SEASON of HOPE Economic Reform Under Mandela and Mbeki
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Season of hope This page intentionally left blank Season of hope Economic Reform under Mandela and Mbeki ALAN HIRSCH International Development Research Centre Ottawa • Cairo • Dakar • Montevideo • Nairobi • New Delhi • Singapore iii Co-published in 2005 by: University of KwaZulu-Natal Press Private Bag X01 Scottsville 3209 South Africa E-mail: [email protected] www.ukznpress.co.za ISBN 1-86914-041-9 and International Development Research Centre (IDRC) PO Box 8500 Ottawa, ON Canada K1G 3H9 E-mail: [email protected] www.idrc.ca IDRC publishes an e-book edition of SEASON OF HOPE (ISBN 1-55260-215-5) © 2005 Alan Hirsch All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording or any information storage and retrieval system, without prior permission in writing from the publishers. Edited by Sally Hines Cover design by Flying Ant Designs Cover photograph of Nelson Mandela by Graeme Williams (South Photographs/africanpictures.net) Cover photograph of Thabo Mbeki by Alex Wong (Getty Images/Touchline Photo) Typeset by Patricia Comrie Printed and bound by Interpak Books, Pietermaritzburg Contents Acknowledgements vii List of abbreviations ìx Introduction: ‘A better life for all’ 1 Chapter One: The economic legacy of apartheid 9 Chapter Two: From Kliptown to the RDP: 29 The evolution of the ANC’s economic policy Chapter Three: Getting into GEAR 65 Chapter Four: Competing globally, restructuring locally 109 Chapter Five: Jobs and skills: 163 Remaking the labour market Chapter Six: Reaching for the economic kingdom: 193 Black economic empowerment and small and medium business development Chapter Seven: The two economies and the challenge 233 of faster growth Conclusion: Asking new questions 257 Select bibliography 267 Index 283 This page intentionally left blank Acknowledgements I prepared the first draft of this book as a visiting scholar at the Harvard Business School with access to the fabulous Baker Library and Harvard’s other resources, supported by Canada’s International Development Research Centre. Thanks to Marc van Ameringen and Rohinton Medhora of IDRC who arranged for the sponsorship and encouraged me to undertake and complete the project, and to Professor Richard Vietor at the HBS for accommodating me. Tom Karis, Dani Rodrik, and my wife Pippa Green read and commented on parts of the early draft of the manuscript, and Pippa on later versions too. Thanks also to Bill Freund who gave me valuable advice, both as a friend to whom I sent an early draft, and also as an anonymous reader for the publisher whose insights and prose style I could not mistake. Thanks to Eddie Webster for encouraging me to persist in trying to publish the manuscript. Thanks too to the other anonymous readers. The title of the book, Season of hope, was inspired by the use of the phrase by Trevor Manuel, Minister of Finance, in his budget speech in 2005, though the phrase can be traced back at least as far as Charles Dickens’ A Tale of Two Cities. I presented early versions of Chapters Two and Three respec- tively at the Walter Rodney Seminar at Boston University at the invitation of Dianna Wylie, and at the World Bank at an informal seminar convened by Jeffrey Lewis and Ataman Aksoy. Thanks to Alec Erwin, then Minister of Trade and Industry, and Zav Rustomjee, then Director-General of the Department of Trade and Industry, for allowing me to take extended leave to prepare the initial draft. Thank you too to my current employers at The vii Presidency, especially Reverend Frank Chikane, Joel Netshitenzhe and Goolam Aboobaker for allowing me to update and publish what is not an authorised account, and is my sole responsibility. And thank you to my other colleagues in the DTI, The Presidency, TIPS (Trade and Industrial Policy Strategies) and elsewhere for their contributions to my knowledge and understanding. This book is dedicated to Herbert and Shirley Hirsch who taught me to think critically about the way we live and the way we could live. viii Abbreviations ABET Adult Basic Education and Training ANC African National Congress AZAPO Azanian People’s Organisation BEE black economic empowerment BEECom Black Economic Empowerment Commission BMF Black Management Forum BOT built, operate and transfer (toll road) BTI Board of Trade and Industry BUSA Business Unity South Africa CBM Consultative Business Movement CEAS Central Economic Advisory Service CEO Chief Executive Officer CMA Common Monetary Area COSATU Congress of South African Trade Unions CPI consumer price index CSIR Council for Scientific and Industrial Research DACST Department of Arts, Culture, Science and Technology DEP Department of Economic Policy DP Democratic Party DTI Department of Trade and Industry EAP economically active population ECD early childhood development EPWP Expanded Public Works Programme EROSA Economic Research on Southern Africa ET Economic Trends group ix EU European Union FRIDGE Fund for Research into Growth, Development and Equity GATT General Agreement on Tariffs and Trade GDFI gross domestic fixed investment GDP gross domestic product GDS Growth and Development Summit GEAR Growth, Employment and Redistribution GEIS Generalised Export Incentive Scheme GFCF gross fixed capital formation GNU government of national unity ICASA Independent Communications Authority of South Africa IDC Industrial Development Corporation IDRC International Development Research Centre ILO International Labour Organisation IMF International Monetary Fund ISP Industrial Strategy Project JSE Johannesburg Stock Exchange (later Johannesburg Securities Exchange) LFS Labour Force Survey MAWU Metal and Allied Workers’ Union MERG Macroeconomic Research Group MIG Municipal Infrastructure Grant NAFTA North American Free Trade Agreement NAIL New African Investments Limited NAMAC National Manufacturing Advisory Centre Nedlac National Economic Development and Labour Council NEF National Economic Forum (Chapters Three and Four) NEF National Empowerment Fund (Chapter Six) NEM Normative Economic Model NGO non-governmental organisation NICs newly industrialised countries NIEP National Institute for Economic Policy x NP National Party NUMSA National Union of Metalworkers of South Africa OHS October Household Survey PAC Pan-Africanist Congress PIC Public Investment Commission (later Public Investment Corporation) PIG Provincial Infrastructure Grant PWV Pretoria-Witwatersrand-Vereeniging RDP Reconstruction and Development Programme RIDP Regional Industrial Development Programme SACOB South African Chamber of Business SACP South African Communist Party SACTU South African Congress of Trade Unions SACTWU South African Clothing and Textile Workers’ Union SACU South African Customs Union SADC Southern African Development Community SAMWU South African Municipal Workers’ Union SANCO South African National Civics Organisation SARS South African Revenue Service SASO South African Students’ Organisation SBDC Small Business Development Corporation SEDA Small Enterprise Development Agency SETAs Sector Education and Training Authorities SME small and medium enterprise SMMDP Small and Medium Manufacturing Development Programme SPF Sectoral Partnership Fund SPII Support Programme for Industrial Innovation SPV special purpose vehicle THRIP Technology and Human Resources for Industry Programme UBS Union Bank of Switzerland UDF United Democratic Front VAT value-added tax WTO World Trade Organisation xi This page intentionally left blank INTRODUCTION ‘A better life for all’ When the African National Congress (ANC) came to power after South Africa’s first democratic elections in April 1994, it faced daunting economic challenges: severe poverty and inequality, and economic stagnation. To fulfil its mandate to the electorate, nearly two-thirds of whom voted for the ANC, the new government had to redistribute wealth and incomes between privileged whites and deprived blacks (the latter group divided according to apartheid convention into ‘coloureds’, ‘Indians’ or ‘Asians’, and ‘Africans’). But the economy was in decline, having virtually stagnated in real terms for a decade, with falling per capita incomes. Was there any point in redistributing a shrinking patrimony, with everyone getting poorer? And, yet, would not fuelling economic growth simply put more wealth in the hands of those who already had it? The big economic question faced by the ANC was: What would be the ideal relationship between growth and redistribution in South Africa? Or, more precisely, how could it set South Africa on the path of economic growth and at the same time ensure fair, just and politically necessary redistribution outcomes? Put yet another way: was there a way in which growth and redistribution in South Africa could complement each other? This book describes how the new South African government addressed these challenges during the first decade of democracy, although its focus is more on economic policy and management than the distributional outcomes. South Africa was one of the most unequal societies in the world – an almost unique ‘outlier’ in the unevenness of incomes as World 1 2 Season of hope Bank economists put it in 1994. The average per capita income of whites was about 9.5 times higher than Africans. The distribution of wealth was even more unequal than income, as a result of land alienation and laws blocking Africans’ access to private and commercial property. Access to government services was similarly skewed. When measured in 1989, 52.7% of