Written evidence submitted by Mr Jesmond
Blumenfeld
POLICY OBJECTIVES
Economic policies in South Africa since 1994
have had two broad objectives:
— economic regeneration; and
— "empowerment" of "historically
disadvantaged" citizens.
These two objectives have been accorded different
weights at different stages. For both, the achievements of the
first post-apartheid decade have been mixed.
REGENERATION
Positives: (modestly) increased growth,
fiscal stabilisation, lower inflation, tax reform, increased exports,
independent monetary policy, trade policy liberalisation, progressive
elimination of exchange controls, growth of public-private partnerships
in infrastructure development.
Negatives: low fixed investment levels
(domestic and foreign); low savings ratio, rising unemployment,
balance of payments weakness, currency volatility, slow privatisation
progress.
Overall performance has arguably been disappointing.
However, expectations of significantly more rapid growth—the
"lion economy" scenario—were unrealistic because
the inherited serious structural deficiencies and developmental
backlogs have continued to inhibit growth and undermine confidence.
The requisite restructuring will take more time to achieve, and
will continue to present the government with difficult political
choices. One major lesson of the first decade is that while the
creation of a "market-friendly" policy environment is
a necessary condition for faster growth, it is not a sufficient
condition. The key economic policy challenges remain the low levels
of fixed investment, the "jobless" nature of economic
growth, the shortage of skills, privatisation, and South Africa's
failure to become a major exporter of manufactured goods.
EMPOWERMENT
Empowerment policy focused initially on the
labour market, with measures to eliminate racial and gender discrimination
and promote equity, rather than to alter the inherited pattern
of ownership and control of productive resources. Affirmative
action programmes combined with wide-ranging legislation in an
effort to render the composition of the labour force more "representative"
at all levels, but these measures were widely perceived by business
as cost-raising.
A wave of privately-driven corporate black economic
empowerment (BEE) equity deals in the late 1990s failed to raise
the black-owned share of market capitalisation significantly due
to a number of high-profile failures caused by flawed financing
structures. The prime objective of BEE was also widely perceived
as the creation of a small get-rich-quick black capitalist elite.
The subsequent BEE Commission argued that lack
of "meaningful" empowerment and "ingrained racism"
were fundamental structural impediments to faster growth, and
called for a state-driven national BEE strategy incorporating
mandatory "de-racialisation" targets. However, the government's
new "broad-based" BEE strategy has largely eschewed
heavy-handed intervention in favour of negotiated sectoral BEE
"charters", incorporating a "scorecard" approach
for measuring progress towards agreed targets.
Hitherto, despite generous financial incentives,
small-business growth has been disappointing. Affirmative procurement
procedures, in both the public and private sectors, are now spawning
numerous empowerment joint ventures. However, it remains unclear
how many of these ventures will prove sustainable.
Market incentives and government policies are
now combining to render BEE—broadly defined—both inevitable
and desirable for business. BEE, in all its guises, has also helped
enlarge the new black "middle class". However, little
attention has so far been paid to the additional costs and risks
of BEE and the consequent effects on growth and job creation.
BEE strategies have to balance two overriding—but also potentially
conflictual—needs: to remain internationally competitive,
while visibly promoting domestic socio-economic equity. Whether
the short-term costs of accelerated empowerment will be outweighed
by the longer-term benefits remains highly uncertain. Against
the background of increasing levels of absolute poverty, if BEE
fails to lift economic growth on to a higher plane, profound political
and economic consequences could ensue.
IMPLICATIONS FOR
UK POLICY
In addition to seeking reduced industrialised
country protectionism towards developing countries in general,
the UK should continue to promote bilateral trade with, and investment
in, South Africa; focus development assistance on poverty relief,
HIV/AIDS programmes, training and skills transfers, and capacity
development in South Africa; and encourage further development
of an investor-friendly policy framework.
Jesmond Blumenfeld is Associate Senior Lecturer
in Economics at Brunel University, London and Africa Region Head
at Oxford Analytica Ltd. He was formerly Chairman of the Chatham
House Southern Africa Study Group.
Jesmond Blumenfeld
| 
