economy

The Statistics South Africa Quarterly Labour Force Survey has revealed that the number of unemployed persons increased by 100 000 people to 4.6 million between the fourth quarter of 2012 and the first quarter of 2013. This took the country's official unemployment rate to 25.2 percent from 24.9 percent in the fourth quarter of 2012.
 
The more realistic expanded definition of unemployment, which includes people who have stopped looking for work, increased to 36.7 percent in the first quarter of 2013 - the highest since 2008. This is a massive waste of human resources, which could be mobilised for development.
 
The report further says that the number of discouraged work seekers increased by 73 000 to 2.3 million between the fourth quarter of 2012 and the first quarter of 2013 and young people (between 15-34 years old) accounted for 70.7 percent of the unemployed persons. This is preposterous!
 
It is absolutely demoralising to see that if this trend persists we shall not only fail to meet the government's target of creating five million new jobs between 2010 and 2020, but end up with a net loss of jobs over those 10 years.
 
COSATU is vindicated by reports that, in the first quarter of this year, employment in private households, i.e. domestic work, recorded a growth of 29 000. The agricultural sector also grew by 54 000 jobs – despite the increase in sectoral determinations which so many analysts were arguing was going to lead to a rapid decline in jobs.
 
Surely this will change the common perception about minimum wages. The increase in jobs in the agricultural sector has shown that where there is an increase in wages or when minimum wages are set at a reasonable level, they have no significant employment effect one way or the other.
 
The Freedom Charter says that there shall be a national minimum wage. Yet one of the areas that bourgeois apologists always raise regarding the discussion on labour market performance is the issue of minimum wages leading to job losses.
 
International experience - as outlined to our Collective Bargaining, Organising and Campaigns conference by the International Labour Organisation’s chief economist, Patrick Belser, as well as a detailed input on the experiences in Brazil - discredit these claims for what they are: propaganda and a denial of realities here and elsewhere.
 
Having said this, COSATU reaffirms its call for a legislated national wage and an incomes policy to be combined with an appropriate macro-economic and industrial policy - not the policy in the National Development Plan, which would entrench deregulation of the labour market, and deindustrialisation.
 
This legislated national minimum wage must cover all workers, and ensure the abolition of the existing ineffective and fragmented system of sectoral determinations and the introduction of comprehensive, legislated, wall-to-wall centralised bargaining in all sectors of the economy, through appropriate amendments to the Labour Relations Act.
 
We also welcome positive employment figures in the mining and construction sector, but it is concerning that the manufacturing industry has seen eight percent shrinkage in the last quarter and 10 percent shrinkage over the year. Construction has seen an overall significant increase over the year of around 70 percent - although a decline in this last quarter - that could be taken as an indicator that the expansion of infrastructure is working to create jobs. The continued shrinkage in manufacturing jobs is clearly a cause for worry.
 
The continuing job losses underline the correctness of our central demands there is an urgent need to overhaul macro-economic policies to be in line with a radical economic shift necessary to deal with unemployment, poverty and inequality. These demands include:

• The call for decisive state intervention in strategic sectors of the economy, including through strategic nationalisation and state ownership, and the use of a variety of macro-economic and other levers at the states disposal, which can be deployed to regulate and channel investment, production, consumption and trade to deliberately drive industrialisation, sustainable development, decent employment creation, and regional development, and to break historical patterns of colonial exploitation and dependence. 
• The radical economic shift requires that institutionally, the Treasury, which constitutes the biggest obstacle to the government’s economic programme, needs to be urgently realigned; a new mandate needs to be given to the Reserve Bank, which must be nationalised; and the National Planning Commission must be given a renewed mandate, to realign the national plan, in line with the proposed radical economic shift. Aspects of the New Growth Path also need to be realigned in line with the proposed new macro-economic framework. All state owned enterprises and state development finance institutions need to be given a new mandate.

COSATU believes that in order to create a sufficient number of sustainable new jobs, the government will need to show that it is forging ahead with practical implementation and adequate resourcing of the Industrial Policy Action Plan (IPAP) and the Infrastructure Development Plan announced in last year’s State of the Nation Address, and ensure that all levers and institutions of state, including local procurement, and investment by state entities, are used to maximise employment and diversify the economy. However, this must be linked with skills development and training as part of addressing structural unemployment and also to meet employment equity targets; skills development and training should lead to upward mobility of the workforce employment.
 
The only way to address the structural problems in the economy is through industrialisation, in particular promoting the manufacturing sector and the creation of decent jobs. COSATU fully supports the efforts by the Department of Trade and Industry to reverse the deindustrialisation of the economy as a result of neoliberal policies implemented before and after 1994.
 
We continue to support IPAP’s continuing emphasis on policy instruments like the designation of sectors for local procurement. These interventions have resulted in a turn-around in the clothing, textiles and leather sector that was almost annihilated by earlier neoliberal trade policies. This is a clear indication that conscious interventions by the state can save and create more jobs in the economy.
 
COSATU rejects interventions in the economy that focus on low value added service such as travel and tourism, and call centre operations. This is an incorrect route to follow in order to address poverty and inequality.
 
Lastly, COSATU will consistently campaign for policies that encourage manufacturing, including a significant cut in interest rates and the depreciation of the rand to promote new investment in job-creating industries, add value to our raw minerals and to make South African exports competitive on a global scale.
 
- Patrick Craven (patrick@cosatu.org.za) is national spokesperson at the Congress of South African Trade Unions.

Despite being a relatively new player on the international scene, the BRICS [Brazil, Russia, India, China and SouthAfrica] club represents a potentially huge shift in the way global political and economic agreements are struck.

Its supporters are hoping for an end to the current system, where a few rich northern nations use their economic muscle to bully the world - and especially poor countries - into submission. But this is by no means guaranteed.

Many fear that the growth of the BRICS will just mean a transfer of power from one group of countries to another, with people seeing very little actual change.

As a citizen of one of the BRICS countries, I know that we hold tremendous power to help shape this groups agenda. In an increasingly globalised world, the actions of one country or group can have massive impacts across the world.

We all know that problems such as poverty, inequality and global warming, do not respect national borders so what’s needed is a change in approach.

South Africa’s story

South Africa provides a clear example of the need for change with the ongoing debate over the market-based approach to land reform.

Despite repeated failures to bring about meaningful land reform, the current government continues to rely on the invisible hand of the market to re-distribute land in our country from white to black, rich to poor, men to women.

Yet 17 years into the post-apartheid era, this has not been successful.

Despite repeated claims from former President Thabo Mbeki, then his successor President Jacob Zuma, we have yet to see real changes in land reform policies. The question is, as the BRICS power continues to grow, will this change?

A problem shared is a problem halved

It is not only South Africa that’s facing these problems. BRICS countries share a range of development challenges such as poverty, unemployment and inequality.

The club was formed as a result of predictions around these countries’ economic growth prospects but we have to be careful. Our experience in South Africa shows that growth on its own is not a magic bullet - we need new solutions.

At the BRICS summit in Durban, proposals were on the table for a BRICS bank. Details on this remained scarce, although we have to make sure that it doesnot become an emerging economies’ equivalent of the World Bank - an organisation whose approach to development relies on expensive infrastructure projects, which do not include the re-distribution policies needed to help the world’s poor.

The BRICS group must not become a self-interest group and its members have a responsibility to ensure that development in their respective regions happens in as inclusive a manner as possible.

The potential of this group is huge. Here in South Africa we have a vibrant way of engaging people on state policy, but there are still areas where transparency and accountability processes are lacking. BRICS represents a further opportunity to address this dire democratic deficit and build a political and economic group that’s fit for purpose.

- Fatima Shabodien is the Country Director of ActionAid South Africa; she has a long history as a feminist political activist in South Africa. Through her activism, studies and work experience she has honed her expertise in the areas of rural development, women’s rights and peace building. This article first appeared on the South African Broadcasting Corporation website.

President Jacob Zuma addressed a somewhat distracted South African population in his State of the Nation speech. He started and finished the lengthy presentation by reaffirming the commitment of government to the vision set out in the National Development Plan. Unsurprisingly, this was one of a number of echoes of policy decisions made at the African National Congress’ (ANC) national conference held in Mangaung in December 2012. Among them were the categorical dismissal of the nationalisation debate and a strong defence of the supremacy of the constitution. These are things investors want to hear and the reaction of the rand reflected a certain amount of support for the President’s speech from the markets.

The detail provided on the infrastructure development programme will also be of interest to both local and foreign investors. There has been a sense that the government has been slow to implement the plans set out by President Zuma in last year's state of the nation address. The time dedicated on 14 February 2013 presentation to listing a number of the projects that got underway in the later part of last year was clearly targeted at silencing such criticism. The spending already underway by the national green fund was also highlighted as an example of action by government.

What might create some nervousness among investors was confirmation of a study on the tax regime that will include evaluation of the policy on mining royalties and prioritisation of land reform which includes a move away from the ‘willing buyer willing seller’ process and possible limitations on foreign land ownership. There were also few specifics on the likely actions expected with regards to the ongoing challenges in the agriculture sector even though it is now starting to impact on all South Africans through increasing food prices.

President Zuma demonstrated the ongoing struggle in South Africa on the role of the state in the economy. On the one hand he acknowledged that it is not possible for the government alone to achieve the economic goals for South Africa. On the other, however, he lauded the ability of the state to turn around key industries through strong intervention, using bus and train production as well as the clothing and textiles sectors as examples. Local procurement regulations were mentioned as key in this regard. The value of government effort to protect uncompetitive industries such as clothing remains to be seen beyond the short term salvaging of a few jobs.

Business was acknowledged as a partner in South Africa’s development by the President. Three out of the four references to the private sector were urging them to support or contribute to government-led initiatives such as absorbing the Further Education and Training (FET) graduates into the job market, establishing science or maths academies, and fighting corruption. A passing reference was made to the need to ensure ongoing dialogue and inclusion of business in the planning and implementation of national programmes.

With regards to foreign policy, President Zuma briefly outlined a vision for ‘a better Africa in a better world’.  He listed many of the current hotspots in Africa in a cursory fashion while dedicating a little more time to solidarity with the people of Palestine. Former President Mbeki was commended for his role in the mediation between Sudan and South Sudan. President Zuma voiced his hope for conclusion of the dialogues in Zimbabwe and Madagascar, perhaps displaying some impatience with both situations in his passing reference. Any mention of the upcoming election of Kenya was noticeable in its absence.

An explicit link was made between South Africa’s participation in global coalitions like the Brazil, Russia, India, China and South Africa (BRICS) group and the Group of 20 (G20) with its responsibilities to ‘represent the aspirations of the people of Africa’. President Zuma reconfirmed the ongoing juggling act of South Africa’s foreign policy by reaffirming the partnership with countries of the North and explicitly acknowledging the importance of Europe to the economy. There was little detail on how relations will be restored following such decisions as the cancellation of bilateral investment treaties with European countries in 2012. The broad question also remains as to how African priorities, chairing BRICS and rebuilding North-South relations will be managed in a mutually supportive fashion by South African diplomats in 2013.

- Catherine Grant Makokera is the head of SAIIA’s Economic Diplomacy Programme. This article first appeared on the SAIIA website.

At no point since 1994 has the South Africa Institute of Race Relations (SAIRR) confronted more against and pessimism about the future of the country than we saw in 2012. At briefing after briefing we are asked if South Africa is headed the way of the north-African uprisings or Zimbabwe. The same sentiment is reflected in newspaper columns and reports both here and abroad. Perhaps it is partly the SAIIR’s contrarian nature, but in many respects we are now more optimistic about the future than at any point in the last decade.

What follows below is an explanation of how we think and how that thinking has resulted in two very different scenarios of where we will find ourselves in 2024.

We were not always optimistic. In fact for much of the period between 1994 and 2007, we were very concerned about the direction South Africa was moving in even as those in business, politics, and the media around us appeared not to understand our concern. Now that these parties are very concerned we have become more upbeat and again few people seem to understand why.

The years 1994 to 2007 were a period where organised business, organised labour, and the President’s office came together as a powerful nexus creating the façade of a stable and well-managed country. However, any analyst who cared to probe beneath that façade could not help but be alarmed at what they encountered. Poverty increased over the period 1994 to 2001. The number of unemployed people more than doubled over the same period. Most crime levels, with the prominent exception of murder, would peak around the period 2001-2003. Infant mortality rates had increased for the first time since the mid-1980s. Life expectancy for black South Africans was in decline. The rapid increase in access to education for black South Africans had slowed since the boom period of the 1980s and 1990s despite the fact that only 50 percent of the black age cohort was making it to matric and only 30 percent were passing.

It was also clear that changes to the structure of South Africa’s Gross Domestic Product (GDP) would have a detrimental effect on future job creation and therefore political stability. Manufacturing, mining, and agriculture where seeing their dominance in the South African economy usurped by the relatively more highly skilled services sector. However, it was clear that the education system was not improving quickly enough to meet future skills demand. The outcome had to be the state of structural and permanent unemployment that we now confront. 

Yet when we tried to raise some of these concerns we ran into walls. The government’s reaction was blanket denial of any problems. On matters from poverty, to unemployment, to crime, and most prominently HIV and AIDS the problems we identified were dismissed as the fantasies of a racist imagination. Business had little interest in rocking the boat and the door was firmly shut to funds or resources to investigate policy shortfalls.

It was obvious therefore by the early 2000s that the nexus of organised business and labour, together with the relatively new Thabo Mbeki presidency, had set South Africa on an unsustainable economic trajectory that could not possibly last for long. The end for that nexus came in 2007 when Thabo Mbeki was defeated in the 52nd congress of the African National Congress, forcing his resignation as president of the country. With his axing, one leg of the three-legged pot fell off and the pot itself, which previously had seemed so stable, fell over.

More significant than the change in political leadership that followed was that, contrary to most analysis and opinion, South Africa became a more open society. Gone almost instantly was the blanket denial by government of the many social and economic problems faced by the country. Today, it is only too common to hear cabinet ministers and senior civil servants publicly speak to failures of the government itself. It is necessary to think for a moment back to the days of denying that AIDS even existed to appreciate the significance of this change. To a limited extent business also found its voice although mostly in the closed confines of boardrooms. The media and much of civil society, many of which had suspended their critical faculties throughout the Mandela and Mbeki years, woke up to the fact that South Africa confronted some pretty serious problems and started to write and talk publicly about addressing these.

What this overall change in attitude means is that the government, and many in business and the media, are now willing to concede that things are not as stable as the façade presented over the first 15 years of South Africa’s democracy suggested. This explains largely why the current government is starting to realise that its policy mix must change if it is to secure its political dominance.

Putting further pressure on the need for change is that the government is running out of money and its supporters are running out of patience. South Africa’s budget deficit, when measured as a proportion of GDP, has under Jacob Zuma’s administration reached (and at times exceeded) levels recorded in the 1970s and 1980s when South Africa’s apartheid government came under the political and economic strain that forced it to reform. Likewise, the deficit on the current account has reached levels that keep ratings agencies analysts awake at night.

Significantly, pressure for change is also coming from the supporters of the ANC themselves. The ANC’s share of the potential vote has fallen from 55 percent in 1994 to just 38 percent in the 2009 election that brought the Zuma administration to power. Protest action against the state has increased very rapidly over the past five years. The police reported dealing with four protest actions a day in 2011 while the consultancy Municipal IQ reports a tenfold increase in major ‘service-delivery’ protests since 2004.

We have argued at length that the protests arise not from the failure of the government’s service-delivery efforts but rather from the success of these efforts. This is a complex and counter-intuitive idea and needs some explanation. Enormous gains have been made in the provision of free or subsidised water, electricity, and housing. Our research shows that these gains have been so impressive that we might comfortably describe service delivery as a great policy success of the ANC in government. There can be little doubt that the policy resulted in a revolutionary improvement in the basic living conditions of poor people as corroborated by Living Standard Measure data. If you think we are mad in this assessment consider that for every shack constructed in South Africa since 1994, twelve formal houses were built in the country. If this is a statistic that confounds your understanding of the ANC’s delivery performance then it is perhaps necessary that you reassess what you understand to have changed in South Africa over the past 15 years. 

However, far from securing political stability these successes placed increasing pressure on the ANC. There are two reasons for this.

Thefirst is that if it were true that delivery had failed then the ANC could fix its delivery capacity, which should see the protests and unhappiness at the government’s performance evaporate. However, if we are right and the ANC has delivered as well as it realistically could then it has no delivery ace up its sleeve to curb the protests and instability that South Africa confronts. It has therefore come under much pressure to change policy away from redress and redistribution towards growth and employment if it wishes to remain in power.

This leads to the second reason, which is that increasing people’s living standards, as the ANC has done, is a politically dangerous thing to do. The reason for this is that it raises expectations about future improvements. These cannot be met through further delivery but only through job creation and income growth. Where these rising demands are not met protests and instability must result. It is for this reason that the world’s most successful dictatorships, whether in Maoist China, Stalinist Russia, or present day North Korea, go to great lengths to intentionally depress the living standards of their people.           

South Africa’s fundamental problem is that its government has done a great deal to increase the living standards of poor people but has no means, whether through education or labour market access, to allow those same people to continue climbing the living standards ladder.  The ANC and the government it leads are therefore in a wholly unsustainable position if they wish to retain their political dominance in South Africa.

Significantly, there are now many leaders in government, the media, and civil society who will admit to this fact. The list of problems South Africa confronts, which depresses so many people, has therefore become the very thing that will drive policy change in the country. It is for this reason that we are able to be cautiously optimistic about future prospects for the country.

Of course there is still the question of how the government will react to its untenable position. We are not naïve to think that this reaction may lead South Africa out of the woods. In fact, it may very well initially compound our problems before they get better. It is for this reason that when looking into the future there are now two broad scenarios that our Unit for Risk Analysis sketches for its clients and subscribers.

The first is a story of a Long Dark Night. Here an obstinate government presses ahead with failed interventionist policy despite all evidence suggesting that such interventions are doing more harm than good. Here the attitude in the government is along the lines that the private sector has refused to transform and we are damn well going to force them. There are four behaviours, flags, or road markers to watch out for that indicate if we are drifting into this scenario:

• The first is that employment equity and empowerment regulations are tightened;
• The second is that labour market regulations are tightened;
• The third is that constraining legislation is proposed for the media, civil society, and the judiciary; and
• The fourth is that grandiose state-led social and economic projects dominate the policy environment.

This is a troublesome scenario that is likely to result in seven specific outcomes:

• The first is that protest action takes off exponentially;
• The second is that South Africa lags in the savings and investment figures achieved by comparable emerging markets;
• The third is that long-term average GDP growth levels are constrained to under 3.5 percent;
• The fourth is that the unemployment rate remains stubbornly high at around 25 percent and increases in periods of particularly low growth;
• The fifth is that the budget and current account deficits reach unsustainable levels;
• The sixth is that a weakening rand, higher wage settlements, and increased administered prices cause inflation to exceed its 3-6 percent target band; and
• The seventh is that the ANC sees its electoral majority slip to below 60 percent in 2019, leading to the party's losing the 2024 election.

The second scenario is of a New Dawn for South Africa. Here the increasing demands on the ANC, and its declining resources to meet those demands, serve as a catalyst for policy reform. The reformists within the party, building largely on the blueprint laid down in the National Development Plan, seize policy control of the ANC and bring about a series of initially unpopular changes that do, however, have the long-term outcome of securing that party’s future in power.

In this case there are four behaviours, flags, or road markers to look out for:

• The first is a move towards the deregulation of labour markets;
• The second is steps towards a watering down of employment equity and empowerment requirements for investors;
• The third is the abandonment of large-scale state led industrial and social policy such as a state owned miner or steel maker and the National Health Insurance scheme; and
• The fourth is the maintenance of conservative fiscal and monetary policies such as inflation targeting.

Such a scenario should put South Africa within reach of achieving the following six hard outcomes:

• The first is that investment and later savings rates begin to pick up;
• The second is that, subject to favourable global circumstances, GDP growth is able to average in excess of five percent of GDP;
• The third is that at this level of GDP growth unemployment should be in sharp decline;
• That in turn leads to a decline in protest levels and dependency on welfare;
• Increased GDP growth and investment generates the revenues and business activity to contain the budget and current account deficits; and
• Increased revenues mean that the government is able to meet demands for social support, which will remain significant in any scenario over the next two decades.

We do not assign probabilities to scenarios as this would defeat their purpose and turn them into forecasts. Rather, we urge our users to assign an equal probability to all scenarios. At the same time they should use the road markers we identify to guide them as to the direction South Africa is moving in. While the temptation has been to see our first scenario as more likely (based largely on events observed in South Africa in 2012) this is a dangerous and potentially misleading approach and we warn against it.

The reason is that the world changes very quickly and often in unexpected ways. For example in the early 1980s, when most analysts were predicting violent revolution for South Africa, we were predicting a negotiated settlement based on a research methodology not dissimilar to the one we employed in sketching the two scenarios above. While many observers said we were naïve, 20 years later the last leader of the National Party was the tourism minister in an ANC government.

Despite current efforts to strengthen Black Economic Empowerment and labour regulations, many new grandiose state-led projects, and efforts to undermine access to information, there is also much hard evidence in favour of our second scenario. Its blueprint exists in the National Development Plan drafted under the Zuma administration. Also under the Zuma administration, the ANC has identified the need to limit cadre deployment at local government level. Again under the Zuma administration, the government has compromised on banning labour brokers.

Further, and of enormous significance, is that there are many small clothing factories in KwaZulu-Natal that operate outside of minimum wage laws and to which the government is turning a blind eye. A little example like this is always more significant than it appears at first glance as it indicates a government starting to compromise on some of its policies. When that starts to happen it is only a matter of time before the government starts to compromise on more and more in an effort to retain stability. This point is best made by my senior colleague, John Kane-Berman, who notes how it was Jaap Marais, formerly of the Herstigte Nasionale Party, who cautioned John Vorster in 1968 that allowing Maoris to tour with the All Blacks was the beginning of a slippery slope that would lead to “a black man marrying your daughter and sitting next to you in Parliament”. Marais was right and in compromising on the ideology of racial separateness Vorster was unintentionally putting in place the conditions that ultimately led to the negotiated settlement of the early 1990s.  

It is with good reason, and based on a sound research methodology, that we are able to be more upbeat about the future of South Africa than we were 10 years ago. Certainly, we have reason to be more positive than almost any corporate board or audience we are invited to brief as we realise that a window of opportunity has been opened to change South Africa for the better. The ANC is in an impossible position and will have to change to avoid the electorate changing it in the 2024 election. Dramatic change is therefore inevitable for South Africa. Managed carefully and skilfully this is a process that can deliver a more prosperous and stable society.

- Frans Cronje is deputy chief executive officer at the South African Institute of Race Relations (SAIRR). This research and policy brief first appeared on the SAIRR website.