Download In 1993, former South African President Nelson Mandela declared

SOUTH AFRICA AFTER APARTHEID:
A CASE STUDY
KURT MANZ*
I. INTRODUCTION
In 1993, former South African President Nelson Mandela
declared that the primary motivation of the African National
Congress's economic policies was to place South Africa on the path of
rapid economic development, with a view to address three key problem areas: slow growth, severe poverty, and extreme inequalities in
living standards (Handley and Mills, 1996). The intention of this
paper is to study the economic and social consequences of apartheid
that are still plaguing the South African economy and restricting its
economic development. Section II of this paper compares South
Africa's geographic, social and economic indicators to those of its
neighbors and to other middle-income countries. Section III provides
a brief historical overview of South African development, while
Section IV outlines some prevailing problems in South African society and relates these problems to the economic challenges that can be
expected in the years ahead. In Section V we consider policies needed to bring about social development in South Africa. Section VI
summarizes the findings in this paper.
II. STATISTICAL AND COMPARATIVE ANALYSIS OF SOUTH AFRICA
South Africa is the largest country in Southern Africa. With 1.22
million square kilometers, it has the largest population of 42.8 million
people (see table 1). Comparable to Mozambique and Namibia population growth rates, South Africa's was 2.23% per annum in 2000.
Based on its real gross domestic product (GDP), South Africa has
been classified as a middle income country. The rich endowment of
mineral resources had allowed for significant growth in South Africa's
real GDP in the early years. However, with the exception of short
periods of gold market booms, the South African economy has grown
very slowly since the early 1970s. Annual GDP growth declined from
approximately six percent in the 1960s to below four percent the following decade, and has barely reached one percent during the 1980s.
The economy contracted sharply during the recession-bound 1990s,
and in all but one of the past 12 years per capita incomes have
declined (Handley and Mills, 1996).
* Kurt Manz is an Undergraduate Student in Economics at the University of Saskatchewan,
Canada
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TABLE 1: SOUTH AFRICAN REGIONAL PERSPECTIVE
Area (sq k m)
Population (m)
Population
Growth
600,400
30,400
823,100
390,600
801,600
1,220,000
1.6
2.04
1.76
12.6
17.7
42.8
0.87
1.32
2.23
1.91
2.24
2.23
Botswana
Lesotho
Namibia
Zimbabwe
Mozambique
South Africa
Source: Lachman & Bercuson (1992)
TABLE 2:COMPARATIVE ECONOMIC INDICATORS FOR SOUTH
AFRICA AND LOW MIDDLE-INCOME COUNTRIES (2000)
GDP
(U.S. dollars)
(million)
South Africa
Algeria
China
Egypt
Russian Federation
Turkey
128,000
53,300
1,080,000
98,800
260,000
199,000
Life
Expectancy
47.8
71
70.3
67.5
65.3
70
Infant
Morality
(per 1,000)
62.8
33.3
32
41.8
16.2
34.5
Source: World Bank
Although, South Africa is considered to be a low-to-middle
income country, the development status of South Africa shows the
country to be decidedly inferior to other low-middle income countries.
In other countries the life expectancy indicator ranges from Russia's
65.3 years to Algeria's 71.0 years, whereas South Africa's is a mere
47.8 years (see Table 2). In comparing infant mortality rate, South
Africa's is 62.8% whereas for most of the low-middle income countries infant mortality is in the 30th percentile. These observations suggest that South Africa is more suitably classified with its low- income
African neighbors. Referring to Table 3, one can see that South
Africa's life expectancy, infant mortality rate, and adult literacy are all
comparable to other Southern African countries.
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TABLE 3: COMPARATIVE ECONOMIC INDICATORS FOR SOUTH AFRICA
NEIGHBORS
AND ITS
GDP
(U.S. dollars)
(million)
2000
South Africa
Botswana
Lesotho
Mozambique
Namibia
Zimbabwe
128,000
5,290
899
3,810
3,480
7,200
Per Capita
Daily Calorie
Life
Supply
Expectancy
1988
2000
3,035
2,269
2,307
1,632
1,889
2,232
47.8
40
44
42.4
47.2
40
Infant
Morality
(per 1,000)
2000
62.8
58.1
44
129.3
62.5
69
Adult
Literacy
(15+, in percent)
1985
85
70
72.6
27.6
73
62.3
Source: World Bank
TABLE 4: HDI RANKING ACCORDING TO THE HUMAN DEVELOPMENT
REPORT
South Africa
HDI ranking
Life expectancy at birth
(years) (1992)
Adult Literacy rate (%)
Mean year of schooling
Literary Index
Schooling Index
Educational attainment
(1992)
Real GDP per capita
(PPS$) (1992)
HDI (1992)
Canada
Guinea
93
62.2
1
77.2
173
43.9
80.0
3.9
0.80
0.26
1.86
99.0
12.2
0.99
0.82
2.80
26.9
0.9
0.27
0.06
0.06
3,885
19,320
500
0.650
0.932
0.191
Source Handley & Mills (1996)
Table 4 shows human development as ranked by the United
Nations. South Africa's human development is 93 out of 173. Canada
is ranked number 1 and Guinea is ranked at 173 (Handley and Mills,
1996).
III. STAGES OF DEVELOPMENT
The early discovery of diamonds in the Kimberley region and
gold in the Witwatersrand gave South Africa hope. It was the location
of these resources in South Africa's interior, however, which fueled the
rapid economic growth. The extraction and the processing of the ore
required heavy equipment, power supplies, and large forces of organized labor. These factors were responsible for the establishment of a
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rail system, the opening up of the coal fields for generation of electricity, the establishment of urban concentrations, commercial farming
and manufacturing interests of the interior (Abedian, 1992).
At the Union of 1910, the economy was based mainly on farming
and mining, but both these sectors suffered setbacks during the buildup towards the Great Depression of 1929. Since that time agriculture
has decreased in importance domestically, and contributed only 6.21
per cent to overall GDP in 1990. In the manufacturing sector, the
political victory of the Pact government (a coalition comprising of
Afrikaner nationalists and representatives of immigrant labour) in
1925 replaced the laissez-faire economic philosophy with the subsequent promotion of manufacturing by the state. This state intervention
in the economy eventually resulted in the implementation of import
substitution policies.
The coming of power of the Nationalist government in 1948
marked the beginning of the apartheid. The apartheid was the
Nationalists' program for reshaping the economy and the society along
racial lines to ensure the prosperity of the white Afrikaners. Apartheid
imposed restrictions on the rights of blacks to own or occupy property in designated “white” areas as well as regulations preventing direct
labor market competition between blacks and whites (Lowenberg,
1997). The Population Registration Act (1950), which required that
each person's race be identified, was the first piece of legislation that
would initiate the classification and separation of the races in South
Africa. Other pieces of legislation followed, which would have dire
economic and political consequences on the future of South Africa,
such as the Bantu Education Act (1952). This act instituted state
control of education for Africans and established a new curriculum
designed to prepare them for a lower place in the economy and society (Lewis, 1990).
Twenty years later, apartheid policies had resulted in South
Africa having one of the most skewed distributions of income in the
world. By 1985, the homelands, representing 33 per cent of the population, produced only 2.5 percent of South Africa's total GDP. Per
capita urban income, by contrast, was nearly thirty times greater than
that of the homelands. However, two important changes in the labor
market contributed to a narrowing of the wage gap. First, a dramatic
increase in wages paid to labor in the gold mines increased the
workers' real wage over 160 per cent between 1970 and 1975. The
wage increases were large enough to affect the rest of the economy,
and wages in manufacturing also increased. The second important
change was the legalization of black trade unions following the
SOUTH AFRICA AFTER APARTHEID
65
Wiehahn recommendations. This paved the way for black labor cohesion and further helped reduce the wage gap (Abedian, 1992).
South Africa's apartheid system eventually became to costly to
maintain and ultimately collapsed in 1994. The demise of the system
was largely a result of the inefficiencies caused by the apartheid
policies on South Africa's weak economic structure. Labor market
regulation and industrial decentralization policy inhibited efficient
resource utilization, especially as the manufacturing sector became
more prominent in national output. In addition, apartheid educational
policies generated skill shortages. An import substitution strategy distorted trade patterns, exacerbated dependence on foreign capital
inflows, and created chronic balance of payments difficulties. These
internal weaknesses enhanced South Africa's vulnerability to capital
flight, changes in world prices and business cycle conditions, and
political changes abroad. The collapse culminated with the system
being completely dismantled, the legalization of the ANC, and the
democratic election of a black majority government. (Lowenberg,
1997).
IV. SOCIAL CHALLENGES IN SOUTH AFRICA FOLLOWING APARTHEID
The legacy of the apartheid is that South Africa, a member of the
semi-industrialized economies as classified by the World Bank, continues to perform like a typical low-income country when social indicators are considered (Luiz, 1996). Even though expenditure on social
services compare very well with international norms, South Africa's
human development index was 0.65 in 1992 (see Table 4 of the
previous section). The consequences of the racially discriminatory
policies and unequal distribution of income are also apparent in the
inability of the health and educational systems to meet the needs of the
South African population as well as in the rapid growth of unemployment and the spread of poverty.
Despite the end of apartheid, South Africa continues to display
extreme inequalities in the distribution of wealth. From 1991 to 1996,
as apartheid was being dismantled, the poorest 40 percent of black
households experienced a decline in income of 20 percent. In 1996,
the income of the richest 20% of households is some 45 times that of
the poorest 20% (Handley and Mills, 1996). Over the years income
inequality has increased significantly, the Gini Coefficient rising from
0.55 in 1960 to 0.68 in 1994 (see table 5). In 2000, average per capita
disposable income for black South Africans was only 14.9 per cent of
that of white citizens (Ho and Schneider, 2002).
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However, John Luiz (1996) TABLE 5: GINI COEFFICIENT
states that inequality is no longer ASSUMING INCOME EQUALITY
simply a racial issue, as inequal- WITHIN RACIAL GROUPS
ity within the black population is
estimated by a coefficient of
Year
Gini Coefficient
0.62 (a sharp increase from 1975
Personal Income
when it was 0.47). Among
whites this measure has risen
1960
0.55
1965
0.56
from 0.36 to 0.46. Of income
1970
0.53
differences, 75 per cent can thus
1975
0.49
be attributed to intra-group dis1980
0.5
parities while only 25 per cent
1985
0.51
represents the black-white gap.
1987
0.48
1994
0.68
This implies that inequality
between races has diminished
and yet South Africans of all Source:Handley & Mills (1996)
races are worse off then they
were two decades ago.
The poor quality of health care that was available to blacks during apartheid continues today. Even though government expenditure
on health has been about 3 per cent of GNP, an appropriate or expected proportion given South Africa's current stage of development, the
country's health indicators are among the worst for the upper-middle
income countries. In 2001, South Africa's health care system ranked
151st out of 191 countries in health attainment (Ho and Schneider,
2002). The low ranking is due to South Africa's poor utilization of its
economic resources in meeting health needs. Regression results performed by Van der Berg (1990) indicate that South Africa's actual
health performance compares poorly with its expected performance
given its level of income, medical personnel and overall food supply.
The results also show that anticipated life expectancy is 66 years compared to 61 years in actuality, while infant mortality should have been
47 (per 1,000 births), a predicted value that represents only 35 per cent
of the actual infant mortality recorded (Luiz, 1996). In addition to
these indicators, South Africa's poor health system has been reflected
in a number of epidemics, most notably a massive cholera outbreak
that infected more than 80,000 people. As well, the AIDS pandemic
has only exacerbated the poor quality of health in the country (Ho and
Schneider, 2002).
A similar picture emerges in the education sector. South Africa's
expenditure on education is comparatively high by international standards; the average proportion spent on education in industrialized
countries is 5 per cent of GDP compared to 5.2 per cent of South
SOUTH AFRICA AFTER APARTHEID
67
Africa's GDP in 1983. Nevertheless, it is widely held that education
in South Africa is in a crisis. The matric pass rate has consistently
hovered around 40 per cent, while the average educational attainment
of the adult population is only seven years of schooling (Luiz, 1996).
In 2000, South African students had among the worst numeracy, literacy, and life skills in Africa (Ho and Schneider, 2002) - 12.5 million
South Africans (30% of the population) are said to be illiterate
(Handley and Mills, 1996). The main problem is that approximately
90 per cent of schools are still racially homogenous, with vast quality
differences associated with the racial composition of students. In
1989, per capita expenditures in education was 3,082 Rand for whites
and only 765 Rand for blacks (Luiz, 1996).
Finally, an important measure of social and economic stability is
a country's level of employment. In South Africa, the unemployment
problem has worsened since the fall of apartheid with the loss of
500,000 jobs during the neo-liberal reforms. According to the reform
policy of the ANC, 126,000 jobs should have been created in 1996, but
instead the number of formal sector jobs fell by more than 100,000
(Michie and Padayachee, 1998). In 2000, the official black unemployment rate of 31.6 per cent was 4.6 times greater than the white unemployment rate. At current rates of growth (the population is predicted
to rise to 58 million in 2010 and 73 million in 2025), it is predicted
that jobs will be found for only 7% of new entrants into the labor market compared to an absorption rate of 80-85% between 1965-70.
Almost half of the unemployed people are younger than 30, and
almost 90% of them do not possess any skills or training suitable for
the jobs available (Handley and Mills, 1996)
V. THE PROBLEM WITH ANC'S GEAR STRATEGY AND THE NEED FOR
POLICY REFORMS
Inequality, poor health care, poor education, and unemployment
have all lead to high levels of crime and low levels of productivity,
undermining South Africa's economic growth potential. The ANC,
under the supervision of the IMF and the World Bank, instituted a
variety of neo-liberal reforms aimed at reversing the stagnant performance of the South African economy. These policy reforms were part
of the “Growth, Employment, and Redistribution” (GEAR) strategy in
June 1996. These policies possessed a heavy deflationary bias,
marked by a rapidly falling fiscal deficit, lowering of import tariffs,
tax breaks for the corporate sector, the elimination of exchange controls and positive real interest rates supported by generally tight credit conditions (Handley and Mills, 1996). The economic logic of
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GEAR was that prioritizing the interests of capital was necessary for
growth and in the long-term interests of the poor and the unemployed,
promoting equity in the long run (Michie and Padayachee, 1998).
However, social and economic instability, brought on by low levels of
productivity, and crime, have prevented the neoliberal policies from
attracting the levels of investment necessary to make those policies
work. In fact, neoliberal policies actually hastened the economic
decline by making it easier to take money out of South Africa and easier for educated South Africans to leave the country (Ho and
Schneider, 2002)
The circular connection between economic and social stability
and long-run development implies that a laissez-faire approach alone
cannot be relied upon to lift South Africa out of its trap of underdevelopment. Policy reforms that are directly focused on redistributing
incomes through educational and health systems must also be implemented to bring about socio-economic development. To begin with,
an appropriate policy goal relating to community health is to shift
resources from tertiary and secondary health care to primary health
care. Increasing proportional expenditure on primary health care clinics in relation to provincial and academic hospitals is said to be more
effective in achieving better health outcomes, as it is more efficient
and accessible to dispersed populations (Human Development Report,
2000). In redistributing resources to the primary health care system,
this will ensure that children, especially poor children, will be treated
for diseases such as tuberculosis, measles, typhoid and diarrhea.
A preliminary step in the direction of achieving quality education
in South Africa is to remove the racial and geographic disparities in
the system. To achieve this goal, the first ten years of schooling
should be made free and compulsory to all children. The provision of
more non-formal education services should be initiated as well; i.e.
adult education, early childhood development, and special school education (Human Development Report, 2000). In doing so, underresourced provinces with poor educational indicators would have the
opportunity to catch up to the rich provinces in educational attainment. In addition, labor skills could be upgraded at a “high, but feasible rate,” which, according to the World Bank, would more than
double the long term growth rate of the economy (from 2.4% to 5.9%
per annum) (Handley and Mills, 1996).
Finally, the expansion of the export sector must continually be
promoted and, to some extent, protected by subsidies. This allows for
further expansion of “traditional lines” but also for diversification into
manufacturing (Ho and Schneider, 2002). In attracting multinationals
to the South African export sector, financial incentives, such as tax
SOUTH AFRICA AFTER APARTHEID
69
breaks and low interest rates on credit, and non-financial incentives,
such as establishing Special Economic Zones that are free from labor
and environmental regulation, could all be employed. Given the magnitude of unemployment, even increased employment in multinational corporations, which are usually characterized as low skilled, low
productivity jobs, would add significantly to average labor productivity. In the process absolute poverty and income inequality would be
dramatically reduced (Handley and Mills, 1996).
VI. CONCLUSION
The racial discrimination and segregation of apartheid in South
Africa subjected the black majority to a poorer standard of living than
the white minority. Great inequalities in health and education have led
to instability and low levels of productivity, undermining South
Africa's economic performance. With the election of the ANC party
in 1994 came the promise of addressing and rectifying the policies of
apartheid and redeveloping South Africa. However, it is becoming
apparent that a program truly designed to reconstruct and to develop
the South African economy and society will require something very
different from the sort of economic orthodoxy implemented by the
ANC in its GEAR strategy. South Africa cannot wait patiently to
allow the ‘trickle-down’ effect from high growth rates to raise the
incomes of the poor and the unemployed. Policies must be developed
to directly redistribute incomes by promoting the export sector as well
as to remove the racial bias in the health and educational systems. In
doing so, South Africa's economic position will regain the potential to
become as bright as the gold and diamonds that began its economic
development more than a hundred years ago.
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