The contrast between unfettered praise and damning criticism generated by the release of the Human Development Report on South Africa by the United Nations Development Programme (UNDP) last Wednesday has exposed the polar economic ideologies in this country.
While the report underscores what most South Africans accept — high unemployment, widespread poverty and a wealth distribution gap that is too wide and racially defined — the ensuing debate has created waves.
On the one hand, economists and the government have slammed it for its simplistic approach and doctrinaire biases; on the other, trade unionists have celebrated it for reaffirming their creed: that social and political inequalities remain embedded in most people’s daily lives.
The report lambastes the industrial, monetary, fiscal, debt and labour policies of the government. It says that the rand is too strong and that inflation targeting is too high, which curbs economic growth by limiting investment.
According to the report, the level of real investment in the economy declined between 1981 and 2001. In 1981 investment amounted to R106,4-billion (27,5% of the gross domestic product or GDP) and in 2001 it was R100,6-billion (14,8% of the GDP).
The report underscores the fact that life is getting tougher for most South Africans and challenges the blue-suited economics of the past eight years — preserved by the growth, employment and redistribution (Gear) strategy — to inspect the persistence of low growth rates, worsening income distribution and the growing unemployment rate.
“Since 1994 the government has pursued the objective of restructuring the economy through export-promotion in an increasingly liberalised environment. In doing so, it has used a host of incentives that have continued to foster the capital intensity of production at the expense of encouraging employment potential,” says the report. The result is that 50,7% of the total investment in 2002 was in machinery and equipment.
Minister of Finance Trevor Manuel’s introduction of Gear in his 1996 Budget speech as “non-negotiable” may have come back to bite him. According to the report, Gear’s main targets in 1996 for 2000 were a GDP growth of 6%; accelerated employment growth reaching 409 999 jobs annually after 2000; an 8,4% increase in the export of goods and services; a rise in gross domestic savings from 18% to 22% of the GDP; increased gross domestic investment from 20% to 26% of the GDP with an average annual private investment growth rate of 11,7%; and foreign direct investment (FDI) amounting to 4% of the GDP. Instead, GDP growth was 2,1% between 1997 and 2000, and 3,1% in 2000; 509 999 people lost their jobs in the formal sector; exports were only 4,3%; gross savings for 2000 were 15,2% of the GDP; investment during the same year was only 16,7% of the GDP; and FDI was only 0,7% of the GDP (R6,1-billion compared to the expected R35-billion).
The only target achieved is inflation reduction — Gear aimed to keep inflation below 10%. The latest CPIX was 6%.
For most South Africans, poverty is all encompassing. Survival is so ingrained that in the dusty township streets, it has become a platitude.
While absolute poverty declined 3% between 1995 and 2001, given that the population has grown over the same period, the total number of poor people increased from 20,2-million in 1995 to 21,9-million in 2002.
What these figures mean is that the resources required to buy goods and services, which keep the wheels of the economy oiled, remain scanty.
The policy recommendations in the report are generic and under- researched, providing critics with a feeding frenzy.
However, beyond these criticisms, the report is an eye-opening dissection of the government’s inability to roll back poverty.
“For us, the central finding is paradoxical — since 1994 our government has dramatically improved services and social grants for millions of South Africans, but has barely [altered] the overall picture of poverty and inequality left by apartheid,” said Zwelinzima Vavi, the general secretary of the Congress of South African Trade Unions.