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The Just Energy Transition and the labour market in South Africa
How will the Just Energy Transition affect livelihoods in households dependent on the coal industry in South Africa? Here is a measure of how many jobs depend on the industry and possible transition strategies.
The role of Public Employment in the climate crisis
Public Employment Programmes can play a key role not only in alleviating the crisis of widespread unemployment. They can also be harnessed to help to combat a range of social and environmental challenges, including the effects of climate change.
Watts happening to work? The labour market effects of loadshedding
Expanded access to electricity has been a boon to development in many low- and middle-income countries, including South Africa, but erratic supply has proved a major constraint to economic growth. Now, in the first study on the effects of load-shedding on employment, the authors find that prolonged and regular power outages are significantly and negatively associated with job retention, working hours, and earnings.
What does Saudi Arabian membership of BRICS mean for South African agricultural exports?
The inclusion of Saudi Arabia in the BRICS alliance presents a significant opportunity for South Africa to expand its livestock exports, particularly in the lucrative live-goat market. Despite the potential benefits, smallholder farmers face substantial barriers to accessing international markets due to institutional and production constraints. Establishing a reliable export market could not only enhance the income and livelihoods of smallholders but also stimulate goat production, akin to the success observed in the wool industry. However, challenges such as animal diseases and inadequate infrastructure must be addressed to fully capitalize on this opportunity. By navigating regulatory requirements and leveraging the BRICS trade partnership, South Africa can strategically position itself to become a key player in the global goat trade, thereby boosting rural economies and fostering sustainable agricultural development.
30 Years into democracy: How has South Africa's agricultural sector performed?
The agricultural sector has grown measurably in the 30 years of democracy -South Africa is now ranked 59th out of 113 countries in the Global Food Security Index and is the only African country within the world’s top 40 agricultural exporters. The challenge now is how to make that growth more inclusive.
Inclusionary housing: A novel approach to building integrated cities
Inclusionary housing policy offers a new way of addressing the urban housing crisis in South Africa. It involves private developers contributing to the production of well-located affordable housing in return for public incentives. What are the main principles and mechanisms involved in these partnerships? We look at the experiences of three South African cities at different stages of adopting and implementing the policy.
How does malaria impact education and gender equality? Evidence from Rwanda
The recent Covid-19 pandemic highlighted the negative socioeconomic impacts associated with disease. But malaria has impacted the health and economic outcomes of people in the tropics for several millennia. The disease is endemic and life-threatening in more than 94 countries, with Sub-Saharan Africa accounting for the highest concentration of countries at risk. Evidence shows that the disease has significant impact on economic development, and also increases gender inequality.
Is South Africa heading for a fiscal crisis?
Are budget cuts the only option to reduce the deficit and cut the national debt? Or has the main economic challenge been misstated? The Institute for Economic Justice argues that the county’s main challenge is not the debt burden but growth, and that there are a number of steps National Treasury could take to raise more revenue without cutting spending that threatens development and socio-economic rights.
What has happened to the personal income tax base since 2011?
The number of personal income taxpayers and aggregate taxable income increased strongly between 2011 and 2017 despite a slowing economy. These both declined during the Covid period and have since recovered, though more slowly than in the earlier period. In 2023, there were 7.6 million taxpayers above the threshold, up from 5.9 million in 2011. What role has tax policy played in the resilience of the tax base – and what do the trends indicate about progress towards a more inclusive economy?
Realizing socioeconomic rights with a limited budget
The South African constitution is considered progressive and transformative in intention due to its inclusion of socioeconomic rights, such as the right to education, food, and healthcare. However, some of these rights are qualified by the availability of state resources, which places an imperative on government to realize these rights progressively as resources become available.
Will the avian influenza fuel food inflation?
The avian flu currently spreading across South Africa has raised concerns about the potential uptick in food inflation. However, it may be too early for such fears, and it is not clear how long or widespread this effect will be. Moreover, the various interventions being considered by government could lessen the impact on both consumers and the domestic poultry industry.
Trade unions and the new economy: 3 African case studies show how workers are recasting their power in the digital age
Has the new technology that has given rise to thousands of “digital” workers destroyed the traditional collective power of worker organisation? A new book, Recasting Workers Power: Work and Inequality in the Shadow of the Digital Age, which examines work in three sectors in South Africa and Uganda, shows that workers’ organisation has survived into the digital age, albeit in a different form from traditional trade unions. Alliances with existing unions, with civil society organisations, and with each other if they are self-employed, together with a strategic use of institutions, have enabled digital workers to flex some collective muscle.
Why the township economy matters
Nearly half the working-age population and nearly two-thirds of the unemployed live in areas designated as townships under apartheid spatial laws. Originally developed as “labour dormitories”, they have been challenging to develop as more vibrant local economies and residential areas. What can the government – and the private sector – do to stimulate growth, entrepreneurship, and employment in these peri-urban areas?
How to tackle low labour utilisation in South Africa
South Africa’s low labour utilisation rate is a stark outlier by international standards, made even more unusual because achieving job creation and high employment rates appear to be well understood in other economies. What policy remedies can South Africa learn from other countries? Increasing economic competition and removing impediments to job creation are clear lessons. So too is the focus and effectiveness of labour-market institutions that lower the cost of job search. Other gains can be found in lowering costs to job creation and labour supply, easing school-to-job transitions, and making job search more effective.
Why SA needs to boost exports
South Africa’s exports have lagged behind the rest of the world over recent decades, and this has likely constrained overall economic growth. To address the inherent bias against exporting, South Africa urgently needs to address the high costs of investment and trading across borders; review the impact of existing industrial, localisation, and sector-specific policies on export behaviour; implement a comprehensive and well-targeted export promotion and export finance framework; and update its trade policy approach to negotiations across the continent and internationally.
New vaping tax misses the mark
The vaping industry has vociferously opposed a new tax on vaping products. But only the largest containers of e-liquid will feel hefty price increases – more than double in some cases. Young people who are starting to vape are more likely to buy disposable vapes, which attract less tax. As currently structured, the excise tax is not sufficiently targeted at reducing, or preventing, the use of vaping products among youth.
Riding to survive: food couriers in three African cities
Most of the studies on gig work focus on the Global North. There has been little research on how platform workers in Africa are responding to the digital economy. Although it is ostensibly based on freedom and self-employment, our research amongst food-courier riders in South Africa, Ghana, and Kenya found that this new work order is deepening worker insecurity, undermining worker rights, and dramatically increasing inequality between a core group of extremely wealthy senior manager/owners and a growing pool of precarious workers.
The Social Relief of Distress Grant: how it stimulated local economies
The Social Relief of Distress (SRD) grant was a key policy mechanism introduced to mitigate the effects on vulnerable groups of the COVID pandemic and government measures to contain its spread. While there is substantial research on the social impacts of the COVID-19 social relief package, little is known about its economic impacts. This article is based on a study that sought to understand, from the perspectives of local traders, the perceived economic effects of the grant. Evidence gathered in the study showed that the SRD led to an increase in customer demand within local economies. It was a crucial mechanism that helped informal trader businesses survive and, in some cases, enabled new business formation. By stimulating both supply and demand, the SRD supported the circulation of people, goods, and money and promoted higher transaction intensity in food and non-food sectors. Although the SRD could not reverse the negative impacts of COVID-19, and cannot be considered a standalone intervention, it nonetheless functioned as an effective shock-response mechanism for households and informal traders. The detection of some economic multipliers in a time of emergency signals the potential for a long-term intervention that could be beneficial to local economies.
The COVID-19 TERS policy saved at least 2 million jobs - but not without some unintended results
About three years have passed since the South African government introduced the COVID-19 Temporary Employer-Employee Relief Scheme (TERS) in response to the pandemic and associated lockdown regulations. Given the extent of unemployment in South Africa even prior to the pandemic, the policy’s primary aim of mitigating job losses arguably made it one of the country’s most important labour-market interventions at the time. What effect did it have on job retention, and who did it benefit most?
SRD grants: how they can be used to help young people into jobs
The COVID-19 pandemic worsened the unemployment crisis in South Africa. In the second quarter of 2021, unemployment rates were the highest ever officially recorded. Many people who lost their only source of stable income fell into poverty as a result.
Social grants provide income that helps people to survive the short term economic hardship of unemployment. In the long term, new opportunities must be created to get people back into work. However, National Treasury’s emphasis on fiscal restraint has led to debates about which of these policies to prioritise. This has been particularly evident in the debate around the extension of a grant introduced during the pandemic, known as the Social Relief of Distress grant. Much of the discussion on the merits of the grant treats it as a competitor to employment-creation schemes in the budgetary allocation. However, the evidence compiled in our review of the job search assistance literature suggests that with careful design, the relief grant can help to support the policy priority of getting young people into work.
Special Covid-19 grants not only provided income relief: they also improved labour-market outcomes
The Social Relief of Distress grant was the first in South Africa to target unemployed adults. Its main aim was to provide income support in a time of the crisis precipitated by the Covid-19 pandemic and lockdown. But for the first time, new research has shown that it also played a key role in improving labour-market outcomes for recipients.
How South Africa may leverage the BRICS chair for agribusiness
Despite BRICS not being a trade bloc, its economic cooperation arrangement offers South Africa a strategic platform to advance its trade interests. The agricultural sector is interested in this grouping, mainly in advancing exports into China and India. These countries already import a sizable volume and value of agricultural products from the world market, and South African businesses want to join these suppliers. The main products that South Africa should promote within this grouping are fruits, wine, wool, and beef. Importantly, the increasing interest in BRICS should continue, while South Africa also maintains its focus on other core markets, such as the EU and the African continent.
Education is improving but the message is hard to convey
South Africa’s improvements in international standardised tests have been exceptionally steep, albeit off a low base, for some 15 years. Six reasons make this difficult to communicate: examinations distract from reliable measurement; small gains are incorrectly considered insignificant; the social benefits of gains are long-term; the psychometrics behind rigorous testing is foreign to many; this testing has on occasion been poorly done; and teachers often express ideological concerns about standardised testing.
The creative spark of a public employment programme
The Presidential Employment Stimulus has created more than one million jobs and livelihood opportunities since its inception two years ago. In the arts and culture sector, particularly badly affected by the pandemic, the intervention has been an important catalyst for creative new work.
Integrated urban services can boost regional development in Africa: this is how
Urbanization provides a unique opportunity to accelerate economic and social development across Africa. South Africa has some of the technical capabilities to support the process through systematic planning, institution building and investment in essential infrastructure. This requires a proactive approach from government working with the private sector to marshal their collective resources and know-how.
How trade restrictions affect consumers: the case of frozen chicken
Trade protection in South Africa has increased overall since 2014. This has manifested in a rising incidence of tariffs covering intermediate (e.g., steel) and consumer goods, including poultry, pasta, and frozen chips, of which poultry is by far the most important for South African consumers. The South African Poultry Association has contested the view that anti-dumping duties on chicken raise domestic prices. However, an econometric study shows that although there is a complex relationship between trade policies and consumer prices, the net effect on these products, including frozen chicken, has been to raise them.
Time to make cigarette taxes more effective in Mozambique
Taxes on cigarettes and tobacco in Mozambique are the among the lowest in the southern African region. This not only deprives the fiscus of potential revenue but also makes cigarettes more affordable. Affordability of cigarettes is a key measure of the effectiveness of tobacco taxes. If taxes - and retail prices - were significantly raised it would have beneficial effects not only in terms of revenue but also for health.
Budget pressures erode capacity of the criminal justice system
The criminal justice system faces severe challenges: as organised crime has risen, the capacity of the system has diminished. A close look at Budget expenditure shows that, in the past decade, the number of police officials has declined, as has police spending per citizen. This, while employee compensation has risen in the same period. Similar trends are evident in the courts. In correctional services, although the number of officials has remained stable, capital budgets are severely constrained. This shrinking resource base may well exacerbate the threat that crime and disorder pose to the economy and society.
Has the Employment Tax Incentive created jobs?
The Employment Tax Incentive was introduced in 2014 in response to South Africa’s chronic structural youth unemployment crisis. Its aim was to encourage employers to hire young people by subsidizing their wages. ‘High youth unemployment,’ said SARS, ‘means young people are not gaining the skills or experience needed to drive the economy forward. This lack of skills can have long-term adverse effects on the economy.’ But how effective is it? This is a critical question as the fiscus must bear the cost of foregone revenue. An analysis of firms that claim the incentive compared with those that do not, runs into methodological challenges and casts doubt on the efficacy of the policy.
How to create jobs and combat climate change
South Africa has the dubious distinction of having one of the highest rates of unemployment and inequality in the world. It is also one of the world’s most emissions-intensive economies, measured in greenhouse gas (GHG) emissions per unit of economic output. Historically, both during and after apartheid, state subsidies have favoured capital- and energy-intensive industries. What policies are necessary to change the development path to be both more climate- and labour-friendly?
Gender, care, and climate change: Why they are connected
Why does our society place so little value on care? The pandemic showed the centrality of health and care workers to daily life. But unpaid work – mainly done by women – does not figure as part of the calculations of the GDP of a country. Closely related to this is the scant value we place on the environment and preserving it for coming generations. Our economic models do not factor in essential, but unpaid work done by women, nor the critical task of protecting our fragile environment.
How agro-processing can boost regional integration – and development
Regional integration in Africa is underway but progress requires that the gains are widely spread. South Africa’s huge regional trade surplus in manufactured goods is leading to protectionist pressures in neighbouring countries. Agro-processing is a large sector that has significant potential, but the export performance of the region has been poor if South Africa is excluded. Regional value chains are failing to include the small economies of southern Africa. Constraints include tariff and non-tariff barriers, weak infrastructure, as well as poorly developed local suppliers. Some retail chains, supported by governments and NGOs, are now taking the lead in developing small-scale suppliers in the region. But other policies to improve the regulatory and investment environment are also necessary.
How big is the illicit cigarette market in South Africa?
In August 2022, British American Tobacco South Africa (BATSA) announced the illicit cigarette trade in the past year comprised 70% of the local market. To test whether this claim is true, I updated previous research that provided estimates of illicit trade from 2002−2017 to include estimates for 2018−2021. Using gap analysis, I estimated that between 2002 and 2009 the illicit cigarette market accounted for around 5% of the total market. Since 2010, however, the illicit cigarette market has increased sharply: by 2017, it accounted for 30%−35% of the total market. But it was the 20-week cigarettes sales ban in 2020 that really entrenched the illicit market. I estimate that illicit trade was 54% in 2020 and 2021. These estimates are lower than BATSA’s estimate of 70%, but are still cause for much concern. BATSA’s estimate is wrong for two reasons: the estimate is for Gauteng (one of the nine provinces in their sample), not South Africa as a whole, and, secondly, its estimate relates to the proportion of stores it claims sold illicit cigarettes, as opposed to the overall proportion of illicit cigarettes consumed.
Why the South African state should not subsidise minibus taxi owners
About 60% of South African households use minibus taxis as their main mode of transport. They spend about 26% of their gross earnings in doing so. Should taxi operators receive subsidies from the state? There are several reasons why policymakers should think about enhancing competition and improving efficiency in the public transport sector instead.
How land reform can boost inclusive agricultural growth
Land reform is not only politically important: it could be a key catalyst for inclusive growth and employment creation. But policymakers need to effect some fundamental reforms and targeted interventions to support emerging commercial farmers. The interventions range from better governance of the agricultural sector, to massive improvements in port and rail logistics, more effective veterinary practices, and easier access to finance for new farmers.
How effective is income tax in reducing inequality in SA?
South Africa has one of the most progressive income-tax systems in the world. Income tax significantly reduces market-income inequality by flattening the incomes of the rich and providing financing for instruments of social protection, such as the social grants system and free basic services. Personal Income Tax is the government’s largest tax instrument and has increased as a share of tax revenue over the past decade. However, it has become less progressive over time, when measured as a share of income despite rate increases. While the amount of income tax has increased, market incomes, particularly of the top decile, have grown at a greater rate.
Did the TERS policy save jobs during the COVID-19 pandemic?
South Africa’s Temporary Employer-Employee Relief Scheme (TERS) has arguably served as the country’s most important labour market intervention in response to the COVID-19 pandemic to date. As the government winds down the policy two years after its inception, a key question is: was it successful in achieving its primary aim of saving jobs?
South African food security: the effects of the Russia-Ukraine war
Food security has dominated global media headlines since the Russia-Ukraine war began four months ago. While prices of food products are rising globally, not all countries are negatively affected the same way. The poor nations and those with generally low productivity in agriculture, such as much of the African continent, feel the impact more severely than others. South Africa is in a relatively fortunate position because of its vibrant agricultural sector, which cushions the country against food shortages in the foreseeable future, but price increases will be felt by consumers.
Francis Wilson: A heart on fire: 17 May 1939 - 24 April 2022
Professor Francis Wilson, the founder of SALDRU and the chronicler and analyst of over 200 years of Southern African economic history has passed away.
He was 82.
SALDRU is the administrator and home base of Econ3x3, although it began as an independent publication under the REDI3x3 project. Its aim, as was Wilson’s, is to use research to fashion evidence-based policy that can help improve the lives of many South Africans who still burden under the legacy of apartheid.
The changing landscape of sustainable finance
The global climate effects of rising carbon emissions are fast becoming too costly to ignore. However, mitigating these effects also carry risks and involve transition costs that can be difficult to estimate upfront. We explore how these developments could affect financial stability and how trends in sustainable finance are being used to respond to the associated threats and opportunities.
Public employment programmes: what they contribute to jobs and earnings
Public works programmes are central to the National Development Plan’s aim to counter poverty and increase employment. Special employment programmes met the NDP’s target of one million work opportunities by 2015, but then declined sharply. Measured on a full-time equivalent basis, the EPWP and CWP contributed 2.6% of total employment and just over R12 billion in wages in 2019/20. Since then, the Presidential Employment Stimulus programme has demonstrated that more rapid “scaling up” of employment programmes is possible. They should be seen not just as short-term “work opportunities” but rather as productive components of a development strategy that works for all.
The Russia-Ukraine war will hurt SA investment ambitions: lessons from nine wars
Lessons from nine wars since the early 1970s, and the Brexit vote, show that global foreign direct investment inflows generally decline during the year of the war and the year after. South Africa, having embarked on an investment drive since 2018, faces a tough job making the country more investor friendly and marketing it to the rest of the world given the Covid-19 pandemic and most recently the Russia-Ukraine war. Thus, policy makers need to be more aggressive in implementing structural economic reforms alongside public efforts to demonstrate progress, to achieve foreign direct investment targets.
Social stratification around the NSFAS threshold: A dynamic approach to profiling the missing middle
In 2018, government announced that the National Student Financial Aid Scheme (NSFAS) would fund all eligible post-school students whose household income was R350 000 or less. The Department of Higher Education and Training is now focusing on what it calls the “missing middle” – students who come from households whose income is too high to make the NSFAS threshold but too low to afford fees –between R350 000 and R600 000. Guided by the poverty dynamics literature, we show that the “missing middle” is a complex category, comprising two distinct groups based on their relative economic stability or vulnerability. A key consideration for how we understand socio-economic need – on both sides of the NSFAS threshold – should reflect the household circumstances that generate economic vulnerability, not only household income at a given point in time.
How South African agriculture - and consumers - will feel the war in Ukraine.
The Russia-Ukraine war has raised concerns about potential escalating global food insecurity as these countries are major exporters of grains, oilseeds, fertilizers, and crude oil. Since the war started, the prices of these commodities have risen significantly, and South Africa, interlinked in the global commodities market, is exposed to these prices increases. This article attempts to show how the conflict may affect South Africa’s agricultural sector, as well as consumers, by focusing on trade linkages of agricultural commodities and inputs prices, as well as price transmissions [1]
The short and long of welfare solutions to South Africa’s pressing challenges
South Africa’s triple challenges of high unemployment, poverty, and inequality increasingly threaten to ignite social instability. Proposed solutions through job creation will take too long and remain inadequate under the current pace of economic reforms and resultant economic growth rates. Thus, pressure is mounting to introduce a universal basic income grant (BIG) as an immediate and permanent feature of welfare policy to relieve societal pain and avert potential social instability. But viewing this solution through the lens of South Africa’s population dynamics up to 2050, it is clear that welfare-type solutions such as a BIG will not self-sustain; they will collapse public finances and potentially result in a failed state over the long-term under low growth paths. Policy makers must resist the urge to score quick political wins that jeopardise the survival of the state over the long-term.
Basic income support is unavoidable, but making it work requires political courage
As government gears up to announce its programme for the next year, through the State of the Nation address and the Budget, it seems certain that some form of basic income support will be a central part of its agenda. The lockdown-induced shocks have added to the crisis of structural mass unemployment, and of poverty. There also seems to be broad consensus that basic income support is an essential part of our social compact. But the fiscal risks it poses to a fragile economy have not diminished, and government faces some hard trade-offs to ensure these risks are minimized and that other social spending is not compromised.
Place matters: National prosperity depends on every region performing better
The poor national performance of the South African economy has been widely analysed, but this disguises considerable variation in economic performance between sectors and regions. Raising production in lagging provinces to the level of the best performers could boost national output and income considerably. This depends on a deeper understanding of national industry trends together with place-based dynamics.
The politics of economic change
The political settlement forged around South Africa’s transition from apartheid to democracy created the conditions for a corporate restructuring of the economy characterized by high profitability, despite low investments. This has involved power entrenchment in large incumbent businesses groups and coalitions of rentieristic interests, which have undermined effective industrial policy implementation and the development of inclusive growth-oriented coalitions. Persistent high unemployment and inequality have fuelled dissatisfaction and contestation over the core objectives of a more developmental state. Industrial policies have also been undermined by the fragmentation of the state.
The good news in 2021 is in the agricultural sector
The year 2021 has ended positively for South Africa's agricultural sector. Farmers experienced a unique season characterized by bumper yields, and higher agricultural commodity prices, particularly in the grains and oilseeds industries. Improved farmers' incomes have boosted spending on agricultural equipment. On the downside, the unrest and looting in July were disruptive, but the cooperation amongst agricultural and logistics role-players ensured a continuous flow of agricultural exports. The primary agriculture sector could show positive growth in 2021,building from an excellent year of 13,4% year-on-year growth in 2020. Going into 2022, the early indicators about the agricultural growth prospects are positive.
The MTBPS makes a start: now we need the policies for growth
South Africa’s national budget is one of the most redistributive in the emerging markets, but our rising debt to GDP ratio threatens future economic growth and thus the country’s capacity to both create new jobs and to maintain the social wage. National Treasury will have to continue to provide support in the short term to the vulnerable, whose position has been greatly exacerbated by the pandemic. But without implementing the necessary reforms to put the country on a path of sustainable growth, this will not only simply be papering over the cracks but may significantly increase the debt burden.
The case for a Universal Basic Income Grant
The Covid pandemic has greatly exacerbated existing poverty and unemployment in South Africa. What are the best policies to alleviate it? Targeted social grants may aim to reach the poorest of the poor but there are many inefficiencies in the targeting method. A Universal Basic Income Guarantee is more costly, yet simpler to implement, will reach those in need more quickly, and is financially feasible.
The MTBPS clears some fiscal space but it is still a path through a swamp
Treasury did the best it could in this month’s Medium Term Budget Policy Statement. Half the revenue windfall was used for fiscal consolidation and the other half on spending increases. But real cuts to expenditure are still pending, and cabinet backing is yet to be negotiated. Achieving consolidation next year will be even harder as the commodity boom wanes and election politics wax.
COVID-19: the measure of learning losses
How much learning did primary school children in poorer schools lose due to the lockdowns resulting from the Covid-19 pandemic? Three different studies on early-grade reading from no-fee schools across South Africa show that in 2020, grade 2 students lost between 57% and 70% of a year of learning, and grade 4s between 62% and 81%. There is also evidence from the grade 4 sample that girls and those with stronger initial reading proficiency have been most negatively affected. The key question for education authorities now is how to mitigate the long-run implications of these losses.
The EU Green Deal: how will it impact South African agricultural exports?
The European Union (EU) is the second most important market for South Africa's agricultural products, accounting for 27% of the country's total agricultural exports. Despite South Africa transitioning from the Trade Development Cooperation Agreement (TDCA) to the Economic Partnership Agreement (EPA) to secure continued and improved market access in the EU, a new set of regulations under the EU Green Deal and its Farm to Fork Strategy are set to impose additional compliance costs that will likely negate the benefits of existing preferential trade arrangements. We present a set of challenges, opportunities, and risks that both government and the private sector need to address if South Africa aims to increase agricultural exports to the EU.
Why South African agricultural products face frontiers in African markets
South Africa's export-oriented agricultural sector is heavily reliant on the African continent, accounting for over 40% of annual exports. The African Continental Free Trade Area (AfCFTA) is expected to propel South Africa's market presence beyond the South African Development Community (SADC) region. However, we argue this optimism might be misplaced, given specific structural challenges that will likely limit the potential for South Africa to increase agricultural exports in untapped African markets.
Is South Africa's trade policy failing the agricultural sector?
South Africa's agricultural exports have grown significantly over the past two decades. Yet agricultural private-sector role players typically argue that the government has not done enough to open up new markets for ever-increasing produce. This failure has limited the country's scope to grow exports beyond existing traditional markets in the European Union (EU) and the African continent. In markets outside these regions, private-sector players argue that the growth in South Africa's agricultural exports has primarily been driven by productivity gains whose competitive advantage overcomes the costs of high tariff and non-tariff barriers. However, a review of South Africa's trade agreements paints a different view, suggesting that private-sector role players might be downplaying the achievements of the past two decades.
A redistributive approach to paying for a universal pension contribution subsidy
This is part 3 of a three-part series on pension fund coverage. The first article provides estimates of the size of the pension coverage gap, the second deals with the fiscal costs of co-funding universal coverage, and this article suggests how this might be paid for.
What would it cost to subsidize a universal pension plan?
A key objective of social security policy is to increase participation in contributory savings arrangements that provide funded incomes in retirement. This is the second of a three-part series on pension fund coverage. The first estimated the size of the pension coverage gap. In this article, the fiscal costs of co-funding universal coverage are examined. In the third part of the series, a tax reform that might pay for a pension plan subsidy is suggested.
What is the size and distribution of the pension contribution gap?
Out of 16 million employed people under the age of 65, about seven million contribute to pension or provident funds. Most of those who are not covered earn below the tax threshold, including workers in the informal and agricultural sectors. This first of a three-part series quantifies the pension coverage gap. The second and third parts will examine the fiscal costs of co-funding universal coverage and how this might be paid for.
A measure of relief: how the Covid-19 grants have dented poverty and inequality
The Covid-19 pandemic not only had devastating impacts on health when it hit South Africa in early 2020. It also caused severe economic hardship. What was its impact on poverty and inequality, and what were the effects of the COVID-19 social relief policies? This article, based on a UNU-WIDER/SA-TIED research paper that uses a static tax–benefit microsimulation model known as SAMOD, measures the incomes of people just before and after the first few months of lockdown and evaluates the relief policies put in place. The COVID-19 measures had a substantial effect in reducing poverty and inequality. Our results may lay the foundation for the role that longer-term social grant policies could play in effectively reducing poverty in South Africa.
How the COVID-19 grant has reached the once forgotten
The COVID-19 grant is the first in South Africa to explicitly target the unemployed. By the end of 2020, the grant had brought some six million previously unreached people into a welfare net that had previously excluded them on the assumption they could find work. How have the grants impacted poverty and inequality? And what are the implications for long-term policy?
How to fund higher education in South Africa: a public-private-university partnership may be the answer
Higher education is both a private and public good – for society, an investment in the future, for the individual, a chance to improve their lives. But the current model of student funding is neither financially nor fiscally sustainable. It is unlikely that government can fund the “missing middle” – students from households with incomes between R350 000 and R600 000 a year. What then to do? A loan scheme involving universities, government, and the private sector may enable students to graduate and to start re-paying only once their income reaches a certain level.
Part 4: Fiscal dimensions of South Africa's crisis
This is the last in a four-part series by Michael Sachs, extracted from his paper, Fiscal Dimensions of South Africa’s Crisis (the full paper can be found on http://www.wits.ac.za/scis). In the last article, he examined the extent and nature of South Africa’s debt burden, distinguishing between the level of debt and its trajectory in relation to economic growth. He argued that SA’s debt was not only an impediment to economic growth, but that it also risked undermining the progressive nature of SA’s tax system.
Part 3: Fiscal Dimensions of South Africa's Crisis
This is the third in a series of articles by Michael Sachs, extracted from his paper, Fiscal Dimensions of South Africa’s Crisis. In the last article, he showed how the real value of public services has declined over the past decade, and how substantial off-budget allocations to state-owned enterprises have come at a cost to the poor. In this article, he examines the extent of South Africa’s fiscal crisis as the country struggles to recover from the impact of Covid-19. He argues that the recent budget proposes a path of consolidation that will erode core public services further. It will also be difficult to accelerate the pace of economic growth in the face of a large and sustained negative fiscal impulse. But even if the consolidation achieves its targets, it is unlikely to alleviate the debt burden. Rising interest payments mean that rent is drained from the proceeds of production, with implications for economic growth and the distribution of national income. Without an acceleration in nominal GDP, it is difficult to see how South Africa will avoid a period of fiscal and financial disorder.
Part 2: Fiscal Dimensions of South Africa's crisis
In the first article in this series, we examined the history of SA’s economic policy and some of the roots of its current fiscal crisis. We looked at how economic growth in the country has consistently depended on the global economy and how a commodity-fuelled boom created a mirage of permanent economic growth in many developing countries, which were left without fiscal buffers once the uptick had stagnated or swung downward. In SA’s case, there were also self-inflicted blows, both economic and political, which began after 2007. But despite this, fiscal policy was expansive relying on the hope of increased growth, without sufficient planning for where it would come from. In Part 2 of this series Michael Sachs explains how austerity was implemented, almost by stealth, but without the necessary fiscal consolidation needed to avert a crisis.
Part 1: Fiscal dimensions of South Africa's crisis
At the start of the democratic project, South Africa hoped for a “fiscal renaissance”. After a brief period of consolidation, social spending rose, as did remuneration for public servants and expenditure on infrastructure. By the early 2000s, revenue was buoyant, the debt-to-GDP ratio was at historic lows, and the budget balance moved into surplus. But by the second decade of the millennium, growth faltered. And at the very moment that conditions demanded fiscal adjustment, government policy became increasingly incoherent.
How basic education has improved in the Western Cape
A new longitudinal study of learners in public education in the Western Cape shows a marked decline in repetition rates over the past six years. The drop in repetition has also led to more learners making it through matric. The study could have significant lessons for policymakers in terms of the interventions required to reduce dropouts.
Measuring financial inclusion: A comparative analysis of regional South Africa
Financial inclusion has become an important measure of inclusive economic growth in South Africa, as well as in other parts of the world. But if inclusion cannot be measured accurately it leaves policymakers and market participants making inadequately informed decisions. This article discusses a new quantitative method to construct financial inclusion indices for the nine provinces. The index trends are used to evaluate the state of financial inclusion in the recent past and to make recommendations for further financial sector development policy. The country has made improvements in financial inclusion since 1994. Since then, there has been increased access and usage of financial services. However, between 2015 and 2018 there was an overall reduction in financial services. The decline has been heavily influenced by economic shocks such as decreasing income in various provinces, a decrease in credit extension to the private sector, rising unemployment rate, and rising risks to financial infrastructure. In fact, financial inclusion in 2018 fell back to the level it was in 2014 after a decline that began in 2016. Financial inclusion has increased in Gauteng, Western Cape, and the Eastern Cape; however the Free-State and Northern Cape have experienced declines to below their 2015 level, while the other provinces experienced minor declines.
Inequality through the prism of the pandemic
The COVID-19 pandemic has exposed significant inequalities in terms of capacities to cope with such a major shock. There is a marked difference between urban and rural areas in the ability to comply with lockdowns, as well as between wealth quintiles. Moreover, those least able to comply with lockdown regulations are often most vulnerable to infection. Policy needs to be fine-tuned to address the effects of major spatial inequalities between and within provinces.
Why women have fared worse in the pandemic
Women are at far greater risk of losing their income and are more likely to be exposed to the COVID-19 health risk than men because of the type of work they do.
New opportunities for South African agriculture: the African Continental Free Trade Area
The new African Free Continental Trade Area phases out 90% of tariffs on all goods traded between African Union member states over a 5 to 10 year period. This seeks to boost intra-African trade and investment in regional value chains. The current 41% share of SA agricultural exports that goes to Africa is concentrated in SADC. The opening of other markets presents an opportunity for further expansion in goods such as oranges, apples and wine.
African governments should have a fresh look at agriculture as part of the economic recovery plan after Covid-19
The Covid-19 pandemic presents an opportunity for African governments to relook agriculture as part of the economic recovery plan. A new approach should embrace technology (information technology, mechanical and biotechnology) and private-sector partnerships, as well as the improvement in land governance through the extension of title deeds or long-term, tradeable leases. South Africa presents some examples, particularly on technological advancement, which African countries can emulate.
The Covid-19 crisis has amplified spatial inequalities
The economic and social crisis induced by Covid-19 is unfolding in different ways across the country. New evidence from the NIDS-CRAM survey reveals that the pandemic has widened pre-existing inequalities between cities and rural areas. Within cities it has magnified the gap between suburbs, townships and informal settlements. A premature withdrawal of government relief schemes could aggravate the hardship and suffering in poor communities that have come to rely on these resources following the jobs slump.
Covid-19’s economic effects: tourism’s supply-chain impacts
While the impact of the Covid-19 lock-down on the tourism sector may seem clear, the potential impact on its supply chain has not been investigated. StatsSA data is analysed to establish which goods and services receive the most expenditure from three key tourism industries, but also which goods and services rely most heavily on tourism expenditure. Surprisingly it is soft drinks, tobacco, and transport-related goods that are likely most affected, not construction or agriculture.
Finance and businesses in the time of Corona
The lockdown and physical distancing measures of government impact small and medium-sized companies severely as they lack the financial reserves to survive the crisis. This article proposes immediate financial measures to support companies, large and small, to ensure that a liquidity crisis does not turn into a solvency crisis, putting many companies out of business – and causing large-scale unemployment. On a macroeconomic level the objective is to protect income and jobs by slowing down the rate at which aggregate supply and demand contract.
Soaring deficits and debt II: Budget 2020 and a looming debt trap?
The projected increase in the debt-to-GDP ratio is set to occur notwithstanding plans to cut the projected increase in government’s salary bill. If government does not overcome labour union resistance to cuts, the debt burden will increase even more. The mounting public debt and government’s apparent inability to reign it in, raises the question whether South Africa finds itself in a debt trap, and if not, what can be done to escape such a trap.
Soaring deficits and debt: restoring sustainability amidst low economic growth
The debt burden of the national government has steadily increased from 27% in 2007. It is heading towards 70% in 2022/3 if this trajectory is not turned around. Further growth in the debt-to-GDP ratio must at least be halted. Different scenarios show this would require a cut in government expenditure of 2% to 3% of GDP (roughly R100 to R150 billion), phased in over the medium term. This means there is no room for a stimulating fiscal policy.
Hiding in plain sight: high-value agriculture’s large-scale potential to grow jobs and exports
South Africa has a major but overlooked opportunity to expand the production of high-value agricultural products that are both labour-intensive and export-oriented. There is an extensive and growing global demand for these products. Various supply side constraints must be addressed, such as how land is used; public investment in irrigation, agricultural inputs and R&D; development finance; and logistical costs and quality. Around 300 000 jobs could be created directly and indirectly, primarily benefitting the poorest: rural women in former homelands
Socio-economic class in South Africa: playing snakes and ladders with loaded dice
Experiences of poverty over time differ markedly. Out of four South Africans, two experience persistent poverty with few future prospects. Another one moves in and out of poverty, constantly struggling to make ends meet. Only one out of four is stably middle class or elite. The unequal risk of falling into poverty is related to characteristics such as race, education and geographic location. Being employed and the type of employment are key determinants of vulnerability to poverty.
The informal economy: Is policy based on correct assumptions?
We analyse the emphasis in informal-sector and informal-economy policy, highlighting who runs the risk of being missed. We then interrogate assumptions on which policy objectives are based – notably that the informal sector acts as a ‘shock absorber’ in times of recession and, given the emphasis on the township economy, the spatial dimensions of informal-sector employment. We argue that policy makers should pay attention to harmful regulations, the infrastructure needed and where informal activities fit in value chains.
Why has manufacturing employment declined so rapidly?
The manufacturing sector has performed poorly and employment has fallen sharply. Policy has tended to push manufacturing onto a more capital-intensive trajectory. Paradoxically, South Africa’s actual (or ‘revealed’) comparative advantage has come to be in relatively capital-intensive products. In contrast, labour-intensive sub-sectors have performed poorly. In a context of high structural unemployment, industrial policy should focus more on supporting employment-intensive growth by subsidising labour and training rather than capital investment, electricity and infrastructure for capital-intensive firms.
The top 1% of incomes are increasing rapidly even with low economic growth
We use tax data (which include accurate data for the very rich) to investigate the patterns of income growth over the period 2003 to 2016. Despite the need for inclusive economic growth in the light of extreme inequality, the top 5% of incomes grew at about 5% per year compared to national income growth of 3.7% per year. This divergence is striking in the post-recession period and appears to be partially driven by high growth in income from capital.
Creating jobs, reducing poverty V: Is ‘formalising’ the informal sector the answer?
This extract from a new REDI3x3 book proposes a constructive way to approach the possible ‘formalisation’ of the informal sector. A common impulse is to reduce formalisation to regulating and taxing informal enterprises – two blunt instruments that can be destructive. Formalisation must rather be seen as a means to aid the quest for better livelihoods for more people and stronger, more self-standing informal enterprises. Smart formalisation can be pursued with a ‘formalisation menu’.
Creating jobs, reducing poverty IV: What policy approach to enable the informal sector?
This extract from a new REDI3x3 book outlines an appropriate and ‘smart’ policy approach to enable enterprises in the informal sector. Such policies need to be differentiated and nuanced, recognising that both one-person or multi-person enterprises are situated on a developmental spectrum from embryonic to mature states, some ‘survivalist’ and others ‘growth-oriented’, with different aspirations, entrepreneurial aptitudes, degrees of development, complexity and capacity – and different needs and challenges. Factors for good policy design are identified.
Creating jobs, reducing poverty III: Barriers to entry and growth in the informal sector – and business cycle vulnerabilities
In this extract from a new REDI3x3 book, the focus is on the constraints faced by informal enterprises in trying to enter, survive, grow, or increase employment. A lower tier of ‘survivalist’ enterprises and an upper tier of ‘growth-oriented’ enterprises is apparent, with barriers limiting entry into the upper tier. Selling into higher-value or formal-sector markets and value chains encounter significant structural barriers. And the sector is particularly vulnerable to severe cyclical downturns.
Creating jobs, reducing poverty II: The substantial employment performance of the informal sector
In this extract from a new REDI3x3 book, the employment-creating behaviour of informal enterprises is analysed – in particular, enterprises with employees. Almost half of those working in the informal sector work in such multi-person firms – which provide paid work to about 850 000 people (owner-operators plus paid employees). There is a growing employment orientation and employment intensity. Jobs are created via new-firm entry as well as employment expansion – also by one-person enterprises. Entrant firms are vulnerable, though.
Creating jobs, reducing poverty I: Why the informal sector should be taken seriously and enabled properly
In the first extract from a new REDI3x3 book on the role of the informal sector in job creation and poverty reduction, a compact picture of the size, texture and impact of the sector is provided. One in every six South Africans who work, work in the informal sector. Several policy-relevant features are highlighted, such as industry, spatial and gender dimensions. This provides the backdrop for the second extract on the employment-creating performance of the informal sector.
What affects job retention and job creation: reservation wages or reservation what?
Unemployment research typically inquires how to generate more jobs and how to keep workers working. Researchers often probe the reservation wage level (which appears to balance the interests of employees and employers). Qualitative research findings suggest that wages may be less significant factors in work-related decisions than the nature of interpersonal relationships in the workplace. Both employees and employers emphasise the importance of the quality of relationships, though employers and employees highlight different factors.
Informal enterprise ownership: the importance of previous employment experience
Enterprises in the informal sector are known to have a precarious existence. The economic value and survival of an informal enterprise depend on the preparedness and motivation of the owner, inter alia. This article analyses the relevance of the work experience of a new, or entering, enterprise owner. It finds that prior work experience predicts informal enterprises that are larger, are more profitable, have more employees and are more likely to have their finances and premises separate from the household.
The sudden jump in the unemployment rate in 2015: Is there a break in the QLFS data?
This article argues that there is a time-series break in StatsSA’s Quarterly Labour Force Survey (QLFS) in the first quarter of 2015. The principal cause appears to be differences between the sampling frames before and after 2015, respectively based on Census 2001 and Census 2011. The break is signalled by a significant increase in the number of one-person households surveyed in the QLFS. It is critical for economists, policy analysts and policy-makers to be aware of this break in the data.
Does moving to a city mean a better life? New evidence
Moving to a city in search of work seems to pay off for many poor people in the countryside. Data that track changes over time indicate that as many as 385 000 people were lifted from poverty between 2008 and 2014 after moving from rural to urban areas – their poverty levels were halved together with a fall in unemployment. Government ambivalence about urbanisation should be replaced by a more positive and pro-active approach.
Structural transformation, competition and economic power: the need for better policies
The economy remains highly concentrated and existing firms have substantial advantages over entrants and smaller rivals. These firms can use their power to block rivals, also by influencing regulations in their favour. Changing the structure and the ownership of the economy simultaneously requires a package of measures to tackle the abuse of market power by large firms, change regulations to open up markets, and effectively support the development of the capabilities of smaller firms.
Is the growth of labour productivity in manufacturing a good thing?
Labour productivity grew substantially in the first twenty years of democracy, but is this unequivocally good? Much of the increase has been driven by changes at the firm level. Smaller firms’ average labour productivity increased more than that of larger firms. This seems to reflect changes in the composition of firms and jobs – smaller firms and low-productivity jobs appear to be vanishing. This is worrying because these are the type of jobs we need to reduce unemployment.
Meeting food security needs in very poor households in the Eastern Cape: the role of own agricultural production
Small-scale agriculture evokes strong views in terms of both its current and potential roles in rural development. We examine how many (or few) Black households in rural areas that are identified as ‘food poor’ in terms of their income levels are able to meet their basic food needs – and the role of household agricultural production. We find that although rural households engaged in some form of farming are more likely to be very poor in terms of their incomes, they actually experience hunger less frequently than non-farming households.
Poor land governance stifles rural development and has knock-on effects in urban areas
Several researchers in the REDI3x3 project focused on poverty in rural areas in the Eastern Cape, which contains two former apartheid homelands, the Ciskei and the Transkei. This article analyses the main messages of this research, highlighting the negative impact of poor land governance and uncertainty of tenure; knock-on effects are apparent in areas like Hout Bay and Marikana. [An edited version of this article appeared in Business Day on 10 November 2017. See references.]
Are we measuring poverty and inequality correctly? Comparing earnings using tax and survey data
Calculating the earnings Gini coefficient with survey data from the Quarterly Labour Force Survey (QLFS) may lead to an underestimation of inequality. When one compares earnings in the tax assessments data to those in the QLFS, it appears that the earnings of employees in the QLFS are underreported. Benefits and annual bonuses contribute substantially to the gap. In the case of self-employment incomes, the top earnings in the QLFS are also underreported, but the tax data seems to miss many mid- and low-income earners.
Reservation wages found in surveys can be very misleading
The responses of unemployed workers to the typical survey question about their ‘lowest acceptable wages’ are susceptible to error and overestimation – particularly for people in persistent joblessness. Studies using only the responses to the standard question may incorrectly conclude that vulnerable workers are unemployed because they tend to price themselves out of employment – while in fact their responses are just unreliable and distorted indications of their true reservation wages. Alternative questions would give more reliable results.
Land and property rights: 'title deeds as usual' won’t work
Renewed emphasis in policy discourses on systematic land titling to solve insecure tenure in South Africa is understandable. A staggering two thirds of the citizenry hold off-register land rights. Converting these rights to title deeds may seem self-evident, but our research reveals major stumbling blocks. For a system of land records to succeed, its design must take into account well understood and familiar local and customary processes for holding, using and transmitting land in urban and rural areas.
The former Transkei and Ciskei homelands are still poor, but is there an emerging dynamism?
The dominant perspective on the economic situation of the former homelands is that long-term, deliberate neglect has left a durable legacy of poverty and stagnation. While this may be largely correct, there is also evidence to suggest that the former homelands are dynamic. This article presents some evidence on population, employment and unemployment, in particular through a focus on the evolving nature of the linkages between former homeland towns and their rural environs.
The Transkei Wild Coast: still waiting for something to happen
The Wild Coast, in the former Transkei Bantustan, is characterised by natural beauty and great poverty. Since 1994 rural land administration has collapsed, land tenure has not been reformed, a succession of coastal development plans have been proposed but not implemented – and communities have become disillusioned. The few tourist-related developments that have taken root have done so despite the general collapse of rural governance and are due largely to the determination of local developers and their community partners
Technology and minimum wages are likely to change the mix of capital and labour in industry
While technology is making capital cheaper, policies like the national minimum wage will make labour more expensive. What does this mean for the choices firms make in terms of labour and capital inputs? This research shows that higher prices for labour will result in lower demand for labour, making job creation more difficult. Low-skilled and high-skilled labour are substitutes – higher wages for low-skilled workers will encourage firms to employ more high-skilled workers and become more skill intensive.
A job in the informal sector reduces poverty about as much as a job in the formal sector
In the aggregate, earnings from jobs in the informal sector play a small role in reducing national poverty rates, especially because there are relatively few informal-sector jobs. However, if we compare on a per-job basis, the poverty reduction associated with one informal-sector job is generally between 50 to 100% of the poverty reduction associated with one formal-sector job. Growth in the number of jobs in the informal sector would be a sensible component of any plan to reduce poverty.
‘You can’t bite the hand that feeds you’: Contracts between SME suppliers and the large supermarkets
This article examines the implications of the contracts between the four main South African supermarkets and their SME suppliers. Supermarkets’ procurement practices, in particular their practice of charging suppliers a substantial ‘rebate commission’ as well as requiring suppliers to comply with private, rather than public, production and health standards, have a significant impact on the ability of new SME suppliers to enter the market and to create jobs. This has important policy implications.
Innovative joint ventures can boost agricultural production and promote agrarian transformation
Growing agriculture can reduce poverty, create economic opportunities in rural and peri-urban areas, and boost employment, particularly for semi- and unskilled workers. We review several successful joint ventures across South Africa which comprise a range of partnerships between smallholders, commercial farmers, agribusinesses, industry associations and government. Many of these partnerships have generated significant returns and transformational benefits. Well-designed joint ventures can complement existing government initiatives to drive more rapid agrarian transformation and increase production.
What makes the rand so volatile: global or home-made factors?
Exchange-rate volatility can complicate decisions concerning trade and investment and constrain a country’s economic growth. Understanding what contributes to a currency’s volatility is an important first step in assessing whether economic policy can reduce this volatility. For South Africa, changes in global commodity prices and financial-market risk perceptions drive most of the rand’s volatility. However, local political uncertainty also emerges as a significant source of volatility. More policy and political predictability could help to smooth the rand’s volatility.
Could informal enterprises stimulate township economies? A study of two Midrand townships
Informal enterprises are perceived to lack the necessary business and economic fundamentals to stimulate their local economies. However, informal enterprises are not homogenous. In a study of non-retail informal enterprises, we distinguish between Traditional Informal Enterprises (TIEs) and Modernising Informal Enterprises (MIEs) and assess whether Ivory Park and Kaalfontein townships have MIEs to catalyse the local economies. We find that 40% of the non-retail enterprises have a modernising orientation, but that the majority are predominantly traditional.
REDI3x3 conference: Policies for inclusive growth
The REDI3x3 research project has completed most of its research at a time when unemployment, poverty and inequality is intense. With growth at just 0.5%, government needs to become more innovative in fixing the social policies that hamper progress. It should draw on all the research evidence to find ways to transform the structure of the economy without inhibiting growth. Addressing education, low labour intensity, the informal sector and the spatial legacies of apartheid can make a real difference.
Factors contributing to the demise of informal enterprises: evidence from a Cape township
The reasons for the closure of fairly well-established informal enterprises are varied. Between 2010 and 2015, in the Cape Flats township of Delft South, a key factor was the failure to respond adequately to the more entrepreneurial business model of foreign traders and the strict enforcement of unfavourable liquor trading policies. Still, household misfortunes and broader socio-cultural dynamics also played crucial roles. A richer understanding of why enterprises shut down should inform policy to foster the sustainability of informal enterprises.
Youth unemployment: what can we do in the short run?
The challenge of youth unemployment is shaped by factors in both the labour market and the education system, alongside intricate community, household and individual-level issues. This complex mixture may make it a seemingly intractable problem. While long-term solutions need to be discussed and implemented, certain options warrant attention in the short to medium term. If these were efficiently addressed, we could begin to break down the barriers that prevent entry into the labour market for at least some young people.
The employability of higher education graduates: are qualifications enough?
The transition from higher education to employment is a challenge, considering persistent graduate un- and underemployment. Qualifications are not enough. Graduates (should) develop a ‘workplace identity’ that improves their chances of being employed. An empirical study shows that achieving employability frequently involves several labour-market states in which personal attributes are utilised but also developed. Most graduates are not prepared for this arduous journey, something both higher education institutions and graduates should attend to.
Are internal migrants more likely to be unemployed than locally born residents?
This article compares the labour-market status of migrants and locally born residents. The focus is on migration into Cape Town and the Western Cape from elsewhere in South Africa. Survey and census data show that migrants were more likely to be unemployed than residents in 2001 and 2011. However, in 2011 migrants were also more likely to be employed and to be economically active (working or wishing to work) than locally born residents. They are also more likely to be self-employed than non-migrants.
Between the devil and the deep blue sea? The financing of higher education
Higher-than-inflation increases in student fees since 2009 often are blamed on declining government subsidies to universities. This is not entirely correct, if one considers real per-student subsidies. Fee increases resulted mainly from cost pressures faced by universities due to growing student numbers and a weakening rand. These pressures will not disappear. Eliminating government wastage is not a durable solution and difficult choices cannot be avoided. So, who should pay for increasing costs, students or government – or which combination of these?
The nuts and bolts of micro-manufacturing in the township - a Cape Town case study
The informal sector is frequently viewed as comprising only street traders. However, micro-manufacturing of various types constitutes a small but significant component. A Cape Town case study of informal metalwork manufacturers, retailers, suppliers and customers shows that township metalworker enterprises and supply chains bring about important opportunities for promoting value adding, skills development and employment. Policy interventions that would help them grow include the provision of more suitable manufacturing and trading spaces as well as services such as electricity.
Predicting the impact of a national minimum wage: are the general equilibrium models up to the task?
This article analyses whether computable general equilibrium (CGE) models are suitable for projecting the likely consequences of implementing a national minimum wage. Referring to modelling exercises undertaken by the National Treasury and the Development Policy Research Unit (DPRU), it shows that their projection of a strongly negative impact on employment and other macroeconomic indicators is a direct result of the architecture and assumptions of these models. By design these models preclude alternative outcomes; this renders them rather unsuitable as guides to policymaking.
Wealth inequality – striking new insights from tax data
Although South Africa is known for its extreme income inequality, the degree of wealth inequality is even greater. New tax and survey data suggest that 10% of the population own at least 90–95% of all assets, in contrast to their earning ‘only’ about 55–60% percent of all income. The finding supports the ongoing proposed reforms to close loopholes in estate taxation (Davis Tax Committee) and expand the coverage of pension systems (National Treasury).
Cooperatives: has the dream become a nightmare?
Over the past 15 years Government has promoted cooperatives at national and provincial levels with the aim of enabling small producers to tap into mainstream economic activities. Tens of thousands of cooperatives were formed in processes with officials’ performance appraisals based on the number of new cooperatives being formed. A 2014 study in the Free State indicates a very low survival rate of cooperatives and little evidence of job creation. This accords with earlier findings of an EU-funded study at the national level.
How accurate is our migration data?
The reliability of Census data on demography and migration comes under attack periodically. This article sheds light on the reliability of survey results with respect to migration into the Western Cape. Census data and two independent studies are compared and the convergence or divergence of the findings assessed. There is greater consistency for more aggregate-level measures than for disaggregated measures (whether by geographical unit or by race). Such comparisons of surveys are important for gauging the reliability of our knowledge of migration.
Day labourers and the role of foreign migrants: for better or for worse?
Foreign migrants often enter informal employment as day labourers. They compete with South Africans for jobs in this curb-side labour market. Three surveys of day labourers working in Tshwane between 2004 and 2015 reveal two important tendencies. First, the foreign-migrant component has increased from 12% to just over 55% in 11 years. Secondly, the wages and the level of poverty of both foreign and South African day labourers have worsened in the same period.
Do low-paid workers’ wage increases raise unemployment – and is this relevant for the minimum wage debate?
Increasing the wages of workers in the bottom half of the wage distribution contributes less to regional unemployment than increasing the wages of better-paid workers. The wages of the worst-paid – who live in regions of low union and large-firm concentration – play almost no role in unemployment. Collective bargaining arrangements appear to explain these differences. This phenomenon may soften the negative impact of a national minimum wage on employment in the short run, but might make matters worse in the longer run.
A growing informal sector: evidence from an enterprise survey in Delft
Using a small-area census approach, this article reports on changes in informal micro-enterprise activity in the Cape township of Delft between 2010 and 2015. The number of micro-enterprises has doubled (from 879 to 1798) in five years, with growth recorded in almost all sectors (notably take-away food and street trade). The increase in the total is contrary to the official national trend. The prevalence of informal enterprises in residential areas, compared to those in the high street, has not changed.
Do government spending and taxation really reduce inequality, or do we need more thorough measurements? A response to the World Bank researchers
World Bank staff and consultants claim that South Africa’s progressive taxation and pro-poor social spending reduce the Gini inequality coefficient from 0.77 to 0.59. But their data and methodology are deficient: their research ignores large areas of government spending and taxation that may significantly increase inequality. Thus their conclusion that fiscal policy is redistributive is overhasty and unfounded – whilst it is prone to be used, or misused, to promote a budget-cutting political agenda.
Have real wages fallen behind or increased out of line with productivity? A macroeconomic perspective
Macroeconomic data on wages and productivity suggest that there has not been any constant tendency for real wages either to fall behind or increase out of line with increases in productivity. Upward shifts have affected real wages sporadically, but have subsequently been offset by downward shifts, leaving a one-to-one long-run relationship between real wages and productivity. This is contrary to the conventional wisdom in both the labour union and business worlds.
The inequality of space: what to do?
South Africa is the most unequal country in the world in terms of people’s income. But, two decades after apartheid’s demise, why has our urban and rural geography changed so little – and how does this reinforce inequality? This was the question at the centre of a recent REDI workshop on spatial inequality that brought together researchers, policymakers, and planners working in both urban and rural spaces.
What will housing megaprojects do to our cities?
The building of large numbers of housing units in isolated greenfield locations has had detrimental side effects on our cities over the last two decades. Yet a series of new megaprojects, designed to accelerate the delivery of housing, is now on the cards. Because they are to be built on cheap peripheral land, these schemes threaten to reinforce urban fragmentation, inefficiency and exclusion.
How much is inequality reduced by progressive taxation and government spending?
Through progressive taxation and pro-poor social spending, the SA fiscal system reduces income inequality significantly. The extent of this reduction is larger than in twelve comparable middle-income countries measured similarly. Nevertheless, ‘final’ income (i.e. income after major taxes, government transfers and spending) remains more unequal than in comparator countries. While the fiscal system has an important role to play in reducing inequality, interventions to improve the distribution of wages, salaries and capital income are needed.
Tax(i)ing the poor? Implications of our high commuting costs
The time and monetary costs of commuting are extremely high and have increased over the last 20 years. They imply a substantial ‘tax’ on the wages of those who commute to work, notably on the users of public transport. Commuters increasingly use private vehicles and minibus taxis today compared to 1993. The government’s public transport subsidies seem to benefit those in the (lower) middle of the income distribution rather than low-income workers.
Labour and unemployment in South Africa: towards a ‘grand bargain’
The problematics of the situation in South Africa are clear: high unemployment, high inequality and low growth, combined with a lack of consensus on what to do. It might be more fruitful to think in ‘grand bargain’ terms: a package of policies that are intended to balance opposing perspectives whose differences cannot be resolved through technical debate – and to set short-term political-economic imperatives against the longer time horizon needed for policy interventions to address deep structural legacies
A foot in the door: are NGOs effective as workplace intermediaries in the youth labour market?
It has been argued that properly focused workplace intermediaries can reshape the labour market to become more youth friendly. Case studies of NGO intermediaries in South Africa offer some optimism but also caution in this regard. Although the intermediaries were able to match unemployed youth to jobs, smooth the transition to work and even positively influence employers’ reticence, they are small in scale and costs are high – and they have yet to broker larger pacts to add more jobs.
Youth unemployment: can labour-market intermediaries help?
Labour-market intermediaries can make a significant contribution to the reduction of youth unemployment.They recognise that the demand for labour is not fixed. By reshaping the attributes and broader workplace skills of the young jobseeker, labour market intermediaries can help overcome employers’ reticence to employing first-time workers. Such interventions, although small in scale, may be more successful than larger public works schemes of government. The potential positive impact of such intermediaries is demonstrated with international examples.
How flexible is the South African labour market in the short and long run?
The inflexibility of the labour market is commonly used as a scapegoat to explain high unemployment. Yet new evidence shows that only in specific contexts (unionized workers in the short run) does wage rigidity restrain the ability of the labour market to absorb workers. In the long run, wages are much more flexible and structural factors explain more of the unemployment puzzle. The policy debate on unemployment and wage flexibility needs to take these subtleties into account.
Informal settlements: poverty traps or ladders to work?
Informal urban settlements have a poor reputation as hotspots of social unrest, squalor and crime. Yet there is another side to them: as communities that are determined to lift themselves out of poverty via jobs in the city. In a society marked by severe social and spatial inequalities, these places may be useful vehicles for upward mobility. The ambivalence of government policy towards informal settlements needs to be replaced by a more positive approach.
How effective is VAT zero rating as a pro-poor policy?
In most countries with VAT, certain goods and services are zero rated to alleviate the tax burden on the poor. However, this may not be the most cost-effective way of helping the poor. We investigate the appropriateness of the products currently zero rated and the impact of this on the poor, the implications for tax revenue were it to be removed, and the contribution to poverty relief of zero rating compared to targeted social transfers.
A national minimum wage: moving the debate forward?
The public debate on a national minimum wage sometimes appears to occur in different universes. Two recent contributions to Econ3x3 may help to take the debate forward. This article analyses and contrasts these views and finds that, though they emphasise (and underplay) different aspects, the differences may not be insurmountable – especially once one recognises that the proposals apply to different time frames. [A shorter version of this article appeared as an op-ed article in Business Day on 25 June 2015. See references.]
Domestic abuse of children severely reduces their educational achievement
Although many children are maltreated at home, we know little about the effects of abuse on long-term child development. This article explores the association between different ways in which children are maltreated and two educational outcomes (numeracy test scores and dropout). Children who are physically maltreated (e.g. hit hard) regularly suffer severe adverse consequences in terms of their numeracy test scores and probability of dropout – and hence their chances of employment and higher earnings.
The national minimum wage debate: looking beyond a narrow focus on labour markets
Most contributions to the debate on a national minimum wage adopt a narrow view of labour markets and accept that the structure of the economy will remain essentially as it is. We question both of these assumptions. Further, we argue that a national minimum wage, at a level to be determined through careful research, must be part of a well-designed package of longer-term policy reforms that look beyond the labour market and support employment growth through investment.
The layout of the township economy: the surprising spatial distribution of informal township enterprises
A small-area census of micro-enterprises in Cape Town townships reveals that informal enterprises are located throughout the township, including in the residential areas. Three-quarters of the enterprises are located beyond the ‘high-street’. The most common enterprises (liquor and spaza shops) are not situated in what one would expect to be the prime business area with its considerable pedestrian traffic, but are in residential areas. Policies to promote the township economy need to come to terms with this reality.
Technology, labour power and labour’s declining income share in post-apartheid South Africa
The share of labour in aggregate income in South Africa has declined significantly since 1993, while that of capital has increased. Concurrently, real wages have increased slower than productivity. This article argues that financialisation and the more aggressive returns-oriented investment strategies applied by large, global investment institutions have translated into investors requiring higher rates of return on capital. This, in turn, has led to the increased adoption of capital-augmenting, labour-saving technology that has reduced labour’s share of total income – with important consequences for income distribution.
Unpacking labour’s declining income share: manufacturing, mining and growing inequality
While the share of capital increased, labour’s share of total income earned in South Africa fell significantly during the first two decades after 1994. These trends could contribute to a deterioration of income inequality, given that the ownership of capital – and thus the income from capital – is concentrated in fewer individuals than is the case with salaries and wages. This article explores labour’s falling share, with particular reference to the manufacturing and mining sectors.
What is at issue in the minimum wage debate?
The debate about implementing a national minimum wage obscures the key point, which is the level at which a national minimum wage should be set. A national minimum wage at a much higher level than the sectoral minimum wages currently set by the Employment Conditions Commission or agreed upon by unions under the Labour Relations Act is likely to result in job destruction, especially in the tradable sectors, with the result that poverty might be increased rather than reduced.
Should agriculture receive greater support as part of an inclusive growth strategy?
In developing countries, agricultural growth is generally employment intensive and pro-poor but this sector in South Africa has been subject to a drastic decline in tariffs, pricing, infrastructure and other forms of support. This has not been compensated for by alternative measures such as expenditure aimed at facilitating small-scale agriculture and effective land reform. The result has been poor economic performance and rapidly declining employment in commercial agriculture with little sign of revival in the small-scale sector.
Enabling growth: redistribution priorities for South Africa
If the National Development Plan is to be effectively implemented, we need clarity about the mechanisms through which growth and redistribution can be jointly advanced. Priorities include social security reform and quality improvements in social services, urban development, housing and public-transport investment. Expanding employment opportunities is the most pressing challenge, requiring policies that might include: support for labour-intensive industry and agriculture, small enterprise and informal sector development, well-targeted skills programmes, and wage or employment subsidies. Recognising the complementarity between redistributive and growth-enhancing measures is essential.
Redistribution is part of the toolkit to promote growth
A recent IMF study of several countries provides robust evidence that a high level of income inequality weakens the prospects of sustained economic growth and reduces the duration of growth spells. Redistributive steps, by contrast, do not have a noticeable negative effect on growth. Therefore, a reduction in inequality that is achieved through redistributive steps could have a net pro-growth effect. The policy challenge for South Africa is to find the best policy mix to achieve that.
How inclusive is economic growth in South Africa?
While everybody seems to favour the pursuit of inclusive growth, this concept is rarely clearly defined in the policy debate. Inclusive growth is often confused or conflated with pro-poor growth or broad-based growth. A recent definition from researchers at the UNDP integrates the latter two concepts to include employment, poverty and inequality. A derivative Inclusiveness Index shows that South Africa has a very low degree of inclusiveness compared to other developing countries and that its growth since 1996 has not been inclusive.
How the old age pension is helping young people from rural areas find jobs
It is important to know whether a social grant such as the old age pension eases financial constraints in rural areas, thereby allowing young men to migrate to urban areas for work – or whether these grants encourage idleness and dependency. This study finds no evidence of the latter. Instead, for young rural males there is an increase in their chances of migrating and finding work when a member of the household starts receiving the pension. Notably, these effects are only present for young men with at least a matric.
Do poor children really benefit from the child support grant?
The child support grant has been praised as one of the government’s most successful anti-poverty programmes. The rapid extension of the grant increases the importance of ascertaining its effectiveness: does the child support grant make any real difference to the lives of the millions of children who receive it? Using the 2008 NIDS data, a recently published study identifies a significant positive impact on recipient children’s health, nutrition and education as a result of receiving the grant.
More financial aid is not the best way to close the racial gap in tertiary education
South Africa’s large racial gap in enrolment in tertiary education can be attributed to the widely varying quality of primary and secondary education rather than to the low incomes of most black and coloured households. Thus, easing credit constraints for prospective tertiary students via increased financial aid is expected to have a limited impact on African and coloured enrolment. Instead, policymakers should focus on improving educational quality at schools attended by children from low-income households.
Poverty may have declined, but deprivation and poverty are still worst in the former homelands
Former homeland areas continue to have significantly higher levels of deprivation and poverty than the rest of South Africa. Of all the former homeland areas, the erstwhile Transkei in the Eastern Cape has the highest levels of deprivation (measured using the Index of Multiple Deprivation for 2011) as well as income poverty. Indeed, the deprivation gap between former homelands and the rest of South Africa has not declined in the period 2001 to 2011.
Poverty may have declined, but women and female-headed households still suffer most
Amidst a decline in general poverty rates since 2000, women and people living in female-headed households still are significantly worse off. Women are up to 30% poorer than men on average. There is an even larger poverty gap between female- and male-headed households – a difference of as much as 100%, despite improved education, health and basic services. Better health, water and sanitation services, especially in rural areas, should narrow these gaps significantly.
Enforcement and compliance: the case of minimum wages and mandatory contracts for domestic workers
What happens when a previously unregulated labour market is regulated? After the introduction of minimum wages and mandatory employment contracts for domestic workers, wages increased markedly while neither employment nor hours worked declined; some formalisation of working conditions also occurred. All these occurred despite a lack of monitoring and enforcement, suggesting that such actions (often costly) are not essential for regulation to have a significant impact on informal employment conditions, at least in the short run.
How suitable is a ‘developmental state’ to tackle unemployment, inequality and poverty in South Africa?
The National Development Plan envisions the achievement of a ‘capable and developmental state’. Developmental states are usually associated with high economic growth. Such states in East Asia often are seen as models for SA to emulate. However, given the structure of the SA economy, state and society, a developmental state is not suitable, nor attainable. The concept of a social investment state is a better alternative, but it will need key institutional and policy reforms to work.
What does the ‘middle class’ mean in a polarised, developing country such as South Africa?
In a developing, highly unequal country such as South Africa, it is unlikely that a definition of the middle class that is based on an income threshold will adequately capture the political and social meanings of being middle class. We propose a multi-dimensional definition, rooted in the ideas of empowerment and capability, and find that the ‘empowered middle class’ has expanded significantly since 1993. It also is much larger than when measured in terms of income.
What is the role of manufacturing in boosting economic growth and employment in South Africa?
There is a widespread view that countries no longer need to industrialise in order to develop. However, in South Africa manufacturing remains the core driver of GDP growth and direct employment while other sectors – particularly many services sectors – are likely to increase employment on the basis of growing demand flowing from a growing GDP. A nuanced understanding of the direct and indirect linkages through which diversified manufacturing growth can boost economy-wide employment is essential.
Cape Town’s trade in wild medicines: ecological threat or essential livelihood resource?
Cape Town is the urban centrepiece of a globally unique and highly diverse natural environment which should take priority in conservation management. But these biological assets also directly serve a local market of over 5 100 traditional healers and herbalists. The author discusses this important informal economy, business and cultural activity in the face of the broadening threats to conservation in the region, and the growing potential tension this presents in terms of policy and management.
How did hunger levels in the former homelands catch up with the rest of South Africa? A hundred years after the Land Act of 1913
A century after the Land Act of 1913, and 20 years after the abolition of homelands, differences in poverty persist between the former homeland areas and the rest of South Africa. However, remarkably, hunger gaps between the former homelands and other regions have been eliminated in the post-apartheid era. The main cause has been the disproportionately high number of persons eligible for social grants in the former homelands, rather than increased food production or higher labour market incomes due to land reform.
Why are foreign-run spaza shops more successful? The rapidly changing spaza sector in South Africa
This article examines the contrasting business models in the spaza shop sector, and compares foreign-run businesses with South African businesses. We argue that foreign shop keepers are more successful than South Africans because of the strength of their social networks, which provide them with access to labour and capital and enable collective purchasing and market domination. The article argues for a two-pronged policy that would formalise larger shops whilst permitting and encouraging informal micro and survivalist businesses.
The impact of youth employment incentives and wage subsidies: results of a trial run
The Employment Incentive Tax Bill offers tax subsidies to firms to employ new young workers. An evaluation of the impact of a wage subsidy voucher indicates that employment incentives increase the likelihood of young job-seekers being employed; they also increase the time young people remain employed. There is no evidence of older or existing workers being replaced. Such incentives are a relatively cheap and effective way to create employment, but are unlikely to create large numbers of jobs for young people.
The matric certificate is still valuable in the labour market
Increasing levels of youth unemployment and learners’ poor performance at school have led to claims that the matric certificate no longer has much value in the labour market. However, the evidence does not support this claim. While the labour market conditions facing secondary school graduates have indeed worsened with time, the value of a matric certificate relative to that of grade 10 and 11 has remained positive both in terms of earnings and the likelihood of finding employment.
What caused the increase in unemployment in the late 1990s? Were education policies partly responsible?
In the late 1990s the Department of Education restricted the re-enrolment of over-aged learners and the number of times underperforming learners could repeat a grade. This was intended to reduce the number of learners in the school system, but may have contributed to a sudden increase in measured unemployment. Of the 2.3 million increase in the number of unemployed between 1997 and 2003, up to 900 000 may be due to unintended effects of these policies which brought hidden (youth) unemployment into the open.
The effect of basic infrastructure delivery on welfare in rural and urban municipalities
Access to a comprehensive set of basic infrastructure services is essential to attain social development goals and ensure equal opportunity for all people to participate in a country’s economy. This article investigates whether the delivery of basic infrastructure has a significant positive effect on growth and development in South Africa and whether the effect is different for urban and rural municipalities. A complex picture emerges, necessitating care in making such infrastructure investment decisions.
Unlocking the growth and employment potential of business in the margins
Marginalised businesses provide livelihood and income opportunities for a large section of the population. However, these businesses are not able to capture growth opportunities because of several constraints; they continue to operate on the periphery of the mainstream economy. Yet they could become a major source of employment growth. Efforts to unlock this potential must concentrate on exploiting value chains and making government policy more responsive to the unique needs and challenges of marginalised businesses.
The significant decline in poverty in its many dimensions since 1993
The measurement of poverty should include dimensions of well-being that cannot be measured in monetary terms. Data on health, education and standards of living can be used to calculate a so-called Multidimensional Poverty Index (MPI). Results suggest that both the prevalence and the intensity of multidimensional poverty fell significantly from 1993 to 2010. The decline in multidimensional poverty is much greater than the decline in poverty as measured in terms of income and/or expenditure. Better social services and infrastructure have played a large role.
Is the middle class becoming better off? Two perspectives
Two very different pictures emerge when one compares income changes of the relatively affluent ‘middle class’ with those of people in the literal middle of the income spectrum. In the affluent middle there has been significant racial transformation and growth of the ‘black middle class’. However, households in the actual middle of the income spectrum have experienced the lowest income growth of all groups since 1993. Both perspectives are crucial for the pursuit of an equitable path of development.
How do the non-searching unemployed feel about their situation? On the definition of unemployment
New evidence suggests that non-searching unemployed people are significantly less satisfied with their lives than people who are not economically active. Indeed, the non-searching unemployed have hit rock bottom. Assuming that people do not freely choose an unsatisfactory state of living, a case is made that the non-searching unemployed – or ‘discouraged workers’ – are involuntarily unemployed and should be included in the definition and measurement of the labour force. Consequently, a case is made for the adoption of the broad measure of unemployment.
The impact of sectoral minimum wage laws in South Africa
The introduction of minimum wage laws in five non-agricultural sectors has not been associated with a significant loss in employment in the years following their promulgation – a period when most sectors also saw a significant increase in real hourly wages. Indeed, several sectors recorded an increase in employment. However, in some sectors there is evidence of a relatively small reduction in the hours worked by employees. On the whole, the effects of minimum wages are varied.
How much do unions and bargaining councils elevate wages?
Past studies have found that trade union members earn substantially higher wages than non-union workers. New results suggest a much lower union wage premium (6-7%) when the impact of the size of the firm, the type of employment and non-wage benefits are properly taken into account. On the other hand, bargaining council agreements have a higher impact on wages than unions do, so that the cumulative wage premium of unions and bargaining councils averages more than 16%. For the public sector this can be as high as 22%.
How high is graduate unemployment in South Africa? A much-needed update
The frequently reported ‘crisis in graduate unemployment’ in South Africa is a fallacy based on questionable research. Not only is graduate unemployment low at less than 6%, but it also compares well with rates in developed countries. The large expansion of black graduate numbers has not significantly exacerbated unemployment amongst graduates. Contrary to popular perception, such graduates – many from ‘formerly disadvantaged’ universities – have been snapped up by the private sector. Black graduates are, however, still more likely to be unemployed than white graduates.
Who are the middle class in South Africa? Does it matter for policy?
The middle class is a hot topic in media and policy circles. But how should the middle class be defined, particularly in a country with high levels of inequality? Individuals and households which fall in the actual middle of the income distribution in South Africa have a standard of living well below a ‘middle-class lifestyle’. Defining the middle class on the basis of the ‘actual middle’ versus ‘relative affluence’ provides vastly different pictures. This necessitates great care in using these conceptions, especially in policy design.
The Budget’s fiscal stance: The non-cyclical element may be a cause for concern
It is estimated that less than half of the present main budget deficit of 5.7% is explained by cyclical factors. The remainder reflects a non-cyclical, structural component of the deficit. The increase in the structural budget deficit since 2008 may constrain the ability of government to sustain its present revenue and expenditure policies. An in-depth understanding of the structural component of the fiscal position as opposed to its cyclical element is important for sustainable long-term government financing and planning.
The Budget: both the fiscal stance and ‘structural stance’ are sound
Many economists have argued that the government’s fiscal stance in the recent budget is verging on the risky. This article argues that the fiscal stance is both correct and prudent. In addition, the article puts the budget in a broader developmental context, highlighting its contribution to long-term growth and development and to tackling poverty and inequality.
Reducing unemployment: Waiting for high growth? Waiting for Godot?
In trying to reduce unemployment in South Africa, the pursuit of higher economic growth is the single most agreed-upon policy strategy. The consensus on this ‘obvious solution’ may blind us to the fact that economic growth, though important, may only be half of the solution. Attempts to fine-tune and turbo-boost the formal-economy ‘engine of growth’ to absorb more labour are fundamentally constrained. Economic policy makers must look at other options for generating employment and self-employment for unemployed people.
The unemployed in South Africa: Why are so many not counted?
The official rate of unemployment includes only the unemployed who are actively searching for work. However, findings from new data challenge this practice. The ‘searching unemployed’ are no more likely to find employment than the ‘non-searching unemployed’. This casts doubt on the idea that non-searchers are not committed to finding work. Furthermore, many people find jobs through social networks – but this job-finding strategy is not adequately recognised as ‘searching for work’ in official statistical surveys. StatsSA should reconsider how they count the ‘officially’ unemployed.
The original criticisms of the Adcorp Employment Index (February 2012)
Adcorp’s estimated unemployment rate is so low that it disposes of the unemployment crisis. But Adcorp uses a crude currency-demand method to estimate the size of the unrecorded economy, despite researchers’ strong criticism of this method. To estimate informal sector employment, Adcorp mixes up definitions of informal employment and the unrecorded economy and guesses at the labour intensity of the unrecorded economy. They also guess at the number of illegal immigrants. Moreover, Adcorp’s estimates have no statistical precision. Its figures are neither reliable nor credible.
Adcorp’s employment and unemployment figures are not taken seriously by researchers – yet they can do much harm
Adcorp’s unemployment figures are derived from weak research and is repeated too often by gullible journalists. Based on a flawed methodology and dubious assumptions, the Adcorp figures imply that only about a million people are unemployed and that the total unemployment rate is 5%. At the same time, Adcorp has published an inflated figure for graduate unemployment (600 000) – a grave inconsistency. Whilst serious researchers will not touch Adcorp data, it can harm decision-making by policymakers and potential university students and their parents.
How will a job-search subsidy create jobs?
A job-search subsidy has been proposed as a measure to help people find employment. At least three criteria need to be met to create new jobs for those who receive the subsidy. First, it needs to be used only to search for jobs or to remove the financial constraints that prevent people from searching for jobs; second, firms need to recruit through the channels which subsidy holders actually use to seek employment; and third, the relative cost of labour needs to fall.
Reducing inequality to promote growth: a proposed policy package
Any growth strategy for South Africa should include elements that address inequality explicitly. This article identifies reforms that are likely to support growth in the long term and proposes a policy framework to ensure a more equitable distribution of the dividends of economic growth. These relate to high-quality education for the poor, progressive taxation, a social safety net, anti-monopoly policies and labour market reforms to promote the employment of low-skilled people.
Minimum wages and compliance in South African agriculture
Average wages in agriculture have risen substantially in all provinces since the introduction of minimum wages in 2003 - the gap between the actual and the minimum wage has declined significantly. Compliance has been highest in the Western Cape and Gauteng, where average agricultural wages were close to or above the minimum wage even before it was introduced and wages have continued to rise thereafter. Although enforcement appears to have had a limited impact due in part to limited penalties, more effective inspection would be an important way to improve compliance.
Who creates jobs, who destroys jobs? Small firms, large firms and labour market rigidity
Firm-level data for the period 2005 to 2011 indicate that job creation and destruction rates in South Africa are only slightly lower than among OECD countries. Around 10% of existing jobs are destroyed each year, while the number of new jobs is around 9.5% of existing employment. Larger firms have higher rates of net job creation than small firms. The relatively high reallocation of employment across firms suggests lower rigidities in the South African labour market than is sometimes believed.
The National Development Plan and exports as a catalyst to generate employment growth: Can it work?
Small and medium-sized firms hold the potential to absorb most of the unemployed in South Africa. In this the NDP may be correct. However, the NDP may not be correct in arguing that exports can be the main catalyst of the growth the country needs to address poverty and employment. Several factors hinder such a strategy. A more domestically-focused policy aimed at production (and services) for local consumption might bear more fruit.
Is Marikana a forerunner of national labour market instability and disruption?
The tragic events at Marikana raise the question whether the events and subsequent developments are indicative of a fundamental change in labour market relations and wage bargaining relationships in South Africa - and whether such patterns of behaviour are likely to spread beyond the mining sector. We identify five contributing factors that are specific to the mining sector. These relate to labour relations, public services and migrant labour. Since these factors do not characterise the rest of the economy, we conclude that a spreading of Marikana-type bargaining is unlikely.
The unemployment debate is too fragmented to address the problem
The debate on unemployment is fragmented into at least three sub-discourses, i.e. those of macroeconomists, labour economists and poverty analysts. This results in inconclusive analyses and narrow, flawed proposals to address the problem. This fragmentation feeds into the policy field. Sustainable and consistent remedies for unemployment and poverty will require an integrated analysis that covers the formal sector, the informal economy and survivalist activities – and especially linkages and barriers between these segments.
Industrial policy and unemployment: Can South Africa do better in labour-demanding manufacturing?
In spite of policy statements prioritising labour-absorbing growth, de facto policy support has favoured heavy industry and been damaging for employment. Industrial policy should be less concerned with ‘beneficiation’ and technological upgrading and more concerned with promoting economy-wide efficiency. In the context of massive unemployment, this means tilting the playing field towards labour-absorbing growth to mobilise the huge potential of an under-employed and poorly-skilled workforce.
How structural inequality limits employment and self-employment in poor areas (or: Why South Africa’s informal sector is so small)
Given South Africa’s high levels of unemployment, the relatively small size of the micro-enterprise sector is a conundrum. This article argues that structural inequality is the reason for this – in particular, inequality in the structure of the economy, the legacies of spatial inequality and the continued inequalities in human development. Their combined effect is to limit the scope for poor people to escape poverty via self-employment. This explains the limited extent and small range of informal employment.
Jobs growth from informal producers that supply the formal sector? The case for intermediaries
Government’s vision for the development of informal business is that, with the right support, these enterprises will achieve formal status, contribute to economic growth and create jobs. However, few informal businesses produce goods for which the formal economy has any a demand. Moreover, informal producers are structurally prevented from accessing the formal economy without the facilitation of intermediaries. This implies the need for an enabling institutional and legal environment which (a) supports intermediaries that assist informal producers to access formal markets and (b) provides incentives for formal-sector retailers to enter into contracts with intermediaries on more equitable terms. BEE is a possible way to provide such incentives.
Is informality being disallowed by government?
The South African government continues to pursue efforts to 'migrate' informal enterprises to the formal sector. This article examines the impact of regulations and law enforcement on the 'lived' economy of informal micro-entrepreneurs. Spatial analysis shows how the scope and distribution of informal economic activities are directly affected by regulation, land use planning and other controls. Such controls that effectively disallow informality are poor-unfriendly and harm livelihoods, self-employment and employment.
The Jobs Fund and a youth wage subsidy: Design and implementation issues
As part of perpetual policy experimentation and search for that elusive ‘silver bullet’ to deal with unemployment, the South African government recently introduced the Jobs Fund and continues to mull over the idea of youth wage subsidies – vehemently opposed by trade unions. The success of these programs is highly dependent on effective design and administration. This article evaluates program design features against a number of factors.
New vaping tax misses the mark
The vaping industry has vociferously opposed a new tax on vaping products. But only the largest containers of e-liquid will feel hefty price increases – more than double in some cases. Young people who are starting to vape are more likely to buy disposable vapes, which attract less tax. As currently structured, the excise tax is not sufficiently targeted at reducing, or preventing, the use of vaping products among youth.
Why SA needs to boost exports
South Africa’s exports have lagged behind the rest of the world over recent decades, and this has likely constrained overall economic growth. To address the inherent bias against exporting, South Africa urgently needs to address the high costs of investment and trading across borders; review the impact of existing industrial, localisation, and sector-specific policies on export behaviour; implement a comprehensive and well-targeted export promotion and export finance framework; and update its trade policy approach to negotiations across the continent and internationally.
SRD grants: how they can be used to help young people into jobs
The COVID-19 pandemic worsened the unemployment crisis in South Africa. In the second quarter of 2021, unemployment rates were the highest ever officially recorded. Many people who lost their only source of stable income fell into poverty as a result.
Social grants provide income that helps people to survive the short term economic hardship of unemployment. In the long term, new opportunities must be created to get people back into work. However, National Treasury’s emphasis on fiscal restraint has led to debates about which of these policies to prioritise. This has been particularly evident in the debate around the extension of a grant introduced during the pandemic, known as the Social Relief of Distress grant. Much of the discussion on the merits of the grant treats it as a competitor to employment-creation schemes in the budgetary allocation. However, the evidence compiled in our review of the job search assistance literature suggests that with careful design, the relief grant can help to support the policy priority of getting young people into work.
The Social Relief of Distress Grant: how it stimulated local economies
The Social Relief of Distress (SRD) grant was a key policy mechanism introduced to mitigate the effects on vulnerable groups of the COVID pandemic and government measures to contain its spread. While there is substantial research on the social impacts of the COVID-19 social relief package, little is known about its economic impacts. This article is based on a study that sought to understand, from the perspectives of local traders, the perceived economic effects of the grant. Evidence gathered in the study showed that the SRD led to an increase in customer demand within local economies. It was a crucial mechanism that helped informal trader businesses survive and, in some cases, enabled new business formation. By stimulating both supply and demand, the SRD supported the circulation of people, goods, and money and promoted higher transaction intensity in food and non-food sectors. Although the SRD could not reverse the negative impacts of COVID-19, and cannot be considered a standalone intervention, it nonetheless functioned as an effective shock-response mechanism for households and informal traders. The detection of some economic multipliers in a time of emergency signals the potential for a long-term intervention that could be beneficial to local economies.
Why the township economy matters
Nearly half the working-age population and nearly two-thirds of the unemployed live in areas designated as townships under apartheid spatial laws. Originally developed as “labour dormitories”, they have been challenging to develop as more vibrant local economies and residential areas. What can the government – and the private sector – do to stimulate growth, entrepreneurship, and employment in these peri-urban areas?
How to tackle low labour utilisation in South Africa
South Africa’s low labour utilisation rate is a stark outlier by international standards, made even more unusual because achieving job creation and high employment rates appear to be well understood in other economies. What policy remedies can South Africa learn from other countries? Increasing economic competition and removing impediments to job creation are clear lessons. So too is the focus and effectiveness of labour-market institutions that lower the cost of job search. Other gains can be found in lowering costs to job creation and labour supply, easing school-to-job transitions, and making job search more effective.
Realizing socioeconomic rights with a limited budget
The South African constitution is considered progressive and transformative in intention due to its inclusion of socioeconomic rights, such as the right to education, food, and healthcare. However, some of these rights are qualified by the availability of state resources, which places an imperative on government to realize these rights progressively as resources become available.
The COVID-19 TERS policy saved at least 2 million jobs - but not without some unintended results
About three years have passed since the South African government introduced the COVID-19 Temporary Employer-Employee Relief Scheme (TERS) in response to the pandemic and associated lockdown regulations. Given the extent of unemployment in South Africa even prior to the pandemic, the policy’s primary aim of mitigating job losses arguably made it one of the country’s most important labour-market interventions at the time. What effect did it have on job retention, and who did it benefit most?
30 Years into democracy: How has South Africa's agricultural sector performed?
The agricultural sector has grown measurably in the 30 years of democracy -South Africa is now ranked 59th out of 113 countries in the Global Food Security Index and is the only African country within the world’s top 40 agricultural exporters. The challenge now is how to make that growth more inclusive.
Inclusionary housing: A novel approach to building integrated cities
Inclusionary housing policy offers a new way of addressing the urban housing crisis in South Africa. It involves private developers contributing to the production of well-located affordable housing in return for public incentives. What are the main principles and mechanisms involved in these partnerships? We look at the experiences of three South African cities at different stages of adopting and implementing the policy.
What has happened to the personal income tax base since 2011?
The number of personal income taxpayers and aggregate taxable income increased strongly between 2011 and 2017 despite a slowing economy. These both declined during the Covid period and have since recovered, though more slowly than in the earlier period. In 2023, there were 7.6 million taxpayers above the threshold, up from 5.9 million in 2011. What role has tax policy played in the resilience of the tax base – and what do the trends indicate about progress towards a more inclusive economy?
Is South Africa heading for a fiscal crisis?
Are budget cuts the only option to reduce the deficit and cut the national debt? Or has the main economic challenge been misstated? The Institute for Economic Justice argues that the county’s main challenge is not the debt burden but growth, and that there are a number of steps National Treasury could take to raise more revenue without cutting spending that threatens development and socio-economic rights.
Riding to survive: food couriers in three African cities
Most of the studies on gig work focus on the Global North. There has been little research on how platform workers in Africa are responding to the digital economy. Although it is ostensibly based on freedom and self-employment, our research amongst food-courier riders in South Africa, Ghana, and Kenya found that this new work order is deepening worker insecurity, undermining worker rights, and dramatically increasing inequality between a core group of extremely wealthy senior manager/owners and a growing pool of precarious workers.
Trade unions and the new economy: 3 African case studies show how workers are recasting their power in the digital age
Has the new technology that has given rise to thousands of “digital” workers destroyed the traditional collective power of worker organisation? A new book, Recasting Workers Power: Work and Inequality in the Shadow of the Digital Age, which examines work in three sectors in South Africa and Uganda, shows that workers’ organisation has survived into the digital age, albeit in a different form from traditional trade unions. Alliances with existing unions, with civil society organisations, and with each other if they are self-employed, together with a strategic use of institutions, have enabled digital workers to flex some collective muscle.
Will the avian influenza fuel food inflation?
The avian flu currently spreading across South Africa has raised concerns about the potential uptick in food inflation. However, it may be too early for such fears, and it is not clear how long or widespread this effect will be. Moreover, the various interventions being considered by government could lessen the impact on both consumers and the domestic poultry industry.
How does malaria impact education and gender equality? Evidence from Rwanda
The recent Covid-19 pandemic highlighted the negative socioeconomic impacts associated with disease. But malaria has impacted the health and economic outcomes of people in the tropics for several millennia. The disease is endemic and life-threatening in more than 94 countries, with Sub-Saharan Africa accounting for the highest concentration of countries at risk. Evidence shows that the disease has significant impact on economic development, and also increases gender inequality.
What does Saudi Arabian membership of BRICS mean for South African agricultural exports?
The inclusion of Saudi Arabia in the BRICS alliance presents a significant opportunity for South Africa to expand its livestock exports, particularly in the lucrative live-goat market. Despite the potential benefits, smallholder farmers face substantial barriers to accessing international markets due to institutional and production constraints. Establishing a reliable export market could not only enhance the income and livelihoods of smallholders but also stimulate goat production, akin to the success observed in the wool industry. However, challenges such as animal diseases and inadequate infrastructure must be addressed to fully capitalize on this opportunity. By navigating regulatory requirements and leveraging the BRICS trade partnership, South Africa can strategically position itself to become a key player in the global goat trade, thereby boosting rural economies and fostering sustainable agricultural development.
The role of Public Employment in the climate crisis
Public Employment Programmes can play a key role not only in alleviating the crisis of widespread unemployment. They can also be harnessed to help to combat a range of social and environmental challenges, including the effects of climate change.
Watts happening to work? The labour market effects of loadshedding
Expanded access to electricity has been a boon to development in many low- and middle-income countries, including South Africa, but erratic supply has proved a major constraint to economic growth. Now, in the first study on the effects of load-shedding on employment, the authors find that prolonged and regular power outages are significantly and negatively associated with job retention, working hours, and earnings.
The Just Energy Transition and the labour market in South Africa
How will the Just Energy Transition affect livelihoods in households dependent on the coal industry in South Africa? Here is a measure of how many jobs depend on the industry and possible transition strategies.
Creating jobs, reducing poverty I: Why the informal sector should be taken seriously and enabled properly
In the first extract from a new REDI3x3 book on the role of the informal sector in job creation and poverty reduction, a compact picture of the size, texture and impact of the sector is provided. One in every six South Africans who work, work in the informal sector. Several policy-relevant features are highlighted, such as industry, spatial and gender dimensions. This provides the backdrop for the second extract on the employment-creating performance of the informal sector.
Why are foreign-run spaza shops more successful? The rapidly changing spaza sector in South Africa
This article examines the contrasting business models in the spaza shop sector, and compares foreign-run businesses with South African businesses. We argue that foreign shop keepers are more successful than South Africans because of the strength of their social networks, which provide them with access to labour and capital and enable collective purchasing and market domination. The article argues for a two-pronged policy that would formalise larger shops whilst permitting and encouraging informal micro and survivalist businesses.
What is the role of manufacturing in boosting economic growth and employment in South Africa?
There is a widespread view that countries no longer need to industrialise in order to develop. However, in South Africa manufacturing remains the core driver of GDP growth and direct employment while other sectors – particularly many services sectors – are likely to increase employment on the basis of growing demand flowing from a growing GDP. A nuanced understanding of the direct and indirect linkages through which diversified manufacturing growth can boost economy-wide employment is essential.
Who are the middle class in South Africa? Does it matter for policy?
The middle class is a hot topic in media and policy circles. But how should the middle class be defined, particularly in a country with high levels of inequality? Individuals and households which fall in the actual middle of the income distribution in South Africa have a standard of living well below a ‘middle-class lifestyle’. Defining the middle class on the basis of the ‘actual middle’ versus ‘relative affluence’ provides vastly different pictures. This necessitates great care in using these conceptions, especially in policy design.
Informal settlements: poverty traps or ladders to work?
Informal urban settlements have a poor reputation as hotspots of social unrest, squalor and crime. Yet there is another side to them: as communities that are determined to lift themselves out of poverty via jobs in the city. In a society marked by severe social and spatial inequalities, these places may be useful vehicles for upward mobility. The ambivalence of government policy towards informal settlements needs to be replaced by a more positive approach.
Adcorp’s employment and unemployment figures are not taken seriously by researchers – yet they can do much harm
Adcorp’s unemployment figures are derived from weak research and is repeated too often by gullible journalists. Based on a flawed methodology and dubious assumptions, the Adcorp figures imply that only about a million people are unemployed and that the total unemployment rate is 5%. At the same time, Adcorp has published an inflated figure for graduate unemployment (600 000) – a grave inconsistency. Whilst serious researchers will not touch Adcorp data, it can harm decision-making by policymakers and potential university students and their parents.
How much is inequality reduced by progressive taxation and government spending?
Through progressive taxation and pro-poor social spending, the SA fiscal system reduces income inequality significantly. The extent of this reduction is larger than in twelve comparable middle-income countries measured similarly. Nevertheless, ‘final’ income (i.e. income after major taxes, government transfers and spending) remains more unequal than in comparator countries. While the fiscal system has an important role to play in reducing inequality, interventions to improve the distribution of wages, salaries and capital income are needed.
How high is graduate unemployment in South Africa? A much-needed update
The frequently reported ‘crisis in graduate unemployment’ in South Africa is a fallacy based on questionable research. Not only is graduate unemployment low at less than 6%, but it also compares well with rates in developed countries. The large expansion of black graduate numbers has not significantly exacerbated unemployment amongst graduates. Contrary to popular perception, such graduates – many from ‘formerly disadvantaged’ universities – have been snapped up by the private sector. Black graduates are, however, still more likely to be unemployed than white graduates.
A job in the informal sector reduces poverty about as much as a job in the formal sector
In the aggregate, earnings from jobs in the informal sector play a small role in reducing national poverty rates, especially because there are relatively few informal-sector jobs. However, if we compare on a per-job basis, the poverty reduction associated with one informal-sector job is generally between 50 to 100% of the poverty reduction associated with one formal-sector job. Growth in the number of jobs in the informal sector would be a sensible component of any plan to reduce poverty.
Who creates jobs, who destroys jobs? Small firms, large firms and labour market rigidity
Firm-level data for the period 2005 to 2011 indicate that job creation and destruction rates in South Africa are only slightly lower than among OECD countries. Around 10% of existing jobs are destroyed each year, while the number of new jobs is around 9.5% of existing employment. Larger firms have higher rates of net job creation than small firms. The relatively high reallocation of employment across firms suggests lower rigidities in the South African labour market than is sometimes believed.
The effect of basic infrastructure delivery on welfare in rural and urban municipalities
Access to a comprehensive set of basic infrastructure services is essential to attain social development goals and ensure equal opportunity for all people to participate in a country’s economy. This article investigates whether the delivery of basic infrastructure has a significant positive effect on growth and development in South Africa and whether the effect is different for urban and rural municipalities. A complex picture emerges, necessitating care in making such infrastructure investment decisions.
Wealth inequality – striking new insights from tax data
Although South Africa is known for its extreme income inequality, the degree of wealth inequality is even greater. New tax and survey data suggest that 10% of the population own at least 90–95% of all assets, in contrast to their earning ‘only’ about 55–60% percent of all income. The finding supports the ongoing proposed reforms to close loopholes in estate taxation (Davis Tax Committee) and expand the coverage of pension systems (National Treasury).
The impact of sectoral minimum wage laws in South Africa
The introduction of minimum wage laws in five non-agricultural sectors has not been associated with a significant loss in employment in the years following their promulgation – a period when most sectors also saw a significant increase in real hourly wages. Indeed, several sectors recorded an increase in employment. However, in some sectors there is evidence of a relatively small reduction in the hours worked by employees. On the whole, the effects of minimum wages are varied.
The unemployed in South Africa: Why are so many not counted?
The official rate of unemployment includes only the unemployed who are actively searching for work. However, findings from new data challenge this practice. The ‘searching unemployed’ are no more likely to find employment than the ‘non-searching unemployed’. This casts doubt on the idea that non-searchers are not committed to finding work. Furthermore, many people find jobs through social networks – but this job-finding strategy is not adequately recognised as ‘searching for work’ in official statistical surveys. StatsSA should reconsider how they count the ‘officially’ unemployed.
Reducing unemployment: Waiting for high growth? Waiting for Godot?
In trying to reduce unemployment in South Africa, the pursuit of higher economic growth is the single most agreed-upon policy strategy. The consensus on this ‘obvious solution’ may blind us to the fact that economic growth, though important, may only be half of the solution. Attempts to fine-tune and turbo-boost the formal-economy ‘engine of growth’ to absorb more labour are fundamentally constrained. Economic policy makers must look at other options for generating employment and self-employment for unemployed people.
Socio-economic class in South Africa: playing snakes and ladders with loaded dice
Experiences of poverty over time differ markedly. Out of four South Africans, two experience persistent poverty with few future prospects. Another one moves in and out of poverty, constantly struggling to make ends meet. Only one out of four is stably middle class or elite. The unequal risk of falling into poverty is related to characteristics such as race, education and geographic location. Being employed and the type of employment are key determinants of vulnerability to poverty.
The impact of youth employment incentives and wage subsidies: results of a trial run
The Employment Incentive Tax Bill offers tax subsidies to firms to employ new young workers. An evaluation of the impact of a wage subsidy voucher indicates that employment incentives increase the likelihood of young job-seekers being employed; they also increase the time young people remain employed. There is no evidence of older or existing workers being replaced. Such incentives are a relatively cheap and effective way to create employment, but are unlikely to create large numbers of jobs for young people.
Youth unemployment: what can we do in the short run?
The challenge of youth unemployment is shaped by factors in both the labour market and the education system, alongside intricate community, household and individual-level issues. This complex mixture may make it a seemingly intractable problem. While long-term solutions need to be discussed and implemented, certain options warrant attention in the short to medium term. If these were efficiently addressed, we could begin to break down the barriers that prevent entry into the labour market for at least some young people.
Poverty may have declined, but women and female-headed households still suffer most
Amidst a decline in general poverty rates since 2000, women and people living in female-headed households still are significantly worse off. Women are up to 30% poorer than men on average. There is an even larger poverty gap between female- and male-headed households – a difference of as much as 100%, despite improved education, health and basic services. Better health, water and sanitation services, especially in rural areas, should narrow these gaps significantly.
Do poor children really benefit from the child support grant?
The child support grant has been praised as one of the government’s most successful anti-poverty programmes. The rapid extension of the grant increases the importance of ascertaining its effectiveness: does the child support grant make any real difference to the lives of the millions of children who receive it? Using the 2008 NIDS data, a recently published study identifies a significant positive impact on recipient children’s health, nutrition and education as a result of receiving the grant.
Minimum wages and compliance in South African agriculture
Average wages in agriculture have risen substantially in all provinces since the introduction of minimum wages in 2003 - the gap between the actual and the minimum wage has declined significantly. Compliance has been highest in the Western Cape and Gauteng, where average agricultural wages were close to or above the minimum wage even before it was introduced and wages have continued to rise thereafter. Although enforcement appears to have had a limited impact due in part to limited penalties, more effective inspection would be an important way to improve compliance.
The top 1% of incomes are increasing rapidly even with low economic growth
We use tax data (which include accurate data for the very rich) to investigate the patterns of income growth over the period 2003 to 2016. Despite the need for inclusive economic growth in the light of extreme inequality, the top 5% of incomes grew at about 5% per year compared to national income growth of 3.7% per year. This divergence is striking in the post-recession period and appears to be partially driven by high growth in income from capital.
Reducing inequality to promote growth: a proposed policy package
Any growth strategy for South Africa should include elements that address inequality explicitly. This article identifies reforms that are likely to support growth in the long term and proposes a policy framework to ensure a more equitable distribution of the dividends of economic growth. These relate to high-quality education for the poor, progressive taxation, a social safety net, anti-monopoly policies and labour market reforms to promote the employment of low-skilled people.
How flexible is the South African labour market in the short and long run?
The inflexibility of the labour market is commonly used as a scapegoat to explain high unemployment. Yet new evidence shows that only in specific contexts (unionized workers in the short run) does wage rigidity restrain the ability of the labour market to absorb workers. In the long run, wages are much more flexible and structural factors explain more of the unemployment puzzle. The policy debate on unemployment and wage flexibility needs to take these subtleties into account.
The national minimum wage debate: looking beyond a narrow focus on labour markets
Most contributions to the debate on a national minimum wage adopt a narrow view of labour markets and accept that the structure of the economy will remain essentially as it is. We question both of these assumptions. Further, we argue that a national minimum wage, at a level to be determined through careful research, must be part of a well-designed package of longer-term policy reforms that look beyond the labour market and support employment growth through investment.
How much do unions and bargaining councils elevate wages?
Past studies have found that trade union members earn substantially higher wages than non-union workers. New results suggest a much lower union wage premium (6-7%) when the impact of the size of the firm, the type of employment and non-wage benefits are properly taken into account. On the other hand, bargaining council agreements have a higher impact on wages than unions do, so that the cumulative wage premium of unions and bargaining councils averages more than 16%. For the public sector this can be as high as 22%.
The matric certificate is still valuable in the labour market
Increasing levels of youth unemployment and learners’ poor performance at school have led to claims that the matric certificate no longer has much value in the labour market. However, the evidence does not support this claim. While the labour market conditions facing secondary school graduates have indeed worsened with time, the value of a matric certificate relative to that of grade 10 and 11 has remained positive both in terms of earnings and the likelihood of finding employment.
What does the ‘middle class’ mean in a polarised, developing country such as South Africa?
In a developing, highly unequal country such as South Africa, it is unlikely that a definition of the middle class that is based on an income threshold will adequately capture the political and social meanings of being middle class. We propose a multi-dimensional definition, rooted in the ideas of empowerment and capability, and find that the ‘empowered middle class’ has expanded significantly since 1993. It also is much larger than when measured in terms of income.
A growing informal sector: evidence from an enterprise survey in Delft
Using a small-area census approach, this article reports on changes in informal micro-enterprise activity in the Cape township of Delft between 2010 and 2015. The number of micro-enterprises has doubled (from 879 to 1798) in five years, with growth recorded in almost all sectors (notably take-away food and street trade). The increase in the total is contrary to the official national trend. The prevalence of informal enterprises in residential areas, compared to those in the high street, has not changed.
The layout of the township economy: the surprising spatial distribution of informal township enterprises
A small-area census of micro-enterprises in Cape Town townships reveals that informal enterprises are located throughout the township, including in the residential areas. Three-quarters of the enterprises are located beyond the ‘high-street’. The most common enterprises (liquor and spaza shops) are not situated in what one would expect to be the prime business area with its considerable pedestrian traffic, but are in residential areas. Policies to promote the township economy need to come to terms with this reality.
Land and property rights: 'title deeds as usual' won’t work
Renewed emphasis in policy discourses on systematic land titling to solve insecure tenure in South Africa is understandable. A staggering two thirds of the citizenry hold off-register land rights. Converting these rights to title deeds may seem self-evident, but our research reveals major stumbling blocks. For a system of land records to succeed, its design must take into account well understood and familiar local and customary processes for holding, using and transmitting land in urban and rural areas.
Day labourers and the role of foreign migrants: for better or for worse?
Foreign migrants often enter informal employment as day labourers. They compete with South Africans for jobs in this curb-side labour market. Three surveys of day labourers working in Tshwane between 2004 and 2015 reveal two important tendencies. First, the foreign-migrant component has increased from 12% to just over 55% in 11 years. Secondly, the wages and the level of poverty of both foreign and South African day labourers have worsened in the same period.
How do the non-searching unemployed feel about their situation? On the definition of unemployment
New evidence suggests that non-searching unemployed people are significantly less satisfied with their lives than people who are not economically active. Indeed, the non-searching unemployed have hit rock bottom. Assuming that people do not freely choose an unsatisfactory state of living, a case is made that the non-searching unemployed – or ‘discouraged workers’ – are involuntarily unemployed and should be included in the definition and measurement of the labour force. Consequently, a case is made for the adoption of the broad measure of unemployment.
The Budget’s fiscal stance: The non-cyclical element may be a cause for concern
It is estimated that less than half of the present main budget deficit of 5.7% is explained by cyclical factors. The remainder reflects a non-cyclical, structural component of the deficit. The increase in the structural budget deficit since 2008 may constrain the ability of government to sustain its present revenue and expenditure policies. An in-depth understanding of the structural component of the fiscal position as opposed to its cyclical element is important for sustainable long-term government financing and planning.
What is at issue in the minimum wage debate?
The debate about implementing a national minimum wage obscures the key point, which is the level at which a national minimum wage should be set. A national minimum wage at a much higher level than the sectoral minimum wages currently set by the Employment Conditions Commission or agreed upon by unions under the Labour Relations Act is likely to result in job destruction, especially in the tradable sectors, with the result that poverty might be increased rather than reduced.
Are we measuring poverty and inequality correctly? Comparing earnings using tax and survey data
Calculating the earnings Gini coefficient with survey data from the Quarterly Labour Force Survey (QLFS) may lead to an underestimation of inequality. When one compares earnings in the tax assessments data to those in the QLFS, it appears that the earnings of employees in the QLFS are underreported. Benefits and annual bonuses contribute substantially to the gap. In the case of self-employment incomes, the top earnings in the QLFS are also underreported, but the tax data seems to miss many mid- and low-income earners.
How structural inequality limits employment and self-employment in poor areas (or: Why South Africa’s informal sector is so small)
Given South Africa’s high levels of unemployment, the relatively small size of the micro-enterprise sector is a conundrum. This article argues that structural inequality is the reason for this – in particular, inequality in the structure of the economy, the legacies of spatial inequality and the continued inequalities in human development. Their combined effect is to limit the scope for poor people to escape poverty via self-employment. This explains the limited extent and small range of informal employment.
How inclusive is economic growth in South Africa?
While everybody seems to favour the pursuit of inclusive growth, this concept is rarely clearly defined in the policy debate. Inclusive growth is often confused or conflated with pro-poor growth or broad-based growth. A recent definition from researchers at the UNDP integrates the latter two concepts to include employment, poverty and inequality. A derivative Inclusiveness Index shows that South Africa has a very low degree of inclusiveness compared to other developing countries and that its growth since 1996 has not been inclusive.
Jobs growth from informal producers that supply the formal sector? The case for intermediaries
Government’s vision for the development of informal business is that, with the right support, these enterprises will achieve formal status, contribute to economic growth and create jobs. However, few informal businesses produce goods for which the formal economy has any a demand. Moreover, informal producers are structurally prevented from accessing the formal economy without the facilitation of intermediaries. This implies the need for an enabling institutional and legal environment which (a) supports intermediaries that assist informal producers to access formal markets and (b) provides incentives for formal-sector retailers to enter into contracts with intermediaries on more equitable terms. BEE is a possible way to provide such incentives.
What caused the increase in unemployment in the late 1990s? Were education policies partly responsible?
In the late 1990s the Department of Education restricted the re-enrolment of over-aged learners and the number of times underperforming learners could repeat a grade. This was intended to reduce the number of learners in the school system, but may have contributed to a sudden increase in measured unemployment. Of the 2.3 million increase in the number of unemployed between 1997 and 2003, up to 900 000 may be due to unintended effects of these policies which brought hidden (youth) unemployment into the open.
How the old age pension is helping young people from rural areas find jobs
It is important to know whether a social grant such as the old age pension eases financial constraints in rural areas, thereby allowing young men to migrate to urban areas for work – or whether these grants encourage idleness and dependency. This study finds no evidence of the latter. Instead, for young rural males there is an increase in their chances of migrating and finding work when a member of the household starts receiving the pension. Notably, these effects are only present for young men with at least a matric.
Is Marikana a forerunner of national labour market instability and disruption?
The tragic events at Marikana raise the question whether the events and subsequent developments are indicative of a fundamental change in labour market relations and wage bargaining relationships in South Africa - and whether such patterns of behaviour are likely to spread beyond the mining sector. We identify five contributing factors that are specific to the mining sector. These relate to labour relations, public services and migrant labour. Since these factors do not characterise the rest of the economy, we conclude that a spreading of Marikana-type bargaining is unlikely.
How effective is VAT zero rating as a pro-poor policy?
In most countries with VAT, certain goods and services are zero rated to alleviate the tax burden on the poor. However, this may not be the most cost-effective way of helping the poor. We investigate the appropriateness of the products currently zero rated and the impact of this on the poor, the implications for tax revenue were it to be removed, and the contribution to poverty relief of zero rating compared to targeted social transfers.
Labour and unemployment in South Africa: towards a ‘grand bargain’
The problematics of the situation in South Africa are clear: high unemployment, high inequality and low growth, combined with a lack of consensus on what to do. It might be more fruitful to think in ‘grand bargain’ terms: a package of policies that are intended to balance opposing perspectives whose differences cannot be resolved through technical debate – and to set short-term political-economic imperatives against the longer time horizon needed for policy interventions to address deep structural legacies
The significant decline in poverty in its many dimensions since 1993
The measurement of poverty should include dimensions of well-being that cannot be measured in monetary terms. Data on health, education and standards of living can be used to calculate a so-called Multidimensional Poverty Index (MPI). Results suggest that both the prevalence and the intensity of multidimensional poverty fell significantly from 1993 to 2010. The decline in multidimensional poverty is much greater than the decline in poverty as measured in terms of income and/or expenditure. Better social services and infrastructure have played a large role.
How suitable is a ‘developmental state’ to tackle unemployment, inequality and poverty in South Africa?
The National Development Plan envisions the achievement of a ‘capable and developmental state’. Developmental states are usually associated with high economic growth. Such states in East Asia often are seen as models for SA to emulate. However, given the structure of the SA economy, state and society, a developmental state is not suitable, nor attainable. The concept of a social investment state is a better alternative, but it will need key institutional and policy reforms to work.
Is informality being disallowed by government?
The South African government continues to pursue efforts to 'migrate' informal enterprises to the formal sector. This article examines the impact of regulations and law enforcement on the 'lived' economy of informal micro-entrepreneurs. Spatial analysis shows how the scope and distribution of informal economic activities are directly affected by regulation, land use planning and other controls. Such controls that effectively disallow informality are poor-unfriendly and harm livelihoods, self-employment and employment.
Reservation wages found in surveys can be very misleading
The responses of unemployed workers to the typical survey question about their ‘lowest acceptable wages’ are susceptible to error and overestimation – particularly for people in persistent joblessness. Studies using only the responses to the standard question may incorrectly conclude that vulnerable workers are unemployed because they tend to price themselves out of employment – while in fact their responses are just unreliable and distorted indications of their true reservation wages. Alternative questions would give more reliable results.
Do low-paid workers’ wage increases raise unemployment – and is this relevant for the minimum wage debate?
Increasing the wages of workers in the bottom half of the wage distribution contributes less to regional unemployment than increasing the wages of better-paid workers. The wages of the worst-paid – who live in regions of low union and large-firm concentration – play almost no role in unemployment. Collective bargaining arrangements appear to explain these differences. This phenomenon may soften the negative impact of a national minimum wage on employment in the short run, but might make matters worse in the longer run.
Is the middle class becoming better off? Two perspectives
Two very different pictures emerge when one compares income changes of the relatively affluent ‘middle class’ with those of people in the literal middle of the income spectrum. In the affluent middle there has been significant racial transformation and growth of the ‘black middle class’. However, households in the actual middle of the income spectrum have experienced the lowest income growth of all groups since 1993. Both perspectives are crucial for the pursuit of an equitable path of development.
Technology, labour power and labour’s declining income share in post-apartheid South Africa
The share of labour in aggregate income in South Africa has declined significantly since 1993, while that of capital has increased. Concurrently, real wages have increased slower than productivity. This article argues that financialisation and the more aggressive returns-oriented investment strategies applied by large, global investment institutions have translated into investors requiring higher rates of return on capital. This, in turn, has led to the increased adoption of capital-augmenting, labour-saving technology that has reduced labour’s share of total income – with important consequences for income distribution.
Industrial policy and unemployment: Can South Africa do better in labour-demanding manufacturing?
In spite of policy statements prioritising labour-absorbing growth, de facto policy support has favoured heavy industry and been damaging for employment. Industrial policy should be less concerned with ‘beneficiation’ and technological upgrading and more concerned with promoting economy-wide efficiency. In the context of massive unemployment, this means tilting the playing field towards labour-absorbing growth to mobilise the huge potential of an under-employed and poorly-skilled workforce.
Enforcement and compliance: the case of minimum wages and mandatory contracts for domestic workers
What happens when a previously unregulated labour market is regulated? After the introduction of minimum wages and mandatory employment contracts for domestic workers, wages increased markedly while neither employment nor hours worked declined; some formalisation of working conditions also occurred. All these occurred despite a lack of monitoring and enforcement, suggesting that such actions (often costly) are not essential for regulation to have a significant impact on informal employment conditions, at least in the short run.
Poverty may have declined, but deprivation and poverty are still worst in the former homelands
Former homeland areas continue to have significantly higher levels of deprivation and poverty than the rest of South Africa. Of all the former homeland areas, the erstwhile Transkei in the Eastern Cape has the highest levels of deprivation (measured using the Index of Multiple Deprivation for 2011) as well as income poverty. Indeed, the deprivation gap between former homelands and the rest of South Africa has not declined in the period 2001 to 2011.
Cape Town’s trade in wild medicines: ecological threat or essential livelihood resource?
Cape Town is the urban centrepiece of a globally unique and highly diverse natural environment which should take priority in conservation management. But these biological assets also directly serve a local market of over 5 100 traditional healers and herbalists. The author discusses this important informal economy, business and cultural activity in the face of the broadening threats to conservation in the region, and the growing potential tension this presents in terms of policy and management.
What makes the rand so volatile: global or home-made factors?
Exchange-rate volatility can complicate decisions concerning trade and investment and constrain a country’s economic growth. Understanding what contributes to a currency’s volatility is an important first step in assessing whether economic policy can reduce this volatility. For South Africa, changes in global commodity prices and financial-market risk perceptions drive most of the rand’s volatility. However, local political uncertainty also emerges as a significant source of volatility. More policy and political predictability could help to smooth the rand’s volatility.
How effective is income tax in reducing inequality in SA?
South Africa has one of the most progressive income-tax systems in the world. Income tax significantly reduces market-income inequality by flattening the incomes of the rich and providing financing for instruments of social protection, such as the social grants system and free basic services. Personal Income Tax is the government’s largest tax instrument and has increased as a share of tax revenue over the past decade. However, it has become less progressive over time, when measured as a share of income despite rate increases. While the amount of income tax has increased, market incomes, particularly of the top decile, have grown at a greater rate.
Does moving to a city mean a better life? New evidence
Moving to a city in search of work seems to pay off for many poor people in the countryside. Data that track changes over time indicate that as many as 385 000 people were lifted from poverty between 2008 and 2014 after moving from rural to urban areas – their poverty levels were halved together with a fall in unemployment. Government ambivalence about urbanisation should be replaced by a more positive and pro-active approach.
Why has manufacturing employment declined so rapidly?
The manufacturing sector has performed poorly and employment has fallen sharply. Policy has tended to push manufacturing onto a more capital-intensive trajectory. Paradoxically, South Africa’s actual (or ‘revealed’) comparative advantage has come to be in relatively capital-intensive products. In contrast, labour-intensive sub-sectors have performed poorly. In a context of high structural unemployment, industrial policy should focus more on supporting employment-intensive growth by subsidising labour and training rather than capital investment, electricity and infrastructure for capital-intensive firms.
Enabling growth: redistribution priorities for South Africa
If the National Development Plan is to be effectively implemented, we need clarity about the mechanisms through which growth and redistribution can be jointly advanced. Priorities include social security reform and quality improvements in social services, urban development, housing and public-transport investment. Expanding employment opportunities is the most pressing challenge, requiring policies that might include: support for labour-intensive industry and agriculture, small enterprise and informal sector development, well-targeted skills programmes, and wage or employment subsidies. Recognising the complementarity between redistributive and growth-enhancing measures is essential.
Hiding in plain sight: high-value agriculture’s large-scale potential to grow jobs and exports
South Africa has a major but overlooked opportunity to expand the production of high-value agricultural products that are both labour-intensive and export-oriented. There is an extensive and growing global demand for these products. Various supply side constraints must be addressed, such as how land is used; public investment in irrigation, agricultural inputs and R&D; development finance; and logistical costs and quality. Around 300 000 jobs could be created directly and indirectly, primarily benefitting the poorest: rural women in former homelands
The unemployment debate is too fragmented to address the problem
The debate on unemployment is fragmented into at least three sub-discourses, i.e. those of macroeconomists, labour economists and poverty analysts. This results in inconclusive analyses and narrow, flawed proposals to address the problem. This fragmentation feeds into the policy field. Sustainable and consistent remedies for unemployment and poverty will require an integrated analysis that covers the formal sector, the informal economy and survivalist activities – and especially linkages and barriers between these segments.
Creating jobs, reducing poverty II: The substantial employment performance of the informal sector
In this extract from a new REDI3x3 book, the employment-creating behaviour of informal enterprises is analysed – in particular, enterprises with employees. Almost half of those working in the informal sector work in such multi-person firms – which provide paid work to about 850 000 people (owner-operators plus paid employees). There is a growing employment orientation and employment intensity. Jobs are created via new-firm entry as well as employment expansion – also by one-person enterprises. Entrant firms are vulnerable, though.
Factors contributing to the demise of informal enterprises: evidence from a Cape township
The reasons for the closure of fairly well-established informal enterprises are varied. Between 2010 and 2015, in the Cape Flats township of Delft South, a key factor was the failure to respond adequately to the more entrepreneurial business model of foreign traders and the strict enforcement of unfavourable liquor trading policies. Still, household misfortunes and broader socio-cultural dynamics also played crucial roles. A richer understanding of why enterprises shut down should inform policy to foster the sustainability of informal enterprises.
The Jobs Fund and a youth wage subsidy: Design and implementation issues
As part of perpetual policy experimentation and search for that elusive ‘silver bullet’ to deal with unemployment, the South African government recently introduced the Jobs Fund and continues to mull over the idea of youth wage subsidies – vehemently opposed by trade unions. The success of these programs is highly dependent on effective design and administration. This article evaluates program design features against a number of factors.
Do government spending and taxation really reduce inequality, or do we need more thorough measurements? A response to the World Bank researchers
World Bank staff and consultants claim that South Africa’s progressive taxation and pro-poor social spending reduce the Gini inequality coefficient from 0.77 to 0.59. But their data and methodology are deficient: their research ignores large areas of government spending and taxation that may significantly increase inequality. Thus their conclusion that fiscal policy is redistributive is overhasty and unfounded – whilst it is prone to be used, or misused, to promote a budget-cutting political agenda.
Creating jobs, reducing poverty III: Barriers to entry and growth in the informal sector – and business cycle vulnerabilities
In this extract from a new REDI3x3 book, the focus is on the constraints faced by informal enterprises in trying to enter, survive, grow, or increase employment. A lower tier of ‘survivalist’ enterprises and an upper tier of ‘growth-oriented’ enterprises is apparent, with barriers limiting entry into the upper tier. Selling into higher-value or formal-sector markets and value chains encounter significant structural barriers. And the sector is particularly vulnerable to severe cyclical downturns.
How will a job-search subsidy create jobs?
A job-search subsidy has been proposed as a measure to help people find employment. At least three criteria need to be met to create new jobs for those who receive the subsidy. First, it needs to be used only to search for jobs or to remove the financial constraints that prevent people from searching for jobs; second, firms need to recruit through the channels which subsidy holders actually use to seek employment; and third, the relative cost of labour needs to fall.
Between the devil and the deep blue sea? The financing of higher education
Higher-than-inflation increases in student fees since 2009 often are blamed on declining government subsidies to universities. This is not entirely correct, if one considers real per-student subsidies. Fee increases resulted mainly from cost pressures faced by universities due to growing student numbers and a weakening rand. These pressures will not disappear. Eliminating government wastage is not a durable solution and difficult choices cannot be avoided. So, who should pay for increasing costs, students or government – or which combination of these?
Predicting the impact of a national minimum wage: are the general equilibrium models up to the task?
This article analyses whether computable general equilibrium (CGE) models are suitable for projecting the likely consequences of implementing a national minimum wage. Referring to modelling exercises undertaken by the National Treasury and the Development Policy Research Unit (DPRU), it shows that their projection of a strongly negative impact on employment and other macroeconomic indicators is a direct result of the architecture and assumptions of these models. By design these models preclude alternative outcomes; this renders them rather unsuitable as guides to policymaking.
How did hunger levels in the former homelands catch up with the rest of South Africa? A hundred years after the Land Act of 1913
A century after the Land Act of 1913, and 20 years after the abolition of homelands, differences in poverty persist between the former homeland areas and the rest of South Africa. However, remarkably, hunger gaps between the former homelands and other regions have been eliminated in the post-apartheid era. The main cause has been the disproportionately high number of persons eligible for social grants in the former homelands, rather than increased food production or higher labour market incomes due to land reform.
How South African agriculture - and consumers - will feel the war in Ukraine.
The Russia-Ukraine war has raised concerns about potential escalating global food insecurity as these countries are major exporters of grains, oilseeds, fertilizers, and crude oil. Since the war started, the prices of these commodities have risen significantly, and South Africa, interlinked in the global commodities market, is exposed to these prices increases. This article attempts to show how the conflict may affect South Africa’s agricultural sector, as well as consumers, by focusing on trade linkages of agricultural commodities and inputs prices, as well as price transmissions [1]
The original criticisms of the Adcorp Employment Index (February 2012)
Adcorp’s estimated unemployment rate is so low that it disposes of the unemployment crisis. But Adcorp uses a crude currency-demand method to estimate the size of the unrecorded economy, despite researchers’ strong criticism of this method. To estimate informal sector employment, Adcorp mixes up definitions of informal employment and the unrecorded economy and guesses at the labour intensity of the unrecorded economy. They also guess at the number of illegal immigrants. Moreover, Adcorp’s estimates have no statistical precision. Its figures are neither reliable nor credible.
Redistribution is part of the toolkit to promote growth
A recent IMF study of several countries provides robust evidence that a high level of income inequality weakens the prospects of sustained economic growth and reduces the duration of growth spells. Redistributive steps, by contrast, do not have a noticeable negative effect on growth. Therefore, a reduction in inequality that is achieved through redistributive steps could have a net pro-growth effect. The policy challenge for South Africa is to find the best policy mix to achieve that.
Youth unemployment: can labour-market intermediaries help?
Labour-market intermediaries can make a significant contribution to the reduction of youth unemployment.They recognise that the demand for labour is not fixed. By reshaping the attributes and broader workplace skills of the young jobseeker, labour market intermediaries can help overcome employers’ reticence to employing first-time workers. Such interventions, although small in scale, may be more successful than larger public works schemes of government. The potential positive impact of such intermediaries is demonstrated with international examples.
Tax(i)ing the poor? Implications of our high commuting costs
The time and monetary costs of commuting are extremely high and have increased over the last 20 years. They imply a substantial ‘tax’ on the wages of those who commute to work, notably on the users of public transport. Commuters increasingly use private vehicles and minibus taxis today compared to 1993. The government’s public transport subsidies seem to benefit those in the (lower) middle of the income distribution rather than low-income workers.
The National Development Plan and exports as a catalyst to generate employment growth: Can it work?
Small and medium-sized firms hold the potential to absorb most of the unemployed in South Africa. In this the NDP may be correct. However, the NDP may not be correct in arguing that exports can be the main catalyst of the growth the country needs to address poverty and employment. Several factors hinder such a strategy. A more domestically-focused policy aimed at production (and services) for local consumption might bear more fruit.
What will housing megaprojects do to our cities?
The building of large numbers of housing units in isolated greenfield locations has had detrimental side effects on our cities over the last two decades. Yet a series of new megaprojects, designed to accelerate the delivery of housing, is now on the cards. Because they are to be built on cheap peripheral land, these schemes threaten to reinforce urban fragmentation, inefficiency and exclusion.
More financial aid is not the best way to close the racial gap in tertiary education
South Africa’s large racial gap in enrolment in tertiary education can be attributed to the widely varying quality of primary and secondary education rather than to the low incomes of most black and coloured households. Thus, easing credit constraints for prospective tertiary students via increased financial aid is expected to have a limited impact on African and coloured enrolment. Instead, policymakers should focus on improving educational quality at schools attended by children from low-income households.
Domestic abuse of children severely reduces their educational achievement
Although many children are maltreated at home, we know little about the effects of abuse on long-term child development. This article explores the association between different ways in which children are maltreated and two educational outcomes (numeracy test scores and dropout). Children who are physically maltreated (e.g. hit hard) regularly suffer severe adverse consequences in terms of their numeracy test scores and probability of dropout – and hence their chances of employment and higher earnings.
The Budget: both the fiscal stance and ‘structural stance’ are sound
Many economists have argued that the government’s fiscal stance in the recent budget is verging on the risky. This article argues that the fiscal stance is both correct and prudent. In addition, the article puts the budget in a broader developmental context, highlighting its contribution to long-term growth and development and to tackling poverty and inequality.
Should agriculture receive greater support as part of an inclusive growth strategy?
In developing countries, agricultural growth is generally employment intensive and pro-poor but this sector in South Africa has been subject to a drastic decline in tariffs, pricing, infrastructure and other forms of support. This has not been compensated for by alternative measures such as expenditure aimed at facilitating small-scale agriculture and effective land reform. The result has been poor economic performance and rapidly declining employment in commercial agriculture with little sign of revival in the small-scale sector.
Unlocking the growth and employment potential of business in the margins
Marginalised businesses provide livelihood and income opportunities for a large section of the population. However, these businesses are not able to capture growth opportunities because of several constraints; they continue to operate on the periphery of the mainstream economy. Yet they could become a major source of employment growth. Efforts to unlock this potential must concentrate on exploiting value chains and making government policy more responsive to the unique needs and challenges of marginalised businesses.
Creating jobs, reducing poverty V: Is ‘formalising’ the informal sector the answer?
This extract from a new REDI3x3 book proposes a constructive way to approach the possible ‘formalisation’ of the informal sector. A common impulse is to reduce formalisation to regulating and taxing informal enterprises – two blunt instruments that can be destructive. Formalisation must rather be seen as a means to aid the quest for better livelihoods for more people and stronger, more self-standing informal enterprises. Smart formalisation can be pursued with a ‘formalisation menu’.
Innovative joint ventures can boost agricultural production and promote agrarian transformation
Growing agriculture can reduce poverty, create economic opportunities in rural and peri-urban areas, and boost employment, particularly for semi- and unskilled workers. We review several successful joint ventures across South Africa which comprise a range of partnerships between smallholders, commercial farmers, agribusinesses, industry associations and government. Many of these partnerships have generated significant returns and transformational benefits. Well-designed joint ventures can complement existing government initiatives to drive more rapid agrarian transformation and increase production.
A national minimum wage: moving the debate forward?
The public debate on a national minimum wage sometimes appears to occur in different universes. Two recent contributions to Econ3x3 may help to take the debate forward. This article analyses and contrasts these views and finds that, though they emphasise (and underplay) different aspects, the differences may not be insurmountable – especially once one recognises that the proposals apply to different time frames. [A shorter version of this article appeared as an op-ed article in Business Day on 25 June 2015. See references.]
Unpacking labour’s declining income share: manufacturing, mining and growing inequality
While the share of capital increased, labour’s share of total income earned in South Africa fell significantly during the first two decades after 1994. These trends could contribute to a deterioration of income inequality, given that the ownership of capital – and thus the income from capital – is concentrated in fewer individuals than is the case with salaries and wages. This article explores labour’s falling share, with particular reference to the manufacturing and mining sectors.
The Transkei Wild Coast: still waiting for something to happen
The Wild Coast, in the former Transkei Bantustan, is characterised by natural beauty and great poverty. Since 1994 rural land administration has collapsed, land tenure has not been reformed, a succession of coastal development plans have been proposed but not implemented – and communities have become disillusioned. The few tourist-related developments that have taken root have done so despite the general collapse of rural governance and are due largely to the determination of local developers and their community partners
Creating jobs, reducing poverty IV: What policy approach to enable the informal sector?
This extract from a new REDI3x3 book outlines an appropriate and ‘smart’ policy approach to enable enterprises in the informal sector. Such policies need to be differentiated and nuanced, recognising that both one-person or multi-person enterprises are situated on a developmental spectrum from embryonic to mature states, some ‘survivalist’ and others ‘growth-oriented’, with different aspirations, entrepreneurial aptitudes, degrees of development, complexity and capacity – and different needs and challenges. Factors for good policy design are identified.
The inequality of space: what to do?
South Africa is the most unequal country in the world in terms of people’s income. But, two decades after apartheid’s demise, why has our urban and rural geography changed so little – and how does this reinforce inequality? This was the question at the centre of a recent REDI workshop on spatial inequality that brought together researchers, policymakers, and planners working in both urban and rural spaces.
The employability of higher education graduates: are qualifications enough?
The transition from higher education to employment is a challenge, considering persistent graduate un- and underemployment. Qualifications are not enough. Graduates (should) develop a ‘workplace identity’ that improves their chances of being employed. An empirical study shows that achieving employability frequently involves several labour-market states in which personal attributes are utilised but also developed. Most graduates are not prepared for this arduous journey, something both higher education institutions and graduates should attend to.
Technology and minimum wages are likely to change the mix of capital and labour in industry
While technology is making capital cheaper, policies like the national minimum wage will make labour more expensive. What does this mean for the choices firms make in terms of labour and capital inputs? This research shows that higher prices for labour will result in lower demand for labour, making job creation more difficult. Low-skilled and high-skilled labour are substitutes – higher wages for low-skilled workers will encourage firms to employ more high-skilled workers and become more skill intensive.
‘You can’t bite the hand that feeds you’: Contracts between SME suppliers and the large supermarkets
This article examines the implications of the contracts between the four main South African supermarkets and their SME suppliers. Supermarkets’ procurement practices, in particular their practice of charging suppliers a substantial ‘rebate commission’ as well as requiring suppliers to comply with private, rather than public, production and health standards, have a significant impact on the ability of new SME suppliers to enter the market and to create jobs. This has important policy implications.
Have real wages fallen behind or increased out of line with productivity? A macroeconomic perspective
Macroeconomic data on wages and productivity suggest that there has not been any constant tendency for real wages either to fall behind or increase out of line with increases in productivity. Upward shifts have affected real wages sporadically, but have subsequently been offset by downward shifts, leaving a one-to-one long-run relationship between real wages and productivity. This is contrary to the conventional wisdom in both the labour union and business worlds.
A foot in the door: are NGOs effective as workplace intermediaries in the youth labour market?
It has been argued that properly focused workplace intermediaries can reshape the labour market to become more youth friendly. Case studies of NGO intermediaries in South Africa offer some optimism but also caution in this regard. Although the intermediaries were able to match unemployed youth to jobs, smooth the transition to work and even positively influence employers’ reticence, they are small in scale and costs are high – and they have yet to broker larger pacts to add more jobs.
Cooperatives: has the dream become a nightmare?
Over the past 15 years Government has promoted cooperatives at national and provincial levels with the aim of enabling small producers to tap into mainstream economic activities. Tens of thousands of cooperatives were formed in processes with officials’ performance appraisals based on the number of new cooperatives being formed. A 2014 study in the Free State indicates a very low survival rate of cooperatives and little evidence of job creation. This accords with earlier findings of an EU-funded study at the national level.
The informal economy: Is policy based on correct assumptions?
We analyse the emphasis in informal-sector and informal-economy policy, highlighting who runs the risk of being missed. We then interrogate assumptions on which policy objectives are based – notably that the informal sector acts as a ‘shock absorber’ in times of recession and, given the emphasis on the township economy, the spatial dimensions of informal-sector employment. We argue that policy makers should pay attention to harmful regulations, the infrastructure needed and where informal activities fit in value chains.
The nuts and bolts of micro-manufacturing in the township - a Cape Town case study
The informal sector is frequently viewed as comprising only street traders. However, micro-manufacturing of various types constitutes a small but significant component. A Cape Town case study of informal metalwork manufacturers, retailers, suppliers and customers shows that township metalworker enterprises and supply chains bring about important opportunities for promoting value adding, skills development and employment. Policy interventions that would help them grow include the provision of more suitable manufacturing and trading spaces as well as services such as electricity.
The former Transkei and Ciskei homelands are still poor, but is there an emerging dynamism?
The dominant perspective on the economic situation of the former homelands is that long-term, deliberate neglect has left a durable legacy of poverty and stagnation. While this may be largely correct, there is also evidence to suggest that the former homelands are dynamic. This article presents some evidence on population, employment and unemployment, in particular through a focus on the evolving nature of the linkages between former homeland towns and their rural environs.
Is the growth of labour productivity in manufacturing a good thing?
Labour productivity grew substantially in the first twenty years of democracy, but is this unequivocally good? Much of the increase has been driven by changes at the firm level. Smaller firms’ average labour productivity increased more than that of larger firms. This seems to reflect changes in the composition of firms and jobs – smaller firms and low-productivity jobs appear to be vanishing. This is worrying because these are the type of jobs we need to reduce unemployment.
Could informal enterprises stimulate township economies? A study of two Midrand townships
Informal enterprises are perceived to lack the necessary business and economic fundamentals to stimulate their local economies. However, informal enterprises are not homogenous. In a study of non-retail informal enterprises, we distinguish between Traditional Informal Enterprises (TIEs) and Modernising Informal Enterprises (MIEs) and assess whether Ivory Park and Kaalfontein townships have MIEs to catalyse the local economies. We find that 40% of the non-retail enterprises have a modernising orientation, but that the majority are predominantly traditional.
How accurate is our migration data?
The reliability of Census data on demography and migration comes under attack periodically. This article sheds light on the reliability of survey results with respect to migration into the Western Cape. Census data and two independent studies are compared and the convergence or divergence of the findings assessed. There is greater consistency for more aggregate-level measures than for disaggregated measures (whether by geographical unit or by race). Such comparisons of surveys are important for gauging the reliability of our knowledge of migration.
South African food security: the effects of the Russia-Ukraine war
Food security has dominated global media headlines since the Russia-Ukraine war began four months ago. While prices of food products are rising globally, not all countries are negatively affected the same way. The poor nations and those with generally low productivity in agriculture, such as much of the African continent, feel the impact more severely than others. South Africa is in a relatively fortunate position because of its vibrant agricultural sector, which cushions the country against food shortages in the foreseeable future, but price increases will be felt by consumers.
Finance and businesses in the time of Corona
The lockdown and physical distancing measures of government impact small and medium-sized companies severely as they lack the financial reserves to survive the crisis. This article proposes immediate financial measures to support companies, large and small, to ensure that a liquidity crisis does not turn into a solvency crisis, putting many companies out of business – and causing large-scale unemployment. On a macroeconomic level the objective is to protect income and jobs by slowing down the rate at which aggregate supply and demand contract.
Basic income support is unavoidable, but making it work requires political courage
As government gears up to announce its programme for the next year, through the State of the Nation address and the Budget, it seems certain that some form of basic income support will be a central part of its agenda. The lockdown-induced shocks have added to the crisis of structural mass unemployment, and of poverty. There also seems to be broad consensus that basic income support is an essential part of our social compact. But the fiscal risks it poses to a fragile economy have not diminished, and government faces some hard trade-offs to ensure these risks are minimized and that other social spending is not compromised.
Are internal migrants more likely to be unemployed than locally born residents?
This article compares the labour-market status of migrants and locally born residents. The focus is on migration into Cape Town and the Western Cape from elsewhere in South Africa. Survey and census data show that migrants were more likely to be unemployed than residents in 2001 and 2011. However, in 2011 migrants were also more likely to be employed and to be economically active (working or wishing to work) than locally born residents. They are also more likely to be self-employed than non-migrants.
REDI3x3 conference: Policies for inclusive growth
The REDI3x3 research project has completed most of its research at a time when unemployment, poverty and inequality is intense. With growth at just 0.5%, government needs to become more innovative in fixing the social policies that hamper progress. It should draw on all the research evidence to find ways to transform the structure of the economy without inhibiting growth. Addressing education, low labour intensity, the informal sector and the spatial legacies of apartheid can make a real difference.
Meeting food security needs in very poor households in the Eastern Cape: the role of own agricultural production
Small-scale agriculture evokes strong views in terms of both its current and potential roles in rural development. We examine how many (or few) Black households in rural areas that are identified as ‘food poor’ in terms of their income levels are able to meet their basic food needs – and the role of household agricultural production. We find that although rural households engaged in some form of farming are more likely to be very poor in terms of their incomes, they actually experience hunger less frequently than non-farming households.
Informal enterprise ownership: the importance of previous employment experience
Enterprises in the informal sector are known to have a precarious existence. The economic value and survival of an informal enterprise depend on the preparedness and motivation of the owner, inter alia. This article analyses the relevance of the work experience of a new, or entering, enterprise owner. It finds that prior work experience predicts informal enterprises that are larger, are more profitable, have more employees and are more likely to have their finances and premises separate from the household.
Structural transformation, competition and economic power: the need for better policies
The economy remains highly concentrated and existing firms have substantial advantages over entrants and smaller rivals. These firms can use their power to block rivals, also by influencing regulations in their favour. Changing the structure and the ownership of the economy simultaneously requires a package of measures to tackle the abuse of market power by large firms, change regulations to open up markets, and effectively support the development of the capabilities of smaller firms.
New opportunities for South African agriculture: the African Continental Free Trade Area
The new African Free Continental Trade Area phases out 90% of tariffs on all goods traded between African Union member states over a 5 to 10 year period. This seeks to boost intra-African trade and investment in regional value chains. The current 41% share of SA agricultural exports that goes to Africa is concentrated in SADC. The opening of other markets presents an opportunity for further expansion in goods such as oranges, apples and wine.
The sudden jump in the unemployment rate in 2015: Is there a break in the QLFS data?
This article argues that there is a time-series break in StatsSA’s Quarterly Labour Force Survey (QLFS) in the first quarter of 2015. The principal cause appears to be differences between the sampling frames before and after 2015, respectively based on Census 2001 and Census 2011. The break is signalled by a significant increase in the number of one-person households surveyed in the QLFS. It is critical for economists, policy analysts and policy-makers to be aware of this break in the data.
Poor land governance stifles rural development and has knock-on effects in urban areas
Several researchers in the REDI3x3 project focused on poverty in rural areas in the Eastern Cape, which contains two former apartheid homelands, the Ciskei and the Transkei. This article analyses the main messages of this research, highlighting the negative impact of poor land governance and uncertainty of tenure; knock-on effects are apparent in areas like Hout Bay and Marikana. [An edited version of this article appeared in Business Day on 10 November 2017. See references.]
The good news in 2021 is in the agricultural sector
The year 2021 has ended positively for South Africa's agricultural sector. Farmers experienced a unique season characterized by bumper yields, and higher agricultural commodity prices, particularly in the grains and oilseeds industries. Improved farmers' incomes have boosted spending on agricultural equipment. On the downside, the unrest and looting in July were disruptive, but the cooperation amongst agricultural and logistics role-players ensured a continuous flow of agricultural exports. The primary agriculture sector could show positive growth in 2021,building from an excellent year of 13,4% year-on-year growth in 2020. Going into 2022, the early indicators about the agricultural growth prospects are positive.
The short and long of welfare solutions to South Africa’s pressing challenges
South Africa’s triple challenges of high unemployment, poverty, and inequality increasingly threaten to ignite social instability. Proposed solutions through job creation will take too long and remain inadequate under the current pace of economic reforms and resultant economic growth rates. Thus, pressure is mounting to introduce a universal basic income grant (BIG) as an immediate and permanent feature of welfare policy to relieve societal pain and avert potential social instability. But viewing this solution through the lens of South Africa’s population dynamics up to 2050, it is clear that welfare-type solutions such as a BIG will not self-sustain; they will collapse public finances and potentially result in a failed state over the long-term under low growth paths. Policy makers must resist the urge to score quick political wins that jeopardise the survival of the state over the long-term.
Soaring deficits and debt: restoring sustainability amidst low economic growth
The debt burden of the national government has steadily increased from 27% in 2007. It is heading towards 70% in 2022/3 if this trajectory is not turned around. Further growth in the debt-to-GDP ratio must at least be halted. Different scenarios show this would require a cut in government expenditure of 2% to 3% of GDP (roughly R100 to R150 billion), phased in over the medium term. This means there is no room for a stimulating fiscal policy.
What affects job retention and job creation: reservation wages or reservation what?
Unemployment research typically inquires how to generate more jobs and how to keep workers working. Researchers often probe the reservation wage level (which appears to balance the interests of employees and employers). Qualitative research findings suggest that wages may be less significant factors in work-related decisions than the nature of interpersonal relationships in the workplace. Both employees and employers emphasise the importance of the quality of relationships, though employers and employees highlight different factors.
How big is the illicit cigarette market in South Africa?
In August 2022, British American Tobacco South Africa (BATSA) announced the illicit cigarette trade in the past year comprised 70% of the local market. To test whether this claim is true, I updated previous research that provided estimates of illicit trade from 2002−2017 to include estimates for 2018−2021. Using gap analysis, I estimated that between 2002 and 2009 the illicit cigarette market accounted for around 5% of the total market. Since 2010, however, the illicit cigarette market has increased sharply: by 2017, it accounted for 30%−35% of the total market. But it was the 20-week cigarettes sales ban in 2020 that really entrenched the illicit market. I estimate that illicit trade was 54% in 2020 and 2021. These estimates are lower than BATSA’s estimate of 70%, but are still cause for much concern. BATSA’s estimate is wrong for two reasons: the estimate is for Gauteng (one of the nine provinces in their sample), not South Africa as a whole, and, secondly, its estimate relates to the proportion of stores it claims sold illicit cigarettes, as opposed to the overall proportion of illicit cigarettes consumed.
How land reform can boost inclusive agricultural growth
Land reform is not only politically important: it could be a key catalyst for inclusive growth and employment creation. But policymakers need to effect some fundamental reforms and targeted interventions to support emerging commercial farmers. The interventions range from better governance of the agricultural sector, to massive improvements in port and rail logistics, more effective veterinary practices, and easier access to finance for new farmers.
Is South Africa's trade policy failing the agricultural sector?
South Africa's agricultural exports have grown significantly over the past two decades. Yet agricultural private-sector role players typically argue that the government has not done enough to open up new markets for ever-increasing produce. This failure has limited the country's scope to grow exports beyond existing traditional markets in the European Union (EU) and the African continent. In markets outside these regions, private-sector players argue that the growth in South Africa's agricultural exports has primarily been driven by productivity gains whose competitive advantage overcomes the costs of high tariff and non-tariff barriers. However, a review of South Africa's trade agreements paints a different view, suggesting that private-sector role players might be downplaying the achievements of the past two decades.
Measuring financial inclusion: A comparative analysis of regional South Africa
Financial inclusion has become an important measure of inclusive economic growth in South Africa, as well as in other parts of the world. But if inclusion cannot be measured accurately it leaves policymakers and market participants making inadequately informed decisions. This article discusses a new quantitative method to construct financial inclusion indices for the nine provinces. The index trends are used to evaluate the state of financial inclusion in the recent past and to make recommendations for further financial sector development policy. The country has made improvements in financial inclusion since 1994. Since then, there has been increased access and usage of financial services. However, between 2015 and 2018 there was an overall reduction in financial services. The decline has been heavily influenced by economic shocks such as decreasing income in various provinces, a decrease in credit extension to the private sector, rising unemployment rate, and rising risks to financial infrastructure. In fact, financial inclusion in 2018 fell back to the level it was in 2014 after a decline that began in 2016. Financial inclusion has increased in Gauteng, Western Cape, and the Eastern Cape; however the Free-State and Northern Cape have experienced declines to below their 2015 level, while the other provinces experienced minor declines.
Part 1: Fiscal dimensions of South Africa's crisis
At the start of the democratic project, South Africa hoped for a “fiscal renaissance”. After a brief period of consolidation, social spending rose, as did remuneration for public servants and expenditure on infrastructure. By the early 2000s, revenue was buoyant, the debt-to-GDP ratio was at historic lows, and the budget balance moved into surplus. But by the second decade of the millennium, growth faltered. And at the very moment that conditions demanded fiscal adjustment, government policy became increasingly incoherent.
Public employment programmes: what they contribute to jobs and earnings
Public works programmes are central to the National Development Plan’s aim to counter poverty and increase employment. Special employment programmes met the NDP’s target of one million work opportunities by 2015, but then declined sharply. Measured on a full-time equivalent basis, the EPWP and CWP contributed 2.6% of total employment and just over R12 billion in wages in 2019/20. Since then, the Presidential Employment Stimulus programme has demonstrated that more rapid “scaling up” of employment programmes is possible. They should be seen not just as short-term “work opportunities” but rather as productive components of a development strategy that works for all.
The EU Green Deal: how will it impact South African agricultural exports?
The European Union (EU) is the second most important market for South Africa's agricultural products, accounting for 27% of the country's total agricultural exports. Despite South Africa transitioning from the Trade Development Cooperation Agreement (TDCA) to the Economic Partnership Agreement (EPA) to secure continued and improved market access in the EU, a new set of regulations under the EU Green Deal and its Farm to Fork Strategy are set to impose additional compliance costs that will likely negate the benefits of existing preferential trade arrangements. We present a set of challenges, opportunities, and risks that both government and the private sector need to address if South Africa aims to increase agricultural exports to the EU.
Soaring deficits and debt II: Budget 2020 and a looming debt trap?
The projected increase in the debt-to-GDP ratio is set to occur notwithstanding plans to cut the projected increase in government’s salary bill. If government does not overcome labour union resistance to cuts, the debt burden will increase even more. The mounting public debt and government’s apparent inability to reign it in, raises the question whether South Africa finds itself in a debt trap, and if not, what can be done to escape such a trap.
Covid-19’s economic effects: tourism’s supply-chain impacts
While the impact of the Covid-19 lock-down on the tourism sector may seem clear, the potential impact on its supply chain has not been investigated. StatsSA data is analysed to establish which goods and services receive the most expenditure from three key tourism industries, but also which goods and services rely most heavily on tourism expenditure. Surprisingly it is soft drinks, tobacco, and transport-related goods that are likely most affected, not construction or agriculture.
Why South African agricultural products face frontiers in African markets
South Africa's export-oriented agricultural sector is heavily reliant on the African continent, accounting for over 40% of annual exports. The African Continental Free Trade Area (AfCFTA) is expected to propel South Africa's market presence beyond the South African Development Community (SADC) region. However, we argue this optimism might be misplaced, given specific structural challenges that will likely limit the potential for South Africa to increase agricultural exports in untapped African markets.
How to fund higher education in South Africa: a public-private-university partnership may be the answer
Higher education is both a private and public good – for society, an investment in the future, for the individual, a chance to improve their lives. But the current model of student funding is neither financially nor fiscally sustainable. It is unlikely that government can fund the “missing middle” – students from households with incomes between R350 000 and R600 000 a year. What then to do? A loan scheme involving universities, government, and the private sector may enable students to graduate and to start re-paying only once their income reaches a certain level.
The Covid-19 crisis has amplified spatial inequalities
The economic and social crisis induced by Covid-19 is unfolding in different ways across the country. New evidence from the NIDS-CRAM survey reveals that the pandemic has widened pre-existing inequalities between cities and rural areas. Within cities it has magnified the gap between suburbs, townships and informal settlements. A premature withdrawal of government relief schemes could aggravate the hardship and suffering in poor communities that have come to rely on these resources following the jobs slump.
How the COVID-19 grant has reached the once forgotten
The COVID-19 grant is the first in South Africa to explicitly target the unemployed. By the end of 2020, the grant had brought some six million previously unreached people into a welfare net that had previously excluded them on the assumption they could find work. How have the grants impacted poverty and inequality? And what are the implications for long-term policy?
African governments should have a fresh look at agriculture as part of the economic recovery plan after Covid-19
The Covid-19 pandemic presents an opportunity for African governments to relook agriculture as part of the economic recovery plan. A new approach should embrace technology (information technology, mechanical and biotechnology) and private-sector partnerships, as well as the improvement in land governance through the extension of title deeds or long-term, tradeable leases. South Africa presents some examples, particularly on technological advancement, which African countries can emulate.
How basic education has improved in the Western Cape
A new longitudinal study of learners in public education in the Western Cape shows a marked decline in repetition rates over the past six years. The drop in repetition has also led to more learners making it through matric. The study could have significant lessons for policymakers in terms of the interventions required to reduce dropouts.
New vaping tax misses the mark
The vaping industry has vociferously opposed a new tax on vaping products. But only the largest containers of e-liquid will feel hefty price increases – more than double in some cases. Young people who are starting to vape are more likely to buy disposable vapes, which attract less tax. As currently structured, the excise tax is not sufficiently targeted at reducing, or preventing, the use of vaping products among youth.
Part 2: Fiscal Dimensions of South Africa's crisis
In the first article in this series, we examined the history of SA’s economic policy and some of the roots of its current fiscal crisis. We looked at how economic growth in the country has consistently depended on the global economy and how a commodity-fuelled boom created a mirage of permanent economic growth in many developing countries, which were left without fiscal buffers once the uptick had stagnated or swung downward. In SA’s case, there were also self-inflicted blows, both economic and political, which began after 2007. But despite this, fiscal policy was expansive relying on the hope of increased growth, without sufficient planning for where it would come from. In Part 2 of this series Michael Sachs explains how austerity was implemented, almost by stealth, but without the necessary fiscal consolidation needed to avert a crisis.
Place matters: National prosperity depends on every region performing better
The poor national performance of the South African economy has been widely analysed, but this disguises considerable variation in economic performance between sectors and regions. Raising production in lagging provinces to the level of the best performers could boost national output and income considerably. This depends on a deeper understanding of national industry trends together with place-based dynamics.
Gender, care, and climate change: Why they are connected
Why does our society place so little value on care? The pandemic showed the centrality of health and care workers to daily life. But unpaid work – mainly done by women – does not figure as part of the calculations of the GDP of a country. Closely related to this is the scant value we place on the environment and preserving it for coming generations. Our economic models do not factor in essential, but unpaid work done by women, nor the critical task of protecting our fragile environment.
Education is improving but the message is hard to convey
South Africa’s improvements in international standardised tests have been exceptionally steep, albeit off a low base, for some 15 years. Six reasons make this difficult to communicate: examinations distract from reliable measurement; small gains are incorrectly considered insignificant; the social benefits of gains are long-term; the psychometrics behind rigorous testing is foreign to many; this testing has on occasion been poorly done; and teachers often express ideological concerns about standardised testing.
The Russia-Ukraine war will hurt SA investment ambitions: lessons from nine wars
Lessons from nine wars since the early 1970s, and the Brexit vote, show that global foreign direct investment inflows generally decline during the year of the war and the year after. South Africa, having embarked on an investment drive since 2018, faces a tough job making the country more investor friendly and marketing it to the rest of the world given the Covid-19 pandemic and most recently the Russia-Ukraine war. Thus, policy makers need to be more aggressive in implementing structural economic reforms alongside public efforts to demonstrate progress, to achieve foreign direct investment targets.
A measure of relief: how the Covid-19 grants have dented poverty and inequality
The Covid-19 pandemic not only had devastating impacts on health when it hit South Africa in early 2020. It also caused severe economic hardship. What was its impact on poverty and inequality, and what were the effects of the COVID-19 social relief policies? This article, based on a UNU-WIDER/SA-TIED research paper that uses a static tax–benefit microsimulation model known as SAMOD, measures the incomes of people just before and after the first few months of lockdown and evaluates the relief policies put in place. The COVID-19 measures had a substantial effect in reducing poverty and inequality. Our results may lay the foundation for the role that longer-term social grant policies could play in effectively reducing poverty in South Africa.
The MTBPS clears some fiscal space but it is still a path through a swamp
Treasury did the best it could in this month’s Medium Term Budget Policy Statement. Half the revenue windfall was used for fiscal consolidation and the other half on spending increases. But real cuts to expenditure are still pending, and cabinet backing is yet to be negotiated. Achieving consolidation next year will be even harder as the commodity boom wanes and election politics wax.
Social stratification around the NSFAS threshold: A dynamic approach to profiling the missing middle
In 2018, government announced that the National Student Financial Aid Scheme (NSFAS) would fund all eligible post-school students whose household income was R350 000 or less. The Department of Higher Education and Training is now focusing on what it calls the “missing middle” – students who come from households whose income is too high to make the NSFAS threshold but too low to afford fees –between R350 000 and R600 000. Guided by the poverty dynamics literature, we show that the “missing middle” is a complex category, comprising two distinct groups based on their relative economic stability or vulnerability. A key consideration for how we understand socio-economic need – on both sides of the NSFAS threshold – should reflect the household circumstances that generate economic vulnerability, not only household income at a given point in time.
Did the TERS policy save jobs during the COVID-19 pandemic?
South Africa’s Temporary Employer-Employee Relief Scheme (TERS) has arguably served as the country’s most important labour market intervention in response to the COVID-19 pandemic to date. As the government winds down the policy two years after its inception, a key question is: was it successful in achieving its primary aim of saving jobs?
How agro-processing can boost regional integration – and development
Regional integration in Africa is underway but progress requires that the gains are widely spread. South Africa’s huge regional trade surplus in manufactured goods is leading to protectionist pressures in neighbouring countries. Agro-processing is a large sector that has significant potential, but the export performance of the region has been poor if South Africa is excluded. Regional value chains are failing to include the small economies of southern Africa. Constraints include tariff and non-tariff barriers, weak infrastructure, as well as poorly developed local suppliers. Some retail chains, supported by governments and NGOs, are now taking the lead in developing small-scale suppliers in the region. But other policies to improve the regulatory and investment environment are also necessary.
The case for a Universal Basic Income Grant
The Covid pandemic has greatly exacerbated existing poverty and unemployment in South Africa. What are the best policies to alleviate it? Targeted social grants may aim to reach the poorest of the poor but there are many inefficiencies in the targeting method. A Universal Basic Income Guarantee is more costly, yet simpler to implement, will reach those in need more quickly, and is financially feasible.
Why women have fared worse in the pandemic
Women are at far greater risk of losing their income and are more likely to be exposed to the COVID-19 health risk than men because of the type of work they do.
The politics of economic change
The political settlement forged around South Africa’s transition from apartheid to democracy created the conditions for a corporate restructuring of the economy characterized by high profitability, despite low investments. This has involved power entrenchment in large incumbent businesses groups and coalitions of rentieristic interests, which have undermined effective industrial policy implementation and the development of inclusive growth-oriented coalitions. Persistent high unemployment and inequality have fuelled dissatisfaction and contestation over the core objectives of a more developmental state. Industrial policies have also been undermined by the fragmentation of the state.
What is the size and distribution of the pension contribution gap?
Out of 16 million employed people under the age of 65, about seven million contribute to pension or provident funds. Most of those who are not covered earn below the tax threshold, including workers in the informal and agricultural sectors. This first of a three-part series quantifies the pension coverage gap. The second and third parts will examine the fiscal costs of co-funding universal coverage and how this might be paid for.
Inequality through the prism of the pandemic
The COVID-19 pandemic has exposed significant inequalities in terms of capacities to cope with such a major shock. There is a marked difference between urban and rural areas in the ability to comply with lockdowns, as well as between wealth quintiles. Moreover, those least able to comply with lockdown regulations are often most vulnerable to infection. Policy needs to be fine-tuned to address the effects of major spatial inequalities between and within provinces.
How trade restrictions affect consumers: the case of frozen chicken
Trade protection in South Africa has increased overall since 2014. This has manifested in a rising incidence of tariffs covering intermediate (e.g., steel) and consumer goods, including poultry, pasta, and frozen chips, of which poultry is by far the most important for South African consumers. The South African Poultry Association has contested the view that anti-dumping duties on chicken raise domestic prices. However, an econometric study shows that although there is a complex relationship between trade policies and consumer prices, the net effect on these products, including frozen chicken, has been to raise them.
Why SA needs to boost exports
South Africa’s exports have lagged behind the rest of the world over recent decades, and this has likely constrained overall economic growth. To address the inherent bias against exporting, South Africa urgently needs to address the high costs of investment and trading across borders; review the impact of existing industrial, localisation, and sector-specific policies on export behaviour; implement a comprehensive and well-targeted export promotion and export finance framework; and update its trade policy approach to negotiations across the continent and internationally.
Time to make cigarette taxes more effective in Mozambique
Taxes on cigarettes and tobacco in Mozambique are the among the lowest in the southern African region. This not only deprives the fiscus of potential revenue but also makes cigarettes more affordable. Affordability of cigarettes is a key measure of the effectiveness of tobacco taxes. If taxes - and retail prices - were significantly raised it would have beneficial effects not only in terms of revenue but also for health.
SRD grants: how they can be used to help young people into jobs
The COVID-19 pandemic worsened the unemployment crisis in South Africa. In the second quarter of 2021, unemployment rates were the highest ever officially recorded. Many people who lost their only source of stable income fell into poverty as a result.
Social grants provide income that helps people to survive the short term economic hardship of unemployment. In the long term, new opportunities must be created to get people back into work. However, National Treasury’s emphasis on fiscal restraint has led to debates about which of these policies to prioritise. This has been particularly evident in the debate around the extension of a grant introduced during the pandemic, known as the Social Relief of Distress grant. Much of the discussion on the merits of the grant treats it as a competitor to employment-creation schemes in the budgetary allocation. However, the evidence compiled in our review of the job search assistance literature suggests that with careful design, the relief grant can help to support the policy priority of getting young people into work.
The Social Relief of Distress Grant: how it stimulated local economies
The Social Relief of Distress (SRD) grant was a key policy mechanism introduced to mitigate the effects on vulnerable groups of the COVID pandemic and government measures to contain its spread. While there is substantial research on the social impacts of the COVID-19 social relief package, little is known about its economic impacts. This article is based on a study that sought to understand, from the perspectives of local traders, the perceived economic effects of the grant. Evidence gathered in the study showed that the SRD led to an increase in customer demand within local economies. It was a crucial mechanism that helped informal trader businesses survive and, in some cases, enabled new business formation. By stimulating both supply and demand, the SRD supported the circulation of people, goods, and money and promoted higher transaction intensity in food and non-food sectors. Although the SRD could not reverse the negative impacts of COVID-19, and cannot be considered a standalone intervention, it nonetheless functioned as an effective shock-response mechanism for households and informal traders. The detection of some economic multipliers in a time of emergency signals the potential for a long-term intervention that could be beneficial to local economies.
A redistributive approach to paying for a universal pension contribution subsidy
This is part 3 of a three-part series on pension fund coverage. The first article provides estimates of the size of the pension coverage gap, the second deals with the fiscal costs of co-funding universal coverage, and this article suggests how this might be paid for.
How to create jobs and combat climate change
South Africa has the dubious distinction of having one of the highest rates of unemployment and inequality in the world. It is also one of the world’s most emissions-intensive economies, measured in greenhouse gas (GHG) emissions per unit of economic output. Historically, both during and after apartheid, state subsidies have favoured capital- and energy-intensive industries. What policies are necessary to change the development path to be both more climate- and labour-friendly?
COVID-19: the measure of learning losses
How much learning did primary school children in poorer schools lose due to the lockdowns resulting from the Covid-19 pandemic? Three different studies on early-grade reading from no-fee schools across South Africa show that in 2020, grade 2 students lost between 57% and 70% of a year of learning, and grade 4s between 62% and 81%. There is also evidence from the grade 4 sample that girls and those with stronger initial reading proficiency have been most negatively affected. The key question for education authorities now is how to mitigate the long-run implications of these losses.
How South Africa may leverage the BRICS chair for agribusiness
Despite BRICS not being a trade bloc, its economic cooperation arrangement offers South Africa a strategic platform to advance its trade interests. The agricultural sector is interested in this grouping, mainly in advancing exports into China and India. These countries already import a sizable volume and value of agricultural products from the world market, and South African businesses want to join these suppliers. The main products that South Africa should promote within this grouping are fruits, wine, wool, and beef. Importantly, the increasing interest in BRICS should continue, while South Africa also maintains its focus on other core markets, such as the EU and the African continent.
Has the Employment Tax Incentive created jobs?
The Employment Tax Incentive was introduced in 2014 in response to South Africa’s chronic structural youth unemployment crisis. Its aim was to encourage employers to hire young people by subsidizing their wages. ‘High youth unemployment,’ said SARS, ‘means young people are not gaining the skills or experience needed to drive the economy forward. This lack of skills can have long-term adverse effects on the economy.’ But how effective is it? This is a critical question as the fiscus must bear the cost of foregone revenue. An analysis of firms that claim the incentive compared with those that do not, runs into methodological challenges and casts doubt on the efficacy of the policy.
What would it cost to subsidize a universal pension plan?
A key objective of social security policy is to increase participation in contributory savings arrangements that provide funded incomes in retirement. This is the second of a three-part series on pension fund coverage. The first estimated the size of the pension coverage gap. In this article, the fiscal costs of co-funding universal coverage are examined. In the third part of the series, a tax reform that might pay for a pension plan subsidy is suggested.
Part 3: Fiscal Dimensions of South Africa's Crisis
This is the third in a series of articles by Michael Sachs, extracted from his paper, Fiscal Dimensions of South Africa’s Crisis. In the last article, he showed how the real value of public services has declined over the past decade, and how substantial off-budget allocations to state-owned enterprises have come at a cost to the poor. In this article, he examines the extent of South Africa’s fiscal crisis as the country struggles to recover from the impact of Covid-19. He argues that the recent budget proposes a path of consolidation that will erode core public services further. It will also be difficult to accelerate the pace of economic growth in the face of a large and sustained negative fiscal impulse. But even if the consolidation achieves its targets, it is unlikely to alleviate the debt burden. Rising interest payments mean that rent is drained from the proceeds of production, with implications for economic growth and the distribution of national income. Without an acceleration in nominal GDP, it is difficult to see how South Africa will avoid a period of fiscal and financial disorder.
Part 4: Fiscal dimensions of South Africa's crisis
This is the last in a four-part series by Michael Sachs, extracted from his paper, Fiscal Dimensions of South Africa’s Crisis (the full paper can be found on http://www.wits.ac.za/scis). In the last article, he examined the extent and nature of South Africa’s debt burden, distinguishing between the level of debt and its trajectory in relation to economic growth. He argued that SA’s debt was not only an impediment to economic growth, but that it also risked undermining the progressive nature of SA’s tax system.
Special Covid-19 grants not only provided income relief: they also improved labour-market outcomes
The Social Relief of Distress grant was the first in South Africa to target unemployed adults. Its main aim was to provide income support in a time of the crisis precipitated by the Covid-19 pandemic and lockdown. But for the first time, new research has shown that it also played a key role in improving labour-market outcomes for recipients.
Why the South African state should not subsidise minibus taxi owners
About 60% of South African households use minibus taxis as their main mode of transport. They spend about 26% of their gross earnings in doing so. Should taxi operators receive subsidies from the state? There are several reasons why policymakers should think about enhancing competition and improving efficiency in the public transport sector instead.
Why the township economy matters
Nearly half the working-age population and nearly two-thirds of the unemployed live in areas designated as townships under apartheid spatial laws. Originally developed as “labour dormitories”, they have been challenging to develop as more vibrant local economies and residential areas. What can the government – and the private sector – do to stimulate growth, entrepreneurship, and employment in these peri-urban areas?
The MTBPS makes a start: now we need the policies for growth
South Africa’s national budget is one of the most redistributive in the emerging markets, but our rising debt to GDP ratio threatens future economic growth and thus the country’s capacity to both create new jobs and to maintain the social wage. National Treasury will have to continue to provide support in the short term to the vulnerable, whose position has been greatly exacerbated by the pandemic. But without implementing the necessary reforms to put the country on a path of sustainable growth, this will not only simply be papering over the cracks but may significantly increase the debt burden.
How to tackle low labour utilisation in South Africa
South Africa’s low labour utilisation rate is a stark outlier by international standards, made even more unusual because achieving job creation and high employment rates appear to be well understood in other economies. What policy remedies can South Africa learn from other countries? Increasing economic competition and removing impediments to job creation are clear lessons. So too is the focus and effectiveness of labour-market institutions that lower the cost of job search. Other gains can be found in lowering costs to job creation and labour supply, easing school-to-job transitions, and making job search more effective.
The changing landscape of sustainable finance
The global climate effects of rising carbon emissions are fast becoming too costly to ignore. However, mitigating these effects also carry risks and involve transition costs that can be difficult to estimate upfront. We explore how these developments could affect financial stability and how trends in sustainable finance are being used to respond to the associated threats and opportunities.
Realizing socioeconomic rights with a limited budget
The South African constitution is considered progressive and transformative in intention due to its inclusion of socioeconomic rights, such as the right to education, food, and healthcare. However, some of these rights are qualified by the availability of state resources, which places an imperative on government to realize these rights progressively as resources become available.
The creative spark of a public employment programme
The Presidential Employment Stimulus has created more than one million jobs and livelihood opportunities since its inception two years ago. In the arts and culture sector, particularly badly affected by the pandemic, the intervention has been an important catalyst for creative new work.
The COVID-19 TERS policy saved at least 2 million jobs - but not without some unintended results
About three years have passed since the South African government introduced the COVID-19 Temporary Employer-Employee Relief Scheme (TERS) in response to the pandemic and associated lockdown regulations. Given the extent of unemployment in South Africa even prior to the pandemic, the policy’s primary aim of mitigating job losses arguably made it one of the country’s most important labour-market interventions at the time. What effect did it have on job retention, and who did it benefit most?
30 Years into democracy: How has South Africa's agricultural sector performed?
The agricultural sector has grown measurably in the 30 years of democracy -South Africa is now ranked 59th out of 113 countries in the Global Food Security Index and is the only African country within the world’s top 40 agricultural exporters. The challenge now is how to make that growth more inclusive.
Budget pressures erode capacity of the criminal justice system
The criminal justice system faces severe challenges: as organised crime has risen, the capacity of the system has diminished. A close look at Budget expenditure shows that, in the past decade, the number of police officials has declined, as has police spending per citizen. This, while employee compensation has risen in the same period. Similar trends are evident in the courts. In correctional services, although the number of officials has remained stable, capital budgets are severely constrained. This shrinking resource base may well exacerbate the threat that crime and disorder pose to the economy and society.
Inclusionary housing: A novel approach to building integrated cities
Inclusionary housing policy offers a new way of addressing the urban housing crisis in South Africa. It involves private developers contributing to the production of well-located affordable housing in return for public incentives. What are the main principles and mechanisms involved in these partnerships? We look at the experiences of three South African cities at different stages of adopting and implementing the policy.
What has happened to the personal income tax base since 2011?
The number of personal income taxpayers and aggregate taxable income increased strongly between 2011 and 2017 despite a slowing economy. These both declined during the Covid period and have since recovered, though more slowly than in the earlier period. In 2023, there were 7.6 million taxpayers above the threshold, up from 5.9 million in 2011. What role has tax policy played in the resilience of the tax base – and what do the trends indicate about progress towards a more inclusive economy?
Francis Wilson: A heart on fire: 17 May 1939 - 24 April 2022
Professor Francis Wilson, the founder of SALDRU and the chronicler and analyst of over 200 years of Southern African economic history has passed away.
He was 82.
SALDRU is the administrator and home base of Econ3x3, although it began as an independent publication under the REDI3x3 project. Its aim, as was Wilson’s, is to use research to fashion evidence-based policy that can help improve the lives of many South Africans who still burden under the legacy of apartheid.
Integrated urban services can boost regional development in Africa: this is how
Urbanization provides a unique opportunity to accelerate economic and social development across Africa. South Africa has some of the technical capabilities to support the process through systematic planning, institution building and investment in essential infrastructure. This requires a proactive approach from government working with the private sector to marshal their collective resources and know-how.
Is South Africa heading for a fiscal crisis?
Are budget cuts the only option to reduce the deficit and cut the national debt? Or has the main economic challenge been misstated? The Institute for Economic Justice argues that the county’s main challenge is not the debt burden but growth, and that there are a number of steps National Treasury could take to raise more revenue without cutting spending that threatens development and socio-economic rights.
Riding to survive: food couriers in three African cities
Most of the studies on gig work focus on the Global North. There has been little research on how platform workers in Africa are responding to the digital economy. Although it is ostensibly based on freedom and self-employment, our research amongst food-courier riders in South Africa, Ghana, and Kenya found that this new work order is deepening worker insecurity, undermining worker rights, and dramatically increasing inequality between a core group of extremely wealthy senior manager/owners and a growing pool of precarious workers.
Trade unions and the new economy: 3 African case studies show how workers are recasting their power in the digital age
Has the new technology that has given rise to thousands of “digital” workers destroyed the traditional collective power of worker organisation? A new book, Recasting Workers Power: Work and Inequality in the Shadow of the Digital Age, which examines work in three sectors in South Africa and Uganda, shows that workers’ organisation has survived into the digital age, albeit in a different form from traditional trade unions. Alliances with existing unions, with civil society organisations, and with each other if they are self-employed, together with a strategic use of institutions, have enabled digital workers to flex some collective muscle.
Will the avian influenza fuel food inflation?
The avian flu currently spreading across South Africa has raised concerns about the potential uptick in food inflation. However, it may be too early for such fears, and it is not clear how long or widespread this effect will be. Moreover, the various interventions being considered by government could lessen the impact on both consumers and the domestic poultry industry.
How does malaria impact education and gender equality? Evidence from Rwanda
The recent Covid-19 pandemic highlighted the negative socioeconomic impacts associated with disease. But malaria has impacted the health and economic outcomes of people in the tropics for several millennia. The disease is endemic and life-threatening in more than 94 countries, with Sub-Saharan Africa accounting for the highest concentration of countries at risk. Evidence shows that the disease has significant impact on economic development, and also increases gender inequality.
What does Saudi Arabian membership of BRICS mean for South African agricultural exports?
The inclusion of Saudi Arabia in the BRICS alliance presents a significant opportunity for South Africa to expand its livestock exports, particularly in the lucrative live-goat market. Despite the potential benefits, smallholder farmers face substantial barriers to accessing international markets due to institutional and production constraints. Establishing a reliable export market could not only enhance the income and livelihoods of smallholders but also stimulate goat production, akin to the success observed in the wool industry. However, challenges such as animal diseases and inadequate infrastructure must be addressed to fully capitalize on this opportunity. By navigating regulatory requirements and leveraging the BRICS trade partnership, South Africa can strategically position itself to become a key player in the global goat trade, thereby boosting rural economies and fostering sustainable agricultural development.
The role of Public Employment in the climate crisis
Public Employment Programmes can play a key role not only in alleviating the crisis of widespread unemployment. They can also be harnessed to help to combat a range of social and environmental challenges, including the effects of climate change.
Watts happening to work? The labour market effects of loadshedding
Expanded access to electricity has been a boon to development in many low- and middle-income countries, including South Africa, but erratic supply has proved a major constraint to economic growth. Now, in the first study on the effects of load-shedding on employment, the authors find that prolonged and regular power outages are significantly and negatively associated with job retention, working hours, and earnings.
The Just Energy Transition and the labour market in South Africa
How will the Just Energy Transition affect livelihoods in households dependent on the coal industry in South Africa? Here is a measure of how many jobs depend on the industry and possible transition strategies.