OVERCOMING UNDERDEVELOPMENT IN SOUTH AFRICA’S SECOND ECONOMY DEVELOPMENT REPORT 2005 OVERCOMING UNDERDEVELOPMENT IN SOUTH AFRICA’S SECOND ECONOMY DEVELOPMENT

OVERCOMING UNDERDEVELOPMENT IN SOUTH AFRICA’S SECOND ECONOMYDEVELOPMENT REPORT 2005

OVERCOMING UNDERDEVELOPMENT IN SOUTH AFRICA’S SECOND

ECONOMY

DEVELOPMENT REPORT 2005


Structure of the presentation

• Why raise debate on the second economy and who does this refer to

• General overview of report and highlights on why underdevelopment persists

• General discussion on the second economy including government interventions targeted at the 2nd economy

• Unemployment• The EPWP


Why the report; why the second economy?

• Since first mentioned in 2003 references to the “second” economy have multiplied

• The term relates to a reality: – At least 6.2 m people survive in the ‘second economy’

(subsistence farmers, informal sector workers, discouraged unemployed and working poor)

– This equals nearly 20% of the 30m working age population– Another 30% of the 30m are officially unemployed

• These shocking statistics convinced three of South Africa's leading knowledge institutions to investigate this concept….


The DBSA, UNDP and HSRC investigates the “second economy”

• The DBSA, HSRC and UNDP are mandated to address poverty and underdevelopment. This partnership, with guidance from Prof Ben Turok, ANC MP, agreed to investigate this new metaphor

• Several papers were commissioned and served at a National Underdevelopment Conference held at the Sheraton Hotel in Pretoria on 28 and 29 October 2004

• The success of the conference culminated in the papers and discussion being enriched with further research, and ultimately in this publication


Structure of the Report• Part I examines how 300 years of colonialism plus 50 years

of internal colonialism conspired to create a dual economy: a globally integrated first economy producing, consuming and exchanging; and a constrained second ‘economy’ characterised by informality, poverty, marginalisation, and ultimately underdevelopment

• Given this unfortunate history we then ask, in Part II, why is underdevelopment persisting? Why is it that in post-apartheid South Africa, with the shackles of apartheid removed, that both poverty and inequality have increased?


Some reasons why underdevelopment persists

• severity of the legacy left by apartheid • underinvestment in the education of black people• Lack of assets • Unfriendly environment for small business & lack of effective

demand for the products and services they sell.• HIV/Aids pandemic. Aids interferes with poorer households’

ability to cope, let alone accumulate and thrive • Inadequate economic growth


Structure of the Report cont.

• Part III presents 4 examples where government directly intervenes to stimulate economic activity. These illustrative examples are: DPLG’s rural and urban programmes; the public works programme; and the agricultural and small business sectors.

• These examples culminate in some broad observations, which the next speaker will share in more detail, these suggest that government could be more successful in addressing development challenges.


Structure of the Report cont.

• Part IV consist of continental, regional and domestic statistics

• The continental and regional data is an updated version of the data contained in the 2003 Development Report

• The domestic data provides an up to date overview of national, provincial, district and local municipal indicators, presenting all demographic, economic and on a household level, socio-economic, data


Context: the three pillars of government’s anti-poverty drive (Mbeki, 2003)

1 Strengthen the first economy

2 ‘Meet the challenges of the second economy’

3 Provide and refine the social security net


What is the ‘second economy’?

• Characterised as “...a mainly informal, marginalised, unskilled economy, populated by those who are unemployed and those unemployable in the formal sector.” (Ten Year Review, 2003)

• Also, unable to benefit from growth in the first economy, and difficult to assist

• Related concepts - – ‘Dualism’

– ‘Underdevelopment’


Why the second pillar?

• Because regardless of macroeconomic policy, job creation in the first economy will not solve poverty in the short and even medium term

• And because the social safety net also has limitations– already a strain on the government budget

– provides only partial assistance to certain categories of people


What are ‘second economy interventions’?

• Expanded Public Works Programme (EPWP)• Land Redistribution for Agricultural Development• Small enterprise support• Poverty alleviation projects• Integrated Sustainable Rural Development

Programme and Urban Renewal Programme• Comprehensive Agricultural Support Programme• MAFISA (new rural loan scheme)• ‘Local Economic Development’• Etc.


THE EXPANDED PUBLIC WORKS PROGRAMME


Important: the nature of unemployment - chronic, structural and mass

• economic growth has been slow and erratic. • most labour-intensive sectors were the least dynamic in terms of

investment and growth. (technological advances, decline in primary sector, globalisation)

• the labour participation rate increased>new jobs created• Job creation was not a given prominence in the 1990s


State of unemployment cont.

Depending on the rate of growth of the labour force and the

participation rate, the economy will have to create between

350 000 and 750 000 additional jobs per annum to halve

unemployment by 2014. Over the period 1997–2003, it looks

as though it may have delivered between 150 000 and 180

000 formal jobs per annum, while the informal sector has

stagnated.


2002a

15%

20%

25%

30%

1995 1996 1997 1998 1999 2000 2001 2002

Off

icia

l un

em

plo

yme

nt

rate


Assumptions on unemployment

• Economic growth will lead to increased employment• Improved education will enable workers to take up

opportunities created by the growth• Until then EPWP


Problems with such assumptions: skills

• high levels of unemployment among the unskilled may be expected to continue even with GDP growing at 4 per cent per annum in the medium term

• Skills imparted by EPWP not those needed by the economy

• Period of individual beneficiation too short for meaningful skills development

So EPWP graduates have low labour participation rates


EPWP expectations and critique

The EPWP offers short-term employment

(experience) and training, on the premise that

supply-side interventions are an appropriate and

effective response to transitional unemployment.

• As said earlier economic growth will not be able to respond that quickly to deal with the massive number of unemployed

• the programme would deliver 200 000 temporary employment

opportunities each year, which represents about 2 to 4 per cent of the total unemployed annual workdays


EPWP expectations and critique cont.

• Because of its short term nature, income consumed• EPWP is not linked to other poverty alleviation

strategies like SMME creation


EPWP expectations

Moving people of social grants• Target group is working age poor that are in any case

not eligible for social grants


What can be done?

• Lengthen periods of beneficiation like what is planned to happen in social EPWP up to 2years, this enables meaningful skills development, savings

• Need to have a large scale interventions which may include making the programme really massive to boost domestic demand

• Need to understand the real constraints/problems

• Need to learn lessons from the past


DBSA EPWP support (5 year strategy)

• DBSA funded projects approved and implemented as per EPWP principles

• DBSA’s Development funding R1mln grant funding on study for job audit and institutional audit of social cluster for effective implementation of identified job potential in social sector

• Partnership being developed with other sectors (environmental and economic)


Questions welcomed

Thanks, siyabonga, dankie,

Documents

OVERCOMING UNDERDEVELOPMENT IN SOUTH AFRICA’S SECOND ECONOMY DEVELOPMENT REPORT 2005 OVERCOMING UNDERDEVELOPMENT IN SOUTH AFRICA’S SECOND ECONOMY DEVELOPMENT