Political Economy of Development: South Africa since 1994 Presentation for : Harold Wolpe Conference: Re-Visiting The Political Economy of Social Change in Contemporary South Africa 14 June, 2012, Liliesleaf Farm, Rivonia, Johannesburg By Dr Iraj Abedian

Pan-African Investment & Research Services (Pty) Ltd.

Outline




Introductory Observations






1994: The Starting Point Status Key Trends since 1994 Concluding Remarks

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Introductory Observations

Introductory Observations: 1. Despite 15 years of uninterrupted growth(1994-2008), the triple evils of structural unemployment, widespread poverty, and gross inequality persist. 2. Whilst considerable ‘poverty alleviation’ has taken place, the systemic roots of poverty remain in place. 3. Whereas considerable and unprecedented wealth has been created since 1994, the mal-distribution of income has worsened. 4. Despite the democratic nature of the government, the citizens’ discontent persists 5. SA’s current political economy configuration is unsustainable, given that there is no credible solution offered. 6. Increasingly, the focus is more on the form than the substance. Slide # 4

1994: Starting Point Status Note: Initial endowment matters a great deal.....

The Starting Point Status in 1994: 1. Macroeconomic conditions were dire with deep instability. 2. Fiscal stress, high inflation, high nominal interest rates, negative forex reserves, low tax morality, rising public debt, and weak revenue collection ability. 3. Global macro-financial conditions were volatile, but SA had favourable support due to “ historic peaceful transition”. 4. Legitimate expectations of diverse groups soon translated into contested moralities and interest groups’ claims and aspirations. 5. “Project Normalization” of the SA political economy began on the platform of a tortured history laden with the remnants of colonialism, racism and class struggle. 6. Ideological contestations were confronted by the obstinate reality. Slide # 6

The Overwhelming Macroeconomic Concern

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The Starting Point Status in 1994 (II): 7. The new government had high aspirations, considerable moral and political authority, but little experience. 8. The state was fractured, technically unfit to cope with the potential demands on its services. 9. Furthermore, the emerging constitutional dispensation was foreign to the culture of all stakeholders, old and new! 10. Institutionally, the entire framework had to be redesigned and developed… 11. In short, SA was much like an airplane that had to be fixed during flight! There was no luxury of time, or prior experience!

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Key Trends Since 1994

Key Trends Since 1994 Pro-Poor Policies.....

Trends since 1994: Number of Welfare Grant Recipients Panel (a): Total Number of Grant and Pension Recipients ('000)

Panel b: Total Grant and Pension Recipients (as % of Population)

17000 15000

35

13000

30

11000

25

9000

20

7000 5000

15

3000

10

1000 -1000

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2014/15

2013/14

2012/13

2011/12

2010/11

2009/10

2008/09

2007/08

2006/07

2005/06

2004/05

2003/04

2002/03

2001/02

2000/01

1999/00

1998/99

Total Grant and Pension Recipients ('000)

1997/98

2014/15

2013/14

2012/13

2011/12

2010/11

2009/10

2008/09

2007/08

2006/07

2005/06

2004/05

2003/04

2002/03

2001/02

Revised

Projected 0

1996/97

Projected

2000/01

1999/2000

1998/99

1997/98

1996/97

5

Trends since 1994: Welfare Spend and GDP Ratio Figure 2: Value of Welfare Grant Budget and as a % of GDP 130000

4.0%

110000

3.5% 3.0%

90000

2.5% 70000 2.0% 50000 1.5% 30000

1.0%

Projected

Revised

Value in Rands (million) (LHS)

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2014/15

2013/14

2012/13

2011/12

2010/11

2009/10

2008/09

2007/08

2006/07

2005/06

2004/05

2003/04

0.0% 2002/03

-10000 2001/02

0.5%

2000/01

10000

As percentage of GDP (RHS)

Trends since 1994: Selected Indicators of Poverty Alleviation Households with piped water

Households in Formal Dwellings

Households with electricity or solar power

Households with piped water in dwelling or on site 11000

Households using electricity or solar energy as fuel source for cooking 100.0% 95.0% 90.0% 85.0% 80.0% 75.0% 70.0% 65.0% 60.0% 55.0% 50.0% 45.0% 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0%

10000 9000 8000 7000 6000 5000 4000 3000 2000 1000 0

11000 10000 9000 8000 7000 6000 5000 4000 3000 2000 1000 0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Number ('000)

100.0% 95.0% 90.0% 85.0% 80.0% 75.0% 70.0% 65.0% 60.0% 55.0% 50.0% 45.0% 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0%

Number ('000)

Proportion

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Proportion

Key Trends Since 1994 Pro-Elite Policies & Interventions...

Trends Since 1994: Pro-Elite Policies and Interventions: 1. “Project Normalization” entailed interventions necessary from a political economy perspective, but all with unintended consequences. 2. The Employment Equity Act (No. 55, 1998), The BEE legislations, and subsequent BBBEE amendments, the policy of “cadre deployment”, the politicization of SOEs, are but examples of interventions that have had considerable pro-elite outcome. 3. The extension of pro-elite into the public sector’s procurement system evolved into a culture of “tenderprenuership”- with systemic corruptive damage. 4. Globalization of the economy further benefitted the elite, and exacerbated the anti-poor systemic fault-lines…. Slide # 15

Key Trends Since 1994 The Upshot for Political Economy Scene......

Trends since 1994: Income Distribution Patterns Worsened Per Capita Income Gini Coefficient in South Africa

Aggregate

Black African

Coloured

Indian

White

1993

0.67

0.55

0.43

0.46

0.42

2000

0.67

0.61

0.53

0.50

0.47

2005

0.72

0.62

0.60

0.58

0.51

2008

0.70

0.62

0.54

0.61

0.50

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Source: PSLSD (1993), IES (2000, 2005) and NIDS (2008): Calculations by Leibbrandt, M. et al.

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Trends since 1994: Why Poverty Trends Persist? 1. Policy focus has been on poverty alleviation not on poverty eradication.

2. Sources of poverty perpetuation are allowed to persist. These are: a) Failed education and training policy (HRD framework) in the face of rising skills-intensity of the economy….

b) Inefficient public sector operations… c) Over- politicization of the public sector at all levels of management. d) Rampant abuse of public resources via corruption as well as wastage.

3. The emergence and deepening of “value deficit”; driven by everspreading ‘duality of values’ across the society.

4. The technology meanwhile drives automation…. Slide # 18

The economy has become more automated..

% of GDP 60.0 55.0 50.0 45.0 40.0 35.0 Compensation of Employees

Gross operating surplus

30.0 25.0

Source: South African Reserve Bank

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2011

2009

2007

2005

2003

2001

1999

1997

1995

1993

1991

1989

1987

1985

1983

1981

1979

1977

1975

1973

1971

20.0

Concluding Remarks 1. The political economy of development is complex and often unpredictable, riddled with domestic and external tensions.

2. South Africa’s developmental path is captured by short-term political dynamics.

3. The old structural factors are compounded by the new and more complex dynamics of factionalism, political ideology and sheer personal greed.

4. There is a need for an inspired leadership across the various social stakeholders if these obdurate political economy issues are to be resolved.

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Thank you for your attention

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Trends since 1994:

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