Lee-Roy Chetty
Lee-Roy Chetty

South Africa’s development paradigm

Development policy in post-apartheid South Africa has traditionally focused on the debate over the superiority of either state-controlled or market systems. Like many other developing world countries before it, South Africa expected that globalisation and the replacement of traditional industries by modern sectors would become a panacea for economic development in our country.

Based on this economic hypothesis, our government has historically been restrained in its intervention in the economy so as not to obstruct the free market in line with a neoliberal approach to economic policy.

However, the legacy of racial and regional disparity caused by the legacy of apartheid planning has proven that redress cannot be left to the market only to be resolved. An active role of the state is clearly needed. Our newly democratically elected government therefore took steps to address the needs of disadvantaged groups within our country through variables such as improved public service delivery in the form of low-cost housing, water and electricity, social safety nets and the Black Economic Empowerment (BEE) initiative.

In 1996, the Growth, Employment and Redistribution (Gear) strategy followed the Reconstruction and Development Programme (RDP) that was put in place at the end of the apartheid in 1994. The Gear strategy focused on macroeconomic stabilisation as well as trade and financial liberalisation as a priority to foster economic growth, increase employment and reduce poverty. The Gear architecture was designed along neo-liberal convictions to economic policy. This resulted in priority being given to liberalise the economy, allowing prices including exchange rates to be determined through market forces, the protection of property rights, and improving the environment for doing business in our country. As a consequence of this strategy, our government reduced fiscal deficits, lowered inflation, maintained exchange rate stability, privatised state assets, cut tax on company profit and decreased barriers to trade and liberalised capital flows.

However, the Gear strategy faced multiple challenges and shortcomings. The assumption that redistribution would come from job creation in a context of reduced public expenditures was found not to be realistic. The global economic crisis of 1998 also resulted in a decline in world demand for South Africa’s exports such as gold and ultimately put an end to our country’s Gear strategy.

It was clear that both monetary and fiscal policies had to now be relaxed. This resulted in exchange rate stability which was maintained by high interest rates to avoid capital flight.

However, over the last decade, there has been a widening inequality and slow progress in addressing poverty, deprivations and other dimensions of well-being in our country. Current economic growth has resulted in large regional disparities and left large segments of our population vulnerable. In response, our government adopted an ambitious strategy called the New Growth Path (NGP) in 2010 that combines the goal of strong economic growth, job creation and broad economic opportunity in one coherent framework.

The NGP embraces the concept of a developmental state where the government confers upon itself a crucial role in directing resources to attain pre-defined social and economic programs. The NGP’s priority is the creation of decent jobs by identifying what is known as areas of job drivers. Within this framework, public investment is expected to be directed at the promotion of infrastructure development, improving the value chain in agriculture and mining, investing in the green economy, encouraging light manufacturing sectors, tourism and other high-level services.

Based on NGP projections, the government would like to expand employment by approximately five million jobs by 2020. This will be achieved by generating roughly 500 000 jobs every year for the next decade by focusing on what the government calls sectors with “high employment potential” such as infrastructure, agriculture, mining, industry and tourism. The NGP also lays out plans to reform land ownership, minerals reserve rights and business regulations to improve efficiency of the utilisation of natural resources.

A number of key policies should also reduce the mismatch between demand and supply of labour and ensure an effective interface between employers and job seekers. The NGP is seen as a very ambitious framework that encompasses a lot of sectors and fields and reconsiders South Africa’s policies in education, skills development, labour, technology and trade.

However, the biggest challenge to the NGP strategy in the coming years will be the omission of a clear export promotion strategy. In addition, labour market reforms which have been seen as responsible for persistent high unemployment and industrial policy to improve the country’s competitiveness in the global economy must also be critically addressed and reformed.

Our country’s government is one of the few governments in the world which has committed itself to being a developmental state. The definition of a developmental state has increasingly been given to governments that strive to promote social, economic and political inclusiveness by relying on creative interventions where markets fail and complementing them where they thrive through partnerships. The implementation of the NGP is testament to this fact.

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