Post-Apartheid Southern Africa

Economic Challenges and Policies for the Future

Lennart Petersson

• Publisher: Taylor & Francis
• Year: 1998
• eBook ISBN: 9781134718160
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

This volume brings together some of the best-known and highly-regarded academics in the field to present a timely and comprehensive review of the prospects for economic integration and development in Southern Africa, and to analyse alternative strategies and policies for the future. It presents in-depth country-specific studies of Botswana, Lesotho

1

INTRODUCTION

Lennart Petersson

After decades of economic decline and political instability, the region of Southern Africa has engaged in a process of rapid and comprehensive political and economic change.¹ Most countries of the region have introduced structural adjustment programmes with the support of the International Monetary Fund (IMF) and the World Bank or have made their own attempt at reforming their economies. State interventions and controls have been gradually reduced to allow markets to work more smoothly. In the process, the role of public enterprises, which after political independence became the major actors in the economies, has been reduced significantly. There has also been a shift in favour of more export-oriented and less protectionist policies. In the political arena, one-party systems and low levels of popular participation have been replaced by multi-party systems, except in Swaziland.

This development is reinforced by the elimination of apartheid and the end of the destabilisation policy followed by the previous minority government of South Africa. This may contribute to transforming the region from a region of conflict to one of peace, stability and security. The recent development in South Africa has created optimistic expectations not only for that country but also for the Southern African region as a whole. In 1994, the newly transformed frontline alliance, the Southern African Development Community (SADC), welcomed South Africa in its ranks, and one year later Mauritius became the SADC’s twelfth member.

There is, however, a real danger that the post-apartheid euphoria conceals remaining antagonistic contradictions and inherent conflicts in Southern Africa. These have roots in the asymmetry between South Africa and the rest of the region and the uneven development within and among the individual countries (see Table 1.1). The region is dominated by South Africa, which accounts for about 30 per cent of the SADC population but for around 80 per cent of the total GDP. South Africa’s industrial production is five times greater, and the capacity in sectors such as transport, energy and financial services is greatly superior to the rest of the region. There are also considerable differences among countries in development performance. In 1993, the GNP per capita of Mauritius and South Africa was roughly US$ 3,000 each, closely followed by Botswana at around US$ 2,800, while Mozambique and Tanzania with 90 US dollars each are placed at the bottom of the World Bank GNP per capita rankings. The performance of the economies during most of the last two decades has been poor and differs widely from country to country. Since 1980, low growth rates of GDP combined with high population growth have resulted in insignificant increase or even decrease in the growth rates of per capita incomes, except in Botswana, Mauritius and Swaziland.

Table 1.1 Southern Africa: country profiles and economic indicators

Indicators for Southern Africa	Area (’000s of sq.km)	Population (millions) 1993	GNP		GDP (US$ millions) 1993**	Merchandise		Primary exports as % of total
			per capita (US$) 1993	per capita growth rate 1993		exports/GDP (%) 1993*	imports/GDP (%) 1993*
Angola*	1,246	10.3	674	n.a.	7,218	39	20	95
Botswana	582	1.4	2,790	6.2	3,813	50	42	98
Lesotho	30	1.9	650	−0.5	609	19	127	n.a.
Malawi	118	10.5	200	−1.2	1,810	15	16	76
Mauritius	2	1.1	3,030	5.5	2,780	41	49	34
Mozambique	802	15.1	90	−1.5	1,367	9	59	n.a.
Namibia	824	1.5	1,820	0.7	2,109	50	47	95
South Africa	1,221	39.7	2,980	−0.2	105,636	21	16	70
Swaziland	17	0.9	1,190	2.3	938	69	79	n.a.
Tanzania	945	28.0	90	0.1	2,086	13	42	79
Zambia	753	8.9	380	−3.1	3,685	27	27	90
Zimbabwe	391	10.7	520	−0.3	4,986	26	22	56

Sources: World Bank 1995;

* SADC 1996;

** Cassim and Zarenda 1995

The changes in South Africa may have a major impact on existing economic and political relations in the region. The key issue will be whether deeper cooperation and integration will lead to higher growth in the region, a reduction of economic disparities and, finally, convergence. In addition, the way in which labour market issues, such as wage policy, migration and the development of human resources, will be tackled at national levels will be critical for future development.

This book is divided into three parts. Part I discusses economic policy in contemporary South Africa and highlights the multitude of problems and expectations facing the new government. Part II examines the prospects for economic integration and development as well as labour market issues in Southern Africa. Finally, Part III analyses critically policy and development issues in some of the countries of the region.

South African transition

The overall development strategy adopted by South Africa and the performance of its economy will have far-reaching implications for the reconstruction of the entire region. A politically equitable, stable and economically prosperous South Africa may strengthen the region internationally and promote its development. On the other hand, a weakened state will obviously be unable to improve existing patterns of regional relations. Even worse, if the regional ‘powerhouse’ does not succeed in creating and maintaining internal political and economic stability and improving the living standard of the population, the sentiment of the people in the region may swing back to the one of African failures.

For the people of neighbouring countries, South Africa is the land of milk, honey and gold. The country serves as a magnet to those seeking employment, a higher living standard and brighter economic prospects. However, social and economic indicators give an overall picture of a black South Africa that has only moderately better living conditions than its neighbours. The major part of the benefits deriving from the economy still accrue to the white minority. In 1993, an estimated 12.5 million were defined as illiterate, and years of neglect of education and training of blacks has resulted in a shortage of skilled manpower. The vast majority of the black population have no electricity, no running water and no permanent homes.

The new government inherited an economy in decline and a deepening economic crisis, which contributed to the end of apartheid. After a long period of rapid capital formation and growth, investments and growth have gradually slowed since the 1970s. A main factor behind this is the apartheid system and the international sanctions imposed in the mid-1980s. Most important sectors of the economy faced severe problems and GDP growth slumped to less than 1 per cent in the 1980s.

Critical for South Africa’s future is its ability to enter a new phase of growth, to tackle the problems of unemployment and inequality and to give all South Africans the opportunity to improve themselves and their living standards. This will require more public expenditure in favour of the African majority in areas such as education and human resource training, health, water, energy and housing facilities. The need for redistribution is obvious, and the main question is whether the aspiration of the black majority can be satisfied without eroding international competitiveness, foreign investors’ confidence and without building a budget deficit that may challenge the transition process and lead to social and political unrest.

In Chapter 2, ‘The post-apartheid economy, and after?’, Mats Lundahl surveys and discusses the economic legacy of apartheid and different ideas for economic policies and programmes proposed in the 1990s, aimed at internal reconstruction and development for all in South Africa. The focus is on the African National Congress (ANC) and the significant changes that have taken place in its policy orientation from the days of liberation movements to the more market-oriented economic programme for growth, employment and redistribution of 1996. The author also discusses critical assumptions about the difficulties involved in that strategy.

Lundahl’s analysis of the apartheid era after the Nationalist takeover of government in 1948 underlines the adverse effects on the economy in terms of increased welfare disparities, significant efficiency losses and declining growth. These effects were the result of various Nationalist government policies: the extended market-distorting regulations, the prolonged import substitution policy and state involvement in industrial production. These policies aimed at self-sufficiency in the face of hostile international opinion. As a result, the legacy of apartheid includes an industrial sector now revealed to be uncompetitive on world markets.

Alternative paths of development have been considered and discussed in the 1990s, all articulated in terms of a growth and redistribution framework. There has been a shift away from proposals of redistribution of wealth supposed to produce an immediate impact on the economy and towards an increased emphasis on economic growth as the means of counteracting the legacies of apartheid. Lundahl relates this change of priority and sequencing to the increasing attention being paid to sustainable redistribution which only growth can generate. The argument is that an increased annual growth rate to 6 per cent at the turn of the century would, even within the target of a balanced budget, allow for a substantial redistribution in favour of the poor majority. This could be achieved both by the creation of employment and by increased government transfers and other expenditures.

Lundahl addresses a number of weaknesses in the macroeconomic strategy which he concludes may not be easy to implement and may neither produce the anticipated growth and employment nor significantly affect income distribution. The programme of 1996 has more of a supply side than a demand side character with a central role for the private sector, foreign direct investments and exports. The government has, however, no control over these growth-generating forces and few measures left to influence them within the envisaged policy of trade liberalisation and tight monetary and fiscal policies. Another criticism concerns a plan to take the country out of severe unemployment by means of a more flexible labour market, where lower and more varied wages are to be traded against price restraint and job-creating investments. Lundahl concludes that it is doubtful whether a social accord will ever be signed, and also that it is uncertain what could actually be achieved in terms of employment and income creation by the introduction of increased wage flexibility.

In Chapter 3, ‘Changing patterns of inequality in the South African labour market’, Nicoli Nattrass and Jeremy Seekings explore several dimensions of the labour market in post-apartheid South Africa and the changes which are currently taking place with respect to South Africa’s labour market institutions. Finally, they discuss some of the implications of an orientation towards industry-level bargaining.

Nattrass and Seekings begin their paper by surveying the situation in the labour market, where racial discrimination in wages has declined dramatically and—since the transition to democracy—the sectoral system of collective bargaining and minimum wage regulation has been strengthened and the rights formerly restricted to white workers have been extended to all workers. These reforms, they argue, may result in the development of more capitalintensive production and shifts to less regulated and secure forms of employment, thus increasingly serving primarily a shrinking enclave of regulated and protected employment.

Various estimates of unemployment are reviewed and Nattrass and Seekings find that the extreme inequality still prevailing is derived largely from systematic disadvantage, with the rising unemployment falling almost entirely on black South Africans. In line with these findings, they conclude that inequality is best addressed by attacking unemployment, and suggest a re-orientation of economic policies in support of a labour-intensive rather than capital-intensive growth path.

A central issue dealt with is whether the emerging labour market institutions are appropriate for a strategy that facilitates productivity growth without restricting the expansion of lower (labour) productivity employment. The influence on the labour market of trade liberalisation is discussed.Growing competition may result in either falling unskilled wages or job losses, while skilled labour in short supply may be able to bargain for higher wages. Their conclusion is that this must be accommodated by the labour market which, in turn, means that it will be difficult to reduce inequality by reducing wage differentials. A tight budgetary position with limited government resources for welfare spending is another constraint, with the implication that for the foreseeable future the welfare of the poor and the unemployed is going to depend on economic growth and job creation.

Nattrass and Seekings underline that abolishing minimum wages or lowering existing wages may neither create jobs nor narrow inequality, while a general increase of unskilled wages and further compression of the wedge between wages for different racial groups, sectors and enterprises is likely to slow down job creation and thereby widen inequality. In this context, Nattrass and Seekings show the central role played by the system of industrial bargaining, which takes place in Industrial Councils; they also analyse the effects for non-parties of the extension of agreements on minimum wages and other working conditions. They conclude that the system may favour large high-productivity firms, usually partners in the agreements as members of the councils. The implementation of narrow wage differentials imposed by collective extension may, however, speed up the weeding out of smaller firms which tend to use a more labour-intensive technique and the bargaining system may act as a barrier to new low wage jobs.

In Chapter 4, ‘South African trade and industrial policy in a regional context’, Colin McCarthy reviews the change in trade and industrial policy in South Africa and discusses the repercussions in the region of policy changes. He describes a long-standing policy of import substitution, supplemented in the 1970s and 1980s by measures to neutralise the inherent anti-export bias of that policy. Then he traces the recent and likely future changes in South Africa’s trade and industrial policy in its search for higher growth, international competitiveness and greater domestic equity. Finally he focuses on the likely impact these changes will have on the region.

McCarthy finds that the country’s protective attitudes in the past were based on various objectives—such as economic diversification, protection of white workers—aimed at redistributing wage employment and income opportunities and, since the 1960s, the development of strategic industries as a response to an increasingly hostile international environment. The result has been an extremely complex system of protection, but its very selective nature has made it possible to hold back the average level of tariffs.

By signing the Marrakech Agreement in 1994, South Africa committed itself to a policy of trade liberalisation and an outward-looking policy stance. McCarthy’s analysis emphasises that, in order for South Africa to achieve the objectives of exploiting the opportunities of enhanced access to regional and world markets, it is important to eliminate the anti-export bias which, he argues, still prevails under the new trade regime and envisaged industrialpolicy. In the adopted macroeconomic strategy (1996), the General Export Incentives Scheme—to be phased out by the end of 1997 to comply with the rules of the World Trade Organisation (WTO)—will be replaced by a number of supply-side measures. The most important of these, aimed at a labour-absorbing growth, are fiscal incentives to encourage new investments. McCarthy questions the new selective industrial policy based on regional location, job creation and priorities accorded to certain industries and subsectors instead of one based on measures applied uniformly to create an outward-looking economy within a competitive framework.

In the core-periphery relationships of Southern Africa, McCarthy indentifies and analyses the impact of South Africa’s policy on two dimensions of polarisation, namely the imbalance in trade and disparities of economic development between South Africa and its neighbours and that existing within South Africa between the major metropolitan areas and the poor, traditionally black rural areas. He argues that the selective policy proposed may bring about a return to the earlier efforts to promote decentralised industrial development in South Africa, working to the detriment of neighbouring countries by removing their cost advantage of cheaper wages and lower labour standards. The new fiscal incentives provided for domestic investments may reduce the cross-border investments by South African firms which are required to bring about a more equal distribution of economic activity in the region. It is also unlikely that South Africa will embrace a free flow of labour in the region. McCarthy concludes that although regional consideration characterises public pronouncements, there is not yet any concrete evidence in policy-making that the creation of a more balanced trade and industrial development...

Table of contents

• Cover
• Title
• Copyright
• Contents
• List of Tables
• List of Figures
• List of Contributors
• List of Acronyms
• Preface
• 1. Introduction
• PART I. South African Transition
• PART II. Regional Studies
• PART III. Country Studies
• Index