the 1995 October Household Survey and the September 2007 Labour Force
Survey.
Own calculations from the 1995 October Household Survey and the September 2007 Labour Force
Survey.
306 POVERTY AND INEqUALITY IN SOUTH AFRICA
earnings gap. Using data from the 1999 October Household Survey, Rospabé (2001) esti-
mated an overall gender gap of 25 per cent, which was highest amongst whites (35 per
cent) and Africans (34 per cent). More than half of the overall gender gap could not be
explained by gender dierences in observable characteristics that aect productivity, pro-
viding some indication of the extent of gender discrimination in the labour market.
In investigating changes in the gender gap, Muller (2010) nds that amongst the wage
employed, the gender wage dierential narrowed particularly during the 2000s, with
the gender gap in average hourly wages falling to below 20 per cent in 2006. is
decline was driven by a decrease in the ‘unexplained’ portion of the gender gap, and is
therefore suggestive of a decrease in gender discrimination and possibly indicative of the
positive eects of labour legislation introduced in the post-apartheid period. However,
when considering all the employed, including the self-employed, Posel and Rogan (2009)
nd evidence of a persistent and growing gender gap in earnings. In 1997, the female-
male ratio of median earnings was 0.65; by 2006 it had dropped to 0.61 (Posel and Rogan,
2009). Large gender disparities remain, particularly at the tail of the earnings distribu-
tion. In 1995, 54 per cent of all the employed in the lowest earnings decile were women;
by 2007, this had grown to 63 per cent. As women’s share of employment has increased,
therefore, so women’s share of low-paid and survivalist work has also increased.
B. SOCIAL TRANSFERS
Social assistance programmes, which were well-developed for whites under apartheid,
were substantially transformed in the decade preceding the transformation to democ-
racy and particularly during the post-apartheid period (Seekings, 2007). By June 2010,
approximately 14.3 million South Africans received a (non-contributory and means-
tested) social grant (SASSA, 2010). Total expenditure increased from under 2 per cent
of GDP in 1993, to 3.5 per cent in 2005 and 4.4 per cent in 2009 (Leibbrandt et al., 2010).
Social grants are provided for children (by awarding grants to care-givers), the elderly and
the disabled, but there is no social assistance for the unemployed.
Social transfers have a strong gender dimension. e majority of recipients of the Grant
for Older Persons (formerly the state old age pension) are women (Burns et al., 2005),
both because average life expectancy is higher amongst women than amongst men, and
because until 2007 women were eligible for the social pension at age 60 and men not until
age 65 (Rogan, 2012). Given that most care-givers are women, women also form the large
majority of recipients of the Child Support Grant and the Foster Care Grant.
Own calculations from the 1995 October Household Survey and the September 2007 Labour Force
Survey.
GENDER INEQUALITY 307
Although total social grant payments have risen considerably over the post-apartheid
period, the value of social grant income remains considerably lower than the value of
earnings. In 2006, for example, the maximum value of the Child Support Grant was R142
(in 2000 prices), whereas median real earnings in that year were about R820 for women
and R1,340 for men (Posel and Rogan, 2009).
3 Differences in economic status and well-being
In light of the high and sustained rates of unemployment that have characterized the
post-apartheid labour market, a number of studies have estimated that poverty rates only
started to fall aer 2000 when government spending on social grants increased consider-
ably (Bhorat and Kanbur, 2005; Leibbrandt et al., 2010; Posel and Rogan, 2012). During
the early years of the transition, females were more likely than males to be living in a poor
household (where average per capita monthly household income lies below a poverty line
of R322, in 2000 prices). In 1997, almost 62 per cent of females were poor compared to
just over 57 per cent of males (Posel and Rogan, 2012). Although poverty rates decreased
amongst both males and females from 1997 to 2006, the decrease was larger amongst
males than amongst females and the gender gap in poverty therefore widened over the
period. By 2006, almost 60 per cent of females continued to live in poor households, com-
pared to 52 per cent of men (Posel and Rogan, 2012).
It is perhaps surprising that a feminization of poverty should co-exist with a femi-
nization of the labour force and the larger receipt of social transfers amongst women
than amongst men. However, the small size of social transfer income (particularly rela-
tive to earnings in the labour market), coupled with higher unemployment rates amongst
women, a persistent gender gap in earnings and women’s growing share of very low-paid
work, mean that women continue to receive signicantly lower levels of income than
men. Consequently, individuals are more likely to be poor if they live in a household in
which only women earn or receive an income. A larger share of females than males live in
this type of household, and given declining marriage rates this household type has been
increasing over the period. In 1995, 15 per cent of all adult women lived in a household
with no resident adult man; by 2007, this had risen to 25 per cent.
Gender dierences in income also have implications for the economic status of chil-
dren. With low marriage rates and high rates of non-marital childbirth, children in South
Africa are far more likely to be living with their mothers than with their fathers (Posel
and Devey, 2006). In 2006, over 80 per cent of young children (0–6 years) were living in
Own calculations from the 1995 October Household Survey and the September 2007 Labour Force
Survey.
308 POVERTY AND INEqUALITY IN SOUTH AFRICA
a household with their mother, compared to less than 40 per cent living with their father.
Gender inequalities in access to income mean that children living with only their mother
(accounting for 44 per cent of all young children in 2006) are far more likely to be poor
than children living with only their father or with both parents.
Given the legacy of apartheid, however, there is also signicant inequality amongst
women. African women’s access to resources has been limited both because of their
gender and their race, and of all South Africans they face the highest risk of poverty
(Posel and Rogan, 2009). In 2006, 69 per cent of African females lived in poor households
compared to 61 per cent of African men, and 22 per cent of all non-African females
(Posel and Rogan, 2009). Amongst African women, poverty rates are even higher in rural
areas, which are also characterized by the far lower provision of basic services and infra-
structure than urban areas (Casale and Posel, 2010). According to data collected in the
2008 National Income Dynamics Study, for example, only 15 per cent of adults in rural
households had access to piped water in their dwelling (compared to over half living in
urban households), and nearly 60 per cent of rural African women without on-site water
lived more than 100 metres away from the nearest water source (Casale and Posel, 2010).
Because women retain primary responsibility for household reproduction, the implica-
tions of inadequate service provision, including having to fetch water and wood for daily
household tasks, are borne by women in particular (Budlender, 2001).
4 Concluding comments
Since the transition to democracy in South Africa there has been some improvement in
women’s economic status. Women’s share of employment has grown; their representa-
tion in high-skilled occupations has increased; the introduction of equal opportunity and
protective labour legislation has reduced gender discrimination in wage employment;
and the expansion of the social security system has provided some support particularly
for the elderly and the care-givers of children, most of whom are women. However, for
the majority of women, employment opportunities have remained limited and gender
imbalances in economic status persist.
Although women form an increasing share of the employed, their share of unemploy-
ment has risen by even more. Moreover, substantial gender dierences in earnings still
exist, evidenced by the large and growing dominance of women in the bottom earnings
decile. With low and falling marriage rates, the majority of South African women cannot
rely on men to provide income support and, notwithstanding the considerable expansion
In 2006, 80 per cent of young children in mother-only households were poor, compared to 60 per cent in
father-only households, and 43 per cent in two-parent households (own calculations from the 2006 General
Household Survey, and using an individual poverty line of R322 in 2000 prices).
GENDER INEQUALITY 309
in social assistance programmes, gender dierences in labour market status translate into
higher poverty rates amongst women. Because children in South Africa are far more like-
ly to be living with their mother than their father, this in turn has signicant implications
for the economic status of children.
■ REFERENCES
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310 POVERTY AND INEqUALITY IN SOUTH AFRICA
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Origins, trends and debates in
black economic empowerment
claudia manning, with assistance
from nokuzola jenness
40
1 The rationale for black economic empowerment
Black economic empowerment is a policy intervention at the core of the South African
government’s attempts to de-racialize the economy and facilitate greater participation of
black South Africans at all levels of the economy.
Apartheid legislation systematically excluded black people from participation in the
economy, in an eort to conne them to a role of providers of cheap labour, thereby creat-
ing an economic structure that marginalized the majority of its population. e demo-
cratic government has sought to redress this legacy through the introduction of policy
and legislation aimed at reversing the persistent racial and gender inequalities in wealth,
income, skills and employment in South Africa.
e case for Broad-based Black Economic Empowerment (BBBEE) rests on two pri-
mary foundations: economic and moral. e economic case is premised on the need to
reverse the ineciencies that arise from deliberately skewing access to resources on racial
grounds, and to unlock the productivity gains that can be achieved through redressing
these imbalances. e other case for BBBEE rests on the moral imperative to redress
the wrongs inicted by apartheid, as articulated by the government, ‘More than just an
economic imperative, the de-racialisation and engendering of our economy is a moral
requirement in keeping with the values and principles enchrined in our Constitution’.
Black persons is a generic term which includes indigenous South African Africans, coloureds, Indians
and Chinese.
ere is an extensive literature on the deliberate destruction of black entrepreneurship and black enter-
prises from colonial times to the 1980s (‘black disempowerment’), which was intended to achieve a variety
of policy objectives, from creating a class of cheap black labourers for the mines, seeking to create advantages
for white (English and Afrikaans) business—see Peires (2007) and Innes (2007).
dti (2003), ‘South Africa’s Economic Transformation: A Strategy for Broad-based Black Economic
Empowerment’, Pretoria: 5.
314 POST-APARTHEID SOCIAL POLICY
2 BBBEE architecture
e key elements of the black economic empowerment (BEE) architecture are: the leg-
islative framework, namely the BBBEE Act, regulations governing the implementation
of BBBEE, Department of Trade and Industry (dti)’s generic Codes of Good Practice, as
well as several sector Codes of Good Practice, which prescribe compliance levels at the
sector level.
e current black economic empowerment policy has its roots in the dti strategy docu-
ment, ‘South Africa’s Economic Transformation: A Strategy for Broad-based Black Eco-
nomic Empowerment’ (March 2003), which sets out the rationale for, and approach to,
economic transformation. e strategy was followed in January 2004 by the enactment of
the Broad-based Black Economic Empowerment Act (January 2004), and later in 2004,
by the Codes of Good Practice which outlined a ‘balanced scorecard’ approach to meet-
ing BBBEE targets and measurement indicators of compliance.
BBBEE legislation and regulations are designed to provide an incentive to compa-
nies seeking to do business with the government and its institutions to comply with
BBBEE targets. With the exception of the mining industry, compliance is not manda-
tory: there are no legal penalties for non-compliance, although companies which
do not comply are unlikely to qualify to transact with government and state-owned
institutions. e framework is designed to incentivize compliance not just by those
directly seeking to transact with government, but for their suppliers as well as the rat-
ing of the ‘measured’ company is also inuenced by the level of compliance of their
suppliers.
e BBBEE programme is driven by the dti which issues the Codes of Good Practice on
BBBEE. e Codes of Good Practice specify ve areas of BBBEE compliance, as shown
in Figure 40.1.
Companies are evaluated in accordance with a scoring matrix, which indicates an
entity’s BEE compliance level. Company compliance is then veried annually by private
BBBEE accreditation agencies.
dti (2003).
Compliance is obligatory in the mining industry: in terms of the Mining Charter, implemented in 2004,
mining companies are required to demonstrate compliance with a number of elements of BBBEE, including
the transfer of between 15 and 26 per cent of equity to black shareholders in a 5–10-year period, as a condition
for the conversion of their ‘old-order’ mining rights to ‘new-order’ mining rights.
e rst dra of the Codes of Good Practice were released in 2004, followed by a nal gazetted version
in February 2007. Government released revised Codes of Good Practice in October 2013, which come into
legislative eect in October 2014. ere are a number of changes in the revised Codes, the most signicant
being: the introduction of the elements from seven to ve, the introduction of priority elements and mini-
mum thresholds.
ORIGINS, TRENDS AND DEBATES 315
Companies can be measured either against the Generic Scorecard (Figure 40.1) or against
individual sector charters, for which the BBBEE Act provides. In terms of the Act, BBBEE
targets in the sector charters must be either higher or equivalent to the dti’s Generic
Scorecard (Figure 40.1), thereby ensuring minimum compliance across industries. At the
time of writing, a number of industries have concluded sector charters, including agri-
culture, nance, ICT, mining and tourism. However, it is unclear whether companies will
continue to exercise this right, with the growing pressure on government to enshrine the
supremacy of the Act and its regulations over other legislation and regulations pertaining
to BBBEE.
3 Progress in the implementation of BBBEE
e extent to which the aims of the BBBEE policy has been achieved is ercely disputed.
Two data sources are typically used to measure progress in meeting the economic trans-
formation targets: the data published annually by the Johannesburg Stock Exchange (JSE)
on black ownership of the JSE, and the annual KPMG BEE survey.
e JSE released data in December 2012 showing that black ownership of the top 100
shares in the JSE stood at 21 per cent: 9 per cent of that held directly, and the balance of 12
per cent held through mandated investments such as pension funds and trusts. ere has
been much debate on the validity of this data, with analysts disputing the methodology by
which black shareholding in pension funds is calculated, arguing that the actual gure is
Sector charters are either voluntary (binding on signatories, but with no ramications from a regulatory
standpoint) or mandatory (both binding and regulated by the dti), depending on whether they are gazetted
in terms of section 9 or section 12 of the Act.
At the time of writing in 2013, moves are afoot to enshrine the ‘trumping’ nature of the BBBEE Act, that
is, to give the provisions of the Act precedence over other pieces of legislation in the event of any legislative
conicts pertaining to BBBEE. is would allow the Act and its regulations (such as the generic Codes of
Good Practice) to supersede the provisions of the sectoral charters.
Which is used as a proxy for black ownership of the economy.
Figure 40.1. The generic balanced scorecard (as amended in October 2013)
Element Weighting
Ownership 25 points
Management control 15 points
Skills development 20 points
Enterprise and supplier development 40 points
Socio-economic development 5 points
316 POST-APARTHEID SOCIAL POLICY
likely to be much lower than 12 per cent, and therefore that the eective black ownership
of the JSE is much lower.
e other data source used to measure progress in meeting the BBBEE targets is the
annual BEE survey conducted by the accounting and auditing rm, KPMG. e KPMG
BEE surveys conducted between 2006 and 2011 show a substantial increase in compli-
ance of participating rms. As can be seen in Figure 40.2, average scores increased by
close to 80 per cent in the ve-year period, from an average of 37 per cent in 2006 to over
66 per cent in 2011.
At face value, this data paints a persuasive picture of progress towards the meeting
of the BBBEE targets set out by government. Yet there is widespread scepticism over
whether these gures provide an accurate reection of the extent of transformation of
the economy.
e extent and pace of progress in meeting the transformation objectives of BBBEE
is likely to remain contested until reliable and comprehensive data are produced regu-
larly, allowing for accurate comparisons—across sectors and company sizes—of progress
against the various aspects of BBBEE. In the absence of such comprehensive data, what
are the issues raised in the debates about the eectiveness of BBBEE in achieving its trans-
formational objectives?
Duma Gqubule, cited in Mail and Guardian, October 7, 2011, ‘JSE Black-owned chips under dispute’.
South Africa’s National Planning Commission’s ‘National Development Plan: Vision for 2030’ (2012)
calls for ‘a comprehensive study to collate data on progress across all elements of broad-based black economic
empowerment as well as an analysis of the macro-impact of the policy on the economy and case studies of
models of empowerment’ (120).
Figure 40.2. Results from the 2012 KPMG BEE survey
No. Element Target 2011 2010 2009 2008 2007 2006
1 Ownership 20 13.43 11.29 13.86 8.46 10.82 8.00
2 Preferential
procurement
20 15.99 12.36 10.24 8.69 10.80 6.00
3 Employment
equity
15 7.09 7.02 7.41 5.11 5.42 5.00
4 Skills
development
15 7.92 6.00 10.00 5.72 6.06 7.00
5 Enterprise
development
15 12.41 10.46 7.24 7.94 7.82 3.00
6 Management
control
10 5.57 4.16 5.51 6.15 7.71 4.00
7 Socio-Economic
development
5 4.51 3.74 5.00 4.04 3.20 4.00
Total 100 66.92 55.03 59.26 46.11 51.83 37.00
Source: KPMG (2012), 2011 ‘BEE Survey: A time for transformational leadership’ South Africa: KPMG Services Pty Ltd.
ORIGINS, TRENDS AND DEBATES 317
4 The impact of BBBEE: the debates
Few would dispute the need for government to intervene in eecting change to the prole
of the South African economy. Indeed, most analysts would acknowledge that le to itself
the market is unlikely to reverse the apartheid-created racial distortions that still charac-
terize the economy. As Acemoglu et al. point out in their analysis of the impact of BBBEE
on growth of the South African economy, ‘One cannot expect the market to naturally
remove the misallocation of resources le by Apartheid’.
Notwithstanding this, there is widespread criticism that the laudable intentions moti-
vating the policy have been frustrated by the awed application of the programme. Criti-
cisms are focused on three key issues.
First, the excessive focus on ownership as a proxy for economic transformation. One
of the main criticisms of BBBEE policy to date has been that it has been overly focused
on the ownership element, especially in the rst few years of the adoption of the policy.
Whilst the importance of changing the racial composition of ownership of capital in the
economy cannot be disputed, there have been a number of unintended consequences of
this narrow focus:
• rst,itleadstoaneglectofbroadereconomictransformation,inparticular,theinclusionof
smaller black businesses in all areas of the economic value chain, such as through supplier
relationships with large enterprises. Given the track record of the colonial and apartheid gov-
ernments in deliberately and systematically destroying and undermining black enterprises
and entrepreneurship in both the urban and rural economies, it is not surprising that the
structure of the South African economy remains relatively distorted, with a paucity of strong
and successful small and medium-sized black enterprises. It is this legacy that the preferen-
tial procurement and enterprise development elements of the BBBEE policy seeks to redress—
attempting to encourage large companies to actively develop small black-owned rms—yet
many critics14 argue that it is the element in which least success has been achieved compared
to focusing on ownership targets (which are oen perceived as being ‘easier’ to achieve).
• second,itengendersaculturearent-seeking:thestrongfocusonownershipofcompanies
that has characterized BBBEE historically15 has contributed towards the image of BBBEE as
Acemoglu et al. (2007): 12.
TIPS, 2002.
Cargill in her book on BEE, ‘Trick or Treat’ (2010), argues that one of the biggest missed opportunities
of BBBEE has been its failure to promote medium-sized black businesses, which oer the greatest potential to
grow the economy, innovate, and ultimately contribute towards long-term economic transformation.
Initial attempts at economic transformation in the early 1990s—before the formalization of government
policy around this issue—were focused largely on the transfer of equity to individual black shareholders. One
of the rst black economic empowerment transactions concluded was in the early 1990s when the South
African insurance rm, Sanlam, sold 10 per cent of Metropolitan Life to a black-owned consortium led by a
few prominent South Africans, which later became New Africa Investments Limited (NAIL). is deal ena-
bled NAIL to become the rst black company to list on the Johannesburg Securities Exchange (now JSE Ltd).
318 POST-APARTHEID SOCIAL POLICY
being a policy purely promoting enrichment of politically connected elites. Perceptions are
prevalent that BBBEE is driven largely by political patronage,16 and that it is primarily an elite
clique of individuals close to government who are associated with the most prominent and
lucrative BBBEE transactions.
e second area of criticism is around the failure of the BBBEE programme to achieve
real transformational impacts, that is, notwithstanding the overly concentrated focus on
ownership in BBBEE, the impact of increased black participation has been limited at best:
• blackownershiptransactionsareoenassociatedwith‘passive’ownershipwithminorityblack
stakeholders unable to control and direct underlying company assets or to use their voting
rights to drive the transformation agenda within companies. Further, black management in
the top echelons of companies remains limited: according to Employment Equity data released
in 2013, over 72 per cent of top management positions in the private sector are occupied by
white people,17 with just 12 per cent of these positions occupied by black South Africans;
• thenancialviabilityofmanyofthetransactionsconcludedisquestionable,asaresultofthe
complex, highly geared funding structures of many of these deals, which were designed on
the (fallacious, as it turns out) assumption of continued economic prosperity and rising share
prices.18
e case of the mining industry is oen cited as one where least progress has been made
in attaining the BBBEE policy’s transformational objectives, despite the strong leverage
that government had to incentivize these changes in the form of the granting of ‘new-
order’ mining licences.
e vocal nature of these criticisms in recent years has led to a growing awareness of the
need to arm the importance of the ‘broader-based’ elements of the policy, as evidenced
both by the 2013 revisions to the Codes of Good Practice aimed at strengthening the
‘Enterprise and Supplier Development’ elements of the Codes, and the growing popular-
ity of broader-based (in the form of employees, communities and black suppliers and
distributors) participation in equity transactions.
Southall (2006): 10.
is is down from 82 per cent in 2002, but given that white people constitute less than 10 per cent of
the South African population, is a stark reection of the continuing impact of Apartheid on the country and
economy.
As Lucas-Bull (2007) points out, most BBBEE transactions are concluded by black people with none
of their own capital, thus empowerment companies borrow the full value of the purchased stakes. Declining
economic conditions undermined many companies’ ability to service black shareholders’ debt, resulting in
empowerment rms either losing or substantially diluting their assets in the target companies.
Duma Gqubule, prominent empowerment analyst (cited in Business Day, April 12, 2010) argues that
despite the mining industry having failed to transfer signicant ownership to black shareholders, most of
these companies have already been granted their new order mining licences, thus government leverage to
promote further transformation in the sector has largely been lost.
ORIGINS, TRENDS AND DEBATES 319
e third critique levelled against the BBBEE programme revolves around the com-
pliance culture that the programme has fostered amongst many companies. Analysts
bemoan the ‘tick-box’ mentality that has become prevalent in many companies, with the
emergence of a strong compliance culture, widely perceived to have developed sophisti-
cated mechanisms to ‘game the system’ to achieve high scorecards. Government remains
concerned that companies treat BBBEE as largely a compliance issue, with most compa-
nies not seriously embracing transformation—the Director General of the dti argued in
early 2013 that ‘circumvention had become prevalent’.
Some analysts have attributed this to the rigidity of the scorecard approach which
encourages such behaviour, allowing private companies to meet scorecard targets with-
out fully embracing the spirit and intent of the policy. Others (Cargill, 2010) argue that
‘design faults’ in the Codes of Good Practice force a ‘“one size ts all” set of targets, with
little room for exibility and nuance’, which fails to take into account the reality of
dynamic and unpredictable global and local conditions.
Notwithstanding these criticisms of the implementation of the BBBEE policy, there
have been notable successes in the drive for greater economic empowerment of black
people. A number of empowerment companies have achieved high levels of nancial
success, and many of these have used their new wealth for social impact, distributing
benets to wider beneciaries in their communities. Equally important, a number of
black-owned companies have moved away from passive shareholding of majority white-
owned rms towards taking active management and controlling roles in these companies.
5 Conclusions
South Africa has made substantial gains in addressing some of the severest of the legacies
the country inherited in 1994. Income levels of black people have been rising consistently
in the nearly 20 years since the advent of democracy. e ‘social wage’ paid by govern-
ment to poor and vulnerable households reaches large parts of the population: more than
15 million people benet from the social grant system; free basic services are oered to
millions of people. e success of these policies is evidenced in the falling levels of income
inequality between black-headed and white-headed households in the period between
1990 and 2011. Despite its limitations, it seems likely that the ambitious transformation
Lionel October, Director General of the dti, cited in the Financial Mail, March 2013.
Cargill (2010): 222.
Examples include companies such as Kagiso Trust Investments (now merged with another successful
black company, Tiso Investments, forming a new company KTH); ebe Investment Corporation; Royal
Bafokeng Holdings; Shanduka Group.
Statistics South Africa (2011).
320 POST-APARTHEID SOCIAL POLICY
targets enshrined in BBBEE policy has also been a contributory factor in the rising income
levels of black people.
Yet notwithstanding the government’s achievements in eecting transformation of
many aspects of the South African landscape, the country’s apartheid history continues
to inuence the structure of the economy. Despite more than a decade of concerted eort
by government to incentivize companies to transform, substantive black participation in
the economy is still limited, both at the level of direct ownership of companies as well as
executive management. Less than 10 per cent of the shareholding of the top 100 compa-
nies in the country rests directly in the hands of black individuals, and more than 70 per
cent of top management positions in the private sector are held by white people.
It is clear that the success of such wide-ranging societal transformation policies such as
BBBEE ultimately hinges on the ecacy of several other—equally complex—social and
economic programmes of government, which are essential to build the foundations for
strong black business. Education remains the most important, as the current failures of
the education system systematically undermine black people’s eorts to enter the ranks
both of the professions and business. Notable also is the poor quality of support for small
and medium black businesses, whose poor access to nance, markets and support sys-
tems severely limits their ability to grow and accumulate capital.
Clearly, there is a long way to go before the transformation objectives set by govern-
ment will be reached.
■ REFERENCES
Acemoglu, Daron, Stephen Gelb and James Robinson (2007), ‘Black Economic Empowerment and Economic
Performance in South Africa’, unpublished.
Cargill, J. (2010), ‘Trick or Treat: Rethinking Black Economic Empowerment’, Cape Town: Jacana Press.
Duma Gqubule cited in Mail and Guardian, October 7, 2011, ‘JSE Black-owned chips under dispute’.
Duma Gqubule cited in Business Day, April 12, 2010, ‘Black-owned Share of Mines is Less an Meets
t h e E y e’.
dti (2003), ‘South Africa’s Economic Transformation: A Strategy for Broad-based Black Economic Empower-
ment’, Pretoria.
Innes, D. (2007), ‘History and Structure of the South African Economy’, in G. Marcus, X. Mangcu, K. Shubane
and A. Hadland (eds), Visions of Black Economic Empowerment, Cape Town: Jacana Press.
KPMG (2012), ‘A Time for Transformational Leadership, 2011 BEE Survey’, South Africa: KPMG Services
Pty Ltd.
Lionel October cited in Financial Mail, March 2013 ‘BBBEE Codes: Aggressive stance’.
Lucas-Bull, W. (2007), ‘Black Economic Empowerment and Funding Mechanisms’, in G. Marcus, X. Mangcu,
K. Shubane and A. Hadland (eds), Visions of Black Economic Empowerment, Cape Town: Jacana Press.
National Planning Commission (2012), ‘National Development Plan 2030’, e Presidency, Republic of South
Africa.
Peires, J. (2007), ‘Economic Empowerment in the Eastern Cape’, in G. Marcus, X. Mangcu, K. Shubane and
A. Hadland (eds), Visions of Black Economic Empowerment, Cape Town: Jacana Press.
ORIGINS, TRENDS AND DEBATES 321
Southall, R. (2006), ‘e Logic of Black Economic Empowerment’, Danish Institute for International Studies
Working Paper No. 28.
Statistics South Africa, ‘Census 2011’, Pretoria.
TIPS (2002), e Economics of SMMEs in South Africa (ed. A. Berry, M. von Blottnitz, R. Cassim, A. Kesper,
B. Rajaratnam and D. van Seventer).
Health challenges past
and future
cally ardington and anne case
41
1 Introduction
At the change of government, South Africa faced important health challenges. e coun-
try was bearing a double disease burden—struggling with both the infectious diseases of
the developing world and the chronic diseases of the developed world (Kahn et al., 1999).
Estimated TB incidence rates for the early 1990s stood at 400 per 100,000 (WHO Global
Tuberculosis Report, 2012). e HIV crisis was expanding, with more South Africans
entering Stage IV (AIDS) every year. Child malnutrition had led to a high rate of stunting
in children, with 30 per cent of all South African children aged six months to ve years
stunted when measured in the second half of 1993 (PSLSD). At the same time, high
obesity rates amongst African women led to morbidity and mortality from hypertension,
diabetes, stroke and cardiovascular disease.
In this chapter, we discuss what has happened to the health of the nation in the past
20 years. We examine evidence available on four major health issues: TB, AIDS, child
malnutrition and, amongst women, obesity. Our ndings are mixed. TB incidence rates
have soared and the country increasingly faces the challenges of treating multidrug-
resistant TB. Aer a rocky decade in which AIDS took the lives of 2.6 million, there are
signs that the arrival of anti-retroviral therapy (ART) has begun to slow the incidence of
AIDS. ere has been a signicant improvement in children’s anthropometrics, especially
amongst children in the bottom quartile of the income distribution. e gains observed in
rural areas were the most dramatic, closing the urban–rural gap in the rates of childhood
stunting and wasting (Gummerson, 2011). Stunting has fallen from a third to a quarter
e 1993 Project for Statistics on Living Standards and Development (PSLSD) is a nationally representa-
tive study that contains anthropometric data for children under the age of ve. Children are stunted (wasted)
if their standardized height-for-age z-score (weight-for age z-score) is two or more standard deviations below
the median for their age.
Harrison (2009).
HEALTH CHALLENGES PAST AND FUTURE 323
of young African children (PSLSD, NIDS). In contrast, we nd no change in women’s
obesity rates, which continue to put women at risk for chronic disease and early death.
2 TB, HIV and AIDS
Estimated TB incidence in South Africa has more than doubled since the early 1990s.
WHO estimates a rate of 993 per 100,000 people in 2011—an increase largely attributable
to the risk of TB that accompanies HIV infection. TB, long the leading cause of death in
South Africa, is responsible for a quarter of all deaths of people living with HIV and, as
WHO notes, ‘HIV and TB form a lethal combination, each speeding the other’s progress’
(WHO Fact Sheet 104).
HIV prevalence in South Africa increased dramatically between 1990 and 2010, with
rates amongst the African population markedly higher than those found in other racial
groups. e excess deaths caused by AIDS in middle age in South Africa can be seen in
Figure 41.1, which presents for the years 2001 and 2009 the log-odds of dying from all
e 2008 National Income Dynamics Study (NIDS) is the rst wave of a new nationally representative
longitudinal survey.
ere are several non-competing hypotheses about why South Africa was hit so hard by HIV. See Case
and Paxson (2013) for references and discussion.
20
All cause 2001
age in years
All cause 2009
Non AIDS-related 2001
0
–8–6–4–2
Log–odds of dying
0
40
Log-odds of dying by age
All cause mortality 2001, 2009 and non-AIDS mortality 2001
60 80 100
Figure 41.1. Log-odds of dying by age
Source: All cause mortality 2001, 2009 and non-AIDS mortality 2001
324 POST-APARTHEID SOCIAL POLICY
causes and, for 2001, the log-odds of dying from non-AIDS related causes at each age.
Data underlying the gure were collected by the Africa Centre for Health and Popula-
tion Studies, an arm of the University of KwaZulu-Natal that maintains a demographic
surveillance site that has been following approximately 100,000 individuals through time
since 2000.
Worldwide, the log-odds of death aer adolescence are approximately linear in age (Elo
and Preston, 1996)—the pattern observed for 2001 non-AIDS mortality in Figure 41.1.
at AIDS changed this pattern in South Africa can be seen in the deviation of 2001 all-
cause mortality from non-AIDS related mortality, observed between the ages of 20 and
60. Recent work has shown that it was less-well-educated people, in poorer households,
who were at highest risk of dying of AIDS in this eld site in the decade between 2000 and
2010 (Ardington et al., 2012).
A death in the household at any age has persistent economic consequences for the
household—largely because of the high cost of funerals in South Africa (Ardington
et al., 2012). However, a death in the household in middle age carries additional economic
hardship. Almost 50 per cent of women in the demographic surveillance site have had at
least one child before the age of 20, and the AIDS crisis has put a generation of children
at risk of becoming an orphan at a young age. Longitudinal analysis, following children
through time in this site, has shown that children are at risk for poorer educational out-
comes aer having lost their mothers (Case and Ardington, 2006).
at ART is changing the pattern of mortality since its arrival in this part of South Afri-
ca in the late 2000s can be seen in the decline in the AIDS ‘bubble’ observed in Figure 41.1
between 2001 and 2009. is pattern holds for the country as a whole (Statistics South
Africa, 2011). Whilst the crisis is ongoing, and millions continue to suer, the decline in
excess mortality attributable to AIDS is a sign of hope.
3 Child malnutrition
Nutrition and health in early childhood aect both physical and cognitive development,
with consequences for health and economic well-being that play out over a lifetime. e
impact of poor nutrition and health in early life on South African children’s growth pat-
terns can be seen in Figure 41.2, where we graph African children’s standardized height-
for-age (z-score) from the 1993 PSLSD survey and the 2008 round of NIDS. We focus on
children in households in the lowest and highest quintiles of the per capita income dis-
tribution for these years. At 12 months old, in 1993, African children in both the highest
For clarity, the non-AIDS related mortality for 2009 is not shown. It is not distinguishable from that
presented for non-AIDS mortality in 2001.
HEALTH CHALLENGES PAST AND FUTURE 325
and lowest quintile were on average 1 standard deviation below the WHO median stand-
ardized height-for-age. Children in the highest quintile lost no further ground with age,
whilst those in the lowest quintile fell to more than 2 standard deviations below the world
standard by age 3—a critical period for physical and cognitive development. Fast for-
warding to 2008, we nd that children in the lowest quintile are signicantly and sub-
stantially taller than those in the lowest quintile in 1993. e gap between the poorest and
wealthiest children has closed markedly. ese gains should lead to additional gains to
the health and productivity of these children as they become adults.
4 Obesity
In South Africa, there has long been a large dierence in obesity rates by sex. Sixty per
cent of African women measured in 1998 were reported to be either overweight or obese,
with the rate of obesity ve times higher for women than for men (Puoane et al., 2002).
–
2
–
1.5
–
1
–0
.5 0 0.5
Height-for-age z-score
020 40 60
age in months
Bottom quintile 1993 Bottom quintile 2008
Top quintile 1993 Top quintile 2008
Height-for-age z-score of Africans
From ages 6 to 60 months
Figure 41.2. Height-for-age z-score of Africans
Calculations were made using data collected in the 1998 Demographic and Health Survey for South
Africa. We follow World Health Organization classications that a person is overweight if his or her body
mass index (BMI)—a measure of weight for height (kilograms per metre squared)—lies between 25 and 30,
and is obese if his or her BMI is greater than 30.
326 POST-APARTHEID SOCIAL POLICY
Case and Menendez (2009) examined several explanations for this dierence, using data
collected for this purpose in an urban township, and found that African women who were
raised in extreme poverty were signicantly more likely to be obese in adulthood—a nd-
ing that did not hold true for men. More specically, nutritional deprivation in childhood
was signicantly associated with obesity in adulthood, but for women only. Additional
research that combines biology and social science will be needed if the dierential obe-
sity rates between men and women, and the role played by early life nutrition, are to be
understood.
One might have anticipated obesity rates to change between birth cohorts, given the
changes observed in educational attainment, access to health care and the availability of
healthy foods. Figure 41.3 presents the BMI-age proles of African women and men meas-
ured in nationally representative surveys conducted in 1998 (DHS) and 2008 (NIDS). In
neither sex did the BMI-age prole change over the decade. ese patterns are consistent
with women’s BMIs increasing sharply between ages 18 and 30, and then holding steady
through the rest of adulthood.
at this puts women at cardiovascular risk can be seen in Figure 41.4, which plots for
women and men the probability of hypertension at each BMI, as measured in NIDS 2008.
At each BMI, men and women face the same risk of hypertension. However, women’s
20 25 30
BMI
20 40 60 80
age
Women 1998 Women 2008
Men 1998 Men 2008
BMI of Africans by age, sex and year
From ages 15 to 70
Figure 41.3. BMI of Africans by age, sex and year
We dene ‘any hypertension’ to be a report of taking antihypertensive medication or a systolic reading
greater than 140 or a diastolic reading greater than 90.
HEALTH CHALLENGES PAST AND FUTURE 327
BMI distribution has a much higher mean and a long upper tail, leading to higher risk
amongst women.
Looking forward 20 years, it is clear that the state of health in South Africa will depend
crucially on the prevention and treatment of HIV and TB, and the management of the
obesity epidemic that threatens morbidity and mortality amongst prime-aged women.
■ REFERENCES
Ardington, Cally, Till Barnighausen, Anne Case and Alicia Menendez (2012), ‘e Economic Consequences
of Death in South Africa’, SALDRU Working Paper No. 91.
Case, Anne and Cally Ardington (2006), ‘e Impact of Parental Death on School Outcomes: Longitudinal
Evidence from South Africa’, Demography, 43(3): 401–20.
Case, Anne and Alicia Menendez (2009), ‘Sex Dierences in Obesity Rates in Poor Countries: Evidence from
South Africa’, Economics and Human Biology, 7(3): 271–82.
Case, Anne and Christina Paxson (2013), ‘HIV Risk and Adolescent Behaviors in Africa’, American Economic
Review Papers and Proceedings, 103(3): 433–8.
Elo, Irma T. and Samuel H. Preston (1996), ‘Educational Dierentials in Mortality: United States 1979-85’,
Social Science & Medicine, 42(1): 47–57.
2015 25 30
Women 2008
0.2
Any hypertension
Probability of any hypertension against BMI by sex
0.3 0.4 0.5 0.6
Men 2008
BMI
35 40
Figure 41.4. Probability of any hypertension against BMI by sex
328 POST-APARTHEID SOCIAL POLICY
Gummerson, Elizabeth (2011), ‘e Urban Health Advantage in South Africa’, Princeton University PhD
Dissertation (August).
Harrison, David (2009), ‘An Overview of Health and Health care in South Africa 1994–2010: Priorities, Pro-
gress and Prospects for New Gains’, <http://www.doh.gov.za/docs/reports/2010/overview1994-2010.pdf>.
Kahn, K., S.M. Tollman, M. Garenne and J.S.S. Gear (1999), ‘Who Dies from What? Determining Cause of
Death in South Africa’s Rural Northeast’, Tropical Medicine and International Health, 4(6): 433–41.
Puoane, andi, Krisela Steyn, Debbie Bradshaw, Ria Laubscher, Jean Fourie, Vicki Lambert and Nolwazi
Mbananga (2002), ‘Obesity in South Africa: e South African Demographic and Health Survey’, Obesity
Research, 10(10): 1038–48.
Statistics South Africa (2011), ‘Mortality and Causes of Death in South Africa, 2009: Findings from Death
Notication’, Statistical Release P0309.3.
WHO Fact Sheet 104, <http://www.who.int/mediacentre/factsheets/fs104/en>.
WHO Global Tuberculosis Report (2012).
The macroeconomics of AIDS in
South Africa
nicoli nattrass
42
South Africa has more people infected with the Human Immunodeciency Virus (HIV)
than any other country on earth. According to the ASSA2008 demographic model
(<http://aids.actuarialsociety.org.za/Models-3145.htm>), as of 2012, 11 per cent of the
total population and 15.3 per cent of the labour force (adults aged 15–64) was HIV-
positive, 551,000 people were sick with AIDS (the Acquired Immune deciency Syn-
drome) and 190,000 had died of it. is has obvious negative economic consequences:
households suer from the death of income earners and the erosion of savings and invest-
ment as resources are channelled into health care (e.g. Bachman and Booysen, 2006);
and rms suer from increased absenteeism, lower productivity, higher costs and lower
prots (e.g. Rosen et al., 2004). However, the precise macroeconomic impact is dicult to
gauge. As discussed in section 1, the result depends on the type of macroeconomic model
employed, and on the eectiveness of anti-retroviral treatment interventions.
1 Modelling the macroeconomic impact of AIDS
All macroeconomic models of the economy-wide impact of AIDS predict that the epi-
demic undermines economic growth. But whether this reduces or increases per capita
income depends on whether AIDS is assumed to have a bigger eect on the population
than on economic growth. According to an estimate by Alwyn Young, provocatively
entitled ‘e gi of the dying’, per capita income in South Africa rises for survivors and
future generations because AIDS increases mortality and reduces fertility (Young, 2005).
e author concludes: ‘e AIDS epidemic is a humanitarian disaster of millennial pro-
portions, one that cries for assistance. It is not, however, an economic disaster’ (460).
Projections using the ASSA2008 model estimate that there were 3.2 million fewer peo-
ple in South Africa in 2012 than would have been the case without an HIV epidem-
ic (AIDS reduced annual population growth between 1990 and 2012 from 3.5 to 3 per
cent). Young estimates, however, that AIDS would have reduced the population to below
330 POST-APARTHEID SOCIAL POLICY
50 million by then and that the population will remain at that level for a further three
decades as tight labour market conditions boost female wages thereby encouraging lower
fertility. But there are no signs of such favourable economic dynamics yet. Between 1990
and 2012 employment growth averaged 3 per cent per annum, whereas the working-
age population grew by 4 per cent and unemployment remained stubbornly high. Young
argues that there is evidence of an AIDS-related decline in fertility in Africa (Young,
2007) so these eects may yet appear. But his claims are sensitive to data sources and esti-
mation technique (Kalemli-Ozcan, 2012) and should be viewed as one of many potential
narratives about the longer-term economic/welfare impact of AIDS.
Estimates of the macroeconomic impact of AIDS are more of an art than a science
because they are driven fundamentally by theoretical assumptions rather than evidence
per se. For example, the rst two macroeconomic estimates of the impact of AIDS in South
Africa used similar population estimates (based on early ASSA models) and identical
macroeconomic data sources, but came to diametrically opposed conclusions. Quattek
(2000) predicted that the epidemic would shave 0.3 percentage points o annual eco-
nomic growth between 2001 and 2015 and that per capita incomes would rise. Arndt and
Lewis (2000), by contrast, predicted that growth would be reduced by a massive 1.6 per-
centage points between 1998 and 2010 and that this would drag per capita incomes down
with it. Importantly, Arndt and Lewis assumed that AIDS has a negative and cumulative
impact on productivity growth and that the government budget decit would rise sig-
nicantly in response to AIDS thereby sparking (in neo-classical fashion) an increase in
interest rates and crowing out of private sector investment. Quattek, by contrast, assumed
that the government budget decit would not rise excessively and, in a more Keynesian
manner, predicted that increased government spending would actually help cushion the
negative impact of lower household spending on consumption and hence growth. Laub-
scher et al. (2001), using the Bureau for Economic Research (BER) Keynesian demand-
driven macroeconomic model, similarly predicted a decline in the growth rate and a rise
in per capita income with the precise impact varying by scenario.
More recent macroeconomic analyses of the impact of AIDS in South Africa have
adopted an ‘overlapping generations’ approach highlighting the potential impact of AIDS
on human capital formation over the longer term (i.e. across generations). Here, too, the
predictions are dramatically dierent. Bell et al. (2006) construct a narrative in which the
AIDS epidemic reduces the capacity of children to accumulate human capital (parents
are no longer around to pass on crucial skills and knowledge) and undermines the incen-
tive for households to invest in educating their children (because reduced life expectancy
ere were earlier studies, notably Broomberg et al. (1991) and Trotter (1993), which summed up
expected direct costs of AIDS (health costs) and indirect costs (discounted lost future earnings over time) to
come up with an aggregate economic impact of AIDS. But they were not genuine macroeconomic models in
that they did not estimate the full ramications of these costs on the rate and pattern of economic growth.
THE MACROECONOMICS OF AIDS IN SOUTH AFRICA 331
reduces the expected returns to education). Economic growth and per capita income falls
precipitously—they predict that without any interventions the economy would shrink
to half of its size in four generations. is, of course, is profoundly dierent to Young’s
rival narrative that such negative eects will be more than compensated for by reduced
fertility.
Estimating the macroeconomic impact of AIDS becomes harder over time because it is
increasingly dicult to construct meaningful ‘with AIDS’ and ‘without AIDS’ scenarios.
Not only has the epidemic been with us since 1990 (hence all economic data over the past
two decades have been ‘with AIDS’), but from 2004 onwards the government has been
rolling out anti-retroviral treatment (ART) through the public sector and coverage is now
over 80 per cent. Not only does ART extend life, but it reverses many of the population
and economic impacts of AIDS and needs to be taken into account.
2 The macroeconomic impact of ART
Macroeconomic models that emphasize the negative economic impact of AIDS will, by
extension, predict that rolling out ART will reverse some of these economic costs. In
this regard, they employ a similar narrative structure to the World Health Organisation’s
Commission on the Macroeconomics of Health (2001) which argued for at least 2 per
cent of GDP to be allocated to health, and for donors to help provide ART in develop-
ing countries aected by AIDS. ART has been shown, in micro studies, to have positive
and sustained economic benets for recipients in South Africa (e.g. Rosen et al., 2010)
and Bell et al.’s (2006) over-lapping generations model shows that these benets could be
cumulative as fewer orphans are created.
e most thorough estimate of the macroeconomic impact of ART in South Africa is
that by Smit and Ellis (2009) using an expanded and updated version of the BER macro-
economic model. ey predict that AIDS causes an increase in government health and
welfare spending (which causes the government budget decit to grow), lowers house-
hold savings and imposes costs on rms. e private sector passes some of these costs
onto consumers through higher prices (which sparks higher interest rates), but absorbs
most of them through lower prots which further undermines investment and growth.
An ART rollout (which they assume reaches only 50 per cent of eligible patients) signi-
cantly improves these macroeconomic outcomes resulting in higher output and employ-
ment growth, lower ination and interest rates and a lower government budget decit.
ey conclude that the additional costs of the ART rollout are more than made up for
through lower welfare payments and improved tax revenues.
Smit and Ellis probably underestimate the economic benets of ART by not accounting
for any overlapping generations eects (fewer orphans, more human capital accumulation
332 POST-APARTHEID SOCIAL POLICY
for children) and by not fully accounting for the cost-savings impact of ART. An ART
rollout directly reduces pressure on the health sector by lowering the incidence of AIDS-
related opportunistic infections such tuberculosis and pneumonia. It also results in cost-
savings indirectly over the medium to long term by lowering the viral load of people living
with HIV, thereby reducing the chances of them infecting others even as they live longer.
In other words, a large part—if not all—of the costs of providing ART could be ‘paid for’
by these cost savings (Nattrass and Geen, 2005). However, these benets depend on
there being a substantial and sustained ART rollout, and there are worrying signs that
many (especially rural) ART clinics nd it dicult retaining patients in care.
3 Economic narratives and framing
e way that HIV costs and savings are framed has important economic and political
consequences. For example, in the late 1990s when activists started demanding that a
short course of ART be made available to HIV-positive pregnant women for mother to
child transmission prevention (MTCTP) programmes, the government argued it was
‘unaordable’. is discourse of aordability, however, failed to take into account the costs
of doing nothing—i.e. the many more AIDS-sick children entering hospitals and clinics
during their short lives. Once such costs are factored in, it clearly makes economic sense
for government to implement MTCTP programmes (Nattrass, 2004). Yet the govern-
ment fought the issue all the way to the Constitutional Court where it nally lost the
case in 2002. President Mbeki and his Health Minister Manto shabalala-Msimang also
resisted rolling out ART, despite signicant drops in the price of ART in the early 2000s.
Although the Finance Minister evoked a discourse of aordability here too, Mbeki and
shabalala-Msimang’s AIDS denialism and related hostility to anti-retrovirals and their
conspiratorial approach to HIV-science was clearly also important in shaping govern-
ment policy on AIDS (Nattrass, 2007, 2012).
Ultimately, the battle over the aordability of ART was fought at the political level with
Mbeki and Tshabalala-Msimang questioning the validity and integrity of HIV-science
and framing ART as expensive and toxic, and the Treatment Action Campaign (TAC)
and HIV clinicians arguing that the clinical benets of ART more than compensated
for any side-eects, and that people with HIV had a right to health and life (Geen,
2010). e opposition-led Western Cape government deed the national government,
formed a partnership with the Médecins Sans Frontières (MSF) and initiated a pilot ART
Smit and Ellis obtained their ART costing estimates from Andrew Boulle and Susan Cleary of the UCT
School of Public Health. ese allow for some potential health cost savings, but not as much as Nattrass and
Geen (2005) who use the ASSA model to include the HIV prevention impact of ART and associated future
cost-savings.
THE MACROECONOMICS OF AIDS IN SOUTH AFRICA 333
rollout in Khayelitsha—thereby demonstrating that ART could be provided successfully
in resource-poor environments (Hodes and Naimak, 2011). MSF followed this up with
an ART rollout in the rural Eastern Cape (Lusikisiki). ese eorts were strongly sup-
ported by the TAC, which created a network of branch structures throughout the coun-
try demanding better health services. As Jonny Steinberg pointed out, this mobilization
fundamentally altered the relationship between citizen and state when it comes to health
care in South Africa:
e idea of demanding that a drug be put on a shelf, or that a doctor arrive at his appointed
time, is without precedent. e social movement to which AIDS medicine has given birth is
utterly novel in this part of the world, the relationship between its members and state insti-
tutions previously unheard of (2008: 235).
e government conceded to political pressure on AIDS, and from 2004 began an ART
rollout. e cost of this delayed response was enormous in terms of human lives: two
independent studies estimate that over a third of a million South Africans died because of
the delayed ART and MTCTP programmes (Nattrass, 2007; Chigwedere et al., 2008). e
ART rollout has gained pace (as of 2012 there were about 1.3 million South Africans on
ART) and South Africa now has the largest ART programme in the world. Yet challenges
remain, especially for those living in poorer areas where health services are erratic and
drug stock-outs increasingly a problem. And, in the post-2008 nancial crisis era, fund-
ing has become tougher for civil society organizations like the TAC to help communities
demand better health care.
4 AIDS, anti-retrovirals and inequality
Irrespective of whether AIDS boosts or constrains per capita income, its economic
impact generates some winners as well as losers (Nattrass, 2004). For example, previous-
ly unemployed people might benet from vacancies created by AIDS deaths, and some
market niches (notably health care) will experience rising prots. By contrast, rms in
labour-intensive sectors or which face falling demand for their products as AIDS-aected
households reallocate spending to health care, will be adversely aected. And if wages do
rise for skilled workers (as the economy restructures and especially if the labour supply
is constrained) then this could generate ination, thereby harming savers and beneting
borrowers.
Providing ART also has winners and losers. ART coverage varies signicantly across
the provinces. As of 2008, ART coverage was only 26 per cent in the Free State and 72 per
cent in the Western Cape (Adam and Johnson, 2009). Retaining patients in care is also
proving to be a problem, with factors such as poverty, transport problems, lack of support
334 POST-APARTHEID SOCIAL POLICY
networks and perceived lack of exibility and compassion from health workers being
identied as particular problems (e.g. Fried et al., 2012). And even when care is provided
successfully, restoring health and allowing people to work again, this does not necessarily
translate into higher incomes for all. Many simply transition into unemployment, whilst
losing the disability grants they had prior to going on ART (Venkataramani et al., 2010).
Reduced welfare benets are one of the cost-savings to the state of providing ART, but in
the absence of welfare support for the unemployed, the costs of such savings are borne by
the poor.
e distribution of costs and benets of AIDS policy is ultimately determined by pol-
itical power. Relatively powerless people can make more eective claims on the state for
health resources (like ART) through advocacy groups like the TAC, by forming partner-
ships with donors and local government and by reframing, in public discourses, the way
that the costs and benets of ART are understood (Geen, 2010; Hodes and Naimak,
2011; Nattrass, 2004, 2007). But this is easier done when economic growth is strong—less
so in the post-2008 economic crisis era of constrained donor and domestic resources.
■ REFERENCES
Adam, A. and L. Johnson (2009), ‘Estimation of Adult Antiretroviral Treatment Coverage in South Africa’,
South African Medical Journal, 99(9): 661–7.
Arndt, C. and J. Lewis (2000), ‘e Macro Implications of HIV/AIDS in South Africa: A Preliminary Assess-
m e n t’, South African Journal of Economics, 68(5): 1–32.
Bachmann, M. and F. Booysen (2006), ‘Economic Causes and Eects of AIDS in South African Households’,
AIDS, 20: 1861–7.
Bell, C., S. Devarajan and H. Gersbach (2006), ‘e Long-run Economic Costs of AIDS: A Model With an
Application to South Africa’, e World Bank Economic Review, 20(1): 55–89.
Broomberg, J., M. Steinberg, P. Moasobe and G. Behr (1991), ‘e Economic Impact of the AIDS Pandemic in
South Africa’, in AIDS in South Africa: e Demographic and Economic Implications, Johannesburg: Centre
for Health Policy, University of the Witwatersrand.
Chigwedere, P., G. Seage, S. Gruskin, T. Lee and M. Essex (2008), ‘Estimating the Lost Benets of Antiretrovi-
ral Drug Use in South Africa’, Journal of Acquired Immune Deciency Syndrome, 49: 410–15.
Commission on Macroeconomics and Health (2001), ‘Macroeconomics and Health: Investing in Health for
Economic Development’, World Health Organisation, Geneva.
Fried, J., B. Harris and J. Eyles (2012), ‘Hopes Interrupted: Accessing and Experiences of Antiretroviral er-
apy in South Africa’, Sexually Transmitted Infections, 88 (2): 147–51.
Geen, N. (2010), Debunking Delusions: e Inside Story of the Treatment Action Campaign, Cape Town:
Jacana Press.
Hodes, R. and T. Holm Naimak (2011), ‘Piloting Antiretroviral Treatment in South Africa: e Role of Part-
nerships in the Western Cape’s Provincial Roll-out’, African Journal of AIDS Research, 10(4): 415–25.
Kalemli-Ozcan, S. (2012), ‘AIDS “Reversal” of the Demographic Transition and Economic Development:
Evidence From Africa’, Journal of Population Economics, 25: 871–97.
Laubscher, P., B. Smit and L. Visagie (2001), ‘e Macroeconomic Impact of HIV/AIDS in South Africa’, BER
Research Note No. 10, University of Stellenbosch.
THE MACROECONOMICS OF AIDS IN SOUTH AFRICA 335
Nattrass, N. (2004), e Moral Economy of AIDS in South Africa, Cambridge: Cambridge University Press.
Nattrass, N. (2007), Mortal Combat: AIDS Denialism and the Struggle for Antiretrovirals in South Africa, Uni-
versity of KwaZulu-Natal Press.
Nattrass, N. (2012), e AIDS Conspiracy: Science Fights Back (New York: Columbia University Press), local
edition: Wits University Press.
Nattrass, N. and N. Geen (2005), ‘e Impact of Reduced Drug Prices on the Cost-Eectiveness of HAART
in South Africa’, African Journal of AIDS Research, 4(1): 65–7.
Quattek, K. (2000), ‘Economic Impact of AIDS in South Africa: A Dark Cloud on the Horizon’, A study by
Wefa SA commissioned by ING Barings, Johannesburg.
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South Africa are Sustained rough ree Years On Treatment’, PLoS One, 5(9): e12731.
Rosen, S., J. Vincent, W. MacLeod, M. Fox, T. Donald and J. Simon (2004), ‘e Cost of HIV/AIDS to Busi-
nesses in Southern Africa’, AIDS, 18(2): 317–24.
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G. Kingdon (eds), South African Economic Policy under Democracy, Oxford: Oxford University Press,
244–69.
Steinberg, J. (2008), ree Letter Plague. A Young Man’s Journey through a Great Epidemic, Johannesburg:
Jonathan Ball.
Trotter, G. (1993), ‘Some Reections on the Human Capital Approach to the Analysis of the Impact of AIDS
on the South African Economy’, in S. Cross and A. Whiteside (eds), Facing up to AIDS: e Socio-economic
impact in Southern Africa, London: Macmillan.
Venkataramani, A. et al. (2010), ‘Social Grants, Welfare and the Incentive to Trade-o Health for Income
among Individuals on HAART in South Africa’, in AIDS and Behaviour, 14: 1393–400.
Young, A. (2005), ‘e Gi of the Dying: e Tragedy of AIDS and the Welfare of Future African Generations’,
e Quarterly Journal of Economics, 120(2): 423–66.
Young, A. (2007), ‘In Sorrow to Bring Forth Children: Fertility Amidst the Plague of HIV’, Journal of Econom-
ic Growth, 12: 283–327.
Child development
chris desmond and linda richter
43
1 Introduction
Interventions which support the development of children during pregnancy and their rst
two years of life—oen referred to as the rst 1,000 days of life—are arguably amongst the
most important, yet all too oen neglected, social investments in South Africa. Support-
ing parents and other care-givers with the care of a child during this period of life is typi-
cally seen as an act of charity or an intervention to protect the child’s human rights, not as
a potentially high return social investment. Whilst the protection of children’s rights alone
should be enough to motivate intervention, this does not mean that we should ignore the
numerous other benets which will accrue as a result. For those who are unmoved by the
human rights imperative, the myriad of other benets should make a convincing case.
In this chapter we outline why this period of children’s lives is so critical. We then exam-
ine aspects of government support during this stage of children’s development, which are
doing well, before focusing on critical gaps. Investments to ll these gaps are essential for
the future development of South Africa.
2 The first 1,000 days
Early life experiences have been linked to a host of long-term outcomes, including: adult
health, as captured by measures such as life expectancy and risk of chronic diseases
(Gluckman and Hanson, 2009; Victora et al., 2008); personality and social adjustment
as indexed by conicts with the law, relationship stability and mental health (Kes-
sler et al., 2010; Lanius, Vermetten and Pain, 2010); and later education and resultant
earnings (Engle et al., 2007). Critical early life experiences include nutrition (Victora
et al., 2008), parenting (Grantham-Mcgregor et al., 2007) and opportunities for learn-
ing (Bonnier, 2008).
e rst 1,000 days refers to the 270 days of pregnancy plus 365 days in each of
the rst two years, emphasizing the importance of environment from the moment of
conception. is period is characterized by rapid growth which lays the foundations
CHILD DEVELOPMENT 337
for all subsequent development. e foundational aspect of this period leads to impli-
cations for the trajectory of development. A poor start can lead to poor subsequent
performance, even if circumstances change. Of particular concern is the sensitivity
of brain structure and function, metabolic reactions, interpersonal engagement and
self-regulation during this period (Shonko, 2011). e argument of nature versus
nurture is all but dead. Epigenetics, the idea that environmental factors inuence gene
expression, makes the case that nature (genes) are turned on or o, or up- and down-
regulated, by nurture (the environment) (Meaney, 2010). Children in the rst 1,000
days are particularly susceptible to environmental inuences. For example, a stressful
environment can lead to epigenetic changes which inuence the ability to cope with
stresses in later life.
at the consequences of adversity during this period are ‘locked in’ early suggests that
the costs of inaction are high. e most ecient time to intervene is, therefore, early (Her-
zman and Boyce, 2010). It is possible to assist children later in life to mitigate the long-
term consequences of early adversity, but such interventions are typically arduous and
costly (Heckman, 2006). Moreover, for the vast majority of children experiencing early
adversity, it is unlikely that they will ever have access to services to help them compensate
of sucient quality or duration (Gordon et al., 2003).
3 Successes
In 2012, the South African Presidency commissioned a ‘Diagnostic Review’ of early
childhood development. e review noted a number of areas of intervention which were
being addressed, or where rapid improvements were underway (Richter et al., 2012).
ese included:
• 87percentofhouseholdswithayoungchildhaveaccesstosafedrinkingwater;
• 82percentofhouseholdswithayoungchildareconnectedtomainselectricity;
• 97percentofpregnantwomenattendatleastoneantenatalclinic;
• 98 per cent of health facilities oer the programme to prevent mother-to-child HIV
transmission;
• 91percentdelivertheirbabieswiththeassistanceofaprofessional;
• 89percentofchildrenarefullyimmunizedatoneyearofage;
• 83percentofbirthsareregistered;
• 73percentofeligibleyoungchildrenreceivetheChildSupportGrant;
• 78percentofchildrenareenrolledinGradeR.
In addition, the Department of Social Development has been providing subsidies to early
childhood development centres. ese centres provide a range of activities for children,
338 POST-APARTHEID SOCIAL POLICY
typically aged 3–4 years. ese subsides, along with improved infrastructure and access to
health services, have improved the chances for children to have a solid start to life.
4 Missing and mistimed ingredients
Whilst the successes are impressive, there is much more that can be done for young
children. What is critical to understand from both developmental and investment per-
spectives, is that inputs into child development are not additive as much as they are
multiplicative. at is, one input oen leads to better returns accruing to another input,
but the absence of one input can lead to another input having no eect. For example, a
nutrition intervention will lead not only to improved growth, but also to greater respon-
siveness to stimulation interventions. If one key input is missing, the returns to all other
inputs are seriously constrained. If a child does not feel safe and secure, no amount of
food is likely to help them grow well, as they will simply not eat or their metabolism
will be aected by stress. Inputs supporting child development do not t into a Maslow
type hierarchy—i.e. where the child needs lots of the basics, then lots of inputs from
the next level up. A hierarchical structure does not capture the importance of interac-
tions between inputs and the need for balance between them (Desmond, Betancourt and
Garvey, 2010).
e key then is to identify what inputs are most oen missing, and if provided, would
lead to other inputs having a greater eect. e Diagnostic Review provides detailed dis-
cussion of the many ways in which ECD services in South Africa could be improved. For
the purposes of this chapter we focus on two critical omissions:
A. lack of support for opportunities to learn in early life;
B. delays in access to the Child Support Grant.
A. LACK OF SUPPORT FOR OPPORTUNITIES TO LEARN IN EARLY LIFE
Opportunities to learn are critically important because brain development both antici-
pates stimulation and is dependent on stimulation for growth and elaboration. Oppor-
tunities for learning are provided from birth by attentive and responsive parents and
care-givers who point out salient features of the human environment to the young
child, provide exposure to language, facilitate children’s access to objects, display model
behaviour to the young child and encourage and reinforce the young child’s developing
interactions with other people and the material world. Despite its importance, and the
availability of eective interventions, national programmes to encourage opportunities
CHILD DEVELOPMENT 339
for children 0–2 are virtually non-existent. As mentioned, the Department of Social
Development supports, by way of its subsidy programme, interventions for children of
3–4 years. ese interventions, however, tend to involve out-of-home care. It would not
be appropriate to expand this programme to children of 0–2 years as it would incentiv-
ize out-of-home care, which is not appropriate for very young children, as they depend
for their security and learning on their interactions with stable care-givers in a one-to-
one environment. Whilst out-of-home care is required, particularly when the mother is
working, it is not appropriate to encourage it when there is a suitable care-giver at home.
Providing a home visiting programme or community-based activities is preferable. Not
only do such programmes not incentivize out-of-home care, they also engage parents
and other care-givers, equipping them with knowledge and skills which will benet this
child and possibly the next.
B. DELAYS IN ACCESS TO THE CHILD SUPPORT GRANT
Evidence suggests that children who receive the Child Support Grant within the rst
36 months of life are less likely to be stunted (Aguero, Carter and Woolard, 2006). e
national evaluation of the Child Support Grant also found that children who started to
receive the grant before the age of ve years enjoyed a number of advantages over their
peers—they did better at school and reported fewer high risk sexual behaviours as adoles-
cents (DSD, SASSA and UNICEF, 2012). ese ndings reinforce the point that the early
years of life are critically important for long-term outcomes. It also highlights the need
to avoid delays in access to the Child Support Grant. e Departments of Health, Home
Aairs and Social Development must work together to facilitate the early registration of
births and application for the grant.
If the above two gaps are lled, children will not only benet directly from these inter-
ventions, but indirectly via an increased capacity, they will be better able to benet from
almost all other intervention, both in early childhood and beyond. Indeed, good early
nutrition (facilitated in part by the Child Support Grant), opportunities to learn and
access to health services, in an environment with quality water, sanitation and electricity
infrastructure will help protect and develop children’s potential. Such children will go on
to benet more from primary, secondary and tertiary education than they would have if
this potential had been curtailed by adverse conditions. More educated children will, in
turn, go on to be more productive members of society.
On the one hand, it is dicult for many people to appreciate the importance of playing
with and feeding young children for South Africa’s future. On the other hand, once aware
of the science of early childhood development, it is hard to overstate the case for interven-
tions in this period as a critical investment in the country’s development.
340 POST-APARTHEID SOCIAL POLICY
■ REFERENCES
Aguero, J.M., M.R. Carter and I. Woolard (2006), e Impact of Unconditional Cash Transfers on Nutrition:
e South African Child Support Grant, Cape Town: SALDRU, University of Cape Town.
Bonnier, C. (2008), ‘Evaluation of Early Stimulation Programs for Enhancing Brain Development’, Acta Pae-
diatrica, 97: 853–8.
Desmond C., T.S. Betancourt and B. Garvey (2010), ‘Costs and Care: Directing Resources to Children’, Vul-
nerable Children and Youth Studies, 5(2): 63–70.
DSD, SASSA and UNICEF (2012), e South African Child Support Grant Impact Assessment: Evidence
from a survey of children, adolescents and their households. Pretoria: UNICEF South Africa.
Engle, P., M. Black, J. Behrman, M. Cabral de Mello, P. Gertler, L. Kapiriri, R. Martorell and M. Young, and the
International Child Development Steering Group (2007), ‘Strategies to Avoid the Loss of Developmental
Potential in More than 200 Million Children in the Developing World’, e Lancet, 369: 229–42.
Gluckman, P. and M. Hanson (2009), ‘Developmental Plasticity and the Developmental Origins of
Health and Disease’, in J. Newnham and M. Ross (eds), Early Life Origins of Health And Disease, Basel:
Karger: 1–10.
Gordon, D., S. Nandy, C. Pantazis, S. Pemberton and P. Townsend (2003), Child Poverty in the Developing
World, Bristol: Polity Press.
Grantham-Mcgregor, S., Y. Cheung, S. Cueto, P. Glewwe, L. Richter and L. Strupp (2007), ‘Developmental
Potential in the First 5 Years for Children in Developing Countries’, e Lancet, 369: 60–70.
Heckman, J. (2006), ‘Skill Formation and the Economics of Investing in Disadvantaged Children’, Science,
30: 1900–2.
Herzman, C. and T. Boyce (2010), ‘How Experience Gets Under the Skin to Create Gradients in Developmen-
tal Health’, Annual Review of Public Health, 31: 329–47.
Kessler, R., K. McLaughlin, J. Green, M. Gruber, N. Sampson, A. Zaslavsky et al. (2010), ‘Childhood Adversi-
ties and Adult Psychopathology in the WHO World Mental Health Surveys’, British Journal of Psychiatry,
197, 378–85.
Lanius, R., E. Vermetten and C. Pain (eds) (2010), e Impact of Early Life Trauma on Health and Disease: e
Hidden Epidemic, Cambridge: Cambridge University Press.
Meaney, M. (2010), ‘Epigenetics and the Biological Denition of Gene X Environmental Interactions’, Child
Development, 81: 41–79.
Richter, L. et al. (2012), Diagnostic Review of the Early Childhood Development Sector, e Department of
Performance Monitoring and Evaluation in e Presidency, Pretoria: South Africa.
Shonko, J., L. Richter, J. van der Gaag and Z. Bhutta (2011), ‘An Integrated Scientic Framework for Child
Survival and Early Childhood Development’, Pediatrics, 129: 460–72: 10.
Victora, C., L. Adair, C. Fall, P. Hallal, R. Martorell, L. Richter, and H. Sachdev (2008), ‘Maternal and Child
Undernutrition: Consequences for Adult Health and Human Capital’, e Lancet, 17: 23–40.
Education in South Africa
since 1994
david lam and nicola branson
44
1 Introduction
Education is at the heart of the most pressing issues in South Africa. It is impossible
to understand the persistent income inequality in South Africa without understanding
inequality in both the quantity and quality of education. Given the strong impact of edu-
cation on earnings and employment, South Africa’s success in expanding education and
reducing educational inequality will play a major role in determining the country’s success
in achieving economic growth and using that growth to reduce poverty and inequality.
Whilst educational attainment has increased and the racial gap in education has declined
over the past few decades, the performance since 1994 is in many respects disappointing.
2 Trends in educational attainment
Figure 44.1 shows mean years of education (highest completed year of formal education)
and the proportion with completed secondary education (grade 12) by age and popula-
tion group in 2010. African (black) education has risen rapidly since well before the end
of apartheid. Africans born in 1975 (age 35 in 2010) completed 9.8 years of education on
average, 6.6 years more than those born 35 years earlier and two years more than those
born in 1960. irty-eight per cent of Africans in the 1975 birth cohort completed grade
12, compared to 3 per cent of the 1940 cohort and 17 per cent of the 1960 cohort. e gap
in completed years of education between whites and Africans fell from 8.7 years to 2.4
years between the 1940 cohort and the 1975 cohort.
David Lam is Professor in the Department of Economics and Research Professor in the Population Stud-
ies Center at the University of Michigan. Nicola Branson is a Postdoctoral Research Fellow in Southern Africa
Labour Development Research Unit (SALDRU) at the University of Cape Town.
342 POST-APARTHEID SOCIAL POLICY
Progress since 1994 has been slow. Mean education of Africans who started school in
1994 (age 22 in 2010) was only 0.6 grades higher than those born 15 years earlier. e gap
between African and coloured education has almost been eliminated, but both groups
continue to have about two years lower educational attainment than whites. Whilst
Africans and coloureds are progressing well into secondary school, there has been less
improvement in reaching grade 12 and passing the grade 12 matriculation exam. As
shown in Figure 44.1, the proportion of Africans completing secondary school has been
roughly constant at around 40 per cent since the 1972 birth cohort. e proportion of
Africans completing grade 9 has risen to over 80 per cent, but the proportion of those 9th
graders who go on to complete grade 12 has been declining (around 50 per cent in recent
cohorts), as has the proportion of secondary school graduates who go on to some kind of
post-secondary education (around 20 per cent in recent cohorts).
20
34
Mean years of education
5678910 11 12 13
25 30 35 40
Age in 2010
45 50 55 60 65 70
00.1 0.2 0.3 0.4 0.5
Proportion with completed secondary
0.6 0.7 0.8
White
African
Coloured
Figure 44.1. Mean years of education and proportion with completed secondary education, by
age and population group, 2010
Source: 2009–10 General Household Survey: three-year moving averages.
EDUCATION IN SOUTH AFRICA SINCE 1994 343
3 Enrolment and grade advancement
is disappointing performance in grade attainment is not mainly a problem of Africans
dropping out of school at age 16 or 17. Table 44.1 shows how the racial gap in education
emerges as youth progress through school. As shown in the rst three columns, enrolment
is almost universal for all groups until about age 15, when schooling is no longer com-
pulsory. Whilst coloured youth begin to drop out around age 15, enrolment of Africans
remains high, with 86 per cent enrolled at age 17 and 74 per cent enrolled at age 18, simi-
lar to rates for whites. In spite of similar enrolment rates, educational attainment for Afri-
cans drops progressively further behind whites as youth advance through school. By age
15, Africans are almost a full grade behind whites, and by age 18 the gap is over 1.5 grades.
Grade repetition plays a key role in these patterns. e last three columns of Table 44.1
Table 44.1 Enrolment, educational attainment and grade repetition, Africans aged 7–25. Gen-
eral Household Survey 2009–10
Enrolled Years of education Repeating current grade
Age African Coloured White African Coloured White African Coloured White
7 0.99 0.99 1.00 0.7 0.6 0.4 0.06 0.05 0.00
8 0.99 1.00 1.00 1.5 1.5 1.8 0.07 0.06 0.01
9 0.99 1.00 0.99 2.3 2.4 2.4 0.07 0.07 0.01
10 0.99 1.00 0.99 3.3 3.4 3.3 0.07 0.04 0.01
11 0.99 1.00 1.00 4.1 4.5 4.4 0.07 0.05 0.02
12 0.99 0.99 0.99 4.9 5.1 5.3 0.06 0.06 0.01
13 0.99 0.99 0.99 5.6 6.0 6.3 0.07 0.05 0.01
14 0.98 0.97 1.00 6.5 6.9 7.3 0.07 0.05 0.03
15 0.96 0.93 0.97 7.4 7.9 8.3 0.08 0.06 0.04
16 0.93 0.85 0.96 8.2 8.6 9.0 0.11 0.11 0.01
17 0.86 0.74 0.92 8.9 9.7 10.4 0.16 0.16 0.03
18 0.74 0.51 0.75 9.4 10.0 11.1 0.20 0.15 0.04
19 0.59 0.27 0.60 9.8 10.3 11.6 0.25 0.18 0.12
20 0.45 0.18 0.40 10.1 10.6 11.8 0.26 0.29 0.00
21 0.31 0.14 0.43 10.3 10.6 12.2 0.30 0.15 0.00
22 0.17 0.10 0.31 10.5 10.6 12.2 0.25 0.00 0.00
23 0.13 0.06 0.30 10.2 10.4 12.1 0.22 0.00 0.00
24 0.08 0.04 0.18 10.4 10.8 12.2 0.33 0.00 0.00
25 0.06 0.03 0.06 10.3 10.6 12.6 0.14 0.00 0.00
Note: Enrolment includes any kind of educational institution.
344 POST-APARTHEID SOCIAL POLICY
show that 6–7 per cent of coloured and African students are repeating a grade until age 15.
Repetition rates increase substantially in secondary school, with 20 per cent of enrolled
African 18-year-olds repeating their current grade.
Africans and whites have similar enrolment rates at ages 18–20. Africans are mainly
enrolled in secondary school, however, whilst whites transition into tertiary education.
Many will be surprised that Africans have higher enrolment rates than whites at age 20: 45
per cent compared to 40 per cent. But 77 per cent of the enrolled Africans are still trying
to nish secondary school, whilst 90 per cent of the whites are attending post-secondary
institutions.
Gender dierences in education in South Africa are small (not shown), and have moved
in the direction of a female advantage. Girls progress through school faster than boys in
all population groups, and end up with slightly higher educational attainment (Anderson
et al., 2001; Lam et al., 2011).
e high enrolment rates of Africans into their late teen years suggest that they and
their families understand the large impact of education on earnings and employment.
Branson and Leibbrandt (2012) estimate high returns to completion of secondary school
and to tertiary education. Men with tertiary education had earnings at least seven times
as high as men with primary education through 2007, aer which the tertiary premium
became even larger. As Mwabu and Schultz (2000) found using 1994 data, the impact of
schooling on earnings continue to be at least as high for Africans as for whites. Branson
and Leibbrandt also document the strong relationship between education and employ-
ment, an important consideration given South Africa’s high levels of unemployment. Men
with completed secondary education had an employment rate in 2010 of 66 per cent,
compared to 44 per cent for those with incomplete secondary. Men with tertiary educa-
tion had an employment rate of 89 per cent.
4 Grade repetition
As shown in Table 44.1, grade repetition is an important feature of South African edu-
cation. Two longitudinal surveys, the Cape Area Panel Study (CAPS) and the National
Income Dynamics Study (NIDS) make it possible to follow students as they progress
(or fail) through school. Using NIDS, Branson et al. (2014) nd that 30 per cent of low-
income students who were in grade 11 in 2008 repeated at least one grade in the next two
years. is compared to only 8 per cent of high-income students. Using CAPS, Lam et al.
(2011) found that only 27 per cent of African 8th and 9th graders in 2002 had advanced
three grades by 2005, even though 67 per cent were still enrolled in school. ey found
that grade repetition was badly targeted, especially in poor schools. A CAPS-administered
literacy and numeracy exam was much less correlated with grade advancement for
EDUCATION IN SOUTH AFRICA SINCE 1994 345
Africans than it was for other groups, suggesting that predominantly black schools do
a poor job deciding which students to hold back. is evidence of poor evaluation is
consistent with a study by van der Berg and Shepard (2010) that nds little correlation
between continuous assessment marks provided by teachers and the externally evaluated
grade 12 matriculation exam.
For African youth the combination of high enrolment rates into the late teens and fre-
quent grade repetition creates a situation in which Africans spend more years going to
school than whites but end up with less schooling. Using NIDS, Branson and Lam (2010)
found that Africans aged 25–29 had spent 1.5 years longer than whites attending primary
and secondary school, but ended up more than a grade behind whites in educational
attainment.
5 Academic performance
e improvements in average educational attainment in Figure 44.1 conceal low levels
of cognitive learning in South African schools and stark inequalities between schools.
Results from national and international tests show that student performance in the
majority of South African schools is extremely poor by international standards and
highly unequal. South Africa frequently scores at the bottom of international tests such
as TIMMS and PIRLS, and even ranks towards the bottom in tests comparing African
countries (SAQMEQ). Out of 15 African countries in the 2007 SACMEQ study, South
Africa ranked 10th in reading and 8th in mathematics, worse than low-income countries
such as Kenya, Tanzania, Swaziland and Zimbabwe. Twenty-seven per cent of South Afri-
can 6th graders were classied as functionally illiterate and 40 per cent were classied as
functionally innumerate, with no signicant increase in average test scores of 6th graders
between the 2000 and 2007 SAQMEQ studies (Spaull, 2013; Moloi and Chetty, 2010).
ese tests also demonstrate the enormous disparities in performance between rich and
poor. In SAQMEQ 2007, 89 per cent of 6th graders in the lowest socioeconomic quartile
failed to demonstrate an acceptable level of numeracy, compared to 33 per cent in the
highest quartile (Moloi and Chetty, 2010).
SAQMEQ 2007 also tested 6th grade teachers. Only 32 per cent of South African math-
ematics teachers demonstrated desirable levels of mathematics knowledge. is com-
pared to an average of 46 per cent for the other countries tested and was the h worst of
the 15 African countries tested (Hungi et al., 2010).
SACMEQ is the Southern and Eastern African Consortium for Monitoring Educational Quality. TIMSS
is the Trends in International Mathematics and Science Study. PIRLS is the Progress in International Reading
and Literacy Study. See Spaull (2012, 2013) for details on these studies.
346 POST-APARTHEID SOCIAL POLICY
6 School funding and school fees
According to the Department of Basic Education, public expenditure on schooling was
about 4 per cent of GDP in 2010, with 17.7 per cent of the national budget allocated
to education (DOBE, 2011). Spending per primary student was US$1,383, compared to
estimates of $167 in sub-Saharan Africa and $614 in Latin America. Real per-student
expenditure increased by 40 per cent from 2001 to 2010 (DOBE, 2011). All of this sug-
gests that the problems with South Africa schools are not simply the result of inadequate
levels of funding.
Equalizing school funding was an important part of the transition from the racially
separated school systems that existed under apartheid (with enormous dierences in per-
pupil funding) to the single school system created aer 1994 (Case and Deaton, 1999;
Fiske and Ladd, 2004; Van der Berg, 2007; Yamauchi, 2011). e National Norms and
Standards for School Funding (1998, amended 2006) is a key policy to redress past fund-
ing inequalities. is policy classies schools into ve quintiles based on neighbourhood
characteristics and originally stipulated that 60 per cent of total non-personnel expendi-
ture be allocated to the poorest 40 per cent of learners (Sayed and Motala, 2012). e
2006 amendment went further and classied quintile 1–3 schools as no-fee schools. ese
schools are prohibited from charging school fees and are compensated by the government
for lost revenue. is policy only considers non-personnel expenditure, roughly 20 per
cent of governments’ total allocation (Sayed and Motala, 2012). Richer schools continue
to have the discretion to set the level of school fees, with revenues generated oen far
exceeding government funding. ese fees fund a wide range of school improvements,
including extra and better qualied teachers, and perpetuate large dierences in school
quality. ere has been little integration of the previously racially segregated schools.
Only 3 per cent of African students, but 91 per cent of white students, attended formerly
white schools in CAPS (Lam et al., 2011).
7 Conclusions
South Africa’s record at improving education in the 20 years since apartheid ended is dis-
appointing. Whilst more Africans are progressing into secondary school, children who
started school in 1994 were no more likely to graduate from secondary school than those
who started 15 years earlier. Standardized assessments show disappointing performance
relative to other countries, with enormous disparities in learning between rich schools
and poor schools. Grade repetition is pervasive, especially at the secondary level, and
poorly targeted, leading to a highly inecient system in which schools are even more
crowded than they would otherwise be, with young people oen staying in secondary
school until age 19, 20 or 21.
EDUCATION IN SOUTH AFRICA SINCE 1994 347
South African young people and their families appear to have a strong commitment
to education, as evidenced by the high enrolment rates that persist into the late teenage
years. ey correctly perceive that there are high returns to education in both earnings
and employment. e policy problem is not how to get young people to go to school. e
real challenge is how to provide the many young people who are already attending school
with high-quality education that will decrease, rather than reinforce, South Africa’s enor-
mous income inequality.
e government already spends a relatively high fraction of its budget on education.
is suggests that increased funding alone is unlikely to be the answer. Many South Afri-
cans inside and outside the educational system are aware of the disappointing record of
South African schools, and a wide range of reforms have been proposed. It is beyond the
scope of this chapter to review these proposals or to assess their likelihood of success. We
can only hope that some of them will work and that the next 20 years bring better progress
in improving educational outcomes.
■ REFERENCES
Anderson, Kermyt, Anne Case and David Lam (2001), ‘Causes and Consequences of Schooling Outcomes in
South Africa: Evidence from Survey Data’, Social Dynamics, 27(1): 1–23.
Branson, Nicola, Clare Hofmeyr and David Lam (2014), ‘Progress rough School and the Determinants of
School Dropout in South Africa, Development Southern Africa, 31(1): 106–126.
Branson, Nicola and David Lam (2010), ‘Education Inequality in South Africa: Evidence from the National
Income Dynamics Study’, Studies in Economics and Econometrics, 34(3): 85–109.
Branson, Nicola and Murray Leibbrandt (2012), ‘Educational Attainment and Labour Market Outcomes in
South Africa, 1994–2010’, OECD Working Paper.
Case, Anne and Angus Deaton (1999), ‘School Inputs and Education Outcomes in South Africa’, Quarterly
Journal of Economics, 114(3): 1047–84.
Department of Basic Education (2011), ‘Macro Indicator Trends in Schooling: Summary Report 2011’, South
Africa Department of Basic Education, Pretoria.
Fiske, Edward and Helen Ladd (2004), Elusive Equity: Education Reform in Post-Apartheid South Africa,
Washington, DC: Brookings Institution.
Hungi, Njora, Demus Makuwa, Kenneth Ross, Mioko Saito, Stephanie Dolata and Frank van Capelle (2010),
‘SACMEQ III Project Results: Pupil Achievement Levels in Reading and Mathematics’, Paris: Southern and
Eastern Africa Consortium for Monitoring Educational Quality.
Lam, David, Cally Ardington and Murray Leibbrandt (2011), ‘Schooling as a Lottery: Racial Dierences in
School Advancement in Urban South Africa’, Journal of Development Economics, 95(2): 121–36.
Moloi, Meshack and Mark Chetty (2010), ‘e SACMEQ III Project in South Africa: A Study of the Con-
ditions of Schooling and the Quality of Education: South Africa Country Report’, Department of Basic
Education, Pretoria.
Mwabu, Germano and T. Paul Schultz (2000), ‘Wage Premiums for Education and Location of South African
Workers, by Gender and Race’, Economic Development and Cultural Change, 48(2): 307–34.
Sayed, Yusuf and Shireen Motala (2012), ‘Equity and “No Fee” Schools in South Africa: Challenges and Pros-
pects’, Social Policy & Administration, 46(6): 672–87.
348 POST-APARTHEID SOCIAL POLICY
Spaull, Nicholas (2012), ‘Poverty and Privilege: Primary School Inequality in South Africa’, International
Journal of Educational Development, 33(5): 436–47.
Spaull, Nicholas (2013), ‘South Africa’s Education Crisis: e Quality of Education in South Africa 1994–
2011’, Stellenbosch University Working Paper.
Van der Berg, Servaas (2007), ‘Apartheid’s Enduring Legacy: Inequalities in Education’, Journal of African
Economies, 16(5): 849–80.
Van der Berg, Servaas and Deborah Shepard (2010), ‘Signalling Performance: An Analysis of Continuous
Assessment and Matriculation Examination Marks in South African Schools’, Stellenbosch University
Economics Working Paper 28/10.
Yamauchi, Futoshi (2011), ‘School Quality, Clustering and Government Subsidy in Post-Apartheid South
A f r i c a’, Economics of Education Review, 30: 146–56.
Social safety nets
katharine hall and ingrid woolard
45
e term ‘social safety nets’ refers to non-contributory transfer programmes that provide
income support to poor and vulnerable households. In South Africa these include the
extensive system of social assistance grants, the Expanded Public Works Programme and
various fee waivers for health care, schooling and utilities.
1 Social assistance
At 3.5 per cent of GDP, spending on social assistance in South Africa is more than twice
the median spending across developing economies (World Bank, 2009). Social assistance
is prioritized in the national budget in line with section 27(1) of the Constitution which
states that ‘everyone has the right to have access to . . . social security, including, if they are
unable to support themselves and their dependants, appropriate social assistance’. Social
grants are targeted at categories of individuals who are unlikely to be able to provide for
their own needs, namely the elderly, the disabled and children.
e Old Age Grant reached almost 2.9 million people aged 60 years and above on
April 1, 2013 (SASSA, 2013), and had a value of R1,260, almost double median per capita
income. e Old Age Grant is currently means-tested and reaches just over 80 per cent
of age-eligible individuals. e intention is to phase out the means-test and to make the
grant universal by 2016. As at April 1, 2013, the disability grant went to about 1.2 million
people of working age who were unable to work because of chronic illness or disability.
e social grant system includes three child grants. e Child Support Grant (CSG)
is the main poverty-oriented child grant available to all primary care-givers who pass
a means test. e Care Dependency Grant (CDG) is provided to care-givers of severely
disabled children with intensive care needs. e Foster Child Grant (FCG) is available to
foster parents of children who have been found by the courts to be in need of ‘care and
protection’ in terms of the Children’s Act. As at April 1, 2013, the CSG went to 11.3 mil-
lion children, the FCG to 532,000 children and the CDG to 120,000 children (SASSA,
2013). At that date the value of the CSG was R290 per month, against R800 for the FCG
and R1,260 for the CDG.
350 POST-APARTHEID SOCIAL POLICY
Cash transfer programmes provide a reliable source of income which can have signi-
cant eects upon the capacity of households to invest in human capital, thus contributing
to the breaking of the intergenerational transmission of poverty. Two-thirds of income
to the bottom quintile comes from social assistance grants. As explained by Budlender
and Woolard (2006), access to either a pension or a child grant can improve the prod-
uctivity of household members through increased nutrition and access to health care.
Additionally, it has been noted that older people, particularly women, are inclined to allo-
cate grant income in ways which directly benet more vulnerable household members,
such as young children. Whilst some authors have found a small negative eect of grants
on labour supply (e.g. Ranchhod, 2010), others have found that the grants loosen credit
constraints and promote migration in search of employment (e.g. Ardington et al., 2009;
Posel et al., 2006).
2 Public employment programmes
e Expanded Public Works Programme (EPWP) is the main plank of the govern-
ment’s eorts to deliver social protection to the working-age poor. EPWP was rst
implemented in 2004 and aims to create productive employment opportunities for
the unskilled unemployed. Most EPWP jobs are in government-funded infrastructure
projects (e.g. road building), public environmental programmes (e.g. the removal of
alien vegetation) and in public social programmes (e.g. early childhood development).
EPWP also includes a Community Works Programme (CWP) which provides two
days of work per week to households in targeted sites. In CWP, the local community
decides what work should be done and which households should benet from the jobs
created.
EPWP has expanded rapidly and aims to ‘create’ 1.2 million work opportunities (which
equates to 664,000 full-time equivalent jobs) in the 2013/14 scal year. It needs to be
noted, however, that many of these jobs might have existed even in the absence of EPWP
since government departments can count a wide range of labour-intensive activities
towards their EPWP targets.
In the rst ve-year phase of EPWP there was a requirement to provide some training
to participants in an eort to enhance graduation from the programme. is requirement
was subsequently dropped as it was felt that the programme had too many goals and the
quality and relevance of the training was oen low. EPWP is thus primarily an income-
support programme. Working conditions and minimum wages for EPWP are stipulated
in a Ministerial Determination made by the Minister of Labour. As at April 1, 2013, the
minimum wage for an EPWP worker was R66.34 per day which was about 90 per cent of
the minimum wage for a domestic worker.
SOCIAL SAFETY NETS 351
3 Housing and amenities
e Department of Human Settlements has an array of programmes aimed at realiz-
ing the right of access to adequate housing, contained in section 26 of the Constitution.
e largest programme, the Housing Subsidy Scheme, has been the main mechanism for
building and transferring 2.7 million housing units to poor households since 1994. e
full subsidy was worth R84,000 in 2013 and is available to South African citizens who are
rst-time home-owners, are co-resident with a permanent partner and/or children and
have a monthly income below R3,500. It is widely acknowledged that the rate of housing
delivery in the rst ve years aer democracy was unprecedented in the world, but that
the emphasis on meeting ambitious quantitative targets resulted in poor quality hous-
ing in poorly planned and located areas, eectively perpetuating spatial inequalities and
poverty traps. Subsequent frameworks have attempted to shi the focus to developing
integrated and sustainable human settlements, for example through informal settlement
upgrading and social housing programmes.
Section 152 of the Constitution outlines local government’s obligation to ensure the
‘provision of services to communities in a sustainable manner’ and the Municipal Sys-
tems Act prescribes that poor households must have access to at least basic services. e
Municipal Property Rates Act contains an explicit mandate for municipalities to provide
relief for the poor in their rates policies. Whilst household services are not named in the
Constitution, the international Committee on Economic, Social and Cultural Rights has
claried that the right of access to adequate housing includes the right of access to safe
water, sanitation, safe energy sources and refuse removal.
Drawing on international benchmarks, minimum standards of 50kWh of free electri-
city and 6 kl of free water per household per month have been adopted in South Africa,
whilst the minimum adequacy requirement for sanitation is a ventilated pit latrine.
Although there have been improvements in extending bulk infrastructure, access is not
yet universal. In 2010, 97 per cent of households had access to water supply infrastructure
(though this includes communal taps), and 79 per cent had access to adequate sanitation
(National Treasury, 2011). More than three-quarters of households are connected to the
electricity grid.
e availability of free basic services is variable in that municipalities determine their
own eligibility criteria or ‘indigence’ levels. Larger municipalities provide ‘free’ water by
not charging for the rst 6kl and then applying rising block taris for consumption over
that amount. Other methods include service-level targeting (e.g. where it is assumed
that consumption will be limited by what people can carry from communal taps) or ow
restrictors which limit households to the free basic amount.
Free basic services have a redistributive function at national and local levels. Munici-
palities are funded by the national government according to an ‘equitable share formula’
based on the number of poor households in their area. In theory the grants are structured
352 POST-APARTHEID SOCIAL POLICY
to enable municipalities to meet the capital and operating costs of providing basic ser-
vices to poor households even if they are unable to raise sucient revenue through user
fees to cover these costs. At local level, rising block tari systems eectively make it pos-
sible for municipalities to cross-subsidize free basic service allocations to the poor, using
revenue from service fees paid by the non-poor (or heavy consumers). An important
limitation of the free basic services safety net is that households living in areas without
service infrastructure cannot benet from free services.
4 No-fee schools and school fee exemptions
Section 29 of the Constitution guarantees universal access to basic education. For chil-
dren, this right refers to the compulsory education phase: from 7 to 15 years of age (or
until the end of grade 9). Since 2007, the government has given eect to this commitment
by providing ‘no-fee schools’, which are identied according to the income levels of the
surrounding communities. In lieu of charging school fees, the state provides an allocation
per learner to the schools as compensation. e policy initially covered the poorest quin-
tile of schools, but has been extended to include quintile 2 and 3 schools. In 2011, 78 per
cent of learners attended no-fee schools (Department of Basic Education, 2012).
Another system is one of school fee exemptions for poor children in fee-charging schools.
Poor children can qualify for full or partial fee waivers, depending on the income of their car-
egivers. ere are also categories of children for whom fee exemptions are automatic, such
as orphans or recipients of social grants. In theory, the school fee exemption enables poor
children to attend better (fee-charging) schools that are situated in less poor areas. In prac-
tice, many fee-charging schools have been reluctant to allow admission to children who may
qualify for exemptions, because fees lost through exemptions are not reimbursed by the state.
Both the no-fee policy and the school fee exemption were introduced with the explicit
intention of promoting equitable access and redressing historic inequalities in education.
e removal of school fees in poor schools has generally been regarded as a progressive
step. As a result, school attendance is almost universal in the compulsory phase. But there
are concerns that the no-fee system has reinforced inequalities as fee-charging schools have
been able to supplement their allocations, improve their facilities and attract better teachers.
5 Free health care
e Constitution, in section 27, guarantees the right to health care services. Primary
health care is available free of charge to everyone, whilst hospital services are provided at
relatively low cost, with a sliding tari scale calculated according to income level. In terms
SOCIAL SAFETY NETS 353
of the National Health Act, children under six years, pregnant women and social grant
beneciaries are automatically exempt from paying for any public health services, unless
they are covered by private medical aid.
South Africa spends 8.3 per cent of GDP on health care, which is within WHO guide-
lines. Concerns about the health care system centre on the skewed resource distribu-
tion across the public and private health sectors, resulting in a highly inequitable quality
of health services. e public sector is undermined by poor management and resource
constraints; for example, public clinics provide free services, but queues are notoriously
long, facilities are under-staed and medicines are not always available. Two-thirds of the
population are entirely reliant on the public health sector, whilst 16 per cent use only the
private sector and 16 per cent use a combination of public and private services. Yet private
health insurance accounts for about 44 per cent of all health expenditure, and per cap-
ita health expenditure in the private system is ten times the amount of that in the public
system (McIntyre, 2010).
A National Health Insurance system (NHI) has been proposed to reduce inequalities
in health spending and ensure that the poor have access to adequate health services. A
related reform is the re-engineering of primary health care to strengthen health service
delivery, which is critical to the success of the NHI. Piloting of NHI-related innovations
began in 11 districts in 2013, with plans to phase in the NHI nationally over a period of
14 years.
6 Conclusion
is very brief overview outlines a set of programmes which, together, constitute a social
safety net for the poor. Additional programmes not covered here include subsidized pub-
lic transport, school feeding schemes and early childhood development services. Safety
nets usually operate either by providing transfers (e.g. in the form of cash or housing), or
by removing the cost of accessing the benet (as in education and health fee waivers, free
basic services and free nutrition).
Individually, the programmes which make up the safety net tend to be pegged at low
levels—linked to ‘minimum adequacy’ requirements or survival level benets. Child
support grants are below the food poverty line; free basic water amount is linked to the
minimum adequacy requirement; the adequacy benchmark for school funding alloca-
tions has been critiqued as being too low; and the EPWP provides only short-term work
opportunities. In combination, however, the safety net provides multiple benets, the
eects of which may be compounding. ere are explicit mechanisms for multiple inclu-
sion: for example, child grants are linked to automatic eligibility for health and school fee
waivers.
354 POST-APARTHEID SOCIAL POLICY
e South African Constitution provides for a wide range of socio-economic rights
which are justiciable and impose a corresponding obligation on the state. Many of the
safety nets discussed here have evolved or expanded their reach as a result of advocacy
work and litigation that invokes the Constitution. A notable omission in the rights frame-
work is a ‘right to work’, and there are also no non-contributory cash transfers to the
unemployed despite persistently high unemployment rates. Given the structure of the
economy, massive job creation over the medium term is an unrealistic goal and thought
should be given to ways to provide income-support to the unemployed.
■ REFERENCES
Ardington, C., A. Case and V. Hosegood (2009), ‘Labour Supply Responses to Large Social Transfers: Longi-
tudinal Evidence from South Africa’, American Economic Journal: Applied Economics, 1(1): 22–48.
Budlender, D. and I. Woolard (2006), e Impact of the South African Child Support and Old Age Grants on
Children’s Schooling and Work, Geneva: International Labour Oce.
Department of Basic Education (2012), Annual Report 2011/12, Pretoria: Government Printers.
McIntyre, D. (2010), ‘Private Sector Involvement in Funding and Providing Health Services in South Africa’,
Equinet Discussion Paper 84, Health Economics Unit, University of Cape Town and ISER, Rhodes
University.
National Treasury (2011), Local Government Budget and Expenditure Review 2006/07–2012/13, Pretoria:
Government Printers.
Posel, D., J. Fairburn and F. Lund (2006), ‘Labour Migration and Households: A Reconsideration of the Eects
of the Social Pension on Labour Supply in South Africa’, Economic Modelling, 23(5): 836–53.
Ranchhod, V. (2010), Household Responses to Adverse Income Shocks: Pensioner Outmigration and Mortal-
ity in South Africa, unpublished mimeograph, Cape Town: University of Cape Town.
SASSA (2013), Fact Sheet No. 3, <http://www.sassa.gov.za/Portals/1/Documents/905e088d-befd-42ae-b17f-
84c6ae1c682f.pdf>.
World Bank (2009), ‘Levels and Patterns of Safety Net Spending in Developing and Transition Countries’,
Safety Net Primer, Washington, DC: e World Bank.
Social Security and Social
Grants
francie lund
46
Introduction
ere are four pillars of social security in South Africa:
• work-relatedbenets(suchasunemploymentinsurance,workerscompensation,andhealth
insurance);
• statesocialassistance,oencalledsocialgrants,tovulnerablegroups(suchasthepensions
for elderly people, people with disabilities, and grants to children);
• short-termreliefmeasuresincasesofindividualcrisis,and/orcommunity-leveldisasters
such as res and oods;
• privatesavingswherepeoplevoluntarilypurchasehealthinsurance,retirementannuities,
insurance against disabilities and other contingencies.
is piece focuses on the rst two pillars of these. ey cover millions of South Africans.
e work-related contributory and insurance-based pillar is declining in importance
because of changes in the structure of employment; the state non-contributory pillar has
expanded, and plays an important redistributive role.
Work-related social security
e main programmes for work-related social security in the private sector are unemploy-
ment insurance, workers compensation (where a disease, injury or death is caused through
work), maternity leave (and limited additional parental allowance), access to health insurance
and savings for retirement. All of these benets are insurance-based, with contributions by
employers and employees, and in some cases with a state supplement as well. All are available
only to formal workers (those with a recognizable employer, and a contract of employment),
with domestic and agricultural workers being included in some benets in the last decade.
e Unemployment Insurance Fund (UIF) covers unemployment, maternity leave,
leave in the event of the adoption of a child, short illness, and survivor’s benets (to spouse
356 POST-APARTHEID SOCIAL POLICY
and children) if the contributor dies. In 2010 the Fund had 7.8 million registered partici-
pants, while 630 000 people received benets. e UIF’s shortcomings are the restriction
to formal workers working more than 24 hours a week, the exhaustion of benets aer
some eight months (though this is generous in international comparative terms), and the
fact that it is only available to people who actually have worked formally. Unlike most
industrialized countries, little attention is given to retraining and reskilling for alternative
employment.
e rst legislation for the compensation of workers for work-related injury, illness and
death was in 1914. e mining industry had separate legislation. Legislation across all
industries was synthesized in the 1994 Compensation for Industrial Injuries and Diseases
Act (COIIDA). Formal employees also have access to various forms of savings for retire-
ment, such as pension funds, provident funds, retirement annuities. Literally thousands
of pension funds exist, in an industry that is regulated, but fragmented, and expensive to
administer.
e government is the largest single employer in South Africa, and the civil service and
para-statals participate in separate social security schemes to those in the private sector,
with generally better benets.
Social grants
South Africa has an extensive system of state cash transfers—regular and reliable pay-
ments to targeted groups, focused on poverty reduction, means tested, non-contributory
and payable from general revenue. It is both a signicant mechanism of redistribution,
and it has developmental impacts. Expenditure on these grants in 2012/2103 was R105
billion; in 2012 they were received by 16 million people—just less than a third of the pop-
ulation. Much of the grant money is pooled within the poorer households within which
grantees live. For the most part they are unconditional (Lund et al. 2009).
e pensions for elderly people were started in 1928, and the system extended over the
years by the apartheid government (Devereux 2007). ere was severe racial discrimin-
ation in the administrative procedures, and in levels of the grants (in the mid-1980s, in
a ratio of 10: 5: 1 rands for white people, coloured and Indian people, and African peo-
ple). Nevertheless, the pensions and grants that were received, even the small amounts
received by Africans in rural areas, were a source of nancial security for many house-
holds. e foundations of the system were in place when democratic elections were held
in 1994, and formed the basis for the new government to extend the system. e social
grants support targeted groups: children under 18, people with disabilities, and elderly
people. e cash transfers are means tested on income, are non-contributory, and are
payable from general revenue.
SOCIAL SECURITY AND SOCIAL GRANTS 357
Children up to the age of 18 in poor households are eligible for a modest Child Support Grant (R250
a month at April 2012). is was a signicant post-apartheid welfare reform, introduced in 1998
for children up to age seven, which within a decade reached some 10 million children, with age
extended to age 18 by 2014. Severely disabled children are eligible for the Child Dependency
Grant (R1,200); the Foster Care Grant (R770) is for parents who legally foster a child.
Adults with mental and/or disabilities are eligible for the Disability Grant up to age 60 (R1,200
a month). e grant has recently been extended to include people with HIV/AIDS related dis-
abilities. e grant is helpful to informal workers with disabilities who do not qualify (because
they have no employment contract) for the workers compensation for work-related disability.
Elderly people receive the Old Age Grant (usually called Old Age Pension), valued at R1,200
a month, with a top up of R20 for those over aged 75. e past gender bias in age eligibility for
men (65 and over) has recently been removed and men and women are both eligible from age 60.
Because of the extent of poverty, it is received by more than 85 per cent of older South Africans.
Selected issues
e extension of the system of social grants is in line with the global move towards this
form of social protection. Argued in the past more on the basis of human rights or pol-
itical stability, the rationale has shied towards being an investment in human capital,
productivity and growth.
A growing body of research has assessed the impact of cash transfers on poverty and
well-being, with special attention being paid to the pension for elderly people, and more
recently on the child support grant (ndings from key studies up to 2009 are summarized
by Leibbrandt et al., 2010). State pensioners frequently live in three-generational house-
holds and have younger children living with them. Where the pension is pooled, and espe-
cially where the pension goes to the elderly woman, research consistently shows positive
eects on the nutritional status and well-being not only of the pensioner himself or herself,
but also on other household members, and particularly on girl children. Research has also
shown an association between an elderly woman receiving a pension and a younger moth-
er leaving to nd work (Ardington et al. 2009 ; Posel et al., 2006). e pension for elderly
women is associated with younger children enrolling in school earlier, and girls staying in
school for longer. One impact of HIV/AIDS is that much home-based care is needed, and
pension-receiving grandparents and aunts and uncles do a lot of this work.
e Child Support Grant was implemented in 1998, and had an immediate and dramatic
eect on birth registration—from about 25 per cent of births registered children in 1998 to
more than 90 per cent in 2008. Early research studies quickly established the positive eects
of the grant on nutritional status, enrolment in school, and, later, on length of time at school.
e gradual extension of the grant to older children has made it increasingly dicult to cap-
ture and isolate the eects of this relatively modest income source to children and households.
358 POST-APARTHEID SOCIAL POLICY
ere have been signicant improvements in administrative performance in the last 20
years. e Department of Social Development set up the South African Social Security
Agency in 2005 for the delivery of grants. One of the objectives was to control the grow-
ing fraud and corruption (mostly by government ocials) within the system; it is not yet
clear whether that has been achieved. e Department of Labour is the key agent in claim-
ing for unemployment and maternity benets, and workers compensation, and there are
serious bureaucratic ineciencies with resulting hardships to people at vulnerable times.
e Department of Home Aairs controls the identication system of South African citi-
zens, and research shows its incompetence to be biggest barrier to individuals receiving state
social assistance.
Work-related social security is an important pillar of provision, but covers only for-
mal workers. Formal employment is being increasingly contractualised; employment
becomes disguised as ‘self-employment’ and carries no social protection. us in add-
ition to the serious problem of high unemployment, growing numbers of those who have
work are nancially insecure.
Conditionality attached to school attendance has recently been imposed on the Child
Support Grant. is is illogical given that South Africa has a very limited problem of
school attendance. e majority of schools also have no stationary for the two letters per
CSG child per year that will have to be sent to social grants departments. It would be pref-
erable to spend money on improving the grim standards of the poorer schools that most
CSG beneciaries (Lund et al. 2009).
e majority of South Africans are covered by the public and/or the private pillars of
social security, yet the Taylor Committee of Enquiry into a Comprehensive System of
Social Security for South Africa judged it to be incomprehensive and patchy ((Depart-
ment of Social Development, 2002).
e government is in the process of reform of retirement provision, and specically
seeks to include informal workers in a new system, in which the state old age pension
would continue, but poorer people who are able to save would be rewarded for contrib-
uting voluntarily to government-supported savings schemes. At the time of writing the
reform initiative appears has been delayed. is might be linked to delays with implemen-
tation of the long-awaited National Health Insurance Scheme, which was nally piloted
in selected areas in 2012.
A serendipitous eect of the South African cash transfer system has been the attention
it has attracted from prestigious international and local economists who otherwise may
not have engaged with social welfare issues. ough much of the positive evidence for the
impact of cash transfers comes from Latin America, South African examples have been
extensively used in the arguments of the World Bank, ILO, and international develop-
ment agencies for the further extension of cash transfers as a component of social protec-
tion, in the Global Social Protection Floor.
SOCIAL SECURITY AND SOCIAL GRANTS 359
■ REFERENCES
Ardington, C., Case, A. and V. Hosegood, V. 2009. ‘Labor supply responses to large social transfers: longitu-
dinal evidence from South Africa.’ American Economic Journal: Applied Economics 1(1): 22–48.
Department of Social Development. 2002. Transforming the Present, Protecting the Future. Consolidated
Report of the Committee of Inquiry into a Comprehensive System of Social Security for South Africa.
Pretoria: Department of Social Development.
Devereux, S. 2007. ‘Social pensions in South Africa in the twentieth century’, Journal of Southern Africa Stud-
ies, 33(3): 539–60.
Leibbrandt, M., Woolard, I., Finn, A., and Argent, J. 2010. Trends in South African Income Distribution and
Poverty since the Fall of Apartheid. Economic Co-operation and Development Social, Employment and
Migration Working Papers, No. 101. Paris, OECD.
Lund, F., Noble, M., Barnes, H. and Wright, E. 2009. ‘Is there a rationale for conditional cash transfers for
children in South Africa?’ Transformation 70: 70–91.
Posel, D., Fairburn, J. and Lund, F. 2006. ‘Labour migration and households: a reconsideration of the eects
of the social pension on labour supply in South Africa’, Economic Modelling, 23: 836–853.
Urbanization
ivan turok
47
1 Introduction
South Africa is one of the most urbanized countries in Africa, with nearly two-thirds
(63 per cent) of the population living in cities and towns. e rate of urbanization is
lower than in most other African countries and therefore more manageable. However,
the character of urban development has taken a distinctive form because of the history
of extensive state interference in the process. is has le a harmful physical legacy that
undermines economic performance and reinforces poverty and exclusion, and a set of
assumptions that hamper eorts to manage contemporary urban growth more success-
fully. At the heart of the problem is the inecient use of land—reected in urban sprawl
and fragmented development.
In most regions of the world urbanization has been accompanied by industrializa-
tion and economic progress (World Bank, 2009). Countries have enjoyed an economic
dividend from the net shi of population from rural areas to towns and cities through
migration and dierential birth and death rates. Large concentrations of population and
economic activity in close proximity stimulate greater dynamism through improved
trading opportunities and access to a large labour pool, superior ideas and information,
shared infrastructure and services, and better internal and external connectivity. ese
positive externalities of scale and density are usually conceptualized as agglomeration
economies or increasing returns. ey raise productivity and promote innovation, which
increase output, jobs and income for urban enterprises, workers and residents.
Urbanization also has a downside because it tends to be socially disruptive and a source
of national tension. Family relationships and community networks are destabilized, skills
and capabilities are lost to rural areas, and social pressures accumulate in overcrowded
urban settlements. ese negative externalities escalate if urban growth is poorly planned
and managed and if investment in social and economic infrastructure is neglected. South
Africa’s history of socially engineered urban development dates back over a century. It
was initially intended to accelerate the urbanization process and then to forcibly resist
and reverse it (Turok, 2012). e consequences of heavy-handed spatial controls appear
to have been among the most severe in the world and are proving very dicult for the
post-apartheid government to rectify and reverse.
URBANIZATION 361
2 History matters
In the late nineteenth and early twentieth centuries, an unusual form of racially segregated
urban development was put in place based on temporary residence by rural and foreign
migrants in worker hostels located in squalid compounds. is reected the economy’s
requirement for cheap labour to support rapid expansion of mining and industrialization,
but there was political resistance to permanent urban settlement by black families because
of the perceived threat to white lifestyles. Aer World War II, politics outweighed eco-
nomic considerations and stringent controls were introduced to suppress black urbani-
zation and to segregate residential areas. Apartheid fractured the physical structure of
cities and towns, disrupted the lives of black residents by forcing them into peripheral
townships and added to business costs by complicating their workforce relationships. A
modernist planning ideology reinforced the physical separation of jobs, housing, shops
and amenities, thereby encouraging greater reliance on private transport.
One of the main legacies today is a dispersed, low density urban form which requires
long-distance commuting, worsens congestion, boosts carbon emissions and inates the
cost of bulk services and connecting infrastructure. It also weakens economic and social
networks and increases transaction costs, such as job search and matching supply and
demand in the housing market. South African cities seem to underperform in national
and international comparisons (SACN, 2011; Msulwa and Turok, 2012), although further
research is needed. A modelling exercise for the Financial and Fiscal Commission found
that ‘over 10 years, a sprawling city will cost R57 billion more than a compact city, equal
to 1.4% of projected GDP’ (FFC, 2011: 3).
Other consequences of apartheid spatial engineering are large disparities in social
infrastructure and economic opportunities between urban and rural areas, which fos-
ter a profound sense of injustice and demands for redress and redistribution. Since the
removal of inux controls in the late-1980s, increasing numbers of rural households
have voted with their feet and moved to the cities in search of better livelihoods or pub-
lic services. is is a risky process for individuals and families because of the costs of
travel, the diculties of nding somewhere to live and competition to enter the urban
labour market. e government has been reluctant to support urbanization because of its
ambivalence towards migration and sensitivity to the costs of absorbing more people in
the cities. Without explicit measures to accommodate urban growth, most migrants have
been forced to occupy unauthorized sites on the urban outskirts in locations vulnerable
to ooding, subsidence, re damage and disease.
Many of these informal settlements are overcrowded and lack essential services such
as water, sanitation, electricity and refuse removal, let alone schools and health clinics.
Many shack areas are therefore unhealthy, unsafe and generally hazardous places to live.
e lack of proper drainage and sewerage systems also means they pollute watercours-
es and damage regional ecosystems. Illegal electricity and water connections also make
362 POST-APARTHEID SOCIAL POLICY
regional infrastructure networks more vulnerable to failure. Municipalities try to prevent
shack settlements emerging and expanding, and some national policymakers continue to
talk about ‘eradicating slums’ (Huchzermeyer, 2011). People are oen evicted from land
earmarked for other purposes, although the courts sometimes intervene. An unintended
consequence of containing informal settlements is to boost population densities within
existing townships through backyard shacks. is intensies social pressures, overcrowd-
ing and competition for scarce resources. People have migrated to the cities in search of
better lives, but are frustrated by the poor conditions and lack of opportunities.
e physical and social exclusion of migrants has not helped to spread the benets of
concentrated economic growth more widely. It is also dicult for people to generate their
own livelihoods through trade or providing services when they are conned to outly-
ing areas where average disposable incomes are low. Where public services have been
provided, the costs of bulk infrastructure or transport subsidies have been relatively high
because of the long distances involved, adding to the burden on municipal taxpayers.
Over-stretched municipalities struggle with the competing demands of dierent com-
munities to reduce the backlogs, maintain existing services in better-o areas and accom-
modate new population growth.
3 Contemporary challenges
e highest rates of demographic growth have been experienced in the economic heart-
land of Gauteng. Between 2001 and 2011, the population of Gauteng’s three metropolitan
municipalities (Johannesburg, Tshwane and Ekurhuleni) increased by 2.8 million (37 per
cent). Meanwhile, the three coastal metros (Cape Town, eekwini and Nelson Mandela
Bay) grew by 1.3 million (19 per cent) and the rest of the country by only 9 per cent. Net
migration accounted for a third of Gauteng’s population growth. e population has also
grown strongly in buoyant mining areas such as Rustenberg and Waterberg. Urbanization
has added to the pressure on jobs, schools, clinics, housing and basic services, and contrib-
uted to escalating protest activity in burgeoning informal settlements (Turok, 2012). Inter-
national migration has contributed to these pressures—10 per cent of Gauteng’s population
was born outside South Africa compared to between 2–6 per cent in the coastal metros.
Infrastructure bottlenecks and breakdowns have become more frequent in the cities
because of long standing under investment in the maintenance and upgrading of trans-
port networks, electricity grids, and water and sewage treatment plants. Ageing and
constrained infrastructure systems are buckling under the pressures of population and
economic growth. Urban railways, ports, telecom networks and underground pipelines
are oen inecient, outdated and require substantial investment to match internation-
al standards. ere is reticence in some parts of government about investing in urban
URBANIZATION 363
infrastructure on the grounds that rural areas deserve priority treatment, since the cit-
ies are perceived to be better-o and ‘can look aer themselves’. Policies have also been
inuenced by an attitude that rural–urban migration should be discouraged because it is
socially destabilizing and makes cities unmanageable.
As a result, there has been no explicit policy to plan urban growth more coherently since
1994. ‘Service delivery’ is the dominant discourse across government, implying the roll-out
of separate housing, transport, electricity, water and sanitation programmes run by dier-
ent administrative silos. ere are few means of institutional coordination to create round-
ed settlements. Resources are allocated on the basis of population, with little or no reference
to an area’s productive potential or liveability. Delivering discrete products and services to
households is politically attractive, easy to monitor and can be justied on the constitu-
tional principles of justice and fairness. However, it means always reacting to demographic
shis, rather than anticipating trends and planning ahead in response to economic oppor-
tunities or a vision of more integrated and functional cities. e practical eect has been to
reinforce inherited spatial patterns rather than to reshape them (SACN, 2011).
In addition, a backlash against spatial planning as an excessively bureaucratic and
control-oriented activity has diminished the inuence of planners and given private
developers a freer rein. e promise of jobs from new property schemes has oen swayed
municipal decision-makers to approve development applications that contradict estab-
lished spatial plans. is has resulted in many housing estates, shopping malls, business
parks and oce complexes built on cheap farmland beyond the built-up urban area.
Meanwhile, many older city centres and inner suburbs have suered from physical decay,
decline and dereliction.
e national (RDP) housing programme has followed a similar spatial logic of decon-
centration. A uniform capital subsidy has resulted in municipalities and provinces econo-
mizing on the costs of land in order to focus resources on the top structures. is has
produced identical housing units on cheap greeneld sites, usually on the periphery of
existing townships. One house per plot means low densities that inhibit the provision of
public transport, social amenities and recreational facilities, resulting in poorly serviced
dormitory settlements rather than vibrant neighbourhoods. Although housing policy
is beginning to change, there has been little support hitherto for more varied housing
options for people in dierent circumstances, or to promote densication and inll devel-
opment in well-located areas (SACN, 2011). Consequently, new housing has reproduced
spatial segregation and oen created ever larger poverty traps in isolated places.
4 Towards a more positive approach
Release of the 2011 Census results appears to have triggered a shi in government think-
ing towards urbanization. e Statistician-General summarized one of the main ndings
364 POST-APARTHEID SOCIAL POLICY
as the ‘unceasing march out of the largely rural provinces to Gauteng and the Western
Cape’. e country’s rst National Development Plan was published around the same time.
It devoted a whole chapter to improving urban settlements, in recognition that ‘South
Africa’s towns and cities are highly fragmented, imposing high costs on households and
the economy. Since 1994 . . . little progress has been made in reversing apartheid geogra-
phy’ (National Planning Commission, 2012: 266). Following a Cabinet discussion a few
months later, the President announced a new urban policy initiative in his annual State of
the Nation Address in February 2013:
We should also remain mindful of rapid urbanisation that is taking place . . . Apartheid
spatial patterns still persist in our towns and cities . . . it is crucial that we also develop
a national integrated urban development framework to assist municipalities to eectively
manage rapid urbanisation.
Urban policy was given extra impetus by the Finance Minister in his 2013 Budget speech.
In identifying the long-term imperatives facing the country, he listed the pressures gen-
erated by urbanization in second place. A new City Support Programme was designed
to address the problems caused by the inecient and exclusionary built environment. It
would encourage ‘more integrated planning of new developments, so that we can make
meaningful strides in overcoming the spatial inequalities of the past’.
e new urban initiatives in government appear to be gaining momentum. It is impor-
tant that they combine two distinct objectives and articulate them in a more positive and
compelling manner: (i) accommodating urbanization and (ii) promoting spatial trans-
formation. Pursuing the former without the latter will do little to realize the potential of
cities to contribute to economic development and thereby li people out of poverty.
‘Just managing’ urbanization implies a reactive and somewhat reluctant approach. It
could amount to a simple incremental expansion of current measures. is is unlikely
to capture the public imagination and may translate into limited provision of improved
services and infrastructure to upgrade burgeoning informal settlements. As a social pro-
gramme, resources are bound to be restricted to limit the scal burden. Cost pressures
will mean focusing on cheap land on the city margins for which there is no other demand.
is will reproduce the existing spatial structure of cities and consign people to periph-
eral locations, albeit with an improved living environment. ere will be hidden costs
in the provision of bulk infrastructure and transport subsidies to compensate people for
long travel distances. Over time the nancial drag on municipalities will escalate and may
threaten their viability.
e alternative is a bolder, forward-looking approach with a stronger economic logic.
Urban restructuring could help to bring about more ecient and equitable land-use pat-
terns, thereby reducing transaction costs in local labour and housing markets. It will
raise population densities in suitable places and improve connectivity between enter-
prises, amenities and citizens. A richer mix of activities and social groups will enhance the
URBANIZATION 365
vibrancy and dynamism of well-located districts. Inll development on browneld sites
and buer strips will help to knit together the physical fabric and improve urban design
standards. Using land more intensively and redeveloping low-rise buildings will make
public transport more viable, reduce road trac and enhance the safety and character of
older neighbourhoods. Higher quality and more liveable urban environments will stimu-
late increased private investment by attracting more people to live, work and socialize in
and around city centres, public transport corridors and surrounding activity nodes. A
combination of incentives, regulations, direct provision and practical partnerships with
developers could produce a wider range of housing types and create a ladder of upward
mobility for households to progress as their economic circumstances improve.
Urban integration can usefully be linked to a green economy agenda that will simul-
taneously launch a low carbon transition and spur long-term prosperity based on new
technologies and improvements in productivity. Urban renewal, regeneration and the
retrotting of older buildings chimes with eorts to increase energy eciency, protect
and restore natural ecosystems, and make more ecient use of resources. Supporting
green techniques, products, construction methods and infrastructure (such as mass-
transit systems, renewable energy, and water and waste recycling) could stimulate a wave
of creativity and innovation, and establish new markets for goods and services. Carefully
targeted investment could catalyse greater economic dynamism, resulting in a virtuous
circle of increased activity, income and employment in cities. is perspective on urban
transformation oers a positive vision of a shared future with the potential to inspire
change among citizens and investors, and draw together diverse sectoral interests around
a common agenda.
■ REFERENCES
Financial and Fiscal Commission (FFC) (2011), ‘Economic and Fiscal Costs of Inecient Land-Use Patterns’,
Policy Brief 1, Pretoria: FFC.
Huchzermeyer, M. (2011), Cities with ‘Slums’: From Informal Settlement Eradication to a Right to the City in
Africa, Cape Town: UCT Press.
Msulwa, R. and I. Turok (2012), ‘Does Density Drive Development?’, Urban Transformation Research Report,
Johannesburg: Wits University.
National Planning Commission (NPC) (2012), National Development Plan, Pretoria: NPC.
South African Cities Network (SACN) (2011), 2011 State of SA Cities Report, Johannesburg: SACN.
Turok, I. (2012), ‘Urbanisation and Development in South Africa: Economic Imperatives, Spatial Distor-
tions and Strategic Responses’, IIED Urbanisation and Emerging Population Issues Working Paper No. 8,
London: IIED.
World Bank (2009), World Development Report 2001: Reshaping Economic Geography, Washington: World
Bank.
Public financing for housing
david savage
48
Signicant numbers of households do not have access to adequate shelter, despite the
construction of a large number of subsidized houses since 1994. Yet South Africa also has
‘a solid and well-developed housing nance sector that provides long term nance to bor-
rowers at reasonable rates, supporting a vibrant and healthy property market’ (Rust, 2010:
2). Housing policy presents a challenging conundrum, where competing policy objec-
tives oen collide with political ambition and institutional weaknesses impede progress
on even agreed aims. Hoek-Smit (2008) notes that this is not unusual, many national
housing policies ‘. . . simply assume that housing subsidies are necessary . . . with the pre-
cise reasons for subsidizing housing le vaguely dened’.
e provision of an estimated 3 million houses to poorer South African households
since 1994 is usually claimed as a signicant public policy success. Available data are
indeed impressive, but many households are still waiting in line for a house. A new gen-
eration of challenges faces public housing programmes, not all of which are within the
direct remit of housing policymakers, or indeed even the state, as it seeks to progressively
realize the Constitutional right ‘to have access to adequate housing’, through taking ‘rea-
sonable legislative and other measures, within its available resources’ (section 26).
1 The housing value triangle
First, the housing sector is an economic sub-sector that contributes a substantial por-
tion of GDP and shapes other sectors in important ways. Total gross xed capital for-
mation for residential buildings in 2008 amounted to R48.1 billion, whilst mortgage
By 2009, residential mortgages from banks accounted for 39 per cent of total credit extended to the pri-
vate sector and 31.7 per cent of GDP. But access to this market is limited to those with monthly household
incomes of R10,000 or more, who constitute only 15–20 per cent of the population (Melzer, 2010).
is data are ‘complex and unclear. e Department of Human Settlements has historically published
its delivery gures in terms of construction progress rather than completions, reporting on the number of
houses “completed or under construction”. [It] does not oer statistics on actual houses built’ (FFC, 2011).
South African Reserve Bank, Quarterly Bulletin, December 2010.
PUBLIC FINANCING FOR HOUSING 367
nance amounts to 31 per cent of GDP. Second, housing assets are an important form of
household savings that can be used to leverage economic participation, such as for small
business operations, or for retirement savings. ird, broad access to adequate housing
contributes to social stability.
e social and economic importance of housing does not constitute a rationale for pub-
lic policy intervention. Unwise public policy can distort housing markets with bro ader
economic eects. Leveraging of household mortgage debt depends on stable or rising
house prices in liquid markets, which may not always be the case. Moreover, a house itself
is a private good almost by denition. It is the settlements in which they occur that are
common pool resources.
Post-apartheid housing policy has been driven primarily by equity concerns, particu-
larly given the massive mismatch between supply and demand of urban housing under
apartheid. In 1994 an estimated 1.4 million housing units required construction, account-
ing for nearly 43 per cent of total housing stock. ‘Housing policy was characterised by a
fragmented patchwork of inequitable, unsustainable and disconnected interventions . . .
[leading to a] . . . wave of illegal subdivisions and/or land invasions . . . [and] . . . extreme
levels of residential segregation’ (Gilbert, 2004: 18). Government emphasized direct mass
housing provision that, whilst not seen as a panacea to the housing challenge, was seen
to be a rational response to the chronic shortage of houses. e focus was on addressing
bottlenecks to housing supply, through integrated land assembly, development approval
and contractor mobilization whilst managing the risk that a rapid increase in supply
would trigger signicant cost ination.
2 Approaching the crossroads: current challenges
in housing policy
Public subsidies have nanced the construction of 3 million subsidized houses for low-
income households since 1994. By September 2010, around 1.4 million of these houses
were on the deeds register, accounting for 24 per cent of all registered properties (Rwide,
2012). Although only a small proportion of these properties have been subsequently sold
in the formal housing market, it is likely that they are generally being used for economic
activities such as room rentals or home-based business activities, and there is evidence
of subsequent owner-nanced improvements (Rust, 2012). Surveys have found that ‘65%
[of beneciaries] said it had improved their social life and leisure; just under 60% said it
had improved their education prospects and just under 50% said it had improved their
employment situation’ (Rust, 2012: 10).
Despite these successes, an estimated 2.1 million households remain without access
to adequate housing, nominally more than in 1994 (FFC, 2011). By 2011, 1.9 million
368 POST-APARTHEID SOCIAL POLICY
households lived in informal dwellings, either in backyards or settlements, with over 75
per cent of these households in larger urban centres. e number of registered infor-
mal settlements has grown from 300 in 1994 to 2,628 in 2010 (Topham, 2012). In terms
of current housing policy, 83.7 per cent of households qualify for some form of hous-
ing assistance from government and over 58 per cent qualify for free housing (Rwide,
2012). Estimates of the annual housing production requirement for low-income house-
holds range from 170,000 to 250,000 units a year and the total cost of meeting current
demand at R176 billion, excluding the costs of land, bulk infrastructure, public transport
and community services (Rwide, 2012).
Current housing policies are increasingly criticized for being unlikely to adequately
provide housing on the scale required, for causing distortions in housing markets and
resulting in housing products of inferior quality, and for being nancially unsustainable
(FFC, 2011).
Criticisms of the scale of the current housing programme reect the signicant tech-
nical, procedural and state capacity challenges in attempting to construct around 250,000
houses annually. e (many) lists of registered beneciaries waiting for housing con-
tinues to grow, with average waiting times appearing to be in excess of 10 years in some
cases. Reports of preferential treatment for ‘special cases’ have emerged, in some cases
with limited justication. e complexities of land identication, planning and town-
ship establishment, procurement and contractor management, and the transfer of title to
beneciaries have all proven dicult to manage. Allegations of patronage, fraud, corrup-
tion or poor quality construction abound, and long delays are reported in the transfer of
title deeds to beneciaries. e National Treasury has raised concerns that the mass hous-
ing production programme has lost steam, evidenced in a falling rate of delivery despite
real growth in the housing budget (Rwide, 2012).
Insucient public housing production is exacerbated by criticisms that the cost of
home ownership is increasingly unaordable to even those households who do have
incomes that disqualify them from public subsidies. About 2.3 million households who
earn between R3,500 and R9,000 per month, including many public sector sta such as
nurses and police, are unable to aord to housing produced for the unsubsidized market.
Private developers produce around 20,000 new ‘aordable’ housing units annually, but
total demand is estimated to be 650,000 units (Banking Association, 2005). Moreover, the
expansion of the current public housing product has distorted the provision of unsub-
sidized housing as it has sought to dierentiate itself. Rust (2012) reports that the lowest
price of unsubsidized housing on the market is now R240,000, with public supply having
essentially displaced any product below this value. Rust (2012) notes that housing market
Housing demand changes as with population growth and beneciary lifecycle needs and preferences.
Slowing population growth rates are oset by declining households sizes and a shi in fertility levels that
imply ongoing growth in demand. Far less is known about household preferences.
PUBLIC FINANCING FOR HOUSING 369
conditions are already unfavourable to even the working poor, who were excluded from
the benets of past growth in house prices, have very limited access to credit and have
faced a signicant growth in rental prices. Supply constraints are part of the problem, with
higher than average construction cost ination, limited availability of serviced land due
to delays in municipal provision of bulk infrastructure and very limited activity in resale
markets all contributing to higher prices. Others dispute that household aordability is
more of a problem than a specic ‘lack of suitable small plots of land in the formal market’
(Lall et al., 2012: 4). Studies increasingly point to evidence of household willingness and
capacity to co-nance housing through their own savings and incremental investment,
both in informal settlements and subsidized housing. Access by households top more
traditional housing nance credit lines is likely to be a more signicant constraint (FFC,
2012), driven by high levels of unsecured lending that has diminished creditworthiness.
Constraints to scale and aordability have brought attention to bear on the overall sus-
tainability of the current, de facto housing subsidy regime, particularly given the scale
of demand and the costs involved in supply. e ‘standard’ housing product nanced
by subsidies has grown dramatically, evolving from a basic structure and services to a
multi-roomed, completed house at an average cost of R140,000 (FFC, 2012). Increases
in unit delivery costs are not always associated with additional value as increased subsidy
levels may trigger cost ination. e drive for cost savings in the current delivery model
has created extensive, monotonous dormitories on the urban periphery that are far from
social and economic opportunities. e national housing programme has thus tended to
have ‘unwittingly . . . reinforced apartheid geography’ (NPC, 2012: 268), entrenching both
exclusion of housing beneciaries as well as the need for long-term operating subsidies
to sustain even basic access to municipal services and public transport. Lall et al. (2012:
3) suggest that ‘the current value of most RDP housing is less than what it cost to build
them . . . [largely due to their] . . . poor location and a lack of fully tradable property rights’.
Informal settlements are the result of these challenges to scale, aordability and sus-
tainability. e number of households living in informal settlements rose by 8.7 per cent
in ve years to 2011, when 1.1 million households in metropolitan municipalities were
living in informal settlements (or 18.2 per cent of all households). ese challenges were
foreseen by enlightened policymakers as early as 2004 in the ‘Comprehensive Plan for the
Delivery of Sustainable Human Settlements’. But the current orientation did not change—
project-based supply continued and product specication expanded. Indeed, the forces
creating informal settlements seem to largely elude policymakers who remain committed
to goals such as eradicating informal settlements. In the words of a Provincial Hous-
ing MEC: ‘We cannot win this battle if we continue to be held to ransom by our people,
Excluding signicant costs of land and bulk infrastructure provision typically assigned to municipal-
ities. is raises concerns over their ability to nance current investment needs, whilst sustaining subsequent
service delivery to households with a limited ability to pay for services.
370 POST-APARTHEID SOCIAL POLICY
who continue to occupy land illegally and continue to add numbers to the ever emerging
informal settlements.’
Doubtless, there is a powerful political economy behind this inability to actually walk
the policy talk. Little analytical work has been done in South Africa on the interest groups
invested in the current de facto housing policy, consisting of a nexus of politicians, con-
tractors and bureaucrats with signicant opportunities for patronage, contracts, corrup-
tion, alongside powerful established urban interests who resist changes to the current
urban form ‘in my back yard’. Ongoing weaknesses in the public sector management of
the housing programme also undermine change. e intergovernmental assignment
of housing functions falls across national, provincial and local spheres of government,
weakening actual accountability for outcomes. e spatial planning and development
control regime has been criticized, most recently by the National Planning Commission,
for being weak and outmoded. And extensive weaknesses in the administration of hous-
ing programmes are evident in the long lead times for the delivery of housing projects,
and extensive delays in the transfer of title to beneciaries.
3 Inertia at the crossroads
e political and scal risks of the current approach to housing delivery are rising, with
housing being the most oen cited concern behind ‘service delivery protests’ (Jain, 2010).
Hoek-Smit (2006) warns against policy orientations that oversimplify and misdiagnose
a generic ‘housing problem’ to propose unrealistic, impractical interventions. Housing
policy appears overwhelmed by broad policy objectives that range from access to shelter,
to asset poverty reduction to urban spatial restructuring. Yet it is constrained by the appli-
cation of a limited set of policy instruments that, whilst unable to respond adequately to
actual demand, also appear to have become part of the problem.
e policy issue now ‘appears to be the extent to which the housing policy encourages
or discourages householders and lenders to participate in the housing nance market,
and the resulting impact on the state’s capacity to perform its mandate’ (FFC, 2011). ere
is, to date, insucient consensus that a public focus on direct housing supply cannot solve
all ills, nor is their agreement that the key challenge for housing policy is to trigger house-
hold investment in their own housing stock and participation in housing markets.
At the policy level, public intervention will need to shi from a supply-led to a demand-led
approach, paying far closer attention to understanding what households are asking for and
assisting them to meet their needs. is implies a move away from the housing ‘entitlements’
that have become embedded in the political process, towards encouraging and empowering
See <http://www.info.gov.za/speech/DynamicAction?pageid=461&sid=26,638&tid=64,466>.
PUBLIC FINANCING FOR HOUSING 371
households to save for and invest in their own housing needs. is has dicult political
implications but holds the prospect of households themselves being able to make trade-os
between house cost and location, to oversee the quality of construction and to leverage their
own housing as an economic asset. It is an approach that requires an acceptance of infor-
mality as an entry point into the housing market, and will require a fundamental redesign
of current housing subsidy instruments as they are deployed in practice to promote con-
sumer sovereignty, household contributions and creditworthiness, and subsidy mobility for
a broader segment of households and across a broader set of housing typologies.
is change alone will be insucient to meet housing needs. e design and focus of
public sector institutional arrangements will also need to shi to reect a new role. e
public sector will continue to have a critical role to play in land production and manage-
ment, and has a variety of regulatory and investment tools at its disposal.
First, the regulatory role of the state extends from spatial planning land use zoning to
development approval, building control and registration of title. Current performance
here appears sub-optimal, for example in the signicant delays and backlogs in the trans-
fer of title to new homeowners, particularly for publicly built housing. e problem is not
conned to simply administrative ineciency. In many instances these regulatory con-
trols prevent desirable urban development through limiting the intensication of land
uses, promoting low density settlements, or simply delaying approvals. Environmental
and heritage regulation can be used to protect vested interests. Regulatory reforms to land
management systems are required to speed up land release and encourage more intensive
land use.
Second, the provision of public infrastructure is an essential element of land develop-
ment. Concerns have repeatedly been raised about the insucient scale and long delays
in public investment in bulk and connector infrastructure, which constrain the release of
land and raise the cost of property developments. e problem is oen traced to insu-
cient technical capacity, particularly in municipalities, and to insucient nance available
for investment. Moreover, public infrastructure is more than large-scale networks and
includes important community infrastructure, from public spaces and community halls,
to schools and clinics, and transport infrastructure and services. Public sector choices
on the location of these investments are key determinants of the locational advantages of
individual properties.
ese regulatory and investment functions are rmly within the public realm in South
Africa, but are mired in complexities of intergovernmental functional assignments and
poor public sector performance. Even large-scale investment decision-making remains
fragmented across dierent spheres of government, and dierent departments within a
sphere of government. Regulatory functions face the same challenges and further frag-
ment public decision-making.
Eorts are underway to address each of these issues. Spatial planning, land use man-
agement and housing delivery functions are in the process of being formally re-assigned
372 POST-APARTHEID SOCIAL POLICY
to municipalities, particularly in large cities. e proposed Spatial Planning and Land
Use Management Bill is currently before Parliament, largely as a consequence of a Con-
stitutional Court decision. A drawn out process in terms of the Housing Act has seen the
accreditation of municipalities to perform the housing delivery function and is intended
to result in the nal re-assignment of this function to large municipalities. Eorts are
underway to strengthen municipal technical capacity and some progress has been made
in clarifying the nancial regime for land development.
ese shis may not result in improvements in the housing landscape. e Spatial
Planning Bill does not fundamentally alter the nature and form of land use planning and
regulation. e shi in the housing function has not been accompanied by an explicit
shi in the supply-led approach to housing delivery. Demand-side approaches to housing
subsidies may, in any event, be better managed at a central level to protect the mobility of
households. Although eorts are underway to strengthen municipal technical capacity
and some progress has been made in clarifying the nancial regime for land develop-
ment, this has yet to result in signicant improvements in outputs. e key questions
of the form of subsidy regime, the need to facilitate access to housing across all market
segments and the impacts of public investment on urban spatial form all remain unad-
dressed in practice.
■ REFERENCES
Banking Association of South Africa (2005), ‘Research into Housing Supply and Functioning Markets. Final
Report: Research, Findings and Conclusions’, Banking Association of South Africa: Housing Workstream
Group, December 2005.
FFC (2011), ‘Challenges and Opportunities in Housing Finance in South Africa’, Problem Statement for FFC
Public Hearings on Housing Finance.
FFC (2012), ‘Housing Finance Options Analysis’, Dra Report, November 1, 2012, FFC, Midrand.
Gilbert, Alan (2004), ‘Helping the Poor through Housing Subsidies: Lessons from Chile, Colombia and South
A f r i c a’, Habitat International, 28: 13–40
Hoek Smit, Marja (2006), ‘Framing Housing Subsidy Policies for Middle-Income Countries: Background
Materials for the Aordable Housing Workshop’, Pretoria: National Treasury, Government of South
Africa, November 17, 2006.
Hoek Smit, Marja (2008), ‘inking about Housing Subsidies’, in An Illustrative Guide to Housing Finance
Subsidies, World Bank/Wharton School, <http://honet.org/documents/doc.aspx?id=609>.
Jain, Hirsh (2010), ‘Community Protests in South Africa: Trends, Analysis and Explanations’, Local Govern-
ment Working Paper Series No. 1, Community Law Centre, University of the Western Cape.
Lall, S., R. van den Brink, B. Dasgupta and K.M. Leresche (2012), ‘Shelter from the Storm—but Disconnected
from Jobs: Lessons from Urban South Africa on the Importance of Coordinating Housing and Transport
Policies’, Policy Research Working Paper No. 6173, World Bank.
Melzer, I. (2010) (unpublished), ‘Enhancing Access to Housing Finance in the Aordable Housing Market in
South Africa’, World Bank support to SA National Treasury regarding the housing nance framework in
South Africa, Annexure 1: Market Update.
PUBLIC FINANCING FOR HOUSING 373
National Planning Commission (2012), ‘National Development Plan 2030: Our Future—Make it Work’,
Republic of South Africa, <http://www.npconline.co.za/>.
Rust, Kecia (2010), ‘Enhancing Access to Housing Finance in the Aordable Housing Market in South Africa’,
World Bank support to SA National Treasury regarding the housing nance framework in South Africa,
Overview Report, October 22, 2010.
Rust, Kecia (2012), Housing Matters: e Importance of Housing Finance in Financial Sector Development in
Africa.
Rwide, Ulrike (2012), ‘Housing and Human Settlements in South Africa: An Overview’, Presentation to
Course on Leadership in Local Government—Building Globally Competitive Cities, National Treasury,
Stellenbosch, March 7, 2012.
Topham, Steve (2012), ‘Informal Settlement Upgrading’, Presentation to Course on Leadership in Local
Government—Building Globally Competitive Cities, National Upgrading Support Programme, Stellen-
bosch, March 7, 2012.
Land and land reform
in South Africa
ben cousins
49
Given the central role of land dispossession in South Africa’s history, together with its
legacies of deep rural poverty, racial inequality in land ownership and a starkly divided
agrarian structure, land reform was a key issue for the rst post-apartheid government.
1 Biophysical features
South Africa lies between 22°S and 35°S and its climate is generally temperate, although
temperatures vary greatly with elevation and distance from the sea. Soil fertility also var-
ies across the country, but in many areas their nutrient status is high. Much of the country
is arid or semi-arid, with only 28 per cent of the land surface receiving 600 mm or more
per annum. Rainfall varies from under 50 mm per annum on the western border with
Namibia to more than 3,000 mm per annum in the southwestern Cape, with regions to
the east of the Drakensberg escarpment receiving around 1,000 mm per annum. Rainfall
is unreliable and droughts are common.
2 Land distribution and use
e total area of South Africa is 122,081,300 hectares. Currently around 67 per cent of
this is held as private property and used for commercial agriculture, with another 15 per
cent in densely settled communal areas (formerly owned by the state). Another 10 per
cent of the land is also state-owned, and used for a variety of purposes by conservation
bodies, the military, provincial departments such as education and health, and national
departments such as public works. e remaining 8 per cent is in urban areas, home to
around 60 per cent of the population (PLAAS, 2013a).
e agricultural potential of South Africa is constrained by its biophysical features,
with relatively little of its surface area suitable for any form of cropping. Most of the
378 LAND, AGRICULTURE AND ENVIRONMENT
country is suitable only for extensive livestock production, and only 16.7 million hec-
tares (13.7 per cent) is arable. Around 1.3 million hectares (or 10 per cent of arable land)
is irrigated. ere are a variety of sub-climates suitable for dierent types of agricul-
ture. e main grain crops grown are maize, wheat, oats, sorghum and barley; the main
oilseed crops are soya beans, canola, sunowers and groundnuts. e key horticultural
crops are wine grapes, deciduous fruit (apples, pears, plums, peaches), sub-tropical fruit
(citrus, mangoes, avocadoes, bananas) and vegetables; and sugar is grown on a large
scale. In relation to livestock, the main products are beef, dairy products, lamb and mut-
ton, wool, goat meat, poultry and pork. In 2011 agriculture contributed about 2 per cent
of GDP, about 10 per cent of exports, and about 5 per cent of formal employment (GCIS,
2012: 37).
3 Agrarian structure
e agricultural sector is highly ‘dualistic’, with stark contrasts between large-scale com-
mercial farmers (almost all of them white) and small-scale farmers (almost all black). e
former produce 90–95 per cent of marketed output, with some products (e.g. wine and
fruit) produced mainly for export. Commercial farms tend to be large and mechanized,
and employment has fallen steadily over several decades (from 1.8 million in the 1960s, to
below 1 million by the early 1990s, to around 700,000 at present (BFAP, 2012)).
e number of commercial farming units for which taxes are paid has also fallen, from
around 60,000 in the early 1990s to less than 40,000 at present (Bernstein, 2013: 26).
Aggregate production has increased over time due to increased use of inputs such as
improved crop varieties, livestock breeds and agro-chemicals. Commercial farming is
both increasingly concentrated and highly dierentiated; in 2002 over half of all gross
farm income was earned by around 5 per cent of enterprises, the annual net farm income
of these being at least R4 million each (Vink and van Rooyen, 2009: 32).
Small-scale farming is engaged in by households located largely in the former ‘native
reserves’, rural areas designated for occupation and use by Africans (and some ‘coloured’
people). With their origins in the nineteenth century, these areas were further consoli-
dated through the twentieth century, with black ownership of land in ‘white’ South Africa
deemed illegal in the apartheid era.
Racially divided settlement and land use were imposed and enforced by the politically
dominant white minority. Successive legislation such as the Land Acts of 1913 and 1936
resulted in 13 per cent of the country being set aside for Africans, with a small number
of reserves for ‘coloureds’. In pursuit of this goal, around 3.5 million black South Africans
in both urban and rural areas were subject to forced removals and resettlement from the
early 1950s to the later 1980s. In 1994 about half of the African population lived in the
LAND AND LAND REFORM IN SOUTH AFRICA 379
former reserves, termed ‘bantustans’ under apartheid and now ‘communal areas’, on one-
sixth of the area owned by 60,000 white farmers.
Estimates of the current number of small-scale farmers are based on extremely scanty
survey data, and range from 1.2 million (Vink and van Rooyen, 2009: 35) to 4 million
(Aliber et al., 2009: 4). Labour Force Survey data show that 92 per cent of respondents
engage in small-scale agriculture as a source of food or as a leisure-time activity, and only
8 per cent do so as a main or extra source of income (Aliber et al., 2009: 4). Farming is
usually combined with a range of other livelihood sources, such as remittances, wages and
social grants (Neves and du Toit, 2013).
ere is widespread under-utilization of arable land, with much crop production hav-
ing shied from elds to small homestead gardens. Andrew et al. (2003) suggest the
following reasons: shortages of labour, draught oxen, capital and inputs; declining soil
fertility; risks of crop damage; inadequate markets. Livestock are generally multi-purpose
in character, yield high economic returns per hectare and make important contributions
to livelihoods, but their distribution is very uneven (Shackleton et al., 2000).
e racially divided character of South Africa’s ‘dualistic’ and highly unequal agrarian
structure is no accident. It is the result of decades of state policies and interventions aimed at
promoting the interests of white farmers. ese measures included dispossession of indig-
enous populations, forced removals from land designated for white occupation and meas-
ures forcing Africans to sell their labour in emerging mining and industrial centres. White
farmers also received credit, price support, subsidies for fencing and dams and dedicated
marketing, research and extension services. In contrast, black rural areas were treated as
reservoirs of cheap migrant labour, with small-scale farming by women subsidizing the cost
of such labour by meeting the reproduction costs of rural family members (Wolpe, 1972).
4 Land tenure
e two main systems of land tenure in South Africa are private property, the dominant
system, and various forms of ‘communal tenure’. Property held by the state for public
purposes is also important. Forms of private property include full ownership, leasehold
and sectional title, and are governed by both common and statutory law. Support services
include surveying, mapping, conveyancing and registration of title deeds.
‘Communal’ tenures combine individual property held by families and individuals and
forms of common property for shared resources such as grazing or woodlands. ey are
socially embedded systems of ‘complementary interests held simultaneously’ (Bennett,
2004: 381) and derive their legitimacy from customary values. ey are governed by a
layered set of authority structures located within units of social organization such as fami-
lies, neighbourhoods, wards and larger communities.
380 LAND, AGRICULTURE AND ENVIRONMENT
In the past, rights to land within communal tenure were not recognized as ‘ownership’,
and were vulnerable to deprivation by elites and the state. In a version of indirect rule,
compliant traditional leaders were given enhanced powers over their subjects, overriding
indigenous mechanisms of downward accountability (Claassens, 2008: 287). A key issue
in the post-apartheid era has been communal tenure reform to secure such rights and to
democratize land administration. Some commentators argue that communal land should
be converted to individual private property, but this remains a minority view.
5 Land reform
Programmes to restore land to the victims of forced removals, redistribute productive
farmland and secure the land tenure rights of both communal area dwellers and farm-
workers were launched in 1994. World Bank advisers helped convince the ANC to adopt a
market-oriented approach to land redistribution and to liberalize the agricultural sector,
arguing that these would promote both eciency and equity.
Key clauses in the 1996 Constitution protect holders of property rights from arbitrary
deprivation by the state, but allow expropriation for land reform, dened as a measure
in the public interest. Payment of compensation may be at less than market value, tak-
ing into account a number of factors. In practice most land acquired by the state for land
reform has been paid for at close to current market values.
Land restitution provides relief for those who lost their land through racially discrimi-
natory laws and practices aer June 1913, or for their descendants. It can take the form of
restoration of land, alternative land or nancial compensation. Land claims are against the
state, not individual property owners, and a Land Claims Court hears disputes. All claims
must be validated and a sale price is then negotiated with the current owner. Claims to
both urban land and rural land can be lodged, with the former usually being individual
claims, and the latter mostly group or community-based claims.
Nearly 70,000 claims had been lodged by the deadline of December 31, 1998. Some of
these were then divided into separate claims and the nal count was 79,696. Around 80
per cent of these were for urban properties, the great majority of which cannot easily be
restored. A ‘standard settlement oer’ of around R40,000 per claim has been accepted as
compensation by most urban claimants. Rural claims involve much larger numbers of
beneciaries and much larger areas of land, and restoration is preferred by most claimants
and by the state. ey are much more complex to resolve and costly to settle.
By 2013 a total of 77,334 land claims had been settled, and 1.44 million hectares had
been restored at a cost of around R10 billion, with another R6 billion spent on cash com-
pensation (Nkwinti, 2013). However, only 59,758 claims had been ‘nalized’. Budgetary
constraints have caused delays in payment of compensation to land owners. In 2011 it was
LAND AND LAND REFORM IN SOUTH AFRICA 381
reported that 3,673 claims had yet to be researched; it is likely that these are large rural
claims (Umhlaba Wethu, 2011). In 2013 the government announced that a new window
period for lodging of restitution claims would be opened, and that claims for land lost
before 1913 (e.g. by Khoisan people) would be permitted following new legislation and a
constitutional amendment.
Common problems experienced in implementing restitution include the high cost of
rural claims, diculties of validation, competing claims to the same land, planning mod-
els which assume that land use by claimants should be the same as that of previous owners,
inadequate post-settlement support, under-capitalization, vandalism of infrastructure in
the period between resolution of the claim and rst settlement and conicts within large
groups of claimants. Many projects have collapsed (Aliber et al., 2013).
e purpose of the land redistribution programme is to address the unequal and racially
skewed distribution of land, and to improve the livelihoods and quality of life of the land-
less poor, labour tenants, farm workers and emerging farmers (DLA, 1997: 36). Unlike
restitution, redistribution is not rights-based and people wanting land have to apply for
land acquisition grants. e state purchases land on their behalf on the open market, as a
‘willing buyer’ from a ‘willing seller’. A target of redistributing 30 per cent of commercial
agricultural land within ve years was set in 1994.
e rst mechanism for redistribution was the Settlement/Land Acquisition Grant, set
at R15,000 per household, for both land purchase and for farm infrastructure and equip-
ment. Qualication for the grant included a maximum household income of R1,500.
Whole farms were acquired, almost none were subdivided, and (sometimes large) groups
of applicants held the land through a Communal Property Association or a Trust. Pro-
jects did not receive much post-transfer support in the form of training, infrastructure,
credit, etc. Progress was slow and projects experienced many problems, similar to those
in the restitution programme (Lahi, 2007).
In 2001 a new policy framework for redistribution was announced, the Land Redistri-
bution and Agricultural Development (LRAD), and the deadline for transfer of 30 per
cent of farmland was moved to 2014. One objective was to create a class of black com-
mercial farmers. Grants ranged from R20,000 to R100,000 per beneciary, with own con-
tributions from R5,000 at the lower end (which could be paid in kind) to a maximum of
R400,000. Over the next eight years LRAD saw increasing numbers of projects, bene-
ciaries and hectares transferred, but never more than 250,000 hectares per annum, or 10
per cent of the target (Lahi, 2008: 23).
e pro-active land acquisition strategy (PLAS) was adopted in 2006. Here the state
purchases farms and allocates them to applicants, issuing a three- to ve-year leasehold
agreement with an option to purchase. A moratorium on LRAD projects was imposed in
2010 and only PLAS appears to be operational at present. Aliber and Hall (2010: 10) show
that in 2007/08 the PLAS programme contributed the largest share of land acquired for
redistribution but beneted only a small number of larger-scale farmers.
382 LAND, AGRICULTURE AND ENVIRONMENT
Overall, land redistribution between 1994 and 2013 has seen 4,860 farms, on around 4
million hectares, transferred to around 250,000 beneciaries. In 2009 a recapitalization
programme was launched to address the needs of failing land reform farms, with a total
of around R2 billion invested in 1,269 farms by March 2013. Commercial farmers are also
being appointed as partners and mentors.
Soon aer his appointment in 2009, the Minister of Rural Development and Land
Reform, Gugile Nkwinti, proclaimed 90 per cent of land reform projects as ‘failed’, but
without citing any evidence. Research suggests that land redistribution has seen mod-
est improvements in the livelihoods of many beneciaries despite inadequate support
(PLAAS, 2013b). Most commentators agree, however, that land reform has not made any
signicant impact on the ‘dualistic’ structure of agriculture.
One thrust of tenure reform policy is to secure the occupancy rights of farm workers,
labour tenants and farm dwellers, who numbered around 3 million in 1994. e Land
Reform (Labour Tenants) Act of 1996 and the Extension of Security of Tenure Act of 1997
regulate relations between owners and occupiers of farms and determine when and how
occupiers may be evicted, as well as creating mechanisms to provide alternative land and
accommodation. ey have been ineective in preventing evictions, which increasingly
take place within the law. It is estimated that around 1 million people were evicted from
commercial farms between 1994 and 2004 compared to three quarters of a million in the
previous decade (Wegerif et al., 2005: 190). Progress has also been very slow in resolving
labour tenant claims.
e second focus of tenure reform is communal tenure. e Communal Land Rights
Act of 2004 provided for the transfer of communal land from the state to ‘traditional com-
munities’ governed by chiefs and traditional councils. It was highly controversial because
it strengthened the apartheid-era powers of traditional authorities (Claassens and Cous-
ins, 2008), subject to a legal challenge by four rural communities, and struck down by
the Constitutional Court in 2010. By mid-2013 the government’s intentions in relation
to meeting their constitutional obligations in terms of section 25(6) of the Bill of Rights
remained unclear.
6 Conclusion
Questions of land in South Africa hold a powerful political charge, in part because racial-
ized land dispossession is invoked as a symbol of historical oppression and injustice
in general. e centenary of the 1913 Natives Land Act has seen further expression of
deep tensions within and between the social, economic and political dimensions of land
reform. In the absence of wide agreement on the goals and mechanisms of land reform, as
well as its slow pace, these seem set to continue.
LAND AND LAND REFORM IN SOUTH AFRICA 383
■ REFERENCES
Aliber, M., M. Baipethi and P. Jacobs (2009), ‘Agricultural Employment Scenarios’, in R. Hall (ed.), Another
Countryside. Policy Options for Land and Agrarian Reform in South Africa, Cape Town: Institute for Pov-
erty, Land and Agrarian Studies, University of the Western Cape.
Aliber, M. and R. Hall (2010), ‘Development of Evidence-Based Policy Around Small-Scale Farming’, Paper
commissioned by the Programme to Support Pro-poor Policy Development, Pretoria: e Presidency,
Republic of South Africa.
Aliber, M., T. Maluleke, T. Manenzhe, G. Paradza and B. Cousins (2013), Land Reform and Livelihoods. Tra-
jectories of Change in Limpopo Province, South Africa, Cape Town: HSRC Press.
Andrew M., A. Ainslie and C. Shackleton (2003), ‘Land Use and Livelihoods’, Evaluating Land and Agrarian
Reform in South Africa Series, No. 8, Cape Town: Programme for Land and Agrarian Studies, University
of the Western Cape.
Bennett, T. (2004), Customary Law in South Africa, Cape Town: Juta Press.
Bernstein, H. (2013), ‘Commercial Agriculture in South Africa since 1994: “Natural, Simply Capitalism”’,
Journal of Agrarian Change, 13(1): 23–46.
Bureau for Food and Agricultural Policy (2012), ‘Farm Sectoral Determination: An Analysis of Agricultural
Wages in South Africa’, <http://www.bfap.co.za>.
Claassens, A. (2008), ‘Power, Accountability and Apartheid Borders: e Impact of Recent Laws on Struggles
Over Land Rights’, in A. Claassens and B. Cousins (eds), Land, Power and Custom: Controversies Gener-
ated by South Africa’s Communal Land Rights Act, Cape Town: UCT Press and Columbus: Ohio University
Press.
Claassens, A. and B. Cousins (eds) (2008), Land, Power and Custom: Controversies Generated by South Africa’s
Communal Land Rights Act, Cape Town: UCT Press and Columbus: Ohio University Press.
Department of Land Aairs (1997), White Paper on South African Land Policy, Pretoria: Department of Land
Aairs.
Government Communication and Information Services (2012), South African Yearbook 2011/12, Pretoria:
Government Communication and Information Services.
Lahi, E. (2007), ‘“Willing Buyer, Willing Seller”: South Africa’s Failed Experiment in Market-led Agrarian
R e fo r m’, ird World Quarterly, 28(8): 1577–98.
Lahi, E. (2008), ‘Land Reform in South Africa: A Status Report 2008’, Cape Town: Institute of Poverty, Land
and Agrarian Studies, University of the Western Cape.
Neves D. and A. du Toit (2013), ‘Rural Livelihoods in South Africa: Complexity, Vulnerability and Dieren-
tiation’, Journal of Agrarian Change, 13(1): 93–115.
Nkwinti, G. (2013), ‘2013 Budget—Policy Speech. Building Vibrant, Equitable and Sustainable Communi-
ties’, May 31, 2013, Cape Town: Parliament of the Republic of South Africa.
PLAAS (2013a), ‘e Distribution of Land’, Fact Check No. 1. Cape Town: Institute of Poverty, Land and
Agrarian Studies, University of the Western Cape.
PLAAS (2013b), ‘Many Land Reform Projects Improve Beneciary Livelihoods’, Fact Check No. 4, Cape
Town: Institute of Poverty, Land and Agrarian Studies, University of the Western Cape.
Shackleton S., C. Shackleton and B. Cousins (2000), ‘e Economic Value of Land and Natural Resources to
Rural Livelihoods. Case Studies from South Africa’, in B. Cousins (ed.), At the Crossroads. Land and Agrar-
ian Reform in South Africa into the 21st Century, Cape Town and Braamfontein: Programme for Land and
Agrarian Studies, University of the Western Cape and National Land Committee: 111–28.
Umhlaba Wethu (2011), Umhlaba Wethu 12, May 2011, Cape Town: Institute of Poverty, Land and Agrarian
Studies, University of the Western Cape.
384 LAND, AGRICULTURE AND ENVIRONMENT
Vink, N. and J. Van Rooyen (2009), ‘e Economic Performance of Agriculture in South Africa Since 1994:
Implications for Food Security’, Development Planning Division, Working Paper Series, No. 17, Halfway
House, Development Bank of Southern Africa.
Wegerif, M., B. Russell and I. Grundling (2005), Still Searching for Security. e Reality of Farm Dweller Evic-
tions in South Africa, Polokwane and Johannesburg: Nkuzi Development Association and Social Surveys.
Wolpe, H. (1972), ‘Capitalism and Cheap Labour Power: From Segregation to Apartheid’, Economy and Soci-
ety, 1(4): 425–56.
The politics and economics
of water in South
Africa—1994–2013
rolfe eberhard
50
South Africa cannot aord to fail in its management of water. With severely limited fresh
water resources and highly variable rainfall, the economic and social costs would be very
high. South Africa is classied as water-stressed and is already using its existing fresh
water resources intensively. is poor water endowment makes sound water manage-
ment and major investment in water infrastructure a necessity for economic growth and
poverty reduction.
1 The apartheid water legacy
South Africa has a long history of investing in water infrastructure. South Africa’s major
mining-industrial complex, founded on gold mining on the Witwatersrand, now
accounts for about 36 per cent of South Africa’s GDP and must import water from far
aeld. Rand Water, one of the largest urban water utilities in the world, was founded
in 1903 through mutual cooperation of the Chamber of Mines and local authorities. In
Water scarcity is dened as total actual fresh water resources availability of less than 1,000 cubic metres
per person per year. See M. Falkenmark, ‘e Massive Water Scarcity reatening Africa—Why Isn’t It Being
Addressed?’ (1989) Ambio, 18(2): 112–18. Muller et al. argue that intensity of use and variability may be more
important measures and on both scores South Africa fares badly. See M. Muller et al., ‘Water Security in South
Africa. Development Planning Division’, Working Paper Series No. 12, DBSA: Midrand, 2009.
e word ‘Witwatersrand’ means white water ridge, a watershed.
e main sources of water for Gauteng are the Vaal River and inter-catchment transfers from the Tugela
and Orange River systems.
Rand Water supplies a population of about 13.5 million with about 4,500 million litres per day of treated
water.
386 LAND, AGRICULTURE AND ENVIRONMENT
the 1930s the South African government embarked on a major publicly funded dam-
building and irrigation development programme to provide income opportunities for
poor whites.
In 1994, South Africa inherited three important water legacies. First, white commercial
farmers almost exclusively owned the irrigated agricultural land in South Africa, which
uses more than 60 per cent of available surface water and produces 30 per cent of the
crops on 1.5 per cent of the land. (Eighty-seven per cent of the total land was owned by
whites.) Second, well-developed water infrastructure served South Africa’s major urban
areas and medium and small towns, managed by a combination water boards and muni-
cipalities. ird, about 40 per cent of the population lived in under-developed rural areas
with poor access to safe water supplies and sanitation facilities.
2 Achievements and challenges in the provision
of basic water and sanitation services
A major focus of the new government was to make up the social decit. Rural water
programmes, under the leadership of the charismatic Minister of Water Aairs, Kader
Asmal, were early agship projects of the broader Reconstruction and Development Pro-
gramme. ese projects involved the local communities in their planning and imple-
mentation. Over time the approach became more supply-driven in the interests of speed
of delivery. e required community contributions, codied in government policy in the
1994 Community Water Supply and Sanitation White Paper, were soon dropped and
government announced a free basic water and sanitation policy in 2000, also providing
for increased grants to municipalities.
Gains in access to water supply have been impressive. e number of households with
access to water has nearly doubled from about 6.6 million in 1996 to 12.3 million in 2011
and the backlog nearly halved from nearly 4 million households to just over 2 million
households. Access has increased from 62 to 85 per cent (see Figure 50.1).
For example, in 1933, a decision was made to go ahead with the Vaalharts irrigation scheme (along with
other large-scale public works) to relieve poverty amongst the white population, which had reached critical
levels due to drought and the economic eects of the Great Depression. Lani van Vuuren, Vaalharts, A Garden
in the Desert, Water Wheel, Jan./Feb., 2010.
‘Agriculture—facts and trends: South Africa’, World Wildlife Fund, 2010.
By the year 2000, 236 projects had supplied clean piped water to close to 5 million people in rural areas.
Tom Lodge, ‘e RDP: Delivery and Performance’ in Politics in South Africa: From Mandela to Mbeki, Cape
Town: David Philip and Indiana: Indiana University Press, 2003.
Department of Water Aairs, ‘ Water Supply and Sanitation Policy White Paper, 1994’.
Data are from the 1996, 2001 and 2011 Census. Data have been interpolated between these dates. e
Department of Water Aairs’ practice of calculating the annual increase in access on the basis of expenditure
data is not considered to be sound methodology and this Departmental data have therefore not been used.
THE POLITICS AND ECONOMICS OF WATER IN SOUTH AFRICA 387
Progress with improvements in sanitation provision has also been good but not as impres-
sive as water. Household access to ush toilets increased by nearly 3 million from 5.8 to
8.7 million households. e number of households with bucket toilets halved from 4 mil-
lion to 2 million and the number of households with improved pit latrines doubled from
0.6 to 1.2 million (see Figure 50.2).
Responsibility for provision of water and sanitation was formally fully devolved to
municipalities in 2000 and assets were transferred by 2003. Municipal performance in
provision of water and sanitation services has been patchy. Larger urban areas generally
have performed satisfactorily, many small towns are struggling and signicant challenges
have been experienced in the rural areas.
ere are three main areas of service backlogs: sanitation in informal settlements, water
supply in deep rural areas and rural sanitation. e AMCOW Country Status Review for
South Africa suggests that a supply-driven and infrastructure-focused approach may be
less suited to addressing these remaining challenges. e same review also notes that
Households with piped water within 200m
Backlog (# ofhouseholds)
%Access
10
15
0
5
1996 19971998199920002001 2002200320042005 20062007200820092010 2011
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Households(millions)
Figure 50.1. Access to water supply, 1996–2011
Data are from the 2001 and 2011 Census. Categories for the 1996 Census are not consistent with the
2001 and 2011 Census and this data has therefore not been reported here. See also previous note.
Prior to 1994 municipalities were responsible for providing water and sanitation (sewerage) services in
cities and towns. e traditional rural areas were the responsibility of satellite ‘homeland’ governments set up
by the apartheid state. In 1994, the new democratic government assumed responsibility for water and sani-
tation nationally and embarked on an ambitious programme of delivering basic services primarily in rural
areas. ese services were devolved in 2000.
See, for example, National Water Services Benchmarking Initiative Report on 2006/2007 Performance,
SALGA, 2008. More recent benchmarking data do not exist for the sector but relative performance between
categories of municipalities is likely to have persisted.
388 LAND, AGRICULTURE AND ENVIRONMENT
there are serious challenges related to the sustainability of this municipal water and sani-
tation infrastructure. A signicant proportion of rural water schemes are not function-
al, maintenance budgets are inadequate, many VIP latrines are full and are not being
emptied, many wastewater treatment works are operating over capacity and/or perform-
ing poorly, there are drinking water quality risks in small towns and rural areas, the
full costs of providing services are oen not fully accounted for and insucient resources
are available to the sector from user fees and government grants to maintain and sustain
services over time. ere is also a shortage of the necessary skills and experience at the
artisan, technical, engineering and management levels to operate, maintain and manage
water services appropriately in many municipalities.
3 Transforming water rights—a gap between intention
and outcomes
Following an extensive consultation process leading to the development of a new Nation-
al Water Policy in 1997, the National Water Act (Act 36 of 1998) changed the basis of
0
20
40
60
80
100
2001 2011
%
none /other
bucket
pit latrine
VIP latrine
chemical toilet
flush toilet
Figure 50.2. Access to sanitation, 2001 and 2011
See, for example, the SAICE infrastructure report card for South Africa: SAICE, Midrand, 2011.
DWA Green Drop Report, 2012.
DWA Blue Drop Report, 2012.
National water investment framework, 2012.
See Allyson Lawless, Numbers and Needs: Addressing Imbalances in the Civil Engineering Profession,
Midrand: SAICE, 2005. ese trends have not improved in the interim years.
‘Republic of South Africa’, White Paper on a National Water Policy for South Africa, 1997.
THE POLITICS AND ECONOMICS OF WATER IN SOUTH AFRICA 389
water rights in South Africa from a riparian and prior-use system, linked to land own-
ership, to a system based on water use authorizations issued by the Minister responsible
for water. is change in the water rights system was both deliberate and fundamental
and has been the subject of extensive commentary in the international literature. One
argument underpinning the choice was that breaking the direct link between water and
land rights would enable swier transformation of water ownership to redress inequality
as this would not be dependent on land reform. (An unanticipated consequence of this is
that purchasers of land may unwittingly buy land without a water right.)
e ambitious goals of the 1997 water policy have not been achieved. Aer eight years
of implementation, and as a result of slow progress, the national Department of Water
sought to accelerate change through a water allocation reform (WAR) strategy. But
water reform progress has continued to be slow. ere are many contributing factors.
However, the key constraint has almost certainly to do with the fact that just 8 per cent
of land has changed ownership into black hands since 1994. Without access to land, a
water right is of little value and use.
4 Investments in maintenance and rehabilitation
are inadequate as a result of low prices
and insufficient subsidies
e government has pursued a general pricing policy in which water for mining, power,
commercial agriculture, industrial and urban water use is largely treated as an economic
good (with some exceptions) and where the price recovers the actual costs of supply to a
large extent. Water for ‘social purposes’ (dened as previously disadvantaged farmers and
basic domestic water use) is subsidized. e subsidies come from a combination of the
government budget and cross-subsidies within the urban water sector.
is authority can be delegated to a Catchment Management Agency.
See, for example, M. Muller, ‘Attempting to Do it All: How a New South Africa Has Harnessed Water to
Address its Development Challenges’, in R. Lenton and M. Muller (eds), Integrated Water Resource Manage-
ment in Practice. Better Water Management for Development, London: GlobalWater Partnership, Earthscan,
2009: 169–85.
A primary focus of water allocation processes is to redress past race and gender imbalances in water
use. e need for clear and decisive action for redress is not only a constitutional imperative, but is also now
compelled by the slow progress with redress in the rst decade of South Africa’s democracy. Water allocation
processes will therefore be aimed at intensied eorts towards redress (A Strategy for Water Allocation Reform
in South Africa, DWAF, 2006).
Glenn Ashton, Land Reform in South Africa: An Unfullled Obligation, November 1, 2012, <http://www.
sacsis.org.za>.
A basic water supply is dened in national policy as 25 litres per person per day or 6 kl per month per
household (which equates to about 50 litres per person per day for a household of four and 25 litres per person
per day for a household of eight).
390 LAND, AGRICULTURE AND ENVIRONMENT
In practice, prices for ‘economic water’ generally do not fully recover costs. At the
same time, the subsidies to support ‘social water’ have been insucient to meet the gov-
ernment’s social objectives and community expectations. As a result, the state of water
infrastructure in South Africa is deteriorating, with increasing maintenance and rehabili-
tation backlogs, and there are increasing social pressures for accelerated access to water
and land rights by prospective farmers and improved water and sanitation services by
rural communities and the urban poor. e ability (or at least willingness) of govern-
ment to increase funding and subsidies has been adversely aected by the tight macro-
economic conditions experienced since 2007. e pressures inherent in these trends are
thus increasing. Whilst there has been talk of the establishment of an economic regulator
for water for a number of years, there has been no action on this to date.
5 Institutional capability is declining as a result
of uncertainty
e 1997 Policy gave the Department of Water Aairs a lead role in the management of
water in South Africa and provided for further institutional support through the creation
of catchment management agencies and a national water resources infrastructure agency.
Over the last 16 years, only two catchment management agencies are operational (out of
a total of 19 originally envisaged) and the proposed formation of a national infrastruc-
ture agency has not come to fruition. Various initiatives have been launched over the past
ten years to either review and/or accelerate institutional reforms in the sector. e most
recent review process from May 2011 to July 2012 armed the vision to establish catch-
ment management agencies but changed the target to nine. e review recommended the
establishment of an infrastructure agency and the consolidation of the existing 12 water
boards into three with a larger regional footprint and an expanded mandate. e Min-
ister also appointed a Committee of Inquiry in July 2011 to examine the reasons for the
poor performance of the Department. e Minister armed the catchment management
agency recommendation, requested their accelerated establishment, and approved the
consolidation of the 12 water boards into nine. However, no decision has been taken on
the national infrastructure agency.
e national water department’s maintenance and rehabilitation backlogs are reported in its Annual
Reports.
‘ere is a growing and disturbing trend of service delivery protests and water tends to be a common
denominator for most of these’ (Minister of Water, August 2012). See also, for example, Peter Alexander,
Rebellion of the Poor: South Africa’s Service Delivery Protests—A Preliminary Analysis, Research Unit in Social
Change, University of Johannesburg, 2010.
‘Institutional Arrangements for the Water Sector: Final Recommendations Report’, DWA, July 2012.
THE POLITICS AND ECONOMICS OF WATER IN SOUTH AFRICA 391
e policy had envisaged a strengthening of the institutional capability of the sector
over time but institutional capability has instead declined. A major contributing factor
has been the long-standing uncertainty with respect to future institutional development
in the sector. is is having a material aect on the performance of the sector and is deep-
ly concerning. For example, delayed decisions with respect to future investments have
resulted in an increase in the risk of severe water shortages to Gauteng, the economic
heartland of South Africa. e National Water Resources Strategy, a key sector planning
instrument, is required to be updated every ve years. e latest revision was published
in 2013, more than four years overdue.
6 A policy crossroads
e 1997 National Water Policy adopted a two-track strategy to support South Africa’s
economic and social development goals: rst, it required the ‘economic sector’ to pay for
itself through cost-recovery pricing and, second, it used the national government budget,
with limited cross-subsidies from the ‘economic sector’, to support the social policies of
water rights reform and the provision of basic water and sanitation services to the poor.
Poor performance in both arenas is resulting in increasing pressures in the sector. ere
are two broad schools of thought in response to this. e rst perspective holds that the
1997 policy was the correct approach and is still relevant and appropriate in the current
context. e problem has been one of poor policy implementation.
e alternative perspective holds that the underlying assumptions of this policy are
awed and that it is incorrect to view water dualistically as an economic and social good.
Rather, water should be regarded as a social good across its uses in the economy with
much greater subsidies provided by the state and much greater requirements on the part
of the ‘advantaged’ sectors (for which read urban, industry and mining) to support the
provision for water for social needs (for which read domestic water use and small-scale
agricultural use). In terms of this perspective, the government will need to provide much
greater support to both the ‘social’ and ‘economic’ sectors if the infrastructure that sup-
ports economic growth is to be sustained and developed.
e 1997 policy remains ocial government policy and, at the time of writing, a public
and consultative review of existing policy had not been proposed.
is can be measured in a number of ways—qualied audits, number of qualied engineers (and years
of experience), sta turnover, leadership turnover, institution of committees of inquiries, number of suspen-
sions, number of senior posts lled etc. By all of these measures the performance of the Department of Water
Aairs has declined over the last ten years.
M. Muller et al., ‘Water Security in South Africa. Development Planning Division’, Working Paper Series
No. 12, DBSA: Midrand, 2009.
392 LAND, AGRICULTURE AND ENVIRONMENT
With respect to the redistribution of water rights, there is also a more radical view that
might be considered in light of the failure to eectively redistribute water rights over the
last 20 years:
even if opportunities for direct redistribution exist, and if poverty reduction, job creation
and improved livelihoods are the prime objectives of water management policy, equitable
direct access to water should be a secondary consideration. Put simply, this would mean that
water is allocated to activities that would generate the maximum number of jobs and income
for local people, rather than allocated to disadvantaged users who cannot use the resource
as productively.
is alternative is likely to be politically untenable. It does, however, pose an important
question—how do we best and sustainably improve the welfare of the poorest?
7 Lessons
is brief review of water policy and its implementation in South Africa demonstrates
that the economics of water cannot be viewed in isolation from the political-economic
context. I have argued here that the failure to develop and sustain strong water manage-
ment institutions has undermined the implementation of the 1997 policy. e absence
of strong leadership at both a political and administrative level has allowed a situation of
policy paralysis to develop where there is disjuncture between ocial policy and practice.
ere appears to be a contradiction between an apparent policy shi that is premised on
a strong and capable state and a deteriorating trend in state capability.
Muller et al. (n 28).
Agriculture and rural
development in the post-
apartheid era
mohammad karaan and nick vink
51
1 Introduction
e aim of European settlement at the Cape in 1652 was to produce fresh food for ships
en route between Europe and the East.1,2 However, as settlement spread, the lack of a mar-
ket outlet meant that agricultural production was mostly for subsistence purposes: the
exceptions were wine exports from the Western Cape and wool exports from the Karoo.
e discoveries of diamonds near Kimberley in 1866 and gold on the Witwatersrand two
decades later created something unique on the African continent: a signicant domestic
market for food and bre in the interior that was protected from foreign competition by
the high cost of transport from the coast. is set o erce competition between white
and black farmers which the latter were doomed to lose, given the segregationist senti-
ments in the country (Bundy, 1979).
During the next century South Africa’s agriculture was formed by three paths of policy:
segregation between black and white farmers, suppression of black farming and support
to white farmers (see Vink, 2012). e result was a stark bifurcation in geographic, social,
economic and administrative terms between what Merle Lipton (1977) called the ‘two
agricultures’. At the time that South Africa entered its new democratic era, the focus of the
new government was naturally on how to address this dualism. With hindsight, two pos-
sible paths of integration could have been followed: addressing land access rst (i.e. using
the land market to lead integration), or addressing farmer support rst (i.e. using input
and commodity markets to lead integration). Unfortunately, the former was chosen, and
it did not work.
Dean: Faculty of AgriSciences and Professor: Department of Agricultural Economics, Stellenbosch
University.
Professor and Chair: Department of Agricultural Economics, Stellenbosch University.
394 LAND, AGRICULTURE AND ENVIRONMENT
In this chapter we start with an overview of the most important policy initiatives that
were taken in the transition to democracy. is shows that little thought was given to the
timing and sequencing of policy reforms and that there was a distinct lack of coordin-
ation between land, agriculture and rural development policies. e consequence is that
South African agriculture is, if anything, even more dualistic today than two decades ago.
We then assess some of the more important consequences of policy, and nally provide
some thoughts on the way forward.
2 Legislation
In the second session of the new Parliament in 1994, the President signed ten new Acts,
amongst which was the Restitution of Land Rights Act (No. 22 of 1994). Over the next
ve years the Department of Land Aairs passed seven new laws, ve of which addressed
the three land reform programmes (restitution, tenure reform and redistribution). Aer
1999, the emphasis shied to amendments to existing laws.
is performance contrasts with that of the Department of Agriculture which has passed
eight new laws since 1994, three of which were purely administrative, and the rest of concern
to commercial agriculture. Of the 31 laws administered by the Department, only nine have
been amended since 1994, with the oldest unchanged law dating to 1935. e Department
has also lost administrative responsibility for important functions such as farmer support
(now in the Provincial sphere), the Land Bank (now with the Treasury) and cooperatives
(now with the Department of Trade and Industry or dti). Furthermore, rms in the agricul-
tural sector now have to comply with the Competition Act, No. 89 of 1998 (under the Mar-
keting Act they were exempt), and trade policy is now in the hands of the dti (see Section
3A). e Department also has little direct control over important policies and programmes
such as food safety, food security and the National School Nutrition Programme. In short,
the Department has become little more than a regulatory agency for the commercial farm-
ing sector, with few programmes that provide support to emerging farmers.
e legislative programme of the government was uncoordinated and the Department
of Agriculture did little to realign support to black farmers through legislation. However,
laws administered by other branches of government also impact on the rural sector, and
policymakers have access to a wider range of policy instruments than just laws. For this
reason, the main policy clusters that have shaped the rural economy and the agricul-
tural sector over the past two decades are discussed next. Chronologically, trade policy
changed rst, as the Agreement on Agriculture was already signed early in 1994.
Currently the Department of Rural Development and Land Reform.
Currently the Department of Agriculture, Forestry and Fisheries.
AGRICULTURE IN THE POST-APARTHEID ERA 395
3 The policy environment
A. TRADE POLICY
Before the Agreement on Agriculture and the creation of the World Trade Organization,
South Africa’s agricultural trade regime consisted largely of direct controls over imports
and exports, exercised in terms of the Marketing Act, No. 59 of 1968. ese direct con-
trols were then replaced by taris, and the taris were almost universally lowered below
their bound rates. South Africa also gave countries in the Southern African region prefer-
ential access to our market. e three most important trade relations in the region include
SACU, which exhibits the deepest level of integration, SADC and the South Africa-
Zimbabwe bilateral agreement. Of the extra-regional inuences, the Cotonou preferences
of the EU, the Africa Growth and Opportunity Act (AGOA) of the United States; and
South Africa’s separate bilateral Agreement with the EU (the TDCA) are most inuential.
ese changes came about in accordance with national trade policy, the main purpose
of which was to lower the average level of taris, to maintain a typical tari escalation
prole and to simplify the tari structure.
B. RURAL DEVELOPMENT POLICIES
Since 1994, the government attempted to solve rural problems through poverty alleviation
(social grants and infrastructure) and with spatial planning (the Integrated and Sustain-
able Rural Development Strategy of November 2000, the Comprehensive Rural Develop-
ment Programme framework of July 2009). e Minister recently published Outcome
7, the priority outcome area for rural development, to create: ‘Vibrant, equitable and
sustainable rural communities and food security for all.’ It is dicult to gauge whether the
main thrust here is poverty alleviation, spatial development or economic development,
but it is clear that not much has been accomplished in implementation: social grants took
longer to reach the remote rural areas (Woolard et al., 2010), social and physical infra-
structure provision has lagged, and there is little economic activity in these areas.
Recent government pronouncements (the New Economic Growth Path and the
National Development Plan) emphasize the need to create employment, with agricul-
ture as a key sector—the former concentrates on small-scale farmers and the agro-pro-
cessing sector and the latter includes land reform and the commercial farming areas.
is has been supported in recent budget pronouncements (e.g. the Budget Reviews of
2011 and 2012).
Government’s new growth path is built around 12 key outcomes as presented in the current Medium
Term Strategic Framework (MTSF). Rural development forms part of Outcome 7.
396 LAND, AGRICULTURE AND ENVIRONMENT
C. LAND REFORM
Land reform consists of the land restitution, tenure reform and redistribution pro-
grammes. Restitution deals with the return of historical land rights, tenure reform with
ensuring that all South Africans have secure property rights in land and redistribution
with the transformation of racially biased land ownership patterns. Restitution has been
successful in returning land to many individuals and communities in urban and rural
South Africa, but agricultural land is mostly not used productively. Tenure reform is
controversial—land reform beneciaries do not get title to land, communal areas remain
communal and attempts to secure rights to farm dwellers have resulted in evictions. Gen-
erally, black people in rural areas have inferior land rights, and investment in agriculture
has suered accordingly.
Redistribution was initially implemented through a Settlement/Land Access Grant
(SLAG) (1995–99). e grants were small and means-tested, so people had to buy land
in groups, but even then farms were too small to support all the beneciaries and the
means-test made it impossible to leverage loan nance. Aer a two-year moratorium on
redistribution, the Land Reform for Agricultural Development (LRAD) programme was
adopted in 2001. Grants were scalable with an increasing own contribution, aimed at the
establishment of a class of commercial black farmers. It was clear that this initiative would
also fail unless implementation was well coordinated, unless support services for farmers
were in place and unless the problem of bureaucratic centralization was addressed.
e required support did not initially materialize and the need for better coordination
between agencies of the state around post-settlement support became evident. e Com-
prehensive Agricultural Support Programme (CASP) became the key programme to pro-
vide and coordinate support services. In 2006 the Department introduced the Proactive
Land Acquisition Strategy (PLAS), where the state bought land for prospective bene-
ciaries. is was supplemented by the Settlement and Implementation Support (SIS)
strategy in 2008. Despite these programmes, there is little state support to the majority of
black farmers.
e net eect of the land reform programme has been limited, as no more than 6 or 7
million hectares of land has been transferred through the formal programme and most of
this land is not being farmed productively.
D. AGRICULTURAL POLICY
e strategic direction of the agricultural sector was initially shaped by the Agricultural
White Paper (1995); the Agricultural Policy in South Africa discussion document (1998);
and the Strategic Plan for South African Agriculture (2001). ese documents straddle the
AGRICULTURE IN THE POST-APARTHEID ERA 397
transition from a National Party Minister, to the Mandela regime and through to the Mbeki
period. More recently, the New Economic Growth Path and the National Development
Plan have identied a critical role for the agricultural sector in stimulating employment.
e Department of Agriculture had no direct input into the formulation of these strategies.
In the 1990s the Department of Agriculture introduced the Broadening Access to
Agriculture rust under the unlikely acronym of BATAT. e purpose was to provide
support services to emerging farmers and beneciaries of the land reform process. How-
ever, between the 1980s and the 1990s direct support to farmers declined by some 75 per
cent—the programme was heavier on rhetoric than on implementation.
E. MARKETING POLICY
Until 1998 the marketing of most agricultural products was regulated under the Market-
ing Act, No. 59 of 1968 (some 70 per cent of agricultural output by value), the Co-operative
Society’s Acts (No. 29 of 1939 and No. 91 of 1981 in the case of ostriches and wattle bark) or
by industry-specic statutes such as the Sugar Act (No. 9 of 1978) and the Wine and Spirit
Control Act (No. 47 of 1970). Beginning in the early 1980s, the industry faced pressures
for deregulation. Aer 1996, sweeping change was brought about by the Marketing of
Agricultural Products Act, No. 47 of 1996.
e new Act changed the way in which agricultural marketing policy was managed
and opened the sector to world market inuences. e main function of the institutions
created under the previous Act was to implement market interventions. In contrast, the
main function of the NAMC is to monitor those few interventions that are permitted to
ensure that they do not create market distortions that could adversely aect the welfare
of the agricultural sector or the country at large, as measured by the objectives of the Act.
4 Performance
Much has been published on the performance of South African agriculture over the past
decades. Recently, Liebenberg (2013) has revisited the data from 1910 and succeeded
in correcting many errors and omissions, improving understanding of the relationship
between changes in the policy environment and the performance of the sector. at per-
formance can be summarized as follows (Liebenberg, 2013):
1. e value of agricultural output grew from an annual average of R16,499 million in the period
1910–19 (at 2005 prices), to R82,364 million in the period 2010/11. is represents a ve-fold
increase in real terms over the century.
398 LAND, AGRICULTURE AND ENVIRONMENT
2. For most of this period livestock products constituted the biggest share of output, declining
from 55 per cent in 1910 to 45 per cent in 2011. Once the area ploughed had expanded to its
peak in the 1970s, however, eld crop production dominated. Since the deregulation of agri-
culture and the opening to export markets, however, horticultural products have grown in
importance. In the last decade the share of eld crops and horticulture was 29 and 26 per cent
respectively.
3. Within the livestock sub-sector chicken meat has become the largest item, whilst in eld crop
production there is currently a relative shi from maize to oilseeds, especially soybeans. Vir-
tually all horticultural products have grown in value produced.
4. Farm exports have grown rapidly since the demise of apartheid (Jensen et al., 2012), but are
a smaller share of total output than was the case in 1960 when exports equalled 34 per cent
of total production compared to only 25 per cent in 2010. is reects the rapidly growing
domestic market for foodstus. e rest of Africa is fast becoming South Africa’s preferred
destination for agricultural exports. e export portfolio has shied to fruit, wine and other
high value products.
5. Imports of agricultural products have increased, from only 6 per cent of total in 1960 pro-
duction to almost one-third in 2010. e import portfolio is now dominated by oilseeds in
various forms in order to feed the growing demand for poultry and dairy products. e largest
source of imports has also shied, from the EU to South America.
6. Whilst relatively impressive, the growth rate in farm output in South Africa is lower than the
average for Africa as a whole.
7. Despite spikes at the time of the Korean War in the 1950s and with the oil price crisis of the
1970s, farm gate prices are about half what they were in 1910 in real terms (2005 prices).
Prices of eld crops have declined by more than that, whilst prices of horticultural products
have increased by about 50 per cent.
8. e number of tractors on farms increased from 231 in 1918 to a high of 173,570 in 1976. It
has subsequently declined to 69,200 as farmers have switched to conservation farming and as
tractors have become larger and more sophisticated. is is mirrored by the amount of land in
commercial farming, which increased from 77 million hectares in 1910 to a peak of 92 million
hectares in 1960, then declining to its current 82 million hectares. In the 1920s black farmers
cultivated almost as much land (2 million hectares) as white farmers, but this has declined
steadily to no more than 500,000 hectares.
9. e number of farm workers on commercial farms increased from an annual average of
802,000 for the decade 1910–19 to a peak of 1.6 million in the 1960s, aer which it declined
to just below 900,000 in the rst decade of the new millennium. Family labour on these farms
declined from almost 10 per cent of the total to less than 1 per cent today.
10. Commercial farmers today are using less land, labour and capital than their counterparts
throughout the twentieth century, but more intermediate goods.
11. Direct subsidies to agriculture declined in real terms (base year 2005) from a peak decade
total of R122 billion in the 1970s to R2.8 billion over the past decade. A large share of these
AGRICULTURE IN THE POST-APARTHEID ERA 399
subsidies came in the form of conservation works (contouring arable land, erosion control,
building dams): this represented 68 per cent of all direct subsidies in the 1970s but only 62 per
cent over the past decade. In the 1970s there were 21 active subsidy categories, but only six
over the past decade. e Department lost its ability to provide support to farmers, including
emerging commercial farmers not part of the land reform programme. Prior to 1975, farmer
settlement schemes of the state ensured that probationary farmers had access to comprehen-
sive support measures that included credit and technical support (extension advice) through
to social support such as medical services and education.
12. Spending on research and development (R&D) increased from an annual average of R63 million
in real terms (2005 prices) to R1.25 billion in 1971, but then declined to R1.08 billion in 2010.
13. e productivity performance in agriculture is the result of spending on R&D, other subsidies
and support provided, especially for technology transfer, allied farm policies and other inu-
ences from beyond the agricultural sector. Total Factor Productivity increased by about 50 per
cent between 1945 and 2010, at a rate of 0.86 per cent per year. Until 1980 growth averaged
over 1 per cent per year, was then negative from 1980 to 1993 as subsidies were withdrawn,
and has since grown at less than 1 per cent. Partial productivities have grown faster, with crop
yields, for example, growing by 2.76 per cent per year from 1910.
5 The road ahead
e current situation is not conducive to successful rural and agricultural develop-
ment, as:
(a) there is a clear disjunction between the formal rural development strategies of the Depart-
ment of Rural Development and Land Reform, with their emphasis on spatial planning, and
the job creation objectives of the government;
(b) part of this disjunction comes about because of the land reform programme, the manner
in which it is being implemented and recent policy pronouncements by the Department.
Under the land reform programme, black people without the means of acquiring land can
apply for subsidies to the Department, but they cannot get clear title to land, nor are there
any plans to ensure that they can get title in the future. Alternatively, they farm in the com-
munal areas. Here the Department has not succeeded in fullling its constitutional mandate
to ensure that all South Africans can own property rights to land. e Department has also
announced plans whose end result will be to undermine the land rights of those who already
farm in the commercial farming areas;
(c) ‘beneciaries’ of land reform and those farming in communal areas will not invest in
improving the productive capacity of their land in the absence of protected land rights,
whilst increased insecurity of land rights in the commercial areas will result in further dis-
investment from agriculture;
400 LAND, AGRICULTURE AND ENVIRONMENT
(d) the redistribution programme fails to recognize the multi-generational nature of agricul-
ture, the obstacles faced by new farmers in start-up costs (of land and working capital) and
the need for comprehensive farmer support services including mentorship skewed to bene-
t black farmers.
South Africa needs land reform and agricultural development that bridges the divide
between the ‘two agricultures’ by focusing rst on the provision of support services which
creates, over time, land markets that are suciently exible to adapt to the changing needs
of farmers. is includes land rental, part-time farming, farming in partnerships, mech-
anisms to phase in land ownership and the subsidies required to make this work.
■ REFERENCES
Bundy, C. (1979), e Rise and Fall of the South African Peasantry, London: Heinemann.
Jensen, H.G., R. Sandrey and N. Vink (2012), ‘e Welfare Impact of a Free Trade Agreement: “Cape to
Cairo” ’, Agrekon, 51(4): 1–18.
Liebenberg, F. (2013), ‘South African Agricultural Production, Productivity and Research Performance in the
Twentieth Century’, University of Pretoria, unpublished PhD thesis.
Lipton, Merle (1977), ‘South Africa: Two Agricultures?’, in F. Wilson, A. Kooy and D. Henrie (eds), Farm
Labour in South Africa, Cape Town: David Philip.
Vink, N. (2012), ‘e Long-term Economic Consequences of Agricultural Marketing Legislation in South
A f r i c a’, South African Journal of Economics, 80(4): 553–66.
Woolard, Ingrid, Kenneth Harttgen and Stephan Klasen (2010), ‘e Evolution and Impact of Social Security
in South Africa’, Paper prepared for the Conference on ‘Promoting Resilience through Social Protection
in Sub-Saharan Africa’, organised by the European Report of Development in Dakar, Senegal, June 28–30.
Environmental policy
and the state in post-
apartheid South Africa
tony leiman
52
From the formation of Union in 1908 until the 1994 elections, South Africa’s white
minority held all political power. Environmental and resource legislation was frequently
skewed to favour the electorate at the expense of the disenfranchised. Policies governing
access to natural resources were clearly distorted, as were those regarding environmen-
tal issues such as waste, sewage, public health and air quality. e economy’s demand for
cheap labour was met by controlling the black population’s economic options. Beginning
with the Glen Grey Act (1894) their access to land was steadily reduced, leaving them in
the densely settled communal areas which increasingly became labour pools. Taken to
extremes aer 1948, this process became the economic core of apartheid. Its environmen-
tal implications were profound.
Universal adult franchise naturally required the redress of racial inequalities. Clearly
this would aect resource access and the environment. Less clear was that the Constitu-
tion and the legislative process would do so too. e new government regarded poverty
and the environment as closely entwined and wanted to deliver on pressing environ-
mental ‘basic needs’. e resulting legislative process began with the new Constitution,
followed by the many policy iterations that evolved from a 1997 White Paper into NEMA
(the National Environmental Management Act), which has increasingly governed all
aspects of the nation’s environment.
e state’s commitment to macroeconomic stability and an open economy also had
environmental impacts. Just as political populism threatens the integrity of a country’s
resource base, so is that base preserved by prudent scal policy and an unwillingness to
redistribute rights to natural resources before considering the consequences. Such pru-
dence was evident from the earliest years of the ANC government, and largely survived
the 2007 Polokwane conference. e 1998 Mining Green Paper stipulated that,
Government will create a stable macro-environment that supports economic growth and in
which business, subject to appropriate regulation, can operate protably, be internationally
402 LAND, AGRICULTURE AND ENVIRONMENT
competitive and satisfy their shareholders’ and employees’ expectations. In this way Govern-
ment will encourage investment in mining as in other industries.
Only then did it add that,
Government will facilitate access to business opportunities and resources to those previous-
ly excluded.
e new Constitution (Act 108 of 1996) is key to understanding both the evolution of
South Africa’s environmental policy and the judiciary’s treatment of contested points. It
provides that:
Everyone has the right
a. to an environment that is not harmful to their health or well-being; and
b. to have the environment protected, for the benet of present and future generations,
through reasonable legislative and other measures that
i. prevent pollution and ecological degradation;
ii. promote conservation; and
iii. secure ecologically sustainable development and use of natural resources while
promoting justiable economic and social development.
(Bill of Rights, Chapter 2)
ese rights clearly parallel the 1987 Brundtland Report and its view of sustainability.
Importantly, however, the government has moved beyond this and incorporated sustain-
ability issues into scal and broader macroeconomic policies.
e Constitution presents conservation and environmental protection anthropocen-
trically. ese are not the rights of the environment, but the people’s rights to it. e Con-
stitution painted these rights broadly; the details emerged in the major environmental
legislative change of the post-apartheid era, the National Environmental Management
Act (No. 107 of 1998) or NEMA.
In 1995 the government initiated an intense three-year public consultative process that
eventually led to NEMA. At its core were two principles: (a) Brundtland-style sustainabil-
ity extended to include, ‘integrated, holistic, equitable, participatory, eective and sus-
tainable environmental management practices’, and (b) democratic responsibility. e
Act’s preamble is explicit:
the State must respect, protect, promote and full the social, economic and environmental
rights of everyone and strive to meet the basic needs of previously disadvantaged communi-
ties; [and that]
inequality in the distribution of wealth and resources, and the resultant poverty, are among
the important causes as well as the results of environmentally harmful practices.
ese became central to subsequent legal challenges involving resource rights and com-
munity rights to basic services. ough the Act specied that ‘Environmental management
ENVIRONMENTAL POLICY POST-APARTHEID SOUTH AFRICA 403
must place people and their needs at the forefront of its concern’, no timeframe was spe-
cied; instead the balance between competing rights emerged through a series of judicial
decisions. In these the courts used NEMA to nd ‘in favour of the environment’ ahead of
the short-term benets of the historically disadvantaged (Glazewski, 2005: 139).
Chapter 5 of the Act addresses Integrated Environmental Management, a practice cen-
tral to project evaluation in South Africa. is species use of the precautionary principle,
‘a risk-averse and cautious approach’ that recognizes ‘the limits of current knowledge
about the consequences of decisions and actions’. Environmental impact assessments had
been used in South Africa since the 1970s, being described in the Environment Conser-
vation Act 73 of 1989 and the 1992 Department of Environment Aairs Guidelines. In
September 1997, and again with NEMA (April 2006), its focus shied from impact miti-
gation to sustainability and the precautionary principle.
ough NEMA accepted that ‘Global and international responsibilities relating to
the environment must be discharged in the national interest’, this related more to global
agreements than to basic principles. ough NEMA stresses the ‘polluter pays principle’
where ‘pollution environmental degradation and consequent adverse health eects’, are
local, it makes no commitment regarding trans-boundary or global externalities.
NEMA became the foundation for a series of new policies. Some did recognize global
externalities, especially climate change. e White Paper on Integrated Pollution and Waste
Management of 2000 explicitly cited climate change. However, though the preamble to the
NEM Air Quality Act (2004) recognized that ‘atmospheric emissions of ozone-depleting
substances, greenhouse gases and other substances have deleterious eects . . . globally’, it
made no further use of this understanding, only requiring that an atmospheric emissions
licence should ‘specify greenhouse gas emission measurement and reporting requirements’.
ough South Africa’s environmental legislation is world class, its implementation suf-
fers from a shortage of trained sta. Aer 1994 many white male sta in the civil service
were encouraged to leave and their experience was dicult to replace. ‘Cadre deploy-
ment’ worsened the problem.
Inter-departmental rivalries have also been a problem. ‘Tourism and the Environ-
ment’ has relatively junior status in the cabinet hierarchy, a problem when legislation like
NEMA and the ‘Minerals and Petroleum Resources Development Act’ simultaneously
thrust environmental responsibilities onto more senior ministries whose primary object-
ives are very dierent.
1 Sectoral environmental policies
A. AGRICULTURE AND LAND
At the heart of apartheid labour policy was the use of ‘black homelands’ as labour reservoirs.
ese areas still support roughly 28 per cent of the country’s population on roughly 14 per
404 LAND, AGRICULTURE AND ENVIRONMENT
cent of its area. e combination of communal land tenure, high stocking rates and highly
erodible soils has impacted on the environment; the index of soil degradation is nearly three
times greater in communal areas than in commercial ones (Meadows and Homan, 2003).
Erosion control has been a long-standing policy issue. Many viewed homeland soil ero-
sion as a consequence of poor farming (Beinart, 2003), implying a need for state interven-
tion to change farming practice: promoting contour ploughing, prohibiting stream-bank
cultivation, reducing stocking densities etc. e intentions were good, but the outcomes
were uneven and oen locally contentious. Such eorts have almost ceased since 1994,
and funding for conservation and extension services has fallen sharply.
On commercial farms insecurity of tenure following the Restitution of Land Rights Act
(No. 22 of 1994) and the Land Reform Act of 1996 reduced the incentive for farm owners
to invest in their land and maintain it. It also put pressure on the infrastructure of many
small rural centres as farmers pre-emptively moved over a million residents (who might
otherwise have had a claim to land use) from farms to rural squatter settlements.
B. WILDLIFE AND BIODIVERSITY CONSERVATION
Land is scarce and its use to support wildlife is consequently controversial. Nonetheless,
conservation of wildlife and biodiversity has proven a policy success. e Constitution
made it a joint responsibility of provincial and central government; hence some conserva-
tion areas have been administered and funded provincially, while others are competen-
cies of the national government.
e Environment Conservation Act (1989) and NEMA have been key to biodiversity
conservation. However, a number of other relevant policies have emerged in the recent
past, such as the South African Natural Heritage Programme (NHP), established in 1985,
which incentivizes conservation of ecologically signicant areas on private land. It has
been revitalized by a newly rationalized system of permits for biodiversity prospecting
and a suite of policies. ese include two NEMA acts:
the National Environmental Management Biodiversity Act (NEMBA) (No. 10 of 2004);
the National Environmental Management Protected Areas Act (NEMPA) (No. 57 of 2003);
and:
the White Paper Conservation and Sustainable Use of South Africa’s Biological Diversity
(1997);
the National Spatial Biodiversity Assessment (NSBA) (2004, currently being updated);
the National Biodiversity Strategy and Action Plan (NBSAP) (2005);
the National Biodiversity Framework (NBF) (2008);
the National Protected Area Expansion Strategy (NPAES) (2008).
ENVIRONMENTAL POLICY POST-APARTHEID SOUTH AFRICA 405
C. MINING
Environmental controls on mining are not new in South Africa, but the post-1994
period has seen some signicant changes. Particularly important have been the
requirements in the Mineral and Petroleum Resources Development Act (2004) and
the MPRDA Amendment Act (2008), requiring that a nancial provision for reha-
bilitation be in place before new mines can commence operations. More broadly, the
Minerals and Mining Policy for South Africa (1998) stressed that mining should sat-
isfy national environmental policy, norms and standards. It specied 10 principles for
sustainable mining including the precautionary and polluter-pays principles, use of
environmental impact management for large and small mines, integration of spatial
development planning with municipal development plans, and capacity building for
environmental management and pollution monitoring. ese were taken further in
the Sustainable Development through Mining Programme (2005) which addressed
vulnerable groups, internalization of negative externalities and lifecycle evaluation of
mining operations.
e Mines Health and Safety Act (1996) required that all mines have a water permit and
an ocially approved environmental management plan, and since 2008 mines have also
had to be NEMA compliant. ese are serious obligations and the Ministry has recently
shown itself willing to halt operations at mines whose compliance is inadequate.
It is as mines approach the ends of their lives that the current legislation has loopholes.
A mine closure certicate is only issued if a defunct mine is environmentally safe and
complies with regulations. ere is, however, no obligation for the owners to formally
close a mine when operations cease. e result is a number of de facto closed mines that
are non-compliant. Acid mine drainage, and dust from dumps and old tailings dams,
remain major environmental problems. To address these problems NEMA now has ret-
rospective powers. Consequently the owners are responsible for mines that were closed
before the current regulations came in force. Where no such owner exists, the respon-
sibility falls on government. e Auditor General recently estimated the cost to the
state of rectifying the environmental damage done by such unclaimed defunct mines at
R30 billion ($3.5 billion).
D. WATER
South Africa is water poor and its water needs are growing. In 1994 many of the rural
poor had little access to clean safe drinking water or modern sanitation systems. Address-
ing this problem became a key feature of the legislative process.
A new system was initiated whose aim was the integrated management of surface and
groundwater quantity and quality to achieve sustainable, ecient and equitable access
406 LAND, AGRICULTURE AND ENVIRONMENT
to water resources. e National Water Act (No. 36 of 1998) introduced a decentralized
system of local catchment management agencies that issue limited-period, conditional
water use rights for both surface and groundwater in rural areas, while municipalities
provide water in urban ones.
e Act had a strong direct environmental focus, particularly regarding instream ow
requirements of rivers (the riparian reserve) and the quality of waste water discharges
and return ows. More tangentially, the Water Services Act of 1997 (No. 108 of 1997) also
had profound environmental consequences: it focused on the needs of the 12 to 14 mil-
lion people, one-third of the population, who then had no formal water supply and the
21 million who had no formal sanitation (DWAF, 1999). e result was a ‘free basic water’
policy providing 25 litres per person per day. e upshot has been a water management
policy containing three sometimes competing objectives: equity in the provision of basic
needs, cost recovery on the basis of a ‘user-pays’ principle and environmental sustainabil-
ity through the riparian reserve.
E. ENERGY
e parastatal electricity provider, Eskom, generates 95 per cent of local electricity,
91 per cent of it from coal. Eskom’s policies since democracy have been driven by two
key issues: surpluses and shortfalls in generation capacity and privatization. Eskom
entered the democratic era with generating capacity nearly 40 per cent above peak
demand. It proceeded to withdraw capacity by mothballing old power stations, and
to encourage energy intensive operations, particularly smelting plants, by oering
cheap power. e roll-out of rural electricity and of free basic electricity to the poor
compoun ded the eect and by 2008 electricity demand had outstripped supply, causing
rolling black-outs.
e South African government’s ‘Policy Framework: An Accelerated Agenda towards
the Restructuring of State Owned Enterprises’ (2000) contributed to the electricity short-
fall. It suggested breaking Eskom’s monolithic control of the generation and transmis-
sion of electricity, encouraging private sector participation though public oerings and
strategic equity partnerships. is curtailed Eskom’s desire to incur new debt. Moreover,
Eskom’s privatization was an inconsistent ‘on-again o-again’ aair. e resulting uncer-
tainty hampered all investment decisions. Only aer 10 years did the state commit to
retaining Eskom’s parastatal status.
e realization of the extent of the shortage led to demand management policies, the
construction of two new coal-red power stations (with funding from the World Bank),
and changes in pricing policy. Previously among the world’s lowest, Eskom prices rose
towards international norms.
ENVIRONMENTAL POLICY POST-APARTHEID SOUTH AFRICA 407
e South African government appears to be taking global warming seriously. During
the 2009 Copenhagen Climate Change meeting the president undertook to reduce the
country’s greenhouse gas emissions by one-third in the ensuing 10 years and by 42 per
cent before 2025. ese undertakings were formalized in the ‘National Climate Change
Response Policy’, approved in October 2011. is undertook to introduce limits on major
greenhouse gas emitters (specically the electricity and liquid fuel sectors and users in
mining, industry and transport) by 2013. ere has, however, been no indication that
these limits will be binding. To broaden the policy’s ambit, the Treasury has also advo-
cated a carbon tax.
Eskom’s Integrated Resource Plan for electricity supply between 2010 and 2030 pro-
poses reducing the current 90 per cent of power coming from coal to 65 per cent, whilst
using improved coal based technologies (‘Super-Critical Coal’ and ‘Integrated Gasica-
tion Combined Cycle’). Nuclear supply will rise from 5 to 20 per cent, and renewable
sources will rise from zero to 9 per cent, and be purchased at pre-specied rates from
private operators. e details of these renewable energy feed-in taris (REFIT) have been
uncertain, the prices initially appearing very attractive, but now seeming likely to be set
by tender.
South Africa’s Tradable Renewable Energy Certicate (TREC) market remains com-
paratively undeveloped, though in 2008 the Department of Minerals and Energy did
establish a team (SANTRECT) to set up and run the issuing and trading of TRECs.
In its 2003 White Paper on renewable energy, the government set a target of 10,000GWh
of renewable energy by 2013. In 2010, energy eciency became an aspect of the National
Building Regulation and Building Standards, requiring that new buildings meet min-
imum insulation requirements, be tted with solar water heating systems and that air
conditioners and ventilation systems be energy ecient.
F. POLLUTION, POLLUTION CONTROL AND WASTE MANAGEMENT
e problems posed by emissions and waste products have been a particular concern of
South African policymakers. Some responses have been relatively simple: a 2003 require-
ment that plastic bags be sold rather than issued gratis at retail checkouts was one, a
recent proposal that car tyres carry a deposit and that a ‘tyre bank’ be formed is another.
In all cases the choice of instruments, regulation, tax or permit, has been considered in
depth. In designing the National Environmental Management: Air Quality Act (2004),
the National Framework for Air Quality Management (2007) and the National Environ-
mental Management: Waste Act (2008), there was a real awareness that an externality’s
eect is determined by local population densities and geographic features and not merely
by the nature and volume of pollutants. Accordingly, policymakers have tried to allow
408 LAND, AGRICULTURE AND ENVIRONMENT
local authorities and provinces the latitude to set their own standards, provided these are
no less stringent than the national ones.
Data on ambient pollution levels are now being collected at 95 municipal monitoring
stations and collated by the South African Air Quality Information System (<http://www.
saaqis.org.za/>) to allow the practical implementation of the Air Quality Act and the inte-
gration of the three spheres of government—national, provisional and local—envisioned
by the 2004 Air Quality Act. Monitoring the emissions of xed point polluters is typically
done by polluting rms themselves, with random checks from inspectors. ere is, how-
ever, a serious shortfall in capacity.
Non-point source pollutants also pose a problem: monitoring and enforcing vehicle
exhausts (responsible for roughly 30 per cent of air pollution in Cape Town) presents a
particular social problem since many of the older and more polluting vehicles are used
by the poor.
ere is no rigid system of legislated penalties for industrial emissions in excess of
the allowed ceiling, rather these are decided judicially on the basis of three criteria: (a)
the severity of the externality, i.e. the potential or actual impact on health, well-being,
safety and environment; (b) the monetary or other benets which accrued to the polluter;
and (c) the polluter’s contribution to the overall pollution load of the area under normal
working conditions. However, in 2008 the Ministry of Environment Aairs and Tourism
proposed a set of penalties for companies in breach of environmental legislation. Impor-
tantly, these were not only more stringent than the old penalties, but were to be applicable
to both managers and directors of public companies; however, no such prosecutions have
followed.
2 Conclusion
e government that came into power in 1994 faced considerable challenges. Among
these were demands from the newly enfranchised for access to the natural resources
that had historically generated the nation’s wealth. e abandonment of inux control
began a period of rapid urbanization and the nation’s towns and cities had not the infra-
structure, skills or nance to cope with the demands this posed. Similarly, demands for
water, sewage systems, housing and power involved not only nancial, but also envir-
onmental, challenges. In its legislative responses the state has typically avoided the pres-
sure of populist politics. Most of its responses have been prudent and reasoned. None
the less, there is clear evidence of failure: acid mine water and untreated sewage in
rivers, underinvestment in agricultural conservation, overshing—all are symptoms of
failure. Some aspects of the malaise can be traced to individual ministers; more com-
monly it has been engendered by a mix of petty corruption and a shortage of competent
ENVIRONMENTAL POLICY POST-APARTHEID SOUTH AFRICA 409
middle managers and engineers in all tiers of civil administration, a problem that can-
not be easily legislated away.
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1770–1950, Oxford University Press.
Brundtland G.H. (1987), Report of the World Commission on Environment and Development: Our Common
Future. United Nations. <http://conspect.nl/pdf/Our_Common_Future-Brundtland_Report_1987.pdf>.
Glazewski, J. (2005), Environmental Law in South Africa (2nd ed), Durban: LexisNexis Butterworths.
Meadows, M. E. and M.T. Homan (2002), ‘e Nature, Extent and Causes of Land Degradation in South
Africa: Legacy of the Past, Lessons for the Future?’, Royal Geographical Society, 34(4): 428–37.
Government Publications South Africa:
Constitution of the Republic of South Africa. Act 108 of 1996. <http://www.gov.za/documents/constitution/
1996/constitution.pdf>.
Dept. of Environment Aairs (2000), White Paper on Integrated Pollution and Waste Management, March
2000. Directorate Environmental and Land Management. <http://cer.org.za/virtual-library/policy-
documents-white-papers/white-paper-on-integrated-pollution-and-waste-management-march-2000>.
Department of Environmental Aairs and Tourism (2006), South Africa environment outlook. A report on
the state of the environment. Pretoria: Department of Environmental Aairs and Tourism. <http://soer.
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Department of Minerals and Energy Aairs (1998), A Minerals and Mining Policy for South Africa. Green
Paper for public discussion. <http://www.gov.za/documents/greenpapers/1998/green2~1.htm>.
Department of Minerals and Energy, White Paper on Renewable Energy (2003) <http://www.energy.gov.za/
les/policies/whitepaper_renewables_2003.pdf>.
Department of Minerals and Energy (2005), Sustainable Development through Mining Programme. <http://
www.sdmining.co.za/downloads/SD_strategy.pdf>.
Environment Conservation Act 73 of 1989. <http://www.capetown.gov.za/en/EnvironmentalResource
Management/publications/Documents/ECA-Environment- Conservation-Act-73-of-1989.pdf>.
Land Reform (Labour Tenants) Act 3 of 1996. <http://www.plato.org.za/pdf/legislation/Land%20Reform%20
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minerals98.html>.
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maprda2002452/>.
Mineral and Petroleum Resources Development Amendment Act, No. 49 of 2008. <http://www.capetown.
gov.za/en/EnvironmentalResourceManagement/publications/Documents/Mineral-and-Petroleum-
Resources-Development-Amendment%20Act-49-of-2008.pdf>.
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of State Owned Enterprises. <http://www.polity.org.za/polity/govdocs/policy/soe/policyframework01.
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National Climate Change Response Policy (2011) <http://www.pmg.org.za/report/20111101-department-
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410 LAND, AGRICULTURE AND ENVIRONMENT
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■ INDEX
ABSA Bank 198
access to water 16, 119, 132, 287n, 308, 337, 386, 387,
390, 392
accountability 62, 127, 140n, 150, 206
downward 380
lack of 192
poor 132
strengthening 133
unprecedented openness and 149
weakening 370
Acemoglu, D. 13, 16, 317
Adato, M. 272
Adebajo, A. 105n
Adedeji, A. 105n
AfDB (African Development Bank) 12
Afrikaner Nationalist movement 178–9
Aghion, Philippe 42–3, 76, 90
AGOA (Africa Growth and Opportunity Act, US
2000) 395
agrarian structure 378–9
Agreement on Agriculture (1994) 394, 395
agricultural land 363, 378, 379, 386, 396,
403–4
target of redistribution 381
agricultural output 275, 280, 378, 397, 398
Agricultural Policy in South Africa (1998) 396
agricultural production 279, 393
crops 72, 379, 398
livestock 37
Agricultural Research Development 72
agriculture 64, 169, 244, 315, 355
deregulation of 88, 398
direct subsidies to 398–9
disinvestment from 399
dualistic structure of 378, 382, 394
export growth 72
investment in 71, 396
jobs lost in 4
liberalizing 380
minimum wages in 254
NGP and NDP in 397
potential for 125, 377–8
productivity performance in 399
providing the poor with more to work with 247
quantitative restrictions on products 88
redistribution programme fails to recognize the
multi-generational nature of 400
shi to industry 13
signicant reduction in employment in 247, 255
skill-biased technical change impact on 265
small-scale 379, 391
sub-climates suitable for dierent types of 378
support for 72, 91
underinvestment in conservation 408
upward pressure on wages 263
wage employment 71
see also CASP; commercial agriculture; Departments
(Agriculture); LRAD; Marketing of
Agricultural Products Act; PLAS; Strategic
Plan; White Papers (1995); also entries above
prexed ‘agricultural’
Agüero, J. M. 300, 339
AIDS, see HIV/AIDS
air pollution 408
Air Quality Act (NEM 2004) 403, 407, 408
Alesina, A. 137
Alexander, Peter 390n
Aliber, M. 379, 381
Aling, Peter 167
allocation of resources, see resource allocation
Ambio 385n
AMCOW Country Status Review for South Africa 387–8
ANC (African National Congress) 21, 29–31, 36,
61–6, 70, 88, 96, 140, 149, 199, 203, 380, 401
see also Mandela; Mantashe; Mbeki; Tambo; Zuma
Andrew, M. 379
Anglo American 32, 64, 96, 183
Angola 103, 104, 105, 107, 109
Soyo region 108
ANSA (Angola-Namibia-South Africa) 108
anti-dumping duties 88–9
apartheid policy 46, 279, 281
inherent contradiction in 278
Ardington, Cally 82, 324, 350, 357
Argent, J. 17n
Arndt, C. 330
Aron, Janine 136, 140n, 141n, 144, 145, 152
ART (anti-retroviral therapy) 322, 331–4
ASGISA (Accelerated and Shared Growth
Initiative) 21, 35, 72
Note: Locators followed by the letter ‘n’ refer to notes
412 INDEX
Ashman, Samantha 69, 158, 182
Ashton, Glenn 389n
Asian crisis (1998) 31, 111, 112, 136, 157
Asmal, Kader 386
ASSA models 329, 330, 332n
asset-pricing models 166
AU (African Union) 107, 108
automotive industry 98, 99–100, 125
see also Motor Industry Development Programme
Aziakpono, M. J. 8, 9
balance of payments 7, 88, 116, 126
see also TBP
Banker, e 174n
banking 178–84
domestic credit provided aer democratization
134
failure of middle-sized banks 175
general tightening of credit 159
investments in 32
second-tier 175
well-capitalized 158
see also central banks; Registrar of Banks
Banking Association 175, 368
Banking Enquiry (2008) 175
Bantustans 280, 281, 379
Barclays 96, 181, 198
bargaining councils 200, 250, 251, 252, 254
see also collective bargaining; wage bargaining
Barnato, Barney 275
barriers to entry 191, 192, 193, 200
informal sector 20, 244, 270–1, 272
reducing 196
regulatory 195
structural, non-bank 175
Bartens, Ryan 166
Basel Accords 174, 179
Bastos, F. 197
Basutoland 276, 280
see also Lesotho
BATAT (Broadening Access to Agriculture
rust) 397
BBBEE (Broad-based Black Economic
Empowerment) 313–20
BCEA (Basic Conditions of Employment Act 2014)
305n
BEE (Black Economic Empowerment) 14, 32, 37,
193–4, 204, 205, 313
Beira Corridor 108n
Bell, C. 330, 331
Bell, T. 87, 88, 89
Bennett, T. 379
BER (Bureau for Economic Research) 51–2, 151, 330,
331
Besada, H. 104n
Bester, D. 151n
Bhorat, Haroon 4, 6, 16n, 18, 237, 238, 239, 246, 247,
255, 271, 287, 293, 307
BHP Billiton 64, 96
Bill of Rights 382, 402
BIS (Bank for International Settlements) 167, 168,
169, 174
Black, Anthony 16, 95, 96, 99, 100, 186, 187, 188
black economic empowerment, see BEE
black entrepreneurship:
apartheid systematically destroying and
undermining 317
concerted government campaign for 61
deliberate destruction of 313n
development of 194
black farmers 398
commercial 396
erce competition between white and 393
small-scale 30
support to 394, 396, 400
black homelands 31, 64, 67, 127, 250, 281, 286
satellite governments 387n
use as labour reservoirs 403
Blignaut, Z. 151n
BLNS countries, see Botswana; Lesotho; Namibia; Swaziland
Bloomberg 181n, 183
BMI (body mass index) 325n, 326, 327
Bond Exchange of South Africa 167
bonds 12, 16, 165, 166–9, 174, 205
nancing model based on issuance of 119–20
long-term 10
non-resident ownership of 112
Bophutatswana 127, 303n
Botswana 11, 104, 106, 224, 277n
Boulle, Andrew 332n
Bowles, S. 296n
Branson, Nicola 17n, 81, 82, 296n, 341n, 344, 345
breach of contract 254
Briceño-Garmendia, C. 107n
Brink, N. 152
Britain 280
Broad-based Black Economic Empowerment Act
(2004) 314
Brodziak, Tracy 181n
Broomberg, J. 330
Brown, K. 149
budget decits 7, 21, 125, 330, 331
focus on reducing 31
increased 56, 124
Budget Reviews (2011/2012/2013) 122n, 395
budget surpluses 35, 125
Budlender, D. 308, 350
Bundesbank 149
Bundy, C. 271, 393
Burger, P. 153
Business Day 318n
Butcher, K. 246
INDEX 413
Cape Town 137, 157, 362, 408
Khayelitsha 271, 333
Langa 278
see also UCT
capital 58, 178, 197, 205, 276, 318n, 379
access to 271, 280
almost exclusively white-owned under apartheid
121
commercial farmers today using less 398
conict between labour and 275
controls on movements of banks 159
cost of 166, 352
cuts in projects 36
equity 166
expected benets in raising 188
export of 69
rms enabled to raise abroad 32, 33
xed 366; see also GFCF
free movement of 136
imported 87
improved bank ratios 158
investment in: deepening of 13; diverted
towards speculation 184; policy that
encourages 267
labour favoured over 267
making available to the poor at aordable rates
247
productive 280
racial composition of ownership of 317
real returns to 75–6, 77, 138
returns to labour relative to 90
start-up 271
uniform subsidy 363
working 400
see also foreign capital; human capital; physical
capital; social capital
capital account, 9, 10, 33, 112, 136
capital accumulation 44, 68, 192, 194, 320, 330
capital adequacy 158, 159
regulation of 179
capital allocation:
developments likely to worsen 180
ineciency in 166
capital controls 10, 32, 64, 157, 170, 182, 186
capital expenditure 7, 22, 213
capital ight 69, 71, 72
capital ows 52, 53, 112–13, 114
international 46, 136
portfolio 112
shocks 10, 110
short-term 3
see also capital inows; capital outows
capital formation 123, 330
see also GFCF
capital inows 11, 16, 31, 33, 55, 57, 60, 96, 134, 136,
158, 194
attracting 31
global, abrupt halt in 35
potential for reversal of 126
reliance on 15, 33
restrictions or taxes on 110
capital intensity 3, 70, 90, 98, 186, 187, 200
capital markets 125, 132, 165–71, 296
fastest-growing segment of 169
lowering the level of perceived risk in 46
partial liberalization 96
see also nancial markets
capital outows 10, 32, 69, 12, 110
capital stock:
investment in 13
value of 64
capital-to-GDP ratio 234
capitalism 62, 157, 181, 203, 271, 276
apartheid and 69–70
CAPS (Cape Area Panel Study) 79, 344–5, 346
carbon emissions 227, 361
Cargill, J. 317n, 319
cartels 15, 200
dominant 62
lowering taris and punishing 188–9
Carter, M. R. 80, 301, 339
Casale, Daniela 81, 89, 91, 303, 304, 305, 308
Case, Anne 79, 323n, 324, 326, 346
cash transfers 262, 285, 350
extensive system of 356
impact of 357, 358
non-contributory 354, 356
serendipitous eect of 358
unconditional 34
CASP (Comprehensive Agricultural Support
Programme) 396
Cassim, Rashad 160
CCMA (Commission for Conciliation, Mediation
and Arbitration) 251, 252, 253, 254,
255, 257
CDG (Care Dependency Grant) 349
Census data 285n, 287–8, 294, 303, 363–4,
386–7nn
central banks 56, 145, 156–62
see also Bundesbank; SARB; US Federal Reserve
Chamber of Mines 65, 276–7, 385
Chang, T. 193n
Chaskalson, Raphael 281n
cheap labour 277, 361, 379
Child Dependency Grant 357
child development 336–40
child malnutrition 322, 324–5
Children’s Act (2005) 349
Chile 45, 49, 76, 97, 135, 192, 193, 199
China 3, 11, 39, 76, 92, 97, 98, 107n, 108, 112, 135,
146, 165, 199, 200, 203, 277
see also Industrial and Commercial Bank
414 INDEX
chronic diseases 322, 323, 336
Cichello, P. 271
CID (Centre for International Development) 123n
Ciskei 127, 303n
Citi World Government Bond Index 167
Claassens, A. 380, 382
Cleary, Susan 332n
climate mitigation and adaptation 261
coal 65, 203, 224, 227
coal-red plant/power stations 122, 227, 406, 407
coal prices 39, 41
CoastCare progamme 261
Codes of Good Practice 255, 263, 314, 315n, 318, 319
Coega Industrial Development Zone 98, 188
COIIDA (Compensation for Industrial Injuries and
Diseases Act 1994) 356
collective bargaining 250, 252–4, 257, 258
Collins, D. 137
Comert, Hassan 160
COMESA (Common Market for Eastern and
Southern Africa) 92, 108
commercial agriculture 389, 394
private property used for 377
redistribution of land 381
commercialization 203
Commission on Growth and Development
(2008) 13, 134
Committee on Economic, Social and Cultural
Rights 351
commodity boom 65
commodity exports 3, 15, 39, 110, 144n, 188, 194
commodity prices 33, 35, 41, 51, 52, 53, 56, 58,
112, 136
see also coal prices; electricity prices; gold prices;
house prices; oil prices; platinum prices
Communal Land Rights Act (2004) 382
Companies Act (2008) 226
comparative advantage 90
Compensation for Occupational Injuries and
Diseases Act (1993) 263
Competition Act (1998) 210, 394
Competition Amendment Act (2009) 210
Competition Commission 14, 172, 196, 210
competition law 14, 31, 189
competition policy 77, 78, 188
industrial structure and 191–6
competitive bidding 215, 227, 276
competitiveness 10, 14, 30, 31, 35, 42 110, 111, 114,
124, 148, 160, 185, 188, 189, 194, 195, 221, 222,
226, 227
see also WEF; world competitiveness index
Competitiveness Fund 187
Comprehensive Plan for the Delivery of Sustainable
Human Settlements (2004) 369
Comprehensive Rural Development Programme
(2009) 395
conservation 377, 398, 399, 402, 404, 408
Constitutional Court 332, 372, 382
consumer protection regulation 174, 176
consumption 6, 34, 57, 70, 90, 125, 138, 165, 231, 233,
272–3
basic needs 280
shis in the structure of 13
support for the needs of the poor 137
Co-operative Society Acts (1939/1981) 397
Copenhagen Climate Change meeting (2009) 407
corruption 15, 47, 97, 126, 131, 132 133, 193,
198, 358
allegations of 368
perceived 46, 49, 199
petty 408
signicant opportunities for 370
COSATU (Congress of South African Trade
Unions) 65, 71, 88, 149, 161, 207, 240
cost-savings 332, 334, 369
Cousins, B. 382
CPI (Consumer Price Index) 12, 52, 54–9, 115, 143,
145, 146, 150, 291, 298
ination 9, 55, 56, 58, 115
CPIX (CPI excluding mortgage interest) 140, 141,
143, 144–5, 158
Creamer, Kenneth 119n
credit 4n, 8, 36, 58, 66, 68, 134, 135, 137, 159, 160, 173,
176, 379, 381, 399
access to 138, 172, 369
see also import credits; micro-credit institutions;
NCA; NCR; also following entries prexed
‘credit’
credit ceilings 8
credit constraints 350
credit markets 135, 136, 178–84, 296, 366n
credit rating:
downgrades 11
negatively aected 126
credit-rating agencies 213
creditworthiness 215–16, 371
diminished 369
crime 15, 97, 198, 199, 266, 267
high levels of 271
see also Victims of Crime Surveys
CSG (Child Support Grant) 306, 307, 338, 339, 349,
349, 357, 358
currency 12, 58, 157, 169
dual 10
emerging-market 112, 113, 168
freely oating 33
major markets 56
overvalued 110, 114, 115
pegged 10
protecting the value of 148, 156
selling foreign exchange to support 111
stabilizing 152
INDEX 415
stable 170
stronger 59
undervalued 11, 110, 112, 114, 115
unstable 3
volatile 3, 10, 11, 22, 111, 114, 167, 168
weak 57, 111, 115
currency appreciation 112
currency depreciation 10, 112, 114, 126, 145
major 140
nominal 124
currency speculation 34, 112, 168
current account decits 3, 11, 34, 55, 60, 112, 116,
157, 158
CWPs (Community Work Programmes) 19, 22–3,
241, 259, 261–2, 350
Daniels, Reza 81, 90
Dar-es-Salaam 108
data issues 79–83, 272
DataFirst Archive 79, 82
David, Paul A. 280n
Davies, Rob 244, 273
De Beers 96
De Jager, Shaun 10, 11, 114, 160, 161
De Kock Commission (1977) 8, 10, 149, 152, 179
Deaton, Angus 79, 137, 346
debt 59, 120, 121, 406
controlling 63
household 36, 183
increased 56, 123
mortgage 143, 367
mounting 148
need to reduce high levels of 53
personal 9
potential 125
projected 125
ratings downgrades 66
securitized 181
service obligations 128, 129, 143
share purchases oen funded by 32
shareholder 214, 318n
short-term 111
standstill crisis 10
sustainable 7
toxic 182
unsecured 183, 184
see also government debt; sovereign debt
crisis
debt-equity ratio 213
debt-GDP ratio 7, 30, 34, 55, 57, 66, 113, 114, 120,
125, 126, 146, 158
debt interest 148, 183
debt management 75
Dedicated Banks Bill (2005) 175n
deindustrialization 65
Demacon Market Studies 299
demand 19
export 35
housing 361, 372
intersection of supply and 245
water 408
see also labour demand
Demirguc-Kunt, Asli 180
Democratic Alliance 62, 66
demographic dividend 231–5
demographics 53, 102, 130, 233, 324, 362
Departments:
Agriculture 394, 397, 399
Agriculture, Forestry and Fisheries 394n
Basic Education 346, 352
Cooperative Governance 131, 261
Economic Development 172, 199
Energy 212, 215
Environmental Aairs 261
Health 339
Higher Education and Training 238, 240
Home Aairs 339, 358
Human Settlements 351, 366n
International Relations and Cooperation 103n
Labour 252, 305n
Land Aairs 381, 394
Mineral Resources 210
Minerals and Energy 207, 210–11nn, 226n, 407
Provincial and Local Government 131
Public Enterprises 207, 212, 226
Public Works 259, 260
Rural Development and Land Reform 394n, 399
Science and Technology 220, 222, 291
Social Development 337, 339, 358
Trade and Industry, see DTI
Transport 212n
Water Aairs 261, 386n, 388nn, 389, 390,
391n, 406
deregulation 88, 179, 181, 182, 183, 398
industry facing pressures for 397
derivatives 165, 169–70
development:
agricultural 399, 400
enterprise 315, 316, 317, 318
nancial 136, 180
skills 315, 316
socioeconomic 315, 316
supplier 105, 315, 318
see also child development; economic development;
industrial development; infrastructure
development; NDP; PSLSD; rural development;
social development; spatial development
developmental regionalism 106–8
Devey, R. 272, 304, 307
DHS (Demographic and Health Survey 1998) 79,
325n, 326
diamond mines 275, 276, 280, 281
416 INDEX
diamonds:
discovery of 178, 275, 393
earnings from 280
Diepsloot Community Work Program 19
Dinkelman, T. 247
Disability Grant 357
dismissal 15, 252, 254, 267
arbitrary 255
compensation awards for 255
constraints on 18
costs perceived to be high 268
diculties associated with 256, 266
see also unfair dismissal
dispute resolution 251, 252, 255–6, 258
Dobson, R. 271
Dollar, D. 197
DORA (Division of Revenue Act 2004) 260
Draper, P. 105n
DRC (Democratic Republic of the Congo) 104, 107,
108
DTI (Department of Trade and Industry) 89, 172,
200, 313n, 394
Advanced Manufacturing Technology Strategy
185
Codes of Good Practice 314, 319
Generic Scorecard 315
Industrial Policy Action Plans 70, 214n
Integrated Manufacturing Strategy 185
National Industrial Policy Framework 91, 185
Trade Policy and Strategy Framework 91, 92, 106n
Du Plessis, S. A. 42n, 151, 152
Dunne, P. 90
Durban 108
Warwick Junction area 20, 271
Dutch disease 3, 14, 191, 194
EAC (East African Community) 92, 107
Early Childhood Development Centres 261
Eastern Africa 104, 106
see also COMESA; SACMEQ
Eastern Cape 130, 276, 279, 288
ART rollout in 333
Bantustans 280, 281
Coega Industrial Development Zone 98, 188
Lusikisiki 333
Eberhard, Anton 211n
Eberhard, Rolfe 223n
economic development 2–7, 33, 217, 234, 395
nancial development and 180
goals of 180, 391
justiable 402
necessary conditions for 119
post-apartheid 67
potential of cities to contribute to 364
see also Departments (Economic Development);
NEDLAC
economic growth 5, 34, 123, 127, 134, 197, 222, 331
AIDS epidemic and 329, 330
anaemic 37, 148
apartheid policy contradiction aimed for 278
associated with rural migrants entering cities 270
balanced 148
boosting 233, 234
concentrated 131, 362
constrained 60
countercyclical measures designed to support 8
demographic change expected to impact favourably
on 233
drivers of 11, 44, 211, 212
exceptional 16
failure to deliver on promises of 61
gap between actual and potential 160
higher 149
inclusive 23, 121
infrastructure that supports 391
innovation limited in impact on 14
long-run 180
low 126, 167
modest 12
necessities for 385
per capita 233, 234
policies that will determine 239
political economy issues and 46
positive 2
prolonged 12
rapid 102, 167, 233
relatively low 18
slower 8
stable macro-environment that supports 401
stimulating 12
strong(er) 12, 334
success in achieving 341
sustainable 148, 153
volatile 1, 21
weakening 7
see also NGP
economic lifecycle 231, 232
economic performance 38, 54–5, 57, 59, 66, 360
see also macroeconomic performance
economic policy 1–39, 51, 54, 57, 72, 285
ANC 199
coordinated 59, 60
degree of sovereignty over 121
overriding strategic thrust (post-1994) 186
sectoral 239
see also macroeconomic policy; microeconomic
policy
economic relations 102–9
Economist, e 102n, 202n
EDI Holdings Company 225
education 23, 38, 47, 79, 120, 122n, 126, 127, 146, 232,
289, 336, 377, 399
INDEX 417
academic performance 345
access to 119, 130, 137, 352
average attainment 345
better 193
challenge to x the basic system 22
changes observed in attainment 326
compulsory 352
conditional grants for construction of schools
130
current failures of the system 320
diminished 234
discriminatory practices in provision of 301
eect on income 18
enrolment and grade advancement 343–4
exible and ecient 234
gender dierences in 344
grade repetition 344–5
higher 17, 193, 344
improved 31, 37, 367
incentive for households to invest in 330
inequalities in 20, 195, 341, 352
inferior for black learners 37
initiatives in 46
intentionally second-class 265
low initial level of 301
national norms and standards not being adhered
to 130
no-fee schools and fee exemptions 352
opportunities to learn in early life 338–9
performance in 13, 17, 22
poor 35, 44, 324
primary 344
quantity measures of 44
racial gap in 341, 343
reforming the sector 267
returns to 17, 296n, 331, 347
school funding and school fees 346
secondary 238, 266, 304, 339, 344
spending on 45, 119
teacher pay 65
strong commitment to 347
tertiary 339, 344
trends in attainment 341–2
vocational 240
weak 59
widespread concerns over 238
see also Departments (Basic Education/Higher
Education and Training) FET colleges; HDI;
PIRLS; SACMEQ; SAQA; TIMSS
Edwards, I. 271
Edwards, Lawrence 15, 88, 89, 90, 91, 91, 104n,
193n, 200
EFTA (European Free Trade Association) 88
Egypt 45, 105, 109
Ehlers, N. 151n
Ekurhuleni 362
electricity generation 21, 187, 215, 216, 224, 225,
406
electricity prices 122, 143, 146, 187, 198, 213, 215,
227
Electricity Regulation Act (2006) 213
Electricity Restructuring Inter-Departmental
Committee 225
electricity supply 30, 125, 131, 193, 199, 238, 337,
339, 363
access to 16, 119, 132, 223, 224, 227
aordability of services for poor households 223
anticipated constraints 188
concerns over 97
eective delivery of 197
excess 224
free 351, 406
illegal connections 361–2
increasingly costly 67
introduction of renewables 215
investment in infrastructure 210
IPPs in 215
outages 36, 122
overview of the industry 224
reforming of governance, structure and
competitiveness 226–7
regulation of 210, 225
shortages of 13, 98
state-owned 203, 206–7, 211, 212, 223, 406, 407
surplus and cheap 228
see also Eskom; Nersa
Electricity Working Group 225
Ellils, Charlotte 202n
Ellis, L. 331–2
emerging markets 51, 53, 56, 58, 63, 153, 169
exporters relatively disadvantaged in 92
GDP growth rate 61
index of currencies 112–13
ination targeting 151
international patenting 218
large 66
major 97
outow of capital 12
rand oen used for hedging risk 111
relatively fast recovery in 112
restrictions or taxes on capital inows 110
substantially traded currencies 168
top ten investors 99
see also MSCI
emissions 223, 227, 361, 403, 407, 408
employment 52, 55, 56, 63, 82, 156, 158, 160, 166, 193,
233, 245, 365, 367
access to 237
adjustment of 142
aggregate 43
agricultural 72, 255, 397
alternative 356
418 INDEX
employment (continued)
boost to 95, 153
casual 244, 246
changes in the structure of 355
conditions of 250, 252, 258
contractualized 5, 355, 357, 358
crucial role in reducing poverty 293
decline in 4, 15, 198, 277
dismissal from 268
dynamic 194
earnings from 234
education impact on 341, 344, 347
entry-level 239
expansion of 4
exploitable trade-o between ination and 153
falls in 35, 36, 43, 378
formal sector 267, 270, 273, 358, 378
full 195, 196
generation of 54, 96, 240, 272, 273
global nancial crisis and 35
government spending on 57
guarantee schemes 241, 259; see also MGNREGA
higher levels of 81
inequalities in 313
informal 20, 270, 271, 272, 273
intensity of 18, 20
key contributor to 2
major sources of 281
manufacturing 3, 5, 43, 90
migration in search of 350
minimum wages impact on 255
negative eects on 15
non-standard 257–8
precarious forms of 13
promoting 68, 162
raising 37, 38
rigidities in entry and re-entry 237
sectoral shis in 5
security of 251, 255–7
skills-biased 5
sustainable 148
temporary 5, 71, 240, 257
trade reform impact on 90
unemployment preferable to 19
wage oered not high enough 19
women 13, 305, 306, 308
youth 18, 266, 269
see also GEAR; public sector employment;
self-employment; StatsSA; also following entries
prexed ‘employment’
Employment Conditions Commission 254
employment creation 8, 16, 43, 63, 70, 98, 105, 121,
149, 239, 240, 241, 260, 395
see also job creation
Employment Equity data 316, 318
employment growth 4, 5, 59, 331
average 330
constrained 60
earnings growth versus 238
lower levels of 4, 199
relative and absolute 5
subdued 198
tepid 238
employment opportunities 19, 39
possibilities for informal sector role in generating
273
productive 350
women 304, 308
Employment Services Act (2014) 258
energy policy 211–12, 214, 216, 227
apartheid-era 226
see also White Papers (1988)
energy sector 99
economic regulation of 209–16
need to attract private investment into 226
see also electricity (generation/prices/supply); MEC;
petroleum pipelines; piped-gas sector
entrepreneurship 15, 32, 70–1, 239, 240,
241, 276
see also black entrepreneurship
environment and culture sector 259, 261
Environment Conservation Act (1989) 403
environmental policy 401–9
epigenetics 337
Epstein, Gerald 160, 180n
EPWP (Expanded Public Works Programme) 71,
259–62, 263, 349, 350, 353
strong policy support for 264
see also CWPs
Equal Education (NGO) 130
equality of opportunity 13
equities 96, 165–6, 174
error-correction mechanisms 195
see also VECM
Eskom 125–6, 146, 199, 203, 206–7, 210–13, 215,
223–8, 406
Integrated Resource Plan 407
Eskom Conversion Act (2001) 226
Essential Service Committee 254
Ethiopia 105, 109, 262
EU (European Union) 88, 89, 106, 396
banking sector 58
Cotonou preferences 395
exports to 11
SA and 92, 395
Eurozone 58, 113
Everatt, D. 286
exchange controls 32, 33, 158, 173
removal of 11
strong pressure to liberalise 159
INDEX 419
exchange rate 34, 59
appreciation of 124, 144, 146
competitive 31, 123, 124, 160
depreciation of 55, 57, 111, 116, 145, 187
dual system 10
equilibrium 11
fall in 33
nancial 10
xed 10
exible 10, 167, 194
oating 35, 123, 124
high 69
intervention to stabilize 33
nominal 110, 112, 116, 152
overvalued 69, 187
reasonably strong 55
volatile 15, 35, 110, 111, 160, 170, 194, 198
weakened sharply 31
see also foreign exchange
exchange rate policy 2, 7, 9, 110–16
export growth 57, 95, 100
agricultural 72
manufacturing 90
export markets:
deregulation of agriculture and opening to 398
FDI in mining sector aimed primarily at 101
locally owned rms heavily constrained in 100
major 92
export-oriented operations:
assembly 99
manufacturing 15, 194
export performance 59, 188
poor 98
relatively strong 54
export prices 35, 39, 41
export volumes:
fall in 35
increase in 3, 55
real 3
exports 13, 31, 52, 54, 104, 109, 160, 187, 198
agricultural 72, 378, 398
automotive 99, 157
capacity limited by bottlenecks 122
capital 69
competitive 124, 194
constraints in key infrastructure 57
destined for Africa 103
determining the evolving basket of 188
direct controls over 395
economic activity and 193n
electrical products and electronics 98
emerging-market 56
gold 87
high-technology 95, 98, 219
imports rising faster than 66
inability of trade reform to boost 89
industrial 280
international competitiveness 10
labour content of 90
macroeconomic policy that is supportive of 124
major, sharply lower demand for 35
major contribution to 70
mining/minerals 125, 181
need to boost 38
non-gold, more than doubled 3
non-resource-based 189
non-traditional 15
potential to expand 125
protection particularly detrimental to 90
surplus production for 279
tari barriers on 92
uncertainty for 33
undercutting eorts to diversify 206
value of 11, 98, 200
voluntary restrictions 200
wine 378, 393, 398
wool 393
see also commodity exports; manufactured exports;
also entries above prexed ‘export’
Extension of Security of Tenure Act (1997) 382
FAIS (Financial Advisory and Intermediaries Act
(2002) 176
Falkenmark, M. 385n
Farrell, Greg 140n, 151n
FATF (Financial Action Task Force against Money
Laundering) 174
Faulkner, D. 42n, 46n, 193n
FCG (Foster Child Grant) 349
FDI (foreign direct investment) 98–101,
104–5, 158
greeneld 15–16
inward 12, 95–8, 219
large-scale, in job-creating sectors 101
outward 99, 104
upper middle-income 48, 49
Fed, see US Federal Reserve
Fedderke, Johannes 14, 16, 42, 43, 44, 46nn, 90, 98,
138, 167n, 200
Federale Volksbelegings 179n
Ferrucci, G. 136
fertility rates 304, 329, 330, 331, 368n
see also soil fertility
FETs (Further Education and Training) colleges
19, 240
FGT (Foster-Greer-orbecke) poverty measures
5n, 286
FICA (Financial Intelligence Centre Act,
2001/04) 174–5
Fields, Gary S. 248
420 INDEX
Financial and Fiscal Commission 361
nancial crises, see Asian crisis; global nancial crisis
nancial institutions 174–5, 178–84
deregulation of 181
development nance 108
micro-credit 71
Financial Institutions Amendment Act (1985) 179
Financial Intelligence Centre 172
Financial Mail 152, 158, 319n
nancial markets 64, 113, 152, 184
advanced and internationally well-connected 136
development of 3, 161
global, tremors in 158
increasing concentration in 178
liberalized 180n
sound 105
volatility of 9
nancial regulation 172–6
lax 69
nancial resources 195, 276
nancial sector 161, 181n, 182
bias in favour of the wealthy 191, 195
capable 125
concentration of 183
important issues about access to 180
oversized and unproductive 157
stability and inclusion in 172–7
well-regulated/well-capitalized/well-functioning 35,
158, 180
Financial Services Ombud Schemes Act (2004) 176
nancial terrorism 172, 175
nancialization 68, 69, 72, 73, 157, 180–4
Finbond 175n
FinMark Trust 175nn, 176n, 182, 183n
Finn, Arden 16n, 17n, 291, 299–300
scal federalism 127
scal policy 2, 7, 21, 54, 55, 123, 124, 125–6, 267
curbing of 124
eectively neutralized 125
expansionary 35, 36
ideological contest over 121–2
macroeconomics and 117–55
prudent 401
sound 34, 38
sustainability issues and 402
tight 123, 124–5
xed investment 35, 52, 54, 184
real 57
relatively low rates of 75
substantially improved growth in 59
foreign capital 46, 60, 69, 136
complementarities between domestic and 98
harnessing for development 101
steady inows of 158
foreign currency 69
speculators 34
foreign exchange 169, 186
dependence on gold as a source of 87
selling to support the currency 111
trading activity in rand derivatives 170
foreign exchange market 111
change in liquidity requirements 145
intervention in 9, 10, 34, 145
scope for evasion through 170
spot and forward 10
foreign exchange reserves 9, 111
lack of 33
using SARB balance sheet to accumulate
152
Foster, V. 107n
Foster Care Grant 306, 357
see also FCG
Fourie, Frederick 247
Free State:
ART coverage 333
gold mining industry 278
horizontal division of revenue 130
poverty and human development 288
Freedom Charter 72
Freeman, Richard B. 246
Fried, J. 334
FSB (Financial Services Board) 161, 172, 176, 179
FSC (SARB Financial Stability Committee) 161
FTA (Free Trade Agreement) 104
see also TFTA; T-FTA
gas market 215
GATT (General Agreement on Taris and Trade):
Uruguay Round 11, 15, 30, 88
Gauteng 108n, 127, 193n, 205, 215
demographic growth 362
horizontal division of revenue 130
main sources of water for 385n
march out of largely rural provinces to 364
migration and population growth 362
poverty and human development 288
risk of severe water shortages 391
GDP (gross domestic product) 7–8, 11, 13, 14, 144n,
207, 366–7
aggregate 43
constant price 76
global nancial assets ratio to 68
market capitalization ratio to 165
projected 361
real 52
SADC 102
T-FTA 107
see also capital-to-GDP ratio; debt-to-GDP ratio;
investment-to-GDP ratio
GDP growth 39, 55, 57, 58, 61, 75, 149
average 4, 186, 237
below trend 53
INDEX 421
consistent with potential and surveys 152
ratio to comparator countries 40
slowed 61
sustainable 156
see also real GDP growth
GDP share 45, 52–3, 119–20, 137
agriculture 378
budget surplus replaced by decit 125
capital stock 64
domestic investment 68
education 44
schooling 346
export of capital 69
FDI 75, 96, 97
nance 68
government spending 17, 34, 63, 77–8, 119, 306,
346, 349
health 331, 353
housing sector 366
manufacturing 3, 43, 65
mining 2, 65
R&D 217
saving, investment and credit 135
water 385
GEAR (Growth, Employment and Redistribution)
1, 21, 31–4, 72, 88, 96, 121, 157
Geen, N. 332, 334
Gelb, S. 95, 96, 99
gender dierences:
access to resources 303
earnings 308
education 344
income 307
labour market status 309
observable characteristics that aect productivity 306
unemployment 236
gender inequality 303–10, 313
gender prejudice 13
General Strike (1922) 250
Generalized Lorenz curves 292, 294, 295–6
Generic Scorecard 315
GERD (Gross Expenditure on R&D) 217, 220
GFCF (gross xed capital formation) 13, 135
Ghana 45, 105, 109
GHS (General Household Surveys) 79, 287, 308n, 343
Gilbert, Alan 367
Gillwald, A. 212n
Gini coecients 6–7, 294
Glazewski, Jan 403
Glen Grey Act (1894) 401
Global Entrepreneurship Monitor (2008) 240
global nancial crisis (2007–08) 11, 13, 21, 34, 36, 39,
43, 151, 152
aermath/wake of 112, 133, 137, 179, 333
central banking 156–62
consequences 2
bank resilience during 181
currency undervalued 112, 114
disastrous for SA 35
economies will continue to recover from 60
scal expansion since the start of 75
havoc wreaked by 173
stability issue raised in light of 180
subprime problems a catalyst to 183
unexpected 203
Global Social Protection Floor 359
gold:
abundant deposits of 65
discovery of 165, 178, 275, 393
earnings from 280
exports of 87
gold mining industry 276, 280, 385
failure of 281
protability and stability 10
reliance on migrants for black labour 278
stock price of leading companies 65
gold prices 39, 41
Goode, R. 209n
Goodhart, Charles 152
Gordhan, Pravin 148, 149, 152, 160
Government Communications 211nn
government debt 55, 57, 59, 123
primary auctions of 167
government wage bill 7, 8, 22
Gqubule, Duma 316n, 318n
Grant for Older Persons 306
greenhouse gas emissions 403, 407
Grobbelaar, N. 104n
Grobler, Christelle 51n
Gross National Product 275
Group Areas Act 271
growth:
see also economic growth; employment growth;
GDP growth; GEAR; also growth performance;
growth recovery; productivity growth
growth performance 5, 39–50, 51, 54, 56, 57, 58, 59, 134
growth recovery 42
slowed 39
sustained 53
Guidelines for Good Business Practice by South
African Companies Operating in Guidelines for
Africa 108–9
Gumede, Vusi 286n, 289
Gupta, R. 193n
GVA (gross value added) 131
Hall, R. 381
Hamukoma, Chipo 202n
Harjes, T. 136n
Hartford, Gavin 281, 282n
Harvard 237
Center for International Development 123
422 INDEX
Hassan, Shakill 166, 167, 169
Hausmann, Ricardo 21, 123n, 237
Hawkins, Penelope 175n
HDI (Human Development Index) 288
health 23, 120, 122n, 126, 127, 337, 377
adult 336
adverse eects 403
basic inequalities in 20
challenges past and future 322–8
costs of 330n
equal access to 137
GDP percentage allocated to 331
mental 336
negative implications for 234
potential or actual impact on 408
pressure on the sector 332
public 401
right to an environment not harmful to 402
spending on 331
see also Demographic and Health Surveys;
Departments (Health); WHO; also following
entries prexed ‘health’
health and safety 210
see also Mines Health and Safety Act
health care 333
access to 21, 326, 350
fee waivers for 349
free 352–3
primary 30, 353
resources channelled into 329
health clinics 361
health insurance 355
see also NHI
health products 145
health services:
access to 119, 130, 326, 338, 339, 353
erratic 333
exemption from paying for 353
highly inequitable quality of 353
social expenditure on 119
health workers:
perceived lack of exibility and compassion from
334
strike action by 254
heavy industries 98, 186, 187
Heintz, James 246
Herzog, J. B. M. 178
high-technology exports 95, 98, 219
high unemployment 4, 18, 21, 95, 98, 149, 246, 330,
344, 358
exceptional 244
extreme 90, 270, 273
key driver of 236
labour income rise and 231
measures to combat 239–41
outstandingly 192
persistent 119, 293, 354
questions about how to alleviate 296
reasons for 237–9
sustained 307
young adults 266
high(er) wages 19, 63, 65, 194, 195, 233
educating workers so that they can command 61
entry for school leavers 195
fewer workers hired at 247
policy attempts to address 18
relatively 222, 238
substantially 246
unemployed persons and 70
HIV/AIDS 67, 261, 301, 322–4, 327, 329–35, 357
mother-to-child transmission 337
Hoek-Smit, Marja 366, 370
Holden, M. 87, 89, 91
homelands, see black homelands
Hoogeveen, J. G. 285n, 292, 294n, 296n
house prices 34, 35
household income 137
average 143, 298
death of earners 329
disproportionate spending on traded products 90
labour income explains the bulk of 16
maximum 381
monthly 307, 366n
per capita 292, 307
household water supply 81, 308
access to infrastructure 351
reduction in connections 82
toilet facilities 387
housing 127, 131, 275, 353, 362, 408
access to 16, 137, 138, 351, 372
adequate 351
amenities and 351–2, 361
basic inequalities in 20
boom and bust (2007) 138n
cash programme for migrant workers 281
demand-side approaches to subsidies 372
good 22
inadequate conditions for the poor 14
lack of investment in 279
low-income workers 37
matching supply and demand in the market 361
measuring owner-occupiers’ costs 143, 144
poor quality 351
public nancing for 366–73
qualifying for 280
rate of delivery unprecedented in the world 351
RDP 363, 369
social 351
supply-led approach to delivery 372
value triangle 366–7
Housing Act (1997) 372
housing bubble 68
INDEX 423
housing estates 363
hostels for unmarried men 278
housing policy 22, 363
challenges in 366, 367–70
Housing Subsidy Scheme 351
HPI (Human Poverty Index) 287–8
Hudson, J. 105n
human capital:
accumulation of 192, 194, 330
creation of 44
inadequate provision of 42
investment in 13, 30, 38, 185, 225, 233, 350,
357
weakened 234
meagre results in 49
on-the-job 266
potential impact of AIDS on formation 330
wasting 195
Human Resources for Industry Programme 187
hypertension 322, 326–7
IAIS (International Association of Insurance
Supervisors) 174
IDC (Industrial Development Corporation) 187,
203, 205
IES (Income and Expenditure Surveys) 82, 143,
286n, 291
IGFR (intergovernmental scal relations) 127
IGPs (Infrastructure Grants to Provinces) 260
IMF (International Monetary Fund) 72, 111, 157
structural adjustment programmes 226
import credits 99
import duties:
osetting of 99, 100
rebates of 87
scheduled reduction in 188
import-export complementation scheme 188
import prices 39, 41, 144
feed-through from exchange rate via 145
import substitution 87, 88, 192, 203
imports 52, 198
agricultural 398
amount of time needed 200
constant price 144n
direct controls over 395
from Africa 103
labour content of 90
rising faster than exports 66
sharp increase in volumes 3
taris on 11, 31
uncertainty for 33
see also entries above prexed ‘import’
income 5, 19, 67, 68, 81, 228, 262, 270, 334, 351, 360,
365, 392
absence of other viable sources of 240
black people 319, 320
caregiver 352
cash transfer 350, 356
comparing non-income dimensions and 16
disposable 52, 362
dividend 182
eect of education on 18
eroded unindexed 148
farm 378
xed 167
gender and 307, 308, 313
main or extra source of 379
meaningful increases in 75
opportunities for:
poor whites 386
unemployed 20
per capita 98, 136, 149, 329, 330, 331, 333, 349
poverty 286, 287, 288
pursuit of a higher level of 134
redistribution of 20
relatively modest source of 357
social grant 307, 350
tax, see income tax
user-pays 120
women forced or encouraged to earn or
generate 304
see also household income; IES; KIDS; labour
income; low-income issues; middle-income
economies; Net Income to Sales; NIDS; real
income; also following entries prexed ‘income’
income distribution 138, 181, 292, 293, 296, 300, 322
evolution of 17
market 16
per capita 324
unequal 136, 204
income inequality 194
enormous 347
evolution of 17
falling levels, black- and white-headed
households 319
growing 17
increased 1, 21, 67
persistent 341
role in determining aggregate outcomes 137
trends in 6, 291, 294–6
income mobility 298–302
income support 308, 349, 350, 354
income tax 8, 272
India 3, 20, 45, 76, 89, 97, 108, 135, 165, 168, 169, 193,
199, 219
Congress Party 62, 66
employment guarantee scheme 241
see also MGNREGA
Indonesia 45, 135, 199
Industrial and Commercial Bank of China 181
Industrial Conciliation Act (1924) 250
industrial councils, see bargaining councils
424 INDEX
industrial development 70, 71, 98, 102, 104
major 107
policy thrusts aimed to change the pattern of
188
promoting 87, 106
see also IDC
industrial relations 22, 250
see also labour relations
industrialization 70, 185–9
accelerated import-substituting 203
challenge of 185
cheap labour to support rapid expansion of 361
competitive 14
continued 53
regional infrastructure investment and 108
world urbanization accompanied by 360
inequality 16, 68, 71, 143, 181
best way to address 61
earnings 253, 257
educational 20, 195, 341, 352
school 345
exacerbated within the workforce 258
high levels of 13, 37, 61, 75, 138, 158, 191
historical 179, 352
inherited 195
major contributor to 18
redressing 389, 401
reducing 68, 71, 180, 234, 341, 353
spatial 351, 354
structural/structured 23, 68, 121, 157
trends in 6–7
triple challenge of poverty, unemployment and
209
uncertainty and 134, 138
wage 67, 90
wealth 194, 402
see also gender inequality; income inequality;
poverty and inequality; racial inequality
infectious diseases 322
ination 7, 11, 30, 140–7, 213, 291, 299, 331
bringing down 31
core 9
cost 367, 369
deteriorating outlook 10
direct controls to deal with 8
global 55, 56, 58
headline 9, 150n
low and stable 149–50
major contributors to 12
nominal exchange rate uctuations and 152
potential threat of 53
SARB accused of being too hawkish on 153
second-round eects of 34
trigger for 367
wages and 65, 253, 333
see also CPI ination
ination expectations 115, 148
anchoring 33, 116, 150, 151, 152
focal point for 150
ination-targeting 10, 149, 151, 161
monetary policy and 12, 21, 33–4, 111, 156,
160, 187
review commissioned by ANC 149
SARB and 9, 12, 124n, 149, 150, 151–2, 153
inationary pressures 31, 144
global 53
informal economy 172, 193, 195, 270, 273
competition between formal and 272
number of workers in 65
policy towards 271
underdeveloped 192
vibrant 271
informality 20, 195, 270–4, 371
infrastructure development 54, 107
cross-border 106
infrastructure investment 121, 124, 126,
210, 260
electricity 119
funding model for 214
public sector 13, 125
regional 108
rural 72
SOE-led 212, 216
state-led 212
transport 119, 188, 371
water 385
infrastructure sector 259, 260–1
innovation 13, 22, 49, 169, 175, 191, 193, 196, 238,
264, 271, 317n
encouraged and rewarded 198
impact on economic growth and job creation 14
incentives for 192, 194, 260
low levels of 16
manufacturing policies to support 187
NHI-related 353
policy 259
spending limited by lack of nancial resources
195
stability and 173, 176–7
stimulated 46, 365
technology and 46, 217–22
see also NSI; TIA
institutional arrangements 205, 211, 259
micro-level 208
public sector 371
special 98
institutional capability 390–1
institutional capacity 70
erosion of 68
improving 133, 160
uneven 130
institutional investors 178, 179
INDEX 425
institutions 18, 38, 61, 72, 89, 106, 127, 185, 189, 197,
204, 222, 231, 250, 397
academic 195
economic 16
educational 343n
FET 240
post-secondary 344
government 314
informal 195
labour-market 200, 251–2
legal system 173
political 16
publicly funded S&T 221
state 314, 333
water management 392
see also nancial institutions
Integrated and Sustainable Rural Development
Strategy (2000) 395
Integrated Environmental Management 403
Integrated Gasication Combined Cycle 407
intellectual property 221
interest rates 9, 10, 35, 52, 56, 58, 145, 151, 152,
169–70
abnormally low 111
dierential 48, 49, 168
fall in 124, 144
high 69, 71, 157, 331
increased 31, 32, 34, 55, 57, 143, 330
indebtedness from 183
low 111, 124, 167
moderating 167
mortgage 143
nominal 59
quantitative restrictions on 8
relatively stable 34
retained 160
rising 126, 144
risk-free 166
short-term 144, 167
term-structure of 167
upward pressure on 123
volatile 33
see also real interest rates
intergovernmental scal relations 127–33
international nancial crisis, see global nancial crisis
International Mathematics and Science Study 46
International Panel 123–4
international standards 138, 244, 294, 296n, 345, 362
alignment with 174–5
investment 71, 198, 226, 396
corporate, slow 36
current non-price constraints on 54–5
depressing 35
erosion of 329
export-oriented manufacturing projects 194
innovation and skills-driven 195
international 99
labour-demanding 98
low job-creating 194
mining 21, 32, 101, 104, 165, 178
physical capital 13, 30, 38, 46, 185, 225
shiing behaviour of households 182
see also FDI; xed investment; human capital;
infrastructure investment; portfolio
investment; Strategic Investment Programme
investment allowances 110
investment climate 197–201
negative impact on 98
see also World Bank
investment expenditure 7
investment-to-GDP ratio 54
invisible-hand metaphor 173
IOSCO (International Organization of Securities
Commissions) 174
IPAPs (industrial policy action plans) 188
iron ore 65
ISCOR 203
Israel 45
ITAC (International Trade Administration
Committee) 89
Japan 30, 58, 92, 135, 168, 195
infrastructural expansion programme 121n
job creation 34, 77, 101, 194, 198, 201, 205, 350,
392
chief determinants of 237
enhanced 221
government objectives 399
innovation limited in impact on 14
labour-intensive 3
large-scale 197n
limited 195
massive 354
NGP proposals 71
potential to become a conduit for 75
prioritized as main solution to inequality and
poverty 38
promises to boost 192
public sector programmes 241
substantially compromised 56
system places too little emphasis on 149
township, problematic 19
weak 63
Johannesburg 61, 205, 276, 281, 362
Alexandra 278–9
see also JSE; University of the Witwatersrand
Journal of Economic Behavior and Organization 204n
JSE (Johannesburg Stock Exchange) 165, 167, 315
rst black company to list on 317n
Kagiso Trust Investments 319n
Kahn, Brian 10, 11, 160, 161
426 INDEX
Kahn, Michael 220
Kalaba, M. 105n
Kanbur, Ravi 4, 17n, 247, 307
Kaplan, David 14, 218, 219, 222
Kemp, H. 151n
Kenya 45, 105, 109, 175n, 207, 199, 345
Kerr, Andrew 79, 82, 198, 240, 257
Khoisan people 381
KIDS (KwaZulu-Natal Income Dynamics Study) 79,
80, 272, 287n, 299, 301
Kimberley 280, 393
Kingdon, Geeta 244, 246, 247, 270–1
Klein, N. 151
Knight, John 244, 270–1
knowledge economy:
failure of 44–6
movement towards 188
Kock, M. 152
Korea, see South Korea
Korean War (1950s) 398
Kosovo 262
KPMG 316
Kubicek, Robert V. 178
Kumhof, M. 138
KwaTeba 276
KwaZulu-Natal 130, 267, 288, 300
see also KIDS; University of KwaZulu-Natal
labour costs:
cutting 71
minimizing 276
reducing 193n
see also ULCs
Labour Court 252, 255, 257
labour demand 98, 245
decline in 265
dominant source of change in 90
gap between supply and 22
increasing 18, 19, 267
lowered 36
labour force 198, 246, 278, 361, 379
feminization of 305, 307
HIV-positive 329
labour drawn in from rural areas 275
migrant 275, 276, 277, 278
new entrants to 268
proportion subject to labour market rigidities
43
skills of 234, 237
unemployed 244, 246, 270
see also LFS
labour force participation:
age-specic 233
high 195
women 303–4, 305
labour income 16, 17, 231–4, 246, 303–6
labour law/legislation 36, 131, 250–8, 271, 304, 306,
308
Labour Market Commission 21
labour market policy:
challenge for 246
commission to investigate 286n
reform of 241
social dialogue and tripartite negotiation over 251
labour markets 60, 256, 273, 287, 293
broadly dened participants 4
central role in poverty and inequality 296
competition to enter 361
constrained 15, 299
discriminatory practices in 301
distortions in 42, 263
functioning of 237, 239
future trends in 296–7
gender dierences in status 309
gender discrimination in 306
helping unemployed people get permanent jobs
in 241
imperfections in 267, 268
income in 303–6, 307
inux of under-educated women/workers into 265,
267
lack of remunerative opportunities 232
limited opportunities in 240
multi-faceted challenges 246–7
nationally representative surveys on 79
new entrants into 38, 72, 238
performance of 70, 71, 233
recession and consequences for 2, 4
regulated exibility in 31
regulations 198, 251, 269
removal of discriminatory practices in 301
restructuring 258
rigidities in 18, 43, 257
rural 72
scarring eect of youth unemployment on 234
segmented 244–9, 305
stratied 245
substantial churning in 266
tight conditions 330
weak conditions 9
women forced or encouraged to enter 304
young school leavers entering 267
see also PALMS
labour mobility 195
labour movement (political) 149, 204
Labour Party 178
labour productivity 64, 142
improved 59
wages rise in line with 65
labour relations:
breakdown in 56
dominant feature of 250
INDEX 427
legislation enacted to extend 251; see also LRA
less favourable 55
tense 37
very poor 56
worsening 60
labour supply 245, 350
constrained 333
gap between demand and 22
increase in 265
organized to maintain monopsonistic power 276
women 303, 305
Lahi, E. 381
Lall, S. 369
Lam, David 17n, 82, 341n, 344, 345, 346
land:
access to 389, 390, 393, 401
acquisition grants 381
alternative 380, 382
cheap 363, 364
claims for 380, 381
communal 380, 382
costs of 363, 368, 369n
start-up 400
dispossession of 377, 382
forced removals from 379, 380
illegal occupation of 370
incentive for farm owners to invest in and maintain
404
inecient use of 360
integrated assembly 367
invasions of 367
people oen evicted from 362
public sector role in production and
management 371
release of 371
restoration of 380
serviced, limited availability of 369
state purchases of 381
unequal and racially skewed distribution of 381
see also agricultural land; also following entries
prexed ‘land’
Land Acts (1913/1936) 378
Land Bank 394
Land Claims Court 380
land development:
clarifying the nancial regime for 372
essential element of 371
land identication 368
land ownership 389
black 378, 389
racial inequality in 377
white 386
land redistribution 30, 380, 381, 396
failed 382
see also LRAD
land reform 371, 377, 380–1, 389, 395, 400
beneciaries of 396, 397, 399
botched 72
needs of failing farms 382
three programmes 394
Land Reform Act (1996) 382, 404
land restitution 380, 396
see also Restitution of Land Rights Act
land rights 380
accelerated access to 390
direct link between water and 389
historical 396
increased insecurity of 399
inferior 396
plans to undermine 399
protected, absence of 399
see also Communal Land Rights Act; Restitution of
Land Rights Act
land tenure 132, 379–80, 396
communal 404
see also Extension of Security of Tenure Act
land use 381
claim to 404
distribution and 377–8
ecient and equitable 364
intensive 365, 371
management 371
planning 372
racially divided settlement and 378
zoning 371
Landau, Jean Pierre 159
LandCare progamme 261
Landsberg, C. 105n
Latin America 167, 294, 346, 358
Lawless, Allyson 388n
Lawrence, R. Z. 89, 91, 92, 104n, 193n
LCD (lifecycle decit) 231, 232
LDCs (least-developed countries) 102
Leape, J. 8, 96
Lederman, D. 98
Lehman Brothers 36
Leibbrandt, Murray 6, 16nn, 17n, 18n, 67, 237, 239,
240, 243, 246, 291, 293, 294nn, 296nn, 300, 306,
307, 344, 357
Lenton, R. 389n
Lesotho 11, 93, 104, 106, 224, 276, 277n, 279–80
Levine, Ross 180
Levinsohn, James 16n, 236n, 239, 293
Levy, Brian 14, 202n, 204n
Lewis, J. 330
LFS (Labour Force Surveys) 79–81, 236, 272, 304n,
305, 306–7nn, 379
liberation dividend 61–6
Liebenberg, F. 397
life expectancy 234, 288, 336
average 306
reduced 330–1
428 INDEX
lifecycle, see economic lifecycle; LCD
Limpopo 130, 288
Lipton, Merle 393
liquidity 158
asset ratio-based system 8
change in requirements in forex market 145
cost of withdrawing 111
daily tenders of 9
global, unprecedented creation 53
literacy 261, 344
see also PIRLS
Liu, W. 46n
living standards 176, 195
boosting 234
general welfare eects on 15
protection of 145
see also LSM; PSLSD
Lloyd, N. 237, 239
LNG (liqueed natural gas) 215–16
Lodge, Tom 386n
Loewald, C. 193n
London 33
Lonmin 113, 183
Lorenz curves 292, 294, 295–6
Louw, M. 294n, 296n
low-income issues 37, 131, 174–5, 273
countries 98, 345
households 14, 367, 368
school students 344
women 307
Low Interest Finance for Export and Technology 187
low-wage line 246
LRA (Labour Relations Act 1995) 251, 252, 253–4,
255, 305n
LRAD (Land Redistribution and Agricultural
Development) 381, 396
LSM (living standard measure) 182, 299
Lucas-Bull, W. 318n
Lund, F. 271, 356, 358
Lund Committee Report on Child and Family
Support (1996) 286n
Machaka, J. 186
macroeconomic performance:
disappointing 158
expected 51
improvements in 31
macroeconomic policy 2, 7–12, 71, 88, 124, 187, 226
burden placed on 35
courageous combination of structural, nancial
and 195
important and largely ignored consequences for
69
no consistency with 188
post-apartheid 54
potential criticism of 123
reliance on 32
sustainability issues and 402
Mail and Guardian 316n
Makrelov, K. 193n
Malawi 104, 108n, 277n
Malaysia 45, 76, 97, 98, 135, 199
Mandela, Nelson 15, 62, 63, 362, 397
manganese reserves 65
Mantashe, Gwede 149
Manuel, Trevor 14, 157
manufactured exports 98
generalized expansion of 125
non-commodity 90, 92
problems for competitiveness of 111
share of 3, 11, 219
see also export-oriented operations
manufacturing:
decline in production 157
employment in 3, 5, 43, 90
fall in output 157
GDP share 3, 43, 65
performance of 5, 14
policies to support innovation 187
successful entrepreneurs in 15
uncompetitive 194
unit labour costs for 140, 141, 142
vehicle 100
Maputo Development Corridor 108n, 188
Marais, H. 67
Marcus, Gill 148, 161
Maree, Jacko 174n
Marikana massacre (2012) 98, 113, 183, 281, 282
NDP and 37–8
Marinkov, M. 153
market capitalization 165, 166, 381
market distortions 42–3, 397
market integration 106, 107
Marketing Act (1968) 394, 395, 397
Marketing of Agricultural Products Act (1996) 397
marriage rates:
decline in 304, 307
low and falling 303, 308
Martin, Lucy 202n
Mauritius 49, 98
May, J. 301
Mayet, Natasha 239, 247
Maylam, P. 271
Mbeki, abo 63, 203, 209n, 272, 332, 397
Mboji, L. 151n
Mboweni, Tito 158
MEC (minerals-energy complex) 70, 72
mega-industrial projects 188
Menendez, Alicia 326
Mercosur (Common Market of the South) 92
Metropolitan Life 317n
Mexico 45, 64, 76, 98, 135, 169
INDEX 429
MGNREGA (Mahatma Gandhi National Rural
Employment Guarantee Act 2005) 18, 259, 263
micro-credit institutions 71
microeconomic policy 266
reform strategy 31, 32, 38
micro-lenders 172, 175n
Middle East 58
middle-income economies 44, 72, 157, 186, 204, 219,
256
see also UMI countries
migrant labour 275–82
cheap 379
migration 304
government ambivalence towards 361
international 362
promoted 350
unfettered 103
see also rural-urban migration
MIGs (Municipal Infrastructure Grants) 260
Minerals and Mining Policy for South Africa
(1998) 405
Mines Health and Safety Act (1996) 405
minimum wages 4, 70, 247, 250, 252, 254, 263, 271,
350
impact on employment 255
national policies 71
sectoral 305n
statutory 258
very rigid regulations 63
Mining Charter 314n
Mining Green Paper (1998) 401–2
mining industry 2, 107, 186, 280
BBBEEE compliance 314, 315, 318
big companies 275
focus abroad 64
non-core assets sold o 96
competitive bidding curbed 276
crippled by power blackouts 227
employment falling in 65
environmental controls 405
expansion in 99, 361
exploration licences 210
global expertise in technologies 218
greenhouse gas emissions 407
gross earnings 238
growing outputs and exports 125
growth in real value 65
investment in 21, 32, 101, 104, 165, 178
jobs lost in 4
labour force 379
cheap 361
control of 278
drawn in from rural areas 275
living-out allowances 281
labour relations in 56, 60
legislation for compensation of workers 356
new entrant companies 122
new order licences 318
population growth in buoyant areas 362
production: declined 157
failure of BEE to transform methods of 37
revenues/prots from 194
skill-biased technical change impact on 265
technology patents 218
violent strikes 98, 183
water for 389, 391
white population access to 223
see also Chamber of Mines; gold mining; MEC
Ministerial Committee (2012) 221, 222
Ministries:
Environment Aairs and Tourism 408
Finance 364
Labour 252, 254, 350
Public Enterprises 209n
Water Aairs 386
Miralles-Cabrera, C. 136
Mittermaier, K. H. M. 173
Mlatsheni, Cecil 18n, 240
MLL (Minimum Living Level) 286n
Mminele, Daniel 161
Mnyande, Monde 160
Mohamed, Seeraj 180
monetary aggregates 8
monetary policy 2, 11, 31, 54, 113, 146, 148–55
accommodative 8, 116
conservative 55
credible 21
easy 12, 123
eectiveness of 167
failed 149
ination-targeting and 12, 21, 33–4, 111, 156, 160, 187
market-oriented 8
operational independence in 9, 156
pro-cyclical 35
stabilizing 123
tight 58, 124
transparent 34, 149, 150
unconventional 112
see also SARB
Monetary Policy Review 161
money laundering 172
see also FATF
monopolies 15, 191, 207, 210
monopoly pricing 71
monopsony 276
morbidity and mortality 322, 327
Morgan Stanley Investment Management 61n
Morrissey, O. 100n
mortality 322, 327, 329
adult, premature 301
all-cause 323, 324
maternal 67
430 INDEX
mortgages 143, 174n, 366–7
Motor Industry Development Programme 188
Moultrie, T. A. 304
Mozambique 64, 104, 108, 224, 276, 277
Mozal plant 188
natural gas from 215
see also Maputo; Nacala; Pondoland
MPC (SARB Monetary Policy Committee) 9–10, 152,
160, 161
workshop (2012) 159
see also Mnyande
MPESA (mobile transmission mechanism) 175
MPRDA (Minerals and Petroleum Resources
Development Act 2004/2008) 403, 405
Mpumalanga 130, 193n, 288
MSCI Emerging Markets Index 165
MSF (Médecins Sans Frontières) 332
MTCTP (mother-to-child transmission
prevention) 332, 333
MTSF (Medium Term Strategic Framework) 395n
Muellbauer, John 136, 140n, 141n, 144, 145, 152
Muller, C. 305, 306
Muller, M. 385n, 389n, 391n, 392n
Muller, Seán M. 17, 22n
multinational rms 95, 96, 99, 109
aliates of 100
Munyama, V. 151n
Murray, Colin 279n
mutual banks 175n
Mwabu, Germano 246, 344
Nacala 108n
NAIL (New Africa Investments Limited) 317n
NAMC (National Agricultural Marketing
Council) 397
Namibia 11, 64, 93, 104, 106, 108, 224, 377
Nanziri, Elizabeth Lwanga 202n
Nasir, J. 197
National Climate Change Response Policy
(2011) 407
National Electrication Forum 225
National Framework for Air Quality Management
(2007) 407
National Health Act 353
National Norms and Standards for School
Funding 346
National Research and Technology Foresight 221
national savings 75, 124
National School Nutrition Programme 394
National Spatial Development Perspective
(2003) 286n
National Treasury 172, 175–6nn, 212, 351, 368, 394,
407
wage tax raises revenues for 267
National Water Act (1998) 388–9, 406
National Water Policy (1997) 388–9, 391
National Water Resources Strategy 391
Nationalist Party 178–9, 203, 250
nationalization 161, 202
scrambled messages on 199
support for 203
threats of 63
Native Recruiting Corporation 276
Natives Land Act (1913) 382
Nattrass, N. 200, 332, 333, 334
natural gas 215–16
Natural Resource Management Programme 261
NBF (National Biodiversity Framework 2008) 404
NBSAP (National Biodiversity Strategy and Action
Plan Building Standards 407
NCA (National Credit Act 2005) 172n, 176
NCR (National Credit Regulator) 172, 180, 183
Ncube, Mthuli 8, 9
Ndou, E. 8, 9
NDP (NPC National Development Plan) 54, 72, 196,
199, 210n, 214n, 225, 316n, 364, 395, 397
ANC and 21
implementation of 8, 12
Marikana massacre and 37–8
NEDLAC (National Economic Development and
Labour Council) 36, 146n, 251, 257, 263
appointment of Labour Court judges 252
Growth and Development Summit (2003) 259
Nelson Mandela Bay 362
NEMA (National Environmental Management Act,
1998 & amended) 401, 402–3, 404, 405
NEMBA (National Environmental Management
Biodiversity Act 2004) 404
NEMPA (National Environmental Management
Protected Areas Act 2003) 404
neoliberalism 68, 73
Nersa (National Electricity Regulator) 125, 207,
210–15
Net Income to Sales ratio 42
new technologies 90, 100, 177, 365
Newbery, D. 211n
Newcastle clothing producers 200
Newman, Susan 182
NGOs (non-governmental organizations) 47, 130
unaccountable 72
NGP (New Growth Path) 1, 21, 71, 72, 196, 199, 395,
397
NHI (National Health Insurance) 353, 358
NHP (Natural Heritage Programme) 404
NIDS (National Income Dynamics Survey) 6n, 79,
246, 287, 291, 299–300, 308, 323, 324, 326, 344,
345
Nigeria 45, 64, 102, 103, 104, 105, 109, 231
NIPF (National Industrial Policy Framework) 188
Noble, Michael 281n
NOFP (net open foreign exchange position) 10
non-state sector 259, 262
INDEX 431
non-tari barriers 31, 92, 107
eliminating 187
Nordpool 226
North-South Corridor 108
North West province 130, 288
Northern Cape 130, 288
NPA (National Ports Authority) 206
NPAES (National Protected Area Expansion Strategy
2008) 404
NPC (National Planning Commission) 157, 256, 263,
364
proposed poverty line 286
spatial planning and development control criticized
by 370
see also NDP
NRF (National Research Foundation) 291
NSBA (National Spatial Biodiversity Assessment
2004) 404
NSI (National System of Innovation) 221, 222
NTA (National Transfer Accounts) 231, 232, 233,
234
nuclear supply 407
numeracy 344, 345
obesity 322, 323, 325–7
October, Lionel 319n
October Household Surveys, see OHS
OECD (Organization for Economic Co-operation
and Development) 22n, 72, 76, 191n, 194, 256
competition standards 14
Economic Surveys: South Africa 123, 124
Product Market Regulation indicator 193
Review of South Africa’s Innovation Policy
(2007) 221
OHS (October Household Surveys) 79, 80, 81, 82,
305, 306, 307n
oil prices 52, 58, 144
crisis (1970s) 398
Old Age Grant 349, 357
Old Mutual 96, 181n
oligopolies 14, 15, 16, 22, 61, 63–4, 66, 191
sectors dominated by 32
Oosthuizen, Morné 237
Open Society Institute 140n
Orange River 385n
organized labour 76, 77, 78, 251
orphanhood 324, 331–2, 352
paternal 82
Ortiz, A. 151
OTC (over-the-counter) derivatives 169, 170
output 44, 46, 100, 150, 217–20, 360, 372
see also agricultural output; real output; scientic
output
Oxford Martin School 140n
Özler, B. 285n, 292, 294n, 296n
Palma, Gabriel 157
PALMS (Post-Apartheid Labour Market Series) 80,
82, 236
Palo Alto 267
Partnership Fund for Development 103
PASA (Payment System Association) 175
pass-bearing Africans 250
pass laws 275, 278, 280
abolished (1986) 279
Patel, Mihir 202n
patent applications 44, 45, 218
see also USPTO
Paxson, Christina 323n
Pellicer, M. 296n
Pengelly, Claire 202n
Pennsylvania State University 39n
PEPs (Public Employment Programmes) 259, 262–3,
264
Petroleum Agency of South Africa 210
petroleum pipelines sector 209, 210, 212
competition in 214–15
lack of level playing eld in 215
see also MPRDA
Philip, Kate 18n, 241
Philippines 45
Phillip, A. 105n
Phillips curve literature 153
PICI (AU Presidential Infrastructure Championing
Initiative) 108
Pienaar, Hugo 51n
Pillay, N. 46n, 167n
piped-gas sector 209, 210, 212
paucity of domestic gas discoveries 215
PIRLS (Progress in International Reading and
Literacy Study) 345
PJM Interconnection (US) 226–7
PLAS (proactive land acquisition strategy) 381, 396
platinum 37, 65, 183, 253, 281
platinum prices 39, 41
Platzky, Laurine 281n
policy 217, 220–1, 237, 239, 240, 271, 273
anti-black urbanization 278
choosing amongst possible interventions 247–8
developmental 68
employment guarantee 259
environment favourable to saving 234
fundamental constraint 289
growing focus on green jobs 261
import liberalization 88
import-substitution 192
industrialization 87, 187–9
issues for PEPs 262–3
key objectives 233
marketing 397
pricing 389
432 INDEX
policy (continued)
public transport 22
quantitative easing 153
support for 260, 262, 264
water 389, 392
see also apartheid policy; competition policy;
economic policy; energy policy; environmental
policy; exchange rate policy; scal policy;
housing policy; labour market policy;
monetary policy; public policy; rural
development policy; social policy; tax policy;
trade policy; youth unemployment policy
Policy Framework (2000) 226, 406
political economy 18, 42, 46–9, 54, 56, 58–9, 88n, 392
adverse conditions 57
building 282
capacity to make catch-up depends on 189
common determinants 89
complex and very challenging 20
multiple contending factions destined to
characterize 208
powerful 370
restructuring 67–74
suboptimal equilibrium 75–8
polluter-pays principle 403, 405
pollution 361, 407
measures that prevent 402
monitoring 405, 408
see also emissions
Pondoland 281
portfolio investment 16, 95, 96, 158
Ports Regulator 125
see also NPA
Posel, Dorrit 13, 246, 299, 303, 304, 305, 306, 307,
308, 350
poverty alleviation 71, 395
poverty and inequality 2, 3, 5, 283–310
based on asset indices 16
income, structural reasons for persistence of 17
job creation prioritized as main solution to 38
need to directly tackle 37
persistence of 16, 17
signicant challenges of 234
stark and high levels of 156
using economic growth to reduce 341
see also SEPPI
poverty lines 34, 285–90, 294, 308n
cost-of-basic-living 292
income 286, 287, 307
lower 292, 293
population living below 288, 293, 300, 307
child support grants 353
upper 5–6, 292, 293
poverty reduction 16, 38, 238, 285, 293, 356, 370, 385,
392
PPI (Producer Price Index) 52, 140, 141, 144–5
PPPs (public-private partnerships) 76, 210
precautionary principle 405
prices, see commodity prices; CPI; PPI; relative
prices
privatization 146, 180n, 406
global trends towards 203
limited 96
partial 96, 207
production 13, 23, 101
see also agricultural production
productivity 197
agricultural 399
competitiveness based on 185
costs not matched by 194
declining 64
gains to 313, 325
gender dierences that aect 306
increased 16, 123, 185, 189, 193, 196, 200, 201, 350,
365
investment in 357
low(er) 17, 195, 329
wage levels adjusted for 63
see also labour productivity; productivity growth;
TFP
productivity growth 42, 43, 44, 90, 142, 144, 146, 195,
330
protability 10, 90, 122, 166, 176, 191, 193, 401
PSLSD (Project for Statistics on Living Standards and
Development) 6n, 80, 291, 322, 323, 324
public sector employment 5, 18, 259–64
programmes for 22–3, 241, 350
see also EPWP; PEPs
public transport 22, 127, 363, 365, 368
access to 369
lack of 64
poor facilities 14
subsidized 353
PWC Restructuring Blueprint Report 225
QLFS (Quarterly Labour Force Survey) 272
Qobo, M. 109n
quantitative easing 11, 12, 113, 153
capital ow shocks due to 10
South Africa’s response to 110
Quattek, K. 330
R&D (research & development) 44, 45, 99, 219, 220,
221, 399
racial inequality 119, 313, 377
history of 182
redress of 401
stark 236
racial prejudice 13
rail transport 199
rainfall 377
highly variable 385
INDEX 433
Rajan, R. G. 138n
Ranchhod, Vimal 247, 291, 296n, 350
Rand Water 385
Rangasamy, L. 151n
Rankin, Neil 15, 16, 19n, 239
RDP (Reconstruction and Development
Programme) 1, 21, 30–1, 72, 132, 363, 369, 386
real eective exchange rate 10, 52, 112, 114
real exchange rate 110, 112, 114, 115, 124, 136, 145
recapitalization 382
recession (2008/09) 53, 120, 125, 157, 217, 227, 257,
287
consequences of 2
impact of 4, 54
recovery from 51, 58, 60, 97
REDs (Regional Electricity Distribution
Companies) 225
REFIT (renewable energy feed-in taris) 407
regional integration 106, 107
see also developmental regionalism
Regional Services Council Levy System 133
Registrar of Banks 172, 175
Reid, M. 152
REIPPP (renewable energy procurement
programme) 212, 213
relative prices 90, 136, 143, 156, 187, 197
REMUN (remuneration of employees, non-agricultural
sector) 140, 141
rent-seeking 15, 191, 192, 317n
attractiveness of 193, 194
repurchase transactions 9, 111, 167
reservation wages 19, 238–9, 241
Restitution of Land Rights Act (1994) 394, 404
restructuring 29, 30, 90, 209
banking industry 181
commercialization and 203
deregulation and 179
energy sector 211, 223, 224, 225, 228
labour 257, 258, 281, 333
liberalization and 186–7
political economy of 67–74
urban 364, 370
see also Policy Framework (2000)
Review of the National Advisory Council on
Innovation (2003) 221
Rhodes, Cecil 275
Ricci, L. A. 136n
Richardson, Peter 277n
riparian reserve 406
risk perception 112, 113
Roberts, G. 19n, 239
Roberts, S. 186, 187, 188
Robinson, J. 13, 16
Rodrik, Dani 21, 90, 137
Rogan, M. 299, 303, 306, 307, 308
Romm, A. 98
Rosen, S. 329, 331
Rospabé, S. 306
Rouse, C. 246
Ruch, F. 151n
Rudwick, S. 304
rural development 8
debates on 72
formal strategies 399
policy 72, 394, 395
post-apartheid 393–400
rural-urban migration 294, 360, 363
restrictions on 270, 271
Russia 3, 45, 64, 92, 97, 169, 178, 192, 199, 219
Rust, Kecia 367–8
Rustenberg 362
Rwanda 105, 109
S&T (science and technology) 221
see also Departments (Science and Technology)
SAABC (South African Automotive
Benchmarking Club) 100
SACMEQ (Southern and Eastern African
Consortium for Monitoring Educational
Quality) 345
SACU (South African Customs Union) 87n, 92–3,
395
Tari Board and Tribunal 106
see also Botswana; Lesotho; Namibia; Swaziland
SADC (Southern Africa Development
Community) 11, 88, 92, 102, 104–7, 395
safety nets 18, 20
see also health and safety; social safety nets
SAGNA (South African Government News
Agency) 209n
SADPA (South African Development Partnership
Agency) 103, 108
SAICE (South African Institution Of Civil
Engineering) 388n
SAIIA (South African Institute of International
Aairs) 104n
SAIRR (South African Institute of Race
Relations) 105n
SAIHS (South African Integrated Household Survey
(1993)) 6n
SALDRU (Southern African Labour and
Development Research Unit) 6n, 291, 341n
SALGA (South African Local Government
Association) 387n
Salop, S. C. 200n
Sandefur, Justin 246, 247
sanitation 16, 132, 361, 387, 388, 390, 391, 406
Sanlam 178–9, 317n
SANRAL (South African National Roads
Authority) 125, 205–6
SANTRECT (South African National Tradable
Renewable Energy Certicates Team) 407
434 INDEX
SAQA (South African Qualications Authority) 240
SARB (South African Reserve Bank) 8, 110n, 116,
144, 145, 146n, 168, 169n, 172, 180
balance sheet expansion 152–3
banking supervision annual report (2008) 158–9
exchange rate policy 111, 114
ow of funds data 182
ination-targeting 9, 12, 75, 124n, 149, 150, 151–2,
153
mandate of 148, 149, 152, 153, 161
objectives of 10, 148
policy responses (aer 2008) 159–61
repo rate 167
see also Cassim; FSC; Marcus; Mboweni; Mminele;
MPC
SARB Annual Report (2009/10) 161
SARB Quarterly Bulletin 9n, 157, 158, 159, 366n
SARS (South African Revenue Services) 8, 128
Sasol Ltd 203, 215
SASSA (South African Social Security Agency) 306,
339, 349, 358
Saudi Arabia 45
savings 11, 34, 126, 134–9, 172
access to various forms of 356
barrier to access accounts 175
erosion of 329
nancial institutions and 179
government-supported schemes 358
higher, reform package aiming at 193
household 182, 331, 367, 369
low(er) rate of 33, 75, 194
policy environment favourable to 234
retirement 355, 356, 367
safeguarded 178n
see also cost-savings; national savings
SBP (Strategic Business Partners) 199
SME Growth Index (2012) 198, 200
scale economies 188
Scandinavia 226
Scheman, D. T. 200n
Schultz, T. Paul 246, 344
scientic publications 219–20
SDIs (Spatial Development Initiatives) 107–8,
188
Sector Education and Training Authorities 19
securitization 181
Seekings, J. 200
segregationist sentiments 393
self-employment 17, 20, 232, 239, 241, 306
barriers to entry related to apartheid 271
contractualised employment disguised as 358
entrepreneurial 70
exceptionally low rate of 244
higher levels of 80
labour legislation and 271
policies suggested for raising earnings 247
regular employment pays more than 246
see also SESE
Sender, J. 303
Senegal 231
SEPPI (Socio-economic Study of the Persistence of
Poverty and Inequality) 272
service delivery 127, 199, 353, 363, 369n
chronic underspending for 131
inadequate resources for 223
incentivized performance 130
inherited racialized patterns of 119
minimum standards across provinces 128
monitoring, evaluation, benchmarking and
assessment of 192
poor 56, 146, 253
protests 370, 390n
social expenditure to ensure quality of 126
unit costs of 132
SESE (Survey of Employers and the
Self-employed) 80
sewage 362, 401, 408
Seychelles 107n
Sharma, Ruchir 14, 15
Shepard, Deborah 345
shocks 55
capital ow 10, 110
exchange rate 145
global and domestic 60
income 301
political and economic 10, 110
price 151
terms of trade 10, 110, 114
Simo-Kengne, B. D. 193n
SIMS (State Intervention in Minerals Sector) 70
Singapore 44, 45, 46, 63–4, 165
Singh, Ajit 181
SIS (Settlement and Implementation Support) 396
SKA (Square Kilometre Array) radio
telescope 220
Skinner, C. 20, 246, 271
SLAG (Settlement/Land Access Grant) 396
Small, M. M. 151n
smelters 98, 188
Smit, Ben 42n, 51n, 331–2
Smith, Adam 173
Smith, Sean 169
SMMEs (small, medium and micro enterprises) 213,
239, 240
social capital 22–3, 286
social cost-benet analysis 248
social costs 14, 236, 385
social development 206, 217
justiable 402
neoliberalism, nancialization and 68
two-track strategy to support goals of 391
see also Departments (Social Development)
INDEX 435
social grants 137, 293, 350, 358, 395
exemptions for recipients 352, 353
expanded programme 34
expenditure on 73, 307
farming usually combined with 379
impact of 67, 158
number of people receiving 66, 306, 319
sizeable system of 77–8
targeted groups 67, 349, 355, 356–7
social policy 285, 289, 311–73, 391
social safety nets 21, 349–54
social sector 259, 261
social security 308, 349, 355–9
see also SASSA
social transfers/social assistance programmes 306–7, 349
SOEs (state-owned enterprises) 213
competition and 214–16
current investment plans of 210
governance of 202–8, 209
restructuring of 406
role as drivers of economic growth 211, 212
soil fertility 377, 379
solar water heating systems 407
South East Asia 167
South Korea 44, 45, 46, 165, 169
Southall, R. 318n
Southern Africa 64, 280, 294, 395
reconstruction and revitalization 103
South Africa as gateway or springboard into 105
see also BLNS; COMESA; SACMEQ; SADC; SALDRU
Southwestern Cape 377
sovereign debt crisis 51
Soweto uprisings (1976) 11
spatial development 8, 14, 395, 405
policies within a reforming framework 22
see also SDIs
Spatial Planning and Land Use Management Bill
(proposed) 372
Spaull, Nicholas 345
Spence Commission, see Commission on Growth and
Development
spin-os 195
Sri Lanka 45
SSA (Sub-Saharan Africa):
early-stage entrepreneurial activity 239
electricity generated in 224
ve largest investors in 105
growth in 39
spending per primary school student 346
stagation 149
Standard Bank 174n, 181n
Standing, G. 236, 237, 303, 305
Stanwix, Benjamin 4, 241
start-ups 240
costs of 400
lack of capital 271
loans for 195
technology-based 222
Statistician-General 363–4
Statistics South Africa 72, 79, 80, 82, 141, 142–3nn,
232, 233, 244, 272, 285, 292n, 298, 319n, 324
Measuring Poverty in South Africa (2000) 286n
Quarterly Employment Statistics 238
Steinberg, Jonny 333
Stellenbosch University 51n, 151, 393nn
Steyn, G. 212n
stock markets 63, 166, 168
see also JSE
Storer, D. 212n
stormwater drains 260
Strategic Investment Programme 187
Strategic Plan for South African Agriculture (2001) 396
strikes 36, 65, 66, 98, 183, 195, 250, 253, 254, 263, 281
see also General Strike
structural adjustment 157, 200, 226
structural policy 195
stunted children 322
Sturzenegger, F. 151
Sugar Act (1978) 397
Super-Critical Coal 407
supply chains 189
Support Programme of Industry Innovation 187
Sustainable Development through Mining
Programme (2005) 405
Sutton, J. 189
Swaziland 11, 93, 104, 106, 224, 277n, 345
Swiss National Bank 149
synthetic gas 215
TAC (Treatment Action Campaign) 332, 333, 334
Taiwan 165
Tambo, Oliver 29
Tanzania 45, 64, 108, 277, 345
tari barriers 92
see also non-tari barriers
tari liberalization 88, 106
tari protection 89, 90, 106
tari reforms 15, 90, 93
multilateral 88
taris 11, 31, 87
block 351, 352
bundled 215
common external 92
direct controls replaced by 395
gradually declining 99
international spikes 88
lowering 188, 193, 395
setting of 91
sizeable reductions in 31
typical escalation prole 395
unilaterally reinstating 107
see also GATT; REFIT
436 INDEX
tax 236, 280, 378
carbon 407
company 8, 31
consumption 90
indirect 90, 146
poor households 90, 91
rebates for R&D 221
regressive 90
resource rent 194
signicant cuts 34
wage 267
see also income tax; VAT
tax base 30, 31, 124
tax burden 90, 362
tax collection 8
improving 30, 31
tax incentives 44, 187, 221
tax policy 77, 78, 126
tax revenues 105, 120, 121, 123, 124, 231
taxi sector 247, 254, 255, 271
Taylor Commission (2002) 286n, 358
TB (tuberculosis) 261, 322, 323, 327
TBP (Technology Balance of Payment) 218–19
TBVC states, see Bophuthatswana; Ciskei; Transkei;
Venda
TCF (Treating Customers Fairly) programme 176
TDCA (Trade, Development and Cooperation
Agreement, EU-SA 2004) 395
Teal, Francis 246, 247
technological change 90
technological spillovers 98
technological upgrading 95, 187
accelerated 99
technology 49, 123, 188, 189, 195
available, catching-up by adopting 185
coal-based 407
foreign 90, 98
labour-intensive production 197
mining 125, 218
renewable energy 227
start-up rms 222
see also Advanced Manufacturing Technology
Strategy; Departments (Science and
Technology); high-technology exports;
new technologies; TBP; TIA; USPTO; White
Papers (1996)
technology indicators 219–20, 222
technology transfer 105, 399
telecommunications 2, 105, 122n, 207, 280
costs of 21
mobile 99
Teljeur, E. 212n
temporary safety nets 18, 20
terms of trade 10, 11, 39, 110, 112, 114, 144, 145,
146, 188
TFP (Total Factor Productivity) 42, 44, 399
TFTA (Trilateral Free Trade Agreement) 92
T-FTA (Trilateral Free Trade Area) 106, 107
ailand 45, 97
arisa 98
omas, L. 96
omas, Mark 280n
shabalala-Msimang, Manto 332
urlow, James 90, 244, 273
TI (Transparency International) 46, 47
TIA (Technology Innovation Agency) 222
Timaeus, I. M. 304
Time Use Survey 79
TIMSS (Trends in International Mathematics and
Science Study) 44–6, 345
TIPS (Trade and Industrial Policy Strategies) 209n,
317n
Tiso Investments 319n
tourism 107, 315, 403, 408
leisure and 104
potential for 125
townships 326, 368
black residents forced into 361
employment opportunities mainly found outside
19
nancial instruments used by poor households
137
housing units on cheap greeneld sites on periphery
of 363
investing and job creation in 19
population densities within 362
protests against ANC leaders 66
ratio of men to women in 278
trade decit 11, 66
trade liberalization 11, 90, 180n, 187
economic consequences of 87
higher productivity growth induced by 144
rapid process of 3
trade policy 188, 193n, 394, 395
change in 99
reform of 87–94
trade unions 200, 205, 245, 251, 255, 256
basic organizational rights 253
MEC and 70
militancy of 145
NDP and 21, 37
power of 142
right to establish and run 250
see also collective bargaining; COSATU; strikes
transaction costs 180, 361
reducing 195, 364
transition to democracy 12, 16, 183, 203, 303
most important policy initiatives taken in
394
twentieth anniversary of 1, 195
women’s economic status 308
Transkei 127, 276, 303n
INDEX 437
transnationals, see multinational rms
Transnet 122, 125, 206, 207, 215
transparency 34, 49, 127, 149, 151, 216
improved 88
unprecedented 150, 152
see also TI
transport 2, 11, 103, 105, 122n, 193, 271, 333, 407
access to 138
maintenance and upgrading of networks 362
private, greater reliance on 361
rail 199
safe and aordable, absence of 195
subsidies for 239, 362, 364
see also public transport
transport costs 12, 198, 200, 393
transport infrastructure 210, 371
delivering cheaply 199
investment in 119, 188
responsibility for governance and management
of 206
TRECs (Tradable Renewable Energy
Certicates) 407
Trotter, G. 330n
Tshwane 362
Tugela River 385n
Turkey 44, 45, 49, 63, 76, 98, 135, 168, 192, 195
Turrell, R. V. 275n
Twin Peaks framework 176
UCT (University of Cape Town) 202n, 223n, 245,
281n, 341n
School of Public Health 332n
Unilever Institute 299
UIF (Unemployment Insurance Fund) 355–6
Ukraine 193
ULCs (unit labour costs) 140, 141, 142, 144, 145
UMI (Upper Middle-Income) countries 3, 39, 40, 45,
48, 49, 76, 96
uncertainty 9, 23, 33, 51, 175, 253, 406, 407
nancial 137
government regulation needs to minimize 197
inequality and 134, 138
institutional 207, 390–1
perceived, about property rights 194
policy 97, 122, 131, 199
regulatory 21
short-term 137
worker quality 266, 268
underperformance 13, 244
unemployment 2, 49, 52, 54, 59, 65, 195, 209, 233,
247, 256, 350
broad 4, 43
census numbers 287
demand-side route to reducing 19
duration of 236, 237, 239
education levels strongly correlated with 17
estimates of 272
failure to make impact on the scale of 71
gender dierences in 236
global nancial crisis aermath and 133
long-term 236
marginalization and 77, 78
narrow 4, 43
national average 232
ocial rate of 157
open 20, 270
racialized inequality in 119, 236
real rate of 158
reduction of 197, 201, 237, 293
social protection/social assistance for 262, 263, 306
structural 16, 67, 237, 261
supply-side explanation of 19, 20
white 236
women 305, 308
see also unemployment levels; youth
unemployment
unemployment benets 66, 358
unemployment insurance 263, 355
see also UIF
unemployment levels 57, 67, 81, 236
see also high unemployment
unfair dismissal 251, 252
institutionalization of 258
protection against 250, 255, 256, 257
United States 42, 49, 58, 89, 134, 135, 143, 144, 146,
179, 181, 200, 218, 227
income inequality 17
quantitative easing 10, 11, 12, 110, 113, 153
South Africa’s preferential access to 92
subprime problems 183–4
see also AGOA; also under entries below
prexed ‘US’
University of KwaZulu-Natal 324
University of the Witwatersrand 39n, 119n
urbanization 53, 278–82, 360–5
rapid 408
US dollar 10, 34, 56, 58, 168
US Federal Reserve 113, 116, 149, 153
US Treasuries 56
USPTO (Unites States Patent and Technology
Oce) 217–18
Vaal River 385n
Vaalharts irrigation scheme 386n
Valodia, Imraan 20n, 272, 273
Van de Winkel, T. 200
Van der Berg, S. 287, 294nn, 296nn, 299, 345, 346
Van der Heever, Tracy 202n
Van der Westhuizen, C. 6, 16n, 18, 241, 287
Van Rooyen, J. 378, 379
Van Seventer, D. 209n
Van Vuuren, Lani 386n
438 INDEX
Vastveit, Lene 202n
VAT (value-added tax) 8, 146
VECM (Vector Error Correction Model) 114
Venda 127, 303n
Vickers, Brendan 103n
Victims of Crime Surveys 79
Vink, Nick 378, 379, 393
VIP latrines 388
visible-hand metaphor 172–7
vocational training 195, 238
Volkskas Bank 178–9
wage bargaining 131
wage determination 145, 245
wage dierentials 246
gender 306
wage goods sectors 15
wage-price-exchange rate spirals 145, 146
wage-setting 191, 194, 195
wage settlements 253
high 8
moderate 71
transaction costs of 195
wage subsidy 262
targeted 267–8, 269
wages 143, 148, 275, 333, 379
agricultural 72, 263
black mine 277
entry-level 238
fall in share of 71
female 330
formal sector 267
gaps in 13, 71, 238
gender discrimination in 308
lowering to save jobs 36
moderation of apartheid structure 71
native, gradual reduction of 276
poverty 263
public sector 121
rigidity of 239
rising inequality 90
sharply rising premiums for educated labour 17
social 7, 38, 319
see also government wage bill; high(er) wages;
low-wage line; minimum wages; real wages;
reservation wages; social wage; also entries
above prexed ‘wage’
Walker, Cherryl 281n
Walton, Michael 204n
WAR (Water Allocation Reform) strategy 389
Waste Act (NEM 2008) 407
water pollution 361
Water Services Act (1997) 406
water supply 30, 127, 363, 365, 406
apartheid legacy 385–6
backlogs in 387
free 351, 353, 386
illegal connections 361–2
increasingly costly 67
politics and economics of 385–92
quality infrastructure 339
risk of severe shortages 391
safe 337, 351, 386, 405
treatment plants 362, 388
waste discharges 406
see also access to water; household water supply;
sanitation; sewage; White Papers (1994)
Waterberg 362
wealth 35, 67, 110, 138, 182, 191, 300, 319
concentrated 67, 131
equal access to 137
household 195
poverty amidst 67, 279
racial and gender inequalities in 313
redistribution of 193
unequal distribution of 204, 402
Weeks, J. 303
WEF (World Economic Forum) 61, 64
Competitiveness Survey (2012) 161
Global Competitiveness Index 3
Wegerif, M. 382
well-being 68, 402, 408
economic status and 307–8
future 266
impact of cash transfers on 357
subjective 237, 239
Wenela (Witwatersrand Native Labour
Association) 276
Western Africa 104
Western Cape 127, 332–3
farmworkers’ strike 98, 253
horizontal division of revenue 130
human development 288
march out of largely rural provinces to 364
share of whites below poverty line 288
wine exports from 393
White Papers:
Agricultural (1995) 396
Community Water Supply and Sanitation (1994) 386
Conservation and Sustainable Use of Biological
Diversity (1997) 404
Energy Policy (1998) 210n, 211, 226, 227
Foreign Policy (2011) 103n
Integrated Pollution and Waste Management
(2000) 403
Local Government (1998) 131
National Water Policy (1997) 388n
National Environmental Management Act
(1997) 401
Population Policy (1997) 286n
Provinces (2007) 131
Renewable Energy (2003) 407
INDEX 439
Science and Technology (1996) 221
Water Supply and Sanitation Policy (1994) 386n
WHO (World Health Organization) 323, 325, 353
Commission on the Macroeconomics of Health
(2001) 331
Global Tuberculosis Report (2012) 322
Wiehahn Commission of Inquiry (1979) 250
Williamson, O. E. 200n
Wilson, Francis 277, 278nn, 279n, 280n
Wilson, M. K. 8, 9
Wine and Spirit Control Act (1970) 397
Wittenberg, Martin 79, 81, 82, 245
Witwatersrand 385
discovery of gold 165, 276, 393
see also University of the Witwatersrand; Wenela
Wizzit (mobile transmission mechanism) 175
women 304, 306
economic status 308
education levels 303
employment increased 305
life expectancy 306
low-income 307
obesity amongst 322, 326
pregnant 337
role in the economy 13
township ratio of men to 278
under-educated 267
unemployed 305, 308
see also under ‘gender’
Woolard, C. 16n
Woolard, Ingrid 6n, 16nn, 17n, 339, 350, 395
Worger, William H. 275n
Worgötter, Andreas 14
Working for Wetlands/Woodlands programmes 261
Working on Fire programme 261
World Bank 3, 19n, 61, 72, 75n, 76n, 107n, 136n, 138,
226, 263, 285, 349, 358, 360, 406
ANC and 30, 380
Commodity Market Series 41
Doing Business Indicators 198
Finance Development Database 183n
Global Financial Development Report 180
Investment Climate Assessment 97, 200
Investment Climate Survey 199
Visible Hand publications 202n, 204n
World Development Indicators 186n
world competitiveness index 13
World Wildlife Fund 386n
Wright, Gemma 281n
WTO (World Trade Organization) 30, 88, 89, 193, 395
Doha Round 91, 92
xenophobic violence 36
Young, Alwyn 329, 330, 331
youth unemployment 18, 61, 136n, 232, 234, 236
youth unemployment policy 265–9
Yu, D. 272, 294n
Zalk, N. 186, 188
Zambia 64, 104, 108n, 224, 277n
Zembe, Wanga 281n
Zhan, Z. 198
Zhuang, Juzhong 17n
Zille, Helen 62
Zimbabwe 104, 108, 224, 345, 395
Zulu, Jessicah 202n
Zuma, Jacob 37, 62–3, 65
