Session 3: Regional manufacturing and industrial policy 2
In 2014, South Africa remained one of the most unequal countries in the world, an outlier by global standards in terms of both overall inequality as measured by the Gini coefficient and levels of joblessness. For proponents of industrialisation as central to long-term development, this situation raises two questions. First, how does manufacturing as presently constituted affect employment and the distribution of income and assets directly and indirectly? Second, is the traditional industrial-policy paradigm sufficiently geared to supporting inclusive growth?
These questions are explored in this working paper by Neva Makgetla, TIPS Trade and Industrial Policy Programme Manager.
This paper looks at the role that potential poverty-reducing impact that the CWP could have is expanded. While acknowledging that there are significant non-monetary impacts, the focus is on measuring the impact that earning the CWP wage would have on household poverty and inequality. (The Employment Promotion Programme (EPP) Research)
Unemployment and earnings inequality in South Africa have declined in recent years, while the trend in overall income inequality is unclear. Inequality and unemployment both remain at extremely high levels by historical and international standards. There has been a very close relationship between trends in unemployment and earnings inequality in recent years. The decomposition of earnings inequality by employment status reveals the importance of unemployment in accounting for the level and trend of earnings inequality. The distribution of employment in the formal and informal sectors is also found to be important in explaining earnings inequality, as is wage dispersion within each of these sectors. Decomposing overall income inequality by income source confirms the overwhelming importance of earnings in income inequality more generally. Inequality is only likely to be dramatically reduced through a significant expansion of decent work for the low- and semi-skilled. Simulations of an expansion of low-wage employment show that this would reduce inequality, but the effect would be limited if wages are too low. While the introduction of a minimum wage would be expected to reduce inequality, its overall effects are contingent on the extent of any associated job losses.
The promise of asset-based approaches to poverty, as well as its limitations can be summarised with reference to the popular idiom: “teach a person to fish, rather than giving him a fish”. If the idiom were a development programme or project, it would aim to undertake two interventions (i.e. 1. training a person to fish and 2. availability of fishing tackle and equipment to fish). The objective of the intervention could recorded in some project plan as follows.
Through introduction of training and making equipment available the programme will contribute to supporting the sustainable livelihoods of X number of people.
However, development practice tells us that it is never so easy, because there is almost never a strong causal relationship between interventions and the intended outcomes, which can be demonstrated with reference to successful and unsuccessful outcomes. These are visualised in Box 1 below.
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In the face of a long-standing unemployment crisis that increasingly threatens social and economic stability, employment has at last taken centre stage in South African policy, and with this, focus is shifting to the structural constraints on employment creation within the economy. The New Growth Path, approved by Cabinet in November 2010, starts to tackle these issues.
Its emphasis on inclusive growth places issues of distribution more clearly on the agenda than they have been; and the Competition Commission has become poor consumers' knight in shining armour, tackling collusion and highlighting the negative economic (and employment) consequences of South Africa's highly centralized core economy.
What does this mean, however, for what used to be called 'the second economy'?
While much scholarship has focused on critiquing the concept of the second economy – with good reason – the stark inequalities that characterize South African society and its economy mean that policy-making processes still struggle to straddle both ends of the spectrum. What is good for the developed end of the economy can seem to be far removed from concerns in more marginalised contexts.
This article argues that the sharp divides in access and opportunity need to be located within the context of structural inequality. It focuses in particular on how the highly unequal structure of the economy impacts on economic opportunities at the more marginalised end of the economy, and how common sets of processes within a single economy produce and reproduce these outcomes. This locks people into poverty in ways that cannot simply be dismissed as a problem of 'dependency' - despite a growing tendency to do so. The article concludes by considering what this analysis means for development strategies targeting the unemployed and those eking out survivalist incomes.
Access to adequate water and sanitation services in South Africa still remain a pipe dream for the millions who are trapped at the bottom of the class structures in the country. The poverty stricken communities living in Townships such as Motherwell, everyday long for water services infrastructure to be built in their places of residence. The costs of accessing water services also becomes a setback for many consumers in the area, this is after the infrastructure has been installed in their areas. The high unemployment rate plays an enormous role in many consumers not affording water services. Bureaucracy between the government department of Housing and the NMMBM also impedes delivery of water services for without formal housing, water and sanitation is impossible to be accessed within the households.
The study revealed from the semi-structured interviews which were held with Mayoral Council official and Ward Councillors as well as with members of the communities NU 12 and 29 that access to adequate water services was not successful and satisfactory. The findings of the research demonstrate that the Municipality has a problem with retaining staff members in the portfolio of Infrastructure, Engineering, Electricity and Energy, which is the responsible department for providing water and sanitation services to the local inhabitants. This study was conducted from April 2009 to November 2009 and it was aimed at finding the Barriers to accessing water services in the Motherwell Township.
This paper was submitted for a Masters Degree Programme in Development Studies at the Nelson Mandela Metropolitan University. The paper was supervised by Dr. Deon Pretorius.
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Session 8A: Wage Dynamics
Session 7A: Survey Data Quality Assessments
Session 5B: Employment Opportunities and Outcomes
Session 5A: Poverty and Household Welfare
Session 3A: Social Grants, State Expenditure and Welfare Outcomes
Session 3A: Social Grants, State Expenditure and Welfare Outcomes
Session 2B: Inflation Dynamics
Session 1B: The Financial Crisis: Global and Regional Impacts
South Africa has historically been ranked as one of the most unequal societies in the world, and while the country has experienced sustained positive economic growth since 1994, the impact of this growth on poverty, and particularly inequality, has been disappointing. Analysis using data from the 1995 and 2000 Income and Expenditure Surveys has found, for example, a significant increase in income inequality over the period and, further, that this increase in inequality eroded any significant poverty-reduction gains from higher economic growth. The release of the Income and Expenditure Survey 2005 has enabled us to now examine changes in inequality over the 10-year period between 1995 and 2005. Some preliminary analysis, however, shows a further increase in inequality over the second half of the period. This new result would possibly suggest that South Africa is now the most consistently unequal economy in the world. Critically, the persistent and increasing levels of inequality have been acting as a constraint to ensuring that South Africa’s economic growth results in significant declines in household poverty levels.
This study has two main objectives. The first objective is to provide a comprehensive overview of the changing levels of inequality in the post-apartheid South Africa and to identify the drivers of these changes. This also includes examining the relationship between economic growth, poverty and inequality over the period. The second objective is to evaluate the increased provision of social grants as a policy option to alleviate the impact of increasing inequality in South Africa.
Section 2 provides an overview of the changes in per capita income inequality between 1995 and 2005. Although private consumption expenditure is generally accepted as a more appropriate measure of welfare, we use income to calculate measures of inequality since we are particularly interested in the factors (i.e. sources of income) that have been driving the changes in income inequality. In order to develop a comprehensive overview of welfare changes in the country over the period, we also consider the changes in non-income inequality as captured by the distribution of access to a range of basic services and privately owned assets in Section 3. While it is generally accepted that economic growth has a positive impact on poverty, rising income inequality may dampen the impact of economic growth on poverty reduction. Section 4 investigates this relationship between economic growth, poverty and inequality for the period between 1995 and 2005.
The final section reviews the impact of the Government’s provision of social grants on income inequality. While the results from the decomposition of income inequality in Section 2 suggest that social grants as source of income did not serve to reduce income inequality, further analysis do show that social grant income made a significant contribution to total income across the income distribution, particularly in 2005. In this section we therefore exclude grant income from total income and recalculate some of the inequality measures as well the Growth Incidence Curves in order to estimate what the levels of inequality would have been in the absence of grant income
According to the International Labour Organisation (ILO) a third of the global workforce is either unemployed or underemployed barely eking out a living through informal work; selfemployment or as wage workers involved in precarious employment. International competitive pressures have led to a restructuring of organizations toward decentralized production networks and employment relationships. A significant global trend over the past two decades has been for firms to depart from the practice of offering long-term stable employment with large scale in-house factory production, and to adopt instead a ‘free agency’ or flexible model of employment, in which an increasing number of employees are classified as temporary. These workers fall outside the scope of legal protection afforded to workers engaged in standard forms of employment. They are either completely excluded from, or on the fringes of, social security protection and receive less favourable benefits than those workers recognized as employees and are accordingly vulnerable to exploitation and deepening poverty.
The Report of the Commission on Legal Empowerment of the Poor has identified the exclusion of the world’s poor from the rule of law as one of the main factors contributing to poverty and inequality in the world. The Commission argues that in affluent countries people are more likely to enjoy access to justice and other rights as workers, businesspeople, and owners of property. Wealth creation in these countries rests upon various legal protections, norms, and instruments governing matters such as property rights and labour contracts and workers associations. However, the legal underpinnings of entrepreneurship, employment, and market interaction are often taken for granted when countries adopt development strategies to overcome inequality and poverty despite the fact that most poor people do not benefit from legal protection and the opportunities it affords.
The Commission concludes that the spread of rule of law counteracts the exploitation of vulnerable participants in the informal economy and compliments other developmental initiatives such as investing more in education, public services, and infrastructure.
The Commission has developed a comprehensive agenda for legal empowerment encompassing four crucial pillars that it has identified as central in national and international efforts to increase protection and opportunities for the poor. These are access to justice and the rule of law, property rights, labour rights and business rights.
The Commission envisages labour regulation. Labour rights should create opportunities for all workers to obtain decent work regardless of whether they work in the formal or informal economy. This approach is in line with the ILO Decent Work Agenda.
The systematic failure of post-settlement support in South African land reform has been identified as a major contributing variable to the approximated 50 percent failure rate of new land reform projects. In spite of this dismal record, government increasingly finds itself under immense political pressure to speed up land reform efforts in order to meet preconceived reform targets, and have embarked on the Proactive Land Acquisition Strategy (PLAS) for this purpose. It therefore becomes imperative that post-settlement support be prioritized if the failure rate of land reform is to be reversed. Without systematic and comprehensive post transfer support it is highly unlikely that most land reform projects will succeed in improving the quality of life of participants and make significant contributions towards transformation in rural South Africa.
Sharing the concerns of many key stakeholders in the Land Reform programme, The Rural Action Committee of Mpumalanga (TRAC-MP) launched the Mpumalanga Management and Mentorship Pilot Programme (MMMPP) in January 2003. By working on six diverse land reform projects, the MMMPP sought to develop experience and lessons in post transfer support strategies that could be shared with policy makers and shareholders to develop appropriate policies and programmes. Staff working on the MMMPP made significant inputs on the Mentorship Policy approved by the National Department of Agriculture in support of their Comprehensive Agricultural Support Programme (CASP) in 2005.
In 2006, TRAC-MP embarked on the “Mentorship Lead Programme” with the aim of strengthening the ability of the Provincial Department of Agriculture to provide the necessary support to land reform projects during their post-transfer phase. This project can be seen as bridging the gap between policy at a national level and implementation support at a Provincial level. Therefore it is envisaged that the Mentorship Lead Programme will significantly contribute towards the ability of the Provincial Department of Agriculture to provide the range and depth of support activities necessary to ensure that land reform projects indeed have a positive impact on the transformation objective in rurual Mpumalanga and South Africa as a whole.
The Mpumalanga Department of Agriculture and Land Administration has since entered into an agreement with TRAC-MP in connection with the Mentorship Lead Programme, where both parties have agreed to work together in order to plan and develop an effective and comprehensive post-settlement support structure aimed at land reform projects with commercial farming objectives through the Mentorship Lead Programme. By incorporating research done and lessons learned during the MMMPP project, and by focussing on roughly 24 land reform cases in Mpumalanga, The Mentorship Lead Programme aims to develop a model and system for post-settlement support that could eventually be extended throughout the province and hopefully act as a useful point of departure for future national and provincial policy on this subject.
It was through TRAC-MP's experience with the MMMPP project that two high-priory constraints were identified to post-settlement success, namely problems related to market access as well as problems with securing production capital. With the initiation of the Mentorship Lead Programme, TRAC-MP therefore approached the Trade and Industrial Policy Strategies (TIPS) to co-undertake strategic research on these constraints in order to formulate strategic recommendations that could be incorporated into the Mentorship Lead Programme.
South Africa has a peculiar industrial structure given its factor endowments: production is capital intensive in sectors and concentrated in capital intensive sectors despite an abundance of unskilled labour. Part of the reason for this phenomenon lies in the development process of South African industry: it grew around the mining sector and its core sectors remain close to the minerals endowment up until today.
A possible explanation for this path dependent development is the existence of forward and backward linkages between sectors that drive industrial development. We use an SVAR approach with realistic identification assumptions from input-output relations - following a paper by Abeysinghe and Forbes from 2005 that analysed trade linkages between Asian countries - to estimate the effect of linkages between sectors on sectoral growth performance. Impulse response analysis allows us to estimate the impact of a shock in one sector on other sectors of the economy and therefore points toward the 'pulling power' of various sectors of the South African economy.