The South African dream and the three stumbling blocks

Abstract

Most South Africans nurture a strong hope for a better future. The South African economy, however, has considerable problems with respect to both growth and employment, which in turn reduce the scope for redistribution of the national income. This article deals with a number of stumbling blocks that the political and economic decision makers may be tripped by and which may make the South African dream nothing but a dream. These are: obstacles to growth, increasing economic and social differences, and unfavourable political development.

1 INTRODUCTION

South Africa's president, Thabo Mbeki, has a vision of an African renaissance (Mbeki, 1998; Hadland & Rantao, 1999; Corrigan, 1999; Mulemfo, 2000), one that has to seek its roots in precolonial Africa, in the societies that were characterised by a collective spirit and a willingness to engage in mutual help. Political independence from the colonial powers proved to be a disappointment in that it did not become the freedom that the first generation of African leaders had envisaged. Instead, colonialism was simply replaced by neo‐colonialism. Besides, the Cold War kept the powers interested in controlling events in Africa, with the result that the governments became corrupt and ineffective.

The Cold War having run its course, the time has come for Africa to rid itself of these regimes and to create strong, modern economies, the keywords being democracy, employment and basic needs (Mbeki, 1998: 248). Mbeki maintains that South Africa can become a leading country in a process that will make the 21st century Africa's own. At the same time, he emphasises that efforts have to be directed at a continental mass movement based on solidarity if the African renaissance is to become a reality.

Mbeki's countrymen are not without a vision of their own, embodied in a South African dream of a better existence (Hunt & Lascaris, 1998). The social injustices of the long apartheid regime have left lasting impressions on the people and everyone dreams of a better life – each and everyone in his or her own way. The South African dream is far from being one and the same. The various groups, social classes and cultures in the Rainbow Nation have their own dreams. Notwithstanding, almost everyone shares the vision of a society founded on democratic principles with equal opportunities for everyone, and in which these groups can live in harmony.

A vital component in this society is employment, without which large groups will continue to live in poverty, and the growing crime rate – by far the most alarming feature of the South Africa of today – will continue unabated. Closely associated with the dream of a job is the dream of an education. Under the apartheid system, most Africans attained little more than a poor primary education, and without education the opportunities in the labour market are small. In the same way, the ordinary person dreams of access to public health and medical care and decent housing with electricity, running water and tolerable sanitary conditions.

Entrepreneurs, too, have their dream of an economy based on growing incomes and markets, with possibilities for them to realise their projects without interference by state involvement; an economy in which capital flows in from abroad and high domestic savings await profitable investment projects. The politicians share in the dreams of the entrepreneurs and the masses, but also nurture some of their own. The ruling African National Congress (ANC) wants a stability and dominance that will make it possible to realise the party programme. The opposition parties dream of reduced ANC dominance, better balance of opinions and an increased role for the opposition. Both the ANC and the opposition would like to see a more influential role for South Africa in an international context – a product of the isolation during the apartheid years – and active participation in an expanding international economy.

In more tangible form, the South African dream is manifested in the ANC's Reconstruction and Development Programme (RDP), the platform on which the party went to the 1994 election and which was subsequently transformed into the coalition's economic‐political programme (ANC, 1994). Still the principal expression of the ANC's political and economic ambitions, the RDP is largely a basic needs programme. The most important goals are ten‐year free and obligatory schooling, new housing, electricity, running water and toilets, improved health and medical care, particularly preventive primary health care, and land for the rural landless.

However, it has been easier to set up goals for the RDP than to realise them. The programme was supposed to have been carried out over a five‐year period, but it was not long before it became clear that completion would be impossible given the growth rate of the South African economy. Indeed, implementation of the RDP would require investments in infrastructure to increase by over 20 per cent per year (30 per cent at municipal level), which may be compared with a realistic growth rate of 7,5 per cent (Ministry in the Office of the President, 1996: iv–vii).

The upshot of this was the introduction of a new economic strategy: Growth, Employment and Redistribution (GEAR) (Department of Finance, 1996a, 1996b), aimed at increasing the growth rate through stimulation of the supply side of the economy in various ways, but mainly through a series of signals to entrepreneurs to ensure them that the government was pursuing a responsible economic policy. By reducing the budget deficit, forcing down the inflation rate, maintaining a realistic exchange rate, privatising a number of state companies, creating wage flexibility in the labour market, opening up the economy and stimulating investment through, tax incentives etc., the wheels of the economy could be made to turn faster.

To what extent GEAR has succeeded is, however, highly debatable. No comprehensive account of what has been achieved is available, but since 1966 the growth rate of the South African economy has by no means been impressive. In 1996, the gross domestic product (GDP) grew in real terms by 3,2 per cent, in 1997 by 2,5 per cent, in 1998 by 0,6 per cent, in 1999 by 1,9 per cent, in 2000 by 3,1 per cent, in 2001 and 2002 by 3,0 per cent and close to 2,0 per cent in 2003 (RSA, 1997, 1999, 2000; SARB, 2004: 1; National Treasury, 2004: 21–2). In all the years except 1996 these figures fell well below the scenario presented in GEAR (Department of Finance, 1996b: 12–13), and without a growth rate that should have been around 6 per cent by the year 2000, the objectives would be virtually impossible to achieve.

Will it ever be possible to realise the South African dream and the African renaissance? These things are naturally difficult to predict, and it would be foolhardy even to attempt any definite forecasts. What is abundantly clear, however, is that there are a few potential stumbling blocks along the way, all of which are interconnected, that could jeopardise or at least seriously delay the project. This article deals with these stumbling blocks: the risk of economic stagnation, the risk of increased class differences and the risk of an unfavourable political development.

2 THE FIRST STUMBLING BLOCK: ECONOMIC STAGNATION

The South African economy finds it difficult to ‘get going’ and stagnation is constantly lurking around the corner. (For a recent overview of the growth experience during the post‐apartheid period, see Bhorat & Cassim, 2004.) Between 1996 and 1998, the growth rate of private investments fell from 6,1 to −0,7 per cent and in 1999 there was a further decline of 5,5 per cent (Marais, 2001: 172). Thereafter, there was something of a rise to 6,3 per cent in 2000, 4,9 per cent in 2001, 5,1 per cent in 2002 and 7,0 per cent in 2003 (RSA, 2001a: 2, 2001b: 2; SARB, 2004: S121).

As mentioned above, the government's intention is to send signals to assure the business community that it is carrying out a responsible economic policy. The idea is that a stable economic policy environment will enhance investment incentives International investors may, however, not be too easy to convince. After all, South Africa is located at the southern tip of a continent that has not been very successful in the past in attracting foreign direct investment (Crook, 2003; Lundahl & Pienaar, 2004). The budget deficit decreased from 7,9 per cent of GDP in 1992/3 (Department of Finance, 1996b: 17) to 2,0 per cent in 2000/1, and the preliminary outcomes for 2001/2 and 2002/3 are deficits of 1,4 and 1,1 per cent (National Treasury, 2004: 192). At the same time, monetary policy has been restrained to stabilise the rand and to contribute to combating inflation. In October 2001, the inflation rate was 5,9 per cent on an annual basis, just below the upper limit of 6 per cent for interventions (RSA, 2001c: 3). However, in 2002 inflation accelerated with a peak of 12,7 per cent in November, due largely to the sharp depreciation of the rand in the second half of 2001: on average by 34,5 per cent during 2001 (National Treasury, 2004: 21–2; SARB, 2003: 46). In February 2002, the rand fell to its lowest rate of exchange ever against the dollar (R11,6=$1) (SARB, 2002). This was followed by a period of appreciation of the rand by 24 per cent during 2002, and by a further 12 per cent during the first half of 2003 (SARB, 2003: 46). A large positive interest differential between South Africa and its main trading partners has contributed to strengthening of the rand, with interest rates being high in order to restrain the inflation rate to the upper target range and to stabilise the rand (SARB, 2003: 46; Nevin, 2004: 22–3).

Average annual inflation is projected to decline to revert to the inflation target range of 3 to 6 per cent in 2004 (National Treasury, 2004: 21–2). While the significant recovery in the exchange rate as an important force in bringing down the inflation rate through increased competition from imports, the recovery also reduced South Africa's competitiveness on the world market. During 2003, import volumes rose significantly, while export volumes remained largely unchanged (SARB, 2004: 1–2). The economy has also been deregulated considerably since 1994. South Africa is a member of the World Trade Organisation and has dismantled the protectionism that has characterised the country since the 1920s (Holden, 2001). In addition, privatisation of state companies has been started.

The question is whether the private sector regards the government's signals as sufficient. Before companies can be persuaded to invest, they have to be convinced that there is a market that will grow fast enough. Furthermore, a moderate economic policy dampens demand. Consequently, it is far from certain what signals the government sends out and what is the chicken and what is the egg in the virtuous spiral (Lundahl, 2001).

Attention in South Africa is being increasingly directed at exports, the reasoning being that production for the world market should be the goal if the internal market grows too slowly. Mineral exports are no longer capable of supporting the economy (‘the golden age’ is history), and it is not clear where South Africa's comparative advantages lie in respect of industrial products (Lundahl, 2001). It is nonetheless a country of abundant natural resources, and it is probably in the ‘mineral‐energy complex’ (Fine & Rustomjee, 1996), in resource‐intensive sectors characterised by average wages and a low technology level (e.g. iron, steel and other metals) and in the graphics industry that one should start looking (Nordås, 1996). The only problem is that these branches demand investments, in physical capital as well as education, to be able to expand.

Another concern is that countries with abundant mineral resources have a tendency to grow more slowly than countries that lack natural resources (Auty, 1993, 2001), and are more susceptible to Dutch disease (Corden & Neary, 1982). Currency income from raw material exports drives up the exchange rate of the domestic currency, making it difficult to switch to exporting products with higher value added. Moreover, mineral‐processing projects have a long gestation lag and it takes time to achieve cost reductions that contribute to growth in the next stage of the production chain (Altman, 2001: 701). An alternative, then, is more high‐technology products with higher value added, in the hope that this type of export will generate income and demand for the products that are manufactured for the domestic market by less productive but employment‐generating companies (Altman, 2001). However, this requires even more in terms of human capital, and it remains to be proved that it will actually generate a demand for labour‐intensive mass consumption goods. Hence, the risk that the effort will end in failure is high.

One of the foremost obstacles to economic growth in South Africa is the high crime rate (Ellis, 1999; Steinberg, 2001). In 1996, no fewer than 80 per cent of a random sample of more than 2 000 households had been the victims of crime over a two‐year period (Ellis, 1999: 49). Another survey reported lower but still disturbing figures. Over a five‐year period, about 66 per cent of the residents in Johannesburg, 59 per cent in Durban, 55 per cent in Pretoria and 50 per cent in Cape Town had been victims of crimes (Peron, 1999: 106). The share of the population that felt unprotected increased among whites from 30 per cent in 1994 to 80 per cent in 1997, and among blacks from 11 per cent in 1994 to 43 per cent in 1999 (Van Rooyen, 2000: 89).

About 25 000 murders, over 52 000 rapes, more than 122 000 robberies, 100 000 car thefts and 338 000 break‐ins were committed in 1997, according to official police statistics (Peron, 1999: 104). South Africa, together with Colombia and Russia, leads the international statistics for murder with 67 murders per day. Rape statistics in particular (but also for other violent crimes) conceal a substantial number of unrecorded cases. According to the police, 20 times more rapes are committed than are reported, i.e. over one million per year in a population of about 20 million women. In 1998 there were more than 15 000 armed car hijackings, often in combination with murder and/or rape, and in 1997–8 two‐thirds of all small shops had been broken into (Van Rooyen, 2000: 74–86).

What is even more alarming is that the long‐term trend is increasing. Between 1974/5 and 1997, the number of murders increased by 284 per cent, rapes by 354 per cent, robbery by 323 per cent, car thefts by 385 per cent and the number of break‐ins by 372 per cent, all according to official South African statistics (Peron, 1999: 204–5). In the mid‐1990s, the criminal economy was estimated to have had a turnover of over R41 billion per year (Ellis, 1999: 50), which is the equivalent of almost 10 per cent of the legal GDP for 1995 (SARB, 1996: S100). Crime in South Africa is not only national, but also has strong international connections. In the same way that potential investors tend to see South Africa as a gateway to markets in other parts of the African continent, it is becoming a magnet for international criminals. The country is a large market for drugs and stolen goods and an ideal base for criminals intent on extending their operations to other countries.

The large numbers of white policemen who have left the police force and started private security firms have been difficult to replace with Africans, not least because of Africans' bitter confrontations with the police in apartheid times. Those who have been recruited lack experience of police work (Laufer, 2001: 16). Moreover, courts in South Africa are experiencing increasing difficulty in dealing with crime. In 1987, each prosecutor in the lower courts dealt with 45 robberies on average; 12 years later this number had risen to 85. In 1996, only 11 per cent of all reported crimes were tried and only in 8 per cent of the cases was it possible to obtain a guilty verdict (Schönteich, 2001: 157–8).

Obviously, it is not possible to isolate crime from conditions in the labour market. It appears almost as if the difficulties of entering the labour market have led the young to believe that honesty does not pay. At worst, there is a ratchet effect built into the system (Andvig & Moene, 1990). Of course, people have different degrees of moral objections to engaging in crime but, all things being equal, the proportion of criminals in the population is likely to increase when labour market conditions worsen. On the other hand, if labour market conditions improve, crime will probably decline, but it is far from certain that it will fall to its earlier level. The reason is that there are now more criminals than before, while the efficacy of the judicial system is not getting any better. Hence, the probability that a criminal will be arrested and punished has diminished. For crime to drop back to its original level, what is required is a positive change in the labour market that is relatively larger than its earlier deterioration. Crime easily creates a vicious spiral. Increased crime leads to lower investments, which in turn result in GDP being held back and thereby employment as well. Then crime increases once again, and so on.

Imprisoning wrongdoers does not seem to have the desired effect, mainly because South Africa does not have a proper correctional treatment policy. Gangs control jails, and the inmates are not given an opportunity to participate in organised education at the institutions. Instead, the jails have become ‘crime universities’. Youths who are jailed are taken into the gangs and their crime is consolidated (Simpson, 2001: 127). According to a 1996 report, no fewer than 94 per cent of all released criminals fell back into a life of crime (Peron, 1999: 98–9).

A third factor that constitutes a threat to future growth is the emigration of the educated white labour force (Van Rooyen, 2000). The South African press publishes more or less regular surveys on the propensity to emigrate (Van Rooyen, 2000: 34; cf. Sunday Times, 1998). More systematic surveys, however, point to a much lower propensity, as is shown by the fact that total emigration from South Africa in the period 1994–9 was not particularly large, perhaps 165 000 people (Van Rooyen, 2000: 31), compared with the total population of 38 to 43 million (SAIRR, 2001: 48–9), i.e. 0,4 per cent. The emigration of educated labour has not yet reached alarming proportions either. In an investigation of 200 companies in 1998, it was found that 41 per cent did not think that emigration had caused any problems, and a further 26 per cent felt that the effects had been negligible (Rogerson & Rogerson, 2000).

This impression is reinforced by the serious attitude surveys that have been carried out. Interviews with 725 persons in 1998 (Mattes & Richmond, 2000; McDonald & Crush, 2000) indicated that 69 per cent had ‘at some time’ thought about emigrating, but only 3 per cent felt they would leave within the next six months and 5 per cent within the next two years. Only 6 per cent had applied for work permits abroad, 5 per cent for permanent residence permits and 3 per cent for foreign citizenship (Mattes & Richmond, 2000). It is thus clear that the popular notion of educated whites about to leave South Africa in large hordes ought to be revised.

At first sight this would appear to be reassuring, but the figures give a static picture. A survey of companies (Rogerson & Rogerson, 2000) showed that 33 per cent felt that emigration of the educated labour force was a ‘significant’ problem whereas, prior to 1994, only 2 per cent experienced it as such, 21 per cent thought the problem was negligible and 78 per cent were of the opinion that it did not exist. In particular, companies within education and health care, company services, banking and finance, information technology services and high‐technology industries had experienced a significant worsening.

What is also distressing is the fact that expectations with respect to the future among the educated whites are low (Mattes & Richmond, 2000). In a survey, interviewees were given 16 indicators of their quality of life in South Africa. The proportion that regarded the situation as likely to worsen over the next five‐year period was clearly larger than the proportion already unhappy with the situation – in terms of all 16 indicators. Between 48 and 86 per cent felt that the situation in the country to which they could consider emigrating would be better than in South Africa – in terms of 15 of the 16 indicators. As expected, the highest values (86 per cent) were returned for security – their own and that of their families.

The implication is that emigration of educated whites may very well accelerate in the future if crime, in particular, and the economy do not develop in a way that is seen as positive, and that increased emigration may easily lead to increased problems for trade and industry. With regard to the latter, the situation differs between multinational and South African companies. The former can more easily acquire qualified personnel from other parts of the world where they also operate, while the latter have to struggle against a restrictive immigration policy which, given the remarkable South African point of view that every job filled by an educated foreigner denies a South African the job, meant that legal immigration into South Africa decreased between 1993 and 1998 (Mattes et al., 2000).

3 THE SECOND STUMBLING BLOCK: INCREASED CLASS DIFFERENCES

The other stumbling block that the South African dream must eliminate is that of growing economic differences in society, with the consequent social tensions. Differences in income among race groups in South Africa assumed mythic proportions during the apartheid regime (Lundahl & Moritz, 1996: Ch. 8). The Gini coefficient for 1978 was 0,66, which is the highest of all 37 countries for which data were accessible, and in 1993 it was about the same, namely 0,65. Behind these record levels lay the large income discrepancies due to racial discrimination, between whites and, in particular, blacks.

In the 1990s, this pattern changed radically (Whiteford & Van Seventer, 2000). The Gini coefficient was 0,68 in 1991 and in 1996 it was 0,69. Behind this seemingly modest increase lies an extensive redistribution among the race groups. However, this redistribution has not taken place as one would perhaps like to believe. Per capita income in South Africa increased by 0,8 per cent per year between 1991 and 1996. All the races except whites experienced increases – blacks and coloureds by 4,1 per cent and Asians by 4,7 per cent. Whites' income decreased by an average of 0,7 per cent per year. Most interestingly, the redistribution largely favoured the richest 10 per cent of blacks, whose average incomes increased by 17 per cent, while the poorest 40 per cent lost 21 per cent on average. The income differences between black groups in 1996 were almost as large as the differences in society as a whole. The richest 10 per cent accounted for more than half of blacks' incomes. The Gini coefficient for blacks increased from 0,62 in 1991 to just 0,66 in 1996.

The increasingly large income gaps between rich and poor Africans imply unevenness in income distribution. In 1996, these differences within the respective race groups constituted two‐thirds of the explanation, while differences between the groups only represented a third. Twenty years earlier, the proportions were to a large extent the opposite. It is also interesting to note that almost 92 per cent of the redistribution was a result of economic growth, while only 8 per cent was attributable directly to other groups' losses. The only groups that saw their total incomes decrease were the poorest 80 per cent of whites, whereas the total income of all other groups increased. The changed income distribution was connected to changes in the labour market – 10 per cent of whites lost their jobs between 1991 and 1996, while no other group lost more than 2 per cent (in the formal labour market).

The conclusion then necessarily becomes that the growth experienced by South Africa between 1991 and 1996 was not consistent with income levelling. The winners were among rich Africans at the same time that the living standard of the poor decreased.

Undoubtedly, the greatest economic problem in present‐day South Africa is unemployment. In the 1980s and 1990s, the formal sector of the economy lost a total of 1,3 million jobs between 1981 and 1999, in all except three of the years (Arndt & Lewis, 2001: 431). Not even during years with a relatively high growth in GDP did employment increase. In order to absorb all the newcomers in the labour market, a growth rate of about 7 to 8 per cent is required (Michie & Padayachee, 1998: 629) – and that is a long way off.

Exactly how high unemployment is in South Africa is a matter of dispute. According to the ‘strict’ definition, which demands that an unemployed person must have actively looked for work in the last four‐week period, and is the definition used in international comparisons, unemployment has been between 20 and 25 per cent since 1994, and tended to increase in recent years. If, instead, the ‘wider’ definition is used, which does not demand an active search for work but simply asks whether a person is willing to work, the figure is between 30 and 40 per cent, also with an increasing trend in recent years. Irrespective of which definition is used, it is clear that unemployment is highest among Africans, among women and in the rural areas. The latest (1998) figures indicate a ‘strict’ unemployment among Africans of over 33 per cent, and if the ‘wider’ definition is used, almost 48 per cent (Nattrass, 2000: 74).

Unemployment is clearly associated with poverty (Bhorat & Leibbrandt, 1996; Lundahl & Rapp Lundahl, 1999; Bhorat et al., 2001). Whether or not a household includes a person with a wage income largely determines whether it falls under the poverty line (the 40 per cent that have the lowest expenditures per adult equivalent). Variations in wage incomes are the most important reason for current income differences in today's South Africa (67 per cent), with almost half caused by the fact that 30 per cent of the households have no income at all (Leibbrandt et al., 2001: 30‐1). As long as employment does not increase, it will be difficult to rid South African society of class differences. This may lead to increased demands for redistribution in a situation where the economy has difficulty growing, which in turn may further aggravate the growth problem.

What, then, is the primary cause of unemployment? Much of the discussion is devoted to the wage level. Between 1970 and 1999, the real wage for unskilled and semi‐skilled labour increased by 250 per cent (just over double in 1995) (Arndt & Lewis, 2001: 431). At the same time (between 1970 and 1995), demand for this labour fell by 54 per cent (Bhorat & Hodge, 1999: 362). In GEAR there is mention of ‘structured flexibility’ with regard to wages and working conditions, in order to increase employment.

Employment elasticity in the economy is usually said to be 0,7; i.e. a 10 per cent wage decrease would increase employment by 7 per cent (Restructuring the South African Labour Market, 1996:51–2), but this figure has been strongly questioned (Standing et al., 1996: Ch. 6). What has happened with wages and employment for the uneducated cannot be isolated from the opposite pole in the labour market. In 1999, the wage level for the highly educated was about 90 per cent of the 1970 level, and even lower in 1995 (Arndt & Lewis, 2001: 431), which corresponded to a demand increase of 265 per cent between 1970 and 1995 (Bhorat & Hodge, 1999: 362). It is thus clear that structural change is taking place within the South African economy (Maziya, 2001:217) and that it is the unskilled labour force – the most vulnerable – that takes the knocks.

It is questionable whether wage decreases for unskilled labour will increase employment in this situation. It seems at least equally credible that the answer is schooling, as education is what mainly determines whether or not one gets a job. Those who lack education do not look for work in the formal labour market, and this concerns the newcomers in the labour market as well (Bhorat & Leibbrandt, 2001: 123, 128).

The South African labour market and economy will also be affected in future by the increasing incidence of Aids and HIV, which is approaching an epidemic (Whiteside & Sunter, 2000: 84). The only question is what the consequences will be, and the uncertainty factors are many. What is certain is that the economic and social gaps will increase.

In 1998, about 13 per cent of the population were thought to be HIV‐positive, and this figure will increase in absolute terms to over 6 million in 2010 (Whiteside & Sunter, 2000: 53–4). Aids has drastically changed the age pattern of mortality. About 40 per cent of all deaths of people between 15 and 49 years of age, 25 per cent of all adult deaths and 20 per cent of the total number of deaths are believed to be HIV/Aids‐related (Dorrington et al., 2001: 6–7). The number of such deaths is expected to increase to double the number of deaths from other causes by 2010, which implies that between 4 and 7 million people will have died from Aids between 2000 and 2010. The highest mortality rate will remain in the age groups 0–4 and 25–50 years. In 2000, the mortality for women in the age group 25–29 was already more than triple the figure in 1985 (Dorrington et al., 2001: 21, 23, 27). The number of motherless children under 15 stands at 309 000 and is expected to increase to 2 million by the year 2010 (Whiteside & Sunter, 2000: 68–9). Life expectancy fell from 63 in 1996 to 55 in 1999, and is expected to drop further to 48 by 2010 (Whiteside & Sunter, 2000:77).

What, then, will be the economic consequences of a rise in HIV/Aids? Expenditures for health and medical care and for taking care of the relatives of the victim will increase – both public and private – in a situation where the tax base is reduced. Orphaned children may have problems with both schooling and building up the social competence that is normally acquired via the family. The risk that these children will be drawn into crime then increases considerably. Their chances of gaining entrance into the labour market may be reduced drastically, and criminal activity may then appear to be an easy alternative that is superior to irregular and low‐paid work within the informal economy (Whiteside & Sunter, 2000: 96). This, in turn, will lead to increased demands for crime prevention and control measures.

There are two simulation studies on the economic effects of HIV/Aids in South Africa (Arndt & Lewis, 2000, 2001). When the epidemic is introduced into the model, the growth rate falls every year so that by 2010, the real GDP is 20 per cent below what it would have been without Aids. The population simultaneously decreases, but not enough to give the surviving population the higher average if the epidemic had not existed. GDP per capita will be 8 per cent below the Aids‐free scenario. If one omits the alteration of the expenditure pattern directly connected with HIV/Aids in order to obtain a rough idea of the welfare effects (private and public consumption and investments), the difference is even greater at 24 per cent and 13 per cent, respectively. The presence of HIV/Aids also affects employment. According to the simulations, when growth decreases, it will first affect sectors that manufacture investment goods. These sectors use relatively more unskilled and semi‐skilled labour. The supply of labour will certainly decrease, but demand will probably decline even more, as long as the wage level does not fall enough (simulations assume that the real wage for unskilled and semi‐skilled labour remains constant). Unemployment will increase in absolute terms, while as a percentage it will end up at approximately the same level as in the scenario without HIV/Aids.

These reported simulations assume that nothing is being done, and the government has been accused of just that. Mbeki's opinions on Aids and the connection between HIV and Aids have been fuzzy, to say the least, and he has been accused of falling back on theories that have already been weeded out by research (Mathebe, 2001: 170–7). More specifically, the government has maintained that treatment of pregnant HIV‐positive mothers to prevent infection of the fetus is ‘cost‐ineffective’ or unaffordable. However, this is nonsense, as there are studies proving that a relatively short cure will produce dramatically positive effects, and that the state would make a financial saving by introducing a systematic treatment. The only possible conclusion is, therefore, that ‘either you have not done your economic calculus properly, or you have decided not to treat HIV + children − which is it?’ (Nattrass, 2001: 11).

4 THE THIRD STUMBLING BLOCK: POLITICS

The third potential stumbling block for the South African dream is on the political plane. Ever since the elections of 1994, the fear expressed from time to time is that the ANC might succeed in achieving a two‐thirds majority in parliament, which would make it possible for the party to change the Constitution in such a way as to practically neutralise the opposition. The party would then be able to govern ‘without being fettered by constraints’ (Giliomee & Simkins, 1999a: xix). This, say the critics, would be devastating for democracy and pave the way for the type of corrupt one‐party state that has had such unfortunate political and economic consequences in several countries in Africa (Lodge, 1999: Ch. 6).

The extent of corruption in South Africa today is very difficult to quantify. A recent major survey (UN & Department of Public Service, 2003) reports slightly contradictory findings. On one hand, people appear convinced that a great deal of corruption exists. On the other hand, they report a relatively low incidence of first‐hand experience of the phenomenon. There is no doubt that corruption does exist. Areas such as job seeking and provision of public utilities were singled out as the most troublesome, and the police were seen as the most vulnerable, followed by customs. Nevertheless, the clients of the public institutions were relatively positive in their appreciation of how the service was handled.

It seems that corruption has not got out of hand, but whether it is on the increase is difficult to know. Evidence of corruption tends to be a bit anecdotal. In its corruption perceptions index, Transparency International (2003) ranked South Africa in 48th place from the top, immediately ahead of Costa Rica, Greece and South Korea, with a score of 4.4. At the top was Finland with a score of 9.7, and at the bottom Bangladesh with 1.3. Where South Africa is heading in this respect is difficult to predict, and it is probably too early to sound the alarm. However, should the incidence of corruption increase this could open a Pandora's box of rent‐seeking and rent‐creating activities, which may end up in creating distortions. In one way or another these will reduce the economy's rate of growth and put obstacles in the way of such redistribution and provision of public service that could alleviate the situation for the economically weak (cf. Blomqvist & Lundahl, 2002 for a survey). In short, it could become a fourth stumbling block.

The best guarantee against the type of corruption that ensues under one‐party rule is a strong political opposition but, as witnessed by the 2004 parliamentary elections that gave the ANC a resounding majority in all nine provinces, no such thing is in sight. Other parties (with the exception of Inkhata, which does not play much of a role outside KwaZulu‐Natal) do not seem to be able to attract voters among the Africans.

The only way to bring about a more effective political opposition should then be for the ANC to split. What is the probability of this? In one respect, the ANC is an unnatural political group, formed in opposition to the race discrimination politics that characterised South Africa from the first Europeans' arrival to the beginning of the 1990s. To be in opposition is one thing; to rule the country alone is another – one must know exactly what one wants and what means to use to achieve it. On both counts there is divided opinion within the ANC. Within the ANC framework there are widely different ideologies, from Maoist to traditional liberal. This is natural enough as the ANC, over time, has brought together most of the anti‐apartheid factions in South Africa. This was the great strength during the apartheid regime, but in future it may easily turn out to be a weakness.

Cracks have already begun to show. As Giliomee & Simkins (1999b: 24) point out, the hope is that the ANC, through its position as the ruling party, will be able to achieve a lasting improvement of the living standards of the majority of the South African population who, after all, are the ones that hold the party together. In this respect, the ANC is a ‘middle‐class party’. The goal is for Africans to acquire the material standard of whites. This is a heavy burden for Mbeki as, in view of the present circumstances, it may well prove to be an impossible task.

To begin with, the ANC appears to have underestimated the time that is required for economic change. The economy grows only slowly and irregularly, and not always fast enough for per capita incomes to increase. To prevent the gap between aspirations and reality from becoming too large, it will probably be necessary for the responsible politicians to revise the time horizon. Africans, in general, have waited long, and if the present circumstances are any indication, they may well have to continue waiting.

To the general problem of getting the wheels of the economy to turn faster, one must add the problem of distribution. It is not the most needy who have seen their living standards improved, but those Africans who were already relatively well off. This growing gap can easily bring forth demands for a more active redistribution, one of an almost static ‘cake’. Taxes will then need to be raised and progressiveness in the tax system sharpened. Alternatively, the budget deficit will increase, and this is contrary to the ANC's wish to send out positive signals to the business community, namely that the government can be relied on to carry out a business‐friendly and stable economic policy that creates prerequisites for successful investments and growth.

The danger of this type of politics has clearly been realised by leading circles within the ANC and the party has made it clear that it will avoid such a political course. This, however, opens the door to groups with conflicting opinions. In his book When Mandela goes, Lester Venter (1997) paints a horror scenario, in which an ‘African Labour Party’ has broken away from the ANC just before the elections. It has taken over power and started a populist redistribution policy that strangles growth, encourages the educated to emigrate and creates social and political chaos.

This scenario, however, cannot be taken seriously. There are no indications that a fragmentation of the ANC is close at hand. According to Giliomee & Simkins (1999a: 25), ‘as long as the ANC is considered “the Parliament of the African people” there is no prospect of the movement breaking up into its constituent socio‐economic blocks’. On the other hand, the party can easily start creaking at the joints if the economy continues to fare badly and it becomes common knowledge that the only group that will be better off is the one already relatively well off. Rhetoric must be accompanied by tangible progress, not least reduced differences between groups.

The growing pauperisation of the poorest groups in South African society may have undesirable effects in the long run, both in terms of growth and the ability to undertake the needed redistributive measures. Their human capital is often close to non‐existent. They lack education and have little or no informal training. Their health and nutrition standards leave much to be desired and they are likely to be the last ones sharing the fruits of growth. This, in turn, will increase the demands for redistribution, possibly in a situation where the scope for redistribution is limited because the economy is not growing.

The danger of populist politics, in which redistribution takes place at the cost of growth, lies within a continuing and united ANC. If only to prevent the cracks that have already begun to appear from getting worse, it may be necessary to change the course of the present economic policy. In his interesting biography of Thabo Mbeki, Mathebe (2001) points out that Mbeki is, in many respects, a product of the ANC traditions, and that he has been ‘socialised into them’. He is not a radical but a trustee of just such traditions, not least of which are pragmatic consensus solutions. The party succeeded in going from the socialist rhetoric that characterised the early ideological and political documents (e.g. the Freedom Charter), to one of a market economy and deregulation‐permeated economic policy. For this swing it was possible to obtain a majority, but it is now a matter of whether the economy will be able to deliver the increased incomes. Free trade increases the pressure of competition; privatisation of state enterprises leads to reduced work forces; and increased flexibility in the labour market increases competition for jobs and exerts pressure at the wage level. These forces must be compensated for.

The RDP was an ‘internal’ result of the consensus policy. The Congress of South African Trade Unions (COSATU) and the communists obtained a distribution policy in exchange for the ANC's marketing of growth as necessary for development. No group within the ANC has indisputable power, and balance between the various factions is necessary (Lodge, 1999: 4–5, 11). Otherwise, the mood could easily swing and make it difficult to resist demands for a more active interventionist and distribution policy from COSATU and the communists. The trade unions, with no wish to see the labour market become more flexible, are more concerned with those that are already in the labour market, not those who are outside the formal labour market. The Communist Party has already accused Mbeki of sacrificing social objectives of the RDP on the altar of the stabilisation that was built up in GEAR (Hadland & Rantao, 1999: 137–42). Mbeki himself has emphasised that South Africa in reality has so far consisted of ‘two nations’, that skin colour and poverty are strongly correlated, and that this condition cannot continue in the new South Africa (Mbeki, 1998: Ch. 9; Mathebe, 2001: 78). Both COSATU and the communists would welcome a different, more active distribution policy. However, such a policy may easily hamper investment incentives, slow down growth and eventually become self‐destructive. The increased redistribution will have to be undertaken with a shrinking cake, thus contributing to a continued shrinking rate of growth.

5 CONCLUSIONS

It does not seem very likely that Thabo Mbeki will be able to realise his dream of an African renaissance in the near future. Growth in the South African economy has been both low and uneven since the political regime shift in 1994. It is not sufficient that the government is conducting a responsible and stable economic policy; growth also requires expanding markets. On the home front, things have progressed somewhat sluggishly and it has turned out to be difficult to find comparative advantages that do not require investments and education. The high crime rate certainly keeps investment incentives low. Although emigration of the white educated labour force has not so far been much of a problem, it could well be in the future.

Growing economic and social gaps could also frustrate realisation of the South African dream. The legacy of apartheid left South Africa at the top of the world's list when it came to differences between rich and poor or, in other words, differences between races. As this pattern is being changed a new gap is simultaneously beginning to appear, one between rich and poor Africans. Hence, it would be true to say that incomes are being levelled, but not in the way envisaged in the dream. Poverty is strongly tied to unemployment. Far too many people are outside the formal labour market, and it is these that the government finds it most difficult to manage. It is doubtful whether increased wage flexibility can solve the employment problem. Instead, it would appear that education is the key to employment. HIV and Aids are additional factors that will probably increase not only unemployment but also income gaps, through the income decline resulting from the fact that increased mortality will reduce the demand for labour‐intensive products.

Finally, the political development itself may slow down welfare increase in South Africa. Critics have mentioned the risk that the ANC can become a monolithic, corrupt ruling party without the checks and balances normally brought about by a strong opposition. The ANC could be split, and a segregated group could pave the way for a more populist redistribution policy. This, in turn, could produce negative reactions from investors and thereby slow down growth. However, these scenarios do not seem particularly likely, at least not in the near future. The risk is rather that, in a situation where the economy grows slowly and the dream is not realised, the party leadership, in its efforts to keep together what is basically a very heterogeneous coalition, may be tempted to change policy in a more interventionist and populist direction and so reinforce stagnation.

It is difficult to predict exactly where South Africa's economy will go in the near future. Even though there are several complex stumbling blocks that can frustrate the realisation of the aspirations of the government and the majority of the population, it is hardly likely that a catastrophe will be the result. The risk is stagnation over a long period. It is not possible to postpone redistribution for as long as one likes or deliver it piecemeal the whole time, for sooner or later one has to come to terms with it. In the foreseeable future, it is growth that is the key to increased welfare. If the economy grows, it will be easier to counteract increasing gaps and avoid an unwanted political development. South Africa, however, has yet to find the miraculous cure that will make the wheels turn considerably faster than they do today. All the indications are that South Africans may well have to resign themselves to the fact that it will not be today's but tomorrow's generations that will see their dreams come true.

Additional information

Notes on contributors

Lennart Petersson 1

Respectively, Professor, Department of Economics, Stockholm School of Economics, Stockholm, Sweden; and Associate Professor, Department of Economics, Lund University, Lund, Sweden. Lundahl acknowledges support from the Swedish Collegium for Advanced Study in the Social Sciences.

Notes

Respectively, Professor, Department of Economics, Stockholm School of Economics, Stockholm, Sweden; and Associate Professor, Department of Economics, Lund University, Lund, Sweden. Lundahl acknowledges support from the Swedish Collegium for Advanced Study in the Social Sciences.