2005-10-08,+Economies+demand+tailored+tactics,+Makgetla,+B.+Day


 * Business Day, 07 October 2005**

= Different economy demands tailored strategies =


 * Neva Makgetla**

ECONOMISTS almost never question their ability to come up with general rules about society.

In their eyes, a path of development that worked in Germany or Singapore must also apply in SA. This is methodologically dubious at best, since it is impossible to isolate economic factors and development strategies the way scientists can isolate an element or a reaction in a lab.

But it is particularly problematic for SA, which differs markedly from other economies. On the one hand, it is still one of the most inequitable countries in the world. On the other, for a middle-income country it remains surprisingly dependent on commodity exports. In these circumstances, any development path will have to be innovative. We cannot hope to copy other countries’ successes, although we can learn from their experiences.

SA’s peculiarities emerge from data published by multilateral organisations. Consider the figures on poverty and inequality. In the mid-1990s, SA ranked amongst the 10 most inequitable countries in the world, according to the United Nations (UN) Development Programme’s human development report for last year. Since then, most studies find that income inequality has worsened. Improved government transfers through social grants have been more than offset by soaring unemployment and stagnant real incomes for many employed.

In 2000, according to government’s income and expenditure survey, the richest 10% of South Africans — predominantly white — earned more than 55% of the national income. The poorest 20% received less than 2%. The UN Development Programme found that in countries with similar productivity levels, the richest 10% generally captured less — between 30% and 40% of national income — while the poorest 20% got between 5% and 10%.

The figures for SA appear concretely in hunger, deprivation and disease. According to the Labourforce Survey of September last year, one in four households goes hungry at least sometimes. About 7% go hungry regularly.

Given SA’s unique history, it is not surprising that inequalities are unusually high. On the one hand, apartheid limited the economic opportunities for the majority. On the other, the economy grew around capital-intensive sectors, especially minerals, whose growth cannot create much employment or openings for small enterprise.

According to the UN Development Programme’s report for last year, while SA ranked 49th in the world in terms of gross domestic product (GDP) per person, it ranked about 70th for access to water and improved sanitation. Those figures underscore the backlogs left by apartheid.

Even more striking are the data on economic structure. SA’s GDP per capita and engagement with world markets may look superficially similar to other middle-income nations. But the underlying economic structure remains closer to that of far less developed economies.

In particular, SA is unusually dependent on mining and minerals exports. Metals and coal account for two-thirds of SA’s foreign sales, but only 10% of production and employment.

Here, the contrast to other middle-income countries is stark. According to the World Bank’s world development indicators, in the average middle-income economy, hi-tech goods comprise a fifth of total manufactured exports. In SA, they make up just 5%. Moreover, in other middle-income countries, agriculture contributes 10% of GDP, compared to only 5% in SA.

The dependence on commodities is linked to the historic availability of cheap energy. Per person, the world development indicators show, SA uses almost twice as much energy, and almost three times as much electricity, as other middle-income countries — although only about half as much as high-income industrialised nations. Thanks largely to the big smelters, the mines and Sasol, industry accounts for about 80% of electricity consumption, compared to an international norm closer to 60%.

For much of the past 25 years, SA’s peculiar economic structures have been associated with low investment and slow growth. In recent years, the international commodity boom has boosted overall economic expansion to about 4% a year. That is still slower than other middle-income countries, however. Investment continues to account for less than 20% of GDP, compared to 25% in comparable economies.

In short, the twin legacies of apartheid and mining still largely shape SA’s economy. In seeking to initiate shared growth, the challenge is to find ways to modify these deep-seated structures in sustainable ways towards broad-based empowerment and greater economic justice.

‖Makgetla is a Congress of South African Trade Unions economist.

From: http://www.businessday.co.za/articles/opinion.aspx?ID=BD4A99657