Trade and Industry

Friday, 16 January 2009

Working Paper 4-2009: South Africa's Developmental State Makeover

  • Year: 2009
  • Organisation: TIPS
  • Author(s): Daniel Poon

This paper highlights ten key features of the Developmental State (DS) growth model by contrasting trends in economic indicators and institutions between China (and East Asia more generally) and South Africa.

In light of the recent (and perhaps politically opportunistic) adoption of DS language into the South African policy discourse, the comparative analysis shows that the development trajectory underlying an East Asian DS deviates widely from the reality facing South Africa, and many other African countries today, in terms of emphasizing investments to 'catch-up' in productive and technological capacities in pursuit of dynamic comparative advantage on which rising real wages and living standards can be sustained.
 
Rather than accept these status quo policy conditions, this paper proposes the strategic sequencing of key policies to bring South Africa into closer approximation of a DS configuration through four main areas: 1) over-exposure to speculative capital flows; 2) exchange rate and foreign reserves; 3) national savings rate; and 4) the allocation of capital. Although such a strategy is not without risk, leading emerging economies appear increasingly willing to experiment with DS-type policies and objectives deemed strategic to their long-term development prospects. As such, and amidst a global rebalancing of economic power from the developed to the developing world, South African policy-makers face a rare opportunity to regain policy-space, strengthen institutions and revamp the country's developmental model