Economic Scenarios for South Africa: A Business Perspective

Literature › Works

Leslie Boyd; Michael Spicer; Gavin Keeton (2001). Economic Scenarios for South Africa: A Business Perspective. Daedalus, Vol. 130, No. 1 (Why South Africa Matters). MIT Press for the American Academy of Arts & Sciences.

Type	journal article
Scope	Post-1994 South African economy
Method	policy analysis
Period studied	1984–2025 (scenario projection from 2000)
Regions	South Africa
Themes	transition post apartheid, macro fiscal finance debt, sanctions divestment, labour markets wages, inequality poverty unemployment, business and state, unions strikes, manufacturing industrial policy, education human capital
Citation key	boyd2001

Argument

Three senior Anglo American executives argue that South Africa's 1994 political transition was a 'managed revolution' and not a miracle, and that post-1994 economic success depends on sound policies and institutions, not on any miracle. They credit post-1994 reforms (end of financial sanctions, tariff cuts, fiscal consolidation, inflation control) with lifting growth to 2.6 percent. Growth and job creation remain inadequate, however, because of low savings, slow privatization, rigid labour laws, weak governance and skills shortages. They set out three scenarios, In Gear, Reverse Gear and Top Gear, and argue that only Top Gear (5-6 percent growth, privatization, labour flexibility for small firms, better education) can reduce unemployment, poverty and inequality. The piece is a corporate-perspective policy essay and offers little original analysis of the apartheid period itself.

Evidence and method

South African Reserve Bank and Statistics South Africa series (October Household Surveys, employment and earnings surveys), budget and Medium Term Budget Policy Statement figures, Andrew Levy wage settlement surveys, industry association data, Anglo American internal scenario presentation (1997), and secondary literature (Olson, Nelson, Godsell and Buys).

Findings

• Debt repayment after financial sanctions drained about 2 percent of GDP a year and capped investment and growth in 1984-93. (p. 6)

  that had drained the equivalent of some 2 percent of GDP per annum from the economy between 1984 and 1993.

• Ending financial sanctions in 1993 and removing the debt-repayment requirement raised capacity to invest. (p. 6)

  Simply removing this requirement to repay debt, which under normal circumstances is easily rolled over, automatically produced a significantly greater capacity to invest and grow.

• Tariff liberalization halved the average tariff between 1990 and 1998. (p. 7)

  from a simple average of more than 30 percent in 1990 to just above 14 percent in 1998.

• The budget deficit fell sharply after 1992-93 while tax rates were cut. (p. 9)

  a reduction in the government's budget deficit from 7.4 percent of GDP in 1992-1993 to 2.0 percent of GDP in 1999-2000

• The authors treat unemployment as the main driver of poverty and inequality and set a 5 percent growth and 26 percent investment requirement. (p. 4)

  The principal cause of poverty and inequality in South Africa is the high rate of unemployment.

• Productivity gains after 1994 came largely through shedding labour rather than raising output per worker. (p. 26)

  Unfortunately, too often the productivity increases were achieved by reducing the number of people employed rather than increasing the amount produced per existing employee.

• Under the Reverse Gear scenario per capita incomes would fall by a third over 25 years, whereas Top Gear would raise them 2.5 times. (p. 20)

  Per capita income would rise 2.5 times over a twenty-five-year period, which would mean a level about equal to that of South Korea today.

• Adversarial industrial relations are traced to apartheid, when the workplace was one of the few legal arenas for protest. (p. 21)

  The workplace was often the only place where protestors could legally express their views prior to 1994.

• Official unemployment in 1999 was 23.3 percent, up from 19.3 percent in 1996. (p. 27)

  found an official unemployment rate in 1996 of 19.3 percent and an expanded unemployment rate (which includes those who have not looked for work in the past four weeks) of 33.0 percent.