The economic challenge facing South Africa
Apartheid is dead, but South Africa remains one of the most unequal countries in the world. Carl Brecker describes the biggest capitalist economy in Africa
THE RECENT RELEASE OF SEVERAL STRATEGIC policy documents, which express the views of government, business and labour, provides a convenient starting point from which to examine trends within the South African
The world economy is not expanding and faces recession despite pockets of growth in different countries and regions. South Africa is vulnerable to changes in the world because we import most of the machinery we need to modernise our economy. We can however lesson the impact of the downturn in the world economy by radically restructuring our own economy. A dilemma thus faces the people of South Africa. Either we transform our social system so that it serves the needs of the majority of our people or we all remain the victims of the system, benefiting only from crumbs that fall from the bosses' table. Mass Unemployment
Une good measure of the depth of the social and economic crises in our country is the scale of present and future joblessness. During the last recession (1989-93) the economy lost almost a half-million jobs. One estimate is that over the next five years an additional 1.4 million people - with about 7 million dependants - will become unemployed. Unemployment increases by about 300,000 every year.
The South African Reserve Bank recently reported that only 52,000 new jobs were created between 1993-1995. Last year the economy created only 12,000 new jobs. Yet, about 350,000 - 400,000 new job seekers come onto the labour market every year. The economy actually shed formal job positions during the first half of 1995 because of provincial government rationalisation, among other things. Recently the government auditor told parliament that rationalisation of the public service could involve a likely staff cut of 120,000.
Key sectors of the economy continue to shed jobs in mining, manufacturing and even agriculture. Commercialisation of state enterprises has already resulted in substantial job losses in the 1990's (Eskom 16,000; Transnet 40,000; Denel 15,000). Unemployment has reached historic heights with half the labour force unable to find jobs. One estimate is that over 4.5 million people were unemployed in 1994 and it's much worse now in 1996.
Many of those workers who do have jobs don't do so well. 10% of the workers earn
Vietnam * less than R250 (about $55) a month.
Domestic workers earn approximately R400 a month, but in some areas as little as R120.
The farm workers' average monthly wage is
R650, and is often much less. Black workers earn an average of only 13% of the per capita income of whites.
What economic growth there has been has not been matched by job creation. The recent budget was built on the assumption that with a 5% growth rate only a paltry 1.5% more jobs will be created this year, even though the annual population growth is above 3%. This means that unless the economy grows much faster than at present, unemployment will continue to get worse.
Gross Inequality
A third of South Africa's inequality is caused by unemployment. One third of the working people of South Africa live in poverty equal to the Congo while the white
12% of the population live in first world opulence like the USA.
While blacks make up 76% of the population, the black share of income amounts to only 29% of total income. Whites up less than 13% population take away 58.5% of total income. In 1993 the richest 15% of population enjoyed an average income of about 67 times as high as the poorest 20%.
The poorest 40% of households earn less than 6% of the total income, while the riches 10% earn more than 50% of the total income Company executives earn forty times more than entry-level workers. The personal income of the poorest 40% fell 25% between 19/3-1991; the next 40% rose 7.1%. Without even mentioning inflation, which is above
The slight shift in personal income from whites to black between 1960-1994 has gone to the richest echelons of black society, merely changing inequality from being race Underlying Economic Trends
Under apartheid, monetary, fiscal, trade and competition policies were protective and defensive. Since the Government of National Unity (GNU), it has been turned around to facilitate the country's re-integration into the global economy. Policies of open trade, of deregulation of foreign exchange, of ending tariff protection, of privatisation, and other liberalisation policies are a big part of the reason why the dreams of liberation are not being realised.
The Reserve Bank recently said that with 85% of capacity now taken up, manufacturing (which led the expansion) was hard pressed to maintain high growth. Manufac-
October 1996 #281 11
* South Africa turing began slowing down around mid-1995 when optimum capacity was reached. Food, iron, chemicals, vehicles and paper, which together represent more than half of total manufacturing, only reached half of their capacity because of insufficient demand. With mass unemployment and no wage income for half our labour force, this lack of
The GNU, despite the Restructuring and Development Programme (RDP), has been unable to stimulate the economy sufficiently, partly because of its monetarist policies and partly due to the size of its debt. Government debt grew from R5.5 bn. in 1971 to the enormous sum of R238 bn. in 1995. Interest, which government paid on that growing debt, rose from R4.9 bn. in 1985/6 to R34.3 bn. for 1995/6. This is a growth of 600% over 10 years. The debt cost for 1996/7 is estimated at R34.4 bn. which is equal to 20% of total expenditure. This means that, today, out of every R5 which government spends, RI is spent on interest payments. It also means that debt costs are the second biggest item on the budget after education. Debt costs are double the amount spent on health care, equal to that on education. Paying interest on the debt means taking money away from other government expenditure -like water, infrastructure, the RDP, etc.
The fear is that, given the weakness of the world economy, South Africa may slip back into recession. Government could do something about it by radically intervening in the economy. It could direct investment according to a macro-economic development plan, use the public sector to lead infrastructure growin, and push the private investors into action through a combination of policy mechanisms. In short, the monetarist and liberalisation policies of the *free marketers must be abandoned if great human tragedy, worse than the last recession, is to be avoided. Growth strategies
Deep division exists between business, labour and government over economic policy. These differences reflect the class interests they represent. Business' proposals
International Viewpoint turn around increased private fixed investment intended to expand production for profit. Labour, on the other hand, places social equity at the centre of its proposals.
The debate on growth strategy is going before the NEDLAC tripartite forum in the near future. The differences are so wide that no party expects agreement on a general social accord. A number of mini-accords, each tackling individual policy issues, is Remember the RDP?
The Restructuring and Development Programme (RDP) was to transform the country in 25 years, thereby overcoming the legacy of apartheid and setting surface on a path of sustainable growth. If media publicity was to be believed, the RDP was the centre of government development policy. But government policy was heavily influenced by the Reserve Bank which amounted to tight control over fiscal (government spending) policy. This control constrained government's ability to carry through the RDP. In less than three years after the first elections the RDP office, which was created to fulfil election promises, has been closed down and its staff and projects scattered throughout the various ministries.
This new government strategy is intended to generate a quantum leap in growth and job creation. It intends to do so through sustained growth in fixed investment, while also redressing income inequality and providing a social security system for the poor. The target is to create sustainable annual growth of GDP at 6% creating 300,000 - 500,000 jobs a year by the year 2000. It intends to double the poorest household's share of national income and to provide basic infrastructure by 2005. This new growth strategy is to be implemented with the 1997/8 budget
The strategy document is not yet released. Thabo Mbeki is both guiding this process and distributing the RDP projects throughout government departments. Mbeki admits that fast growth in itself will not eliminate poverty nor improve income distribution - that depends on the growth
Government's framework for private sector investment in infrastructure (the National Infrastructure Investment Framework) is a clear sign that capital will drive the future growth of South Africa. Effectively big capital has agreed to buy into infrastructure development at a profit. Over the next five years surface needs between
- R230 bn investment in infrastructure. At a recent RDP conference April 1996 (which effectively cut the heart out of the RDP program) business agreed to mobilise finance to tackle infrastructure backlogs. This will be done on a project basis which offers private capital marketGrowth For All
This is the name of the growth strategy document published by the South Africa Foundation which is spokesman for 50 of the largest corporations. It is their development strategy designed to create substantial jobs over the next 20 years, 1996-2015. It aims at a growth rate of 3.5% - 4% leading, they say, to growth of 500,000 jobs a year. It aims at doubling per capita income assumption of the increasing efficiency of market reforms [and] further streamlining of government expenditure and revenue, a brisk privatisation program, flexibility of the labour market and a vigorous export drive.
The Foundation's labour reforms aim at creating a two-tier labour market. The new Labour Relations Act, they say, emphasises regulation (of wages and conditions) rather than flexibility, thus pricing surface out of the global markets. They want implementation of the LRA delayed indefinitely.
The COSATU, NACTU and Fedsal Labour Caucus at NEDLAC has made a submission on growth and development strategy, "Social Equity And Job Creation". For the labour movement "it is not growth per se Which is the measure of the economy's success - it is growth which fosters job creation which is critical." The labour movement proposes eleven measures to create jobs in surface: public works and mass housing programmes; modernising our industrial base; "job sharing' arrangements; pragmatic trade and tariff policies; expanding domestic demand and local purchasing policies; training and retraining the workforce; productivity increases in the economy; creating jobs in labour intensive processes; stopping retrenchments in the economy; a programme of land reforms; and stimulation of economic activity.
In this, as in all its other proposals, the labour movement has returned to the basic proposals of the RDP which after two years has just been put on the back burner by government. [It] is "seeking far reaching changes" to the corporate structure in the country because "the concentration of power in a few hands limits the prospect of inclusive economic decision-making". propose to "break the stranglehold of big business in the economy" by setting up an anti-trust commission and then to negotiate an anti-trust policy in NEDLAC
As Comrade Vavi of COSATU put it: "whites have to let go the economic reins of power". The unions expect to negotiate the core principles at NEDLAC. They are seeking agreement by business and government on all these proposals in the first half of 1996. And, as Comrade Vavi said, "mass strikes are not ruled out".
There is some hope that certain of labour's proposals could be accepted by big business and government. [But] whatever the outcome of the negotiations there is very little likelihood of affecting major changes to the lives of the majority within the next five years or so; not unless labour shifts its stance from negotiation to confronting and breaking the power of big business. Given the stance of the Labour Caucus in NEDLAC this seems unlikely in the short term. The immediate task is to build strong social organisations and movements to prepare the majority to apply their own solutions.