Displaying items by tag: Inequality

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.

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.

In this exploratory analysis of household survey data, households' main income sources are used indicators of integration into the South African core economy. Notwithstanding the country's high urbanization rates, the picture of household income generation which emerges is one that disputes common perceptions of the multitude of means by which African households generate their income. The majority of households under scrutiny rely to a large extent on one income source and one income earner. Separate multinomial logit analyses are undertaken for urban and non-urban households. In addition to the divide between urban and non-urban areas, prominent covariates of low core-economy integration are earners of female gender, old or young earner working-age, and low levels of education. Both provincial location and within-provincial, subregional location displays strong impacts. The study also finds associations between main income sources and households' demographic compositions which are compatible to findings both in studies on private transfers behavior and in the growing literature on endogenous household formation in South Africa.

The US Africa Growth and Opportunity Act (AGOA), which was promulgated in October 2000, claims to “move Africans from poverty to prosperity by increasing their economic opportunities.” The Act extends Generalised System of Preferences (GSP) status for qualifying African countries to September 2008 and expands the existing list of 4 650 GSP products by 1 837. Thirty-four sub-Saharan African countries, including South Africa, qualify for AGOA.

Much has been said about the large number of new export opportunities and jobs that will be created out of AGOA. However, a closer examination of the expanded product list suggests that some scepticism is warranted. For example, media attention has focused on the improved access for South African wine resulting from the implementation of AGOA. While it is true that bottled wine is included in the expanded GSP product list, the existing tariff on South African bottled wine exports to the US is a mere 1.7%, or 6 cents (US) on a R30 bottle of wine.

This paper attempts to uncover some of the truths and untruths about AGOA. The paper highlights possible export opportunities arising out of AGOA, and identifies some of the missed opportunities that could be corrected for in a follow-up agreement, AGOA-2. It also provides an indication of the benefits that might accrue to South Africa and the US from a reciprocal free trade agreement. Finally, the performance of AGOA up to June 2001 is evaluated using the latest trade data provided by the US authorities.

This paper assesses the economy-wide impact of implementing and financing a universal or basic income grant (BIG) in South Africa. The various financing scenarios suggested by the proponents of the grant are presented, and these are compared using an applied general equilibrium model for the South African economy. The results indicate that the required changes in direct and indirect tax rates needed to finance the grant without increasing the government deficit are substantially higher than currently predicted. Furthermore, the alternative of reducing government recurrent expenditure to finance the BIG will undoubtedly undermine other government policy objectives. The paper therefore proposes a shift in the current debate, away from determining which of the individual financing options is preferable, towards an acknowledgement that a 'balanced' approach is likely to provide the only feasible scenario. Furthermore, the impact of the grant on economic growth is found to hinge on its ability to enhance factor productivity. These results suggest that the possibility of South Africa becoming the continent's first welfare state is as likely to rest with the macroeconomic impacts of financing the grant, as with the ability of the grant to address the country's prevailing poverty.

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.

Economic empowerment reflects the challenges, the changes and the strategies of a large part of the South African population to have entry into industries, business sectors where the ownership and the skills were located in the hands of a few South Africans. The attempts of the private and public sector to address these inequalities as well as the skewed workforce balance has been directed by the economic empowerment agenda. The process of change impacted both private sector firms as well as public sector organizations. The paper will evaluate social equity as a concept within the casino industry as well as the regulators role as a government support policy for the advancement of the economic empowerment process. This paper will particularly focus on the policies, practices of the regulatory environment that could assist in stimulating and supporting social equity development as an imperative. Furthermore, this paper will determine the key success factors for the operationalisation of such social equity beneficiaries within the gambling environment and the reasons why such initiatives should focus on the support of empowerment initiatives and the possible stimulation of small and medium enterprises as an economic viable strategy. The main methodological approach will be reflecting on the case of the Western Cape as a provincial regulator within the gambling environment, the impact of social equity as an instrument and its possible lessons learnt and to duplicated or avoided.

There continues to be considerable concern that the expansion of trade with developing countries (hereafter South) is lowering the relative wage of unskilled labour in developed countries (hereafter North). The issue of income divergence in the North is highlighted by the experience of the U.S., where a marked decline in the relative wage was observed during the 1980's and the 1990's. The striking feature of this decline was that it occurred during the period when the U.S. was following trade liberalization policies and expanding its imports from the South. Thus a similar fear of a decline in the relative wage has been expressed in these northern countries.

The causal relationship between international trade and the relative wage dispersion is normally explained in terms of the (well-known) Heckcher-Ohlin-Samuelson theory (hereafter HOS) with two factors (skilled and unskilled labour). In this model, Stolper-Samuelson theorem can be used to showthat trade liberalization would lower the relative wage of unskilled labour in the skill rich North.

A number of studies, for example, Murphy and Welch (1991), Katz and Murphy (1992), Borjas, Freeman and Katz (1992), Batra (1993), Wood (1994, 1995), Sachs and Schatz (1994) and Leamer (1994, 1995, and 1996) provided empirical evidence in support of this HOS interpretation. They argued that the trade had been a contributing factor to the rising income differentials in the U.S.and other countries in the North.