A case on: The South African Economy: Coping with the Legacy of Apartheid

Presented to: Prof. RL CHAWLA

Presented by: Akshay gupta (11bsp1925) Ankit kochar (11bsp0108) Anshul malhotra ( 11bsp1931) Gagandeep singh (11bsp1381) Harshit kamra (11bsp1946)

Contents:
 Introduction  Background Note  The South African Economy in the Apartheid Era  The Economy in the Post-Apartheid Era  The Policy Initiatives  The reconstruction and development programme  GEAR policy (1996-2000)  The GEAR effect  Subsequent Policy Initiatives  Outlook  Exhibits

 DUTCH EAST INDIA COMPANY set up a provision station in Cape of good hope.  Slaves were brought from indonesia to work, which causes conflicts between the natives. In 1795, the british gained control of the cape from the dutch. In 1834, emancipation for the slaves in all its colonies, which was opposed by slave owners. By the mid 1850 s almost all of the South africa was under white domination.

In late 1860 s discovery of diamond along the vaal river had a major impact on south Africa s economy.  THE LAND ACT, 1913, THE NATIVE POLL TAX, THE MASTERS AND SERVANTS ACT.  In 1933, SAP and the NATIONAL PARTY merged to form NITED PARTY .  In 1948, NP came up with an even stricter race based policy called PARTHEID In 1986, the white South African government tried to destroy those who resisted apartheid. Still, blacks increased their actions against the government

THE SOUTH AFRICAN ECONOMY IN THE APARTHEID ERA

Apartheid was a system of racial segregation. The NP government devised apartheid as a means for the white minority to control the economic and social system of South Africa. In the apartheid era, the government excluded the blacks from the mainstream economy, with development efforts largely concentrated on the whites. The early 1950s saw a spate of repressive laws being passed. In 1959 the promotion of self government act was passed. This was inspired by the divide and rule policy that the british had perfected over the years in their colonies. The blacks were allotted only 13% of the land even when they formed around 80% of the population.

 The extension of university education act prohibited blacks from studying in white universities and led to the creation of separate educational institution for the blacks. The educational infrastructure and quality for non whites were inferior to those for whites with the result that the non whites were unable to upgrade their skills. Despite the social inequalities the annual average growth rate of the economy in the 1950s was around 4%. However the laws barring blacks from entering white South Africa had a negative impact on industry The late 1970s and 1980s saw many world powers, especially the US and the UK, starting to put economic pressure on the South African government over its apartheid policies, which seemed to have become even more repressive over time.

 The Export-Import Bank of the US prohibited loans to firms exporting to South Africa in 1978. The International Monetary Fund prohibited loans to South Africa in 1983. Not only did the banks stop grant of new loans but they also demanded immediate repayments of all outstanding debts. The result was a severe debt crisis. The 1980s was also a period of intense droughts , with agriculture being severely affected These developments had an adverse effect on the economy , which recorded an average growth of 1.5% in the decade. With population outpacing GDP growth , the per capita income fell by around 10 %.

The economy in the post apartheid era

In 1994, the ANC was elected to power. With political control going out of the hands of the white minority, the deprived sections of the population were hopeful that their problems would finally start being addressed. The government, therefore had on its hand the difficult task of bridging the income gap between the races, bringing better education and health care. The ANC government began by assessing the living conditions of the poor. It was estimated that: 4.3 million families (most of them black) did not have adequate housing, 12 million people lacked access to clean drinking water, 4.6 million adults were illiterate, Most schools and hospitals in the black areas did not have electricity.

The policy initiatives

In 1994, the government introduced the Reconstruction and Development Programme (RDP), which primarily aimed to reduce poverty and improve the living conditions of the poor.

The reconstruction and development programe

The RDP was an integrated socio-economic policy framework that sough to gather together the people and the resources of the country to eliminate the inequalities caused by the apartheid system and build a democratic, non racial, non-sexist republic.

The white paper on RDP identified four key programs. They were: Meet the basic needs of every south african Develop south africa s human resources Develop a prosperous, balanced regional economy and Democratize the state and society.

The government set up a special cabinet comimitee (scc) to implement the program. A core committee (cc) was also set up to support the SCC. The CC comprised ministers, deputy ministers, and director-general of finance and state expenditure, public administration, constitutional development and public works. The office of the president was also to aid the CC. A fund called the RDP fund, was created to finance the various programs and subprograms under the RDP. The government allocated rand 2.5 billion in the 1994-95 budget to the RDP fund. Rand 5 billion in 1995-96. Rand 12.5 billion in 1998.

CONTD
Despite of the good intentions, the implementation of the RDP was from from satisfactory. Ineffective governmental control and lack of inter-departmental coordination resulted in slow progress in 1995 and 1996. For the first two years after the ANC government came to power, the economy grew by only around 2.3 percent(average annual rate). However the inflation rate falls from 20% to 10%. The government realize that it would have to create the right environment for the economy to achieve high growth, low defecit, a stable exchange rate, and more jobs. The government announced a new policy in 1996.

THE GROWTH ,EMPLOYMENT,AND REDISTRIBUTION POLICY(GEAR) (1996-2000)

The GEAR Policy was introduced by Finance minister Trevor Manuel in June 1996. The policy primarily aimed to achieve a 6 % annual growth rate, increase exports by 8% p.a and create 4 lacs new jobs every year by 2000. The new policy was to help develop a competitive, fast growing economy through fiscal and monetary discipline. The government aimed to control the deficit, check depreciation of the currency, and rein the inflation. Unlike the RDP(Redistribution Policy) which put the stress on reducing the economic inequalities between the races, the GEAR S stress was more on job creation. For creating more jobs the government decided to expand the private sector. Therefore the policy suggested lowering the interest rates, reducing corporate taxes to stimulate higher private investments. The government was also able to reduce its consumption expenditure and relax foreign exchange controls.

THE GEAR EFFECT

In 1996,with the implementation of the gear policy, the government appeared to have shifted its focus from social welfare to fiscal discipline and liberalization. Pundy Pillay, head of RDP policy unit insisted that the RDP remained a vital component of government policy and is compatible with GEAR . Under the gear policy,ie. between 1996 and 1999, South Africa s GDP grew in real terms by an average of only 2.1% annually, which was even lower then the population growth rate. Some analysts ascribed this lack of growth to the monetary policy followed by the South African Reserve Bank(SARB).

CONTD ..

The government was able to control the budgetary deficit, which also was one of the objectives of the GEAR policy. The deficit went down from 4.6% of GDP in 1996, to 2.4% of GDP in 1999. Inflation too was brought under control. In 1999 the inflation rate was around 5%, down from 7.4% in 1996. However some analysts were of the view that the GEAR policy brought about macroeconomic stability at the expenses of growth. A WEFA(Wharton Econometric Forecasting Associates) report on South Africa in January 2001 also had something to say- The poor did not enjoy any benefits of the redistributed wealth. In fact they are even worse off . Official statistics released by the government also clearly indicated that the whites continued to remain a majority among high income earners and that very few blacks were able to enter the high income group.

SUBSEQUENT POLICY INITIATIVES

1. In 2001, 57% of the Blacks lived below poverty line. 2. The government had promised to redistribute 30 % of the land seized during apartheid period, but 2% had been returned. 3. In 2003 Govt. passed Broad Based Black Economic Empowerment Act . 4. Govt. introduced BBSDP which offered support to black-owned enterprises. 5. After the act was passed Ministry of Trade & Industry issue codes of good practice. Like:Code 100= Ownership scorecard Code 200= Management scorecard Code 300= Employment Equity scorecard Code 400= Skills of Blacks 6. In July, 2005 Mbeki launched ASGISA with an objective to eliminate poverty and unemployment by 2014 and targeted a growth rate of 6% by 2014.

OUTLOOK
1. Extreme disparities in income and wealth among the race groups. 2. South Africa had become the most unequal country in the world in terms of income distribution. 3. South Africa had one of the highest number of HIV positive people in the world. 4. Crime was also a serious problem, unemployment was the major reason 5. In last president Mbeki also said, The government was quite optimistic that it would be able to eliminate unemployment and poverty by 2015.