Sustainable Development for a Democratic South Africa

Ken Cole

• Publisher: Routledge
• Year: 2014
• eBook ISBN: 9781134167531
• Topic: Economics
• Subtopic: Development Economics
• Index: Economics

After the multi racial elections in April 1994, South Africa has been set on a new course. For a country emerging from 45 years of apartheid democracy should prove to be the vital first step on the path to sustainability and equitability. There are sure to be pitfalls along the way but the potential offered by long-awaited equality is enormous, and realising that potential is the key to the country's chances of achieving sustainable development.

This book analyses the changes which are needed and which might result from the new political culture. It discusses the policy requirements necessary for sustainable development and looks at how the economy, regional integration, land reform, the law, local government, NGOs, health care and AIDs prevention, education, and the media will all be affected, drawing on the experience of other countries in Africa which have witnessed the transition to black majority rule. Accessible to general readers as well as to specialists, it provides a comprehensive overview of the issues involved, and a basis for understanding what prospects the future holds for South Africa.

PART I:
THE ECONOMY

————————————————————

Chapter One

Sustainable Growth after Sanctions: Opportunities and Constraints

Jesmond Blumenfeld

————————————————————

The decision to hold South Africa’s first non-racial election in April 1994 means that the formal ending to the era of white minority rule, and especially the era of apartheid, is now in sight. In addition, it heralds an early end to the remaining economic and financial sanctions facing the country, and therefore raises hopes that economic recovery may once again be in prospect. South Africa does indeed have enormous economic potential, and it is a matter of common cause and observation that this potential has not been realized, that the majority of the population has been excluded from the benefits of economic growth and development, and that the need for a sustainable and more equitable pattern of growth is urgent.

It is universally accepted that agreement on a new political order is a necessary precondition for attaining both of these objectives. Whilst there is much room for debate as to whether the overall rate of economic growth would have been greater in the absence of apartheid (Lipton 1985; Lewis 1990), there is no doubt whatsoever that the highly unequal distribution of the fruits of that growth was predetermined by the white monopoly on political power. There is also no doubt that the continuing uncertainties generated by the slow, if inexorable, decline in the old political order, extending over at least the last decade, has been economically damaging. Without a political settlement, therefore, a healthy economy will remain out of reach. It is arguable that mutual recognition of this fact has been one of the major factors sustaining the political negotiations process through all the ups and downs of the past couple of years.

The ending of sanctions constitutes another precondition for full exploitation of the benefits of international economic linkages. Although the economy remained in many respects remarkably ‘open’ to the rest of the world even at the height of the sanctions period, the full development of many important linkages was undoubtedly inhibited. Freedom from these politically motivated constraints on South Africa’s full participation in the world economy must therefore bring many new opportunities for foreign trade, foreign investment, and foreign economic assistance. Indeed, the lifting of sanctions is seen in many circles as providing the ultimate key to South Africa’s future prosperity.

Unfortunately, however, neither the ending of apartheid nor the lifting of sanctions will, in themselves, be enough to ensure that growth is restored. There are far too many other factors which also have a bearing on whether South Africa can deliver on its promise and fulfil its potential, and the outcome of these is still in doubt. One reason for this is the uncomfortable fact that democratization is not always a panacea for political and economic uncertainty and instability. Another reason is that the very fact of interdependence with the international economy renders every country hostage to events and forces which are beyond its control, and which can complicate or thwart the achievement of desirable objectives. But the primary reason is the nature of the macroeconomic inheritance which the ‘old’ South Africa is bequeathing to its ‘new’ incarnation. This inheritance will place a number of serious objective constraints upon the options available to future policy makers, and will confront them with some immensely difficult dilemmas and conflicts.

The purpose of this chapter is to elucidate these potential difficulties and to warn against the complacent assumption that the lifting of sanctions means that sustained economic growth and, hence, a more acceptable distribution of its benefits, can be taken for granted. The message is not that these outcomes cannot be achieved. It is rather that false assumptions, and the consequent diversion of attention and effort away from necessary actions and choices, could well be instrumental in undermining the means for achieving them.

UNDERSTANDING THE CHALLENGE¹

The expectation that the ending of South Africa’s international economic isolation will create many new opportunities is both understandable and valid. The opportunities, which embrace increases in both trade and capital flows, are already yielding some important benefits. On the trade front, for example, the progressive erosion, and subsequent lifting, of most trade sanctions over the past few years has not merely allowed for re-entry to traditional markets, especially in Europe and North America, where sales of South African products were inhibited by sanctions in the mid-1980s, but has also opened up the possibility of developing new export markets all over the world and which hitherto have been closed to a greater or lesser extent to South African producers for political reasons.

On the investment front, the multitude of exploratory visits from foreign corporations is testimony to the potential that they perceive not only for bi-directional trade with, but also for investment in, post-sanctions South Africa. No less important have been the investigative missions from a wide range of international financial and economic organizations seeking to identify potential targets and programmes towards which external development loans and technical assistance can be directed once the remaining financial sanctions have been lifted. These bodies include the International Monetary Fund, the World Bank, the African Development Bank, the Commonwealth Development Corporation, the US Agency for International Development and the whole family of UN agencies concerned with promoting economic and social development throughout the non-industrialized world.

If the opportunities are there, so also is the imperative for exploiting them to the full. Economic performance in South Africa has been on a declining trend since the early 1970s, with output growth, investment and especially employment all faring badly.² The average annual rate of growth of GDP fell from a creditable 4.9 per cent in 1947–74 to less than 1.7 per cent in 1975–92. In the past decade, the growth rate has dropped to a mere 0.8 per cent per annum With population still growing at some 2.5 per cent per annum, the stagnation of output growth means that real GDP per capita has retreated to the levels last registered in the mid-1960s. The growth rate of real gross fixed investment increased from an average of 4.8 per cent per annum in 1947–62 to 9.6 per cent in 1963–75, but then plummeted to register an average annual decline of 1.4 per cent between 1976 and 1992. In terms of the proportion of total output devoted to fixed investment, this has fallen from a post-war average of some 28 per cent to barely 16 per cent in 1992, implying that — after allowing for depreciation — virtually no net increase is now taking place in the capital stock. In employment, the rate of net job creation in the formal sector averaged 2.6 per cent per annum between 1947 and 1974, and less than 0.6 per cent per annum in 1975–92. Indeed, in 1990–92, total employment in the formal sector actually fell in absolute terms at the rate of 1.5 per cent per annum With private sector enterprises now shedding jobs virtually across the board, the proportion of the labour force without formal sector employment is fast approaching 50 per cent.

The striking thing about this record of decline is not merely its depth, but also its length. Whatever may have been the precise impact of sanctions, it is abundantly clear that the onset of South Africa’s downward economic spiral long predated the sanctions era. If only for this reason, any expectations that the lifting of sanctions will be sufficient to restore the impetus for growth are likely to be severely disappointed.

Nor is this simply a matter of the self-evident need to restore confidence in South Africa’s political and economic prospects. Sustained domestic economic recovery and full realization of the benefits of the lifting of sanctions will remain elusive without the achievement also of major structural economic changes, the adoption of appropriate and consistent economic policies and incentives, and a strong political commitment to work for the desired ends. In the process, it will be necessary to reverse several long-standing and fundamental adverse economic trends and to abandon a number of policies which effectively have rendered the task of reintegration into the world economy much more difficult.

The requisite changes will be neither costless nor painless. Despite their general aspiration for closer economic integration with the rest of the world, South Africans have often also exhibited ambiguous attitudes and adopted ambiguous policies towards more extensive and more open external economic relations. Whether in the public or private sectors, or whether in their capacities as administrators, employers or workers, many economic actors in South Africa have long harboured — often for very different reasons — some significant suspicions and fears of foreign trade and foreign investment. For example, the deep-seated historical antipathy of the Afrikaner community towards ‘imperial capital’ (which was perceived as a threat to its nationalist aspirations) frequently found expression in the protectionist attitudes and policies which were instrumental in fostering the development of a domestic industrial base. More recently, the wider white community has viewed international trade and capital flows as a double-edged sword. Whilst recognizing their potential benefits, they have also been seen as providing a potential for unwelcome political leverage in the form of sanctions and disinvestment. Meanwhile, at least some of the business interests which profited both from the protectionist policies which flowed from these perceptions, and from the market opportunities which they created, are likely to have their own self-interested reservations about freer and more open links with the international economy, notwithstanding their rhetoric to the contrary.

Such ambivalence is not, however, confined to one part of the political spectrum. Other groups have shared the worldwide intellectual hostility which characterized left-wing attitudes, especially in the 1960s and 1970s, towards the prevailing international economic order in general, and the ‘exploitative’ role of direct foreign investment in particular. The sanctions and disinvestment debates revealed that, for many blacks, particularly in the trades unions, foreign trade and foreign investment were perceived simultaneously as the instruments of oppression and of liberation.

It would be naïve to assume that all these perceptions and reservations will disappear at a stroke simply because the political context has changed. On the contrary, they will need to be addressed and overcome at the levels of both government and individual enterprise, and the outcomes will need to be reflected in observable changes in attitudes, actions and policies. Moreover, the changing political and economic environment will bring new perceptions of the balance between threats and opportunities relating to international economic linkages. Amongst other things, therefore, if the benefits are to be maximized, it may well prove necessary to confront (or to compensate) the substantial political and economic interest groups that derive benefit from the current situation and that might therefore prove resistant to change.

But policy and attitudinal changes alone will not suffice. There is also the need to resolve three distinct, but interrelated, structural problems in the South African economy. One of these problems manifests itself in the form of a balance of payments constraint; the second as an employment problem; and the third as an inappropriate production technology (or ‘factor proportions’) problem.

Put simply, the balance of payments problem is that South Africa’s exports of goods and services have never been sufficient to pay for its import requirements on a sustained basis.³ Moreover, increased economic growth invariably seems to exacerbate rather than diminish the imbalance, the reason being that, on average, production processes in South Africa make very extensive use of imported goods and services (Kahn 1991: 67–72). The main implication is that the balance of payments acts as a constraint on economic growth, in the sense that growth cannot be sustained for any length of time unless sufficient inflows of foreign capital can be secured to bridge the rising gap between the foreign currency costs of imports and the foreign currency earnings from exports.

The employment problem, as the record indicates, has been reflected in the long-term decline in the capacity of the economy to create employment on a scale sufficient to absorb the growing labour force. This has been partly the result of the declining rate of investment, since — outside the state bureaucracy — investment is the primary means for creating jobs. But it is also due to the ‘factor proportions’ problem which exists in the sense that the degree of capital-intensity (as opposed to labour-intensity) in production technologies in South Africa has always seemed inappropriately high, given the country’s evident labour-abundance (Levy 1992: 3).

The three problems are interlinked, not least via their external economic dimensions. Resolution of the balance of payments problem demands that South Africa produce many more goods for export, whilst reducing the growth rate of imports. In seeking to achieve these outcomes, however, there are also risks of conflicts with attempts to resolve the employment and factor proportions problems. The latter problems demand that investment be resumed on a major scale in labour-intensive industries, so that many new jobs will be created and more labour will be utilized per unit of capital than has been the case in the past. The difficulty is, however, that South Africa’s export strengths have traditionally lain in sectors that are highly capital-intensive. Thus, an emphasis on expanding exports would create relatively little employment (Harvey and Jenkins 1992: 25–6, 31–2).

Conversely, concentrating scarce investment resources in more labour-intensive activities could also prejudice the balance of payments both directly and indirectly: it could divert resources away from production of tradable towards non-tradable goods, causing production of both exports and import substitutes to fall; and it ...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Table of Contents
• The Contributors
• Preface
• Acknowledgements
• Acronyms
• Introduction: Sustainable Development for a Democratic South Africa
• Part I The Economy
• Part II The State, NGOs and Social Policy
• Part III Education and the Media
• Part IV Sustainable Development: An Overview
• Index