Transcript The Employment Challenge in South Africa

The Employment Challenge
in South Africa
To grow, to share growth, to
change path
Alan Hirsch PCAS
The Presidency South Africa May 2008
Economic growth trends
Annual average GDP growth
1960s
5.7%
1970s
3.3%
1980s
1.5%
1990 to 1993
-0.4%
1994 to 2003
3.0%
2004 to 2007
5.1%
Apartheid and unemployment
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Apartheid era -1993
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Rising unemployment from the 1960s—the
period of most rapid growth until the current
era
This was the result of policy aimed at
supplying the farms and mines with cheap
black labour
Exacerbated with slow growth dying phases of
apartheid—reaching 20% unemployment
1994-2003

Growth at 3%, employment coefficient of
about 0.75, but rising unemployment to peak
at 31%
Reasons for rising unemployment to
2003
Decline of gold mining and weak
commodity prices
 Misguided agricultural policies
 Efficiencies and productivity growth arising
from trade liberalisation and openness
 The rising labour force participation rate—
the changing position of black women
 Currency uncertainty and erratic monetary
policy fail to support investment in nontraditional export sectors
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Higher growth and falling
unemployment 2004-2007
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Commodity boom
Low inflation and low interest rates
Strong fiscal position allows rapid rise in
government spending (9% real) with falling
debt, deficit and eventually fiscal surplus
Rising domestic consumption
Job created rapidly, but mainly in retail,
construction and non-traded service sector
Obviously vulnerability of growth—most
obvious symptom the sharply rising current
account deficit
Comparative growth rate
Figure 1: Comparative GDP growth rates
10.0
8.0
6.0
4.0
2.0
Advanced economies
-4.0
Source: IMF Outlook
Emerging markets and developing countries
Asian NICs
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
-2.0
1989
0.0
South Africa
Employment trends
1995
Employment
Sep 2003
Sep 2007
Difference
between
2003
AND
1995
Differenc
betwe
en
2007
AND
1995
Difference
betwe
en
2007
and
2003
9852
11424
13234
1572
3382
1810
4253
8208
7370
3955
3117
-838
14105
19632
20604
5527
6499
972
2038
4434
3945
2396
1907
-489
11890
15858
17178
3968
5288
1320
Unemployment
(expanded
definition)
Labour Force
(expanded
definition)
Unemployment
(official
definition)
Labour Force
(official
definition)
Poverty trends
Category
Year
Headcount Rate
1995
2005
Poverty Gap Ratio
1995
2005
R322 a month poverty line (2000 Rands; 2000 US $46.50)
African
63.04%
56.34%
31.86%
24.44%
Coloured
39.00%
34.19%
14.66%
12.98%
Asian
4.71%
8.43%
1.03%
2.17%
White
0.53%
0.38%
0.22%
0.11%
Total
52.54%
47.99%
26.04%
20.61%
R174 a month poverty line (2000 Rands; 2000 US$ 25.10)
African
38.18%
27.15%
14.71%
8.55%
Coloured
14.62%
12.30%
4.09%
3.88%
Asian
0.82%
1.60%
0.14%
1.07%
White
0.23%
0.01%
0.09%
0.00%
Total
30.92%
22.68%
11.77%
7.15%
Source: Income and Expenditure Surveys 1995 and 2005/6 Bhorat et al
Trade and exchange rates
35
12.00
30
10.00
25
20
8.00
Ratio of exports to GDP (%)
Trade balance to GDP ratio
15
ZAR/US$
6.00
10
5
4.00
06
2.00
20
05
20
04
20
03
20
02
20
01
20
00
20
99
19
98
19
97
19
96
19
95
19
94
19
93
19
19
92
0
-5
-10
0.00
Employment shares by broad sectors in
South Africa
Employment shares: all skill categories
0.5
0.45
0.4
0.35
0.3
Tradable
0.25
Private non-tradable
Public non-tradable
0.2
0.15
1970
1972
1974
1976
1978
1980
1982
1984
Source: Rodrik 2006
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
Path dependency
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Typical of natural resource exporters
Exchange rate is overvalued especially during
international growth cycles
High exports and strong currency lead to rising
consumption linked to inflows of portfolio capital
The effect is growth without significant
employment creation, without diversification and
without savings
For these reasons growth is inevitably temporary
and contributes relatively little to reducing
poverty and inequality except through transfers
What to do (beyond transfers)?
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Manage the exchange rate through
macroeconomic interventions? It can be
expensive financially and politically.
Industrial policies or sector strategies? Require
incentives and coordinated government. But can
it work in the absence of tailored macro policies?
Building human capital, but how long does it
take?
Redistributive strategies—land, housing. But at
what cost, and how do you ensure that the assets
are used productively?
South Africa has its AsgiSA:
Accelerated and Shared Growth Initiative
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Infrastructure investment
Skills and education
Industrial policy—competition policy and sector
strategies
Environment for small business development
Governance capacity, especially at local level
Macroeconomic stability, especially the exchange
rate
Impact of AsgiSA
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Significant Capex (rising from 16% of GDP to
>20% in 3 years)
Improvements in skills and education but very
slow to impact
Step change in implementation of competition
policy
Formal support for industrial policies, but
commitment & coordination is inadequate
Some degree of improvement of some state
institutions
Greater confidence and the emergence of a
common language of shared growth
But the expected happens in 2008
Overvalued currency, rising consumption,
current account deficit->vulnerability
 And skills shortages
 July 2007 credit crunch has no immediate
impact but after:
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Rapid inflation to 10%: food and fuel prices
Political uncertainty
Electricity emergency
Portfolio investors start to loose
enthusiasm, though still net positive flows
in the 1st quarter of 2008
Temporary setback or symptom of
deficiencies?
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Most growth forecasts expect growth to top 5%
in 2010 after two slower years
But, have we built a basis for sustained shared
growth?
Can we build a diversified labour absorbing
economy on the basis of continued
microeconomic reforms, and how do we empower
the state to be more effective in this arena?
Or is even this futile unless we follow Asian
example in terms of policy regarding the level
and the stability of the currency?