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.

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.

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.

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.

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.

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.