Press "Enter" to skip to content

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.

Author

  • Lee-Roy Chetty holds a Master's degree in Media studies from the University of Cape Town and the University of Massachusetts, Amherst. A two-time recipient of the National Research Fund Scholarship, he is currently completing his PhD at UCT and is the author of a book titled – Imagining Web 3.0 Follow him on Twitter @leeroy_chetty. He can also be contacted via e-mail at [email protected]

20 Comments

  1. Lyndall Beddy Lyndall Beddy 5 June 2012

    The “legacy’ of apartheid/colonialism was that the ANC got handed the richest economy in Africa.

    Then they opened the borders and invited in everyone to share because “South Africa can’t be an island pf prosperity in a sea of poverty” to quote Thabo Mbeki.

  2. Yaj Yaj 5 June 2012

    GEAR the misguided macroeconomic pollcy framework was based on the false trickle-down economic theories which have failed miserably. Our economic policies to date have promoted capital flight from our shores on a massive scale and have never achieved any exchange rate stability at all. The rand has been massively devalued, is one of the most volatile currencies around and highly vulnerable to speculative attacks and hot money flows through the carry trade. These are not conditions conducive to fixed direct investment or development of a sound manufacturing base
    Unfortunately we are stuck in a paradigm which advocates export competitiveness and global competition but we are actually behind the curve here. What we are now witnessing is a collapse of the global financial system and the economic growth paradigm, simply because compound growth is unsustainable on a finite planet with finite resources. We are hitting certain natural limits to perpetual growth vis-a vis peak oil, peak debt, peak coal, peak uranium, peak water, peak everything.

  3. Garg Unzola Garg Unzola 5 June 2012

    Hang on for a sec:

    The ANC government’s approach has not been entirely Neo-Liberal. If this were the case, you’d be able to mention the previously state-owned enterprises that are now privately owned. This is not the case, as either the state-owned entities are still state owned, or they have a fair dose of private share holders. They are however still largely state run with CEOs and the like appointed by the government.

    Then there is the question of labour, for which our government has been castigated time and again by ratings agencies and the IMF for not being Neo-Liberal enough. Our wages are disproportionately high when compared with wages of other emerging economies and likewise our skilled labour is not paid on par with other emerging economies.

    The ANC government did very well in terms of fiscal conservative measures when under Manuel, which is largely why we were unscathed by the financial crisis world wide. Our biggest hiccup was Eskom’s power failures.

    You do address the labour problem and the relevant current problems, but to suggest that South Africa’s government declined to intervene and let the market take its course is inaccurate when they continue to enforce minimum wages and when the public sector grew enormously under the ANC, plus we’ve had minimal privatisation of state-owned enterprises.

  4. Keynes Keynes 5 June 2012

    Well argued, but I fear unsound. “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. ” SA is like the UK in the late 70’s – a bloated state, high inflation, very low competitiveness, lots of jobs for pals, lots of protection, a mindset of entitlement, a vampire state which loves totalitarian thinking and central planned economies distributing srare contracts, ofar too many consumers and very few producers. Socialism as you destribe it has been tried as an experiment time and time again and has failed time and time again. Socialism will redistribute poverty, make all poor, make winners of the lazy and losers of the hard working. SA will become a ‘loser state’ in every way. The downfall of the SA economy is likely to happen unless there is a complete change of mindset away from socialism and statism. But it is unlikely to happen. The state will eat the sweets and then destroy the sweetshop.

  5. Keynes Keynes 5 June 2012

    “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. ” Well intentioned, but unlikely to work. The state is simply too inefficient, basing itself on politics not merit, going through the charade of ‘jobs’ but not work, giving people positions but without adding value, basing decisions on patronage not on the free choice of free people, and adding cost to every process. How many parastatals are efficient? How many are profitable? How many employ the best people? This is adding another layer of sludge to the economy, which will ultimately do nothing but drive up costs to the productive sectors and the poor. And make every SA person, individually and collectively, poorer.

  6. Tofolux Tofolux 6 June 2012

    @Lee-Roy, I think it is a misnomer to promote the claim that our labour laws is the panacea to business growth, It isnt. Also, in terms of all these strategies, one needs to ask the question, where is business and their strategies? Personally, I think that business is holding this country to ransom with their counter-challenge to the govt strategies. In a developmental state that cannot be allowed and for far too long have we been too cosy and allowed business to dictate our paths. If one looks at the Chinese model, 1) it is a communist country enjoying the fasted growth today and in abt 15yrs it is expected to overtake America as no1 economy in the world.Most of its business is capitalist based so how did they achieve this growth given their dismal history eg Mao. China is a good eg for all of us and I think in our strategies this is where we are heading and that is the mariage between Communism and Capitalism. What this proves is that there are no absolutes when it comes to the material conditions on the ground. Chinese govt recognised this hence this progressive economic explosion. In SA today, we have an economy which tries and exist outside govt hence their wholesale support of DA. This business does not want govt intervention and they are having a toe to toe fight with govt eg nationalisation.The Chinese govt became like dictators and dictated strategies and measured growth against business performance. In our developmental state, this approach is long overdue

  7. Peter Joffe Peter Joffe 6 June 2012

    South Africa is the only country in the world where Affirmative Action is for the majority. In most other countries they have laws that are supposed to protect and include the minority. In South Africa it’s the other way round and the only way they can do that is to discriminate against the minority, or those who do produce. BEE, A.P. etc and all the others BEES are supposed to give the majority the edge but there is only one thing that can do that – EDUCATION AND AMBITION. This is something that the ANC have failed to provide and they, themselves think that the black folk don’t have the brains to get a decent education so they have reduced the pass rate to a level where their people are useless. If you cannot beat the white man, then ban him, discriminate against him and pass labour laws that prohibit anyone (yes even black entrepreneurs) from employing anyone. In this pseudo communist regime, employers are seen as ‘exploiters’ and are treated with disdain. If there is no motive to start a business, in order to create a better life, then no expansion will happen as is the case at the moment. Government created ‘jobs’ do not produce, they only drain the treasury. You can only learn from those who have the knowledge that is needed but as we have all seen, the knowledge that most white people have is not needed by the ANC. Please do not get me wrong – there is nothing wrong with a ‘black brain’ but if all you feed it is garbage then garbage is that you will get out of it.

  8. Tofolux Tofolux 6 June 2012

    @Lee-Roy, I think for the purpose of this debate you need to sketch the conditions on the ground in 1994 simply becos there are some amongst us who is suffering from selective amnesia and why this ANC need an overhaul of its dismal economic conditions in 1994.

  9. Peter Joffe Peter Joffe 6 June 2012

    As long as the ANC continues to reward failure with higher pay, free houses, services, more welfare, money for having babies and bonuses for non performance, the only growth that South Africans can expect to see is in the deficit. Corruption, nepotism, cronyism and the false conception that anyone can do a job that needs an educated and capable person is stupid. Let us forget about the past, forget about the future until we fix the schools and start to produced thinkers and doers not dancers and singers. We have lost 18 years educating people for failure! How do we fix that? I have no idea but debating about all the promises and rubbish that comes from government is a waste of time? We have to start at the bottom and fix the quality of South Africans that our schooling system produces. Of course as more and more people get properly educated they will realize that they have to vote for performance, legality and the future which is something the ANC cannot deliver. I know of no other country in the world where the citizens have to take their ‘wonderful ‘ government to court to get school books whilst the “Minister of failure in schools” sings, dances and protests about things that should not concern her. Where politics and greed collide with the needs of the people, politics and greed are the only winner. Be ashamed, be very very ashamed of the mess this ‘government’ has made and is still making.

  10. Nasdaq7 Nasdaq7 6 June 2012

    As people have said before: immigration was a major problem, Zimbabwe, corruption, militant labor force, minimum wages, nepotism, impact of sanctions, apartheid laws, capital flight, skills flight, but I want to add the most important one: ASIA.

  11. Enough Said Enough Said 6 June 2012

    Thanks Lee-Roy

    1) South Africa has to shift along the lines of the South Amrican economies to become sustainable.

    2) “investing in the green economy” – the government are paying lip service to this while selling out to large global agri-corporations and dirty energy, such, coal, nulcear and fracking. These scams are far, far bigger than the arms deal.

    A real green economy will deliver a safe, sustainable future for all South Africans.

  12. Rich Rich 6 June 2012

    Tofolux – China? Get real. To be a peasant or factory worker in China is not a nice thing to be. Their human rights record sucks. Only government approved labour unions allowed (how does that little fact bolster workers rights).
    Dismal economic conditions – agree there but it was still the power house of Africa (albeit at the expense of a large portion of the population – Wait! That sounds like China now…).

    Personally I think that where there is cronism or as we so quaintly put it, ‘cadre deployment’ (that sounds so revolutionary, no?) we will fail. There are competent people out there so why not use them?

    One last thing: Have you employed a large number of people and experienced the restrictions of our labour law personally?
    You always seems so sure of what you say and are quick to dismiss others who disagree so I am wondering as to what preportion of what you say is theory or practice?

  13. The Creator The Creator 7 June 2012

    It’s rare that I agree with GargUnzola, but GEAR — as a simple deficit cutting strategy — was not such a bad thing. Without the low state debt and low deficit, we couldn’t have afforded either the infrastructure spending of Asgisa, or the free antiretroviral programme.

    However, neither GEAR nor Asgisa was conspicuously a developmental system. For development, you need industrial investment, to generate additional goods and services which promote further employment which in turn promotes more demand, creating the “virtuous cycle” which is the Asian developmental system (and which was also used by Europe and the United States during their developmental phase).

    “Developmentalism” without development is pointless, and in my view this is what we have at the moment. The infrastructure programme will create few jobs while costing over three trillion rand in order to produce transport and power opportunities for the mining industry — meaning the export of primary commodities. This is a road to bankruptcy and ruin, no matter what pious nonsense is in the New Growth Path. We need to build an indigenous market and we need state control of capital (which is what Korea, Taiwan and Malaysia used to generate their development) so as to ensure that it is used for indigenous manufacturing and beneficiation projects.

  14. Julian Frost Julian Frost 7 June 2012

    “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…”
    Don’t make me laugh. Zuma promised 500 000 jobs a year in 2009. It hasn’t happened.

  15. Lyndall Beddy Lyndall Beddy 7 June 2012

    Peter Joffe

    Actually Affirmative Action/BEE was used to disadvantage an educated minority in both Sri Lanka (Tamils) and Malaysia (Chinese) by the “noble peasant” uneducated majority.

  16. Charlotte Charlotte 7 June 2012

    @ Peter Joffe
    This is not the first time I have complimented you: What you write is notable. It gets to the heart of the matter and makes a strong impact. The way in which you express yourself, also makes much of it quotable . ….

    Snippets from your two previous comments: ” …there is nothing wrong with a ‘black brain’ but if all you feed it is garbage then garbage is that you will get out of it.”
    “Where politics and greed collide with the needs of the people, politics and greed are the only winner. Be ashamed, be very very ashamed of the mess this ‘government’ has made and is still making.”

    Bearing out what you say, here is a quote from an article entitled ‘INEPTOCRACY’ which appeared in the UK Times Online written by David Hill about the ANC :
    “South Africa is the only country in the world whose Affirmative Action policy favours a majority who also happen to have complete political control.”

  17. bernpm bernpm 7 June 2012

    “South Africa’s development paradigm”….the predominant problem is a new plan every five years with no serious investigation in the reasons for change, links with the previous plan and explicit measures to correct the issues for the change.

    I have studied the latest plan by Trevor and some twenty learned and business people at the cost of some 80 million Rand. Apart from the ususal references to the apartheid era, nothing innovative. No realistic positioning SA in todays world. The plan has seemingly fallen of the table together with its prime driver and responsible developer.

    Today? All are enjoying the leadership struggle in the “struggle party” with little other progress in socio-economic aspects being made. SA does not have this luxury.

  18. Rich Rich 8 June 2012

    @bernpm – I think you have hit the nail on the head there. I term it ‘re-inventing the wheel’. There is no continuity.
    I have seen this in several departments. Every five years (except under Mbeki where we had ten and of course the commodities boom) there is a change of guard where all top positions are shuffled. With egos bigger than their expertise their authority is enforced by changing everything. The collective result is something works, then it is broken, then five years of patch work and then broken ad nauseam. What you get is disfunction, disfunction and more disfunction.

  19. Lyndall Beddy Lyndall Beddy 11 June 2012

    Rich

    Continuity in a developed state is by its PERMANENT Civil Servants – not by its Ministers or Politicians.

Leave a Reply