By early 2016, financial market participants had become increasingly critical of unsustainable current account deficits and low, unbalanced growth in many emerging economies. In response, adjustments have occurred (or are in process) in a wide range of countries – including Russia, Brazil, Mexico, Colombia, Ghana – gradually guided by policy in some instances and much more abruptly forced by recession in others. South Africa’s trajectory lies somewhere between – with some decline in the current account deficit in late 2016 and into 2017, but few clear steps to shift the composition of economic growth to something more sustainable. The recent current account moderation has fallen on the private sector, resulting in very weak investment and economic growth.
Policy Papers
South Africa’s export performance has been disappointing, and this is likely related to weak growth outcomes. We investigate the effect of the exchange rate on these outcomes, through two possible channels: its level and its volatility. We find little evidence in the literature or in our own tests to suggest volatility has been an important factor. The level of the currency appears to be more important, with currency undervaluation apparently favouring growth and exports. This may justify a policy of asymmetric reserve accumulation. An inflation target closer to that of our competitors and trading partners would also help maintain a competitive real exchange rate.
This paper considers a range of evidence surrounding prospects of sustainable growth in South Africa. While the economic performance of South Africa during the course of the last three decades of the twentieth century was the cause of considerable concern, more recent evidence has been the source of more optimistic assessments of the prospect of future welfare improvements. Consideration of the evidence presented in Figure 1 lends support to such optimism. After the long period of deceleration in growth, between 1970 and 1995, from 1995 through to the late 2000s growth has not only returned to positive territory in both real aggregate and per capita terms, but the trend in growth has been positive. This indicates that the rising growth performance of the economy has been reasonably sustained. The impact on GDP per capita has also been such that the long-term downward trend in growth, from approximately 1980, reversed. The only countervailing evidence is the decline in growth due to the financial crisis of 2007/8.
A stokvel can in general terms be defined as an umbrella term used to describe informal savings organisations in the African community in South Africa. Stokvels operate mainly in black areas, and have social, economic and entertainment functions (Verhoef, 2002). The aim of the paper is to rationalise the possible use of stokvels as a channel or conduit to give poor households access to much-needed cash. The hypothesis that is rationalised and founded in this paper is that stokvels in South Africa can be used in their existing form, without adjustment, as a special purpose vehicle (SPV) and conduit to extend credit to the poor (see Smith, 2008, for a comprehensive but accessible exposition on securitisation).
Policy makers in many countries have perceived plastic-bag littering, its associated waste disposal and consumer behaviour as a cause of environmental problems. It is for this reason that many governments are now taking action. The plastic-bag legislation in South Africa combined elements of regulation with a levy per bag, similar to that applied by the Irish, in an effort to reduce the consumption of these bags. Charging for bags ensued in May 2003 with a fixed nominal price of 46 rand cents for 24-litre bags across all retailers. The level of the levy charge in South Africa is too small; hence, it has only been successful in reducing plastic-bag demand in the short term. Over time, the effectiveness of the levy is diminishing despite its comprehensive application at checkout points. Hence, the findings of this study suggest that the levy has failed partially. It is evident that the levy should be set sufficiently high if consumer behaviour is to be influenced.
Given apartheid’s legacy of irrational spatial planning it should be unsurprising that location matters for labour market outcomes. This paper attempts to quantify this effect by introducing a new urbanisation index into standard employment regressions. Utilising a multinomial logit model, it is found that there is a positive relationship between the probability of being employed and the degree of urbanisation. For example, an individual in Johannesburg is 1,5 times more likely to be employed than a similar individual in a medium-sized town such as Harrismith, and twice as likely to have a job than someone in a small town such as Mthatha. Also, an individual is nearly 1,5 times more likely to be discouraged in Mthatha than Johannesburg. Where you live does matter and it matters a great deal. However, there are outliers. These are important for policy purposes, because these towns have managed to be successful, notwithstanding their relative economic size. Six smaller district councils stand out as successes: Carltonville, Stellenbosch, Malmesbury, Swellendam, Bronkhorstspruit and Knysna/ Plettenberg Bay. Each one of these is located on or near a national highway, has rail linkages to a metropolitan area and has a relatively well-educated or highly skilled workforce. Given the improvement in labour market outcomes that larger towns and cities offer, urbanisation is inevitable. Whilst planning for rapid urbanisation is the obvious conclusion, spatial policy must not underestimate the potential of the mid-sized towns. Improving transport infrastructure, such as rail and road, will, quite literally, bridge the divide between the two economies of the rural poor and the urban rich.
South Africa has very high unemployment, yet few adults work informally in small firms. One potential contributor to this problem is that large firms and unions can extend arbitration agreements to non-unionized smaller firms, raising wages. While local labor market characteristics influence the location of these agreements, they are enforced in a spatially discontinuous way, allowing identification by spatial regression discontinuity. Centralized bargaining agreements are found to decrease employment in an industry by 8-13%, with losses concentrated among small firms. These effects are not explained by resettlement to uncovered areas, and are robust to a wide variety of forms for average spatial heterogeneity.
In developing countries, where health insurance is not a commonly purchased financial instrument, recent debates have revolved around extending health insurance coverage to a wider range of the population, primarily via compulsory insurance schemes. However, these debates rarely consider the competing demands placed on the family budget, which will influence the acceptability of the program by the populace, and can be used to design the optimal policy. In this paper, we examine treatment effects associated with household insurance status providing a detailed examination of expenditure substitution patterns within a highly unequal developing country. In agreement with economic theory, the expansion of health insurance coverage via compulsory schemes creates additional burdens for households, which household accommodate via expenditure substitution. The observed variation in the household's ability to accommodate increased expenditure can and should be used in future to assess policy options and design an optimal social health insurance program.
South Africa’s growth experience provides an example of how contrasting growth trends - long-term decline followed by improved growth - pivot around political change, in this case a transition to democracy. In the decade prior to 1994, South Africa experienced the worst period of economic growth since the end of the Second World War, with growth variable and declining. The proximate causes of slowing growth were trade and financial sanctions in opposition to the Apartheid government, political instability and macroeconomic policy decisions that resulted in higher inflation, increased uncertainty and declining investment. Democracy has proved critical to, among other factors, creating the possibility of a peaceful and more stable future and reversing investor sentiment at a basic level. Political and economic leadership have been essential to improving the country's growth performance, because of the effect on policy formulation, institutional development, regulatory design, and economic vision. Prudent fiscal policy and sound macroeconomic management have been critical factors in creating an environment conducive to growth by stabilising economic conditions, lowering the user cost of capital and putting downward pressure on the real exchange rate. This case study provides some insight into a more general perspective on political and economic transition and some of the key macro- and microeconomic policy shifts that need to occur to realise a more rapid and sustained growth path.
Tobacco advertising bans have become commonplace in developed nations but are less prevalent in developing countries. The importance of advertising bans as part of comprehensive tobacco control strategies has been emphasised by the Framework Convention on Tobacco Control which calls for comprehensive bans on tobacco advertising. The empirical literature suggests that comprehensive advertising bans have played a role in reducing consumption in developed countries but that limited policies have not. This paper extends this analysis to include 30 developing countries and finds that bans do play an important role in reducing tobacco consumption in these countries. It finds that both comprehensive as well as limited policies are effective in reducing consumption although comprehensive bans have a far greater impact than limited ones. Furthermore, it finds that advertising bans may be even more effective in the developing world than they are in the developed world.
This paper provides a broad overview of the relationship between infrastructure and growth, focusing on the South African case. The paper develops an intuitive theoretical framework in which to analyse this relationship, identifying five specific channels through which infrastructure may effect growth: as a factor of production, a complement to other factors of production, a stimulus to factor accumulation, a stimulus to aggregate demand and a tool of industrial policy. A framework is developed for evaluating empirical analyses of this relationship, which explores the implications of different definitions and measures of infrastructure and of potential data and estimation challenges. The empirical literature on South Africa is then assessed against this framework.
One of the most visible forms of unemployment is the men who stand at the side of the road or on corners every day, waiting for any job that may come their way. Blaauw, Louw and Schenck (2006) estimated that there are nearly 1000 places in South Africa where people are picked up and a minimum of about 45 000, mostly black African men, stand at these sites every day, seeking work. The numbers of day labourers tend to vary from place to place. Inequalities in levels of socio-economic development between different areas of a country occur all over the world. South Africa is no exception and the space-economy is characterised by an uneven distribution of economic activities. There are spatial disparities in unemployment that have existed for decades, within and across countries in the global economy. Empirical studies have shown that there is a geo- graphical or spatial coincidence between levels of unemployment and levels of gross domestic product (GDP) per capita (Suedekum, 2005: 165). The disparities in the spatial patterns of unemployment closely resemble the core-periphery structure of regional GDP per capita. The aim of this paper is twofold. The first objective is to highlight some of the basic demographic dynamics of the research population. The second is to investigate the spatial distribution of and the relationship between day labourers, unemployment and the general level of socio-economic development in South Africa.
This paper investigates the bias and dispersion in official revisions of eight national accounting growth rates. The growth in GDP, consumption expenditure and personal disposable income by households has been subject to significant upward revisions and bias, especially after 1994. No significant bias was found in the revisions to the other national accounting aggregates. The official revisions are subject to a high degree of dispersion. Based on the 1984-2003 period, there is a 30 per cent probability that the “final” growth rate in GDE deviates by more than 5 percentage points from the first release growth rate. For most magnitudes, other than exports and imports, the dispersion in South Africa’s official revisions is similar to that of a sample of OECD countries. Using two examples, it is shown that the vintage of the data has a profound impact on the magnitude and significance of regression results based on such data.
This paper examines the importance of courts for trade credit amongst manufacturing firms in the East African community (EAC). The paper finds that high enforcement costs do not deter the use of courts to settle disputes associated with trade credit. The analysis suggests that when courts function efficiently they are likely to be a more effective deterrent to opportunistic behaviour relative to non-court mechanisms. Further, the paper finds that when enforcement costs are low firms that have confidence in the judiciary to enforce their property rights are more likely to provide trade credit. The paper also considers whether firm characteristics affect the way firms perceive the judiciary’s ability to enforce property rights in business related disputes. Where judicial enforcement is efficient firm characteristics are not important. However, when enforcement costs are high, firm characteristics are important implying that firms are capable of swaying judicial decisions in their favour.
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