Jobs and Growth in South Africa: Reality or Fantasy? Summary



Download 17.07 Kb.
Date conversion16.04.2016
Size17.07 Kb.
Jobs and Growth in South Africa: Reality or Fantasy?

Summary

With legislative elections to be held on May 18 and the ruling African National Congress’ (ANC) centenary on the horizon, debate in South Africa has returned to the issue of job creation. The realities of uneven growth and persistently high unemployment have implications both for the ANC’s support base and South Africa’s regional ambitions.



Analysis

The South African economy is hampered by constraints to growth such as stagnation within the primary and secondary sectors of the economy and low labor absorption rates. These economic realities prevail regardless of the political climate and are legacies of the country’s economic history, but have also become more acute over the past decade. Understanding them is crucial to understanding the ruling party’s strategies for reinforcing the support of its base within the country’s black African population as well as South Africa’s long-term ability to consolidate its economic supremacy over regional rivals.

As South Africa prepares for legislative elections on May 18, the ruling African National Congress (ANC) has re-emphasized its focus on job creation and economic growth. The ANC has rallied around the New Growth Path (NGP), an economic action plan published [DATE] by the Ministry of Economic Development, which seeks to create five million new jobs in the coming decade. The promise of widespread job creation and the rapid growth required to achieve it is not a new one from the ANC which has ruled South Africa with a democratic majority since the fall of Apartheid in 1994. While no major voting shifts are expected when South Africans go to the polls, the ANC will be celebrating its centenary in 2012 at its [53rd] National Conference, a time when the party will vote to retain or replace its leadership headed by President Jacob Zuma. Any underperformance at the polls, continued divisions within the party over industrial action and perceived non-delivery of election promises may embolden President Zuma’s rivals within the party.

Economic History

Initially colonized as a supply station for shipping passing between Europe and Asia, South Africa developed a strong agricultural base before vast diamond and gold reserves discovered in the interior between 1870 and 1886 re-focussed production on mineral resources. Mineral wealth facilitated economic diversification as related manufacturing and financial capabilities developed, infrastructure and transport links were established and surplus capital was redeployed to other sectors. This was most prevalent during and immediately after the war years as a stable gold price drove profitable exports while public and private investment in manufacturing and input beneficiation was shielded by an import substitution agenda pursued by the Apartheid government. The collapse of the Bretton Woods system in 1971 initiated a slow decline and by 1994 the new African National Congress (ANC) government inherited an economy that was short of capital and hampered by widespread inefficiency.

The policy agenda pursued since 1994 has, with a number of fits and false starts, focussed on macroeconomic stability complemented by infrastructure development and social transfer programs. While delivering consistent growth, inroads into the economy’s inherent constraints have been limited, though this approach is credited with shielding South Africa from the worst of the 2008 financial crisis. Growth forecasts are mediocre however (3.6% in 2012, 4.5% in 2015), especially next to the rest of the Sub-Saharan region, where growth is expected to be consistently above 5% through to 2015.

Economic Profile

The South African economy is the largest in Africa, accounting for between 30% and 40% of Sub-Saharan GDP depending on the prevailing price of regional commodities. South Africa is also the biggest foreign investor in the region by some margin, responsible for almost one third of foreign direct investment. Historically mining and agriculture contributed a large portion of South African output, however this has declined from 22% in 1965 to just 7% in 2010 as the economy has diversified and mineral reserves such as gold and diamonds have reached maturity. Growth has instead been concentrated in areas such as finance, transport, trade and commercial services and the tertiary sector now accounts for 74% of output. Construction, where growth has also been strong in recent years, along with manufacturing and utilities, accounts for a further 19% of GDP. Foreign direct investment in South Africa has been focussed on mining, where high commodity prices have boosted profits in recent years, in manufacturing, where production and import subsides have been introduced in targeted areas such as the motor industry, and in financial and business services. These sectors, particularly financial services, have also attracted substantial portfolio investment.

[INSERT GRAPHIC: GDP and Employment by Sector]

Employment is similarly concentrated in the tertiary economy with 70% of the employed population holding jobs in these sectors. Mining and agriculture employ just 7% of the workforce, having accounted for as much as 30% in the 1970s, while manufacturing and other secondary activities employ a further 23%. This output and employment profile is consistent with that of a developed economy, however this masks the fact that the economy struggles to absorb labor capacity and official unemployment is high at 23%.

During Apartheid successive governments pursued state-driven development to the extent that by the mid-1980s government controlled almost 40% of wealth producing assets. While some privatization has since occurred, the ANC government has protected a degree of state ownership. Major “parastatal” organizations include the monopolist power utility Eskom, transport giant Transnet, fixed line telecoms provider Telkom, defence manufacturer Denel, South African Airways (SAA), PetroSA and the South African Post Office (SAPO). In total, the government, public sector and parastatal share of employment is 13%. Since 1994, public sector employment has held roughly constant, however the number of people employed by the parastatals has halved, with general government accounting for the balance of new employment.

[INSERT GRAPHIC: Private and Public Sector Employment]

In addition, approximately 25% of employed South Africans are unionized. The Congress of South African Trade Unions (COSATU) is the dominant umbrella union organization through its large membership (~2 million) and participation in the ruling ANC alliance, an arrangement that secures significant political influence for its members. Through its affiliates, COSATU represents worker interests in mining, manufacturing and tertiary industries, particularly in the public sector. Trade unions and collective bargaining play an important role in wage determination in South Africa.

Inequality, Unemployment and Policy Responses

The dynamics of the labor force and the country’s unemployment sharply reveal the degree of racial inequality that persists in post-Apartheid South Africa. 25% of black job seekers are unemployed, whilst only 4% of their white counterparts are without work. More concerning, labor force participation (those either seeking work or employed in the economy) among unskilled or semi-skilled black workers has decreased sharply from 59% in 2002 to 50% at the end of 2010 as new entrants and those without the required skills have stopped looking for work. While the number of black skilled workers is increasing, this belies the fact that the quality of public education has deteriorated substantially in the last decade with official pass rates having been reduced from 40% to 33.3% and the number of permissible failures increased from one to two.

[INSERT GRAPHIC: Black Labor Participation and Absorption]

Since 2002, output growth has outstripped employment growth by almost two-to-one. Employment has contracted in agriculture and mining while output growth has been modest. Similarly, in manufacturing output and employment growth has lagged behind the rest of the economy. These industries are both employment intensive and significant employers of unskilled black labor. Effectively the economy has created jobs at the rate at which the working age population has increased, making no headway into reducing unemployment. If this trend continues, the economy will create approximately 2.5 million jobs in the period that the ANC hopes to create 5 million. In the same period, a further 6 million people will enter the working age population, meaning that an additional 3.5 million will be without work. As the majority of these individuals will be black Africans, this has implications for the ANC which still draws support primarily from the black population.

[INSERT GRAPHIC: Employment and Output Growth by Sector]

The NGP is the latest in a series of broad economic frameworks which the ANC government has sought to implement since 1994. Since the introduction of inflation targeting and the Growth, Employment and Redistribution (GEAR) strategy in the mid 1990s, the government has pursued macroeconomic stability and sought to achieve its economic objectives through private-sector led development. As stability was achieved after the impact of the Asian Financial Crisis on emerging markets had abated, the government adopted a more activist approach, broadening social welfare programs and investing heavily in job-creating infrastructure projects. The much publicized Black Economic Empowerment (BEE) program however has played a negligible role in job creation, instead serving to transfer equity in South African businesses from white individuals to a new black elite.



Primary Constraints to Growth

Formal sector wages are relatively high in South Africa in comparison to other developing economies and the labor force enjoys strong collective bargaining power in part due to the political influence of trade unions. The combination of a highly regulated labor market, low levels of education and poor health resulting from HIV/AIDS means that labor force competitiveness remains a fundamental hurdle to economic development.

Persistently high unemployment has in turn exerted pressure on government social welfare programs. Existing commitments to state-funded healthcare, education and a substantial social transfer system mean that government finances are stretched. Stagnant employment means that the overburdened tax base is not growing relative to the number of people who are becoming reliant on welfare provision. The result is that the government will be hard pressed to increase capacity to fund economic development, particularly on infrastructure, where power generation, road and rail and port facilities are operating at or near capacity.

South Africa’s current infrastructure capacity constraints risk reducing the effect of investment and ultimately discouraging it altogether. A further hurdle to addressing infrastructure constraints lies in the form of the parastatals, particularly Eskom and Transnet which control key aspects of the economy but are rife with inefficiency and are subject to poor policymaking by their political handlers. The poor performance of parastatals is also symptomatic of the widespread inefficiency in almost all aspects of the public sector, which further adds to the cost of doing business. Privatization of these state assets has thus far been resisted successfully by elements within the ANC that continue to demand a large and growing role for the state in the economy.



Implications

The ANC recognizes that an economy approaching structural full employment is crucial for ensuring social stability and the growth of internal demand. Almost half of the country’s electorate has lived their entire adult lives in post-Apartheid South Africa. For the many of these, a free country has not brought improvements to their standard of living and discontent is widespread. The ANC leadership is conscious that by failing to deliver the job and employment growth required to raise the standard of living of the country’s poorest, it risks creating a political opportunity for rivals within the party or outside of it. Now that the transfers of wealth prioritized through BEE programs are largely complete, the ANC can be expected to pursue broad-based economic empowerment with greater intensity, though it faces internal ideological conflict about how to achieve this.



South African expansion toward a goal of regional hegemony in Southern and Central Africa is ultimately based on economic dominance of the region supported by diplomatic and military coercion. Achieving this imperative relies on the internal mitigation of constraining factors, but also the simultaneous pursuit of growth opportunities. As resource reserves are exploited and secondary economies emerge in the countries to its north, South Africa retains a crucial strategic interest in ensuring that economic output continues to be channeled through its infrastructure. Similarly, the potential for untapped local resource reserves, such as shale gas and offshore oil, to boost the country’s wealth and improve energy security may also substantially influence development. As Pretoria navigates the opportunities, its response to core constraints of jobs and growth will serve as the best indication of South Africa’s ability to achieve its goals.


The database is protected by copyright ©essaydocs.org 2016
send message

    Main page