South Africa: Stimulating Economic Growth¶
World Bank (excerpted by Brigida Tuason from Fallon and Pereira da Silva) (1994). South Africa: Stimulating Economic Growth. Findings (Africa Region, World Bank), summarising Fallon and Pereira de Silva, South Africa: Economic Performance and Policies, Discussion Paper No. 7. World Bank, Africa Technical Department.
| Type | report |
| Scope | Economics and economic history of apartheid |
| Method | policy analysis |
| Period studied | 1960–1993 |
| Regions | South Africa |
| Themes | manufacturing industrial policy, inequality poverty unemployment, macro fiscal finance debt, labour markets wages, transition post apartheid, education human capital, agriculture land, mining migrant labour |
| Citation key | silva1994 |
Argument¶
This World Bank summary asks how South Africa can reach a faster growth path from which the poorer majority gains most. It diagnoses 30 years of declining GDP growth, rising unemployment and extreme racial inequality. It attributes the poor returns on high investment to rising capital intensity, misallocated capital, weak skills and wage and industrial unrest. The 1988-93 recession is attributed mainly to a fall in parastatal investment after 1985 and to weak confidence. It recommends redistributive growth built on private investment confidence, supply-side reform, export-oriented manufacturing, small-business and agricultural job creation and fiscal prudence. A macroeconometric model estimated on 1960-92 data is used to simulate public investment and wage scenarios.
Evidence and method¶
Aggregate national-accounts and sectoral time series for 1960-1992, and a macroeconomic model of about 300 identities and equations, of which 45 are econometric equations. Racial comparisons of income, education spending and social indicators. The text is a short non-technical summary with no detailed data tables.
Place in the debates¶
- Cause of the 1980s-90s growth slowdown and capital productivity decline (see Did the apartheid economy fail? Growth, productivity, investment and the post-1970s crisis). Locates it in rising capital intensity, capital misallocation towards the public sector, skills shortages, rising wages and unrest, and a post-1985 collapse in parastatal investment, rather than in sanctions or financing alone.
- Growth versus redistribution in the transition (see Post-apartheid economic policy, governance and corruption). Argues for redistributive growth, with public investment targeted at the poor, but warns that wage-led or deficit-financed redistribution is self-defeating; this is an orthodox, investor-confidence view.
- Apartheid's effect on inequality (see Long-run legacy and persistence of apartheid). Holds that apartheid intensified inequality beyond what would be expected at South Africa's level of development, and that public spending favoured whites.
Findings¶
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Real GDP growth has declined since 1965, and per-capita growth has been negative since 1982. (p. 1)
South Africa's real GDP growth has been declining since 1965. With population growing at about 2.6 percent per year, per-capita GDP growth has been negative since 1982.
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Manufacturing total factor productivity growth has been low. (p. 2)
Total factor productivity growth in manufacturing has been low -- 0.5 percent per year -- over the past 20 years, well below the levels achieved in high-performing economies.
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Manufacturing capital productivity fell after about 1970 for stated reasons. (p. 2)
Capital productivity in manufacturing, although relatively stable from 1950 to about 1970, has since fallen because of low interest rates, higher wages, and increased investment in heavy intermediate goods.
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Less than half of the black labour force is in formal jobs and about a quarter is unemployed. (p. 2)
Less than half of the black labor force hold jobs in the formal sector.
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Racial income gaps are large: white per capita income is 9.5 times African income. (p. 2)
Whites have personal incomes per capita of about 9.5 times those of Africans, 4.5 times those of Coloreds and 3 times those of Asians.
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Education spending was heavily skewed by race in 1990. (p. 2)
public spending per pupil in 1990 was more than 4 times higher for whites than for Africans.
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The recession is attributed to a parastatal investment collapse after 1985. (p. 2)
many indicators strongly suggest that this recession is rooted in the demand shock that followed a substantial and sustained fall in parastatal investments after 1985.
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Rising capital intensity and wage and union pressures are blamed for weak employment growth. (p. 3)
Rising wages and industrial unrest since the early 1980s which further dampened employment growth.
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The fiscal deficit reached a record level in 1992/93 and foreign reserves were thin. (p. 3)
It grew rapidly over 1991 and 1992 reaching a record 8.6 percent of GDP for FY1992/93.
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Inflation was persistently high in the 1980s. (p. 3)
From 1981-1991, South Africa's inflation hovered at 15 percent per year.
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Investor confidence is identified as the key to growth. (p. 5)
To stimulate growth, the single most important ingredient is investor confidence.
Evidence ledger¶
Sources used¶
| Source | Kind | Period | How used |
|---|---|---|---|
| World Bank macroeconomic model of the South African economy (~300 identities/equations, 45 econometric equations on 1960-1992 time-series data) | national accounts macro | 1960-1992 | Estimates the main quantitative relationships of the economy and is used to simulate public investment, wage and fiscal scenarios. |
| National accounts GDP, population and per-capita GDP series (GDP growth since 1965, per-capita negative since 1982) | national accounts macro | 1960s-1993 | Establishes the long-run decline in GDP growth and negative per-capita growth. |
| Sectoral output, capital stock and productivity estimates for mining, manufacturing and agriculture | official statistical series | 1950-1990s | Shows falling capital productivity and low total factor productivity growth in key sectors. |
| Employment and labour force data by race, formal sector versus informal/subsistence | official statistical series | 1970-1993 | Documents deteriorating employment growth and black unemployment of about one quarter. |
| Racial income and social indicator comparisons (per-capita personal income by race) | official statistical series | early 1990s | Quantifies racial income inequality (whites 9.5 times Africans). |
| Government expenditure data on education per pupil by race, 1990 | official statistical series | 1990 | Shows apartheid-era disparity in public spending per pupil. |
| Balance of payments, foreign reserves, fiscal deficit and inflation statistics 1981-1993 | official statistical series | 1981-1993 | Describes the external constraint, record fiscal deficit, and inflation trends. |
| Fallon and Pereira da Silva 1994, South Africa: Economic Performance and Policies, Discussion Paper No.7 | secondary literature compilation | 1994 | The full study that this Findings note summarises; all data and results derive from it. |
New data¶
A World Bank macroeconomic simulation model (around 300 identities and equations, 45 estimated on 1960-1992 time series) built for the underlying study; no dataset is released in this excerpt.
Inference¶
Quantification: Statistical analysis.
Descriptive national-aggregate trend evidence combined with a simulated macroeconometric model used to test hypothetical policy scenarios (public investment, wage rises, fiscal indiscipline); policy conclusions follow from model simulations and assumptions.
Key claims¶
| Claim | Basis | Strength |
|---|---|---|
| Real GDP growth has declined since 1965 and per-capita growth has been negative since 1982. (p. 1) | National accounts GDP and population series (unnamed). | Partial data |
| Apartheid intensified inequality beyond that expected at South Africa's level of development, with large racial income and public spending gaps. (p. 2) | Racial income ratios and per-pupil spending figures; no source or cross-country comparison data shown. | Partial data |
| The 1988-93 recession was rooted in a demand shock from the fall in parastatal investment after 1985, compounded by confidence loss. (p. 2) | Unnamed indicators and the macro model; evidence asserted as 'many indicators strongly suggest'. | Asserted |
| High investment did not generate jobs or growth because of rising capital intensity, poor capital allocation, skills shortages and rising wages. (p. 2) | Qualitative listing of causes, apparently from the underlying study's analysis and model; no data presented here. | Asserted |
| Excessive wage rises or fiscal expansion would be self-defeating, raising inflation, deficits and debt, so private investment confidence is essential for growth. (p. 6) | Simulations with the 1960-1992 macroeconometric model. | Partial data |
| Rapid growth is feasible early in a new administration because of underutilised infrastructure, low foreign debt and potentially high private saving. (p. 3) | Unspecified infrastructure utilisation and debt ratios; asserted. | Asserted |
The author's caveats¶
The authors note that simulation results are sensitive to the specification of the model and the assumptions made in the simulations, and describe some calculations as 'quick, rough'.
Gaps in the evidence¶
The note cites no specific datasets, series or years, so the empirical claims cannot be traced to sources such as national accounts, the censuses or labour surveys. Disaggregated data on race, sector and parastatal investment, and the model's equations, parameters and robustness tests, would be needed to test the causal claims; most of these official series existed in 1994, and the full discussion paper is the place to look. The racial and homeland coverage of employment and unemployment data was also weak then and should be checked against later reconstructions.
Replicability: Data poorly documented.