Download Overcoming Underdevelopment in South

DEVELOPMENT REPORT 2005
OVERCOMING UNDERDEVELOPMENT IN SOUTH AFRICA’S SECOND ECONOMY
OVERCOMING UNDERDEVELOPMENT
IN SOUTH AFRICA’S SECOND
ECONOMY
DEVELOPMENT REPORT 2005
DEVELOPMENT REPORT 2005
OVERCOMING UNDERDEVELOPMENT IN SOUTH AFRICA’S SECOND ECONOMY
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
DEVELOPMENT REPORT 2005
OVERCOMING UNDERDEVELOPMENT IN SOUTH AFRICA’S SECOND ECONOMY
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….
DEVELOPMENT REPORT 2005
OVERCOMING UNDERDEVELOPMENT IN SOUTH AFRICA’S SECOND ECONOMY
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
DEVELOPMENT REPORT 2005
OVERCOMING UNDERDEVELOPMENT IN SOUTH AFRICA’S SECOND ECONOMY
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?
DEVELOPMENT REPORT 2005
OVERCOMING UNDERDEVELOPMENT IN SOUTH AFRICA’S SECOND ECONOMY
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
DEVELOPMENT REPORT 2005
OVERCOMING UNDERDEVELOPMENT IN SOUTH AFRICA’S SECOND ECONOMY
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.
DEVELOPMENT REPORT 2005
OVERCOMING UNDERDEVELOPMENT IN SOUTH AFRICA’S SECOND ECONOMY
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
DEVELOPMENT REPORT 2005
OVERCOMING UNDERDEVELOPMENT IN SOUTH AFRICA’S SECOND ECONOMY
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
DEVELOPMENT REPORT 2005
OVERCOMING UNDERDEVELOPMENT IN SOUTH AFRICA’S SECOND ECONOMY
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’
DEVELOPMENT REPORT 2005
OVERCOMING UNDERDEVELOPMENT IN SOUTH AFRICA’S SECOND ECONOMY
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
DEVELOPMENT REPORT 2005
OVERCOMING UNDERDEVELOPMENT IN SOUTH AFRICA’S SECOND ECONOMY
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.
DEVELOPMENT REPORT 2005
OVERCOMING UNDERDEVELOPMENT IN SOUTH AFRICA’S SECOND ECONOMY
THE EXPANDED
PUBLIC WORKS
PROGRAMME
DEVELOPMENT REPORT 2005
OVERCOMING UNDERDEVELOPMENT IN SOUTH AFRICA’S SECOND ECONOMY
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
DEVELOPMENT REPORT 2005
OVERCOMING UNDERDEVELOPMENT IN SOUTH AFRICA’S SECOND ECONOMY
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.
OVERCOMING UNDERDEVELOPMENT IN SOUTH AFRICA’S SECOND ECONOMY
DEVELOPMENT REPORT 2005
2002a
Official unemployment rate
30%
25%
20%
15%
1995
1996
1997
1998
1999
2000
2001
2002
DEVELOPMENT REPORT 2005
OVERCOMING UNDERDEVELOPMENT IN SOUTH AFRICA’S SECOND ECONOMY
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
DEVELOPMENT REPORT 2005
OVERCOMING UNDERDEVELOPMENT IN SOUTH AFRICA’S SECOND ECONOMY
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
DEVELOPMENT REPORT 2005
OVERCOMING UNDERDEVELOPMENT IN SOUTH AFRICA’S SECOND ECONOMY
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
DEVELOPMENT REPORT 2005
OVERCOMING UNDERDEVELOPMENT IN SOUTH AFRICA’S SECOND ECONOMY
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
DEVELOPMENT REPORT 2005
OVERCOMING UNDERDEVELOPMENT IN SOUTH AFRICA’S SECOND ECONOMY
EPWP expectations
Moving people of social grants
• Target group is working age poor that are in any case
not eligible for social grants
DEVELOPMENT REPORT 2005
OVERCOMING UNDERDEVELOPMENT IN SOUTH AFRICA’S SECOND ECONOMY
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
DEVELOPMENT REPORT 2005
OVERCOMING UNDERDEVELOPMENT IN SOUTH AFRICA’S SECOND ECONOMY
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)
DEVELOPMENT REPORT 2005
Questions welcomed
Thanks, siyabonga, dankie,
OVERCOMING UNDERDEVELOPMENT IN SOUTH AFRICA’S SECOND ECONOMY