FROM ISOLATION TO INTEGRATION? edited by: Antoinette Handley and Greg Mills SOUTH AFRICAN INSTITUTE OF INTERNATIONAL AFFAIRS Local and international contributors include: Brian Absolum, Willem Bosman, P.J. Botha, Chester Crocker, Jeremy Cronin, Rob Davies, Gilles Gauthier, Antoinette Handley, Jorge Heine, Jeff Herbst, Chris Heymans, Kim. Jaycox, Jonathan Katzenellenbogen, Gavin Keeton, Tom Lodge, Cassio Luiselli, Bob McKinlay, Greg Mills, Vella Piliay, Maria Ramos, Philip Spies and Chris Stals. ISBN 1-874890-67-6 Published by The South African Institute of International Affairs (SAIIA) with the assistance of the FRIEDRICH-NAUMANN-STIFTUNG Stlftung fur liberate Politik. SAIIA, PO Box 31596, Braamfontein 2017, South Africa. 9 781874 890676 > Tel. (27-11) 339-2021. Fax. (27-11) 339-2154. \ E-mail: [email protected] FROM ISOLATION TO INTEGRATION? THE SOUTH AFRICAN ECONOMY IN THE 1990s edited by Antoinette Handley & Greg Mills Published by The South African Institute of International Affairs Jan Smuts House, Johannesburg with assistance from The Friedrich Naumann Foundation © SAIIA, 1996 All rights are reserved While copyright in the volume as a whole is vested in the South African Institute of International Affairs, copyright in the" individual chapters rests with their respective authors, and no chapter may be reproduced in whole or in part without the express permission, in writing, of both authors and publishers. It should be noted that any opinions expressed are the responsibility of the individual authors and not of the SAIIA or The Friedrich Naumann Foundation. ISBN: 1-874890-67-6 First published by the SAIIA, September 1996 Printed by Print Inc. The South African Institute of International Affairs gratefully acknowledges the generous financial assistance of The Friedrich Naumann Foundation in the publication of this volume. Contents Notes on the Contributors vii 1: Introduction and Acknowledgements 0 Greg Mills 2: The South African Economy: An Evaluation 1. Chris Stals 16 2. Vella Pillay 25 3: 'Globalisation': Integration and Control in the World Economy /. Robert McKinlay 29 2. Rob Davies 44 4: Free Markets or Central Planning? /. Chester Crocker 49 2. Jeremy Cronin 57 5: Africa and the International Economy O Jeffrey Herbst 62 6: The Role of the World Bank in Africa 1. Edward Jaycox 85 2. Maria Ramos 108 7: Regional Integration and the Multilateral System /. Gilles Gauthier 112 2. Willem Bosman 122 8: Is Africa Atypical in the Developing World? 1. Chris Heymans 126 2. Tom Lodge 146 9: Lessons from the Asia-Pacific /. Brian A bsolum 158 2. P.J.Botha 163 10: Lessons from Latin America 1. Antoinette Handley 167 2. Cassio Luiselli 180 3. Jorge Heine 184 11: Future Paths and Trends for the South African Economy 1. Philip Spies 191 2. Gavin Keeton 224 12: Summary and Conclusions 7. Robert McKinlay 232 2. Jonathan Katzenelienbogen 234 3. Jeffrey Herbst 236 Glossary 240 Notes on the Contributors HE Brian Absolum is the New Zealand High Commissioner to South Africa. Willem Bosnian is presently the Director of Regional Economic Organisations in the South African Department of Foreign Affairs. Peter J. Botha was a member of the Department of Foreign Affairs from 1980- 96. He is currently the Head of Asia-Pacific Business at ABSA Asia Limited. Dr. Chester A. Crocker serves as Chairman of the Board of the United States Institute of Peace, and also as an advisor on strategy and negotiations to a number of US and European firms. Jeremy Cronin is the Deputy General Secretary of the South African Communist Party, and a member of the African National Congress' National Executive Committee. Dr. Rob Davies is an ANC Member of the National Assembly. He is deputy chairperson of the Parliamentary Joint Standing Committee on Finance and a member of the Portfolio Committees on Foreign Affairs, and Trade and Industry. HE Dr. Cassio Luiselli is Ambassador of Mexico to South Africa. Gilles Gauthier is First Secretary at the Canadian Mission to the World Trade Organisation in Geneva. Antoinette Handley is the Director of Studies at the South African Institute of International Affairs. HE Dr. Jorge Heine is Ambassador of Chile to South Africa. Professor Jeffrey Herbst is an Associate Professor of Politics and International Affairs at Princeton University. Chris Heymans is the Manager of Policy Co-ordination at the Development Bank of Southern Africa. Edward V.K. Jaycox is Special Advisor to the President of The World Bank. Jonathan Katzenellenbogen is a private management consultant and a Research Associate of the South African Institute of International Affairs. Dr. Gavin Keeton is an Economic Consultant with the Anglo American Corporation of South Africa. Professor Tom Lodge is Associate Professor in the Department of Political Studies at the University of the Witwatersrand. Professor Robert McKinlay is Professor and Head of the Department of Politics and International Relations, Lancaster University. Dr. Greg Mills is the National Director of the South African Institute of International Affairs. Dr. Vella PiUay is the Director of the National Institute of Economic Policy. He also serves as an Advisor to the Bank of China. Maria Ramos is the Director-General of the Department of Finance. Professor Philip Spies is a Professor at the University of Stellenbosch and Director of the Institute for Futures Research. Dr. Chris Stals is Governor of the Reserve Bank of South Africa. 1 Introduction and Acknowledgments Greg Mills The primary motivation of the ANC's foreign economic policies as a whole will be to place South Africa on the path of rapid economic development with a view to addressing three key problem areas: slow growth, severe poverty, and extreme inequalities in living standards. The South African economy has grown very slowly since the early 1970s, with the exception of short periods of gold market booms. Annual GDP growth declined from almost six percent in the 1960s to less than four percent the following decade and to barely one percent during the 1980s. The economy contracted sharply during the recession-bound 1990s, and in 11 of the past 12 years, per capita income declined. Nelson Mandela, 19931 Given the dramatic changes in South Africa's international position over the past five years and far-reaching developments in the nature of global politics and economics, the South African Institute of International Affairs (SAIIA) considered it timely to stage a major international conference on South Africa in the Global Economy from 11-12 July 1996. This event was designed to help locate and understand South Africa's position in the context of the continent's developmental problems and the evolving global economic system of the late 1990s. What is the state of the global economy today? How does South Africa adapt to it? These questions are on the minds of many as South Africa, with its own unique mix of development and underdevelopment - of First and Third Worlds - is faced with meeting high expectations, not only of its own citizens, but of those in Southern Africa and further afield. The international community nevertheless has great hopes of what South Africa could contribute to Africa's economic regeneration and to the global economic environment in general. It is therefore crucial that South Africa balance its domestic needs while nevertheless playing a positive developmental role on the African continent. Critical to the South African government's macro-economic strategy is the imperative to attract and reassure both the national and international investor by creating a friendly climate. In this, the need to ensure fiscal and monetary discipline and provide incentives through the privatisation of state assets, is coupled with a seemingly more intractable problem - to create a stable socio- political environment. In a complex synergy of relations and perceptions, the From Isolation to Integration? overall view of South Africa is shaped also by its geographic location on a continent crudely characterised by political and economic instability, and a region staggering forward from the effects of 30-something years of civil conflict. An understanding of the idiosyncrasies of the global economy and of South Africa's place in this 'village' is of paramount importance, and one which many South Africans have been slow (or unwilling) to recognise. The Conference Sessions The conference was structured mindful of this backdrop of global, regional and national demands. The presenters were followed immediately by respondents selected largely on account of their opposing views. The sessions focused on: an evaluation of the South African economy; trends in the global economy; the contemporary debate around the role of free markets and central planning; Africa's place in the global economy; the role of the World Bank in Africa; regional integration and the multilateral system; Africa in the context of the developing world; lessons from both the Asia-Pacific and Latin America; and, future paths and trends for the South African economy. Where no written papers were provided, an edited transcription of the conference presentation is published here. Evaluating the South African Economy The Governor of the Reserve Bank of South Africa, Dr. Chris Stals, provides an overview of the South African economy in a global context. Within all the structural limitations outlined, as Dr. Villa Pillay of the National Institute for Economic Policy (NIEP) reminds, there are challenging socio-economic inequalities and problems. In South Africa, nominally 32.6% of the population is unemployed, though this figure could be as high as 45-50% if the figures for the informal sector are included. It is forecast that, at current rates of growth (the population is predicted to rise to 58 million in 2010 and 73 million in 2025), jobs will be found for only 7% of new entrants into the labour market, compared to an absorption rate of 80-85% between 1965-70. Almost half the unemployed people are younger than 30, and almost 90% of them do not possess any skills or training for any kind of job.