Annual Forum Papers

This paper examines the nature of the divide which Mbeki pointed to between the two nations and the reasons for the limited response to this divide during the post-apartheid era since 1994 at which he hints. This paper argues that this response can be understood only through an historical analysis of the transition to democracy. Section 2 provides an overview of inequality, poverty and economic growth in South Africa and their trends during the past ten years.

  • Year 2004
  • Organisation The Edge Institute
  • Publication Author(s) Stephen Gelb
  • Countries and Regions South Africa

Economic growth generally refers to GDP growth. The studies on the link between growth and poverty dynamic (Datt and Ravallion, 1992; Kakwani, 1997; Shorrocks, 1999) measure growth by mean household per capita expenditures. Furthermore, many countries experience at the same time economic growth and growing poverty. It is therefore important to establish a link between these two types of growth. This key link allows a formal shift from macroeconomic growth (GDP growth) to mean per capita household expenditure growth.

The purpose of this paper is to discuss the link between macroeconomic growth and mean per capita household expenditure growth with the evidence drawn from Burkina Faso data. The paper also analyzes the impact of sectoral growth on poverty using Shapley value-based decomposition approach. National Accounts consumption - which is smaller - gives greater poverty incidences for 1994 and 1998 compared to the incidence from the surveys' consumption. An annual 3.99% increase in real per capita consumption based on the survey gives a 13.37% decrease in poverty incidence, while a 6.59% annual growth in GDP yields only 6.59% decrease in poverty incidence. Agricultural sector growth accounts for at least 80% of the decline in poverty incidence, gap and severity.

  • Year 2004
  • Publication Author(s) Dorothee Boccanfuso and Tambi Samuel Kabore

Why is poverty so pervasive in Swaziland despite substantial economic growth achieved through extreme economic openness over several years? Is poverty alleviation in Swaziland a more reachable goal than was in the past, as this country strives to restore rapid economic growth through AGOA facilitating greater insertion into the global commodity market chains? How have macroeconomic developments impacted on poverty within the labour markets, cross-border and domestic alike, and what measures can be taken to improve competitiveness in the labour market? The paper explores these issues by looking into some prominent structures of the labour market regimes in Swaziland from both the cross-border and domestic perspectives. Understanding the relationships between trade, labour market regimes and poverty reproduction is critical for this country, as insufficient analytical attention has been paid on what is happening at their interface. Economic growth has been exceptional over the past years, and the country strives to attract more investors to rip the benefits of African Growth Opportunity Act (AGOA). Yet efforts to reduce the high incidence of poverty affecting most Swazis remain very disappointing, and elusive as inequality of all forms is substantially in rise. The heavy concern put on opening up the national economy to foreign investors has tended to obscure the realities lived on the ground by most of those engaged in making this liberalisation possible: the ordinary Swazis workers. Public considerations at the macroeconomic level seem to have been disconnected from those at the micro-level, as lived by the actors engaged in the cross-border and domestic labour forces.

  • Year 2004
  • Publication Author(s) Gabriel Tati
  • Countries and Regions Swaziland

The reform of the telecommunications sector in the mid-1990s had as one of its areas of focus an expansion of access to telecommunications - both at the household ownership and the broader access levels. This paper examines the performance of policies around ownership and suggests alternative options for the future. It finds that despite the large rollout programme in fixed line telecommunications, there has been only very limited gains for rural and low-income users. Almost all the gains in ownership have come from the adoption of cellular by these groups. The paper demonstrates that this is the rationale choice for most low-income consumers given the different tariff structures and the average monthly spend on communication. The paper suggests that any future use of universal service funds should be more technology-neutral, which would enhance the roll of cellular telecommunication in such plans.

  • Year 2003
  • Publication Author(s) James Hodge
  • Countries and Regions South Africa

There are two major economic and social security challenges facing South Africa: addressing large-scale unemployment and the AIDS pandemic. As of 2003, an estimated 14% of all South Africans were HIV-positive, with over a thousand people dying each day of AIDS. According to the government household and labour-force surveys conducted from the mid-1990s onwards, about a third of the labour force is without work (Nattrass, 2000a). This amounts to about 4.7 million people and it is, without question, a socio-economic crisis of major proportions. The life-chances and living-standards of entire households are compromised when working-age adults cannot find employment (Seekings, 2003b). Households burdened by AIDS are in an especially difficult position (Desmond et al 2000, Steinberg et al 2002a, 2002b; Booysen, 2002; Booysen et al, 2002).

Addressing AIDS and unemployment poses major challenges for social solidarity in South Africa. Over the past decade, the labour-market and industrial-policy environment has benefited relatively high-productivity firms and sectors (Nattrass, 2001). Business thus had strong incentives to reduce dependence on unskilled labour, and once the price of highly active antiretroviral therapy (HAART) started to fall from 2001 onwards, to supply it, either directly or indirectly through medical aids, to their increasingly skilled workforce (Nattrass, 2003). Those without jobs had neither access to earned income nor life-prolonging medication.

In August 2003, the government signalled its in-principle support for the provision of HAART in the public sector. Many unemployed people with AIDS will thus be able to access treatment, although this will depend on the scale and pace of the roll-out. A full-scale treatment intervention which reaches all who need it is feasible, but will require a substantial commitment of resources (Geffen et al, 2003). If resources are not to be directed from other priorities, the cost burden will fall on income-earners in the form of higher taxation. Given South Africa's high levels of unemployment, this means that the burden of providing treatment for all will fall on a relatively small pool of income-earners.

Under these conditions, employers and workers may calculate that they stand to benefit more from a more limited (and less expensive in terms of increased taxation) public sector treatment intervention, than a programme providing universal access. Two out of the three leading South African macroeconomic models predict that the pandemic will increase per capita income because the impact will be greater on the population than on growth (Nattrass, 2003). If the AIDS pandemic is perceived as being likely to result in an increase in per capita income, then the elite may regard it as in their best interests to do very little significant to halt the epidemic or alleviate its consequences. Those with the economic means to better protect themselves and their families against HIV infection (by providing access to education, condoms, healthy diets and safer life-style choices), and who have access to medical schemes to treat themselves and their loved ones if they become infected, may think their interests are better served by a 'do-very-little' scenario. They may privately calculate that they stand to benefit more as individuals from a set of policies which prioritises economic growth and minimises taxation, than they would from a social response that includes universal access to HAART and entails higher taxation and spending cuts in other areas. They would, of course, be wrong to think that they can entirely insulate themselves in this way from the AIDS pandemic. But if they believe they can, this course of action may seem preferable.

This has implications for social solidarity regarding AIDS treatment. For example, organised labour may well baulk at the tax implications of a full-scale tax-financed AIDS intervention. Many workers are already able to access HAART through their employers or medical aids and most live in urban areas (which are at the front of the queue in the treatment roll-out because the greatest capacity to deliver treatment is in the large urban hospitals). Employed workers may thus have an incentive to support a limited roll-out (with correspondingly less onerous tax implications for their pay packets) rather than a large-scale intervention aimed at reaching all those who need it.

The structural problem at the root of all this is South Africa's high unemployment rate - especially among the less skilled. Section 1 places South Africa in a comparative perspective and summarises the historical roots of the unemployment crisis. Section 2 discusses various ways of addressing the unemployment problem in the light of the AIDS pandemic, and Section 3 considers the question of how to combat AIDS and unemployment/poverty through a social accord process.

  • Year 2003
  • Publication Author(s) Nicoli Nattrass

The South African economy is unable to deliver employment for a growing number of would-be workers, especially among the unskilled. There is a need for state intervention to address this failure, and public works have been identified in the national policy discourse as a central policy response, to address both the problem of unemployment, and also a range of social development and economic objectives. This paper offers a critical review of the evidence base available to policy makers on public works, and an assessment of the performance of public works in South Africa since 1996, in response to the question of whether public works can offer a significant response to the South African employment crisis.

With the data currently available it is not possible to show that the anticipated broader benefits of public works programmes in terms of increased livelihoods, reduced poverty, the creation of sustainable employment, community empowerment, local multipliers, or growth as outlined in the policy rhetoric, have been achieved. It is only possible to assess performance in terms of the scale of employment created. By this criterion, success has been limited. The Community Based Public Works Programme, the major national employment creation instrument, created between 13,000 and 33,000 jobs per annum between 1996 and 2001, representing an estimated 1.5 million to 4.5 million workdays per annum, or 0.2 to 0.5% of total unemployed labour days. The scale of employment creation performance has been limited, due to i) the scale of budgetary allocations, (less than one percent of the annual social security and welfare budget), and ii) institutional constraints, relating to programme conceptualisation and design, and project management capacity, in both the public and private sectors. The multiplicity of programme objectives has also contributed to a lack of focus which has reduced the amount of employment generated.

In this paper simple models are used to estimate the impact and fiscal feasibility of 'expanded' public works programmes using the limited data available. The employment creation potential of a R1.2 billion investment in labour intensive construction over three years, is found to represent a maximum of 0.5% of unemployed workdays per annum. The cost to the fiscus of an expanded public works programme able to offer part time employment to a significant number of workers (3.2 million) is found be between R17 and R28 billion per annum.

Irrespective of the fiscal feasibility of this level of expenditure, such a programme is unlikely to meet the wider set of sustainable social development and economic objectives set out in the policy discourse, unless a series of institutional issues relating to project design and implementation are resolved. The limited duration of employment offered under public works may mean that the wage transfer functions as short term income shock, which is consumed, rather than leading to sustained benefits or livelihoods improvements for participants, a problem which is compounded by lack of access to microfinance. Targeting and rationing problems may be leading to a sub-optimal allocation of employment for the intended beneficiary groups, and the selection of appropriate assets for construction and rehabilitation is hindered by the lack of strategic development plans at local level. Limited project management and social development capacity in the public and private sectors is also serving to constrain performance.

In the light of this analysis it is concluded that while public works programmes are a valid component of a social protection policy, an expanded public works programme sui generis is unlikely to have a significant impact on the problems of poverty and labour market access, or their associate, growth, unless the proportion of government expenditure allocated to the programme is substantially increased, and the associated institutional constraints are addressed.

  • Year 2003
  • Publication Author(s) Anna McCord
  • Countries and Regions South Africa

Our understanding of the concept of poverty has improved and deepened considerably in the last three decades or so following Amartya Sen's seminal work. We possess presently the analytical tools to identify and locate the poor, to describe their characteristics and to measure the extent of poverty at different levels of aggregation. Yet, in spite of spectacular methodological advances in the analysis of poverty a number of conceptual and measurement issues remains to be addressed or further clarified. Ravi Kanbur (2002) has argued that the research on distributional issues in economics and development economics in the last thirty years can be divided roughly into two periods the 1970's to the mid 1980's and the mid-1980's to the end of the last century. The first fifteen years were a period of great conceptual leaps and ferment while the second fifteen years were marked by consolidation, application and fierce policy debate. Very recent methodological contributions suggest that we are entering a period of resurgence in research attempting to sharpen and broaden our view of poverty.

The objective of this paper is to review a number of issues related to poverty, while taking stock of the ongoing research. Most of the remaining unresolved issues in poverty analysis are related directly or indirectly to the dynamics of poverty. Before the development community can become more successful in designing and implementing poverty-alleviation strategies, within the context of growth, we need to understand better the conditions under which some households remain permanently (chronically) poor and how others move in and out of poverty. In what follows we review the state of the art under a number of interrelated headings: 1) Chronic vs. transient poverty; 2) Poverty and vulnerability; 3) The determination of the poverty line across time and countries; 4) The quantitative vs. qualitative approach to poverty measurement; and 5) Growth, inequality and poverty.

  • Year 2003
  • Publication Author(s) Erik Thorbecke

Poverty in South Africa is severe. Zero-rating food can possibly reduce poverty as poor households spend the largest proportion of their income on food. Zero-rating food can also reduce the regressiveness of Value Added Tax (VAT) for the same reason. However, zero-rating food will results in a loss in revenue for government. Zero-rating food should be considered in conjuction with alternative sources of revenue, such as increasing direct taxes proportionately or increasing VAT on all other commodities, or alternatively increasing VAT on commodity or services used mostly by high-income households. A Computable General Equilibrium (CGE) model is used to analyze the combined effect on zero-rating food and using alternative revenue sources to compensate for the loss in revenue. The results indicate that zero-rating food, while increasing VAT on either business or financial services could turn a regressive VAT into a progressive VAT. However, this would require excessive high increases in the statutory VAT rates of these services. More realistic options investigated are increasing direct taxes, or alternatively increasing VAT on all other commodities to 16 percent. Increasing direct taxes is most successful in creating a more progressive tax structure, and still generating a positive impact on GDP. The results indicate that zero-rating food combined with a proportional percentage increase in direct taxes can improve the welfare of poor households, without impacting negatively on other households.

  • Year 2003
  • Publication Author(s) Marna Kearney

Poverty is multi- faceted and can be manifested in hunger, unemployment, exploitation and lack of access to clean water, sanitation, health-care and education. Poverty is not confined to any one racial group in South Africa, but it is concentrated amongst Blacks, particularly Africans. There is a need to monitor poverty and the poverty alleviation programmes (PAPs) that are in place, to see that the needs of the poor are addressed with the urgency the situation demands and to take corrective actions where mistakes have previously occurred.

Some of the policies of the past, such as segregation and discrimination, left a legacy of poverty and inequality. Up to the early 1990s the apartheid system of the government had PAPs that were biased towards providing health, education and housing services to the White minority to the detriment of the Black majority of the South African population.

The post-apartheid government's agenda is to address poverty and redress inequality amongst all societies. Through its poverty policy framework, the Reconstruction and Development Programme and its macro-economic prescriptions of Growth, Employment and Redistribution policy, the government has implemented new PAPs and extended some of the past programmes to address poverty. It is essential to evaluate these existing and past PAPs to see if they are reducing the poverty gap. This paper would review past PAPs and how effective they were in alleviating poverty and compare this to existing and even the proposed programmes to see if they are reducing poverty. In doing so, the paper will be highlighting the successes and failures of these programmes with a view of coming up with recommendations on how to effectively implement such programmes in future and to avoid repeating the mistakes that occurred previously.

  • Year 2003
  • Publication Author(s) Lindiwe Khumalo
  • Countries and Regions South Africa

  • Year 2003
  • Publication Author(s) Rosa Dias; Charles Meth
  • Countries and Regions South Africa

  • Year 2003
  • Publication Author(s) Ingrid Woolard
  • Countries and Regions South Africa

Under Government's GEAR policy, high levels of expenditure on social services (i.e. Social Development, Health, Education and Housing), failed to bring about a reduction in poverty and unemployment. The Government, in particular the National Treasury, blamed this outcome on the inefficiency in the delivery of social services. The "Left", especially COSATU and its civil society partners, however, claimed that Government's commitment to conservative deficit targets under GEAR resulted in deep cuts in spending on social services.

In this paper we examine the claim from the "Left" that social spending was cut under GEAR and that this reduction led to a decrease in the quantity and quality of social services. We first analyse budgeted as well as actual spending on social services during the GEAR period (1996/7 to 2000/01). Figures were adjusted for the effects of inflation and population growth. We also examine social spending's share of total expenditure and of Gross Domestic Product (GDP). We find that while budgeted and actual social spending and social spending as share of the budget increased, actual per capital social spending and social spending as share of GDP decreased over the period. We also find that social spending as share of GDP declined by less than total expenditure's share of GDP. The evidence is therefore not conclusive enough to substantiate the claim that social spending was drastically cut under GEAR.

Next we examine the trends in social service delivery during the period to form some preliminary impression of whether the quality and quantity of service delivery did decline over the GEAR period. Again, the data does not show clear evidence of a decline in the quality and quantity of services provided over the period.

Our analyses do not provide conclusive evidence for either Government's or COSATU's claims and this debate continues to influence other debates around issues like the introduction of a basic income grant, a minimum package of education services, the realisation of basic socio-economic rights and the redesign of the equitable share formula which directs funding to the provinces.

  • Year 2003
  • Publication Author(s) Albert Van Zyl; Carlene Van Der Westhuisen
  • Countries and Regions South Africa

From a policy perspective, employment depends on both economic growth and the labour absorption capacity of the economy. Policy must target both of these. Higher growth rates can be achieved through productivity improvements (technology, industry restructuring, improved know-how, etc.) and/or growth in domestic or foreign market demand. Higher growth rates are difficult to achieve, and do not in themselves guarantee labour absorption as we have seen in recent years. This is partly because South African growth has been more reliant on intensive, rather than extensive growth. Moreover, in a distorted market, particularly in the context of the apartheid legacy, extracting more employment per unit of investment and output requires forceful stimulation and market reforms. This paper outlines the experience of employment and unemployment over the past 10 years. It explores thinking about whether SA is on a sustainable job-creating growth path. It reviews whether the trends would support a basic definition of jobless or job creating growth. But the definition of employment is very broad and so the paper then looks at some underlying trends in the quality of work: this helps us to understand whether the employment created contributes to a sustainable dynamic path. The paper concludes with some thoughts about policy implications and policy balance.

  • Year 2003
  • Publication Author(s) Miriam Altman
  • Countries and Regions South Africa

High and growing rates of unemployment have been a source of great frustration to policy-makers. Although exports have been buoyant and the 1990s has been the first decade of sustained growth, unemployment has been rising by 2 percentage points each year. If the expanded definition is used, the rate of unemployment reached 41.8% in September 2002.

In a context where the majority of the unemployed are unskilled and the tradables sector has been shedding rather than absorbing unskilled labour, less orthodox avenues of employment creation require investigation. To that end, this paper examines the prospects for employment creation through meeting basic needs. While the latter is an imperative in its own right, because the industries that provide basic needs are non-tradable and have high employment multipliers, particularly of unskilled and semi-skilled labour, the expansion and re-orientation of government expenditure in this area unlocks opportunities for employment creation. The central contention of this paper is that industrial strategies for each of the basic needs sectors are required to realise their potential for employment creation. Three sectors are analysed from this perspective: construction and building, social services and food distribution. These sectors are aligned to existing government programmes where expenditure is projected to increase significantly over the next three years. This means that either through the direct provision or procurement of these goods and services, government has a powerful policy lever to influence the pace and pattern of employment creation in these sectors.

Ultimately, employment creation strategies that are aligned to industrial strategies and that fulfil government's obligation to meet basic needs are more sustainable than the short-term job creation strategies that dominate policy interventions at present. A preliminary analysis of the form that such industrial strategies could take in the construction, social services and food sectors is presented as the basis for a more comprehensive research agenda.

 

  • Year 2003
  • Publication Author(s) Miriam Altman; Marina Meyer
  • Countries and Regions South Africa

This paper evaluates the impact of globalisation on income distribution in South Africa. There are broadly two ways in which it can affect income distribution and help to address poverty. On a macro level it can stimulate economic growth, create jobs and provide salary income to people previously not employed. In a more direct way it can impact on wages. If unskilled wages increase relative to skilled wages, it should lead to a more equal distribution. Evidence for the period 1993 - 2001 indicates that South Africa experienced highly volatile capital flows, in the form of portfolio flows, with disruptive effects on the exchange rate and interest rates. On a micro level, the opening up of trade led to considerable job losses, especially semi- and unskilled workers. These were brought about mainly by the increasing importance of technology. Job losses because of import penetration were not as significant as could have been expected. On the other hand, exports did help to create jobs, but not enough to offset the negative impact of the previous-mentioned two factors. No evidence could be found that salaries of unskilled workers increased relative to highly skilled workers. Globalisation can only lead to a more equal distribution of income in South Africa if it succeeds in creating jobs and this can only happen if the skills level of our workforce meets the conditions of the market.

  • Year 2002
  • Publication Author(s) Anmar Pretorius
  • Countries and Regions South Africa

  • Year 2000
  • Publication Author(s) Geeta Kingdon and John Knight
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