South Africa Reforms

8/3/2019 South Africa Reforms

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SOUTH AFRICAN ECONOMY



Presented by





Economy of South Af rica

The largest economy in Africa which ± accounts for 24% of its Gross Domestic Product in

terms of PPP

± is ranked as an upper-middle income economy by theWorld Bank

Ranked sixth out of the world¶s seventeen megadiverse countries.

Blessed with abundant natural resources and haswell developed financial, legal, communications,energy and transport sectors and a stockexchange ranked among the top 20 in the world.

South Africa is popular for its tourism.



Continued..

Mixed economy with high rate of poverty

Unemployment is high and South Africa is

ranked in the top 10 countries in the world for income inequality, measured by the Ginicoefficient.

Income and human development

± Wide income disparity ± widest gaps between per capita GNP versus its

Human Development Index ranking

± 47% of South Africans live below the poverty line



Human Poverty Index

Indicator Percentage International

ranking

(2010)

Probability of not survivingto age 40

36 143

Adult illiteracy rate (15 years

and older)

12 80

People not using an improved

water source

7 56

Children underweight for age

(aged 5 years and younger)

12 68



Major Issues with the

Economy Unemployment

Income Inequality

Public Sector Strikes Brain Drain

Illegal Immigration

Electricity Crisis Increasing Crimes

Xenophobia



Histor y YEAR OCCURENCE

1700 The Dutch far mers(trekboers) began spreading to the interior

regions of South Af rica .

1795 the British gained contr ol of the Cape f r om the Dutch.

1820 British Government sent unemployed people f r om Britain to

South Af rica.

1850 almost all of the South Af rica was under white domination. In

1853, the Cape Colony was gr anted a representative

legislature by Britain.

1900 the British settlers br ought people f r om India to work in

sugar cane f ields in Natal.



YEAR OCCURENCE

ENDING 1900 the British attempted to annex the Free States, which led to

the Anglo-Boer wars. The British emerged victors and whole

of SA came under their contr ol.

1910 The South Af rican Party (SAP), which came into power,

enacted laws that restricted the r ole of non-whites in the

economy.

1961 SA declared itself a republic.

1960,1970,1980 saw the South Af rican government committed to Apartheid.

1990¶S government decided to democr atize the countr y and SA¶s f irst

democr atic election was held in April 1994. ANC won a

majority and came into power.



Legacy of Apartheid

³A system of racial segregation enforced

by the Afrikaner-dominated National Party

governments of South Africa between

1948 and 1994.´

Developed after World War II

Curtailed the rights of the majority non-white inhabitants of South Africa tomaintain white supremacy and Afrikaner minority rule



CONTD..

In 1950 several laws were passed: ±The population registration act

±The Group areas act ±The Bantu building workers act ±Prevention of illegal squatting act

±Pass laws ±Reservation of separate amenitiesact



The Consequences of

Apartheid Promotion of Bantu Self Government Actinspired ³divide and rule ³ policy

Division of Blacks into different groups

White earned 5-15 times the income of theBlacks which exacerbated economic disparity 13 % of the land was allocated to the Blacks

which constituted 80% of the population.

Due to the importance of S. Africa as amineral producing nation and its strategiclocation, there was very little opposition fromthe rest of the world which gave rise to thelegacy.



CONTD..

In 1960, low Inflation and good annual growth led tocompetition with the Japanese Economy.

Despite significant trade links till 1960s, the economy

isolated from the international forums due to opposition. Laws barring Blacks from entering into White South

Africa led to labor shortages

Manufacturing and agriculture stagnated

Recession due to oil embargo and oil crisis of mid 1970¶s ± inflation crossed 10%

± Gold prices increased

± several countries stop trading with South Africa



CONTD..

In late 1970s and 1980s the economyexperienced tremendous economicpressure

± Export-import bank of US prohibited loans(1978).

± IMF prohibited loans(1983).

± International banks led by Chase Manhattanwithdrew short term credits (1985).

± US passed Anti-apartheid act(1986).

± EEC imposed a ban on trade & investment.



CONT..

Severe debt crisis was coupled with aperiod of intense drought affecting theagriculture.

Average annual growth rate was 1.5% inthe decade.

Per capital income fell by 10%.

Apartheid policy had done a great harm tothe economy but finally gave way todemocratization in 1990.



Post - Apartheid Er a

With Sir Nelson Mandela becoming the firstdemocratic president, ANC came to power in1994 with a majority victory.

Deprived sections became hopeful of development. Efforts were taken to bridge the income gap

between races.

ANC accessed that: ± 4.3 million families lack adequate housing ± 12 million people lacked access to clean drinking

water ± 4.6 million adults were illiterate.



Comparison during

Apartheid(1978)

Blacks White

Population 19 million 4.5 million

Land allocation 13% 87%

Share of National income <20% 75%

Doctors/Population 1/44,000 1/400

Annual exp.(students) $45 $696

Teacher/pupil ratio 1/60 1/22

Currently liter acy is more than 90 per cent for whites and about 60 per cent

for blacks.

Employment has also increased to 70%.



Economic Policy Initiatives

1994

± Reconstruction and Development Programme(RDP)

1996 - 2000

± Growth, Employment and Redistribution(GEAR) strategy



Reconstr uction and

Development Pr ogr amme

³Socio-economic policy framework

implemented by the ANC Government of

Nelson Mandela in 1994.´

Aim

± To gather people and resources.

± To eliminate the inequalities.

± To build a democratic, non ± racial, non ±sexist republic.



Contd..

Four Key Programs

± Meet the Basic needs of every S. African

± Develop S. Africa¶s HR ± Develop a prosperous, balanced regional

economy

± Democratize the state and society



Contd..

Special Cabinet Committee ( SCC) andCore Committee were set up.

RDP fund was created to finance variousprograms.

International and Domestic grants werealso a major source of funds.

The funds were to be used for improvingthe living standards.



Contd..

Implementation was satisfactory due toinefficient government control

Economic growth was 2.3% Inflation rate declined from 20% to 10%

The performance was not up to the mark

which culminated in the form of GEARstrategy.



Socio Economic Objective

The creation of 2.5 million jobs over a ten year period.

The building of one million houses by the year 2000.

The connection to the national electricity grid of 2.5

million homes by 2000. The provision of running water and sewerage to one

million households.

The distribution of 30 percent of agricultural land to

emerging black farmers. The development of a new focus on primary health care.



RDP ACHIEVEMENTS BETWEEN

1994 AND 2000WATER 4 million people given access to clean r unning water

HOUSING 900,000 units completed,1.1 million housing subsidies are allocated

Electrification 1.5 million new connections

Telephones 4.2 million new connections

Health 600 new clinincs,free health care for pregnant women and children

under 6

Public works 1,500 kms of roads built

Land 68,000 families resettled on farming land



Gr owth, Employment and

Redistribution str ategy Introduced by finance minister Trevor Manuel in June 1996

Aim was to ± 6% annual growth rate

± Increase exports by 8% per annum

± Create 4 lakhs new jobs every year

± Control the budget deficit ± Check depreciation of the currency

± Rein the inflation

± Privatize several sectors of the economy



Core Elements

A expansion of trade and investment flows insouthern Africa, and

A commitment to the implementation of stable

and coordinated policies.

An appropriately structured flexibility within thecollective bargaining system.

A renewed focus on budget reform to strengthenthe redistributive thrust of expenditure.

A faster fiscal deficit reduction program tocontain debt service obligation, counter inflation

and free resources for investment.



Focus was shifted to fiscal discipline andliberalization

1996 - 1999 ± Real GDP grew by an average of 2.1%annually

In 1999 the economy recovered and grew

by 2.4%



Eff ects

Budget deficit and inflation declined Foreign exchange reserves increased but the

increase was not substantial.

96¶ 97¶ 98¶ 99¶ 00¶ Gear Predicted Avg

Actual Avg

Real GDP growth 4.2 2.5 0.7 1.9 3.1 4.2 2.5

Inflation 7.4 8.6 6.9 5.2 5.3 8.2 6.7

Budget Deficit(%GDP)

4.6 3.8 2.3 2.4 3.7



GEAR failed to deliver ± the promised economic and job growth

± significant redistribution of income ± socio-economic opportunities in favor of the poor.

Between 1996 and 1999 more than 400,000formal sector jobs were lost.

Year 1993 1994 1996 1998 2000

Broaddefinition

31.2 31.5 35.6 38.6 36.9

Narrowdefinition 13 20 21 26.1 25.8



GEAR brought macro ± economic stabilityat te cost of growth

It increased economic disparity Privatization of public utilities was

criticized



Subsequent Policy Initiatives

To eliminate inequalities along racial lines,government passed Broad Based BlackEconomic Empowerment Act in 2003

Objectives : To increase the number of

± Blacks having ownership of enterprises

± Black empowered and black engendered

enterprises

± Blacks in executive and senior managementpositions



The Act is broken up into 9 Subsections ± Code 000: Framework for Measuring Broad-

Based Black Economic Empowerment ± Code 100: Ownership Element ± Code 200: Management Control Element ± Code 300: Employment Element ± Code 400: Skills Development Element ± Code 500: Preferential Procurement

± Code 600: Enterprise Development Element ± Code 700: Socio-Economic Development

Element ± Code 800: Qualifying Small Enterprises



Black Business Supplier DevelopmentProgramme (BBSDP):It was an 80:20 cost-sharing cash grant

incentive scheme. Accelerated and Shared Growth Initiative

±South Africa (ASGISA)

Despite the initiatives, unemploymentlevels among the Blacks remained high.

However, the government finally realizedthat growth should be given importance.



Recent Economic Conditions

Real GDP growth was projected to reach 4.1 percent in 2012 and 4.4percent in 2013.

Inflation was forecast to remain within the target range of three to sixpercent, edging towards the upper end of the range in 2013.

Fiscal policy is now taking a less expansionary turn, with theconsolidated government deficit slowing to an estimated 5.4% in fiscalyear 2010/11 and projected to decline further to 5.0% in fiscalyear2011/12.

The repo rate is expected to remain close to 5.5% throughout 2011 and

to start rising moderately only towards the end of the year. China is the dominant investment partner among emerging partners

with its foreign direct investment (FDI)

Unemployment remained very high in 2010 even though it declinedmarginally in the fourth quarter of 2010 to 24% from 25.3% in theprevious quarter.



2009 2010 2011 2012

Real GDP

gr owth

-1.7 2.8 3.6 4.3

CPI inflation 7.1 4.3 5.3 5.6

Budget

balance %

GDP

-6.9 -5.4 -5 -4.5

Current

account %

GDP

-4.1 -2.8 -3.4 -4.3



4%

9%

13%

13%

12%

19%

15%

15%

0%

Government Expenditure

Defence

Public Order & Safety

Econmic Affairs

Housing & Community Amenities

Health

Education

Social Protection



Current Fiscal Policy

Fiscal Policy

Fiscal policy has remained supportive relative to the precrisis structuralposition.

With public debt at manageable levels and little sign of domestic demand

pressure, the authorities¶ fiscal plans call for fairly gradual fiscalconsolidation

Within the overall spending envelope, staff also saw a need to rebalancethe composition of public spending to help support higher potential growthand enhance public service delivery

. The 2011 Budget proposed that fiscal policy be guided by three principles:long-term public debt sustainability, countercyclicality, andintergenerational equity.

the plan would leave the structural deficit at some 3½ percent of GDP in2013/14²five years after the trough of the recession



Current Monetar y Policy

The South African Reserve Bank conducts monetary policy within an inflationtargeting

framework.

The bank¶s main market operation rate is Repurchase rate (Repo rate)

1. with inflation accelerating, an unchanged policy rate implies declining real interest

rates. 2. inflation in South Africa tends to be persistent.

3. core inflation remains subdued at around 3¼ percent (in seasonally adjusted

annualized terms) for the most recent threemonth period.

4. although overall growth prospects have improved, key economic indicators²

employment, investment, and exports²are still well below precrisis levels.

5. the strength of the rand should continue to moderate inflationary pressure.6. barring slippages, fiscal policy both in the near and medium term should be tighter

than currently envisaged.

clear evidence of a more pronounced increase in core inflation or inflation expectationsbefore raising the policy rate.



How Fiscal and Monetar y policy

helped S. Af rica?



Comparison



What , in your opinion were the factors that led to eventual demise

of the apartheid system?



Internal pressure

External pressure

FACTORS THAT LED TO DEMISE OF THE APARTHEID

SYSTEM ARE ENUMERATED BELOW:



To what extent are south af rica¶s

pr oblems a legacy of apartheid?Could they have also been

caused by external factors,over

which government had little contr ol?



Documents

South Africa Reforms