The paper will explore the assumptions and analysis informing the drafting of a second economy strategy, a process that has been underway under the auspices of The Second Economy Strategy Project: an initiative of the Presidency, based at TIPS. The paper will argue that the concept of 'the second economy' should be seen as a description of the disadvantaged and marginalized end of the South African economy, a product of its history, reproduced and reinforced in new ways today. The paper will focus on how structural inequality and the structure of the economy shape the policy options available to overcome such marginalization, and how this informs the main policy recommendations that are arising from the process.
Democracy opened the door for transformation in South Africa. In the past decade, various laws, policies and programmes have been implemented with the aim of putting into effect the principles of the new South African Constitution and the Bill of Rights, with the aim of improving the lives of the people of South Africa. Poverty alleviation moreover stands central in national and international policy frameworks. The Accelerated and Shared Growth Initiative of South Africa (ASGISA), amongst others, has the ultimate objective of halving poverty in South Africa by 2014. This paper aims to investigate the determinants of- and how income poverty is transferred from one generation to another. Data from the Kwazulu-Natal Income Dynamics Study (KIDS), which interviewed a panel of African and Indian households from Kwazulu-Natal are used for this purpose. Panel- as well as cross-sectional data analyses are employed to learn about these main determinants of- as well as how the poverty status of one household influences that of the next generation.
Colonialism and the deleterious impact of Structural Adjustment Programmes (SAPs) and now globalisation. Some parts of postcolonial Africa have attempted to set up ministries of economic development. Others have concentrated on attracting on Foreign Direct Investment (FDI) whilst some others have early on realised that the state and private capital should work hand in hand for development. But these different approaches have not always necessarily had the results that are necessary for development. To make matters more complicated, the continent have to struggle in a context where trade remains inequitable and finding a niche for themselves remains a difficult task. The main reason behind this failure is that development has been seen and interpreted within the narrow confines of economic growth. So rethinking economic growth at the continent level has become imperative and different stakeholders have an important role to play in the process.
In South Africa, during many decades, black people experienced a segregationist politics of a white minority. In 1994, the African National Congress (ANC) promised to create a better South Africa for all. Various ANC governments since then have adopted many economic programmes with the aim to halve by 2014 poverty and unemployment especially among the Historically Disadvantaged Individuals (PDI). However, recent studies in South Africa showed that inequality is widening despite the acceptable levels of economic growth. Reports showed that an overwhelming share of the change in the economy over time explained by high economic growth will continue to be without any improvement of the lives of marginalized ones unless there are changes in wealth distribution within the different layers of the South African population. Therefore, propoor economic growth must be developed in order to achieve the expected results of achieving the Millennium Development Goals (MDGs) in the South African context.
The paper seeks to develop some variables (investment in physical and human capital for example) needed to be included in the structure of South African development theories, which will assist development practitioners to determine the sources of growth and inequality, and ultimately develop strategies aiming at halving inequalities in the country.
Although the 1994 elections concern redress, social justice and reconciliation, many would consider that these objectives will never be achieved if no economic and social development affects the previously disadvantaged. Development has many dimensions (especially if considered as addressing the injustices of the past) among which the increase of low income and low consumption is only one. Addressing quality of life in general, insecurity, powerlessness and low self-esteem, crowded homes, alienation from the community, etc. is as important. Such a definition of development is strikingly illustrated in the case of South Africa, where famine cannot be observed and where social and welfare grants often guarantee a minimum livelihood at household level.
After more than 10 years of land reform, it becomes thus legitimate to question to what extent the land reform programme has effectively and sustainably improved people's lives in South Africa. The objective of this paper is to have a closer look at land reform projects to understand their effective implementation on the field , from the initial application phase of the settlement to the final configuration of the project - in order to evaluate land reform's contribution to South Africa's development trajectory and pro-poor growth pattern.
This paper shows that, to date, land reform has not significantly changed the socio-economic aspects of the lives of the large majority of the beneficiaries, leading to no significant income distribution and to the questioning of the (pro-poor?) growth pattern South Africa has adopted. Based on a broader empirical survey concerning the evaluation of all land reform programmes, with a focus on the findings regarding the land reform projects of the Mole-mole municipality in the Limpopo Province, the paper details that out of the 42 projects assessed, only 3 show significant development, 20 are entirely abandoned or show no activity, economic or social, at all. In the context of the broad definition of development, only 0.4% of the official beneficiaries are benefiting in any way from the projects; those with a significantly improved quality of life are even fewer. At the same time, land reform has caused an 89.5% decrease in production as well as many job losses on the affected farms.
Several main factors contribute to these pessimistic results. Firstly, the feasibility of the land reform projects is questioned (difficult economic conditions, isolation, etc.). Secondly, non-adapted institutional structures at project level lead to legal incoherencies (causing obstacles to service access - mainly financial), power structures, important intra-community conflicts, mismanagement and misuse of resources. Thirdly, a lack of collective action and institutional contacts appeared, leading to institutional isolation. Finally, the land reform processes are characterized by administrative heaviness, incapacity and lack of transparency leading to extreme delays, collapse of the projects, powerlessness, but also to a lack of adapted and coordinated services in an environment of distortion.
South Africa has only redistributed about 4% of its land to previously disadvantaged citizens. However, due to the historical bias and the sensitive socio-political character of land in South Africa, land reform must and will continue. Solutions to overcome these failures are, therefore, essential. This study recommends firstly that the structure of land reform be reconsidered, to take a dual approach combining private and communal land. It also details the development of more specific and subsequently adapted institutional structures at project level, in order to better meet the needs of the beneficiaries; a need to enhance collective action in order to avoid institutional isolation; and a strong coherent institutional umbrella structure, including control and monitoring systems, to integrate the land reform project in a coordinated, adapted and transparent institutional framework. These recommendations are not all inclusive, but nevertheless highlight some aspects to be addressed in order to obtain the needed successes for South Africa's land reform in a context of development, pro-poor and sustainable growth.
The question that concerns this paper is: how can greater security of tenure increase access to economic opportunities for the poor? Because of the relationship of tenure to property, the primary concern of this paper becomes: how secure access to property can increase economic opportunities for the poor. Rephrased, the concern of this paper is: what routes to increased economic opportunity does property provide and how can this potential be enhanced? Tenure security is about defendable rights and enforceable duties to property and benefits flowing from it and rules, procedures and systems for managing these property rights and duties (Leap, 2005). Secure tenure would enhance that potential. Conversely, insecure tenure would undermine it.
The paper intentionally focuses on 'tenure security, rather than 'title', to accommodate a broader conceptualization of tenure arrangements and economic possibilities, and a more pro-poor perspective, than a more limited focus on tenure form, and title in particular, would allow.
Although the paper incorporates productive uses of land in its consideration of economic opportunities, these are home based. In other words, its focus is on residential property, and potentials for increased economic opportunity associated with it.
In the 1980s, aquaculture, or fish farming, was in its infancy, globally. Today, it accounts for close to 50 million tons annually, making up nearly half of all fish products consumed. Of this, Africa has a 1% market share and South Africa accounts for about 1% of the African slice. China and Chile have become huge producers and exporters. Chile’s aquaculture production and exports are intended to rival those of its mineral exports in years to come.
Although South Africa’s high-energy coastline imposes barriers to what it can do, nevertheless, significant potential exists. Draft policy proposals by the Department of Environment and Tourism (DEAT) are welcome but cannot serve the strategic opportunity that avails itself at this point in time and which is outlined in this report.
De Beers’ planned progressive de-commissioning of the coastal Northern Cape diamond areas (as a result of depletion) affords an opportunity to upscale significantly South Africa’s role as a supplier of farmed marine products for domestic and export markets.
Global consumption of fish and fish products has increased greatly, mainly for health reasons, and has become a food of choice, especially in rich developed countries. South African hake (stokvis or stockfish) used to be an affordable staple food for poor people domestically, but market prices attained in Europe have resulted in huge exports of hake while, locally, the fish has become unaffordable to impoverished consumers. Global projections indicate that demand will continue to grow rapidly. In response, developed and developing nations have invested to grow this sector of their economies to meet that demand.In Chile, aquaculture created over 40,000 new direct and indirect jobs over the past 15 years. Although Chile’s conditions are not directly similar to South Africa’s, their regulatory environment, together with their market, marine science (and thus sustainability) and engineering experiences hold lessons for South Africa.
The proposal in this document identifies a single, unique opportunity that can be a catalyst to spur into being a South African aquaculture industry of a notable scale. The proposal identifies the potential opportunities, including where and how obstacles toward this might be removed.
In his paper, Albert Berry - professor of economics and director of the Latin American programme at the Centre for International Studies of the University of Toronto - identifies the impacts of globalisation and liberalisation on inequality. He finds that data deficiencies and a lack of in-depth analysis of inequality, poverty and their determinants - especially in developing countries - have delayed a better understanding of how these important indicators of social and economic well-being have been changing over time, and how they have been affected by globalisation and liberalisation.
This paper integrates two mechanisms of economic growth barriers to international spill-overs and skill-biased effects on the income distribution. South Africa (SA) is an interesting case study because of dramatic changes in international barriers over time and policy focus to productivity and distribution. Barriers affect the balance between innovation and adoption in the productivity growth and thereby the skill bias. The productivity dynamics and the distributional implications are investigated in an inter-temporal Ramsey growth model. The model offers a calibrated tariff equivalence measure of the sanction effect and allows for counter-factual analysis of "no-sanctions".
Increased openness is shown to reduce barriers to technology adoption, leading to skill-biased economic growth and worsened income distribution. The result is consistent with the observation that economic growth under sanctions has been slow and with an increase in the relative wage of unskilled labour. The trade-off between barriers and skill bias, foreign spill-over driven by productivity growth and income distribution is obviously a challenge for growth policy.
Minimum wages have been in place for South Africa's one million domestic service workers since November of 2002. Using data from seven waves of the Labour Force Survey, this paper ocuments that the real wages, average monthly earnings, and total earnings of all employed domestic workers have risen since the regulations came into effect, while hours of work per week and employment have fallen. Each of these outcomes can be linked econometrically to the arrival of the minimum age regulations. The overall estimated elasticities suggest that the regulations should have reduced poverty somewhat for domestic workers, although this last conclusion is the least robust.
In household surveys, earnings data typically can be reported as point values, in brackets or as 'missing'. In this paper we consider South African household survey data that contain these three sets of responses. In particular, we examine whether there are systematic differences between the sample of the employed with earnings reported as point values and those with earnings responses in brackets; we compare five different methods of reconciling bracket and point responses so as to generate descriptive measures of earnings; and we investigate empirically how earnings measures differ by approach.
This paper evaluates how tariff liberalisation affected households in South Africa over the period 1995, 2000 and 2004, focussing specifically on the incidence of tariffs over the expenditure distribution. Results suggest that trade liberalisation has reduced the tariff burden for households across the expenditure distribution, implying significant welfare improvement to consumers in the form of reduced prices. However, the gains from liberalisation and the continued burden of continued protection are not uniform across household and wealth categories. Poor households continue to bear a disproportionate share of the tariff burden indicating the regressive nature of import tariffs. Wealthy households also gained relative to all but the very poor between 1995 and 2000. Between 2000 and 2004, this trend was reversed, and the poor gained relatively more than the wealthy. Our results indicate potentially large pro-poor gains to consumers from further liberalisation, but the realisation of these gains is dependent on the pass-through of tariff reductions to consumers.
Using a constructed data series and another data series based on AMPS (the All Media and Products surveys), this paper explores trends in poverty and income distribution over the post-transition period. To steer clear of an unduly optimistic conclusion, assumptions are chosen that would tend to show the least decline in poverty. Whilst there were no strong trends in poverty for the period 1995 to 2000, both data series show a considerable decline in poverty after 2000, particularly in the period 2002-2004. Poverty dominance testing shows that this decline is independent of the poverty line chosen or whether the poverty headcount, the poverty ratio or the poverty severity ratio are used as measure. We find likely explanations for this strong and robust decline in poverty in the massive expansion of the social grant system as well as possibly in improved job creation in recent years. Whilst the collective income of the poor (using our definition of poverty) was only R27 billion in 2000, the grants (in constant 2000 Rand values) have expanded by R22 billion since. Even if the grants were not well targeted at the poor (and in the past they have been), a large proportion of this spending must have reached the poor, thus leaving little doubt that poverty must have declined substantially. However, there are limits to the expansion of the grant system as a meaNS of poverty alleviation, pointing to the importance of economic growth with job creation for sustaining the decline in poverty.
The data also shows that there IS substantial progress in economic terms amongst some black, who have managed to join the middle class. This expansion was most rapid at the upper end of the income spectrum blacks constituted about half the growth of this segment of the consumer market in the period 1995-2004.
This paper advances on previous work on the effects of trade and technical change on labour markets within the framework of Heckscher-Ohlin trade theory. First, we employ dynamic heterogeneous panel estimation techniques not previously used in this
context, which separate Heckscher-Ohlin-based long run relationships from short run dynamics that are heterogeneous across sectors. Second, we provide evidence for an unskilled labor abundant developing country that allows comparison of the results
against developed country evidence. Third, we consider the appropriateness of alternative approaches and examine endogeneity issues in the impact of technology and price changes on factor returns. For South African manufacturing we find that output prices
increase most strongly in sectors that are labor intensive. Our results further suggest that trade-mandated earnings increases are positive for labor, and negative for capital.
By contrast technology has mandated negative earnings increases for both factors. We also find that separation of different demand side factors collectively constituting globalization is useful in understanding the impact of trade, and taking account of
endogeneity is important in isolating factor and sector bias of technological change.
Brazil and South Africa share similar development challenges. Both have very unequal income distributions, both have a strong resource orientation underpinning their industrial development trajectory, and both have undergone a sharp liberalisation and opening up of their economies in the past decade. At the same time, both countries are attempting to chart a progressive domestic economic path, while being important role players in the global economy. The most obvious difference is that of apartheid in South Africa. However, military regimes in Brazil pursued heavily state-influenced industrial development strategies which had similar objectives of self sufficiency and import substitution as did those of the apartheid regime in South Africa.
The Banco Nacional de Desenvolvimento Economico e Social (BNDES) is the government industrial development bank in Brazil and has been heavily involved in the development of minerals and resource-based industry in Brazil. In recent years it has diversified its activities and increased lending to services and infrastructure-related industries. It has also been successful, as part of governments industrial policy, in supporting dynamic industries such as aerospace. Its lending increased rapidly in the 1990s from US$3bn at the beginning of the decade to almost US$10bn by the end of the decade. In addition to its activities as a development bank, BNDES also plays an important role in formulating Brazilian development policies and identifying solutions to structural problems in the Brazilian economy.
The paper assesses the Brazilian experience and contrasts it with that of South Africa, in light of the restructuring of the Brazilian and South African economies and the development challenges they face.
Capital flight is a serious problem for South Africa, which if not addressed will continue to impede its ability to deal with structural issues such as high unemployment and concentration of wealth. This paper presents an estimate of the wealth that left South Africa in the form of capital flight during the period 1980 to 2000. We find that from 1980 to 2000 average capital flight as a percentage of GDP was 6.6 percent a year. In this paper, we deviate from the existing literature on capital flight from South Africa by suggesting that the motivation of people involved in capital flight before and after the fall of apartheid may have changed. We find that capital flight as a percentage of GDP was higher after the democratic elections in 1994, even though, there was much more political and economic instability during the period investigated before the democratic elections. The increase in capital flight as a percentage of GDP may reflect the discomfort of those involved in capital flight in the post-apartheid democratic process. We also consider how international capital flows and structural weaknesses in the economy have influenced capital flight.
This paper describes the status of financial systems for a number of African countries south of the Sahara, identifying various problems that hinder access to finance, especially for the poor, and subsequently those issues that deter economic performance and development. The countries surveyed were selected on the basis of a range of criteria including: geographical spread, economic size and development, level of financial market development and availability of information. Although Angola, Botswana, Gabon, Ethiopia, Kenya, Mauritius, Mozambique, Nigeria, Senegal and South Africa are the focus countries of this survey, many of the scenarios presented in this paper are applicable to other African countries south of the Sahara. Broad policy measures to tackle the bottlenecks that currently undermine financial systems' responsiveness to the needs of the real economic sector are recommended.
The broad structure of this paper is as follows. Section two discusses the nature of financial intermediation in Sub-Saharan countries, while section three presents the financial intermediation challenges that these and other African countries face, in both macro and micro terms. Section four proposes possible policy interventions and ongoing developments in financial intermediation and section five concludes by drawing attention to the key challenges to financial intermediation in Sub-Saharan countries and to the essential prerequisites for successful programmes to respond to these challenges.
In September of 2002 South Africa's roughly one million domestic workers - about 840,000 predominantly African and Coloured women who work as housekeepers, cooks and nannies, and another 180,000 men who work primarily as gardeners - were granted formal labor market protection, including the right to a written contract with their employers, the right to paid leave, to severance pay, and to notice prior to dismissal (Department of Labour, 2002). Employers were also required to register their domestic workers with the Unemployment Insurance Fund (UIF) and to withhold UIF contributions from their paychecks; (since April of 2003 domestic workers have been entitled to unemployment benefits). In November of 2002, a schedule of minimum wages, including time-and-a-half provisions for overtime work, went into effect. The minima were set above the median hourly wages that prevailed at the time, making this a significant intervention in the domestic worker labor market. This paper attempts to determine if these regulations have had any effect on wages, employment levels, hours of work, and the conditions of employment. I find that the regulations do appear to have raised wages: Average nominal hourly wages for domestic workers in September of 2003 were 23% higher than they had been in September 2002, while for demographically similar workers in other occupations the nominal wage increase was less than 5%. Econometric evidence supports the conclusion that the wage increases were caused by the regulations, since the largest increases are seen in places where the greatest number of workers were initially below the minimum wage.
The paper poses six questions about the determinants of subjective well-being in South Africa. Much of the paper is concerned with the role of relative concepts. We find that comparator income - measured as average income of others in the local residential cluster - enters the household - utility function positively but that income of more distant others (others in the district or province) enters negatively. The probit equations indicate that, as well as comparator groups based on spatial proximity, race-based comparator groups are important in the racially divided South African society. It is also found that relative income is more important to happiness at higher levels of absolute income. Potential explanations of these results, and their implications, are considered.
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.
The aim of this paper is to investigate the empirical relationship between productivity, real wages and unemployment in South Africa using appropriate time series econometric techniques. The value of this approach is that it imposes no a priori theoretical assumptions on the relations between the variables, but rather allows the data to 'speak for themselves'. The results may then be used in one of two ways. Either they allow one to interrogate the validity of the data by comparing the results with well-established labour market models, or - assuming the data is deemed reliable - they can be used to provide evidence for or against labour market theories. This seems however to land one in a 'catch 22' situation, and inevitably the economist has to make an informed assumption about which more is reliable: the data, the theoretical models, or neither. In the present case, the real wage and productivity data are regarded as fairly reliable, but the unemployment series is rather makeshift in the absence of accurate annual data over a long period of time. The long run upward trend in unemployment does however seem plausible.