In September 2003, Trade and Industrial Policy Strategies (TIPS) and the Development Policy Research Unit (DPRU) of the University of Cape Town jointly hosted an annual forum entitled The challenge of growth and poverty: the South African economy since democracy. As TIPS' seventh and the DPRU's fourth annual conference, it presented a unique opportunity to showcase some of the country's best policy‐relevant economic research.
The idea of a joint conference came from discussions between the two institutions that highlighted an artificial divide between the two key research foci of TIPS and the DPRU. With the former working in the areas of trade and industrial policy, competitiveness and regulatory issues, and the latter concentrating on poverty, inequality and labour markets, it was clear that such a joint conference could bridge this divide. Over three days some 40 papers were presented in areas as diverse as assessing the basic income grant; reviewing the process by which parastatals' administered prices are set; analysing South Africa's experience with public works programmes; and the notion of universal access policy in telecommunications.Footnote1 Indeed, this cross‐section of papers was very aptly reflected in the inputs from the two keynote speakers – Erik Thorbecke from Cornell University and Al Berry from the University of Toronto. The former concentrated on conceptual and measurement issues in poverty, with a focus on the notion of ‘pro‐poor growth’, while the latter looked at some of the key levers for long‐term economic growth with poverty reduction.
In an attempt to disseminate the proceedings of this conference, the Editorial Board of Development Southern Africa graciously agreed to publish a subset of the papers presented at the 2003 Forum. The first of these, by Haroon Bhorat and Rashad Cassim, represents a framework article that attempts to capture some of the key determinants of growth in South Africa, ensconced within an analysis of South Africa's growth and welfare challenge. This challenge is manifest, the article argues, in a low growth/high poverty trap, wherein the labour market is viewed as a key transmitter. In addition, considerable attention is devoted to understanding both the determinants of, and constraints on, long‐term economic growth in South Africa. Issues such as trade reform, the labour legislative environment and the management of crime are raised as critical nodes for policy formulation designed to kick‐start economic growth.
Following this broad overview article, the next four articles deal in some detail with specific welfare issues. Hence, the article by Sten Dieden attempts to arrive at a more detailed understanding of the relationship between labour market individuals as earners and the households they are living in. He principally finds that the majority of households in society rely on a single earner for a regular income source. This, of course, implies a particularly high level of vulnerability to any labour market shocks that these households may experience. In addition, the article reveals that this access to income is quite sharply divided between those employed in the ‘core economy’ and individuals working in either the primary or domestic services sectors. Overlaying thisdivision is a spatial division in household income sources which, as the author points out, remains a critical starting point for appropriate employment creation initiatives.
The succession of annual household surveys and biannual labour force surveys (since 2000) has resulted in a growing quantum of research exploring welfare shifts in South Africa over the post‐apartheid period. The article by Charles Meth and Rosa Dias falls within this relatively new body of research. The authors explore changes in poverty, both in absolute and relative terms, over the 1999–2002 period. They find that the number of poor individuals and households has increased over this period. When accounting for what the authors term the ‘social wage’ – i.e. the inclusion of government transfers and services – the results show an increase in both absolute and relative poverty levels since 1999.
The article by Nicoli Nattrass analyses South Africa's twin crises of extraordinary high levels of unemployment and the rampant HIV/Aids pandemic. The article argues that the pandemic places an additional burden on both employers and households, with the latter already burdened by high levels of vulnerability through lack of participation in the labour market. It goes on to examine potential policy options for dealing with these twin crises. In particular, the author examines the recent debate around a universal income grant for South Africa and the notion of an inclusive social accord.
In the last of the set of articles on welfare and labour market issues, Jeremy Wakeford examines the relationship between productivity, real wages and unemployment in South Africa over the period 1983–2002. Amongst a number of very interesting results from this article, the author finds that unemployment levels over the period are not linked to the relationship between real wages and productivity. As the author argues, this implies that ‘real wage increases cannot be blamed for raising the level of unemployment’. Secondly, the author finds through an econometric estimation that the rapid rise in productivity levels reflects the sharp decline in employment levels during the 1990s. Finally, there is the important concluding evidence that labour's share of gross output has been shrinking since the 1990s, while that of capital has been rising steadily.
The theme of the next subset of articles is South Africa's post‐1994 economic performance, first through a macroeconomic lens and then via more sectorally focused units of analysis. Thus, the article by Rob Davies and Dirk van Seventer uses various forms of decomposition analysis to investigate the underlying forces behind trends in savings, aggregate demand and employment. The article suggests that the government's fiscal austerity has led to a decline in its role as a driver of aggregate demand, and that this has been accompanied by a decline in private sector savings and investment, which has negatively impacted the private sector's contribution to aggregate demand. The authors apply decomposition techniques to growth in employment and labour productivity, and find that the increase in the participation rate has been undermined by the decline in the employment rate and manifest in the rising unemployment rate. The article concludes with a discussion of the policy implications of their research.
In the next article, Nick Vink assesses the impact of government policies on the agricultural sector and finds that the liberalisation of the sector has led to an increase in its productivity and a lowering of domestic prices to levels consistent with world prices. However, exposure to the uncertainties of trading on volatile world markets has also led to more risk management strategies amongst commercial farmers – some of which may have led to the significantly declining demand for unskilled labour in agriculture. Furthermore, Vink argues that policy‐induced structural changes may have detrimental impacts on rural households, particularly as a result of the trend towards casualisation of employment.
Penny Hawkins' article reviews the performance of the financial sector, which she notes has become a key contributor to gross domestic product and has facilitated, rather than inhibited, growth in South Africa. The article notes that concentration levels in both the banking and insurance industries remain high, especially after the last round of consolidation in the banking sector in 2002, and that this may be cause for concern. Moreover, the author notes that provision of financial services to middle‐ and low‐income consumers as well as small business remains problematic. She points to the possibility that South Africa's regulatory regime for banking may have actually discouraged banks from providing financial services to the lower end of the retail market.
The article by James Hodge reviews South Africa's experience in providing universal service in the telecommunications sector. Hodge argues that the roll‐out of new fixed lines by Telkom has been a failure and notes the associated substantial cost to the economy and society. The article notes the significant difficulty in designing regulations that will ensure ‘least‐cost’ roll‐out of telecommunications services to underserviced communities. In particular, it points to the risks associated with inflexible regulations that do not take account of changes in the market for services. The article highlights some of the lessons learnt from the telecoms experience and suggests their applicability to other utilities, such as energy.
In his article, Simon Roberts discusses the role of competition policy in a range of developing countries, before assessing the effects of competition policy in South Africa – especially after the enactment of the Competition Act of 1998. The author notes that given the well‐known high levels of concentration in the South African economy, it is of concern that little progress has been made in addressing prohibited practices such as abuse of market power through charging excessive prices. In his analysis of the steel industry, Roberts makes a valuable contribution to the debate on import parity pricing and argues that the practice is inefficient in terms of ‘both allocative efficiency and dynamic efficiency’ and may not be in the long‐term interests of the local steel industry. The article concludes with a discussion of the analytical demands faced by South Africa's competition authorities in the context of high levels of concentration in key segments of the domestic economy.
HAROON BHORAT AND STEPHEN HANIVAL
Notes
All articles presented at the conference are available on the TIPS or DPRU websites at www.tips.org.za or www.commerce.uct.ac.za/DPRU.