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South Africa: Economic Policy and Development

By Richard Knight, July 2001


“The need to create employment and a better life for our people is the central objective of the economic policy of this government. The Reconstruction and Development Program (RDP) remains the basic policy framework to achieve this objective.  The Growth, Employment and Redistribution (GEAR) program is the associated macroeconomic strategy used.  At the beginning of this year the President announced an Action Plan to Accelerate Growth.  This action plan marked an increased emphasis on macroeconomic reform to further increase investment…”

Alec Erwin, Minister of Trade and Industry, May 2001


“In contrast to this political progress, in socio-economic terms the legacy of apartheid remains entrenched and, with the massive loss of jobs in the past decade, even appears to be worsening.  Wealth is still concentrated in a white minority. The nature of capital remains largely the same - concentrated in the mining-finance complex, which continue to dominate the commanding heights of the South African economy.  Serious inequalities persist, with signs of worsening particularly among the formerly oppressed.  The number of people living in poverty is staggering.  Almost half of the population lives in poverty, including many of the employed - the “working poor.”  Unemployment and underemployment are on the rise as more jobs are shed and people rely on survivalist activities to make ends meet.  The complex nature of the transition emerged in deeply contradictory government policies.”

COSATU policy statement, July 2001


Economic Statistics


Gross Domestic Product, 2000 (market prices): R873,637













Real GDP

















Budget Deficit

(% GDP)









Labor in the Non-Agricultural Sectors

Percentage change


Public Sector

Private Sector























Note: Rand to dollar conversion is approximate; R1 = $0.1212.


Unemployment Rate




Strict Definition



Expanded Definition




Manufacturing - Average Total Number of Employees

















Legacy of Apartheid


Since the early days of colonial rule, poverty and unemployment have been much higher for South Africans of color.  Today, according to the South Africa government's National Report on Social Development, 1995-2000, 61% of Africans are classified as poor compared to just 1% of whites.  The unemployment rate for Africans is 42.5% compared to 4.6% for whites.


The Congress of South African Trade Unions (COSATU) recently noted: “While Africans make up 76% of the population, their share of income amounts to only 29% of the total. Whites, who make up less than 13% of the population, take away 58.5% of total income.”


Overview of Government Policy


In 1994 when the government of national unity, led by the African National Congress, took power, it inherited a country of gross inequities with high unemployment.  While significant progress has been made in education, health care, housing and providing basic services, poverty continues to be widespread, income disparities remain, unemployment is still high and many people lack necessities.


The basic economic macro-economic policy of the South Africa government is known as Growth, Employment and Redistribution (GEAR) plan.  The basic social development policy, the Reconstruction and Development Programme (RDP), addresses needs such as housing, land, health, education and services.


Reconstruction and Development Programme

In the early 1990s unions, the civic movement and social organizations began to develop a plan for social transformation needed for post-apartheid South Africa.  A process developed which involved extensive consultations within the ANC, its allies and a wide range of experts that resulted in 1994 in the Reconstruction and Development Programme.  The RDP aimed at addressing the many social and economic problems facing the country.  A key aspect of the RDP was that it linked reconstruction and development.  The RDP recognized that all the problems (lack of housing, a shortage of jobs, inadequate education and health care, a failing economy) are connected.  It proposed job creation through public works — the building of houses and provision of services would be done in a way that created employment.  The five key programs were: meeting basic needs, developing human resources, democratizing the state and society, building the economy and implementing the RDP.

                                                       Selected RDP Goals

Housing: Provide well-located and affordable shelter for all by the year 2003. Build one million houses in five years

Water:  Supply 20 to 30 liters of clean water each day to every person in two years and 50 to 60 liters per day within five years from a point no more than 200 meters from their dwelling.

Electricity: Supply 2.5 million more households and all schools and clinics with electricity by the year 2000.

Health care: Give free medical care to children under 6 years and to homeless children; improve maternity care for women; organize programs to prevent and treat major diseases like TB and AIDS.

Land reform: Implement land reform based on redistribution of residential and productive land to those who need it but cannot afford it and restitution to those who lost land because of apartheid laws.

Job Creation through public works: A national public works program to provide basic needs such as water supply, sewerage and roads and at the same time create jobs, particularly in poor and rural areas.

Social security and social welfare: A new system to provide for all people regardless of their race, gender or physical disability.  A pension system to meet the needs of works in the formal and informal sectors.

Education and training: Literacy for all, equal opportunity, 10 years of free and compulsory education, class sizes of no more than 40 pupils, training workers to meet the challenges of the new political and economic conditions.



Growth, Employment and Redistribution

GEAR is a macroeconomic strategy adopted by the Department of Finance in June 1996 as a five year plans aimed at strengthening economic development, broadening of employment, and redistribution of income and socioeconomic opportunities in favor of the poor.  GEAR remains government policy.  The key goals of the policy as originally outlined were economic growth of 6% in the year 2000, inflation less than 10%, employment growth above the increase in economically active population, deficit on the current account and the balance of payments between 2 and 3 percent, a ratio of gross domestic savings to GDP of 21.5 percent in the year 2000, improvement in income distribution, relaxation of exchange controls and reduction of the budget deficit to below 4 percent of GDP.


Impact and Policy Debates



The government has significantly lowered the budget deficit and inflation.  But South Africa's growth rate remains at about 3%, far short of the 6% goal which is seen as necessary to reduce unemployment.  The government stands by the GEAR policy, saying that long-term it will provide South Africa with the most economic growth.


One of the most outspoken critics of GEAR is the Congress of South African Trade Unions (COSATU), a federation of 19 unions with a combined membership of over 1.8 million.  Because of its size, ability to organize its members and its alliance with the ANC, its views cannot be ignored by the government. 


COSATU says that GEAR has failed to deliver the promised economic and job growth or significant redistribution of income and socio-economic opportunities in favor of the poor.  They say GEAR, with its focus on stringent monetary and fiscal targets, conflicts with the goal of the RDP of growth based on job creation, meeting people's needs, poverty reduction and a more equitable distribution of wealth.  COSATU notes that the government is committed to increased spending on basic service and spending did increase between 1994 and 1996.  A recent COSATU policy document concludes, “The GEAR brought about deep cuts in government spending between 1996 and 1999. As a result, efforts to improve services to the poor suffered, despite the continued reprioritisation of spending from the rich to the poor.”  The National Labor and Economic Development Institute (NALEDI), a COSATU formed research institute, says that the necessary preconditions for success did not exist in South Africa as a result “even though the national budget deficit was slashed, the positive consequences anticipated by GEAR did not result.”


The government acknowledges GEAR's stringent limit on expenditure limits the ability to meet social development goals of the RDP.  As the South African National Housing code notes “The most significant goals of GEAR in respect of our capacity to implement the housing programme are those that have to do with availability of funds for housing.  GEAR is clear about promising tighter fiscal policy measures, which are being brought about by a cut in government expenditure and a more cost-effective civil service… Consequently, it is unlikely that government will have the capacity to expand the scope of subsidies or grants, beyond those already accepted as housing policy.”


Much of the debate has focused on employment and poverty.  The official government agency Statistics South Africa said unemployment was 22.5%, down from 23.3% in 1999.  But this is a narrow definition of unemployment - only including those actively seeking work, excluding discouraged job seekers.  COSATU says that using the broader definition unemployment rose to 37.3% from 36.3% in 1999.


South African President Thabo Mbeki said in his annual state of the nation address in February 2001 that there had been a net gain of 1.1 million jobs between 1996 and 1999. But these jobs are largely in the informal sector.  NALEDI noted in December 2000 that some official estimates suggest that up to one million jobs in the informal sector have been created since 1995, but the opposite was the case in the formal sector:


“Between 1996 and 1999 more than 400,000 formal sector jobs were lost.  The impact on families is disastrous, as there is little in the way of social security protection for the unemployed.  The jobs that are being created are generally informal and lowly paid positions.”


The net result, notes NALEDI, is that the income of the poorest 40% of the population has declined by 20%.  NALEDI concludes: “It is now widely acknowledged that the Growth, Employment and Redistribution strategy (GEAR) has, despite its name, failed in terms of economic growth, creation of quality jobs and redistribution towards the poor…[G]overnment is increasingly feeling the pressure to address the wider socio-economic failures of economic policy.”


Privatization and Restructuring of State-owned Enterprises

The government has announced plans to privatize and restructure state-owned enterprises including Eskom (the electrical electricity supplier), Transnet (transportation of freight and people), Telkom (communications) and Denel (aviation, guided weapons and ordnance).  Privatization would include converting the enterprises to companies owned by shareholders.  Restructuring includes commercializing (undertaking operations for a profit) and corporatizing (registration of the company under the Companies Act).


COSATU and others have opposed privatization of state-owned enterprises because of its effects on the socioeconomic interests of the poor and the working class.  The goal of the privatized companies will be maximization of profits for shareholders, not provision of services to the poor.  The result will be job losses and increased costs for the services.


A bill to corporatize Eskom has already been adopted over strong opposition from COASTU.  COSATU has noted that once corporatized Eskom will have to pay tax.  In the past few years Eskom has spent about R1 billion a year to extend electricity to poor households in exchange for not paying tax.  But the government is only planning to spend R600 million a year for electrification over the next three years.  The government is expected to send a Telecommunications Amendment Bill, providing the necessary framework for the initial public offering (IPO) of Telkom to Parliament in the near future.  The bill will be opposed by COSATU, especially the Communications Workers Union (CWU).  The CWU, which sees the U.S. as responsible for pushing privatization, handed over memorandums to the U.S. Embassy in Pretoria on the 9th July 2001 and picketed outside the American embassy in Durban.  The U.S. company SBC Communications owns a minority stake in Telkom acquired in 1997.


COSATU has indicated that it will launch industrial action, including a possible two-day stay-away at the end of August, against the government's privatization policy.  It has given notice to the government and management of possible protest actions over privatization through the National Economic, Development and Labour Council (Nedlac).  COSATU is demanding that government halt all privatization initiatives pending the establishment of a clear policy and legislation to guide restructuring.  It is also demanding no restructuring if it negatively impacts on the poor, whether by constraining provision and extension of basic services or by aggravating job losses.


While the ANC and COSATU are still allied, the economic debate has placed strains on the relationship.  The Tripartite Alliance, formed in the struggle against apartheid, links the ANC, COSATU and the South African Communist Party (SACP).  The ANC and its allies are set to meet in August to discuss policy differences on the economy and privatization that have strained the partnership. 


Coalition for a Basic Income Grant

On July 3 a group of 12 organizations announced the formation of a coalition of “South Africans for a Basic Income Grant.”  They propose a grant of R100 per month (about $12) for all South Africans.  In a declaration they noted “At least 22 million people in South Africa — well over half the population — live in abject poverty.  On average they survive on R144 per person per month.”  They say a R100 monthly grant would double the amount available for consumption by people in the poorest 29 percent of the population and close the poverty gap by more than 80 percent.   The proposed grant would be financed by a progressive taxation system and net costs after tax offsets would be R20 to R25 billion annually.  Endorsers of the platform include Black Sash, COSATU, the South African Council of Churches, the South African National NGO Coalition (SANGOCO), the Southern African Catholic Bishops' Conference and the Treatment Action Campaign.




Economic growth, poverty reduction and job creation remain key goals of economic policy. The South African government has made significant progress in meeting the goals of the RDP: providing housing, basic services, health care and land reform.  The lives of millions of people have been improved.  The government says GEAR and privatization are the best long-term way to achieve this growth.


But much remains to be done.  The macroeconomic policy known as GEAR is seen by many as being in direct conflict with the goals of the RDP, the reduction of poverty and a more equal division of wealth.  South Africa remains a divided economy with the vast majority of the poor being Black and most of the wealthy white.  Economic growth is insufficient to reduce unemployment.  Though jobs have been created in the informal sector they have been lost in the formal sector.  Millions of people still need adequate housing, basic services and land.  To achieve and maintain the goals set out in the RDP South Africa needs growth. 


Some of the strongest criticisms of government policy comes from those who are allied with and/or members of the ANC.  COSATU sees GEAR as unsuited for the particular conditions of South Africa and privatization as leading to job losses and a threat to access and affordability of basic services.  The coalition proposing a basic income grant is an example of the kinds of initiatives to which the democratic South African government will have to respond.  The government faces protests from the homeless over lack of housing and from those threatened eviction from their homes because they cannot afford to pay their mortgage bonds.  Perhaps the most poignant challenge facing South Africa is how it will balance its fiscal policy and its goal of attracting foreign investment with the pressing needs of its people for jobs, housing, land, education and health care – defined as rights in its constitution.



Richard Knight is President of Southern Africa Committee.


Sources: Statistics South Africa, South African Reserve Bank, Department of Trade and Industry, National Economic Labor and Development Institute, the Reconstruction and Development Programme, South African Press Agency, COSATU.



Spelling:  There are minor differences between South African English and U.S. spelling of words.  In quotes of text and titles from South Africa the original spelling has been used.


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