Southern Africa Committee
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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 |
|
|
1996 |
1997 |
1998 |
1999 |
2000 |
GEAR Predicted Average |
Actual Average |
|
Real GDP Growth |
4.2 |
2.5 |
0.7 |
1.9 |
3.1 |
4.2 |
2.5 |
|
Inflation |
7.4 |
8.6 |
6.9 |
5.2 |
5.3 |
8.2 |
6.7 |
|
Budget Deficit (% GDP) |
4.6 |
3.8 |
2.3 |
2.4 |
|
3.7 |
|
|
Labor in the
Non-Agricultural Sectors Percentage
change |
|||
|
Period |
Public Sector |
Private Sector |
Total |
|
1996 |
3.4 |
-2.6 |
-0.7 |
|
1997 |
-0.3 |
-2.5 |
-1.7 |
|
1998 |
-1.6 |
-4.8 |
-3.7 |
|
1999 |
-3.3 |
-1.3 |
-2.0 |
|
2000 |
-4.1 |
-2.3 |
-2.9 |
Note: Rand to dollar conversion is approximate; R1 = $0.1212.
|
Unemployment
Rate |
||
|
|
1996 |
1999 |
|
Strict Definition |
19.3% |
23.3% |
|
Expanded Definition |
33.0% |
36.2% |
|
Manufacturing -
Average Total Number of Employees |
||||||
|
1994 |
1995 |
1996 |
1997 |
1998 |
1999 |
2000 |
|
1,427,045 |
1,431,008 |
1,456,393 |
1,396,429 |
1,339,328 |
1,306,933 |
1,288,438 |
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
GEAR
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.
Conclusion
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.