NOTE: This is an extract from the recent report of the Department of Economic Development, Western Cape Province. The first chapter sets the scene by outlining some of the challenges faced. Chapter 5 sets out the heart of the approach employed in identifying priority sectors and the broad policy approach followed. The report itself provides the details on the recommendations - but these are not explored here.
This paper examines the performance of public works in addressing both micro and macroeconomic policy objectives relating to growth, employment and poverty reduction in South Africa. Survey data on the micro-economic impact of public worksprogramme participation is used alongside a social accounting matrix (SAM) for the South African economy which models the impact of a demand stimulus to the South African economy reflecting a hypothetical annual public works programme of R3billion, using data from a labour based road rehabilitation programme.
Drawing on recent survey data from two public works programmes in South Africa, the microeconomic impacts of public works programme participation in terms of income poverty, non income poverty and labour market performance are reviewed. Thesemicroeconomic findings are then linked to recent research examining the macro-economic impacts of public works programmes and the two are considered together in order to assess the micro-macro linkage of public works programmes and theircontribution to development and poverty reduction. This analysis is particularly relevant given the popularity of public works as an instrument for labour market and social protection intervention throughout the continent.
The microeconomic analysis suggests that while participation in a public worksprogramme may contribute to a reduction in the depth of poverty, with improvements in participation in education and nutrition, and have positive psychosocial benefits, the impact of a short term programme may not be significant in terms of a reduction in headcount poverty or improvements in asset ownership (material or financial). In this case the public works programme income may function essentially as a temporary wage shock, since the insurance function of the transfer is limited by the short duration of the employment period. If targeted to poorer groups, with lower levels of schoolparticipation and poorer nutrition, impact may be greater per unit of wage transferred, interms of contributing to human capital, but is still not likely to move participants out of poverty, but rather reduce the depth of their poverty.
The research also indicates that participation in a public works programme may not significantly improve labour market performance among workers in immediateaftermath of programme employment, largely due to lack of demand for labour in the formal sector. Also the likelihood of PWP employment to stimulate secondary informal income generation activity is found to be limited due to capital, skills and market constraints. The integration of initiatives such as income generation training, savings clubs could address these constraints and increase the likelihood of transfers having a longer term impact. However, the limited amount of transfer and duration ofemployment militates against investment in productive assets which could be used to generate employment in the informal economy.
From a macroeconomic perspective the economy-wide impact of a demand stimulus tothe South African economy reflecting a hypothetical annual extended public works program of R3 billion is examined, based on a social accounting matrix (SAM) for the South African economy, and data from a labour based road rehabilitation programme.Two options are considered; labour and machine based public infrastructure provision. Currently machine based infrastructure provision is the norm, and the purpose of this part of the paper is to evaluate the impact of shifting from machine to labour based provision with a given budget constraint. Using a SAM it is estimated that the impact of shifting R3 billion expenditure from machine to labour based infrastructure provision over a one year period would be to increase employment by 1%, the income of the poorest quintile by 2% (if employment were exclusively targeted to this group) and GDP by 0.1%. While these are positive outcomes, they are not significant in terms of South Africa's overall economic and employment performance.
The conclusion is drawn that from both a macro and microeconomic perspective, there is reason to be cautious about the potential of a national public works programme based on shifting the labour intensity of infrastructure provision, and offering short term employment opportunities, to have a significant impact on poverty, employment or growth.
Finally it is suggested that these limited impacts may be the consequence of the fact that in South Africa PWPs tend to offer only short term employment, having thecharacteristics of counter cyclical interventions, and hence an inherently limited risk insurance function, in the context of a mass chronic and essentially structuralunemployment problem, in which demand for labour is the key constraint. Hence inconsistencies between the nature of the PWP instrument selected in South Africa and the characteristics of the labour market crisis are identified as the fundamental cause of the limited macro and microeconomic impacts of the intervention.
Studying the relation between economic growth and income poverty reduction without taking changes in the distribution of income into consideration is like setting up Othello without Iago in the play. Without any further references to Shakespeare, this paper examines the relations between poverty levels, economic growth and changes in inequality in Tanzania during the 1990s. It offers four conclusions. First, the efficiency with which growth reduces poverty increases with a country's income level, so low-income countries should combine growth promotion with redistribution; second, growth in Tanzania during the 1990s, has accelerated, but has also been concentrated in sectors to which the majority of the poor have few links; third, the efficiency with which income growth reduces poverty in Tanzania appears very sensitive to the pattern of growth; fourth, recent poverty reduction strategies do not appear to recognize this fact and rely apparently instead on a strategy in which growth increases tax revenue that can be used to alleviate poverty through an expansion of publicly supplied (social) services.
The selected strategy appears particularly ill-chosen, both because of Tanzania's historical tax collection record and because of the emerging consensus on the state as a facilitator, not a producer, in the development process.
This paper examines the impact of national developments and policies on the development of industry in Ekurhuleni. It assesses role of local government in industrial development in light of recent literature addressing agglomeration effects, industrial districts, and the development of local economic competencies and institutions. The analysis draws on recent work on the manufacturing sector in Ekurhuleni and a case study of the foundry industry in particular, focusing on its performance and recent development in terms of firm capabilities, orientation, and the institutional framework
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.
Even though the approaches, assumptions and results may vary greatly in the macroeconomic models employed in estimating the impact of HIV/AIDS on the South African economy, the overriding message that these models convey remains the same: the cost of HIV/AIDS to South Africa will be significant in economic, social and human terms. However, the accuracy of the models and their results can be faulted for various reasons, not least the shortcomings of current demographic projections and the empirical evidence on the microeconomic impact of the epidemic, shortcomings that can be argued to translate into both under- and overestimation of the likely macroeconomic impacts of the epidemic. More work is also required to quantify the nature of the impact of the epidemic on specific sectors in the economy. In addition, more recent, alternative methodological approaches can also be explored in further investigating the macroeconomic impacts of the epidemic. Finally, models are also constrained by a lack of clarity regarding the key question of how treatment, care and support for HIV/AIDS-affected individuals and households are to be financed in South Africa, given that government at times are unclear as to what policies will be implemented to fights HIV/AIDS.
South Africa currently faces one of the highest HIV prevalence rates in the world. The estimated adult prevalence of HIV amongst 15-49 year olds in 2001 was 20.1% (UNAIDS, 2002), while the ASSA2000 model put adult prevalence amongst 20-65 year olds (in the unchanged scenario) at 24.1% (ASSA, 2003). A recent national household survey in turn has put the 2002 estimate of adult prevalence amongst those older than 25 years at 15.5% (HSRC, 2002) . Given that HIV/AIDS primarily effects the economically and sexually active population, the epidemic poses a serious threat to economic growth, development prospects and poverty alleviation. In fact, the predicted macroeconomic impacts of the HIV/AIDS epidemic make light of the macroeconomic targets of GEAR, given the projected decline in economic growth and employment.
The main aim of this paper is to review the current literature and evidence of the impact of HIV/AIDS on the South African economy. The paper is structured as follows. Section 1 provides a brief overview of the methodology of the four macroeconomic models employed in estimating the impacts of the epidemic that are reviewed in this paper. (It should be emphasized however that this is not a methodological review of macroeconomic modeling, which is outside the scope of this paper.) Given that these models project the macroeconomic impacts of the HIV/AIDS epidemic over a 10-15 year period that ranges from 2000 to 2015 and that the HIV epidemic is yet to evolve into a full-scale AIDS epidemic, the emphasis in this paper is therefore on the future challenges that HIV/AIDS poses to the South African economy, rather than the challenges during the first 10 years of democracy . Section 2 describes the main economic impact channels of the HIV/AIDS epidemic as described in these four macroeconomic models, whilst section 3 and 4 respectively focus on an overview of the assumptions (input) and projected impacts on economic growth, investment, employment, and poverty (outputs) of these four models. The assumptions and projections of these models are critically adjudged at the hand of currently available empirical evidence on the economics of HIV/AIDS in South Africa. In section 5, the implications to the macroeconomic modelling results of recent changes in the responses of government, business, communities and other role players in South Africa to the HIV/AIDS epidemic are discussed. Section 6 concludes, summarizing the main lessons to be learned from the review and the key questions that remain unanswered by current research on the economics of HIV/AIDS in South Africa.
This paper uses the Johansen VECM estimation technique to examine the directions of association between savings and growth in South Africa over the period 1946- 1992. We examine the aggregate private saving rate and its interaction with investment and growth. The paper finds that the private saving rate has a direct as well as an indirect effect on growth. The indirect effect is through the private investment rate. In turn, we find that growth has a positive effect on the private saving rate. The extent of this effect is determined by liquidity constraints. Thus we have a virtuous cycle as growth enhances saving, which in turn further enhances growth.
The province of KwaZulu-Natal (henceforth KZN) is an important contributor to overall national economic performance in South Africa. In 1996, data from the Census of Manufacturing emphasised that KZN ranked second after Gauteng across a series of economic indicators (see for instance Annex Table 1 - part 1, p. 86). Although it is difficult to establish with accuracy how this position has evolved since 1996, WEFA estimates allows one to build on previous information from the 1996 Census of Manufacturing. WEFA data suggests that KZN manufacturing activities have grown but potentially not as rapidly as other South African provinces and thus that the rate of manufacturing expansion might be below the country average (see also Statistics South Africa, 2002, Figure 3, p. 2). Presently, KZN contributes to about 15.5% of South Africa's gross domestic product and, within KZN industries, manufacturing represents 23% of the Province own gross domestic product at market prices (see Annex Table 1 - parts 1 and 2, p. 86). Figure 1 below shows the distribution of South Africa's manufacturing gross domestic product across provinces; manufacturing in KZN contributes 22% of South Africa's manufacturing gross domestic product against 39% for Gauteng.
This paper looks at social mobility in the context of a growing economy. The nature and extent of Black affluence in South Africa provides an indicator of the impact of efforts to eradicate the remnants of apartheid-era racial discrimination in the South African education system and labour market. Most studies examining social mobility and inequality in South Africa have looked at the bottom of the income distribution, investigating changes in the severity and also the racial incidence of poverty. This paper explores the same topic by studying the top of the income distribution. Focusing on the Black members of this group of affluent, this paper hopes to make some contribution towards an improved understanding of social mobility and inequality in South Africa
Firstly, we attempt to identify the features that distinguish the Black upwardly mobile from those parts of the Black population seemingly trapped in poverty, starting with a descriptive analysis of the affluent. Using the 2000 LFS/IES and the 1995 OHS/IES, the study examines the profile of the richest 15% of household in South Africa. In the second section of the paper logit and multinomial logit models are used to consider the impact of spatial features, household characteristics and the age, education and occupation of the household head on affluence. We also investigate how affluence predictors vary between different race groups. The third and last section is devoted to exploring the spending patterns of the Black affluent.
The analysis here confirms many of the traditional views of social mobility. The paper finds a strong association between geography, demographic profile and social mobility that is robust across population groups. The empirical evidence cited is consistent with convex returns to education and a substantial role for quality of education.
Also, we find that the Black affluent exhibit distinctive spending patterns. Compared to the affluent from other population groups, the Black affluent spend more on appliances and furniture and less on personal computers, telecommunications and domestic workers. This may be due to their relatively new status among the affluent.
This paper looks at the policy of financial liberalisation within the context of a small developing economy that is experiencing financial sector distress. The performance and structure of the banking sector of the economy of Lesotho is in particular reviewed before, during and after the reform period. The paper also draws on the theoretical arguments for financial liberalisation in developing countries in line with distinguishing structural features of financial systems in developing countries. The implications of the analysis are extended to make an analysis of the likely effects of financial liberalisation in a group of countries that are a part of trade and monetary arrangements. Particular attention is given to the institutional arrangements that deal directly with financial issues, in this case the CMA. The primary outcome of the paper is that the economy hardly met the prerequisites for financial liberalisation at the time when the policy was implemented hence the distress in the banking sector that followed. While contagion may not be a significant problem given the size of the economy relative to its closest neighbour, South Africa, the experience nevertheless provides important lessons for economies in similar situations.
Explaining the Growth Absence: reviewing the evidence that can account for the poor growth performance of the South African economy
South Africa's democratic transition now lies close to a decade in the past. The transition carried with it much by way of hopes in terms of a greater access by its population not only to an improved rights environment. It was envisaged that the political self-realization of all South African citizens would bring with it access to improved economic well-being also. Employment as well as rising per-capita income are obvious indicators of progressive development for the population of a country.
In this paper we review evidence that has emerged over the past four years that can provide some insight into the growth and employment creation performance of the South African economy. The emphasis is explicitly on why limitations in the growth performance of the South African economy may have emerged. As such, the tone will have a tendency toward the gloomy. So let me start at the outset by reminding ourselves that the past decade has seen much by way of achievement on the policy front. Success particularly with regard to macroeconomic stabilization policy is notable, and should not be obscured behind the veil of woe that is the topic of the present discussion. But enough of optimism - and to the task in hand.
We begin with a consideration of some evidence on the long run growth performance of the economy, as well as the track record of employment creation in the economy. Growth in the South African economy is decomposed into its primary sources, in order to identify any fundamental structural changes in the source of economic development. The evidence will indicate that not only has growth and employment creation in South Africa been subject to long term structural decline, but the source of economic growth has also shifted from capital accumulation to TFP growth over time.
Section 2 of the paper is concerned with an analysis of the determinants of perhaps the most fundamental driver of long term growth: investment in physical capital stock. The evidence suggests that rates of return on capital and the user cost of capital are fundamental to the determination of investment in fixed capital stock, but exercise their influence subject to a powerful impact exercised by uncertainty. What is more, the evidence reviewed demonstrates that uncertainty is crucial not only for investment in physical capital stock, but also for the determination of the capital flows that are required to finance the short-fall of savings relative to investment expenditure in South Africa.
In the case of South Africa, uncertainty has strong institutional underpinnings, which section 3 elaborates on. The evidence reviewed in section 3 points to a number of crucial institutional dimensions that exercise an influence not only on capital accumulation, but on employment creation, international trade flows, and the efficiency of output markets in South Africa.
Finally, in section 4 of the paper we consider evidence on the importance of the factors identified by modern (endogenous) growth theory in determining South Africa's growth performance. While a number of different determinants are considered, the discussion focuses on the contribution of investment in human capital. The evidence suggests that what counts is quality of human capital investment rather than quantity. In an extensive review of published evidence we establish that in generating quality human capital, South Africa still leaves much to be desired.
This study is published by the World Bank in its informal series of Discussion Papers on the South African Economy. It draws on research supported by discussions and interaction with staff from a wide range of South African institutions.
Since 1994, South Africa has made undeniable progress across a number of critical areas. On the political front, democratic institutions are well established, and the 're-invention'Â of government that is continuing through the creation of new tiers of government (provincial and local) has changed the environment for governance and service delivery. On the economic front, the government has pursued policies that have restored and maintained macroeconomic stability in the context of a difficult global environment.
But despite these areas of success, there exists a widespread perception that South Africa's economic performance since 1994 has been disappointing. Real GDP growth has been erratic, formal sector job losses have continued unabated, and the key objectives of poverty reduction and improved service delivery remain largely unmet.
This study examines the pressing challenge of generating sustainable growth, job creation, and poverty reduction in South Africa. In doing so, it draws on a broad range of analysis and research on related topics undertaken by World Bank staff over the last few years, as well as work by other researchers in South Africa and elsewhere. The underlying message is that the challenge facing South Africa will not be solved by one (or more) 'quick fix' solutions, but instead demands concerted initiatives across a range of issues that reflect the underlying dependencies and 'interconnectedness'Â of the economy. We hope that this study (and its supporting materials) can contribute to the discussions and debate that will help South Africa move forward towards a better future.