T h e Ox f o r d H a n d b o o k o f

THE SOUTH
A F R IC A N
E C ON OM Y
The Oxford Handbook of

THE SOUTH
AFRICAN
ECONOMY
Edited by
ARKEBE OQUBAY, FIONA TREGENNA,
and
IMRAAN VALODIA

1
 3
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 Preface

The South African economy has evolved from a pre-​colonialist subsistence economy
into being an economic powerhouse in Africa in the twentieth century—​by official
statistics, the second largest economy in Africa. The discovery of diamonds in 1870
and the discovery of the largest gold deposits in the world in the Witwatersrand in 1886
shaped much of the growth of the economy, and its associated process of capitalist de-
velopment and conquest of the indigenous populations of the country. Colonial con-
quest and later its apartheid history shaped South Africa’s racially determined economic
growth trajectory which generated some of the highest rates of economic growth and
the most severe forms of economic and social inequality.
The economy today, while having some significant capabilities in agriculture, mining
and minerals, manufacturing, finance, and services, faces serious economic challenges.
These include: low levels of economic growth; a dependence on exports of commodities;
extremely high levels of unemployment; the highest levels of inequality in the world;
large backlogs in infrastructure and social services; high levels of crime and gender-​
based violence; and a highly unequal education system with poor outcomes. The skewed
economic structure and dynamics of the apartheid period continue to pose a key struc-
tural constraint on growth and economic development in the post-​apartheid period.
Notwithstanding these economic and social challenges, since coming to power in
1994, the democratically elected government has followed economic policies that have
attempted, with limited success and arguably within a narrow economic paradigm, to
develop economic opportunities for the previously disadvantaged segments of the popu-
lation and extended social services to large segments of the society. South Africa has by
far the most extensive social services sector on the continent, with significant transfers
through the pension system. By most developing country standards, its tax to GDP ratio
at 29 per cent is fairly high. Yet, growth rates have been very weak with manufacturing
contracting with the challenge of premature deindustrialization and a lack of structural
transformation. Furthermore, the economy remains dependent on exports of mineral
products, unemployment remains intractable, and ownership remains concentrated. The
economic challenges have been accentuated by corruption and political uncertainty.

Overview of the Volume

While South Africa shares some characteristics with other middle-​income countries, it
has a unique economic history and the economy has distinctive characteristics. Perhaps
vi   Preface

surprisingly in light of the extensive research on various aspects of its economy, there
is no comprehensive handbook providing in-​depth analysis of a wide range of aspects
of the South African economy. This volume is intended to fill this important gap, and
provides detailed and wide-​ranging coverage of the key economic questions in South
Africa. Though covering the important historical antecedents, the intention of this
volume is to concentrate on the more recent economic challenges facing South Africa.
The preparation of the chapters for this volume followed an extensive process of con-
sultation, collaboration, and peer review. The project involved key workshops where
initial ideas were developed and then subjected to peer input. The editors approached
leading scholars on various economic issues in South Africa to contribute chapters.
Authors were asked to prepare detailed abstracts on their proposed chapters. Thereafter,
an inception workshop was held to review chapter abstracts and discuss common
themes, gaps, overlaps, and data sources. Authors then prepared drafts of the chapters,
all of which were subject to at least two peer reviews. With these reviews, draft chapters
were discussed at a chapter review workshop. Authors then revised the chapters.
The handbook provides a comprehensive treatment of all key aspects of the South
African economy. Part I begins with a historical background, segmented into the
periods before and after the formal introduction of apartheid in 1948. The next two
chapters discuss issues of political economy and economic policymaking, cross-​cutting
issues that are an essential backdrop to all the issues discussed in the remainder of the
volume. The remaining four chapters in Part I focus on what are arguably the central
challenges facing the South African economy: growth and the triple challenges of un-
employment, poverty, and inequality.
Part II begins with three chapters on agriculture, agro-​processing, and the land
question, followed by chapters on mining and minerals and energy, thus providing a
treatment of the primary sectors and associated issues. The remaining two chapters
focus on the key issues of climate change.
Part III of the volume deals with a set of topics linked broadly to structural transform-
ation, industrial development, trade and regulation. These chapters include focuses on
value chains; South Africa’s place in the region and on the continent; the fourth indus-
trial revolution; innovation and technological change; competition policy and regula-
tion; state-​owned enterprises; black economic empowerment; entrepreneurship and
small, medium, and micro-​enterprises (SMMEs); and urbanization and cities.
In Part IV, attention turns to the labour market, various aspects of distribution, and
the economics of social policy. The multiple and far-​reaching dimensions and effects
of the triple challenges discussed in Part I are laid bare here, including in chapters on
different aspects of the labour market, gender, and the economics of education, health,
food security and hunger, and social development and social security.
The macroeconomy is the focus of Part V. While constraints on economic growth
were discussed in Part I as a central challenge facing the economy, here we turn to a
macroeconomic analysis of growth. The next chapters discuss the key macroeconomic
issues of investment, public finance and fiscal policy, debt, monetary policy, banking
and finance and financialization.
 preface   vii

In Memorium
Two esteemed contributors to this Handbook, professors Bill Freund and Vishnu
Padayachee, sadly passed away during the production of the volume. Freund was
emeritus professor at the University of KwaZulu-​ Natal, while Padayachee was
distinguished professor and Derek Schrier and Cecily Cameron Chair in development
economics at the University of the Witwatersrand. Both Freund and Padayachee were
highly original thinkers, unafraid to challenge dominant views. Each of them made pro-
found contributions to economic thought in South Africa, particularly in economic
history and political economy. In the case of Padayachee, this contribution extended
to a prominent role in economic policymaking over a long period of time. Freund
supervised Padayachee’s doctoral thesis, and they collaborated in various publications.
When Freund passed away in 2020, the chapter that he had begun writing for this
volume was completed by Padayachee, who passed away in 2021 while the volume was
in press. Their co-​authored chapter provides an authoritative account of the economic
history of South Africa over the period 1948–​94.
 Acknowledgements

Editing the Oxford Handbook of the South African Economy has been an exciting and
challenging venture. It has been a complex project to manage, with eighty authors
contributing to the volume. Additional challenges were brought by the fact that the
project coincided with the COVID-​19 pandemic, which meant that our inception and
review workshops had to be conducted virtually rather than in person as originally
planned, and that authors had to manage new ways of working and many competing
demands on their time. Nonetheless, we are very pleased with the speed with which this
volume has come together, and with the quality of the product. This would not have
been possible without the contributions of a number of people.
We would like to thank our commissioning editor at Oxford University Press (OUP),
Adam Swallow, for his support and guidance of the project, as well as to the entire OUP
production team. We also wish to thank the anonymous reviewers of our book proposal,
and the delegates of OUP who approved it.
Several people gave helpful inputs and suggestions in the course of the project, but we
especially appreciate the invaluable contributions of Christopher Cramer (University of
London, SOAS) throughout the project. Arabo Ewinyu, Meron Tilahun, and Deborah
Kefale provided dedicated and efficient support, without which a project of this magni-
tude could not have succeeded. The volume benefited tremendously from a number of
national and international peer reviewers, whose detailed and insightful comments on
individual chapters contributed significantly to their ultimate quality.
Finally but most importantly, we acknowledge the chapter authors, who participated
in the inception and review workshops and delivered such high-​quality chapters. The
editors are very grateful to all the contributors of this Handbook and thank them sin-
cerely for their exceptional efforts and their personal commitment to ensuring the
success of this volume.
16 February 2021
 Contents

List of Figures xv
List of Tables xxi
List of Abbreviations xxv
List of Contributors xxxv

PA RT I H I STORY, P OL I T IC A L E C ON OM Y,
A N D K E Y C HA L L E N G E S
1 Challenges and Complexities of the South African Economy 3
Fiona Tregenna, Arabo K. Ewinyu, Arkebe Oqubay, and
Imraan Valodia
2 The Economic History of South Africa before 1948 26
Stefan Schirmer
3 The Economic History of South Africa 1948–​94 47
Bill Freund† and Vishnu Padayachee†
4 Politics and Economic Policymaking in South Africa since 1994 66
Alan Hirsch, Brian Levy, and Musa Nxele
5 South Africa’s Post-​apartheid Economic Development Trajectory 91
David Francis, Adam Habib, and Imraan Valodia
6 Constraints to Economic Growth in South Africa 111
Kenneth Creamer
7 Unemployment in South Africa 135
James Heintz and Karmen Naidoo
8 Poverty in South Africa 157
Vusi Gumede
9 Inequality in South Africa 175
Murray Leibbrandt and Fabio Andrés Díaz Pabón
xii   Contents

PA RT I I T H E P R I M A RY SE C TOR S , E N E RG Y,
A N D T H E E N V I RON M E N T
10 Agriculture in South Africa 195
Wandile Sihlobo and Johann Kirsten
11 Agro-​processing Industries in the South African Economy 217
Horman Chitonge
12 Land and Agrarian Development in South Africa 240
Ruth Hall and Farai Mtero
13 Mining and Minerals in South Africa 261
Neva Seidman Makgetla
14 Energy in South Africa 283
Rod Crompton and Ruwadzano Matsika
15 Socio-​economic Aspects of Energy and Climate Change in South
Africa 305
Roula Inglesi-​Lotz
16 Climate Change and the Green Transition in South Africa 323
Channing Arndt, Sherwin Gabriel, Faaiqa Hartley,
Kenneth Marc Strzepek and Timothy S. Thomas

PA RT I I I T R A DE , I N D U ST RY, A N D R E G U L AT ION
17 Corporate Structure, Industrial Development, and Structural
Change in South Africa 349
Pamela Mondliwa and Simon Roberts
18 Value Chains and Industrial Development in South Africa 375
Mike Morris, Justin Barnes, and David Kaplan
19 Southern African Regional Value Chains and Integration 396
Reena das Nair
20 South Africa’s Economic Role in Africa 419
Mills Soko and Mzukisi Qobo
21 South Africa’s International Trade 441
Lawrence Edwards
 Contents   xiii

22 Innovation and Technological Change in South Africa 467

Erika Kraemer-​Mbula and Rasigan Maharajh
23 South Africa and the Fourth Industrial Revolution 489
Bhaso Ndzendze and Tshilidzi Marwala
24 Industrial Policy in South Africa 510
Anthony Black
25 Competition Policy in South Africa 531
Liberty Mncube and Nicola Theron
26 Regulation of Network Industries in South Africa 553
James Hodge and Tamara Paremoer
27 State-​Owned Enterprises in South Africa 576
Mark Swilling and Nina Callaghan
28 Black Economic Empowerment in South Africa 599
Thando Vilakazi
29 Entrepreneurship and SMMEs in South Africa 622
Boris Urban
30 Urbanization, Agglomeration, and Economic Development
in South Africa 646
Ivan Turok

PA RT I V T H E L A B O U R M A R K E T, DI S T R I BU T ION ,
A N D S O C IA L P OL IC Y
31 Changing Dynamics in the South African Labour Market 673
Haroon Bhorat, Ben Stanwix, and Amy Thornton
32 The Youth Labour Market in South Africa 690
Cecil Mlatsheni
33 The Economics of Education in South Africa 707
Nicola Branson and David Lam
34 Gender and Work in South Africa 735
Daniela Casale, Dorrit Posel, and Jacqueline Mosomi
xiv   Contents

35 The South African Informal Economy 757

Michael Rogan and Caroline Skinner
36 Migration and Remittances in South Africa 777
Mark A. Collinson and Mduduzi Biyase
37 The Economics of Households in South Africa 800
Dorrit Posel and Katharine Hall
38 Food Security, Hunger, and Stunting in South Africa 823
Julian May
39 The Economics of Health in South Africa 844
Ronelle Burger and Mosima Ngwenya
40 Social Security and Social Development in South Africa 869
Leila Patel

PA RT V T H E M AC ROE C ON OM Y
41 The Macroeconomics of South African Economic Growth 891
Philippe Burger
42 Investment in South Africa 913
Ciaran Driver and Laurence Harris
43 Public Finance and Fiscal Policy in South Africa 935
Tania Ajam
44 Public Debt in South Africa 956
Manoel Bittencourt
45 Monetary Policy in South Africa 974
Nicola Viegi
46 Banking and Finance in South Africa 992
Penelope Hawkins
47 Financialization in South Africa 1013
Ewa Karwowski

Index 1031
 Figures

1.1 GDP per capita in South Africa and comparator economies, 1994–​2019 5
1.2 Gross fixed capital formation in South Africa and comparator
economies, % of GDP, 1994–​2018 7
1.3 Carbon dioxide emissions (metric tons per capita) in South Africa
and comparator economies, 1994–​2016 10
4.1 The market matrix: alignment of elites into rentiers, powerbrokers,
magicians, and workhorses 76
4.2 South Africa’s GDP growth relative to upper-​middle-​and middle-​income
countries, 2008–​19 83
5.1 GDP growth and GDP per capita in South Africa 92
6.1 Real GDP growth rate 1946–​2019, annual percentage change 113
6.2 Rising employment and unemployment, 1994–​2019 117
6.3 Commodity cycle and the real GDP growth rate, 1994–​2015 120
6.4 Investment level and GDP growth, 1994–​2019 122
6.5 Composition of investment (as % of GDP), 1994–​2019 123
7.1 Labour force participation and unemployment rates, 1993–​2019 137
7.2 Growth rate, fixed capital stock, South Africa 1950–​2019 140
9.1 Average monthly wages between different sets of categories
(in South African Rands-​ZAR) 181
9.2 Socio-​economic class sizes, 2008–​17 184
9.3 The intergenerational transmission of earnings advantages or disadvantages 186
10.1 Agricultural land capability map of South Africa 196
10.2 Long-​term trend of South Africa’s agricultural labour 208
10.3 Total agricultural exports by selected major products, South Africa,
real 2010 values 212
10.4 Annual food inflation rate, January 2009 to July 2020 213
11.1 Manufacturing employment by subsector 2019 221
11.2 Agro-​processing output and employment by subsector, average for 2011–​19 222
11.3 Agro-​processing in manufacturing employment, 2000–​19 232
xvi   Figures

12.1 South African Index of Multiple Deprivation 2011 at ward level showing
former homeland boundaries 242
12.2 Land redistribution and restitution, by province, in hectares, 2009–​18 249
12.3 Land redistribution under five presidents, 1994–​2018 250
12.4 Land reform budgets, 1996–​2019, inflation adjusted 251
13.1 Indicators of the significance of mining for the economy, 1994 and 2019 262
13.2 Annual percentage change in GDP compared to annual percentage change
in international price of South Africa’s main mining exports 263
13.3 Contribution of mining to GDP in constant (2020) prices, by commodity 265
13.4 Employment by commodity, 1980 to 2019, in thousands 266
13.5 Mining exports excluding gold by destination, 1990 to 2019 268
13.6 General government and public corporation (SOC) investment as
percentage of GDP and average annual metals price index (2011 = 100),
2000 to 2018 276
14.1 GDP, energy, and emissions intensity, certain countries 285
15.1 Energy consumption per capita and GDP per capita 2010, South Africa,
1971–​2019 307
15.2 Primary energy shares panel A (top): averages 2007–​17; panel B
(bottom): percentage change between 1997 and 2017 308
15.3 Electricity access—​new connections and transmissions lines, South Africa 311
15.4 Access to electricity (total, urban, and rural), 1996–​2018, South Africa 313
15.5 CO2 emissions per capita and fossil-​fuel share of total energy
consumption, 1971–​2014, South Africa 315
16.1 Annual rainfall distribution for Republic of South Africa. 325
16.2 The six hydro-​climatic zones which are the aggregation of the 9 Water
Management Areas with percentage of total national annual. 326
16.3 SACReD –​Systematic Analysis of Climate Resilient Development
Framework for LTAS. 328
16.4 Cultivated land use by agricultural system in southern Africa. 333
16.5 Estimated density functions of the total runoff in South Africa for the
periods Base, 2025, 2045, and 2065 under a) Paris Forever (PF) scenario
and b) 2C scenario. 337
17.1 Sectoral composition of top 100 JSE-​listed firms 356
18.1 South African light vehicle domestic market performance versus
production, 1995 to 2018 381
19.1 South Africa’s exports of diversified manufactured goods to SADC 402
20.1 Composition of South Africa’s exports in Africa, 2019 433
 figures   xvii

20.2 South Africa’s imports composition in Africa, 2019 434

20.3 Intra-​regional economic community trade in Africa, 2010–​12 and
2014–​16 (billions of dollars and percentage of total African trade) 434
21.1 Trade volumes (goods and services) and real GDP, 2010 = 100 443
22.1 South African publications and world ratio (count) 474
22.2 South African business expenditure on R&D (BERD) and the
BERD/​GERD ratio, 2006–​18 476
22.3 South African patent applications and patents granted, by country of
origin, 1994–​2019 477
22.4 R&D personnel, 2001–​18 479
23.1 4IR-​related and non-​related industrial wages in South Africa (annual, in ZAR) 498
26.1 Average electricity prices (c/​kWH) 564
27.1 Assets by SOC and DFI (excluding PIC), in billions of Rand, 2019 583
27.2 A tumultuous decade leading up to the second coal-​power-​system
emergency in 2018 and the liquidity insolvency in 2019 588
30.1 South Africa’s population distribution, 1975–​2030 650
31.1 Value-​added and employment growth by sector, 2000–​19 676
31.2 Annual average growth rate of employee earnings, 2000–​17 680
31.3 Wage distributions by union status and public/​private sector, 2017 683
31.4 Proportion of workers earning below the national minimum wage by
sector, 2017 684
31.5 Cost per beneficiary and jobs created by ALMPs in South Africa 686
33.1 Mean years of education by year of birth and population group 711
33.2 Proportion completing secondary schooling by year of birth and
population group 712
33.3 Proportion completing post-​secondary education (of those with
twelve+ years of education) by year of birth and population group 713
33.4 Proportion completing post-​secondary qualifications by level and year of birth 717
33.5 Education distribution of working-​age population (aged 25–​59) by year 725
33.6 Relationship between schooling and employment, 1994/​95 and 2017/​18,
ages 25–​59 726
33.7 Relationship between schooling and earnings, 1994/​95 and 2017/​18, ages 25–​59 727
34.1 Labour-force participation rates by gender, 1994–​2019 738
34.2 Employment and unemployment rates by gender, 1994–​2019 740
34.3 Real monthly earnings by gender for the employed (mean and median),
1994–​2017 745
xviii   Figures

35.1 Total non-​agricultural employment in the South African informal

economy, by gender (2008–​19) 765
35.2 Percentage of non-​agricultural employment in informal employment,
by gender (2008–​19) 766
35.3 Percentage of non-​agricultural informal employment in the informal
sector, by gender (2008–​19) 766
35.4 Percentage of total non-​agricultural employment in the informal sector,
by gender (2008–​19) 767
35.5 Status in employment within the informal economy, by gender (2008–​19) 768
35.6 Sectoral distribution of informal employment, by gender (2019) 769
35.7 Sectoral distribution of informal employment within the formal sector,
by gender (2019) 770
36.1 Migration prevalence, by age, sex, and period, NIDS, 2008–​14 784
36.2 Age-​sex profiles of temporary migrants of the combined SAPRIN
populations and each of the three nodes: AHRI, Agincourt,
and DIMAMO 786
36.3 Age-​sex profiles of the four migration types in the combined SAPRIN
population 787
36.4 Trend in migration incidence rate for the four migration types in the
combined SAPRIN population 788
37.1a Percentage of households with at least one co r​ esident heterosexual
couple, 1995–2018 807
37.1b Percentage of households that are female dominated, 1995–2018 807
37.1c Percentage of households that are male dominated, 1995–2018 807
37.1d Percentage of children living with both biological parents, 1995–2018 807
38.1 Dietary energy supply, 2000–​17 828
38.2 Self-​assessed hunger, 2002–​17 830
38.3 Prevalence of undernourishment, 2002–​19 832
39.1 Shifts in mortality trends in South Africa, 1997–​2017 847
39.2 Public-and private-sector hospital accreditation scores, COHSASA 852
39.3 Real per capita health expenditure 854
39.4 Health expenditure as a percentage of GDP 854
39.5 Out-​of-​pocket health expenditure as percentage of health expenditure in
purchasing power parity 856
41.1 Contributing factors to economic growth 894
41.2 Manufacturing relative to the aggregate economy 898
 figures   xix

42.1 Gross fixed capital formation as a percentage of GDP (nominal and real
ratios) and growth of the real capital stock 914
42.2 Composition of real gross capital formation (R million at constant 2010
prices), private and public sectors 917
42.3 Asset composition of private-​sector and public-​sector gross fixed capital
formation (R million at constant 2010 prices) 918
42.4 Gross and net nominal capital formation as a ratio of nominal GDP,
private and public sectors 919
42.5 Ratio of nominal gross capital formation to gross operating surplus 924
42.6 Broad sectoral shares of the real capital stock 928
43.1 Debt outlook scenarios—​trajectories of gross debt to GDP in South Africa,
2016/​17–​2028/​29 942
44.1 Government debt, the macroeconomy, and political regime characteristics,
South Africa, 1970–​2016 961
44.2 Income inequality, and government expenditure on education and health,
South Africa 962
44.3 OLS regression lines, government debt, growth, inflation, and polity,
South Africa, 1970–​2016 965
44.4 Government debt, inequality, and redistribution, South Africa 967
44.5 Government debt and government wastefulness, South Africa 970
45.1 South African government debt and EMBI+SA risk premium 985
46.1 Distribution of financial assets between financial intermediaries 997
46.2 Bank assets and loans and advances 998
46.3 Assets of the pension fund industry 1001
47.1 GDP shares by sector, 1960–​2017 1018
47.2 Real house price inflation in the United States, United Kingdom,
and South Africa, 2000–​16 1021
 Tables

1.1 GDP per capita in South Africa and comparator economies, 1994–​2019 6
1.2 Sectoral composition of GDP (%) in South Africa and comparator
economies, 1994–​2019 8
1.3 Selected measures of R&D, innovation, and technology intensity in
South Africa and comparator economies, 1994–​2018 9
1.4 Headline measures of unemployment, poverty, and inequality in South
Africa and comparator economies, 1994–​2019 12
3.1 Conventional and recalculated economic growth rates before and after 1948 48
4.1 South African real annual economic growth, 1990–​2019 75
4.2 South Africa’s 2014 population distribution, by ethnicity and class 83
5.1 Labour force overview 103
7.1 Broad unemployment rates by demographic characteristics and
educational attainment 138
7.2 Output-​employment elasticities 142
7.3 Sectoral shares of employment 143
8.1 Poverty trends, 2006–​15 161
8.2 Poverty by gender 162
8.3 Estimated poverty rates 165
8.4 Estimated poverty rates by province 166
8.5 Estimated poverty rates by gender 167
8.6 Multidimensional headcount 167
8.7 Contribution of each indicator, percentage 168
8.8 Estimated poverty rates by geotype 170
10.1 The landscape of organized agriculture and the various national
farmer organizations 199
10.2 Structural changes in the South African agricultural economy, 1990–​2019 201
10.3 The output mix for South African agriculture, top ten commodities in
selected years according to production value 202
xxii   tables

10.4 Agriculture’s contribution to GDP according to the agricultural census

and national accounts 202
10.5 Statistics on farm numbers and farm employment from the agricultural
censuses and selected agricultural surveys, 1990–​2017 204
10.6 Farm structure in South Africa, 2007 204
10.7 Farm structure in South Africa, 2017 205
10.8 Categories of agricultural households according to population groups, 2016 205
10.9 Number of farms/​farming units in the commercial agriculture industry
by activity and size group, 2017 206
10.10 Share of Black farmers in commercial agricultural output, average 2015–​19 207
10.11 Annual sales of tractors and combine harvesters 210
10.12 South Africa’s agricultural exports and imports, 2010 prices 211
11.1 Manufacturing output by subsector (%), 1970–​2019 220
11.2 Food and beverage output composition, 2011–​17 224
11.3 Clothing and textile output and formal employment trends, 1995–​2019 227
11.4 Leather, leather products, and footwear employment 229
11.5 Employment and output composition by subsector, 2000–​19 231
11.6 Agro-​processing formal employment by subsector (%) 233
12.1 Areas of land by land use, ownership, and tenure category 246
12.2 Land redistribution and restitution 1994–2020 (in hectares) 247
15.1 Economic output and employment of selected energy-​related economic
sectors 310
16.1 Mean daily maximum temperature for the warmest month in the wettest
three consecutive months 331
16.2 Total rainfall in the wettest three consecutive months 332
17.1 Manufacturing and services performance: selected sectors 352
17.2 Summary of control of JSE market capitalization (% of total) 354
18.1 SSA apparel exports to South Africa (in US$000) 388
18.2 Clothing and textiles key performance indicator data 390
19.1 Country share of intra-​SADC and total trade 409
21.1 South African export composition by technology classification (values
and share structure) 445
21.2 Indicators of export concentration and complexity 453
21.3 Contribution to output and employment growth in manufacturing as
share initial total output or employment, 1992–​2019 459
24.1 Economic performance of selected middle-​income countries, 1994–​2019 512
 tables   xxiii

24.2 A chronology of industrial policy 514

24.3 Import penetration ratios in key sectors 516
24.4 Manufacturing employment by sub s​ ector 2000–​19, categorized according
to factor intensity 518
24.5 Share of manufacturing value added in textiles and clothing, 1996–​2018 523
27.1 Government guarantee exposure 585
27.2 Oversight of priority SOEs and DFIs 594
29.1 Types of entrepreneurial activity, by region and select country as
percentage of adult population 631
31.1 Sectoral employment distribution and change, 2000–​19 677
31.2 Occupational employment distribution and change, 2000–​19 678
33.1 Enrolment, educational attainment, and grade repetition by age 715
34.1 Key labour market statistics by gender, selected years from 1994–​2019 739
34.2 Occupational distributions by gender, 1994 and 2019 743
34.3 Mean total time and activity participation rates by gender, 2010 749
36.1 Households with labour migrants and non-​resident members 785
36.2 Population, migration, and remittance characteristics, 2002, 2007, 2012,
2017, in Agincourt HDSS data 789
36.3 Quantile estimates of the effect of remittances on expenditure patterns 791
37.1 Household types and union formation in South Africa, 1995–​2018 804
37.2 Economic well-​being across household types 816
40.1 Social assistance: Type, target group, level of grant, and number of
beneficiaries as at end of July 2020 876
41.1 Contributing factors to sectoral output growth, average per annum growth 895
41.2 Sectoral characteristics (average 2010–​19 or values in either 2010 or 2019) 903
42.1 Gross fixed capital formation as a percentage of GDP 916
43.1 Actual and projected main budget revenue, expenditure, and budget
balances in South Africa 2008/​09–​2020/​21 941
43.2 Main budget revenue by source 2008/​09 to 2020/21 945
44.1 Descriptive statistics and the correlation matrix 964
44.2 Government debt and the macroeconomy 965
44.3 Government debt and political regime characteristics 966
44.4 Descriptive statistics and the correlation matrix: Public goods 967
44.5 Government debt, inequality, and redistribution 968
46.1 Overview of the South African financial sector 995
46.2 South African banks: Two decades at a glance 1000
 Abbreviations

4IR Fourth Industrial Revolution

AAC Anglo American Corporation
AEC African Economic Community
AfCFTA African Continental Free Trade Area
AGOA Africa Growth and Opportunity Act
AMCU Association of Mineworkers and Construction Union
ANC African National Congress
APDP Automotive Production Development Programme
APRM African Peer Review Mechanism
ARF African Renaissance Fund
ARM African Rainbow Minerals
ARV antiretroviral
ASGISA Accelerated and Shared Growth Initiative for South Africa
ASUF Agri Sector Unity Forum
ATC average total cost
ATNS Air Transport Navigation Services
AU African Union
AV autonomous vehicle
BBC Black Business Council
BEE Black Economic Empowerment
BERD business enterprise R&D
BEV battery electric vehicle
BIS Black Industrialists Scheme
BPS business process services
BRT bus rapid transport
CAC Competition Appeal Court
CAPS Cape Area Panel Study
CATI Computer Assisted Telephone Interviewing
xxvi   Abbreviations

CBM Consultative Business Movement

CeSTII Centre for Science, Technology and Innovation Indicators
CGE computable general equilibrium
CHW community health worker
CI contractual intermediaries
CID Center for International Development
CIP Competitiveness Improvement Programmes
CIS collective investment scheme
CIT corporate income tax
CLP corporate leniency policy
CMS Council for Medical Schemes
CoCA Census of Commercial Agriculture
COI Complexity Outlook Index
COMESA Common Market for Eastern and Southern Africa
COS cost of sales/cost of services
COSATU Congress of South African Trade Unions
CPI consumer price inflation
CRAM Coronavirus Rapid Mobile Survey
CREFSA Centre for Research into Economics and Finance in Southern Africa
CS Community Survey
CSG Child Support Grant
CSIR Council for Scientific and Industrial Research
CSP Cities Support Programme
CSR corporate social responsibility
CTCP Clothing and Textiles Competitiveness Programme
CWP Community Work Programme
DAC Department of Arts and Culture
DACST Department of Arts, Culture, Science, and Technology
DAFF Department of Agriculture Forestry and Fisheries
DALRRD Department of Agriculture, Land Reform and Rural Development
DBSA Development Bank of South Africa
DCDT Department of Communications and Digital Technology
DDS dietary diversity score
DEA Department of Environmental Affairs
 Abbreviations   xxvii

DFA Dark Fibre Africa

DFI development finance institution
DG Disability Grant
DHET Department of Higher Education and Training
DMRE Department of Mineral Resources and Energy
DoT Department of Transport
DP Democratic Party
DPE Department of Public Enterprises
DRDLR Department of Rural Development and Land Reform
DSI Department of Science and Innovation
DSMI Data Services Market Inquiry
DST Department of Science and Technology
EAC East African Community
EAF energy availability factor
ECA Electronic Communications Act No.36 of 2005
ECD early childhood development
ECNS electronic communications network services
EDB Ease of Doing Business index
EDI Electricity Distribution Industry Holdings
EEA Employment Equity Act
EFF Economic Freedom Fighters
EFTA European Free Trade Association
EPA Economic Partnership Agreement
EPWP Expanded Public Works Programme
EROSA Economic Research on South Africa
ESA East and Southern Africa
ESI electricity supply industry
ETI Employment Tax Incentive
EV electric vehicle
EWC expropriation without compensation
FABCOS Foundation for African Business and Consumer Services
FAO Food and Agriculture Organisation
FBE Free Basic Electricity
FCI Federated Chamber of Industries
xxviii   Abbreviations

FDI foreign direct investment

FEDUSA Federation of Unions of South Africa
FMI financial market infrastructure
FTE full-​time equivalent
FTTH/​FTTB fibre to the home/​business
GCI Global Competitiveness Index
GEAR Growth, Employment, and Redistribution
GEDI Global Entrepreneurship and Development Institute
GEIS General Export Incentive Scheme
GEM Global Entrepreneurship Monitor
GEPF Government Employees Pension Find
GETS general-​to-​specific
GFB General Freight Business
GFCF gross fixed capital formation
GHG Greenhouse gas
GHI Global Hunger Index
GM General Motors
GNI gross national income
GPI global performance indicator
GPN Global Production Network
GRMI Grocery Retail Market Inquiry
GUM general unrestricted model
GVA gross value ​added
GVC global value chain
HDS high demand spectrum
HDSS Health and Demographic Surveillance Systems
HFIAS Household Food Insecurity Access Scale
HPDD Historical Public Debt Database
HS Harmonized System
HSRC Human Sciences Research Council
IBTS Inclining Block Tariff System
ICASA Independent Communications Authority of South Africa
ICE internal combustion engine
ICLS International Conference of Labour Statisticians
 Abbreviations   xxix

ICOR incremental capital output ratio

IDC Industrial Development Corporation
IDZ industrial development zone.
IEA International Energy Agency
IES Income and Expenditure Survey
IFP Inkatha Freedom Party
IGDP Integrated Growth and Development Plan
IID innovation for inclusive development
IIS Impulse Indicator Saturation
IMVP Institute for Motor Vehicle Productivity
INEP Integrated National Electrification Programme
IP intellectual property
IP Internet Protocol
IPAP Industrial Policy Action Plans
IPP independent power producer
IPPO Independent Power Producers Office
IRP Integrated Resource Plan
ISCOR Iron and Steel Industrial Corporation
ISI import substitution industrialization
ITA invitation to apply
ITU International Telecommunications Union
JSE Johannesburg Stock Exchange
JV joint venture
KIDS KwaZulu-​Natal Income Dynamics Study
LAMOSA Landless Movement of South Africa
LCOE levelized cost of energy
LCP local content programme
LCS Living Conditions Survey
LEDS Low Emission Development Strategy
LFPR labour force participation rate
LFS Labour Force Survey
LMD Labour Market Dynamics
LRA Labour Relations Act
LTAS Long-​Term Adaptation Scenarios
xxx   Abbreviations

LTE Long Term Evolution

LVPS large value payment system
M&A mergers and acquisitions
MALR market-​assisted land reform
MARS Migration and Remittance Survey
MDS Market Demand Strategy
MEC minerals-​energy ​complex
MERCOSUR Southern Common Market
MERG Macroeconomic Research Group
MIDP Motor Industry Development Programme
MNO mobile network operator
MPI multidimensional poverty index
MPRDA Mining and Petroleum Resources Development Act
MTBPS Medium Term Budget Policy Statement
MW megawatt
MYPD multi-​year price determination
NACI National Advisory Council on Innovation
NACTU National Council of Trade Unions
NAFCOC National African Federated Chamber of Commerce and Industry
NCR National Credit Regulator
NEDLAC National Economic Development and Labour Council
NEG New Economic Geography
NELM New Economics of Labour Migration
NER National Energy Regulator
NERSA National Energy Regulator of South Africa
NFC non-​financial company
NSFAS National Student Financial Aid Scheme
NGO non-​governmental organization
NGP New Growth Plan
NHN National Hospital Network
NIBUS National Informal Business Upliftment Strategy
NIDS National Income Dynamics Study
NIPF National Industrial Policy Framework
NMS National Migration Survey
 Abbreviations   xxxi

NMW National Minimum Wage

NP National Party
NPA National Ports Authority
NPC National Planning Commission
NPFNS National Policy for Food and Nutrition Security
NPO non-​profit organization
NQF National Qualification Framework
NRDS National Research and Development Strategy
NSC National Senior Certificate
NSDS National Skills Development Strategy
NSF National Skills Fund
NSI national system of innovation
NT National Treasury
NTB non-​tariff barrier
NUM National Union of Mineworkers
OAP Old Age Pension
OFI other financial intermediary
OHS October Household Survey
OSBP One Stop Border Post
OSD Occupation Specific Dispensation
PALMS Post-​Apartheid Labour Market Series
PC4IR Presidential Commission on the Fourth Industrial Revolution
PCT Patent Cooperation Treaty
PEAC Presidential Economic Advisory Council
PHC primary health care
PIRLS Progress in International Reading Literacy Study
PI Production Incentive (programme)
PIC Public Investment Corporation
PIT personal income tax
PJ a peta joule per annum
PPA power purchase agreement
PSEC Presidential State-​owned Enterprise Council
PSLSD Project for Statistics on Living Standards and Development
PV photovoltaic
xxxii   Abbreviations

QES Quarterly Employment Statistics

QLFS Quarterly Labour Force Survey
QR Quick Response
RDP Reconstruction and Development Programme
REC Regional Economic Communities
RED regional electricity distributor
REIPP Renewable Energy Independent Power Producer Procurement
Programme
RISDP Regional Indicative Strategic Development Plan
RMB Rand Merchant Bank
ROA return on assets
ROE return on equity
RR required revenue
RVC regional value chain
SAA South African Airways
SAAM South African Automotive Masterplan
SAB South African Breweries
SACReD Systematic Analysis of Climate Resilient Development
SACU Southern African Customs Union
SADC Southern African Development Community
SAM social accounting matrix
SAMP Southern African Migration Project
SAMRC South African Medical Research Council
SANHANES South African National Health and Nutrition Examination Survey
SANRAL South African National Roads Agency
SAP Het Volk/​South African Party
SAPRIN South Africa Population Research Infrastructure Network
SAQA South African Qualifications Authority
SARB South African Reserve Bank
SARS South African Revenue Service
SASOL South African Coal, Oil and Gas Corporation
SASSA South African Social Security Agency
SATRA South African Telecommunications Regulatory Authority
SAVA South African VANS Association
 Abbreviations   xxxiii

SBI Small Business Institute

SciSTIP DSI-NRF Centre of Excellence in Scientometrics and Science,
Technology and Innovation Policy
SDG Sustainable Development Goal
SDI Spatial Development Initiative
SDP Supplier Development Programme
SEA social entrepreneurship activity
SEDA Small Enterprise Development Agency
SEE Survey of Employment and Earnings
SEP strategic equity partner
SESE Survey of Employers and the Self-​employed
SETA Sector Education Training Authorities
SEZ special economic zone
SHV shareholder value
SIU Special Investigating Unit
SLC substantial lessening of competition
SLLDP State Land Lease and Disposal Policy
SMP significant market power
SNO second national operator
SOC state-​owned company
SPS sanitary and phytosanitary standards
SRD social relief of distress
StatsSA Statistics South Africa
TDCA Trade, Development and Cooperation Agreement
TEC Transport Economic Council
TER Transport Economic Regulator
TFP total factor productivity
T-​FTA Tripartite Free Trade Area
TIMSS Trends in Mathematics and Science Study
TIPS Trade and Industrial Policy Strategies
TNC transnational corporation
TNPA Transnet National Ports Authority
TPSF Trade Policy and Strategy Framework
TPT Transnet Port Terminal
xxxiv   Abbreviations

TUS time-​use survey

TVET technical and vocational education and training (TVET) 33:2
TYIP Ten-​Year Innovation Plan
UCT United Conference Ticket
UIF Unemployment Insurance Fund
UNFCCC United Nations Framework Convention on Climate Change
USA Universal Service Agency
USAASA Universal Service and Access Authority of South Africa
USF Universal Service Fund
VPN virtual private networks
WBES World Bank Enterprise Survey
WBS Wireless Business Solutions
WDI World Development Indicators
 Contributors

Tania Ajam is an associate professor in public policy, finance, and economics at

Stellenbosch University. An economist with broad experience in implementing fiscal
policy and intergovernmental fiscal relations, she holds degrees in economics from
the Universities of Cape Town and Cambridge, and a PhD in public management from
the University of Pretoria. She served on the Financial and Fiscal Commission and as a
non-​executive director of the South African Reserve Bank. She is a member of President
Ramaphosa’s Economic Advisory Council.
Fabio Andrés Díaz Pabón is a researcher at the African Centre of Excellence for
Inequalities Research (ACEIR) at the University of Cape Town and research associate
at the Department of Political and International Studies at Rhodes University in South
Africa. His most recent work looks at protests and armed conflict in Colombia and
South Africa and the relation between conflict and development. His research is focused
on issues of justice, development, inequality, and state-​building, aiming to connect
theory with practice via different methods and methodologies.
Channing Arndt currently heads the Environment and Production Technology
Division at IFPRI. He began working in South Africa in 1998 and has worked closely with
the Economic Policy Unit of the National Treasury since 2009. He has an established
reputation for building institutional capacity in Mozambique, South Africa, Morocco,
and Vietnam and within the African Economic Research Consortium. His programme
of research has focused on agricultural development, poverty, growth, market integra-
tion, nutrition, gender, discrimination, HIV/​AIDS, technological change, trade policy,
aid effectiveness, energy, bioenergy, climate variability, and the implications of climate
change.
Justin Barnes is the chairperson of B&M Analysts, the executive director of the Toyota
Wessels Institute for Manufacturing Studies, and an associate professor at the Gordon
Institute of Business Science at the University of Pretoria. He is an international expert
in global value chain dynamics in the automotive and apparel/​textile sectors. He has
a long history of advising governments in sector industrial policy, and firms to build
manufacturing competitiveness capabilities and skills. He has pioneered benchmarking
and firm-​level upgrading competitiveness assessment methodologies in the clothing
and autos value chains. He has also developed several industry–government partnerships
through industry firm-​level clusters.
xxxvi   Contributors

Haroon Bhorat is professor of economics, and director of the Development Policy

Research Unit (DPRU), at the University of Cape Town (UCT). His research interests
cover labour economics, poverty inequality, and income distribution. He sits on the
Presidential Economic Advisory Council, holds a national research chair, and is a non-​
resident senior fellow at the Brookings Institution, a research fellow at IZA, and an hon-
orary research fellow at the Human Sciences Council. He has co-​authored and co-​edited
a number of books on labour market and poverty issues in Africa, and has published
more than two hundred academic journal articles and working papers.
Manoel Bittencourt is an extraordinary professor of economics at the University of
Pretoria and a National Research Foundation-​rated researcher. He is also affiliated with
the universities of Goettingen, Heidelberg, and Oxford, and with Economic Research
Southern Africa. He holds a diploma in economics from the University of Warwick,
and an MSc and PhD in economics from the University of Bristol. In addition, he is a
member of the council of the Economic Society of South Africa and an associate ed-
itor of the South African Journal of Economics and Journal of Public Finance and Public
Choice.
Mduduzi Biyase is director of the Economic Development and Well-​being Research
Group (EDWRG) and is a senior lecturer at the School of Economics, University
of Johannesburg. He is a researcher specializing in the field of development eco-
nomics: exploring the remittances behaviour, poverty, unemployment, and inequality
in South Africa. He has published widely on research relating to remittance behav-
iour, poverty, and economic growth. His research on poverty and economic growth has
been published in a number of journals, including the Journal of Developing Areas and
Frontiers in Finance and Economics.
Anthony Black is professor of economics at the University of Cape Town and director
of Policy Research in International Services and Manufacturing (PRISM). His research
is focused on industrial development, the automotive industry, regional integration, for-
eign direct investment, and employment. His latest book is a co-​edited volume entitled
Value Chains in Sub-​Saharan Africa: Challenges of Integration into the Global Economy
(2019). He was extensively involved in South Africa’s automotive policy development.
He has also acted as an advisor or consultant to a number of other African governments
as well as to international organizations including UNIDO and UNCTAD.
Nicola Branson is a senior research officer in the Southern Africa Labour and
Development Research Unit (SALDRU) in the School of Economics at the University
of Cape Town (UCT). She holds a PhD in economics from UCT and has experience in
quantitative research using household and longitudinal survey data and in managing
longitudinal datasets such as that from the National Income Dynamics Study (NIDS).
Currently, she heads up the Siyaphambili Post-​School Research group, where her re-
search focuses on inequalities in access to post-​school education and subsequent
transitions into the labour market.
 Contributors   xxxvii

Philippe Burger is pro-​vice-​chancellor: poverty, inequality and economic development,

professor of economics and vice dean of the Faculty of Economic and Management
Sciences at the University of the Free State. In addition, he is a member of the Fiscal
Policy and Financial Markets Task Force of the Lancet Commission on COVID-​19. He is
a 2016/​17 Fulbright Exchange Scholar at the Center for Sustainable Development, Earth
Institute, at Columbia University. From 2012 to 2014 he was president of the Economic
Society of South Africa. He has also been a visiting scholar at the IMF and consultant to
the OECD.
Ronelle Burger is a professor at the Economics Department of Stellenbosch
University. Her research considers strategies to protect and empower vulnerable and
poor individuals, households, and communities. She is also a fellow at the Partnership
on Economic Policy Laval University and also at Nottingham University’s Centre for
Research in Economic Development and International Trade. She serves as an associate
editor for Health Economics and Development Southern Africa. She has done consulting
work for the World Bank, UNICEF, and the National Treasury.
Nina Callaghan is a researcher at the Centre for Complex Systems in Transition at
Stellenbosch University. Her research focuses on governance, theory-​building of state
capture, and geopolitical influence in Africa. She has authored chapters in and co-​edited
Anatomy of State Capture (forthcoming 2021). She has coordinated a publication on the
renewable energy transition in South Africa, provisional title, ‘South Africa’s Energy
Transition: The REIPPPP’s Potential for Energy Democracy in South Africa’ (forth-
coming). Her MPhil in sustainable development at Stellenbosch University focuses on
governance dynamics in South Africa’s unfolding energy transition.
Daniela Casale is a professor in the School of Economics and Finance at the
University of the Witwatersrand. She is a development economist with twenty years
of experience in research in the field of gender economics specifically. Other broad
areas of study include labour, well-​being, health, and education. She has published
widely across a variety of economics, development, and public health journals,
among them, Feminist Economics, Economic Development and Cultural Change,
Economics and Human Biology, Development Policy Review, Public Health Nutrition,
and PLOS ONE.
Horman Chitonge is professor of African Studies at the Centre for African Studies
(UCT), a visiting research fellow at Yale University (Global Justice Programme), a research
associate at PRISM, School of Economics (UCT), a visiting fellow at the African Studies
Centre at Tokyo University of Foreign Studies. His most recent books include: Industrial
Policy and the Transformation of the Colonial Economy in Africa (Routledge, 2021).
Industrialising Africa (Peter Lang, 2019); Social Welfare Policy in South Africa: From the
Poor White Problem to a Digitised Social Contract (Peter Lang, 2018); Economic Growth
and Development in Africa: Understanding Trends and Prospects (Routledge, 2015).
xxxviii   Contributors

Mark A. Collinson is co-​ director of the South African Population Research

Infrastructure Network, a national research infrastructure aimed at strengthening
population health, social and economic research, and links to public policy. He is a reader
in population and public health at the SAMRC/​Wits Rural Public Health and Health
Transitions Research Unit (Agincourt), University of the Witwatersrand. He has been PI
of the INDEPTH Network Migration, Urbanisation and Health Working Group since
2003, and is co-​PI of a five-​year R01 award from the National Institutes of Health, called
‘Migration, Urbanisation and Health in Transition Settings’, which started in 2016.
Kenneth Creamer is a senior lecturer at the School of Economics and Finance at the
University of the Witwatersrand (Wits) in Johannesburg, South Africa. He has master’s
degrees in Law (Wits) and Financial Economics (SOAS, University of London) and
a PhD in Economics (Wits). His research focuses on fiscal policy, monetary policy,
open economy, and energy policy. He serves on the Management Committee of the
South African Student Solidarity Foundation for Education, which raises funds for
tertiary education students in need, and as a director of Creamer Media, publisher of
Engineering News, Mining Weekly and Polity. He serves on South Africa’s Presidential
Economic Advisory Council.
Rod Crompton is an adjunct professor at the Wits Business School, University of
Witwatersrand, where he set up the African Energy Leadership Centre. Previously he
ran Crompton Consulting, specializing in energy, regulation, and industrial policy. He
has occupied the following positions: full-​time board member at the National Energy
Regulator of South Africa, deputy director general at the Department of Minerals
and Energy and has served on the boards of several companies. Currently he is a non-​
executive director at Eskom, Africa’s largest electricity utility. During the struggle years
he was General Secretary of the Chemical Workers Industrial Union.
Reena das Nair is a senior researcher at the Centre for Competition, Regulation
and Economic Development (CCRED); and programme coordinator and senior lec-
turer in the MCom in competition and economic regulation degree at the University
of Johannesburg. She has worked for specialist economic consultancy Acacia
Economics offering expertise in competition and regulatory economics. Prior to
this, she was Programme Manager: Industrial Policy at Trade and Industrial Policy
Strategies (TIPS), a not-​for-​profit research organization undertaking research for
policymakers. Before TIPS, she worked as principal economist at the Competition
Commission of South Africa. She holds a PhD (economics) from the University of
Johannesburg.
Ciaran Driver is professor of economics at the School of Finance and Management,
SOAS University of London. He works on capital investment, corporate govern-
ance, R&D, dividends, and economic policy. Publications include Driver and
Temple, The Unbalanced Economy (Palgrave Macmillan, 2014) and Driver and
Thompson (eds), Corporate Governance in Contention (Oxford University Press, 2018).
He has taught eco­nomics at Imperial, Syracuse, Notre Dame, and NYU. Public policy
 Contributors   xxxix

work includes consultancy for the EC and the Government Office for Science (United
Kingdom). Work on South Africa includes a study of the BER survey forecasts (Journal
of Forecasting, 2019).
Lawrence Edwards is a professor in the School of Economics, University of Cape Town,
and a research associate at the South African Labour and Development Research Unit
(SALDRU), Policy Research on International Services and Manufacturing (PRISM),
and the Institute of Labor Economics (IZA). His research interests focus on inter-
national trade, trade policy, firms, and labour markets. He has consulted widely on
trade issues for institutions including the World Bank, the African Development Bank,
the International Growth Centre, the Southern African Development Community
Secretariat, and governments in Africa, including South Africa, Swaziland, Lesotho,
Zimbabwe, and Zambia.
Arabo K. Ewinyu is a research manager at the Southern Centre for Inequality Studies,
University of the Witwatersrand. She has an MCom in economics from the University
of Witwatersrand. Her research interests include labour economics, public economics,
and poverty and inequality studies. Prior to joining SCIS, she worked at the University
of Cape Town and at Genesis Analytics.
David Francis is the deputy director at the Southern Centre for Inequality Studies, and
a PhD candidate in economics at Wits University. His research interests focus on labour
market economics, the informal economy, and inequality. He has previously worked as
a researcher, and a policy and budget analyst at South Africa’s National Treasury. He has
an MA in development studies from the University of KwaZulu-​Natal, and a bachelor of
social sciences in economics and history from the University of Cape Town.
Bill Freund † was emeritus professor in economic history in the School of Built
Environment and Development Studies at the University of KwaZulu-​Natal. He is the
author of many books on African history and South African development, including
Twentieth-​century South Africa: A Developmental History (Cambridge University
Press, 2019).
Sherwin Gabriel is a scientist at the International Food Policy Research Institute,
working in the Global Futures and Strategic Foresight team. He contributes to re-
search using global models of agricultural commodities and trade, and on economy-​
wide models. He applies these models to questions of climate-​change risk, food policy
interventions, energy planning, and inclusive economic development. Before joining
IFPRI, he was a director at the National Treasury of South Africa, where he managed
and conducted economic modelling and research for policy analysis, and macroeco-
nomic forecasts to support government planning.
Vusi Gumede is Dean of the Faculty of Economics, Development and Business Sciences
at the University of Mpumalanga. Prior to that he was a professor at the University of
South Africa and director at Thabo Mbeki African Leadership Institute. Before that
he was an associate professor at the University of Johannesburg. He occupied various
xl   Contributors

positions in the South African government before joining academia. He is widely

published, including fourteen books and over forty journal articles and book chapters.
He holds a PhD in economics from the University of KwaZulu-​Natal. Before joining
government he worked as a researcher for various institutions.
Adam Habib is Director of SOAS, University of London. A professor of Political
Science, he has over 30 years of academic, research and administration expertise,
spanning five universities and multiple local and international institutions. Prior to his
appointment as director of SOAS, he was, between 2013 and 2020, Vice-​Chancellor and
Principal of the University of the Witwatersrand, Johannesburg, South Africa. He has
published extensively over the last three decades in the thematic areas of democratiza-
tion in South Africa, social movements, philanthropy, inequality, institutional reform,
changing identities, and Higher Education. His latest book, Rebels and Rage was on the
FeesMustFall student protests in South Africa.
Katharine Hall is a senior researcher at the Children’s Institute, a policy research
unit at the University of Cape Town. She has a PhD in development theory and policy
from the University of the Witwatersrand and a master’s degree in sociology from the
University of Cape Town. She conducts applied research in the areas of child poverty
and inequality, household and family contexts, mobility, and care arrangements. She
coordinates Children Count, an ongoing project that draws on large national datasets
to monitor social indicators related to children’s rights, and provides a basis for shadow
reporting to international rights bodies.
Ruth Hall holds the South African research chair in poverty, land, and agrarian
studies, supported by the Department of Science and Innovation and the National
Research Foundation. She is a professor at the Institute for Poverty, Land and Agrarian
Studies (PLAAS) at the University of the Western Cape. She holds a DPhil in Politics
and International Relations from the University of Oxford and has over many years
conducted research on land reform, land rights, and agrarian change.
Laurence Harris is an emeritus professor of economics at the School of Finance and
Management, SOAS, University of London and founder of CeFiMS. He is academic
leader of the Macroeconomic Modelling workstream of the UNU-​WIDER programme
Southern Africa: Towards Inclusive Economic Development (SA-​TIED). He has taught
economics at LSE, University of California, Berkeley; University of Zimbabwe; Harvard
University; Birkbeck, University of London; The Open University, and elsewhere.
Faaiqa Hartley is a researcher at the University of Cape Town, whose research has
centred on developmental issues in Africa, primarily South Africa. She has over ten
years of experience in policy development and analysis. She is proficient in economy-​
wide modelling techniques and formed part of the team that developed and maintained
the suite of computable general equilibrium (CGE) models (including the South
African General Equilibrium, SAGE, model) at the National Treasury of South Africa.
Her current research areas include the use of CGE models to understand and quantify
 Contributors   xli

the economic trade-​offs and implications of energy, waste, and climate-​change policies
in South Africa and sub-​Saharan Africa.
Penelope Hawkins is a senior economist at the Debt and Development Finance
Branch of UNCTAD, within the Division on Globalization and Development
Strategies. Previously she was the managing director and founder of Feasibility (Pty)
Ltd, a policy research consultancy specializing in financial regulation, consumer
credit, and consumer protection in sub-​Saharan Africa. She studied at the University
of the Witwatersrand, University of South Africa, and the University of Stirling and has
lectured at Wits, Rhodes University, and the University of the Free State.
James Heintz is the Andrew Glyn Professor of Economics at the University of
Massachusetts, Amherst. He has worked on collaborative projects with numerous na-
tional and international institutions, including the Office of the High Commissioner for
Human Rights, the International Labour Organization, the United Nations Economic
Commission for Africa, the United Nations Development Programme, the Human
Development Report Office, the South African Human Rights Commission, the
International Development Research Center (Canada), and UN-​Women. His policy
work has included work in developing countries, primarily in sub-​Saharan Africa,
including Ghana, Kenya, Liberia, the Gambia, Madagascar, and South Africa.
Alan Hirsch is a professor at The Nelson Mandela School of Public Governance at
the University of Cape Town. He joined the Department of Trade and Industry in 1995
and later managed economic policy in the South African Presidency, represented the
President in the G20, and was co-​chair of the G20 Development Working Group. He
serves on the board of the European Centre for Development Policy Management,
the International Advisory Board of the New Development Bank, and President
Ramaphosa’s Economic Advisory Council. His books include Season of Hope—​
Economic Reform under Mandela and Mbeki and The Oxford Companion to South
African Economics.
James Hodge is the chief economist of the Competition Commission. He was formerly
a researcher at the Development Policy Research Unit (1995–​2000), a senior lecturer at
the University of Cape Town (2000–​5) and managing partner of the Competition and
Regulatory Economics practice at Genesis Analytics (2005–​19).
Roula Inglesi-​Lotz is a professor in economics at the Department of Economics,
University of Pretoria. She has authored and co-​authored more than seventy papers in
peer-​reviewed academic journals of high quality. Her research interests focus on en-
ergy and environmental economics from a macroeconomic perspective. She is the
founding president of the South African Association for Energy Economics (SAAEE),
and served as a co-chair of the South African Young Academy of Sciences (SAYAS) in
2020 and a co-chair of the Global Young Academy (GYA) in 2021/22. She was named
the Distinguished Young Woman Researcher in the Humanities and Social Sciences cat-
egory of the 2017 DST Women in Science Awards.
xlii   Contributors

David Kaplan taught at the University of Cape Town for thirty-​eight years and be-
fore that at the University of Massachusetts. He was chief economist of the Department
of Trade and Industry (2000–​3) and chief economist (part-​time), Department of
Economic Development and Tourism, Provincial Government of the Western Cape
(2004–​11). He served on the Presidential Commission to Investigate the Development
of a Comprehensive Labour Market Policy and on the National Advisory Council
on Innovation (NACI) and is a former board member of the Technology Innovation
Agency (TIA). He is currently senior research specialist at the International Science
Council in Paris.
Ewa Karwowski holds a PhD from SOAS, University of London. She is lecturer in
Economics King’s College London, and senior research associate at the University
of Johannesburg, South Africa. Her research focuses on finance and development,
financialization, and the political economy of development. She has consulted for
various international organizations, including the International Labour Organization
and the OECD. During her ODI fellowship (2008–​10), she worked as policy adviser for
the National Treasury, South Africa. Karwowski is on the board of the Post-​Keynesian
Economics Society, member of FinGEO, IIPPE, and a founding member of Reteaching
Economics.
Johann Kirsten is professor and director of the Bureau for Economic Research
(BER) at the University of Stellenbosch. He was previously a professor and head of the
Department of Agricultural Economics at the University of Pretoria. He served as a
council member of the National Agricultural Marketing Council in South Africa from
2001 to 2011 and was also appointed as chair of the Food Price Committee during 2003/​
4. He also served as the vice-​president of the International Association of Agricultural
Economists for the period 2006–​9.
Erika Kraemer-​Mbula is professor of economics at the College of Business and
Economics, University of Johannesburg, South Africa, where she heads the DST/​
NRF/​Newton Fund trilateral chair in transformative innovation, the Fourth Industrial
Revolution and sustainable development. She holds a master’s degree in science and
technology policy from the Science and Policy Research Unit (University of Sussex),
and a doctorate in development studies from the University of Oxford. She specializes
in science, technology, and innovation policy analysis and innovation systems in
connection to equitable and sustainable development. She is visiting professor at the
UCL Institute for Innovation and Public Purpose.
David Lam is professor of economics, and research professor in the Population Studies
Center at the University of Michigan. He is honorary professor of economics at the
University of Cape Town and a research associate of the National Bureau of Economic
Research. He has worked extensively in Brazil and South Africa, where his research
analyses link between education, labour markets, and income inequality. He has served
as president of the Population Association of America and has served on the Council of
the International Union for the Scientific Study of Population (IUSSP).
 Contributors   xliii

Murray Leibbrandt is NRF research chair in poverty and inequality research, and dir-
ector of the African Centre of Excellence for Inequality Research (ACEIR) and of the
Southern Africa Labour and Development Research Unit (SALDRU) at the University
of Cape Town. His research focuses on South African poverty, inequality, and labour
market dynamics using survey data and, in particular, panel data. He is a UNU-​WIDER
non-​resident senior research fellow and a member of several international and pan-​
African research initiatives.
Brian Levy is a professor at the Mandela School at the University of Cape Town
and at the School of Advanced International Studies, Johns Hopkins University in
Washington, DC. He worked at the World Bank from 1989 to 2012. He has published
widely on the interactions among institutions, political economy and development
policy. His most recent books are Working with the Grain: Integrating Governance and
Growth in Development Strategies (Oxford University Press, 2014; info at https://​www.
workingwiththegrain.com) and The Politics and Governance of Basic Education: A Tale
of Two South African Provinces, edited by Brian Levy, Robert Cameron, Ursula Hoadley,
and Vinothan Naidoo.
Rasigan Maharajh is concurrently Node Head of the Department of Science and
Innovation and National Research Foundation’s Centre of Excellence in Scientometrics
and Science, Technology and Innovation Policy; the founding chief director of
the Institute for Economic Research on Innovation at the Tshwane University of
Technology; and an associate research fellow of the Tellus Institute in Boston.
Neva Seidman Makgetla is senior economist: trade and industrial policy at Trade
and Industrial Policy Strategies (TIPS). She was deputy director general for economic
policy in the Economic Development Department from 2010 to 2015. Before joining
EDD, she worked for the Presidency, the DBSA, and COSATU as well as other gov-
ernment departments. Prior to 1994 she worked in various universities in Africa and
the United States. She is a member of the National Minimum Wage Commission. Her
research and publications centre on industrial policy and value chain analysis, and on
socio-​economic challenges facing South Africa, especially employment creation and
inequality.
Tshilidzi Marwala, PhD, is vice-​ chancellor and principal of the University of
Johannesburg and a full professor in its Faculty of Engineering and the Built
Environment. An author of over fifteen books and hundreds of articles on artifi-
cial intelligence, machine rationality, social science, and leadership among others. He
also serves as deputy chairperson of the South African Presidential Commission on
the Fourth Industrial Revolution and is a member of the Namibia Fourth Industrial
Revolution Task Force.
Ruwadzano Matsika is a Carnegie research associate at the Global Change Institute at
Wits University. Her research areas of interest and expertise are energy transitions, cli-
mate risk, and sustainable development. Her current research is investigating pathways
xliv   Contributors

to greening industry in South Africa and managing emerging climate risks across
different sectors in society. She holds a doctorate in ecology and environmental sciences
(Wits), a postgraduate diploma in energy leadership (Wits Business School), and has
completed a course in climate-​related financial risk from the University of Oxford.
Julian May is director of the Centre of Excellence in Food Security at the University
of the Western Cape and holds the UNESCO chair in African food systems. He is an
economist with a PhD in development studies. He has worked on options for poverty
reduction including land reform, social grants, information technology, and agriculture
throughout Africa. His current research focuses on food security, childhood depriv-
ation and malnutrition. He has edited seven books and published over ninety papers
in books and academic journals. He serves on the Academy of Science in South Africa
(ASSAf) Council.
Cecil Mlatsheni is a senior lecturer at the School of Economics at the University of Cape
Town. He is also a research associate at the Southern Africa Labour and Development
Research Unit (SALDRU). His research interests include labour market analysis, with a
particular focus on youth transitions from schooling to work. He has recently served as
a principal investigator on the National Income Dynamics Study (NIDS) and as a com-
missioner on the Employment Conditions Commission (ECC).
Liberty Mncube is a managing director at FTI consulting and an associate professor
of economics at the School of Economic and Business Sciences of the University of
the Witwatersrand. He is a Member of the Presidential Economic Advisory Council
(PEAC). He is a former chief economist of the Competition Commission of South
Africa. He served as chief economist from January 2014 to February 2019. Prior to
joining the Competition Commission in September 2007, he was a researcher at the
Development Policy Research Unit (DPRU), University of Cape Town.
Pamela Mondliwa is a senior managing consultant at BRG and research associate at the
Centre for Competition, Regulation and Economic Development (CCRED), University
of Johannesburg. She is an experienced economist and has worked across consulting,
academia, and policy. Prior to joining BRG she was a senior researcher at CCRED and
led the research on industrial development. She has worked extensively on issues of in-
dustrial development, competition, and economic regulation in southern Africa.
Mike Morris is emeritus professor in the School of Economics, University of Cape
Town and honorary research associate in the Institute of Development Studies at the
University of Sussex. His major activities have centred on research and policy work, in
academia and consulting to the private sector, government, and international agencies.
He has published over seventy articles in international journals and over thirty-​five
book chapters in the fields of development, global and regional value chains, polit-
ical economy, industrial clusters, international competitiveness, industrial policy,
commodity-​based industrialization paths for Africa, renewable energy, as well as on the
apparel and automotive industries.
 Contributors   xlv

Jacqueline Mosomi is a junior Research Fellow in the Southern Africa Labour and
Development Research Unit (SALDRU) at the University of Cape Town. She holds a
PhD in Economics, and her thesis focus was on the trends in female labour force par-
ticipation, employment, and the gender wage gap in post-​apartheid South Africa. Her
current research within SALDRU’s Siyaphambili Post-​School Research Group focuses
on gender, education, and labour market outcomes.
Farai Mtero is a senior researcher at the Institute for Poverty, Land and Agrarian
Studies (PLAAS) at the University of the Western Cape, South Africa, where he under-
took research for his PhD. His research focus is on redistributive land reform, rural de-
velopment, social differentiation, class formation, and agrarian change. His work uses
political economy theory and analysis to understand processes of agrarian change
in contemporary societies. He is currently leading research on land redistribution in
South Africa and specifically focuses on the role of redistributive land reform in societal
transformation.
Karmen Naidoo is a doctoral candidate in economics at the University of
Massachusetts, Amherst. She is also a senior research associate at the DST/​NRF
South African research chair in industrial development (SARChI), University of
Johannesburg. She holds master’s degrees in economics from the University of Cape
Town and SOAS, University of London. Her research interests are in the areas of de-
velopment economics, labour economics, and structural change. In particular, she is
interested in the impacts of trade and technology on the labour market.
Bhaso Ndzendze, PhD, is a senior lecturer and head of department in the Department
of Politics and International Relations at the University of Johannesburg. His areas of
research and teaching include technology dynamics in, international relations, digital
policy, and the Fourth Industrial Revolution. He holds certificates in executive programs
on artificial intelligence and blockchain from the Massachusetts Institute of Technology
and a PhD in international relations from the University of the Witwatersrand.
Mosima Ngwenya is a lecturer and health economics PhD candidate at the Economics
Department of Stellenbosch University. She is interested in health inequalities, mental
health, and body image. She is also interested in the use of qualitative and mixed-​
method approaches in economic research. She obtained her economics honours and
master’s degrees from North-​West University.
Musa Nxele is a lecturer at the Mandela School, where he convenes master’s courses
and research related to the political economy of development. He is doing a joint PhD
in economics and development policy and practice at Université de Paris 1 Panthéon-​
Sorbonne and UCT. He also holds master’s degrees from both universities, in economic
development and globalization. Before moving to tertiary education teaching at Rhodes
University in 2017, he worked in the private sector in the fields of investment banking
and industrial development consulting.
xlvi   Contributors

Arkebe Oqubay, PhD, is a senior minister and special advisor to the prime minister
of Ethiopia and has been at the centre of policymaking for over twenty-​five years. He
is the former mayor of Addis Ababa, winner of the Best African Mayor of 2005, and
finalist in the World Mayor Award 2005. He is a recipient of the Order of the Rising
Sun, Gold and Silver Star presented by the Emperor of Japan. His recent works include
the path-​breaking Made in Africa: Industrial Policy in Ethiopia; The Oxford Handbook
of the Ethiopian Economy; African Economic Development: Evidence, Theory, and Policy;
The Oxford Handbook of Industrial Hubs and Economic Development; and The Oxford
Handbook of Industrial Policy.
Vishnu Padayachee † was distinguished professor and Derek Schrier and Cecily
Cameron Chair in development economics, in the School of Economic and Business
Sciences at the University of the Witwatersrand. He was a lifetime fellow of the Society
of Scholars at Johns Hopkins University through the Paul Nitze School of Advanced
International Studies, Washington, DC.
Tamara Paremoer is an economist with more than fifteen years’ experience in the
public and private sectors. She is the divisional manager of Mergers and Acquisitions at
the Competition Commission of South Africa.
Leila Patel is professor of social development studies and DST/​NRF research chair
in welfare and social development, University of Johannesburg. Her research interests
include social welfare policy, social protection, poverty reduction, gender, care, so-
cial services, and children and youth. Her recent books are Development, Social Policy
and Community Action: Lessons from Below, edited with Marianne Ulriksen (HSRC
Press 2017); Social Welfare and Social Development (Oxford University Press 2005) and
Social Protection in Southern Africa, edited with James Midgley and Marianne Ulriksen
(Routledge 2014). The Handbook on Social Protection and Social Development in the
Global South (ed) (Edward Elgar 2021).
Dorrit Posel holds the Helen Suzman chair and is a distinguished professor in the School
of Economics and Finance at the University of the Witwatersrand. She specializes in applied
microeconomic work, and much of her research over the past thirty years has explored the
interface between households and labour markets in South Africa. She is an associate ed-
itor of Feminist Economics and has published in a wide range of journals including Economic
Development and Cultural Change, Demographic Research Journal of Human Development
and Capabilities, Nature, Journal of Economic Methodology, and African Studies Review.
Mzukisi Qobo is Head: of the Wits School of Governance, University of the
Witwatersrand. He serves on President Cyril Ramaphosa’s Economic Advisory Council
and the ministerial task team on the Agriculture Master Plan. He was previously chief
director for trade policy at the Department of Trade and Industry. He has extensive
experience in the fields of governance, strategy, and political economy. He obtained
his PhD in international political economy from the University of Warwick, United
Kingdom; an MA from the University of Stellenbosch; and a BA from the University of
Cape Town.
 Contributors   xlvii

Simon Roberts is a professor of economics at the University of Johannesburg, where

he founded the Centre for Competition, Regulation and Economic Development
(CCRED). He has worked extensively on issues of industrial development, trade, re-
gional and global value chains, competition and economic regulation in Southern and
East Africa, advising governments, competition authorities, and regulators. He has
been an economics director at the UK Competition and Markets Authority (2019 to
2020) and the chief economist and manager of the Policy and Research Division at the
Competition Commission of South Africa from 2006 to 2012.
Michael Rogan is an associate professor in economics and economic history,
and an active member of the Neil Aggett Labour Studies Unit (NALSU)—​both at
Rhodes University. Since 2011, he has been a research associate in the Urban Policies
Programme of the global research-​ policy-​
action network Women in Informal
Employment: Globalizing and Organizing (WIEGO). He holds a PhD and an MA in de-
velopment studies (social policy) and a BA in international studies (development). His
research and publications over the past five years have focused largely on informal em-
ployment, gender, poverty, food security, education and skills development, and survey
design.
Stefan Schirmer has taught economics and economic history at Wits University since
1992. He has published widely and was a visiting scholar at Oxford University and the
London School of Economics. He has served on the editorial board of African Studies
and was the founding editor of the journal Economic History of Developing Regions.
Wandile Sihlobo is the chief economist of the Agricultural Business Chamber of
South Africa (Agbiz) and the author of Finding Common Ground: Land, Equity, and
Agriculture (Pan Macmillan, 2020). He is a visiting research fellow at the Wits School of
Governance, University of the Witwatersrand. He was appointed to Cyril Ramaphosa’s
Presidential Economic Advisory Council in 2019. He served on the Presidential Expert
Advisory Panel on Land Reform and Agriculture. He is a member of the Council of
Statistics of South Africa and a commissioner at the International Trade Commission of
South Africa. He is a columnist for Business Day and Farmers Weekly.
Caroline Skinner is a senior researcher at the African Centre for Cities at the University
of Cape Town and urban research director for the global policy research network
Women in Informal Employment: Globalizing and Organizing. For over two decades
her work has interrogated the informal economy and processes of informality. She has
published widely on the topic. She has a long track record of policy and advocacy work
at a local, provincial, national, and international level and provides technical support for
worker-​based movements.
Mills Soko is professor of international business and strategy at Wits Business School.
He is a member of the editorial boards of Global Governance, Journal of Common Market
Studies, and Africa Growth Agenda. He is a member of the advisory boards of Namibia
Business School and TSIBA Business School. He is also a member of the board of the
xlviii   Contributors

Field Band Foundation. He previously chaired the board of the South African Institute
of Advancement. And he was a member of the Warwick Commission on the Future of
the Multilateral Trading System.
Ben Stanwix is a senior researcher at the Development Policy Research Unit (DPRU)
within the School of Economics at the University of Cape Town (UCT). His main re-
search interests are in the area of labour economics, primarily focused on South Africa.
He holds a master’s degree in economics from UCT and a master’s degree in social his-
tory from the University of Oxford. Prior to joining the DPRU in 2013 and, he spent time
working in India with the Self-​Employed Women’s Association.
Kenneth Marc Strzepek is a research scientist at MIT’s Joint Program on the Science
and Policy of Global Change, a faculty fellow at the MIT Office of Sustainability and
professor emeritus of civil, environmental, and architectural engineering, University
of Colorado and consultant with Industrial Economics. He has spent over forty years
as a researcher and practitioner at the nexus of engineering, environmental, and eco-
nomics systems. Currently he is focused on the role of civil infrastructure in sustain-
able economic development and the design of climate-​resilient infrastructure.
Mark Swilling is distinguished professor of sustainable development and co-​director
of the Centre for Sustainability Transitions at University of Stellenbosch. His latest book
is The Age of Sustainability: Just Transitions in a Complex World (Routledge, 2020). He
is a member of UNEP’s International Resource Panel acting as coordinator of the Cities
Working Group and is on the board of the Development Bank of Southern Africa. He
has been a visiting professor at the Universities of Sheffield and Utrecht, and in 2018 was
the Edward P. Bass visiting environmental scholar at Yale University.
Nicola Theron specializes in the application of competition and regulatory economics.
She has provided expert witness and numerous economic reports for various large clients
in proceedings before the Competition Commission and the Competition Tribunal. She
is an extraordinary professor in economics at Stellenbosch University, as well as a se-
nior managing director at FTI Consulting where she leads the Economic and Financial
Consulting (EFC) team in South Africa. In addition to competition economics, Theron
has specialized knowledge of healthcare, telecommunications, and energy markets. She
often presents on health-care policy (such as the NHI) in various forums.
Timothy S. Thomas is a research fellow in the Environment and Production Technology
Division at IFPRI. His latest work focuses on climate uncertainty and weather vari-
ability, and how that affects agricultural production and food security in low-frequency,
high-impact events. This extends his earlier modeling work which examined the impact
of climate change on agriculture and what adaptation options would be best suited in re-
sponse. Prior to IFPRI, he worked at the World Bank, focusing on land use change and
tropical deforestation issues.
Amy Thornton is a post-​doctoral research fellow at the Southern African Labour and
Development Research Unit (SALDRU) in the School of Economics at the University
 Contributors   xlix

of Cape Town (UCT). Between 2016 and 2020, she worked as a researcher at the
Development Policy Research Unit. Her doctoral work was in the field of economic
demography, focusing on household formation and quality of household survey data in
South Africa.
Fiona Tregenna holds the DSI/​NRF South African research chair in industrial devel-
opment (SARChI) and is a professor of economics at the University of Johannesburg.
She has a PhD in economics from the University of Cambridge. She is a part-​time
member of the Competition Tribunal where she adjudicates competition (anti-​trust)
cases, and serves on a number of boards, advisory panels, and councils, including the
Presidential Economic Advisory Council. She consults with various research institutes
and international organizations such as UNIDO, UNCTAD, and the International
Labour Organization. Her primary research interest is in issues of structural change, de-
industrialization, and industrial development.
Ivan Turok holds the DSI/​NRF South African research chair in city-​region economies
at Free State University. He is also a distinguished research fellow at the HSRC and hon-
orary professor at Glasgow University. He is former editor-​in-​chief of Regional Studies,
and a current editor of Area Development and Policy and Development Southern Africa.
He chaired Durban’s City Planning Commission, and has a PhD in economics from
Reading University, United Kingdom. He is occasional advisor to the United Nations,
OECD, African Development Bank, UNECA, and several governments. He contributed
to South Africa’s Integrated Urban Development Framework and the National
Development Plan.
Boris Urban, PhD, is a professor at the Wits Business School, University of
Witwatersrand and was the inaugural chair in entrepreneurship. He has more than
thirty years of academic and professional experience where he has practised, taught, and
researched organizational behaviour, strategy, and entrepreneurship. His principal re-
search agenda is to develop understanding of entrepreneurial behaviour within a cohe-
sive framework by connecting individual, organizational, and societal features. Based
on more than 120 journal articles and books, his work is considerably cited.
Imraan Valodia is dean of the Faculty of Commerce, Law and Management and dir-
ector of the Southern Centre for Inequality Studies (SCIS) at the University of the
Witwatersrand. His research interests include inequality, competition policy, employ-
ment, the informal economy, gender, and industrial development. He is a part-​time
member of the Competition Tribunal in South Africa, a commissioner of the National
Minimum Wage Commission, and a member of the Academy of Science of South
Africa. He was appointed by President Cyril Ramaphosa to chair the Advisory Panel on
the National Minimum Wage. He is a member of Ramaphosa’s Presidential Economic
Advisory Council.
Nicola Viegi is the South African Reserve Bank professor of monetary policy studies
at the University of Pretoria. He has held positions at the University of Strathclyde,
l   Contributors

the University of KwaZulu-​Natal, and the University of Cape Town. He has been vis-
iting fellow at the Nederlandsche Bank, the University of Milan ‘la Bicocca’, Newcastle
University, Fordham University, the University of Malta, and the Ecole Superieure de
Commerce in Toulouse. His areas of research are economic policy theory, monetary
policy, macroeconomic modelling, and international macroeconomics.
Thando Vilakazi is executive director of the Centre for Competition, Regulation and
Economic Development (CCRED) at the University of Johannesburg (UJ), specializing
in academic research, teaching, and advice on competition policy and industrial de-
velopment issues. He is a senior lecturer at UJ and currently also serves as a part-​time
member of the Competition Tribunal of South Africa. He holds a PhD (economics)
from UJ, and recently co-​edited an HSRC Press book titled Opening the South African
Economy: Barriers to Entry and Competition.
 PA RT I

H I S TORY, P OL I T IC A L
E C ON OM Y, A N D K E Y
C HA L L E N G E S
 CHAPTER 1

Challeng e s a nd
C om plexitie s of t h e
Sou th African E c onomy

Fiona Tregenna, Arabo K. Ewinyu,

Arkebe Oqubay, and Imraan Valodia

1.1 Introduction

The South African economy is unique, yet also shares some characteristics,
complexities, and challenges with other economies on the continent, and with middle-​
income countries in other regions. The structure of the economy continues to be shaped
by the country’s colonial and apartheid legacy, to which its basic structure and ongoing
difficulties can be traced in part.
The persistently low rate of economic growth, and in particular the ‘triple challenges’
of poverty, unemployment, and inequality, have their roots in the apartheid period,
when the economy was deliberately structured as non-​inclusive. In addition to the cen-
tral dimensions of race and class, inequality was also manifested along gender, spatial,
and other dimensions, with patterns of unemployment and poverty also characterized
along similar lines. At the time of democratization, in 1994, South Africa faced colossal
challenges of addressing the high rates of poverty, inequality, and unemployment, as well
as the broader challenges of raising the rate of economic growth and of transforming the
economy. As discussed below and in various chapters of this volume, progress has been
uneven. It seems indisputable that different policy choices could have yielded better
outcomes in raising growth rates and in dealing decisively with the ‘triple challenges’.
The level of inequality and the rate of unemployment are among the highest in the
world, together probably the highest, and poverty is extremely high for the country’s
level of income per capita. While these challenges are shared with many other countries
4    Fiona Tregenna, Arabo K. Ewinyu, Arkebe Oqubay, and Imraan Valodia

on the continent, and with a number of other middle-​income countries, the specific
configuration of the triple challenges is specific to South Africa.
In other respects, challenges facing the South African economy are common to
many middle-​income and African countries. The ongoing dependence on natural
resources and the ways in which South Africa’s historical dependence on mining
has shaped the current economic structure, is shared with some other countries on
the continent, and to some extent with various other middle-​income economies. So,
too, are the macroeconomic challenges of a balance-​of-​payments constraint, and
the labour market challenges of generating sufficient levels of employment. More
broadly, the low rates of economic growth and the failure to ‘catch up’ with advanced
economies, are characteristic of countries stuck in a ‘middle-​income trap’ (Gill and
Kharas 2015). South Africa has failed to attain the rates of productivity growth,
technological progress, and, ultimately, of sustained high growth in income per capita
that would be necessary to close the gap with advanced economies (Andreoni and
Tregenna 2020, 2021).
In this chapter, we frame key economic issues of the South African economy by
reflecting on some of its central challenges and complexities. Each of these issues is
explored in greater detail in individual chapters of this volume.
We discuss South Africa with reference to six relevant comparator countries.
These include four significant middle-​income countries from other regions of the
world: Malaysia, Turkey, China, and Brazil. The latter two are also included in the
Brazil, Russia, India, China, and South Africa (BRICS) grouping, with Brazil in par-
ticular sharing some pertinent common characteristics with South Africa. We in-
clude India, a major low-​income developing country that is also a member of BRICS.
Our final comparator country is Botswana, a neighbouring country with both
commonalities and differences with South Africa. Of course, any selection of com-
parator countries is necessarily limited, especially when the same set of comparators
is used for a range of issues, as here. Each country has its own unique history, polit-
ical economy, resource endowments, geopolitical position, level of economic devel-
opment, and so forth; these and many more country-​specific factors are essential to
understanding its own characteristics and indicators. In this chapter, these diverse
countries are utilized as simple comparisons for some of South Africa’s economic
indicators and trends.
We begin, in section 1.2, with the key issue of growth. We first discuss the rate of eco-
nomic growth and then some aspects of the ‘nature’ of this growth, in terms of invest-
ment, the sectoral composition of the economy and structural change, innovation and
technology intensity, and environmental sustainability. In section 1.3, we focus on the
inclusivity of growth and the ‘triple challenges’ of poverty, inequality, and unemploy-
ment. Next, section 1.4 briefly reflects on these challenges in the context of South Africa’s
transition and political economy. Some key sources of economic data in South Africa,
in particular microeconomic data, are reviewed in section 1.5. This section serves as a
reference for most of the datasets that are used and not discussed in detail in individual
chapters.
 Challenges and Complexities of the South African Economy    5

1.2 Economic Growth in South Africa

1.2.1 The Rate of Economic Growth

During the post-​apartheid period, the South African economy has grown at low rates.
Figure 1.1 compares gross domestic product (GDP) per capita in South Africa with that
in our comparator countries, from the time of democratization in 1994 until 2019. This
shows that South Africa did experience some economic growth between 1994 and 2006,
but at a low rate.
The period of (weak) expansionary growth in the democratic era coincided with
growth in sub-​Saharan Africa, driven largely by global demand for commodities and
fuelled by strong growth in East Asia, primarily China (Fedderke 2014; ­Chapters 6
and 41 in this volume). Consequently, many African economies experienced posi-
tive growth rates over a similar period. Rising global demand for commodities in the
2000s improved South Africa’s terms of trade. Hence, it is apparent that growth in the
early post-​apartheid years was driven by world demand for commodities rather than
by structural shifts in the economy that would result in greater competitiveness and a
transformation of productive resources to ensure sustained high growth rates.

16 000

14 000
GDP per capita (constant 2010 US$)

12 000

10 000

8 000

6 000

4 000

2 000

–
19 4
19 5
19 6
19 7
19 8
20 9
20 0
20 1
02

20 3
20 4
20 5
20 6
20 7
08

20 9
20 0
20 1
12

20 3
20 4
20 5
20 6
20 7
20 8
19
1
0
0

1
9
9
9
9
9
9
0

0
0
0
0

1
1
1
1
1
1
20
19

20

20

South Africa Brazil

Botswana India
China Turkey
Malaysia

Figure 1.1 GDP per capita in South Africa and comparator economies, 1994–​2019
Source: World Bank World Development Indicators (WDI).
Note: GDP per capita data are in constant 2010 US$.
6    Fiona Tregenna, Arabo K. Ewinyu, Arkebe Oqubay, and Imraan Valodia

Table 1.1: GDP per capita in South Africa and comparator economies, 1994–​2019
GDP per capita Compounded annual
growth rate,
GDP per capita
1994 2019 2019/​1994 1994–​2006 2007–​19

South Africa 5,563.50 7,345.96 1.32 1.95 0.05

Botswana 4,332.03 8,092.97 1.87 2.81 1.97
Brazil 8,311.56 11,121.74 1.34 1.39 0.65
China 1,116.03 8,254.30 7.40 8.78 7.46
India 639.27 2,151.73 3.37 4.68 5.18
Malaysia 5,861.75 12,486.68 2.13 2.89 3.15
Turkey 6,889.37 15,125.39 2.20 3.44 2.9

Source: World Bank WDI.

Note: GDP per capita data are in constant 2010 US$.

The global financial crisis in 2007/​08 marked the beginning of a slowdown in the rate
of growth and, thereafter, growth has either plateaued or declined. As shown in Figure
1.1, most of the comparator countries experienced a decline in their growth coinciding
with the global financial crisis, yet recovered better than South Africa did. In contrast,
the South African economy never really recovered from this crisis. This can be under-
stood in terms of the underlying structural weaknesses of the economy and the failure to
put in place a solid foundation for sustainable growth.1
Relating the growth performance of South Africa to the comparator countries over
the full post-​apartheid period, Table 1.1 shows South Africa to have had the lowest
growth in income per capita (see the ratio between GDP per capita in 2019 and 1994),
followed closely by Brazil. Botswana and China initially had lower income per capita,
but overtook South Africa.

1.2.2 The Nature of Economic Growth

We now review the nature of economic growth in South Africa with a particular focus
on the ‘quality’, composition, and characteristics of growth that have fundamental
implications for future growth prospects as well as current and future developmental

1 Chapter 6 gives a fuller account of the constraints of growth faced by South Africa. Briefly, these in-

clude historic racial and gender exclusion, shifting global trends and the emergence of China’s industrial
capacity, policy, and macroeconomic imbalances that resulted in lower investment levels, and weaknesses
in state capacity. Chapter 41 discusses the determinants of growth and suggests pro-​growth policies.
 Challenges and Complexities of the South African Economy    7

45
40
35
30
25
GFCF (%)

20
15
10
5
0
South Africa Botswana Brazil China India Malaysia Turkey
1994 2018

Figure 1.2 Gross fixed capital formation in South Africa and comparator economies, % of
GDP, 1994–​2018
Source: World Bank WDI.
Note: Data not shown for Malaysia in 1994 due to an apparent break in the series.

outcomes. Here, we focus on investment; the sectoral composition of the economy and
structural change; innovation and technological upgrading; and the environmental sus-
tainability of growth.

1.2.2.1 Investment
Investment is necessary for economic growth, as it stimulates total demand and
catalyses future productive capacity. Broadly, this has strong implications for the
sustainability of economic growth and future growth prospects. High rates of
productive investment have been one of the hallmarks of growth success stories
internationally.
Figure 1.2 compares gross fixed capital formation (GFCF) as a percentage of GDP in
South Africa and the six comparator economies, in 1994 and 2018. At the time of democ-
ratization, in 1994, South Africa had the lowest investment rate in this group. At its peak,
GFCF surpassed 20 per cent between 2007–​09 and again in 2013–​15, before declining.
The drop in the investment rate was even more pronounced in Brazil. Chapter 42 in this
volume discusses investment in more detail.

1.2.2.2 Sectoral Composition of the Economy and Structural Transformation

The sectoral composition of the economy matters for growth and developmental
outcomes. Especially from a structuralist perspective, industrialization—​a shift in com-
position towards the manufacturing sector—​is crucial for growth and for developing
countries ‘catching up’ with the advanced economies of the world (Andreoni et al. 2021;
Blankenburg et al. 2008; Oqubay 2015; ­Chapter 17 in this volume).
8    Fiona Tregenna, Arabo K. Ewinyu, Arkebe Oqubay, and Imraan Valodia

Table 1.2: Sectoral composition of GDP (%) in South Africa and comparator

economies, 1994–​2019
Agriculture Manufacturing Services
(% GDP) (% GDP) (% GDP)
1994 2019 1994 2019 1994 2019

South Africa 4.2 1.9 19.3 11.8 55.3 61.2

Botswana 3.8 2.0 4.9 5.2 45.4 58.2
Brazil 8.5 4.4 23.2 9.4 43.5 63.3
China 19.5 7.1 N/​A 27.2 34.4 53.9
India 26.4 16.0 16.8 13.6 37.5 49.4
Malaysia 13.7 7.3 26.6 21.4 47.9 54.2
Turkey 15.5 6.4 22.1 18.3 48.9 56.5

Source: World Bank WDI.

Notes: N/​A means that the data are unavailable for the indicator in the reference year.

Table 1.2 shows the sectoral composition of the South African GDP for the key
sectors of agriculture, manufacturing, and services between 1994 and 2019. Relative to
the comparator countries, South Africa in 2019 had the lowest share of agriculture, the
median share of manufacturing, and the second highest share of services. This arises
in part from growth in the financial services sector and increased internationalization
of larger South African businesses (Andreoni et al. 2021; ­Chapter 17 in this volume).
Furthermore, the commodity boom of the 2000s attracted short-​term capital investors
to the Johannesburg Stock Exchange, which accelerated the expansion of the financial
services sector. The expansion of the services sector may also be attributed partly to
changes in the statistical treatment of workers in the temporary employment services
sector, which was classified as belonging to the business services sub sector (Bhorat
et al. 2014; Tregenna 2010). Over this period, other service sectors such as retail and
wholesale, health-care, and telecommunications also witnessed major growth. The
authors of ­Chapter 17 argue that this growth in the services sector was not accompanied
by increased investment or by broader structural transformation shifts to high-​value
activities. Between 1994 and 2019, Brazil and South Africa experienced the most de-
industrialization when measured simply in terms of manufacturing share of GDP,
as summarized in Table 1.2 (Andreoni and Tregenna 2021; ­Chapters 17 and 24 in this
volume).

1.2.2.3 Innovation and Technological Upgrading

Innovation and technological upgrading are crucial for productivity and competitive-
ness, for avoiding a ‘middle-​income trap’, and for long-​run economic dynamism and
growth (Andreoni and Tregenna 2020; C ­ hapters 22 and 23 in this volume). The increasing
 Challenges and Complexities of the South African Economy    9

uptake of technologies associated with the Fourth Industrial Revolution (4IR)—​such

as digitalization and robotization—​present both opportunities and challenges for em-
ployment creation and for closing the digital and developmental gaps with advanced
economies.
Table 1.3 presents three indicators—​of R&D, innovation, and technology intensity, al-
beit imperfect measures and with incomplete data coverage. Gross domestic expend-
iture on R&D as a percentage of GDP is indicative of R&D investment and an indicator
of intensity; only India ranks lower than South Africa in this. Patent applications are
one indicator of innovation. Between 1994 and 2018, the absolute number of patent
applications from South Africa declined. While differences in country population
size and GDP make comparisons of absolute numbers difficult, we observe that South
Africa had the lowest number of patent applications among the comparator countries
in 2018, despite having significantly more applications in 1994 than those of Malaysia
and Turkey. The third measure shown in Table 1.3, medium-​and high-​tech percentage
of manufacturing value added, is an indicator of technology intensity in manufacturing.
This reflects the sub ​sectoral composition of the manufacturing sector and is in part an
outcome of prior investments in technological upgrading. By this measure, South Africa
has the second lowest technology intensity in manufacturing, after Botswana.
These indicators bode poorly for South Africa’s future competitiveness, economic
dynamism, and growth prospects. This points to the need for greater investment in
R&D and other forms of innovation, and in technological upgrading.

Table 1.3: Selected measures of R&D, innovation, and technology intensity in

South Africa and comparator economies, 1994–​2018
Gross domestic Patent applications, Medium-​ and high-​tech
expenditure on R&D as residents % of manufacturing
% of GDP value ​added
1994 2017 1994 2018 1994 2018

South Africa N/​A 0.83 935 657 30.23 24.43

Botswana N/​A N/​A N/​A N/​A 7.30 7.76
Brazil N/​A 1.26 2,269 4,980 49.79 35.02
China N/​A 2.15 11,191 1,393,815 35.52 41.45
India N/​A 0.67 1,588 16,289 41.80 41.47
Malaysia N/​A 1.44 223 1,116 48.73 44.01
Turkey N/​A 0.96 151 7,156 27.88 32.15

Source: World Bank WDI, UNESCO.

Notes: N/​A means that the data are unavailable for the indicator in the reference year. In the case of
gross domestic expenditure on R&D as a percentage of GDP, no data is available for these countries for
1994 or a similar period, so countries are compared for 2017.
10    Fiona Tregenna, Arabo K. Ewinyu, Arkebe Oqubay, and Imraan Valodia

12

10
CO2 emissions (metric tons per capita)

0
94

95

96

97

98

99

00

01
02

03

04

05

06

07

08

09

10
11

12

13

14
15

16
20
20
20
20

20

20

20
20

20
20
19

19

19

19

19

19

20

20

20

20

20

20

20
South Africa Brazil
Botswana India
China Turkey
Malaysia

Figure 1.3 Carbon dioxide emissions (metric tons per capita) in South Africa and comparator
economies, 1994–​2016
Source: from World Bank WDI.

1.2.2.4 The Environmental Sustainability of Economic Growth

Over the post-​1994 period, we observe that not only has growth been low and not in-
clusive, but it has also been unsustainable. Sustainability could be considered in various
dimensions; here we consider environmental sustainability. One key indication of the
environmentally unsustainable growth path in South Africa is the economy’s heavy
dependence on coal as a source of energy. Figure 1.3 shows that South Africa’s CO2
emissions per capita are the highest among the comparator countries. This is discussed
in more detail in several chapters in this volume, notably ­Chapters 6, 14, 15, and 16.

1.3 The ‘Triple Challenges’ of Poverty,

Inequality, and Unemployment

1.3.1 The Inclusivity of Economic Growth

It seems clear that South Arica’s growth path has not been inclusive. To begin with,
we compare the rates of growth in employment and GDP. In the 2000s, the period
 Challenges and Complexities of the South African Economy    11

coinciding with South Africa’s highest rate of economic growth, employment growth
lagged GDP growth. This worsened in the 2008/​09 recession following the global finan-
cial crisis, as employment contracted more than did GDP.
Over the 2000s, growth in the labour force far exceeded the growth of employment,
with an associated significant rise in unemployment. This is the case whether un-
employment is defined broadly or narrowly,2 and implies that employment growth was
insufficient to absorb the rapidly expanding supply of workers, thereby highlighting the
inability of the economy to create jobs at the same pace at which the labour force has
been growing (Oosthuizen and Bhorat 2005).
Employment shifts at the occupational level indicate a bias towards high-​skilled
workers compared to the demand for unskilled and semi-​skilled workers (Chapters 31
and 33 in this volume). This is further compounded by the lack of racial and gender
transformation in the more skilled and managerial occupations, which remain male
and white twenty-​five years into democracy. Furthermore, women and African workers
in general remain over-​represented in the lower-​skilled and more precarious types of
employment.
The triple challenges are clearly structurally interconnected. For instance, C
­ hapter 9
in this volume, on inequality, shows that labour market income is by far the largest deter-
minant of income inequality. This arises from the significant proportion of individuals
in households that lack access to any labour market income (see also Cramer et al. 2020;
Tregenna 2011; and Tregenna and Tsela 2012). Tregenna (2012) shows how fundamental
distribution is to different poverty outcomes.
Table 1.4 shows key statistics on unemployment, poverty, and inequality, discussed
further below. Each of these have very clear racial and gender dimensions. These inter-
national comparisons also throw the severity of South Africa’s triple challenges into
stark relief. South Africa has the highest unemployment and poverty rates in 2018 and is
the most unequal of these countries. While comparison of poverty rates across countries
is always fraught and should be interpreted with caution (even when using a common
poverty line as here), it is striking that South Africa’s headcount poverty rate is higher
than that of a country such as India with significantly lower income per capita. South
Africa has not experienced the improvement in poverty observed in the other countries
during this period.

1.3.2 Unemployment
As shown in Table 1.4, South Africa’s labour force participation rate (LFPR) has
remained stagnant over an extended period of time. This likely reflects the combin-
ation of new entrants into the labour force and the exit of the ‘discouraged’ unemployed
workers (­Chapter 7 in this volume).

2
The narrow definition of unemployment corresponds to the official unemployment rate that
is calculated by expressing the share of unemployed individuals as a proportion of the total employed
workers. The broad or expanded definition also includes ‘discouraged’ work seekers.
12    Fiona Tregenna, Arabo K. Ewinyu, Arkebe Oqubay, and Imraan Valodia

Table 1.4: Headline measures of unemployment, poverty, and inequality in South

Africa and comparator economies, 1994–​2019
Labour force Unemployment Headcount poverty Gini index
participation (% of total labour (% of population) (equivalized)
rate (% of total force)
population)
1994 2019 1994 2019 1994 2018 1994 2017

South 59.56 60.08 30.14 28.18 33.35 19.28 60.8 62.5

Africa
Botswana 61.99 73.32 21.20 18.19 33.48 13.43 57.6 N/​A
Brazil 66.96 70.39 6.22 12.08 16.52 4.42 54.1 47.9
China 84.06 75.61 2.90 4.32 52.60 0.27 35.2 41.2
India 60.25 52.15 5.63 5.36 47.36 8.67 41.7 N/​A
Malaysia 64.03 67.93 3.62 3.32 1.66 0.01 43.5 N/​A
Turkey 56.98 58.08 8.58 13.49 2.95 0.04 43.1 40.2

Source: World Bank WDI; World Bank POVCAL; Standardized World Income Inequality Database
(SWIID), Versions 8–​9.
Notes:
1. Poverty line of PPPUS$1.9/​day.
2. The Gini index is equivalized, using a square root scale, on the household disposable (post-​tax, post-​
transfer) income.
3. N/​A means that the data is unavailable for the indicator in the reference year.

The female LFPR in South Africa increased from approximately 44 per cent in 1995
to 49 per cent in 2015 (Casale and Posel 2002; Mosomi 2019). This increase is attributed
to rising education levels (Casale and Posel 2002), declining marriage rates (Posel
and Casale 2013) and extensive amendments to labour and employment legislation
that institutionalized changes that provided women with greater access to the labour
market (Posel 1999; Mosomi 2019). Still, in the fourth quarter of 2019, the participa-
tion rate for female workers was 12 percentage points lower than the male participa-
tion rate (Statistics South Africa [StatsSA] 2019). Furthermore, at 31.3 per cent, female
unemployment remains significantly higher than male unemployment (27.2 per cent)
(final quarter of 2019; StatsSA 2019).
Younger workers experience higher unemployment rates relative to older workers.
Persistently high youth-​ unemployment rates are a feature of the South African
economy, and these figures are unmatched amongst similar middle-​income countries.
For example, in the first quarter of 2020, 53 per cent of workers aged between 15 and 34
were unemployed. Chapter 32 in this volume discusses the market dynamics and un-
employment relating to youth labour.
 Challenges and Complexities of the South African Economy    13

Unemployment trends in the post-​apartheid era mirror historic discrimination

patterns, as Black individuals face higher unemployment rates compared to whites. In
line with the structural change in the economy, individuals with a post-​secondary quali-
fication have lower unemployment rates, as the current growth trajectory of the South
African economy appears to favour a minority of high-​skilled workers relative to the
masses of unskilled or semi-​skilled workers3.

1.3.3 Poverty
Initial inequality affects the overall pace of poverty reduction, regardless of the rate
of economic growth. Furthermore, countries experiencing average growth rates and
rising income inequality will realize a decline in average poverty levels (Ravallion 2001).
However, this decline will be lower than in similar countries experiencing inclusive
growth. Initially high inequality rates that later remain stagnant will have the effect of
stifling pro-​poor growth.
In keeping with global trends, the reference countries, including South Africa, all
reduced the share of their population classified as poor over the reference period. In
1994, almost half the population in China and India was classified as poor. In 2019, this
proportion had reduced to 0.3 and 8.7 per cent respectively. While South Africa also
reduced its poverty headcount by almost half, we note that, in 2019, it had the highest
poverty rate of all the seven countries. High and persistent inequality rates dampen the
likelihood of any pro-​poor growth.
Poverty trends in post-​apartheid South Africa are both racialized and gendered.
Racially, we observe that, although the poverty gap between white-​and Asian-​headed
households and those headed by Africans has declined, the latter population group is still
more susceptible to poverty and continues to face high poverty rates (Leibbrandt et al.
2009). By gender, we note equally that, while female-​headed households have realized a
significant decline in their poverty gap ratio, these households continue to face poverty
rates that are almost twice as high as those headed by males (Leibbrandt et al. 2009).
Ravallion (2001) highlights the fact that ensuring pro-​poor growth is closely tied to
reducing disparities in access to human and physical capital as the asset-​endowment
structure of an economy. Failure to reduce these access rates and increase the rates of re-
turn from the relevant assets will perpetuate unequal growth. Chapter 33 in this volume
discusses various education trends in post-apartheid South Africa with particular focus
on the impact of education on employment and earnings for working-​age adults.
Chapter 8 in this volume discusses poverty measures and trends in greater de-
tail. Government transfers have contributed somewhat to lessening the effects of high

3
Chapter 7 in this volume analyses the problem of unemployment in South Africa, demonstrating its
structural nature. The authors focus on unemployment arising from structural change, as well as provide
microeconomic reasons from both a supply and demand side. Chapter 31 discusses the labour market
broadly.
14    Fiona Tregenna, Arabo K. Ewinyu, Arkebe Oqubay, and Imraan Valodia

poverty and inequality. Chapter 40 discusses South Africa’s social security and social
development programmes in greater detail.

1.3.4 Inequality
Inequality in the post-​apartheid era has remained high and has even increased (Bhorat
and van der Westhuizen 2012; Leibbrandt et al. 2009; Wittenberg 2017a; Francis et al.
2020). From Table 1.4, we observe that inequality increased in South Africa between
1994 and 2019. Additionally, South Africa had the highest level of inequality among the
sample of countries across both time periods. Furthermore, we observe that growth in
China was accompanied by rising inequality. Conversely, the data show that Brazil and
Turkey experienced a period of growth that coincided with lowered inequality.
The findings indicate rising income inequality in African and coloured households,
with no significant change in the levels of inequality among white-​and ​Asian-​headed
households in the post-​apartheid period (Leibbrandt et al. 2009). ‘Within-​race’ in-
equality is increasing in relevance over time, and the Gini coefficient among Africans
has increased significantly (Wittenberg 2017b). The importance of inequality among
whites is declining, as this racial group constitutes a smaller proportion of the overall
workforce (Wittenberg 2017b).
South Africa’s spatial segregation also has a bearing on the observed levels of in-
equality and poverty. The greatest levels of need and deprivation remain concentrated in
the former Bantustans and townships. Spatial issues are discussed in detail in C ­ hapter 30
of this volume.
Structural shifts within the economy and the relationship between the labour market
and poverty and inequality necessitate the discussion of whether access to the labour
market, and thereafter the distribution of labour income earned, are a source of rising
inequality. Research estimates that labour market inequality accounts for approximately
90 per cent of total income inequality (Leibbrandt et al. 2009, 2012; ­Chapter 9 in this
volume).
The South African economy is characterized as being heavily biased towards highly
skilled individuals. Hence it is important to consider whether growing differentials be-
tween individuals with different skills and education levels are a further source of rising
inequality. Wittenberg (2017b) estimates that 25 per cent of overall inequality can be
attributed to inequality in earnings among individuals with a post-​secondary school
qualification. Differences in returns to skills highlight existing inequalities in the quality
of education received between well-​resourced and under-​resourced schools. It is also a
reflection of poor outcomes relative to the high budgetary allocation (see also C ­ hapter
33 in this volume, which discusses education in greater detail).
Inequality is the focus of Chapter 9 in this volume, in which the authors provide
an explanation for the processes that generate and reproduce such high inequality in
South Africa. Inequality is discussed along categorical measures such as race, gender,
 Challenges and Complexities of the South African Economy    15

and space. Panel data is also analysed to discuss intergenerational and intragenerational
mobility.

1.4 The Challenges of Economic

Development in South Africa

In our view, the central challenges discussed above—​the low rate of economic growth
and its non-​inclusive and unsustainable nature, and the triple challenges of poverty, in-
equality, and unemployment—​are integrally intertwined. South Africa has continued
along a growth path that fails to utilize the capacity and capabilities of a large section
of the adult population, and in which the benefits of economic growth, however inad-
equate, do not reach this section in any meaningful way.
The extreme levels of poverty, inequality, and unemployment in South Africa are not
just manifestations of a non-​inclusive growth path, but are also constraints to growth it-
self. The triple challenges bring wasted human resources, a lack of social cohesion, social
instability, and poor developmental outcomes, all of which constrain South Africa’s eco-
nomic growth. We do not see any viable path to sustained high rates of economic growth
that does not include fundamentally addressing the triple challenges. This suggests that,
for policy, addressing the triple challenges is important not just in its own right, but as
central tenets of any shift towards higher economic growth. This conceptual approach
also points to the inadequacy of simplistic binary trade-​offs between equity and effi-
ciency or, for instance, between productivity and employment, in the South African
context.
South Africa’s growth path needs to be located within an understanding of the
underlying political economy dynamics. Indeed, political economy is crucial to under-
standing the issues explored in the chapters in this volume. The nature of South Africa’s
transition to democracy in 1994 was arguably one in which the majority of South
Africans were carried along, yet were not at the heart of the transformation project.
Certainly, the economic lives of the majority of South Africans have improved, including
through the meeting of basic needs via the provision of infrastructure and services such
as housing and sanitation, through the opening up of economic opportunities, and for
some through the receipt of social grants. To characterize South Africa’s transition as
purely elitist would be simplistic and inaccurate, yet elites have certainly been most able
to protect and advance their interests.
A series of different economic policies have been implemented in the post-​apartheid
era to propel growth and other various outcomes. These have had various shortcomings,
not least of which are the divergent incentives of key players such as the state and cap-
ital. One of the key challenges in the post-​apartheid period is the inability of the
various interest groups to cohere around a set of policies which address the key trade-​
offs and consensus that would bring coherence and action on the policy front. Much
16    Fiona Tregenna, Arabo K. Ewinyu, Arkebe Oqubay, and Imraan Valodia

of the debate about policy choices is re-​enacted in various policy documents, such
as the National Development Plan, with very little implementation. At least a part of
the implementation challenge is due to the lack of consensus and coherence in policy.
These challenges and the policy options are explored further in various chapters of this
volume, including in ­Chapters 4 and 5, which focus on various dimensions of political
economy and policymaking.
As at the time of writing, it is becoming increasingly clear that the COVID-​19 crisis
has both exposed and deepened the existing fault lines of the South African economy.
This poses new challenges for an economy that has been characterized as being stuck in
a “middle-​income trap” and that has failed to catch up to advanced economies, instead
falling further behind. As already discussed, the fallout from the 2007/​08 global finan-
cial crisis was far reaching and longer lasting in South Africa than was typical inter-
nationally. Similarly, the effects of this health and economic crisis are sure to be long
lasting. This, and the likelihood of other crises of various sorts in future, bring to the fore
the need for South Africa to move on to a different growth path, in which the economy is
structurally transformed and is more inclusive and sustainable.

1.5 A Note on South African

Economic Data

The chapters in this volume have utilized a range of datasets at the household, inter-
mediate, and macroeconomic levels. These are described briefly in this section, with a
particular focus on microeconomic data, for which fuller details are provided in Table
1.5 in section 1.6, Appendix.
South Africa has several household-​level datasets that provide detailed informa-
tion on household demographics, living conditions, and access to services, as well as
a selection of labour market outcomes. The first nationally representative household
survey, administered in 1993, was the Project for Statistics on Living Standards and
Development (PSLSD). This questionnaire was administered to approximately nine
thousand households in the nine months leading up to the first democratic election in
April 1994 (Project for Statistics on Living Standards, 1994). The key objective of the
project was to collect data on the living conditions of South Africans in order to en-
able policymakers to develop relevant policies and strategies to meet the goals identified
in the Reconstruction and Development Programme (RDP). In October 1993, Statistics
South Africa (StatsSA) conducted the first of a series of annualized nationally represen-
tative household surveys known as the October Household Survey (OHS). The OHS
was later replaced partly by the Labour Force Survey (LFS), which was administered
from February 2000 to the first quarter of 2008, when it was replaced by the Quarterly
 Challenges and Complexities of the South African Economy    17

Labour Force Survey (QLFS). These three surveys are each discussed in further
detail below.
Annual iterations of the initial OHS survey often changed their sampling frame in
efforts to improve representativeness. The 1993 OHS excluded the former Bantustans
of Transkei, Bophuthatswana, Venda, and Ciskei, which resulted in under-​sampling
the total number of Black South Africans relative to others in that year (Yu 2007).
Households in the former Bantustans were included in the 1994 OHS, but sampling of
these households was unreliable, as only approximate estimates of population sizes were
used and emerging informal settlements were not included in the sampling frame (Yu
et al. 2017). Surveys undertaken before 1995 used sampling frames based on the 1991
census. This changed in the 1996 OHS (Yu et al. 2017). In 1998, the sampling frame was
again adjusted to adequately cover individuals residing in mining hostels (Statistics
South Africa 2000).
The 1995 OHS coincided with the first Income and Expenditure Survey. In this,
StatsSA utilized a more representative sample that included more of those households
that had been omitted in previous surveys. This improved coverage in 1995 makes direct
comparison with the previous two OHS surveys difficult, and researchers typically omit
these two surveys and commence analysis from 1995.
The first StatsSA master sample was developed in 1999 from the 1996 census. This
master sample was relied upon to draw a sample for the 1999 OHS and the first LFS
in 2000, until a new master sample based on the 2001 Census was introduced.
Transitioning to the master sample in 1999 was significant, as it meant that enumerators
would henceforth interview all households residing at the sampled dwelling unit, unlike
the previous sampling procedure that mostly ignored any small households (Kerr and
Wittenberg 2013, as cited in Yu et al. 2017).
The LFS followed the OHS and was designed to capture all forms of work more rigor-
ously than its predecessor. This was undertaken by emphasizing that all forms of small-​
scale activities, such as informal work and subsistence agriculture, could be classified
as self-​employed work, provided that individuals had participated in the activity for
even an hour in the previous week. This category of workers would otherwise have
been classified as inactive or unemployed in previous surveys (Casale et al. 2005; Yu
2007). This shift is significant because, until 1996, the OHS did not provide a prompt
for respondents explaining what was viewed as work. The majority of these addition-
ally enumerated workers are characterized as working few hours and earning low wages
(Wittenberg 2017b). Unlike the OHS, which had independent cross-​sections, the LFS
was designed to include a rotating panel. This sampling methodology was maintained at
the introduction of the QLFS, where selected dwelling units would remain in the survey
for four consecutive periods and exit the survey thereafter.
The QLFS replaced the LFS in 2008, partially in response to various criticisms
related to the scope, coverage, timeliness, and frequency of the LFS survey. Beginning
in 2005, StatsSA undertook significant revisions of the LFS. These resulted in changes
18    Fiona Tregenna, Arabo K. Ewinyu, Arkebe Oqubay, and Imraan Valodia

to the survey questionnaire, methodology, frequency of data collection, and utilizing

automated data capturing and processing systems. The QLFS is administered at
the household level to individuals aged 15 and above to collect detailed data on the
individual’s labour market status. Earnings data from the QLFS are released once a year
in the form of labour market dynamics data (LMD).
Sampling issues, as well as other limitations of the data, make comparability across
different time periods and surveys difficult. This led to the creation of the Post-​
Apartheid Labour Market Series (PALMS). This valuable data compilation allows users
to use a version of the data that is easily comparable and wherein definitions have been
standardized. PALMS is a stacked cross-​sectional dataset consisting of sixty-​nine house-
hold surveys conducted by StatsSA between 1994 and 2019. It also includes the 1993 PSLSD.
In addition to these household surveys, a growing body of research utilizes an admin-
istrative tax dataset provided by the South African Revenue Service (SARS), which is
the country’s statutory tax authority, and the National Treasury (NT) in 2015 (the SARS-​
NT data). This dataset is available to researchers by application and under restricted
conditions, and consolidates four sources of tax data (see Arndt et al. 2018; Pieterse et al.
2018), providing rich information on firms’ balance sheet variables in particular.
Such administrative data enable researchers to study the reported mismatch between
earnings reported in the QLFS and actual earnings (Wittenberg 2017b). This will have
adverse effects on poverty and inequality estimates. Using administrative tax data also
enables researchers to understand income dynamics at the upper end of the earnings
distribution, as such individuals are either under-​sampled in the survey data or, where
included, often refuse to provide their earnings. Non-​participation is also highest in the
more affluent areas (Wittenberg 2017a).
While South Africa enjoys relatively rich microeconomic data at the household level,
this is sparse at the firm level. There are no publicly available, comprehensive, and recent
national firm-​level datasets. StatsSA currently provides such data for selected sectors,
for example for the manufacturing sector and for certain sub ​sectors, but this is not
comprehensive.
The Survey of Employment and Earnings (SEE) was a quarterly survey covering a
sample of public and private enterprises. Participating firms were all registered for VAT
with a minimum turnover of R300,000, indicating that they were within the formal
non-​agricultural sector of the economy. Information so received is an input for the
gross domestic product. This survey was discontinued and replaced by the Quarterly
Employment Statistics (QES) in March 2006. The QES is administered to selected
industries and provides information on the number of employees and gross salaries
paid. The employment estimates received from this firm-​level survey will differ mark-
edly from the QLFS data, as the latter includes employees working in the agricultural
sector, the self-​employed, unpaid family workers and domestic workers. Unlike the
 Challenges and Complexities of the South African Economy    19

QLFS, which sets a minimum age for inclusion of fifteen years, the firm survey does
not. Further differences also arise in the definition of the formal sector, where the
QES includes only those VAT-​registered firms with the stipulated minimum turnover
(Statistics South Africa 2020).
The Survey of Employers and the Self-​employed (SESE) is conducted by StatsSA.
Thus far, SESE surveys have been undertaken in the following years: 2001, 2005, 2009,
2013, and 2017. The survey is undertaken to provide information on the size of the
value-added within the informal sector, and the information so received is comple-
mentary to the QES. Changes in methodology over the years limit full comparability
(Statistics South Africa 2017).
A non-​statutory national firm-​level dataset is that of the World Bank Enterprise Survey
(WBES). One advantage of this survey is its comparability with other countries; these
surveys covered 164,000 firms in 144 countries at the time of writing (see https://​www.
enterprisesurveys.org/​en/​enterprisesurveys). However, the last survey for South Africa
was undertaken in 2007, further back than for most other countries, limiting its current
usefulness. A number of other firm-​level surveys have been undertaken by universities,
research institutions such as the Human Sciences Research Council (HSRC), and other
bodies. These tend to be limited to a specific geographic area or sector, typically focus on
a particular theme (e.g. innovation), and are generally not publicly available.
The sparsity of representative, comprehensive, and current firm-​ level data has
constrained research in this area, which is an important body of economics research
in many other countries. It has also hampered the inclusion of South Africa in cross-​
country studies employing firm-​level data, such as those using the WBES across
countries. This weakness has arguably also affected the development of evidence-​based
policy on firm behaviour. The growing body of research utilizing the SARS-​NT data
illustrates the rich possibilities of novel, policy-​relevant research with firm-​level data.
Meso-​data at the sectoral and sub ​sectoral levels is also weak in South Africa. For
instance, sectoral data are also provided through subscription to private data service
providers, notably Quantec (see https://​www.quantec.co.za). Many researchers find the
Quantec data useful, since they are standardized and balanced across industries and
over time, and provide a wide range of valuable measures. However, while drawing on
official sources, these data are not official and utilize imputation and other methods that
are not always transparent to users.
Macroeconomic data are relatively straightforward, with reliance on secondary data
from official sources and international institutions. The standard national sources
of macroeconomic data are the South African Reserve Bank (SARB) and StatsSA.
Researchers also utilize data from the World Bank, notably the World Development
Indicators (WDI); the International Monetary Fund (IMF); and sources such as
Bloomberg.
 20    Fiona Tregenna, Arabo K. Ewinyu, Arkebe Oqubay, and Imraan Valodia

1.6 Appendix 1

Table 1.5: An overview of micro-​datasets in South Africa (household and labour force)
Periods
Dataset Details of the dataset available Producing agency

Project for The PSLSD was a World Bank-​sponsored Living 1993/​94 Southern Africa Labour
Statistics Standards Measurement Survey covering and Development
on Living approximately 9,000 households, drawn from a Research Unit (SALDRU)
Standards and representative sample of South African households. at the University of
Development The PSLSD covered demographic, economic, education, Cape Town
(PSLSD) and health data of enumerated households.
KwaZulu-​ Drawing on the nationally representative 1993 1993, 1998, School of Built
Natal Income PSLSD, households in Kwazulu-​Natal province 2004 Environment and
Dynamics were re-​surveyed from March to June 1998 for the Development Studies,
Study (KIDS) Kwazulu-​Natal Income Dynamics Study. Combining University of KwaZulu-​
these two survey datasets yielded a panel dataset. Natal (UKZN)
The dataset continues information on household
demographics, household environment, education,
income, expenditures and remittances, employment
and other labour characteristics, agricultural
activities, health, and anthropometry.
October This was the first annual sample survey that collected 1994–​99 Statistics South Africa
Household household and labour market information at the
Survey (OHS) national level. The scope of the OHS includes:
employment, unemployment, informal sector,
internal migration, services available by type of
dwelling, access to health and social services,
safety and well-​being of household, households by
average household size and type of dwelling, level
of education, quality of life, health statistics, vital
statistics.
South Africa SAPRIN combines three longitudinal datasets various start Department of Science
Population from the following Health and Demographic dates until and Innovation (DSI)
Research Surveillance Systems (HDSS): 2017 and the South African
Infrastructure • MRC/​Wits University Agincourt HDSS in Medical Research
Network Bushbuckridge District, Mpumalanga, established Council (SAMRC)
(SAPRIN) in 1993;
• the University of Limpopo DIMAMO HDSS in the
Capricorn District of Limpopo, established in 1996;
• the Africa Health Research Institute HDSS
in uMkhanyakude District, KwaZulu-​Natal,
established in 2000.
A significant contribution of these data is to provide
regular and updated longitudinal data on the status
of South Africa’s poorer and rural communities.
Individual-​level data on the following are collected:
health care utilization, marital status, labour market and
education status as well as a record of household assets.
 Challenges and Complexities of the South African Economy    21

Table 1.5: Continued

Periods
Dataset Details of the dataset available Producing agency
Income and The IES is a survey administered to a nationally 1995, 2000, Statistics South Africa
Expenditure representative sample of households in order to 2005/​06,
Survey (IES) update the basket of goods and services required for 2010/​11
the compilation of the Consumer Price Index.
While the main variable is expenditure, the IES also
provides additional insights on household income
and other individual and household characteristics.
National The first census in post-​apartheid South Africa was 1996, 2001, Statistics South Africa
Census held in 1996. The data that existed prior to this were not 2011
nationally representative. The main objective of the census
is to collect sufficient information on living conditions and
access to basic services which then helps government and
other departments to allocate resources.
Time Use Data Time Use surveys seek to provide information on how 2000, 2010 Statistics South Africa
different South Africans spend their time to provide
nuanced information on paid and unpaid labour,
a gendered breakdown of work, subsistence work,
casual work, and work in the informal sector.
The Survey collects household and demographic
data on two people, ten years and older, selected as
respondents within each household. The questionnaire
also include a diary in which respondents record the
different activities they perform in the day.
Labour Force The LFS was a biannual rotating panel household 2000–​07 Statistics South Africa
Survey (LFS) survey designed to measure the dynamics of
employment and unemployment in South Africa.
It measures a variety of issues related to the labour
market, including unemployment rates.
General This survey replaced the OHS. It is an annual 2002–​18 Statistics South Africa
Household household survey which measures the living
Survey conditions of South African households to provide
information on development trends. The GHS collects
data on the following key service delivery related
themes: education, health and social development,
housing, access to services and facilities, food
security, and agriculture
Cape Area CAPS is a longitudinal study of the lives of youths 2002–​09 Population Studies Center
Panel Study in metropolitan Cape Town, South Africa. The first in the Institute for Social
(CAPS) wave of the study collected interviews from 4,800 Research at the University
randomly selected young people aged between of Michigan, the Centre
fourteen and twenty-​two in the period August–​ for Social Science
December 2002. The study collects data across the Research, SALDRU, and
following outcomes: schooling, employment, health, the Research Program in
family formation, and intergenerational support Development Studies at
systems. Princeton University.
(continued)
 22    Fiona Tregenna, Arabo K. Ewinyu, Arkebe Oqubay, and Imraan Valodia

Table 1.5: Continued

Periods
Dataset Details of the dataset available Producing agency
Community The Community Survey is held between each Census 2007, 2016 Statistics South Africa
Survey to obtain data at the national, provincial, and
municipal levels to measure progress and outcomes
on the following indicators: education, health,
sanitation, water supply, housing, and transport as
well as other demographic indicators. Information
collected from these surveys informs Integrated
Development Plans and infrastructure investment
budgeting.
Living The LCS is a national household survey of over 32,000 2008/​09, Statistics South Africa
Conditions individuals that provides detailed information on 2014/​15
Surveys (LCS) household’s living circumstances, as well as their
income and expenditure patterns. Data collected are
also used to update the consumer price index (CPI)
basket of goods and services.
Tax data These are anonymized panel data at the firm or 2008 -​2016 United Nations
individual level. These data are created by merging University World
various administrative tax data, namely: company Institute for
income tax, employee data from employee income tax Development
certificates, value-​added tax, and customs records. Economics Research
(UNU-​WIDER), National
Treasury, and the South
Africa Revenue Services
Quarterly The QLFS is a household survey that collects data on 2008–​ Statistics South Africa
Labour Force a quarterly basis on the labour market activities of present
Survey (QLFS) individuals aged fifteen or older. Earnings data for
the QLFS series are released once a year as the Labour
Market Dynamics data.
National NIDS data was initiated in 2008 to enable the South 2008–​17 Southern Africa Labour
Income African Presidency to intensively track dynamic and Development
Dynamics changes in the well-​being of South Africans. The Research Unit (SALDRU)
Study (NIDS) first wave of the data tracked approximately 28,000 based at the University
individuals across 7,305 households. The movements of Cape Town’s School
of household members as they enter or exit the of Economics
initial household or establish their own households
will be captured in subsequent waves of the panel
study. At the time, it was the first national panel
study to document a sample of households in South
Africa and report on changes in income, expenditure,
assets, access to services, education, health and other
measures of well-​being. Data are collected every two
years and so far, five waves have been collected.
 Challenges and Complexities of the South African Economy    23

Table 1.5: Continued

Periods
Dataset Details of the dataset available Producing agency
Gauteng-​ These biennial data measure the quality of life, socio-​ 2009–​17/​18 Gauteng-​City Region
City Region economic circumstances, attitudes to service delivery, Observatory
Observatory psycho-​social attitudes, value-​base, and other
Quality of Life characteristics
Survey
Post-​ PALMS is a stacked cross-​sectional dataset created 1993–​2019 DataFirst, University of
Apartheid and updated by the DataFirst team that collates Cape Town
Labour different labour market data from various sources
Market Series and releases it in a comparable and reliable format.
(PALMS) The data consist of microdata from sixty-​nine
household surveys conducted by Statistics South
Africa between 1994 and 2019, as well as the 1993
PSLSD. The Statistics South Africa surveys include the
annual OHS, the bi-​annual LFS, including the smaller
LFS pilot survey from February 2000, and the QLFS.
While the data is at individual level, household-​level
variables may be created using the unique household
identity variable provided.
National NIDS-​CRAM is a rapid assessment survey that 2020–​ University of
Income investigates the socio-​economic effects of the Stellenbosch, University
Dynamics national lockdown instituted by the South African of Cape Town and
Study–​ government in March 2020 in response to the University of the
Coronavirus Coronavirus pandemic. Witwatersrand
Rapid Mobile The sampling frame for NIDS-​CRAM is Wave 5 of
Survey NIDS which was collected in 2017. Continuing sample
(NIDS-​CRAM) members and temporary sample members older than
eighteen as at April 2020, when Wave 1 of the NIDS-​
CRAM fieldwork was undertaken, were re-​interviewed
at the time of the NIDS-​CRAM Wave 1 fieldwork in
April 2020. Respondents were interviewed using
Computer Assisted Telephone Interviewing (CATI),
with data collection repeated over several months.
NIDS-​CRAM is a component of a broader study called
the Coronavirus Rapid Mobile Survey (CRAM) which
aims to inform policy using rapid reliable research on
income, employment, and welfare in South Africa, in
the context of the global Coronavirus pandemic.
24    Fiona Tregenna, Arabo K. Ewinyu, Arkebe Oqubay, and Imraan Valodia

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 Chapter 2

The Ec onomi c
History of S ou t h
Africa bef ore 194 8

Stefan Schirmer

2.1 Introduction

This chapter outlines the evolution of the South African economy and analyses the
institutions that shaped the economy’s structure and performance. It covers a vast,
complex, and changing time span, from when settled agricultural communities first
emerged in South Africa, around 400, until the gradual establishment of a significant
manufacturing sector in the 1920s and 1930s. Rather than trying to provide a detailed
account of all the economic events and changes that took place, the chapter focuses on
the interactions that shaped crucial economic transformations. We start by examining
sources of stability and dynamism during the pre-​colonial era. This section concludes
with an examination of the rise and fall of Bokoni, a remarkable and innovative inten-
sive farming system, the disappearance of which is associated with the rise of a number
of predatory state systems in the northern and eastern parts of South Africa, at a time
when colonialism was starting to encroach.
The focus then shifts to the emergence of a new, racially defined agrarian order in the
colonial Cape, followed by a description of the ways in which the mineral discoveries
changed the South African economy and helped to usher in the emergences of a modern
state, along with a highly oppressive and discriminatory migrant labour system. We
look at how both Black and white farmers responded to these new circumstances and
conclude with a description of policy shifts influencing the rise of manufacturing in the
1920s, 1930s, and 1940s.
 The Economic History of South Africa before 1948    27

2.2 The Emergence of Pre-​colonial

Farming Communities

Settled agricultural communities emerged initially in the third and fourth centuries
along the northern east coast of South Africa. They used iron tools to plant crops such
as millet and sorghum. Such farming practices spread inland, during the fifth century,
into valleys where soil was fertile, rainfall regular, and rivers plentiful. Iron working was
extensive and crops were supplemented with the herding of sheep and goats. Cattle were
only acquired rarely.
During this period areas of economic specialization became established around rich
salt and iron deposits. Salt manufacturing consisted of mixing naturally occurring salt
crusts with sand, then filtering the mixture through grass to produce a clean brine,
which was boiled down to form hardened cakes that could easily be transported. Salt
producers exchanged their products for cattle and other foodstuffs difficult to grow in
the relatively barren northern areas where the salt occurred.
Similarly, in the area around modern Phalaborwa, communities came to specialize in
mining, manufacturing, and trading iron and copper. From the eighth century onwards,
deep shafts were cut into the volcanic hills, and copper ore was removed by cracking
the rock with fire and working it with chisels and hammer stones. Iron ore came from
the magnetic pebbles readily available on the slopes of the hills. Several hundred sites
have been identified from which the ore was extracted before being forged into wire,
beads, bracelets, arrowheads, spear points, woodworking tools, and agricultural hoes
(Hall 1987).

2.3 The Settlement of the Interior

and the Dynamics of Economic
Change, 1000s–​1700s

Pastoral communities, as well as groups who maintained a hunting and gathering life-
style, were pervasive over most of the South African interior. Rather than forming dis-
tinctive, disconnected groups that can easily be labelled in terms of particular ethnic
or genetic characteristics, these communities interacted with one another extensively.
While there was probably some intermittent conflict between groups pursuing different
livelihood strategies, the dominant modes of interaction were exchange, absorption,
and movement from one mode to another. It was, in fact, by trading with pastoralists,
that precarious farming communities originally confined to coastal regions and fertile
28   Stefan Schirmer

valleys gradually acquired cattle herds. This then provided these communities with the
additional security and nutrients that made settlement on poorer soils in areas with less
predictable rainfall possible. Consequently, agricultural settlements across the large in-
land highveld plateau emerged in the early years of the second millennium. Over the
course of the next two hundred years other communities moved into South Africa from
the north and interacted with and absorbed, or were absorbed by, communities already
living there. These processes then produced cultures that are broadly identifiable as
Sotho and Nguni (Hall 2009).
In the days when settled agriculturalists had few cattle, and they depended on hunting
and gathering for additional nutrition, they developed cultural practices to ensure that
when drought or disease struck in one area, the people in that area could count on the
assistance and hospitality of people in other, unaffected areas. The adoption of cattle
reduced the need for these practices as it increased population densities and made
communities less vulnerable. Consequently, reciprocal interactions within geographic-
ally defined communities became more important than reciprocal cooperation between
communities. However, strong traditions of cooperation across settlements remained in
place into the nineteenth century (Keeton and Schirmer, forthcoming).
Within these communities, control over cattle provided control over people.
Economic superiority allowed people to become powerful as they drew large numbers
of dependents towards them. In this way, political structures that revolved around the
institution of chieftainship became established. However, ever-​present possibilities
for people outside formal positions of power to accumulate cattle ensured that there
were frequent changes in who ruled. Furthermore, movements in and out of established
villages or chieftainships were relatively easy and a regular feature of pre-​colonial
communities.
Thus, while political centralization could emerge to a substantial extent, as it did in
the case of Mapungubwe in the twelfth and thirteenth centuries, political structures
were also highly unstable and frequently broke down (Antonites 2012). As Hall (1987)
puts it, over time chiefdoms were constantly fragmenting and reforming as factions
gained power, built up strength, and then lost control to other groups.
Within these communities, individual families pursued wealth and power, but they
were expected always to ensure that their own success benefited everyone in the society.
Cattle loans and other forms of support were not just a way to build up political influ-
ence. They were also a moral duty and there were strong mechanisms, such as witchcraft
accusations, that could be used to punish those who did not fulfil their duty.
The farmers on the Highveld who were able to produce a surplus of food, but not
very much iron and salt, were always prepared to trade cattle, which had the advan-
tage of being easy to transport, for technologies like iron hoes for ploughing and salt for
preservation. These technologies had the potential to improve the standard of living of
households. By choosing to acquire them, households were placing the risk of economic
gain over the certainty of social status. Thus, while the social role that cattle played
within communities did create disincentives to trade cattle, such norms never acted to
eliminate markets and extensive trading (Wilson 1969).
 The Economic History of South Africa before 1948    29

African societies were never egalitarian. Witchcraft accusations may have acted as a
disincentive to accumulate wealth by individual households, but wealthy households
were in fact not, in themselves, the targets of witchcraft accusations. ‘It is not just wealth
that caused resentment,’ Sansom (1974) maintains, ‘Accusations [were] incited by
hoarding and the selfish use of wealth, by the failure to share one’s fortune with the less
fortunate.’ The fact that early travellers reported witchcraft accusations as a common
practice demonstrates that what constituted hoarding and selfish behaviour was the
subject of regular debates. In the nineteenth century, African farmers who harvested a
bumper crop were observed storing their surplus grain in secret hoards they would visit
at night.
In a hostile and unpredictable environment it was completely rational for everyone
to commit to structures providing social security and risk minimization. However,
some people—​mostly the poor—​would have had a greater commitment to security than
others—​mostly the wealthy. Second, it was impossible to choose between accumulation
and political standing within established social systems. Entrepreneurs depended on
power-​enhancing structures. Thus, when power got in the way of profit, those that were
negatively affected could only oppose the particular instances of power. They could not
afford to oppose the broader social structure and accepted cultural practices.
In these systems, forms of control within the household centring on the household
head’s ability to control cattle created an important dynamic, but cattle accumulation
also took place for other reasons (Guy 1987). Heads of households were concerned with
the security that cattle provided, with the social status that cattle signified within the
broader community and the access that cattle provided to the labour of dependants out-
side the household. In addition, while contradictions in the household probably created
tensions, there is no evidence that these tensions brought about fundamental change
during the pre-​colonial era.
Conflicts between chiefs and commoners and between household heads and family
workers definitely existed (Peires 1981). At the same time, cooperation between these
groups as a way to ensure security was equally important, and became more so when
survival became more precarious. Structures of cooperation, individual ambition, and
the maintenance of political power were factors whose contradictory influences ensured
that there were always many directions in which African societies could develop. In add-
ition, shifts in the way these factors interacted linked to changes in nature, to exchanges
between different social groups, and to broader economic transformations.

2.4 The Intensive Farming Terraces

of Bokoni, 1500s–​1820

The significance of the area known as Bokoni has only relatively recently been raised
to the level of importance it deserves. Knowledge about the terraced farming that took
30   Stefan Schirmer

place on the escarpment in today’s Mpumalanga province has existed for many years,
but, through collaborative work between historians and archaeologists, it is now evident
that the area consisted of one of the largest intensive farming regions in sub-​Saharan
Africa, and that extensive productive and institutional innovation made this form of
agriculture possible. Agriculture in this region took place along stone-​built, hillside
terraces spanning an area of 150 kilometres north to south, and 50 kilometres or more
east to west between the modern towns of Ohrigstad in the north and Carolina in the
south. Settlements consisted of stone-​built homesteads linked by walled cattle paths.
These settlements emerged in the 1500s and prospered until they all but disappeared in
the 1830s.
Cattle manure, collected from central cattle enclosures, enhanced the fertility of
the terraces and relatively high rainfall and proximity to seasonal streams permitted
a kind of irrigated farming consisting of a controlled flooding of fields during periods
of high rainfall. Extensive trading was a core feature of the area, as it produced and
exported large surpluses of crops such as millet and sorghum and eventually maize,
while importing in large quantities the iron implements needed to work the fields. By
producing a tradable surplus, Bokoni was able to create an improved level of food se-
curity in areas to the north and east of it, which acted as a disincentive for neighbouring
groups to raid it for crucial resources. Trading rather than raiding marked the way the
area was integrated into the wider region (Maggs 2010).
Bokoni had loose aggregations of homesteads, with little evidence of hierarchy or the
centralization of political power. The long stretches of terracing in Bokoni were probably
the work of young men—​perhaps mobilized through age-​set organization. Thus male,
and perhaps also female, initiation groups emerged in this politically decentralized so-
cial system as an effective way to mobilize labour for major projects and to socialize
youth into the long-​term commitment and range of skills required to sustain this system
(Delius and Schirmer 2014).
As the eighteenth century drew to a close, the Pedi Kingdom established a form of
hegemony over Bokoni, but this had little impact on the production of food on the
terraces. Dramatic changes that destroyed the Bokoni settlements were the result of
predatory and expansionary states emerging with a propensity to employ violent means
to obtain not just grain and cattle, but also women and children. These new states be-
came known as the Ndwandwe, Swazi, Ndebele, and Zulu kingdoms. With very few de-
fensive capabilities, the Bokoni settlements were not equipped to survive in this kind of
violence-​dominated world. As a result the whole Bokoni system collapsed, and it, along
with knowledge of its major economic achievements, all but disappeared for more than
150 years.
Bokoni demonstrates beyond any doubt that African societies were extremely dy-
namic. True, the need for security was a powerful force. It ensured that redistributive
social structures gave the vulnerable some control over the resources accumulated by
individual initiatives. It also made political power an attractive option, both for the
wealthy who turned resources into control over people and for the weak, who preferred
to be dominated rather than vulnerable. This emphasis on power and control in
 The Economic History of South Africa before 1948    31

pre-​colonial systems limited the levels and the impact of market-​responsive develop-
ment, but aspects of that were always there and, under the right circumstances, commer-
cialization would be unleashed amongst those who commanded sufficient resources,
security, and confidence.

2.5 Colonialism and the Establishment

of a Racial Agrarian Order in the Cape

The white settlers who came to farm and trade in and around the Cape peninsula were
initially just as vulnerable, if not more so, than many African communities, and they
depended heavily on the Dutch East India Company. The Company fulfilled the dual
role of commercial enterprise and government. In the 1650s, soon after the establish-
ment of the station at the Cape, the directors decided to promote the settlement of
‘freemen’. However, despite their title, these settlers were subjected to tight control. The
company regulated all trade in the Cape, keeping prices down and forcing settlers to
sell only to the company. Control was never as complete as the company desired, but
settlers generally relied on the company for support and protection in a hostile envir-
onment (Guelke 1989). The company provided cheap loans and imported slaves that
farmers could obtain on credit. In districts further inland, Khoisan dispossessed of their
land and livelihoods by colonial attacks and restrictions provided labour. Under these
circumstances, settlers rarely complained about the company’s control.
In the 1700s, as the economic capacity of some farmers expanded, however, growing
discontent emerged. In 1738, resentment became evident in the ‘Barbier Rebellion’ and
in 1778 the Cape Patriot Movement brought matters to a head. The members of this
movement demanded to be freed from ‘economic subservience to company interests’
and to be allowed to trade freely with ships in the harbour (Schutte 1989). These settlers
were attempting to create a more open society, where markets would become more
dominant in allocating resources and incentives.
In 1795, company rule ended and a wealthy farmer and merchant elite began to
emerge, first in Cape Town, then in the wine-​growing regions of Stellenbosch and
Drakenstein, and in the wheat-​ growing districts of Tijgerberg and the southern
Swartland (Ross 1986). Subsequent colonial states forged alliances with these elites ra-
ther than seeking to control them directly.
The Cape was a British colony in the nineteenth century and thus became an integral
part of the largest, most economically powerful empire in the world. The dual effect was
the establishment of many new economic opportunities for farmers, traders, and service
providers, as well as a significant enhancement of the state’s capacity. British colonial
policy was to keep down administrative costs as far as possible, but expanded financial
and military resources allowed the new state to penetrate into areas, especially African
occupied areas, in ways that had not been possible before. Initially, from the 1820s,
32   Stefan Schirmer

established merchants and farmers, some of whom were engaged in both activities sim-
ultaneously, were determined to open up opportunities for capital accumulation and to
expose as many producers to the market as possible. During this time, a ‘mercantile—
humanitarian’ alliance emerged around the project of liberalizing the Cape economy
and creating a greater equality of opportunity (Keegan 1996). The vision promoted by
this alliance was one in which Black and white farmers would be drawn into the colonial
economy—​thereby expanding trade and production opportunities for those with the
capacity to take on the risks of market production without reservations. Members of
the emerging Cape elite, with significant resources and diverse business interests, were
not strongly dependent on the state and could only see benefits from an extension of the
market.
The abolition of slavery in 1834 alienated some elite wine and wheat producers, but also
injected major supplies of investment capital, in the form of compensation payments,
into the economy. This capital stimulated the development of urban commerce in Cape
Town and investment in merino sheep farming. Sheep farming took off especially rap-
idly in the Eastern Cape, where recently arrived British settlers predominated. They
constituted a new element, with generally little economic capacity and a stronger ten-
dency to look towards the state to promote economic opportunities through military
intervention. Subsequently, military violence was used to free up African land and la-
bour for white exploitation. The new settlers benefited from the increased spending
that accompanied any mobilization of the army and forged a closer alliance with British
colonialism.
Opposed to this project was a group within the more established settler elite who
put long-​ term economic interests before the short-​ term strategies of the newly
arrived British settlers. At the same time, merchants on the frontier were able, for a
while, to promote a more accommodating state policy as they continued to maintain
a ‘small tradition’ of liberalism in the pursuit of trade with Black entrepreneurs. These
competing visions ensured frequent policy shifts occurred as the state attempted to play
a mediating role between different interests. Nevertheless, the colonial economy was
founded during this time on an alliance between white entrepreneurs, both English-​
and Afrikaans-​speaking, and a state whose interests were closely tied to the promotion
of white accumulation.
Despite the lack of industrialization and the avoidance of the market by many
producers, there was steady and impressive growth in the output of the colonial
economy’s main agricultural products during the period 1700–​1830. The growth in
output was brought about primarily in response to growing demand within the colony,
regional integration, and the emergence of Indonesian and Australian markets where
South African producers enjoyed a cost advantage over European producers. In add-
ition, the outbreak of war or harvest failures in Europe represented temporary sources
of demand that could lead to high profits for South African producers but also made the
market unstable and risky.
The enterprises of the richest families, like the Van Reenens, became integrated
and diversified, providing internal access to investment capital and facilitating risky
 The Economic History of South Africa before 1948    33

ventures. Capital was increasingly made available to a broader band of entrepreneurs

through the development of local credit markets. A state-​owned bank was established in
1790 and from the 1830s numerous regional, privately owned banks emerged. By 1860,
twenty-​three Cape banks had a total circulating capital of £374,584 (Ross 1989).
By the 1840s white commercial farmers were usually members of the settler elite
based in productive wheat, wine, and merino districts, while defensive, risk-​avoiding
farmers were to be found mostly amongst the frontier farmers known as ‘trekboers’.
These travelling agriculturalists were mostly concerned to maintain a way of life that
was regarded as superior to a landless existence. As one trekboer put it in 1834: ‘[on the
frontier] every child is a farmer and gets his inheritance in stock, and in what country
will people serve for hire if they can live as their own masters’ (Van der Merwe 1938).
White settlers frequently used access to land and control over labour to restrict their de-
pendence on market forces.
Slavery and the less clearly defined relations with Khoisan operated in a ‘coercive
framework’ within which ‘violence and the threat of violence were the primary means of
control (Mason 1989). Employers did devise ways to co-​opt their workers by providing
access to land and cattle and allowing them to maintain spheres of independent activity.
There were ex-​slaves who accompanied their employers on the ‘great trek’ into the in-
terior, accepting the risks and the hardships despite colonial officials who advised them
to stay in the Cape as ‘freemen’. They made this choice because they wanted to main-
tain access to cattle and land and because their prospects in the Cape were extremely
restricted. The labour system that was therefore sustained despite the abolition of slavery
and the resistance of ex-​slaves to new forms of exploitation depended on coercion, some
cooperation, and severe restrictions on alternatives available to workers.
This system cut across economic differences between white farmers. It provided com-
mercial farmers with cheap, controlled labour, thereby enhancing their profit margins,
while defensive farmers were provided with dependent workers who helped to facili-
tate a particular kind of lifestyle in spite of market forces. Of course, there was a poten-
tial contradiction here as state regulation and defensive farmers tied up workers that
could be more effectively employed by commercial entrepreneurs. However, as long as
farmers believed that the state could provide them with a large and subservient work-
force this contradiction remained mainly below the surface.

2.6 The Mineral Discoveries and

the Making of a Modern, Racial State

After a few false starts, the South African diamond rush began in earnest in 1871, quickly
leading to the establishment of a new settlement of approximately fifty thousand men
at Kimberley in West Griqualand. Once this pattern was repeated when gold-​bearing
seams were uncovered in Johannesburg in the 1880s, a rapid transformation occurred.
34   Stefan Schirmer

The city grew very quickly, new kinds of manufacturing, in particular explosives and
large-​scale brewing, became established, an increasingly sophisticated banking sector
emerged, and railways were built linking mineral centres to the coast.
It is undeniable that the diamond and gold industries were new engines of export-​
led growth. By 1872, the diamond fields were already producing 1 million carats. The
level of output had doubled by 1879, and reached 3.5 million carats by 1888. After that
time, De Beers managed to gain control of most diamond production in South Africa,
and restricted output so as to prevent a price collapse. Output remained at between
2.5 million and 3 million carats until the Great Depression when the market did fi-
nally collapse, albeit temporarily. By the 1890s, exports of gold stood at £4.5 million
per year. In the period 1906–​10, the annual average soared to over £27 million and in
the 1930s reached £80 million. At the end of the 1890s gold accounted for over 50 per
cent of South Africa’s exports and by the end of the 1930s the percentage had risen to 70
(Feinstein 2005).
This kind of revenue generation, unrestricted by the small local market, created
massive new opportunities, around which urbanization, especially in Johannesburg,
took off. As Van Onselen (2001: 2) has described it in his seminal study of everyday life
in Johannesburg:

By 1896 the 3,000 diggers of the original mining camp were lost in a town of 100,000
residents and, by 1914, the 100,000 were in turn becoming harder to find in a city of
over a quarter of a million inhabitants. The inexorable pressure exerted by people,
houses, shops, offices and factories pushed back the municipal boundaries from
five square miles in 1898, to nine square miles in 1901, and then—more ambitiously
still—to an enormous 82 square miles in 1903.

A crucial development was the establishment of large joint-​stock mining corporations

on South African soil, along with a stock exchange that pulled in huge investments
from locals and foreigners, even before the gold-​mining industry was fully established.
During the period from 1886 to the end of 1895, when stock prices crashed as a result of
over-​confident speculation, approximately £15 million was invested in the Rand. Many
new institutional developments, especially the close relationship between gold mining
and the financial sector, were driven by prominent business leaders who had, at least
partially, put down roots in South Africa after making their fortunes in Kimberley. They
included Cecil John Rhodes, Alfred Beit, Barney Barnato, the Ecksteins, George Farrar,
and Julius Jeppe (Lukasiewicz 2017).
Different mining companies had various levels of commitment to investing in, and
becoming part of, the emerging, diversified economy taking shape around the gold
diggings. Some concerned themselves, out of necessity, merely with survival, while
others sought to make as much as they could in as brief a time as possible, and then
got out (Mawby 1974). By contrast, the strongest, most established companies—​in par-
ticular Rand Mines—​had a long-​term vision. Thus, during a time of depression and
widespread mining-​company failures in the late 1890s, when many smaller companies
 The Economic History of South Africa before 1948    35

considered exit as the best strategy, Rand Mines’ Julius Wernher looked forward to a
time when, in contrast to the boom and bust atmosphere then prevalent, a different
kind of economy would emerge. This economy, he speculated, would be made up of
strong, viable companies whose valuation on the stock exchange would reflect a firm’s
real value, rather than artificial hype. He admitted that his company had been ‘not quite
guiltless’ in pushing up values artificially, but, while he saw such behaviour as tempting,
it was not, in his opinion, ‘worthy of a great firm’ (Kubicek 1972).
It is also significant that attempts to extract rents by prominent ‘wheeler-​dealers’ like
Barney Barnato, quickly met with organized resistance from those who demanded free
and equitable access to the Johannesburg Stock Exchange. Such organized opposition to
attempts by business elites to impose their narrow, short-​term interests, seems to have
been a prominent and early feature of Johannesburg’s social make-​up. Mawby’s (2000)
two-​volume study of the politics of Johannesburg, covering the period 1902–​07 provides
a very detailed sense of both the complexity of politics and the levels of political en-
gagement amongst the mostly white, mostly male residents of the emerging city. The
broad conclusion to draw from a careful reading of this detailed study is that neither the
state nor mine owners could easily impose their narrow interests on this segment of the
population. Mine owners, in particular, needed to compromise, to become drawn into
debates about the future of the society that was being constructed on the Highveld, to
engage with the issues that concerned both the middle and the labouring classes. In this
way, capitalists became, albeit gradually and very unevenly, engaged citizens rather than
just pursuers of profit with narrow time horizons.
Mine owners, often in pursuit of specific economic advantages, did play a role in
political movements like the United Conference Ticket (UCT), founded to contest the
elections of 1907, and the Progressive Association, formed to influence the direction
of development in the Transvaal once self-​government was established. The UCT was
the product of a number of meetings of delegates from a very wide range of more nar-
rowly focused organizations. Out of an exhaustive and complex process of engagement,
the body elected: ‘four members of the Chamber and three small independent mining
men; the militant president and three other leading members of the Witwatersrand
Trades and Labour Council, and at least one other working man; a considerable number
of commercial retailers; two Afrikaners; a few professional men, and others’ (Mawby
2000). The politics of Johannesburg pulled the mine owners who saw the need to en-
gage in it into a complex process of persuasion and compromise, which inevitably led
them to think of long-​term commitments and benefits that mining could produce for
the broader, albeit white, society.
Interactions between mine owners and the state were often marked by similar
characteristics. A close examination of these reveals a complex interaction between
various owners and, at first, the Transvaal state under the leadership of Kruger. The
Kruger state clearly recognized the important potential of this massive new industry
50 kilometres to the south of the capital, Pretoria. According to Van Onselen, Kruger’s
republic had developed plans to promote industrialization before gold was discovered
and exerted much effort to support the development of gold mining and a nascent
36   Stefan Schirmer

manufacturing industry as well. Some mine owners, especially the Eastern C ​ ape-​born
Joseph Robinson, established close relationships with the Kruger regime. In general
though, the perspective of the state on how to promote development conflicted with the
views of most mine owners, and acted as a significant break on general development.
In Van Onselen’s terms, the Kruger state envisioned the emergence of an industry that
grew out of and was dependent on the output of the agricultural sector. This conflicted
with the realities of a new economy emerging around, and dominated by, gold mining.
However, the main reason why the Kruger government mostly failed to promote
development was because it was weak and ineffective (Marks and Trapido 1979). This
prevented it from engaging with the new business elite on an equal and dynamic footing.
As Jeeves (1975) points out, many interactions between mine owners and the state prior
to the War of 1899–​1902 were dominated by the miners because government officials
lacked the expertise to avoid having to rely upon Chamber of Mines data and Chamber
expertise when any mine-​related investigations were undertaken.
In 1902, after three years of war, the capacity of the Transvaal state was enhanced
significantly, under the leadership of the British High Commissioner Lord Milner.
The beneficiaries of this were equally the mine owners as they were the white farmers
who had been the core constituency of the Kruger regime. The colonial regime was
able to provide services, support, and finance far more effectively than its predecessor
(Krikler 1993). And, while the Milner State has often been described as essentially a
mine owners’ instrument, actual relationships were far more complex. The Milner and
subsequent Selbourne regimes were clearly sympathetic to the needs of mining devel-
opment in ways the Kruger state had not been, but they were equally determined to
harness mining-​generated revenues and resources to promote a broader vision of devel-
opment. This elicited numerous complaints from mine owners about what was seen as a
heavy 10 per cent tax on all mining profits, made more irksome by the Milner State’s pro-
pensity to collect taxes efficiently. It also produced numerous demands from the state
on mine owners to use their resources in ways that would promote a broader devel-
opmental process. In an interesting exchange suggestive of the to-​and-​froing of state–​
business relationships at this time, Lionel Phillips of Wehrner Beit and Co responded to
Lord Selbourne’s request to invest in housing as a way to encourage British immigration:
‘while I am fully in sympathy with your views, the moment is not propitious to consider
any large and avoidable capital outlay’ (Van Onselen 2001).
When it was not British immigration, it was white poverty and unemployment that
Milner and Selbourne worried about extensively. In this way, their concerns and the na-
ture of their relationship with mining interests was very similar to the one that emerged
after the Afrikaner-dominated Het Volk/​South African Party (SAP) took over first in the
Transvaal in 1907 and then across the Union of South Africa in 1910. The leaders of this
new government, Louis Botha and Jan Smuts, were in no way hostile to the existence of
the gold-​mining industry as such, but feared its potential to defy the government as they
sought its help in tackling their major development priorities. These were white pov-
erty and, especially, Afrikaner unemployment. Consequently, the SAP used resources
extracted from the mines to establish agricultural settlement schemes for poor whites
 The Economic History of South Africa before 1948    37

and encouraged the mines to offer decent jobs for relatively unskilled Afrikaner work-​
seekers on the Rand. Yudelman (1983) characterized the outcome of these processes as a
‘symbiotic relationship’ between the state and mining capital.
These complexities, which helped to create a mining industry and a state that
contributed positively to the broader economic development of South Africa, fall
away completely when it comes to the efforts of the mines to create what they saw as a
dependable, affordable Black labour force. As early as 1890, the Chamber of Mines was
making extensive and unyielding demands on the Kruger government to vigorously
enforce pass laws and coercive ‘master and servants laws’, and to prevent any competition
for labour between the mining houses.
Many of the coercive laws and practices to control African workers had been
pioneered in an agrarian context, but the mine owners saw the advantage of them clearly
and demanded their strengthening. The Kruger state’s efforts to comply were deemed
unsatisfactory by the mine owners. After the war, the Milner administration provided
a much more elaborate system of control. The pass department was reorganized and
expanded, inspectors were appointed, and a ‘finger impression’ branch was established
to facilitate positive identification of deserters (Jeeves 1975). At the same time, the
state acted on behalf of mine owners in securing a monopoly for labour recruiting in
Mozambique.
Apart from occasional compromises that took into account the labour demands of
white farmers, the state continued to act as an instrument of the mines’ labour demands
right until the 1940s, and beyond. Within the context of colonialism and racism, African
workers creatively struggled to influence their working conditions, their pay, and their
terms of employment, but they were never in a position to disrupt the narrow economic
alliance between mine owners and the state around the creation of a coerced, cheap
labour supply.
As Feinstein has pointed out, mine owners did bear costs in terms of this arrangement,
primarily as a result of the enormous labour turnover and constant re​introduction of the
workforce required as migrants moved in and out of work. The owners also put themselves
in a weak position with regard to the wage demands made by highly unionized white
workers, who were often successful in mobilizing state support for their cause. However,
in terms of immediate profits, the mines benefited greatly. They were able to pull in a large
workforce at a very low cost. The total number of African workers on the mines increased
from 54,000 in 1896–​98, to a pre-​apartheid peak of 318,000, in 1936. Of those workers,
52,000 came from within South Africa. The rest were recruited mainly from Lesotho,
Swaziland, Bechuanaland, Mozambique, and Malawi. Throughout this time, this migrant
labour system was frighteningly effective at holding down wages. Very few nominal wage
increases occurred after 1911, and there were periods when real wages fell dramatically.
Real wages in 1951, were in fact at the very same levels that they had been in 1916.
All of this ensured that the modern South African economy emerged as an incred-
ibly distorted and unequal system. These realities were then exacerbated further as a re-
sult of the way white and Black farmers responded, and were allowed to respond, to the
expanding markets created by the mineral revolution.
38   Stefan Schirmer

2.7 Agricultural Responses

to Expanding Internal Markets

Initially, the strongest response to the new agricultural demands created by the min-
eral revolution came from African farmers. There were, to be sure, many Africans in
the 1870s, probably the majority, whose main aim was to defend traditional structures
and security. Defensive farmers mostly produced limited amounts for the market, pri-
marily as a way to pay rents to white landlords or taxes to the state. The choice that an
increasing number faced was which colonial market they would enter: the labour or the
produce market. Most chose the produce market because it gave them more independ-
ence and allowed them to avoid the horrific conditions in the mines. In the Eastern Cape
the wars of 1877–​78 and of 1881 were a last ditch effort to push back the intrusive colonial
system. Instead, agricultural resources were decimated and a large number of Xhosas
were forced into low-​paid employment as migrant workers.
These kinds of responses were partially eroded after 1870, as a significant minority of
Xhosas began to see impending wars as a threat to their property. They were more likely
to appeal to the colonial authorities for assistance rather than fight. The colonial records
increasingly mention ‘a spirit of emulation’ as Africans became increasingly willing
to adopt commercial farming strategies previously confined to mission stations. The
records talk of a growing willingness to experiment, to diversify in order to strengthen
economic capacity, and to form associations that would protect the interests of, and
allow the sharing of ideas with, fellow entrepreneurs. Agricultural fairs were held in
which an astounding variety of crops were shown and discussed. This was accompanied
by ongoing technological advances and an ever-​intensifying demand for private land
ownership (Bundy 1988).
A group originally organized around the idea that they were refugees from the
North, but who probably came to include a variety of entrepreneurial individuals from
surrounding societies, the Mfengu, were hiring machines known as strippers to har-
vest their corn as well as machinery to thrash and clean their wheat. By the late 1870s,
African farmers were becoming increasingly active in land markets. In the Transkei, a
group reportedly purchased 38 thousand acres in 1879.
African farmers seeking increasingly deeper integration into the market economy
and ready to cooperate with the colonial government where that was possible were
growing in numbers in the 1870s and 1880s. By succeeding as market-​oriented farmers
they developed the capacity to adopt risk-​taking attitudes and activities. They were al-
ways on the look-​out for new opportunities.
In the North West, in the lands bordering the diamond fields, there were farmers
seeking to take advantage of the economic opportunities emerging out of Kimberley
(Shillington 1985). The poor soils and low rainfall of this region limited opportunities
in agriculture and ensured that most entrepreneurs started outside of farming. Some
earned their first profits by selling diamonds, while that was still permitted. They then
 The Economic History of South Africa before 1948    39

invested in agriculture, and those who were able to take advantage of good rainfall years
made further profits as cattle and maize farmers. Many then diversified into transport
riding, while a few got access to irrigated land, which permitted further investment into
agriculture. Very few of these committed accumulators displayed much sympathy for
traditional leaders or for fighting wars with the colonists.
In Natal, Kholwa farmers achieved great success between 1860 and 1880. With
missionary support, which was particularly useful in dealing with colonial governments,
and with savings derived from wage employment, the Kholwa were always on the look-​
out for economic opportunities. From the early 1860s, sugar production appeared to
offer the best opportunity for profit and expansion. For twenty years, African sugar
growers competed successfully against better-​ resourced white farmers, growing
cane and manufacturing sugar in their own steam-​powered mills (Etherington 1985).
However, circumstances turned against them in the 1880s and they found it increasingly
difficult to compete with whites who had greater government support, access to larger
amounts of credit, and better information networks. The Kholwa remained entrepre-
neurial, though, and switched into transport riding and other forms of agriculture.
Around the turn of the century, in the wake of the war of 1899–​1902 and movements
towards creating a unified South Africa, significant policy shifts took place within the
various colonies. In the Cape, especially, the idea that African farmers who sought in-
tegration should be accepted and/​or encouraged was rapidly eroding. Increasingly the
idea took root that Africans should ‘develop within their own societies’. The original
idea, at least in the Cape, had been to view commercializing farmers as a way to build
up local support for colonialism and as a way to expand the supply of labour. Officials
believed for a while that entrepreneurship in the countryside would create stratifica-
tion, which would then concentrate land ownership in the hands of the most dynamic
farmers, leading subsequently to the creation of a landless working class. After all, that is
the way it had worked in Britain during the course of the Industrial Revolution.
This was the thinking behind the 1894 Glen Grey Act. However, the emerging shifts
in official ideology were reflected in specific provisions of the Act. Whereas the original
idea had been to promote individual forms of tenure for Africans, the Act ended up
allowing only four morgen per allotment, which was hopelessly inadequate for profit-
able farming at any scale. The accumulation of additional land was expressly forbidden
(Ally 1985). Thus, although the Act paid lip service to the previous policy of assimilating
and developing Black entrepreneurs, it then ensured in its provisions that very little
landlessness or development occurred. This policy direction initially threatened the
large-​scale creation of an urban workforce because it gave Blacks the ability to remain
on the land, away from wage employment.
A crucial cause of this shift in direction was a realization in the bureaucracy that a
cautious assimilationist policy could not deal adequately with the growing and potential
strength of landless Black labourers. The emergence of industrialization and unprece-
dented levels of urbanization in the 1890s clearly intensified administrative concerns.
This, in turn, combined with the defensive struggles of African chiefdoms located in
the reserves, who often felt threatened by the movement towards commercialization
40   Stefan Schirmer

amongst many of their followers. The demands from below for a protection of trad-
itional structures allowed ‘the state to deflect conflict from the towns and entrench
some of the forms of pre-​colonial society in the reserves’ (Beinart 1980). Thus defen-
sive reactions to colonial markets presented the state with an opportunity to create, in
their eyes, a less risky and probably cheaper form of administrative control. In this way
‘Segregationism’, which also became official ideology in Natal and had always appealed
to the administrations operating in the Transvaal and Orange Free State, became the
basis on which the Union of South Africa dealt with the African majority. The culmin-
ation of this was the 1913 Land Act, which designated a tiny percentage of the land as
African areas and set the rest aside for white occupation and development. It also aspired
to create a clearer, more rational ‘separation of the races’ but most of those clauses, or
‘chapters’ would only be properly implemented much later, in the 1950s, when a new,
more determined state set out to take segregation to the next level.
Nevertheless, the first four decades of the twentieth century no longer provided as-
pirant Black commercial farmers with sufficient encouragement. Apart from islands of
agrarian entrepreneurialism scattered all over the country, the majority of Black farmers
opted for defensive farming strategies, or moved to urban areas, or sought out the
limited opportunities for educated Africans as teachers, nurses, or administrators in the
growing bureaucracies of the African ‘reserves’.
In the meantime, white farmers were finding it difficult to make headway. The South
African state implemented numerous initiatives and provided massive support in an
attempt to promote the economic development of the white agricultural sector, but con-
stantly ran into difficulties when confronted with farmers who avoided development
more than they embraced it. The size of this challenge was increased by the response
of farmers to the very difficult conditions of the 1920s. By then it was clear that state aid
had made it easier for farmers with land titles to stay on the land as the number of white-
owned farms rose by 23 per cent between 1918 and 1928. Simultaneously, and in contra-
diction to the aim of keeping whites on the land, the development of agriculture had
made land a highly valuable commodity. This meant that owners frequently forced white
tenants off land that could be sold or put into production. It also became increasingly
expensive to get a start in agriculture, and land mortgages became a popular mechanism
for raising the necessary funds, thus making farmers more vulnerable to foreclosure.
By 1930, registered bonds on farms reached the £91 million mark, representing 36 per
cent of total farm values and an average indebtedness of nearly £1,000 per holding
(Bradford 1986).
After three years of serious drought, the Great Depression hit and some agricultural
products declined to 25 per cent of their 1928 level. A broad range of farmers faced the
prospect of bankruptcy (Minnaar 1990). The proportion of whites defined as ‘poor’ rose
by 150 per cent and constituted about one-​sixth of the entire white population.
Of the farmers who managed to hold onto their land, only a small proportion were
ready, under these circumstances, to reinvest their capital as part of an accumulation
strategy. Many had increased their risks through overly enthusiastic lending, but the
resources they acquired in this way were rarely invested into improving the productivity
 The Economic History of South Africa before 1948    41

of their farms. Rather than enter into risky investments, the majority of farmers
preferred to consume whatever income they got their hands on.
The pressures on government to save poor rural whites became intense. In response,
marketing interventions were launched along with various other drought and debt re-
lief measures. Officials and policymakers saw these as emergency measures. Once the
depression ended and they had time to consider the situation, a new Marketing Act was
formulated and passed in 1937. The Act was based on the then widely accepted idea that
single channel, state administered, and subsidized marketing boards were the best way
to protect the industry from the chaos of the previous decade. Those who genuinely
believed in this solution wanted officials to control the boards so as to transcend the
narrow interests of agricultural producers (De Swardt 1983). Instead, the council, like
the marketing boards established under it, became the tool of organized white farmers,
who used their political clout to push the state into raising agricultural prices ‘well above
the competitive level’ (Wilson 1971). By making the costs of production of the most in-
efficient producers the basis for price setting, and by introducing land prices into the
calculations, the boards ensured that, rather than agricultural efficiency, the long-​term
social aim of keeping farming incomes in line with those in town became the primary
purpose of the new marketing controls (Van Waasdijk 1954).
The state therefore massively supported white farmers in the 1930s and 1940s, which
allowed them to survive, often in uneconomical ways, and provided them with huge
advantages over any rural Africans in neighbouring reserves who were still trying to
produce for markets.

2.8 The Rise of Manufacturing and

the Evolution of Industrial Policy,
1900s–​1940s

The picture usually presented of manufacturing in the early 1900s is a collection of

small, sickly firms, subject entirely to the whims of the market and the state. There were
impediments preventing the sector from growing and becoming internationally com-
petitive, but there were also many solid, dynamic firms driven by a determination to
expand (Schirmer 2008).
Johannesburg and Cape Town contained the largest and most diverse manufacturing
activities, but industry had also taken root in other parts of the country. In the Cape,
small towns like Grahamstown and King Williams Town had long accommodated small
manufacturing firms. In Natal, Pietermaritzburg emerged as an early manufacturing
centre. In the Transvaal, thanks largely to the initiatives of Sammy Marks, Vereeniging
was a small but dynamic industrial centre. Two major industrial companies, the
Vereeniging Brick and Tile Company and the Union Steel Corporation, operated from
the town during the 1920s. The most important industrial region, outside of Cape Town
42   Stefan Schirmer

and Johannesburg, though, was Port Elizabeth, where the relatively large boot and shoe
industry led experts to label the city ‘the Liverpool of South Africa’ in 1917. There was
even a company in the town called British United Shoe Machinery, which supplied local
firms with some of the equipment required for shoe-​making. In the 1920s, the city’s in-
dustrial development was further enhanced when Ford and General Motors established
assembly plants.
After the First World War, the state set out seriously to promote manufacturing. An
industrial policy emerged largely under the leadership of Jan Smuts. The approach that
he encouraged involved intense engagements between an Industrial Board housed in
the Department of Commerce and Industry, and firms represented by various industrial
associations, as well as their umbrella body, the Federated Chamber of Industries (FCI).
The Industrial Board tackled calls for tariff protection by individual firms or industrial
associations by considering the merits of each case. The principle on which they based
their determination was that state intervention should provide as much support as pos-
sible to emerging industries while minimizing the harm done to the future health of the
economy as a whole. The Board generally rejected requests that would benefit one sector
or firm at the expense of another.
Manufacturers, in turn, made their case for tariff adjustments on the basis of detailed
arguments, focusing on both the broader benefits of tariff changes as well as how these
would affect the competitiveness of the local industry. Some industries took the issue of
competitiveness more seriously than others, but strong views were frequently expressed
that government support should be elicited not for short-​term survival, but for long-​
term improvements. Demand for lower duties on raw and intermediate goods were
made just as often as demands for more protection. There were also aspirations, both
within government and amongst established industrialists, to enter into export markets.
In 1924, the situation altered radically after the election of the Pact Government,
which brought together the National and Labour Parties under the leadership of General
Barry Hertzog. The new government’s policy was to promote industrial development
through dramatically raised tariffs across the board. Some have described this change as
‘[manufacturing] capital taking over the state and imposing its interests directly on and
through it’ (Yudelman 1983). This is highly implausible, and the facts suggest that 1924 in
fact represented a change in the opposite direction. Given the strongly immigrant and,
especially, British character of the manufacturing community, as well as the economic
importance of the international links cultivated by many, most manufacturers were
strongly opposed to a party that stood for South African self-​sufficiency and Afrikaner
nationalism. Manufacturers, in fact, viewed with alarm the way the new Board of Trade
and Industries was set up and undertook its deliberations. During a 1926 meeting, the
changed way in which government and organized manufacturing interacted was readily
apparent. The minister of labour addressed the members of the FCI, telling them they
needed to accept that all future tariff protection would largely depend on their willing-
ness to provide employment and livelihoods to the largest possible number of white
workers at wages determined by the state. The manufacturers responded by objecting to
‘the increasing tendency of the Government to enact legislation of a drastically restrictive
 The Economic History of South Africa before 1948    43

character in regard to the control and conduct of private business undertakings’. This
was clearly not a scene consistent with a state captured by manufacturing capital.
The stated intentions of governments very rarely translate neatly into on-​ the-​
ground realities. Nevertheless, the relationship between manufacturers and the
state had changed fundamentally. By 1929, the articles and the opinion pieces in the
manufacturer’s journals were, to a large extent, no longer about influencing and
engaging with industrial policy.
The approach adopted by Herzog’s government set a very negative precedent that
would form the basis for industrial policy in decades to come. Manufacturers lost the
voice that they once had, and they never regained it. For most of the subsequent decades
before South Africa became a democracy, they resigned themselves to receiving more
and more protection as compensation for living with governments that were essentially
hostile to business and the principles it represented.
The rate at which manufacturing expanded was not immediately affected by the shift
in policy. In the eight years spanning 1916 to 1924, the gross value of manufacturing
output in 1938 prices expanded by 40 per cent. In the subsequent eight years, that is, after
the raising of tariffs, output expanded by only 27 per cent. It was in 1933, though, that
manufacturing really took off, and by 1948 the value of output had increased by 340 per
cent (Feinstein 2005).
After 1933, manufacturing was ‘swept forward’ by the expansion of the gold-​
mining industry and the devaluation of the South African pound. This process was
accompanied by rapid urbanization, which in turn stimulated further demand for
manufactured goods. Then, in response to the trade disruptions caused by the outbreak
of the Second World War, manufacturers responded vigorously to the opportunities
created by shortages of imported products, and to the new demands of the war effort.
From 1916 to 1948 a doubling in the average number of employees per establishment
occurred, reflecting a significant movement to larger more capital-​intensive factories.
Capital per worker was 15 per cent higher in 1948 than it had been in 1924.
The most significant change, however, was the increasing employment of Black
workers in semi-​skilled positions. During these boom periods, the employment of Black
workers outstripped the employment of whites, and by 1948 Blacks made up two-thirds
of the industrial workforce. Evidence from the Wage Board from 1937 to 1956 shows that
16 per cent of skilled and 72 per cent of semi-​skilled workers were Black (Feinstein 2005).

2.9 Conclusion

Throughout South Africa’s history, institutions—​ consisting of rules and norms

structuring people’s interactions—​ tended either to protect the position of the
privileged or to provide the insecure with some form of protection. When accom-
modative spaces for socially engaged entrepreneurs expanded between these almost
universal imperatives, so did the drivers of long-​term economic change. Innovative
44   Stefan Schirmer

farmers seeking greater integration into market-​based systems emerged and were
accommodated in both the pre-​colonial and colonial eras. Gold and diamond mining
drove forward long-​term development in powerful ways, largely because mine owners
sought an accommodation with the state, and were then integrated into negotiated
visions of social development. Unfortunately, this accommodation in the context of
colonialism and racial oppression quickly produced an economically and socially
destructive labour policy, while racially defined alliances between white farmers and
colonial states drastically undermined the prospects for Black commercial farmers and
produced segregated, unjust land allocations. The state and manufacturers experienced
a period of productive accommodation, but that eroded as early as 1925.
Nevertheless, the rise of manufacturing represented a huge challenge to the via-
bility of the segregated, cheap-​labour system that had been set up in the context of an
economy dominated by mining and agriculture. In a world of rapidly changing living
and employment circumstances, Africans organized and demanded better treatment
and rights. Within white politics, there were tentative movements towards reform, but
these were countered by proposals from right-​wing, nationalist factions who proposed
to extend the power of the state to halt any development towards a more integrated so-
ciety. These proposals won the day in the all-​white elections of 1948. That was the begin-
ning of four decades of apartheid, which would prove to be even more oppressive and
economically damaging than the previous Segregation era.

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 Chapter 3

The Ec onom i c H i story

of Sou th Afri c a 194 8 –​9 4

Bill Freund † and Vishnu Padayachee †

3.1 Introduction

The post-​war period under review here for South Africa can be split into two episodes:
the first, roughly twenty-​five years until c.1970, was one of almost uninterrupted eco-
nomic growth, and rising standards of living, especially for whites. Foreign reserves
rose dramatically, on the back of growth in trade with the United States, the United
Kingdom, and Japan. The country was the recipient of major loans from the World Bank
for infrastructure development in the 1950s. The Rhodes University economist Hobart
Houghton observed that few would have predicted that 1961 would be the ‘prelude to
one of the greatest waves of economic expansion that this country has ever experienced’
(Dubow 2014: 100). Mining, manufacturing, and commercial agriculture all benefited.
But there remained some key differences between social groups within the country.
Blacks in general did not benefit to the same extent as whites. By the hundredth anniver-
sary of the Great Trek in 1938, Afrikaners were rapidly urbanizing but they still formed a
small proportion of the professional classes and were under-represented in the business
and financial sectors. By the 1960s, Afrikaner entrepreneurs emerged in numbers. Jan
Marias formed Trust Bank; Anton Rupert’s business empire (Rembrandt) grew strongly
and diversified; Albert Wessels started in the clothing industry but made his name and
fortune when he acquired the Toyota franchise in 1961. In 1961, the then prime minister
established an Economic Advisory Council made up of state bureaucrats, academics,
white trade unions, and leading businessmen (both Afrikaans and English) to advise the
government on matters of economic policy.
A widely cited but unproven statistic is that put forward by Hobart Houghton, who
boldly claims that the South African economy grew as fast as that of any other country in
the world, alongside Japan (Moll 1991: 271–​2). This narrative of high growth rates following
Hobart Houghton has not gone unchallenged. Terence Moll, for one, argues persuasively
48    Bill Freund and Vishnu Padayachee

Table 3.1: Conventional and recalculated economic growth rates before and

after 1948
Real GDP growth rates
Conventional Recalculated

1920–​29 4.3 4.2

1929–​36 3.7 4.6
1936–​48 4.0 3.8
1948–​54 4.7 4.4
1954–​63 4.4 3.9
1963–​74 5.1 4.6

Source: Moll (1991: 275).

that a recalibrated calculation of post-​war economic growth shows instead a steady ra-
ther than a spectacular trend in global terms (Moll 1991). See Table 3.1.
But the end of the Bretton Woods international regulatory system in 1971, the rise
in the international price of oil after 1973, and rising Black wages following the strikes
and Black worker mobilization that began in Durban in 1973, changed all that. The
balance of payments, once described as the Achilles heel of the South African economy,
became unstable once more. From the mid-​1980s and following the passing of the US
Comprehensive Anti-​apartheid sanctions bill and the ending of all new IMF and World
Bank loans, the international economic and financial pressure on apartheid South
Africa was truly intensified, and forced the National Party tentatively to engage with the
banned ANC, so setting the stage for the negotiations that were to lead to democracy
in 1994.

3.2 Perspectives on the Academic

Study of the South African Economy
and the Economic History
of South Africa

We frame this chapter in terms of an analytical fusion between a ‘developmental state’

paradigm and a more traditional ‘economic growth’ narrative. Varying interpretations
of South African economic history in this period, such as that based on the notion of
the minerals-​energy complex (MEC) are also critically reviewed. And the role of the
giant Anglo American Corporation (AAC) in shaping the economic history and devel-
opment of the South African economy in this period is emphasized.
 The Economic History of South Africa 1948–94    49

On balance we would describe our approach as non-​reductionist, non-​Marxist but

materialist, in which issues of class and power are given some, but not a determining,
role. The economic history of South Africa, we argue, going against the grain of the
literature that downplays its place in academia, ‘has been [such] a significant domain
of study for a relatively long time within South African history writing . . . that it has
been enriched by a considerable amount of newer literature and debates, including
those that straddle the social/​economic divide’ (Freund n.d.: 1) Studies of South Africa’s
pre-​conquest African society ignored the economy except as a ‘factor’ among many,
and focused on a static anthropological account based on still photographs. In the first
half of the twentieth century, ‘liberal’ scholars, including D. Hobart Houghton, W. H.
MacMillan, and C. W. de Kiewiet (1941), dominated the discourse, an analysis in which
apartheid was seen as being irrational and dysfunctional to economic success and likely
to fade in the course of economic development. In this tradition AAC executive Michael
O’Dowd, following W. W. Rostow, argued that South Africa’s pattern of economic devel-
opment was normal, and if that pattern continued radical constitutional reform would
lead to the end of apartheid, around the year 1980 (1977: 35).
A more muscular liberalism associated with Jan Lombard of the Reserve Bank1
and with academics like W. H. Hutt from the UCT Economics Department, the au-
thor of The Economics of the Colour Bar prevailed in some circles from the late 1930s
to the 1980s. Hutt’s view has also been defined as neo-​liberal constitutionalism, where
market order rather than democracy was seen as key to social and legal change. In that
approach, inspired by Milton Friedman and by F. A. Hayek, order was prioritized above
democracy, an idea that appealed to (white) South Africans who were grappling with
models for constitutional change.
From the 1960s, this market-​privileging, liberal approach was driven by people like
Michael O’Dowd, Leon Louw, and Jan Lombard, who began to experiment with a range
of ideas in part inspired by the arrival in the country of F. A. Hayek in 1963. Lombard
was a leading member of the government and influential in the government’s economic
thinking.
But that focus of thinking changed with the arrival of the revisionist scholars including
Johnstone, Legassick, and Wolpe in the early 1970s. These scholars tried to historicize
African history in South Africa, by introducing a mode-​of-​production approach. In his
seminal 1972 paper ‘Capitalism and Cheap Labour Power in South Africa’, Harold Wolpe
argued that the articulation between capitalist and pre-​capitalist modes of production,
manifest most clearly in the racially based migrant labour system, was critical to South
Africa’s capitalist accumulation project. Far from being an irrational bunion on the face
of an otherwise rational economic system, as liberals had argued or implied, race for
Wolpe was key to South Africa’s capitalist development. Wolpe argued that capitalism
found in the reserves of the cheap labour power that underwrote or subsidized accu-
mulation (see also Hart and Padayachee 2013). A few years into that decade the young

1
Author of Freedom, Order and Welfare, 1978.
50    Bill Freund and Vishnu Padayachee

Poulantzians-​influenced South African scholars, including David Kaplan, Rob Davies,

Dan O’Meara, and Mike Morris, then at Sussex University in the United Kingdom,
introduced the ‘state’ into this revisionist literature in novel ways and for a while the
study of ‘fractions of capital’ and their relationship to the state became a major fea-
ture of this new literature. Part of this new wave of economic history studies of South
Africa focused on the history of labour as a leading force in the resistance to capital and
the state.
Merle Lipton (1986) is arguably the most sophisticated proponent of the liberal trad-
ition. Her emphasis is on sectoralism in South African business and she argues that even
if the gold-​mining sector needed cheap labour, given narrow margins, this was not the
case for a growing secondary industry. She appeared alive to the conflicts and ructions
amongst capitalists and with the state in the late apartheid era.
Stephen Gelb in his seminal edited volume (which was commissioned by the labour
federation COSATU and driven largely by its metal affiliate NUMSA) used a variant of
French regulation theory to explain the origins of the economic crisis in South African
capitalism. Racial Fordism was Gelb’s description of South Africa’s industrial economy,
in which apartheid acted as the social and political form of regulating its capitalist
system.
In 2005, Charles Feinstein published his An Economic History of South Africa:
Conquest, Discrimination and Development, the first economic history of South Africa
in sixty years. Many chapters powerfully cover the story of the economy in the apart-
heid era. A key finding of the book was that both the apartheid government and rad-
ical, revisionist historians such as Wolpe failed to understand that modern economic
growth does not ‘depend on crude exploitation of wage labour . . . it is achieved by means
of technical progress, better human capital and advances in technology’ (2005: 248).
For these reasons, he argues, economic growth in South Africa in the 1950s and 1960s,
while impressive, was not as high as may have been possible with a more skilled and pro-
ductive Black labour force.
These are just a few of the ideas and trends which have influenced the study into the
economic history of South Africa. In both direct and indirect ways they have shaped our
interpretation of the narrative of the economic history of the period 1948–​94 that now
follows.

3.3 The Afrikaner Revolution of 1948 and

the Construction of the South African
Developmental State

In 1948 South Africa was primed in the direction of a state-​led development for whites
through the earlier policy actions of the South African Party coalition government of
General Smuts, which was defeated in the election that year. This included a series of
 The Economic History of South Africa 1948–94    51

major planning initiatives through state commissions, the creation of the Council for
Scientific and Industrial Research (CSIR) and the Industrial Development Corporation
(IDC); the substantial expansion of ISCOR which gave South Africa largely self-​
sufficiency in iron and steel; and the establishment of a national grid as Eskom achieved
virtual monopoly status. In the private sector, the dominant gold-​mining industry was
in the process of developing huge new finds in the northern Orange Free State and the
far west Rand. The Bretton Woods agreement assured South African gold mining of
steady and predictable prices that allowed for major investments and ensured profits
were substantial in the long term.
The National Party in power generally carried this approach further albeit without the
brain trust gathered around Smuts. The most significant achievement was the creation
of new state-​owned enterprises (SOEs)—​Foskor, Safmarine, SAICCOR, and others,
and especially SASOL, which led to a very substantial expansion of South Africa’s metal
and chemical industries. SAICCOR was interesting because of its focus on exporting
its product (rayon pulp), unlike most other state-​led investments which were aimed
at the domestic market. The creation of Gencor as a mining company dominated by
Afrikaners from the SANLAM stable represented a major concession from AAC that
set the stage for cooperation between the Afrikaner-​run state and the largely Anglo-​
dominated private sector despite tensions sometimes emerging between them. In re-
turn, for instance, AAC was able to get involved in steel-​making through highveld on a
relatively level playing field, and indeed created companies in sectors such as chemicals
and paper pulp that competed with the state.
Yet the National Party remained throughout this period suspicious of English cap-
ital as represented by companies like AAC (a commission of enquiry was even set up
at a very high level in the 1960s to investigate the threat that AAC posed to the future
of apartheid) and the government displayed a strong degree of anti-​Semitism and
an ongoing concern about ‘foreign’ interference in its domestic policies. The term
‘Hoggenheimer’ was widely used within Afrikaner nationalist circles in this period to
caricature local ‘Jewish’ capitalists as ‘rapacious and manipulative’ (Rajab 2017: 14).
Links with the state was a major reason for the development of national oligopolies
dominant in so many lines of business. Manufacturing for the home market attracted
notable foreign investment. This included the substantial automobile industry, hall-
mark of consumerism. German and Japanese marques tended to replace their US
predecessors. The dependence on foreign design and initial investment was coupled
with state regulations on local content to promote manufacturing activity in South
Africa.
The net outcome was that the South African economy at the end of the Second World
War was in a far stronger position than it had been at Union in 1910, largely because
of the PACT government’s (the alliance between the National Party and the Labour
party) industrial policy and its support for SOEs. But the economy remained weak and
skewed in many important areas. These included the constraints arising from a low-​
wage, low-​productivity economy; the failure to extend training and skills develop-
ment to the majority population; and the limited size of the home market and its heavy
52    Bill Freund and Vishnu Padayachee

dependence on gold to pay for imported materials and capital goods and so balance its
external accounts. From the early 1970s there was a sharp deterioration in the perform-
ance of the economy including in its balance of payments, as the country’s appeal to for-
eign investors diminished, political unrest grew, and financial sanctions began to bite.
The government’s response included steps to tighten its apartheid measures. Evictions
intensified (3,500,000 between the 1960s and 1983), homelands were consolidated, and
so-​called ‘black spots’ were ruthlessly cleared. In short, African urbanization was strictly
controlled; the government, under the influence of H. F. Verwoerd, rejected many of the
more ‘liberal’ recommendations of the 1956 Tomlinson Commission. The Commission
had recommended a large-​scale, ten-​year programme of land reclamation and devel-
opment, expenditure of R200 million on rural development, major reforms of agricul-
ture, and the establishment of white-​owned industries both inside and on the borders
of the reserves (Feinstein 2005: 155). In general the government instead adopted a series
of programmes to strengthen its apartheid programme; these included legislation that
excluded Africans from the definition of ‘employee’, and Black trade unions, while not
prohibited, were not granted official recognition. Racially mixed union membership
was prevented. Job reservation was introduced and the whole approach to African edu-
cation was transformed, through which church and Mission schools, previously respon-
sible for African education, were stripped of state financial support and control was
moved to the Department of Native Affairs (Feinstein 2005: 154–​8).
Contrary to widespread pre-​war expectations, gold mining flourished after the war,
with the discovery of new reefs in the Transvaal and Orange Free State (Feinstein
2005: 165). The simultaneous devaluation of the UK and South African pound raised
the sterling price of gold by over 40 per cent, a level maintained until the early 1970s.
The discoveries were made on the basis of scientific exploration and new towns such
as Welkom sprung up in and around the new mines. The new mines operated with
advanced mechanization. By the end of the 1950s these new gold mines produced the
majority of the country’s gold production. A major beneficiary of these developments
was AAC under the leadership of Ernest and Harry Oppenheimer who were able to
raise vast sums of overseas capital, especially from the United States. With its profits
on the rise AAC even briefly contemplated improvements in the standard of housing it
provided for its African workers until this was strongly opposed by Verwoerd (Feinstein
2005: 167). Gold mining was not the only mining that boomed. Uranium production for
nuclear weapons in the environment of the Cold War became a significant export; the
diamond industry, for both gemstones and industrial stones, also grew strongly. Copper,
manganese, vanadium, antimony, and chrome production also took off.
Alongside these mining developments, manufacturing based on an Import
Substitution Strategy also experienced an ‘unprecedented boom’ (Feinstein 2005: 172),
its contribution to total output rising from 23 per cent in 1948 to almost 31 per cent in
1970. Industry also diversified: AECI, an explosives manufacturing company, was
established; other manufacturing companies set up in the post-​war era included Board
and Hard Metals (industrial diamonds) and Scaw Metals (cast-​steel grinding balls). The
National Finance Corporation (NFC) was set up, with AAC playing a big role along with
 The Economic History of South Africa 1948–94    53

City of London firms and the support of the Reserve Bank in developing a more compre-
hensive money market, something that the Reserve Bank had failed to support earlier.
It is worth noting the new impetus from the state to promote scientific and industrial
research linked to economic performance. Here the Smuts appointee Basil Schonland
played a vital role in setting up the Council for Scientific and Industrial Research (CSIR),
insisting on its ‘independent’ status and making it imperative that it work collabora-
tively with other research organizations including those within the major universities.
The CSIR was based on existing British, Canadian, and especially Australian models,
which gave it autonomy and authority (Dubow 2006: 243–​4).
An important development after 1948 was the growth of Afrikaner capital. Here
the Rembrandt company group (led by Anton Rupert) was a noteworthy develop-
ment. Its initial business was very locally based and built around tobacco and cigar-
ette manufacturing, but it grew to take control of the international cigarette company
Rothmans, while also branching out to other more diverse and luxury activities
and growing its share of the market capitalization on the local stock exchange. By
1985 the company controlled 3.8 per cent of the share capital on the Johannesburg
Stock Exchange, doubling this figure to 7.6 per cent within just three years (Fine and
Rustomjee 1996: 103). In the early 1980s a major feud broke out between the former
friendly Afrikaans heavyweights, Rembrandt and the insurance company Sanlam, over
attempts by Sanlam’s executive to strengthen its control of the mining house General
Mining (see Dommisse 2005: 254ff.).
Another important development after 1960 was the government’s decentralization
policy, a version of regional industrial policy that (according to Trevor Bell, the fore-
most scholar in this research area) was initially aimed less at economic growth and effi-
ciency goals and more on the roll-​out of the state’s grand apartheid strategy (1997: 1). The
aim was to stem the flow of Black job-​seekers to urban areas. Later, the policy adopted
a more industrial-​policy character and was supported by local business as evidence of
the government’s commitment to free enterprise. Large incentives were in fact offered to
firms to operate in these industrial zones in the so-​called Border Areas. The creation of
the Development Bank of South Africa in 1979 to promote regional investment was an
important supporting development (Freund 2019: 194).

3.4 The MEC and Some of its Critics

Fine and Rustomjee (1996) have characterized the post-​war South African economy as
being dominated by an MEC, that is, incorporating a core of industries associated with
large-​scale minerals extraction backed by cheap energy, a point first made by Renfrew
Christie (1984). But linkages between the state and private corporations also played a vital
role in the evolution and consolidation of the MEC, as Hein Marais has argued, pointing
to the development of large-​scale electricity capacity and an indigenous fuel-​chemical
industry (2011: 19). It was not just the weight of this subset of interrelated economic
54    Bill Freund and Vishnu Padayachee

activity but also its determining role throughout the rest of the economy that mattered
(Fine and Rustomjee 1996).
The MEC was not without its critics. Arguably the most powerful criticism came
from Trevor Bell and Greg Farrell (1997). While praising the notion of the MEC as
employed by Fine and Rustomjee for highlighting the minerals-​rich nature of the South
African economy, Bell and Farrell argue that there is no historical evidence to support
the contention that the MEC as a system of accumulation prevented diversification of
manufacturing. They show that manufacturing did in fact diversify between the wars
and in the post-​war period. Here is their central point of difference with Fine and
Rustomjee:

Neither in the inter-​war period, nor through to 1972 in the post-​war period, has
South African industrialisation been characterised in any relevant sense by a failure
to diversify out of MEC manufacturing, and in so far as performance deteriorated
after 1972, this has not been due to the MEC as a system of accumulation. (1997: 610)

Bell and Farrell, it can be argued, are representative of a tradition of writing about the
evolution of South African economic history that could be characterized as ‘liberal’.
Theirs is a kind of (benign) South African nationalism which emphasized the positive
aspects of manufacturing and commerce on South African economic development.
An (early) orthodox Marxist view associated with Jack and Ray Simons shared some of
these views.
The South African narrative on the MEC and on Import Substitution Industrialization
(ISI) echoes the policy debate over ISI in Latin America, in which towering figures such
as Albert Hirschman engaged scholars such as Rosenstein-​Rodan (see Hirschman
1968). A body of literature linking Latin American policy debates to South Africa may
have helped here but has been imperfectly developed in the literature.
We are not convinced that this dispute between Fine and Rustomjee and their critics
could or can ever have been resolved by recourse to statistics and data. The use of the
MEC as employed by Fine and Rustomjee (1996) to describe the system of South African
accumulation, initially dismissed by its neo-​liberal critics, is now widely accepted and
sometimes used (uncritically) in the economic history literature. Sampie Terreblanche
(2012) used it extensively though also somewhat naively in his later work as did many
other more sophisticated analysts such as Bill Freund (2009), who follows Fine and
Rustomjee in his chapter on energy (2019: 171ff.). David MacDonald also uses this
notion in his book Electric Capitalism (2008). We are ultimately sympathetic to the
Fine and Rustomjee understanding of MEC as a system of South African accumulation,
while accepting that its value in the later part of our period as the economy globalized,
‘financialized’, and gradually moved away from minerals and mining, has waned.
In important ways, however, this post-​war development strategy and policy (argued
from within or outside an MEC thrust) lacked some of what could prove essential to eco-
nomic growth. The state did not create a very significant financial sector aimed at devel-
opment. The IDC was not permitted more capital than its initial establishment covered.
 The Economic History of South Africa 1948–94    55

The Reserve Bank was a powerful force for traditional banking, with the de Kocks, father
and son, promoting an approach aimed largely at interest rates and regulating foreign
exchange in the shadow of Klasie Havenga. In 1932, and again in 1949, the South African
government faced a tough choice about whether or not to follow the United Kingdom
in devaluing the local (South African) pound in line with the United Kingdom. Klassie
Havenga was the minister of finance on both occasions, getting it wrong (by most
accounts) in 1932 at great cost to local farmers, and getting it right in 1949 by devaluing at
the same time as the United Kingdom and to the same degree (de Kock 1952: 312).
AAC and Goldfields dominated financial markets and banking otherwise. Related to
this was the absence of an orientation towards competitive international manufacturing,
often stated bluntly initially. It was believed that the gold-​mining revenues were enough
to promote a good balance-​of-​payments picture. This would be critiqued by later gov-
ernment commissions but never led to successful action. There was little consideration
about sources of power (electricity). It was assumed Eskom, and the coal mines that
serviced Eskom, could be counted on for the inexpensive electricity that led South
Africa to becoming a very heavy user and a massive polluter.
It was assumed with little questioning that manufacturing, mining, and agriculture
should depend on a coterie of highly rewarded executives and a body of skilled men
who, with their families, were increasingly able to participate in lucrative consumer so-
ciety. Beyond this was a mass of dehumanized and cheap Black labour. It is convention-
ally assumed that cheap labour provided the foundation for South African economic
success. This is partly true, but it is important to note that as National Party rule carried
on, the wages of whites, often in labour unions, formed a significant part of the wage
bill. The new SOEs employed many whites—​until 1990—​and white unemployment was
largely eliminated. Indeed, for whites, something of a welfare state was created with in-
expensive medical care for all, national pensions, considerable public housing and rent
controls. Maybe most important was the expenditure on technical and higher education
in the Afrikaans language, which led to the wide diffusion of industrial skills.
In some respects, the Black population benefited from being understood as a factor
in the process of industrialization. While under Smuts there was almost a total failure
in the provision of urban housing, the National Party moved to find the means to create
the big townships, notably Soweto. Primary education was substantially expanded and
health care for active workers improved, after Smuts’ rejection of a national health pro-
gramme, through the facility of some big urban health centres such as Baragwanath
Hospital. However, it should be noted that Blacks, an increasingly large majority of the
population despite white immigration being encouraged, had only an extremely limited
purchase on the expanding consumer society. They formed a very underdeveloped
market. Moreover, they were more or less excluded from acquiring the skills or business
opportunities (or the right to form and join licit trade unions) critical to making a better
life in these circumstances.
It is true that after 1960 the numerous Indian and coloured South African minorities
started to benefit from enhanced opportunities in significant areas, but only at the very
end of the apartheid era did things begin to change (marginally) for Black Africans.
56    Bill Freund and Vishnu Padayachee

Major housing projects were funded and completed for Indians and coloureds. Schools
were built for them and two universities, one for coloureds in the Western Cape and one
for Indians in Durban. Businessmen such as Vivian Reddy (who owns the electricity
and construction company Edison Power), who had close relationships with the Indian
Affairs Department and the Zulu king and traditional prime minister (Buthelezi), were
major beneficiaries of such infrastructure projects.
The economic growth path went hand in hand with extremely high levels of in-
equality correlating with the racial categorization used by the state. As argued by Wolpe
(1972) Black male workers coming from so-​called locations as migrants in low-​skilled
jobs in profusion and returning to those locations where little monetized economic ac-
tivity existed, was ceasing to work effectively. Black rural life was breaking down socio-
logically and economically.
Moreover, the state was concerned with fighting the beswarting van die platteland (the
‘blackening’ of the rural areas). It promoted the development of large well-​organized
and lucrative capitalist agriculture, with small-​scale white farmers turned into urban
skilled workers and the mass of Black workers, often enjoying non-​cash paternalist
relations with the landowners, being forced off the land into urban areas. Agriculture
was heavily supported by the state but did not produce significant export income.

3.5 AAC and the Mining Industry

It is important to say a little more here about the mining industry and the role of AAC
and its relationship with the state in this post-​war period. AAC’s relationship with the
apartheid state is frequently portrayed as one of tension and conflict but this was not the
case, as the relationship between them was far more nuanced and complex.
As argued by Hart and Padayachee (2013) Afrikaner nationalist concerns about AAC
and its disproportionate influence over South Africa’s economy (and politics) did not
diminish over the following decades. By the late 1930s, Oppenheimer realized his dream
of taking complete control of de Beers and the London-​based diamond syndicate; and
AAC significantly extended its operations in mining, finance, and industry across the
whole of southern Africa. Oppenheimer skilfully managed his company through many
political minefields, even through the depression years when threatened production
cut-​backs in diamonds and gold were fiercely resisted by the Nationalist Government
of Hertzog because of the unemployment that would result among its Afrikaner mine-​
working supporters. Oppenheimer was able to ignore or circumvent these tensions,
relying on the strength of English capital, especially gold-​mining-based capital, which
was the single-​most important source of government revenues, and his direct and ‘con-
siderable influence at the political centre’ (Pallister et al. 1987: 60).
The period 1930–​60 was a remarkable period in the history of the mining industry,
which in turn had linkages into both manufacturing and finance. The most significant
event was the discovery of new gold fields in the Orange Free State province in the 1940s.
 The Economic History of South Africa 1948–94    57

AAC was at the forefront of these developments. As Innes remarks, ‘Anglo’s takeover
of groups like SA Townships and Lewis and Marks was an important manifestation of
the growing tendency towards increasing centralization of capital and control in the in-
dustry (Innes 1984: 137). By the 1950s AAC had become active in developing the local
money market in South Africa. Ernest Oppenheimer helped to set up the National
Finance Corporation in 1949, and in 1955 AAC set up its own private merchant bank
Union Acceptances Ltd (UAL)—​and further developed and diversified its industrial
interests.
Despite some crude characterizations of the relationship between the new National
Government and the AAC as poor or even antagonistic (a view rejected by Terreblanche
2012: 305), there is evidence that each side recognized the importance of the other to
future success. Thus, apart from the role that government and AAC played in the es-
tablishment of a local money market in the 1950s, there are other such examples of
their mutually supportive relationship. Both the leading state corporations, Eskom and
ISCOR, maintained close working relations with AAC, and ‘the NP maintained these
partnerships despite its suspicion of mining capitalists’ (Terreblanche 2012: 344). In a
footnote Terreblanche (2012: 369) points out that one result of the ‘close co-​operation
between HJ van der Bijl of Eskom and Ernest Oppenheimer of the AAC’ was the ex-
propriation early in 1948 of the privately owned Victoria Falls Power Company, ‘with
huge financial support from the AAC’. As the major mining house and consumer of
electricity, the AAC benefited enormously from the cheaper electricity supplied to it by
Eskom. With the support of Oppenheimer, ISCOR was also making headway towards
becoming a steel monopoly before 1948 (Terreblanche 2002: 369). Nancy Clarke points
out that ISCOR had strong partnerships with AAC from just after the Second World
War (Clarke 1994).
Recent efforts have been made to compare post-​1948 Afrikaner and post-​1994 Black
economic empowerment. One specific issue is around AAC’s sale of its (approximately)
23 per cent share in General Mining and Finance Corporation (Gencor) to Federale
Mynbou (Fedmyn). Was this an exercise in Afrikaner empowerment? Hermann
Gilliomee (2008) has correctly argued that this had little to do with AAC’s concern
with growing Afrikaner participation in gold mining, or because of the poor manage-
ment at Gencor. Rather the decision to sell was made following an undertaking sought
by Harry Oppenheimer from the Sanlam Group that they would limit their existing
diamond business and allow de Beers to have the controlling interest in any new dia-
mond business that Sanlam established. So it was de Beer’s monopoly in diamonds that
AAC was aiming to secure and protect through these deals. And neither were the shares
‘given’ over to Fedmyn (Gilliomee 2008). This was no handout, shares were bought at
market price (Gilliomee 2008: 777), a sharp contrast with the current post-​apartheid
mantra, as Durban businessman Neville Kerdachi notes, that ‘Black people do not pay
for shares’ (Neville Kerdachi, Interview 10 October 2017).
While the massive state interventions and controls of the immediate post-​war era had
ended and a shift to market-​oriented economic reforms was being rolled out, an equally
powerful network of insidious state security interventions and organizations emerged
58    Bill Freund and Vishnu Padayachee

aimed at countering what the Prime Minister P. W. Botha referred to as a ‘total onslaught
on the state’ (see Morris and Padayachee 1988).

3.6 The Economic Crisis of

the Early 1970s

The 1970s represented a turning point when the developmental-​ state thrust lost
traction as economic growth noticeably slowed. Forced removals in the interests of
making different racial trajectories practicable, was costly and engendered bitterness.
Dependence on steady gold-​mining revenues ceased to be possible once Bretton Woods
was abandoned by the US President Nixon in 1971. Thereafter profits generated by gold-​
mining, the expansion of which involved ever-​increasing expenditure on technology,
became unpredictable. The mining sector pivoted to base metals, notably to coal and
to iron ore. However, transportation to the new ports of Saldanha and Richards Bay
was a major additional expense and financing these ventures involved important debts
to mainly European banks. The state became very anxious about dependence on for-
eign loans especially from Switzerland, and Germany and Britain as the United States
reduced its exposure to South Africa (see Padayachee 1988). Dresdner Bank, Union
Bank of Switzerland, and Swiss Banking Corp were the main supporters of apartheid
South Africa (Padayachee 1988: 371). The state managed this through financial juggling
but initially without propounding a real new economic strategy beyond trying to fall in
with the growing neo-​liberal international consensus as best it could. The impulse to
look beyond mining weakened substantially.
Eventually by the mid-​1980s the government could no longer avoid a unilateral
debt standstill which was followed by a debt rescheduling agreement brokered by Fritz
Leutwiler, the former head of the Swiss National Bank, and supported technically by
Price-​Waterhouse and partners, a London-​based firm of accountants. Leutwiler was
a long-standing supporter of South Africa, personal friend of former finance minister
Owen Horwood, and had brokered South African loan applications before in troubled
times. The Swiss banks were deeply implicated in supporting apartheid South Africa
through the Zurich gold pool, in marketing South African gold, and in melting down
and restamping South African gold as Swiss. Leutwiler was in an ideal position to ease
tensions between the Swiss and German banks on the one hand and on the other, the
American banks, such as Chase Manhattan, accused by the Europeans of taking over-
hasty action against South Africa (Padayachee 1989: 264).
Various commissions of inquiry were set up to advise on the direction and content of
economic policy. These included commissions on monetary policy (de Kock), trade and
industrial policy (Kleu, du Plessis), and labour market policy (Wiehahn) among others.
The broad thrust of all these commissions was to shift the thrust of economic strategy
from the state-​led, developmental strategy characteristic of the immediate post-​war era
 The Economic History of South Africa 1948–94    59

to a market-​oriented one, and one recommending the fostering of a stable, permanent

Black, semi-​skilled workforce (see Morris and Padayachee 1988).
The mass strikes in and around Durban in 1972/​73 were among the most unsettling
for the apartheid regime. Jay Naidoo, later general secretary of COSATU and a min-
ister in Mandela’s first cabinet, maintains that the 1973 strikes were in fact more im-
portant than Soweto, ‘because it wasn’t in the townships, it was in the cities, it was in
the factories, it was hitting at the core of white power, which was economic power’
(Waldmeir 1997: 27). These strikes inspired worker mobilization and spawned a number
of emergent unions across the country, mostly independently of the ANC’s reach. Some
of these unions were industry based, some craft based, others were generalist in char-
acter. A regrouping followed along more political lines: some developed along Black
consciousness lines and foregrounded Black leadership. The Council of Unions of South
Africa (CUSA), which included the powerful National Union of Mineworkers, was one.
Another grouping organized was within the formation that became the Federation of
South African Trade Unions (FOSATU). FOSATU championed worker control and
democratic accountability. It eschewed close political relations with more ‘populist’
political formations such as the United Democratic Front and gained as a result the
pejorative label of being ‘workerist’. These and other unions later merged into the
Congress of South African Trade Unions (1985), which after a fierce debate became
more aligned to the ANC (Dubow 2014: 226–​30).
The state responded to these strikes and mobilization by setting up the Wiehahn
Commission into labour relations, and Nic Wiehahn’s report was published in 1979. It
recommended the abolishment of statutory job reservation along racial lines; proposed
that Africans be included in the definition of ‘employee’; and it recommended the offi-
cial recognition of Black trade unions, as well as the legalization of collective bargaining
in the hope that this step would reduce industrial conflict (Dubow 2014; Baskin 1996,
especially pp. 21–​40; Feinstein 2005: 241).
The state, moreover, was taken up with new political challenges that impacted on the
economy. First was the exterior border challenge. The collapse of Portuguese coloni-
alism led to the dramatic expansion of expenditure on the military and defence in gen-
eral. South Africa even acquired the nuclear bomb. The Border Wars were considered
of the greatest importance especially given the involvement of the Soviet Union, a sub-
stantial global military power. A large military-​industrial complex was created that took
in much of the private sector as well as the SOEs and new state initiatives. South Africa
was fairly effective at fighting on the borders and defeating Umkhonto we Sizwe, the
ANC army, but at some cost. Some South African military equipment was very com-
petitive on quality and price in global markets but these markets involve heavy state
involvement and are hard to break into so this proved largely to be economically a dead-​
end orientation. The state created initiatives that were unprofitable and only useful for
assuaging its obsession with security. Second and related, the state equally feared the
impact of sanctions as apartheid became less and less acceptable in the West. The em-
phasis on protectionism and the home market intensified constantly and finally in the
late 1980s foreign exchange controls became paramount. Third, the state was unable to
60    Bill Freund and Vishnu Padayachee

dam up and suppress growing violent unrest in the townships, the emergence of large
squatter settlements, and the failure of state-​created administrative bodies to function.
In the early 1960s, and in response to the earlier crisis associated with Sharpeville,
the state had virtually stopped construction apart from hostels in urban townships, as
they were called, and intensified its commitment to developing the ‘Bantustans’. The
homelands system made it possible to deflect social and economic crises, including
rising unemployment, into the backwater of the reserves, well hidden from ‘white’
South Africa. This move in particular was responsible for introducing unprecedented
corruption into the system and the state half paid the wages of firms prepared to—​and
partially forced to—​move, first to the edge of these homelands, and then to industrial
parks set up within them. Trevor Bell was the notable economist who imagined that
this could be a shift to the use of cheap rural labour that would lead to a form of indus-
trial growth. Frame Textile Group, a huge textile empire established by Philip Frame in
1928 in the province of Natal, is an example of such a company but it did this without an
export component of importance. With hindsight, this was not a formula that was going
to work; the industrial parks collapsed and virtually died after the end of the old regime.
Finally, it is worth noting that relations between the private sector and the apartheid
state in our period were both complex and changing. There were growing tensions but
also co o
​ peration with the private sector including Afrikaner businessmen. Rembrandt’s
Anton Rupert largely restricted himself to propagating the economic development of
the homelands while Andries Wassenaar attacked the financial profligacy of the state.
Wassenaar, a top SANLAM executive, denounced the emphasis in the system on state
control and guidance in a notorious book in 1977 entitled Assault on Private Enterprise:
The Freeway to Communism. Both Rupert and Wassenaar enjoyed a good relationship
with Verwoerd’s successor, B. J. Vorster.

3.7 Growing International Financial

Pressure in the 1980s

By the time we get to the 1980s South Africa’s economy was in a vastly weakened state.
Growth had slowed since the mid 1970s, political tensions had escalated, and inter-
national financial pressure was mounting. Chief and arguably the most fatal of these
pressures was that exerted by the international banks and by the IMF and World Bank.
South African borrowing from the World Bank for infrastructure development had
been critical to the country’s high rate of economic growth in the 1950s and 1960s. But
the last loan from the World Bank had been repaid in 1967 and no new loans were taken
out after that. South Africa borrowed heavily from the IMF in the mid 1970s when it
experienced severe economic and political difficulties, and again in 1982. IMF assist-
ance to South Africa in the mid-​1970s was greater than the combined assistance to all
other African countries during that time. So the curtailment of IMF loans to South
 The Economic History of South Africa 1948–94    61

Africa in 1983, was to prove decisive, and forced the apartheid regime to rethink its
strategy. The flow of international credit (loans and bonds) to the apartheid state, espe-
cially in the period 1972–​76 and again in 1980–​82, in support of the state’s strategic and
infrastructural development had been crucial to keeping the economy and the polit-
ical system on track. Citibank international bank (CIBL) had raised massive loans for
both the private and public sector in South Africa since its establishment in London
in 1972. US banks were particularly active in South Africa in the decade of the 1970s
and early 1980s but it was not the only region so involved. Thirty-​six banking groups
participated in mobilizing eurocurrency credits for South Africa between 1972 and
1976. Non-​US banks were mainly from Britain, West Germany, and Switzerland and the
banks involved included such banking heavyweights as Citibank, Chase Manhattan,
Manufacturers Hanover Trust, and Barclays Bank International. Borrowing from pri-
vate bank international sources during this time could best be described as an ‘orgy’
(Padayachee 1989: 227).
But technology transfers were as important as loans. John Suckling has estimated that
60 per cent of South Africa’s GDP growth between 1957 and 1972 originated from ex-
ogenous technical change and technology (Suckling 1977).
As we have noted, these loans and credits and technology transfers began to dry up
by the mid 1980s, together with foreign direct investment after 1976 (Padayachee 1989:
223). By 1982 the gold-​led boom was over and the South African economy fell into a re-
cessionary phase almost continuously from 1981, not helped by the international crisis
brought about by the Latin American debt crisis, among other factors. South Africa
abolished exchange controls and received plaudits from the IMF among others. But the
upheaval in South African townships and factories from September 1984 forced inter-
national bankers to rethink their lending to South Africa. On 1 August the New York
Times reported that Chase Manhattan Bank, the second-​largest lender to South Africa,
had ceased extending credit to South Africa. Other banks followed suit during August
and the Rand dropped to a record low on 27 August 1985. ‘South Africa’s long and mostly
favoured relationship and status with private international banks and its international
financial market in general, had reached its nadir’ (Padayachee 1989: 242).
Gelb and Innes (1985), in an important intervention about the post-​1980 economic
crisis confronting South Africa, argued that the state’s efforts at adopting a monetarist
approach to resolve the crisis would fail, as it depended on high economic growth which
looked impossible as long as the political–​economic crisis persisted—​a double bind
(1985: 39).
For the reasons already referred to, including tightening international sanctions and
domestic resistance to apartheid, South Africa in the final five years of National Party
rule, the government was forced to consider opening negotiations with the liberation
movements, including the African National Congress.
On balance, we would argue that the initial conditions of the South African economy
in 1994, viewed from a macroeconomic-​balance perspective, were not those of extreme
instability of the kind which had characterized some developing countries at the point
of their economic and political transition (Padayachee and Van Niekerk, 2019).
62    Bill Freund and Vishnu Padayachee

3.8 Conclusion

We would argue that growth rates in the 1960s and early 1970s, the two decades from
1973 were for South Africa ones of declining economic growth, falling net investment,
rising unemployment, falling average real wage rates, and unacceptably high levels
of poverty and income inequality. The levels of provision of physical and social infra-
structure for the majority population were totally inadequate. However, a tight mon-
etary regime ensured that there was relative price stability and that the inflation rate was
relatively low; and foreign debt, due to special circumstances, had been reduced to very
low levels compared with other indebted middle-​income developing countries. The real
macroeconomic problem lay in the fiscal side and in the external account, where, since
1985, the apartheid regime had been forced to run trade account surpluses to meet debt
repayments and to compensate for large net capital outflows.
The years of National Party rule (1948–​94) brought about an affluent consumer so-
ciety with sophisticated institutions and oligopoly c​ontrolled businesses, largely
orientated to and enjoyed by a white minority, a proportion of the population which was
steadily shrinking. This minority on the whole had succeeded fairly well in surviving its
lost state power thanks to the advantages accrued before 1990. For the majority, the ver-
krampte social vision meant that Blacks were dramatically deficient in capital and skills,
and their social needs in an industrializing and urbanizing society were poorly catered
for. This was the inheritance with which the post-​1990 negotiations had to cope. It is
harder to make the case quantitatively but the continued reliance on natural resources
and heavy industry—​the minerals-​energy complex as it was dubbed by Fine and
Rustomjee tellingly—​took a large environmental toll as well on South Africa’s previous
natural state; costs here are only incrementally being put on the table as critical envir-
onmental analysis of energy use and the state of water supplies takes shape. Greenpeace
has estimated that ‘the economic impacts of air pollution from fossil fuels is important
to consider in the context of Eskom’s massive debt crisis, which amounts to over R400
billion’. According to this report, the estimated total cost of air pollution from fossil fuels
in South Africa is a staggering Rand 94.7 billion every year.2
South African capital was hungry to be mobile and free from state constraints, to
join in the new wave of ‘globalization’ sweeping the globe but which the opprobrium
generated by South Africa’s version of capitalism made difficult or impossible. It was
ironically the fruit of the very process that had empowered South African private capital.
This led business leaders to defy the government and begin discussions with the ANC.
Even Afrikaner business leaders such as Anton Rupert, for example, as well as aligned
Afrikaner academics, did the same. Some of the classic developmental initiatives of the
mid-​century were failing. ISCOR, for example, had become very unprofitable and in

2
https://​www.greenpeace.org/​africa/​en/​press/​8939/​air-​pollution-​from-​fossil-​fuels-​costs-​the-​world-​
r120-​billion-​every-​day-​greenpeace/​.
 The Economic History of South Africa 1948–94    63

1989 the state was thrilled to be able to sell it to an international buyer. The huge 1987
gold mine strike was successful in leading to union recognition for Black miners but
it also led to many dismissals. The gold-​mining industry, increasingly mechanized,
has declined in gold production and number of employees ever since. Eskom, for long
the poster boy of National Party development, gets pushed aside in the late 1980s by
P. W. Botha, a prime minister eager to favour nuclear power in Koeberg, and a growing
military industrial complex represented by Armscor as icons of South Africa’s techno-
logical sophistication (see Freund 2019: 174). Here the need to show off the country’s
national capabilities may have run counter to the liberalizing trends being pushed
onto the policy agenda by some key figures in the state. To some extent the election of
F. W. de Klerk in 1989 resolved this tension in favour of the market-​oriented reformers.
We conclude by looking at the interpretations of this period by two well-​known
historians, each with a different take on the overall performance of the South African
economy. The Yale historian Jacob Dlamini reminds us that some view the second half of
the twentieth century in South Africa with a certain nostalgia, as an era of fairly robust
(even speculative) economic growth, efficiency, a capable state bureaucracy, and order.
In this vein he quotes the Stellenbosch historian Herman Giliomee who argues that
apartheid delivered dynamic economic growth between 1948 and 1994 ‘accompanied
by the development of a sophisticated infrastructure and a steady increase in the life
expectancy of all population groups’ (2008: 666). Dlamini challenges this view, arguing
that the system was ‘messy, inefficient and violent. Apartheid did not work and, as a re-
sult, eventually collapsed under its own weight’ (2020: 14).

Acknowledgements

Bill Freund sadly passed away on 13 August 2020 and was not able to complete this
chapter. The editors of the volume asked me to do so. We found a two-​thousand-​word
draft of text and notes, which I used as a framework for the chapter and tried to write it
up in the style of Bill Freund as best as I could (Padayachee 1996).

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 Chapter 4

P olitics and E c onomi c

P olicymaking i n S ou t h
Africa sinc e 19 94

Alan Hirsch, Brian Levy, and Musa Nxele

4.1 Historical Introduction

For a little over two-​thirds of the twentieth century, South Africa was a profitable loca-
tion for investment in repression. Government-​enforced exploitation of Black labour
kept wages low in the resource sectors, centrally in the extraction of gold. From the late
1960s, as the gold fields reached and passed peak production, the integrated system
of racial repression and labour exploitation began to break down. But the rigidities
of the political system inhibited the kinds of reforms that could continue to produce
large surpluses (Gelb 1991). The growing incompatibility of the economic and political
systems and the inevitable, resilient struggle for freedom of Black South Africans led to
a series of crises that culminated in a political transition. This transition, coinciding not
by chance with the end of the Cold War, culminated in the political settlement enshrined
in South Africa’s 1994 elections and its democratic constitution agreed in 1996.1
Struggles for power have continued through the short history of the young democ-
racy. In this chapter we consider the formulation, adoption, and implementation of
economic policies of the new Republic within the evolving political economy of post-​
1994 South Africa and observe how the allocation of political and economic power has
influenced economic policy.

1 The end of the Cold War, through weakening the remaining ‘Western’ support for South Africa as a

‘bastion against communism’, put pressure on F. W. de Klerk and the National Party to engage with the
African National Congress (ANC), as well as putting pressure on the ANC to negotiate (Guelke 1996) .
 Politics and Economic Policymaking in South Africa since 1994    67

4.2 Key Players

in South African Politics

South Africa is a complex society. The schema presented here is a simplification of the
social actors around 1994.

4.2.1 Big Business/​Business
The economy was dominated by a few very large firms owned mainly by white South
Africans. ‘The corporations that grew to dominate the South African economy were
formed during colonialism and apartheid. They grew around a core of finance, mining
and minerals-related activities. By the 1980s, four diversified conglomerates and two fi-
nancial companies dominated ownership and control over most of the economy’ (Seeraj
Mohammed 2019).
During the 1980s, conglomerates absorbed subsidiaries of multinationals which
were divesting under political pressure to observe trade and investment sanctions. The
conglomerates had few investment outlets for their profits which were penned into
South Africa due to capital controls, and their investment targets were fire-​sale bargains.
By 1992, the five largest firms owned 85.7 per cent of the market capitalization of the
Johannesburg Stock Exchange (JSE). These firms, and similar ones, were notorious for
their predatory and collusive behaviour and form part of the reason for the weak mittel-
stand (medium-​size industrial companies) and the relative absence of dynamic SMEs in
South Africa (Lewis 1995; Kaplinsky and Manning 1998).
Formal business organization has tended to be fragmented, but relatively briefly
during the mid-​2000s business united in the peak organization Business Unity South
Africa.

4.2.2 Black Business
Almost until 1994, Black South Africans were hugely restricted by law and were blocked
from owning large businesses or accumulating wealth. Though most severe for African
South Africans, Black South Africans, those classified coloured and Indian were also
affected. All Black South Africans were restricted to owning business and property in
their ‘own group areas’, which excluded white-​owned central business districts, suburbs,
and shopping zones. Nor were African South Africans allowed to own shares in public
companies. Even in their ‘own’ areas African South Africans were severely restricted
regarding the number and size of establishments. Few Black South Africans could be-
come prominent businesspeople, and when they did, it was through front companies
with white ‘paper owners’. In 1994, African Black-​owned businesses were organized into
68    Alan Hirsch, Brian Levy, and Musa Nxele

two main associations, National African Federated Chamber of Commerce and Industry
(NAFCOC) and Foundation for African Business and Consumer Services (FABCOS),
and among other pressure groups they lobbied for access to economic power.

4.2.3 Organized Labour
The largest formation in the organized working class was the mostly blue-​collar
Congress of South African Trade Unions (COSATU), the largest union federation
with a membership of about 1.3 million in 1993. The majority of COSATU members
were African. COSATU, forged during two decades of struggle for the freedom to
associate and negotiate, was ANC-​aligned, with powerful constituent industrial
unions. A much smaller blue-​collar union federation was the National Council of
Trade Unions (NACTU), which had been associated with the Black consciousness
movement. Many white-​collar workers belonged to centrist groupings. In 1997 they
formed the unaffiliated Federation of Unions of South Africa (FEDUSA) with 515,000
members including many white workers.

4.2.4 Black Middle Class

The Black middle class consisted of teachers, nurses, priests, police, shopkeepers,
‘taxi’ owners, and a few professionals. Only 12.2 per cent of Black Africans in 1995 had
incomes above the mean national income, of whom less than a quarter were in the top
income decile. Twenty-one per cent of those in the highest decile were African and
71 per cent were white (Levy, Hirsch, and Woolard 2015). In some definitions the middle
class consists of white-​collar workers, professionals, and managers, in others it includes
greater parts of the organized working class. What is most striking about class formation
in South Africa is the income cliff within the third decile (Levy, Hirsch, and Woolard
2015). One way of describing the cliff is that this is the division between ‘insiders’ and
‘outsiders’. Elsewhere we have defined the Black middle class as being people with more
than the mean income. If we exclude the ‘rich’, the top decile of income, there were three
million Black African people in the middle class in 1995 out of 31 million Africans. In the
top decile there were nearly 900,000 Africans—​2.7 per cent of the total Black African
population (Levy, Hirsch, Naidoo, and Nxele 2020).

4.2.5 The Precariat
A very large segment of the South African population can be described as the
precariat—​those in precarious forms of employment without long-​term contracts or
benefits. They include construction labourers, domestic workers, some service-​sector
 Politics and Economic Policymaking in South Africa since 1994    69

workers, low-​level private security workers, some farmworkers, and much of the in-
formal sector.

4.2.6 The Poor
The remainder of the population were simply poor. These are households with no one in
regular employment while some received remittances and/​or social grants. One analysis
put this group as 50 per cent of the population in 1997, almost all of whom are Africans,
and an unusual proportion of whom (by global benchmarks) were located in rural areas
(Leibbrandt, Woolard, and Woolard 2007).

4.2.7   Whites
In the 1996 population Census, 4,434,697 whites made up 10.9 per cent of the total popu-
lation of 40.6 million. Average per capita income for whites was double that of Indians,
5 times that of coloureds and 7.5 times that of African South Africans. The national Gini
coefficient was estimated at 0.69. While 62 per cent of Africans fell below a poverty line
set at R250 in 1996 Rands, only 3 per cent of whites did. Not all whites were rich, but al-
most none were poor (Leibbrandt, Woolard, and Woolard 2007).

4.2.8 The State
In 1994, the ANC came into power in a Government of National Unity—​this was the
negotiated form of government until the final constitution was adopted two years later. The
ANC won the national vote and control of seven of the nine newly demarcated provinces
which replaced four provinces and nine Bantustans in the old regime. Yet, the central
state and the four legacy provinces still reflected the old regime in the composition of em-
ployment (managers and professionals were largely white) and in structure. Around 1.27
million people were employed in national and provincial government in 1995. Nine puppet
Bantustan regimes, designed in part to build a pliant Black bureaucratic middle class, still
had to be dismantled and absorbed as were many racially defined parallel structures such
as in security services, health, and education. Employment in puppet authorities trebled
between 1980 and 1994 to nearly 250,000 people (Botha 1995). There were several hundred
thousand employed in the municipalities (Hassen and Altman 2010).

4.2.9 The Political Parties

The ruling party in white-​controlled South Africa from 1948 to 1994 was the National
Party (NP)—​the party that formalized segregation into the rigidly oppressive apartheid
70    Alan Hirsch, Brian Levy, and Musa Nxele

system. The NP won 20.4 per cent of the vote in 1994. The main white opposition
parties were the Freedom Front to the right of the National Party and the Democratic
Party (DP) on its centre-​left—​together they won 4 per cent of the vote in 1994. More
successful was the Inkatha Freedom Party which was based in the largest single ethnic
group—​Zulus. The IFP won 10.5 per cent of the vote, also attracting conservative non-​
Zulus in the KwaZulu-​Natal province. The ANC, which won 62.6 per cent of the vote,
had a clear majority in the national assembly and most of the provinces, but in terms
of the interim constitution a government of national unity was to rule until 1999. The
ANC included cabinet members from other parties even beyond 1999. The centrist DP
never joined the cabinet, and the NP withdrew soon after the finalization of the consti-
tution in 1996.

4.3 Mapping Out Strategies Pre-​1990

By the 1980s, apartheid was under attack by organized Black opposition groupings in
the workplace and in communities, countered with violent repression and states of
emergency. The apartheid state closed ranks in a ‘total strategy’ in response to a ‘total
onslaught’ (Morris and Padyachee 1988).
Economic policy shifted selectively towards neo-​ liberal economic policies
pioneered in the United Kingdom and the United States in the 1980s and included
some liberalizing labour market reforms. International economic relations remained
protectionist and state controlled through tariffs, capital controls, and subsidies for
large companies (Hirsch 2020). State-​owned enterprises (SOEs) and agricultural
cooperatives were corporatized and directed towards privatization (van Rooyen
et al. 1996).
As the apartheid state weakened in the face of uprisings, dissent within the white
elite, boycotts, and economic sanctions, the politics of negotiation began. In 1985, some
business leaders met with the ANC and there were secret meetings between minister of
justice Kobie Coetsee and Nelson Mandela (Evans 2020).
Manoeuvring for position, big business built bridges to the ANC and began to advo-
cate neo-​liberal lassez-​faire policies. The ANC issued two documents, ‘Constitutional
Guidelines’ published in 1988 and the 1989 ‘Harare Declaration’, which began to position
the ANC closer to the centre compared with its more radical economic stance during
much of the period of exile (Hirsch 2005: ­chapter 3).
In the late 1980s and early 1990s, several research groupings supporting the devel-
opment of economic policy for the ANC emerged, including the COSATU-​linked
Economic Trends and Industrial Strategy research groups, the London-​based Economic
Research on South Africa (EROSA) and Centre for Research into Economics and
Finance in Southern Africa (CREFSA), and the Macroeconomic Research Group or
MERG (see Hirsch 2005 and Padayachee and van Niekerk 2019).
 Politics and Economic Policymaking in South Africa since 1994    71

4.4 Economic Policy and the Political

Settlement, 1990–​96

On 2 February 1990, the National Party government announced that the ANC and other
illegal political organizations were unbanned, along with their leaders, some of whom
were released from prison. To the consternation of big business, Mandela strongly
advocated the nationalization of large companies, partly in response to NP moves to-
wards the privatization of SOEs. Mandela successfully halted the privatization process
by threatening to renationalize those privatized during the transition period.
From 1990, the ANC Department of Economic Planning published several documents
culminating in the 1992 policy document ‘Ready to Govern’ and the 1994 election mani-
festo the ‘Reconstruction and Development Programme’ (RDP). Combining growth
with redistribution was the challenge, and various formulations were put forward
within ANC policy circles including Asian-​style development funding in the MERG
report (MERG 1993), Asian-​style industrial policy in the ‘Industrial Strategy Project
Report’ (Joffe et al. 1994), Keynesian-​style demand-​led policies in the 1990 ‘Discussion
Document on Economic Policy’, and conventional positions on trade and investment
in the ‘Ready to Govern’ document. Nationalization receded from the agenda. Though
the RDP election manifesto seemed to be a coherent document balancing macroeco-
nomic caution with major reforms, the reality was that the ANC and its allies, the South
African Communist Party and COSATU, did not agree on many aspects of economic
policy and there was no agreed vision of what economic development would look like in
South Africa (Natrass 1994; Hirsch 2005; and Padayachee and van Niekerk 2019).
Big business mobilized to influence the direction of economic policy. ‘In late 1988,
following a high-​level meeting between business leaders and representatives of the
Mass Democratic Movement in Broederstroom, the Consultative Business Movement
(CBM) was formed. The initial focus was on consultation and relationship building
with key political players, such as the African National Congress (ANC) and Inkatha
Freedom Party (IFP)’ (Eloff and Fourie 2006). Corporations undertook scenario
exercises drawing in leadership from the ANC and other influential constituencies. Ten
years of declining per capita income in South Africa between 1984 and 1993, the conser-
vative messages coming from business, and the influence of the international financial
community contributed to the ANC’s aversion to ambitious reforms. The ANC repeat-
edly voiced a commitment to a conservative macroeconomic policy, not wanting to re-
peat the errors of the Latin American debt crises of the 1980s and 1990s which it saw as
risking national sovereignty (ANC 1990, 1992, 1994; Kahn, Walton, and Senhadji 1992).
Economic policy during the 1990–​94 transition was hampered by government’s weak
legitimacy and by the continuation of an economic slump. The need for transitional
decision-​making gave rise to the Transitional Executive Council (comprising govern-
ment and ANC) and the National Economic Forum (government, business, labour, and
72    Alan Hirsch, Brian Levy, and Musa Nxele

informally ANC). Some issues addressed were participation in the Uruguay Round of
the GATT, corruption in the customs services, and obtaining short-​term finance from
the International Monetary Fund.
Signalling that the new government would be cautious in its economic policies,
Derek Keys, the finance minister in the outgoing NP government was reappointed by
new President Nelson Mandela. Months later Keys left for a top position in London and
was replaced by a white banker, Chris Liebenberg. Mandela made this decision because
‘the boys from the stock exchange and elsewhere seem to be very jittery’. He assured
journalists there had been ‘no change whatsoever in government policy’ (Hirsch 2005:
67). When Liebenberg was replaced with an ANC minister of finance, Trevor Manuel,
the Reconstruction and Development Ministry and Office were closed, the rationale
being that now that the ANC directed the budget, separate offices were not required.
Some saw this as a conservative step, though in practice the RDP Office achieved very
little (Marais 1998: 191).
While the ANC and its allies researched economic policy during the transition, the
new government did not have a clear economic development policy. President Mandela
was preoccupied with peace, stability, and reconciliation in the face of a range of real and
present dangers. The national army and police were as yet untransformed, and there had
been violent dissent from conservative whites and the IFP around the elections. In an
era of violent conflict in Rwanda, Northern Ireland, and former Yugoslavia, the key task
was to preserve peace (Mandela and Langa 2017).

4.5 From GEAR to Polokwane, 1996–​2007

The apartheid system was founded on conflict, constructed as a zero-​sum game. Until
1972, the wages of Black African mineworkers, the core labour force, failed to rise in
real terms—​they generally remained below 1911 levels. The ratio of white mineworkers’
wages to Black rose from 11.7 in 1911 to 20.9 in 1971 (Wilson 1972; Lipton 1986). In 1995,
71 per cent of the richest 10 per cent of South Africans were white. The average per capita
income of Black South Africans was R5,144.68 while whites had an average per capita
income of R 35,907.41.
The bulk of the ANC’s constituency were the poor, the dispossessed, and the
oppressed. The remainder were organized workers and much of the relatively small
Black middle class. A successful economic programme needed to address all their
needs. This meant jobs or relief for the poor. Unemployment had risen to 20 per cent
by 1994 and was rising rapidly as employment in gold-​mining and other primary
sectors declined in the absence of growth in other sectors. The unemployment rate was
29 per cent for Africans and 4 per cent for whites (Statistics South Africa 1998: 3–​4).
COSATU unions were a powerful force in the ANC alliance and expected significant
improvements in wages and workplace conditions. Economic success for the ANC also
meant a considerable expansion and improvement for the Black middle class.
 Politics and Economic Policymaking in South Africa since 1994    73

The ANC feared antagonizing white South Africans because of political risks, but also
because white South Africans possessed much of South Africa’s wealth and skills, which
were critical for economic recovery and growth. When Mandela visited Washington,
DC, in 1994, accompanied by a group of South African business leaders who had been
prominent in the apartheid era, the UK ambassador to Washington Robin Renwick
congratulated him on his magnanimity. ‘Mandela replied, with understandable
bitterness, that he forgot nothing, nor did he forgive, but that he needed them now’
(Renwick 2015).

4.5.1 Building Structures of Cooperation

One of the first steps of the new government was the establishment of the National
Economic Development and Labour Council (NEDLAC). This resembled the transi-
tional National Economic Forum, but it also represented the idea that, unlike the apart-
heid system, benefiting from the economy was not a zero-​sum game—​rents would not
be monopolized by one interest group. NEDLAC embodied the idea that a successful
economy could be built through cooperation rather than conflict. The main purpose of
NEDLAC was to act as a forum at which economic policies were agreed to by the major
social partners—​government, organized labour, and business, mainly big business.
A community constituency was also present but was the least representative of the
delegations.
NEDLAC is required by law to act as the forum at which labour law reform is
negotiated, but other social and economic policies and laws were also to be discussed
at NEDLAC. The NEDLAC agreements on labour law (and other laws which are volun-
tarily negotiated through NEDLAC) must go to Parliament for further debate but need
to return to NEDLAC if any of the tripartite agreements are challenged in Parliament.
NEDLAC has four chambers: the labour chamber, the trade and industry chamber, the
macroeconomic chamber, and the development chamber.
The labour chamber negotiated four reforming labour laws during Mandela’s presi-
dency. The composition of the bargaining parties was critical to the outcome of the
negotiations. The strongest elements in the union delegation were the major industrial
unions of COSATU, the dominant federation, closely aligned to the ANC. The leading
negotiators on the side of business were drawn from business federations and large
corporations which had the resources to hire industrial relations managers. The govern-
ment delegation to the labour chamber was composed largely of former union officials.
The result of NEDLAC negotiations over labour regulation reflected the point of
agreement between big business and big labour. Small firms and competitive industries
were thinly represented, and their voices faint. The outcome was progressive legisla-
tion for industrial relations and employment conditions which large profitable firms
could accommodate. Exemptions for small firms were marginal, and only for very
small firms. No formal allowance was made for labour-​intensive firms in regions of
high unemployment; instead it became accepted practice that sectoral agreements
74    Alan Hirsch, Brian Levy, and Musa Nxele

between unions and employers were extended by the minister of labour to ‘non-​
parties’. Relatively high wages and high standards of employment conditions were also
required of less competitive firms with lower unionization, often outside of the major
urban centres. This put poorly skilled and poorly educated workers in rural towns at
a disadvantage and probably discouraged labour-​intensive investments (Nattrass and
Seekings 2014).
While NEDLAC was implementing labour laws, reflecting an orientation towards
what COSATU called a ‘high-​wage, low-​cost economy’ (Masiya 2014), trade and macro-
economic policy headed in another direction. Early salary negotiations by government
had led to expensive commitments in a still mediocre economic environment. Attempts
at restructuring government finances in the context of false rumours about the health
of President Mandela, and an adverse reaction in financial circles to the appointment
of ANC leader Trevor Manuel as finance minister, led in mid-​1996 to the introduction
of the Growth, Employment and Redistribution strategy (GEAR). It was a home-​grown
structural adjustment programme—​most notably an ambitious fiscal deficit-​reduction
target, trade tariff reduction, privatization, relaxation of foreign exchange controls,
moderation of public-sector wage growth, and an anti-​inflationary monetary policy.
GEAR also had stimulatory elements such as a commitment to a competitive exchange
rate, tax holidays for investment, an expansion of infrastructure investment, and a levy
system to fund employee training, but the overwhelming impact came from the struc-
tural adjustment elements. Tension between a competitive exchange rate policy and an
inflation-​wary stance was resolved, de facto, in favour of the latter.
Trade liberalization went beyond the 1994 Marrakesh Agreement of the GATT/​WTO
in the belief that getting the prices right would encourage investment in export-​oriented
labour-​ intensive businesses. While some analytical work found positive dynamic
outcomes from the trade reform (Jonsson and Subramanian 2001), labour-​intensive
industries such as garments, footwear, and leather were decimated by the medium-​term
effects of the reforms despite subsidies and incentives designed to cushion the blow
(Erten, Leight, and Tregenna 2019). The Treasury had little appetite to support active
measures to build global competitiveness.
A further contributing factor to industrial decline was that the South African Reserve
Bank, pre ​occupied with the fast-​growing money supply, hiked rates sharply to defend
the currency against depreciation to protect itself from exposure in forward currency
markets after ill-​advised currency swaps intended to reduce the rate of depreciation
(Hirsch 2005: 103–​5). Reserve Bank reaction to a currency collapse at the end of 2001
again led to excessively high interest rates and an overvalued currency which, unfortu-
nately, coincided with China’s accession to the WTO to the severe detriment of the non-​
traditional tradable sector of the economy.
Competition policy reform was embodied in the Competition Act of 1998 which
established a Competition Commission and Tribunal with sharper teeth than the pre-
vious regime. Still, it was limited by the inhibition of the competition authorities to act
against prohibited practices outside of a proposed merger. In mergers, workers’ rights
were protected. Negotiated in NEDLAC, it may be reductionist, but outcomes defending
 Politics and Economic Policymaking in South Africa since 1994    75

the interests of big labour and big business could be interpreted as a deal at the expense
of smaller, competitive companies.
Tight macroeconomic policies provided a greater share of government revenue to
fund significant social improvements in the late 1990s and the 2000s. Mass housing
programmes were an initial target for government. Investments led to much improved
social infrastructure services, notably water supply and electricity access, while educa-
tion and health services broadened rapidly. Pension payments (which during apartheid
years had been generous for whites) were universalized and equalized. A Child Support
Grant—​the main form of support for indigent families—​was introduced in 1998 and
already reached 3 million children by 2003. By 2010, after the maximum eligibility age
was raised several times, more than 10 million of the poorest children in a country with
a total population of less than 50 million at that time were receiving child support grants.
Social security transfers rose to 3.5 per cent of GDP by 2009, representing a concerted
attempt to ameliorate severe poverty in the absence of comprehensive unemployment
insurance (Levy, Hirsch, Nxele, and Naidoo 2020: 14–​15).
A further development after the GEAR macroeconomic targets were met was a con-
siderable improvement in growth performance, depicted in Table 4.1. Government and
private-sector investment rates picked up with consequent improvements in growth,
per capita income, and employment. Unemployment fell from over 32 per cent in 2003
to under 22 per cent only five years later, in 2008.

4.5.2 The Politics of Growth

Pritchett and Werker (2012) introduced a conceptual framework, structured in part
around ‘the rents space’, dividing firms into four different types according to a two-​
dimensional quadrant. This is depicted in Figure 4.1. The two dimensions are exporters

Table 4.1: South African real annual economic growth, 1990–​2019

Year Growth rate1 Growth rate per capita income2 Private-sector fixed investment3

1990–​93 –​0.56% –​2.97% 13.81%

1994–​2000 2.90% 1.06% 13.89%
2001–​04 3.48% 2.18% 13.20%
2005–​08 4.86% 3.52% 17.00%
2009–​12 1.75% 0.25% 16.86%
2013–​19 1.18% –​0.29% 16.21%

Source: World Bank national accounts data and OECD National Accounts data files (2020).
Notes: 1 Annual percentage growth rate of GDP at market prices based on constant local currency.
2
GDP per capita growth (annual %). 3 Gross fixed capital formation, private sector (% of GDP).
76    Alan Hirsch, Brian Levy, and Musa Nxele

High-rent Competitive
RENTIERS MAGICIANS
Natural resource exporters, Manufacturing and service
Export-
agricultural concession exporters, other agricultural
oriented
exporters exporters

POWERBROKERS WORKHORSES
Legislative monopolies or Importers, traders, retailers,
Domestic
oligopolies, natural monopolies subsistence farmers, local
market
or oligopolies, government manufacturers, producers of non-
services tradeables
Figure 4.1 The market matrix: alignment of elites into rentiers, powerbrokers, magicians, and
workhorses
Source: Pritchard and Werker (2012 53).

versus domestic market-oriented, and firms dependent on regulatory rents versus those
relying on success in market competition. ‘Rentiers’ are export oriented but reliant on
regulatory rents—​typically they are natural resource extractors, though they could
export other products into world commodity markets. They are reliant on governments
to give them the right to sell resources belonging to the state and the people (Pritchett,
Sen, and Werker 2018: 22).
‘Magicians’ are exporters in competitive markets—​ they rely on innovation,
branding, or productivity and can be in manufactured goods or services markets.
‘Powerbrokers’ are domestic-​market suppliers relying on favourable regulation and
can include sectors like telecommunications, power, or petroleum-​refining. Finally,
‘workhorses’ are oriented towards the domestic market and operate in a competitive
environment.
In the hothouse environment of sanctions and economic isolation, the late apartheid
state had strongly favoured the rentiers and the powerbrokers, while the workhorses
operated behind protective barriers and magicians were few and far between. This
placed firms reliant on regulatory favour in a powerful position during and after the
transition to a more open economy. Powerbrokers, which in South Africa include the
SOEs and the financial sector (see Chapter 47 on financialization by Karwowski), tend
to favour red tape ‘where the impetus may come from strong politicians or bureaucrats
creating rents for themselves or their cronies, or from strong businesspeople buying off
politicians and bureaucrats to entrench their market position. The problem is that they
advocate for policies that are detrimental to firms in the other quadrants’ (Pritchett and
Werker 2012: 56).
Competition policy, innovation policy, and investment incentives were founded
on the desire for more competitive workhorses and magicians. But they were not suf-
ficiently well designed or given adequate resources to tilt the balance away from the
rentiers and powerbrokers. Moreover, the commitment of key actors to these reforms
had shallow roots (Hirsch and Levy 2018: 3–​4).
 Politics and Economic Policymaking in South Africa since 1994    77

The relative strength of the rentiers and powerbrokers relative to the magicians and
workhorses (reflected in the business delegation to NEDLAC) provides some of the ex-
planation for the peculiar combination of policies in the new democratic state.2
The lack of an alternative economic development strategy was exemplified in unre-
solved competition and contestation within government and within the ANC Alliance.
During 1996, three separate, overlapping, and conflicting economic policies were put
forward by different parts of government. In addition to GEAR which was driven by
the Treasury, the Reconstruction and Development Ministry produced a draft National
Growth and Development Strategy, and the Ministry of Labour published the report of
the Presidential Labour Market Commission. The RDP office’s draft never saw the light
of day, the Labour Market Commission saw the less ambitious aspects of its proposals in
the formation of NEDLAC, while only the structural adjustment elements of the GEAR
strategy were implemented with vigour.
As NEDLAC narrowed into a forum mainly to negotiate labour law, President Mbeki
sought to engage major interest groups in another structure—​what the Presidency
called ‘working groups’. President Mbeki and his immediate successor Motlanthe met
regularly with different working groups representing big business, Black business, la-
bour, religious leaders, and university leaders, and sometimes he met with combinations
of these groups. Mbeki also established an International Investment Advisory Council
and an International Information and Communications Technology Council made up
of weighty global players in their fields and a local presidential economic advisory panel
to provide him and his ministers with advice and feedback. But this helped relatively
little in achieving an economic development programme that committed the whole of
cabinet to a coherent set of goals and actions.
The decline of the manufacturing sector’s contribution to employment and output
is symptomatic of the weakness of firms which rely on market competition (Roberts
2014). Within export-​oriented manufacturing only rentier companies thrived—​good
examples are the aluminium smelters that relied on a cheap electricity deal with the
state-​owned electrical power supplier Eskom, and the automobile sector, which relied
on a hugely subsidized Motor Industry Development Program.
The high margins earned by oligopolistic upstream suppliers and manufacturers in
South Africa are widely documented. The historical pattern has been for rent-​distributing
industries to share their high margins with unionized workers (Worgetter 2014;
Mahajan 2014; Fedderke 2014).
For significant periods, the rate of investment in R&D was relatively high in South
Africa, an indicator normally associated with a dynamic, innovating economy. However,
research was not strongly steered towards industrial innovation (Kaplan 2014).
During the economic boom of 2004–​08 when the growth rate was around 5 per cent
per annum and about two million jobs were created, few of them were created in the

2
The NEDLAC Executive Council is dominated by big labour and big business—​mining and finance
in particular. See e.g. NEDLAC (2007: 19).
78    Alan Hirsch, Brian Levy, and Musa Nxele

competitive export-​oriented sector or in the workhorse sector. Though capacity utiliza-

tion remained at record levels for an extended period of time, investment in new pro-
duction was disappointingly low.
Foreign investment into South Africa has tended to flow as portfolio investment into
the high-​yielding rentiers and powerbrokers or as the purchase of cash cows in these
sectors. Funds have also flowed to finance government debt, but foreign investment in
workhorses and magicians is rare in South Africa (Black 2014).

4.5.3 BEE—​A Strategy for Elite Transformation

The effort to shift power within the elite and to support growth in competitive sectors
resulted in the early shape of the Black Economic Empowerment programme. The gov-
ernment had to contend with an incumbent (white) business class which recognized
the necessity of altering the colour of ownership and control but sought to do so on its
own terms. At least as challenging was the task of navigating between disparate ideo-
logical factions within the ANC. Nor were the political pressures only ideological.
There were also new waves of political leaders, with strong incentives to use their
new ​found political power over state resources to create business opportunities for
their allies.
The initial response of policymakers and political leaders was to try and contain the
struggle over ownership within a broader discourse around economic transformation.
They sought ways of addressing the seemingly contradictory interests of the various
protagonists without undercutting efforts to reincorporate South Africa into the global
economy and to foster economic growth. Efforts focused on new firm development, af-
firmative action in the workplace, and measures to support the enhanced education of
Black people who had the potential to be professionals, managers, and business leaders.
Indeed, the term ‘empowerment’ was not included in ANC economic policy documents
before the 50th National Conference in Mafikeng in December 1997 where the ANC
called for

a National Empowerment Policy that will focus on those who have been historic-
ally disadvantaged and particularly black people, women, youth and the disabled
and rural communities. The empowerment process must constitute part of a more
radical and profound change in social relations. Changing ownership and workplace
relations are part of this wider process of empowerment.
[. . .] The ANC government should ensure the implementation of a vigorous af-
firmative procurement policy which will ensure that government and parastatals fa-
cilitate awarding of tenders to our people through approved mechanisms.

This was still largely a growth-​oriented approach, focusing on new firm development,
affirmative action, and the skilling of Black South Africans, though voluntary empower-
ment deals in the 1990s foreshadowed patterns accentuated under Mbeki.
 Politics and Economic Policymaking in South Africa since 1994    79

The BEE process accelerated, spurred in part by a 1998 economic contraction and
stock market decline crisis which left many Black beneficiaries of initial rounds of deals
without the cash flow needed to meet their BEE-​related financial obligations and led to a
decline of Black ownership on the stock exchange from 8 per cent to less than 4 per cent.
BEE became increasingly central to the objectives of the ANC, and its protagonists and
beneficiaries became increasingly influential within the party.
A central pillar of this accelerated response was an effort to establish a system of
rules within which to manage BEE expectations and pressures. Milestones in this effort
included:3

• The establishment in 1998, at the urging of the Black Management Forum, of

a BEE Commission, with the task (as President Mbeki put it) ‘to answer the
question—​how do we promote the formation of a Black bourgeoisie which will it-
self be committed and contribute to Black economic empowerment?’ Chair of the
commission was Cyril Ramaphosa, former unionist, later to be president.
• The passage in 2002 of a Mineral and Petroleum Resources Development Act
(MPRDA) which required owners of ‘old-​order’ mineral rights to convert to ‘new-​
order’ rights subject to conditions of meeting BEE imperatives.
• Finalization of the BEE Commission’s report and release of an official strategy
document in 2003, followed by promulgation in 2004 of the Broad-​Based Black
Economic Empowerment (BBBEE) Act.

The 2004 BBBEE Act went beyond a narrow pre o ​ ccupation with ownership. Its
implementing framework laid out a balanced scorecard which set targets for ownership
and management control, for skills development, and support for subcontractors and
other SME(small and medium enterprises), as well as socio-​economic development more
broadly. The expectation was that each economic sector would detail a quasi-​voluntary
sectoral ‘charter’ aligned with the framework laid out in the legislation. The only
enforcement mechanism was that to have access to public procurement opportunities,
companies needed to be BEE compliant.
The combination of voluntarism and rule-​focused BEE remained largely consistent
with the continuation of strong formal institutions. But there was also a shadowy side
to the new government’s use of economic power. There was the desire of top political
leadership to ensure that trusted allies would be the beneficiaries of ongoing efforts to
change the colour of business. There was a need on the part of the ANC to finance its
activities. Inevitably, there also was an opportunistic desire on the part of some influ-
ential insiders to use their political influence as a platform for private economic enrich-
ment and empire building. Examples of how this played out in practice include:

3
For details, see Hirsch (2005), Tangri and Southall (2008), Mpanza (2016), Plaut and Holden (2012),
and Harvey (2015).
80    Alan Hirsch, Brian Levy, and Musa Nxele

• Arms deals in the 1990s: after a defence review was completed, arms RFPs were
issued for a range of conventional naval and air force equipment. The exercise was
muddied by several kickbacks and side-​deals under the cover of helping the ANC
and supporting empowerment, including one which implicated the then deputy-​
president, Jacob Zuma.
• A series of murky deals in the early 2000s involving the newly formed SOE
PetroSA, the United Nations ‘oil for food’ programme in Iraq, and a little-​known
BEE consultancy company—​all seemingly linked to the ANC’s efforts to raise fi-
nance for the 2004 election campaign.
• A multi-​billion-​Rand procurement contract, awarded in 2004 by the state-​owned
electricity company, Eskom, through an obscure process, to a joint venture between
Hitachi Power Systems and Chancellor House (the investment arm of the ANC) for
the boilers for the massive coal-​fired Medupi electricity-​generating plant.
• Also in 2004, the purchase by the BEE ‘elephant consortium’ (headed by the former
director general of the Ministry of Telecommunications, and dominated by close
allies of then-​president Thabo Mbeki) of a controlling shareholding of South
Africa’s leading fixed-​line telecommunications operator, Telkom, with subsidized
support from the state-​owned Public Investment Corporation.
• A series of 2007–​09 deals by Vodacom (one of South Africa’s two largest mo-
bile telecommunications operators, partly owned by Telkom, but with control in
the hands of UK-​based Vodaphone ever since its establishment in 1993) which
resulted in:
i. A massive windfall to the ‘elephant consortium’ (as part owner of Telkom);
ii. Establishment of a new BEE consortium to partner with Vodacom, to be
headed by Bulelani Ngcuka, a close ally of President Mbeki and, earlier, dir-
ector of public prosecutions, a lead actor in efforts to prosecute Jacob Zuma for
corruption;
iii. After Thabo Mbeki lost an ANC leadership struggle to Jacob Zuma, the setting
aside of the Ngcuka-​headed consortium in favour of a more politically neutral
BEE arrangement with Royal Bafokeng Holdings.

Notwithstanding the multifaceted character of BEE and some signs of its corrosive
effect on formal institutions, the balance between rules and deals was still good enough
to provide an increasingly robust platform for the economy. Up to 2008 or so, growth
accelerated and extreme poverty declined.
The inclusion of Black South Africans into the capitalist class began through an ad
hoc set of private initiatives in the early 1990s and transformed into a rule-​based set of
programmes during the Mbeki presidency, in the early 2000s. Many of the transactions
of this era in practice straddled the boundary between rules-​ based and more
personalized deal-​making. While it might be argued that the seeds for a more expansive
series of deals and manoeuvres to enrich Black South Africans (and others) were planted
during the Mandela and Mbeki presidencies, prior to the assumption of power by Jacob
 Politics and Economic Policymaking in South Africa since 1994    81

Zuma, legitimate order remained dominant in a system where rules outweighed deals.
Government effectiveness, regulatory quality, and control of corruption all declined
considerably from 2009 onwards (World Bank 2020).
The period 1996 to 2008 was as volatile as South Africa’s open economy tends to
be, but there was more growth and, in the latter part of the period, faster growth than
South Africa had experienced for nearly fifty years. However, the ruling elite had failed
to shift the economy from one mainly dominated by large and powerful corporations
which were able to capture regulatory rents. Ownership had altered little (except for
greater foreign ownership, mainly through the stock exchange) and, if anything, the gap
between the white business elite and the Black governing elite had grown. Corporations
and investors sought to immunize themselves from the vagaries of policies rather than
joining hands with what the ANC called the ‘developmental state’. Inequality remained
extremely high, by some measures even higher than before. Social transfers, social
services, and social infrastructure investment had done relatively little to alter the fun-
damental circumstances of the poor. Despite higher growth, higher employment, and
higher wages, the populist surge in the ANC, which led to the ousting of the centrist
Mbeki-​led grouping, is understandable in part as a failure of inclusion. The ANC (2004)
noted that ‘many, many South Africans do not have jobs or decent self-​employment;
poverty is a reality for millions, while many cannot get credit to start or improve their
own businesses’. Pressure also arose for the inclusion of a broader segment of emerging
Black elite into the corridors of economic power.

4.6 Crisis and Decline, 2007–​17

In 2007, well into the first real economic growth spurt in nearly three decades, the
ANC and its allies turned away from Thabo Mbeki and his leadership team. Mbeki had
alienated too many elements of the ANC alliance. Organized labour and the Communist
Party blamed Mbeki for pushing through the neo-​liberal GEAR strategy in 1996 and
having remained unsympathetic to their causes. Some in the ANC saw Mbeki as an ar-
rogant leader. Former deputy-​president Jacob Zuma, who Mbeki had ousted after he
was implicated in a corruption trial where he was not among the accused, mobilized
Zulu nationalism and rural populism. The discontented unified behind Zuma (then re-
cently acquitted of rape in a marginal decision) and defeated the Mbeki faction at the
elective conference in Polokwane in December 2007. After a placeholder president,
Kgalema Motlanthe, was inserted to complete Mbeki’s term, Zuma took office following
the general elections in April 2009. Zuma won nearly 66 per cent of the vote, which
represented a drop from Mbeki’s nearly 70 per cent majority in 2004.
At first Zuma seemed to be carrying on the practices of the ANC government that
preceded him; in some respects, he improved them. Zuma’s policy to combat HIV/​AIDS
was far superior to his predecessor’s and represented a great success. Zuma also took a
82    Alan Hirsch, Brian Levy, and Musa Nxele

tough stance against Moammar Ghaddafi’s imperial ambitions in the African Union,
and later succeeded in getting a South African leader elected chair of the African Union.
A series of economic programmes were announced in the latter part of the first
decade of the twenty-​first century. First, the Accelerated and Shared Growth Initiative
(ASGISA) was announced by the Mbeki presidency in 2006. Its main objective was
to expand the growth capacity of South Africa through investment in human capital
(especially artisans and engineers) and to improve the performance of the economic
infrastructure. After Zuma came to power in 2009 ASGISA was shelved and replaced
with two parallel initiatives—​the New Growth Path led by minister of economic devel-
opment Ebrahim Patel, and the National Development Plan led by planning minister
Trevor Manuel who had been finance minister under the previous three presidents. In
addition, the minister of trade and industry had a national industrial strategy frame-
work and the finance minister had priorities of his own. As in previous administrations,
the president failed to knit these initiatives together or to choose among them and each
initiative continued to represent its own constituencies in a cacophony of policies.

4.6.1 The Impact of the Global Financial Crisis

on South Africa
Shortly before Zuma became president, the financial crisis in the United States morphed
into a global finance crisis. While 2008 was one of moderate GDP growth at 3.1 per cent,
the following year saw South Africa crash into recession with a 2 per cent decline in GDP.
In the course of 2009 nearly half of the two million jobs created between 2003 and 2008
were lost (Ravinder and Msomi 2017). South Africa experienced a combination of the First
World credit crunch (as its financial markets are deep as developing countries go) and a
Third World trade crunch as exports and trade finance evaporated. The credit crunch
followed an excess of lending that preceded the coming-​into-​force of tighter lending laws
in 2008. While few financial institutions were dangerously stressed, the tightening up of
credit markets had widespread effects. Added to this was an electricity-​generation bottle-
neck which began early in 2008. All this does not sufficiently account for the downward di-
vergence of South African economic growth after 2014 when compared with earlier trends
(see Figure 4.2).
The country remained deeply unequal along racial and economic lines. Table 4.2 shows
that twenty years of ANC government had not yet addressed the challenge of inclusion of
the poor and, in relative terms, inclusion into the middle class and the elite.
One partial measure of the incorporation of Black South Africans into the elite is
market capitalization in the Johannesburg stock exchange (JSE) commanded by ‘Black-​
controlled’ companies.4 Black-​controlled companies declined from 9.6 per cent of JSE

4
Black-​controlled companies are defined by an empowerment holding exceeding 26 per cent with no
other dominant shareholder.
 Politics and Economic Policymaking in South Africa since 1994    83

8.00

6.00

4.00

2.00

0.00
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

–2.00

–4.00

Upper middle income South Africa Middle income

Figure 4.2 South Africa’s GDP growth relative to upper-​middle-​and middle-​income countries
2008–​19
Source: World Bank national accounts data and OECD National Accounts data files (https://​data.worldbank.org/​
indicator/​NY.GDP.MKTP.KD.ZG?locations=XT).

capitalization in 1998, at the peak of the first wave of empowerment, to 5.5 per cent in
2007 and to 1.2 per cent in 2019, representing a poor rate of inclusion. Foreign ownership
through the JSE rose from 4 per cent in 1998 to a peak of 42 per cent in 2016, declining to
22 per cent in 2019 (Who Owns Whom 2020: 46).
The Zuma challenge to Mbeki exploited the failure of inclusion. Following Zuma’s as-
cension to leadership, another populist element emerged in the ANC which challenged
Zuma on his left. After expulsion from the ANC in 2012, Julius Malema formed the
Economic Freedom Fighters political party. Left-​wing populism rooted in the realities
of inequality acted as a cover for corruption.

Table 4.2: South Africa’s 2014 population distribution, by ethnicity and class

Total African Other Black White
% % % %

Chronic poor 49.5 46.9 2.5 0

Transient poor 12 10 2 0.1
Vulnerable 15 13 2 0
Middle class 20 9.5 4 6.5
Elite 3.5 0.6 0.5 2.4
% population 100 80 11 9

Source: Schotte, Zizzamia, and Leibbrandt (2017).

84    Alan Hirsch, Brian Levy, and Musa Nxele

At the 2007 conference in Polokwane where Zuma was elected president of the
ANC, a resolution on economic transformation that emphasized the role of SOEs also
contained the following paragraph, which gave a sense of the orientation of the new
ANC leadership:

The developmental state should maintain its strategic role in shaping the key sectors
of the economy, including the mineral and energy complex and the national trans-
port and logistics system. Whilst the forms of state interventions would differ, the
over-​riding objective would be to intervene strategically in these sectors to drive the
growth, development and transformation of the structure of our economy.

An era had begun where interventions in the name of economic transformation became
the staple of patronage within the political party machine called the ANC.
Corruption and abuse of state resources did not begin in the Zuma era, as earlier
noted. Initially such deals were rationalized as means of raising money for the ANC, but
individuals came to benefit greatly too. SOEs became the locus for many such deals after
2010 when Malusi Gigaba was appointed minister for public enterprises by Jacob Zuma.
Tracking the governance and operation of South Africa’s SOEs from 2010 to 2017
reveals the ‘formula’ used to try and repurpose them to serve the overlapping agendas of
‘radical economic transformation’ and private enrichment. This formula comprised the
following steps:

• Put in place a supportive minister of public enterprises

• Reshuffle the SOEs’ boards of directors
• Appoint a compliant/​supportive chief executive
• Override established rules governing decision-​making, especially those concerning
procurement—​including via direct intervention by the board in operations, as ne-
cessary for the over ​rides.

SOEs are responsible for a large part of government procurement; in 2010/​2011 when
state capture took off, SOEs were responsible for nearly 25 per cent of government
procurement—​the two largest SOEs, Eskom and Transnet, were each responsible for
more than 8 per cent of government procurement (Chipkin, Swilling et al. 2018: 113).
Overriding the rules requires not only capture of the SOEs but also compliant
institutions beyond the SOEs themselves. This helps to explain why efforts to deploy
loyal functionaries in both the justice system and the National Treasury were part of
the ‘state capture’ agenda. Many of the actions supporting state capture were justified
in terms of economic transformation in response to ‘white monopoly capitalism’. This
rationale was promoted by a secret propaganda campaign funded by the Gupta family,
facilitators and beneficiaries of corruption (Levy, Hirsch, Naidoo, and Nxele 2020: 35–​6).
Nine years of rule by the Zuma regime did not completely undermine state
institutions, but many, from small municipalities to important policy departments in
government, were critically damaged through the appointment of compliant/​complicit
 Politics and Economic Policymaking in South Africa since 1994    85

servants of the patronage machine. Urgent decisions such as digital migration, electro-
magnetic spectrum allocation, and energy policy were held hostage to the needs of the
patronage machine. Money was wasted on overpriced and misdirected contracts, and
policy processes stalled. Government finances were damaged and global credit ratings
began to decline. Business confidence seeped away, and the period after 2014 saw six
successive years of negative per capita growth (Bureau for Economic Research 2020).
Figure 4.2 shows the exceptional deterioration of South Africa’s economic perform-
ance since 2014. South Africa’s growth path diverged negatively from comparator
countries in this period. Relative and absolute deterioration continued post-​Zuma.

4.7 Can South Africa Start Over?

By the time of its December 2017 elective conference, enough delegates believed that
Zuma’s tarnished leadership threatened the electability of the ANC. The municipal
elections of 2016 showed an 8 per cent decline in the popular vote for the ANC, to 53 per
cent, and many ANC public representatives feared losing power and access to patronage
machines.
Zuma’s candidate for leadership lost by a small margin, handing the presidency of the
ANC to Cyril Ramaphosa’s reform ticket. Nevertheless, three of the ‘top six’ elected were
Zuma supporters and Ramaphosa’s margin of leadership was very small—​this was also
reflected in the divided composition of his cabinet, even after an initial reshuffle.
Ramaphosa was able to oust Zuma from the presidency of the country without
a pause and he announced his programme at the opening of Parliament in February
2018, invoking the values of Nelson Mandela: ‘We should put behind us the era of
diminishing trust in public institutions and weakened confidence in our country’s
leaders’ (Ramaphosa 2018).
Ramaphosa promised to tackle growing corruption in the state sector and in the pri-
vate sector. He sought a return to a model of cooperation based on trust and mutual
benefit which Mandela and Mbeki, in different ways, had pursued. This was reflected in
the many consultative processes he set up.
Ramaphosa retained some of the flagship policies of Jacob Zuma, such as the
development of a National Health Insurance system, the national minimum wage
(which Ramaphosa had steered), and free higher education for students from poor
backgrounds, but his approach most resembles the status quo ante.
Some reforms have begun to take root. The justice and crime prevention sector
which, save for the judiciary itself, had been gravely damaged in the Zuma era, began
to be reformed and judicial enquiries and prosecutions of the corrupt have since made
significant progress.
Yet, movement on many of the simple economic reform goals Ramaphosa committed
to has been painfully slow. Delayed policy execution is exemplified in the information
and communications technology sector where the digital migration of broadcasting
86    Alan Hirsch, Brian Levy, and Musa Nxele

scheduled to be completed by 2015 has still not started, the issuing of new spectrum
is delayed repeatedly, and the appointment of members of the communications regu-
lator by Parliament was repeatedly delayed and subject to excessive interference from
the minister of communications. The charitable explanation is incompetence, but the
underlying issue in this sector, in mining, in transport, in energy, and in other regulated
economic sectors is the struggle over the distribution of rents. Such rents had become
critical to the welfare of corrupt individuals and to different parts of the ANC patronage
machine.
Ramaphosa chose to address the corruption of the ANC through the slowly grinding
legal machinery of the state, which had been undermined in the Zuma era but was
slowly being rebuilt. He might instead have thrown his fate to the wind and drawn on
the support of a sympathetic media and public in a head-​to-​head confrontation. But
Ramaphosa, once a firebrand trade unionist, chose a more cautious route of avoiding
confrontation with the party machine unless it was unavoidable.
More than a year after he became president, at the 2019 elections the major social
partners, the major trade unions, and much of the business community supported
Ramaphosa’s ANC. Overall, support seeped from the centrist ANC and Democratic
Alliance to the political fringes.

4.8 Conclusion

South Africa’s mid-​1990s ‘political settlement’ seemingly transformed pre-​existing

patterns of inequality and power both economically and politically, with profound
consequences for inter-​elite relationships and the modes of incorporation of non-​elites.
The settlement included implicit promises to:

• rebalance political power and economic benefits between established and

emerging elites
• navigate potential rivalries among emerging elites (especially those within the
ANC’s broad tent) in a way that sustains a platform of economic and political
stability
• create opportunities for upward mobility for non-​elites, beyond a favoured few
• and address the country’s massive legacy of extreme poverty with the promise of ‘a
better life for all’.

The political settlement struggled to live up to its promise of sustaining hope, stability,
and a virtuous spiral in the face of the daunting challenge of transforming and redressing
the country’s difficult political and economic legacy. Failure to deliver enough on the
promise of shared gains set in motion a cascading downward spiral of a decline in co-​
operation, growing pressure on institutions, and worsening economic performance.
 Politics and Economic Policymaking in South Africa since 1994    87

The failure of the ANC to address the challenge of racial and economic inequality, and
the persistence of poverty in the quarter of a century since the democratic transition,
gave cover to economic looting of the state in the name of economic transformation.
The inability of the reformers to have an impact on the underlying cause of instability
threatens the survival of any kind of genuine reform programme. The likelihood of
South Africa moving to a sustainable developmental path appears to rest on the ability
of reformers to dislodge enough of the obstacles to reform put in place by the ANC’s
patronage machine and at the same time to obtain broad support for a truly inclusive
growth programme.

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 Chapter 5

Sou th Af ri c a ’ s
P ost-​a parthei d E C ONOMI C
Deve l opment T raj e c tory

David Francis, Adam Habib,

and Imraan Valodia

5.1 Introduction

South Africa’s economic and social development trajectory in the post-​apartheid

period remains a controversial subject. Notwithstanding an extensive literature, many
of the key issues of the growth and development strategy, impact, and evidence re-
main contested. Our intention in this chapter is briefly to cover some of this debate,
and to offer new insights and analysis of the issues. The literature is broad, with, at the
one extreme, views from the far left, arguing that the African National Congress (ANC)
has essentially ‘sold out’, and uncritically followed a neo-​liberal path (Bond 2000), to
defenders of the ANC’s policies from active participants in the process, at the other
(Hirsch 2005). Between these two views, there are a number of significant contributions
(Seekings and Nattrass 2005; Bhorat, Kanbur, and Human Sciences Research Council
2006; Habib 2013; Padayachee and van Niekerk 2019, among others).
Reviewing South Africa’s post-​apartheid economic trajectory and economic policy
causes a pervasive sense of déjà vu. Writing about South Africa in the early 1990s, Alan
Hirsch commented:

To any economic observer in South Africa in the early 1990s, it was clear that the
country had entered an economic cul-​de-​sac. The economy was shrinking. Its assets
were being run down—​gross fixed investment was negative for four consecutive
years to 1994, and capital was in full flight. National income was stagnating, and per
capita income had declined every year since 1982, except 1988. Government debt was
92    David Francis, Adam Habib, and Imraan Valodia

rising to dangerous levels, with the general fiscal deficit over 9% of gross domestic
product in 1993. (Hirsch 2005: 112)

Despite describing a period almost thirty years ago, this accurately sketches the current
macroeconomic situation in South Africa in 2020. And so it goes with post-​apartheid
economic policy. We find a cycle which proceeds in a fairly consistent manner through
the post-​apartheid period: an identification of the economic problems (which remain
largely the same—​high unemployment, poverty, and inequality, and chronically low
investment), the suggestion of policy solutions which cover a wide spectrum, the in-
ability of the key actors to reach consensus, the failure of the state to effectively imple-
ment these policies, and so begins the cycle once again (Kantor and Rees 1982; Gelb 1991;
Abedian and Standish 1992; Freund 2010; Habib 2013).
The result of this policy malaise is, among other things, growing unemployment,
rising poverty, and persistently high inequality of wealth and income. There is increasing
evidence, even in the absence of any counterfactual, that South Africa’s developmental
project, if that is the appropriate term, has been a failure by many important metrics.
At the highest level, the country’s recent macroeconomic failure is evident in Figure
5.1, which shows how growth has not recovered from the 2008 financial crisis, and that
there has been a corresponding decline in per capita income in recent years.
It would, however, be a mistake to assume that because many of the economic
challenges, like unemployment, inequality, and poverty, remain unresolved, there
has been no economic progress. As Figure 5.1 above shows, there have been periods
of economic growth and, for much of the 1990s, growth in GDP per capita. Despite
little progress achieved in terms of solving the key structural problems, there have
been other areas of success, too. These include the widespread roll-​out and provi-
sion of free basic services across the country, and near-​universal electricity access

60,000 6.0
5.0
55,000
4.0
Per Capita GDP (real LCU)

50,000 3.0
GDP Growth %

2.0
45,000
1.0
40,000 –
(1.0)
35,000
(2.0)
30,000 (3.0)
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019

Per Capita GDP (Constant LCU) GDP Growth

Figure 5.1 GDP growth and GDP per capita in South Africa
Source: World Bank Data Portal.
South Africa’s Post-apartheid ECONOMIC Development Trajectory    93

(Dinkleman 2011). There has also been a significant increase in the social wage, with
the provision of free basic services, such as water, to poor households, and near-​
universal schooling attendance (Sulla and Zikhali 2018). In addition, one of the most
impressive successes of the post-​apartheid state is the provision of social grants to
almost 17 million people.
But this further complicates the economic and development picture and raises the
issue of the South African inequality paradox (Francis and Webster 2019). South Africa
has a progressive constitution which enshrines socio-​economic rights, and this has
been the basis for the development and successful implementation of progressive socio-​
economic policy, such as free schooling, social grants, and free health care for all. But
this has not translated into any meaningful reduction in the levels of inequality of wealth
and income in the post-​apartheid period.
In this chapter we review the history and contestation of economic policy in South
Africa and offer some explanations for why the country’s economic progress has been so
uneven. We argue that this cycle of doom is the result of a number of persistent problems
in the political–​economic structure of South Africa. The first is the failure of politicians
and policymakers to account for the limits of South African state capacity to implement
even simple economic reforms. Post-​apartheid economic policymaking is characterized
by an assumption that the South African state is able to carry out complex economic
coordination—​by 2020 this assumption looks increasingly unrealistic. Second, the im-
passe is really a political one caused by ideological contestation within the ANC, which
has no mechanism to resolve the impasse.

5.2 Review of Key Economic Policies

In this section we review the historical evolution of the contestation of ideas about
post-​apartheid South Africa’s possible development trajectories, beginning before
the transition but certainly including the positions of key actors during the polit-
ical transition and post ​the transition into the Mandela and Mbeki presidencies.
We see this contestation in key policy documents that were generated during the
period 1985–​2018, including ‘Ready to Govern’, the Macroeconomic Research Group
(MERG) report, the Reconstruction and Development Programme (RDP), the New
Growth Path (NGP), and the National Development Plan (NDP), among others.
The evolution of economic policy in post-​apartheid South Africa had four distinct
phases: (i) the implementation of the Growth, Employment and Redistribution Strategy
(GEAR) from 1996 to 2001, pioneered by Mbeki and Trevor Manuel, and implemented
mainly during Mandela’s presidency; (ii) the massive expansion of the social ​support
grant system, and the building of the Black middle and upper classes during Mbeki’s
years as president (1999–​2007); (iii) the post-​Polokwane period under Zuma (from
2008); and (iv) the Ramaphosa period which began in 2017/​18.
94    David Francis, Adam Habib, and Imraan Valodia

5.3 The Shift to GEAR and

the Mbeki Project

Apartheid bequeathed a mixed economic legacy to South Africa. On the one hand it
created appalling levels of marginalization and exclusion structured along racial lines.
Not only was this morally reprehensible, but it also placed limits on the sustainability
of the country’s economic growth. Bantu education—​one of apartheid’s most notorious
policies—​ compromised the development of South Africa’s people, creating skills
shortages that continue to constrain the economy. In addition, the oppression and eco-
nomic exploitation of the Black majority limited growth in the manufacturing sector. As
importantly, the industrialization and economic development that was spurred on by
the mining booms of the late nineteenth century, and the peculiarly racialized forms of
social and political rule that were developed to support these mines, meant the country’s
modernization was driven by the mineral and energy sectors (Fine and Rustomjee 1996;
Freund 2019).
As the end of apartheid approached, two economic visions vied for supremacy in
the battle to transform South Africa’s racially skewed economic inheritance in the
post-​apartheid era. The first, advanced by the former ruling alliance, but most ar-
ticulately argued by the corporate sector, was a traditional neo-​liberal economic pro-
gramme. This emphasized economic growth, market solutions to social problems,
and curtailing of the role of the state. The programme stressed the deregulation of fi-
nancial and labour markets, the privatization of state-​owned enterprises (SOEs), and
the integration of South Africa into the global economy. Aiming for a GDP growth
target of 4.5 per cent and a 3 per cent increase in employment, the corporate sector
proposed a set of supply-​side reforms, and the removal of political and social barriers
that hindered the market (Hirsch 2005). Proponents argued that this would enable the
economy to realize its maximum growth potential. The need for redistribution was
acknowledged, but it was expected to occur through the trickle-​down effect as eco-
nomic growth accelerated. In the language of the ANC in the 1990s, this was labelled
‘growth with redistribution’.
The second economic vision was advanced by the ANC and its allies. Rooted in a
­social democratic vision of the new society, and understood as offering ‘growth through
redistribution’, the aim was essentially a social-​democratic one that involved a mix
between market and state planning. The vision was by no means a coherent one and
evolved as the ANC came closer to assuming power. Indeed, ANC leaders issued an
abundance of contradictory messages. Moreover, even the processes and stance of key
policy documents was hugely contested. For example, the Macro Economic Research
Group (MERG), established by the ANC, was quite marginal to the final policy pos-
ition of the ANC as it came to power (see Padayachee and van Niekerk 2019). Other
initiatives, for example, the Industrial Strategy Project, established by COSATU, were
quite influential in the initial years of the ANC government.
South Africa’s Post-apartheid ECONOMIC Development Trajectory    95

As a result, on the eve of South Africa’s first democratic election in April 1994, two
distinct economic visions were being advocated. The pre-​election Reconstruction and
Development Programme (RDP), which reflected the vision and many of the policies
and targets put forward by MERG, served as the ANC’s electoral manifesto. Many South
Africans and external observers expected that the ANC would implement this devel-
opmental economic agenda after winning the election, and for a short while it seemed
as if this was the plan. But soon after the April elections ushered in the government of
national unity, evidence began to emerge (for example, through the White Paper) that
the ANC in government was pursuing an economic agenda quite distinct from the pre-​
election RDP (Padayachee and van Niekerk 2019). Defenders of this shift argued that the
critics had not understood the difference between the policies of the ANC as captured
in its preparatory and election documents, and that of a party that had to confront the
realities of being in government (see, for example, Hirsch 2005).
This shift, many have argued (Habib 2013; Padayachee and van Niekerk 2019) was
formalized in June 1996, when the Cabinet adopted the GEAR policy following signifi-
cant pressure on the Rand, and a concern, as has historically been the case for South
Africa, about the vulnerability of the economy to a balance-​of-​payments crisis. GEAR
proposed cuts in state expenditure and the rationalization of the public sector so as to
reduce South Africa’s budget deficit to 3 per cent by 1999. Deregulation measures were
introduced, including the further liberalization of foreign exchange and new allowances
intended to attract foreign investment. Support for the privatization of state assets was
also reiterated. All of this took place under the guise of supporting the RDP but, in its es-
sential thrust, GEAR represented a departure from the ANC’s 1994 election manifesto.
GEAR’s economic impact was mixed. The programme did enable South Africa
to strengthen its finances, lower its interest rates, and bring inflation under control.
Inflation came down from an average of 15 per cent in the late 1980s and early 1990s,
to an average annual rate of 5.2 per cent by 1999. Government debt as a percentage
of GDP, which stood at 49.5 per cent in 1996, hovered in this range until about 2000,
and then dropped significantly to 33 per cent by 2004, and 22.3 per cent by 2007. Debt-​
service expenditure decreased accordingly from a high of 5.7 per cent in 1999 to 3.9 per
cent in 2004. These fiscal gains came at a social cost, however. Levels of inequality and
poverty increased dramatically in the years immediately after the adoption of GEAR
(Leibbrandt, Woolard, and Woolard 2007). Meanwhile, inequality, as measured by the
Gini coefficient, actually increased from 0.672 in 1993 to 0.685 in 1999 (Leibbrandt,
Woolard, and Woolard 2007).
The realization of GEAR’s consequences facilitated a gradual but significant shift in
economic policy during Mbeki’s presidency. First, social expenditure expanded mas-
sively, particularly in the form of social grants. The number of recipients of such grants
increased from 2,687,169 in 1999 to 6,476,587 in early 2004, and then to 12,386,396 by late
2007. Second, state intervention came back into vogue in relation to Black economic em-
powerment (BEE), and a major infrastructure development programme was initiated.
With regard to the former, the government became increasingly sceptical of the cor-
porate sector’s commitment to deracialization. It therefore introduced new legislation
96    David Francis, Adam Habib, and Imraan Valodia

that included the establishment of equity and transformation targets in industry charters.
Importantly, GEAR did allow for the management of South Africa’s debt burden and
created the fiscal space for a large infrastructure investment programme in the latter years
of the Mbeki administration. For example, a Rand 780 billion programme was partly
directed towards preparations for hosting the 2010 soccer world cup. Infrastructure in-
vestment increased rapidly. Much of this was planned through SOEs, and the privatiza-
tion rhetoric of the late 1990s receded. On the production side of the economy, many
of South Africa’s large corporations shifted their focus to the global economy, with the
largest, such as the Anglo American Corporation, opting to shift their primary listing
to London. Unlike some other developing countries, while government policy promised
large benefits from a shift towards export o ​ rientation, the payoff from globalization and
export ​orientation was limited (see Edwards, ­Chapter 21 in this volume).
As the government’s rhetoric changed, the need to correct market failures became a
priority, with poverty alleviation and even inequality reduction being given as much
emphasis as growth. By 2004, the left within the ANC, including in COSATU and the
SACP, were convinced that a significant reappraisal was underway within government.
There was indeed a shift in favour of investment in infrastructure and increased social
expenditure during Mbeki’s presidency.
Notwithstanding these gains, the essence of the structural problems in the economy
continued to challenge policymakers. There is some irony in the Mbeki government
declaring budget surpluses of 0.3 per cent and 0.8 per cent of GDP in 2006 and 2007,
while unemployment hovered at 36.4 per cent. Under Mbeki, the idea that South Africa
was constituted of two economies—one modern, efficient, and internationally com-
petitive; and the other informal, marginalized, poor, and overwhelmingly located in
Black communities (Hirsch 2005; Devey, Skinner, and Valodia 2006)—gained promin-
ence and allowed Mbeki to explain the impasse in solving the key structural challenges.
While this analysis was appealing at face value, it enabled government to assume that
the first economy required no intervention, and that only the second was in need of
policy reform and social assistance. Yet, Mbeki’s dual-​economy analysis did not enable
the presidency to understand that the policies and functioning of the first economy were
precisely what was creating poverty and discontent in the second (Devey, Skinner, and
Valodia 2006).
Apartheid had established two sectors in South African society: one white and
privileged, the other Black and disadvantaged. The ANC’s explicit mandate was to fa-
cilitate the transcendence of this racial divide. Instead, while the economic and so-
cial policies it pursued in the first decade of its rule began a process of deracializing
the first sector, these same policies simultaneously increased the size and aggravated
the problems of the second. Increasing the state’s social expenditure did not solve the
problem. In fact, as long as South Africa’s industrial, trade, monetary, and fiscal policies
stayed as they were, they worked against the social expenditure components of the na-
tional budget. This contradiction has lain at the heart of the ANC government’s policy
ensemble since 1996, and it continued throughout both of Mbeki’s terms in office.
South Africa’s Post-apartheid ECONOMIC Development Trajectory    97

The contradiction manifested itself very clearly in the Mbeki administration’s per-
formance. Annual GDP grew progressively from 2000 and reached 5.1 per cent in 2007,
driven in part by the booming global economy. Formal employment began to take off
from 2003, and broad unemployment decreased from 42.5 per cent in early 2003 to 34.3
per cent in late 2007. Poverty levels dropped, partly because of the new jobs, but mainly
as a result of the massive increases in the number of people receiving social grants.
Between 2003 and 2007, the poorest 10 per cent of the population increased their per
capita real income from R921 to R1,032, but their share of total income remained at 0.6
per cent. Thus, the excessive levels of inequality, which increased in the second half of
the 1990s because of GEAR, have since remained constant.

5.4 Groping towards Social

Democracy—​the Zuma Years

There is a widespread assumption that President Zuma introduced no radical changes

in economic and social policy during his time in office. Yet there is evidence to suggest
that South Africa’s economic and social policies shifted in important ways. The question
is whether this shift was effective in addressing the challenges of inclusive development
and reducing inequality, poverty, and unemployment.
This question must also be considered in the context of how the configurations of
power have evolved in South Africa since 1994. The ejection of Mbeki from the presi-
dency inevitably empowered the grassroots within the ANC, who had realized that
political leaders should be accountable to them, and could be replaced if they were
not responsive to their interests. More importantly, COSATU and the SACP’s leverage
increased because they had provided a significant share of the institutional platform
required for Zuma’s ascendance to power. This is not to imply that COSATU and the
SACP have ruled the roost in the past decade; the corporate sector retained substan-
tial power and leverage, too. In effect, the power differential in favour of business that
prevailed under Mbeki’s reign eroded slightly in favour of a more equitable balance
of power—​both within the ruling party and in the country as a whole. This, in turn,
constrained the behaviour and choices of political elites, and began to condition the
evolution of political and economic life in South Africa.
This new, more equitable balance of power was immediately evident in the Zuma
administration’s responsiveness to public and stakeholder opinion, especially in his
appointments to Cabinet and other important economic portfolios. Business was
concerned that Trevor Manuel would be ejected, and that there would be too funda-
mental a change in economic policy. The left, mainly represented by COSATU and the
SACP, were concerned that too little change would take place—​that Manuel and com-
pany would retain control of economic policy and that alternative voices would not
be heard.
98    David Francis, Adam Habib, and Imraan Valodia

Zuma’s early appointments appeased both sides. Manuel was retained in a new
portfolio within the presidency (national planning), and Pravin Gordhan, who had
completed a sterling performance as commissioner of the South African Revenue
Service, was brought in as finance minister in an effort to appease the markets. These
appointments were coupled with those of Rob Davies as trade and industry minister,
and Ebrahim Patel as minister of economic development. Davies and Patel had strong
connections with the SACP and COSATU respectively.
A similar appeal to multiple stakeholders informed Gill Marcus’s appointment as
governor of the Reserve Bank in 2009. A stalwart of the ANC, Marcus had previously
served in the Treasury, and her sojourn in the private sector involved not only chairing
the board of a mining company, but also that of South Africa’s largest bank (ABSA).
Marcus’s appeal transcended the boundaries of the corporate sector, however, and both
COSATU and the SACP welcomed her appointment. Her strength lay in the fact that
she had never been fundamentalist in her economic or ideological perspectives. She
was perceived as pragmatic, consultative, and less pompous than her predecessor, and
appealed to multiple stakeholders.
The result of this mix of appointments was to introduce a plurality of thought in the
corridors of economic power that gave several stakeholders the prospect of influencing
policy. This more equitable balance of power was also reflected in a deepening of the
shift to the left in economic and social policy that had begun with Mbeki. Social-​
support grants continued to be expanded, the higher education and training sector saw
a renewed focus on making tertiary education more affordable and on rebuilding the
training college sector, and the health ministry became much more responsive, espe-
cially in relation to the HIV and AIDS pandemics, and in its commitment to developing
a national health insurance scheme.
But the most dramatic evidence of the shift to the left emerged on the economic front
and became apparent at multiple levels, including both fiscal and monetary policy. In
the midst of the global economic crisis, the last national budget drawn up by Manuel as
finance minister and the first two budgets drawn up by his successor, Pravin Gordhan,
expanded the fiscal deficit to 7.3 per cent, 6.2 per cent, and 5.3 per cent of GDP in 2009,
2010, and 2011 respectively. Spending on social and economic development increased in
areas such as the maintenance of the infrastructure programme, social ​support grants,
rural development, education, and health care. Similarly, interest rates maintained
a downward trajectory under the Zuma administration. The management of South
Africa’s monetary policy had subtly changed under Marcus to include variables such as
employment and growth in order to prioritize price stability.
Perhaps the strongest indication of the government’s shift to the left was the
adoption of the Industrial Policy Action Plan 2011/​12–​2013/​14 and the New Growth
Path, pioneered by Rob Davies and Ebrahim Patel respectively. The Industrial Policy
Action Plan (informally known as IPAP2) had, as its goal the creation of 2.4 million jobs
by 2020.
The New Growth Path, under Patel’s leadership, squarely set as its target the reduc-
tion of South Africa’s economic inequalities. To achieve this, a set of policies with two
South Africa’s Post-apartheid ECONOMIC Development Trajectory    99

distinct goals were recommended: enhancing the livelihoods of those at the bottom of
the economic ladder; and temporarily and voluntarily constraining the incomes of the
upper-​middle classes and the elite. To enhance livelihoods at the bottom, policies that
facilitated increased employment were proposed. These ranged from infrastructure and
skills-​development programmes, through to a competitions policy, a looser monetary
agenda, as well as small-​business promotion and financing.
At the same time, under Manuel’s leadership, the National Development Plan (the
NDP) was adopted (National Planning Commission 2011). The NDP, strong on the
diagnosis of the structural problems in the economy, aimed to eliminate poverty in
South Africa by 2030, by doubling employment, raising incomes, addressing key
impediments to growth in the energy sector, and developing a capable state. All noble
intentions, but the NDP was always viewed by COSATU, the SACP, and other left
forces, as linked with Trevor Manuel. While there was a lot of fanfare about the NDP,
it never really truly became government policy, and its implementation has been lack-
lustre to say the least.
Nevertheless, there can be no doubt that the collective mix of economic and social
policies pursued by the Zuma administration had a social-democratic flavour, as distinct
from the economic agenda pursued since 1994. Its aim was job creation and inclusive
development. Clearly policy rupture did not occur between the Mbeki and Zuma eras,
but this does not mean that significant change did not take place. We need to under-
stand the policy developments for what they are: a continuation of the leftward shift
in economic and social approaches that began under Mbeki, and which was deepened,
strengthened, and acquired an increasingly social-democratic flavour under the Zuma
administration. These nuances are significant if only because the new policies began to
explicitly and directly target inequality, poverty, and unemployment. In this sense, they
proved significantly different to the mix of policies pursued since 1994.
This drift towards a neo-​Keynesian economic agenda was also being enabled by a
similar shift globally. The global economic crisis weakened the global corporate sector
and this enhanced the leverage of states and national political elites. This new config-
uration of power enabled a substantive change in the macroeconomic policy environ-
ment. US banks were virtually nationalized via the largest bailout in history. Similar
bailouts were facilitated for the motor industry and other conglomerates. Effectively, the
American state addressed the financial crisis in exactly the way it, and the International
Monetary Fund (IMF), has prevented developing nations from managing theirs. And
the Americans were not alone. The governments of almost every other major economy
in the world undertook similar interventions. The net effect has been to open up
possibilities for the emergence of development agendas across the world.
This does not mean that the neo-​ Keynesian orientation of economic and so-
cial policies in South Africa was or is uniformly supported. There are a number of
countervailing trends. The first, and most worrying, is corruption. As the National
Development Plan recognizes, this is reaching a scale that threatens the state’s entire de-
velopmental programme. The second is that many technocrats within the state continue
to support important aspects of GEAR. There are many in the Treasury, the Reserve
100    David Francis, Adam Habib, and Imraan Valodia

Bank, and the National Planning Commission who remain tied to rigid deficit and infla-
tion targets that have the potential to compromise the neo-​Keynesian agenda.

5.5 Contradictory Approaches

to Inequality

In spite of the overlap in focus between the New Growth Path and the National
Development Plan, especially on improving the livelihoods of the poor, a fundamental
philosophical difference was evident in the two plans on the issue of inequality. The
New Growth Path hoped to address inequality by expanding livelihood opportunities
at the lower end of society and containing enrichment at the upper end. The National
Development Plan, by contrast, supported the expansion of livelihood opportunities
at the lower end, but was silent on containing inequality at the top end. Those who
compiled the National Development Plan seemed to imagine that it is possible to re-
duce economic inequalities simply by growing the economy, expanding employment
opportunities, and addressing poverty—​a typical trickle-​down strategy. Mainstream
business, its economists, and aligned research agencies shared this view.
The resolution of this dilemma, we argue later, will be determined by the cracks that
have emerged in the ruling party and within the Tripartite Alliance. At the heart of these
conflicts, which are ongoing, lie serious differences between nationalists and the left
about where South Africa is with regard to its development, the goals that should be
pursued, and the policies that should be advanced in order to achieve them.
Over the last decade, the debate has revolved around the meaning of national dem-
ocracy. Nationalists within the ANC maintained that COSATU and the SACP ignore
the fact that South Africa is in the national-​democratic rather than the socialist phase of
its transition. Members of the left wing held that the national democratic phase should
not focus on developing conservative Black capitalists, but should instead have moved
towards creating a social democracy and a mixed economy, in which inclusive devel-
opment was at the core of the state’s agenda. For the drift to social democracy to be
maintained, it was essential that COSATU, the SACP, and social-democratic elements
in the ANC retained their political momentum. The moulding of an economic con-
sensus within the ruling party required a bridging of the nationalist–​left divide, and
an engagement with intra-​party stakeholders who were advancing different economic
agendas. This required the establishment of parameters for acceptable trade-​offs, and
the moulding of an economic consensus within the ANC.
Despite initial optimism about the ability of President Ramaphosa, who became
president of the ANC in 2017 and of South Africa the following year, recent years have
seen the economic situation worsen, and any economic consensus within the ruling
party collapse. There are three distinct but interrelated reasons why these opportunities
were squandered. The first is that the country has seen a significant decline in the
South Africa’s Post-apartheid ECONOMIC Development Trajectory    101

quality of appointments to senior positions in the public service and parastatals, and
this has dramatically eroded the capabilities of the state. While this was most starkly
illustrated by Zuma’s firing of Nhlanhla Nene and later Pravin Gordhan, and their re-
placement by unknown Des van Rooyen and the compromised Malusi Gigaba respect-
ively, the pattern of such appointments was far reaching and included key government
institutions, including the revenue authority, SARS. This occurred concurrently with
a consolidation of power by the Zuma administration, leading to a more powerful
president but a less capable state. Second, while corruption has been a feature of the
South African state for decades, there was a startling escalation in corruption under the
Zuma administration, which was most visibly manifest in the capture of the state by
the Gupta family but extended through most of the state (Swilling et al. 2018). Third,
these two developments drove a wedge between the ANC and the state, and provoked
widespread divisions as contestation emerged over the beneficiaries of corruption.
These three developments paralysed the implementation of economic policy, escalated
the economic and social crises, and dramatically reduced livelihoods, resulting in a fall
in economic growth, significant increases in unemployment, and increases in levels of
poverty. Moreover, South Africa’s fiscal position worsened significantly as Zuma made
far-​reaching decisions, for example to extend free higher education, with no consider-
ation for the fiscal implications of his actions.

5.6 Evidence for Developmental

Outcomes

A key issue in the debate about economic policy is what evidence of development
outcomes is available, and the interpretation thereof. While everyone agrees that be-
cause of the social grants system development outcomes have been better than they
would otherwise have been, and that unemployment remains an intractable issue, there
is a lot of disagreement about the evidence itself; the conclusions that may be reached,
and the causal mechanisms (Seekings and Nattrass 2005, 2015; Leibbrandt, Woolard,
and Woolard 2007; Hundenborn, Leibbrandt, and Woolard 2016; Sulla and Zikhali
2018). Here we review these data and findings and offer our interpretation of the issues.
At the macroeconomic level, South Africa has not performed well. Unemployment
in 2020 is largely at the same level as it was in 2000. Income inequality remains largely
unchanged and ranks as the highest in the world among countries for which there are
good data (Francis and Webster 2019). Similarly, the macro-​fiscal situation remains pre-
carious, and is deteriorating (Sachs 2021). But this is not to suggest that the country has
made no developmental progress at all.
Indeed, there have been notable successes in improving access to basic services and
utilities, the expansion of social assistance in the form of social grants, and the provi-
sion of housing and infrastructure. This has resulted in a decline in multidimensional
102    David Francis, Adam Habib, and Imraan Valodia

poverty in South Africa from 17.9 per cent in 2001 to 7.0 per cent in 2016 (Sulla and
Zikhali 2018). Social infrastructure has also improved steadily. For example, the
roll-out of electricity has been widespread in post-​apartheid South Africa. In 1994,
only 62 per cent of the population had access to electricity, and by 2014 this had risen
to 87 per cent (Sulla and Zikhali 2018). Whereas in 2002, 4.5 million households
had access to piped water in their dwelling, by 2018, this had increased to 7.7 million
(Statistic South Africa General Household Survey 2018). The provision of housing
has been equally successful, with the state building 3.2 million homes between 1994
and 2018.
While poverty rates improved throughout the Mbeki years, unfortunately, mainly due
to HIV/​Aids, South Africa’s general health indicators worsened. The infant mortality
rate worsened from 46.9 per cent in 1990 to 52.1 per cent in 2000, before improving to
38.4 per cent in 2010. Similarly, life expectancy fell from 61.6 per cent in 1995 to 57.7 in
2010, before improving to 62.6 per cent in 2015, as policy changed and a highly successful
anti-​retroviral programme was rolled out (UNU HDR Database 2020).
But as Sulla and Zikhali note, while there was rapid improvement in access to services
in the 2000s, economic progress slowed after 2010 (Sulla and Zikhali 2018). This is
largely due to the inability of the South African economy to generate jobs at a magnitude
which would alleviate some of the socio-​economic problems the country faces. This
problem has a long historical arc. As argued by Hirsch in 2005,

Two of the most important lessons gradually learned by the government during the
first decade of freedom were that investment dynamics often were not national—
rather they were frequently regional and local—​and that the manufacturing sector
was not ever likely to be a major supplier of jobs in South Africa, though it remained
an important dynamo for growth. (Hirsch 2005: 148)

And this continues to be the case. Between March 2008 and March 2020, the
manufacturing industry shed 405,000 jobs (Statistics South Africa 2020). The only
sectors to add significantly to employment were finance (737,000 new jobs) and com-
munity and social services (1.05 million new jobs). While there is consensus that some
aspects of social policy have been effective, there is also consensus that, because of the
pattern of economic growth, inequality has increased, and this in a society with already
extremely high levels of inequality. As Stephen Gelb argued in 2010, and remains true
ten years later:

Not only has recent growth been low, but its pattern has been ‘unequalising’.
Significant shifts in the sectoral composition of output and of trade between 1990
and 2003 have led to a ‘skills twist’ in the labour force, where jobs have been created
for high-​skilled workers at a relatively rapid rate while unemployment amongst low-​
skilled workers has grown. (Gelb 2010: 51)

It is uncontentious that the triple challenge of poverty, inequality, and unemployment

has, at its heart, the South African labour market. The extent of the problem is evident
South Africa’s Post-apartheid ECONOMIC Development Trajectory    103

Table 5.1: Labour force overview

Q1 2008 Q1 2020 Q2 2020
Thousand Thousand Thousand

Population aged 15–​64 31,544 38,874 39,021

Labour Force 18,808 23,452 18,443
Employed 14,438 16,383 14,148
Formal sector (non-​agricultural) 9,934 11,282 10,064
Informal sector (non-​agricultural) 2,433 2,921 2,280
Agriculture 838 865 799
Private households 1,233 1,316 1,005
Unemployed 4,371 7,070 4,295
Not economically active 12,736 15,422 20,578
Discouraged work-​seekers 1,202 2,918 2,471
Other (not economically active) 11,534 12,504 18,107
Rates (%)
Unemployment rate 23.2 30.1 23.3
Employed /​population ratio (absorption) 45.8 42.1 36.3
Labour force participation rate 59.6 60.3 47.3

Source: Statistics South Africa (2020).

if we examine some key labour market statistics over the past decade.1 We use, as ref-
erence, the period before the global financial crisis in 2008 (Q1 2008). We compare
this to the latest QLFS data.2 Between Q1 2008 and Q1 2020, the labour force grew
by 4.6 million people, while employment grew by 1.95 million. Most striking is that,
over this period, the unemployed grew by 2.7 million, and there were an additional
1.7 million people who became discouraged work-​seekers. This means that by March
2020 there were 9.99 million people who were either unemployed or had given up
looking for work altogether (Statistics South Africa 2020). Table 5.1 also includes the
latest results from the quarterly labour forces survey (QLFS), which gives an indica-
tion of the significance of the COVID-​19 pandemic and the lockdown on the labour
market. These data have prompted furious debate. This is largely because the lock-
down prevented people from looking for work, which resulted in the unemployment
rate falling significantly in the second quarter of 2020. Much like the GDP data, they
reflect a significant economic shock, but the longer-​term effects will only be visible in
subsequent quarters.

1
Unemployment in South Africa is discussed in Chapters under Part IV in this volume.
2
The quarter 2 QLFS generated furious debate about the definitions and reporting of the narrow un-
employment rate—​for our purposes it is more useful to examine the actual extent of job losses.
104    David Francis, Adam Habib, and Imraan Valodia

There is, of course, no definitive single answer to the puzzle of South Africa’s persist-
ently high unemployment. However, it is uncontentious that one of the leading causes
has been the country’s poor growth performance which has characterized the post-​
apartheid period, with the exception of the commodity boom years of the early 2000s.
Given the labour market picture, it is unsurprising that inequality has not decreased.
But what is surprising is that when we did grow, inequality increased (Sulla and Zikhali
2018). This is largely due to the fact that the growth period was fuelled by a resource
boom, and the gains of such a boom are distributed highly unequally (Sachs 2021).
Why, then, has South Africa’s growth performance been so poor? Hirsch highlighted
a number of factors including a lack of investor confidence, skills shortages at the higher
end of the labour market, and what he rather obliquely terms ‘a range of related institu-
tional factors’ (Hirsch 2005: 160). These issues recur again and again in South Africa’s
developmental trajectory. This leads us to restate the questions Hirsch posed in 2005:
‘How can we sustain a higher level of investment by the private sector? How can we
afford not to focus resources on high potential growth and/​or employment sectors?’
(Hirsch 2005: 160).

5.7 South Africa as

a Developmental State?

One of the weaknesses in many of the existing reviews about post-​apartheid economic
policy is a focus on the content of these policies, with less attention paid to how suc-
cessfully (if at all), they have been implemented. One of the most striking observations
which emerges when reviewing South Africa’s post-​apartheid economic policies is the
persistent optimism about the capacity of the South African state to play a positive de-
velopmental role (Hirsch 2005). There has been mounting evidence which should dis-
abuse policymakers and academics about the possibility of the South African state to
effect meaningful change (see, for example, Freund 2010).
This is not a generalized critique about the role states can play in effecting eco-
nomic change, but about the South African state in this current moment. There are
a number of reasons why the South African state has been unsuccessful in many
aspects of its developmental agenda. The first is that much economic policy does not
account for the lack of skills and experience within the civil service—​unlike the Asian
Tigers, South Africa does not possess the machinery within the civil service to im-
plement the complex policies designed to support investment and growth. Second,
there are a number of important cases where pragmatic interventions have been
stalled because they have become proxies for ideological battles (Eskom and SAA
being the two most important examples). Third, rampant and widespread corruption
has diverted resources and political and public attention away from policy imple-
mentation (Swilling et al. 2018).
South Africa’s Post-apartheid ECONOMIC Development Trajectory    105

5.8 Breaking the Impasse? Economic

Growth and Inclusive Development

In recent years, the unseating of Jacob Zuma, the apparent undermining of the state cap-
ture project, and the rise of Cyril Ramaphosa, have created a renewed focus on the de-
velopment project in South Africa. High levels of debt—​a result of the large increases
in expenditure under Zuma without any significant impact on the growth rate—​has
generated a more complex set of macroeconomic challenges. Moreover, state capacity
has been severely undermined. Added to this, in 2020, COVID-​19 has had a devastating
impact on economic output, public health, and livelihoods. How might it be possible for
South Africa to address its development challenges?
A key problem to address is the continuing and increasing levels of inequality in
society. Notwithstanding the gains in addressing some of the infrastructure backlogs
that characterized apartheid, and the massive growth in social grants, South Africa
continues to be one of the most unequal societies in the world by a number of metrics.
This is highlighted by research on income and wealth (Hundenborn, Leibbrandt, and
Woolard 2016; Espi, Francis, and Valodia 2019; Webster and Francis 2019; Chatterjee,
Czajka, and Gethin 2020). On income measures, South African households in the
poorest income quintile have a total monthly income of just R2,600, which has to
support five members of the household (Francis and Valodia 2020). About 18 million
South Africans live in these households. In contrast, on average, the highest income
quintile has an income of R38,000, which has to support two household members.
Some 7 million South Africans live in these households. Data on the distribution of
wealth are even worse. The poorest 50 per cent of South Africans have an average net
wealth of negative R16,000. That means their assets are less than their liabilities; they
are deeply in debt. By contrast, the richest 10 per cent of South Africans have an average
net wealth of R2.8 million per person. The top 1 per cent of holders of wealth in South
Africa have an average net wealth of R17.8 million per person (Chatterjee, Czajka, and
Gethin 2020).
Addressing these social and economic challenges will, we argue, require a social-
democratic political economy that is able comprehensively to deal with the challenges
of inequality, poverty, and unemployment. Although this was acknowledged at many
ANC national conferences and some elements of a social-democratic platform have
gradually been adopted, consensus on this economic perspective remains elusive within
the ruling party with elements in the ANC continuing to advocate for fiscal conserva-
tism in the guise of financial prudence. The battle for the economic soul of the ANC has
to be resolved, the economic divides bridged, and a consensus built around a social-
democratic political economy. And consensus has to be built within the wider society.
Related to this is the need for a new social pact to be cemented between business, la-
bour, and the state (Francis, Valodia, and Webster 2020). However, various ANC
administrations have failed to manage the expectations of both the economic elite and
106    David Francis, Adam Habib, and Imraan Valodia

the general populace, with the result that the other essential foundation for a successful
pact—​a willingness by all to defer the immediate realization of their desires—​has not
been achieved.
It is cause for concern that the country’s diverse set of leaders, with their impressive
track records and experience, do not yet seem to understand the basis of successful social
pacts. Pacts require compromise. They are established to manage the dilemmas presented
by competing interests. A central dilemma that a South African social pact would have
to address is how to enable economic competitiveness and the accumulation of work ex-
perience by new entrants to the labour market, without losing the hard-​won gains of the
labour movement as expressed in the Labour Relations Act of 1995. The unions fear that
compromises might weaken the 1995 Labour Relations Act, and that this would allow
employers to roll back the gains won by workers in the formal sector. There is precedent for
this in the post-​apartheid era, and to argue that this is impossible and unrealistic is to be
seriously out of touch with the economic dynamics of the last twenty years. For example,
in the mid-​1990s, internal employees carried out cleaning services in most companies
and public institutions. Since then, most private companies and public institutions have
subcontracted cleaning services to external companies that employ workers at much
lower wages and provide far fewer benefits. Similarly, a study on transformation in
South African mines demonstrated that as the racial ownership of mines has changed, so
working conditions have worsened (Capps and Mnwana 2015). Essentially, South Africa’s
more marginal mines have been sold to Black entrepreneurs who have derived profits
from squeezing wages and reducing benefits. This has been achieved mainly through the
use of labour brokers, which have served as a ‘safety valve’ for business owners, enabling
them to avoid the obligations made mandatory by the Labour Relations Act.
Consensus will also require the business elite to shift its focus towards a social pact
that addresses the high levels of inequality (Francis, Valodia, and Webster 2020). This
will require, inter alia, commitments on investment, addressing the high levels of
earnings premia paid in the upper echelons of the corporate sector, and addressing the
issue of democracy in the workplace through representation of workers on boards, share
ownership schemes, and the like.
A critical factor on the part of government is addressing the vexing problem of state
capacity. Two issues are especially important here. First, realigning the state towards ef-
fective regulation and service delivery must involve building a meritocratic state. This
necessarily involves addressing the political question of how the state operates. The ANC
policy of deploying its cadres into the upper echelons of the state has to make way for
a more skills-​based approach to management in government. Second, many of South
Africa’s SOEs remain locked in their histories of being key elements in the apartheid state.
A major overhaul of these institutions is needed to meet the exigencies of a state steering
an economy in the digital age (for a broader discussion of this see Swilling and Callaghan,
­Chapter 27 in this volume).
More systemically, however, any social pact to resolve the impasse in devel-
opment strategy and create a more equitable and sustainable society will need to
address four challenges that characterize South Africa’s development problems in
South Africa’s Post-apartheid ECONOMIC Development Trajectory    107

the post-​apartheid period. First, while political forces have converged to improve
livelihoods and incomes at the bottom end of the distribution, all previous attempts at
a social pact have not been able to address the growth in incomes and wealth at the top
end of the distribution. Second, addressing poverty has been based almost entirely on
social grants and other forms of transfers, rather than by creating sustainable economic
opportunities and employment. In comparable contexts, for example Brazil under
Lula, state transfers were combined with bringing the poor in the informal economy
into the productive and mainstream economy. In South Africa there is little appe-
tite, especially among the left, to grow the informal economy. Third, the imperative to
deracialize society creates a tension between opening up opportunities for the political
elite and addressing inequality. Black economic empowerment is one of the key drivers
of growing inequality. Finally, there is the issue of which social forces the political and
economic elite represent. For all of the fanfare associated with the public articulation
of social pacts, the reality is that in an economy with such high levels of unemployment
and low levels of investment, the trade unions and business organizations represent
only a small element of the key actors needed to bring consensus for a more inclusive
development path, and the implementation of such a consensus.

5.9 Conclusion

The literature on South Africa’s post-​apartheid development trajectory tends to be

focused in two binaries—​either that the ANC government has ‘sold o ​ ut’ to a neo-​liberal
project, or that the inability of the ANC to bed down a conservative economic stance
characterized by GEAR is the Achilles heel of the post-​apartheid period. We argue
that neither of these does justice to the nuance of the actual development trajectory
post-​1994.
Our argument is that significant advances have been made, particularly in areas of
social infrastructure and in the extension of social grants to large numbers who have
not been incorporated into an economic growth trajectory. However, the key struc-
tural problems which characterized the economy at the end of apartheid—​high levels
of poverty, high levels of unemployment, and growing levels of inequality—​have not
been solved. There is no shortage of policy documents—​from the RDP to the NDP to
Ramaphosa’s post-​COVID-19 economic recovery plan—​that analyse these issues and
propose solutions. The problem, we argue, is not only an economic one. Rather, the
political processes that have shaped post-​apartheid South Africa, especially within the
ANC and its alliance partners, are key to understanding why South Africa’s develop-
ment trajectory continues to be so uneven.
While a broad social pact in the society has been elusive and the different factions of
the ANC continue to contest the direction of development policy, consensus on some
issues has emerged during the final years of the Zuma administration. For example, in
2019, South Africa introduced a national minimum wage after agreement was reached
108    David Francis, Adam Habib, and Imraan Valodia

by all the major social partners in NEDLAC. The fall ​out from COVID-​19 has severely
set back the development trajectory of South Africa and exacerbated an already dif-
ficult fiscal challenge. The debate on the post-​COVID-​19 economic and social policy
trajectory has generated some level of consensus on the need to focus on addressing
the lacklustre growth record and on the need for fiscal consolidation. However, as has
been the case for much of the post-​apartheid period, two trends appear to characterize
much of the narrative. First, how growth will be generated, the pace of the fiscal con-
solidation, and who will bear the cost of this adjustment continue to divide both the
ANC and its alliance partners. Second, the lack of capacity in the state to deliver on the
sometime-​ambitious programme now appears more limited than ever. The Perennial
development quagmire remains: how to unlock a politics that would enable inclusive
development?

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 Chapter 6

C on straints to E c onomi c
Grow th in Sou t h A fri c a

Kenneth Creamer

6.1 Introduction

This chapter will analyse the drivers and constraints on the rate of economic growth
in South Africa from the 1950s’ apartheid-​era through to the democratic period post-​
1994. The analysis will include discussion of the impact on economic growth of the
country’s history of racial injustice and exclusion, of South Africa’s industrial struc-
ture including linkages to the global commodity price cycle, of South Africa’s evolving
macroeconomic imbalances and infrastructure investment failures, and of the im-
pact of poor state capacity weakened by corruption. The chapter will conclude with
a reflection on policy perspectives for overcoming South Africa’s economic growth
constraints.

6.2 The Apartheid Growth Model

and its Crisis

After centuries of colonial conquest and land dispossession, the implementation of

the policy of apartheid from 1948 sought, ultimately without success, to tie Black
South Africans to tribally based Bantustans. Conditions in the Bantustans did not
permit viable economic activity and migrant labourers were forced to seek employ-
ment in mining, agriculture, the metropoles, and other regions of ‘white’ South
Africa. Typically, migrant labourers were paid very low wages based on the false
presumption that their families back in the Bantustans—​and equivalently in nearby
112   Kenneth Creamer

states such as Lesotho, Mozambique, and Malawi—​were to some degree economic-

ally self-​sustaining.1
Long before apartheid was launched in 1948, the South African state developed
an extensive apparatus of repression based primarily on control over movement.
Passes and permits ‘allowed the ruling classes to keep African works in a permanent
state of subordination’.2 This was the social basis which underpinned South Africa’s
apartheid economic growth model. Super-​exploitation of Black workers, facilitated
by ‘grand’ apartheid’s regulation of the flow of Black workers into the formal
economy, reinforced ‘petty’ apartheid’s laws of racial segregation aimed at keeping
apart Africans, coloureds, Indians, and whites—​allowing differential access to so-
cial services and protections, and regulating, among many other things, who could
own a business, who could attend university, who could live where, and who one
could marry.
As can be seen from Figure 6.1—​which periodizes post-​Second World War-South
African economic growth into four distinct episodes, namely, ‘apartheid growth’
(1946–​70), ‘crisis of apartheid’ (1971–​93), ‘transition to democracy’ (1994–​2010), and
‘persistent low growth’ (2011–​19). Through the period of the 1950s and 1960s the apart-
heid economy grew rapidly with GDP growth rates comparable to other fast-​growing
economies worldwide, although apartheid policies ensured that the lion’s share of that
growth flowed to the white population. The real GDP growth rate of 4.9 per cent from
1946 to 1971, fell in the 1970s and 1980s to an average annual growth rate of 2.0 per cent as
certain inherent contradictions and limitations in the apartheid growth model began to
come to the fore.
This decline in the rate of economic growth in the 1970s fed into theoretical debates
between liberal and Marxist writers in South Africa about how best to understand
the relationship between capitalism and apartheid. Liberal theorists had argued that
apartheid’s racially discriminatory laws served to limit the development of capitalism, in
that apartheid disallowed the emergence of an urbanized Black middle class and related
consumption and wealth-​generating potential (Marquard 1952). Apartheid’s racist limi-
tation of Black access to education, and strict job reservation of certain skilled employ-
ment categories for whites only, limited the productivity-​enhancing skills and know ​how
transfers required for the South African economy to compete along the skills-​intensive

1
‘The logic of domination dictated that the majority of the Black population should remain isolated
and dispersed in rural areas and mine compounds; the logic of industrialization dictated that they
should concentrate in urban areas to provide the labour necessary for economic expansion . . . In 1922,
the Stallard Commission attempted to defy the logic of industrialization by laying down the principle
that: “The Native should only be allowed to enter urban areas, which are essentially the white man’s cre-
ation, when he is willing to enter and to minister the needs of the white man, and should depart there-
from when he cease so to minister”. Migrant labour would thus have to be the means by which the white
economy obtained its workforce while white society maintained its dominance of the urban areas’
(Feinstein 2005).
2 Bundy (2016: 56).
 Constraints to Economic Growth in South Africa    113

GDP Real Growth Rate - annual % change

10

Apartheid Growth Transition to

8 (1946-71) Ave Democracy
Growth 4,9% (1994-2010)
Crisis of Apartheid Ave Growth
(1972-93) Ave 3,2%
6 Growth 2,0%%
Persistent
Low Growth
(2011-19)
4 Ave Growth
1,5%

0
1972
1952
1946
1948

1970
1956

1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
1950

1960
1958

1962

1968

1974
1976
1978
1980
1982
1984
1986
1988
1990
1966
1954

1964

-2

-4

Figure 6.1 Real GDP growth rate 1946–​2019, annual percentage change
Source: SARB GDP growth series, KPB6006Z, and author’s own calculations.

growth path being followed by many other countries in the global economy (Lipton
1985).3
Along a different vein, Marxist theorists contended that the apartheid system in fact
facilitated capitalist development through providing for the super-​exploitation of Black
labour drawn from the country’s Bantustans (Wolpe 1972). This racialized form of cap-
italism allowed for the significant extraction of surplus value from Black labour, flowing
into profits which could be reinvested in profitable activity, for the enrichment of a
rent-​seeking, white capitalist class and for tax-​and-​spend transfers to service the needs
mainly of the privileged white minority.
The arrival of the crisis of the apartheid growth model in the 1970s and 1980s
informed Wolpe’s Marxist-​oriented characterization of the relationship between apart-
heid and capitalism as being historically and materially contingent, rather than always
being either a priori functional or dysfunctional (Wolpe 1988). In this formulation,
loosely analogous to a reading of history where social forms of earlier epochs become
fetters due to the evolution of productive forces—​say as feudalism gives way to capit-
alism, and thereafter capitalism gives way to socialism—​apartheid could be described as

3 Acemoglu and Robinson (2012) offer the following description, ‘It should be no surprise that the

type of economic development that white South Africa was achieving was ultimately limited, being
based on extractive institutions the whites had built to exploit the Blacks . . . Economic institutions were
extractive . . . This economic growth without creative destruction from which only the whites benefited,
continued as long as revenues from gold and diamonds increased. By the 1970s, however, the economy
stopped growing’ (p. 270).
114   Kenneth Creamer

initially having been functional to capitalist development in South Africa and thereafter
as dysfunctional.
From the mid 1970s—​commencing with the 1972–​73 wave of ‘wild-​cat’ strikes by
Black workers, who at the time, unlike white workers, had no legal right to form trade
unions—​it became increasingly apparent that apartheid’s unjust policies were begin-
ning to constrain economic growth in South Africa. This inflection point in the mid-​
1970s occurred against, and was impacted by, the backdrop of momentous changes
taking place in the global economy at the time, such as the collapse of the Bretton Woods
system of fixed and regulated exchange rates, the oil price shock that accompanied the
formation of the Organization of the Petroleum Exporting countries (OPEC) cartel, and
the stagflation that preceded the global ideological economic policy shift from a pos-
ition where Keynesian demand-​side management was predominant to the dominance
of Friedman-​inspired, neo-​liberal, supply-​side policies, which aimed at smaller govern-
ment, deregulation, the reduction of trade union power, and policies to reduce and con-
trol inflation.
The international constraint on apartheid South Africa’s economic growth po-
tential was elucidated by Kahn in his explanation of the ‘balance-​of-​payments con-
straint’ faced by the country (Kahn 1991). If the economy grew, then South Africa
would increase its imports more quickly and it could generate hard currency
through exports or through capital inflows. This constraint was deeply structural
in nature, given South Africa’s reliance on the import of certain intermediate and
consumer goods and it being a ‘price-​taker’ in volatile non-​oil, global commodity
export markets. This international constraint was intensified in the 1980s by rising
economic sanctions on exports from, and finance to, apartheid South Africa, which
was becoming increasingly politically and economically isolated in the international
community.
Unable to resolve its economic crisis, and after ultimately unsuccessful attempts
during the 1980s at superficial political reforms—​such as establishing a tricameral
parliament for whites, coloureds, and Indians and Black local authorities for limited
African political representation at local government level—​combined with intense in-
ternal and external repression of anti-​apartheid activity, the apartheid regime through
a negotiated settlement capitulated to one-​person-​one-​vote rule in 1994. This demo-
cratic breakthrough eased a number of the more immediate ‘political’ constraints on
economic growth—​opening up the South African economy to increased international
trade and investment, creating an enabling environment for economic reconstruction
and development, and promising a democratic dividend as relative peace and stability
came to replace the cycle of violence, instability, repression, and resistance which had
intensified in the mid-​to-​late 1980s and early 1990s. From Figure 6.1, it can be seen
that the average annual real GDP growth rate from 1994 to 2010 increased to 3.2 per
cent, from the 2.0 per cent average growth rate of the apartheid economy in crisis, but
from 2011 onwards GDP growth fell sharply to an average annual growth rate of only 1.5
per cent.
 Constraints to Economic Growth in South Africa    115

6.3 Post-​apartheid Constraints

and Performance

The constraints on the post-​apartheid economy’s growth can be understood through

the analysis of a number of inter ​related domestic and global, structural and political-​
economy factors. First, the unaddressed legacy of racial and gender exclusion resulted
in sustained under-​development and lack of opportunity for significant sections of
the population. Second, the post-​1994 economic growth rate was influenced and
constrained by developments in the global economy, such as, global financial and health
crises, the rise of China’s industrial capacity, and the related movements in the global
commodity price cycle. Third, policy choices and macro ​economic imbalances resulted
in declining investment levels, particularly investment in growth-​enhancing social and
economic infrastructure. Fourth, the vision of a process of state-​led development which
would be capable of guiding transformative, inclusive growth was undermined by state-​
capture, corruption, and related weaknesses in state capacity.

6.4 Legacy of Racial

and Gender Exclusion

The post-​apartheid government faced political constraints different from those of

the apartheid regime, such as managing the legitimate expectations and hopes of the
Black majority for a better life post liberation, managing white fears of a deteriorating
standard of living in order to avoid the outflow of skills and capital, as well as taking
actions which would establish the new government’s credentials and ability to manage
effectively a modern democratic state and a large, relatively sophisticated, mixed, open
economy.
During the negotiations to end apartheid in the early 1990s, many of these issues
played out in the terrain of economic policymaking. Within the anti-​apartheid forces,
there was intense contestation about economic policy. The Macroeconomic Research
Group published detailed policies on how to advance economic transformation
objectives (MERG 1993), and the policy clashes between business and labour (Adelzadeh
1996) and political economy contestations (Marias 1998) have been well documented.
Moderating forces were at work within South Africa’s liberation forces, typified, for ex-
ample, by Mandela’s re-​written speech for the 1991 World Economic Forum in order to
better mollify, and ultimately attract, foreign investors (Hirsch 2005). For a fuller dis-
cussion of the politics of economic policymaking, see C­ hapter 4 in this volume and for a
discussion on the impact of such contestation on South Africa’s post-​apartheid develop-
ment trajectory, see ­Chapter 5 in this volume.
116   Kenneth Creamer

Despite these areas of intense contestation, the broad strategic thrust towards a demo-
cratic dispensation and economic transformation was achieved through negotiated
settlement and the country’s post-​1994 constitutional dispensation explicitly mandated
government to take corrective action in order to overcome racial, gender, and other forms
of inequality. The constitution through its entrenchment of social and economic rights
placed an obligation on the democratic state progressively to expand access to education,
health, and housing.4 Furthermore, the constitution also sought to correct the injustice of
historical land dispossession by mandating that, in the public interest, land reform should
be undertaken by the state. In a careful balancing of interests in favour of accelerated land
reform and so as to avoid the process being caught up in a market-​determined dynamic
of willing buyer and willing seller, the Constitution mandated that compensation for land
expropriation should be ‘just and equitable’, rather than simply being based on current
‘market value’.5
While there have been important advances in securing certain social and economic
rights for South Africans—​access to education, housing, water, electricity, and land—have
improved, the quality of such services has been questionable and the scale of these changes
has not been sufficient to bring about a definitive, qualitative, and transformational shift in
order to overcome decisively South Africa’s inherited racialized patterns of privilege and
under p ​ rivilege. Similarly, while programmes of land restitution and redistribution have
increased Black land ownership, Black ownership of farmland and well-​situated and serviced
urban land remained inadequate. Although informal settlements, particularly those around
the big urban centres, have grown, housing and urban development has failed to keep up
with the rate of internal urbanization and inward migration from other countries.
South Africa’s 1994 negotiated settlement could not immediately resolve the many
deep-​rooted structural impediments to economic growth resulting from the country’s
history of colonialism and apartheid. Racialized inequalities of wealth, land, income,
and opportunity were entrenched, just as access to education, skills, and health services
continued to be racially skewed. ‘Dispossession has in fact become the source of major
developmental handicaps for at least some and possibly many countries’,6 including
South Africa (Arrighi et al. 2010).
Hirsch (2005) takes this argument further, suggesting that a significant growth con-
straint, and a fundamental cause of the lack of competitiveness of the South African
economy, has been due to the fact that ‘apartheid raised living costs for all South
Africans, especially the poor . . . The working poor were located miles from their poten-
tial places of work, and often equally far from commercial and public services . . . The de-
terioration of access to public services such as education, health, and social security for
Africans under apartheid meant the diminution of the social wage.’7

4
Chapter 2 of South Africa’s Constitution outlines a Bill of Rights, including the rights to housing
(S.26), to health care, food, water, and social security (S.27), and to education (S.29).
5 S.25 of South Africa’s Constitution.
6 Arrighi (2011: 411).
7 Hirsch (2005: 182–​3).
 Constraints to Economic Growth in South Africa    117

Employment and unemployment 1994 to 2019

10500000
31

29 10000000

27
9500000
25

23 9000000

21 8500000
19
8000000
17

15 7500000
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Unemployment (% annual) (LHS) Employment-formal non-agricultural (RHS)

Figure 6.2 Rising employment and unemployment, 1994–​2019

Source: SARB data series KPB7009J and KPB7019J.

The ongoing reality of racial and gender exclusion severely constrains growth in
South Africa. Poor rural villages and urban informal settlements with high rates of un-
employment and poverty are not conducive locales for new business development or
even for investment in municipal infrastructure reliant on the collection of municipal
rates and user ​fees for water, electricity, and other services.
During the first two and a half decades of South Africa’s democratic dispensation,
the absolute size of the Black middle class increased, and the absolute number of people
in employment has grown, but neither at sufficient pace to keep up with wider demo-
graphic changes. In the labour market, the increase in the numbers of new entrants into
the labour market each year resulted in a situation where both the number of people
employed and the number of people who are unemployed have risen at the same time,
as outlined in Figure 6.2 It can be seen that the official rate of unemployment—​not
taking into account those who had become discouraged and had given up looking for
employment—​rose from about 20 per cent in 1994 to about 30 per cent in 2019 as the
number of formal non-​agricultural jobs rose, too slowly, from about 8.6 million to over
10 million during this period.8
In general, the labour force participation rate rose in the post-​apartheid era but
remained low compared with other countries (OECD 2008). The number of women

8 As a reference, full employment in South Africa, including the sizeable agricultural sector and in-

formal employment, increased from 14.4 million in March 2008 to 16.4 million in March 2020. The im-
pact of the COVID-​19 pandemic resulted in a 2.2 million decrease in total employment in the second
quarter of 2020 to a total employment level of 14.1 million (Statistics South Africa 2020).
118   Kenneth Creamer

who had historically been excluded, but who began entering the labour market was a
key driver of the growing size of the labour force in the post-​apartheid era. Typically,
Black women continue to be the lowest paid, experience the highest level of unemploy-
ment, and endure the highest level of poverty in South Africa.
While training and skills development for the middle and upper classes is of a high
quality, children of the poor and unemployed are not given access to the skills that en-
able effective economic participation. For example, even though South Africa spends a
comparable amount of its GDP on education, the country’s education outcomes have
continued to be disappointing. For example, despite the fact that reading outcomes
among South African schoolchildren improved between 2006 and 2011, the transfer
of reading skills stagnated between 2011 and 2016 with Spaull and Pretorius reporting
that ‘78 per cent of Grade 4 children cannot read for meaning in any language’ based
on data from the Progress in International Reading Literacy Study of 2016 (Spaull and
Pretorius 2019).

6.5 Impact of Global Factors Including

the Global Commodity Cycle

As a relatively open economy, a number of important channels exist between South

Africa and the global economy. Most significantly, despite having a comparatively
diversified production base including sizeable secondary and tertiary sectors, economic
growth in South Africa has been historically linked to the global commodity price
cycle.9 This is due to the fact that South Africa’s mining sector is comparatively large,
producing a significant range of globally traded minerals. Furthermore, the mining
and energy sectors—​through what has been characterized as the minerals–​energy
complex (MEC)—​is significantly integrated into secondary and tertiary activity in the
country. Fine and Rustomjee’s (1996) seminal work identified the importance of South
Africa’s MEC as both a driver of economic growth and over time as a fetter to further
industrialization.10

9
Based on the combined value of imports and exports measured at around 50 per cent of GDP, South
Africa has had a comparatively open economy over the full post-​Second World ​War period. This has
been driven by South Africa’s extractive, colonial history, which has had the effect of linking economic
performance to the global minerals cycle, but at the same time South Africa has experienced a high de-
gree of industrialization—​and related international trade patterns—​compared with other African and
colonized countries.
10 ‘Although the MEC’s impact has differed over time and across sectors, it has effectively led to

policies which both supported its core sectors and precluded the adoption of other industrial policies of
diversification away from economic dependence on South Africa’s resource base’ (Fine and Rustomjee
1996: 14).
 Constraints to Economic Growth in South Africa    119

The combination of the economy’s linkage to the global commodity price cycle and
the amplification of the effects of this cycle on the wider economy through the economy’s
MEC-​linkages, result in a situation where downturns in the global commodity price
cycle pose constraints on economic performance. When the terms of trade are in South
Africa’s favour, this helps to lift the economic growth rate, but when the terms of trade
turn against South Africa—​for example when gold, platinum, coal, iron o ​ re, and man-
ganese prices decline and oil prices rise—​this negatively impacts on the country’s eco-
nomic growth. For a fuller analysis of the intersection between the mining and energy
sectors and economic growth, see ­Chapters 13 and 14 in this volume, respectively.
The MEC was described as being based on close linkages and multiple inter-​
penetrations between mineral extraction, energy provision, and industrialization. For
example, coal mined in South Africa has been used to generate the electricity required
for the mining of other minerals and other economic activity and for the production
of liquid fuels by Sasol. This mining and electrification activity would facilitate various
upstream and downstream industrial activities, would provide the basis for finan-
cial activity, and would provide fiscal linkages in the form of state revenue. The MEC
facilitated the ‘growth of manufacturing around primary production’11 and also allowed
for the evolution of a large and sophisticated financial sector. ‘Despite its origins and
productive basis in the mining and energy sectors, the MEC revolves around a separate
but intimately related epicentre—​that of finance’.’12
As can be seen from Figure 6.3, during South Africa’s early democratic period, broadly
speaking from after the 1997 Asian crisis to around 2010, the global commodity cycle
rose significantly and continuously, so the period was described as the commencement
of a seemingly ineluctable commodities super-​cycle.13 Due to these favourable terms-​
of-​trade effects, South Africa’s mineral exporting economy grew each year, without
any intervening periods of recession, from around 1997 until the 2007–​09 financial
crisis, dubbed the Great Recession. During the upswing in the commodity cycle, South
Africa’s annual real GDP growth rate rose above 5 per cent per annum, employment
levels increased, and the rate of unemployment began to fall (see Figure 6.2).
Despite the early 2000s being a period of relatively high economic growth, certain
longer-​run structural forces continued to impact on the economy’s performance and on
the quality, composition, and distributional effects of the country’s economic growth.14

11
Fine and Rustomjee (1996: 5).
12
Fine and Rustomjee (1996: 10).
13 In what turned out to be a case of remarkable bad timing an IMF Staff Paper published in 2008

argued that ‘the evidence is consistent with the hypothesis that there have been three super cycles in the
past 150 years or so, and that we are currently in the early phase of a fourth super cycle . . . [due] primarily
to Chinese urbanisation and industrialisation’ (Cuddington and Jerrett 2008).
14 The quality and composition of growth meant that in South Africa, as in a wide range of economies

around the globe, there were structural forces at play which had the effect of increasing inequality both
of income and of the ownership of assets. Some, such as Piketty (2014), have ascribed rising inequality to
the fact of weakening public fiscal institutions and long-​term dynamics of the capitalist system whereby
the return on assets held by the wealthy (r) is greater than the rate of economic growth (g). Others,
such as Brynjolfsson and McAfee (2011), have argued that the ongoing wave of technological change is
120   Kenneth Creamer

Commodity cycle and the Real GDP growth rate 1994 to 2015
115 6

110 5
105
4
100
3
95
2
90
1
85
0
80

75 –1

70 –2
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Commodity Cycle (2015 = 100) (LHS) GDP Growth Rate (Annual % Change) (RHS)

Figure 6.3 Commodity cycle and the real GDP growth rate, 1994–​2015
Source: Author’s own calculations based on Sachs 2020 and Jacks 2019; the commodity cycle is based on a weighted
commodity price index (where 2015 = 100) including the following commodities gold,
platinum, coal, iron ore, chromium, copper, aluminium, and steel.

Minerals beneficiation and industrialization continued to face global headwinds,

mainly as a result of rising Chinese manufacturing power. This resulted in increased
competition from global trade and the inward flow of imported manufactured goods
into the South African market—​in turn resulting in de-​industrialization pressures, with
sustained decline in both the share of manufacturing in total employment and the share
of manufacturing in GDP (Tregenna 2008).
It was also during the early 2000s that a major policy error was made with regard to
the investment in the country’s electricity-​generation capacity. Complacency about high
rates of economic growth, together with uncertainty over whether the government’s
policy framework should favour public or private investment in future electricity
power generation plus a mis-​estimation of the long lead-​times involved in building new
electricity-​generation capacity, meant that by 2007 South Africa was experiencing elec-
tricity shortages.
The 2007–​09 financial crisis impacted negatively on the rate of economic growth
in South Africa mainly as a result of falling demand for South African exports as the
country’s trading partners all went into recession. After the 2007–​09 financial crisis,
the global commodity cycle began a downward trend from 2011, placing a significant

tantamount to a Great Restructuring in which the acceleration of technology has negative consequences
for wages and jobs and that, while digital progress grows the overall size of the economy, it does this
while leaving the majority of people in a poorer position. In the South African context specifically,
Burger (2015) has suggested that labour’s falling share of income is due to financialization and aggressive
returns-​oriented investment strategies that have resulted in greater investment in capital-​augmenting
labour-​saving technologies.
 Constraints to Economic Growth in South Africa    121

constraint on South Africa’s rate of economic growth, which continued to fall precipi-
tously from that time until the country fell into recession prior to the impact of the
COVID-​19 pandemic that further accelerated the economic contraction. The down-
turn in the commodity price cycle was due in no small part to China losing faith in
the ongoing reliability of the Western world’s consumption of its exports in the wake
of the 2007–​09 financial crisis and deciding to rebalance its growth model away from
prioritizing investment to increasing domestic consumption. This rebalancing of the
Chinese growth model, which resulted in reduced demand for mineral inputs, was a
key factor in bringing down global commodity prices,15 with significant negative
consequences for mining revenues in South Africa. This, through the numerous MEC-​
linkages, began to constrain the overall economic growth performance of the South
African economy, as well as the country’s fiscal potential.
From 2011 onwards South Africa’s economic growth rate fell. Even when there was a
degree of recovery of global commodity prices in 2016, South Africa’s economic growth
rate did not respond as expected. By that time the linkage to the global commodity cycle
had been weakened by a number of internal factors in the South African economy which
meant that mining output was on the decline and was not able to respond to rising inter-
national prices. These factors included the shortage of electricity which limited the ex-
pansion of mining output and meant that new mining investment could not take place.
Political and policy uncertainty about mining rights and the recognition of earlier Black
empowerment deals in the mining sector also were not conducive to investment in the
sector. In particular, electricity constraints and policy uncertainty meant that mining
investment was curtailed and economic infrastructure—​associated with rail, port, and
logistical networks—​became costly and inefficient. Likewise, the potential for down-
stream mineral beneficiation was severely curtailed by the country’s electricity shortage.
The slowdown in the mining sector and the shortage of electricity transmitted
through the various MEC linkages accelerated the process of de-​industrialization
that had been a characteristic of the post-​apartheid economy. South Africa, like
many other economies, found it very difficult to compete with industrial and other
imports from China and other Asian countries.16 Industrial capacity shifted to those
countries who pursued aggressive export-​oriented industrialization policies that were

15
Other factors included demand-​subduing crises in a number of European countries, centred
around Greece, as well idiosyncratic developments in the world platinum market leading to a falling
price of platinum. This resulted in reduced sales of diesel-​powered vehicles due to the exposure of
fraudulent claims around the environmental benefits of diesel engines, which used platinum in their
catalytic converters.
16 ‘The reason behind these trends has to do both with technology and trade. Rapid global techno-

logical progress in manufacturing has reduced the prices of manufactured goods relative to services,
discouraging newcomers in developing countries from entry. At the same time, manufacturing has be-
come much more capital and skill intensive, substantially reducing the labour-​absorbing potential of the
sector for workers from agriculture of informality. On the trade front, competition from China and other
successful exporters combined with the reduction in protection levels means that few poor countries
now have the opportunity to develop simple manufactures for home consumption. The room for import-​
substitution was squeezed out’ (Rodrik 2018: 90–​1).
122   Kenneth Creamer

fundamentally more competitive as they began to include millions of new, skilled,

lower-​cost workers into global trade. This fundamental challenge from new global in-
dustrial competitors, together with a ‘perfect-​storm’ of factors, including the down-
turn in the global commodity cycle, significant policy uncertainty, state corruption
and incapacity, and an electricity shortage, meant that from 2011 onwards South
Africa’s economic growth rate began to fall sharply with no clear signs of recovery on
the horizon.

6.6 Macroeconomic Imbalances

and Policy Uncertainty Constraining
Growth and Investment

Causality runs both ways between investment and growth—​economic growth creates
an environment conducive to increased levels of investment and rising investment
drives growth. From Figure 6.4 it can be seen that South Africa has experienced a down-
ward spiral in gross fixed investment since the 2007–​09 financial crisis, with investment
falling from a level of over 23 per cent of GDP in 2008, to below 18 per cent of GDP
in 2019.
Persistent macroeconomic imbalances and the dependence of the South African
economy on foreign savings increases the fragility of the economy, making it vulnerable
to capital flow reversals, which would lead to Rand currency depreciation and to rising

Investment as % of GDP 1994 to 2019

24,0
23,0
22,0

21,0
20,0

19,0
18,0

17,0

16,0

15,0
19 4
95

19 6
97
98

20 9
00

20 3
04

20 5
06

20 8
09
01
02

07

12
13

20 4
15
10

16

20 7
18
19
11
9

1
20
20
20
20

20
20
20

20
20

20
20
19

19

19
19

20

20

20

GDFI (as % of GDP) (LHS)

Figure 6.4 Investment level and GDP growth, 1994–​2019

Source: SARB data series KPB6009J and author’s own calculations.
 Constraints to Economic Growth in South Africa    123

interest rates. Foreign savings also allow for the persistence of both the country’s current
account deficit and its budget deficit. Unlike export-​oriented growth models, persistent
current account deficits, whereby the value of imports consistently exceeds the value of
exports, tend to constrain economic growth rates and lead to increased foreign owner-
ship of domestic economic assets leading, in turn, to the ongoing outflow of dividends
to foreign-​based owners.
In response to the 2007–​09 financial crisis, counter-​cyclical fiscal policy meant
increased fiscal deficits in an effort to boost aggregate demand and growth. The
sustained period of low growth in the post-​2011 period meant that fiscal deficits, which
were intended to be cyclical, in fact morphed into structural deficits in the sense that due
to the unexpectedly reduced level of economic growth, tax revenues were not sufficient
to cover government’s expanded expenditure obligations. Unlike cyclical deficits which
are reduced in the medium run as growth recovers—​leading to increased tax revenues
and a degree of expenditure containment—​structural deficits became entrenched as
the lower-​than-​expected rate of economic growth resulted in an entrenched gap be-
tween tax revenue and expenditure, fuelling rapidly rising national debt, from a level of
about 50 per cent of GDP in 2016 to around 80 per cent of GDP in 2020 (South African
National Treasury 2020b).
Rising public-​sector wages and social security payments effectively ‘crowded out’
general government infrastructure spending to the extent that increased budget deficits
and national debt were used to pay increased wages and debt-​repayments rather than
drive an increase in government-​funded investment. Following the 2007–​09 global
economic crisis, South Africa significantly increased state-​guaranteed investment by
state-​owned companies just as private-​sector investment and general government in-
vestment levels fell, as indicated in Figure 6.5. Investment by state-​owned companies

Composition of investment (as % of GDP) 1994 to 2019

15,0

13,0

11,0

9,0

7,0

5,0

3,0

1,0
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019

Government State Owned Companies Private Sector

Figure 6.5 Composition of investment (as % of GDP), 1994–​2019

Source: SARB data series KPB6100J, KPB6106J, and KPB6109J and author’s own calculations.
124   Kenneth Creamer

in this period—​such as the building of two large coal-​fired power stations Medupi and
Kusile—​was poorly managed and in many cases these investments were tainted by inef-
ficiency and corruption. Poorly conducted investment by state-​owned companies saw
state-​owned-​company investment levels decline from 2013 onwards; these failings also
weighed heavily on business confidence and private-​sector investment has remained
at subdued levels over the same period. For a fuller analysis of the intersection be-
tween macroeconomic policy and growth see ­Chapter 41 in this volume, as the current
chapter will focus on the impact of falling investment levels in specific key economic
sectors, such as electricity, roads, and telecommunications infrastructure.

6.7 Electricity Infrastructure

With regards to electricity supply, government signalling from the late 1990s that power
utility Eskom should not invest in new generation capacity as private-​sector invest-
ment would be facilitated, and then not opening the policy space for such investment,
has been the fundamental reason for post-​apartheid South Africa’s electricity shortage.
Thereafter, ongoing contestation and policy ambivalence has continued to cloud
attempts to overcome the country’s electricity shortages since the first occurrences of
load-​shedding in 2007.
In response to the electricity shortage, Eskom built two large coal-​fired power
stations—​Medupi and Kusile—​unfortunately at the very time when the global en-
ergy sector was transitioning away from large-​scale vertically integrated, coal-​based
electricity-​
generation models towards a low-​ carbon, relatively de-​ centralized and
lower-​cost renewable energy model. With serious delays and cost over-​runs at Medupi
and Kusile, South Africa did embark on a programme of wind and solar renewable-​
energy investments based on its Integrated Resource Plan 2010. Future renewable-​
energy investments were thereafter disrupted for a number of years from 2016 to 2019,
due to local and global vested interests pushing for coal and nuclear power options,
despite the fact that renewable-​energy technologies, supplemented by gas, had become
the lowest-​cost and most rapidly deployed option to plug South Africa’s electricity gap
(Bischof-​Niemz and Creamer 2019).
The immediate impact of the contestation and lack of policy certainty around South
Africa’s electricity investments was to stall pent-​up investment in electricity infra-
structure. The direct costs in the form of lost economic output were estimated at be-
tween R60 billion and R120 billion a year in 2019 and 2020 (CSIR 2020). The economic
costs of the prolonged electricity shortage in the form of reduced investment, reduced
exports revenues, and lost employment opportunities, were far greater as they placed
a significant constraint on the country’s economic growth and development and left a
permanent scar on post-​apartheid South Africa.
 Constraints to Economic Growth in South Africa    125

6.8 Road Infrastructure

Road infrastructure has been another sector in which policy uncertainty and contest-
ation has resulted in declining investment. The decision to fund the upgrading of those
parts of the national road network located in Gauteng triggered a de facto tax revolt
as most Gauteng road users refused to pay. Even though the policy was designed so
that business vehicles and private vehicle owners would contribute to the costs of the
road network—​and that those using public transport such as mini-​bus taxis would not
have to pay—​there was widespread rejection of the toll payments swept up in the anti-​
corruption sentiment of the period.
Government commitment to the policy framework has wavered, with the Gauteng
provincial government campaigning against the toll road policy. The consequence of
such lingering policy uncertainty had devastating implications for the maintenance and
development of South Africa’s wider road network—​and the important economic effi-
ciency and trade and logistics that such a network provides. The situation has pushed up
the indebtedness of the South African National Roads Agency Limited (Sanral) raising
fears of a debt default which would have wider fiscal implications for the country. The
failure of the Gauteng user-​pays model has meant that planned road upgrades in other
provinces have not been undertaken and resources that would have been freed up for
rural roads are not available. As of 2020, Sanral estimates a road maintenance backlog
valued at approximately R150 billion (Barron 2020).

6.9 Telecommunications
Infrastructure

Despite the fact that worldwide the latest phase of industrialization is being driven by a
revolution in digital technology which continues to shape economic activity and deter-
mine competitiveness, South Africa’s key enabling policy on the utilization of the elec-
tromagnetic telecommunications and broadcasting spectrum has been at a stalemate
for over a decade. With regard to the release of the electromagnetic spectrum for the
users of telecoms and data services, the ongoing delay in the auction of this spectrum
has resulted in delays in the rolling-​out of more efficient and quicker 5G technology
(McLeod 2019). Furthermore, the lack of supply of such a broadband spectrum has
meant relatively high data prices for South African consumers and business, placing an-
other constraint on economic growth.
The competition authorities have sought to penalize the telecommunications
companies operating in South Africa for the country’s relatively high costs of service,
particularly for poorer consumers who purchase smaller packets of data, but at a more
126   Kenneth Creamer

fundamental level it has been the limitation of supply of the electromagnetic spectrum
that has pushed up prices. If markets operate competitively, effectively limiting pricing
power, then the increased supply of the electromagnetic spectrum would have had the
effect of reducing data prices, thereby releasing cost constraints on consumers and on
business development, particularly small business development.
The interests of an entrenched near monopoly in the broadcasting sector have
effectively stymied the digitization of the country’s television signals, as the incum-
bent has sought to avoid the entry of any potential competitors into its market by
campaigning against rivals being allowed to have the type of encryption technology
that it uses itself to ensure that customers pay to access its services. Ironically, the
speed of technological change is now beginning to surpass this incumbent, as
subscriptions become web-​based, rather than based on satellite ​encryption-​based
services, but nonetheless through the manipulation of government policy this in-
cumbent was able to secure near-​monopoly profits for over a decade as it blocked
the entry of others into its market.
Policy uncertainty, the power of vested ​interests, and the prevalence of contradictory
and unsustainable development models extended beyond the electricity, road, and
telecommunications sectors, constraining growth and investment in a range of key in-
frastructure sectors, including, housing, water and sanitation, commuter rail, and rural
development. The democratic state, upon which were political expectations and con-
stitutional obligations to drive economic growth and transformation, faltered as it was
not able to put in place sustainable strategies to expand infrastructure and foster long-​
term growth through a combination of fiscal commitments, user-​pays frameworks and
guiding and disciplining local and foreign investors. Given the country’s history and the
persistence of inequality and economic exclusion, the democratic state’s failure effect-
ively to lead a process of inclusive development has in itself represented a formidable
constraint to economic growth.

6.10 State Capacity and

the Developmental State

Through numerous policy frameworks, such as the country’s National Development

Plan (2012), the post-​apartheid state has asserted a theoretical committment to state-​led
development and to the building of the kind of capabilities and institutions reminiscent
of East ​Asian ​miracle-​style developmental states (Johnson 1982 and Wade 1990). Despite
this theoretical, or perhaps at times merely rhetorical, commitment to a decisive state
role in guiding post-​apartheid economic growth and development, in practice there
have been many failings, even to the extent that in the post-​apartheid South African
context poor state capacity has emerged as a constraint to, rather than the driver of, eco-
nomic growth.
 Constraints to Economic Growth in South Africa    127

Notwithstanding this reality, there seems to be no alternative pathway, or histor-

ical precedent, that would indicate that South Africa can possibly develop into a more
equal and prosperous society without a machinery of state which is capable of playing
a guiding and developmental role. For there to be a sustained period of economic de-
velopment will require a state capable of transforming the economy’s historically
embedded structure of opportunity and removing entrenched structural constraints, in
order to put the economy onto a new, more inclusive, growth path.
Wade (2018) summarizes the key elements of the ‘developmental mindset’ as follows:

• High and sustained economic growth rates, so as to catch up with developed

countries ‘quickly’ (within a few decades)
• High rates of investment to gross domestic product (GDP) so as to achieve rapid
movement of the production structure into more productive sectors
• The state to coordinate the catch-​up strategy and promote some sectors and
functions ahead of others, whether through public enterprises or through steering
private actors into sectors they would otherwise not enter
• The state to curb the growth of consumption by the urban labour force and farmers,
so as to free up more resources for investment
• The state to promote exports intensively, so that the high investment could be prof-
itable despite restrained growth of consumption at home; but at the same time, state
industrial policy must target feasible replacement of imports and concentrate for-
eign exchange on imports of capital goods, intermediate goods, and raw materials
(not consumer goods) by means of a managed trade policy, not free trade and not
‘neutral incentives’ between export promotion and import substitution
• The state to invest heavily in education (people being the primary endowment, not
natural resources), especially engineering, including sending students to the West
for university education and putting them under obligation to return
• The state to boost the take-​up of Western technology, including by establishing
public R&D centres able to ‘domesticate’ technologies purchased or imitated from
abroad or brought in by branches of Japanese or Western companies.

Developmental state theory sees the state empowered to play a role in changing
inherited economic structures. State ownership is combined with state action to shape
and regulate market activity. This was regarded as providing superior outcomes to that
of neo-​liberal policy which would most likely entrench current structures and racial
inequality hence rendering the framework incapable of addressing the historical and
structural realities of colonialism and apartheid. On the other hand, statist theory which
seeks to maximize state ownership in the economy would lack the capacity for growth
and dynamism and would tend towards centralization of power and corruption.
The creation of a developmental state and the commitment to ‘inclusive growth’
seemed to resolve some of the policy tension on the balance to be struck between growth
and redistribution. On the one hand, there was an argument that what was needed was
‘growth through redistribution’, which emphasized the need for policy interventions
128   Kenneth Creamer

to change racialized patterns pre-​distribution and widen access to land, education,

and business entry in order to generate a new growth dynamic in the South African
economy. On the other hand, there was an argument in favour of ‘redistribution through
growth’, which emphasized the need for policies aimed at promoting new investment
and job creation so that the benefits of growth would become available to the wider,
hitherto excluded population (Moll et al. 1991). The theory of the developmental state
and the commitment to ‘inclusive growth’ recognized that both growth and redistribu-
tion need to be taken forward simultaneously and that policy has a role in shaping eco-
nomic performance to achieve the reinforcing objectives of growth and redistribution.
In practice, the role of a capable developmental state, inclusive growth, and a balance
between growth and redistribution has not been easy to achieve, and at times has resulted
in contradictory and constraining outcomes. Insights into the process of corruption and
state capture have been offered by Von Holdt (2019) who recast the kind of corruption
that saw state officials replace public development purposes with their own financial
interests as a form of ‘primitive accumulation’ on the part of a nascent elite.17 The vision
of a developmental state has been severely undermined by state capture and the corrupt
practices of a new political class of insiders. Members of this elite may not have had
opportunities in white-​dominated business and hence the corruption has the potential
for the formation of a new elite class. However, this argument fails to fully foreground
the constraint posed by such state capture and corruption as it repurposes the state’s
role towards private accumulation and away from inclusive growth and development,
a negative cycle which is accelerated if it is accompanied by falling levels of growth and
investment, as has been the case in South Africa in recent years.
Given apartheid’s strict limitations on Black business participation, post-​apartheid
South Africa necessarily embarked on a process of de-​racializing ownership of the
commanding heights of the economy. Through a process called Black Economic
Empowerment (BEE) regulatory frameworks were put into place which required Black
business ownership and other forms of Black participation in the formal economy. The
issuing of new mining licences required a percentage of Black ownership of the firms
concerned, preference was given to Black ownership in government and private pro-
curement, and employment equity and training programmes favoured the advance-
ment of Black people as managers and executives in the business sector.
A critique of this process has been that it has been too narrowly focused, with only
a small number of Black business leaders benefiting from the BEE process. Also, over
time, as Black shareholders sought to sell their shares in particular companies, these
companies came to be in danger of losing their BEE credentials. The BEE process, while
politically and historically a necessary form of corrective intervention, served to en-
trench the insider–​outsider character of much of the South African economy.
Cronyism and political connectedness played into the dynamic whereby a small
number of individuals were given privileged access to business profits and frequently

17
Von Holdt (2019: 17).
 Constraints to Economic Growth in South Africa    129

these were in the same concentrated, uncompetitive business structures in which firms
had pricing power—​entrenching overall inequality, although not necessarily racial in-
equality, in the wider society.
The state has not been able to develop the kind of ‘embedded autonomy’ (Evans 1995)
required from the new BEE class, historical white capital, or even to an extent the trade
unions necessary to be a technocratically effective developmental state capable of
planning in the long-​term national interest and free of short-​term insider, rent-​seeking,
and vested interests. The state has not been capable of rising above distributional conflicts
and mapping out relatively ‘autonomous’ growth strategies. This has weakened the
planning and policymaking capacity of the post-​apartheid state to a significant degree.
Furthermore, the state will not be in a position to lead a process of social compacting
until it is able to achieve a sufficient degree of ‘embedded autonomy’ and has the
capability of developing and implementing plans in the national interest to simulate
inclusive growth and national development.

6.11 Policy Perspectives—​O vercoming

South Africa’s Growth Constraints

Moving beyond diagnosis, the chapter concludes with a focus on policy perspectives
which seek to address and overcome South Africa’s growth constraints.
First, the fundamental competitiveness of the South African economy needs to be
re-​established. The MEC-​based growth structure, which has linked the economy’s
fortunes with the global commodity prices cycle, should over time be replaced with
new structures of competitiveness and innovation. At its techno-​economic heart,
South Africa’s historical MEC must be replaced by new drivers of economic growth.
Fundamental to this vision would be the establishment of a new green energy com-
plex, which will seek to restore the country’s competitive advantage through lower-​cost,
lower-​carbon, and reliable electricity supply. For a fuller analysis of the potential for a
green transition in South Africa, see ­Chapter 16 in this volume.
To be successful, the business model for energy investment requires the payment of
cost-​reflective tariffs by industrial users. As South Africa has world-​class wind and solar
assets (Bischof-​Niemz and Creamer 2019), this will put downward pressure on South
Africa’s future electricity prices and assist in promoting export competitiveness. This
process would require the restructuring of Eskom into three distinct entities—​each
respectively responsible for electricity generation, transmission, and distribution.
Following such a restructuring, increased competition will bring down generating costs
and a national transmission company will play a strategic role in facilitating the energy
transition and introducing new levels of efficiency and competitiveness.
The alignment of South Africa’s industrial policy with the programme of electri-
city infrastructure investment would allow integrated exploitation of upstream and
130   Kenneth Creamer

downstream industrial linkages to the green energy complex, including through lo-
calization of renewable-​energy technology and through the promotion of new export-​
oriented green industries. This should include the accelerated implementation of
Renewable Energy Development Zones—​ including in coal-​ producing areas—​ to
streamline environmental authorization processes and assist in the establishment of
new upstream and downstream renewable-​energy industries in such zones. The correct
alignment of South Africa’s industrial and energy policy in such a manner would un-
leash significant investment and employment potential and would be a key driver to
overcoming the structural constraints currently weighing down the country’s rate of
economic growth.
Second, South Africa will need to restore the country’s external macroeconomic
balance through export promotion and its fiscal balance by bringing national debt
under control through growth-​enhancing infrastructure investment.
Broadly speaking, public spending can be broken into four main categories: wages
of public-​sector employees, welfare transfers, debt service costs, and infrastructure
spending. In a context of rising public-​sector wages, welfare transfers, and debt ser-
vice costs, at the same time as poorly performing government revenue over a number
of years, spending on infrastructure has tended to be ‘crowded-​out’.18 This is most con-
cerning as the prioritization of public spending on infrastructure and facilities is key
to achieving inclusive growth. Spending on assets, such as school and health facilities,
textbooks, sports equipment, libraries, toilets, clinics, scanners and x-​ray machines, as
well as on municipal and provincial services, roads, and transport infrastructure serves
to increase the social wage, particularly for those in poorer communities. Employment
programmes linked to infrastructure investment are preferable to the expansion of so-
cial grants, as such programmes offer work experience, transfer skills, and capabilities,
and result in the expansion of community services and assets. As such, South Africa’s
limited public finances should be prioritized and be focused on the building of social
and economic infrastructure that will increase the social wage for poor communities
and facilitate inclusive growth and job creation.
Three mutually reinforcing interventions are required for fiscal stabilization—​the
control of the budget deficit, the management of borrowing costs, and the acceleration
of economic growth. Although politically the most challenging, control of the budget
deficit is the policy lever most directly controlled by government as it can be achieved
through a combination of expenditure control, reprioritization, and tax policies. The
management of borrowing costs, which are ultimately determined not directly by gov-
ernment, but in local and global capital markets, requires the implementation of an

18 As per South Africa’s Budget Review 2020 (South African National Treasury 2020a), ‘Government

recognises that public-​service employees should be fairly remunerated, but is obligated to balance com-
pensation demands with the broader needs of society as reflected in the budget. Civil servants’ salaries
have grown by about 40 per cent in real terms over the past 12 years, without equivalent increases in
productivity. Growth in the wage bill has begun crowding out spending on capital projects for future
growth and items that are critical for service delivery.’
 Constraints to Economic Growth in South Africa    131

effective deficit reduction strategy, impactful pro-​growth reforms, and credible mon-
etary policy. Accelerating the rate of economic growth will require that government
implement a focused economic recovery strategy based on a specific set of pro-​growth
reforms capable of stimulating significantly increased levels of private-​sector invest-
ment and job creation.
Decisive interventions are urgently needed to rekindle and accelerate growth.
Such interventions must be designed to achieve an ‘inclusive’ form of growth, cap-
able of overcoming apartheid’s persistent, racialized, structural exclusions. The chief
instruments for driving ‘inclusive growth’ are, first, sectoral reforms aimed at unlocking
investment in infrastructure and business activity across a wide range of sectors, and
second, budget reprioritization aimed at improving access to public infrastructure and
services, effectively increasing the social wage.
Accelerated implementation of policies to unlock pent-​up demand for expanded in-
vestment in electricity-​generation capacity—​particularly lower-​cost and more ​rapidly
deployed wind, solar, and gas generation technologies—​would serve to stimulate sig-
nificant direct and indirect employment and BEE opportunities, as well as create the
energy security which is a necessary precondition for investment and job-​creating
activities across a wide range of economic sectors. Similarly, a correctly designed and
executed release of the telecommunications spectrum would set in motion a process
of lowering data costs and increasing access to data services—​putting money into
consumers’ pockets and allowing for increased employment and business activity
including township, village, and small business activity. Comparable reforms aimed at
stimulating inclusive growth should be undertaken across a range of sectors, including
mining and mining exploration, manufacturing, and agriculture and agro-​processing.
Third, the capability of South Africa’s state and public service must be improved
so that it can begin to play a role in guiding and leading inclusive economic growth.
Skilled and ethical public servants are needed for this task. As stated in the National
Development Plan (2012), in order to build a capable and developmental state, policy
must inter alia: stabilize the political–​administrative interface through establishing a
professional public service that is ‘sufficiently autonomous to be insulated from polit-
ical patronage’; and make the public service a career of choice where ‘recruitment and
management should be based on experience and expertise’, and where the state is able
to develop and reproduce ‘the specialist and technical skills to fulfil its core functions’.19
Such policies would enable the state to be ‘developmental’ and to guide service de-
livery and economic growth and development with the required degree of ‘embedded
autonomy’ (Evans 1995). A developmental state must be ‘embedded’ in the sense
that the state is knowledgeable about the workings, strengths, and weaknesses of the
economy and has the technical capability to articulate a transformative vision and carry
out such plans. It should have ‘autonomy’ in the sense that the state is not captured by
any particular foreign or domestic vested interests but is able to articulate and drive a

19
NDP (2012: 410).
132   Kenneth Creamer

programme of national economic development in the national interest. Any vision for
social compacting by government, business, labour, and the wider community to ad-
vance such a development programme will require, as a precondition, that government
is capable of developing and implementing such a programme of national economic de-
velopment, as this is not a role that can be played by any of the other social partners.
As has been the case in other countries that have pulled themselves out of poverty
through sustained periods of economic growth, South Africa will require the apparatus
of an effective developmental state capable of guiding the growth and development of
key sectors and network industries if it is to overcome the country’s structural growth
constraints. Furthermore, as a consequence of the country’s particular colonial and
apartheid history, an effective developmental state in the South African context will also
be required to re-​shape service delivery—​and undertake redistributive programmes—​
in order to lead the kind of ‘inclusive growth’ process that will be needed to overcome
the country’s enduring racialized and gendered patterns of inequality of income, wealth,
and opportunity.

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 Chapter 7

U nem pl oyme nt
i n Sou th A fri c a

James Heintz and Karmen Naidoo

7.1 Introduction

A remarkable feature of South Africa’s labour market is the persistently high level of
unemployment. Since the end of apartheid, when reliable statistical measurements
became available, the country has exhibited rates of open unemployment that are ex-
treme by any comparative standard. Wage employment is the single most important
source of income for most South Africans. Therefore, the lack of access to decent em-
ployment opportunities contributes to ongoing and deep-​seated economic inequalities
(Leibbrandt et al. 2010). These disparities in employment outcomes reflect broader
vulnerabilities across multiple dimensions: race, gender, age, educational attainment,
and location. The extreme problem of joblessness also has shaped debates over the de-
sirability of post-​apartheid labour market and social protection policies, such as the
national minimum wage, which came into effect on 1 January 2019 and which aims to
increase the wage floor for workers not covered by other wage regulations and for those
under sectoral wage determinations deemed too low (Elsley 2019).1 Understanding
the nature and causes of unemployment in South Africa is therefore essential when
considering the country’s future trajectory.
This chapter examines the reasons behind South Africa’s high unemployment
rates. After an analysis of unemployment trends and patterns, it discusses alterna-
tive explanations of the country’s employment problems, with a focus on structural
causes arising from historical and institutional factors. It also looks at microeconomic
explanations of open unemployment based on the functioning of the labour market.

1
The national minimum wage was initially set in 2019 at R20 per hour for general workers, R18 per
hour for farmworkers, and R15 per hour for domestic workers.
136    James Heintz and Karmen Naidoo

The chapter further examines how policy choices post-​apartheid have affected employ-
ment outcomes, including macroeconomic policies, trade policies, and labour market
policies and concludes with a summary of the most important take-​away messages from
this review.

7.2 Unemployment Trends and Patterns

Unemployment rates are calculated as the number of unemployed persons expressed as

a percentage of the total labour force. In South Africa, two unemployment rates are com-
monly used: a narrow, or strict, definition of unemployment and a broad, or expanded,
definition. Under the strict definition of unemployment, an individual is only included
in the ranks of the unemployed and as part of the labour force if they have actively been
seeking employment over the seven days prior to being surveyed. Under the expanded
definition, unemployed individuals who are no longer actively seeking employment,
but who are willing and able to work if a paid job became available, are included in un-
employment and labour force numbers. The inclusion of discouraged work-​seekers and
other non-​searching unemployed individuals means that the broad unemployment rate
is significantly higher than the narrow unemployment rate.
Reliable labour market statistics do not exist for the apartheid era in South Africa.
Therefore, we only examine trends for the post-​apartheid period (from 1994 onward).
At the end of apartheid, unemployment rates were high—​around 30 per cent of the la-
bour force using the expanded definition.2 Since then, the number of unemployed has
grown significantly, even by the narrow definition. For instance, the number of un-
employed individuals, using the narrow definition, has increased from about 2.4 million
in 1994 to 6.7 million in 2019—​an almost three f​ old increase. When discouraged work-​
seekers are included, the number of unemployed doubles from 4.6 million in 1994 to
9.5 million in 2019. Depending on the definition of unemployment used, aggregate un-
employment rates ranged between 25 and 40 per cent of the labour force for most of the
post-​apartheid period (Figure 7.1).
A portion of the initial increase in unemployment in the late 1990s has been attributed
to a rapid rise in labour force participation, particularly among African women (Casale
and Posel 2002). The removal of influx controls that prohibited the permanent urban
settlement of Africans during apartheid was associated with increased mobility in the
immediate post-​apartheid period, particularly for African women (Posel and Casale
2003). In this period, employment creation did not keep up with the growth in the size
of the labour force. Since 2000, labour force participation rates have remained fairly
stable and aggregate unemployment showed signs of improvement over the 2000s.

2
The broad labour force is defined as individuals aged 15–​64 who are either employed, strictly un-
employed or non-​searching unemployed.
 Unemployment in South Africa    137

80

70

60

50

40

30

20

10

0
1993 1997 2001 2005 2009 2013 2017

Narrow unemployment rate (% of LF) Broad unemployment rate (% of LF)

Labour force participation rate (narrow, % of WAP) Labour force participation rate (broad, % of WAP)

Figure 7.1 Labour force participation and unemployment rates, 1993–​2019

Source: Authors’ calculations using PALMS (Kerr, Lam, and Wittenberg 2019).
Notes: The narrow unemployment rate is calculated as the number of unemployed divided by the size of the active labour
force (LF), excluding non-​searching unemployed. The broad unemployment rate includes non-​searching unemployed.
WAP stands for working age population, defined as individuals aged 15–​64. The narrow labour force participation rate
excludes non-​searching unemployed from the size of the labour force.

However, the 2008/​09 global financial crisis and subsequent recession had a signifi-
cant impact on the South African labour market. As a result, some 800,000 net jobs
were lost over the 2009–​10 period and since then, unemployment has increased. An im-
portant effect of the recession was an increase in the number of discouraged workers
(Verick 2012). Searching and non-​searching unemployment increased more during the
recession for African men with low levels of education relative to women with similar
characteristics (Verick 2012).
Patterns of unemployment in South Africa reflect broader economic inequalities,
including along the lines of gender, race, age, and location. Table 7.1 presents un-
employment rates, using the expanded definition, by social and demographic
characteristics. Unemployment rates among women have remained substantially
higher than for men over the twenty-​five years since the end of apartheid. There has
been a narrowing of the gender unemployment gap during the post-​apartheid period,
which can be attributed to the relatively more rapid rise in unemployment rates
among men. As a legacy of apartheid, unemployment rates continue to be structured
along racial lines: non-​white groups continue to face systematically higher rates of
unemployment in South Africa. In particular, unemployment among Africans has
remained the highest at 36 per cent in 1995, rising to 41 per cent in 2019. Coloureds ex-
perience the second highest rates of unemployment, at 22 per cent in 1995 rising to 27
per cent by 2019.
138    James Heintz and Karmen Naidoo

Table 7.1: Broad unemployment rates by demographic characteristics and

educational attainment
1995 2000 2005 2010 2015 2019

Gender:
Women 38.16 38.65 44.75 35.69 36.74 40.28
Men 21.74 28.17 30.90 29.50 29.60 33.19
Race:
African 36.18 39.22 43.51 37.44 36.98 41.10
Coloured 21.73 25.01 30.69 26.48 28.04 26.68
Indian 13.68 19.73 22.31 12.18 17.84 13.36
White 5.27 7.52 7.96 8.14 7.60 8.95
Age groups:
15–​34 38.07 45.49 50.31 44.32 43.77 48.75
35–​49 21.08 22.95 26.09 21.78 24.07 27.82
50–​64 15.48 14.29 16.71 14.36 15.60 18.07
Education:
High school or less 34.89 36.66 41.48 36.45 36.80 40.71
Post-​schooling 22.97 12.56 12.13 12.43 15.45 18.60
diploma or degree

Source: Authors’ calculations using PALMS (Kerr et al. 2019).

Notes: Broad unemployment rates include discouraged work-​seekers.

Excessively high rates of youth unemployment have persisted over time—​in 2019
almost half of those aged 15–​34 who are willing and able to work could not find paid
employment. A closer examination of youth unemployment is provided in ­Chapter 32
of this volume. Educational attainment also influences the risk of joblessness. Among
individuals with high school completion or less, the unemployment rate has increased
from 37 per cent in 2000, to 41 per cent in 2019. Comparatively, among individuals with
a post-​schooling diploma or degree, unemployment has increased from 13 per cent to 19
per cent over the same period.

7.3 Structural Causes

of Unemployment

What might explain these extremely high and persistent rates of unemployment in
South Africa? The economist Edmond Malinvaud produced a framework for thinking
 Unemployment in South Africa    139

about the various factors contributing to unemployment that can be usefully applied to
South Africa (Malinvaud 1978). In his typology, unemployment that can be attributed
to a lack of aggregate demand for goods and services is referred to as Keynesian un-
employment. Under Keynesian unemployment, the supply of goods and services is
rationed due to inadequate levels of demand and this leads to a shortfall in employment
opportunities. In contrast, unemployment that can be attributed to insufficient accu-
mulation of fixed capital is labelled classical unemployment (or alternatively Marxian
unemployment). In this scenario, a lack of investment, or overly capital-​intensive in-
vestment, limits employment opportunities. Even when the productive capacity of the
economy is fully utilized, there is excess supply of labour, since the economy fails to gen-
erate an adequate number of paid jobs.
In Malinvaud’s framework, involuntary unemployment, either ‘Keynesian’ or
‘classical’, has multiple causes and is structural in the sense that market prices do not
seamlessly adjust to eliminate joblessness (Malinvaud 1977, 1978). We expand on this
foundational approach to disaggregate the factors that determine the total number of
paid employment opportunities. When these jobs are not sufficient to absorb the entire
labour supply, unemployment results. Within this framework, we can disaggregate the
determinants of total employment into four factors (see 7.6 Appendix for a more formal
presentation):

• The productive fixed capital stock

• The output–​capital ratio (an indicator of capital intensity)
• Labour productivity (the amount of output produced with a given amount of
labour)
• Capacity utilization (a measure of aggregate demand—​actual output expressed as a
fraction of potential, or full-​employment, output).

Structural unemployment can be explained by a combination of these factors: in-

sufficient accumulation of fixed capital, adoption of capital-​ intensive production
technologies (i.e. a falling output–​capital ratio), growth in labour productivity, or insuf-
ficient aggregate demand. We look at each of these potential sources of unemployment
in the context of the South Africa economy.
The idea that insufficient capital accumulation can yield an excess supply of labour
and involuntary unemployment is not new. It is central to Lewis’s classic theory of la-
bour surplus economies (Lewis 1954). Low rates of investment mean that, even if pro-
ductive capacity is fully utilized, there will not be enough paid jobs to absorb the labour
supply. Researchers have argued that low rates of capital accumulation during the final
two decades of apartheid contributed to high rates of involuntary unemployment in
the post-​apartheid era (Heintz 2009). Moreover, others have noted that the system-
atic underdevelopment of the apartheid-​era homelands and restrictions that prevented
investments in informal businesses also limited opportunities for paid work (Kingdon
and Knight 2004). The relatively small size of the informal sector in the post-​apartheid
140    James Heintz and Karmen Naidoo

6
Annual percentage change (%)

0
50
53
56
59
62
65
68
71
74
77
80
83
86
89
92
95
98
01
04
07
10
13
16
19
19

20
20
20

20
20
20
19
19
19
19
19
19
19

19
19
19
19
19
19
19
19
19

20
Figure 7.2 Growth rate, fixed capital stock, South Africa 1950–​2019
Source: South African Reserve Bank.

period is further seen to contribute to the sustained high levels of unemployment over
time (Heintz and Posel 2008; Kingdon and Knight 2004).3
Figure 7.2 shows the growth rate of the aggregate fixed capital stock in South Africa
from 1950 to 2019. The growth rate of fixed capital reflects net investment or capital ac-
cumulation in the country. Rates of capital accumulation were high during the 1950s,
1960s, and part of the 1970s. However, beginning in the mid-​1970s, the growth rate of
fixed capital began to decline sharply. For approximately twenty years, from the mid-​
1980s to the mid-​2000s, rates of fixed capital accumulation have been very low by his-
torical standards. Since 2006, there has been a recovery in the growth rate of the capital
stock. Nevertheless, the long period of low rates of investment would have impacted the
economy’s ability to generate paid jobs.
Others have stressed the type of investments made, not simply the overall rate of
accumulation. Specifically, overly capital-​ intensive production technologies limit
the number of jobs created by an additional unit of capital investment (Nattrass and
Seekings 2012). Despite high rates of unemployment, production in South Africa
remains highly capital-​intensive. Counter-​intuitively, market production economizes
on the country’s abundant factor of production, that is, its labour force. There are nu-
merous reasons given for this paradox. During the apartheid years, priority was given
to the goal of generating sufficient decent jobs for the minority white population while
maintaining a surplus of labour elsewhere in the economy. This outcome could be
achieved by supporting capital-​intensive investments through policies that effectively

3
Further discussion of the informal sector in South Africa is provided in C
­ hapter 35 of this volume.
 Unemployment in South Africa    141

lowered the cost of capital. With the growing strength of organized labour, beginning
in the 1970s, firms had an incentive to adopt capital-​intensive production techniques
to avoid the ‘hassle’ of employing a labour force whose bargaining power was growing.
Others have stressed the role of labour market institutions, such as bargaining councils,
in creating a capital-​intensive bias (Nattrass and Seekings 2012).
A critical form of investment, omitted from the Malinvaud-​inspired framework laid out
here, is the development of the productive capacities of human beings. Not only was there
underinvestment in physical capital during the later years of apartheid, South Africa also
underinvested in the country’s human resources for decades. Vast historical inequalities
with regard to access to education and training continue to persist within the labour
market. The unequal investments in human capital represent another structural explan-
ation of unemployment. South Africa exhibits both high rates of open unemployment and
a skills shortage (Davies and van Seventer 2020). As shown previously, unemployment rates
are inversely related to educational attainment and joblessness is significantly more preva-
lent among the less educated. Research has shown that young South Africans who complete
secondary education are much more likely to be able to transition from school into paid
employment (Lam, Leibbrandt, and Mlatsheni 2010).
Along with physical and human investments, changes in labour productivity affect em-
ployment levels. Higher labour productivity means that less labour is required to produce a
given amount of output. If output is fixed and labour productivity is growing, employment
will necessarily fall. More generally, if output grows at a slower rate than labour productivity,
jobs will be lost. The impact of growing labour productivity on paid jobs in South Africa
has been documented with respect to patterns of deindustrialization (Tregenna 2009, 2011;
Rankin 2012). Within South Africa, manufacturing employment as a share of total employ-
ment has fallen much more rapidly when compared to manufacturing output as a share
of total output. This suggests that efforts to increase sectoral output may not result in an
equivalent increase in paid jobs. The explanation for these patterns lies in the dynamics of
labour productivity—​with productivity growth outstripping the growth in output.
Increases in labour productivity are reflected in the elasticity of employment with
respect to output—​that is, the percentage increase in employment associated with a
given percentage change in output. If labour productivity does not change, a doubling
of output should yield a doubling of employment (the elasticity would be equal to 1, all
things equal). With increases in labour productivity, less labour is needed to produce a
given amount of output and a doubling of output would be associated with less than a
doubling of employment (the elasticity would fall below 1). Table 7.2 presents estimates
of the elasticity of employment with respect to output during the post-​apartheid
period.4 The elasticities are particularly low in mining and manufacturing, suggesting

4
We calculate output-​employment elasticities for the aggregate economy and by sector for the 1994–​
2019 period, according to the following equation:
lnLt = β0 + β1lnYt + ε t
142    James Heintz and Karmen Naidoo

Table 7.2: Output-​employment elasticities

1994–​2019

Mining and quarrying 0.568

Manufacturing 0.440
Utilities 0.816
Construction 0.954
Wholesale and retail trade 0.952
Transport, storage, and communications 0.659
Finance, insurance, and real estate 1.288
Community, social, and personal services 1.182
Total GDP 0.852

Source: Authors’ estimations using PALMS and South African Reserve Bank online statistics.
Notes: These estimates represent regression-​based elasticities. Constant and standard errors are not
shown. Sector fixed effects are used for the total GDP-​employment elasticity.

that increases in productivity have limited the numbers of jobs created for a particular
increase in output.
Finally, inadequate demand contributes to open unemployment in the standard
Keynesian fashion. Specifically, actual output will fall below potential output when
producers are limited with regard to how much they can sell. In this case, rationing
of sales in the final markets for goods and services leads to a rationing of employ-
ment opportunities. Policy changes, such as trade liberalization, that increase com-
petitive pressures and displace domestic production, can also contribute to a decline
in aggregate demand. The relationship between such policies and unemployment in
South Africa is discussed later in this chapter. In addition, vast income inequalities,
such as those evident in South Africa, limit market development and domestic demand
(Stiglitz 2012).
These aggregate changes are only part of the story of a shifting structure of employ-
ment. Changes in the composition of employment are also apparent at the sectoral level
(Table 7.3). During the post-​apartheid period, the share of employment in primary and
secondary industries, including agriculture, mining, and manufacturing, declined.
Employment shifted into construction and certain service sectors, including retail and

Where lnLt is log employment, lnYt is log real GDP at 2010 constant prices, and ε t is the error term. We
summarize the results in Table 7.3. For the analysis in this chapter, sectoral data on real output and the
capital stock are obtained from the South African Reserve Bank. Sectoral employment and wages are
obtained from PALMS, which is the primary source of labour market data and since these data are not
available from the South African Reserve Bank at a sufficiently disaggregated level (i.e. for the nine main
sectors).
 Unemployment in South Africa    143

Table 7.3: Sectoral shares of employment

∆(1995–​2019)
Industry 1995 2005 2019 % pts.

Agriculture, forestry, and fisheries 13.21 7.21 5.06 –​8.15

Mining and quarrying 4.67 3.19 2.31 –​2.36
Manufacturing 14.93 13.77 10.96 –​3.97
Utilities 0.9 0.8 0.93 0.03
Construction 4.7 7.61 8.33 3.63
Wholesale and retail trade 17.6 24.22 21.14 3.54
Transport, storage, and communications 4.89 4.93 6.05 1.16
Finance, insurance, and real estate 6.18 10.65 15.62 9.44
Community, social, and personal services 22.17 17.91 22.01 –​0.16
Domestic services 8.66 9.48 7.55 –​1.11

Source: Authors’ calculations using PALMS.

Notes: Community, social, and personal services relate primarily to public-sector employment.

wholesale trade and the financial sector. These changes in the structure of employment
represent a shift away from what was once the traditional base of the South African
economy into new types of employment.
While the framework presented here helps clarify the structural sources of unemploy-
ment in South Africa, it is important to recognize that these factors interact with one
another. For instance, increases in labour productivity are employment-​displacing, but
only if they do not affect investment or aggregate demand. Productivity increases have
the potential to raise profitability and returns to investments in ways that could support
the overall rate of capital accumulation. Higher productivity can also lower unit labour
costs, enhancing trade competitiveness and the demand for domestically produced
output. Sustainable long-​run wage increases are also associated with improvements in
productivity over time. As labour income grows, so does the potential aggregate de-
mand. These interconnections need to be considered when analysing South Africa’s un-
employment challenge.
This overview provides a number of insights into the structural sources of un-
employment in South Africa. To sum up: uneven and slow rates of capital accumulation
limited the development of productive capacity in the country. Many of the productive
investments made had a capital-​intensive bias to provide a relatively small number of
quality jobs to a privileged minority. Underinvestment in the country’s human poten-
tial further compounded the effect on paid job opportunities. At the same time, labour
productivity has been increasing faster than the demand for output, particularly in in-
dustrial sectors, leading to labour displacement. Such increases in labour productivity
could be driven, in part, by growing competitive pressures due to import penetration
144    James Heintz and Karmen Naidoo

as South Africa reintegrated into the global economy (Rankin 2012). Export com-
petitiveness, import penetration, and constraints on the development of domestic
markets also exacerbate unemployment by curtailing aggregate demand. Taken to-
gether, these structural factors contribute to South Africa’s high and persistent levels of
unemployment.
A historic perspective further clarifies the origins of these structural sources of un-
employment. The apartheid labour market system created a large, inexpensive, and
relatively well-​disciplined low-​skilled labour force. Outside of the white population,
job opportunities were limited and rationed through various mechanisms, such as the
‘colour bars’, that reserved the best jobs for the white labour force, the pass laws (i.e.
influx controls), that regulated residency rights in urban areas where workers could
find industrial wage employment, and unequal access to education and training. Many
regions in the country, such as the homelands, were systematically excluded from the
apartheid development model, leading to gross under ​investment. The capital-​intensive
bias, partly due to an artificially low cost of capital, further limited opportunities for
paid work.
Large labour surpluses and repression of organized labour, particularly in the first
two and a half decades of apartheid, kept wages low. The laws limiting access to job
opportunities, the underdevelopment of areas not dominated by whites, and unequal
investments in the population’s productive potential raised the cost of job loss to Black
workers. If workers lost their jobs, the apartheid labour market system made it diffi-
cult to find equivalent work elsewhere. The threat of job loss thereby served as a discip-
linary device, helping to secure the productivity of this segment of the labour force and
the profitability of the apartheid economy, particularly in the 1950s and 1960s (Heintz
2009; Wintrobe 1998). However, the system was predicated on maintaining insufficient
numbers of decent jobs for the majority of the population.
While it seems obvious that high rates of unemployment would emerge from the
apartheid economic system, it is less clear why unemployment continues to persist at
such elevated levels in the post-​apartheid period. One explanation is that the apartheid
system, through a range of interventionist policies, created an economic structure that
is slow to change and is not self-​correcting. Simply removing the apartheid-​era laws and
distortions is not sufficient to transform these economic structures. The discussion of
structural causes suggests that the key to South Africa’s unemployment challenge lays
beyond the labour market and involves policies to support investments, appropriate
technologies, skills gaps, and market development. This is not to say that labour market
policies are irrelevant. Clearly, they affect employment levels and trends. But solving
South Africa’s unemployment problem would involve far more than relying on wage
and price adjustments. Nevertheless, the dynamics of the South African labour market
cannot be dismissed when examining the country’s serious unemployment problem.
For this reason, we look at these microeconomic dynamics, focusing on labour market
rigidities, next.
 Unemployment in South Africa    145

7.4 Microeconomic Perspectives

The structural causes of unemployment in South Africa represent one set of factors
contributing to the persistence of high rates of joblessness. However, alternative
explanations have been advanced that are strongly rooted in neoclassical economic
theory. These alternatives focus on the possibility that microeconomic dynamics are be-
hind South African unemployment. On the demand side, these approaches argue that
labour market rigidities keep labour costs artificially high, lower labour demand, and
hinder job creation. There are also supply-​side microeconomic theories based on indi-
vidual preferences and characteristics—​for example, high reservation wages due to un-
realistic earnings expectations and a system of social grants lead to a situation in which
individuals remain unemployed rather than accepting a job that falls short of these
expectations. We review these demand-​side and supply-​side microeconomic theories
in turn.
The labour market rigidities explanation of unemployment in South Africa points
to various factors that prevent labour costs in general, and wages specifically, from
adjusting in the face of high rates of unemployment: collective bargaining agreements,
bargaining council agreements, regulation of working conditions (such as those
contained in the Basic Conditions of Employment Act of 1997), and sectoral minimum
wages. There is a fairly sizeable body of research that suggests that these sources of la-
bour market rigidity reduce the overall level of employment by dampening labour de-
mand (e.g. Flowerday, Rankin, and Schöer 2017; Bhorat, Kanbur, and Stanwix 2014;
Magruder 2012; Nattrass and Seekings 2012; Fedderke 2012; Moll 1996). Labour de-
mand is reduced when market interventions and collective agreements raise the cost of
employing labour.
Labour market regulations and bargaining agreements are not the only source of
rigidities in labour markets. Asymmetric information and imperfect markets can also
generate wage premiums (Shapiro and Stiglitz 1984; Bowles 1985). This occurs when
wages influence productivity, often referred to as efficiency wages (Solow 1979). Workers
are likely to put in more effort when they fear losing a good job. Employers typically
contract for a given volume of work (e.g. hours of work), but, in many cases, may not
be able to contract for a particular level of effort. By paying a wage premium, employers
can elicit more effort from their workforce, since workers face a higher cost of losing a
well-​paying job if the employer discovers that they are not putting in sufficient effort
and dismisses them. These dynamics produce wage rigidities even in the absence of col-
lective bargaining or legislation.
If labour market rigidities stifle labour demand, then lowering wages should increase
employment and lower the measured rate of unemployment. This raises the question:
how responsive is labour demand to changes in wages? Estimates of wage elasticities
provide a partial answer to this question. Wage elasticities measure the responsiveness
of employment to wages, when all other factors are held constant. The wage elasticity
146    James Heintz and Karmen Naidoo

shows the expected percentage change in employment of a 1 per cent change in real (i.e.
inflation-​adjusted) wages.
Estimates of wage elasticities for South Africa suggest that labour demand is relatively
inelastic—​changes in wages, even sizeable ones, would not be expected to result in large
changes in employment. For instance, von Fintel (2017) produces elasticity estimates of
around –​0.1 to –​0.2, suggesting that a 10 per cent reduction in wages may only increase
employment by 2 per cent. Other estimates for South Africa suggest that employment
may be more responsive, for example, an average elasticity of –​0.7, but there appears to
be a wide variation by sector (Fedderke 2012).
Given this evidence on the relationship between wages and employment, can high
wages fully explain the high rates of involuntary unemployment in South Africa? The
elasticity estimates suggest that paid employment is relatively unresponsive to wages.
Because of this, wages would have to fall drastically in order for labour demand to in-
crease to a point where it absorbs the unemployed labour force.5 In other words, wage
premiums would have to be extremely large in order to fully explain the persistently
high rates of unemployment. Furthermore, wages are not the relevant variables—​labour
costs are. Rising wages may not translate into increasing labour costs if productivity rises
sufficiently with wages. Along similar lines, slashing wages may not lower labour costs
if productivity suffers, as efficiency wage arguments would lead us to believe. A sizeable
cut to wages, when employment is inelastic, would also reduce incomes with negative
consequences for aggregate demand. Elasticity estimates assume nothing other than
wages and employment change, but if productivity and domestic demand are linked to
wages, the impact on employment becomes more complex.
The institutions that push up wages, such as bargaining councils, minimum wages,
and labour laws, have been shown to have uneven coverage and enforcement (Flowerday,
Rankin, and Schöer 2017; Bhorat, Kanbur, and Mayet 2012). If these restrictions are
not binding in all cases, their impact on employment would be muted. Despite these
caveats, it is important to recognize that elasticity studies for South Africa have consist-
ently shown a negative relationship between wages and employment. Therefore, wage
premiums and upward pressure on wages, in themselves, will likely do little to mitigate
the current high rates of unemployment. Studies of the impact of bargaining council
agreements and minimum wages have suggested that these institutions have had some
negative impact on employment, although the estimated size of this effect is fairly
modest (e.g. Bhorat, Naidoo, and Yu 2014; Dinkelman and Ranchhod 2012). Research
has revealed evidence of significant dis-​employment effects of the introduction of

5
For example, over the period October–​December 2019, the Quarterly Labour Force Survey, using
the narrow definition, estimated the labour force to be 23.15 million and unemployment to be 6.73
million, for an unemployment rate of 29.1 per cent. Reducing unemployment to 5 per cent (in terms of
the narrow definition) would require generating an additional 5.57 million paid jobs, or a 24.1 per cent
increase in employment. If we assume a wage elasticity of –​0.5, for the sake of argument, well within the
range of –​0.1 to –​0.7 discussed in the text, this suggests that wages would have to fall by 48.2 per cent. In
other words, average wage incomes would need to be cut in half.
 Unemployment in South Africa    147

sectoral minimum wage laws in certain contexts, for example, agriculture (Bhorat,
Kanbur, and Stanwix 2014), but such legislation cannot explain the persistence of high
rates of unemployment prior to the introduction of these policies. Given this evidence,
wage rigidities, by themselves, cannot be seen as the primary cause of high rates of un-
employment in South Africa. However, they could contribute to slower rates of job cre-
ation if labour market interventions are not coordinated with efforts to address the other
structural causes of unemployment.
Labour market regulations typically are assumed to affect labour demand by raising
the cost of labour per unit of time (i.e. hourly wages) or in terms of unit labour costs (i.e.
the cost of labour in one unit of output). However, other restrictions impact on hiring
decisions by raising the overall non-​wage costs of employing workers. For instance, em-
ployment protection legislation, such as restrictions on terminating employment, can
raise the overall expected cost of employing workers or limit the employer’s ability to
adjust to changing economic conditions (Bhorat, Naidoo, and Yu 2014). In addition,
policies that restrict the ability of employers to fire or lay off employees effectively re-
duce the cost of job loss to paid workers. According to efficiency wage theories, this may
result in employers having to pay more to elicit a certain amount of effort or reduce on-​
the-​job productivity, as workers are less concerned about being fired. The higher costs of
employing workers combined with these efficiency wage effects would dampen labour
demand.
In South Africa, institutions that extend employment protections may raise hiring
and firing costs in ways that go beyond standard measurements, such as severance pay
and prior notification (Benjamin, Bhorat, and Cheadle 2010). Drawn-​out dispute reso-
lution processes, the treatment of probationary periods, and cumbersome procedures
around dismissals can also raise the non-​wage costs of employing workers with poten-
tially detrimental effects on employment (Bhorat, Jacobs, and van der Westhuizen 2013).
Studies of temporary employment services in South Africa suggest that extensions
of employment protection legislation displace workers in temporary employment
(Cassim 2020; Bhorat, Magadla, and Steenkamp 2015). The 2014 Labour Relations Act
(LRA) Amendment extended certain employment protections to temporary workers
whose earnings fell below a certain threshold. Analysis of data before and after the LRA
Amendment was adopted showed that more temporary workers moved out of paid
employment or into informal forms of employment than moved into permanent jobs
(Cassim 2020). In addition, there appears to have been a positive wage effect for tem-
porary workers receiving these new protections. These outcomes are consistent with
expectations of the impact of employment protections that lower the expected cost of
losing a job.
Like labour market rigidities that raise labour costs, employment protection laws and
processes may have a negative impact on job creation. However, the estimated effects
are not large enough to explain the high and persistent rates of unemployment in South
Africa. Moreover, given the apartheid labour market system, with the pass laws, inse-
cure urban residency rights, the ‘colour bar’, and limited or no protections from unfair
dismissal, the introduction of employment protection measures in the post-​apartheid
148    James Heintz and Karmen Naidoo

period is a natural response to the country’s economic history. The apartheid labour
market, with no real protections for the majority of the labour force, did not generate ad-
equate numbers of good job opportunities. It is unlikely that removing such protections
in the post-​apartheid period would, in itself, solve the challenge of joblessness.
Some micro-​level explanations of unemployment in South Africa focus on the supply-​
side of the labour market. One critical supply-​side factor has already been discussed—​
the underinvestment in education and skills development. However, other supply-​side
explanations focus on the ability and willingness of unemployed workers to accept em-
ployment opportunities that become available. One such argument centres around the
reservation wages of South Africa workers. The reservation wage refers to the minimum
acceptable wage for an individual participating in the labour force. If an available job
offers a wage or salary that falls below the reservation wage, an unemployed worker will
refuse to accept that job. If reservation wages in South Africa tend to be higher than the
prevailing wages, this could contribute to the high rates of measured unemployment.
There are a number of reasons to be sceptical of reservation wage explanations of high
rates of unemployment. At a basic level, if workers refuse jobs that pay the prevailing wage
and are not subject to substandard working conditions, it raises questions of whether
such unemployment should be considered involuntary. Voluntary unemployment, when
workers choose to remain unemployed, is deemed less serious of an economic failing
than involuntary employment, that is, the absolute lack of job opportunities. Research
into reservation wages in South Africa has shown reported reservation wages to be un-
reliable (i.e. they may be aspirational wages rather than true reservation wages) and
that reservation wages are often not higher than predicted prevailing wages (Kingdon
and Knight 2004). Finally, it is unclear why workers would hold onto unrealistic wage
expectations for an extended period of time. Expectations should adjust over time to
reflect actual labour market conditions, raising questions about how reservation wages
could explain high rates of sustained unemployment over decades.
Another, related, factor that could affect the supply side of the labour market is the
system of transfer payments that exists in South Africa, including the Older Persons
Grant and the Child Support Grant. Private transfers are also important, such as
remittances from migrant workers. When these transfer payments raise household
incomes, they may reduce the imperative to seek out paid employment to meet the
household’s needs. In effect, they have the potential to raise reservation wages, with pos-
sible impacts on measured unemployment as described above.
Some researchers have found a negative correlation between the presence of pension
recipients (Older Persons Grants) in the household and participation in paid employ-
ment (Abel 2019). But other studies have not found the same negative correlation be-
tween labour supply and receipt of a transfer payment. Indeed, since labour force
participation is not costless and often requires real resources, cash transfers can actu-
ally have a positive impact on participation in paid work. This is particularly relevant
for South Africa, with its history of spatially fragmented labour markets. For instance,
research has shown that the receipt of a pension facilitates the ability of household
members, specifically young men, to migrate for paid work (Ardington et al. 2016)
 Unemployment in South Africa    149

although this effect depends on the educational attainment of the migrant worker.
Other studies have shown similar positive impacts of cash transfers on migration for
paid work among women (Posel et al. 2006).
Moreover, even if the argument that cash transfer payments cause individuals to
willingly leave the labour force were accepted, this would be considered a voluntary
withdrawal from paid employment. It should not be considered as an explanation for
involuntary unemployment. There may be other reasons to be concerned about a de-
cline in labour force participation. However, as Figure 7.1 shows, South Africa has
experienced a modest growth in the labour force participation rate, not a decline in par-
ticipation. There does not appear to be a meaningful connection between South Africa’s
system of cash transfers and the involuntary unemployment rate. Indeed, South Africa’s
system of cash transfers have been shown to have a significant impact on reducing eco-
nomic inequality (Leibbrandt et al. 2010). In this respect, the transfer programmes
help address one of the more serious socio-​economic consequences of high rates of
unemployment—​the country’s dramatic economic inequalities.

7.5 Post-​apartheid Economic Policy

and Unemployment

South Africa’s historical development trajectory, structural factors, and labour market
institutions all contribute, to varying degrees, to the persistence of high rates of open
unemployment. But the story of South Africa’s unemployment challenge does not end
there. Other policy choices affect aggregate demand and investment patterns and,
through these channels, influence levels of unemployment. South Africa’s economic
policy in the post-​apartheid era was centred on liberalization and re-​integration into
the global economy. Along with liberalizing financial flows and loosening exchange
controls, the policy regime reduced trade protections and removed export incentives. In
addition, from 2000 onward, the central bank’s primary mandate of price stability was
implemented through an inflation-targeting framework, despite the fact that inflation
rates had been moderate throughout the country’s history.
These new policy directions could be seen as attempts to address some of the struc-
tural sources of unemployment discussed earlier. A stable, low-​inflation environment
might encourage greater long-​term investment, faster capital accumulation, and more
consumer spending if other factors (e.g. real interest rates) were not affected. Trade lib-
eralization could increase aggregate demand through exports, if South African products
were sufficiently competitive. Integration into global capital markets could attract for-
eign productive investment that has the potential to generate new job opportunities.
However, in contrast to expectations, after adopting these policy measures, South Africa
did not attract substantial levels of investment and, in most cases, trade liberalization
proved to have net negative impacts on certain sectors, particularly manufacturing.
150    James Heintz and Karmen Naidoo

South African monetary policy has been based on an inflation-​targeting framework

since 2000, when the consumer price inflation target was set as a band of 3 per cent
to 6 per cent. Through adjustments in policy interest rates—​using interventions into
the market for government bond repurchase agreements—​the South African Reserve
Bank has largely managed to keep inflation within the target band. This also means that
the approach has sustained a high interest rate environment, with potentially negative
consequences for aggregate demand and fixed capital investment. Between 2000 and
the first quarter of 2010, the prime lending rate exceeded 10 per cent and between then
and the end of 2019, has remained between 8 and 10.5 per cent (SARB 2020).
Researchers have questioned the relevance of a strict inflation-targeting regime for
developing countries due to variations in the sources of inflation, the role of exchange
rate pass-​through, and the negative impact of higher interest rates and over-​valued
real exchange rates on economic activity and employment (Brito and Bystedt 2010;
Epstein and Yeldan 2008; Heintz and Ndikumana 2011). For South Africa, Epstein
(2008) estimates that over the 2001–​04 period, a 4 p ​ ercentage point reduction in
the prime lending rate is associated with a 0.6 per cent increase in GDP growth and
only a 1 p​ ercentage point increase in inflation. In a cross-​country panel data analysis
that includes South Africa, Brito and Bystedt (2010) find that the adoption of infla-
tion targeting had a negative impact on output growth, with consequences for paid
employment.
Regarding the employment effects in developing countries, Epstein and Yeldan
(2008) show that many countries have experienced higher levels of unemployment after
implementation of inflation targeting. Braunstein and Heintz (2008) find that countries
that raise real interest rates above the long-​run trend to curb inflation experience a slow-​
down in employment growth, with a greater negative effect on the employment rates
of women relative to men. Therefore, the high interest rate environment required to
maintain the inflation target and to manage capital flows may be a contributing factor to
lower rates of output growth and higher levels of unemployment in South Africa.
As South Africa transitioned to democracy in 1994, economic policy focused on
opening up the economy to foreign capital flows and trade. After a period of tight ex-
change controls in the 1960s to the 1970s to manage capital outflows during the period
of political unrest, the 1980s ushered in a period of gradual exchange control relaxation.
Liberalization continued in the post-​apartheid period, which included relaxing ex-
change control regulations and a removal of the two-​tier exchange rate system in favour
of a floating exchange rate. These policies, along with tax amnesties and voluntary tax
disclosure programmes, were implemented with a view to attracting foreign investment,
encouraging residents to repatriate capital held abroad without excessive penalties, and
reducing capital flight.
Despite the positive expectations in the post-​apartheid period, net FDI to South
Africa has remained low and capital flight has accelerated. The 1990s saw a net FDI out-
flow of $7 billion (in constant 2018 US dollars), which improved to a net inflow of US$43
billion in the 2000s, followed by almost equal FDI inflows and outflows in the 2000–​
18 period (Ndikumana, Naidoo, and Aboobaker 2020). In addition, capital flight has
 Unemployment in South Africa    151

accelerated in the post-​apartheid period. In the 1990s, it is estimated that South Africa
lost a combined $49.4 billion in capital flight and trade mis-​invoicing, which increased
to $130 billion over 2000–​09, and further to $158 billion over 2010–​17 (Ndikumana et
al. 2020).
Trade policy also affects employment opportunities. The process of trade liberal-
ization began when the South African government agreed to the comprehensive tariff
reductions under the General Agreement on Tariffs and Trade (GATT), which was
then rapidly implemented from 1995 onwards through the World Trade Organization
(WTO), of which South Africa was a founding member. The average tariff rate in the
manufacturing sector declined from 22 per cent in 1994 to 7 per cent in 2004 (Erten,
Leight, and Tregenna 2019). In addition, the 1990 General Export Incentive Scheme was
phased out between 1995 and 1997 (Cassim, Onyango, and Seventer 2004).
The weak performance of South Africa’s manufacturing sector has been linked with
the rapid liberalization of trade and the accompanying increased import competition.
Early research analysing the impact of trade liberalization over the 1993–​97 period finds
that manufacturing employment lost through import competition was matched by em-
ployment generated through exports (Edwards 2001). Over this period, there was also
a significant shift away from low-​skilled elementary employment, potentially driven by
the nature of export competitiveness (Edwards 2001).
However, later studies uncover a much stronger link between trade liberalization
and reductions in manufacturing employment. Jenkins and Sen (2006) find that im-
port competition explained about 10 per cent of the decline in manufacturing employ-
ment. While the authors find that productivity growth explained considerably more
of the decline than import competition, the approach does not preclude the idea that
productivity upgrades are also a response to increased imports. Furthermore, the
rapid rise in imports from China in particular is also linked to substantial job losses
in manufacturing in the 2001–​10 period (Edwards and Jenkins 2015). Erten et al.
(2019) study the impact of tariff reductions on local labour market outcomes in South
Africa in the first decade of the post-​apartheid period and find that districts that are
more exposed to tariff declines experience greater declines in manufacturing employ-
ment relative to less affected districts. In addition, more affected districts experience
an increase in the proportion of the working-​age population that are discouraged
work-​seekers.
Other research has investigated the poor performance of export-​ oriented
manufacturing. South African manufacturing sectors have been found to have higher
unit labour costs—​ indicating lower levels of productivity and competitiveness—​
compared to other developing countries over the 1970s to the 1990s, which negatively
impacted export performance (Edwards and Golub 2004). Rodrik (2008) points to the
declining relative prices, a proxy for profitability, of South African manufacturing in the
1994–​2004 period as an important determinant of the weak manufacturing perform-
ance and declining manufacturing employment. In further analysis, Rodrik (2008)
finds that higher levels of import competition and the real exchange rate exert a negative
impact on manufacturing profitability.
152    James Heintz and Karmen Naidoo

South Africa’s post-​apartheid policy regime, with respect to monetary, financial, and
trade policies, would have affected demand for domestic production, investment, and
employment. While these policy changes cannot fully explain the country’s extreme un-
employment problem, to the extent that they have dampened labour demand and job
creation, they would have contributed to the persistence of unemployment in the post-​
apartheid period.

7.6 Conclusion

Numerous factors contribute to South Africa’s high and sustained rates of unemploy-
ment: the structure of the economy, the country’s apartheid history, labour market
institutions, and the policies implemented post-​apartheid. One striking observation
that can be made based on the review presented in this chapter is that the determinants
of unemployment extend well beyond the labour market itself. Therefore, an exclusive
focus on labour market reforms—​such as deregulation, rolling back social protections
tied to employment, and enhanced flexibility—​is not sufficient to address the country’s
problem of joblessness. Labour market dynamics are important, but they must be
considered along with other policy interventions, institutions, and structural features of
the economy.
This overview points to factors beyond the labour market that have impacted on and
continue to affect South Africa’s persistent unemployment challenge. These include the
rate of productive investment, the changing sectoral composition of economic activity,
factor intensity, educational attainment, skills development, capital flows, macroeco-
nomic management, and trade policy. The economic structures that impede employ-
ment creation were built up during more than four decades of interventionist policies
under the apartheid regime. These structures are slow to change and, if left alone,
are unlikely to automatically adjust to lower the country’s elevated unemployment
rates. Instead, deliberate directive policies are needed to transform these structural
impediments to job creation in order to tackle South Africa’s unemployment challenge.

7.6 Appendix

Modification of Malinvaud’s (1978) Framework:

Let N represent the total level of paid employment and L the total labour force. The rate
of unemployment, U, can therefore be given by:

L−N
U=
L
 Unemployment in South Africa    153

For a given level of L, the unemployment rate varies inversely with the aggregate level of
employment.
We can define the level of employment as follows:

1 Y Y
N= K
λ KY

with
λ = labour productivity (output per unit labour)
K = fixed capital stock
Y = output/​capital ratio (indicator of capital intensity)
K
Y = rate of capacity utilization (actual output as a fraction of potential output).
Y
From these expressions, the impact of different factors on the unemployment rate can
be determined (all other factors remaining constant):

• Higher labour productivity will raise the unemployment rate

• Growth in the capital stock will lower the unemployment rate
• Less capital intensity (a higher output/​capital ratio) will lower unemployment
• Greater capacity utilization (aggregate demand) will lower unemployment.

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Verick, Sher. 2012. ‘Giving up job search during a recession: The impact of the global financial
crisis on the South African labour market’, Journal of African Economies, 2(3): 373–​408.
Von Fintel, Dieter. 2017. ‘Institutional wage setting, labour demand, and labour supply: Causal
estimates from a South African pseudo panel’, Development Southern Africa, 34(1): 1–​16.
Wintrobe, Ronald. 1998. The Political Economy of Dictatorship. Cambridge: Cambridge
University Press.
 Chapter 8

P overt y in Sou t h A fri c a

Vusi Gumede

8.1 Introduction

Prior to democracy, poverty was extremely high in South Africa and mainly Africans
or the Black population group experienced poverty. It is a given that poverty (and in-
equality) worsened in South Africa as a result of the coronavirus (COVID-​19) pandemic.
Various estimates that are analysed in this chapter indicate that prior to COVID-​19
many people were already living below the poverty line and that the share of those who
were experiencing different dimensions of poverty was already high. Estimates based on
the lockdown that was introduced as a result of COVID-​19 confirm that many people
lost jobs and extreme poverty increased. It is critical to examine poverty in more detail
so as to present a better picture of the evolution of poverty in the post-​apartheid period,
and to consider possible interventions that can better tackle poverty, especially because
most poverty estimates end in 2015.
The chapter provides updated estimates regarding poverty within the limits of
the available data. It uses the NIDS data (2008–​17). Among other issues, results con-
firm that the feminization of poverty and hardships experienced by youth have to be
prioritized when initiatives to reduce poverty are considered. Although the chapter
focuses on poverty, from a policy perspective, it is important to examine both poverty
and inequality jointly instead of focusing on only one. They are both as a result of the
mediocre performance of the South African economy and the very character, structur-
ally, of the economy and unemployment as a consequence of South Africa’s political his-
tory. This chapter, however, mainly deals with the extent of poverty and its character.
Chapter 9 deals with inequality. It confirms that South Africa is one of the most unequal
societies in the world as a result of colonialism and apartheid. Chapter 9 also confirms
that it is mainly Black South Africans that experience extreme poverty and that they
have lower educational attainment, live in larger households, come from female-​headed
households, and are predominantly based in rural areas.
158   Vusi Gumede

8.2 Conceptual and Theoretical Issues

Definitions, measures, and the conceptualization of poverty (and of inequality) elicit

many debates. The debates are about accuracy of the measures and assumptions that in-
form conceptualizations and definitions. Money-​metric measures are used to measure
income poverty, to assess the level of income of a person against a poverty line. The
multidimensional index assesses the levels of deprivation, taking into account the
various dimensions.
The various conceptualizations of poverty are indeed useful, although it is not al-
ways easy to measure poverty the way it has been conceptualized. For instance, fully
capturing the voices of the poor in measuring poverty has not been satisfactorily done.
Similarly, to some extent, so-​called service poverty and asset poverty remain controver-
sial in terms of how these are measured. As indicated above, money-​metric measures
(i.e. measures of poverty based on income) are the ones that are widely used and debates
are more about the poverty line (e.g. whether it is set appropriately) for determining the
headcount (P0), poverty gap (P1), and squared poverty gap (P2) measures of poverty. In
the main, the measures of poverty indicate the minimum living level for an individual
or household. There has to be sufficient income to meet essential items for survival,
including food, housing, water, clothing, and employment (Jansen et al. 2015).
It is important to highlight that poverty can also be viewed in different terms.
Poverty can also be thought of as being either relative or subjective. The relative pov-
erty measure is one such that even if a certain individual or household meets the ne-
cessary income for basic needs, an individual or household can still be considered
poor compared to others within the society they live in. Subjective poverty, on the
other hand, is when an individual or household determines whether their own living
standard is better or worse.
To measure poverty in money-​metric terms, as indicated above, a poverty
line is needed or should be determined. The most-​used poverty line worldwide
is the $1.25 per individual per day, largely because it allows comparisons between
countries or regions. In the context of national poverty lines, these are based on the
actual consumption and spending patterns of a particular country. Arguably, it is
important that each country has an official poverty line because it is better that the
discussions about those who are said to be poor are based on an agreed national
poverty line (Gumede 2014).
The measures of income poverty were first introduced by James Foster, Joel Greer, and
Erik Thorbecke in the 1980s, hence literature often makes reference to FGT indices as a
family of poverty metrics. Foster et al. (1984) suggested the FGT measure that uses the
deprivation gap of each individual as her or his shortfall weight as shown below:

q
1  f − yi 
Pa ( y;f ) = ∑  a
N i =1 f 
 Poverty in South Africa    159

where Pa denotes the generalized FGT measure, y is a vector of achievement q x 1,

where yi is the expenditure of household i(i = 1, . . . ,q) and f is the predetermined pov-
erty line or simply the cut-​off level, q = q(y;f) is the overall number of households that
are deprived or simply poor. Moreover, the headcount ratio (H) that shows the share of
poor individuals in the total population can be obtained if α = 0.
There have been other measures, largely aimed at quantifying the various dimensions
of poverty. The multidimensional poverty index (MPI) takes into account people
living under conditions which do not meet the minimum nationally agreed standards
in indicators of basic functioning (e.g. being properly fed, being educated, or drinking
clean water) and people living under situations where they do not meet the minimum
required standards in many aspects at the same time. In other words, the MPI quantifies
multiple deprivations that individuals are experiencing; people who, for example, are
both undernourished and do not have clean drinking water nor adequate sanitation.
Alkire et al. (2011) explain that the MPI approach uses a dual cut-​off in order to consider
both the prevalence as well as the intensity of multidimensional poverty. The prevalence
of poverty is the proportion of the population that is multidimensionally poor using a
specific cut-​off. For an example, a certain individual is classified as poor if the weighted
indicators in which that particular individual is deprived sum up to at least 40 per cent
and the intensity reflects the average proportion of indicators in which poor people are
deprived (Jansen et al. 2015).
This chapter measures and analyses standard money-​metric measures of poverty (i.e.
the income level of a person or the level of a multidimensional index relative to an in-
come or multidimensional poverty line) in order to have better understanding of the
extent and intensity of income poverty in South Africa during the post-​apartheid period
(i.e. since 1994).

8.3 Selected Studies on Poverty

in South Africa

To start with, there have been numerous studies that examine income poverty in South
Africa (see the reviews of some of those studies in Gumede (2014) and Gumede (2008) in
addition to those discussed in this chapter). Statistics South Africa (StatsSA) (2019) has
undertaken a review of non-​money-​metric dimensions of poverty as well as inequality.
In all the studies, essentially, it is confirmed that poverty has remained very high during
the post-​apartheid period. Access to assets and services as well as social transfers in the
form of grants and pensions have helped in reducing poverty and mitigating against
inequalities.
As discussed in C ­ hapters 7 and 29 of this volume, the labour market has not absorbed
enough people to dent unemployment and thereby reduce poverty and inequality. The inability
of many South Africans to access quality education largely as a result of the country’s political
160   Vusi Gumede

history has also contributed to the slow progress that has been made in reducing poverty.
Access to quality education is critical for interrupting intergenerational transmission of
poverty (Gumede 2008). The MPI calculated in this chapter however does not show the
critical importance of education because the contribution of access to education to the
MPI appears low. It could be because access to education is quantified through child
enrolment and years of schooling in the data used. That said, there are various factors
that have conspired in making it difficult for the country to reduce poverty significantly.
One of the key issues is the structure of the South African economy. Chapter 6 in this
volume discusses relevant issues. The political history of the country characterized by
the oppression of Africans or the Black population group and the inability to address
(or slow progress in redressing) the past injustices have arguably contributed in poor
traction as far as reducing poverty is concerned.
As indicated earlier, there are many studies that have evaluated poverty in South
Africa and they all confirm that extreme poverty has somewhat declined in post-​
apartheid South Africa but poverty remains very high. Maisonnave, Mabugu, and
Chitiga (2019) used a dynamic computable general equilibrium (CGE) model and
data based on the social accounting matrix (SAM) to estimate people living under
$1 a day. Maisonnave et al. (2019) found that those living under $1 a day had fallen
by over half, from 11.3 per cent to 4.0 per cent in the period 1994–​2011. Although
the decline can be considered significant, it is arguably not good enough given that
poverty has remained very high. The context that it is mainly Africans or the Black
population group that experience poverty also requires that the declines in poverty
are treated circumspectly. The history of the country should dictate that poverty
afflicting Africans who are the majority and who are original inhabitants in South
Africa should have been tackled with vigour and drastically reduced during the
democratic dispensation.
Schotte et al. (2018) fitted a multivariate regression to account for initial conditions in
four waves of the NIDS to investigate poverty dynamics to social stratification and the
study finds that although poverty reduced, for those remaining deprived there are key
indicators that are more likely to lead people into poverty (e.g. households headed by
young people, households headed by females, and households located in rural areas).
There are other studies that support this. For instance, David et al. (2018) found that
poverty is severe in the former Bantustans and in townships. Schotte et al. (2018) also
highlights that the probability for those initially poor to fall into or remain in poverty
was 25.9 per cent. Zizzamia et al. (2016) also estimated the risk of falling into poverty
over time using the NIDS data and found that while 3.7 million people had become
poor in 2014/​15, about 6.7 million of those who were poor in 2008 had moved above
the poverty line in 2014/​15. This confirms the view that poverty has been decreasing in
democratic South Africa. The issue is whether the estimated decline in poverty is sig-
nificant enough given the history of the country. In addition, how severe poverty is for
those who are below the poverty line. It is instructive that Burger et al. (2004) found that
provinces that were initially poor remained the poorest. This finding is consistent with
 Poverty in South Africa    161

earlier studies such as the one by Noble et al. (2013). Schotte et al. (2018), using the NIDS
data, found that across provinces poverty was lower in the Western Cape and Gauteng
compared to other provinces. This result is consistent with what Basarir (2011) found
using the General Household Survey (GHS).
StatsSA (2017) shows that poverty appears to have declined between 2010 and 2015.
Table 8.1 below summarizes the poverty trends since 1996. Having increased during the
period 2006–​09, the headcount ratio declined during the period 2009–​15. However, for
the poverty gap and the squared poverty gap measures, there have been increases during
the period 2011–​15, implying that the severity and intensity of poverty remain signifi-
cant. To be sure, the poverty gap measures the minimum level of income needed for
basic survival (i.e. intensity of poverty) while the squared poverty gap shows the severity
of poverty.
As presented in Table 8.1, StatsSA (2017) estimated poverty using the food poverty
line (FPL), the lower-​bound poverty line (LBPL), and the upper-​bound poverty line
(UBPL). For the FPL, poverty declined during the period 2006–​15 (from 28.4 per cent
to 25.2 per cent) while poverty declined then increased for the LBPL and UBPL. The
increase in poverty seems linked to the decline in economic growth and the increase
in unemployment, particularly from 2015. Unemployment continued to increase and
economic growth continued to decline, and, indeed, worsened due to the COVID-​19
pandemic. It will take a long time for the economy to return to the levels of economic
performance of the late 2000s. Similarly, unemployment will remain very high for a
while until the effects of the pandemic subside. Therefore, the gains associated with any
decline in poverty have been reversed and poverty remains very high.
As indicated earlier, it is important to also examine poverty by gender instead of
broad figures, in order to deal with the notion of feminization of poverty. Many studies
on poverty confirm that women are more prone to poverty than men (Nwosu and
Ndinda 2018) and that there are more female-​headed households in poverty (Posel et
al. 2016). This phenomenon has existed for a long time, similar to the reality that larger
households are more likely to be in poverty.

Table 8.1: Poverty trends, 2006–​15

Poverty Headcount ratio Poverty gap Square poverty gap
line
2006 2009 2011 2015 2006 2009 2011 2015 2006 2009 2011 2015

FPL 28.4% 33.5% 21.4% 25.2% 9.3% 12.3% 6.8% 9.0% 4.2% 6.0% 3.0 4.5

LBPL 51.0% 47.6% 36.4% 40.0% 22.2% 21.0% 14.3% 16.6% 12.2% 11.7% 7.3% 9.1%

UBPL 66.6% 62.1% 53.2% 55.5% 35.6% 33.5% 25.5% 27.7% 22.5% 21.3% 15.0% 17.0%

Source: StatsSA (2017).

162   Vusi Gumede

Table 8.2 confirms that, although poverty is declining for both males and females,
there are always more women than men below the poverty line.
Chant (2006) argues that women are not only prone to suffer more from poverty,
this standard of living tends also to persist over a longer period and can thus become
intergenerational. Nwosu and Ndinda (2018) analysed the effect of transitioning from a
male-​headed to a female-​headed household on changes in the probability of falling into
poverty and their results suggest that the transitioning from a male-​headed to female-​
headed household is highly correlated with the probability of that household falling
into poverty. This confirms the hypothesis that poverty is feminized. Rogan (2012) used
StatsSA surveys to investigate the poverty status of female-​headed and male-​headed
households in South Africa and concluded that female-​headed households had a far
higher risk of falling into poverty.
In terms of multiple dimensions of poverty, there are not many studies that have
adopted the MPI approach in South Africa. StatsSA (2014) calculated the MPI based
on 2001 and 2011 Census data. The finding was that MPI decreased during the period
2001–​11. Mushongera et al. (2015) used the Gauteng City-​Region Observatory survey
data for 2011 and 2013 to investigate the multidimensional poverty index for Gauteng
province in South Africa and their results point to a low MPI in Gauteng—​many studies
find that Gauteng, similar to the Western Cape, performs better than other provinces
with regards to poverty. Ntsalaze and Ikhide (2016) applied the multiple correspond-
ence analysis using the NIDS and found that the lack of employment as well as financial
commitment (over-​indebtedness) are the core dimensions of poverty as they constrain
households from participating in essential activities. Rogan (2016), on the other hand,
assessed gender and multidimensional poverty in South Africa also using NIDS and
found that the poverty gap is largely similar to the poverty gap measured by the trad-
itional money-​metric measures. Omotoso, Adesina, and Gbadegesin (2019) investigated
children’s vulnerability to multidimensional poverty in post-​apartheid South Africa
using the South African representative surveys following the Alkire-​Foster method-
ology and found that overall children’s vulnerability to poverty has reduced. Lack of em-
ployment opportunities and poor access to basic schooling are found to be the main
factors that contribute to children’s probability of falling into poverty.
There is also an issue of the extent to which social grants alleviate poverty. There
are different views. For instance, Kelly (2013) and Webster et al. (2014) conclude that

Table 8.2: Poverty by gender

Measure Headcount ratio

Year 2006 2009 2011 2015

Male 26.5% 32.0% 20.2% 23.7%
Female 30.1% 35.0% 22.6% 26.5%

Source: StatsSA (2017).

 Poverty in South Africa    163

social grants do not yield the expected results. In other words, social grants do not ne-
cessarily get people out of poverty. They argue that social grants are said to be trapping
people by constraining them from improving their circumstances themselves. Bahre
(2011) also makes the same argument. Essentially, social grants are said to increase gov-
ernment spending while on the other hand perpetuating dependency on government
cash transfers. Other scholars conclude the opposite. Woolard and Klasen (2010), Patel
(2013), Patel and Plagerson (2016), Delany et al. (2016), and Xaba (2016) argue that social
grants have a positive impact on poverty reduction. For example, Patel and Plagerson
(2016) investigated the trajectories of social protection in South Africa covering the
period from 1994 to 2017 and found that child support grants reduced hunger, increased
food security, led to better school performance, reduced income inequality, and
improved growth monitoring as well as health outcomes.
Furthermore, Woolard and Klasen (2010) analysed the evolution and the impact of
social security in South Africa and concluded that the South African social assistance
programme is highly associated with poverty reduction, improvement in education as
well as health with particular attention to children living under extreme poverty. Along
the same lines, Blake (2018) analysed the social cost of child support grants for female
caregivers and their extended networks and found that the grant system has a positive
impact on poverty reduction.
There are some chapters in this volume that deal with social grants. The overall view is
that social grants have helped in denting poverty and inequality. In other words, without
social grants poverty and inequality would have been worse. The fundamental issue,
arguably, is that there should be better interventions to decrease poverty and inequality
in South Africa. Better, in a sense that such interventions are comprehensive and
sustainable. So, even though social grants help in mitigating against poverty there should
be, say, job opportunities as one example for how the country might comprehensively
deal with poverty. The policy implications section goes into detail about possible policy
options for reducing poverty in the country. In any case, people should be in a position to
do what they value instead of waiting for a social grant at the end of each month.
To briefly reflect on inequality, for a chapter on poverty cannot be silent on inequality,
there is consensus that South Africa is a highly unequal society and ­Chapter 9 goes into
details about this. In terms of provinces and municipalities, Schotte et al. (2018) found
that Gauteng, the Western Cape, and Mpumalanga exhibited high levels of local social in-
equality. This is consistent with findings in Leibbrandt, Finn, and Woolard (2012), while
Ozler (2007) and David et al. (2018) examined the spatial distribution of poverty and in-
equality in South Africa using the 2011 South African Census and found that overall in-
equality measured by the Gini coefficient was about 0.57 in all municipalities. However,
this was differently distributed across municipalities. For example, the large municipalities
are those characterized by high levels of inequality, ranging from 0.73 to 0.76. To be spe-
cific, the findings suggest that income inequality in the ten poorest municipalities varies
from 0.65 in Nqutu, 0.68 in Maphumulo, to 0.77 in Mbizana and Ngquza Hill.
Along the same lines, to illustrate gender dimensions as far as poverty and inequality
are concerned, Bhorat et al. (2016) analysed the share of women in total employment
164   Vusi Gumede

in several sectors and the results point to a high degree of variation. For instance, some
sectors employ far more men than women (e.g. the taxi industry and the private security
sector). Sectors such as domestic work, hospitality, and contract cleaning employ more
women than men. Other scholars, for instance Fredericks and Yu (2017), investigated
differences in employment attainment and findings suggest that between 1997 and 2015
men and white people were favoured relative to their female counterparts.
Espi et al. (2019) used the Employment Equity Act (EEA) data to investigate gender
and pay gaps in 2015 and 2016: results confirm what the earlier studies found, that
women are under-​represented at the high-​skilled levels. Espi et al. (2019) also found that
the gender pay gap has widened. Bhorat and Goga (2013), Rogan and Alfers (2019), and
Mosomi (2019) also analysed the gender wage gap and the results are consistent in that
the gender wage gap is high. For example, Mosomi (2019) finds that the gender wage
gap remained at an average of 23 per cent and 25 per cent. According to Bezuidenhout
et al. (2019) the gender wage gap also depends on the status of a firm. For example, the
authors used a unique employee–​employer matched data panel from 2011 to 2016 for
South Africa and employing fixed effects regressions and found that the gender wage
gap of trading firms was higher than that of domestic firms.
Women also suffer various forms of discrimination in the economy. Kaggwa (2020)
used a survey approach to analyse gender equality in the mining sector and found that
women suffered more discrimination compared to men. In addition, Kaggwa (2020)
also found that the main challenge faced by women was the lack of participation in
decision-​making processes and lack of career progress. This confirms gender inequality
as well as the inequality of opportunities between men and women. See also Chapter 34,
which reviews gender dynamics in depth.

8.4 Examining Poverty Dynamics

As indicated earlier, the chapter uses the NIDS to estimate poverty in the post-​apartheid
period. The NIDS is useful in many ways, including that it was specifically designed for
the purpose of understanding poverty dynamics in democratic South Africa and that it
is a longitudinal study tracing the same households and individuals over time. In brief,
the NIDS is a household panel study first conducted in 2008. There are five waves of the
NIDS: first wave (2008), second wave (2010), third wave (2012), fourth wave (2014), and
last/​fifth wave (2017).
For this chapter, income is used as a measure of economic welfare. NIDS adopted a
recall method to derive household income, where first households were asked to declare
total household income received over the last month. Aggregate household income
is used by compiling the respondents’ answers on each income component based on
the adult questionnaire. Regarding missing data due to non-​responses, the imputation
method was adopted and the imputed income from the six sources was then added to
the implied rental income, guided by the approach that Derek Yu (2013) followed.
 Poverty in South Africa    165

To calculate the per capita income measure, household income is divided by house-
hold size (see Budlender et al. 2015 and StatsSA, 2017). StatsSA’s food poverty line of R515
is used. Considering that effectively a cross-​sectional approach (wave-​to-​wave) is used,
the waves are weighted with their correspondent post-​stratified weights (see Zizzamia et
al. 2018). Post-​stratified weights are also used to ascertain that the weighted distribution
of household by geographical location (i.e. provinces), race, and gender are the same as
the distribution baseline survey. In other words, to control for changes in price levels
over time the food poverty line is deflated by multiplying it with the consumer price
index (CPI) of the corresponding wave. The NIDS first wave had 26,776 respondents
and by the last survey conducted there were 24,758 respondents.
As explained in Gumede (2008), P1 can be interpreted as a measure of how much (in-
come) would have to be transferred to the poor to bring their expenditure up to the
poverty line. Unlike P0 (which captures the share of those who fall below the poverty
line), P1 does not imply that there is a discontinuity at the poverty line. However, both
P0 and P1 cannot capture differences in the severity of poverty amongst the poor. P0 and
P1 do not consider possible inequalities among the poor, unlike P2 (the weighted sum of
poverty gaps as a proportion of the poverty line where the weights are the proportionate
poverty gaps themselves).
It is recommended that all the three money-​metric measures are estimated because
they help better understand poverty from an income or expenditure point of view. P2,
for instance, takes inequalities among the poor into account. These measures also high-
light the importance of having an official poverty line so that the assessment of whether
poverty is changing or not can be based on a nationally agreed poverty line. Gumede
(2014) explains the importance of an official poverty line and discusses efforts made in
government to come up with a nationally agreed poverty line—​but South Africa still
does not have an official poverty line. An official poverty line means a poverty line that
is discussed across society and consensus is reached on what are the minimum living
levels for a country such as South Africa.
The estimates (as shown in Table 8.3) imply that poverty has been declining, at least
prior to the economic downturn that worsened in 2019 and before the COVID-​19 pan-
demic which obviously increased poverty.

Table 8.3: Estimated poverty rates

Poverty measure 2008 2010 2012 2014 2017

Headcount ratio (P0) 48% 45% 39% 32% 29%

Poverty gap ratio (P1) 22% 22% 17% 12% 11%
Squared poverty gap ratio (P2) 13% 13% 9% 6% 5%

Source: Author’s own calculations based on National Income Dynamics Study (NIDS). Here is the link
for the NIDS data: http://​www.nids.uct.ac.za/​
166   Vusi Gumede

The headcount ratio implies that poverty has been declining relatively significantly
while the poverty gap ratio shows small improvements, and even smaller improvements
in the squared poverty gap ratio, implying that the severity and intensity of poverty has
not changed much in the democratic period of the country. For both the poverty gap ratio
and the squared poverty gap ratio, poverty rates did not change during the first two waves
and changes in the last two waves are negligible. Table 8.4 shows estimates by province.
Except for Northern Cape and North West where poverty rates increased between
wave 4 and wave 5, for all other provinces poverty rates declined. Looking at poverty
rates by population group (i.e. race), there was a slight increase in poverty rates of the
coloured population group during the last two waves. There are also negligible increases
for the Asian/​Indian and white population groups. This is in line with other studies
and it is intriguing if not counter-​intuitive. Whites have had over 350 years of privilege
thereby making it hard to imagine that they can experience poverty.
In the context of the notion of the feminization of poverty, Table 8.5 shows poverty
rates by gender. Although poverty rates for both men and women have declined during
the successive waves of the NIDS since 2008, the poverty rates of women remain higher
than those of men.
It is not enough to only examine the standard money-​metric measures of poverty,
hence the chapter also examines the MPI. The MPI is useful as it captures the proportion
of people who experience multiple deprivations and the intensity of such deprivations.
In short, the MPI is made up of three different dimensions: education, health, and
living standards. Education includes years of schooling and school attendance. Health
takes into account nutrition and disability and the living standard dimension includes
cooking fuel, sanitation, water, electricity, refuse, and dwelling type. For the estimation,
all the indicators are converted into dummy variables coded as 1 if a certain individual is
below the cut-​off point associated to that indicator and 0 otherwise.

Table 8.4: Estimated poverty rates by province

Province 2008 2010 2012 2014 2017

Western Cape 25% 23% 20% 17% 18%

Eastern Cape 68% 61% 55% 48% 42%
Northern Cape 43% 43% 31% 23% 27%
Free State 46% 45% 37% 23% 22%
KwaZulu-​Natal 60% 58% 51% 43% 38%
North West 42% 44% 38% 30% 39%
Gauteng 31% 29% 23% 18% 17%
Mpumalanga 49% 42% 41% 33% 29%
Limpopo 63% 62% 54% 43% 35%

Source: Author’s own calculations based on National Income Dynamics Study (NIDS).
 Poverty in South Africa    167

Table 8.5: Estimated poverty rates by gender

Gender 2008 2010 2012 2014 2017

Male 44% 41% 35% 28% 26%

Female 52% 49% 42% 35% 32%

Source: Author’s own calculations based on National Income Dynamics Study (NIDS).

Applying the Alkire-​Foster (AF) method, the MPI is derived through a two-​step
cut-​off approach to identify those who are multidimensionally poor. Before deciding
on cut-​offs, main indicators were identified and then classified into domains. Using
the weighting scheme suggested by the early multidimensional poverty measurement
studies, the indicators within each domain are equally weighted:

1 1
wdj = χ
T d

Each domain carries an equal weight of one-​third and the total weights for all domains
equal 1. Each indicator j, with j = (1,2, . . . d) is linked to a minimum level of satisfaction
which is denoted as the deprivation cut-​off point, represented as z = (z1z2 . . . zd). An indi-
vidual or household is deprived if his/​her or its total satisfaction is below that cut-​off point.
The overall MPI reflects the product of both the percentage of population that is
multidimensionally poor (H, the poverty headcount ratio) and the mean proportion
of weighted deprivation an individual or household experiences (A, the severity of
poverty).
Table 8.6 shows the total MPI, the contribution of each indicator and the contribution
of each domain. Different from the headcount ratio, the figures suggest that multidi-
mensional poverty exhibits different trends in the covered period. For instance, as can
be noted in Table 8.6, the ratio of individuals that were below the cut-​off of one-third
increased from wave 1 to wave 2, from 0.116 to 0.217 respectively. The trend changes from
one wave to another in the subsequent waves. For example, there was a decrease in the
ratio of people who do not have enough income to fulfil the minimum food requirement
and have at least three deprivations from wave 2 to wave 3, followed by a slight increase
from wave 3 to wave 4 and finally a decrease from wave 4 to wave 5. Essentially, multiple

Table 8.6: Multidimensional headcount

MPI 2008 2010 2012 2014 2017
0.116 0.217 0.114 0.135 0.103

Source: Author’s own calculations based on National Income Dynamics Study (NIDS).
168   Vusi Gumede

deprivations remain prominent in South Africa although there were improvements for
some years, as far as the period of analysis for this chapter is concerned.
From the first wave to the last wave of the NIDS, as estimations indicate, there have not
been major improvements in multiple deprivations in South Africa. The MPI was 0.116 in
the first wave and it was 0.103 in the last wave. Arguably, as unemployment has increased
and the economy’s performance has worsened, the MPI would deteriorate. In other
words, multiple deprivations would worsen in South Africa, also because of COVID-​19.
A useful feature of the MPI is that once the total MPI is computed, we can still assess
the contribution of each indicator to the total MPI. This approach was followed and the
results, as shown in Table 8.7, suggest that the share of years of schooling as well as child
enrolment is almost zero across the waves, except in waves 2 and 5.
Moreover, the portion of people deprived in the dimensions, such as being disabled,
not having access to electricity, poor dwelling type, not having fuel for cooking, as well
as not living in a place with piped water, appears to have an impact on overall multidi-
mensional deprivation. Although these factors appear to contribute to the total MPI,
their impact is not significant compared to factors such as malnutrition, sanitation, and
refuse removal. The aforementioned factors are found to play a significant role in overall
multidimensional poverty. Although fuel for cooking does not have a significant contri-
bution to the total MPI, something that is worth highlighting is that in wave 4 it played
a significant role. The results imply that more attention should be given to malnutri-
tion, sanitation, and refuse removal as their share in the total MPI is very significant
compared to other factors in all the domains.
Chapter 38 in this volume deals with the issue of malnutrition. Although there have
been improvements in terms of hunger and food insecurity in the post-​apartheid dis-
pensation, malnutrition is still a big challenge, hence the severity and intensity of poverty

Table 8.7: Contribution of each indicator, percentage

Domain Indicators 2008 2010 2012 2014 2017

Education Child enrolment 0.000 0.175 0.000 0.000 0.016

Years of schooling 0.000 0.095 0.000 0.000 0.000
Health Disability 0.047 0.008 0.000 0.034 0.094
Malnutrition 0.450 0.365 0.469 0.446 0.439
Living standard Electricity 0.063 0.058 0.059 0.064 0.031
Sanitation 0.141 0.089 0.156 0.140 0.130
Refuse 0.141 0.103 0.156 0.136 0.125
Dwelling type 0.016 0.013 0.014 0.019 0.016
Fuel for cooking 0.086 0.055 0.073 0.102 0.093
Water 0.055 0.039 0.073 0.057 0.057

Source: Author’s own calculations based on National Income Dynamics Study (NIDS).
 Poverty in South Africa    169

remaining significant even in the democratic period. From each indicator’s contribution
to the total MPI, the contribution for each domain was also computed. It is instructive
that the health and the living standard domains appear to contribute more to the total
MPI compared with education, which confirms the point made earlier. Estimates indi-
cate that health was significant in wave 2, and wave 5, while the living standard domain
had significant contributions in waves 1, 3, and 4. This means that access to health and the
standard of living are the core domains in which people do not meet the necessary/​min-
imum living level and thus they are considered as multidimensionally poor. This finding
suggests that there is probably sufficient access to education in the country. The issue is
more about whether children are accessing good quality education.
Last, another critical issue when examining poverty, especially in the context of
African countries, relates to the question of whether poverty is predominantly a rural
or an urban phenomenon. To investigate the determinants of poverty in rural and
urban areas of South Africa the chapter uses a mixed effect probit model specified in the
following manner:

( )
Pr yij = 1| xit , ui = H ( xit β + zit ui )

where the subscripts i and t show a certain household at time t, with i = 1, . . . ,M clusters,
with cluster t consisting of i = 1, . . .,nt observations.
As the equation shows, yit = 1 if poverty ≠ 0 and yit = 0 otherwise. In other words, this
is a binary variable taking a value of 1 if a certain household or individual is below the
poverty line and 0 otherwise. β is a vector of elasticities given a vector of explanatory
variables X (denoting income in the context of this chapter). In addition, 1xp row vector
xit and 1xq vector zit, are the covariates for the fixed effect and random effect respectively.
While in the first vector, the covariates are those that can be found in a normal probit
model with regression coefficients (i.e. fixed effects), in the second vector the covariates
correspond to the random effect that can be either random coefficients or random
intercepts. In other words, it can be treated as the scalar 1 in the random intercept model.
Furthermore, the random effects ui denotes M realizations from a multivariate normal
distribution with mean 0 and qxq variance matrix ∑, which can also be called variance
components. H represents the standard normal cumulative distribution function.
As Table 8.8 shows, poverty in South Africa has remained predominantly a rural phe-
nomenon. Zimbalist (2017), among others, demonstrated that poverty was much higher
in rural areas than in urban areas for the period 1997–​2012.
The picture has not changed much from what Zimbalist (2017) found. Arguably,
poverty in rural areas might have intensified as a result of a weakening economy and it
would most likely have worsened due to the COVID-​19 pandemic. Although poverty
appears to have been declining, as this chapter shows, rural poverty has not declined
much. In the last NIDS wave, rural poverty was 45 per cent while urban poverty was
19 per cent. So, over and above that female-​headed households are predominantly in
poverty, those based in rural areas are mostly in poverty. This supports those who have
argued that policy interventions must not forget about the countryside.
170   Vusi Gumede

Table 8.8: Estimated poverty rates by geotype

Settlement Type 2008 2010 2012 2014 2017
Rural 69% 65% 57% 48% 45%
Urban 32% 31% 26% 21% 19%

Source: Author’s own calculations based on National Income Dynamics Study (NIDS).

8.5 Policy Implications

It is clear from the ensuing analysis that, as expected, poverty affects the Black/​
African population group more. Within that race group, women are the most
affected. Intuitively, we know also that the youth is the most affected because of
high levels of youth unemployment and because there are no specific government
programmes that target youth. Put differently, there is no evidence of the dent on
youth unemployment from existing government programmes as far as the youth is
concerned. Therefore, more should be done and better efforts made to deal with the
poverty that youth is experiencing.
Similarly, more must be done to deal with the notion of the feminization of poverty.
It is not surprising that South Africa has not sufficiently addressed the feminization of
poverty because the interventions have been very broad and did not directly take into
account the reality that there are far more women than men experiencing poverty. For
Goldberg and Kremen (1990) the feminization of poverty would occur when there are
not enough initiatives aimed at equalizing wages and salaries for men and women. In
addition, there must be deliberate programmes for redress given the dual role for many
women (i.e. work and family), as well as support to single mothers.
There are other critical policy interventions that should assist in mitigating poverty
(and reducing inequality): labour market reforms and ensuring that social policy is
comprehensive. It is important to indicate that social security and/​or social protec-
tion are aspects of social policy but are not social policy (in and of themselves) (see
Gumede 2019). To be sure, social protection is viewed as a broader set of interventions
aimed at preventing and mitigating social harm while social security has to do with
income protection schemes. Similarly, there must be more effort to facilitate rural
development.

8.6 Conclusion

Poverty remains very high in South Africa. There have been different interventions
aimed at reducing poverty (and inequality) but interventions pursued so far have
 Poverty in South Africa    171

been timid. Social protection mechanisms have helped make extreme poverty man-
ageable, but they have not been effective in sustainably reducing poverty. Arguably,
government hoped that by growing the economy and creating jobs poverty would
decline.
Overall, the required fundamental intervention as far as reducing poverty (and in-
equality) in South Africa is concerned has to do with the restructuring of the South
African economy. The character and structure of the economy makes it difficult to sus-
tainably reduce poverty (and inequality). So, over and above other interventions such
as ensuring that there is a comprehensive social policy and that relevant laws and other
policies are properly pursued, it is critical that the economy is not only made to perform
better but that it is also restructured in favour of the majority of South Africans. Various
interventions, such as those focusing on land and agrarian reforms, should be vigor-
ously, but carefully, pursued.

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 Chapter 9

Inequali t y i n
Sou th Af ri c a

Murray Leibbrandt
and Fabio Andrés Díaz Pabón

9.1 Introduction

South Africa remains one of the most unequal countries in the world. The current
levels of inequality are the legacy of the segregation and marginalization of the vast ma-
jority of its citizenry in every aspect of South Africa’s socio-​economic development be-
fore and during apartheid. Contemporary inequality literature is unambiguous about
the fact that such extremely high levels of inequality are detrimental to a country’s de-
velopment path and stifle a country’s potential in multiple dimensions (Wilkinson and
Pickett 2010).
In South Africa, poverty and inequality are often mentioned in the same breath.
This elides over important conceptual differences between poverty (measured by
incomes at a particular threshold) and inequality (measured by gaps between groups
or individuals). Poverty is analysed as an individualized metric, the income level of a
person, or the level of a multi ​dimensional index relative to an income or multidimen-
sional poverty line (for a fuller discussion on poverty in South Africa, see ­Chapter 8 in
this volume). On the other hand, inequality is a relational concept; one is more or less
equal in relation to another (Tilly 1998). As such the analysis of poverty cannot neces-
sarily explain the forces reproducing intergenerational inequality or poverty. Analysing
inequality is better suited to unveiling the societal processes driving the provision and
allocation of assets and services, and the determinants of well-​being, and can better de-
scribe the forces reproducing intra-​generational and intergenerational inequality. This
is the task of this chapter.
176    Murray Leibbrandt and Fabio Andrés Díaz Pabón

Although much of the literature that foregrounds the centrality of inequality is

more recent, even in 1994 there was an intuitive sense in South Africa of the daunting
conditions that its social and economic inequalities bequeathed South Africa’s new
democracy. It is hardly surprising then that, from the outset, substantial progress
in transitioning to a more equal society was flagged as a key metric of progress in
South Africa.
There has been much work in understanding the levels and patterns of income in-
equality and how these have changed over time in South Africa. Most of this work has
been informed by the use of survey data to measure levels and changes in income and
earnings inequities. Such measurement has been important in setting the context for
analysis and, more recently, has been enriched by looking also at the role of wealth and
asset inequalities as illustrated by the work of Piketty (2014). This work is reviewed in
section 9.2.
While the contribution from understanding levels and patterns of inequality remains
important, for understanding the social structures behind the creation and reproduction
of inequality we need also to account for the mechanisms creating inequality. Incorporating
the insights from other fields in the social sciences improves our understanding of the
drivers of inequality. Indeed, we go on to argue that, for understanding inequality in South
Africa better, it is imperative that progress is made in mapping the mechanisms that repro-
duce and generate inequality along categorical distinctions such as gender, race, and class
(Tilly 1998). Looking at the interaction between inequalities (e.g. income inequalities) and
different sets of categories (e.g. gender, race, and class) helps in better describing the specific
mechanisms that create and reproduce inequities for different groups. We then go on to
review a new literature that analyses these interactions using South Africa’s panel data. The
focus of this promising work is the study of intra-​generational and intergenerational social
mobility.
The concluding section pulls together this understanding of the connection between
wealth and incomes and their interactions with categorical inequalities. It argues that this
approach has led to a better understanding of the forces that drive inequality in South
Africa and a sounder foundation for assessing policies to overcome inequality.

9.2 Income, Wealth, and Assets

The analysis of household income and wealth inequality over time in South Africa has
provided the flagship indicators of the levels of South Africa’s inequalities. The changes
in these variables over the post-​apartheid period are used to describe overall progres-
sion of income inequality in the country (Leibbrandt et al. 2012; Hundenborn et al.
2018a).
The Gini coefficient of incomes was 0.67 in 2006, 0.65 in 2009, and 0.65 in 2015, using
data from Statistics South Africa’s Income and Expenditure, and the Living Conditions
Surveys (Statistics South Africa 2019). These levels and trends are robust to the choice
 Inequality in South Africa    177

of different inequality indexes used (Atkinson, Theil, and Palma indexes) and data
sources.1 The consistency of these findings along different indicators and data sources
has prevented any inequality denialism in South Africa and this picture has been
mainstreamed in different policy documents. For example, the South African govern-
ment National Development Plan sets a target of reducing the income Gini coefficient
from these levels to 0.60 by 2030 (National Planning Commission 2012). Having been
tabled as part of national plans and addressed in different policy proposals, the fact that
the levels of inequality remain so high is a sign of the failures of the South African gov-
ernment and society in addressing its inequalities. This persistently high level of in-
come inequality, should not be interpreted as saying that the dynamics of South Africa’s
income inequality are static. The rest of this chapter is focused on unpacking the im-
portant social dynamics that undergird these aggregate measures.
In beginning to understand the drivers of inequality in South Africa, there is a trad-
ition that focuses on the role of different sources of income (labour market, social grants,
remittances, and capital income) that are coming into households for different groups
along the income distribution.2 In a contemporary example, Hundenborn et al. (2018b)
study 1993, 2008, and 2014, finding that labour market income is highly correlated with
overall inequality and accounts for 84–​90 per cent of the overall Gini coefficient, being
by far the most important determinant of household income inequality in South Africa.
This high share is due almost to the high number of households with no access to labour
market incomes as well as the inequality in labour incomes for those households with
access to labour market incomes.
Given the importance of labour income, employment and earnings dynamics re-
main central in driving South Africa’s inequality of income.3 Earnings inequality
increased from a Gini of 0.552 in 2001 to 0.634 in 2014 (Finn and Leibbrandt 2018).
Unemployment has risen dramatically due to changes in the supply of labour (Casale
and Posel 2002; Mosomi 2019) as well as changes in the demand for labour (Bhorat et al.
2020; Tregenna 2012). Whereas average real gross earnings of employed workers rose,
real wage increases went mostly to top earners, explaining the increase in earnings in-
equality (Wittenberg 2017a, 2017b, 2017c, 2018). These extreme earnings differentials
are undergirded by a labour market that is segmented along racial and gender lines
(Statistics South Africa 2019) coupled with large power and class asymmetries between
employers and employees in a job-​scarce economy (Webster and Francis 2019). (For a
fuller discussion on the changing dynamics of the South African Labour Market, see
­Chapter 31 in this volume.)

1 For example, Hundenborn et al. (2018a) use the 1993 PSLSD and 2008 and 2014 NIDS data to esti-

mate inequality in 1993, 2008, and 2014; finding that there is a very small total change in the Gini, from
0.68 to 0.69, in the 1993–​2008 period and that there is a reduction in the Gini, from 0.69 to 0.655, in the
2008–​14 period.
2 See review in Leibbrandt et al. (2012).
3 See recent reviews by Finn and Leibbrandt (2018), Bhorat et al. (2020), Tregenna and Tsela (2012).
178    Murray Leibbrandt and Fabio Andrés Díaz Pabón

Household income source decompositions show clearly that aggregate income in-
equality would have risen more than it did as a result of these labour market forces,
had it not been for government grants and subsidies (cash transfers). Grants and
subsidies have been crucial in dampening increasing inequality (Hunderborn et al.
2018a). However, the inequality dampening effect of such grants had plateaued before
the economic crisis unveiled by the COVID-​19 pandemic (Mashekwa and Woolard
2018), raising questions about the long-​term impact of the pandemic on income
inequalities.
Income source decompositions also show that capital incomes are an important
source of inequality. This makes it imperative to understand how top-​end earnings and
income from the capital are creating and reinforcing income inequalities. This need to
understand top-​end income dynamics relates to an international concern that house-
hold and labour market surveys, which have served as the basic data for the analysis of
income inequality in South Africa, may underestimate top-​end incomes (Alvaredo et
al. 2017). South African researchers have started to address this concern. Bassier and
Woolard’s (2018) recent analysis of tax and household survey data provides a striking
demonstration of the usefulness of this line of research in understanding the extent of
top-​end inequality in South Africa. Whereas Credit Suisse in 2016 estimated that there
were about 45,000 US dollar millionaires in the country, Bassier and Woolard (2018) put
the number much higher, at about 182,000.
The impact of top-​end incomes driving increases in inequality of incomes can be also
illustrated by how, between 2003 and 2016, the real incomes of the top 5 per cent of in-
come earners increased at a rate of 5.1 per cent annually, more than double the rate of
growth of gross national income (GNI) after 2008. In contrast, the incomes of the other
95 per cent of the population either stagnated, or, in the case of the bottom of the distri-
bution, showed only slight growth. Real incomes of the top 1 per cent of income earners
almost doubled between 2003 and 2016 and, between 2010 and 2016, the income shares
of the top 1 per cent increased from 10.5 per cent to 12.6 per cent of the country’s GNI
(Bassier and Woolard 2018).
The importance of understanding capital income and top-​end income dynamics
meshes with a need to understand wealth inequality. In spite of its growth in import-
ance as part of the GNI, South African wealth inequality remains under-​researched.
This is mostly because of the lack of access to data on wealth, especially the tax data that
researchers use in other contexts to research wealth, as well as the challenge of tracking
capital flows across different countries. However, recent literature makes an important
start. Orthofer (2016) shows that while the South African income Gini coefficient is
around 0.67, for wealth, this index is at least 0.9–​0.95. Both of these values are higher
than in any other major economy of the globe for which such data exist.4 Chatterjee et al.
(2020) have triangulated survey data and tax data with national accounts data, to derive

4
Using tax records and data from the National Income Dynamics Study (NIDS), Orthofer also finds
that the wealthiest 10 per cent of the population own at least 90–​95 per cent of all wealth.
 Inequality in South Africa    179

estimates of the distribution of personal wealth in South Africa. Even after recognizing
that these data might still underestimate the value of capital, they find that South Africa
has ‘unparalleled’ levels of wealth concentration:

The top 10 per cent own 86 per cent of aggregate wealth, and the top 0.1 per cent
close to one­third of aggregate wealth. The top 0.01 per cent of the distribution (3,500
individuals) own 15 per cent of household net worth, more than the bottom 90 per
cent as a whole. Such high levels of inequality can be accounted for in all forms of
assets, including housing, pension funds, and other financial assets. Our series show
no sign of decreasing wealth inequality since apartheid; if anything, we find that
inequality has remained broadly stable and has even slightly increased within top
wealth groups. (Chatterjee et al. 2020: 2)

However, in the South African context, it is important to acknowledge that changes

over time in well-​being, and in inequalities in well-​being, extend beyond a focus on
the flow of income or expenditure into and out of a household and even the stock
of money-​metric wealth. Such analysis must include, among other things, a broader
set of assets accumulated by households over time. There is a literature measuring
these other dimensions of inequality and their changes over time (Bhorat and Van
der Westhuizen 2013; Wittenberg and Leibbrandt 2017). Extending access to these
assets and basic services has been a major focus of government policy over the post-​
apartheid years and many government interventions have involved the provision
of low-​cost housing, and have boosted access to water, electricity, and other public
services. All of the studies measuring these asset inequalities see this large policy
push reflected in declines in asset poverty and asset inequality irrespective of the
period within the last twenty years since 1994 (Bhorat and Van der Westhuizen 2013;
Wittenberg and Leibbrandt 2017).
Statistics South Africa (2019) provides an exhaustive review of these non-​money-​
metric dimensions of poverty and inequality and makes the point that the major
improvements in asset poverty and inequality took place in the immediate period after
the transition from apartheid rather than since the 2000s (for a fuller discussion on pov-
erty in South Africa, see ­Chapter 8 in this volume). Also, underneath the improvements,
strong patterns of relative deprivation persist towards Black South Africans, women,
and citizens in rural areas.
In sum, this is a major policy achievement. Yet, the reality is that the resilience
of earnings, income, and wealth inequities illustrates that, in spite of a greater provi-
sion of public services and improvements in the ownership of assets, their impact
on the livelihoods across the distribution is not the one that was expected. The fact
that the improvement in access to assets and public services has not changed live-
lihood opportunities for many South Africans not only relates to the challenge of
such interventions to alter income distribution dynamics but is also connected to the
important and continuing role of the categories imposed by apartheid in defining
inequities in the country.
180    Murray Leibbrandt and Fabio Andrés Díaz Pabón

9.3 Categorical Inequalities

and Household Composition

The distribution of earnings, income, wealth, and assets remains very unequal in South
Africa. Crucial in understanding the resilience of these inequalities is the role of social
categories such as race, gender, and class and their intersection with spatial segregation.
Understanding the intersection between social categories, inequalities, and location
offers a key lens for understanding the generation and persistence of inequality in South
Africa (Winker and Degele 2011).
Such an analytical framework can allow us to understand the differences be-
tween different sets of groups, as opposed to general comparisons of the entirety of a
population—​the latter is referred to in the literature as vertical inequality. The ana-
lysis of inequalities along sets of categories has been undertaken by different fields,
such as sociology via the analysis of categorical inequalities (Tilly 1998), or in the
development economics literature via the analysis of horizontal inequalities (Stewart
2016; Hirschman and Rothschild 1973). Such analysis complements our under-
standing of horizonal inequalities and is better suited for unveiling the mechanisms
that limit the access and rewards to different groups along different sets of categories
in different locations. It allows us to better describe how different-​generation
mechanisms operate along different sets of categories and therefore can inform
better policies to reduce inequities as opposed to general descriptions of the entirety
of a diverse population.
In this spirit, and understandably given South Africa’s history, a decomposition of in-
come by the analysis of different racial categories has featured prominently in research
on income inequality. For example, Leibbrandt et al. (2010), compared between and
within racial group inequalities between 1993 and 2008, finding that racial categories
in 1993, contributed between 42 per cent and 50 per cent to between-​group inequities.5
By 2008, the inequality between different groups (Black,6 coloured, Indian, and white
South Africans) had declined to between 30 per cent and 38 per cent.7 Hino et al. (2019)
suggest a further decline by 2015. This illustrates that the dynamics of inter-​group
inequalities (categorical/​horizontal inequalities) have changed, while the levels of in-
equality between individuals (vertical inequalities) remain at their high aggregate levels.
So, crucial context to this decomposition by race is that the between-​race share remains
extremely high compared to international standards. Also, inequality within each of
South Africa’s racial categories has risen sharply over time.

5
Most importantly, this depends on whether racial population shares or income shares are used to
weight inequality.
6 Referred to also in South Africa as ‘African’.
7 Generally, in other countries, between group inequalities ‘account for’ less than 10 per cent of the

overall inequality of income, earnings, or any vertical measure.

 Inequality in South Africa    181

Residents in urban areas

Residents in rural areas

White South African

Indian South African
Coloured South African

Black South African

Male

Female
0 8000 16000 24000
Figure 9.1 Average monthly wages between different sets of categories (in South African
Rands-​ZAR)
Source: Own elaboration based on NIDS-​CRAM 2020 data.

These decompositions are useful in allowing us to understand the importance

of categorical inequalities. However, they serve as calls for explanation rather than
explanations themselves. The forces that reproduce categorical inequalities are dynamic
forces that condition, create, and recreate dynamic traps (Tilly 1998; Stewart and Langer
2008); these forces are not necessarily visible as they operate via both institutional and
non-​institutional mechanisms. As the transition towards democracy eliminated the
overt mechanisms and tools for segregation implemented by apartheid, inequality is
now produced and reproduced by subtler and less overt mechanisms that operate both
as class markers (e.g. dress codes, educational attainment, accents, location of resi-
dence, names, and surnames), but also as access cards for networks, opportunities, and
rewards. This change in the operation of mechanisms, from being enacted by the state
to being enforced by markets and society, makes it harder for households or individuals
to overcome inequality. For example, Pellicer and Ranchhod (2016) show how the re-
lationship between education and the labour market has operated to reproduce an in-
equality trap. Also, as discussed before, the inequalities in earnings and assets by gender
are compounded by complex dynamics by which gender inequities continue to affect
the incomes of the majority of the population of the country (for a fuller discussion on
gender and work in South Africa, see ­Chapter 34 in this volume).
Figure 9.1 illustrates differences in inequalities in earnings in South Africa in 2017.8
Aside from illustrating the importance of each of the above categories, the stark

8
We are grateful to Aidan Horn for his support in analysing the data used in this figure.
182    Murray Leibbrandt and Fabio Andrés Díaz Pabón

rural and urban differences show that, in the case of South Africa, spatial segregation
remains a central dimension that illustrates the reproduction of long-​term categor-
ical inequalities. External and internal colonialism carved South Africa into spatially
segregated spaces (Nelson Mandela Foundation 2018). In terms of measurement, this
is shown most starkly by studies that have used census data to map inequalities in in-
come and many other services across space. Noble et al. (2006) and then, a decade
later, David et al. (2018) and Statistics South Africa (2019), show very clearly that the
deepest poverty and deprivation in contemporary South Africa remains in the areas that
were the ‘Bantustans’ and ‘townships’ under apartheid. While there are inequalities in
all dimensions of life, the worst allocation of services and opportunities continues, to
be observed in the areas that were created and used by apartheid for exploiting South
Africans of colour.
As understanding of the forces creating inequalities requires a recognition of
other dimensions of inequality beyond income inequality, a start has been made by
complementing this analysis through understanding inequality via the lens of categor-
ical inequalities, including gender, racial, and spatial dynamics. By moving the studies of
inequality beyond incomes to other markers of advantage and disadvantage we start to
make visible in the South African context the connection between advantages and wages
and income of which Tilly speaks (Tilly 1998). Yet, the diversity of a country coupled
with the extent of the different inequality-creating mechanisms in which gender, race,
class, and location intersect, makes it harder to come to simple descriptions that can
account for the different forms in which access to rights, opportunities, and rewards are
conditioned.
Recent research has made clear the importance of understanding the dynamics of
household size and composition as aspects of social mobility. In measuring income in-
equality, income per capita is generally used as the measure of well-​being by normalizing
total household income by the number of members. Acknowledging that the same in-
come flow coming into a large or a small household does not equal the same level of
well-​being is essential. Yet the decision to normalize incomes in this way, while sensible,
is not innocuous. Such an analysis departs from a very strong abstraction that assumes
that each member of a household receives or needs the same income. Indeed, research
shows that differences in the size and the composition of households across the income
distribution bring about important inequalities that need to be accounted for. Posel et
al. (2016) find that households at the bottom of the income distribution are larger, with
more children and with higher percentages of households being female-​headed.
Hundenborn et al. (2018a) undertake a series of dynamic income source
decompositions in which some of these demographic changes are accounted for. These
decompositions separate out the effects of demographic changes—​driving the denom-
inator, from the income changes—​driving the numerator. One example of the useful-
ness of such partitioning is that it shows that declining household sizes since 2000 have
led to a slightly more equal distribution of employed adults per household. Such house-
hold size adjustments lower per capita income inequality even when employment itself
has not increased.
 Inequality in South Africa    183

The research on equivalence scales by Posel et al. (2016 and 2020) provides another af-
firmation of the importance of giving detailed attention to household size and compos-
ition. An equivalence scale allows for transforming the income from a household with
different numbers and ages of members into an equivalent household with one adult
member. However, using per capita income assumes that there are no scale economies
for larger households and that individuals of all ages require equivalent resources. These
are strong assumptions which serve as an excellent example of the need to be alert to the
value judgements implicit in the different indicators used to measure inequality. Yet,
there is another crucial substantive point here too. The structure of households matters
in imposing different constraints and barriers to social mobility for the members of each
household. Given this, households adjust their compositions to respond to the needs of
their members, in the light of the structural conditions of their contexts, and to govern-
ment policies (Hamoudi and Thomas 2014). Recent analysis on the effective targeting of
COVID-​19 relief measures has made it clear that understanding these connections is a
matter of life or death (Bassier et al. 2020).

9.4 Social Mobility

and Inequality Dynamics

Recent work on social mobility in South Africa has added to our understanding of the
conditions associated with the production and reproduction of South Africa’s inequality.
There are two lenses. The analysis of intra-​generational mobility focuses on the social
progress of individuals across time in contemporary South Africa. Intergenerational
mobility focuses on the progress of children relative to that of their parents.9 Both lenses
provide important insights into the texture of South Africa’s inequality.

9.4.1 Intra-​generational Inequality
The NIDS data have been used to track social mobility across the income distribution
between 2008 and 2017 in South Africa along five waves (Zizzamia et al. 2016, 2019;
Finn and Leibbrandt 2016; Schotte et al. 2018). This research suggests a delineation of
the population of the country into five social strata: the chronically poor, the transient
poor, the vulnerable middle class, the stable middle class, and the elite. Figure 9.2 below
reflects this picture.
Statistics South Africa has found that 55 per cent of the population in 2015 lived in
poverty (Statistics South Africa 2017). This is a high poverty rate. The analysis of social

9
The measurement of these mobilities requires panel data, tracking individuals and households. This
work has been greatly facilitated by South Africa’s NIDS panel study.
184    Murray Leibbrandt and Fabio Andrés Díaz Pabón

100 3.3 3.3

4.0 2.7 4.9
19.2 19.0 19.7 23.4 22.4
80
13.6 12.1 13.4
16.8 19.4
60 11.2 11.6 13.0
11.5
11.4
40

52.0 54.1 51.3

45.0 42.0
20

0
2008 2010 2012 2014 2017
Chronic Transient Vulnerable Middle Class Elite

Figure 9.2 Socio-​economic class sizes, 2008–​17

Source: Zizzamia et al. (2019).

mobility goes further to show that, for three-quarters of the population who are not the
middle class or the elite, life is filled with the precariousness of a game of ‘snakes and
ladders’ (Schotte et al. 2018). In the bottom half of the income distribution, poverty is
much more pervasive across time than a cross-​sectional analysis tells us. Building off the
analysis of poverty dynamics by Finn and Leibbrandt (2016), Schotte et al. (2018) differ-
entiate between persistent poverty and transient poverty, finding that about 42 per cent
of the population persistently live in chronic poverty, 11.4 per cent of the population can
be classified as ‘transient poor’, and about 19 per cent of the population is part of what
can be called a ‘vulnerable middle class’—​at risk of falling into poverty. Both of these
groups (transient and vulnerable) are at real risk of falling back into poverty from one
period to the next.
This work on social mobility also adds an important dynamic perspective to a large
body of literature, suggesting a growing (Black) middle class in South Africa (Visagie
and Posel 2013; Burger et al. 2014). Most of this literature has focused on measuring
the size of the Black middle class and its change over time. Burger et al. (2015) use
Sen’s capabilities approach to usefully anchor the discussion of a middle class in the
possibilities and capabilities of South Africans in their day-​to-​day lives. Within such a
framing of lived realities, it is clear that some quantitative measures have overestimated
the size of the middle class. Zizzamia et al. (2016) and Schotte et al. (2018) build on this
perspective and confirm that the size of a stable middle class is relatively small. Figure 9.2
shows that only one in four people can be considered to be part of either the stable
middle class or the elite. This is a stark contrast to the narrative of burgeoning black
diamonds that has been portrayed in the media for much of the last twenty years.
This social mobility analysis goes further to ascertain the forces that propel
people from one socio-​economic class to another or keep them routed to their class.
Employment changes (losing or gaining a job) and demographic changes (increases
 Inequality in South Africa    185

or decreases in household size) emerge as crucial determinants. Job gains accounted

for one-​third of all exits from poverty, while changes in household size accounted for
half of all poverty entries or exits. Whereas employment is important in lifting people
out of poverty, this is not sufficient. The quality of employment is important too. Those
with unstable or precarious jobs remain more vulnerable to falling back into poverty as
opposed to those with permanent and formal jobs.
This work on social mobility illustrates clearly how categorical inequalities intersect
in explaining persistent and recurring inequalities. Those trapped in chronic poverty
are almost wholly Black South Africans, have lower educational attainment (below high
school), live in larger households, come from female-​headed households,10 and are pre-
dominantly based in rural areas.11 In contraposition to this, the stable middle class and
the elite are defined by a set of markers that set them apart from the vulnerable middle
class and people living in chronic poverty. These markers continue to be defined by racial
categories and class. For example, 93.6 per cent of white South Africans were observed
to be consistently non-​poor. By contrast, about 63 per cent of Black South Africans were
poor in four or five waves, with only about 9 per cent of Black South Africans remaining
non-​poor in all five waves. Whereas there has been a decline in the inequities between
different racial groups in South Africa, racial categories continue to condition and limit
opportunities and remain markers that define access to housing, public services, trans-
port, schools, employment, safety, and opportunities—​the access to the tools required
to exercise agency and freedom. Limited intra-​generational mobility remains grounded
in the legacy of apartheid.

9.4.2 Intergenerational Inequality
The unequal distribution of assets, notably education, health, and housing, persists
across time and across generations (Pellicer et al. 2011; Pellicer and Ranchhod 2016;
Spaull and Jansen 2019; Lundberg and Startz 1998). These traps reproduce inequalities
and also condition the lives of future generations in the country. The lack of
intergenerational mobility and its precariousness and vulnerability provide a telling lens
to describe the reproduction of inequality in South Africa.
Using data from the NIDS, recent research reveals that there is not a level playing
field in terms of equality of opportunity in South Africa as the opportunities available to
most South Africans have much to do with the socio-​economic status of their families
(Piraino 2015; Finn et al. 2016). Piraino (2015) reveals that in South Africa there is a
strong correlation between a parent’s earnings and what will be their children’s expected
income in the future, estimating an intergenerational earnings elasticity of between

10 Nearly three-​
quarters of all the female-​headed households remained in poverty in four or five
waves, compared with only 29 per cent in the case of male-​headed households.
11 Only 2.5 per cent of rural households remained non-​poor through all five waves while nearly 83 per

cent of all households were poor in four or five waves.

186    Murray Leibbrandt and Fabio Andrés Díaz Pabón

1
.95
.9
Parent’s Earnings and Child’s Earnings
Strength of Relationship Between

.85
.8
.75
.7
.65
.6
.55
.5
.45
.4
.35
5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95
Position of Parents in the Earnings Distribution
Fathers Mothers

Figure 9.3 The intergenerational transmission of earnings advantages or disadvantages

Source: Finn et al. (2016) relabelled by Leibbrandt et al. (2018).

0.62 and 0.67. Piraino finds that this persistence is driven by a limited set of inherited
circumstances and especially due to the impact of the racial categories imposed by
apartheid.
Finn et al. (2016) show that what is particularly notable about the South African case
is the exceptionally high absence of intergenerational mobility at both the bottom and
the top of the earnings distribution. Figure 9.3 is taken from this analysis. It shows that
nine out of ten children from the poorest families still occupy the same vulnerable place
in the earnings distribution as their parents do (or did) once they themselves enter the
labour market. At the top of the distribution, a privileged position is being passed on
as children of top-​earning parents have a 70 per cent chance of being at the very top
of the earnings distribution in the future. At the same time, there is slightly more mo-
bility in the middle of the earnings distribution, reflecting slightly higher chances of
both upward and downward mobility. This resonates with the findings from the intra-​
generational mobility analysis in indicating stability or persistence of two opposing
poles—​wealth or extreme poverty with more volatility being experienced by those in
the middle of the distribution.

9.5 Conclusion

In its most simple understanding, inequality is a noun that speaks of the differences be-
tween individuals or groups in a society (Milanovic 2010). But inequality is a multidi-
mensional concept and, as Sen noted insightfully thirty years ago, calling for equality
 Inequality in South Africa    187

without specifying what we are referring to when we speak about equality and inequality
leads to confusion (Sen 1992). When this lack of specificity takes place, interventions
designed to reduce inequities lack clarity as to both their objectives and the means
through which to achieve their objectives.
South Africa has good cross-​sectional survey data and, more recently, panel data and
tax data that has been used to understand the factors creating and reproducing some of
South Africa’s inequalities. Research using these data has made it clear that, in terms of
income, earnings, and wealth at least, South Africa continues to have extremely high
levels of inequality. The evidence shows an engaged, active citizenry, responding to
opportunities and trying to forge better livelihoods for themselves, that continues to
be severely constrained in what is possible by the less visible forces that remain binding
inequality traps. The exceptionally high correlations between racial categories, where
people are situated in the income and wealth distributions, their gender, where they live,
and where they are situated in the distributions of other dimensions of well-​being, give
a sense of the compounding factors that explain the persistence of one of the highest
inequalities in the world.
But much more needs to be done to better understand the social processes and
mechanisms through which social mobility is limited and inequities continue to be
reproduced period after period. Some authors have framed South African inequality dy-
namics as being a move from race to class (or class to race). It is clear from the synthesis
of existing research in this chapter that both are vital in understanding contemporary
South African inequality. The key analytic challenge is to understand the evolving
interactions between race and class and their role in conditioning access to networks,
services, opportunities, and rewards.
The chapter has highlighted the multidimensional nature of the inequalities that
prevail across contemporary South Africa today. Every day, individuals carry these
inequalities into the labour market, into the broader economy and into their daily lives
as intersecting bundles that tightly constrain opportunities for most and that open up
many opportunities for a few. Evidence from the psychological and health literature has
revealed that this lived reality makes policies directed at reducing inequality even more
daunting. The economic insecurity associated with being vulnerable and unemployed
reduces people’s well-​being, and is compounded by the impact of belonging to specific
categories even if a deterioration in material welfare does not materialize (e.g. Cafiero
and Vakis 2006). In other words, and as highlighted by the impact of the COVID-​19
pandemic, it is not only current earnings or consumption that matter for actual welfare,
‘but also the risks a household faces, as well as its (in)ability to prevent, mitigate, and
cope with these’ (Klasen and Povel 2013, 17). This picture is made more complex as vul-
nerability and precariousness have the potential to create further traps in which people
opt for stable, low-​return sources of income, rather than to invest in activities with
more lucrative but also more uncertain outcomes that could improve their livelihoods
(Wilkinson and Pickett 2010).
All policy documents have consistently spoken about the need to reduce inequality
and have given the state a strong role in redressing the social, political, economic, and
188    Murray Leibbrandt and Fabio Andrés Díaz Pabón

spatial disadvantages via different interventions since 1994 (Tregenna 2012). Yet, col-
lectively, these policies have had a limited effect in reducing inequality. Some would
argue that the actual attention and understanding of inequality in the policy sphere and
the coherence of the strategies to address inequality remains at best debatable (Bond
2014; Hall and Kepe 2017). The review of policy within this chapter has been somewhat
more generous than this. Nonetheless, it is clear that despite the general recognition of
poverty, inequality, and unemployment as South Africa’s three key policy challenges,
the articulation of inequality in this troika has been more rhetorical than substantive.
Government has yet to truly confront inequality as a separate and perhaps overarching
challenge.
If South Africa aims to create a stable, progressive society, poverty traps must be
broken, poverty escapes must be sustained over time and a growing, stable middle class
must be supported. None of this is possible unless the country reduces inequality and
the impact of the mechanisms that produce and reproduce inequality.
We do not know the counterfactual of how much worse South Africa’s inequality
would have been without these interventions. We know that the extensive system of so-
cial grants has helped in ameliorating the increase of income inequality and that there
has been notable progress in lowering inequalities in access to housing and essential so-
cial services. Nevertheless, the combination of these policies and minimum wages in the
labour market has not had the positive effects on earnings and income inequality that
they had in other contexts such as in Latin America (Cornia 2014). Because of this, it is
urgent to sharpen the understanding of the reasons why existing policies have failed in
reducing inequality. Interdisciplinary research can provide new insights that enable us
to better understand the forces behind existing inequality traps.

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 PA RT I I

T H E P R I M A RY
SE C TOR S ,
E N E RG Y, A N D T H E
E N V I RON M E N T
 Chapter 10

Agricu ltu re i n
Sou th Af ri c a

Wandile Sihlobo and Johann Kirsten

10.1 Introduction

Black farmers produce between 5 and 10 per cent of total agricultural output in South
Africa (NAMC 2019), a ratio that has not changed much for two generations despite
evidence that it was higher in the early twentieth century (Bundy 1979; Simkins 1981;
OECD 2006). Part I of this handbook shows how colonial rule, the segregationist era,
and later apartheid provided the foundation for economic dualism in agriculture that
excluded most Black South Africans from access to land ownership, to agricultural
support services, and to economic opportunities in South Africa’s rural areas.
This chapter provides a more recent review of the South African agricultural sector,
from the transition years in the early 1990s to the current challenges of 2020. The dis-
cussion starts with an inventory of the natural resource base with which farmers have
to work, then addresses the political economy of the sector, various aspects of the per-
formance of the commercial agricultural sector, and finally the growth prospects for the
sector against the targets set in the National Development Plan.

10.2 The Natural Resource Base

South Africa is a semi-​arid country with a weak resource base for agriculture. This
renders the sector inherently risky, and this is exacerbated by climate change. This
shapes the structure of the sector, the composition of output and its growth prospects.
Figure 10.1 highlights South Africa’s limited land use potential, with more than half of
total agricultural land area classified as low-to-medium potential (Class V–​VIII), suit-
able only for extensive grazing systems.
196    Wandile Sihlobo and Johann Kirsten

Agricultural Land Capability, Cash Crop Cultivated Land & Irrigated Land

Figure 10.1 Agricultural land capability map of South Africa

Source: BFAP (2018).

Figure 10.1 shows land capabilities across the country. Ironically, some areas of high
potential in the former homelands in KwaZulu-​Natal, Eastern Cape, Limpopo, North
West, and Mpumalanga have high poverty, unemployment, and inequality levels
(StatsSA 2014), another of the legacies of past policies which left these areas without
the functioning physical, social, and institutional infrastructure required for successful
farming.
The land resource base also influences what is possible in terms of land reform
discussed in ­Chapter 12. For this reason, it is useful to articulate the resource base in
numbers and tenure status to determine the land potential and farming systems for sus-
tainable land reform:

• Total surface area of South Africa: 122 million hectares (ha)

• Agricultural land: 93 million ha1
• Areas under traditional tenure (former homelands): 15.5 million ha
• Farmland with private title deeds: 77.5 million ha.2

1 This is 4 million ha less than the estimates of the 1980s due to the loss of farmland to urban sprawl,

towns, roads, and national parks.

2 Of this, 42 million ha is classified as extensive grazing land.
 Agriculture in South Africa    197

In light of the important imperative of redistributive land reform within the agri-
cultural sector, it is worth reporting on the progress with the redistribution of the
77,580 million ha farmland owned by white farmers. Our estimates, which include
restitution, redistribution, private transactions, and State procurement, suggest that a
total of 13.2 million ha (or 17 per cent) has already been transferred away from white
landowners to the State (3.08 million ha) or Black owners (10.135 million ha) through
private and State-​supported transactions, including land restitution (Vink and Kirsten
2019).3 If we add the hectares of land (2.339 million ha) that were successfully identified
for restitution but for which communities elected to receive financial compensation
as the means for restitution, then the total area of land rights that were restored since
1994 is 15.56 million ha. This is equivalent to 20 per cent of formerly white-​owned land,
which is much closer to the 30 per cent target (of 23.25 million ha) than commonly
believed.

10.3 The Political Economy

of South African Agriculture

The history of South African agriculture can be summarized in three words: segrega-
tion, suppression, and support. The first was the deliberate result of the Natives Land
Act of 1913 and the second a process that took place throughout the twentieth century
and resulted in the almost complete destruction of farming by Black people. The third
came to an end in a process that started in the 1980s (when conservative white farmers
stopped supporting the government of the day in favour of the right-​wing oppos-
ition), was given additional impetus by accession to the trade rules of the World Trade
Organization in 1994, and was then cemented with deep liberalization and deregulation
by the new government after April 1994. These changes left commercial farmers (large
and small ​scale) without the considerable government support that they had enjoyed up
to that time (OECD 2006).
The withdrawal of this support to white farmers had two consequences. First, it
allowed the growth of very large-​scale (‘mega’) farming operations (about 2,600 (or 6.5
per cent) of them), especially (but not exclusively) in intensive irrigated horticulture
production (StatsSA 2020a). Second, it was accompanied by the abolition of support
measures, from direct subsidies to indirect market interventions, from funding of re-
search and extension to the withdrawal of subsidies on conservation works (Vink 2000).
The result was that Black farmers were bereft of the support services that they had been
denied under the previous regimes.

3
Updated in November 2020 with latest data on land transfers recorded by the Deeds Office,
obtained from Bornmann (2020).
198    Wandile Sihlobo and Johann Kirsten

The many attempts to remedy this situation through a range of plans and programmes
have been ex post, piecemeal, and unsuccessful. Disappointingly, implementation and
execution were inadequate and/​or uncoordinated, resulting in frustration and failure.
In response, new plans were developed without addressing the root causes of failure and
frustration. As a result, the dualism that has divided the sector has not abated. These
plans included, among others:

• The White Paper on Agricultural Policy, 1995

• The Strauss Commission Report into the Provision of Rural Financial Services, 1996
• Broadening of Access to Agriculture Thrust, 1996
• The Integrated Food Security and Nutrition Programme, 1996
• Integrated Sustainable Rural Development Strategy, 2000
• The Land Reform for Agricultural Development Programme, 2001
• The Strategic Plan for South African Agriculture, 2001
• Comprehensive Agricultural Support Programme, 2004
• The Micro Agricultural Financial Institutions of South Africa initiative, 2004
• The Proactive Land Acquisition Strategy, 2006
• The agricultural and land chapters of the Accelerated and Shared Growth Initiative
for South Africa, 2007
• Recapitalisation and Development Programme, 2010
• The agricultural and land chapters of the National Development Plan, 2011
• The Zero Hunger programme, 2011
• The Ilima Letsema project, 2011
• The ‘one household one hectare’ programme, 2015
• The Agri parks initiative, 2015
• Operation Phakisa, 2017.

While these plans were being devised, drafted, and launched, but not implemented, the
value of South African agricultural output more than doubled in real terms (DALRRD
2020). This growth has largely been driven by increased productivity, which has been
underpinned by technological innovation (section 10.7), as well as growth in traditional
export markets and access to new ones (see section 10.8), and has spanned all subsectors
of agriculture (livestock, horticulture, and field crops).
Black farmers were largely excluded from the benefits of this agricultural growth while
the various programmes and plans were not sufficiently broad-​based to foster an inclu-
sive and prosperous sector and, combined with the slow pace of land reform, contributed
to frustrations amongst Black farmers. As a result, the organizations representing
farmers in South Africa proliferated along racial lines (as shown in Table 10.1), all trying
to extract rent from various government programmes without necessarily benefiting
their (unaudited) memberships. As a result, debates and negotiations around govern-
ment policies, programmes, and plans have become a contested space, with little chance
of successful implementation as all programmes end up accommodating the opposing
views of these vested interests.
 Agriculture in South Africa    199

Table 10.1: The landscape of organized agriculture and the various national

farmer organizations
Name Membership Comments

Agri SA 25,000 Mainly white commercial farmers with some

National African Farmers’
Union (NAFU)
African Farmers Association
of South Africa (AFASA)
TLU-​SA
Southern Africa Agri Initiative
(SAAI)
few Black members
Not able to Used to be the main representative body for
verify claims of Black farmers. Infighting led to a split and the
membership formation of AFASA.
3,000 Focus on promoting the interests of African
(Black) commercial farmers
5,500 Only white commercial farmers and not
aligned to Agri SA and mostly on the right of
the political spectrum
2,630 A network of family farms to protect the future
and sustainability of family farms (160 Black
farmers paid-​up). Most are also members of
the other organizations listed here.

Source: Managers of the various organizations.

The fractious nature of organized agriculture is often repeated at the commodity level
and stems not only from opportunism, but also from the fundamental mistrust be-
tween organizations, despite the attempt to form a broader organizational front
through the establishment of the Agri Sector Unity Forum (ASUF) in November 2012.
One can assume that this mistrust is partially responsible for the lack of unity in the
sector.4
Moreover, there is a lack of collaboration between government and the private sector
as manifested through commodity organizations, agribusinesses, commercial farmer
organizations, etc. This results in slow implementation of the aforementioned farmer
development plans. The farmer organizations are frustrated with the lack of delivery
and extreme bureaucracy. When they do try and implement transformation initiatives,
it is sometimes not supported by government officials, primarily at provincial level and
in the municipalities, and as a result the farmers who need and deserve support the most
are underserved.
In all, the problems that confront South Africa’s agricultural sector will not be resolved
without a unified vision and commitment. In its absence, the chances of creating a
united, inclusive, and prosperous agricultural sector are getting slimmer by the day.

4 We base this view on an assessment of media reports of dissenting views of these organizations on

policy matters such as land reform, farmer support programmes, and minimum wage policies, amongst
others.
200    Wandile Sihlobo and Johann Kirsten

10.4 The Role and Contribution

of Agriculture in
the South African Economy

The fundamental role that agriculture plays in economic development and struc-
tural transformation has long been recognized. In the seminal work on the subject by
Johnston and Mellor (1961) and Mellor (1989) and more recently Timmer (2002), agri-
culture is seen as a source of contributions that helped induce industrial growth and a
structural transformation of the economy. In this process agriculture plays a number
of key roles: increased food supply, release of surplus labour, a market for industrial
output, supply of savings, and increased foreign exchange earnings.
However, globalization, integrated value chains, rapid technological and institu-
tional innovations, and environmental constraints have deeply changed the context
for agriculture’s role. Byerlee et al. (2009) therefore argue that agriculture has in fact
multiple functions for development: triggering economic growth, reducing poverty,
narrowing income disparities, providing food security, and delivering environmental
services.
Nevertheless, in this section we only discuss agriculture’s contribution to economic
growth. The foreign exchange role is highlighted in the section on agricultural trade and
the food security role is partially addressed in the section on food prices.
We present a high-​level overview of the economic contribution of South African agri-
culture in Table 10.2. Despite a consistent real growth in the gross value ​added in the
agricultural sector, agriculture’s relative share in the total economy continued to decline
to around 2.1 per cent for most of the last decade. Annual growth of the sector is also ex-
tremely volatile, varying, for example, from a negative growth of –​12.1 per cent in 2016 to
22.7 per cent in 2017. Contraction of the agricultural sector happened again in 2018 and
2019 but there was a robust recovery of 13.1 per cent in agriculture gross value added in
2020 (StatsSA, 2021).
It is helpful to further unpack the output mix of South African agriculture and es-
tablish the top ten commodities according to production value (Table 10.3). The list
remains largely stable and the top ten commodities continue to represent 75 per cent
of the value of agricultural output. In fact, the top three remained the same over the last
three decades: maize, poultry, and beef production—​it is only their relative position that
has changed over time.
Well-​known industries such as wine grapes, sheep, potatoes, and wool do not feature
in the top ten but at least appear in the top twenty. The rapid rise of citrus production
 Agriculture in South Africa    201

Table 10.2: Structural changes in the South African agricultural economy,

1990–​2019
Decade averages
Indicator Unit 1990 –​99 2000–​09 2010–​19

Agricultural GDP contribution

Rand (current) million 19,398 37,989 69,071
Rand (2010 prices) million 39,085 46,049 55,167
Agric share of GDP % 3.4 2.6 2.1
Avg annual growth % p.a. 2.7 2.6 0.9
Net farm income R million 6,959 26,396 60,375
R million (2010 18,569 34,194 57,691
prices)
Value of production R million 33,933 96,220 215,662
R million (2010 83,352 134,043 185,127
prices)
Share of production
Livestock % 43 41 48
Crops % 35 34 24
Horticulture % 22 25 28

Source: Authors’ estimates using StatsSA National Accounts data as well as data from Abstract of
Agricultural Statistics (DALRRD 2020).

since 1994 is remarkable—​from being ranked 13th in 1994, to increasing to fourth pos-
ition in 2018.
There is, however, reason to believe that there is a potential undercount of the
economic contribution of the agricultural sector. This is partly due to the large sub-
sistence and unrecorded commercial activity in the agricultural sector. In addition,
the release of the 2017 Commercial Agricultural Census by StatsSA in March 2020
confirmed this view. Table 10.4 shows the official items included in GDP calculations
compared to the new census numbers. Across the board, the numbers in the current
national accounts for agriculture are underestimated by around 30 per cent. What
makes this even more concerning is that the census excluded around 214,800 farmers
with a potential gross farm income of up to Rand 80 billion (see section 10.5). This
argument suggests that it is now an opportune time to readjust the national accounts
for agriculture.
Table 10.3: The output mix for South African agriculture, top ten commodities
in selected years according to production value
Production years
Rank 1994 2000 2010 2018

1 Maize Maize Fowls slaughtered Fowls slaughtered

2 Fowls slaughtered Fowls slaughtered Maize Cattle and calves
slaughtered
3 Cattle and calves Cattle and calves Cattle and calves Maize
slaughtered slaughtered slaughtered
4 Milk Milk Deciduous fruit Citrus
5 Deciduous fruit Deciduous fruit Milk Deciduous fruit
6 Wheat Wheat Vegetables Milk
7 Vegetables Sugar cane Eggs Vegetables
8 Eggs Vegetables Citrus Eggs
9 Sugar cane Citrus Sugar cane Other livestock
products
10 Hay Eggs3 Other livestock Sugar cane
products
Share 74.85% 74.39% 74.36% 74.78%

Source: Authors’ deductions using StatsSA National Accounts data as well as data from Abstract of
Agricultural Statistics (DALRRD 2020).

Table 10.4: Agriculture’s contribution to GDP according to the agricultural census

and national accounts
2017 value in Rand (’000)
Items Census Official StatsSA National Accounts % deviation

Total income 332,756 231,251 –​30.5

Intermediate consumption 188,467 136,157 –​27.8
GDP 144,289 95,094 –​34.1
Compensation of employees 36,761 24,695 –​32.8
% Contribution to GDP 3.4 2.3 –​32.7

Source: Own compilation from StatsSA (2020a).

 Agriculture in South Africa    203

10.5 Size and Structure

of Commercial Agriculture

There is a long-standing debate about the real number of commercial farms in South
Africa, largely caused by the way official statistics on farm numbers are gathered. The
last comprehensive agricultural census was done in 1993, while the agricultural censuses
in 2007 and 2017 used only the farm businesses on the StatsSA business register as the
sample frame. The agricultural survey by StatsSA in the in-​between years also relied
only on the business register as the basis for the survey (see Table 10.5).
We now unpack the two latest agricultural censuses (2007 and 2017) to obtain an
understanding of the structure of South African commercial agriculture (see Tables
10.6 and 10.7 below). In both cases the sample frame was restricted to farm businesses
registered to pay VAT, despite pleas from academia for a comprehensive census, largely
because of a lack of funding.
We were nevertheless able to expand the findings from the censuses with numbers
from the 2011 population census, and the 2016 Community Survey, in order to get to a
better understanding of the total number of commercial farming units in South Africa
(see Table 10.8).
Data from the 2011 population census (extracted from three agricultural questions
included in the census) show that 2,879,638 households out of South Africa’s total popu-
lation, or 19.9 per cent of all households, are active in agriculture (StatsSA 2013). The
census report on the agricultural households established that only 2 per cent of these
households reported an annual income derived from agriculture above R307,000
(StatsSA 2013).5 This translates into 57,592 households that can be considered as com-
mercial farmers, with agriculture as the main or only source of household income.
This refutes the common belief that the number of commercial farms in South Africa
is declining. There are also another 349,000 households with agricultural income be-
tween R38,000 and R307,000, probably part-​time farmers with farm income serving as
an additional income source. The main point again is that the 2007 agricultural census
undercounted the number of commercial farmers by at least 366,600 households, but
certainly by at least 17,500 farming businesses that are not listed on the business register.
The 2017 agricultural census report shows that 40,122 commercial farmers, almost
exclusively small family-​based operations, produce more than 80 per cent of the total
value of agricultural output (StatssA 2020a).
However, as was the case with the 2007 census, the 2017 agricultural census excludes
92,634 households who practise commercial farming as their main source of income,

5 We need to point out that the income refers to income for the head of household which could be

derived from other sources. Although this might be the case, the number of households in this category
seems to correspond with reality.
Table 10.5: Statistics on farm numbers and farm employment from the
agricultural censuses and selected agricultural surveys, 1990–​2017
No. of Paid employees
commercial (permanent and
Year Source Sample frame farming units seasonal)

1990 Agricultural Survey All farms but excluded 62,084 1,184,676

Black farmers in former
homelands
1993 Agricultural Census All farms but excluded 57,980 1,093,265
Black farmers in former
homelands
1994 Agricultural Survey All farms but excluded 59,828 922,000
Black farmers in former
homelands
1995 Agricultural Survey All farms but excluded 60,901 891,000
Black farmers in former
homelands
2007 Agricultural Census VAT-​registered farms 39,966 1,328,600
only
2008 Agricultural Survey Business 64,162 814,524
register: income tax and
VAT-​registered
2009 Agricultural Survey Business 66,606 849,782
register: income tax and
VAT-​registered
2016 Agricultural Survey Active VAT-​registered Not available 723,767
farms only
2017 Agricultural Census Active VAT-​registered 40,122 757,628
farms only

Source: Relevant StatsSA reports.

Note: The annual agricultural surveys used only 10 per cent of the sample frame.

Table 10.6: Farm structure in South Africa, 2007

Number of Share of commercial farming
Category (gross farm income) farming units units (%)

R5 million and more (large) 2,927 7.3

R3 million to R5 million (medium) 2,172 5.4
R500,000 to R3 million (small) 12,290 30.7
Less than R500,000 (micro) 22,577 56.5
Total (VAT-​registered famers) 39,966 100

Source: StatsSA (2010).

 Agriculture in South Africa    205

Table 10.7: Farm structure in South Africa, 2017

Category Number of Share of commercial Share of total gross
(gross farm income) farming units farming units (%) farm income (%)

R22.5 million and more (large) 2,607 6.5 67.0

R13.5 million to R22.5 million 1,847 4.6 9.7
(medium)
R2.5 million to R13.5 million 10,712 26.7 18.5
(small)
R1 million to R2.5 Million 6,219 15.5 2.9
(micro)
Less than R1,000,000 (micro) 18,737 46.7 1.9
Total (VAT-​registered 40,122 100 100
famers)

Source: StatsSA (2020a).

and a further 122,200 households who practise commercial farming as a secondary

source of income (estimates from the Community Survey, 2016 as shown in Table 10.8).
One can therefore assume that around 214,800 farming households (Black and white),
who practise some form of commercial farming, were excluded from the agricultural
census. Most of these are micro-​enterprises with gross farm incomes below R500,000

Table 10.8: Categories of agricultural households according to population

groups, 2016
Purpose of households’ agricultural activity
(percentage of households)
Main Extra Main Extra
Number of source of source of source of source of For
Population agricultural household household household household leisure/​
group households income income food food hobby Other Total

Black African 2,116,281 4.4 4.4 46.1 38.6 5.1 1.4 100
Coloured 56,686 4.0 5.8 35.2 33.9 18.5 2.7 100
Indian/​Asian 12,716 4.5 2.8 28.5 36.5 25.7 2.1 100
White 143,362 22.2 8.4 19.4 25.1 21.7 3.1 100
Total 2,329,045 5.7 4.7 43.7 37.5 6.8 1.6 100

Source: StatsSA (2020b), based on additional analysis of 2016 Community Survey.

Note: The Community Survey of 2016 established that 83.8 per cent of the 2,329 million agricultural
households practice agriculture in their backyards (i.e. for subsistence or for leisure purposes).
206    Wandile Sihlobo and Johann Kirsten

per annum. The best guesstimate for the total gross farm income for these farms could
be anything between Rand 23 billion and Rand 80 billion.
Commercial farming in South Africa therefore consists largely of small-​scale family-​
based operations with almost 90 per cent of all VAT-​registered commercial farming
businesses classified as micro-​or small-​scale enterprises, responsible for only 23 per
cent of total farm income but 37 per cent of all farm employment. The 2,610 large farms
(with a turnover on average above R22.5 million per annum) are responsible for 67
per cent of farm income and employed more than half the agricultural labour force of
757,000 farm workers in 2017. The distribution of the different farm sizes across the main
farming activities is presented in Table 10.9.
The facts presented here should allow a more nuanced interpretation of South Africa’s
farm structure. Not all white commercial farm operations are ‘large ​scale’ and not all
Black farmers are ‘small s​ cale’, ‘subsistence’, or ‘emerging’, and most farm operations can
be classified as micro or small in scale.
We now turn to the race dimension of the farm structure, given that transformation
of the agricultural sector is also an important imperative for the future of South African
agriculture.
Based on the information provided in Table 10.8, there are 242,221 commercial
farming households in South Africa of whom only 43,891 (18 per cent) are white com-
mercial farmers. If we consider only the agricultural households with agriculture as
their main source of income surveyed in the 2016 Community Survey (StatsSA, 2016),

Table 10.9: Number of farms/​farming units in the commercial agriculture

industry by activity and size group, 2017
Income size categories
Activity Large Medium Small Micro Total

Growing of cereals and other crops 387 351 2,123 5,698 8,559
(15%) (19%) (20%) (23%) (21.3%)
Horticulture 649 366 1,600 2,028 4,643
(25%) (20%) (15%) (8%) (11.6%)
Farming of animals 703 408 3,023 9,505 13,639
(27%) (22%) (28%) (38%) (34%)
Mixed farming (growing of crops combined 812 689 3,720 7,237 12,458
with farming of animals) (31%) (37%) (35%) (29%) (31.1%)
Agricultural services and fertilizer 59 43 247 474 823
production (2%) (2%) (2%) (2%) (2.1%)
South Africa 2,610 1,857 10,713 24,942 40,122
(100%) (100%) (100%) (100%) (100%)

Source: StatsSA (2020a).

 Agriculture in South Africa    207

we end up with a total of 132,700 households of whom 93,000 (70 per cent) are Black
farmers.6
The 2017 agricultural census report did not present specific results on the population
group of the farm owner/​operator, but additional analysis of the 2017 census shows that
2,826 (7 per cent) of the VAT-​registered farm businesses in 2017 are owned/​operated by
Black people. They contribute:

• 19 per cent of the total value of animal and animal products

• 14 per cent of the total value of field crop production
• 14 per cent of the total value of horticultural production.

These estimates only refer to the VAT-​registered farm businesses, but somehow cor-
respond to estimates by the National Agricultural Marketing Council obtained from
reports of the various commodity groups as shown in Table 10.10 below.

Table 10.10: Share of Black farmers in commercial agricultural output, average

2015–​19
Commodity Black farmer share in output

Maize 4.7%
Soybeans 3.1%
Wheat 1.3%
Cotton 2.4%
Citrus 12.8%
Deciduous fruit 10.2%
Viticulture 1.6%
Potato 1.0%
Tomato 8.6%
Wool 11.0%
Mohair 12.8%
Cattle 34.0%
Poultry 4.2%

Source: NAMC (2019).

6
These numbers help to put the membership claims of the various farmers’ organizations (Table 10.1)
into perspective.
208    Wandile Sihlobo and Johann Kirsten

10.6 Farm Employment

Agriculture is the eighth largest employer in the South African economy and has been
identified as a strategic area for employment creation. The National Development
Plan (NDP), estimates that ‘agriculture has the potential to create close to one million
new jobs by 2030, a significant contribution to the overall employment target’ (The
Presidency 2012).
Nevertheless, this target comes on the back of a declining trend in agricultural em-
ployment, especially if viewed over a long period, as illustrated in Figure 10.2. The
number of people employed in the South African agricultural sector declined from an
average of 1.04 million in the 1990s to around 775,000 recently (Liebenberg and Pardey
2012; StatsSA, 2020a). These numbers account for both seasonal, temporary, and per-
manent labour, with seasonal labour accounting for roughly half in 2020. Moreover,
the share of agriculture in overall employment in South Africa has also declined from
10 per cent in the 1990s to 6 per cent in the 2010s. In addition to the actual decline in
employment in the sector, an expansion in labour participation in other sectors of the
economy has contributed to the declining share. This is partially the result of labour
policy changes in the early days of democracy, as well as mechanization trends in the re-
cent past (Liebenberg and Kirsten 2013).
The NDP aims to change this declining job trajectory by implementing a three-​tier
approach. This includes the development of underutilized land largely in the communal
areas and among failed land reform farms (approximately 400,000 jobs); the expansion
of export-​led high-​growth industries (approximately 250,000 jobs); and investment in

1,200

1,000

800
000 jobs

600

400

200

–
1990s 2000s 2010s

Figure 10.2 Long-​term trend of South Africa’s agricultural labour

Source: Liebenberg and Pardey (2012) and StatsSA (2020b).
Note: The entries in the chart represent decade averages and the ‘2010s’ data ends in 2019.
 Agriculture in South Africa    209

agro-​processing with integrated up ​and ​downstream linkages (approximately 350,000

jobs) (The Presidency 2012).
By 2020, a total of 250,000 new jobs had been created through an expansion of the
export-​led and high-​value industries (BFAP 2020a), mainly in industries such as citrus,
tree nuts, apples, table grapes, avocadoes, and blueberries (BFAP 2020a). These increases
have offset the decline in jobs in field crops and livestock production. Unfortunately the
number of jobs on underutilized crop land and in the agro-​processing sector declined
over this period (BFAP 2020a).

10.7 Agricultural Input Industry

South African farmers spend around Rand 154 billion annually on intermediate inputs,
which include packing material, plant protection chemicals, fertilizer, seeds, veter-
inary medicine, and animal feed, and a further Rand 10 billion on machinery, tractors,
and implements (DALRRD 2020). Most of these inputs are imported. For instance,
it is estimated that more than 80 per cent of domestic fertilizer demand and approxi-
mately 98 per cent of agro-​chemicals and 80 per cent of machinery is imported (Sihlobo
2016). This implies that local prices are subject to the same supply-​and-​demand
forces that drive international markets, currency exchange rates, and shipping and
distribution costs.
Products related to mechanization, such as tractors, implements, machinery, and
parts account for the greatest share of imports (Rand 8.2 billion), followed by fertilizers
(Rand 7.5 billion), animal feeds (Rand 6.1 billion), and plant protection chemicals
(Rand 6 billion) (DALRRD 2020). At an aggregate level, the major sourcing regions are
the European Union, the United States, China, and Argentina (BFAP 2020b).
The animal–​maize production nexus remains a dominant part of South African agri-
culture. Maize makes up between 50 per cent and 60 per cent of the rations of poultry,
pigs, dairy cattle, beef cattle, etc.). Another major ingredient is soybean oilcake which
was historically imported. Due to major investments in crushing facilities and the ex-
pansion of soybean production since 2015, South Africa is now able to produce ap-
proximately 75 per cent of its local demand, with the shortfall imported from Argentina
(BFAP 2020b). A large share of other inputs related to the animal feed industry, such as
amino acids, vitamins, and minerals, are procured from China.
In 1990, South Africa’s fertilizer consumption was 785,000 tonnes, but fell to 674,000
tonnes in 2010 before increasing to 705,000 tons in 2015, primarily supported by ex-
pansion in horticulture plantings and also soybeans. Major fertilizer plant closures in
the late 1990s saw the share of imports in South Africa’s fertilizer consumption increase
from 20 per cent in 1990 to 95 per cent in 2015.
There have been considerable advancements in seed technology in South Africa,
largely based on a combination of varietal innovations in the public agricultural re-
search system and the adaptation of imported germ plasm (Nhemachena and Kirsten
210    Wandile Sihlobo and Johann Kirsten

Table 10.11: Annual sales of tractors and combine harvesters

2000 2005 2010 2015 2019

Tractors 2,668 4,475 5,155 6,602 5,270

Combine Harvesters 126 150 185 216 148

Source: SAAMA (2020).

2017). In addition, South Africa was one of the few countries in the world that quickly
adopted genetically modified seeds and is now one of the world’s largest users as a per-
centage of total commercially planted crops (especially maize and soyabeans) (Gouse
et al. 2016).
Innovations in tractors and cultivation equipment have also contributed to
productivity growth by helping farmers to increase yields (by managing soil mois-
ture and soil quality better), save fuel and maintenance costs, and save labour costs.
Gandidzanwa (2018) reflected on the evolution of the market for tractors in South
Africa, noting that two-​wheel-​drive machines dominated the tractor market from 1987
to 1994, but from 1994 four-​wheel-​drive tractors became dominant. From 1987 to 1992,
tractor sales declined at an annual average rate of –​11.97 per cent, then increased by
27.95 per cent between 1992 and 1996. As Table 10.11 illustrates, this increase continued
after 2000.

10.8 Agricultural Trade Patterns

and Trade Policies

South Africa’s agricultural trade policy has gone through various changes since 1994.
South Africa’s signing of the Marakech Agreement in 1994 on world trade provided the
initial steps in agricultural trade liberalization (OECD 2006), supported by the pro-
cess of agricultural market deregulation since the early 1990s and which eventually
culminated in the Marketing of Agricultural Products Act (1996).
In this process, South Africa undertook significant import tariff cuts from around
23 per cent in the early 1990s to as low as 8.2 per cent (DTIC 2010). Moreover, South
Africa also simplified its tariff regime. According to DTIC (2010), in 1990, South Africa’s
tariff schedule consisted of 13,609 tariff lines, with 28 per cent of these subject to im-
port controls. By the early 2000s, the number of tariff lines under import controls had
declined by more than half to 6,420. Meanwhile, export controls were eliminated. Also,
worth noting is that the average tariff on agricultural products is around 9.4 per cent.
In 2020, South Africa had about 1,043 agricultural tariff lines, but approximately half
 Agriculture in South Africa    211

Table 10.12: South Africa’s agricultural exports and imports, 2010 prices

Exports Imports
Real Avg value Avg Annual Growth Real Avg value Avg Annual
Period (R Billions) rate (R Billions) Growth rate

1990–​99 37 5.3% 24 6.0%

2000–​09 61 3.5% 42 9.5%
2010–​19 124 5.3% 85 3.7%

Source: Quantec (2020) and authors’ calculations.

of these lines carry a zero per cent duty as South Africa continued to enter into trade
agreements with various countries.
While the reduction in import tariffs opened the doors for an increase in agricultural
imports, South Africa also benefited from efficiency gains and access to global export
markets. South Africa’s agricultural exports accounted for 30 per cent of the gross value
of production in 1990, increasing to 54 per cent in 2018 (DALRRD 2020) (see Table
10.12). Given that over half of what South Africa produces in value terms goes to ex-
port markets, it can be argued that the country is de facto export-​orientated and the
expansion in production after the deregulation of agricultural markets has, in part, been
underpinned by the expansion in trade (along with advancement in technology which
has enabled an improvement in yields of most commodities and crops).
South Africa’s agricultural exports grew from Rand 6 billion in 1990 to Rand 150 billion
in nominal terms in 2019. Imports have also increased over the same period, although
at a considerably slower pace. The imports were mainly underpinned by products that
South Africa doesn’t produce sufficient volumes of, including rice, coffee, tea, wheat,
and palm oil. Most importantly, since South Africa deregulated its agricultural markets,
one of the benefits that its trading partners have enjoyed is stability and certainty, which
has not always been the case in neighbouring countries.
Horticultural products, specifically citrus, wine, grapes, apples and pears, and maca-
damia nuts have been the key drivers of exports and grew notably from the 2000s as
shown in Figure 10.3. Beverages and spirits have been the second leading subsector
of agricultural exports and the key product is wine. Meanwhile, in field crops, maize
remains the primary driver of agricultural exports. In terms of livestock, live sheep,
wool, and cattle and increasingly beef in the 2000s, are the drivers underpinning growth
in agricultural exports.
South Africa’s agricultural export markets have increasingly become well diversified
since the dawn of democracy, with the country deepening and broadening its cooper-
ation through trade agreements. These include the Southern African Customs Union
(SACU), the Southern African Development Community (SADC), the Tripartite Free
Trade Area (T-​FTA), and the nascent African Continental Free Trade Area (AfCFTA)
212    Wandile Sihlobo and Johann Kirsten

50

45

40

35

30
Billion Rand

25

20

15

10

0
1990 1993 1996 1999 2002 2005 2008 2011 2014 2017

Meat and edible meat offal Dairy produce Edible vegetables

Edible fruit and nuts Cereals Beverages and spirits

Figure 10.3 Total agricultural exports by selected major products, South Africa, real
2010 values
Source: Quantec (2020) and authors’ calculations.

within the African continent. Within the European context, South Africa joined the
Economic Partnership Agreement (EPA) between the European Union and the SADC
EPA group (Botswana, Lesotho, Namibia, Mozambique, South Africa, and Eswatini) to
establish a regional agreement with the European Union and to secure further market
access especially in agriculture (Mlunmbi-​Peter 2019). In the post-​Brexit environment,
South Africa joined the SACU-​Mozambique-​UK Economic Partnership Agreement,
which is an economic partnership agreement between the United Kingdom, the
Southern African Customs Union (SACU), and Mozambique which was signed in
September 2019. Within the South America region, South Africa has access through the
SACU–​MERCOSUR Preferential Trade Agreement (PTA).
In 2019, the African continent, Europe, and Asia constituted the largest markets for
South Africa’s agricultural exports, respectively absorbing 41 per cent, 26 per cent, and
24 per cent of the value of exports (Trade Map 2020). The leading products to these
markets were beverages, fruit, vegetables, sugar, wool, and grains.

10.9 Food Prices

Is the South African agricultural sector able to produce affordable and safe food for the
largely urban population? Anecdotal evidence driven by an uninformed media, espe-
cially during periods of rapid food inflation, has often overshadowed public perceptions
on this issue by arguing that the ‘concentration’ in agriculture and in the food processing
and retail sectors has contributed to sharp increases in food prices.
 Agriculture in South Africa    213

A case in point is when the sharply depreciating exchange rate at the end of 2001 and
early 2002, combined with a shortage in staple foods in the SADC region caused the
prices of basic commodities, such as maize, wheat, and sunflower seeds, to rise dra-
matically. This was subsequently followed by sharp increases in retail prices of basic
foodstuffs. Sporadic drought conditions in later years (2011/​12 and 2015/​16) in the
summer rainfall regions of South Africa, combined with extremely high international
commodity prices, also pushed food price inflation higher (see Figure 10.4).
The analysis of the consumer price index for food and non-​alcoholic beverages issued
by StatsSA illustrates that South Africa continues to experience high volatility in food
prices, characterized by periods of high food inflation and spells of low food inflation.
Since January 2018, however, year-​on-​year food price inflation has stabilized on or
below 4 per cent (Figure 10.4).
The final report of the Food Pricing Monitoring Committee (FPMC 2003) shows that
the long-​term trend in food prices has no abnormalities. Importantly, in real terms food
prices remained almost the same, that is, the agricultural sector has to a large extent
been able to supply food without any significant increases in real prices. Agriculture
does however, experience noticeable volatility in prices due to many external factors,
for example, international market shocks and the weather, and the effect on the year-​on-​
year increase in food prices is clearly shown in Figure 10.4.
The general hype about food prices (granted that it is critical in the food security con-
text) also shows that there is little appreciation for the fact that all food originates from
the farming sector where farmers have to deal with rapidly rising input costs, extreme
weather risks, and extreme variability of market prices caused by sharp fluctuations
in production levels and world prices. Farmers produce the basic raw commodity to
be processed for the final consumer product (i.e. wheat-​to-​bread; maize-​to-​maize

18.0%
16.0%
14.0%
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
Jan-09
Jun-09
Nov-09
Apr-10
Sep-10
Feb-11
Jul-11
Dec-11
May-12
Oct-12
Mar-13
Aug-13
Jan-14
Jun-14
Nov-14
Apr-15
Sep-15
Feb-16
Jul-16
Dec-16
May-17
Oct-17
Mar-18
Aug-18
Jan-19
Jun-19
Nov-19
Apr-20

Figure 10.4 Annual food inflation rate, January 2009 to July 2020
Source: Authors’ estimations based on StatsSA CPI for food and non-​alcoholic beverages.
214    Wandile Sihlobo and Johann Kirsten

meal; sunflower seeds-​to-​cooking oil; milk-​to-​cheese) and when farmers sell these
commodities they usually have no ability to influence market prices since so many pro-
duce the same product and sell to only a few big buyers. Because of the fully deregulated
and liberalized domestic market for agricultural products, the prices farmers receive
are either a function of the combination of world prices, exchange rates, and trans-
port costs (in the case of maize, wheat, rice, sunflower, soybeans), or it is negotiated
between farmers and agri-​food business (e.g. dairy, processed potatoes, sugar). In these
circumstances farmers have little or no bargaining power.
This, however, does not ignore the fact that higher up in the value chain—​at the pro-
cessing and retail level, there are many cases of anti-​competitive behaviour such as
the bread, flour, and maize meals cartels which were uncovered by the Competition
Commission of South Africa in 2007 (Competition Commission 2015).

10.10 Summary and Conclusion

The South African agriculture sector remains an important sector to drive growth
and job creation in rural provinces. This is a vision that was highlighted in ­chapter 6
of the National Development Plan (NDP). But this broad vision will only be achieved
if it is followed up with detailed operational plans to guide the officials and various
stakeholders about implementation at the local level. This is a crucial part which has
been lacking since the publication of the NDP in 2012.
Despite remarkable growth during the last three decades, South Africa’s agricul-
tural sector remained plagued by dualism, mistrust, and suboptimal performance. On
the one hand, South Africa agriculture has surpassed the NDP targets in expanding a
number of high-​value commodities (citrus, macadamias, apples, table grapes, avocados,
dairy, and pork), but on the other hand, the country has not fully achieved the jobs target
and expansion of agriculture in the former homelands. The dualistic nature of the sector
remains therefore entrenched. The only way this can change is through a capable and
effective State (provincial and national); a stable and conducive policy and investment
environment; infrastructure development and services including electricity and water;
and effective farmer support programmes, amongst other support measures.
This chapter also provided a useful insight into the structural realities of South African
agriculture. The expansion and growth of the industry over the last three decades was
driven by new technology (irrigation, cultivation techniques, genetic material, etc.)
and by the 2,607 large farm enterprises that have capital and systems in place to invest,
to expand, and to export. Although these large enterprises are responsible for 67 per
cent of total farm output, the lifeblood of the agricultural sector remains the many small
family farms. More than 90 per cent of all commercial farming units in South Africa are
small family-​based operations at different levels of commercial activity. This is an im-
portant point of this chapter and should guide the way government support systems and
regulations are implemented to advance agricultural growth and employment.
 Agriculture in South Africa    215

If this is understood and appreciated, the growth and employment contribution of

the sector could be substantive and could be more than what is reported in this chapter.
There remains a great potential for the sector to provide more full-​time livelihoods and
more wage employment if the remaining constraints (political, infrastructure, regula-
tory, and service) are addressed.

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 Chapter 11

Agro-​p ro c e s si ng
Indu stries i n t h e
Sou th AfricaN E c onomy

Horman Chitonge

11.1 Introduction

This chapter provides an overview of the agro-​processing sector in the South African
economy. The agro-​processing sector has been recognized by the South African govern-
ment as a strategic set of industries in the economy, with great potential to contribute
to promoting inclusive growth and job creation. For instance, the New Growth Path
(2010), the National Development Plan (NDP 2011) and Industrial Policy Action Plan
(IPAP 2016/​17–​2018/​19) have all recognized agro-​processing as an important cluster of
industries with enormous potential to contribute to the structural transformation of the
economy. One of the reasons why agro-​processing industries are believed to have the
potential to make a significant contribution to economic and social transformation is
that several agro-​processing industries are labour intensive, and this is critical for job
creation. The other reason is that agro-​processing industries are seen to have the po-
tential to promote the growth of small and medium enterprises, which can contribute
to economic transformation by promoting broader participation in the economy. For
instance, the Economic Strategy for South Africa document, launched by the National
Treasury in 2019, argues that this cluster of industries has the potential to contribute
to ‘the creation of opportunities for all South Africans to live productive, prosperous
and dignified lives’ (National Treasury 2019: 11). This chapter highlights the potential
for structural transformation in this sector; but also points out the enduring challenges
which must be addressed to realize the sector’s full potential.
The chapter provides an overview of the sector, including trends in employment,
output, and international and regional trade. Various components of agro-​processing
industries, including the size, structure, and some of the high value-​added activities
218   Horman Chitonge

and products, are discussed in the chapter. Given the diverse nature of agro-​processing
industries, it is beyond the scope of this chapter to discuss each of the subsectors in de-
tail; the chapter focuses on the major agro-​processing clusters to highlight the poten-
tial to contribute to the national objective of creating an inclusive economy and society.
An inclusive economy here refers to the ability to create opportunities for the majority
of people to actively participate, contribute to, and share in economic growth through
productive jobs or businesses. The current structure of the economy, though it reflects
features of an advanced economy, is not inclusive because many people who would like
to participate in and contribute to economic growth are without jobs and viable business
opportunities.

11.1.1 The Agro-​processing Sector

Agro-​processing industries in the South African economy constitute a diverse set of
activities ranging from the simple processing of food and other agricultural products
to more sophisticated activities such as processing of cotton, leather, timber, and rubber
into finished and intermediate goods. According to the International Standard Industrial
Classification (ISIC Rev. 4) agro-​processing is a component of the manufacturing
sector that transforms primary agricultural products into intermediate and final goods.
Although ISIC provides an internationally accepted classification of agro-​processing
activities, this set of industries is defined differently by different institutions. For ex-
ample, IPAP 2016/​17–​2018/​19 (DTI 2016) restricts the term agro-​processing to the pro-
cessing of food and beverages only (see also FoodBev-​SETA 2017: 3). The Department of
Agriculture Forestry and Fisheries (DAFF) has, however, adopted a broader definition
which includes the processing of all primary agricultural, forestry, and fishery products
into intermediate and finished goods (DAFF 2012). DAFF has adopted the Food and
Agriculture Organisation’s (FAO 1997) definition, which defines agro-​processing as
a subset of ‘manufacturing that processes raw materials and intermediate products
originating from agriculture, forestry and fisheries’ (DAFF 2012: 1). It is important here
to note that the definition of agro-​processing that one adopts can affect the scope, pro-
file, and size of the sector. As illustrated below, if we restrict agro-​processing to food and
beverages only, the sector will be smaller in size and significance in the economy (see
Figure 11.2).
The agro-​processing segment of the manufacturing sector is a complex cluster of
manufacturing industries which consists of eleven out of the twenty-​four divisions of
the manufacturing sector. Although it is the food and beverage industries which dom-
inate agro-​processing industries in South Africa (and in many low-​and middle-​income
countries), accounting for over 60 per cent of the agro-​processing output and about 50
per cent of employment on average since the 1970s, there are several other important
industries which make up the sector (see Table 11.7 and Figure 11.2).
While industrial classification seeks to clearly demarcate various economic
activities and sectors, analysts have observed that the ‘boundaries’ between sectors,
 Agro-processing Industries in the South AfricaN Economy    219

particularly agriculture and agro-​processing, have in recent times become fuzzy,

making it hard to distinguish agro-​processing from agricultural activities (Cramer
and Sender 2015). The blurring of boundaries has become even more pronounced due
to the fact that there is a great deal of processing taking place on-​farm or within the
farming enterprise, which often falls outside of conventional agricultural activities.
Apple and orange farmers are now engaging in sophisticated processing activities
within the fruit value chain than hitherto. The adoption of sophisticated technology
and equipment in modern agriculture has led to the industrialization of agricul-
ture, a phenomenon which is sometimes referred to as ‘industrializing freshness’,
such that even simple products like fruits are increasingly becoming manufactured
goods (Cramer and Sender 2015). However, even if the boundaries are blurred, it is
still important to classify activities according to the broader economic category under
which they fall in order to capture trends in value addition and changes occurring in
different subsectors.

11.2 The Agro-​processing

Sector in South Africa:
Profile and Trends

If we look at the five-​year manufacturing output moving average for different subsectors
between 1970 and 2019, it is clear that the agro-​processing sector (broadly defined) has
consistently accounted for the largest share (Table 11.1).
Although the share of agro-​processing industries in total manufacturing output
declined slightly between 1990 and 2010, it has consistently been the largest subsector
of the manufacturing sector, and its share has been growing since 2010. If we look at
the 2017–​19 manufacturing sector output by subsector, agro-​processing industries’
share was more than the combined output of the metal and machinery and the transport
equipment subsectors.
The dominant contribution of agro-​processing industries to the manufacturing
sector is also visible when we look at the industries’ share in manufacturing employ-
ment. The share of agro-​processing industries in manufacturing employment was even
greater than its share of output (Figure 11.1).
In terms of structural transformation and employment creation, the importance of
agro-​processing industries is not just because of the strong backward linkages to the
agriculture sector, it is also because of its size and diversity. In the South African context
where employment creation has become a major challenge, agro-​processing industries
are critical, given that most of these industries tend to be labour intensive relative to
other manufacturing industrial clusters (Black et al. 2016). This makes agro-​processing
industries strategically important when it comes to job creation, as highlighted in sev-
eral policy documents mentioned above.
Table 11.1: Manufacturing output by subsector (%), 1970–​2019
Metal
machinery Basic and Coke and
Agro-​ and Transport other refined
processing equipment equipment chemicals petroleum Other

1970–​75 34 27.3 12.2 7.2 2.5 16.8

1976–​80 34.8 26.7 10.7 8.7 3.3 15.7
1981–​85 35 25.8 10.4 8.9 3.9 16
1986–​90 36.7 21.5 9.3 10.1 4.6 17.8
1991–​95 36.2 19.8 9.6 10.5 5.1 18.9
1996–​2001 32.7 20.4 10.9 12.2 6.7 17.1
2001–​05 29.6 19.7 14.2 13.1 7.7 15.7
2006–​10 29.3 20 13.8 13.2 8.1 15.7
2011–​16 32 19.5 12.3 13.4 8.9 13.9
2017–​19 33.7 17 13.2 13.8 9.9 12.4

Source: Author’s calculations based on data from DAFF (2012) and StatsSA (2019).
Note: The reporting of sectoral classification of the manufacturing sector has not been consistent over the period. Figures for 2011–​
15 averages are based on a different sectoral classification.
 Agro-processing Industries in the South AfricaN Economy    221

Glass & non-metalic Other

products 3%
Electric Equipment & 6%
communication
6%

Coke, Refined
Agroprocessing
Pretroleum &
40%
Chemical
15%

Transport
Equipment
9%
Metal Machinery &
Equipment
21%

Figure 11.1 Manufacturing employment by subsector 2019

Source: Author’s calculations based on data from StatsSA (P3041.2 ‘Manufacturing Production and Sales, 2019 Third
Quarter’).

In terms of output, the sector grew from Rand 450 billion to Rand 762 billion (current
prices) between 2010 and 2018 (StatsSA 2019). This is confirmed by the production
volume index, which shows that the agro-​processing cluster grew steadily from 2009 up
to 2015, but registered a slight decline in 2017 and 2018 (StatsSA 2019a).
The decline in the volume of goods produced in the sector can be attributed to the
persisting challenges in the textiles, clothing, and leather subsectors which declined at
an average rate of about 2 per cent per year between 2009 and 2018. This is mainly due
to the increasing pressure from imported textiles, clothing, and leather products from
Asia, particularly China and Thailand (DAFF 2018). However, output volumes in the
other subsectors, particularly the food, beverages, and tobacco cluster, grew steadily,
increasing at an annual average rate of 2.7 per cent over the same period. In terms of
trade, the sector remained stable although the trade deficit has been growing since 2015
(FoodBev-​SETA 2017).

11.3 Components of
Agro-​processing Industries

According to ISIC Rev 4 classification, there are eleven divisions which make up the
agro-​processing sector as noted above. The average share in output between 2011 and
2019 for each of the eleven subsectors is shown in Figure 11.2 below.
In terms of both output and employment, it is clear from Figure 11.2 that while the
agro-​processing sector is made up of several industries, it is dominated by the pro-
cessing of food and beverages. The food and beverage cluster contributed an average of
222   Horman Chitonge

OUTPUT BY SECTOR
Footware
Rubber Products Leather & Leather
0%
3% Products
paper & paper 2%
Products
12%
Textiles
Food
Wearing Apparel 4%
40%
3%

Tobacco
2%

Furniture
2%

Wood & Wood

Products Beverages
12% 20%

Formal Employment by Sector

paper & paper Rubber Products Footware
Products 2% 1%
6% Leather & Leather
Products
Textiles 0%
9%
Food
Wearing Apparel 38%
3%

Furniture
6%

Tobacco
1% Beverages
Wood & Wood
Products 9%
27%

Figure 11.2 Agro-​processing output and employment by subsector, average for 2011–​19
Source: Author’s calculations based on data from Quantec (Excel spreadsheet).

two-​thirds of the sector’s total output between 2011 and 2019, and slightly less than half
of employment over the same period. The dominance of the food and beverage cluster is
evident in the fact that out of the eleven subsectors, the combined output of six clusters
(footwear, leather and leather products, tobacco, furniture, rubber, and wearing ap-
parel) is smaller than that of the beverage cluster alone.
When we compare formal employment and output share by sector, employment
share for wood and wood products, furniture, and textiles is double the share in the
sector’s output, suggesting that these are using more labour per unit of output (bottom
in the sector’s Figure 11.2). These are the most labour intensive subsectors of the agro-​
processing sector (Black et al., 2016). On the other hand, the formal employment
 Agro-processing Industries in the South AfricaN Economy    223

share for beverages and paper and paper products is half of the share in output. This
is not surprising; paper and paper products and beverages tend to be capital-​intensive
industries (Black et al. 2016).

11.3.1 The Food Processing Subsector

The food processing industry is often divided into five clusters according to the type
of activities carried out. The production, processing, and preservation of meat, meat
products, fish, fruits, vegetable, oils, and fats form one cluster. Manufacturing of dairy
products forms another cluster of the food processing sector. The third cluster is the
manufacture of grain mill and related products, including starches and animal feed. The
manufacture of confectionary and baking products, including sugar, chocolate, pastas,
syrups, custards, and other related products, constitute another cluster. The manufac-
ture of beverages, which is divided into alcoholic and non-​alcoholic beverages, is the
fifth cluster of the food sector (FoodBev-​SETA 2017).
Evidently, the food and beverage subsector is a huge industry in the South African
economy. The food and beverage industries were in 2017 reported to have 11,011
registered companies (FoodBev-​SETA 2017: 11), although as we shall see later, the
sector is dominated by a few large local and multinational companies that account
for an overwhelming share of output, production capacity, investments, employment,
and market share (Nhundu et al. 2017). It is estimated that out of the more than 11,000
registered companies in the food and beverage industry, 91 per cent are small-​scale
enterprises, while 5 per cent are medium- and 4 per cent large scale (FoodBev-​SETA
2017). Out of the 4 per cent large food and beverage companies, production and market
share are heavily concentrated in ten large firms including vertically and horizon-
tally integrated companies such as Tiger Brands, Pioneers Foods, AVI Limited, Ocean
Group Limited, Tongaat Hulett, Rhodes Food Group, and multinational giants such
as Clover, Parmalat, Nestlé, and Cargill. Just about a third of registered companies
are involved in the processing and preservation of meat, fish, fruits, and vegetables,
followed by 18 per cent operating in the beverage cluster. Most of the large food and
beverage companies are involved in many food and beverage value chains, pursuing
a vertically integrated strategy from agriculture production to the manufacture of
packaging materials and distribution of food and beverage products (Harcourt 2011).
What is interesting is that small firms make up the bulk of the sector, and if, say, 20 per
cent of the small firms can grow to become medium-​sized firms, the opportunity for
promoting inclusive growth in the sector can be significant. This would also contribute
to reducing the concentration of market power in a few large companies, as is currently
the case.
There is also a spatial concentration of food and beverage enterprises and employ-
ment in South Africa, with the Western Cape (mainly Cape Town and surrounding
224   Horman Chitonge

districts) and Gauteng accounting for over 82 per cent of the total employment in this
cluster, followed by KwaZulu-​Natal at 7 per cent.

11.3.2 Composition of the Processed Food

and Beverage Subsector
If we disaggregate the food and beverage cluster, it is also evident that dairy products,
confectionaries, meat and meat products, constitute the largest component in terms
of output. These three processed food clusters accounted for over half of the total sales
value of the processed food sector between 2011 and 2017 (Table 11.2).
In the beverage cluster, wines and mineral water take up a lion’s share, accounting for
more than 70 per cent of the total sales value in 2017.

Table 11.2: Food and beverage output composition, 2011–​17

2011 2014 2017 2011 2014 2017
Food (current R million) %

Meat and meat 54,268 86,265 94,640 14.9 17.1 15.2

products
Fruits (fresh and 38,738 46,947 61,626 10.6 9.3 9.9
dried)
Sugar (refined 9,262 12,374 12,667 2.5 2.4 2.0
and raw)
Vegetable and 32,095 49,153 74,024 8.8 9.7 11.9
animal oils
Grain and cereal 34,973 54,080 69,676 9.6 10.7 11.2
Dairy products 78,035 102,978 126,344 21.4 20.4 20.3
Confectionery 63,253 81,289 93,507 17.4 16.1 15.0
Other foods 53,479 72,132 90,996 14.7 14.3 14.6
Total food 364,105 505,219 623,483 100 100 100

Beverages (current R million) %

Wines 46,832 74,599 93,324 41.8 40.6 38.9

Beer 22,206 40,216 51,459 19.8 21.9 21.5
Spirits 4,656 14,019 15,465 4.2 7.6 6.4
Mineral water, 38,348 55,126 79,554 34.2 30.0 33.2
soft drinks
Total Beverage 112,044 183,962 239,803 100 100 100

Source: StatsSA (Excel download).

 Agro-processing Industries in the South AfricaN Economy    225

11.4 Processed Food and Beverage

Export Trends

At the top of the list of South Africa’s processed export products are wines, fruits and
juices, soups, and food preparatory additives. The African market (mainly southern
Africa) has become the largest destination of processed foods from South Africa,
accounting for close to half of the total export of processed foods. Although the
African market is currently small in terms of size compared to the traditional destin-
ation of South African exports (Cramer and Sender 2015; Black et al. 2020), the African
demographic factor and income dynamics are slowly changing this picture, with some
analysts predicting significant growth in the next decade or so (Visser and Ferrer 2015;
ACET 2017).
In the SADC region, Namibia, Botswana, Mozambique, and Zimbabwe accounted
for over 35 per cent of all processed agricultural export products in 2017 (DAFF 2018).
While the Netherlands, China, and the United Kingdom accounted for about 30 per
cent of South Africa’s export of primary agricultural products (unprocessed), the SADC
region is becoming the top export destination for processed agricultural products from
South Africa. The advantage for South Africa in the regional trade dynamics is that the
phytosanitary, health and safety requirements in SADC countries are less stringent than
those of the European Union and other regions.
The bulk of the processed food produced is consumed locally, though there is an
increasing share of processed food in total agriculture export, particularly fresh fruit,
which is one of the high value-​added products (ITAC, 2016; van Lin et al. 2018). In 2018,
for instance, 72 per cent of the fruits produced were exported, leaving only slightly over
a quarter for domestic consumption (van Lin et al. 2018). While the export of processed
foods has been growing steadily, the trade balance in processed food has been negative,
mainly as a result of the appreciation of the Rand (for the better part of the first decade
of the 2000s) which encouraged imports of processed foods. The main factor behind
the growing processed-​food trade deficit is the rise of imports, particularly of poultry
meat from South America and the United States, and this has been attributed to the shift
in diet as more people move to a protein-​based diet, targeting poultry meat which is
cheaper than other meat products (BFAP 2019). The shift in diet is confirmed in terms of
the consumption volume per capita, with poultry meat rising from an average of 9.5 kg
in the 1970s to 36 kg per capita per year in 2014 (Greyling et al. 2015: 6).
Export of fresh fruits has been recognized as a high value-​added segment, and has
been one of the most profitable sectors of the agro-​industries (van Lin et al. 2018).
The fresh fruits and vegetable cluster has great potential to contribute to promoting
inclusive growth and job creation not only because this is highly profitable but also
because these activities are the most labour intensive. Fruits and vegetables such as
strawberries, carrots, tomatoes, pawpaw, avocado, and cherries are multiple times
more labour intensive than field crops such as maize, wheat, and barley (Zalk 2019).
226   Horman Chitonge

There is potential for small and medium firms to enter these value chains, which can
contribute to creating employment and inclusive growth, given that these activities are
more labour-​intensive.
The growing share of processed agriculture products in total agriculture export
reflects the ability of this segment of agro-​processing to compete favourably in inter-
national markets. This is partly driven by the fact that the commercial agriculture and
food processing sectors employ advanced technology which enhances the sector’s
efficiency and competitiveness (see Chapter 10 on agriculture, in this volume). Visser
and Ferrer (2015) have observed that South African commercial farmers have become
more efficient, pushed by deregulation which removed state support, leaving the sector
to learn to stand on its own feet. The perssiting challenge in this regard is that these value
chains are dominated by well-​established and connected (domestically and internation-
ally) commercial farmers, leaving little room for new entrants, especially the small
and emerging farmers. If the sector has to realise its potential to contribute to struc-
tural transformation of the economy, these structural challenges have to be addressed
through appropriate policies.

11.5 Textile and Clothing Industries

The textile and clothing industries are another important cluster of agro-​processing
industries. This is one of the old set of industries that have evolved into a now complex
cluster. The sector has gone through three major phases, notably the phase prior to
the deregulation of the economy (before 1989 when import substitution was the main
policy strategy), the liberalization of the market resulting in massive import penetration
(1994 to 2005) resulting in many firms struggling to become competitive (Vlok 2006),
and from 2009 onwards, when interventions to save the sector from total collapse were
initiated (Morris and Barnes 2014).
Although there are signs of recovery from 2014 onwards, the textile and clothing
industries in the country have been characterized by persistent decline in employment,
in particular. For instance, between 1996 and 2005, total employment in the textile
industries declined from 228,000 to 143,000 workers (Vlok 2006: 233). In the clothing
sector, employment levels declined from 97,000 in 2003 to slightly over 52,000 in 2013
(Morris and Barnes 2014: 11–​12). Black et al. (2016: 12) estimate that the employment
compound annual growth rate (CAGR) for apparel and textile industries were –​3.6
and –​3.4 respectively between 1994 and 2011. As illustrated in Table 11.3 below, formal
employment in this cluster has been decimated, falling to between half and a third of the
2000 levels by 2019 (Table 11.3).
The sector is divided into two major components: the textile and clothing
industries, with the apparel industries constituting the secondary manufacturing tier,
drawing from the textile products. In terms of output, the textile industry accounts
for slightly less than three-​fifths, with the clothing industry taking up the remainder.
 Agro-processing Industries in the South AfricaN Economy    227

Table 11.3: Clothing and textile output and formal employment trends, 1995–​2019
1995 2000 2005 2010 2015 2016 2017 2018 2019
Output by subsector (R million, current )
Clothing 12,627.6 13,875.4 17,252.2 16,020.7 19,693.2 20,916.6 19,608.0 18,742.1 18,698.2
Textiles 20,073.5 23,226.6 28,760.2 24,931.5 27,784.8 29,848.0 30,494.9 30,898.9 29,113.8
Total 32,701.1 37,102.0 46,012.4 40,952.2 47,478.0 50,764.6 50,102.9 49,641.0 47,812.0

Share in total output (%)

Clothing 38.6 37.4 37.5 39.1 41.5 41.2 39.1 37.8 39.1
Textile s 61.4 62.6 62.5 60.9 58.5 58.8 60.9 62.2 60.9

Formal employment by subsector

Clothing 101,355 88,754 76,183 50,643 41,840 41,226 37,583 37,936 38,205
Textiles 82,279 66,109 51,410 40,513 37,202 37,303 36,118 33,306 31,274
Total 183,634 154,863 127,593 91,156 79,042 78,529 73,701 71,242 69,479

Share in formal employment

Clothing 55.2 57.3 59.7 55.6 52.9 52.5 51.0 53.2 55.0
Textiles 44.8 42.7 40.3 44.4 47.1 47.5 49.0 46.8 45.0

Source: Author’s calculations based on Quantec data.

However, in terms of employment, the clothing industries contribute an average of

about 55 per cent (Table 11.3). It has been observed that there are a large number of
informal ventures and workers in the clothing sector, most of them small businesses
operating in sitting rooms, backyards, and small shops in city and township markets
(Vlok 2006; CTFL-​SETA 2014). Even when informal employment is excluded, the
clothing segment accounts for the largest share of employment, confirming the
labour-​intensity of this sector. Employment and output trends between 1995 and 2019
confirm the popular sentiments that the textile and clothing industries in the country
have been in crisis since the mid-​1990s. Part of this crisis is due to the increasing share
of imported textile intermediates from other countries, mainly Lesotho, Mauritius,
and Kenya.
Similarly, output in the sector has been declining, particularly the export of apparel,
which fell sharply from US$231 million in 2003 to US$6 million by 2012 (Morris and
Barnes 2014: 10).
However, it is formal employment in the sector which has sharply declined, with em-
ployment in 2019 dropping to just a third of the levels reported in 1995. This is worrying
in terms of job creation given that the textile and clothing industries are some of the most
labour-​intensive clusters of the manufacturing industry (Vlok 2006; CTFL-​SETA 2014).
Starting from 2007, several policy measures have been introduced to revive the tex-
tile and clothing industries (Patel 2016). One of the early measures aimed at stimulating
competitiveness and sustained growth in the sector is the Textile and Clothing
228   Horman Chitonge

Industry Development Programme, which was launched in 2006 and administered

by the Industrial Development Corporation (IDC). In 2010, the Clothing and Textile
Competitiveness Improvement Programme was introduced to support established
firms to upgrade by recapitalizing the sector (Morris and Barnes 2014). Although these
policy interventions have helped to save the industry from total collapse (Patel 2016),
there are still challenges which need to be addressed in order to create an environment
where firms can respond effectively to the new challenges in the sector (Zalk 2014). The
failure to generate more jobs in the clothing and textile sector is sometimes attributed to
there actions of labour unions (Nattrass and Seekings 2013) but that is not the only factor.
While there has been stability in the sector in terms of output from 2012 (SA Cotton
2019), the sector is still struggling to remain competitive, especially the export market. It
has been reported that as a result of policy interventions introduced since 2009, 63,000
jobs have been saved and 8,000 new ones created (CTFL-​SETA 2014; Patel 2016).
Although the sector has continued to face competitive pressure from outside, there
is potential for high value-​added products in niche areas such as men’s formal shirts,
suits, and other tailor-​made apparel. There is also an emerging market for African-​
inspired designs and fashions which has potential for capturing the growing African
market. The major challenge in the sector remains around firms being unable to
restructure to remain competitive. Here too, there is potential for small and medium
firms to contribute towards transforming the structure of the economy and towards
inclusive development.

11.6 Leather and Leather Products

The other major cluster of agro-​processing industries is the leather and related products
cluster. This segment of agro-​processing, although small, is an important sector which
provides inputs to other manufacturing clusters, including the automotive sector and
the manufacture of furniture, bags, belts, and shoe uppers. There are two major types of
leather used in the industry. The biggest is bovine leather which is produced from cattle
hides. In 2015, 2.5 million bovine hides were produced. Leather is also produced from
sheep and goat skins (small skins), with 5 million goat and sheep skins produced in 2015
(DTI 2016). The second leather component is exotic leather which is produced from os-
trich and crocodile skin. Exotic leather products feed into high value-​added chains, and
demand for these products is reported to be growing fast (DTI 2016). The majority of
companies in this cluster are in the footwear subsector, with 175 firms in 2011, followed
by leather products with eighty-​four companies and thirty-​one in the production of
leather.
The sector has two major components: footwear and leather and leather products.
In terms of output, the leather and leather products cluster dominates the sector,
accounting for over 95 per cent of total output between 2011 and 2017.
 Agro-processing Industries in the South AfricaN Economy    229

Although the footwear industries only account for less than 5 per cent of output in the
sector, it is the largest employer in this cluster of industries, accounting for an average of
over two-​thirds of jobs in the sector between 2000 and 2019 (Table 11.4).
As Table 11.4 illustrates, the leather industry faces similar challenges to the tex-
tile and clothing industry. Formal employment in the sector in 2019 was only half
the level reported in 2000. The footwear industry was the hardest hit, with employ-
ment declining from over 18,000 in 2000 to just 8,000 in 2019. The leather industry’s
challenges include pressure from growing imports, the low quality and quantity of
the leather, and irregular supply of inputs. Another major challenge in the sector is
declining demand from the automotive seating and trim industry, which has increas-
ingly resorted to using synthetic leather (DTI 2016). This has resulted in some of the
tanneries closing, although there have been some signs of recovery since 2011, with
twenty-​eight new factories opening between 2011 and 2014 (DTI 2016).
The high value-​added produce in the sector includes exotic leather products which
mainly supply the upper end of the domestic and export markets (CTFL-​SETA 2014).
The Department of Trade and Industry announced in 2016 that Centres of Footwear
and Leather Goods Entrepreneurship will be established to drive demand for bovine
and exotic leather in the country by training small business entrepreneurs. The impact
of policy measures implemented to improve productivity and growth in the sector
is yet to be seen, though there are growing opportunities in the high value-​added
segments.

Table 11.4: Leather, leather products, and footwear employment

2000 2005 2010 2015 2016 2017 2018 2019

Formal employment (number)

Footwear 18,254 9,864 8,445 8,869 8,411 9,513 9,229 8,584
Leather 8,656 5,229 5,615 4,725 5,204 5,207 5,039 4,807
and leather
products
Total 26,910 15,093 14,060 13,594 13,615 14,720 14,268 13,391

Share in employment
Footwear 67.8 65.4 60.1 65.2 61.8 64.6 64.7 64.1
Leather 32.2 34.6 39.9 34.8 38.2 35.4 35.3 35.9
and leather
products

Source: Author’s calculations based on Quantec data.

230   Horman Chitonge

11.7 The Wood, Wood Products,

and Furniture Cluster

The wood and wood products and furniture industries comprise another major cluster
in the agro-​processing sector. This set of industries has been the third largest in the agro-​
processing sector, after food and beverages, accounting for an average of 12 per cent of
the sector’s output since the 1990s (see Figure 11.2). Similarly, this is the second largest
subsector after the food processing industries, in terms of employment, contributing an
average of 25 per cent of jobs in agro-​processing since the 1990s. The wood and wood
products and furniture cluster is one of the few agro-​processing clusters where employ-
ment has been growing steadily, from an average of 140,000 in the 1990s to over 170,000
in 2019 (see Table 11.5 below). The sector’s output has grown consistently at an annual
average rate of 2.4 per cent between 2000 and 2017, except in 2009 when output declined
by 4.5 per cent (TIPS 2017).
The inputs utilized in the sector are harvested from woodlands, natural forests, and
plantation forests (Pogue 2008). The three major forest products used in this sector are
pine, accounting for 52 per cent, followed by eucalyptus at 39 per cent and wattle with 1
per cent, and a variety of other types. While there are many forest plantations owned by
different companies and individuals, the industry is dominated by two big, vertically
integrated companies: Mondi South Africa and Sappi Forests.
The sector is divided into four major subdivisions, namely sawmilling and wood
planing, wood products, paper and paper products, and furniture. In terms of output,
the furniture industry has been the largest, contributing an average of 30 per cent of the
sector’s output between 2000 and 2019 (Table 11.5).
The wood products segment was the second largest between 2000 and 2005,
accounting for an average of 27 per cent of total output in the cluster, but from 2010 to
2019, the paper and paper products cluster has been the second largest with an average
of over 30 per cent. However, when it comes to jobs, it is the paper and paper products
segment that has been the largest, with an average of over 60 per cent of total formal
employment between 2000 and 2019. Employment share in the furniture industry has
hovered around 15 per cent over this period while the share of wood products has varied
from 17 per cent in 2000 to 22 per cent in 2005, and then declined steadily to 18 per cent
in 2019.
The major challenges in the sector are related to the stringent regulations imposed
to ensure compliance with environmental standards and requirements. Extraction of
forest products requires that consideration is given to environmental issues, including
the effects of logging on biodiversity and climate change. Other challenges reported in
the sector include the lack of research and development (R&D) funding to promote in-
novation and the growth of appropriate technology (FP&M-​SETA 2014). The oppor-
tunity in the sector lies in increasing value addition on export products, most of which
have been exported with low value-​added (mainly in the form of wood pulp) and
 Agro-processing Industries in the South AfricaN Economy    231

Table 11.5: Employment and output composition by subsector, 2000–​19

2000 2005 2010 2015 2016 2017 2018 2019
Share in employment (%)
Sawmilling 7.4 8.8 7.6 8.5 8.8 8.8 8.3 8.1
and wood
planing
Wood 16.9 22.4 20.1 18.2 18.3 17.6 17.5 17.4
products
Paper and 60.2 52.2 57.9 58.3 58.8 59.1 61.0 61.9
paper
products
Furniture 15.5 16.6 14.5 15.0 14.0 14.4 13.3 12.7

Output composition%

Sawmilling 16.9 14.5 16.9 14.7 15.8 16.0 15.4 14.9

and wood
planing
Wood 25.6 28.3 21.5 24.5 24.4 22.9 23.6 26.1
products
Paper and 19.9 21.9 32.9 34.1 34.3 34.5 31.2 28.7
paper
products
Furniture 37.6 35.3 28.6 26.6 25.5 26.6 29.7 30.4

Source: Author’s calculations based on data from Quantec (Excel download).

imported back after value is added from outside the country, especially in Asia. As a re-
sult of this, the sector’s trade deficit has been growing since 2011 (TIPS 2017).
There are other segments of the agro-​processing sector which have not been discussed
here, particularly rubber, and printing and publishing. However, the clusters discussed
above are the major segments of the agro-​processing sector in the country.

11.8 Agro-​processing
Employment Trends

When we look at employment trends, as noted above, agro-​processing industries

account for the largest share of employment in the manufacturing sector, which has
been consistently above 40 per cent (Figure 11.1). Although the percentage share of agro-​
processing employment has remained relatively stable, the actual number of formal
232   Horman Chitonge

jobs declined from just above 611,000 in 2001 to slightly over 500,000 in 2018 and 2019,
representing a decline of about 17 per cent over this period. This reflects the general de-
cline of formal employment in the broader manufacturing sector, where formal employ-
ment declined from 1.3 million in 2000 to 1.2 million in 2019 (Figure 11.3; see also Black
et al. 2016).
The level of informal employment in the manufacturing sector as a whole has
oscillated around the 30 per cent mark between 2007 and 2016, before declining from
2017 to 2019. The decline of informal employment follows the general pattern of em-
ployment in the larger manufacturing sector, which, between 1994 and 2011, shed jobs at
an annual average rate of 1.3 per cent (Zalk 2014).
In terms of labour intensity, the agro-​processing sector, as a whole, has been consist-
ently the most labour-​intensive sector, although the labour intensity has varied between
subsectors. Black et al. (2016) divided manufacturing subsectors into capital intensive,
intermediate labour intensive, and ultra-​labour intensive. All the clusters of the agro-​
processing sector, except beverage and paper and paper products, fell either in the inter-
mediate labour intensive or ultra-​labour intensive subsectors. Ultra-​labour-​intensive
subsectors are largely agro-​processing industries such as footwear, wood and wood
products, leather products, furniture, and apparel. It is in the labour-​intensity feature
of these industries where the potential to contribute to creating employment and social
transformation lies. But these industries, as shown above, have faced serious challenges
in terms of remaining competitive, both domestically and internationally.
If we compare the sectoral output to levels of employment, the agro-​processing
sector’s ratio of output to employment was again the highest in the entire manufacturing
sector, confirming the widely held view that the sector is the most labour intensive in the
manufacturing sector. However, it is worrying that the most labour-​intensive clusters of
agro-​processing industries (textiles and wood and wood products) are both recording
declining output and employment. Between 2010 and 2018, wearing apparel lost close

2,500,000 40.0
Employment (Number)

35.0
2,000,000
30.0
1,500,000 25.0
20.0
%

1,000,000 15.0
500,000 10.0
5.0
0 0.0
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19
20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20

Agroprocessing Employment (Fromal) Manufacturing Employment (Formal)

Total Manufacturing Manufacturing Employment (Informal)
Manufacturing Employment (Informal)%

Figure 11.3 Agro-​processing in manufacturing employment, 2000–​19

Source: Author’s calculations based on data from Quantec (Excel spreadsheet).
Table 11.6: Agro-​processing formal employment by subsector (%)
2000 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2000-​2019
(Average)

Food 32.0 34.1 33.4 33.0 34.1 35.6 35.9 34.9 34.3 34.9 36.2 37.3 39.1 39.9 40.8 41.1 35.2
Beverage 6.6 5.8 5.8 6.1 6.3 6.3 6.7 7.1 7.5 7.9 7.6 7.7 7.8 7.6 7.2 6.7 6.7
Tobacco 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.6 0.6 0.6 0.6 0.6 0.7 0.6 0.6 0.5 0.5
Textiles 25.3 23.1 22.6 22.1 20.7 19.2 18.7 17.7 16.9 15.9 15.7 15.9 15.5 14.6 13.9 13.6 19.7
and
wearing
apparel
Leather 4.4 2.7 2.8 2.7 2.7 2.8 2.9 2.8 2.7 2.9 2.7 2.7 2.7 2.9 2.8 2.6 2.9
and
leather
products
Wood 20.8 23.5 24.8 24.7 25.5 26.0 26.7 27.8 28.7 28.9 28.8 27.5 26.5 26.2 26.0 26.2 25.3
and
paper
products
Rubber 3.0 2.8 2.8 2.8 2.9 2.8 2.5 2.6 2.7 2.5 2.3 2.3 2.3 2.5 2.4 2.3 2.6
products
Furniture 7.5 7.5 7.4 8.1 7.2 6.7 6.2 6.4 6.7 6.3 6.0 6.1 5.5 5.7 6.5 6.9 6.9

Source: Author’s calculations based on data from Quantec data.

234   Horman Chitonge

to 10,000 jobs, while the number of jobs in the textile industry dropped from 37,000
to 28,000 over the same period (DAFF 2018). The largest sector (food processing) has
relatively lower labour intensity, with the lowest being in the beverage industry which,
though being the second largest in terms of output, accounted for less than 6 per cent of
agro-​processing employment in 2018 (Table 11.6).
The employment ratio for the food cluster has stabilized while jobs in the beverage
sector grew steadily after 2012. However, the pressure from international competi-
tion is pushing some manufacturers to adopt new technology and innovative business
approaches, leading to some sectors becoming more capital intensive. The real poten-
tial for generating employment in the agro-​processing sector lies with the small and
medium processors, which tend to be more labour intensive than the large firms which
currently dominate the sector (Ncube et al. 2016). This is why there is a strong push for
policy intervention to encourage the growth of small enterprises to enter the market. It
is these small enterprises which can contribute to employment creation because they
tend to be more labour intensive (IDC 2017). But, for small enterprises to fulfil this role,
they have to be competitive and this is where strategic policy interventions are needed.

11.9 The Challenge of Creating

an Inclusive Economy

11.9.1 The Structure of the Agro-​processing Sector

As noted above, the distribution of production capacity and employment between firms
in the agro-​processing sector reveals high levels of concentration. For instance, the four
largest agro-​processing firms: Tongaat Hulett, Tiger Brands, Pioneer Foods, and RCL
Foods accounted for 72 per cent of productive capacity in 2014 (Nhundu et al. 2017). In
terms of employment, the five largest food processors account for almost 80 per cent of
total employment in the food processing cluster (Dube et al. 2018). It has been suggested
that the move towards concentration of production capacity and market share can be
explained by several factors including the carry-​over of food cartels from the apartheid
era, the global trend towards vertical integration of lead firms in the food value chains,
the effect of liberalization and deregulation of the economy during the 1990s, and the
tightening of social networks and relations between farmers, food processors, retailers,
and suppliers in the sector (Ncube et al. 2016; Visser and Ferrer 2015; Nair and Landani
2020b).
Though some analysts have suggested that, given the current global trade context,
‘big and not small is beautiful’ (Amsden 2012), concentration of market power leads
to economic inefficiencies and makes it difficult to address the pressing challenges of
promoting inclusiveness in the economy as Black and Roberts (2009) have highlighted.
Concentration of market power and production makes it difficult to ‘make the circle
 Agro-processing Industries in the South AfricaN Economy    235

bigger’ as large vertically integrated firms create high barriers to entry in order to main-
tain (perhaps even increase on) the existing market share and power (Nair and Landani
2020b). In general, ‘high concentration has reinforced the capital and resource-​
intensive industrial development path, while imperfect competition [has] distorted
economic outcomes more widely’ (Black and Roberts 2009: 217). Concentration of
market power and production capacity within a few large firms has created a number
of challenges, such as rising costs of inputs, monopolistic tendencies, high barriers to
entry for small and medium firms, and ring-​fenced markets controlled by a few large
firms (IDC 2017).
The high concentration of production and market share, which is a reflection of the
structural challenges in the wider economy, needs to be addressed to release the po-
tential of agro-​processing to contribute to building a resilient and inclusive economy.
Therefore, the need to transform the agro-​processing sector is essential to creating
conditions for inclusive and sustained growth in the economy. But transforming the
sector is not going to happen through the introspection of those who are already in
the ‘circle’; it will require deliberate and sustained policy commitment to implement
strategies that can successfully stretch out the perimeter of the circle to make it more
inclusive. Admittedly, ‘making the circle bigger’ has its own trade-​off (see National
Treasury 2019), but on balance, the current situation does not serve the long-​term
interest of anyone, including the owners of large firms, politicians, the ordinary people
on the street. Empirical studies have now shown that it is difficult to sustain economic
growth under conditions of extreme levels of inequality (UNRISD 2010), as is the case in
South Africa (StastSA, 2019b).

11.9.2 Agro-​processing Sector Potential

At this stage, the key question is: how can agro-​processing industries contribute to
addressing the pressing challenge of transforming the structure of the economy and
the creation of jobs? There are many ways through which agro-​processing industries
can contribute to these two critical objectives. One of them is that the labour-​intensive
agro-​processing industries can contribute significantly to creating jobs, especially low-​
and semi-​skilled jobs. The other potential in the sector is due to the fact that stronger
linkages between agro-​processing and agriculture can stimulate growth not just in the
agriculture sector but also in other manufacturing industries through the supply of
inputs to the agriculture sector. By adding value to raw materials from the agriculture
sector, agro-​processing industries can contribute to industrialization and job creation,
especially if growth is occurring in labour-​intensive industries.
Further, by making agro-​ processed products readily available, agro-​ processing
industries contribute to the growth of secondary food-​processing activities where small
and medium enterprises are likely to participate, especially in value chains with a low
capital outlay requirement such as wearing apparel, fashion design, preparation of
food, and bakery. The growth of small businesses in agro-​related activities can enhance
236   Horman Chitonge

inclusivity in the economy. Although the barriers to entry in some agro-​processing

value chains are high due to the concentration of market power in a few Johannesburg
Stock Exchange (JSE)-​listed companies (Nhundu et al. 2017), there are opportunities
for small and medium ventures to be involved in activities such as the extraction of oils
from seeds and fruits, confectionaries, grain-​milling, and the processing of animal feed
(IDC 2017).
In the agro-​processing sector, opportunities are growing as the demand for processed
foods in the Southern Africa region grows, and South Africa can tap into these growing
value chains and markets. Chingumira (2019), for example, has noted that due to the
growing demand for food in the region as population, urbanization, and income rise,
the market for agro-​processing equipment in the region is expanding rapidly, and
South African equipment and parts manufacturers can exploit the proximity and free-​
trade opportunities to increase manufacturing production. Currently, most of the food
manufacturers in the region are importing food-​processing equipment from various
countries, including India, Italy, China, Germany, and Turkey.
The strategy for economic structural reform announced by the National Treasury in
2019 has argued that South Africa has an advantage in the southern Africa region in sev-
eral value chains, including agro-​processing, which should be exploited.1 However, in
order to sustain the benefits of regional integration in Southern Africa, South Africa has
to source an increasing share of inputs from other countries in the region, something
that is not happening at the moment (Black et al. 2020).

11.10 Conclusion

This chapter has provided an overview of the agro-​ processing industries in the
South African economy, looking at trends in different clusters of the sector over
time. The chapter has shown that the agro-​processing sector is made up of a diverse
set of industries which, together, have consistently accounted for the largest share of
manufacturing output, value ​added, and employment since the 1970s. Although levels
of employment have varied over the years, agro-​processing industries as a whole have
been the most labour intensive in the manufacturing sector relative to output and cap-
ital stock. This highlights the potential of the sector to contribute to job creation and to
creating an inclusive economy.
However, to realize the full potential of this sector there are several challenges that
need to be addressed. One of the challenges is the concentration of production cap-
acity and market power in a few large firms. This creates problems for achieving the ob-
jective of promoting inclusivity in the economy. Another challenge relates to the issue of

1
Part of the growth of exports to SADC has been attributed to the change made in 2013 when South
Africa started to report exports to SANCU members (see Dube et al. 2018).
 Agro-processing Industries in the South AfricaN Economy    237

creating conditions where local firms, especially small and medium firms, can become
competitive. Yet another challenge lies in lowering barriers to entry for new players in
the market by addressing issues like access to finance and the uncompetitive tendencies
manifested by the large agro-​processors.
If some of the structural constraints mentioned are addressed, agro-​processing
industries can play an important role in responding to the challenges of job creation and
promoting inclusive growth.

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 Chapter 12

L and and Ag ra ria n

Devel opme nt i n
Sou th A fri c a

Ruth Hall and Farai Mtero

12.1 Introduction

South Africa’s high levels of economic inequality arise in part from, and are in turn
reinforced by, persistent and racialized inequality in access to and control of land.
Land reform—​ often equated with the redistribution of white-​owned commercial
farms to Black smallholders—​has been a largely unfulfilled political promise during
the first twenty-​five years of democratic rule in South Africa. Land ownership and
control historically underpinned patterns of unequal development in South Africa.
Forced land dispossession through colonial conquest and under apartheid rule formed
the basis for ‘agrarian dualism’, by which we mean the coexistence of two distinct
countrysides: a thriving white-​owned commercial farming sector across most of the ter-
ritory and, amidst this, a landscape of impoverished and overcrowded Black ‘reserves’
or ‘homelands’. These two landscapes inherited and persistently display distinctive
features, with salient differences in the types of land use, levels of capital investment and
technology, tenure arrangements, land governance, and administration.
Overcoming this stark divide and resolving ‘the land question’ has been a central pol-
itical promise of successive democratic governments. South Africa’s negotiated transi-
tion produced a constitution that provides certain protections to property rights while
simultaneously mandating land reforms through land redistribution, tenure reform,
and restitution, including via expropriation. In contrast to this legal framework, the
policy, institutional, and financial approach was shaped by the World Bank-​promoted
model of market-​assisted land reforms (MALR). Unlike state-​driven land reforms, pre-
dominantly associated with peasant struggles under both capitalist and socialist rule in
East Asia and Latin America, the MALR model has involved the policy choice to rely
 Land and Agrarian Development in South Africa    241

on voluntary market transactions rather than compulsory acquisition or expropriation,

and to limit state involvement in subsidies, regulation, or wider agrarian restructuring.
Attempts to redress land inequality in South Africa have therefore centred on assistance
via state and private-​sector financing for Black South Africans to acquire farmland.
Alongside the redistribution of land to those the state chooses, and restitution of land
to those who make historical claims, land reform promises ‘tenure reform’, meaning
the transformation of regimes of property rights and property holding. The concept of
tenure reform is to redress, in law and in practice, the inequality and hierarchical rela-
tionship between private title—​the tenure of the privileged white minority—​and forms
of customary and informal tenure that most people hold to the land they occupy and
use. An estimated 60 per cent of South Africans have no documented rights whatso-
ever to their property, which means that the entire edifice of the deeds registry, cadas-
tral system, surveys, and mapping, fail to provide any core of land administration to
underpin land uses for most (Hornby et al. 2018).
Land dispossession of South Africa’s peasantry was central to the creation of cheap
labour supply—​and in this sense can be considered to underpin capitalist development
in mining, agriculture, and industry (Bundy 1998; Wolpe 1972). A defining feature of
the twentieth century was the reliance of these sectors of the economy on the migrant
labour system, with large numbers of especially young men being recruited from the
rural areas for wage work on recurrent one-​year contracts. The Natives Land Act of
1913 marked a watershed moment in cementing racialized land-​ownership patterns, by
setting aside 9 per cent of the land as native reserves (later formalized as ‘homelands’
and extended to 13 per cent of the land). One outcome of dispossession and forced re-
settlement was the large population of land-​poor Black rural producers farming on
small parcels of land, coupled with pervasive landlessness and overcrowding in ‘rural
slums’ (Murray 1987). These legacies remain imprinted on South Africa, with poverty
and deprivation still most starkly evident in the communal areas previously designated
as Black ‘homelands’ (see Figure 12.1) and formed the basis for widespread demands for
land reform, to broaden Black access to land across the rest of the country, to redress in-
equality and injustice, and as a central element of liberation and democratization.

12.2 Political Economy of Transition

Among the ‘compromises’ of South Africa’s political transition in the 1990s were the
terms of the constitutional treatment of property and the framing of a market-​based
land reform. Yet the presumption that the ANC ‘sold out’—​as widely alleged by oppos-
ition parties—​suggests that it had a coherent position to begin with, a view we contest.
The policy direction was driven by geopolitical shifts, a state verging on bankruptcy,
and rampant capital flight, combined with divisions within and between exile-​based
liberation movements and the mass democratic movement at home on how to address
land inequality (Drew 1996; Hall 2010). The result was a set of land reforms alongside
242    Ruth Hall and Farai Mtero

South African Index of Multiple Deprivation 2011

at Ward Level showing former homeland boundaries

Figure 12.1 South African Index of Multiple Deprivation 2011 at ward level showing former
homeland boundaries
Source: SASPRI (2014).

economic policies that undermined their chances of success. A package of agricultural

reforms centring on deregulation of internal markets and trade liberalization satisfied
the need to cut costs, withdraw the subsidies to white commercial farmers, and re-
spond to both domestic and international pressure to open up markets. The result
by the mid-​1990s was a faster-​than-​required adherence to World Trade Organization
targets for liberalization, including tariffication and the dismantling of the elab-
orate architecture of regulation that had underpinned and subsidized white capitalist
agriculture: input subsidies, capital subsidies, transport subsidies, export subsidies,
subsidized interest rates, and a single-​channel marketing system for all agricultural
products (Vink and Kirsten 2003). In the space of just over a decade, from the mid-​
1980s to the late-​1990s, this dramatically transformed one of the most state-​subsidized
farming systems in the world (see also Chapter 10 in this volume). It also constrained
the possibilities for resolving the ‘land question’ and prompted concentration in land
ownership.
Two parallel processes reshaped land and agricultural policy during the 1990s. The
first is widely referenced but almost universally misunderstood, and this is the story of
the constitutional protection of property rights. The ANC was not forced into accepting
constitutional protection of property rights, nor did it fight for nationalization of land.
Its long-standing ambivalence on ‘the land question’ is central to what transpired in
 Land and Agrarian Development in South Africa    243

the crucial period of 1990 to 1994. Nationalization of the land, mines, and banks was
adopted as a policy position only at the ANC’s Morogoro Conference in 1969, when its
revolutionary programme declared that the land of ‘land barons, absentee landlords,
big companies and State capitalist enterprises’ should be confiscated and redistributed
to ‘small farmers, peasants and landless of all races who do not exploit the labour of
others . . . to the landless and the land-​poor’, leaving no private ownership of land
for commercial production that involved the use of hired labour (ANC 1969). This
position—​always contested within the movement—​was abandoned by 1988 when, in its
Constitutional Guidelines for a Democratic South Africa, the negotiating position for
a new dispensation, the ANC proposed that only corporate and commercial property
would be subject to state regulation and liable to confiscation, alongside retention of pri-
vate property ownership ‘for personal use’ (ANC 1989). This mixed tenure system was
abandoned by 1992 when the ANC’s Land Manifesto rejected any proposal for nation-
alization, instead advancing a two-​stage plan in line with a national democratic revo-
lution, which sought first to consolidate democratic majority rule prior to transition to
land nationalization and agricultural collectivization.
Often inspired by memories and imagery of rural resistance, like the Bambatha rebel-
lion and the Pondoland revolt (Mbeki 1964), the ANC’s thinking on ‘the land question’
was largely historical as its key thinkers had limited connection with rural resistance in
recent times. Unlike Zimbabwe, South Africa’s liberation struggle was not fought pri-
marily in the countryside, but rather in the urban townships and in the frontline states,
and the ANC had largely dismissed the revolutionary potential of rural dwellers (Drew
1996). Urban and rural communities that resisted forced removals through the processes
of homeland consolidation in the 1960s and 1970s, and black spot removals in the 1980s,
were more strongly linked to non-​governmental organizations and academics within
the country, with whom the ANC had relatively little contact. Instead, many of those
coming into the ANC’s leadership were of the view that the ‘land question’ was bound
up with labour control, and that its resolution required dismantling the Bantustans and
the creation of a unitary farming system. But what this would look like was far from
agreed. Returning exiles were key among those in the Land Commission who led the
ANC’s thinking on the subject in the transition period. Among them were those from
Eastern Europe and the Soviet Union many of whom, given their experiences, favoured
collectivization and state farming, while others, particularly, from Mozambique and
Zambia, were more optimistic about the potential of smallholder farming (Hall 2010).
Having initially argued against constitutional provisions on property, the ANC
proposed a property clause that would entrench a land reform programme, rather
than the blanket protection of individual private property, which the National Party
and others had sought. In this way, Section 25 of the Bill of Rights in the Constitution
affirmed the transformation of property, including but not limited to land. It set out en-
forceable rights to restitution of land rights for the dispossessed, redistribution to ensure
equitable access for the landless, and tenure reform for those with insecure rights, as jus-
ticiable constitutional rights (RSA 1996). The Constitution provides limited procedural
244    Ruth Hall and Farai Mtero

protection to all property holders, including tenants and other non-​owners, while
mandating land reform, empowering the state to expropriate for land reform purposes.
The second process that unfolded simultaneously was a set of plans for agricultural
policy, and the economy in general. The ANC opted, in the sphere of agriculture, for
the World Bank’s Proposals for Rural Restructuring, which combined agricultural de-
regulation with market-​based land reform. After a short interregnum in the form of
the Reconstruction and Development Programme (RDP) from 1994 to 1996, economic
policy took a sharp turn to the right, with the ‘1996 class project’ and its expression in
the Growth, Employment and Redistribution (GEAR) framework which confirmed
market-​based policies including, crucially for land reform, confirmation of property
rights and the avoidance of confiscation and expropriation. In this way, economic policy
determined that the state’s constitutionally enshrined powers to expropriate property in
the interests of redressing land injustice and land inequality would not be used.
Shorn of any link to a wider plan for economic restructuring, the RDP from 1994
promised that a new land reform programme would be the ‘central and driving force of
a programme of rural development . . . and through the provision of support services,
the democratic government will build the economy by generating large-​scale employ-
ment, increasing rural incomes and eliminating overcrowding’ (ANC 1994). Such a
programme never materialized, as ‘rural development’ was shuffled between various in-
stitutional homes—​as a provincial mandate, in the RDP office in the Presidency, then
Land Affairs, then provincial and local government—​over the coming fifteen years,
before settling in 2009 under the Zuma administration into the ministry responsible
for land reform, at which point its arrival diverted funds away from land reform into
flagship projects in areas unaffected by land reform. Finally, welfare in the poorest wards
of the ex-​Bantustans would be ‘rural development’ while land reform would focus on
transferring commercial farms from white to Black farmers, without any discernible de-
congestion of the communal areas, nor expansion of employment or livelihoods, nor
poverty reduction.
Against the backdrop of the end of the Cold War, a new model of ‘market-​based’ or,
in more sanitized form, ‘market-​assisted’ land reform was conceived and energetically
promoted to South Africa, from the transition years, and thereafter also to Colombia,
Brazil, and numerous other developing countries (Deininger 1999). Coupled with some
reinterpretation of experiences elsewhere, proponents of the market model advocated
voluntary transactions in place of expropriation, and ‘demand-​led’ processes driven
by beneficiaries rather than state planning. In these ways, the inefficiencies of state-​led
reforms could be avoided. Yet such characterizations of landowners and the landless
negotiating peaceful land transfers ignored power and politics and isolated technical
solutions from political context. On the basis of experience in the Philippines, and
also in Brazil and Colombia, Borras (2007) showed how this approach ignored the
asymmetry in negotiations, pushback from landowners to get the state to carry more
 Land and Agrarian Development in South Africa    245

of the cost, and wrongly assumed that decentralization would ensure accountability
(Borras 2007).
In the contested policy process, South African agricultural economists—​including
some returning ANC exiles who later took up key positions in government—​worked
with the World Bank to develop proposals aimed at reconciling agricultural and land
reforms. While those who blame the Constitution for land reform failures focus on
the ways in which the ANC’s hand was ‘forced’, we argue instead that policy alliances
transcended party politics, as expertise from within South African universities, inter-
national advisors, non-​governmental organizations, and state and party structures
coalesced, with people moving across these spaces and taking up new posts, working
as consultants for one another, and shaping one another’s thinking. The combination of
dramatic agricultural reforms alongside moderate land reforms was the result of con-
vergence rather than compromise (Hall 2010). Equally, the social forces pushing for
land reforms—​rural communities and their allies among the NGOs—​largely had no
economic argument in favour of redistribution and had no space in the wider debates
about the economy, while the ANC, at the centre of policymaking, had little on the table
in terms of land reform beyond a need to limit costs, reduce subsidies, and produce a
pro-​poor offering. In this context, it was the World Bank that was able to argue that
the political necessity of redistributing land was also economically efficient as long as it
prioritized market-​oriented smallholder farming, and used market mechanisms for ac-
quisition, rather than resorting to coercive means (Hall 2010).
Large farms, tightly integrated into the corporate food system, dominate the com-
mercial farming sector (Hall and Cousins 2018). Successive agricultural censuses show
evidence of increased consolidation. In 2017, 2,610 large farms (those with an annual
income of more than R22.5 million) constituted 6.5 per cent of the total number of farms
in the commercial agriculture industry, and accounted for 67 per cent of total income
and 51 per cent of total employment (StatsSA 2017). As Bernstein (1996) predicted, and
later confirmed (Bernstein 2013), deregulation led not to a level playing field, let alone
advantages for small-​scale farmers and newcomers, but rather to re-​regulation in the
form of market dominance by several concentrated agribusinesses. Among these are
the privatized (former state) co-​operatives which have expanded into services and up-​
and ​downstream activities, beyond farming (Williams et al. 1998: 67). The removal of
subsidies in the commercial farming sector not only spurred greater concentration but
also raised barriers to entry for small-​scale farmers. This epitomizes the ‘policy discon-
nect’ in post-​apartheid land reform and agricultural policies (Cousins 2013: 57).
This disjuncture between land reform and agriculture persists in post-​apartheid
policy. Land reform proceeds in the absence of appropriate agricultural policies and
meaningful support for smallholder producers. The absence of significant coordinated
efforts towards rural development means that land reform has proceeded largely in iso-
lation from other interventions in infrastructure and enterprise development.
246    Ruth Hall and Farai Mtero

12.3 Post-​apartheid Land Reform

South Africa consists of 122 million hectares, of which about 14 million hectares (11 per
cent) is arable. A significant proportion, about two-​thirds, is privately owned as com-
mercial farms, while the state owns much of the remaining land, including the ‘com-
munal’ areas held under customary land tenure and held in trust by the state (see
Table 12.1).
Land reform has proceeded slowly, making only modest inroads into the ‘dualist’
pattern of land use, ownership, and tenure. In the first twenty-​five years since democ-
racy, about 10 per cent of formerly white-​owned commercial farmland was transferred
to Black South Africans through various mechanisms. The quality of the outcomes
has been mediocre, with some people benefiting, but substantial failures of land-​use
planning and support, with the result that the projected benefits of land access, including
poverty reduction, have largely not materialized. A 2009 Quality of Life Survey found
that 52 per cent of the land reform beneficiaries are producing some income from the
cultivation of their own land, and that the average income from agriculture produc-
tion of the beneficiaries was extremely modest, at R19,270 per annum, with the median
income only R4,234 due to the skewing effect of a small number of very high earners
(QoL 2009: 79). Another national survey in the same year found that 28 per cent of the
redistribution projects were stable, 21 per cent had improved in performance, 22 per
cent showed marginal benefits, and 29 per cent had completely failed (Umhlaba Rural
Services 2009).
Amidst a discursive commitment to small-​scale farmers and poverty reduction, land
reform has also undergone fundamental redesign over time, reflecting shifting politics.

Table 12.1: Areas of land by land use, ownership, and tenure category

Land use, ownership and tenure category %

Commercial farmland 67
Urban areas 8
Protected areas and other state land 10
‘Communal areas’ 15
Ex ‘homelands’ (excluding former KwaZulu) 10
Ingonyama Trust (former KwaZulu) 2
Former ‘coloured’ reserves 1
Other customary lands held in trust by the state 2
Total 100

Source: PLAAS (2013), citing Department of Land Affairs (DLA 2002).

 Land and Agrarian Development in South Africa    247

The design and delivery of land redistribution has shifted in several ways since the
1990s. First, the ‘means test’ to target only poor households was removed and replaced
with a race criterion. Second, the provision for both urban and rural redistribution
was replaced with an exclusively rural focus. Third, instead of land being made avail-
able for multiple uses for diversified livelihoods, it was restricted to being provided for
agricultural production alone. Fourth, joint ventures with commercial strategic part-
ners were introduced as a primary means of securing capital for continued production
post-​reform. Fifth, from 2011, the state abandoned its transfer-​of-​title model and instead
opted to directly purchase land and lease it to potential beneficiaries through the State
Land Lease and Disposal Policy (SLLDP). This means land reform beneficiaries neither
own nor lease the land. In short, after a quarter of a century, land reform morphed from
a programme for poor people to have access to and secure rights to land for whatever
they needed it for, typically in groups and through democratic management of col-
lectively but privately held property, into a programme for small groups of Black South
Africans, mostly better-​off men, who could secure capital, to access state land on a long-​
term rental basis.
Land redistribution came to be joined by a specific programme of land restitution, as
people who had been unjustly and forcibly removed from their land demanded the right
to return to their own land. Unlike the wider redistribution process, those claiming
back their own land are required to show proof that they were unfairly dispossessed
due to racially discriminatory laws or practices—​or that their forebears were, after the
commencement of the Natives’ Land Act of 1913. Prior colonial conquest and subse-
quent dispossession are unaddressed through restitution.
After nearly twenty-​ five years of land reform, 4.8 million hectares had been
redistributed and 3.5 million hectares restored to the original owners and their heirs
through restitution claims—​a total of just under 10 per cent of all commercial farmland
(see Table 12.2 below).
Restitution of land has proceeded unevenly, with a growing budget and large numbers
of claimants, but making a modest contribution of about 5 per cent of white commercial

Table 12.2: Land redistribution and restitution 1994-​2020 (in hectares)

% of all land:
Programme 1994–​2018 % of commercial farmland: 86,186,026 ha 122,320,100 ha

Restitution 4,119,782 4.8 3.4

Redistribution 5,167,818 6.0 4.2
Total 9,287,600 10.8 7.6

Source: DRDLR (2016, 2018), DALRRD (2021): authors’ calculations.

Note: These land reform delivery figures are from April 1994 to March 2020. Commercial farmland
is land categorized as agricultural, outside the communal areas of the ex-​bantustans, regardless of
whether it is publicly or privately owned.
248    Ruth Hall and Farai Mtero

farmland, and a negligible inroad into urban spatial inequality. Unlike in other contexts
where post-​conflict restitution has been more successful, the length of time, gener-
ational gaps, changes in demography, land use, and priorities between the time of dis-
possession and the time of restitution, have rendered South Africa’s restitution process
intractably complex (Walker et al. 2010). Dispersed descendants of people dispossessed
a century ago are now expected to agree on the terms of restitution—​whether to opt for
land restoration or financial compensation and, where land is to be returned, how it will
be held and managed, who will live on it, how it will be used, who will contribute what
capital and labour, and how the proceeds are to be divided. Not surprisingly, conflicts
emerge between better-​off claimants with alternative livelihoods, and those who aim
to return to an ancestral home. Unlike redistribution, where any land can be acquired,
depending on the willingness of the owner to sell, restitution is guided by the specific
locations of historical claims. As a result, while much redistributed land has been mar-
ginal, much of it in the semi-​arid regions, or farms not under full production—​because
the state finds these cheaper—​many highly capitalized farms have been the target of res-
titution. Within the first decade, it became apparent that transferring such properties
to large groups of people without the capital with which to retain ongoing operations,
and without adequate resources or support after transfer, saw devastating production
failures, and the state responded by contracting private companies as ‘strategic part-
ners’ to manage the farms. They were to keep production underway, with the promise
of profit-​share for ‘beneficiaries’, who were usually prohibited from living on their own
land under such arrangements, or making any use of it themselves (Lahiff et al. 2012).
In some cases, the main benefit for those having their land returned was to get priority
access to waged employment on the farms (Hall et al. 2013).
Restitution, initially highly judicialized, was expedited when negotiated settlements
between claimants and the state became the norm from the late 1990s, and only disputed
claims were referred to the newly established Land Claims Court. Coupled with this,
massive administrative settlement of claims with small cash payouts enabled the state
to speed up resolution of claims, but without substantial contributions to land reform—​
claims were settled but the land was not changing hands (Hall 2010). The re-​opening of
claims for a further five-​year-window period from 2014 to 2019 saw a massive leap in
the lodged claims—​many orders of magnitude and more new claims were lodged than
old—​and based on existing trends, it would seem that it will take decades to investigate
and resolve these claims—​we estimated 144 years at current rates (Cousins et al. 2014).
These bureaucratic challenges sit astride a toxic politics in which traditional authorities
have been opposing claims, and launching counterclaims, on the basis that expansion
of settlement onto restored land, outside of their authority, undermines their status—​
a concern upheld by President Zuma on numerous occasions. The central question
is whether Black landholders must in some way be subject to chiefly authority (and so
the geographic jurisdiction of chiefs extended onto formerly white-​owned farms) or
whether people can choose whichever land governance structure they wish to administer
their land. These disputes are infused with particular urgency when high-​value land, or
land with the potential for mining or other commercial developments, is involved. The
 Land and Agrarian Development in South Africa    249

Landless Movement of South Africa (LAMOSA) launched a successful Constitutional

Court challenge on precisely this, and in 2016 obtained an order that defended the rights
of claimants to choose their landholding institution (including a democratically elected
one rather than a traditional institution) and won the rights of existing claimants to have
their claims addressed prior to new counterclaims, including from chiefs aiming to ex-
tend their jurisdiction, being entertained.
The geography of land control has changed only modestly, with much of the land
acquired under redistribution being in the semi-​arid Northern Cape—​where it is
cheaper and where extensive livestock production is the main land use—​while res-
titution claims are clustered in the north-​east of the country, where a larger territory
remained under Black control at the time of the Natives’ Land Act, unlike the Cape where
the Act had little impact as dispossession had preceded it by several centuries. Both re-
distribution and restitution, then, have had different spatial impacts on landholdings
and land use (see Figure 12.2), but this is not indicative of the areas of the country where
there is greatest need or demand for land, but rather due to supply-​side factors.
Not only is the (re)distribution of land geographically uneven, but the pace of reform
has varied greatly over time. Figure 12.3 depicts yearly delivery of land via redistribu-
tion, initially by calendar year and from 2000 onward by financial year. The vertical
lines depict the start of the presidencies of, respectively, Mandela (1994), Mbeki (1999),
Motlanthe (2008), Zuma (2009), and Ramaphosa (2018).
The decline is generalized but also uneven. In the Eastern Cape, for instance, by 2018
the number of people getting land, and the number of projects, was around 5 per cent of

700000

600000

500000

400000

300000

200000

100000

0
pe

po

pe

pe
ta

es
at

ng
n
Ca

Ca

Ca
po
te

Na

W
St

ala
u

Lim
u-
rn

rn
rth
Ga
ee

er
ste

te
ul
Fr

pu

No
rth

es
aZ
Ea

W
No
Kw

Redistribution Restitution

Figure 12.2 Land redistribution and restitution, by province, in hectares, 2009–​18

Source: DRDLR (2018): author’s calculations.
Note: This covers nine financial years from 2009/​10 to 2017/​18, coinciding precisely with the Zuma presidency.
250    Ruth Hall and Farai Mtero

600000

500000

400000

300000

200000

100000

0
1994
1995
1996
1997
1998
1999
Jan-Mar 2000
2000/01
2001/02
2002/03
2003/04
2004/05
2005/06
2006/07
2007/08
2008/09
2009/10
2010/11
2011/12
2012/13
2013/14
2014/15
2015/16
2016/17
2017/18
2008/19
2018/19
Figure 12.3 Land redistribution under five presidents, 1994–​2018
Source: DRDLR (2016: 4) and DRDLR (2018: 5): author’s calculations.
Note: Figures are per calendar year until 1999 and, after the first-​quarter adjustment in 2000, are per financial year.

what it had been a decade earlier (DRDLR 2018). In contrast, a full 40 per cent of all those
people who got land from the government during the Zuma decade were in KwaZulu-​
Natal. Political direction of budgets may underpin this; certainly, farmer support
budgets, especially tractor and other equipment programmes, were shifted heavily to
the province of KwaZulu-​Natal during this period. Women lost out throughout, and
everywhere. The most promising data suggest that, by 2016, women constituted 23 per
cent of all the beneficiaries in the first two decades of land redistribution (DRDLR 2016).
Previously, women had accounted for about 16 per cent of beneficiaries—​but got far less
of the land, and the budget, due to being clustered mostly in more modest group-​based
projects compared to the bigger commercial enterprises (Kepe and Hall 2016: 37).
Fluctuating budgets, rather than an absence of farms for sale, largely explain changes
in the pace of land reform, and in particular the overarching downward trend from
2008/​09 onward, coinciding with the global financial crisis and the start of the Zuma
presidency, as Figure 12.4 shows.
While the state began to redistribute land from white to Black, private transactions
saw growing numbers of Black people buying land—​a trend that some claim could be
substantial, though the data are unclear (Lyne and Darroch 2003). Simultaneously, as
the farming sector adapted to the new regulatory environment, and was exposed to
the vagaries of market conditions and domestic and global pricing, a major shake-up
saw vast numbers of heavily indebted white farmers leave the sector—​not, as had been
thought, to be replaced by Black farmers, but rather bought out by more successful white
farmers, including foreign buyers, and domestic and foreign companies. The imme-
diate outcome was a steep decline in the number of commercial farming units from over
60,000 in 1996 to 45,000 just six years later in 2002, and then stabilizing around 40,000
by 2007 and remaining in that region for the decade (DALRRD 2020). This dynamic
of land consolidation prompted changes in land use, production, inputs, technologies,
 Land and Agrarian Development in South Africa    251

Land reform budgets 1996–2019

(inflation adjusted)
7,000.0

6,000.0

5,000.0

4,000.0

3,000.0

2,000.0

1,000.0

–
19 /97
19 98
19 9

20 0
20 /1
20 2
20 /3
20 /4
20 5
20 6
20 7
20 8
20 8/9

20 0
20 /11
20 12
20 /13
20 14
20 15
20 /16
20 17
20 18
9
/1
/9
/0

/
/
/
/

/1
00
01
02
03
04
05
06
07
/

/
/

/
/
10
09
96
97
98
99

11
12
13
14
15
16
17
18
19

Restitution Land Reform

Figure 12.4 Land reform budgets, 1996–​2019, inflation adjusted

Source: National Treasury (various).

and scale. Among the significant shifts were the reduction overall in the area of land
cropped (and in the area planted to crops like wheat, oats, and maize); horticultural in-
tensification (expanding land area under apples, grapes, oranges); and sharp declines
in the sheep, goat, and cattle herds, and the conversion of livestock and mixed farming
lands into game farms (DALRRD 2020). These shifts reflect both climatic pressures,
specifically increasing water scarcity, alongside a changing policy and economic con-
text, prompting calls for a ‘just transition’ towards a carbon-​neutral agricultural sector
with climate-​resilient production systems, by reducing carbon emissions and moving
towards low-​tillage cultivation (Presidential Advisory Panel 2019).
Amidst these profound changes, a major flexible cost that farmers sought to cut was
labour—​just as new labour and tenure laws to protect long-​term farm workers were
introduced. Stripped of state support, old patterns of paternalism that embodied the
double-​edged sword of protection and exploitation, fell away: as farmers and companies
rationalized their labour forces, vast numbers of Black people lost their jobs, homes,
and access to land, through forced evictions from commercial farms. The only national
study found that over two million people were displaced from commercial farms in the
first decade after democracy, of whom about 940,000 were forcibly evicted (Wegerif
et al. 2005). A comprehensive failure for land reform meant that more Black South
Africans lost access to land via farm evictions than the number of Black South Africans
who acquired access through all forms of land reform combined. They were also, largely,
not the same people, as the state did not prioritize rural workers, or farm workers, for
access to land through redistribution.
Alongside attempts to redistribute land have been rising land prices and debt—​
making market-​based land reform more costly and introducing more risk for those
252    Ruth Hall and Farai Mtero

acquiring land who were often required to take out loans to contribute towards land
purchase and development costs. The total value of agricultural land rose from Rand
37 billion in 1990 to Rand 285 billion in 2019—​while simultaneously total debt rose
from Rand 16 billion in 1990 to Rand 288 billion (DALRRD 2020: 28–​9). About 60 per
cent of the debt is with commercial banks, 29 per cent with the long-​embattled Land
Bank, and the rest is spread between agricultural co-​operatives, private people and other
institutions (Business Day 2020).
The state has used its discretion to shift the target group of land redistribution in a
manner it cannot replicate in restitution where it is obliged to respond to specific
claimants. Indeed, despite being a constitutional right for all citizens, ‘access to land on
an equitable basis’ has never been legally defined in any manner that directs the content
of the right, the nature of demands people can make against the state or one another to
realize this right, or the obligations of the state as duty-​bearer to respond (High-​Level
Panel 2017). Among the ironies of this policy approach was that the ANC in govern-
ment replicated many of the features of the Farmer Support Programmes that had
been pursued by Bantustan governments, and supported by the Development Bank of
Southern Africa—​precisely the approach which the ANC had criticized as attempting
to build a Black bourgeoisie rather than to dismantle capitalist agriculture (Dolny
2001: 40).
A key goal of land reform in the 1990s was to end the discrimination against forms
of tenure other than private title, yet the state has vacillated on core questions, such
as how to address the insecure rights of a third of the population who live in the ex-​
Bantustans and whose customary rights are protected only via procedural safeguards
in a temporary holding law. Communal tenure reform is stalled entirely, stuck between
a political push towards privatization through titling, and demands by residents for
their community rights to be recognized. One attempt to pave the way to convert cus-
tomary rights into private title deeds for ‘traditional communities’ collapsed when rural
communities themselves challenged this approach, overturning the Communal Land
Rights Act of 2004 in the Constitutional Court in 2010.
No clear policy or legal framework exists either for customary and in-
formal land tenure, or for redistribution—​ despite the pleas of two key political
processes: Parliament’s High-​ Level Panel chaired by former President Kgalema
Motlanthe (High-​Level Panel 2017) and the Presidential Advisory Panel on Land
Reform and Agriculture (Presidential Advisory Panel 2019). In the absence of policy
direction on land tenure, contradictions arise, such as the transfer of titles to restitution
claimants while beneficiaries of redistribution are subject to thirty-​year leaseholds, re-
newable for a further twenty, meaning fifty years of tenancy on state land before being
able to acquire ownership of it. Meanwhile, laws meant to secure the tenure of people
living on farms, including workers, their families and dependants, and long-​term farm
occupiers and labour tenants, continue to be largely unimplemented.
More salient than the debates about ‘market’ or ‘state’-​led reform, which dominated
the 1990s, and even the deflecting device of the EWC debate—​which all centre on how
to acquire the land—​are the somewhat neglected questions of the role of land reform
 Land and Agrarian Development in South Africa    253

in economic restructuring, what agrarian sector is to be created; its class character and
labour absorptivity; and the ways in which the state and market can respond to and
support citizens. On this, the state has consistently proclaimed that ‘small-​scale farmers’
are its primary commitment, and even, since 2007, has espoused ‘agrarian reform’,
while simultaneously refusing to subdivide farms, redistribute water rights, or regulate
markets.
Broadly three perspectives are evident in the debates on the limitations of land re-
form over the past quarter of a century. First are the ‘market believers’, the liberals
who prioritize the preservation of the commercial farming sector while acceding
that it must be deracialized, and acknowledging a role for the state in enabling a
market-​driven transformation process (Vink and Kirsten 2019). This perspective also
privileges the option of privatizing the limited remaining customary lands occupied
and held by Black communities—​what is left of the ‘native reserves’, later the Black
Bantustans, which became the dumping grounds for people forcibly removed from
elsewhere.
Second are the ‘nationalist populists’ who call for ‘expropriation without compen-
sation’ (EWC), a phrase that has come to symbolize a generalized rejection of private
property, of colonial and apartheid legacies. EWC, as invoked by the Economic Freedom
Fighters (EFF), the first political party in post-​apartheid South Africa to mount a signifi-
cant political challenge from the left of the ruling party, refers to nationalization of all
land and its vesting in the state. In the cases where this approach has been implemented
to date, though—​in minerals (Minerals and Petroleum Resources Development Act
of 2002) and water (National Water Act of 1998)—​nationalization has not resolved
inequalities in access. Rather, the outcomes were to perpetuate unjust appropriation of
communal land for mining developments, and of water by a minority of landowners and
industries (Capps 2012; Van Koppen et al. 2009).
Third are the ‘agrarian radicals’ who object to market-​based land reform while also
being deeply sceptical of the state and its pattern of abusing its power for patronage
and narrow accumulation. Market processes reinforce land inequalities while the state
could act to redress these but generally avoids doing so, for a range of intractable polit-
ical reasons. Among these are many of the social movements and NGOs, which call not
only for racial redress, but also an explicit pro-​poor class agenda, gender equity, and
for changes in landholdings, land uses, and the wider agro-​food system (Jara 2019). For
clarity, we count ourselves among the latter.
This three fold categorization is shorthand to depict only the broad contours of a more
complex set of debates, concerning what precisely land reform is for, why it is warranted,
who should benefit, how land should be held and administered, what kinds of land uses
should be promoted, and what its role should be in wider economic transformation.
On each of these, there is no agreement. The only thing all can agree on—​the ‘market
believers’, the ‘nationalist populists’, and the ‘agrarian radicals’—​is that land reform has
failed thus far to bring about any profound changes in land inequality and in redressing
the political and historical injustices that underpin broader economic and social
inequality in the country.
254    Ruth Hall and Farai Mtero

12.4 Land Inequality, Financialization,

and Elite Capture

While the broad contours of the perspectives outlined above are well established, we
point in addition to three significant ways in which land underpins not only continuities,
but also new dynamics, in economic inequality.
First is the rising evidence of elite capture of public resources and corruption in land
reforms, with their distributive logic hijacked by narrow interests (Hall and Kepe 2017).
Despite the ostensibly ‘market-​based’ approach, South Africa’s land reform has turned
out to be bureaucratically constrained and mediated through rent-​seeking networks,
with growing evidence of both systemic corruption and inherent policy bias towards
elites. The state prosecuting authority’s Special Investigating Unit (SIU) investigated
148 land reform projects between 2011 and 2017 and found that one in four land reform
projects were implicated in corruption. As part of these investigations, twenty-​four
land reform farms valued at more than R382 million (US $28 million) were recovered
(Business Day 2019). Partnerships brokered by the state between land-​ receiving
communities and private companies have become a major conduit for corrupt finan-
cial flows, as ‘strategic partners’ derive dividends and management fees, and have been
implicated in malpractices, such as transfer pricing, to capture value on land reform
farms. Mtero et al.’s (2019) research confirms the prevalence of elite capture in land re-
form and details the different practices and strategies used, by agribusiness, mentors,
and powerful interests in business and politics as well as state officials, to capture public
resources in land reform. Of the sixty-​two land reform farms investigated, 44 per cent
of the farms were allocated to wealthy, urban-​based business owners with business
interests in other sectors of the economy.
Second is a range of new pressures towards privatization of customary lands, with cor-
porate, political, and traditional elites driving the expansion of large-​scale agricultural
and mining investments in communal areas, a pattern driven by powerful corporate,
political, and traditional elites into territories reserved for ‘communal’ Black occupation
and use but now subject to new pressures of privatization: the powerful chiefly lobby and
the pressures of mining companies and, to a lesser degree, agribusinesses seeking to ex-
pand in these territories. The democratic parliament has passed several laws that serve
to reinforce the distinction between the former Bantustans, where traditional leaders
exert control over land via traditional councils, and the rest of the country where land is
privately titled. These include the Traditional Courts Bill and the Traditional Leadership
Governance Framework Act, dubbed the ‘Bantustan Bills’ by critics including rural
social movements, as they entrench different forms of governance, and more limited
rights, for those citizens who are Black and live in the former ‘homeland’ areas.
Third is the entry of new financial s​ ector actors into corporate landholding, specu-
lation, and financialization of property portfolios spanning urban and rural, and resi-
dential, farming, and other land uses. Financialization of the South African economy
 Land and Agrarian Development in South Africa    255

accelerated at the end of apartheid as large conglomerates sought reintegration into the
global economy following decades of sanctions and international isolation. The estab-
lishment of growth funds that link the agricultural sector with financial markets is a
growing trend not only within South Africa but also on the broader African continent.
These farmland funds mobilize finance and invest in specific investment opportunities,
progressively building investment portfolios (Anseeuw et al. 2017). The Africa Future
Growth AgriFund, for instance, targets agricultural investments within South Africa
and the wider continent. Land reform farms in South Africa have become a new frontier
for financial institutions ‘drawn to agriculture by the promise of secure accumulation
and wealth preservation amidst financial turmoil’ (Sommerville 2019: 306). Cheap land
and significant production support by the state in land reform provides an attractive
option for financial capital to invest in land reform farms under the auspices of ‘strategic
partnerships’.
Wider political economy factors, particularly the politics of transition and subse-
quent ‘elite pacting’ amongst powerful groups, have profoundly shaped the trajectory
of post-​apartheid land reform (Hall 2004). Landed property, private agribusiness, and
the nascent class of Black commercial farmers have coalesced around a common vision
to deracialize the commercial farming sector through co-​option of Black commercial
farmers (Hall 2004). This has served largely to entrench agrarian dualism as opposed to
reconfiguring the agrarian structure through inclusion of Black smallholder producers
(Cousins 2013). Taken together, elite capture in land reform, contestations over state,
corporate, and traditional authority over land, and financialization have presented, and
will likely continue to pose, formidable constraints on any attempts to broaden access to
land as a basis for economic inclusion.

12.5 Conclusions

Initially conceived as a pro-​poor programme to reconfigure the highly unequal and dual-
istic agrarian structure, South Africa’s land reform was reinvented over time, reflecting
wider economic policy shifts towards the creation of a prosperous segment of Black com-
mercial farmers. By 2000, its objective had shifted to deracializing the dominant com-
mercial farming sector without restructuring landholdings and the agrarian economy.
The disjuncture between land and agricultural policies was resolved through the pro-
motion of the large-​scale commercial farming model in land reform, the selection of
beneficiaries able to contribute their own capital and expertise, and a consistent refusal
to subdivide large landholdings. Trade liberalization policies initiated by the apartheid
government, and accelerated after democracy, exposed South Africa to global processes
of agrofood restructuring while agricultural deregulation dismantled the comprehen-
sive architecture of agricultural subsidies and protections, a regime that had for decades
sustained white-​owned, large-​scale commercial farms. Simultaneously, efforts to support
‘emerging’ Black commercial farmers, faltered, largely due to hostile market conditions,
256    Ruth Hall and Farai Mtero

contradictory policy directions, and uneven and inadequate resourcing. National data
show the effects of the above on land consolidation and economic concentration, at odds
with the policy direction; indeed, the broader political economy of agriculture in con-
temporary South Africa is largely not permissive to a smallholder path articulated in land
reform policy.
Three contradictions characterize the relationship between land and the economy
over the past quarter century. First, the contribution of land to the economy has been
driven more by concerns with its value for exchange rather than production. In both
urban and rural areas, corporate ownership and land funds drove financialization of
land markets, with the entry of new financial sector actors into landholding and land
speculation and institutional actors like pension and hedge funds becoming more pre-
dominant. Farmland funds and property portfolios now span urban and rural land, and
residential, farming, and other land uses. Also associated with this trend is the conver-
sion of agricultural land into non-​agricultural uses, for purposes of leisure, tourism,
and residential estates. Equated with ‘foreign owners’, such trends have prompted calls
and even draft legislation to limit foreign land ownership, all of which have come to
nought. In any case, the precise purpose of such restrictions has never been articulated
beyond broad appeals to nationalist populism, and fallaciously equates such trends
with international rather than South African-​based capital. Second, contrary to policy
objectives, the overall structural shift has been towards land concentration. Elite capture
of public resources and corruption in land reforms contribute but do not fully explain
this. Rather, policy bias combined with market trends have deepened land inequality.
Broadening access to land was to be the centrepiece of a land redistribution programme,
which aimed not only to deracialize ownership of the economy but also to provide land
ownership as a basis for broad-​based economic development. Yet, the modest steps that
the government took towards redistribution did little to counteract the overarching
trend towards land concentration. The consolidation and vertical integration of larger
enterprises in agriculture, alongside land concentration, demonstrates the overall im-
pact of land and agricultural reforms. Concentration and financialization have spurred
rapidly rising land prices, posing a challenge not only to a market-​based land reform
programme but more broadly to the vast majority of citizens who are excluded from
access to land for residential, farming or other livelihood purposes.
Third, contrary to the notion of tenure reform, the hierarchy between private own-
ership and customary and informal tenure was reinforced, with commodification and
privatization of the latter rather than, as initially envisaged, the creation of durable and
democratic systems to recognize, protect, and administer all land within a single legal
and administrative framework. Rather, information about landholdings, their uses, and
who has what rights to them, is either dispersed across different institutions or absent
entirely. The asymmetry in land administration reflects continued dualism between
the formal system of land title, deeds, and surveys, and customary tenure. Amidst this
asymmetry in land rights have been resurgent large-​scale land deals on the small (and
shrinking) communal areas, driven by powerful corporate elites in combination with
 Land and Agrarian Development in South Africa    257

state and traditional authorities, usually for mining or agricultural purposes, and often
vigorously contested by residents.
These three contradictions suggest that the popular equation of land ownership
with ‘white farmers’, as evident in recent debates over expropriation without compen-
sation, while historically valid, is increasingly inaccurate and fails to capture the dra-
matic transformations in land ownership and its position in the economy. Rather than a
failure to transform land relations, the past quarter century is better understood as one
of massive transformation—​in a direction of concentrated ownership of land, control of
value chains, and patterns of accumulation—​in short, financialization, concentration
and commodification. This is the antithesis of land reform.
The ‘land question’ in South Africa has clearly expanded in the past quarter cen-
tury since the dawn of democracy. The first expansion is from the ‘land question’ to
the ‘agrarian question’, with the now widespread acceptance that, far from attempting
to preserve the agrarian structure, land reform should, by design, alter the size dis-
tribution of landholdings, promote greater opportunities for access to well-​located
smallholdings for production both for household consumption and for sale, and should
extend beyond ‘land reform’ to significant regulatory interventions to address the power
of corporations in upstream activities, in input industries, in technologies like seed, in
downstream processing, food manufacture, and retail. A second expansion of the ‘land
question’ is to challenge its equation with farmland, to also insist on urban land reform,
and opportunities for urban agriculture as well as for non-​farm uses of rural land.
While some progress has been made in deracializing land access via redistribution,
restitution, and private transactions, this has been slow. Where the land regime has
changed, or where new owners and users have acquired land, the outcomes and eco-
nomic benefits have been limited due to the absence of a coherent rural development
strategy in which access to land forms the basis for wider economic opportunities. In
this context, and with the commodification of customary land, and mass urbaniza-
tion, the politics of land has ‘gone urban’. With well over 60 per cent of the population
urbanized, in both large metropolitan areas and growing medium-​sized cities, the land
question can no longer be equated with an agrarian question. Mounting demand for
access to land for housing, but also for urban agriculture and other uses, has sparked
numerous conflicts, particularly between landless urban dwellers and local authorities.
These centre on access to land, spatial planning, and the provision of well-​located land,
and demands for recognition of informal rights. For instance, even where people have
obtained state-​subsidized housing under the RDP (Reconstruction and Development
Programme), 50 per cent of them are without title or their titles are inaccurate or
outdated (PAP 2019: 89). This means that, like the rural areas, urban land inequality
consists not only of unequal access to land, but also a continued inequality in the kinds
of tenure rights that people hold, with private title remaining out of reach for most
urban residents, especially poor and Black city dwellers. In the face of lengthy delays in
housing provision, with people waiting decades for a subsidized house, in recent years
the government has responded to demands for land access by delinking housing from
258    Ruth Hall and Farai Mtero

urban land reform and promising ‘rapid land release’ so that people can access land to
build their own shelters.
Redistributing land has not been, in South Africa, a mechanism used to address a
crisis of surplus labour in a de-​agrarianized society. The path dependency of an
economy founded on a mineral–​industrial complex, open for global trade, and with a
shrinking farming sector characterized by the consolidation of capital and concentra-
tion of landholdings, is at odds with any plan for land reform, save for the deracialization
of agrarian capital. A spectrum of efforts has been launched to achieve precisely this,
through Black economic empowerment shareholding schemes or farm equity schemes
for farm workers. Persistent land inequality continues to underpin broader asset and in-
come inequality, and spatial and economic exclusion, both within the rural areas marked
by agrarian dualism between commercial farms and communal areas, and in towns and
cities bearing the scars of apartheid spatial planners. The fragile legitimacy of the post-​
apartheid order is challenged constantly, and the continued inability or unwillingness
of either the state or capital to confront land inequality renders ‘the land question’ con-
stantly at the ready for populist grandstanding, election-​time sloganeering, diplomatic
troubleshooting, investor kneejerk jitters, tenderpreneur cashing-​in, and farmer defen-
siveness. In their haste to invoke it, or dispel it, both the ruling party and opposition
parties do no service to the real issue: the ways in which imaginative, principled, and
structural changes in the distribution, holding, administration, and use of land could
expand horizons for people’s lives and livelihoods.

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 Chapter 13

Mining and Mi ne ra l s
i n Sou th A fri c a

Neva Seidman Makgetla

For 150 years, the mining industry has shaped economic and social development in
South Africa. As of 2020, it continued to disproportionately affect exports, the pro-
duction structure, investment, climate change, economic power, and labour relations.
Yet it accounted for only a limited share of GDP and employment. Its outsized impacts
arose largely because it remained a central link between the South African economy and
international markets.
This article first reviews the role of mining in the South African economy. It then
outlines the main changes in the sector since the transition to democracy as well as key
elements in government regulation of the industry. A discussion of the socio-​economic
impacts of these changes follows, illustrated by the experiences of the coal and steel
value chains and the Marikana massacre.
The impact of mining on the economy and society is best understood through ana-
lysis of the value chain, rather than through extraction alone. The mining value chain
stretches from the production of inputs—​in South Africa, principally capital goods
and construction services—​to mining itself, to the metals and coal refineries, to export
markets and domestic manufacturing. It draws on a host of critical support services,
notably infrastructure and finance.

13.1 Mining in the South

African Economy

The mining value chain (excluding construction and coal-​based chemicals) contributed
13 per cent of GDP in 2019. Of that, 8 per cent was in mining itself and 4 per cent in the
metals refineries and electricity. In that year, the value chain absorbed 17 per cent of
262   Neva Seidman Makgetla

investment. In 2018, it accounted for 6 per cent of employment, with only 4 per cent in
mining and 1 per cent in the refineries. But it contributed over half of exports in 2019 and
used 40 per cent of electricity and freight transport.
The economic significance of the mining value chain remained largely intact through
the democratic era, as Figure 13.1 shows. Until the 2000s, gold was not always included
fully in the trade data, in part because it was considered part of the balance of payments
and in part because of apartheid-​era sanctions.
The importance of the mining value chain for South Africa emerged in the way eco-
nomic growth tracked global metals prices. The economy saw an upswing during the un-
precedented global commodity boom that lasted from around 2002 to 2011, then slowed
sharply when it ended. In 2011, global mining prices reached a thirty-​year high in con-
stant dollar terms, a level last seen in 1980 (see Jacks 2016). The impact of the upswing
was increased by the growing synchronization of price cycles across commodities. After
2011, however, mineral prices plummeted and in 2019 they were 40 per cent below their
peak. South Africa’s GDP grew at 3.5 per cent a year from 2002 to 2011 during the com-
modity boom, but slowed to an average of 1.9 per cent from 2011 to 2015, then dropped to
0.7 per cent annually from 2015 to 2019 (see Figure 13.2).
Compared to other upper-​middle-​income economies, South Africa was unusually
dependent on exports of mining-​based commodities, even if China is excluded from the
comparison. The pattern emerges from figures for revealed comparative advantage. The
revealed comparative advantage is the ratio of the share of an industry in South African
exports to the share of the industry in exports by comparator economies, in this case
upper-​middle-​income countries excluding China. From 2014 to 2016, the ratio was 1.1
for ores, fuels, and metals; between 1.25 and 1.45 for (largely coal-​based) chemicals and

Mining Metals refineries Metal fabrication Machinery (a) Electricity

Figure 13.1 Indicators of the significance of mining for the economy, 1994 and 2019
Source: Calculated from Quantec, EasyData, Standardised industrial series. Downloaded from https://​www.quantec.co.za
in October 2020.
Note: (a) Includes electrical equipment except cables; excludes appliances and transport equipment.
 Mining and Minerals in South Africa    263

6% 25%

% Change in major mineral prices

5% 20%
15%
4%
% Change in GDP

10%
3% 5%
2% 0%

(a)
1% –5%
–10%
0%
–15%
–1% –20%
–2% –25%
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
GDP Mineral prices in US dollars (right axis)

Figure 13.2 Annual percentage change in GDP compared to annual percentage change in
international price of South Africa’s main mining exports
Source: For GDP, Statistics South Africa, Quarterly and Regional Fourth Quarter 2019, Excel spreadsheet downloaded
in March 2020; for metals price, Index Mundi and Kitco data, downloaded in January 2020; and for trade weights,
Quantec EasyData, international trade data at 6-​digit HST level in current Rand, accessed at https://​www.quantec.co.za in
March 2020.
Note: (a) Index of US dollar prices for coal, iron ore, gold, and platinum, weighted by share in exports.

auto, which were South Africa’s only major export industries outside of the mining value
chain; and 0.8 for capital goods and agriculture and food products. In contrast, for the
labour-​intensive and design-​intensive products that kickstarted export-​oriented indus-
trialization in Asia—​clothing and appliances—​it was only between 0.2 and 0.4.
Internationally, the biggest increase in mineral sales and investment during the com-
modity boom occurred in copper and other industrial minerals, which did not rank
amongst South Africa’s main mining products. This contributed to muted growth in
investment and mineral rents in South Africa compared to other mining-​dependent
countries. Still, the value of South African mining exports in constant Rand terms,
deflated by CPI, rose by an average of 6 per cent a year from 2002 to 2011, compared to
growth of 4 per cent in other goods exports. As metals prices plummeted from 2012,
export revenues from mining fell back an average of 0.6 per cent annually from 2011
to 2019. Other exports, however, climbed 3 per cent a year (calculated from Quantec
2020b).
The trade data do not adequately capture figures for exports of services, which means
they overstate the importance of mining. With the opening of the economy from 1989,
finance and, to a lesser extent, tourism grew disproportionately rapidly, although figures
on trade in services are notoriously unreliable. That said, a significant share of the fi-
nancial sector depended on mining, funding both investment and trade, and dealing in
mining shares on the stock exchange.
Mining was also critical for the economy as a result of South Africa’s unusually ex-
tensive reliance on coal to generate electricity. In the 2010s, over 90 per cent of South
African electricity was fuelled by coal, compared to under 15 per cent in other upper-​
middle-​income economies excluding China, and 70 per cent in China. Before the
264   Neva Seidman Makgetla

commodity boom, cheap coal fostered an unusually energy-​intensive economy, at al-

most nine megajoules per dollar of GDP in 2015 or twice as much as in other upper-​
middle-​income economies outside of China (and a third higher than China). In the
2010s, the increase in the price of coal contributed to soaring electricity prices becoming
a significant drag on growth. Pressures to shift to greener energy sources offered
opportunities for growth, but also created a series of conflicts and disruptions in the
established coal value chain.
Finally, mining played a central role in the political economy of the democratic era.
Above all, the mining houses dominated big business. Companies in the mining value
chain accounted for around a fifth of equity on the Johannesburg Stock Exchange (JSE) in
2020. The mining industry, and especially the labour movement, was also an important
source of political leadership in the African National Congress (ANC). Two of South
Africa’s five presidents in the democratic era (Kgalema Motlanthe and Cyril Ramaphosa)
had been general secretaries of the National Union of Mineworkers (NUM). Still, as the
labour movement was legalized, mining became less dominant in organized labour. At The
Congress of South African Trade Unions (COSATUs) founding conference in 1985 NUM’s
100,000 members accounted for one-fifth of the total. In 2012, although it claimed over
300,000 members, its share in COSATU fell to one-seventh, mostly because of the rapid
unionization of the public sector from 1994. In 2018, both the miners’ unions and COSATU
itself had fragmented, but miners constituted 8 per cent of total union membership.

13.2 Evolving Production and Power

Structures from 1994

While the mining value chain remained central to the South African economy and the
political economy after the transition to democracy, its production and power structures
evolved significantly. On the one hand, a range of new products emerged. On the other,
ownership and worker organization underwent far-​reaching changes. These trends did
not, however, lead to a more equitable industry, generate significantly more employ-
ment, or promote broader economic development.

13.2.1 The Production Structure

In the 1980s, as South Africa’s historically dominant gold mines ran out of easily access-
ible ores, they began downsizing. As foreign trade and financing became more access-
ible from the early 1990s, mining companies consequently diversified into new minerals.
Iron ore, platinum, and coal production outstripped gold for most of the democratic
era, while ferroalloys and later chrome and manganese ore exports also grew rapidly.
Gold output dropped to 105 tonnes in 2019 from 580 in 1994 (which was down from the
 Mining and Minerals in South Africa    265

450

400 75 76
76 74 70 65
70 81 77
350 74 74
66 15
300 81 18 16 28
15
61 23
73 53 56 15 15 29
51 33 37 47
250 51 32 36
31 43
58 65
48 24 67 61 52
200 51 60 70 62 51
42 44 20 58 55 56 53
13 62 96 91
38
12
17
55 83 97 94 94 98
150 34 11 11 69 71 90 85 86
29 50 67 49
23 32 28 27 53 48 47
49
100 49
47 44
45 45
69 57 64 56 53 41 42 86 94
96 93 93 94 93 89 86 82 82
99
36 81 77
50 34 69
31 59 54 52 58
25 28 30 30 46
26 34
-
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Other Chrome Manganese Iron ore Gold Coal Platinum

Figure 13.3 Contribution of mining to GDP in constant (2020) prices, by commodity

Source: Calculated from Quantec, EasyData, Standardised industrial series. Downloaded from https://​www.quantec.co.za
in October 2020.
Note: (a) Reflated with CPI based to 2019. The CPI is used to indicate the value a​ dded from production of the commodity
relative to the rest of the economy, given changes in relative international prices. In contrast, the GDP in constant Rand
aims to measure volume, with no change in relative prices over time.

peak of 680 tonnes in 1984). In contrast, as Figure 13.3 shows, iron ore production more
than doubled from 30 million tonnes in 1994 to 72 million in 2019; coal expanded by a
third, from 195 million tonnes to 260 million; platinum, from 185 to 270 tonnes; chrome,
from four million to 18 million tonnes; and manganese, from three million to 17 million
tonnes.
The changing commodity structure in mining was associated with shrinking em-
ployment. Except for platinum, the new mines were mostly open pit, and therefore
less labour intensive than the underground gold mines. As Figure 13.4 indicates, the
number of miners dropped from a high of almost 800,000 in 1980 to 415,000 in 2002. It
recovered to 512,000 at the height of the commodity boom in 2011, but then fell to just
over 450,000 in the first quarter of 2020. In gold, employment fell from half a million
in 1984 to 400,000 in 1994 and 90,000 in 2019. In platinum, it climbed from 97,000 in
1994 to 195,000 in 2011 before falling to 170,000 in 2019. The platinum mines absorbed
many of the skilled underground miners laid off from gold because they used similar
technologies. Coal jobs fell from 130,000 in 1980 to 50,000 in 2002, but then recovered
to around 95,000 in 2019. The iron ore mines accounted for 12 per cent of mining value-​
added, but employed fewer than 20,000 people in 2019.
The new production structure saw a shift of mining away from the Free State and
Gauteng to smaller towns in Mpumalanga (for coal), the North West and Limpopo
266   Neva Seidman Makgetla

900

800
83 76
68
700 27
121 104
600 128
74 50
97
500 77
Thousands

62
519 48
476 490 92 53
53 38 53
400 40 48
52
74
380 51 57 78
300 182 95
96 155 186
168
200 217
161 157
100 115
93
–
1980 1985 1990 1995 2000 2005 2010 2015 2019

Other Iron, manganese and chrome ore Coal PMG Gold

Figure 13.4 Employment by commodity, 1980 to 2019, in thousands

Source: For 1980 to 2015, Department of Mineral Resources, Mineral Statistics Bulletin. Accessed at Quantec
EasyData, Mineral Statistics: National Employment and Earnings, Annual. Interactive database accessed at
https://​www.quantec.co.za. For 2019, average for year from Department of Mineral Resources,
Mineral Statistics Bulletin. Accessed at Quantec EasyData, Mineral Statistics: National Employment
and Earnings, Monthly. Interactive database accessed at https://​www.quantec.co.za.

(platinum), and the Northern Cape (iron ore and ferroalloys). The result was harshest
on the mining towns of the Free State, while the North West platinum belt around
Rustenburg saw a surge in in-​migration for which it was ill prepared.
At provincial level, the decline in gold mining had far more severe impacts on the
Free State than on Gauteng, which had a much more diversified economy. The Free
State’s share in national mining sales fell from 15 per cent in 1994 to 5 per cent in 2017;
for Gauteng, the drop was from 22 per cent to 10 per cent (calculated from DMR 2018).
From 1994 to 2019, the Free State lost 95,000 mining jobs, or 15 per cent of its total formal
employment. Gauteng lost some 120,000 mining jobs, but that was just 3 per cent of
formal employment there. In large part because of the decline in gold, the Free State
saw the slowest economic growth in the country, expanding just 1.1 per cent a year on
average from 1994 to 2018, compared to 2.4 per cent for the rest of the country. In the
same period, despite a similar decline in gold mining, Gauteng was the fastest growing
province, with the provincial GDP climbing by 2.8 per cent annually (Quantec 2020c).
People voted with their feet: the population of the Free State climbed just over 10 per
cent from 1996 to 2019, while the national population increased by almost 50 per cent
and Gauteng’s population doubled.
Meanwhile, the historically rural platinum belt in the North West, and on a smaller
scale the mining towns of Limpopo and the Northern Cape, saw extraordinary
 Mining and Minerals in South Africa    267

in-​migration. The population of the North West’s platinum belt doubled from 1994 to
2019, although the province as a whole only grew 50 per cent. The overloading of local
services emerged from figures on housing. Around a third of platinum-​belt households
lived in informal housing in 2019. For comparison, the population of Johannesburg
climbed 125 per cent in this period, but only a sixth of the population lived in informal
housing; the population of Cape Town grew 85 per cent, with a fifth in informal housing
(Quantec 2020c). As discussed below, the difficulty of accommodating the influx
into the platinum belt contributed to a labour-​relations crisis that culminated in the
Marikana massacre in 2012.
The democratic era also saw sharp fluctuations in beneficiation, especially inputs to
steel (iron ore, chrome, and manganese) and aluminium. The 1990s brought a step up
in highly energy-​intensive ferroalloys and aluminium refining. The trend reversed from
the early 2000s, however, thanks to soaring electricity prices combined with increased
overseas demand for ores, mostly from China.
Historically, South Africa beneficiated most of its mining output. For much of the
past century, around half of coal, by weight, was used locally to produce electricity and
liquid fuels, while gold and platinum were refined at the mines before export. In the
2010s, around a tenth of South African platinum was manufactured locally into catalytic
converters, largely for export. A state-​owned company, ISCOR, began producing steel
from local ore and coal in the 1920s; it was privatized in the early 1990s and in the early
2000s sold to Arcelor Mittal, but still dominated local production.
From the early 1990s, Eskom promoted ferroalloys and aluminium plants to increase
demand for electricity. These refineries are extremely energy intensive, and the plants
were effectively designed to beneficiate coal as much as metal ores. Indeed, the alu-
minium plants came to South Africa solely to get low-​cost electricity, since the bauxite
was imported from Australia. Three new aluminium plants established at Richard’s
Bay and in Mozambique used almost a tenth of Eskom’s total electricity production
in 2013. Eskom was responding to an electricity surplus that resulted from its over-
expansion, despite a sharp economic slowdown from 1985 through 1994. The opening
of the economy after 1989 enabled it to leverage foreign investment and export markets.
It partnered with the state-​owned Industrial Development Corporation to partially fi-
nance the new plants, although all were owned by foreign mining companies.
The trends towards energy-​intensive beneficiation reversed in part because the com-
modity boom increased the export price for ores and coal, and in part because of soaring
electricity prices from 2008. As a group, the metals and coal refineries’ electricity use
climbed roughly 80 per cent from 1990 to 2008, but then dropped by a tenth through
2019 as electricity prices more than doubled in real terms.1 Their share in Eskom sales
rose from 20 per cent in 1990 to peak at 31 per cent in 2000 but fell back to 19 per cent in
2019 (calculated from Eskom Annual Reports for relevant years).

1
The figures are for all sales to a group of large, energy-​intensive enterprises, around thirty-​five in
total, but the bulk goes to metals refineries.
268   Neva Seidman Makgetla

Stagnation in local refining meant increased exports of iron, chromium, and man-
ganese ores. These trends meant that South Africa largely lost its dominant position in
global ferroalloys markets to China, whose producers imported South African chrome
and manganese ores.
From 2002 to 2019, by weight, domestic sales of iron ore fell by a third while exports
more than doubled. As a result, although domestic users (mostly AMSA) accounted for
a third of total iron ore sales in value terms from 1994 to 2005, their share fell to a tenth
from 2011 to 2019. In chrome, domestic sales (by weight) doubled from 2002 to 2019, but
exports climbed seven ​fold. As a result, in value terms the share of chrome ore processed
in domestic refineries dropped from two-​thirds in the decade from 1995 to one-half
after 2011. The decline in manganese processing was even larger, with local sales by value
falling from a third of the total in the first decade of democracy to less than a twentieth
between 2015 and 2019 (calculated from DMR 2018).
The changing production structure in the mining value chain was associated with
shifts in the direction of trade. The most important development was the emergence of
China as a key market for iron ore and later chrome and manganese, and India for coal.
South Africa does not publish gold exports by destination, and the information is also
not available for a significant share of platinum sales. Figure 13.5 shows the changing
pattern of mining-​based exports excluding gold.
The rest of Africa was a key market for South Africa’s exports of steel and mining
capital goods, although it was insignificant as a destination for mining products. In the
2010s, it bought 8 per cent of South African mining exports, mostly coal and refined pet-
roleum and diesel, up from 2 per cent from 1990 to 2009. But it accounted for a fifth of

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
1990 to 1999 2000 to 2009 2010 to 2019
Other US Africa Japan, Korea and Taiwan
India EU China and Hong Kong

Figure 13.5 Mining exports excluding gold by destination, 1990 to 2019

Source: Calculated from Quantec, RSA Trade HS 8-​digit. Interactive dataset. Accessed at https://​www.quantec.co.za in
October 2020.
 Mining and Minerals in South Africa    269

South African exports of iron and steel in the 2010s, compared to a tenth in the previous
two decades, and four-​fifths of structural steel products, an increase from around half in
the 1990s. Moreover, as of 2017, South African producers still supplied over a quarter of
all imports by other SADC countries of capital equipment for mining, notably pumps
and grinding, earthmoving and material-​moving machinery. They had, however, lost
ground to Chinese companies (Levin et al. 2019: 24).

13.2.2 Corporate Structure
After democracy, ownership of the South African mines remained highly concentrated,
but ownership changed hands repeatedly. Before 1989, the industry was effectively
shared amongst a handful of conglomerates, led by Anglo American and Gold Fields.
Each of these mining houses held individual mines through subsidiaries that often
specialized by commodity. Because of global opposition to apartheid combined with
capital controls, from the 1970s the mining houses were increasingly unable to under-
take investments outside of southern Africa. In response, they diversified into cap-
ital goods production and other manufacturing and financial services in the region.
Estimates suggested that Anglo American effectively controlled over two-​fifths of the
JSE in 1994,2 including major paper, auto, and foundry interests.
Democracy freed the mining houses to move into overseas mining opportunities.
In effect, the largest became global mining companies rather than South African
conglomerates. They were listed on the London Stock Exchange, initiated mining
ventures overseas—​largely in Australia, Latin America, Eastern Europe, and other
African countries—​and shed most of their local manufacturing interests. By 2016,
Anglo American only controlled around 2 per cent of the JSE.3
The mining conglomerates’ globalization strategy ultimately led to divestment from
most of their South African gold mines and many of their other mining interests. This
outcome had two roots. On the one hand, foreign shareholders pressured the companies
to diversify their risk by investing outside of South Africa. On the other, as mines
matured or global prices fell—​notably in the early 2000s and again after 2011—​the
conglomerates turned to mining investments in other countries, rather than seeking
non-​mining opportunities in South Africa.
In 2020, Anglo American’s main holdings in South Africa had narrowed to De Beers,
the diamond giant; Kumba; Anglo Platinum; and coal mining, although it only kept its
export mines. It had disposed of all its gold and almost all its manufacturing interests.
Two of its twelve board members were South Africans. Nonetheless, South Africa
still accounted for two-​thirds of its direct employment and half of its tax payments.

2
Information kindly provided by Who Owns Whom, Johannesburg, in 2016.
3
Information kindly provided by Who Owns Whom, Johannesburg, in 2016.
270   Neva Seidman Makgetla

Gold Fields divested three of its four remaining gold mines into a new company, Sibanye
Gold, now owned by Sibanye Stillwater, in 2012.
As of 2020, Harmony and Sibanye Stillwater had acquired most of South Africa’s
gold mines; platinum was dominated by Anglo American and Sibanye Stillwater;
and iron ore, chrome, and manganese were largely controlled by Anglo American
(through Kumba) and Glencore Merafe (Who Owns Whom 2019: 7–​8 and 2020b: 8–​9).
Except for Glencore, foreign companies had divested from South African coal al-
most entirely by mid-2021. Three locally owned and empowered companies - Exxaro,
Seriti and Sasol (which operated coal plants primarily to feed its coal-to-liquid fuels
refinery) dominated production.
The mining houses were owned principally by institutional investors, including for-
eign investment companies like Black Rock; retirement funds, notably the public service
pension funds managed by the state-​owned Public Investment Corporation; and em-
ployee ownership schemes. Except for the multinationals with their main listing outside
of South Africa—​Anglo American, Glencore, and Gold Fields—​all except Harmony and
Gold Fields reported some Black ownership, ranging between 5 per cent and 55 per cent
in 2019 (Who Owns Whom 2020a). Black shareholdings by individuals and companies
were typically heavily leveraged, however. As a result, they generally expanded when
mining prices were high—​as in the commodity boom—​but declined when the mines
became less profitable.
Irrespective of the size of Black shareholding, the executives of the leading mining
companies remained disproportionately white. A third of the seventy-​eight executive
directors of the ten largest mining companies with a primary listing on the JSE were
black. That compared to half of their ninety-​eight independent directors. A seventh of
the executive directors were black women, and a tenth were white women.
As the commodity boom ended and mining profits plummeted after 2011, the second-​
generation mining conglomerates also began to seek opportunities overseas. Sibanye’s
first annual report identified it as ‘a producer of gold and a major holder of gold reserves
in South Africa’, with holdings exclusively in South Africa (Sibanye 2012: 2). By 2019, it
billed itself as ‘a leading international precious metals company’ based on its expansion
into platinum operations in the United States, Argentina, and Canada, in addition to
acquiring Lonmin’s South African mines (Sibanye-​Stillwater 2019: 1).
The restructuring of mine ownership did not significantly reduce concentration in
the value chain. In 2019, five mining companies with a primary listing on the JSE—​Sasol,
South32, Anglo American Platinum, Sibanye Stillwater, and AngloGold Ashanti—​
accounted for two-​thirds of the reported assets of all listed mining companies. Anglo
American and Glencore, which had their primary listing on the London Stock Exchange,
alone had assets equal to 60 per cent of the mining assets on the JSE (calculated from
Who Owns Whom 2020a). Similar data are not available for the big metals refineries
because they are mostly subsidiaries of foreign companies, and except for AMSA are
integrated with affiliated mines (in the case of aluminium, located in Australia). In 2017,
however, Statistics South Africa found that in both steel and other metals, the top five
refineries accounted for two-​thirds of sales (StatsSA 2019b: 33).
 Mining and Minerals in South Africa    271

In contrast to the mines and refineries, downstream metals manufacturing was fairly
competitive. Companies ranged from foundries building custom-made equipment for
the mines and manufacturing, to aluminium windows manufacturers, to subsidiaries
of foreign companies that imported most of their advanced components, although they
often used local structural inputs such as bumpers and metal fittings (see TIPS 2017: 12ff.).
In 2018, there were around 100,00 employers in the metals and machinery industries
excluding the refineries, with an average of twenty employees (calculated from StatsSA
2018). In 2017, the top five companies only controlled a seventh of sales in structural metal
products production, with the share ranging from 25 per cent to 50 per cent for more
specialized products such as engines, pumps, and cutlery (StatsSA 2019b: 33).

13.2.3 Unions
The miners’ labour unions also underwent substantial changes in the democratic era, al-
though union density remained extraordinarily high. It was just under 80 per cent from
2002, the earliest reliable data, to 2019 (calculated from StatsSA 2002 and 2019). Union
density ranged from 60 per cent in coal to 80 per cent in gold and 90 per cent in plat-
inum (calculated from StatsSA 2018).
The earliest reported strike by African miners occurred in 1913, with national strikes
in 1920 and 1946. In 1982, black miners established a national union, the NUM, in the
face of often vicious repression. Non-​African miners already had their own, much
smaller, organizations, which largely fought to maintain their privileged position in the
workplace.
Unionization in the 1980s vastly improved miners’ conditions even before the transi-
tion to democracy. In the 1970s, miners, farmworkers, and domestic workers all ranked
amongst the lowest paid, most insecure, and most abused formal employees. But their
fortunes diverged sharply from the 1980s as miners formed unions, while farm and do-
mestic workers remained mostly unorganized. By the 2000s, the median pay for miners
was twice as high as for the rest of the formal sector, at R8,500 a month in 2018. In con-
trast, the median farmworker earned R2,900 a month, and the median domestic worker,
R1,900. For other formal workers, the median wage came to R4,300 a month (calculated
from StatsSA 2018).
In the 2010s, the NUM’s near monopoly on miners’ representation came to an end
with the emergence of the Association of Mineworkers and Construction Union
(AMCU). AMCU was founded as a breakaway from NUM in 2001, and in the 2010s
became the majority union on the platinum mines. In 2020, both AMCU and NUM
claimed around 300,000 members, which, taken together, would mean that union
density on the mines exceeded 100 per cent. In reality, the figure was likely closer to
200,000 apiece, reflecting NUM’s loss of around a third of its members during the 2010s.
AMCU’s rise largely reflected the difficulties miners faced around work and living
conditions in the platinum belt, combined with slower wage increases after the com-
modity boom ended, as discussed below in the context of the Marikana strikes.
272   Neva Seidman Makgetla

13.3 Industrial Policy and

the Mining Value Chain

Despite an official commitment to more advanced industrialization, in practice govern-

ment decision-​making continued to favour the mines and refineries over downstream
producers. The consequences could be seen in the coal and steel value chains, where
during and after the commodity boom the mine owners increasingly raised prices to
downstream industries, effectively capturing the rents from South Africa’s natural
resources at the cost of competitiveness in manufacturing.
Three key policies illustrate the ambiguity in government’s approach to the value
chain: policies on mining rents and industrialization; the public investment programme
that began in 2005 and petered out in the late 2010s; and efforts to promote black owner-
ship in mining.

13.3.1 Domestic Prices of Mining Products

South Africa’s rich mineral resources, combined with long-​standing infrastructure
support and other government incentives, laid the basis for significant mining rents.
That is, the South African mines could sell their output overseas at a price above the
domestic competitive price, which, by definition, would equal the cost of production
plus a normal rate of profit. In theory, if the mines sold their production domestically at
the competitive cost-​plus price, it would increase the competitiveness of downstream
manufacturing. That would, however, require that the mines sell at least a share of their
output below the global price.
The question of who should benefit from mineral rents—​the mine operators, the
refineries, or downstream manufacturing industries—​became an area of contestation
long before the transition to democracy. From at least the turn of the last century, with
the formation of Eskom and later ISCOR, the South African state sought to ensure
that local refineries obtained mining products at less than the global price. The demo-
cratic government did not, however, consistently pursue this goal. Indeed, over time it
tolerated substantial increases in the domestic prices of coal and iron ore at the cost of
local fabricators.
The government did not develop any measures to moderate domestic prices for
mining products until the 2010s. It then introduced amendments to the 2002 Mining
and Petroleum Resources Development Act (MPRDA) that empowered the minister to
compel mines (and arguably refineries) to sell a share of their production to downstream
users at the mine-​gate price. The mine-​gate price was defined as the import-​parity price
excluding freight costs, which in effect meant the mines would keep the core mineral
rents but in the case of bulk minerals would reduce the price by up to a third. The min-
ister could establish a cost-​plus price—​that is, the theoretical competitive price—​only
 Mining and Minerals in South Africa    273

by agreement with the producers. In any case, as of 2020, there were no reports that the
regulation was ever implemented.
The implications of failing to manage the allocation of rents in the mining value chain
can be seen in the crises that hit South Africa’s coal and steel value chains in the 2010s.
Both were partially due to the ability of upstream mining companies and refineries to
capture rents at the cost of downstream producers. Their power in turn was conditioned
by government provision of low-​cost, efficient export infrastructure.
In terms of the coal value chain, the crisis emerged around electricity, since Sasol
owned its own mines and set prices internally. By 2020, soaring electricity prices and
load-​shedding had become a critical constraint on the economy. From 2008 to 2019, the
unit price for electricity climbed 128 per cent in real terms (deflated by CPI), and Eskom
demanded increases at more than 10 per cent above inflation for 2020. Yet its electricity
sales fell almost 7 per cent from 2008 to 2019 (calculated from Eskom annual reports). In
effect, Eskom had entered a ‘utility death spiral’, where an inability to reduce its costs as
demand shrank fed into higher tariffs, in turn further depressing demand (see Makgetla
2021a; Eskom 2019: 47).
Five factors underpinned this outcome:

• A sharp rise in domestic coal prices from 2002 to 2019 eliminated Eskom’s historic
competitive advantage, which had disproportionately benefited the mines and
metals refineries through cheap electricity tariffs.
• Eskom’s two new huge coal-​based electricity plants were both delayed and faulty,
increasing its financing costs while revenues fell short.
• Eskom’s older plants began to break down as the new capacity was delayed, leading
it to ration electricity repeatedly after 2016, further reducing its sales.
• The economic slowdown after the commodity boom ended, and especially the
downsizing at the metals refineries, meant demand in any case was unlikely to live
up to Eskom’s projections. One of the aluminium refineries closed down in 2014,
and AMSA reduced production primarily at its electric furnaces as electricity
prices climbed.
• Finally, from the early 2010s the government encouraged cheaper renewable en-
ergy, which effectively displaced around 5 per cent of Eskom’s output in 2019.

The shift in rents after the commodity boom emerged from trends in coal prices. During
the commodity boom, both domestic and export prices climbed around 70 per cent.
Thereafter, the domestic coal price far outpaced exports. From 2011 to 2019, it climbed
by 40 per cent in constant Rand terms while export prices dropped almost 30 per cent
(calculated from DMR 2020; deflated with CPI).
Various factors enabled the coal producers to capture a higher share of mining rents.
In the 2000s, in an effort to bring in more black mine-​owners, Eskom moved towards
shorter-​term contracts with smaller producers, displacing its earlier practice of long-​
term contracts with the major mining houses. That, in turn, opened the door to over-
payment for politically connected suppliers. At the same time, Transnet continually
274   Neva Seidman Makgetla

improved its facilities for export coal, effectively enabling producers to shift to overseas
markets if Eskom could not meet their price.
Fundamentally, the electricity crisis resulted from Eskom’s failure to adapt its
business model as the economy evolved. That business model was effectively based on
cheap coal; a continual increase in demand rooted largely in growth in refineries; and
an ability to pass on higher costs to users. Through the twentieth century, its symbiotic
relationship with the big mining companies meant coal rents lowered the cost of en-
ergy, underpinning the development of the mining value chain (see Fine and Rustomjee
1996). In the twenty-​first century, Eskom continued to rely on large coal plants, even
as new technologies, including renewables, became both cheaper and more flexible.
Meanwhile, it allowed the new investors in the coal mines to retain a higher share of
the rents. As it became increasingly uncompetitive, it focused on maintaining its mon-
opoly position and prices. Nonetheless, faced with a deepening crisis around electricity
supply, in 2020 the government committed to enabling lower-​cost private generation on
a small scale, although in practice it was slow-​walking the process.
Contestation over mining rents also fuelled a crisis in steel production in the 2010s.
Over the 2010s, the leading crude steel producer, AMSA, closed major plants and cut
production. Its decline was due in large part to changing relations with its ore supplier.
In the early 2000s, ISCOR sold its mines to an Anglo-American subsidiary, Kumba,
and its refineries to the international steel conglomerate Arcelor Mittal. AMSA initially
retained a share in the iron-​ore mines, which meant it continued to pay a cost-​plus price
for ore rather than the import-​parity price. Downstream manufacturers and govern-
ment officials argued that it nonetheless charged import-​parity prices for steel, which ef-
fectively reduced the competitiveness of both fabricators and the construction industry.
In 2010, AMSA lost its share in the ore mines essentially due to management negli-
gence. Kumba promptly started charging it international prices for iron ore. The result
was a steep increase in AMSA’s costs. In constant Rand, the unit price for iron ore sold
domestically doubled from 2002 to 2011, while the price for exports tripled. From 2011
to 2019, however, export prices dropped 37 per cent while domestic prices rose 15 per
cent (calculated from DMR 2020; deflated with CPI). In effect, the rents from South
Africa’s high-​quality iron ore shifted from the steel mills to the mines. AMSA’s woes
were aggravated by a number of other factors, notably increasingly costly and unreli-
able electricity from Eskom; a glut on the global steel market that led to plummeting
import prices; and its parent company’s apparent disinterest in maintaining production
in South Africa.
The government’s main response to the crisis at AMSA was to introduce import
tariffs to protect it from foreign competition, starting in 2015. That effectively shifted the
burden of higher domestic iron-​ore prices onto the far more labour-​intensive, competi-
tive, and innovative downstream manufacturers as well as construction companies. The
government did not compel Kumba to return to a cost-​plus price, which would ensure
that the rents could benefit downstream producers. Yet domestic sales made up only a
tenth of Kumba’s total output. Besides the MPRDA mandates, in theory the government
 Mining and Minerals in South Africa    275

had considerable leverage since iron ore exports, like coal, depended on dedicated low-​
cost rail and port facilities provided by Transnet.

13.3.2 Public Investment and Mining

South Africa kicked off a major public investment programme with the Accelerated
and Shared Growth Initiative for South Africa in 2006, followed by the National
Infrastructure Plan in 2012 (see AsgiSA 2008: 41ff; RSA 2020). Both programmes ef-
fectively relied on mining, flush from the global commodity boom, to pay for bulk
investments. The argument was that sales to mining would fund gargantuan bulk in-
frastructure schemes while laying the basis for improved services across the economy.
Critical projects included road and rail transport to the new mines in the Waterberg;
improvements in bulk rail lines to the coast for iron and chrome from the Northern
Cape and coal from Mpumalanga; new dams that relied on the platinum mines for off-
take; and two of the biggest coal-​based power stations in the world, based largely on the
expectation that the commodity boom would continue to boost demand from the rest of
the mining value chain.
The build programme did not fully neglect other kinds of infrastructure, with
commitments, amongst others, to new schools and broadband, and to improving
services in communities, in the case of the National Infrastructure Plan especially
around the expanded transport corridors for the inland mines. In practice, however,
the anticipated investments in communities were rarely implemented in full. This was
particularly serious because, as municipalities struggled to improve services in historic-
ally underserved black communities after 1994, they had often allowed water, electricity,
and roads for manufacturing companies to deteriorate. In contrast to the improvements
provided for mining, however, the national build programme did not prioritize funds
for other industrial or commercial sites.
The bias towards mining in infrastructure plans was reinforced by the central role
of state-​owned enterprises charged with improving freight transport and electricity—​
Transnet (for rail), Sanral (roads), and Eskom (electricity). All of these institutions
were established before democracy, when promoting mining and later metals and
coal refineries were systemic priorities. Both Eskom and Transnet had long-​standing
dedicated bulk services for the mines, which generated a significant share of their
revenues. As noted earlier, Eskom also supplied electricity, in some cases at favourable
rates, for the electricity-​intensive refineries.
The dependence of public investment on the mining value chain meant that its
fortunes ultimately followed the global commodity cycle, as Figure 13.6 shows. As a
share of the GDP, public investment peaked in 2009 at 7.9 per cent. It then plateaued
through 2015, before falling to 5.4 per cent in 2019 (calculated from SARB 2020). The
synergy with the mines was most pronounced for the state-​owned companies. Transnet
cut back on its investments in ore lines as prices fell. In contrast, Sanral and Eskom failed
276   Neva Seidman Makgetla

10.0% 100
9.0% 90
Public investment as % of GDP 8.0% 80
7.0% 70
6.0% 60

2011 = 100
5.0% 50
4.0% 40
3.0% 30
2.0% 20
1.0% 10
0.0% –
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
General government Public corporations
Average annual metals price index (right axis) (a)

Figure 13.6 General government and public corporation (SOC) investment as percentage of
GDP and average annual metals price index (2011 = 100), 2000 to 2018
Source: For investment, calculated from South African Reserve Bank. Online Statistical Query. Accessed at https://​www.
resbank.co.za in December 2019. For metals price index, Index Mundi and Kitco data, downloaded in December 2019;
and for trade weights, Quantec EasyData, international trade data at 6-​digit HST level in current Rand, accessed at https://​
www.quantec.co.za in December 2019.
Note: (a) Trade-​weighted average of US dollar prices for platinum, gold, iron ore, and coal.

to adapt to the downturn and both ended up with large losses by the end of the 2010s as
mining demand stagnated.

13.3.3 Ownership
Like its positions on pricing and infrastructure, the government’s approach to mine
ownership was conflicted. From the 1950s, the ANC argued that South Africa needed
more equitable ownership of economic assets, rather than merely improving the
representivity of shareholders in existing dominant companies (see ANC 1955 and
1969: 32ff). In practice, however, after 1994 it did little to challenge class relations in
the mining value chain. Instead, most of its effort centred on leveraging increased
interests for black investors, with comparatively limited benefits for miners and
mining towns.
Before 2002, South African mining law effectively vested ownership in the mine oper-
ator in perpetuity. Through the 2002 Minerals and Petroleum Resources Development
Act (MPRDA), the government shifted ownership of the resources to the state. Mine
owners were required to apply for thirty-​year production licences, which enabled the
state to impose a variety of environmental, social, and economic requirements. These
conditions were mostly defined through the sector-​wide Mining Charter. The Charter
was consulted in detail with organized business and labour, but ultimately gazetted by
the minister.
 Mining and Minerals in South Africa    277

Through the MPRDA, the government made minority black ownership a precondi-
tion for mining licences. The initial target was set at 26 per cent by 2014 but the figure
was increased in 2018 to 30 per cent. The 2018 ownership target required that 10 per cent
be split between employee and community trusts, with the remaining 20 per cent held
by individuals or black-​owned companies. In most cases, the historic owners had to fi-
nance the new black investors, who in turn repaid the loans out of their profits. Licencees
also had to establish an environmental management plan and a social and labour plan.
Under the Charter, they could also earn points towards an overall grade for black repre-
sentation in management and for procurement from enterprises with at least 25 per cent
black ownership; beneficiation (essentially defined as smelting and refining of ores, not
metals fabrication); spending on skills development equal to 5 per cent of payroll; and
improvements to workers’ housing. In contrast to the ownership targets, however, these
requirements were mostly vaguely defined and rarely monitored.
The value of BEE deals in mining declined from 2010, largely reflecting the end of the
global commodity boom in 2011 as well as the success of many companies in achieving
the initial ownership targets. The Minerals Council estimated the value of deals only in
current Rand. It found that they dropped from Rand 113 billion across 168 transactions
between 2002 and 2010 to Rand 30 billion for sixty-​seven transactions from 2010 to 2019
(Minerals Council 2019: 12).
The mining companies’ pyramid structure complicated efforts to measure the
government’s success in promoting black ownership. Most of the dominant firms
brought black owners into subsidiaries that operated mines, rather than into the
holding company. As a result, the listed mining houses had, on average, a lower share
of black ownership than other sectors, although the percentage varied from over 50
per cent to under 5 per cent (Makgetla 2021b: 9). In contrast, according to a Minerals
Council study that covered ninety-​three mining rights holders—​that is, the mine
operating companies themselves—​black investors had, on average, a 40 per cent
interest in the operating companies. Black individuals held 22 per cent; mine commu-
nity trusts, 9 per cent; and employee schemes, 8 per cent. Most of the black investors
were highly leveraged, however. As a result, two-​thirds of the companies did not
achieve ‘meaningful economic participation’, defined as having clearly identifiable
black investors that fully owned their shares, received dividends, and had voting rights
(Minerals Council 2019: 11).
As might be expected, the historic mining companies objected vigorously to the
MPRDA’s requirements. In the media, they tended to blame slower investment
and growth in mining in the 2010s largely on these regulations, although they also
recognized the impact of the end of the commodity boom and the disruption of the
electricity supply (see Baxter 2016). This contestation can be understood as a classic
post-​colonial conflict between new and pre-​existing elites over resource ownership. In
practice, the main benefits went to a relatively small group of private black investors ra-
ther than to communities, workers, or emerging new businesses.
The approach to ownership in the Mining Charter has been termed ‘financialized’
(see Bowman 2019) because it centres on financial investments in existing producers
278   Neva Seidman Makgetla

rather than more fundamental changes in power relations within the enterprise or the
economy. It effectively prioritized raising the share in the mines’ financial returns that
went to black investors, and to a lesser extent to employees and communities. Even
where new owners enjoyed some voting rights, they typically had only limited impacts
on day-​to-​day decision-​making. Work organization remained deeply hierarchical and
inequitable, as discussed in the following section. Legally, the social and labour plans,
which laid out non-​ownership obligations to workers and communities, had to be
consulted, but not agreed, with stakeholders.

13.4 Inequality and the Mining

Value Chain

Inequality in the mining value chain can also be understood in terms of income distri-
bution and power relations between workers and mine owners, as well as the impact on
job creation.
The functional distribution of income—​that is, the split of value a​ dded between re-
muneration and profits—​remained more unequal in mining itself than in the rest of the
economy. In 2019, remuneration accounted for just 45 per cent of value a​ dded in the
sector, compared to 55 per cent in other industries. The share of wages was lower only
in electricity, agriculture, and transport, where it hovered around 30 per cent. Labour’s
share in mining value ​added was even lower at the height of the commodity boom, when
producers benefited from windfall profits. In 2011, workers got only 38 per cent of value
added in mining (calculated from Quantec 2020a).
The picture was more complicated in the rest of the value chain. In 2019, in both
refineries and downstream production, workers got around 80 per cent of value added
(calculated from Quantec 2020a). That was a very high share compared to the rest of
manufacturing. In the refineries, remuneration equalled only a third of value-​added in
the early 2000s; its share climbed because of declining profitability rather than rising
wages. The median pay in metals refining in 2018 was just R5,900 a month (calculated
from StatsSA 2019a). For downstream producers, the share of remuneration in value-​
added was stable over the previous twenty years.
While miners’ pay improved, work organization did not change much after 1994.
Historically, the sector had epitomized apartheid labour relations, which evolved to gen-
erate ‘European’ pay for qualified employees—​almost exclusively whites before 1994. To
this end, the apartheid workplace effectively centralized skills in a few formally qualified
positions, while de-​skilling work for the majority and leaving them with virtually no
prospects of promotion. Typically, management relied on commands and even violence
rather than consultation. This pattern of workplace relations remained entrenched in
South Africa long after the transition to democracy brought legal rights for workers.
One result was high levels of workplace conflict.
 Mining and Minerals in South Africa    279

In 2018, mining employment remained both heavily de-​skilled and racialized, despite
more representative lower and middle management. Only 10 per cent of miners counted
as professionals, managers, or technicians. In contrast, in the rest of the economy high-​
skilled positions accounted for 30 per cent of employment. Africans made up around
half of the high-​skilled group in mining, virtually the same as in the rest of the formal
economy. But Africans accounted for 85 per cent of total employment in mining,
compared to just 70 per cent in the rest of the formal economy. Although whites made
up only 12 per cent of the mine labour force, they held 40 per cent of high-​skilled mining
jobs (calculated from StatsSA 2018).
The inequalities were aggravated by limited employment creation in the mining value
chain, reflecting its capital intensity. As a result, the sector did little to remedy South
Africa’s jobless crisis—​a central source of overall economic inequality. In the late 2010s,
only around four out of ten working-​aged South Africans had income-​generating
employment, compared to an international norm of six out of ten. Yet job creation
in mining lagged behind the rest of the economy for most of the democratic era. The
industry’s share in formal employment fell from 6.4 per cent in 1994 to 3.7 per cent in
2018 (calculated from Quantec 2020a).
From 2012 to 2018, as the mines adjusted to lower global prices, they downsized em-
ployment by around 70,000 positions, or 13 per cent. The job losses had a dispropor-
tionate impact on both miners and their communities. For workers with matric or less,
mining provided unusually high median pay, at R8,000 a month. The median monthly
income for formal workers without matric in other industries was only R3,200 a month,
and it was R4,300 for workers with matric. The relatively high pay was particularly
striking since only 20 per cent of adults without matric were employed at all (calculated
from StatsSA 2018). The loss of jobs was harder because mining was concentrated in
relatively small rural towns, which offered few alternatives for retrenched miners.
The months-​long strikes in the platinum belt in 2012 and 2014 underscored the
difficulties caused by the persistence of apartheid relationships in much of mining des-
pite the transition to democracy. Near Marikana, on 16 August 2012, police fired on
strikers, killing thirty-​four miners in the worst massacre since the transition to dem-
ocracy in 1994. In both platinum strikes, the miners and their families endured real
hardship as they went months without pay.4
Given that platinum miners were well paid relative to most other workers, the
question becomes why they experienced such bitter workplace conflict. Moreover, the
gold and coal mines did not experience similarly prolonged and rancorous strikes. The
main factors contributing to the strike included the following.
First, despite relatively high wages, miners continued to experience arbitrary and
oppressive workplace relations and very limited career mobility. Surveys and focus
groups found that many miners still considered their supervisors and managers,
whether white or black, to be racist.

4
This section draws on Makgetla and Levin (2016).
280   Neva Seidman Makgetla

Second, the platinum mines grew rapidly in historically remote rural areas, leading
to an influx of workers and a housing shortage. Historically the South African mines
had built substandard dormitory housing for the workers. After 1994, the mines stopped
requiring workers to stay on site, and the government assumed responsibility for
housing people who moved to town once they were no longer legally restricted to the
historic labour-​sending regions. In the platinum belt, however, miners were still viewed
as temporary migrants by both the elected local governments and the ‘traditional’
authorities that controlled much of the land. As a result, most ended up squeezed into
informal houses with inadequate services and no land rights. In effect, the racial and
ethnic residential restrictions imposed under apartheid persisted even though democ-
racy had brought national citizenship. The fact that miners were relatively well paid only
heightened their anger over substandard living conditions.
Third, the end of the commodity boom brought a sudden decline in wage increases.
From 2002 to 2011, platinum miners’ pay rose an average of 4.4 per cent a year above
CPI. From 2011 to 2014, in contrast, their real increase averaged just 0.2 per cent a year
(calculated from DMR 2018).
Finally, the competition between AMCU and NUM significantly heightened tensions
as AMCU sought recognition on the platinum belt. The stakes were high, since in add-
ition to increasing membership fees recognition meant the mines paid for full-​time
shopstewards.

13.5 Conclusion

The evolution of mining in South Africa after 1994 underscored the challenges of path
dependency. The value chain underwent significant changes in terms of its produc-
tion structure and location as well as ownership and beneficiation. But deep-​seated de-
velopmental challenges persisted, ranging from the failure to develop mining-​based
manufacturing on a large scale, to the exercise of monopoly power within value chains,
to deeply inequitable and oppressive work organization.
In this context the democratic state generally avoided the risky and disruptive
interventions required to fundamentally re-​orient the value chain in line with its
stated aim of more equitable, dynamic, and inclusive growth. As a result, the end of
the commodity boom laid bare a range of economic, workplace, and policy conflicts
and crises.

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Baxter, Roger. 2016. ‘Mining in South Africa: The challenges and opportunities’. [Powerpoint
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 Chapter 14

E nergy in Sou t h A fri c a

Rod Crompton and Ruwadzano Matsika

14.1 Introduction

Global energy problems are ‘complicated, dynamic, and politically charged’ (Kuzemko
et al. 2019: 3) in a world grappling with the energy trilemma of energy security of supply,
energy equity, or increasing access for the poor and environmental sustainability or de-
carbonization (World Energy Council 2019). The same is true for South Africa.
South African (SA) energy markets have been the target of many state interventions
over a long period, which have shaped the nature of these markets. In the post-​
democratic era, government has grappled with the tensions between market-​orientated
reforms and state interventions intended to achieve a variety of economic and social
policy goals, the main ones being: import substitution industrialization (ISI), security
of supply, Black economic empowerment and energy access for the poor. The pursuit
of these objectives was expressed through continued extensive regulation of the energy
sector under democratic rule, albeit more formalized and transparent, through seven
regulatory Acts1 and five regulatory bodies,2 excluding the competition authorities.
State ownership as an instrument of market intervention is most pronounced in the
electricity supply industry (ESI), through Eskom and municipalities, but less so in the
petroleum sector, notwithstanding the existence of several state-​owned companies
(SOCs).3
This chapter explores these tensions between market-​oriented reform and state
intervention, plotting the shifting paths in each of the major energy sub sectors as gov-
ernment support for market-​based reforms or intervention ebbed and flowed in the

1
Mineral and Petroleum Resources Development Act, Petroleum Products Act, CEF Act, National
Energy Regulator Act, Petroleum Pipelines Act, Gas Act and Electricity Regulation Act.
2 Petroleum Agency of South Africa, Minister of Energy, NERSA, Ports Regulator of South Africa,

Transnet National Ports Authority.

3 CEF, iGas, SANEDI, PetroSA, Transnet Pipelines, and Strategic Fuel Fund.
284    Rod Crompton and Ruwadzano Matsika

evolving political economy. The chief instruments of intervention have been state own-
ership and regulation, most inherited from apartheid.
The democratic era was preceded by a long history of ISI, reinforced during the
apartheid era by security of supply interventions on a massive scale and underpinned
by an exploitative, racially based cheap-​labour system. These shaped the energy land-
scape inherited by the new democracy and left an imprint still evident today. This found
expression in a long-​running dependence on cheap domestic coal and imported pet-
roleum. The historical dominance of the minerals-energy ​complex4 (MEC) is still evi-
dent in 2020 in an unusually energy-​intensive economy that accounts for 15 per cent of
GDP (Bekun et al. 2019).
As the South African energy sector has evolved in the post-​democratic era it has not
been immune to changes taking place in the global energy sector. Two of the powerful
forces reshaping global energy markets are those associated with the Fourth Industrial
Revolution and climate-​ change-​driven moves to decarbonize energy. These twin
transitions have impacted the SA energy sector, particularly the electricity sub ​sector
and have begun to unravel the MEC. We deal with these impacts and pointers towards
future trajectories at the end of this chapter where we pose the question: where will the
next tranches of capacity come from?
Before embarking upon a closer inspection of the SA energy sector we outline some
of its unusual dimensions and endeavour to provide a sense of local and international
proportion.

14.2 A Sense of Proportion

Globally, 53 per cent of the world’s commercial energy is derived from oil and gas (IEA
2020a). In this regard, South Africa is something of an outlier. Historically, the SA en-
ergy sector supported large investments in mining and its associated processing and
supply industries, which constituted parts of the MEC (Davidson and Winkler 2003).
These energy-​intensive activities were supported by concurrent investments in the
energy sector based on the abundant reserves of cheap coal used to generate cheap
electricity and resulted in energy-​led economic growth (Bekun et al. 2019). Energy
supply evinces the historical predominance of the MEC with 90 per cent of power still
generated from coal (Eskom 2019).5
The composition of the primary energy mix has not changed significantly since 1990.
The impact of the renewable power generation programme only increased the renewable

4
The minerals-​energy ​complex is an organizing concept for understanding the South African
economy, developed by Fine and Rustomjee (1996). It posits a system of accumulation centred on
powerful alliances between mining, energy, and finance interests underpinned by exploitative apartheid
labour systems. For a further exposition of this concept, see ­Chapter 27 in this volume.
5 See ­Chapter 15 in this volume for a comparison of South Africa and global primary energy.
 Energy in South Africa    285

1.0 25000 10.0

2019 GDP PPP billions constant 2017

Emissions intensity kgCO2/ GDP
0.8 20000 8.0

Energy Intensity MJ/GDP

0.6 15000 6.0

0.4 10000 4.0

0.2 5000 2.0

0.0 0 0.0
South Turkey Brazil United Germany India China
Africa Kingdom

Emissions intensity kg CO2 per GDP (2015)

GDP, PPP billion constant 2017 $ (2019)
Energy Intensity MJ/GDP (2014)

Figure 14.1 GDP, energy, and emissions intensity, certain countries

Source: Authors’ calculations, data from World Bank (2020).

share from 5 per cent in 2012 to 6 per cent by 2017 (IEA 2020). This share is expected to
increase further by 2030 in line with the government’s Integrated Resource Plan 2019
(IRP) as more renewable power from bid windows 3, 4, and 5 (more below) come on line
and some of the coal-​fired power stations are decommissioned. The IRP forecasts that
by 2030 renewables (excluding hydro) will account for 34 per cent of installed capacity
and 25 per cent of electricity consumption.
Energy demand is concentrated in the industry and transport sectors, accounting for
47 per cent and 27 per cent respectively of final consumption (Department of Energy
2020). The balance of energy demand is commerce and public services (8 per cent), resi-
dential (8 per cent), agriculture (6 per cent), and other non-​specified energy use (4 per
cent) (Department of Energy 2020).
Energy intensity is pronounced and carbon emissions intensive (Figure 14.1), attrib-
utable to a resource-​intensive economy, low energy efficiency, and coal dependence.
China and South Africa have similar profiles that are significantly more intensive than
other emerging economies such as Turkey, Brazil, and India.
Caution is required in dealing with primary energy statistics as there are large
differences between values reported by South Africa (DMRE 2020), the International
Energy Agency (IEA 2020a), particularly in petroleum products and renewable energy,6
and BP’s data (BP 2020).

6
The DMRE (2020) data reveal a marked increase in renewable energy in 2017 requiring further
investigation.
286    Rod Crompton and Ruwadzano Matsika

Although the SA electricity sector has dominated headlines over the last decade, it
is much smaller (by the value of retail sales) than the petroleum products sector, which
in 2018 was more than 60 per cent larger than electricity and accounted for 9.4 per cent
of GDP.7

14.3 Policy Landscape

State intervention in SA energy markets has a long history dating from the 1920s. The
post-​democratic state inherited a ‘labyrinthine set of regulatory controls’ (RSA 1998: 5).
It set out to bring order and transparency to this with the White Paper on Energy Policy
(RSA 1998), which remains the most important policy document for the energy sector
along with the National Development Plan 2030 (NDP; RSA 2012).
The White Paper announced wide-​ sweeping market-​ orientated reforms.
Unfortunately, those promising announcements were overshadowed by subsequent
prevarication, implementation failures, impasses, malfeasance, and a return to supply-​
side solutions, leaving competition in energy markets virtually unchanged by 2020. The
NDP gave more muted support to market-​oriented reform whilst advocating the effi-
cacy of public–​private financing.
Among a plethora of economic and social policy objectives, the White Paper targeted
‘Securing supply (of energy) through diversity’ (Department of Energy 1998: 9) and re-
dress of apartheid ills. The pursuit of these policy goals has contributed to reshaping the
political economy and had much to do with the lack of reforms in some markets, as we
shall see below.

14.4 Downstream Petroleum Markets

South Africa has never been a significant oil nor gas producer. Consequently, upstream
oil and gas exploration and production has been treated as a poor relation in an economy
where the extractive industries have been dominated by hard-​rock mining, except for a
period during apartheid when oil sanctions prompted the government to establish and
fund Soekor to search for oil and gas. It found sufficient natural gas off-​shore of Mossel
Bay to warrant government building in 1992 the world’s then largest, gas-​to-​liquids re-
finery (now PetroSA). Three tiny oil fields produced light sweet crude from the 1990s

7 Authors’ calculations based on Eskom (2019) with value of sales to distributors escalated by 30 per

cent. Petroleum products includes only petrol and diesel excluding LPG, paraffin, jet fuel, and bunker
fuel. Sales based on Department of Energy volumes and prices. GDP calculation based on data from
StatsSA Nominal GDP (Statistical Release P0441).
 Energy in South Africa    287

until 2008.8 Despite these modest successes, South Africa remains a ‘frontier province’,
something policymakers have been reluctant to recognize.
The 1998 White Paper raised the possibility of separate legislation for oil and gas and
announced the separation of the regulatory function out of Soekor into the Petroleum
Agency of South Africa (PASA), a (state-​owned) Central Energy Fund (CEF) subsid-
iary. This partial reform was never carried through to the envisaged independent regu-
lator due to contestation over the regulatory dispensation, principally the legislation.
The White Paper contributed to the Mineral and Petroleum Resources Development
Act (Act No. 28 of 2002) (MPRDA) but the translation of policy into law deterred
investors over concerns about the extent of the natural resource rent to be appropriated
by the state (‘free carry’ or ‘farm-​in’ rights) and the Black economic empowerment
(BEE) burden imposed. Contestation between government and principally the hard-​
rock mining firms but also oil companies, led to the publication and withdrawal of sev-
eral drafts. Ultimately, in 2019 a new Upstream Petroleum Resources Development Bill
was gazetted. Whilst an improvement on previous dispensations, there are still concerns
about tax rates, security of tenure, ministerial discretion, ‘free-​carry’ and BEE that may
stall yet another new dispensation.
The twenty-​five-​year delay in finalizing an investor-​friendly dispensation has cost
the country dearly in a lost opportunity. This unresolved regulatory dispensation may
delay the development of Total’s 2019/​20 ‘world-​class’ gas condensate discoveries (more
below) as it still has to ‘engage with South African authorities regarding the possible
conditions of the gas commercialization’ (S&P Global 2020: 1), something that ought to
have been clear to investors many years previously.

14.5 Downstream Petroleum Markets

In the pre-​apartheid era, petroleum markets were dominated by international oil

companies. State interventions were limited to ISI and a modicum of regulation by
consensus with the oil companies.9 Market intervention increased under apartheid
with the first state coal-​to-​liquids venture in 1954. A sudden and massive increase in
state involvement in the sector occurred in the era of oil sanctions against apartheid.
Investments were made in synthetic fuels, strategic stocks, and legislation proclaimed
gave wide-​sweeping powers, including secrecy, to the ministry.
At the start of democracy the IEA found:

From exploration through to retailing, [petroleum] was enveloped in a complicated

web of interdependent policies, informal arrangements, market sharing agreements,
trade restrictions and pricing controls (only some of which were/​are subject to

8
The Oryx and Oribi fields had recoverable reserves of 25 million barrels (Marquard 2006: 249).
9
See Marquard (2006).
288    Rod Crompton and Ruwadzano Matsika

‘regulation’ in the strict sense of the term). (IEA 1996: 171, quoted in Marquard
2006: 247)

The post-​democratic state set about regularizing and formalizing these arrangements
and rationalizing the apartheid legacy assets in the context of the market-​orientated
White Paper.
The policy formulation arrived at in the White Paper was the product of a three-​way
tussle between the international oil companies, organized labour, and the new demo-
cratic state. Oil companies fearing Freedom Charter-​based nationalization pushed hard
for deregulation. Organized labour wanted job protection for forecourt attendants and
the state wanted Black economic empowerment. The compromise struck gave each
lobby what it wanted. Deregulation became a core policy but only to be implemented
once jobs had been secured and Blacks owned, or there were plans in place for them to
own, approximately a quarter of the industry.
This three-​way contestation has continued through the democratic era with some
notable shifts as the reallocation of regulatory rents has shaped the political economy.
In the wake of their vociferous advocacy of deregulation, the oil industry voluntarily
signed the first Black economic empowerment (BEE) Charter in 2000 which was in-
tended to accelerate progress in that regard. Over time as the oil companies perceived
the threat of nationalization to be receding and as they gained comfort from the manner
in which the industry was regulated, including their share of the rents, the oil companies’
public profile has shrunk to almost nothing. Similarly, their advocacy for deregulation
has disappeared entirely.
Organized labour scored a significant victory in 2003 when an amendment to the
Petroleum Products Act (No. 120 of 1977) made forecourt attendant jobs the only jobs in
South Africa protected by legislation. Union interest in the sector then shifted to wages
where they have managed to wangle a form of negotiation where ostensibly they nego-
tiate with their employers while in fact they haggle with the minister of energy to regu-
late prices such that they achieve their desired increases. This shift in regulatory rents is
discussed in more detail below. Labour has always opposed deregulation because from
apartheid times regulation has shifted rents towards retailers and resulted in more ser-
vice stations and jobs than market forces would permit.
The shift in rents towards retailers gained new impetus from the White Paper which
included social policy goals promoting small business and BEE. Small business also
scored a significant victory when the 2003 amendment to the Petroleum Products Act
prohibited vertical integration by oil companies into retailing. Retailing has the lowest
barriers to entry in the petroleum sector and was the obvious target for BEE. As this has
occurred, the BEE lobby for increased regulatory rents has strengthened. This lobby nat-
urally opposes deregulation for the same reasons as organized labour. The BEE Charter
has been a key plank in its argument (Slabbert 2018).
Has the White Paper’s BEE milestone been achieved and is the industry able to pro-
ceed to deregulation? The Department of Mineral Resources and Energy (DMRE) was
meant to monitor BEE progress in the industry annually but has only done so thrice in
 Energy in South Africa    289

the twenty years to 2020. Although all of the oil majors have done 25 per cent BEE own-
ership deals, the sticking points are crude oil procurement and the retail sector. The BEE
Charter was written in charter-​type language but when it suddenly became law by being
appended to the Petroleum Products Amendment Act in 2003, the inadequacies of that
non-​legal language became evident. Incomplete consultations to replace the Charter
with provisions from the Broad-​Based Black Economic Empowerment Act (Act No. 53
of 2003) commenced in 2016.
Effectively, the oil companies, retailers, and labour have now aligned themselves
against deregulation leaving the state isolated in wishing, half-​heartedly, to pursue that
objective in a confused and confusing fashion as it wobbles down the tightrope between
deregulation and continuing regulation. The following examples demonstrate this
tension.
In 2018, when there was political concern about high petrol prices (the minister of
energy regulates these) the departmental official who was heading regulation wrote to
the major industry players cogently arguing for partial deregulation (i.e. price cap) of 93
octane petrol—​a very low volume fuel. In the face of firm opposition from the private
sector, the initiative was abandoned. A year later the same official took the opposite view.
In a legal matter, he swore that Government believes that the ‘prevention of competition’
in wholesale and retail markets remained a regulatory necessity (Maqubela 2019: 7.3).
This contradictory behaviour is not confined to government, it is also evident in the
private sector. Although oil companies and retailers support regulation they also seek
to increase their market shares. Discounting the price of petrol at the point of sale is un-
lawful but that has not prevented retailers and oil companies from using a host of devices
such as small gifts and discounts in their convenience stores to attract custom. Some say
that loyalty-​card discounting is effecting back-​door price deregulation (Majola 2020).
The lack of progress in advancing deregulation is a function of the wider political
economy but is also partly attributable to the institutional design of the price regulator.
Placing a politician and policymaker, the minister of energy, as both the implementer
of policy and regulator stems from the Liquid Fuel and Oil Act No. 49 of 1947 and has
continued through apartheid and democracy to 2020. It stands in sharp contrast to
the National Energy Regulator of South Africa’s (NERSA) more modern design which
uses an independent board consisting partially of full-​time experts to make regula-
tory decisions in a transparent fashion.10 The intent to transfer the minister’s regulatory
functions to NERSA was never carried through, with long-​term consequences as we
shall see below. Given the five-​year electoral term, the politician-​as-​regulator model is
more susceptible to political influence and to short-​term decision-​making than a board.
Energy infrastructure decisions often involve assets with long lifespans.11 This regula-
tory model also has undesirable conflicts in other functions. The minister is both the

10
See National Energy Regulator Act No. 40 of 2004.
11
See Jamison et al. (2004) and OECD (2014) for a fuller discussion of these points.
290    Rod Crompton and Ruwadzano Matsika

shareholder of PetroSA (the state oil company) and its regulator. Ministers are respon-
sible for industry development and its regulator.
Will a conflicted policymaker, the minister of energy, be able to advance South Africa
to deregulation even if the BEE target were to be obtained? The prospects appear slim
given the rising power of the small business and BEE lobbies, the power of organized
labour, and the general weakening of the democratic state during President Zuma’s ad-
ministration. Examples of this are the minister’s endeavour in 2012 to compel the oil
companies to produce and sell cleaner fuels. The oil companies just ignored the regula-
tion and arrogantly demanded that government grant them the funds to upgrade their
refineries. The ministry’s inability to withstand pressure from the regulated entities has
resulted in regulated petrol margins increasing by a weighted average real compound
annual growth rate of 2.9 per cent p.a. between 2010 and 2019.12 Crompton et al. (2020)
found that in 2019 regulated petrol prices exceeded estimated market prices by as much
as 90 cents per litre or 5.8 per cent of the average petrol price.
The weakness of the minister-​as-​regulator is also evident in the inability to curb the
proliferation of service stations which would be necessary to avoid a sudden reduction
at the advent of deregulation. Again, the retail and BEE lobbies have prevailed.
The petroleum intuitions inherited from the apartheid era were located within the
CEF group of companies under the Central Energy Fund Act (No. 38 of 1977). Originally
established to combat oil sanctions, the democratic state has tried to repurpose them
as instruments of the developmental state, without much success. CEF and its main
subsidiaries all made losses in 2019.13 PetroSA and the Strategic Fuel Fund responsible
for strategic oil stocks are both associated with corruption scandals.
Has the failure to advance to deregulation affected investment in the downstream
petroleum sector? Answers to this question may be evident from an examination of
imports and domestic refinery expansion and investment. Imports of refined products
reached 20 per cent14 of demand by 2018. Although refineries are protected by IPP regu-
lation, no new refining capacity has been added since 1992, apart from capacity creep
in the ageing refinery fleet from 708,000 barrels per day (bpd) in 2007 to 718,000 bpd
by 2018 (SAPIA 2019). Investment in import infrastructure has kept pace with demand
and when Chevron disinvested in 2019, Glencore purchased 70 per cent of Chevron SA,
including the Cape Town refinery in a USD1 billion deal. In 2016, Puma Energy15 began
acquiring retail assets.
All of these developments suggest that there is considerable international interest
in the downstream liquid fuels market and that investors are optimistic about import

12
Author’s calculations based on data from: http://​www.energy.gov.za/​files/​esources/​petroleum/​
petroleum_​arch.html and https://​www.eskom.co.za/​CustomerCare/​TariffsAndCharges/​Pages/​Tariff_​
History.aspx.
13 In 2018/​19 CEF made a net loss of R471 million, PetroSA a net loss of Rand 2 billion and has an

unfunded decommissioning liability of Rand 7.4 billion (CEF 2019).

14 Authors’ calculations (petrol, diesel, jet fuel) from data in Sapia (2019).
15 Puma’s main shareholder is a large international trading company, Trafigura.
 Energy in South Africa    291

supplied market growth. The corollary is that they do not believe that investment in
additional refinery capacity is likely.
In summary, it appears that the White Paper’s decisive break with the past in
advocating a more market-​orientated approach has been partly responsible for its
own undoing. The prominence given to the simultaneous pursuit of social policy
objectives: job preservation, small business, and BEE, has unleashed forces that have
in a sense trapped the minister-​as-​regulator into a relationship that has made policy
implementation difficult. The failure to carry through the reform from minister-​as-​
regulator to independent regulator has compounded the problem. Nevertheless, market
developments in the forms of increasing imports (reducing the relative importance of
protecting refinery capacity), Glencore’s market entry (a global trader perhaps willing
to contest for market share), and the entry by independent retailer Puma Energy (also
seeking market share) means that the best prospects for a competitive market since 1994
exist, in the event of deregulation.

14.6 Natural Gas Markets

South Africa has never had a fully fledged natural gas industry. The limited gas resources
found off-​shore of Mossel Bay were used to develop an apartheid-​era oil sanctions-​
busting gas-​to-​liquids facility, now operated by PetroSA. Its gas fields are expected to
run dry in 2020.
The then state-​owned Sasol provided limited coal-​gas (methane) from 1966 (Meintjes
1975: 92). In 2004, the gas industry experienced a step change when Sasol supplied nat-
ural gas from Mozambique to the industrial heartland for the first time. This came about
as a product of a remarkable balancing act between market forces and state interven-
tion achieved through a public–​private partnership, one of the few in the energy sector
in the democratic era. The gas was transported from Mozambique by the 865km-​long
Rompco pipeline. This project was a good example of both cross-​border infrastructure
development and of a multi-​country public–​private partnership involving Sasol and
SOCs from South Africa and Mozambique. In South Africa, a combination of commer-
cial and regulatory agreements enabled the project, giving Sasol a sheltered monopoly
for ten years. Legislation to regulate the new industry followed these agreements, one of
which was appended to the Gas Act (No. 48 of 2001). The compromises made in these
agreements reflected the more market-​friendly approach in the 1998 White Paper which
was carried through to the light-​handed regulation envisaged by the subsequent Gas
Act (No. 48 of 2001).
Unfortunately, the impasses over the MPRDA (see above) have inhibited the search
for new gas fields, leaving no ready SA replacement for the Mozambique gas fields which
will begin depleting in 2023 (Engineering News 2020) ending the approximately 150PJ/​a
supplied to Sasol and other industrial customers.
292    Rod Crompton and Ruwadzano Matsika

14.7 Electricity Markets

State intervention in electricity markets also has a long history beginning with the estab-
lishment of the state-​owned Eskom in 1922. Eskom was corporatized in 2002 following
the market-​orientated reforms envisaged in the White Paper (1998). These included
customer choice of supplier, competition in the generation market, open access to the
transmission network, the unbundling of Eskom, and encouraging private participa-
tion (RSA 1998). At the time, state ownership completely dominated the electricity
supply industry (ESI) and has only marginally reduced since then. By 2020, Eskom still
dominated the ESI, accounting for approximately 90 per cent of generation capacity, 100
per cent of transmission, and approximately half of distribution. The other half of distri-
bution is owned by municipalities in accordance with schedule 4B of the Constitution.16
Despite its commercialization, Eskom has retained a dual commercial and develop-
mental mandate which has bedevilled its governance and performance.
The White Paper identified the distribution industry as a major problem and so
government set about rationalizing it. It established Electricity Distribution Industry
Holdings (EDI) in 2003 as a receptacle for the country’s distribution assets and began
parcelling them out to six regional electricity distributors (REDs) as a precursor to
competition in the distribution market. Despite good progress and expenditure of
hundreds of millions of Rands, REDs were abandoned in 2010. They were opposed by
some municipalities that feared losing their electricity surcharges, an important rev-
enue stream. An attempt to amend the constitution to remove this obstacle fizzled out in
2010, effectively ending distribution market reform efforts.
In 2002, government intended to privatize 30 per cent of Eskom but this did not
happen as it ran into opposition from organized labour and the ANC. After its 2004
electoral victory, the ANC reversed its decision on partial privatization of Eskom and
changed its focus from market reform to security of supply, limiting private ownership
of generation capacity to 30 per cent (van der Heijden 2013).
Nevertheless, some progress was made in other areas towards market-​orientated
reform. An independent regulator, NERSA, was established in 2005 and in 2011 the
Independent Power Producers Procurement Office (IPPPO) was established to con-
duct power generation capacity auctions. Its auction processes were well received by
the market. In seven bidding rounds, it procured 6422MW of capacity and attracted
private sector investment of R209.7 billion of which 20 per cent was foreign invest-
ment (Watermeyer and Phillips 2020). Eskom signed twenty-​year power purchase
agreements (PPAs) with the winning independent power producers (IPPs) on behalf of
government. However, even this limited movement towards a market has not escaped
state interventions, some deliberate and others possibly driven by malfeasance.

16
Schedule 4B gives municipalities jurisdiction over the ‘reticulation’ of electricity and gas. The
boundary between reticulation and distribution has not been officially established.
 Energy in South Africa    293

Deliberate political intervention occurs through Integrated Resource Plans (IRPs)

in which ministers of energy promulgate the country’s future capacity needs.17 This
empowers the minister to pick higher-​cost technologies rather than abide by the lowest
cost IRP methodology, evident in coal and nuclear selections. Unfortunately, Section six
of the National Energy Act (No. 34 of 2008) requiring annual integrated energy plans
has not been promulgated and IRPs have been irregular. The first IRP was published in
2011 and was not updated during President Zuma’s administration (2009–​18) for polit-
ical reasons. It was finally updated in 2019 (RSA 2019b).
Interventions possibly driven by malfeasance occurred in 2015 when the then CEO
of Eskom refused to sign any more PPAs.18 This impasse prevailed until he left office
and the minister of energy intervened in 2018. The delays in bringing new capacity on-
line contributed to subsequent load-​shedding and illustrated Eskom’s vulnerability to
corruption or ‘state capture’ and, consequently, South Africa’s vulnerability to Eskom’s
fortunes. Despite these demonstrated risks government nevertheless clung to centralized
state ownership, evident in its reluctance to unbundle Eskom into several independent
entities in its Eskom Roadmap (Department of Public Enterprises 2019), an attenuated
version of the reforms in the White Paper published twenty-​one years previously.
The costs of reliance on centralized state ownership have been evident for a long time.
Between 1981 and 1990, Eskom added a massive 17,300MW of new capacity. This turned
out to have been poor planning resulting in excess capacity and over 10,000MW being
mothballed over the following decade. Between 2001 and 2010 only 4,100MW of new
capacity was added. This period of underinvestment and poor planning contributed to
load-​shedding from 2008, in all a forty-​year period of poor supply/​demand alignment
that has cost the country dearly.
The cost to society of reliance on centralized state dominance of the electricity market
is evident in the scale of load-​shedding. Between 2007 and January 2020 South Africa
experienced the loss of 1,710 hours, comprising 3,867GWh with an estimated economic
impact of between Rand 169 billion and Rand 338 billion (calculated from Wright and
Calitz 2020).
Load-​shedding and its economic consequences were partly attributable to non-​
implementation of the White Paper’s market reforms. Government prevaricated about
the decision to build or procure new generation capacity until after the 2004 elections
when it decided to abandon market options in favour of Eskom building additional cap-
acity. By this time it was too late to avoid load-​shedding. With the benefit of hindsight,
Eskom exacerbated matters by ambitiously opting to build two of the largest coal-​fired
stations in the world, Medupi and Kusile (dubbed the ‘new build’). Eskom’s technology
choice could hardly have been more ill timed, occurring just as the cost curves for re-
newable power generation began their steep descent. This ‘new build’, 9,600MW of

17 IRPs become ministerial directives issued in terms of Section 34 of the Electricity Regulation Act

2006 (Act No. 4 of 2006).

18 Brian Molefe and other ex-​Eskom officials were accused of being part of the state-​capture force and

sued by Eskom in 2020.

294    Rod Crompton and Ruwadzano Matsika

capacity, has a fifty-​year useful life that leaves South Africa with financial and environ-
mental legacies that may be difficult to manage.
Government’s decision to use a state instrument (Eskom) left it without the protec-
tion inherent in the IPP programme in which private investors carried the project risk.
This proved to be a huge error. Eskom was ill prepared for such mega-​projects. The rush
to start the projects led to poor planning, poor contracting strategy, poor execution and
oversight, large cost and time overruns, skills shortages, poor delivery by contractors,
and design faults. Medupi’s cost escalated seven f​ old between 2005 and 2020 and Kusile’s
three fold between 2007 and 2020.19 Eskom attributes delays to eighteen months of strike
action and eight months of welding problems (Eskom 2020:56). Political meddling
and corruption exacerbated matters. Eskom has had eleven CEOs since construction
commenced. Medupi and Kusile are ‘textbook studies on how not to execute large infra-
structure projects’ (Watermeyer and Phillips 2020: 2) and caused ‘severe damage to the
South African economy and to economic growth’ (Watermeyer and Phillips 2020: iv).
Financial difficulties inevitably followed.
In March 2014 Eskom’s external auditors referred to its Going Concern status for the
first time. By 2017, Goldman Sachs Group Inc said: ‘Eskom is the biggest single risk to the
South African economy’ (BusinessTech 2017). By 2020 Eskom’s debt reached an unsus-
tainable Rand 488 billion (Eskom 2020). Government has been forced to bail out Eskom
as it is ‘to (sic) vital to our economy to be allowed to fail’ (Ramaphosa 2019: 6). Eskom
bail outs cost taxpayers Rand 188 billion over five years to 2020 with more scheduled.
In addition, government has guaranteed Rand 350 billion of Eskom’s debt, negatively
impacting sovereign credit ratings (Eskom 2019: 35) and simultaneously posing credit
default risks, loan covenants and cross-​defaults risks that would cause government
guarantees to be called up, something government is unlikely to be able to meet.
Eskom is at risk of breaching its loan covenants on several fronts, the most critical of
which is its Going Concern status which it is only able to meet with promises of gov-
ernment bail ​outs. Within these domino-​like financial arrangements lies South Africa’s
key risk.
The cumulative result of the ‘new build’ market intervention was that Eskom became
an impediment to economic growth rather than an enabling instrument for the devel-
opmental state as intended. It also reduced a once-​efficient utility to a giant subsidy in-
strument, transferring taxpayers’ funds (or government debt) to electricity customers
and increasing real costs in the economy by reducing allocative efficiency (Steyn 2003),
the opposite of the White Paper’s envisaged self-​sustaining ESI, with security of supply.
During this era of Eskom’s decline, the twin transitions have rendered its vertically
integrated business model obsolete. It has entered a classic ‘utility death spiral’ of rising
prices leading to falling volumes, leading to rising prices etc. Technological innovation
in renewable power generation resulting in lower costs offers customers an alterna-
tive and, despite regulatory obstacles, a limited de facto market has emerged. Eskom’s

19
Author’s calculations based on Eskom (2020: 66–​7).
 Energy in South Africa    295

sales volumes declined by 4.7 per cent20 between 2009 and 2019. Government reluc-
tantly recognized this development in its Eskom Roadmap but still refused to relinquish
Eskom dominance of the market and importantly retained the transmission and market
operator function within Eskom rather than establishing an independent one (more
below).
Eskom’s ‘death spiral’ difficulties have been exacerbated by corruption, poor manage-
ment, and rising coal costs. Operating costs increased by 30 per cent over five years to
2020, the staff were ‘demoralized’ according to its CEO (de Ruyter 2020: 3), and its en-
ergy availability factor (EAF)21 declined from 94 per cent in 2000 to 67 per cent in 2019
(Wright and Calitz 2020). A low EAF is a key contributor to load-​shedding. Also, the
president has prohibited Eskom from retrenching any of its well-​paid and bloated work-
force (Phakathi 2019).
To offset declining sales and performance as well as fund the ‘new build’, Eskom’s
average standard tariffs increased by a real compound annual growth rate of 5.9 per cent
between 2010 and 201922 resulting in restructuring for industries that had enjoyed low
tariffs in the pre ‘new build’ era.
Not all of the White Paper’s policies were market-​orientated, some were pro-​poor,
in particular electrification. A large programme electrified over 7.4 million households
between 1994 and March 2018,23 resulting in 91 per cent electrification, in contrast to
sub-​Saharan Africa’s 48 per cent (World Bank 2020). Also, free basic electricity (50kWh/​
month) has been provided to about 900,000 households (RSA 2020).

14.8 Energy Transitions and Future

Tranches of Capacity

Globally, the energy sector is undergoing two interlinked and simultaneous

transformations. The first concerns the rapid technological change associated with
the Fourth Industrial Revolution bringing about the digitization of the energy sector,
introducing modern technologies such as cloud computing, big data, Internet of Things,
amongst others and enabling smaller-​scale, decentralized business models in energy
extraction/​
generation/​
production, transmission, distribution, retail, and demand

20
Author’s calculations from data in Eskom Annual Integrated Reports, various years.
21
The proportion of the generating fleet that is available for operation. It is partly a function of
maintenance.
22 Author’s calculations based on data from: http://​www.energy.gov.za/​files/​esources/​petroleum/​

petroleum_​arch.html and https://​www.eskom.co.za/​CustomerCare/​TariffsAndCharges/​Pages/​Tariff_​

History.aspx.
23 http://​ w ww.energy.gov.za/ ​ f iles/ ​ I NEP/ ​ i nep_ ​ o verview.html#:~:text=The%20National%20

Energy%20Regulator%20of,INEP)%20from%201999%20to%202001.&text=The%20main%20
funding%20of%20the,the%20National%20Budget%20(Fiscus).
296    Rod Crompton and Ruwadzano Matsika

management (IEA 2018). The ‘Fourth Industrial Revolution technologies, and digital-
ization, in particular, allow for open, real-​time, automated communication and oper-
ation of a more efficient energy system’ (IEA 2018: 8).
The second transformation involves the move to lower carbon intensity driven by
international efforts, such as the Paris Agreement on Climate Change intended to limit
global warming by reducing greenhouse gas emissions to achieve net-​zero emissions
between 2050 and 2070. The decarbonization of the energy sector requires a move away
from fossil fuels to cleaner and renewable energy sources, cleaner industrial production
technologies, cleaner technologies for vehicle propulsion, and increasing energy system
efficiency, and needs support by strong policy interventions (Rissman et al. 2020).
The combined effect of these twin dynamics is a global shift towards electricity as a
preferred energy carrier driven by low-​carbon and renewable energy power generation
(IEA 2019). Global electricity demand is expected to increase from about 20 per cent
of energy consumption in 2018 to just over half by 2050 (BP 2019), exceeding the con-
sumption of crude oil by 2040 (IEA 2019). This will be partly driven by greater uptake
of technologies for industrial production, domestic consumption, cooling, and electric
vehicles (IEA 2020b). This shift is expected to encompass smart grids, demand-​side
management, increased interlinkages and interdependence between energy systems
resulting in more integrated energy systems.
Digitalization is simultaneously enabling a third transition in the structure of en-
ergy markets to decentralized models, particularly in the electricity sector (IEA 2019).
Energy consumers are increasingly becoming ‘prosumers’ with the ability to produce
electricity and sell the surplus to other customers (IEA 2020b). These transitions are
transforming the economy itself, especially the energy, transport, industry, and building
sectors, and changing consumer behaviour (IEA 2020).
South Africa’s energy-​intensive and coal-​reliant economy was poorly placed to
address these transitions. The World Economic Forum has ranked South Africa
106 of 115 countries in its trilemma index which measures transition readiness based
on assessments of energy security, energy equity, and environmental sustainability
(World Economic Forum 2020). South Africa faces several obstacles. Path depend-
ence on a coal-​based energy economy, technology lock-​in due to historical infra-
structure investments, and vested interests in the MEC-​based political economy are
retarding transition to sustainable energy policies (Morris and Martin 2015). Capital
requirements may be large and if the state wishes to maintain its large presence, it is
poorly placed to do so given its fiscal constraints. Alternatively, it must embrace a more
market-​orientated approach which it has been reluctant to do. Government may re-
ceive some assistance from ‘Green Finance’ and has begun coordinating funding across
government departments towards lower carbon intensity (National Treasury 2020a).
SA financial markets have followed international trends of declining interest in new
coal and hydrocarbon projects, which may delay stall South Africa’s planned coal-​fired
generation capacity. South Africa’s ability to respond to international decarbonization
pressures with emissions taxes is constrained by the preponderance of hydrocarbons
in South Africa’s energy mix and the price-​raising impact of such interventions. The
 Energy in South Africa    297

gradualist approach adopted had not materially changed the energy mix by 2020 partly
because government has been preoccupied with security of supply since 2004 (van der
Heijden 2013; Morris and Martin 2015).
The scale of change required by these transitions may involve considerable social and
economic dislocation. Trade unions have proffered the concept of a ‘Just Transition’ that
may offer a fulcrum around which South Africa can ‘muddle through’ these transitions.
Government has ‘recognised the need for a just transition’ (National Treasury 2020a:3)
even if it is not yet clear what that means.

14.9 Future Tranches of Capacity

The long-​running tensions between market-​oriented reform and state intervention will
be made more complex by the transitions described above, partly because technological
changes are bringing about more market-​orientated solutions whereas decarbonization
requires market interventions. This complex interplay is beginning to shape answers to
the question: ‘where will the next tranche of capacity come from?’
Technological developments are making it easier to progress towards the White
Paper’s objective of ‘security through diversity of supply’ and may improve security of
supply, as is argued below.

14.9.1 The Next Tranche of Liquid Fuels

The White Paper set as a policy cornerstone ‘a coastal refining and petrochemicals hub
for future investments’ (RSA 1998: 66). Subsequently, government’s National Planning
Commission (NPC) has differed, preferring continued importation of liquid fuels as
more cost-​effective (RSA 2019a: xii). However, oil refinery investors will nervously
watch the declining cost of batteries,24 electric vehicles (EVs), and other propulsion
technologies, perhaps fearing stranded assets. Both battery and hydrogen propul-
sion offer South Africa a tantalizing alternative to continued reliance on petroleum.
A switch to EVs at scale could reduce reliance on South Africa’s largest import (pet-
roleum), reduce balance-​of-​payments pressures, improve security of supply, and
allow South Africa’s comparative advantages (coal, wind, and solar-​powered electri-
city, battery component minerals) to work in tandem with ISI, unlike in the past. It
would also de-​couple transport costs from oil prices. This switch could happen faster
if incentives for the local manufacture of internal combustion engines (ICE) were
extended to include EVs.

24
Lithium ion battery costs for EVs fell 87 per cent between 2010 and 2019 and are expected to reach
close to parity with internal combustion engines by 2023 (Henze 2020).
298    Rod Crompton and Ruwadzano Matsika

These developments strengthen the NPC’s wait-​and-​see stance. Also as ICE vehicles
lose market share to other propulsion technologies the rationale for continued regula-
tion of petrol prices may erode even further.

14.9.2 The Next Tranche of Natural Gas

Attention is focused on gas because it is a cleaner fuel than other hydrocarbons and
often touted as the bridging fuel to more sustainable energy. It is also a necessary ad-
junct to intermittent renewable power. South Africa has several possibilities in the
medium-​to-​long term including hydraulic fracturing of the Karoo shales, Total’s
2019/​20 gas and condensate finds south of Mossel Bay, and the gas fields in Northern
Mozambique. There are considerable barriers to exploiting these resources including
opposition from environmentalists and proving commercial viability for a gas pipeline
from Northern Mozambique. Several years of further work are still required before any
of these may become a commercial proposition. The IPP office has been considering
the importation of LNG for several years at Saldanha Bay, Coega, or Richards Bay. Total
and Gigajoule are developing an LNG terminal in Maputo designed to replace Sasol’s
declining gas fields and scheduled for 2023 (Engineering News 2020). This will threaten
Sasol’s SA monopoly and introduce competition in natural gas markets as will Sasol’s
2020 announcement of the sale of its share in that pipeline, heralding a new dynamic
in the SA gas market. Small-​scale LNG imports licensed in 2020 may also increase
competition.
LPG markets are an important precursor to natural gas markets (WLPGA 2020).
Recent significant investment in LPG import terminals in Saldanha Bay and Richards
Bay, as well as a long overdue revision of the LPG price regulation methodology,25
augurs well for LPG and gas markets.

14.9.3 The Next Tranche of Power-​generating Capacity

Between 2020 and 2023 South Africa will probably be short of power-​generating cap-
acity. The IRP 2019 predicted a 3,000MW shortfall between 2019 and 2022 assuming
Eskom’s EAF would be 71 per cent. Wright and Calitz (2020) predict 2,000GWh in 2020,
3,000GWh in 2021 and 4,600GWh in 2023. Eskom forecasts a 4,000MW shortfall in
2021 assuming EAF at 70 per cent (Paton 2020). The actual shortfall will depend upon
Eskom’s EAF, how quickly government responds and customers switch suppliers.
In the short term, government has four parallel processes underway to improve
supply:

25
Media Statement CEF Ltd. on Behalf of the Department of Mineral Resources and Energy, 26
June 2020.
 Energy in South Africa    299

1. Renewable Energy Independent Power Producer Procurement Programme

(REIPPP) bid window four includes twenty-​seven delayed projects with a capacity
of 2200MW scheduled to commence operations in 2020.
2. DMRE’s Risk Mitigation Independent Power Producer Procurement (RMIPPP)
emergency programme for 2000MW commenced in January 2020 followed by
a Request for Proposals on 24 August 2020, indicative of the slow reaction time.
Power must be dispatchable and delivered by June 2022 requiring renewables to
have storage. A twenty-​year PPA is offered. One option is expensive floating power
stations.
3. REIPPP bid window five of 11813MW for renewables, storage, gas, and coal is
expected to open late in 2020. Procurement and construction will take eighteen to
forty-​two months.
4. The quickest additions appear to be small units of embedded generation exploiting
section 12B of the Income Tax Act allowing accelerated depreciation over one year
for below 1MW generators.

Spare capacity from IPPs and embedded generation could also be tapped but is
constrained by the lack of a functioning market.
South Africa’s wind and solar resource endowment place it in a favourable position
to transition to a low-​carbon, renewables-​based electricity system at least cost (Wright
et al. 2020) and one that can be deployed rapidly. Solar photovoltaic (PV) and wind-​
power costs have declined, making them cost-​competitive with coal-​power generation.
Between 2010 and 2019 the global weighted-​average LCOE of onshore wind fell by 39
per cent, concentrated solar power by 47 per cent, and PV by an extraordinary 82 per
cent (IRENA 2020). Quick ramp-​up gas and storage are needed to complement inter-
mittent renewables. Looking beyond the immediate power capacity crisis, South Africa
must consider the 3,670MW26 of Eskom’s capacity that will reach the end of its useful
life by 2023 and thereafter other ageing capacity that requires replacement. Economic
growth will require even more. Together the ESI faces a formidable investment hurdle
that neither Eskom nor government are equipped to handle. South Africa’s ‘current debt
trajectory is not sustainable’ (National Treasury 2020b: 86). In addition to Eskom’s fi-
nancial troubles, the REIPPP programme has cost government over Rand 200 billion
in twenty-​year PPA guarantees and contingent liabilities (National Treasury 2020b: 86).
Using the fiscus to fund Eskom and de-​risk IPPs is not a desirable nor sustainable
way in which to fund generation capacity. Given the dreadful performance by SOCs
in energy sector mega-​projects over the past fifteen years (Watermeyer and Phillips
2020; Gregory 2020) they would likely be poor implementation instruments. These
considerations suggest that security of supply is going to be intimately tied to market re-
form and investor trust in the market structures developed.

26
Grootvlei 1,180 + Komatie 990 + Kriel 1,500 (half) = 3,670MW.
300    Rod Crompton and Ruwadzano Matsika

There are small signs that government is once again considering market-​orientated
solutions. A 1MW limit on commercial and industrial generators for own use was
removed and municipalities in good financial standing were allowed to procure
their power from IPPs (Ramaphosa 2020). Nevertheless, security of supply may re-
quire going beyond those limited measures, beyond the Roadmap, and further to-
wards those envisaged in the White Paper. As a minimal first step, investors are likely
to require a standalone transmission and systems market operator rather than the
Eskom-​owned proposition in the Roadmap. A market may require arrangements to
be made for legacy generators (IPPs and Eskom stations) that will not survive market
prices and become stranded assets for many years to come, as has been seen in other
countries.
Emerging technologies are dramatically lowering the economies of scale for en-
ergy conversion and completely undermining the old economies-​of-​scale justifica-
tion for state ownership. They range from matchbox size to massive and enable market
solutions. The advent of ‘prosumers’ can literally shift ‘power to the people’. Capacity
additions in ‘small steps’ remove mega-​project risk and reduce the risk of large stranded
assets in times of rapid technological change. This will allow the financing burden to
gradually shift from the state to private investors and produce promising market-​related
prices. Regardless of South Africa’s legacy problems, a declining generation-​cost curve
also holds the promise of a way out of South Africa’s seemingly intractable electricity
supply problems. Ironically, it exacerbates the distribution market crisis as customers
leave the grid and municipalities lose revenue.
Emerging generation technologies also offer local industrialization opportunities
and continuous construction/​installation jobs for a longer time (Bishoff-​Niemz and
Creamer 2019). Although government’s local content prescripts carry a price burden,
the early rounds of the REIPPP did enable fledgling manufacturers to emerge. With
time and scale, they may become competitive and the price premium reduced or
eliminated, provided that no further Eskom-​type interventions result in further ser-
ious setbacks to local manufacturing. Furthermore, South Africa has minerals that
feed into the battery and renewables value chains that offer promise (SANEA 2020).
Emerging technologies also require investment in grid strengthening as the locus
of generation shifts from coal in the east to renewables in the west, estimated at Rand
100 billion by 2030.

14.9.4 Additional Capacity from Energy-​efficiency Measures

Demand-​side energy-​efficiency measures are ‘the most cost-​effective means of
driving sustainable energy change’ (Kuzemko et al. 2019: 6) and reduce the need
for additional generation capacity. South Africa has implemented a suite of energy-​
efficiency programmes, including tax incentives (Section 12L) which, between 2013
and 2019, delivered 93TWh in energy savings, equivalent to 90Mt of CO2 (SANEDI
2020a). New technologies like digitalization can provide real-​time linkage between
 Energy in South Africa    301

supply and demand and enable smart metering and smart grids, which tap into
existing spare capacity that residential and industrial customers already have
(SANEDI 2020b). Already smart technologies can be programmed to save energy,
such as lights that only operate when movement is detected, the use of the Internet of
Things, and smartphone apps to implement energy-​saving actions (SANEDI 2020b).
Control systems can be used to shut down machinery, appliances, and plugs when
not in use to save energy.

14.10 Conclusion

In 2020 South Africa’s energy sector was not well positioned to transition from a heavy
reliance on coal to lower energy intensity and decarbonization because of the economy’s
resource-​based MEC nature and technological lock-​in.
South Africa’s long history of state intervention in energy markets encountered a sub-
stantial shift in policy thinking in the 1998 White Paper’s market-​orientated goals. After
a promising start, practice moved away from those goals. It was only in 2018 that there
were indications of movement back towards those goals, albeit in attenuated form. These
moves were driven by higher liquid fuel prices, electricity shortages, fiscal constraints,
and the near collapse of Eskom and other energy SOCs. Those intended instruments
of the developmental state have had the opposite result. Eskom dominated the electri-
city landscape and became the single largest risk to the economy. In contrast, the larger,
mainly privately owned, petroleum sector performed better.
Notable successes in policy implementation have occurred in electrification, electri-
city subsidies for the poor, gas infrastructure, and renewable power-​capacity auction
processes. However, private investment in the state-​dominated electricity generation
market has come at a price for government: twenty-​year government guarantees.
Progress towards market-​orientated policy goals in petroleum markets reached an
impasse, due to a combination of factors: the old-​style minister-​as-​regulator institu-
tional model and social policies entangled in petrol price regulation resulting in above-​
market prices. Emerging technologies such as EVs and hydrogen propulsion may in
future unlock this costly impasse. In upstream markets, recent discoveries of off-​shore
gas also hold the prospect of more, if the long-​running impasse over the regulatory dis-
pensation can be resolved in an investor-​friendly manner.
Technological developments in renewable power generation hold out the promise to
exploit natural comparative advantages, substitute imports, decouple transport propul-
sion costs from the oil price, mitigate the unfolding power crisis, allow development in
lower risk ‘small steps’, shift the burden of capitalizing power generation from the state
to the private sector, and reinvigorate domestic manufacturing. To realize such promise,
the conspectus of evidence suggests that a more market-​oriented policy approach will
be necessary, especially given the weakened state apparatus and its vulnerability to
corruption. Harnessing wind and solar resources could boost the economy. However,
302    Rod Crompton and Ruwadzano Matsika

such a transition will have to contend with path dependence and manage the socio-​
economic dislocations associated with it.

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 Chapter 15

So ci o-​e c onomi c Aspe c ts

of Energy an d C l i mat e
Change in Sou t h A fri c a

Roula Inglesi-​L otz

15.1 Introduction

In the literature, economists had focused only on patterns of economic growth and sub-
stitutability between factors of production, such as labour and natural capital, until re-
cently when W. D. Nordhaus and P. Romer proposed the integration of climate change
into long-​term macroeconomic analysis (Halsnæs and Garg 2011). The development
of any economy and the improvement of human development has always been closely
connected with the use of energy (Essex and de Groot 2019) as well as land use and has
resulted in rising emission levels and subsequent changes in climate conditions that
also have an impact on the socio-​economic activities of the world. Thus the relation-
ship between socio-​economic development, energy use, and climate change cannot
be treated as a linear causal link but as a cyclical, complex, system (Primer to Climate
Scenarios 2018).
Energy is a key determinant in consumption in aggregate national, industrial, and
residential levels, depending on a country’s natural endowments. Developing countries
exhibit institutional conditions that might make use of production factors, such as being
energy efficient, implying high costs, supply constraints, and potentially high pollution
intensities. Energy is crucial also for human living conditions and any policy framework
needs to find ways that ensure energy access. In sub-​Saharan Africa and South Asia,
more than one billion people do not have access to energy. ‘This represents a funda-
mental barrier to progress for a sizeable proportion of the world’s population, and has
impacts on a wide range of development indicators, including health, education, food
security, gender equality, livelihoods, and poverty reduction (World Bank 2018).
306   Roula Inglesi-Lotz

Furthermore, the deterioration of climate conditions has a direct negative impact on

physical infrastructure, human capital, natural resources, and ecosystem balance. The
environmental reasoning for a clean energy transition has also opened the debate on
whether its impact on economic growth and overall social development will be positive
too. Studies such as the one by Dai et al. (2011) concluded that a clean energy transi-
tion has the potential to promote energy efficiency improvements, investment increases
in the renewable sector, and all the indirect positive benefits on population well-​being
from the reduction in emissions. A transition to cleaner, renewable forms of energy is
related in the literature with socio-​economic and environmental benefits (Bohlmann
et al. 2019; Consoli et al. 2016; Porter and van der Linde 1995). Some studies argue that
such a substitution will create job opportunities (Cameron and van der Zwaan 2015;
Lehr et al. 2008) while others argue that renewable-​energy generation is less labour in-
tensive and, hence, jobs will be lost (Henriques et al. 2016; Sooriyaarachchi et al. 2015).
In addition, World Bank (2018) makes a point that a transition to renewable-​based
energies might boost more flexible technology solutions that have the potential to assist
with the continent’s problem of access to energy.
Globally, policymakers and governments have appreciated these impacts and have
already started the transition towards cleaner forms of energy. South Africa is not an ex-
ception from these international trends—​being a strong representative of the developing
nations at the Paris Climate Agreement as well as with the country’s Integrated Resource
Planning (IRP).
The role of access to reliable and affordable energy that does not harm the environ-
ment for all its citizens is at the heart of South Africa’s current and future path to eco-
nomic prosperity. The central position of energy points to numerous interlinkages with
factors in the economy, those which have an impact on energy and those on which en-
ergy has an impact. This chapter aims to systematically select and categorize important
factors reflecting the economic, social, and environmental perspectives of the South
African status quo in relation to the energy trends in the country. These factors are
adopted by the framework suggested by Halsnaes and Garg (2011) (which also resembles
closely the ‘triple bottom line’ approach used in the sustainability literature) and adopted
for the purpose of the chapter:

• Economic perspective (economic growth and development, employment, access to

energy services)
• Social perspective (poverty alleviation, education, health)
• Environmental perspective (emissions, fossil-​fuel role in the supply mix).

So, while all the relationship of energy with all the socio-​economic dimensions of
South Africa are investigated, the chapter also appreciates that the energy supply mix
is transitioning following international trends and due to a variety of reasons such as
environmental concerns, ensuring security, and lower costs of alternative sources. Smil
(2016) also discusses that the current energy transition is not about shifting between en-
ergy sources but towards achieving decarbonization of the energy supply internationally,
 ENERGY AND CLIMATE CHANGE IN SOUTH AFRICA    307

via the most appropriate policies, technologies, and interventions and with minimal
costs to society. Therefore, the chapter presents a historic description of South Africa’s
energy transition that, at times, was market-​focused but since 2011 has become fuel-​
focused. The chapter argues that policies and interventions, if not designed properly and
implemented consistently, will not only not be helpful for energy conditions but will in-
tensify the already problematic socio-​economic conditions that exist.

15.2 Economic Perspective

Figure 15.1 shows that energy use per capita and GDP per capita in South Africa have
similar patterns with a quite stable relationship over the period 1971–​2019. Assuming a
production frontier approach, the relationship between energy and economic output of
a country is influenced by the substitution between energy and inputs, the shifts in the
composition of the energy input, the changes in the mix of the other inputs, changes in
the composition of output, and technological change (Stern 2020).
Analysing broadly the term ‘energy’ signifies its importance to the economy, but does
not represent the differences between the energy quality of the various fuels used and
the productivity of each of the fuels. The quality of a fuel is attributed to its physical
characteristics (scarcity, cleanliness, density, storage ability) and its usage characteristics
(cost of conversion if needed, flexibility of use, safety). Technology plays a role in the
change of these characteristics over time. ‘It is generally believed that electricity is the
highest quality energy vector, followed by natural gas and oil, and then coal, wood and
other biomass in descending order of quality’ (Stern 2020). The evolution of the con-
sumption mix follows similar trends historically from biomass to fossil fuels to cleaner

3500 8000
Energy use (kg of oil equivalent per capita)

GDP per capita (constant 2010 US$)

3000 7000
6000
2500
5000
2000
4000
1500
3000
1000 2000
500 1000

0 0
1971
1974
1977
1980
1983
1986
1989
1992
1995
1998
2001
2004
2007
2010
2013
2016
2019

Energy per capita GDP per capita

Figure 15.1 Energy consumption per capita and GDP per capita 2010, South Africa, 1971–​2019
Source: World Bank (2020).
308   Roula Inglesi-Lotz

fuels, highly linked with the developmental stages of the countries, as well as with
differences in natural endowments (Csereklyei et al. 2016). South Africa is not an excep-
tion; as can be seen in Figure 15.2, the total primary energy supply is dominated by coal
(75 per cent average in the decade between 2007 and 2017) while the world reported less
than 30 per cent on average; shares for crude oil demonstrate the reverse: 14 per cent and
32 per cent for South Africa and the world respectively. The rest of the energy carriers
also show South Africa utilizes them less than the rest of the world. Figure 15.2 Panel
B gives a picture of the changes in the last decade: South Africa shows the same trends
as the rest of the world in all energy carriers with the exception of nuclear. Ndlovu and
Inglesi-​Lotz (2019) found that South Africa follows international trends of fossil-​fuel
dependence both with its BRICS counterparts and with OECD countries; however, the
more industrialized economies show a decreasing trend in fossil-​fuel share in their en-
ergy supply mixes compared to emerging and developing economies.

80% 75%
70%
60%
Percentage

50%
40% 32%
28%
30% 21%
20% 14% 13%
10% 5% 5%
3% 3%
0%
Coal Crude Oil Natural gas Nuclear Renewables and
Primary Energy Source waste

South Africa World

25% 21% 23%

20%
15% 13% 15%
10% 7%
5%
0%
–5% 0% –2% –1%
–10% –7%
–15%
–20% –16%
Coal Crude Oil Natural gas Nuclear Renewables and
waste
South Africa, Change 1997–2017 World, Change 1997–2017

Figure 15.2 Primary energy shares panel A (top): averages 2007–​17; panel B (bottom): per-
centage change between 1997 and 2017
Source: Data from IEA 2020 (percentages do not sum to 100 due to rounding).
Note: For this table, the category for crude oil is a sum of the IEA categories crude, NGL, and feedstocks with oil products;
the category renewables and waste is a sum of the IEA categories renewables and wastes and heat; and we excluded
electricity as a primary energy source.
 ENERGY AND CLIMATE CHANGE IN SOUTH AFRICA    309

This shift to higher-​quality energy fuels is considered essential for the efficient use of
energy and, hence, the relationship between energy and economic output (Kaufmann
2004). More discussion on the role of petroleum in the supply and consumption mix
can be found in ­Chapter 14 of this volume.
Next, the structure of the economy and hence the economic output mix is an im-
portant factor in the interconnection between energy and economic growth. At early
developmental stages, economies are primarily based on primary sector activities and
especially agriculture. As economies progress, a natural path is to go through an indus-
trialization period and hence a more energy-​intensive nature of the economy emerges.
Then the next transition to the tertiary sector and services sees a decrease in energy
usage as these sectors have lower energy requirements.
Recently, it has been observed that many emerging countries have the potential to
leapfrog from the first to the last stage, not going through the energy-​intensive indus-
trial period. Some would translate this as an expectation for low-​energy usage due to the
composition of the economic output in the country, but Stern (2020) warns that when
the indirect energy use in manufactured goods and services is factored in, the services
sector and households are more energy intensive than initially thought. Van Benthem
(2015) examined a number of less-​developed economies and discovered that although
these countries presented energy-​efficiency improvements, these savings in energy con-
sumption have been offset by shifts to consumption of energy-​intensive products and
outsourcing. The South African services sector’s value ​added as a percentage of GDP
showed a steep increase from the 1980s without that being after a substantial rise in the
industrial sector’s contribution (World Bank 2020).
Although energy is mostly looked at as an input to the economic production of the
country, the broader energy sector itself is a significant contributor to the growth and
development of the economy. Table 15.1 presents the trends of total economic output
and employment of selected energy-​related industries to demonstrate the importance of
these economic sub ​sectors.
The energy sector, broadly including the mining sector, employs a significant amount
of the South African labour force. For the same selected industries, Table 15.1 shows
the number of employed persons in the country. The overall contribution of specific
industries might seem minimal but, in view of the 30 per cent plus unemployment rates
of the country in 2020 and the impact that COVID-​19 will have in the long run, these
hundreds of thousands of jobs are essential. The increase of workers in the coal mining
industry by 55.5 per cent since the change in the political regime of 1993/​94 and the end
of sanctions is also an indicator that the coal mining industry plays an important role in
the economy.
The energy transition from fossil fuels to a cleaner supply mix will have an impact on
the employment of these sectors too (Bohlmann et al. 2019). Increases in employment
are expected due to the construction and operation of renewable ​energy-​generation
facilities, but the coal-​generation sector will experience severe cuts in employment
that will cancel some (all?) of the positive effects: ‘the minimization of the negative
consequences of a transition to a less coal energy supply mix in the country does not
310   Roula Inglesi-Lotz

Table 15.1: Economic output and employment of selected energy-​related economic

sectors
Final economic output Employment
2019 (R Share Share to all
millions, to all 2019 Change industries,
constant Change industries, (number of 1993–​2019 2019 (%)
2010) 1993–​2019 % 2019 (%) employees) %

Coal mining 40,142.13 39.8 1.1 101,929 55.5 0.6

Electricity and gas 52,483.73 97.4 1.5 53,591 35.4 0.3
Coke, petroleum 35,531.9 19.5 1.0 27,886 46.8 0.2
products, nuclear
fuel
Electricity 3,781.99 360.4 0.1 8,259 74.8 0.1
distribution and
control apparatus
All industries 3,589,119.23 19.5 100.0 16,126,900 44.3 100.0

Source: Statistics South Africa (StatsSA).

Note: Coal mining (QSIC 21); electricity and gas (QSIC 41); coke, petroleum products, nuclear fuel (QSIC
331–​333); electricity distribution and control apparatus (QSIC 362).

only depend on the country’s energy demand and supply profile but also the reaction to
global markets, particularly that of coal’ (Bohlmann et al. 2019).
Access to goods and services and energy to meet basic needs is imperative for socio-​
economic development (Johansson and Goldemberg 2002). South Africa’s electricity
network is well developed and energy access rates are among the highest on the con-
tinent (see Figure 15.3). In order to ensure universal access, particularly in rural areas,
IEA (2019) suggests that the least-​cost way would be to connect 81 per cent of those in
rural areas by extending the national grid while the remaining 12 per cent should access
energy via mini-​grids and self-​generation technologies.
To assess the full influence of electrification on income-​generation opportunities is
more challenging than expected as the impact of expanding the grid and connecting
new users in areas that were not connected before is different from ensuring all citizens
are connected to the existing grid (Prasad and Dieden 2007). Prasad and Dieden (2007)
in their study on South African small and medium enterprises (SMEs) found that ap-
proximately 40–​53 per cent of the rise in entrepreneurial activity was due to connectivity
to the electricity grid after its expansion to their regional area. Their business growth
was significantly higher than those SMEs already connected.
Behind the positive picture of a well-​developed electricity network that ensures phys-
ical access, ability to pay and affordability, are factors which will influence the aftermath
of the electrification programme. The group defined by Essex and de Groot (2019) as an
 ENERGY AND CLIMATE CHANGE IN SOUTH AFRICA    311

New connections by 2030

On-grid
Mini-grids
Stand-alone systems

Transmission lines (>69 kV)

Existing
Planned

Figure 15.3 Electricity access—​new connections and transmissions lines, South Africa
Source: IEA (2019).

‘energy underclass’ is divided into two: those who do not have physical access to electri-
city (national electricity access: 92 per cent of the population in 2018 from 84 per cent
in 1996 [World Bank 2020]), and those who are energy vulnerable1 (Bouzarovski and
Petrova 2015). Policies that focus on electricity ignore the diversification of fuels that can
be used to ensure the provision of access to energy. The goal as per Gonzalez-​Eguino
(2015) is the provision of a variety of services appropriate for use for essential services
(lighting, heating, and cooking).
Essex and de Groot (2019) stress that the post-​apartheid regime implemented a var-
iety of pro-​poor policies to assist with the previously disadvantaged part of the popula-
tion. Those policies identified low-​income disadvantaged households and offered free
access to a minimum amount of free electricity.
In 2000, the Free Basic Electricity (FBE) programme was introduced which provided
50kWh per month for free to all households using less than 450kWh (Mohlakoana
2014). Later, in 2007, households not connected to the national grid could also benefit
from FBE for using alternative energies. The amount of 50kWh is widely contested in
policy circles and academic literature. Ruiters (2009) explains that first, although the
scheme suggests the amount is enough to cover all basic needs (cooking, lighting,
heating, and basic appliances), it actually covers only household lighting. In order to de-
fine a fair energy-​use level, Aydemir and Soytas (2020) stress that one needs to measure
the current state of energy consumption and well-​being in conjunction with the avail-
ability and efficiency of appliances and their link to providing a certain standard of
quality of life. The 50kWh free amount has remained unchanged since the 1990s while
lifestyle, living standards, and dependency on energy have substantially changed since

1
Energy vulnerable population in this context includes those that are unable to keep their homes
warm or pay their bills or they don’t have access to energy (Energy poverty, n.d.).
312   Roula Inglesi-Lotz

then. Ruiters (2009), second, suggests that FBE poses an extra burden on the low-​
income households which feel pressure to save electricity thus adding an extra burden
to their challenging everyday lives. Thom (2000) also supports the notion that the
‘blanket’ programme implemented fails to demonstrate the system’s understanding of
rural households’ needs.
The Integrated National Electrification Programme (INEP) was initiated in 2002 to
integrate efforts for electrification in the country and formalize the public sector’s in-
volvement in the financing of those efforts (World Bank 2017). By promoting infrastruc-
ture development, INEP is considered by many studies to be the most impactful policy
when it comes to electrification and access to energy.
In 2010, the Inclining Block Tariff System (IBTS) was introduced to remedy the
inequalities among electricity consumers. According to this subsidy model, high-​
consumption users get charged at higher rates to cross-​subsidize the low-​consumption
users. Only 30 per cent of municipalities in the country implemented the IBTS fully.
Although the tool looks effective and straightforward, it ignores the reality of many
households using a single meter, particularly in townships, leading to an accumulated
amount of consumption and to a higher-​tariff bracket.
Eskom aimed to introduce pre-​paid meters (Essex and de Groot 2019) as a way to-
wards an infrastructural model that provided electricity for all. Lack of ability to pay and
the strain placed on households to put a ceiling on their consumption of electricity was
linked to expanding inequalities further in rural areas (Makonese et al. 2012). However,
by utilizing technology, Eskom and the municipalities can recover some of the costs
from a system where households do not always have an address and therefore cannot be
billed appropriately (McDonald 2012).

15.3 Social Perspective

Following the discussion of the previous section, access to energy is but one of the main
challenges faced by a poor population. Economic poverty is broadly considered to be
the lack of sufficient income to purchase basic goods and services and the alleviation
of economic poverty is a major objective of sub-​Saharan African policymakers and
specifically of South African policymakers. The target is to develop an environment
characterized by inclusive growth and efficient allocation of resources. Energy pov-
erty within the same framework is the ‘exclusion of people from basic access to energy’
(Singh and Inglesi-​Lotz 2020). Reddy (2000) defines energy poverty as ‘the absence of
sufficient choice in accessing adequate, affordable, reliable, high-​quality, safe, and envir-
onmentally benign energy services to support economic and human development’.
Figure 15.4 shows the improvement in access to electricity in South Africa since dem-
ocratization, however it also points to the existing inequalities between rural and urban
population over decades.
 ENERGY AND CLIMATE CHANGE IN SOUTH AFRICA    313

100

80

60

40

20

0
96
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20 0
01
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20 1
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20
Access to electricity, urban (% of urban population)
Access to electricity, (% of population)
Access to electricity, rural (% of rural population)

Figure 15.4 Access to electricity (total, urban, and rural), 1996–​2018, South Africa
Source: World Bank (2020).

These inequalities in electrification are one of, admittedly, many factors that have
intensified the income inequalities in a country that has been consistently ranked
amongst the highest in income inequality based on their Gini coefficient. South
Africa’s inequalities intensified from 1993 until 2010 (data availability) contrary to
expectations: the Gini coefficient was 59.3 per cent in 1993 and 63.4 per cent in 2010
(World Bank 2020).
Huber (2015) boldly states that ‘electricity networks not only reflect the uneven
geographies of cities but actively reproduce them’. The actual problem of the expansion
of the national grid to urban areas is inherent to the system and has nothing to do with
the availability of technologies and other resources. Planning guidelines stipulate that
informal dwellings that are located on private, unstable land within zones prohibited
for development cannot be electrified. South African municipal distributors have been
grappling with the issue of how to provide electricity to informal households for more
than fifteen years, and a significant body of experience has developed regarding how to
undertake this successfully (Gaunt et al. 2012). Households in informal settlements are
presented with two options: connect to the grid illegally or remain without access to
electricity. Choosing the illegal connection option carries great risks, which the South
African system has suffered since the end of the 1990s. The system can be overloaded,
which leads to a lack of stable connections and trips—​negatively affecting not only those
with the illegal connection but all users in the area. Illegal connections add to the burden
of proper planning by Eskom and the municipal distributors. Finally, illegal connections
are not safe—​the risk of electrocution is high due to a lack of electrical protection, main-
tenance not carried out by professionals, and illegally connected wires coming into con-
tact with other household items and building parts.
314   Roula Inglesi-Lotz

Such are the decisions low-​income households have to make. Even households who
manage to have a connection have to deal with supply that is interrupted or for which
they cannot afford to pay. Therefore, they all shift to other fuels for their basic needs for
heating and cooking. That runs contrary to the patterns of the 1990s that followed the
theory of an ‘energy ladder’ in households as their development phases progress from
traditional fuels to electricity (Davis 1998). The study by Davis (1998) on South African
households showed that in a period of relatively lower electricity tariffs, as incomes rose,
dependency on electricity also increased for electrified households. In a 2012 study,
Gaunt et al. concluded that universal ‘electrification requires a greater degree of flexi-
bility, including greater on-​site planning rather than desk-​based planning, and making
network layout and technology decisions in response to conditions encountered during
implementation’.
Access to electricity services has been found in the literature to be a contributory
factor to fuel-​switching, particularly for cooking (Heltberg 2005). Barnes and Floor
(1996) found that ‘(i) where electricity is available, fewer barriers constrain other
modern fuels as well, and (ii) availability of lighting and other appliances spurs people
to a greater acceptance of modernity and modern fuels.’ When electricity access is
provided and at first used for lighting purposes, rural households put the emphasis on
moving up the energy ladder more actively (Ouedraogo 2006). Particularly for South
Africa, Bohlmann and Inglesi-​Lotz (2020) explain that ‘low-​income households (decile
1) consumed 0.9 per cent of the total consumption of housing, water, electricity, gas, and
other fuels, compared to high-​income households (decile 10), which consumed 51.3 per
cent of total consumption on housing, water, electricity, gas, and other fuels’.
A factor that is underexamined in the academic debate on the energy–​economy
nexus is the level of education of the country’s population. Efficiency in economic
systems and processes can be improved by increasing education in quantity and quality.
Consequently, education can also affect energy in a variety of ways. First, access to en-
ergy for the schooling institutions in rural areas and energy for transport purposes for
the users to access education are crucial for developing countries such as South Africa
with severely underdeveloped rural areas with low levels of educated population.
Education infrastructure is essential for South Africa but unreliable electricity networks
have intensified the problem.
In poor nations that pursue convergence with the more developed world, increases in
education lead to higher job opportunities and hence income generation, which subse-
quently leads to purchasing power for home appliances as well as for goods and services
and hence, higher energy consumption. In contrast, in countries which exceed a cer-
tain developmental threshold, education leads to potential energy savings as users are
educated adequately to seek environmentally friendly and more efficient appliances in
order to reduce their footprint.
Higher education levels enable consumers to process cognitively the benefits of their
fuel choice, given that their income is theoretically and generally higher leading to access
to funds for these choices. Rural populations traditionally use more accessible and trad-
itional sources of energy such as wood, however as individuals get access to education,
 ENERGY AND CLIMATE CHANGE IN SOUTH AFRICA    315

they take advantage of opportunities to migrate to urban areas where they can expect an
uplift in job and further education opportunities, and hence their income-​generation
capacity. All these have the potential to promote the substitution of traditional energy
fuels for higher-​quality, safer ones. ‘Additionally, these improved “awareness” levels in
society lead to more informed consumers and public planners who will make better en-
ergy purchasing, generation, usage, and distribution decisions, which may in turn re-
duce energy consumption levels’ (Inglesi-​Lotz and del Corral Morales 2017).

15.4 Environmental Perspective

Academic and business literature mostly agrees that the climate of the planet changes rap-
idly vastly due to the human activity that leads to greenhouse gas (GHG) emissions. The
emission concentration in the atmosphere has demonstrated an upward trend continu-
ously since the first industrial revolution in the 1700s. The factors attributed to this increase
are the burning of fossil fuels, industrialization of economies, and deforestation. These
emissions have been proven scientifically to induce global warming, as demonstrated in
the higher average temperatures experienced globally (Meyer et al. 2014).
Figure 15.5, by presenting the CO2 emissions per capita and the share of fossil fuels to
total energy consumption, demonstrates the correlation between the two: the emissions
generated from burning fossil fuels is one of the most prominent factors in emissions’
increases. Note here that even with its decreasing pattern, since 1971, the share of fossil
fuels to total energy consumption has never fallen below 84 per cent and that a decrease
in share does not mean necessarily an increase in volume. The CO2 emissions per capita

12 91
90
% total energy consumption

10
Metric tones per capita

89
8 88
87
6 86
85
4 84
83
2
82
0 81
71
73
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79
81
83
85
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20
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19
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20
20

20

CO2 emissions per capita Fossil fuel

Figure 15.5 CO2 emissions per capita and fossil-​fuel share of total energy consumption, 1971–​
2014, South Africa
Source: World Bank (2020).
Note: It should be noted that fluctuations in the share of fossil fuels do not equal fluctuations in
the volume of fossil fuels in the generation of electricity or their overall consumption in the economy.
316   Roula Inglesi-Lotz

have remained between 8 and 10 metric tonnes per capita since 1983, even though the
share of fossil fuels experienced a decrease in the 1990s and a subsequent increase from
the end of the 1990s.
South Africa along with the rest of the African continent are among the most vul-
nerable regions on the planet due to its geography and socio-​economic conditions. The
Department of Environmental Affairs estimates that with no mitigation interventions,
a warming of 5–​8 degrees should be expected in the country: drier weather in the west
and more rainfalls in the east. The impact will be significant for water resources, food
production, and consequently for the overall economy and society, particularly for poor
communities (for more discussion see ­Chapter 16 in this volume).
As a result, South African policymakers appreciate climate change as a risk to the
sustainable future of the country and, hence, the general development of the economy
and its citizens (Department of Environmental Affairs [DEA] 2018). South Africa
ratified the United Nations Framework Convention on Climate Change (UNFCCC),
thus demonstrating a commitment to monitor greenhouse-​gas emissions by preparing
annual inventories and undertaking the right actions and programmes to reduce
emissions. Mailula (2019) states that the reporting of emissions has been erratic and in-
consistent over the years, and only recently has the Department of Minerals and Energy
reported on annual sectoral emissions linked with the energy balances of the country.
In 2018, South Africa’s Low Emission Development Strategy (LEDS) 2050 was
published which aims to build on previous efforts such as the National Climate Change
Response Strategy in 2004 in order to set and follow the most appropriate guidelines
to keep the country on a low-​carbon trajectory, accounting for challenging economic
conditions. The strategy proposes a combination of mitigation actions and adaptation
measures. Thus, the South African LEDS recognizes this and outlines the research,
technology development, and transfer needed for the country to transit to low ​carbon-​
emissions development. The strategy also stresses the need for ongoing reporting and
evaluation in place of the one-​off and unlinked efforts of the past.

15.5 Energy Transition in South Africa

Over the centuries the interconnection between humans and energy has transformed
multiple times, typically from traditional energy fuels to modern ones (disregarding the
environmental impacts and enhancing rapid industrialization) and subsequently, from
exhaustible ‘dirty’ fuels towards cleaner ones (Grubb et al. 2008).2 One of the challenges
in this transition will be to substitute fossil-​fuels usage in specific energy-​intensive eco-
nomic sectors such as mining, iron and steel, and other metals. At the same time, these
sectors are significant sources of job opportunities, investment, and growth. These

2
Chapters 14 and 16 in this volume also present perspectives of the energy transition in South Africa.
 ENERGY AND CLIMATE CHANGE IN SOUTH AFRICA    317

industries are ‘inflexible and slow to change. For example, once a major investment has
been made in the construction of a smelter, opportunities to change to more energy-​
efficient technology or production process are limited’ (Inglesi-​Lotz 2015).
Industrialized countries that boast a well-​established and universal energy/​electri-
city network have paved the way for systems that generate and distribute energy to all
(the idea of ‘public good’). The emerging and developing countries of the Global South,
including South Africa and India, make an effort to provide their continuously rising
populations with access to affordable and reliable clean energy services too (as per
Sustainable Development Goal 7) (Essex and de Groot 2019).
In all these changes in global dynamics and the broader socio-​economic transitions
of the population (rural to urban, low ​income to middle-​and high ​income, for ex-
ample) and market structures towards liberalization, the world faces the challenge of
climate change and urgency in making use of alternatives to fossil fuels and moving to-
wards renewable energy (Grubler 2012). A triple challenge is faced by policymakers in
the energy sector: (1) generate adequate energy for the rising population at competi-
tive prices; (2) distribute to users considering its affordability; and (3) develop and make
use of clean energies to mitigate the consequences of climate change (Cock 2004). To
ensure all three in combination, the South African energy sector has slowly but surely
undergone noticeable transformations. Essex and de Groot (2019) divided the evolution
of the energy transitions from provision responsibility, market structure, and access in
South Africa into four phases:

1. The country’s electricity network in colonial South Africa (1860–​1948):

Policymakers founded the take-​off of the South African economy on cheap elec-
tricity generated by coal reserves that were in abundance in four of the nine
provinces of the country (Limpopo, Mpumalanga, Kwazulu-​Natal, and the Free
State). Diamond-​and gold-​mining companies acted as the first private electri-
city generating companies, focusing primarily around mining towns (Gentle
2009). Electricity generation also started at the urban municipal level as part of
their mandate to provide electricity in public spaces (Essex and de Groot 2019).
Towards the middle of the period, in 1910, the government intensified the effort
to create an integrated system for generation and transmission, focused primarily
on supplying low-​tariff electricity to the industrial sector of the country (leaving
most of the South African population without access). The Electricity Act of 1922
formalized the nationalization of electricity generation and by 1923, the then
Eskom was formed (Christie 1984) and the formation of the national grid became
reality.
2. Electricity under apartheid (1948–​94):
The National Party’s election in 1948 signified an era in South Africa characterized
by ‘segregation, spatial inequality, exclusion, and marginalization’ (Beall et al.
2000; Essex and de Groot 2019). Apartheid policies with their exclusionary na-
ture resulted in less than a third of households in townships having electricity
connections (Louw et al. 2008). Electricity was provided only to white areas
318   Roula Inglesi-Lotz

(the regime’s idea of universal access), thus creating a racially determined part
of the population that had to rely on dirty and dangerous fuels to cover their
everyday needs.
3. Electricity in the post-​apartheid era (1994–​2011):
Soon after the 1994 democratic elections, the government concentrated efforts on
rebuilding the economy with a focus on taking care of the inequalities created by
the previous regime, putting into action the Reconstruction and Development
Programme (Mohlakoana 2014). In the programme, electricity was identified as a
key and convenient fuel to ensure universal access and minimize health incidents
due to indoor air pollution, while at the same time creating employment and
income-​generation opportunities and improving living standards.
The municipalities acquired a more prominent role in the distribution of
electricity to the biggest part of the South African population (Mosdell 2016).
Since then, Eskom has been the main generator of electricity (more than 90
per cent of the total) and the main distributor for industrial and mining users
and only some residential areas; the vast majority of households are serviced by
municipalities which purchase electricity generated by Eskom and resell/​dis-
tribute at a profit.
4. Climate change and renewable energies (2011–​present).

South Africa’s 14th position on the list of the largest emitters of greenhouse gases
in the world (2018) has been mainly attributed to coal being the dominant fuel used
for electricity generation. The country has now made commitments as a signatory of
agreements such as the Kyoto Protocol in 2002 and the Copenhagen Climate Change
Conference in 2009 and targets set for the reduction of emissions make the shift to
supporting renewable energies more prominent. This shift has been promoted be-
cause energy policymakers see renewable energies as a solution to the load-​shedding
experienced since 2008.
In this phase, renewable-​energy generation in the country is classified into two broad
categories: (a) renewable-​energy generators participating in the Renewable Energy
Independent Producers Procurement Programme (REIPPP) where producers can
tender for licences to supply Eskom’s grid under a two-​decade agreement and (b) small-​
scale embedded generation programmes where ‘the electricity generated is used solely
on site’ (Baker and Phillips 2019).
In 2020, Eskom operated fifteen coal-​fired power plants accounting for 85 per cent
of installed capacity (Bohlmann et al. 2019). Although, however, the role of renewable
energies is expected to be greater in the future supply mix, new coal-​fired generation is
also planned (Essex and de Groot 2019). Bohlmann et al. (2019) explain that these will
come in to replace the ageing fleet of coal-​fired power plants due to be decommissioned
by 2030.
To add a further layer to the debate on energy transition, the impact of a transition to
a low-​coal supply mix in South Africa will not be homogenous across all provinces as
the bulk of coal generation is located in the Mpumalanga province while the expected
 ENERGY AND CLIMATE CHANGE IN SOUTH AFRICA    319

renewable-​energy generation will take place mostly in the Western and Eastern Cape
provinces. As coal-​fired power plants and coal mines are important employers for the
population in the region, the socio-​economic impact on these provinces will be negative
without proper planning. Although there will be an increase in job opportunities during
the expansion of renewable energies in the short term, the net effect could potentially be
negative in terms of the high number of unemployed and unskilled workers resulting
from the closing of coal-​fired power plants. Therefore, careful regional planning is es-
sential for a smooth and ‘just’ energy transition within the borders of South Africa
(Bohlmann et al. 2019).

15.6 Conclusion

This chapter examined the socio-​economic dimensions that interconnect with energy
use and supply in South Africa, and placed the various types of transitions the South
African energy sector has undergone into a historical perspective.
The importance of the provision of energy services was a cornerstone in all the ana-
lysis, demonstrated particularly in the discussion of access to energy services and the
broader achievement of universal access. The chapter shows that an expansion of the
national electricity grid or provision of an amount of free electricity have been solutions
under certain conditions but the current socio-​economic conditions and livelihood
standards of South African households now require solutions that will not challenge
their already difficult livelihoods and constrained budgets.
‘The cost of providing universal access to energy by 2030 would require an annual
investment of $35 billion, i.e. much less than the amount provided annually in subsidies
to fossil fuels (IEA in Gonzalez-​Eguino 2015). As with any investment, particularly by
government in an emerging economy with severe macroeconomic challenges, the net
benefit of any investment should be taken into account: in this case, the socio-​economic
benefits from the improvement in households’ well-​being and any further economic de-
velopment should be compared with the financial and opportunity cost of improving
and upgrading the energy infrastructure.
The future of South Africa’s energy sector is not predetermined—​more than one
scenario can play out in the future, depending on the policy choices that will promote
sustainable energy supply and use in a synergistic manner with economic growth and
human development. These choices will have to reflect the resource endowments of the
country and have a common goal with three interlinked objectives: (a) adequate cost-​
effective energy; (b) affordable energy; (c) energy generation that mitigates climate
change (Cock 2004). Of course, this is easier said than done. There are opportunities
for the energy sector and, with the right decisions and institutional foundations, energy
can become the ‘cornerstone of economic development and make a huge difference in
the lives (International Energy Agency [IEA] 2019) of the South African population.
320   Roula Inglesi-Lotz

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 Chapter 16

Climate Cha ng e a nd
the Green Tra nsi t i on
in Sou th A fri c a

Channing Arndt, Sherwin Gabriel,

Faaiqa Hartley, Kenneth Marc Strzepek,
AND TIMOTHY S. THOMAS

16.1 Introduction

This chapter explores one of the most complex challenges facing South Africa in creating
plans and policies for future economic growth and development: climate change.
Higher temperatures and more variable rainfall have already affected the South African
economy through (to give three examples) droughts and water shortages, which impact
employment, poverty, and food security in both rural and urban areas; floods, which
can destroy crops and infrastructure, disrupt power supplies, and lead to loss of life; and
heatwaves, which affect human and livestock health and lower crop yields (Blignaut et al.
2009). Changes in the climate will continue for decades, probably at least through to
the end of the century. The degree to which climate change affects different regions in
South Africa is likely to vary with wide ranges in the direction and magnitude of change
in key climate variables, especially precipitation. Regions with vulnerable households are
often particularly sensitive to large climatic changes (Cullis et al. 2015; Earthlife Africa
and Oxfam International 2009; Turpie et al. 2002). Because of these uncertainties and
their interactions with South Africa’s growth and development challenges, formulation
of plans and policies to support economic development is complicated.
The South African government has acknowledged the threat climate change poses
to economic development. The National Climate Change Response White Paper (RSA
324    ARNDT, GABRIEL, Hartley, STRZEPEK, AND THOMAS

2011) outlines government’s mitigation and adaptation interventions to respond to cli-

mate change. While some of the measures have been implemented, many priorities still
need to be transformed into actionable policies that influence practices and planning
(Ziervogel et al. 2014). A process to scope the long-​term impacts of climate change on
South Africa has taken place through the 2013 South African Long-​Term Adaptation
Scenarios Flagship Research Programme (DEA 2013). Local governments have also
considered local responses to addressing climate vulnerabilities (DEDEA 2011; DEADP
2014; L-​DEDET 2016).
Globally, responding to climate change will require, among other items, a transition
to a low-​carbon economy. Global efforts to reduce emissions decrease the likely mag-
nitude and ranges of uncertainty surrounding future climate change impacts (Cullis
et al. 2015; Arndt et al. 2019a; Schlosser et al. 2020). In South Africa, the mitigation
actions to enable such a transition will largely depend on transforming the energy
sector. Due to its dependence on coal, energy supply is the largest source of green-
house gas emissions for the country. Yet, large renewable resource endowments,
falling costs of renewable energy, and improvements in systems integration have
strengthened South Africa’s potential to reduce energy emissions and achieve a
less carbon-​intensive economy (IRENA 2016; Hartley et al. 2019; Arndt et al. 2019a;
McCall et al. 2019).
However, the shift toward renewable energy and the proliferation of associated
technologies, such as electric vehicles, do have negative implications for trad-
itional activities in the economy tied to fossil fuels and the livelihoods that depend
on those activities (Burton et al. 2018; Merven et al. 2019). Government interven-
tion could ease the potential negative impacts of transitioning to a low-​carbon
economy.
This chapter presents and summarizes the key research on climate changes
experienced in South Africa in recent years, along with projected changes in years
to come. It illustrates the uncertainty related to climate change and the key channels
through which climate change affects the economy. The economic and developmental
impacts of such changes are presented along with the lessons for adaptation policy. As
energy will be a primary focus of mitigation efforts in South Africa, this chapter also
outlines the implications of such a transition and the factors that need to be accounted
for in limiting the impacts on vulnerable populations.

16.2 The Hydroclimate of South Africa

South Africa is a semi-​arid country with an average annual rainfall of 495mm, ranging
from less than 100mm/​year in the western deserts to about 1200mm/​year in the eastern
part of the country. Only 35 per cent of the country has a precipitation of 500mm or
more, while 21 per cent has a precipitation of less than 200mm. Based on annual
 Climate Change and the Green Transition in South Africa    325

rainfall, three climate zones can be distinguished as shown in Figure 16.1. The eastern
parts of the country are summer rainfall areas with an annual precipitation of more
than 500mm. The central and the western parts of the great plateau are semi-​arid to
arid and are characterized by late summer rains, varying from less than 100mm/​year
to approximately 500mm/​year. The Cape Fold mountains and the area between them
and the sea have a winter rainfall season in the west and rainfall throughout the year
in the more south-​easterly parts. Annual precipitation in this region varies from about
300mm to more than 900mm. Figure 16.1 also distinguishes nine water management
areas (WMAs) (Cole et al. 2018).
In sum, South Africa exhibits great spatial variability in climate and streamflow. There
are also large variations in water use. It is thus misleading to report only national level
hydro-​climatic data or analyses. An appropriate subnational spatial scale is needed. For
this chapter we report results using six hydroclimatic zones as shown in Figure 16.2.
Surface water resources are very unevenly distributed across the country with more
than 60 per cent of its river flow arising from only 20 per cent of the land area. The
distribution of total South Africa annual runoff among the six hydroclimatic zones
is as follows: (1) Northeast: 17 per cent; (2) Pongola: 13 per cent; (3) Vaal: 4 per cent;
(4) Orange 13 per cent; (5) Mnmvubu 28 per cent; (6)Western Cape: 24 per cent.
The combination of low and highly variable rainfall (both inter-​and intra-​annually)
with high evaporation and shallow dam basins leads to highly seasonal and varied
runoff and water supply, even before considering climate change.

Figure 16.1 Annual rainfall distribution for Republic of South Africa

Note: The spatial and seasonal variation leads to a wide-​spatial heterogeneity in agricultural production.
Source: Cole, M.J., Bailey, R.M., Cullis, J.D. and New, M.G., 2018. Spatial inequality
in water access and water use in South Africa. Water Policy, 20(1), pp.37–52.
326    ARNDT, GABRIEL, Hartley, STRZEPEK, AND THOMAS

Figure 16.2 The six hydro-​ climatic zones which are the aggregation of the 9 Water
Management Areas with percentage of total national annual
Source: DWA (2013)

16.3 Climate Change Impacts: Building

on Past Analysis

Southern Africa has been highlighted as being especially vulnerable to the impacts of
climate change. Warmer temperatures, erratic rainfall, and shorter growing windows
present substantial challenges for the agricultural sector and the households that de-
pend on it. Insufficient water supply brings risks to agriculture, industries, households,
and power generation. Flood and excessive heat can reduce the lifespan of infrastruc-
ture. Multiple climate stresses and a low ability to adapt have important implications for
households and industries that depend largely on the environment.
While direct implications of climate change focus on specific parts of economic ac-
tivity, such as agricultural yield or runoff, these spill over to the rest of the economy. This
has important implications for rural development, food security, risk management, en-
ergy planning, and infrastructure budgeting, to give a few examples.
Climate effects are not uniform. A hotter and drier climate future for the Western
Cape, for example, can coexist with a warmer, but wetter, KwaZulu-​Natal. Similarly, the
economic effects differ because the profiles of industry, labour, and households are not
the same across different regions in South Africa; and these differing profiles are affected
by different climate risks.
Climate change is already occurring and is expected to continue (details on climate
change outcomes are presented in subsequent sections). Average global temperatures in
 Climate Change and the Green Transition in South Africa    327

southern Africa have already increased by more than 1.5°C, compared with 1°C globally
(Kusangaya et al. 2014). There is an urgency to develop and implement adaptation and
mitigation measures now, as it may be more expensive, and potentially less effective, to
respond later.
To understand the potential risks of climate change to the economy, it is important
to consider regional economic differences, and the channels by which climate change
could affect them.
Studies that focus on the economic impact of climate change in South Africa have
mostly focused on the agriculture sector. Climate change negatively affects agricul-
tural production mainly because of higher temperatures, with crops growing close to
the upper limit of temperature tolerance levels (Gbetibouo, Ringler, and Hassan 2010;
Deressa, Hassan, and Poonyth 2005). Dryland farming is generally found to be more
vulnerable than irrigated agriculture, and the profitability of small-​scale farmers is
affected more than that of large farmers (Turpie and Visser 2012; Blignaut et al. 2009).
South Africa recognizes climate change among its many development challenges.
Climate change is an important element of the National Development Plan, the
country’s long-​term development agenda, as well as of a number of economic plans
with shorter timelines, such as the Medium-​Term Strategic Framework. South Africa’s
key policy document to respond to climate change is the South Africa National Climate
Change Response White Paper (Department of Environmental Affairs 2012). It outlines
the policy context and mandates for adaptation and mitigation and aims to ensure a just
transition to a climate-​resilient and less carbon-​intensive economy.1
Building on the White Paper, the Long-​Term Adaptation Scenarios (LTAS) research
programme was one of the first, large multidisciplinary efforts in South Africa to outline
plausible development pathways under different climate futures. It focused on agricul-
ture, water, health, and biodiversity, as well as the cross-​cutting and economic effects of
these channels. Such interdisciplinary approaches are useful in integrating the insights
and risks across different affected sectors. The translation of scientific and biophysical
processes into coherent economic outcomes allows for identification and coordin-
ation of detailed policy responses grounded in evidence-​based scientific and economic
analysis.
To determine the economic effects of climate change, it is necessary to trace how cli-
matic indicators influence economic value. Hence, under LTAS, a range of assessment
tools were linked into an integrated framework, called SACReD—​Systematic Analysis
of Climate Resilient Development—​making it possible to examine climate change
impacts in the broader national economic context, and identify cross-​sectoral spillovers

1
Several subsequent policies and legislation that consider climate change include the Air Quality
Amendment Act (2014), National Energy Efficiency Strategy (2016), Integrated Resource Plan for
Electricity (2019), and the Carbon Tax Act (2018). Other draft policies include the Integrated Energy
Plan, National Adaptation Strategy, Climate Change Legal Framework, Green Transport Policy, and
regulations for Greenhouse Gas Reporting and Pollution Prevention Plans.
328    ARNDT, GABRIEL, Hartley, STRZEPEK, AND THOMAS

Climate Models

Precipitation

Temperature

Catchment Model

Urban and Industry

Water Resources Model (WRYM) Demands

Crop Models (IRRDEM) Water Supply and Hydropower Roads Impacts Model (IPSS)
Models

Water supply Energy supply Rehabilitation costs and road

Crop yields lengths

Economy-wide general equilibrium (GE) Land inundation from sea-level

model rise

Figure 16.3 SACReD –​Systematic Analysis of Climate Resilient Development Framework

for LTAS
Source: Cullis et al. (2015)

and vulnerabilities.2 Also, given the uncertainty in how exactly climate change will un-
fold, it is important to test a wide range of plausible outcomes.
A schematic of the SACReD framework is shown in Figure 16.3. At the top are cli-
mate projections, mainly temperature and precipitation projections, for a given future
climate. This climate is then passed to biophysical models—​crop, hydrological, and road
damage models—​to determine the impact on crop yields, water and energy availability,
and infrastructure costs for each climate scenario at fine levels of geographic and tem-
poral detail to a given point in the future (LTAS went to 2050). These climate-​related
effects on productivity, supply, and cost permit an economic evaluation of climate
change. This broad array of impacts, at least some of which are likely to be positive, are
then passed to an economy-​wide general equilibrium model, where market participants
respond to changes in relative prices as a result of changes in supply due to climate
effects. The economy-​wide model serves as a complex and coherent ‘adding machine’
that accounts for both multiple impacts and the reactions of agents.
As will be discussed in more detail in the next section, climate futures are uncer-
tain. To account for this uncertainty, multiple climates are passed through the SACReD
framework, allowing for the generation of a range of potential outcomes.
The results from the SACReD framework from the LTAS study suggest that the total
impact of climate change on the level of real GDP by about 2050 is found to range be-
tween –​3.8 per cent and 0.3 per cent compared with a fictional ‘no climate change’ base-
line. While positive GDP outcomes are possible, results indicate that, for the very large

2
The SACReD framework has also been applied to climate change policy research in Ethiopia,
Ghana, Malawi, Mozambique, Tanzania, Vietnam, and Zambia.
 Climate Change and the Green Transition in South Africa    329

majority of climate futures, the impact on total GDP will be negative. The median result
shows that by 2050, South Africa’s real GDP level will be about 1.5 per cent lower than
in the baseline scenario. This translates into a 0.03 percentage point decline in average
annual real GDP growth rate. The net present value of the potential impact on GDP
out to 2050 is highly variable, ranging from losses of Rand 930 billion to gains of Rand
310 billion (real 2007 Rand). About 96 per cent of the climate scenarios show overall
losses. The median loss in NPV is approximately Rand 259 billion which, at more than
10 per cent of 2007 GDP, is sizeable and should motivate action in terms of both mitigation
and consideration and funding of potential adaptation scenarios (Cullis et al. 2015).
The LTAS findings suggest that South Africa’s economy would very likely benefit
from a low-​carbon energy future. While this requires a global effort to achieve, South
Africa is Africa’s largest GHG emitter and, in 2018, was fourteenth largest in the world
(Carbon Brief 2018). South Africa’s interests lie in reduced global GHG emissions. As
will be discussed, South Africa has significant opportunities to achieve future economic
growth and development in a sustainable and low-​GHG manner.
The analyses under LTAS were conducted about seven years ago—​a long time, given the
rapid development of capabilities for analysing climate change. Subsequent sections present
updated analyses of elements of the SACReD schema, beginning with future climates.

16.4 The Uncertain Future Climate

16.4.1 Probabilistic Projections of Future Climates

16.4.1.1 Methodology
Here we compare both future climate and weather based on two emissions scenarios,
one with atmospheric GHG concentrations rising through the century and the other
with emissions reductions in such a way as to limit global warming to no higher than
a 2oC increase by 2100.3 For each of the emissions scenarios, we use 7,200 climates
generated as described by Schlosser et al. (2020). Each of these climates show projected
changes in monthly precipitation and near-​surface average temperature from 2020 to
2069. These climates vary for many reasons, including:

• Imperfect human understanding of the global climate system

• Uncertainties in emissions paths, especially for the higher emissions scenario
• The inherent chaotic properties of the climate system (and climate models), which
imply that small perturbations can lead to drastically different outcomes over time,
especially at relatively fine spatial scales.

3
Under LTAS, future climates were developed in a conceptually similar way. The treatment of wea-
ther was far less sophisticated and comprehensive than the approach presented here.
330    ARNDT, GABRIEL, Hartley, STRZEPEK, AND THOMAS

For each of the climates, we consider 100 different weather realizations, each also
spanning a fifty-​year period. The weather realizations are random draws of the de-​
trended monthly Princeton Global Forcing (PGF) database from 1948 to 2016 (Sheffield,
Goteti, and Wood 2006).

16.4.1.2 Results
In Table 16.1, which focuses on temperature, we see the median and the range from the
5th to 95th percentiles for the six hydroclimatic zones of South Africa, as well as for the
nation for the warmest month in the wettest three months (computed at each pixel).
The top part of the table shows results for the climate models by themselves while the
bottom part of the table shows the results for climate and weather combined. We note
the following:

(1) Median temperatures rise over time, but there are key differences between the two
emissions scenarios. In the ‘Paris Forever’ (PF) higher-emissions scenario, median
temperature steadily rises over time, going from a base of 29.4oC for the nation in
the 1981–​2000 period to 31.7oC by the 2060s, while the ‘2C’ lower-emissions scen-
ario only reaches 30.7oC, which is less than one degree above the 30.0oC projec-
tion for the 2020s. This much of a temperature difference in the 2060s between the
two emissions scenarios can be critical for crop yields and is indicative of the value
of global GHG mitigation strategies.
(2) There is considerable variation across WMAs in terms of median temperatures.
This, in part, is due to much of the Western Cape sustaining peak rainfall in a
different time of year than most of the rest of the country, but also reflects genuine
differences in temperature across the nation. The coastal WMAs (Pongola,
Mzimvubu, and Western Cape) have more moderate temperatures than the
inland WMAs.
(3) The uncertainty about future temperature is reflected in the range growing
through time when looking at climate by itself. We also see that the WMAs on the
coast have a lower range of uncertainty than the inland WMAs.
(4) Taking weather into consideration, Table 16.1 shows that uncertainty and vari-
ability together are much larger in the inland WMAs than in the coastal WMAs.
(5) For both climate only and climate and weather together, there is a higher range of
uncertainty for the higher emission ‘PF’ scenario.

Table 16.2 is similar to Table 16.1, except that it is focused on precipitation for the
wettest three consecutive months in each pixel. This period is a reasonable proxy for
the growing season for rainfed crops. The table shows regional differences in precipita-
tion, with Pongola reflecting the highest rainfall, followed by Northeast, then Vaal and
Mzimvubu close together, and finally Western Cape and Orange.
As a nation, there is minimal projected change for median precipitation of all the
climates. However, expansion of the range indicates rising uncertainty over time, with
a larger increase associated with the higher emissions scenario. We also note some
Table 16.1: Mean daily maximum temperature for the warmest month in the wettest three consecutive months
Year Scen Focus Northeast range Pongola (NE Vaal range Orange range Mzimvubu (SE Western Cape South Africa
coast) range coast) range range range
50 (5–​95) 50 (5–​95) 50 (5–​95) 50 (5–​95) 50 (5–​95) 50 (5–​95) 50 (5–​95)

1990 Base C 30.8 0 27.9 0 31.6 0 32.1 0 27.5 0 24.1 0 29.4 0

2020s 2C C 31.4 1.2 28.4 0.8 32.3 1 32.8 0.8 28 0.7 24.7 0.8 30 0.8
2020s PF C 31.6 1.2 28.6 0.9 32.6 1.1 33.1 0.9 28.3 0.8 24.9 0.8 30.3 0.9
2040s 2C C 31.6 1.4 28.5 1 32.5 1.2 33 1 28.2 0.9 24.8 0.9 30.2 1
2040s PF C 32.2 1.8 29.1 1.3 33.2 1.6 33.6 1.3 28.7 1.2 25.3 1.2 30.8 1.2
2060s 2C C 31.7 1.6 28.6 1.1 32.7 1.4 33.2 1.2 28.3 1 25 1 30.3 1.1
2060s PF C 32.9 2.4 29.6 1.7 33.8 2.2 34.3 1.7 29.3 1.5 25.9 1.6 31.4 1.6
2020s 2C C&W 31.9 2.6 28.8 2.2 32.7 3.6 33.1 3.3 28.2 1.7 24.7 1.6 30.3 2.2
2020s PF C&W 32.2 2.6 29 2.2 33 3.7 33.3 3.3 28.5 1.8 24.9 1.7 30.6 2.2
2040s 2C C&W 32.1 2.7 28.9 2.4 33 3.8 33.3 3.4 28.4 1.9 24.9 1.8 30.5 2.3
2040s PF C&W 32.7 2.8 29.5 2.5 33.6 3.9 33.9 3.5 28.9 2.1 25.4 2 31.1 2.5
2060s 2C C&W 32.2 2.9 29.1 2.4 33.1 3.8 33.4 3.3 28.5 1.9 25 1.8 30.7 2.3
2060s PF C&W 33.4 3.3 30 2.7 34.3 4.1 34.6 3.5 29.5 2.3 26 2.2 31.7 2.6

Source: Authors’ calculations

Notes: ‘C’ considers only the 7,200 climates per emissions scenario and reflects the uncertainty about the future climate. ‘C&W’ considers climate and
weather together and draws on 720,000 combinations per emissions scenario and reflects both uncertainty about the future and annual variation in the
weather. ‘Scen’ is used to mean emissions scenario. ‘1990’ represents the mean of the 1981–​2000 period. ‘2020s’ are values for 2021–​29; ‘2040s’ are for
2040–​48; ‘2060s’ are for 2060–​68.
Table 16.2: Total rainfall in the wettest three consecutive months
Year Scen Focus Northeast range Pongola (NE Vaal range Orange range Mzimvubu (SE Western Cape South Africa
coast) range coast) range range range
50 (5–​95) 50 (5–​95) 50 (5–​95) 50 (5–​95) 50 (5–​95) 50 (5–​95) 50 (5–​95)

1990 Base C 305 0 388 0 236 0 119 0 228 0 148 0 214 0

2020s 2C C 304 89 384 97 233 39 112 43 228 41 147 24 213 26
2020s PF C 309 106 383 132 232 53 111 53 230 53 144 31 213 36
2040s 2C C 306 109 385 118 233 48 111 52 229 49 147 30 213 32
2040s PF C 314 157 383 199 231 79 108 77 233 80 141 46 214 53
2060s 2C C 308 122 386 132 233 53 111 58 230 55 146 34 214 36
2060s PF C 321 217 383 276 231 110 104 101 235 112 139 64 215 72
2020s 2C C&W 302 197 384 282 225 184 104 156 224 141 144 84 208 121
2020s PF C&W 304 203 384 288 225 187 103 157 225 145 141 86 208 123
2040s 2C C&W 304 201 385 273 230 193 106 163 229 150 145 92 211 123
2040s PF C&W 309 225 387 304 230 198 105 168 231 160 140 97 211 129
2060s 2C C&W 307 214 382 297 226 177 103 150 228 152 145 90 210 118
2060s PF C&W 315 269 387 351 228 197 101 163 233 174 139 100 212 132

Source: Authors’ calculations

Notes: ‘C’ considers only the 7,200 climates per emissions scenario and reflects the uncertainty about the future climate. ‘C&W’ considers climate and
weather together and draws on 720,000 combinations per emissions scenario and reflects both uncertainty about the future and annual variation in the
weather. ‘Scen’ is used to mean emissions scenario. ‘1990’ represents the mean of the 1981–​2000 period. ‘2020s’ are values for 2021–​29; ‘2040s’ are for
2040–​48; ‘2060s’ are for 2060–​68.
 Climate Change and the Green Transition in South Africa    333

regional differences in median projected change with some WMAs getting slightly
wetter and others getting slightly drier, but very little change in general, with the largest
(but still small) changes appearing in the ‘PF’ scenario in the 2060s.
It is important to highlight that many studies only focus on the uncertainty associated
with climate but neglect to consider the variability of weather. When variability of wea-
ther is considered, it is possible to look at the occurrence of extreme events such as
drought or floods. For example, for South Africa, what would be a one-​in-​a-​hundred-​
year flood event in the 2020s becomes a one-​in-​seventy-​three-​year flood event in the
2060s under the PF scenario. A one-​in-​a-​hundred-​year drought event in 2020s would
become a one-​in-​forty-​two-​year drought event in the 2060s under PF. This is primarily
due to the uncertainty in climate models, not because of increased variance in weather.

16.5 Impacts of Climate Change

on Water and Food Systems

16.5.1 The Agricultural System

Although only contributing about 3 per cent to the national GDP and 7 per cent of total
employment, the agricultural sector has many knock-​on effects in the economy and is
considered a critical sector in terms of future economic growth, job creation, and na-
tional food security. The spatial and seasonal variation in climate leads to a wide spa-
tial heterogeneity in agricultural production. About one-​third of the country receives
enough rainfall for successful rainfed crops. The remaining two-​thirds is used for
grazing and some irrigated agriculture. In winter, frost is common on the great plateau,
limiting the choice of crops and resulting in strong seasonal patterns for most crops
grown (FAO 2016). The potential for future expansion in agriculture is limited as the

Legend
Agricultural landuse
Irrigated Area
Rainfed Area
Water Managed Area
(non-irrigated)

Country Boundary 0 380 760 1520 Km

Figure 16.4 Cultivated land use by agricultural system in southern Africa

Source: International Water Management Institute’s (IWMI) Irrigated Area Map.
334    ARNDT, GABRIEL, Hartley, STRZEPEK, AND THOMAS

majority of the arable land in the country is already cultivated either through large-​scale
commercial farming or small-​scale subsistence farming.
Agriculture currently utilizes about 63 per cent of available water resources. Irrigation
is concentrated on approximately 19 per cent of all cultivated area and is distributed
among the six hydroclimatic zones as follows: (1) Northeast: 22 per cent; (2) Pongola: 9
per cent; (3) Vaal: 14 per cent; (4) Orange: 11 per cent; (5) Mnmvubu: 13 per cent; (6)
Western Cape: 31 per cent. This generally follows the distribution of surface water
resources. There are only a few areas where there is surplus water to support increases
in irrigation. In other areas of the country, increases in the demand for water from other
sectors such as mining and urban consumption could drive a reduction in the alloca-
tion of water to agriculture. While only accounting for a small percent of harvested area,
irrigated lands account for 48 per cent of crop revenues (Cullis et al. 2015).
The agricultural sector is considered to be one of the most critical sectors in terms of
potential impacts of climate change (DEA 2011; Schulze 2010). Agriculture is impacted
directly by changes in precipitation, temperature, and evaporation. The impact of cli-
mate change, however, could be different for different crop types. This is due either to
differences in the response of different crop types to changes in climatic variables as
well as differences in the spatial impacts of climate change relative to where the different
crops are currently grown or will be grown in the future. Rainfed agriculture is particu-
larly sensitive to climate variability. For example, an analysis of the sensitivity of agricul-
ture production to historical changes in climate in South Africa (Blignaut 2009) found
that a 1 per cent decline in rainfall resulted in a decline in maize production of 1.16 per
cent and a decline in wheat production of 0.5 per cent. While some crops may suffer,
other crops such as sugar cane may benefit from both an increase in precipitation and an
increase in temperature (Schulze 2010). In all cases, it is anticipated that future increases
in temperature and evaporation will result in an increase in irrigation demands across
the country. Climate change is thought to also have an indirect impact on crop produc-
tion through impacts on pests and diseases (Schulze 2012).

16.5.2 Crops Yields
16.5.2.1 Methodology
Crop models are often used to study the impact of climate change on crop yields
(Rosenzweig et al. 2014). One of the most used models is the DSSAT model, which we
use in this study. The DSSAT model considers daily weather and farming input use
such as seed variety, planting date, and fertilizer use, and ‘grows’ the crop in daily time
increments, keeping track of soil moisture and nutrients. While the software performs
very well for many crops, the computer time is substantial, and would overwhelm the
computation of yields based on 30km-​level pixels of daily weather data for southern
Africa for 720,000 different weathers per emissions scenario.
 Climate Change and the Green Transition in South Africa    335

To ease the computational demand, we do two things. First, we select a subsample

from the 720,000 that exactly reproduces the first, second, and third moments of the
distribution of key climate/​weather variables relevant to crop production (Arndt, Fant,
Robinson, and Strzepek 2013). This reduces the number of climate–​weather pairs for
each emission scenario from 720,000 to about 455. Each climate–​weather pair spans fifty
years (from 2020 to 2069). Second, we build a crop yield emulator, which takes yields
generated by DSSAT for a subsample of the data, and regress them on monthly weather
values to generate parameters that can be used to quickly estimate yields for that sample.

16.5.2.2 Result
There are no official agricultural statistics data on area harvested by hydrozone. So, we
turn to a gridded dataset, MapSPAM, which uses 10km pixels and projects the amount
of harvested land by crop type, based on a number of geographic features and national
and subnational agricultural statistics (You, Wood, Wood-​Sichra, and Wu 2014). When
we focus on rainfed maize in South Africa—​the most important crop by harvested
area—​we find that of the roughly 2.3 million hectares cultivated circa 2010, 1.6 million of
those are in the Vaal hydrozone, another 400,000 are in the Northeast, the Orange has
around 140,000 hectares and Pongola has 120,000 hectares. MapSPAM shows very little
rainfed maize being cultivated in either Western Cape or Mzimvubu.
For the nation as a whole, climate change will result in a reduction in rainfed maize
yields, but by only modest amounts at the median of the climate projections. By the
2060s, the median under the lower emissions scenario is reduced by only 3.5 per cent
while under the higher emissions scenario the median declines by 7.4 per cent. Even in
the 2020s, the emissions scenarios show a median reduction of 2.1 per cent for the lower
emissions scenario and 1.2 per cent for the higher emissions scenario (the emissions
scenario assumptions take different pathways, so the higher emissions scenario has a
better outcome for the 2020s but then is worse by the 2060s).
The range of outcomes for the middle 90 per cent widens over time, though it
contracts between the 2040s and the 2060s for the lower emissions scenario. A declining
median yield and a widening range indicate that the frequency of years with low pro-
duction will increase in the later years, and this is especially so for the higher emissions
scenario. This suggests that lowering GHG emissions globally (and domestically) would
reduce the incidence of bad years and potentially reduce food insecurity or at least the
need for social assistance for households relying on their own production for income
and food.
The Vaal hydrozone, the main area for rainfed maize production, will be especially
hard hit. Even in the 2020s, the Vaal should see a loss of 6.0 and 4.8 per cent (depending
on emissions scenario) relative to the climate of 1981 to 2000. By the 2040s, the losses
will be 8.5 and 7.5 per cent, and by the 2060s, 6.8 and 11.2 per cent. The national average
would be much lower, except that losses in Vaal will be partially offset by gains in pro-
duction due to climate change in Pongola, and more modest losses in the Orange in par-
ticular but also in the Northeast.
336    ARNDT, GABRIEL, Hartley, STRZEPEK, AND THOMAS

16.5.3 Irrigation Demand
16.5.3.1 Methodology
Irrigation demand estimates are comprised of three parts: (1) crop water requirements
per hectare by location; (2) crop areas by location; and (3) irrigation system efficiency
(field and conveyance). The crop water requirements were estimated using the IRRDEM
model (Cullis et al. 2015) at the quaternary catchment level based on effective precipita-
tion estimated using the USDA methodology (Hess 2010), potential evapotranspiration
estimated using the Modified Hargreaves (Droogers and Allen 2002), and crop areas
and irrigation efficiencies by crop from RSA data (Cullis et al. 2015). The IRRDEM uses
monthly precipitation and temperature data times series of fifty years with 455 realiza-
tion for each of the two emission scenarios described above.

16.5.3.2 Result
The analysis provides three key findings for the nation as a whole: (1) there is a pro-
gressive increasing irrigation demand over time; (2) there is a consistent increase in the
potential extreme amounts of irrigation demand; and (3) there is significant difference
between the PF and 2C scenarios output with PF exhibiting increases in extreme events
and a slight increase in mean irrigation demand compared with 2C.

16.5.4 Water Resources
Streams and rivers are South Africa’s main water resource. Streamflow accounts for over
97 per cent of exploitable water resources. Streamflow is diverted directly or stored in
reservoirs for use in economic activities or for ecosystem preservation. Streamflow is
the collection of ‘runoff ’ in basin catchments. Runoff is the result of rainfall that is not
consumed by vegetation or percolated to the groundwater.
Runoff is a function not only of precipitation but also temperature and land surface
slope, land cover, and land use. Since rainfall and temperature are highly variable over
South Africa, runoff is as well and may not be available when/​where it is most in de-
mand. Since climate change impacts are not uniform over South Africa, it is important
that we model the catchment runoff process at an appropriately detailed spatial level.

16.5.4.1 Methodology
The Pitman model (Pitman 1973) was used to determine a time series of monthly
catchment runoff for all quaternary catchments in South Africa for all climate futures
considered. The Pitman model has become one of the most widely used monthly time
step rainfall-​runoff models within southern Africa (Hughes et al. 2006) and is still the
basis for current models used for all water resources planning studies in South Africa
(Pitman et al. 2006).

16.5.4.2 Results
Figure 16.5 provides probability density functions (pdf) of the total runoff summed over
South Africa for four eras: (1) historic (1980–​2000); (2) 2025 (2020–​30); (3) 2045 (2041–​50);
 Climate Change and the Green Transition in South Africa    337

Figure 16.5 Estimated density functions of the total runoff in South Africa for the periods
Base, 2025, 2045, and 2065 under a) Paris Forever (PF) scenario and b) 2C scenario.
Source: Authors’ calculations.
Notes: The Base period refers to the historic period 1980–​2000; period 2025
refers to 2020–​30; 2045 to 2041–​50; and 2065 to 2061–​70.
338    ARNDT, GABRIEL, Hartley, STRZEPEK, AND THOMAS

and (4) 2065 (2061–​70). Figures 16.5a and 16.5b display the results for the PF and 2C
scenarios, respectively.
Figure 16.5 reveals two key findings: (1) under the PF scenario there is a significant
increase in mean and high extreme runoff over time, suggesting flooding is a poten-
tial risk of climate change and (2) there is significant difference between the PF and 2C
scenarios output with PF exhibiting large increases in the tails of the distribution and a
significant increase in the mean while 2C has a mild increase in tails and a slight increase
in the mean.
There is a very wide range of climate impacts to runoff across the six hydroclimatic
zones. By the 2060s, the higher emissions scenario for the Western Cape is projected to
a median increase of 54 per cent while the Vaal decreases by 9 per cent and the Orange
increases by 1 per cent. The lower emissions scenario projection for the Western Cape is
a median increase of 28 per cent with the Vaal decreasing by 7 per cent and the Orange
increasing by 1 per cent.

16.5.5 Synthesis of Impacts of Climate Change on Water

and Food Systems
By 2060, decreases in rainfed food production are expected under both scenarios,
which will increase the demand for irrigated crop production. Water demand per hec-
tare is shown to increase under both scenarios; so, more water will be needed to produce
the current irrigated production. With increased irrigated area, total demand for irriga-
tion water will increase significantly.
Agricultural water use accounts for approximately 63 per cent of South Africa’s
water withdrawals, while municipal accounts for 27 per cent and industry 10 per cent.
Municipal and industrial (M&I) water use is projected to increase with population
and economic growth. There are currently local and regional water scarcity issues.
With the economic value of water to M&I many times higher than almost all agricul-
tural uses, reallocation of limited supplies has been putting pressure on agricultural
water supplies. These pressures will be accentuated by climate change. With declining
rainfed crop yields and reduced water supplies for irrigation, considerations for food
security arise.
Looking broadly across all of South Africa, increases in annual runoff appear to be
more likely than decreases. However, the probability of decreases in runoff at the na-
tional level remains substantial, and it is highly likely that runoff will decrease in at
least some specific geographies. In addition, the spatial and temporal distribution of
projected median runoff increases do not directly match the locations of increased ir-
rigation demands. Finally, the reservoir storage infrastructure does not exist to store
these additional flows. Due to environmental and budget constraints, it will be difficult
to increase reliable water supply via reservoirs or inter-​basin transfers even if stream-
flow increases.
 Climate Change and the Green Transition in South Africa    339

In terms of water resources, the principal conclusions from the LTAS study appear to
remain valid. Under LTAS, a national water resources model was developed to provide
a modelling platform for assessing climate change impacts based on a selected combin-
ation of climate change scenarios, water requirement projections, water resources infra-
structure developments, and system operating rules. This analysis suggested:

• For South Africa as a whole the impact of climate change on urban and industrial
water supply is fairly limited. This is specifically notable in the larger systems like
the Upper Vaal, Crocodile (West), and Mooi-​Mgeni (in the Mvoti and Umzimkulu
WMA) that, combined, supply water to more than 50 per cent of the country’s
urban and industrial water-​users.
• The agricultural sector may, however, be more vulnerable with a significant number
of future climate sequences analysed, resulting in lower water supply characteristics
compared to the baseline. Most notable in this regard is the Luvuvhu and Letaba,
the Crocodile West and Marico, the Olifants, the Inkomati, and the Mzimvubu to
Keiskamma WMAs.

Looking forward, an enhanced national water model is under development at a detailed

catchment level to understand the local impacts and potential need for additional
storage and inter-​basin transfer infrastructure to utilize the additional runoff. The po-
tential for substantial increases in runoff in particular zones brings with it increased
flooding risk. This risk may pose a substantial climate risk to the South African
economy. Recent studies in Mozambique (Arndt et al. 2019b) and Uganda (Strzepek
et al. 2016) show that increases in flooding due to climate change result in losses of valu-
able capital and output disruptions. Flooding analysis requires modelling at a daily time
step, which is part of an extension to current climate impact studies.

16.6 The Transition to a

Low-​carbon Economy

The South African government has adopted the United Nations Environmental
Programme’s definition of a green economy which is defined as a ‘system of eco-
nomic activities related to the production, distribution, and consumption of goods
and services that result in improved human well-​being over the long term, while not
exposing future generations to significant environmental risks or ecological scarcities’
(NDC 2012). As such, a key part of transitioning South Africa to a green economy
involves decreasing the carbon intensity of the economy. In line with this goal, and
driven by the need for climate response, the South African government has committed
to reducing emissions to between 398 and 614 MtCO2e by 2030 and between 212 and 428
MtCO2e by 2050 relative to a business-​as-​usual reference case (DEA 2015). To align the
340    ARNDT, GABRIEL, Hartley, STRZEPEK, AND THOMAS

country’s contribution to limit warming to 1.5°C, emissions need to fall to below 348 and
224 MtCO2e by 2030 and 2050 respectively. This would require more ambitious mitiga-
tion efforts (Climate Transparency 2020).
The energy sector, which includes electricity and liquid fuels, accounts for nearly 80
per cent of total emissions and is key to reducing emissions in the country. The electri-
city sector on its own is responsible for half of South Africa’s emissions. Since 2007, the
country has been plagued by load-​shedding due to lack of investment leading to cap-
acity overuse, inadequate maintenance, and issues with coal supplies. Load-​shedding
is estimated to have reduced GDP by Rand 338 billion over the past ten years (CSIR
2020). The construction of two mega power plants, Medupi and Kusile, has provided
little relief to the constrained electricity sector due to significant delays and large
cost overruns combined with design and technical problems (Bolhmann et al. 2016).
The failures of Medupi and Kusile place increased pressure on ageing power cap-
acity to meet demand. Much of South Africa’s coal power capacity will reach the end
of its designed life within the next decade. The cost overruns at Medupi and Kusile,
estimated at between Rand 300 billion and Rand 480 billion, combined with design
problems which prevent them from running at planned capacity, contributed to rising
electricity costs, which in real terms increased by 114 per cent between 2008 and 2017
(Deloitte 2017; Bolhmann et al. 2016).
Given ageing infrastructure and the failure of existing capacity to meet demand, re-
newable energy technologies provide South Africa with an opportunity to significantly
reduce its emissions and increase power supply in short time frames without hindering
economic development (Arnd et al. 2017, 2019a; Merven et al. 2019). Studies have also
highlighted that, because of favourable endowments of sun and wind and the drastically
reduced cost of renewable power generation, such shifts in the energy system have a net
positive impact on the economy, including employment (Inglesi-​Lotz 2016; CSIR 2018;
Hartley et al. 2019; Merven et al. 2019, 2020; McCall et al. 2019).
The combination of domestic and global shifts away from fossil fuels will have a
negative impact on demand for South African fossil-​fuel production and exports, not-
ably coal. Negative impacts on fossil-​dependent sectors underscores the need for a
planned and coordinated transition to mitigate the impact on vulnerable workers and
communities. One of the key lessons from past transitions is the early implementation
of steps to prepare and mitigate the shock of the transition (Caldecott 2017) as disorderly
transitions can have devastating impacts on workers and communities (see Marais 2013;
Strambo et al. 2019). Given South Africa’s high level of unemployment, poverty, and in-
equality, there is an imperative that the low-​carbon emission transition be just, ensuring
social interventions to protect livelihoods, especially for the most vulnerable (NPC
2019). Under the green transition this protection extends beyond the impacts of mitiga-
tion efforts and includes those affected by climate change.
The coal transition is the first of a set of transitions that South Africa will have to
make on the path to a low-​carbon and green economy and will thus set a precedent
for the transition of other sectors. Transitions in transport and refinery production al-
ready appear to be nearing. Alternatives, like electrified transport, are both better for
 Climate Change and the Green Transition in South Africa    341

the environment and are rapidly becoming a better deal for the consumer (Ahjum et al.
2020). Compared with coal, such shifts have larger implications for producers and
consumers as the transport sector shares more linkages with the rest of the economy
and affects more workers. Furthermore, relative to coal production and electricity gen-
eration, decision-​making in the transport sector broadly defined is far more diffuse,
implying a need to manage by indirect manipulation of incentives (as compared with
directly influencing the decisions of Eskom, the electricity generation and distribution
parastatal).
Numerous government plans have been developed to guide the green and low-​
carbon transition. These include the Green Accord, the National Development Plan,
the National Strategy for Sustainable Development and Action Plan, and more recently
the first Low Emission Development Strategy, which targets a net-​zero economy by
2050 (see Gupta and Laubscher 2018 for a review; DEFF 2020). The Green Economy
Inventory for South Africa (PAGE 2017) identifies thirty-​two green-​related policies
and over a thousand initiatives which have been concentrated in the energy, transport,
and agriculture sectors and provinces of KwaZulu-​Natal, Western Cape, and Gauteng.
Initiatives have been primarily funded by the public sector. The agriculture, food pro-
duction, fisheries, and forestry sectors were found to be key for employment creation.
While significant progress has been made over the past decade, a broadening and
ramping-​up in activity is needed to reach committed targets, and more ambitious
decarbonization levels, whilst promoting economic growth and achieving sustain-
able development goals. The 2018 Green Economy Barometer for South Africa (Amis
et al. 2018) rates South Africa at 50 per cent in its green transition, highlighting that
the country remains locked in ‘brown energy’ as government fails to fully commit to
the transition away from coal. No detailed coal transition plan exists for South Africa
(Climate Transparency 2020). Political will and leadership have often been cited
as the key constraints to the shift away from coal (PAGE 2017; Amis et al. 2018; NPC
2019; Renaud et al. 2020). There are, however, segments within government that have
progressed on initial steps to developing a just transition plan, for coal and the broader
economy. This has included the two-​year Social Partner Dialogue for a Just Transition
held by the National Planning Commission (Burton et al. 2018), the development of the
Presidential Climate Change Coordinating Commission, and the development of the
Eskom Just Energy Transition Office.
Technology choices need to account for the impact of changing climate domestic-
ally and in the region. For example, SAPP (2017) estimates that from the mid to late
2020s South Africa will become a net importer of electricity from the Southern African
Power Pool, which will source nearly a third of its electricity from hydropower by 2040.
Climate change effects, particularly on runoff, can influence the reliability/​availability
of hydropower generation. Thus, policies and plans necessarily need to consider the un-
certainty and risks associated with climate change. The transition plan must account
for the potential changing climate landscape and the uncertainties related to these in
its solutions to ensuring continued economic development that is inclusive and green.
As highlighted, the success of a just transition to a low-​carbon and green economy
342    ARNDT, GABRIEL, Hartley, STRZEPEK, AND THOMAS

will require the efforts of all, including civil society, business, government, labour, and
communities.

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 PA RT I I I

T R A DE , I N DU ST RY,
A N D R E G U L AT ION
 Chapter 17

C orp orate Stru c t u re ,

I ndustrial Deve l opme nt,
and Structura l C ha ng e
i n Sou th A fri c a

Pamela Mondliwa and Simon Roberts

17.1 The Importance of Structural

Change and Corporate Structure
for Industrial Development

The South African economy remains highly concentrated in terms of the ownership
and control of economic activity in many sectors being in the hands of a relatively small
number of large corporations. At the same time, there have been important changes
in the conglomerate nature and internationalization of the main businesses, along-
side a growing importance of services relative to industrial activities. The orientation
of the major corporations is critical to understanding the economy’s performance,
including low levels of fixed investment and premature deindustrialization (Andreoni
and Tregenna 2020, 2021). While financial services have grown strongly, they have nei-
ther created substantial employment nor supported higher levels of investment in the
local economy. Within industrial activities, minerals-​related production has remained
important in South Africa rather than the diversification into higher value-​added and
more sophisticated areas of manufacturing which has been identified as critical for eco-
nomic development (McMillan et al. 2014).
Large and lead firms are clearly important in developing productive capabilities as
they are able to make the investments necessary to realize economies of scale and scope,
as well as make long-​term commitments in the learning and research necessary to build
350    Pamela Mondliwa and Simon Roberts

capabilities required for industrial development (Lazonick 2010; Roberts 2020a). In

many industries and sectors, they have key technologies, provide access to markets,
and control material inputs, which shape the structure and performance of economies
(Sutton 2012; Chandler 2001). The diversification strategies of large conglomerates
have been linked to country success in East Asian industrializers in the development of
technological capabilities and export competitiveness across industries (Amsden and
Hikino 1994). Large and conglomerate firms were the locus for building capabilities to
engage in technological upgrading within industries; entry into more complex activities;
increasing local content involving local innovations and design; and mastering more
complex technological tasks within industries (Lall 1993). By shifting resources into
activities with superior scope for cumulative productivity increases, the firms led the
structural changes which have been recognized as critical drivers of industrial develop-
ment (Amsden 2001; Andreoni et al. 2021a).
Large firms are also likely to have a degree of market power, the ability to govern
value chains, and influence policy agendas and institutions (Dallas, Ponte, and Sturgeon
2019). Driving structural change therefore requires an understanding of how the
configurations of economic power impact on the development of dynamic capabilities
within and across firms (Pisano 2017; Mondliwa et al. 2021; Roberts 2020a). This includes
the importance of competitive rivalry in the incentives to invest, innovate, and improve
productivity as against the ability for entrenched dominant firms to protect their rents
(Mathis and Sand-​Zantman 2014; Arrow 1962; Bloom, van Reenen, and Williams 2019;
Buccirossi et al. 2013). Economic models which assume away scale economies and the
embedded nature of technological change, and approach competition in terms of static
allocative efficiency rather than dynamic capabilities, therefore do not engage with the
core issues of the central role of major corporations in structural transformation.
We thus need to squarely address what Lamoreaux (2019) terms the ‘problem of
bigness’ and analyse the strategies of large firms in practice given their heterogeneity,
and the relationship to the development of productive capabilities (Chandler, Amatori,
and Hikino 1997; Chabane et al. 2006; Roberts 2020a; Bloom et al. 2019). These strategies
are in turn influenced by the internal and external environment within which the firms
operate, including the country’s policy environment, the global context, as well as the
scope of the firm’s operations and shareholder interest. In this regard, vertical and con-
glomerate linkages are important factors influencing firm strategies and production is
governed across different levels of supply and in related and unrelated activities. Value
chain frameworks emphasize how the governance role played by lead firms shapes the
distribution of value creation and capture as well as the capability-​upgrading prospects
of firms (Gereffi and Lee 2016). These large and lead firms effectively shape markets,
influencing what can be exchanged and on what terms, as well as the wider institutional
and policy environment (Dallas et al. 2019). Changing models of shareholder ownership
are also relevant as, with the rise of the ‘shareholder value movement’ and increased sig-
nificance of institutional investors, short-​term financial performance can be privileged
over longer-​term capabilities (Andreoni, Robb, and van Huellen 2021).
 Corporate Structure, Industrial Development, and Structural    351

In section 17.2 we review the broad patterns in terms of industrial development and
the significance of large companies in South Africa in the democratic period from
1994 to 2019. Section 17.3 assesses the restructuring of the large conglomerates in im-
portant sectors of the South African economy, the nature of internationalization of
the large-​listed companies, and the implications for economic policies. Section 17.4
concludes.

17.2 Industrial Development

and Structural Change in South Africa

17. 2.1 Overview of Patterns of Structural Change

in Manufacturing and Services
Successful industrial development, particularly in late industrializers, has been
characterized by a high and sustained share of manufacturing in gross domestic product
(GDP); a high rate of fixed investment in GDP, and rapid growth in the industry value-​
added and sophistication of manufactured exports. South Africa has performed poorly on
all these benchmarks (see Chapter 24). Investment levels have been very poor, with total
gross fixed capital formation being persistently lower than those of comparator countries
(at similar levels of GDP per capita in the 1990s) such as Malaysia, Turkey, and Thailand
(Andreoni et al. 2021a). In the period 1994 to 2019, the average capital formation as a per-
centage of GDP, was 18 per cent compared to the middle-​income-​country average of 28
per cent.
The economy prematurely deindustrialized with the manufacturing contribution to GDP
declining from 21 per cent in 1994 to 12 per cent in 2019 (Andreoni et al. 2021a; Andreoni
and Tregenna 2020, 2021). Growth in manufacturing value a​dded has lagged GDP
growth and has been substantially below most other upper-​middle-​income counterparts
(Andreoni et al. 2021a). Similarly, manufacturing exports have performed more poorly
than most other middle-​income and upper-​middle-​income countries (Andreoni et al.
2021a; ­Chapter 24 in this volume).
Some of the weak manufacturing performance is due to the outsourcing of high
value design, engineering, and marketing activities, meaning that these activities move
to be captured in services even while reflecting advanced industrial capabilities. By
examining trends in services and manufacturing, however, we observe that the strongest
growth in value ​added has been in finance and insurance services, although with rela-
tively little employment growth (Table 17.1). In manufacturing, there has been somewhat
of a structural regression, as resource-​based sectors (also highly capital-​intensive, with
very small employment shares) led by coke and petroleum refineries along with basic
chemicals and basic iron and steel, have all performed better than the manufacturing
352    Pamela Mondliwa and Simon Roberts

Table 17.1: Manufacturing and services performance: selected sectors

Total employment Value added
Growth Share of Total, Growth Share of Total,
by broad sector by broad sector
1994–​2019 1994 2019 1994–​2019 1994 2019

Coke and refined petroleum 1.6% 1.1% 1.8% 5.0% 4.4% 9.3%
products
Basic chemicals 0.3% 1.5% 1.8% 3.0% 3.5% 4.6%
Plastics products 1.2% 2.6% 3.9% 1.5% 3.2% 3.0%
Basic iron and steel -​3.3% 5.4% 2.6% 2.3% 3.8% 4.3%
Basic non-​ferrous metals -​2.1% 1.8% 1.2% 1.7% 3.2% 3.1%
Metal products excluding -​0.2% 8.1% 8.6% 1.0% 6.9% 5.6%
machinery
Machinery and equipment 1.2% 6.3% 9.6% 2.3% 5.2% 5.7%
Motor vehicles, parts and -​0.4% 7.0% 7.1% 3.9% 4.4% 7.2%
accessories
Food 0.1% 15.2% 17.5% 2.9% 11.4% 14.8%
Other diversified manufacturing -​0.9% 51.1% 45.8% 0.9% 54.0% 42.5%
Total manufacturing -​0.5% 100% 100% 1.9% 100% 100%
Wholesale and retail trade 3.0% 22.1% 26.6% 3.0% 19.7% 20.4%
Catering and accomm services 1.5% 5.6% 4.6% 3.2% 1.6% 1.1%
Transport and storage 4.6% 3.0% 5.3% 1.6% 9.7% 9.3%
Communication -​0.5% 2.0% 1.0% 2.9% 1.5% 4.3%
Finance and insurance 1.1% 4.6% 3.4% 7.6% 7.2% 10.1%
Business services 3.5% 15.1% 20.2% 4.5% 18.8% 21.6%
Government, community, and 1.4% 47.7% 38.9% 3.6% 41.6% 33.1%
personal services
Total services 3.0% 100.0% 100.0% 3.0% 100% 100%

Source: Quantec, authors’ calculations.

Note: Employment figures include formal and informal employment. Value-​added shares and growth
rates are calculated from constant 2010 price series and growth rates as compound annual average
growth rates.

average in terms of value added.1 Alongside this has been relatively strong growth in
motor vehicles, reflecting the support provided through industrial policies, as well as
food products.

1 This differs somewhat from the picture presented by Edwards (Chapter 21 in this volume). This is

due to Edwards adopting a different classification for ‘non-​commodity’ manufactured exports which
excludes what we term as diversified industries that have performed poorly, such as plastics; and different
 Corporate Structure, Industrial Development, and Structural    353

There has also been outsourcing of low-​value security and cleaning services that are
captured in the very heterogeneous business services category, which has recorded high
rates of growth in value-​added and employment. Growth across most services has also
seen relatively high rates of increased value-added in wholesale and retail trade, catering
and accommodation, and communication services (Table 17.1).
Given the high levels of market concentration in many manufacturing and services
sectors (Buthelezi et al. 2019; Bell et al. 2018), the outcomes observed are largely the re-
sult of the decisions of relatively few firms, to which we turn now.2

17.2.2 Corporate Structure: Continuity and Change

While South Africa has had sustained high levels of market concentration, the corporate
structure has altered in fundamental ways with major implications for structural change
and industrial development. In 1994, Anglo American was estimated to control businesses
which accounted for 43 per cent of the capitalization of the Johannesburg Stock Exchange
(JSE) and stretched across mining, banking, metals, chemicals, paper, sugar, beer, motor
vehicles, and retail (Goldstein 2010). It undertook a series of restructuring and unbundling
which appears to reflect a decline in the concentration of ownership and control of the
economy as a whole, reflected in the dramatic decline in its share of JSE-​listed companies
which it controlled (measured by capitalization) (Table 17.2). However, this did not mean
concentration declined within specific markets and sectors (see Chabane et al. 2006).
In some cases, the unbundling was accompanied by consolidation, rebundling, and
increasing vertical integration within a sector consistent with persisting high levels
of concentration at the level of different markets since 1994 (Mohamed 2020). For
example, divesting of a company such as AECI in chemicals, Mondi in paper, or the
Anglo American Bevcon stake in South African Breweries (SAB) did not make these
companies any less significant in the explosives, paper, or beer markets respectively, or
these markets less concentrated. As we consider in more detail in section 17.3, the second
largest family-​owned conglomerate in 1994, Remgro, followed a quite different path and
continued to invest in diverse South African businesses in food, beverages, technology,
health-care, and logistics sectors (Goldstein 2010).
While Anglo American itself became narrowly focused on mining in the post-​
apartheid period, its significance on the JSE increased from 2015 to 2019, reflecting the
global operations across gold, coal, iron ore, platinum, and diamonds. There are also
major southern African operations in each of these minerals except gold, consistent

time periods where Edwards takes an earlier starting point in 1990 and therefore includes changes in
the early 1990s where our focus is on the post-​apartheid period and on the continuity in the 2000s in
particular. The growth in auto industry exports is a notable development in diversified manufacturing,
which stems more from targeted and extensive industrial policy rather than simply trade liberalization.
2
The high levels of concentration in South Africa have been widely observed, see also World Bank
(2014, 2016), Thakoor (2020), and Dauda et al. (2019).
354    Pamela Mondliwa and Simon Roberts

Table 17.2: Summary of control of JSE market capitalization (% of total)

1995–​
2002 2003–​07 2009–1​ 4 2015 2016 2017 2018 2019

ANGLO AMERICAN CORP 24.8% 20.0% 9.4% 1.6% 3.3% 3.6% 4.8% 6.8%
BIDVEST GROUP 1.0% 1.0% 0.9% 1.0% 1.1% 1.2% 1.4% 1.3%
BLACK GROUPS 6.3% 5.5% 4.0% 0.6% 0.5% 0.7% 1.4% 1.2%
DIRECTORS 10.4% 7.2% 8.0% 11.3% 12.4% 11.2% 10.0% 7.6%
FOREIGN 4.7% 18.4% 30.8% 26.8% 42.0% 40.3% 25.1% 22.8%
INSTITUTIONS 4.9% 11.4% 19.0% 17.6% 18.1% 17.9% 30.8% 28.3%
INVESTEC 2.1% 0.9% 0.8% 1.0% 0.8% 0.7% 0.8% 0.7%
LIBERTY LIFE/​STD BANK 7.7% 4.0% 2.8% 2.1%
NASPERS 7.7% 6.9% 10.4% 9.9% 17.7%
OLD MUTUAL 10.8% 5.1% 2.9% 2.8% 2.1% 1.9% 1.4% 0.8%
(SA MUTUAL)
PSG 0.6% 1.4% 1.5% 1.7% 2.0% 1.9%
REMGRO (REMBRANDT) 9.8% 7.7% 6.6% 9.2% 7.2% 6.9% 7.1% 6.9%
RMB/​FIRSTRAND 3.0% 4.3% 2.9% 2.6% 2.4% 2.2% 3.3% 2.4%
SABMILLER 3.3% 4.9% 7.9% 12.5% Moved to Foreign, then to
Institutions
SANLAM 11.0% 2.3% 1.4% 1.3% 1.2% 1.3% 1.7% 1.5%
SASOL 2.5% 4.4% 4.0% Moved to Institutions

Source: McGregors Who Owns Whom

Notes: Control is assessed by McGregor’s taking into account the various cross-​holdings of shares that
exist and may be associated with a relatively small direct shareholding in any given company.
The Black owned groups are identified as such by McGregor’s on the basis of all those companies which
have significant black influence in their ownership.
Naspers and PSG were too small to be separately identified by WOW in the earlier years.

with the continued importance of resource-​based products in South Africa’s merchan-

dise exports. Minerals accounted for more than 35 per cent of merchandise exports in
2019, compared with just over 40 per cent in 1994 (Andreoni et al. 2021a).
The relative unimportance of companies controlled by Black South Africans is an ele-
ment of continuity (see ­Chapter 28 in this volume). After the initial Black Economic
Empowerment (BEE) deals in the late 1990s, the share of these companies became neg-
ligible (Table 17.2; Chabane et al. 2006). Instead of opening up markets to challenge
by independent Black-​controlled rivals, BEE became largely about sharing of rents,
along with targets in skills development, management, and procurement (Vilakazi and
Bosiu 2021; Mondliwa and Roberts 2020; Ponte et al. 2007). This has had the effect of
reinforcing rather than changing the existing economic structure (Andreoni et al.
2021b).
 Corporate Structure, Industrial Development, and Structural    355

In terms of changes, there has been a substantial increase in firms where control is
exerted by institutional shareholders, to a peak of 31 per cent in 2018. This mirrors the
international trend of financialization (Andreoni, Robb, and van Huellen 2021). And,
it was accompanied by growth in portfolio and FDI inflows, especially from 2005 (Bell
et al. 2018). The capitalization of the JSE grew to the equivalent of almost three times
South Africa’s GDP in 2007 and, in terms of this ratio, South Africa has been second
only to Hong Kong from 2013 (Andreoni, Robb, and van Huellen 2021).
The growth of foreign ownership reflected in Table 17.2 is, however, also due to de-
liberate outward internationalization strategies by the major South African companies
(Goldstein 2010). Anglo American had been highly internationalized from an early age
including through holdings of its Minorco business in Luxembourg (Mohamed 2020).
In the post-​apartheid era, a number of companies were given permission to list overseas
on the grounds that this would assist with raising capital for investment in South Africa.
Instead, international expansions and mergers led to the companies becoming part of
massive transnational corporations (TNCs) as in the case of South African Breweries
(SAB) whose merger with ABInBev saw it become part of the world’s largest beer com-
pany. It was also the biggest JSE listed company in terms of its market capitalization in
2016, until it was eclipsed by the Prosus listing in 2019. We assess the implications of
internationalization further in section 17.3.
The growth in the value of listed firms with international operations needs to be
born in mind when interpreting the percentage shares of other categories, whose
shares decline simply because of the international operations reflected in, for ex-
ample, the valuations of SABMiller and Prosus. This is why we move to consider the
large companies by broad sector in section 17.3 and in terms of the top 100 companies by
number, as follows.

17.2.3 Changes in the Top 100 Companies

Looking at the top 100 listed companies, a major change had already taken place in the
first decade of democracy (Chabane et al. 2006). In 1994, eighty-​three of the top 100
were owned or controlled by the top six conglomerates. In 2004, these conglomerates
controlled forty-​seven. In 2020, it was less than twenty. This has coincided with major
changes in the sectoral breakdown of the top 100 listed companies. In the first decade
after 1994, the number of retail and other services companies in the top 100 increased
as supermarkets, mobile phone and ICT companies, and health-care groups all grew on
the back of consumer spending and middle-​class incomes, while the number of mining
companies fell (Chabane et al. 2006). From 2004 to 2020, the big change has been in
the growth in financial services companies (including property-​related funds) while
companies classified as industrial activities declined substantially in number—​a com-
plete reversal in importance of these two groupings (Figure 17.1).
There were still seventeen mining companies in the top 100 in 2020 and the ongoing
significance of these companies is reflected in the fact that ten of the seventeen mining
356    Pamela Mondliwa and Simon Roberts

1994 2020 (September)

Other Retail, 7 Financial

services, 15 Retail, 16
services, 6
Financial
Other services, 38
services, 11
Mining, 31

Industrial, 41 Mining, 17
Industrial, 18

Figure 17.1 Sectoral composition of top 100 JSE-​listed firms

Source: JSE.
Note: Companies ranked by capitalization; share by sector is simple number of companies.

companies were in the top twenty (see Appendix Table).3 Four of these ten are Anglo
American-​related—​Anglo American, AngloPlat, AngloGold Ashanti, Kumba.4 There
are other strong elements of continuity in the other largest twenty listed businesses,
with Mondi (unbundled from Anglo), two banks, and insurance companies (FirstRand,
Standard, and Sanlam), SAB (now in the shape of ABInBev), and BATSA also figuring
along with Richemont. Prosus and Naspers are also in the top five, while Vodacom is in
the top twenty.

17.3 Large Firms and

Structural Change

In this section we consider in more detail how the orientation of the large businesses has
impacted on the growth of major sectors, before analysing the different dimensions of
internationalization of the businesses and their relationships with economic policy.

17.3.1 Key Sectors—​Industrial, Finance, Other Services

17.3.1.1 Industrial groups
The continued importance of resource-​ based companies stands out, including
mining, along with basic metals and basic chemicals companies. However, while these
companies have accounted for substantial proportions of industry investments in South

3
Counting Kumba as primarily a mining company.
4
The other mining companies in the top twenty are BHP, Glencore, Gold Fields, Sibanye, Impala Plats,
South 32 (spun off from BHP).
 Corporate Structure, Industrial Development, and Structural    357

Africa, they have not been the base for wider diversification. Their ongoing significance
and growth internationally is therefore consistent with the low overall investment levels
in the country and remains one of the core economic development challenges facing
South Africa (Andreoni, Kaziboni, and Roberts 2021; Bell, Monaco, and Mondliwa 2021;
Mondliwa, Roberts, and Ponte 2020; Zalk 2021).
We distinguish three groups of large companies linked to South Africa’s resource-​
base which have followed different paths. The first group comprises the former state-​
owned firms in steel and petrochemicals (ISCOR and Sasol), which have followed
different, firm-​specific paths. The second group comprises businesses which were spun
off from the mining conglomerates and Anglo American, in particular, which failed to
build on their capability base, including important businesses in the metals and engin-
eering industries. The third group comprises those which have grown strongly since
being divested. There is a fourth group of large industrial businesses not directly linked
to resources, including large food businesses, and those in the Remgro stable.
The basic metals and basic chemicals industries have developed around indi-
vidual companies with strong links to mineral resources and coal-​based energy. These
companies have changed substantially as a result of internationalization. In steel, for-
merly state-​owned ISCOR unbundled its mining operations (which evolved into the
Anglo-​associated Kumba and Exxaro companies), consolidated the steel businesses
through a series of mergers to substantially increase levels of industry concentration,
and became a subsidiary of the world’s largest global steel producer ArcelorMittal
(Andreoni, Kaziboni, and Roberts 2021). Investment and production decisions in
ArcelorMittal South Africa (AMSA) are thus the result of the global strategy of the
parent company, for which South Africa is a relatively insignificant market, with profits
being extracted in good years and lobbying for state protection in poor years (Andreoni,
Kaziboni, and Roberts 2021). Other basic metals producers in aluminium and stainless
steel are also operations of TNCs, including BHP. These were established in the 1990s
based on substantial investment incentives and the very cheap electricity at the time and
are now legacy investments struggling to be competitive with much higher electricity
prices (­Chapter 26 in this volume).
A different picture is presented by the ultra-​ capital-​
intensive basic chemicals
industries (Bell, Monaco, and Mondliwa 2021; Chapter 24 in this volume). These are
dominated by Sasol (26th on the JSE in 2020), which is the largest producer of liquid
fuels (from coal and gas) and has continued to benefit from a very favourable regula-
tory regime for fuels (Mondliwa and Roberts 2019). In contrast with ISCOR, Sasol has
maintained and expanded its backwards integration into mineral feedstock, adding nat-
ural gas piped from Mozambique (Mondliwa and Roberts 2017). This base has enabled it
to withstand losses from badly judged international investments. AECI (spun out from
Anglo, at position 88 on the JSE) and Omnia which produce explosives, fertilizer, and
other chemicals, source feedstock from Sasol and, in the form of explosives and water
treatment chemicals, supply into mining. These companies have continued to invest,
build capabilities and linkages, supplying markets across southern Africa from which
base they have outwardly internationalized.
358    Pamela Mondliwa and Simon Roberts

The second group of companies is exemplified by relatively labour-​ absorbing

manufacturing of diversified metal products, and machinery and equipment that
have not performed well overall (Andreoni et al. 2021; Bell et al. 2021; ­Chapter 24 in
this volume). This includes engineering and metals businesses divested by Anglo,
such as Boart Longyear and Dorbyl, where technical capabilities were lost (Mohamed
2020). While there are some relative successes in mining machinery, these are isolated
examples of capabilities when set against the hollowing-​out of capabilities and the loss
of dense networks of local linkages after the unbundling (Andreoni, Kaziboni, and
Roberts 2021; Zalk 2017).
By comparison, the third group of companies including AECI in chemicals, along
with large businesses in paper and sugar, reflect large-​scale industries with two or three
incumbent companies in entrenched positions, which have maintained and some-
times grown their positions in their respective industries. These included Sappi (from
Sanlam), Mondi (from Anglo American) in paper and pulp; and Tongaat-​Hulett (from
Anglo American) and Illovo (now owned by Associated British Foods) in sugar.5 These
companies have been able to leverage their positions deriving from historic state support
and industrial policies. In alcoholic beverages and cigarettes, SAB (now ABInBev) and
BATSA (from the Anglo and Remgro stables) have literally held quasi-​monopolies over
their products in South Africa and, at the same time, are the largest producers in the
world.6 In spirits and other alcoholic beverages Distell (part of Remgro) is the largest
producer in South Africa.
Other large industrial companies in the top 100 listed firms include a range of food
producers, led by Tiger Brands, AVI, and Oceana in the top 100, with RCL and Astral,
the two largest poultry producers, just outside the list at positions 104 and 107 respect-
ively. Food represents a sector where urbanization and growing local demand coupled
with linkages into agriculture, packaging, logistics, and retail have been the basis for
strong corporate groupings including in Remgro. Two food and logistics companies,
Bidvest and Bidcorp (spun off from Bidvest in 2016),7 are also in the top 100, along
with the major supermarket chains (Shoprite, PicknPay, Spar, and Woolworths). Other
industrials in the top 100 companies are in a mixture of logistics and sales in the form of
Barloworld, Imperial, Super Group, and diversified holding company KAP Industrial
Holdings, with businesses across industrial production in auto components, bedding,
timber products, and polymer chemicals.

17.3.1.2 Finance
Finance companies in the JSE top 100 include banks, insurance, and property funds.
Financial services can enable economic activity through intermediating funds and
providing insurance and other services. However, in South Africa, there have been high

5 In sugar, Africa’s biggest producer, Illovo, was acquired by Associated British Food in 2016 (after a

majority stake was bought in 2006). Illovo had been acquired from Tate & Lyle by CG Smith in 1977.
6 See, for example, estimates by Euromonitor.
7 Bidcorp has the bulk of its business in Europe and Australasia.
 Corporate Structure, Industrial Development, and Structural    359

levels of mergers and acquisitions activity (including as FDI inflows and outflows), and
trading in the stock exchange continued to grow while not enabling broader economic
growth.8 This is in line with international experience that shows that capital flows are
highly unstable and are not associated with productive investment (UNCTAD 2014).
Outflows also continued to increase, consistent with the shifting emphasis by local firms
to investing outside the country, at the same time as international investors continued to
acquire local companies (see Bell et al. 2017; Bosiu et al. 2017; Mohamed 2020). Capital
account liberalization allowed South African corporations to move capital abroad on
a grand scale, both legally and illegally (see Mohamed and Finnof 2005; Ashman et al.
2011; UNCTAD 2020).
As well as acting as the major financial centre in Africa, South Africa also has real
estate funds with investments around the world. For example, Growthpoint Properties
has assets in South Africa, Eastern Europe, Australia, and the United Kingdom, and
Nepi Rockcastle is the owner of shopping centres in Central and Eastern Europe. Other
companies in the top 100 include Capital & Counties which has properties in central
London, and Sirius Real Estate has business parks, offices, and industrial complexes in
Germany. These are effectively vehicles for South Africans to invest outside the country.
They reflect the fact that low investment rates in South Africa are not related to low
savings but poor prospects, given the low growth rates, weak demand, and lack of dyna-
mism in the real economy.

17.3.1.3 Other Services
In other services, we pick out three notable trends: the growth of retail chains, including
the further supermarketization of the South African economy (das Nair 2019a); the
growth in the value of private hospital and insurance groups, and the importance of
media platforms and telecoms.
The spread of shopping malls and formal retail space across urban areas in South
Africa has seen the expansion of supermarkets and other retail groups to peri-​urban
areas. This spread has been much more substantial than the regional expansion of South
African supermarket chains to other countries in the continent (das Nair 2019a). The
supermarket chains have developed formats and acquired smaller local chains to target
lower-​income consumers (das Nair 2019b). These formats include U-​Save, Boxer, and
Savemore stores of Shoprite, Pick n Pay, and Spar respectively. The large chains effect-
ively govern consumer grocery spending and are the route to market for producers
across southern Africa (das Nair 2017; das Nair, Chisoro, and Ziba 2018).
The three main private hospital groups, Mediclinic, Life, and Netcare, grew rapidly
in the first decade of democracy as they acquired independent hospitals (Competition
Commission 2019). However, the largest medical scheme administrator, Discovery
Health, is larger than them all at position 25 on the JSE. Discovery has built on its

8
These developments in South Africa are assessed in detail in other chapters in this volume (see for
example Mncube and Theron, C­ hapter 25; Karwowski, C
­ hapter 47).
360    Pamela Mondliwa and Simon Roberts

position and information base in medical insurance to be a major platform extending

across financial services and has also internationalized. With its Vitality product (which
it has launched internationally) Discovery collects data on exercise and eating habits to
offer insurance, along with discounts on leisure and other products. With the advent
of wearable technology to monitor people’s movement and vital signs, coupled with
digitalization of purchases through the payments system, Discovery has been able to
reward people on their decisions to, for example, purchase healthier foods in major
supermarket chains. In 2017, it obtained a banking licence and started operating in 2019,
marketing itself as the ‘world’s first behavioural bank’.9
While the two main mobile phone companies, Vodacom and MTN, are also very sig-
nificant in their own right, at positions 10 and 22 on the JSE in 2020, it is the evolution
of Multichoice/​Naspers which is most remarkable in the media and communication
space. From the monopoly in satellite television under apartheid, through investments
in newspapers in the Media24 group, Naspers has extended into digital platforms with
the Takealot e-​commerce platform (Goga, Paelo, and Nyamwena 2019) and the invest-
ment in China’s Tencent which was spun off into the separately listed Prosus in 2019.
Prosus was the largest stock on the JSE in 2020, by some margin. Discovery and Naspers
demonstrate the importance of data, rather than physical capital, in building competi-
tive capabilities in multi-​sided platforms (Roberts 2020a).

17.3.1.4 The Example of Remgro

While Anglo American unbundled in the first decade of democracy, the second largest
family conglomerate, the Rupert family’s Remgro Ltd continued to be a diversified con-
glomerate business (see also Goldstein 2010).10 It has invested and grown its activities,
predominantly focused on the South African economy. Remgro was established in 1948
as a tobacco company, then called Rembrandt Group Ltd by Dr Anton Rupert. It was
listed on the JSE in 1956. The Rupert family maintains a significant share of the voting
rights and Johann Rupert, eldest son of Anton, is chairman of Remgro, along with
Richemont, their Swiss luxury goods business.
Remgro’s diversified nature, reflected in interests across food, beverages, technology,
health-care, and logistics sectors, includes substantial stakes in RCL Foods, Unilever,
Distell, DFA, Seacom, Grindrod, and Mediclinic. The company also set up a separate
venture and capital growth subsidiary Invenfin, whose priority areas of investment are
the food and technology sectors. Invenfin invests in companies that have acquired some
traction in their markets with intellectual property and capabilities which set them to
grow in line with global trends. It reflects a continued willingness to make longer-​term
investment bets and to develop integrated businesses along value chains.
The networks and integration across and along value chains is illustrated by RCL Foods.
This company is involved in several food segments including poultry, sugar, milling,

9
https://​www.discovery.co.za/​bank/​bank-​healthier [Accessed on 2 October 2020].
10
This draws heavily from Mondliwa et al. (2017).
 Corporate Structure, Industrial Development, and Structural    361

animal feed, and baking. RCL Foods is also integrated into distribution, while Remgro is
invested in Grindrod in infrastructure and logistics. Remgro’s linkages to Export Trading
Group (ETG) through its investment in the Pembani Remgro Infrastructure Fund also
provide it with a critical link into regional agricultural markets. ETG is involved with
purchasing from producers and trading agricultural products internationally, with a
well-​established footprint in East and Southern Africa (Bosiu and Vilakazi 2020).

17.3.2 Internationalization
The largest South African companies are all extremely international in scope. Far from
being the result of substantial inward foreign direct investment, these are associated
with outward expansions leveraging capital built up from domestic operations coupled
with core capabilities. In some cases, the largest companies globally in a given industry
have a South African business core. This is the case in beer and cigarettes, as highlighted
above. It is also true in gold, platinum, coal, and diamond mining. In paper Mondi and
Sappi are among the world’s largest paper manufacturers.
The significance of TNCs in South Africa’s economy is in line with global trends
which have seen individual corporations controlling resources (at least in monetary
terms) and having security, intelligence, and public relations operations larger than
many states, as well as huge lobbying ability including campaign donations (UNCTAD
2017; Zingales 2017).11 This is not a new phenomenon in South Africa, however. The
largest South African conglomerates, led by Anglo American and Richemont/​Remgro,
had always been internationalized even while being identified as South African. Anglo
American had international assets in its Luxembourg-​registered holding company,
Minorco, while Richemont is Swiss based (Mohamed 2020; Goldstein 2010).
The internationalization was spurred by apartheid and sanctions. This meant the
Oppenheimer and Rupert families built their offshore operations in Luxembourg-
and Swiss-registered businesses.12 Glencore also made substantial profits trading with
South Africa, prior to 1994 and in contravention of international sanctions.13 With the
end of apartheid there was a major restructuring of the minerals-​based conglomerate
groupings which led to large international companies that evolved through subsequent
mergers, such as in the case of BHP (which had South Africa resources company Gencor
as one of its components).

11 The significance of large global corporations is not new, as illustrated by the East India Company of

the United Kingdom whose influence over politics saw a fifteen-​year initial monopoly right to trade in a
range of goods including tea, lasting for 233 years (Zingales 2017).
12 Although Anglo American had been highly internationalized even before this, for example, with

major US investments (Innes 1984).

13 Glencore was set up by Marc Rich (as Marc Rich + Co). One of Marc Rich + Co’s companies Minoil

sold oil to South Africa in 1979 at prices around one-third higher than prevailing spot prices (Ammann
2009: 191–​2). Glencore merged with Xstrata in 2013, which had substantial interest in coal mining, and
has acquired the Chevron refinery in Cape Town.
362    Pamela Mondliwa and Simon Roberts

In the post-​apartheid era large local businesses have been able to expand internation-
ally. While some companies have been very successful, others have used profits earned
in the South African market for investments which proved unwise. The successful
expansions include: Bidvest, whose company Bid Corporation is one of the two largest
food service wholesalers in the United Kingdom, with operations across Europe and in
Australasia; SAB, which acquired brewers around the world before merging with Miller;
Discovery Health; and MTN.
Less successful outward internationalizations included Netcare’s acquisition of the
UK’s largest hospital group, GHG, which has performed poorly. The major supermarket
chains also made outward acquisitions and found trading much more challenging than
in the southern African region. Examples include Woolworths’ acquisition of Australia’s
David Jones, and Shoprite’s investments in Tanzania and India from which it later exited.
Sasol has made a series of major international investments which have lost money, ef-
fectively being subsidized by South African profits (Mondliwa and Roberts 2019).
In terms of integration into industrial TNCs, the results are mixed. In auto, the major
global OEMs have re​integrated with their South African businesses. However, this
has not supported the development of strong capabilities backwards into components
manufacturing, in part, because of policies favouring the OEMs (Barnes, Black, and
Monaco 2021). In steel, ISCOR was acquired by Mittal Steel, subsequently ArcelorMittal
and, after initial investments in restructuring, instead of stronger local capabilities
and value chain linkages, there have been substantial outflows of profits (Zalk 2017;
Andreoni, Kaziboni, and Roberts 2021).

17.3.3 The Role of Policy in Aligning Firm Strategies

with Industrial Development Goals
Economic policies, laws, and institutions play an important role in orienting the
strategies of large firms for economic development. These institutions not only set the
rules of the game but can create incentives for firms to invest in productive activities,
including promoting non-​price rivalry to ensure continued investment in capabilities.
In 1994, South Africa had large conglomerates constituting a strong industrial base and
there was an opportunity to use policy and institutions to re-​orient the strategies of
these firms to support industrial development. These firms had already amassed sig-
nificant resources, capabilities, and economies of scale and scope in key intermediate
industries that could be leveraged for South Africa’s industrial development (Fine and
Rustomjee 1996; Zalk 2017).
The opportunity for diversified industrial development provided by the established
base was foregone. South Africa’s 1994 compromises influenced by the lobbying of big
businesses were premised on the understanding that efficient capital allocation and
higher fixed investment required for growth would best be achieved by liberalizing
markets and addressing market failures (Michie and Padayachee 2019; van Niekerk and
Padayachee 2019; Mondliwa and Roberts 2021). This reduced the role of policy to that of
removing ‘market distortions’ rather than shaping the development path.
 Corporate Structure, Industrial Development, and Structural    363

The liberalization policies influenced the changes that are observed above in the cor-
porate structure. South Africa’s approach to capital-​account liberalization supported
international expansion by the major conglomerates rather than raising capital for the
domestic market (Zalk 2021). This included the overseas listings pushed for by Anglo
American, Old Mutual, SAB, and Gencor (as Billiton) (Chabane et al. 2006). The inter-
nationalization of the firms taken together with the growth in the importance of insti-
tutional investors and the shareholder-​value movement led to conglomerates shedding
non-​core assets to increase dividend pay-​outs. This meant that profits were diverted
away from productive investment in the economy. South Africa’s approach to trade lib-
eralization had largely benefited those firms that were already competitive at the time of
opening the economy (Driver 2019) and undermined the development of capabilities
in downstream industries due to premature exposure to international competition
(Mondliwa and Roberts 2021).
One of the roles of industrial policy is to support firms to reach levels of international
competitiveness. South Africa did not, in fact, have an overarching industrial policy
until 2007. Though there was a range of incentives to promote investment, exports,
and technological improvements, these were largely soft measures and ultimately most
benefited the same industries that were already internationally competitive (Black and
Roberts 2009; Black and Hasson 2016). There has also been limited success in designing,
monitoring, and enforcing conditionalities, one of the levers for orienting firm strategies
and decisions (Mondliwa and Roberts 2019).
Rather than policies working together to engage with the power of large
corporations to encourage dynamic efficiency and productive capabilities, there has
been a tension between industrial and competition policy. South Africa’s competition
law focused on exchange rather than production, and static rather than dynamic effi-
ciency (Mondliwa, Roberts, and Ponte 2020). As a result, despite successful enforce-
ment by the competition authorities for over twenty years against cartels and mergers,
there has been limited success in promoting rivalry (Roberts 2020b, 2020c). A focus
on dynamic efficiency implies taking into account investment and the development of
productive capabilities within and across firms, which generates competition (Blaug
2001; Budzinski and Beigi 2015; Mondliwa et al. 2021). The latter approach has been
adopted in countries such as Germany, Japan, and Korea where the ideal was ‘optimal
competition’, a balance between cooperation and competition between firms with the
objective of long-​term growth.

17.4 Corporate Structure and

the Implications for
Structural Change

Concerns about market concentration have been growing around the world, at least
since the financial crisis, and salient with a number of recent studies pointing to highly
364    Pamela Mondliwa and Simon Roberts

concentrated markets and their implications.14 South Africa has been facing such
challenges since before the first democratic elections where the outcomes in many
sectors and markets are determined by the corporate strategies of a handful of large
firms. Where policy is successful in orienting these strategies for long-​term productivity
growth, this concentration could be beneficial to the economy. However, there is danger
of abuse of market positions as warned by Lamoreaux’s (2019) ‘problem of bigness’. It
is no comfort to find that, with the global concentration of economic power, the world
appears to be becoming more like South Africa. The ‘business friendly’ environment,
which was aggressively promoted to South Africa in the 1990s by international finan-
cial institutions and international businesses, led to major corporate restructuring but
not to a decline in market concentration or the importance of large firms. Instead of
focusing on business confidence we need to grapple with the implications of the central
role of large and internationalized businesses to understand how the configurations of
economic power impact on the development of dynamic capabilities within and across
firms (Pisano 2017; Mondliwa et al. 2021).
In South Africa, the apartheid state left a small number of family-​controlled
conglomerates astride the economy alongside powerful state-​owned, and former
state-​owned, corporations. In 2020, the country’s economic outcomes remained in
the hands of decision- m ​ akers at a few corporations. This is a set of corporations in
which there have been dramatic changes alongside striking patterns of continuity.
In the policy arena, the large firms lobbied strongly for their central role in driving
investment and the need for far-​reaching liberalization to spur productivity while
not tackling market concentration head on. The claims by some that the concentra-
tion reflected their efficiency does not square with the continued poor productivity
performance and low investment in the economy as a whole. And, the subsequently
revealed prevalence of cartels in South Africa indicated the insider relationships
which had continued to govern markets (Muzata et al. 2017; Roberts 2020c). Large
firms have also lobbied and strategized to undermine rivals, as would be expected
(Makhaya and Roberts 2013).
The main changes have been the hollowing-​out of manufacturing industry and the
growth in services, including financial services, alongside the ongoing internationaliza-
tion of large businesses with South African origins (Andreoni et al. 2021). The financial
services growth was especially marked in the 2000s with the global commodities boom,
as short-​term capital flows flooded into the JSE and the resource-​based companies
listed on it. This was not linked to investment in capabilities in South Africa—​in
people and technological capabilities—​and the hangover from the subsequent crash
in 2008 continued for another decade and more. The legacy was compounded by cap-
ture of state institutions for the direction of rents (Bhorat et al. 2017). Overall, there is a
common thread in that regulations and industrial policies have largely failed to grapple

14 Such as Wu (2020), Díez et al. (2018), and with reference to the United States, see De Loecker and

Eeckhout (2017) and Autor et al. (2019); Philippon (2019), and in the United Kingdom, Aquilante et al.
(2019) and Haldane et al. (2018).
 Corporate Structure, Industrial Development, and Structural    365

with the entrenched power of the large and increasingly internationalized companies.
This includes where companies have maintained productive bases in industries such
as chemicals, paper, and various food products. The challenges of a coordinated set of
policies, to engage with the power of the incumbents to channel it towards a diversified
industrial base, were greatly increased by the fragmentation of the state under President
Zuma (Andreoni et al. 2021b; Mondliwa and Roberts 2021).
Other services have also grown, led by telecoms, retail and wholesale, health-
care, and hospitality associated with tourism. In many of these services the growth
reflects their extension more widely across the economy with the take-​up of mobile
telecommunications and the spread of shopping malls. The dynamism is most evident
in platforms which have been built from traditional bases of financial strength and
capabilities. Naspers leveraged its positions of market power in satellite television and
newspapers into digital platforms, notably through an investment in Tencent. Discovery
has evolved from medical-​scheme administration and life insurance into behavioural fi-
nancial services with world-​leading capabilities underpinning entry into international
markets. More prosaically, Bidvest in logistics and food service has grown market-​
leading positions on the part of its BidCorp business outside South Africa.
The digitalization of economy activity, which cuts across boundaries between sectors,
implies that engaging with large firms with dynamic network and scale economies is essen-
tial for countries’ development paths (Andreoni, Barnes, Black, and Sturgeon 2021). This
requires South Africa to draw out the implications from the central role of large corporations
if it is to design effective and coordinated regulatory, competition, and industrial policies.

17.5 Appendix 1

Company Sector Mkt cap Agg Sectors 2020 2012 2002 1994
billion
Prosus N.V. /​Naspers Software and 2,502 Other 1 8 84 94
Computer Services services
Anheuser-​Busch Inbev Beverages 1,590 Industrial 2 2 6 3
SA
British American Tob Tobacco 1,398 Industrial 3 1 Richemont
Plc
Naspers Ltd -​N-​ Software and 1,267 Other 4
Computer Services services
BHP Group Plc Mining 781 Mining 5 3 2 -​
Compagnie Fin Personal Goods 605 Retail 6 6 3 5
Richemont SA
Anglo American Plc Mining 565 Mining 7 4 1 1
Glencore Plc Mining 565 Mining 8 Non-​listed
Anglo American Plat Ltd Mining 330 Mining 9 12 4 –​
(continued)
366    Pamela Mondliwa and Simon Roberts

Company Sector Mkt cap Agg Sectors 2020 2012 2002 1994
billion
Vodacom Group Ltd Mobile 231 Other 10 11
Telecommunica­ services
tions
Firstrand Ltd Banks 225 Financial 11 13 11 18
services
Gold Fields Ltd Mining 194 Mining 12 20 9 16
Anglogold Ashanti Ltd Mining 188 Mining 13 16 7 21
Standard Bank Group Banks 181 Financial 14 9 12 11
Ltd services
Kumba Iron Ore Ltd Industrial Metals 164 Industrial 15 10 Anglo
and Mining
Mondi Plc Forestry and Paper 160 Industrial 16 40 Anglo
Sibanye Stillwater Ltd Mining 135 Mining 17
Impala Platinum Hlgs Mining 126 Mining 18 17 10 43
Ltd
South32 Ltd Mining 124 Mining 19 Spun off from BHP
Sanlamtd Life Insurance 120 Financial 20 22 19 –​
services
Capitec Bank Hldgs Banks 112 Financial 21 52
Ltd services
Mtn Group Ltd Mobile 109 Other 22 5 18 –​
Telecommunica­ services
tions
Northam Platinum Ltd Mining 91 Mining 23 67
Bid Corporation Ltd Food and Drug 90 Retail 24 Spun off from
Retailers Bidvest
Discovery Ltd Life Insurance 86 Financial 25 37 65 –​
services
Sasol Ltd Chemicals 86 Industrial 26 7 5 8
Shoprite Holdings Ltd Food and Drug 85 Retail 27 19 60 109
Retailers
Absa Group Ltd Banks 75 Financial 28 14 20 41
services
Reinet Investments General Financial 59 Financial 29
S.C.A services
Clicks Group Ltd Food and Drug 57 Retail 30 69 90 145
Retailers
Harmony Gm Co Ltd Mining 56 Mining 31 31 21 121
Aspen Pharmacare Pharmaceuticals 56 Industrial 32 25 72 –​
Hldgs and Biotech
Quilter Plc General Financial 53 Financial 33 Old Mutual assoc
services UK business
Nedbank Group Ltd Banks 52 Financial 34 18 15 24
services
Bidvest Ltd General Industrials 50 Industrial 35 24 28 100
Old Mutual Ltd Life Insurance 48 Financial 36 15 8 –​
services
Remgro Ltd General Financial 48 Financial 37 23 14 10
services
(continued)
 Corporate Structure, Industrial Development, and Structural    367

Company Sector Mkt cap Agg Sectors 2020 2012 2002 1994
billion
Exxaro Resources Ltd Mining 47 Mining 38 21 24
Rand Merchant Inv General Financial 46 Financial 39
Hldgs services
African Rainbow Min Mining 45 Mining 40 29 –​ –​
Ltd
Pepkor Holdings Ltd General Retailers 44 Retail 41
Nepi Rockcastle Plc Real Estate 44 Financial 42
Investmt and services
Services
Mediclinic Int Plc Health Care Equip 44 Other 43 45 76 –​
and Services services
Multichoice Group Ltd Media 39 Other 44
services
Growthpoint Prop Ltd Real Estate 38 Financial 45 33 –​ –​
Investment Trusts services
Woolworths Holdings General Retailers 38 Retail 46 28 59 –​
Ltd
Tiger Brands Ltd Food Producers 36 Industrial 47 26 31 30
The Spar Group Ltd Food and Drug 35 Retail 48 54 –​ –​
Retailers
Mr Price Group Ltd General Retailers 34 Retail 49 46 –​ –​
Ninety One Plc General Financial 28 Financial 50
services
Santam Ltd Nonlife Insurance 27.8 Financial 51 56 50 130
services
The Foschini Group General Retailers 26.6 Retail 52 38 96 47
Ltd
Life Healthc Grp Hldgs Health Care 25.7 Other 53 41 52 70
Ltd Equipment and services
Services
Avi Ltd Food Producers 25.3 Industrial 54 59 58 28
Pick N Pay Stores Ltd Food and Drug 23.5 Retail 55 50 44 103
Retailers
Momentum Met Hldgs Life Insurance 22.4 Financial 56 39
Ltd services
Capital&Counties Real Estate 22.0 Financial 57 57
Prop Plc Investment Trusts services
(REITs)
Investec Plc Banks 20.2 Financial 58
services
Vivo Energy Plc General Retailers 19.9 Retail 59
Netcare Ltd Health Care 19.2 Other 60 51 51 –​
Equipment and services
Services
Royal Bafokeng Mining 18.4 Mining 61 77
Platinum Ltd
Drd Gold Ltd Mining 18.2 Mining 62
Distell Group Hldgs Beverages 16.8 Industrial 63 61 75 117
Ltd
(continued)
368    Pamela Mondliwa and Simon Roberts

Company Sector Mkt cap Agg Sectors 2020 2012 2002 1994
billion
Sirius Real Estate Ltd Real Estate 16.4 Financial 64
Investment and services
Services
Liberty Holdings Ltd Life Insurance 16.0 Financial 65 42 17 4*
services
Italtile Ltd General Retailers 15.9 Retail 66 97 –​ –​
Dis-​Chem Pharmacies Food and Drug 15.7 Retail 67
Ltd Retailers
Resilient Reit Ltd Real Estate 15.4 Financial 68
Investment Trusts services
(REITs)
Truworths Int Ltd General Retailers 15.3 Retail 69 30 80 –​
Fortress Reit Ltd A Real Estate 15.1 Financial 70
Investment Trusts services
(REITs)
Redefine Properties Real Estate 14.3 Financial 71 48 –​ –​
Ltd Investment Trusts services
(REITs)
Transaction Capital General Financial 14.2 Financial 72
Ltd services
Sappi Ltd Forestry and Paper 14.0 Industrial 73 62 13 17
Coronation Fund General Financial 13.7 Financial 74 82
Mngrs Ltd services
Textainer Group Hldgs Industrial 13.7 Industrial 75
Ltd Transportation
Ninety One Ltd General Financial 13.4 Financial 76
services
Telkom Sa Soc Ltd Fixed Line 13.0 Other 77
Telecommunica­ services
tions
Barloworld Ltd General Industrials 12.9 Industrial 78 47 25 33
Pan African Resource Plc Mining 11.5 Mining 79
Jse Ltd General Financial 10.4 Financial 80 92
services
Equites Prop Fund Ltd Real Estate 10.3 Financial 81
Investment Trusts services
(REITs)
Psg Group Ltd General Financial 10.3 Financial 82
services
Globe Trade Centre Real Estate 9.7 Financial 83
S.A. Investment and services
Services
Allied Electronics Software and 9.6 Other 84
Corp Computer Services services
Investec Ltd Banks 9.5 Financial 85
services
Psg Konsult Ltd General Financial 9.1 Financial 86
services
(continued)
 Corporate Structure, Industrial Development, and Structural    369

Company Sector Mkt cap Agg Sectors 2020 2012 2002 1994
billion
Cartrack Holdings Ltd Support Services 9.0 Other 87
services
Aeci Ltd Chemicals 8.9 Industrial 88 70 88 51
Lighthouse Capital Ltd Real Estate 8.7 Financial 89
Investment and services
Services
Oceana Group Ltd Food Producers 8.1 Industrial 90 99
Super Group Ltd Industrial 7.7 Industrial 91 107 85 –​
Transportation
Motus Holdings Ltd General Retailers 7.7 Retail 92
Stenprop Limited Real Estate 7.7 Financial 93
Investment Trusts services
(REITs)
Imperial Logistics Ltd Industrial 7.5 Industrial 94 36 30 80
Transportation
Investec Property Fund Real Estate 7.5 Financial 95
Ltd Investment Trusts services
(REITs)
Mas Real Estate Inc. Real Estate 7.3 Financial 96
Investment and services
Services
Rdi Reit Plc Real Estate 7.3 Financial 97
Investment Trusts services
(REITs)
Adcock Ingram Hldgs Pharmaceuticals 7.0 Industrial 98 75
Ltd and Biotechnology
Massmart Holdings Ltd General Retailers 6.9 Retail 99 32 81 –​
Kap Industrial Hldgs Ltd General Industrials 6.8 Industrial 100

Note: 2020 data downloaded on 18 September 2020; other years are as of 31 December.

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 Chapter 18

Valu e Chai ns a nd
In dustrial Dev e l opme nt
i n Sou th A fri c a

Mike Morris, Justin Barnes,

and David Kaplan

18.1 Introduction

The process of globalization has resulted in production being increasingly organized

within global value chains (GVCs). Lead firms, typically located in developed countries,
acquire inputs from diverse global locations. Suppliers may simply supply intermediate
inputs whereby the last stages of assembly are undertaken by the lead firms or they may
supply the finished product with the lead firms undertaking activities such as marketing,
branding, advertising, and customization.
GVCs are recognized as being important because they drive the organization of in-
dustrialization activities (encompassing manufacturing and related services, agri-​
processing, minerals, and energy) on a global and national scale. GVCs are essentially
about global and regional linkages, and hence exports and imports play an important
role in fostering industrial employment. These global and regional value chains
are themselves driven by powerful lead firms which exercise power (in the form of
structured governance) over chain activities. It is the dynamics of governance that is
crucial for understanding access to value chains, upgrading within them to build
capabilities and skills, and linkages (forward, backward, and horizontal) to extend
value-added productive activities more widely and more deeply across an economy.
The GVC literature stresses that upgrading processes are shaped by the type of
value chain in which firms are inserted, and in particular by the governance structure
of chains, as determined by lead firms. These structures influence the flow and alloca-
tion of activities and resources within chains, and hence, firms’ prospects of entry and
376    Mike Morris, Justin Barnes, and David Kaplan

upgrading and the distribution of rewards and risks along chains (Gereffi et al. 2001;
Gereffi et al. 2005; Kaplinsky and Morris 2001).
Currently, engagement in GVCs is heavily concentrated in the regional blocs of East
Asia, Europe, and North America; Africa’s participation is very limited (Baldwin 2012;
UNCTAD 2013; African Economic Outlook 2014). However, while dwarfed by other re-
gional trading blocs in developed and developing regions, Africa’s imports and engage-
ment in GVCs has been growing more rapidly. As a result, Africa captures a small but
growing share of trade in GVCs (Foster-​McGregor et al. 2015).
Engagement in GVCs has many potential advantages for developing countries. No
longer required to create entire new industries, developing countries can specialize
in particular tasks and provide intermediate inputs to GVCs for final assembly and
market customization. Engagement in GVCs and participation in global markets has
the potential for technology transfer, enhancing efficiencies and management on the
part of participating firms. This, in turn, may have positive spillover effects on other
local firms.
Notwithstanding the positive potential of engagement in GVCs, countries may be-
come trapped in low value-added segments of the GVC in which there is little potential
for technology transfer and consequently positive spillover effects. A critical issue there-
fore is whether engagement in GVCs allows firms, over time, to enhance productivity
and to become competitive in higher value-added processes and products.
A very large part of Africa’s participation in GVCs consists of firms that are located up-
stream and that provide primary products or, less frequently, very simple manufactures
to firms located further downstream. These production activities, more particularly the
production of primary products, are low value added and low skilled with very little
potential for technology or skill upgrading. Engagement in GVCs by these firms con-
sequently has very limited positive spillovers on other local firms. By contrast, down-
stream participation by African firms is very limited and has shown only marginal signs
of increasing over the last two decades. As noted by Foster-​McGregor et al. (2015: 6),
‘Downstream participation in GVCs by Africa is found to be relatively low, and more
importantly has shown little sign of increasing since 1995.’ The net effect is that the
enhanced participation in GVCs has had only a limited impact on transforming pro-
duction in African economies.
However, there are some significant exceptions. Some African countries have
succeeded in developing significant production capacities downstream. A number of
African countries have reported that more than 50 per cent of their total GVC involve-
ment is located in downstream activities. These countries include Mauritius, Botswana,
Ethiopia, Kenya, and Tanzania (Foster-​McGregor et al. 2015).
The Southern African region is more heavily integrated into GVCs than the rest of
the continent. Moreover, participation in GVCs has increased significantly over the last
decade (AUC/​OECD 2019). However, the report noted that ‘Southern Africa’s participa-
tion in global value chains remains peripheral’. It notes that South Africa is a partial ex-
ception as it is more integrated into GVCs than any other African country, and provides
a potential entry point for other countries in the region to engage in GVCs. South Africa
 Value Chains and Industrial Development in South Africa    377

is hence pivotal to the region. It ‘is the region’s natural gateway into global value chains’
(AUC/​OECD 2019: 137).
The further development of regional value chains focused on South Africa in
products that are destined for global markets represents the best opportunity for
countries in the region to deepen their engagement in GVCs. The AUC/​OECD report
recommended that regional value chains should be developed so as to ‘piggy-​back on
South Africa’s participation in GVCs’ (AUC/​OECD 2019: 120–​1). The report singled out
five value chains in the region that have the greatest potential for further development—​
automotive, textiles and apparel, meat, agribusiness, and minerals.
This chapter is concerned with the first two of these high potential value chains (viz.
textiles and apparel, and automotive). A significant part of South Africa’s participation
in GVCs is in downstream production. Moreover, much of South Africa’s engagement in
GVCs is located in high value, and skill intensive, activities that offer at least the poten-
tial for significant technological advancement and positive spillovers to the rest of the
economy. Upgrading within GVCs is therefore central to South Africa’s further indus-
trial and economic development.
The automotive and apparel manufacturing sectors have the most developed GVC
linkages in South Africa, but in very different ways. The chapter will therefore analyse
them as two case studies to understand the different dynamics exhibited by industry in
South Africa linking into GVCs. These two case studies form the substantive part of the
chapter, analysing their recent trends, current dynamics, and prospects.
The South African automotive industry is deeply engaged in GVCs and is undoubt-
edly the sector that currently, through this engagement, offers the greatest potential for
technological advancement, increasing skill intensity and upgrading. Automotive is a
scale and skill intensive industry requiring very considerable foreign investment and
advanced management practices. Moreover, the capabilities developed in the South
African automotive sector are core to the network of globally exported products. These
same technological capabilities are located in a product space that strongly suggests that
these same technological capabilities can be fairly readily deployed to the production of
other sophisticated products (AUC/​OECD 2019: 125).1
The South African automotive sector is predominantly export oriented, but it is also
highly import intensive. It is an example of a medium technology industry that requires
relatively high levels of capabilities and skills. The foreign-owned assemblers located in
South Africa drive the value chain according to strict adherence to lean manufacturing
principles. They determine the levels of local sourcing in domestically assembled
vehicles that are then sold locally, regionally, and internationally. The locally based
component sector plays an important role in terms of GVC linkage development, as
well as providing technology spillovers into other sectors. However, the South African

1
The automotive industry is centrally situated within the map of economic complexity as developed
by Harvard University (2019).
378    Mike Morris, Justin Barnes, and David Kaplan

automotive component industry still exhibits relatively thin levels of value added and
independent design and product development capabilities.
South Africa’s apparel industry is almost wholly domestic market oriented, sourcing
both globally as well as through extended regional value chains in sub-​Saharan
Africa. The sector is an example of a low technology, labour intensive industry. A few
Johannesburg Stock Exchange (JSE) listed large retail groups drive the sector and deter-
mine what is manufactured in South Africa, elsewhere in the Southern African region,
and from Asia. It is these firms that determine the different dynamics prevalent within
local supplier activities, and hence opportunities for upgrading and development. The
sector is characterized by lower levels of managerial capabilities and worker skills.
However, more recently the retail lead firms are moving to develop Quick Response
(QR) based value chain capabilities and are therefore either developing local suppliers
or building their own vertical design, product development, and manufacturing
capabilities. The major challenge the industry faces is raising its capabilities and worker
skill levels to meet these new value chain requirements while also extending the supplier
base to increase value addition (and by implication employment) in the economy.
The production of textiles and apparel is widespread. All the countries in the
Southern African region have some production with a concentration on Lesotho and
South Africa. The South African textile and apparel industry is focused almost exclu-
sively on the domestic market. Textiles and apparel in SSA (in Lesotho, Swaziland,
Mauritius, and Madagascar) by contrast, is entirely export focused towards the US, EU,
and South African high income markets. Lesotho has developed basic sewing produc-
tion capacities in apparel and in wool and cotton-​related products (AUC/​OECD 2019).
However, by contrast with automotive, the productive capacities in textiles and apparel
are far less easily redeployed into other goods.
The further industrialization and development of South Africa and of the countries
in the Southern African region will depend heavily on further developing their engage-
ment in GVCs and simultaneously upgrading their capacities into higher valued and
more skill and intensive activities in these two key sectors. The chapter focuses on the
two case studies to elucidate key GVC themes: The South African automotive sector
as an example of export oriented GVC engagement and the South African clothing
and textiles sector as an example of import oriented GVC engagement. These two case
studies permit a more detailed interrogation of the GVC implications for South African
industrial development.

18.2 The South African

Automotive Industry

The South African automotive industry has a long domestic history. The first local
vehicles were assembled by Ford in 1924, while the first automotive component
 Value Chains and Industrial Development in South Africa    379

manufacturers were established around 1930 (Barnes 2013). As demand for vehicles
grew from the 1950s, the assembly of vehicles using imported kits proliferated. The
low local content of the wide range of assembled vehicles limited the development of
the components industry and placed substantial pressure on the country’s balance
of payments. In response, following an Import Substitution Industrialization (ISI)
approach, the South African government in 1961 introduced the first of its automotive
local content programmes (LCPs). These LCPs were scaled up over time, but up until
1989 were exclusively focused on substituting imported vehicles with locally assembled
equivalents for a growing domestic market that, in the early 1980s, was recognized as
one of the most important developing economy markets internationally.
The intensification of the LCPs over time reduced the proliferation of locally
assembled vehicles and increased levels of local content in South African vehicles, but
at a substantial cost to the South African economy. South African-assembled vehicle
standards were low by comparative international standards, and many models were
assembled for extended periods to amortize investments in a low volume, but highly
protected domestic market environment (Barnes, Kaplinsky, and Morris 2004). Aside
from the importation of a few ultra-​luxury vehicles, the domestic market was essentially
closed to vehicle imports. Due to sanctions, most vehicle assembly operations were lo-
cally owned, with multinational vehicle assemblers choosing to have their vehicles
assembled in South Africa under licence, rather than through direct ownership. The
exceptions to this were the German luxury vehicle assemblers who maintained either
full (BMW, Volkswagen/​Audi) or partial (Mercedes-​Benz) ownership of their South
African operations.
In 1989, the South African government introduced the sixth phase of the LCP. In
some ways this represented the zenith of the LCPs, with local content needing to reach
60 per cent of the value of locally assembled vehicles. However, it also represented an
important shift in government policy. For the first time local vehicle assemblers could
calculate the local content in vehicle and component exports as part of their 60 per cent
domestic local content requirement (Barnes et al. 2004). The South African automo-
tive industry was ‘nudged’ towards an export orientation. The sixth phase of the LCP
remained in place until 1995. This period coincided with two momentous historical
moments—​one domestic and one international.
Domestically, South Africa was slowly emerging from the sanctions era and being
re-​engaged internationally. The ANC government in waiting had initiated dialogues on
economic policy amongst its social partners, and the multinational vehicle assemblers
had re-​engaged with their licensed operations in South Africa to explore post-​apartheid
production and market opportunities. Internationally, the global automotive in-
dustry was undergoing its own cathartic change. Seminal work from the Institute for
Motor Vehicle Productivity (IMVP) had highlighted how uncompetitive Western ve-
hicle manufacturers were in relation to vehicle producers that had embraced lean
production systems (Womack et al. 1990). China had initiated engagements with multi-
national vehicle assemblers to establish Chinese operations, initiating the start of un-
precedented market and production growth in the world’s most populous country.
380    Mike Morris, Justin Barnes, and David Kaplan

Vehicle production began shifting towards being organized at regional or global levels
under the control of ever fewer, and ever larger, lead vehicle assemblers (Sturgeon and
Florida 1999).
It is within this context that the new South African government terminated the LCPs
in 1995 and introduced a comprehensive Trade Related Investment Measure (TRIM)
in the form of the Motor Industry Development Programme (MIDP). The MIDP
initiated fundamental change in the South African automotive industry (Barnes and
Black 2014; Barnes et al. 2004). It immediately reduced vehicle tariffs from 115 per cent
to 65 per cent, reduced component tariffs, removed all local content requirements, and
introduced a very generous export incentive that essentially allowed vehicle assemblers
(and component manufacturers) to earn import credits for exports, thereby allowing
them to import products free of duty provided they exported sufficient values of auto-
motive products. This critical shift in government policy resulted in the lead vehicle
assemblers progressively acquiring their South African-licensed operations. Nissan,
Toyota, Ford, and General Motors joined Mercedes-Benz, Volkswagen, and BMW in
taking direct control of their South African operations and strategically repositioning
them to take advantage of the MIDP. After seven decades of domestic market orienta-
tion, the South African automotive industry was re-​oriented to become fully part of the
vehicle assembler GVCs (Barnes and Morris 2008). In accordance with the GVC frame-
work, the number of vehicle platforms manufactured in South Africa plummeted, the
average volume assembled per platform increased significantly, and both imports and
exports surged (Barnes and Black 2014).
A major challenge over the next fifteen years related to the need to upgrade the
South African operations in alignment with the vehicle assemblers’ global standards.
Driven by a relentless lean production focus, South African assembly and compo-
nent operations were exhaustively benchmarked against global standards and forced
to upgrade their capabilities. This has been extensively documented through the
activities of the South African Automotive Benchmarking Club, with major com-
petitiveness improvements noted within the South African automotive value chain
(Barnes and Black 2014). However, the period of GVC engagement also coincided
with the gradual ‘thinning out’ of local content in South African production
(Kaplinsky 2013). From local content of around 60 per cent in each assembled South
African vehicle in the early 1990s, the figure was only 46.6 per cent in the final year of
the MIDP in 2012.
The impact of the MIDP was scrutinized throughout its lifespan, with some
commenting that the programme led the automotive industry to be excessively ex-
port oriented (Black 2009), too import dependent (Barnes 2013), or was too gen-
erous and hence too great a cost for the South African state (Flatters 2005; Flatters and
Netshitomboni 2007). However, Barnes and Black (2014) argue that the programme was
on balance, a success, with the economic gains associated with the automotive industry’s
growth and development far outweighing its fiscal costs. Moreover, the automotive in-
dustry performed substantially better than the balance of the domestic manufacturing
 Value Chains and Industrial Development in South Africa    381

sector and significantly improved its competitiveness, ensuring South Africans had
access to modern, safe vehicles at globally comparative prices (Barnes 2017).
The MIDP was replaced by the Automotive Production and Development Programme
(APDP) in 2013 and will continue until at least 2026 as part of the national government’s
new South African Automotive Masterplan (SAAM), which runs until 2035. The APDP
replaced the MIDP because of pressure from the World Trade Organization (WTO), and
an acceptance on the part of the national government that the MIDP contravened the
WTO’s Agreement on Subsidies and Countervailing Measures. The APDP shifted the
government’s support from automotive exports to production, irrespective of market focus.
However, it kept the fundamental premise of incentivizing firms through the ability to earn
import rebates, and therefore essentially maintained the industry’s established set of export
linkages within the increasingly global automotive GVC framework.
Despite the poor performance of the South African market since the early 2010s, the
APDP has been credited with maintaining South Africa’s vehicle production base, while
simultaneously improving the industry’s trade balance. The comparatively stronger per-
formance of vehicle production relative to domestic market vehicle sales since 2014 is
presented in Figure 18.1. As highlighted, apart from a brief period in the early 2000s, do-
mestic market sales have tended to be higher than local production, suggesting an im-
portant recent shift in the position of the South African automotive industry.
Vehicle production has remained more buoyant than domestic sales because approxi-
mately 70 per cent of all vehicles produced in South Africa are exported. In fact, several
locally assembled models such as the BMW X3 and the Mercedes-Benz C-​Class are almost
exclusively exported, and mostly to the European Union. As a result, over 40 per cent of all
vehicle production in South Africa is for the EU market.

800 000

700 000

600 000
Number of Vechicles

500 000

400 000

300 000

200 000

100 000

0
1995
1996

1997
1998
1999
2000

2001
2002
2003
2004

2005

2006

2007

2008
2009

2010

2011
2012
2013

2014
2015
2016
2017
2018

Domestic Vehicle Production Domestic Vehicle Sales

Figure 18.1 South African light vehicle domestic market performance versus production, 1995
to 2018
Source: Calculated from National Association of Automotive Manufacturers of South African (NAAMSA)
annual vehicle sales and production publications.
382    Mike Morris, Justin Barnes, and David Kaplan

Despite the automotive industry’s long-​standing production in South Africa, and the
comparative successes of the MIDP and APDP, the domestic industry remains a mar-
ginal player globally, contributing only 0.64 per cent of global vehicle output in 2018.2
Not only is the country’s total production output of around 600,000 units insignificant
globally, it has increased only slightly since 2005, as highlighted in Figure 18.1. Vehicle
production also remains highly fragmented, making it difficult for the automotive
components industry to secure the scale economies required to compete with leading
competitors, resulting in local content levels within South African vehicles declining
to 39.2 per cent in 2017 (Monaco et al. 2018), from 47 per cent in 2012 (Barnes and
Black 2014).
Despite its challenges, the automotive industry remains at the forefront of the national
government’s industrialization strategy. It is one of the few domestic manufacturing
sectors that has recorded real growth over the last decade, and accounts for an important
proportion of total manufacturing output. The industry’s comparative resilience, its
established foundations, employment of 112,000 South Africans, export contribu-
tion, managerial capabilities, worker skill building, and its recognized technology
multipliers, have positioned it as a core, strategic domestic industrial sector (Barnes and
Black 2017). It is this position that ensures the government’s continued support for the
industry.
Despite substantial government support, neither the MIDP nor the APDP has sub-
stantially shifted the position of the South African automotive industry as a second tier
player globally. While this perspective varies considerably between vehicle assemblers,
there is currently no domestic plant that is the primary source for a vehicle platform
globally. Even the largest volume models in South Africa, such as the Ford Ranger,
Toyota Hilux, Volkswagen Polo, and Mercedes-Benz C-​Class (all above 80,000 units
per annum), represent small production volumes relative to larger plants elsewhere.
The result is the low local content exhibited amongst South African assemblers, pla-
cing substantial pressure on the automotive components industry. An important defi-
ciency in respect of the industry’s present position relates to its poor recent domestic
market performance, the extent of imports into the domestic market, and deteriorating
regional market conditions. Domestic vehicle sales had contracted significantly pre
the COVID-​19 pandemic since the record level achieved back in 2006, with imports
comprising over 70 per cent of the domestic car market in 2018. The local market is far
from having sufficient demand to attract local assembly exclusively for domestic market
supply. A modern assembly plant requires at least 80,000 units of a platform to justify
production, and yet the top selling model in South Africa only achieves sales of around
50,000 units (the VW Polo/​Vivo).
There is also limited demand for South African vehicles within sub-​Saharan African
markets (Barnes et al. 2019). The short-term prognosis for the regional market is
muted, as consumers within this market have the additional choice of purchasing

2
Calculations derived from OICA production data for 2018 (https://​www.oica.net).
 Value Chains and Industrial Development in South Africa    383

pre-​owned vehicle imports at low prices from developed economy markets. These
vehicles are moreover sold at highly discounted rates, essentially escaping end-​of-​life
vehicle scrapping costs in advanced economies. Coupled with negative domestic market
conditions, the local automotive industry is consequently in a difficult strategic pos-
ition, with vehicle production tied to exports into distant developed economies, most
notably the European Union and the United States. These exports are supported by
AGOA, the EU-​South African Economic Partnership Agreement, and incentives such
as the APDP that compensate for the industry’s substantial cost disadvantages relative to
competitors such as Thailand (Barnes et al. 2017). South African automotive production
is, therefore, being driven less by local or regional market factors, which underpin the
competitive advantage being secured by almost all the country’s more successful com-
petitor economies.
Notwithstanding the competitive pressures confronting the domestic industry, the
base vehicle ownership profile of South Africa (and regionally) suggests major growth
opportunities through to 2035—​provided economic growth increases (to above 3 per
cent per annum) and the industry’s base competitiveness continues to improve (Barnes
and Black 2017). The SAAM has the central objective of ensuring the local automotive
industry increases its production to 1 per cent of global output by 2035 (or potentially
1.4 million units of production) and increases local content in domestically assembled
vehicles to 60 per cent (from a 38 per cent base). This would double total employment in
the automotive value chain (to 224,000 jobs) even after factoring in major productivity
improvements over the period. In doing so, the industry would substantially increase
its contribution to the South African economy through to 2035 (Barnes and Black 2017).
The automotive GVC is, however, undergoing a pronounced set of changes, which
could fundamentally disrupt global production and markets for vehicles. The challenges
facing the industry and the development of an appropriate policy is being driven by
established GVC pressures relating to efficiencies and competitive factor costs; and the
simultaneous emergence of a set of major technological and socio-​economic changes
which are transforming the global automotive industry. Three major emerging GVC
drivers appear to be shaping the potential of the South African automotive industry and
need to be considered.
First, developed country vehicle fleet fuel economy requirements are becoming in-
creasingly onerous. The European Union has, for example, significantly tightened the
fuel efficiency standards that need to be achieved in its market. From 2021, the new
vehicle fleets sold into the European Union by vehicle assemblers need to achieve
an average carbon emission per-​kilometre level of 95 grams (from 130 grams). This
translates into an average fuel efficiency requirement of 4.1 litres per 100 kilometres for a
petrol car and 3.6 litres for a diesel equivalent.3 This is a level which most South African
assembled vehicles cannot attain. This type of legislation is driving the development of
high technology, smaller displacement internal combustion engines (ICEs) requiring

3
https://​ec.europa.eu/​clima/​policies/​transport/​vehicles/​cars_​en, accessed 13 November 2019.
384    Mike Morris, Justin Barnes, and David Kaplan

extremely clean diesel and petrol that is presently unavailable in South Africa. It is sim-
ultaneously driving the rapid evolution of alternative, competing engine technologies,
such as battery electric vehicles (BEVs) and hydrogen fuel cell-based vehicles. These new
technologies are likely to substantially increase their market share in major developed
economies over the next set of model changes, which take place on a six to eight year
cycle. Many major cities and several countries have also announced the imminent
banning of ICE vehicles, and along with other environmental legislation, the EU, US,
and Chinese markets are likely to look fundamentally different over the next two model
changes (twelve to sixteen years). A Bloomberg report has predicted that 5 per cent of
global vehicle sales would comprise BEVs by 2022, and then rise rapidly to 35 per cent
by 2040 (Bloomberg New Energy Finance 2016). How the South African market will be
directly affected is unclear with hardly any alternative energy vehicles sold domestically,
while sub-​1,000cc ICE vehicles also remain only a small (albeit growing) part of the do-
mestic market. What is clear is that the ability of South African vehicle assemblers to sell
larger ICE vehicles into developed economy markets such as the European Union will
come under significant pressure.
Second, the development of new materials has the potential to displace standard
automotive materials, such as steel and plastics, which presently comprise the majority
of a vehicle’s material base. This may fundamentally shift the profile of local produc-
tion. As vehicles become lighter, and functionally more advanced, what new materials
will dominate vehicle production? Will these be sourced in South Africa? What role
will material composites and nano-​technology play in respect of automotive materials
use, and could this displace ladder-​chassis technologies that presently underpin the
production of light commercial vehicles in South Africa? As rapidly advancing green
manufacturing requirements shape what vehicles and components are produced, as
well as what materials and manufacturing processes are used, it is unclear whether these
requirements will open or close off production opportunities in South Africa. What
green production capabilities will South African manufacturers need to master to en-
sure continued supply into increasingly environmentally conscious developed economy
markets?
Third, infotainment, vehicle connectivity, and passive and active vehicle safety
developments are fundamentally altering the nature of the vehicle driving experience,
and the associated functionality of vehicles. How will this change the nature and cost
profile of vehicle production? As additional safety features are developed, with the ul-
timate objective of dramatically reducing road deaths, what are the consequences for
vehicle production? How will South African manufacturers adjust to these emerging
requirements, particularly if EU and US market safety requirements diverge dramatic-
ally from South African and other developing economy requirements?
Tied to this is the profoundly disruptive potential of autonomous vehicles and their
consequences for vehicle use and ownership. Forecasts vary but according to the Black
Rock Institute (2017), fully autonomous vehicles (AVs) will take off rapidly from 2025
with 75 per cent adoption by 2035. This forecast may be too optimistic, but even a 20
per cent to 30 per cent adoption rate will profoundly affect South African production.
 Value Chains and Industrial Development in South Africa    385

How will South African automotive production be impacted by the emergence of au-
tonomous vehicles? How will global, regional, and local vehicle use change? Will vehicle
demand contract? Will it support the transition away from private vehicle ownership to
IOT-​enabled mobility services? What happens to local production if major developed
economies evolve into mass mobility markets serviced by AVs controlled by ride-​
hailing service providers, as opposed to the present model of private vehicle ownership?
For example, the Boston Consulting Group (2016) suggests four possibilities: the first
being private ownership of AVs alongside conventional vehicles; and the second being a
takeover by AVs. In the third scenario, urban transport is dominated by ‘robo-​taxis’; and
in the fourth scenario urban transport becomes dominated by the ‘ride-​sharing revolu-
tion’. The first scenario has a negligible effect on the number of vehicles sold but the third
and fourth scenarios have dramatic effects with the number of vehicles sold reduced by
46 per cent and 59 per cent respectively.
These emerging GVC drivers could fundamentally re-​shape the future of the South
African automotive industry. It has already led to one casualty, with General Motors
(GM) exiting the country in 2017 and selling off its domestic assets to Isuzu. The reasons
for GM’s exit were directly tied to its parent company’s decision to exit all markets
dominated by legacy (i.e. ICE) technologies requiring new capital investment, and to
concentrate global resources on the development of BEVs and autonomous vehicles.
These emerging GVC drivers do not yet feature in the domestic or regional market.
While the MIDP (1995 to 2012) and APDP (2013 to present) have clearly built on the
preceding LCPs and supported the development of a substantially more competi-
tive automotive industry through participation in the automotive GVC, the industry
remains vulnerable. The increasingly export-oriented industry is facing major struc-
tural change within the automotive GVC and is likely to face major export headwinds
in future, at the same time as the domestic and regional markets regress. These export
headwinds are recognized in the SAAM, with increasing policy support from 2021 for
emerging green and autonomous vehicle technologies. The SAAM also recognizes the
associated need for technology reskilling and digital infrastructure development as the
GVC drivers impact the industry.

18.3 The South African Clothing

and Textiles Industry

As in many other sectors, production and trade in the apparel sector is organized in
GVCs where production and assembly into final products is carried out via inter-​firm
networks on a global scale. A large part of apparel production remains labour intensive,
has low start-​up and fixed costs, and requires simple technology. These characteristics
encouraged the move to low-cost locations in developing countries exporting into
high-income markets and driven by intense inter-​ firm/​
country competition. The
386    Mike Morris, Justin Barnes, and David Kaplan

‘intangible’ GVC activities (product development, design, textile input sourcing, logis-
tics and distribution, branding, and retail) are controlled by a combination of lead firms,
intermediaries, and large transnational suppliers.
Upgrading strategies are extremely important for suppliers to sustain and improve
their positions in apparel value chains. Sourcing decisions are frequently motivated by
labour cost differentials but in addition to the classic criteria of costs, quality, and reli-
ability, other criteria are increasingly shaping sourcing decisions (Gereffi and Frederick
2010; Staritz 2011), for example, lead times and flexibility, which is related to the shift to
lean retailing and QR production where buyers defray the inventory risks associated
with supplying apparel to fast changing, volatile, and uncertain consumer markets by
replenishing items on their shelves in very short cycles and minimizing inventories
(Abernathy et al. 2006). This ensures more cost-effective forms of supply chain man-
agement and reduces the complexity of their supply chains. Price is still an important
market requirement but new dynamics favour additional factors such as speed to
market and flexibility through small volume runs to achieve this.
Until the mid-​1990s, the South African garment and textile sector was locked into
import substituting industrialization (ISI), with firms protected by an almost impene-
trable thicket of targeted import quotas and high, product-​specific tariffs. In 1994, the
government initiated a radical garment tariff phase-​down agreement which saw the
elimination of import quotas, movement to a more uniform tariff structure, and a major
reduction in nominal tariffs. By 2001, tariffs on textiles were down to 28 per cent and
tariffs on garments down to 40 per cent, both from over 100 per cent.
In 2001, the US Africa Growth and Opportunity Act (AGOA), allowed South African
apparel producers duty- and quota- free access to the US market which met particular
rules of origin and US retailer buyers flew in to seek potential new sites for orders.
Simultaneously there was a rapid depreciation of the exchange rate from R6.94 per $1 in
2000 to R11.61 in January 2002. Local apparel manufacturers used this to sign numerous
export orders to US retailers, seeking larger profits than supplying the domestic market.
Total exports of apparel at nominal prices jumped dramatically from R471m in 1995
to R1,901m in 2001 and R2,590m in 2002 (Morris and Einhorn 2008; Morris and Levy
2017). Many manufacturers did not have sufficient capacity to supply both export and
domestic markets and reneged on their domestic orders. Hence South African retailers
went offshore to import Chinese apparel.
By 2004, the appreciation of the Rand/​US$ exchange rate (to R5.73) turned the en-
tire scenario around, creating easier import access, crippling exports, and forcing
many local manufacturers to renege on their US export orders. In dollar terms, exports
collapsed from $231.8m in 2003 to $24m in 2007, and then even further to only $6m
by 2012. Local apparel manufacturers sought in vain to return to supplying the South
African domestic retailers, but the market configuration had irretrievably altered.
Apparel imports (mainly from China) grew from $192m in 2000 to $755m by 2005 and
$1,534m in 2011. Large-scale imports of apparel from China (and later from other ap-
parel producing countries) into South Africa and the value of apparel imports, and that
of local apparel production for the domestic market, diverged radically. Local apparel
 Value Chains and Industrial Development in South Africa    387

production decreased from 76 per cent of domestic demand in 2005 to 60 per cent in
2011, whilst the share accorded to imports increased from 25 per cent to 40 per cent re-
spectively (Morris and Barnes 2014).
As a result of these dynamics employment in firms registered with the national
bargaining council dropped dramatically—​from 97,960 in 2003 to 52,656 in 2013 and
then by 2016 rose again to 68,757. Although the bargaining council data base provides
the only reliable available quantitative data on firm and employment numbers, it also
underestimated the actual number of firms and employees working in the industry.4
There were, and remain in existence, many small unregistered firms intersecting into
the apparel value chain as informal suppliers. These informal enterprises are highly
differentiated in scale, scope, and performance, run by ex-​formal sector skilled workers,
mostly competing on price, and feeding into design houses and larger apparel firms, and
thereby indirectly into the retail chains. Their exact number, levels of differentiation,
and workers employed is unknown.
These GVC dynamics continued to shape the apparel and textile sector for the
following decade. The industry was caught in a set of contradictions between the
strategic positions of its import substituting industrialization and the globalization
requirements of the future which paralysed its ability to respond consistently. South
African domestic apparel enterprises were caught in a contradiction between being in-
efficiently and ineffectively set up for import substituting industrialization but having
to play on the field of globalization which was characterized by import threats from
rising Asian producers operating under entirely different competitive production
platforms. The South African government was itself locked into a contradictory policy
response—​radically reducing the sector’s protective barriers but unable to significantly
assist enough domestic firms to raise their systemic competitiveness and align with the
demands of retail buyers driving their value chains. Finally, the unions were caught by
their historically successful strategy of maintaining high wages, blocking piece-​rate
wage systems, and restricting shift work which rendered productivity hamstrung in the
face of global competitor countries.
What followed was a series of sometimes contradictory policy responses trying to re-
strict Chinese imports and force retail chains to procure locally, rather than tackle the
underlying problems of weak competitiveness and dysfunctional value chain alignment.
When these had palpably failed, after 2010 the Department of Trade and Industry put in
place a narrow but focused set of industrial policy interventions under the Clothing and
Textiles Competitiveness Programme (CTCP) which comprised two components, the
Production Incentive (PI) and the clothing and textiles Competitiveness Improvement
Programmes (CIP), to assist firms to become more competitive. The CIP also offers
incentives to National Clusters, with South African registered firms receiving finan-
cial support on a yearly graduated basis. CIP grants are targeted at interventions that

4
See Edwards and Morris (2007) for the methodological problems in the official apparel employment
statistics.
388    Mike Morris, Justin Barnes, and David Kaplan

improve competitiveness, including upgrades and expansion of capital equipment,

increasing productivity, enhancing employee skills, improving products and processes,
and reducing costs.
The industry was also caught in an industrial relations bargaining trap based on a
process of rigidifying labour markets and the introduction of a nationally centralized
bargaining council system. This drove a strategy of raising wages and closing the gap
between the metro and non-​metro wage levels, resisting management attempts to di-
lute historically inherited operational systems, and pursuing firms deemed to be
non-​compliant in terms of wage and other benefits requirements. The latter included
government rendering firms deemed to be non-​compliant ineligible for various in-
dustry support and training schemes.
By the second decade of the twenty-first century the industry displayed very divergent
pathways. On the trade front this divergence in retail market supply between domestic
suppliers and imports has become a permanent feature of the apparel trade landscape.
The government attempt to control Chinese imports not only failed but it also led to im-
port divergence as retail buyers discovered other supply sources. By 2017, South Africa
imported over 54 per cent of its apparel from China, followed by Mauritius, Madagascar,
and Lesotho with contributions of 7.5 per cent, 6.2 per cent, and 6.2 per cent respect-
ively (Trade Map 2017). South African apparel imports have fluctuated over the period
but averaged high annual growth rates of 6.8 per cent from 2007 to 2016. Data from
2017 estimate South African retail purchases for clothing at Rand 43.0 billion. Import
purchases are substantially greater than local purchases, with the import estimates for
clothing calculated at 53.9 per cent (Barnes and Hartogh 2018).
The most striking aspect of this process of import divergence was the rapid growth
of imports from the rest of southern Africa—​Lesotho, Swaziland, Mauritius, and
Madagascar—​using the duty-​free preferential access protocols of the South African
Customs Union (SACU) and South African Development Community (SADC) to enter
the domestic market. This has given rise to the growth of regional value chains from
Lesotho, Swaziland, Mauritius, and Madagascar feeding into the South African end
market, starting tentatively in 2006 and accelerating after 2010 (Table 18.1). Tariff-​free

Table 18.1: SSA apparel exports to South Africa (in US$000)

2006 2008 2010 2012 2014 2016 2017 Share

Swaziland 0 57,178 100,173 133,186 152,085 189,289 35%

Lesotho 15 44,464 63,305 93,359 114,556 128,519 24%
Mauritius 21,253 47,251 69,249 147,724 130,186 108,605 115,173 21%
Madagascar 72 7,046 18,238 62,182 84,812 91,600 85,592 16%
Tanzania 382 545 2,281 2,257 8,724 6,659 8,371 2%
SSA 51,975 79,677 234,084 394,340 460,511 484,213 540,533 100%

Source: UN COMTRADE, South African SARS data.

 Value Chains and Industrial Development in South Africa    389

access via SACU has been crucial in Lesotho and Swaziland, whilst Mauritius and
Madagascar have used SADC protocols to enter the South African market on favour-
able tariff terms. Imports from Lesotho and Swaziland have been a direct result of South
African clothing manufacturers relocating entire plants to the neighbouring countries.
In the case of Swaziland, by 2017 apparel exports to South Africa had completely
supplanted its relationship to US buyers.
It is also important to note that officially recorded imports do not capture the de facto
impact of foreign apparel circulating in the domestic economy. The borders are porous,
customs officials insufficiently trained to monitor false product declarations, and
organized crime syndicates operate freely. Hence the actual quality and value of imports
seeping into South Africa from illegal operators and sources is anecdotally recognized
as being much higher than the official data reveal.
Calculating the opportunity costs associated with the very high levels of importing
into the South African clothing and textile value chain is extremely difficult. First,
many imported products cannot be manufactured in South Africa. Second, the pricing
of imports into South Africa is a major area of dispute. Industry stakeholders, and pre-
vious industry research, strongly suggest that the value of such imports is substan-
tially lowered to reduce ad valorem-​based tariff payments. Third, a sizeable amount
of imports into South Africa may not be declared at all. Barnes and Hartogh (2018)
attempted to calculate the gross value added (GVA) and employment loss impacts on
the local industry of clothing and textile imports destined for South African retail con-
sumption, providing two estimations: a narrow loss based on declared import values,
and a broader loss based on the assumption that under-​invoicing results in a one-third
discounting of imports. Both calculations assume that all imports can be manufactured
in South Africa, which is obviously problematic. Leaving aside the problems with the
assumptions, they estimate for the clothing industry GVA losses of between Rand
10.7 billion (assuming import values are correct) to Rand 16 billion (assuming significant
under-​invoicing is occurring), and lost employment opportunities ranging from 80,519
to 120,779 sectoral jobs. However, given the problematic assumptions that have had to
be made, the point is not to focus on the estimates, but rather to see them as displaying
the major GVC trends manifested in the relationship between clothing imports and
domestic production which has created a bifurcated clothing and textile industry
landscape.
This bifurcated value chain landscape has had a divergent impact on firm level growth
paths. Most of the average firms meandered along in a fairly uncompetitive manner.
However, those firms that qualified and received CTCP support have seen major
improvements in economic, efficiency, and competitiveness performance indicators.
The IDC surveyed a population of 516 CTCP beneficiary companies in 2017, and secured
data from 148 recipients who were able to provide data for the period 2011 to 2016
(Table 18.2).
At the top end of the clothing industry production spectrum there have been a small
number of firms that have utilized the support measures in conjunction with a couple
of the clothing retail lead firms to achieve value chain alignment. They have created
390    Mike Morris, Justin Barnes, and David Kaplan

Table 18.2: Clothing and textiles key performance indicator data

Indicator Units 2011 2016 Change

MVA Rm 4,793 7,706 60.8%

Employment Jobs 27,239 31,810 16.8%
Sales Rm 10,683 19,846 85.8%
Production Units 778m 962m 23.7%
MVA as a % of sales % 49.0 47.7 –​2.7%
MVA per employee R’000 214.5 262.3 22.3%
Absenteeism rates % 5.4% 4.7% 12.0%
Customer return rates % 3.6 2.2 38.2%
On-​time and in-​full delivery to customers % 88.1 94.4 7.2%
Internal rework rates % 5.1 3.4 34.4%

Source: Barnes and Hartogh (2018).

individually driven retail supply chain clusters, with suppliers and buyers working closely
together to embrace upgrading challenges. The aim has been to support the adoption of
Quick Response (QR) platforms in order to compete with cheaper imports. QR leveraged
off the main geographical advantage that local apparel manufacturers had in taking of
their localness and introducing short production cycles to provide retailers with speed
and flexibility of supply. It also required retailers shifting from buying cheap goods on
long lead times, maintaining large stocks and having massive sales at season end, to
moving to a new retailing model based on minimizing inventories and increasing their
returns through repeatedly turning over stock at full price within the year.
At the other end of the production spectrum, those apparel manufacturers operating
at the bottom to lower-​middle end of the market have responded in a different manner.
Some relocated to Lesotho and Swaziland to escape the restrictive labour market
conditions and wage systems, and exported back into the South African market (Morris
et al. 2011, 2016). In Newcastle and Ladysmith, a number of Chinese-owned firms,
caught by the tendency to close the gap between metro and non-​metro wages, simply
ignored the bargaining council wages and paid a wage that local workers would accept
to secure employment (Nattrass and Seekings 2014, whilst other small firms simply hid
beneath the radar in the informal economy.
A strength and weakness analysis undertaken in 2017 of firms all along the clothing
and textile value chain reveal the following. Strengths include quick response retailing
developments; labour availability; institutional support for the supply chain; and local
market size and potential. Weaknesses encompass weak human capital and associated
skills; outdated production processes and equipment; local supply chain capability
deficiencies; labour market issues; management deficiencies; inappropriate government
policies and interventions; and corruption (Barnes and Hartogh 2018).
 Value Chains and Industrial Development in South Africa    391

Although this summarizes the strengths and weaknesses of the aggregate of firms in
the clothing and textile industry it does not take into account the divergent nature of the
growth paths prevalent in the industry. In many respects its highly bifurcated nature
is shaped by the fact that it is inserted in a domestically driven GVC which is heavily
impacted on, and influenced by, global imports.

18.4 Conclusion

The two case studies highlight the inescapable impact of GVCs on South Africa’s
manufacturing sector. Whether exporting into advanced developed economy markets,
as per the automotive industry, or supplying primarily into the South African market, as
per the clothing and textiles industry, the specialist capabilities developed within GVCs
are clearly framing the operating space for locally based operations. This has partly been
driven by the country’s reduction of import tariffs over the last two decades, and partly
by the continued growth and development of multinational-​led business models that
have extended and deepened the reach of GVCs.
Manufacturers in South Africa no longer have the space to develop their capabilities
in a domestic market, which provides some level of protection from the cold winds of
international competition. Firms essentially need to be born export competitive, as this
is the operating standard that needs to be attained whether supplying the domestic or
export markets. The consequence of this for established manufacturers has been pro-
found, as evident from the two case studies. Firms have upgraded their capabilities and
succeeded in competing against their international counterparts, upgraded and still
failed, re-​located their operations regionally, or simply wound their operations down
over time. While the pockets of firms in the first category have continued to provide
government and other industry stakeholders hope of a manufacturing renaissance in
South Africa, the reality is that far more firms have fallen into the latter three categories.
This is evident in the capital investment data and gross fixed capital formation data for
South African manufacturers. These firms have moreover signalled to foreign investors
and local entrepreneurs alike the challenges of manufacturing in South Africa, leading
to reduced FDI and the limited establishment of new locally owned firms.
It is perhaps unsurprising then that it is the South African automotive industry
that has led the competitiveness drive within the broader manufacturing sector. The
local subsidiaries of the vehicle assembly lead firms were forced into upgrading their
capabilities to compete, and as heads of supply chains they have similarly driven their
suppliers to improve their competitiveness. Coupled with supportive policy from gov-
ernment, these firms were largely able to craft out positions for their South African
operations within their GVCs. They secured export contracts and invested in their
capabilities. Fundamentally, however, they did so because of their sunk investments
in South Africa and the initial scale and sophistication of their local operations. This
392    Mike Morris, Justin Barnes, and David Kaplan

gave them a base to upgrade and to develop their capabilities—​as they were integrated
into GVCs.
The clothing and textiles industry did not receive the same type of support from the
lead firms in their GVC, the domestic retailers, and as such typically decided not to invest
in upgrading their capabilities. Consequently, most ceased operating, or slowly reduced
their operating footprint in accordance with their diminishing product and produc-
tion capabilities. This perpetuated a cycle of diminishing capabilities, firm closures, and
increasing imports. However, more recently this has begun to change. As South African
retailers respond to the entry of international retailers in the domestic market, and
expand internationally, they have increasingly recognized the benefits of having agile, flex-
ible, local supply chains, and have begun investing in their supply chains. While this may
neither completely reverse the decline of the clothing and textiles industry nor shift most
retail purchasing back on shore, it does suggest the emergence of a new lead firm-led business
model that holds considerable potential in rebuilding at least a part of the domestic
clothing and textiles value chain. This potential is recognized in the national government’s
recently announced South African Retail-​Clothing, Textiles, Footwear and Leather Value
Chain Masterplan, which focuses on the competitive advantage domestic retailers receive
when purchasing from local manufacturers on short lead times. The masterplan includes
a commitment from South African retailers to increase their local purchases to 65 per cent
of total procurement. There is, however, a proviso that the government supports the devel-
opment of competitiveness capabilities within the domestic supply chain and that there is
a demonstrable improvement in the competitiveness capabilities of local manufacturers
(encompassing their cost, quality, speed, and flexibility capabilities).
How do regional value chains fit into the complex intersection of domestic and global
value chain drivers? Again, this appears to be context specific. The automotive GVC is
dominated by multinational vehicle assemblers that organize their global production
footprint on the basis of a global strategy, while the clothing and textiles value chain
is dominated by JSE-​listed retailers looking to optimize their sourcing models to com-
pete more effectively domestically. How do regional value chains support the effective-
ness of their primary strategies? Thus far, regional purchasing by South African retailers
has opened up substantial opportunities for suppliers in Lesotho, Swaziland, Mauritius,
and Madagascar to further extend and build their capabilities. It is still too early to pre-
dict how these regional value chains will develop and whether local clothing firms will
take advantage of backward linkages into the region. As regards the automotive industry
the operational demands and requirements of lead firms would appear to open up
only limited opportunities for regional suppliers except in particular niche operations.
Ultimately it lies in the hands of the lead automotive firms in terms of locating some
of the assembly operations and sales activities as they attempt to spread into other key
countries in sub-​Saharan Africa.
How an economy like South Africa positions itself within these opportunities is
dependent on the strategic positioning of lead firms within GVCs (and the role they ar-
ticulate for their South African operations and suppliers); the strength of the domestic
economy; narrow sector-​specific industrial policies that frame the development of the
 Value Chains and Industrial Development in South Africa    393

country’s leading value chains; and the broader transversal government policies that ei-
ther enhance or undermine South Africa’s industrialization potential and hence its pos-
ition as the ‘natural gateway into Africa’.

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 Chapter 19

S ou thern A fri c a n
Regional Valu e C ha i ns
and Integ rat i on

Reena das Nair

19.1 Introduction

Global trade has changed substantially since the early twentieth century, with the
share of developing countries in global production and trade steadily rising. The con-
tribution of the ‘Global South’1 to world trade reached around 50 per cent in the 2000s,
with almost half of global manufacturing export value emerging from the Global South
(Horner and Nadvi 2018). Within this, ‘south–​south’ exports grew faster than total
world exports between 1995 and 2016 (at annual average rates of 13 per cent and 8 per
cent respectively), amounting to US$4 trillion in 2016. The growing south–​south trade
is driven in part by increasing final demand and consumption, spurred by urbanization
and rising incomes. Foreign direct investment (FDI) from developing countries also
increased from around US$110 billion in 2005 to US$381 billion in 2017 (around 30 per
cent of global flows) (UNCTAD 2018).
This steep growth in south–​south trade has been concentrated in Asia (UNCTAD
2018), but the significance of intra-​regional trade in Africa is increasing, although from
low levels. Intra-​African exports were around 10 per cent of total African exports in
1995, and grew to 17 per cent in 2017, with varying degrees of intra-​regional trade and in-
tegration within the different Regional Economic Communities (RECs) (Songwe 2019).
The creation of a single market for goods and services, free movement of people, and
expanded intra-​Africa trade as part of the African Continental Free Trade Agreement

1
Classified by the World Bank as low-​or middle-​income countries in Africa, Asia, Oceania, Latin
America, and the Caribbean.
 Southern African Regional Value Chains and Integration    397

(AfCFTA) signed in 2018, is expected to greatly boost trade and integration in Africa,
and to shape regional value chains (RVCs) by opening up markets.
A value chain refers to the full range of activities and value-​addition firms engage
in to bring products or services from conception to end use (Gereffi and Fernandez-​
Stark 2016). RVCs have suppliers and buyers operating within one region (for example,
within Africa or within RECs). Conceptually similar, global value chains (GVCs) refer
to activities undertaken by geographically dispersed players across continents. RVCs
can boost regional trade, investment, and development through linkages and capability
upgrading, and therefore are an integral component of regional integration. Global
trends are fuelling growing interest in RVCs. RVCs are emerging not only due to the
slowing down of GVCs in global trade and investment, but are also spurred by new pro-
duction technologies that allow for less fragmentation and more local production, and
the ‘backshoring’ of production activities to home countries (Dachs and Pahl 2019).
RVCs are further becoming important given growing uncertainty in global markets and
trade conflicts, as well as possibilities for greater value-​addition and structural trans-
formation for developing countries than offered by GVCs in some industries (Andreoni
and Boys 2020).
The regional integration agenda in Africa is not a new one and was set in motion by
the establishment of the Organisation of African Unity in 1963. The African Economic
Community (AEC) sought to create a customs union, a single market, and an economic
and monetary union. In 2002, the African Union (AU) was established to reignite the
integration agenda (UNCTAD 2018). Yet, relative to the developments in Europe, North
America, Asia, and Latin America, there has been limited progress in integrating the
African continent through stimulating intra-​regional trade.
The RECs were positioned as the building blocks for the AEC. They differ in struc-
ture and mandate, and have developed at different paces, with eight AU-​recognized
RECs playing key roles in pursuing regional integration (UNCTAD 2018). The levels of
intra-​regional trade and integration vary widely in the RECs, with the Southern African
Development Community (SADC) and the East African Community (EAC) achieving
the highest levels of intra-​regional exports, at 15 per cent and 19 per cent on average,
respectively, over 1995–​2019 (UNCTAD trade data). South Africa is a member of
SADC comprising sixteen member states and is also a member of the Southern African
Customs Union (SACU), with four other members. Notwithstanding relatively more
progress of SADC than the other RECs in terms of trade, few RVCs have developed in
which significant value-​addition is from within the region.
Drawing from past and ongoing research in selected agro-​processing value chains,
through case studies, this chapter examines why RVCs have not developed as much as
they could have. The chapter uses a GVC framework to unpack the nuances that affect
participation, investment, and upgrading in these RVCs, and explores factors at firm
and value-​chain level, such as governance structures, upgrading pathways, and the ex-
tension of strategies of South African firms with market power as they spread in the
region. Political economy dynamics, which are critical in understanding the outcomes
seen, are evaluated. The chapter further briefly assesses the record of regional integration
398   Reena das Nair

in southern Africa against key stated objectives of SADC and SACU, highlighting the
skewed position of South Africa in the region, and contributing to understanding the
slow development of RVCs.
Agro-​processing value chains were selected given their general importance for RVCs
and regional integration in southern Africa in several respects. First, many countries
in Africa are net importers of processed foods. Food prices in sub-​Saharan Africa have
been found to be 30–​40 per cent higher than in comparable countries when differences
in income are accounted for (Allen 2018). However, spurred by the growth of agricul-
tural productivity and technological developments, there is potential to produce more
food products, replace imports, and drive down prices. This has important implications
for regional food security. Second, there are other positive economic and social impacts
of developing food RVCs. While traditional ‘smokestack’ manufacturing activities were
touted to be the path to structural transformation in developing countries, there is
growing recognition of the high levels of industrial sophistication in producing ‘agro-​
industrial’ products. Termed ‘industries without smokestacks’, these have the potential
to increase value-​addition per worker, grow trade, and transform and grow economies
in Africa (Newfarmer, Page, and Tarp 2018). Third, processed food value chains have
forward and backward linkages with important multiplier effects, and opportunities
for inclusive participation. Developing food RVCs not only benefits farmers and rural
communities, but also benefits input suppliers further up the value chain (e.g. fertilizers,
seed, chemical, farm equipment) and ancillary industries (e.g. packaging, processing
equipment, cold chain, logistics). Last, RVCs in food in southern Africa are important,
given climate change. With low rainfall and drought in the southern ​most parts of the
continent, but with good rains in other parts in the same periods, the choice of location for
agricultural activities is critical. Food production will increasingly come under pressure
and hard decisions on where to produce different foods need to be made. Developing
RVCs in food could mitigate these risks for the region (Paremoer 2018; Roberts 2019).
Within agro-​processing, case studies in the animal feed-​to-​poultry and sugar-​to-​
confectionery value chains are undertaken, along with the closely linked downstream
retail or supermarket level. These value chains were selected because they illustrate key
dynamics that affect upgrading and participation. The investments, coordination, gov-
ernance structures, and market power in the hands of a few lead South African firms
in these value chains affect development, with implications for regional integration.
The chapter illustrates the importance of tailored and coordinated interventions and
investments by firms and governments at a regional level to develop RVCs. National
policymakers have yet to appreciate the potential that RVCs have to drive inclusive
growth, and few structured interventions have been designed with a regional develop-
ment agenda in mind.
Section 19.2 of this chapter sets out the framework used for assessment. In section 19.3
case studies in the selected agro-​processing and retail RVCs are undertaken. In section
19.4 the record of regional integration in SADC and SACU against stated objectives is
briefly discussed. Section 19.5 concludes with policy measures to build RVCs and pro-
mote greater regional integration.
 Southern African Regional Value Chains and Integration    399

19.2 A GVC Framework to Understand

RVC Dynamics

The GVC framework has long been used to evaluate inter-​firm linkages and vertical
relations, and to assess governance and the impact of the power of lead players on up-
grading in value chains (Kaplinsky and Morris 2014; Gereffi and Fernandez-​Stark 2016).
The framework allows for practical policy actions to develop a value chain, redistribute
rents or upgrade certain actors, particularly in developing countries. It can be used to
identify opportunities and bottlenecks for upgrading capabilities at particular levels.
The related Global Production Networks (GPN) framework adds the significance
of institutions, embedded network relationships, and state and non-​chain actors in
explaining outcomes (Coe and Yeung 2015).
Governance and upgrading are particularly relevant in GVCs. Governance is the pro-
cess of exercising control along the value chain through specification of what product
should be supplied, what quantity, at what price, and how it should be produced. It refers
to authority and power relationships that determine the allocation and flow of resources
and rents within a value chain. Lead firms with this power are often ‘gatekeepers’ in
value chains (Gereffi and Lee 2014). In early GVC studies, governance was assessed in
one of two ways, whether value chains were producer or buyer driven. Producer-​driven
value chains are typically found in industries with high technological, capital, and pro-
prietary requirements. Buyer-​driven value chains, for instance those driven by large
retailers, are typically found where market information, product design, marketing,
and advertising costs set barriers to entry (Humphrey and Schmitz 2002). The GVC lit-
erature has since progressed to more nuanced governance categories based on infor-
mational complexity, supplier capabilities, codification of information, and switching
costs. Under these criteria, governance of value chains can be classified—​in order of
increasing level of control over suppliers—​as market, modular, relational, captive, or
hierarchical governance at different nodes (Gereffi, Humphrey, and Sturgeon 2005).
There is also growing recognition that the exertion of power in value chains is not always
limited to a lead firm, or to dyadic, bargaining relationships between buyers and sellers.
There are often other dimensions of power exercised by various stakeholders (Dallas,
Ponte, and Sturgeon 2019).
Governance affects upgrading, which refers to firms or countries maintaining or
improving their positions within value chains. There are different types of upgrading—​
process upgrading (transformation of inputs into outputs more efficiently by
reorganizing the production system or introducing superior technology); product up-
grading (moving into more sophisticated products); functional upgrading (acquiring
new functions to increase overall skill content of activities); and intersectoral upgrading
(moving into new activities) (Humphrey and Schmitz 2000).
For the previously dominant south–​north direction of trade, the GVC and GPN
frameworks provided useful tools to assess the implications for Global South actors
400   Reena das Nair

supplying goods to lead firms in the north. The ‘Rise of the South’ however requires an
adapted lens through which the impact on firms, industries, workers, and consumers
can be understood (Pickles, Barrientos, and Knorringa 2016; Horner and Nadvi 2018).
As noted, global trends are shaping growing interest in RVCs, shifting the policy focus
towards developing RVCs as pathways to industrialization, rather than trying to up-
grade to plug into GVCs. Advances in technology, global uncertainty, not least due to
COVID-​19 and trade conflicts, all contribute to the importance of RVCs.
While GVC and GPN principles apply to RVCs, there are important nuances in the
assessments of RVCs. A fundamental premise for RVCs as a development tool is that
increased market size and easier market access spurs production and facilitates indus-
trialization (Paremoer 2018). Entry barriers into RVCs may be lower than into GVCs
because they are likely to be less tightly governed or controlled, or because there is
often less pressure from consumers, governments, and civil society (Kaplinsky and
Farooki 2011). Firms can therefore participate with lower levels of product develop-
ment, marketing, and distribution capabilities than required in GVCs. Lower standards
requirements can also present more surmountable entry barriers for small and medium-​
sized enterprises (SMEs). Similarities in cultures, tastes, and preferences within regions
also lower barriers, making it easier to adapt to host-​market demands. There are ob-
vious geographic benefits in terms of shorter distances. With suppliers in closer prox-
imity to final consumption, transport and related costs are potentially lower. RVCs can
also act as ‘stepping-​stones’ for firms to enter GVCs once they develop capabilities to
compete internationally (Keane 2015). However, as noted, participation in GVCs may
not necessarily be the desired goal, and as argued below for the case of agro-​processing,
developing RVCs is more desirable than participating in GVCs.
The political, social, and economic realities in different countries in a region affect
regional development. Uneven starting points in levels of development create tensions
between neighbours, and national development tends to take priority over regional de-
velopment in SADC. Powerful lobby groups and dominant players further influence
policies, affecting who has access to resources and who can extract rents in value chains,
including through lobbying.
The pattern of FDI in RECs further impacts RVC development. Section 19.3 highlights
how a few large South African firms dominate regional markets in ownership, pro-
duction, and investment. At the upstream level, large South African players dominate
input markets like fertilizers and seed, while at the food processing level, South African
producers have large shares in several product markets. At the retail level, a handful
of South African supermarket chains dominate. While opening markets presents up-
grading opportunities for regional players to participate in value chains, and for the
transfer of information, capabilities, and technology, the dominance of a few large firms
with market power raises concerns of anticompetitive behaviour extending to the re-
gion. Regional competition body, the COMESA Competition Commission, and the
SADC declaration on Regional Cooperation in Competition and Consumer Policies,
serve to address competition problems with regional impacts. Yet, few cross-​border
competition transgressions have been investigated and prosecuted in the region, even
 Southern African Regional Value Chains and Integration    401

when the same firms are found implicated in anticompetitive conduct in one country
and have operations in, or export into, neighbouring countries (Kaira 2015). Cartel con-
duct, abuses of dominance, and the exertion of buyer power in one country can spill
into other countries through the extension of business strategies. This creates barriers
to entry, distorts trade, and undermines RVCs and integration. As discussed in section
19.3, anticompetitive behaviour by firms with market power has been a feature in the
selected agro-​processing value chains.

19.3 RVCs in Agro-​processing

Developing RVCs in food can make the SADC region less reliant on imports, and
stronger capabilities and competition can reduce food prices and insecurity. The devel-
opment of agro-​processing industries can also drive industrialization (see section 19.4).
Governance structures and upgrading of capabilities that affect the development of
RVCs are value-​chain specific. To illustrate these concepts, case studies in the animal
feed-​to-​poultry and the sugar-​to-​confectionery value chains are presented in section
19.3.1. A critical level of these value chains, the downstream retail level, is evaluated in
section 19.3.2.
A few lead South African firms with market power operate in these value chains in
SADC. The extension of strategies of these firms affects participation and upgrading.
Even if not physically located in the region, large South African food processors sig-
nificantly impact the region through exports. South Africa was a large net exporter of
food and beverage products to SADC between 1995 and 2019 (see Figure 19.1b). This has
been spurred by South African supermarket chains growing their store networks and
procuring products through imports from processors in South Africa (section 19.3.2).
There is limited reciprocal imports of food products through the supermarkets from the
region into South Africa. The potential in two food value chains, animal feed-​to-​poultry
and sugar-​to-​confectionery, to develop into RVCs is discussed below.

19.3.1 RVCs in Selected Agro-​processing Chains

19.3.1.1 Animal Feed-​to-​Poultry
Growing incomes and urbanization have driven the demand for poultry as a key source
of affordable animal protein. Producing around 1.7 million tonnes, contributing to al-
most 17 per cent of total agricultural value and employing around 112,000 people, the
poultry industry in South Africa is important (Goga and Bosiu 2019). Demand in
South Africa has increasingly been met by imports, which in 2017, accounted for 24 per
cent of demand. Consumers in Europe and South America prefer white meat in breast
portions, and historically, the less-preferred bone-​in portions were ‘dumped’ into South
402   Reena das Nair

(a) Proportions of diversified exports by destination

60%

50%

40%

30%

20%

10%

0%
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Africa SADC Americas Asia
Europe Oceania Antarctica Not allocated

(b) Diversified exports by industry

1500

1000
US Dollar, millions

500

0
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019 Food, beverages and tobacco
Textiles, clothing and leather
Wood and of products of wood and cork, except furniture
Other non-metalic mineral products
Electrical machinery and apparatus
Radio, television and communication equipment and
apparatus and medical, precision and optical instruments
Transport equipment

Figure 19.1 South Africa’s exports of diversified manufactured goods to SADC

Source: Quantec.
Notes: 1. Diversified exports exclude basic metals, coke and petroleum, and basic chemicals. 2. In 2010 an
adjustment was made to the data to capture South Africa’s exports to SACU countries. The figures in
previous years are therefore understated, and the adjustment accounts for a substantial proportion
of the jump of exports in 2010 (Roberts and Arndt 2018).

Africa by poultry producers in these regions (ITAC 2015). Growing imports of bone-​in
chicken portions triggered interventions in South Africa (the latest being the Poultry
Master Plan) to improve competitiveness and grow local production and exports (South
African Poultry Sector Master Plan 2019).
 Southern African Regional Value Chains and Integration    403

There is a high degree of vertical integration in the poultry industry. Four large firms,
RCL Foods (South African), Astral (South African), Country Bird Holdings (CBH,
South African), and Irvine’s Africa (Zimbabwean), either own or control key inputs of
animal feed and the licences for breeding stock in the region. Two firms have exclusive
national breeding licences for South Africa (Astral and RCL), while the other two have
exclusive multi-​territorial breeding licences for the most widely used breeds in the re-
gion. Control of breeding licences in turn controls critical and profitable levels of the
value chain—​the breeding and sale of parent stock and day-​old chicks—​in which high
rents are made (Ncube 2018; Ncube, Roberts, and Zengeni 2016).
These firms have invested in the region, expanding their operations mainly through
acquisitions (Goga and Bosiu 2019). By controlling key inputs, they control entry
and terms of participation. Poultry producers are forced to buy breeding stock, and
in some instances animal feed, from them, and therefore they act as gatekeepers to
the value chain. Forms of hierarchical governance by these large players are evident
in relationships through this control. Vertical integration and control have acted as
barriers to entry, and abuses of positions of market power have led to investigations by
the Competition Commission of South Africa. There have been cases on abuse of dom-
inance and cartel conduct at different levels of the value chain. For example, when CBH
entered into a joint venture (JV) with Astral in South Africa, JV conditions precluded
it from sourcing breeding stock from any other player through an exclusive supply
agreement. This foreclosed CBH from access to other, possibly more competitively
priced, inputs. Further, JV conditions prevented CBH at the time from entering into
the upstream level itself for breeding stock in competition to Astral (Bosiu, das Nair,
and Paelo 2017). After Astral reached a settlement with the Commission, CBH was
able to introduce a new bird breed in South Africa and has since grown significantly in
the region (Ncube 2018). Captive forms of governance are also evident with respect to
relationships with contract growers. In South Africa, 60–​70 per cent of poultry produc-
tion of the larger players is outsourced to contract growers. These third-​party growers
are often forced to exclusively use the lead firm’s breeds and animal feed (Ncube 2018).
The concentrated nature of the value chain has further facilitated cartel conduct in
South Africa. The Competition Commission reached a settlement in 2010 following a
leniency application implicating lead firms in price fixing of fresh chicken (Bosiu, das
Nair, and Paelo 2017). There has also been collusion at the animal feed level (Ncube,
Roberts, and Zengeni 2016). Such conduct raises costs for new entrants and maintains
the power of incumbents in RVCs.
There are opportunities to add value along the chain in different countries in the
region that are not being exploited. These opportunities can lead to a more region-
ally competitive poultry value chain, potentially displacing deep-​sea imports. South
Africa also imports significant volumes of soybean oilcake to make animal feed. There
has been considerable investment in soybean crushing capacity in South Africa, with
the Department of Trade, Industry and Competition pursuing an import-​substitution
strategy to increase local crushing/​processing (Paremoer 2018). The outcomes of this
investment are seen in the change of South Africa’s net import to net export status of
404   Reena das Nair

residues (which contain soybean meal: Quantec data). Even though soybean crushing
capacity has increased significantly, South Africa still needs to import soybean products
from Brazil, Argentina, and Paraguay to satisfy demand. South Africa does not have
suitable agro-​ecological and climatic conditions to grow more soybeans to meet the
local demand of 2 million tonnes per annum (Paremoer 2018). Further, climate change
is going to put even more pressure on South Africa’s ability to grow soybeans. However,
other countries in the region like Zambia can supply the region with adequate support
and at least partly replace imported soybeans.
This requires offtake commitments from animal feed processors, and collaborative
and coordinated investments by lead firms at a regional level to build capabilities in
Zambia to increase scale, quality (which has been a concern), and cost-​competitiveness
to make sourcing from Zambia attractive. It requires interventions to ensure com-
petitive transport costs and climate-​smart investments in the chain (Paremoer 2018).
Regional linkages are thus important for a competitive poultry value chain with respect
to key inputs.
The South Africa Poultry Master Plan concluded in 2019 focuses on protecting
and promoting the national industry and driving local demand. It aims to promote
investments in both large- and small-​scale, particularly Black-​owned, farming, and to
improve feed costs, and meet safety and veterinary requirements. It also aims to in-
crease breast meat exports to the European Union, which South Africa has been un-
able to do, given its inability to meet sanitary and phytosanitary standards (SPS). The
Master Plan, however, does not have a regional focus. It does not engage with the sector
under SADC regional industrialization objectives (section 19.4), nor consider cli-
mate change, which limits the ability of South Africa to produce cheap feed. It also
does not consider the quid pro quo and goodwill gains that could result from the recip-
rocal access to end markets for South African poultry products through South African
supermarkets in the region. There have been tensions in the region as South Africa
is viewed as ‘extracting’ from the region without contributing to its development. As
discussed below, this has resulted in protectionist measures by countries in the region
against imports from South Africa.
The poultry Master Plan is a short-​term response to rising deep-​sea imports in South
Africa, and not a long-​term view on how the value chain can be developed sustainably to
benefit the whole region. This is partly reflective of political economy dynamics, where
the lead South African poultry producers and industry associations have lobbying
power to protect the national industry and jobs. Regional industrial development
requires coordinated investments by the lead firms with operations across the region,
supported by governments, to build scale and capabilities (Ncube 2018).

19.3.1.2 Sugar-​to-​Confectionery
Like poultry, there is potential to develop the sugar-​to-​confectionery value chain in
SADC. South Africa, Zambia, Malawi, Mauritius, Eswatini, and Mozambique are large
net exporters of sugar, reflective of low production costs. Yet, the SADC region is a net
importer of sugar confectionery products. Confectionery production (biscuits, sweets,
 Southern African Regional Value Chains and Integration    405

chocolates, etc.) can grow significantly in the region, making it less import-​dependent
(das Nair, Nkhonjera, and Ziba 2017).
Global sugar production is highly protected and heavily subsidized. In SADC, there
is a network of bilateral and multilateral agreements that control traded volumes. While
there is a Sugar Cooperation Agreement incorporated into the SADC Trade Protocol
with the ostensible objective to promote regional growth and competitiveness, the com-
plex interlace of national, bilateral, and multilateral arrangements appears to have the
opposite effect. Collectively, these arrangements serve to protect only sugar producers
and a handful of large, powerful millers rather than to advance a regional industrial
agenda (das Nair, Nkhonjera, and Ziba 2017). In Zambia, the prices for industrial and
household sugar sold by quasi-​monopolist miller, Zambia Sugar, a subsidiary of South
African Illovo Sugar,2 were the subject of an investigation by the Competition and
Consumer Protection Commission. The investigation in 2017 found that Zambia Sugar
abused its dominance by engaging in price discrimination and charging unfair prices.
This negatively impacted industrial users of sugar, making them uncompetitive in con-
fectionery production, despite Zambia being a low-​cost, net exporter of sugar. The
Zambian household sugar market was further shielded from cheaper imports through
Vitamin A fortification requirements, essentially acting as a non-​tariff barrier (NTB)
and entrenching Zambia Sugar’s dominant position (das Nair et al. 2017; Black et al.
2020). Zambian confectionery producers have the capabilities to export more to the re-
gion, especially if they can source competitively priced sugar and access supermarket
shelves.
In South Africa, following deregulation of agricultural markets, the sugar industry
was the only industry to remain regulated under the Sugar Act (1978), in conjunction
with the Sugar Industry Agreement (2000). Bulk sugar exports from South Africa are
managed by the Sugar Export Corporation, in effect controlling local available volumes.
The Sugar Act and Sugar Industry Agreement collectively have been used to determine
a ‘division of proceeds’ between sugarcane growers and millers (dominated by three
large players), with the purpose of ensuring fair and equitable returns. Over the years,
the sugar industry has also been able to lobby for import duties to protect millers and
growers from cheap imports. The benefits of these pricing arrangements and protec-
tionism, however, do not trickle downstream to the confectionery industry (das Nair
et al. 2017).
The South Africa Sugar Master Plan of 2020 aims to protect jobs, rural livelihoods,
and businesses, as well as create diversified revenue streams for producers. The extent
to which it promotes the competitiveness of downstream confectionery producers
is unclear, with the emphasis again being on the upstream industry’s role as a critical
employer, including for rural communities. There are also no indications that it takes
a wider regional integration and development view. This case study highlights how a

2
Subsidiary of Associated British Foods.
406   Reena das Nair

combination of trade policy, NTBs, and market power of lead firms affects regional
trade and the emergence of RVCs.

19.3.2 The Growth and Spread of Supermarket Chains—

​a Driver of Food RVCs
Supermarket chains are a growing route to market for suppliers of processed foods.
Rising levels of urbanization have spurred the growth and spread of supermarket
chains since the mid-​1990s. In South Africa, the end of apartheid saw the main chains
expanding within urban areas through locating in shopping malls and centres, but
also spreading to peri-​urban and rural areas. Along with the geographic spread, their
formats and offerings also proliferated to target consumers in all income groups.
This extended their control in the grocery retail landscape in South Africa (das Nair
2019) and contributed to the ‘supermarket revolution’ or ‘supermarketization’, which
refers to the global trend of retail food sales increasingly going through supermarkets
(Reardon, Timmer, and Berdegué 2004).
While early predictions were that the supermarket revolution in Africa would follow
trends similar to those seen in Latin America, where transnational chains entered and
proliferated rapidly (Traill 2006; Reardon, Timmer, and Berdegué 2004), this was not
the case in Africa. Instead, there was a ‘regionalization’ of supermarket chains, with
South African chains spreading in southern Africa and Kenyan chains in East Africa.
The main South African supermarket chains, Shoprite, Pick n Pay, SPAR, Woolworths,
Fruit and Veg City (Food Lovers’ Market) and Game (Massmart/​Walmart), all spread
into the region. In 2020 shoprite, the largest, had 2,829 stores in fifteen countries
(Shoprite 2020), while Pick n Pay, the next biggest, had 1,925 stores across seven African
countries (Pick n Pay 2020).
The growing store numbers of the South African chains has been a key driver of
processed food products exported from South Africa into the region. Supermarket
procurement strategies, which mainly involve centralized procurement from suppliers
large enough to meet volume and other requirements, mean that large suppliers located
in South Africa supply the region through supermarket distribution centres or direct
exports (das Nair 2019). Over and above legal requirements, the supermarket chains
often set private standards.3 This has spurred important upgrading of some food
suppliers to meet legal and private supermarket standards. Studies have highlighted that
suppliers have engaged in product and process upgrading, for instance, improving the
quality of existing products; producing more sophisticated product lines;4 upgrading

3 Such as Hazard Analysis Critical Control Points, International Organisation for Standardisation and

Food Safety System Certification accreditations and packaging requirements.

4 For example, new flavoured yoghurt and milk drinks, crumbed chicken, pre-​cooked and flavoured

maize meal (das Nair et al. 2018).

 Southern African Regional Value Chains and Integration    407

plant, machinery, and equipment; investing in better quality management systems and
technologies; and acquiring higher hygiene and food safety standards. Other forms of
upgrading have included investments in distribution and storage facilities. Functional
and intersectoral upgrading has also been seen where food processors started producing
their own packaging (das Nair, Chisoro, and Ziba 2018).
While supermarket requirements have driven such upgrading in some suppliers, it
has also led to the exclusion of other suppliers, particularly SMEs and suppliers from
other countries in the region who do not have the capabilities or resources to meet
requirements. SMEs are often forced to sell through alternative, sometimes more pre-
carious, routes to market. An outcome has been that high levels of concentration in food
processing markets are perpetuated, with mostly only larger players being able to up-
grade. In South Africa, the ten largest food and beverages enterprises account for almost
40 per cent of income in the sector. Concentration levels are even higher within specific
product markets (StatsSA 2017).
The five main retailers account for 64 per cent of the national South African market in
terms of sales, giving them considerable power (Competition Commission South Africa
2019). The spread of the main supermarkets into peri-​urban and rural geographies
through tailored formats has also displaced independent and informal retailers like
‘spaza’ shops, contributing to rising concentration.
While the degree of competition from other forms of grocery retail (independent
retailers, informal retailers, and wet markets) differs widely in different countries
in SADC, the South African supermarket chains have significant control over the
suppliers that sell through them and shape many food value chains. This control is not
just through procurement and standards requirements. Studies have highlighted the
implications of uneven bargaining power between supermarket chains and suppliers in
southern Africa. Supermarkets are able to exert buyer power by unilaterally demanding
trading terms from suppliers, including forcing payment of a range of fees.5 Long
payment periods negotiated to the benefit of the supermarket chain place pressure on
supplier cash flow. It is estimated that these costs collectively take off around 15 per cent
of the price that suppliers get, squeezing their margins, and if not justified by true costs
to supply the supermarket chains, can be a means by which supermarkets extract rents
in value chains (das Nair et al. 2018).
Concerns about high concentration levels, the market power of supermarkets, and
other features of the grocery retail sector triggered a Grocery Retail Market Inquiry
(GRMI) by the Competition Commission of South Africa in 2015. In addition to
other areas of inquiry, buyer power of the national retail chains was evaluated and
recommendations were made in 2019 to finalize regulations and guidelines for the new
Buyer Power provisions in the amended Competition Act to protect SME suppliers
(Competition Commission South Africa 2019). This was subsequently finalized in
May 2020.

5
Listing/​support fees, rebates, advertising allowances, promotion fees, settlement discounts, new
store openings fees, etc. (das Nair et al. 2018).
408   Reena das Nair

The GRMI also highlighted the powerful role that supermarket chains can play in
the development of suppliers through supplier development programmes (SDPs),
contributing to upgrading of supplier capabilities. The Inquiry gave recommendations
that supermarkets should scale- ​up their SDPs to support SMEs, including through
binding and escalating industry targets for procurement, and for a proportion of turn-
over to be spent on SME development (Competition Commission South Africa 2019).
However, given the jurisdiction of the South African competition authority, these
interventions only apply at a national level. Previous studies have also evaluated the
importance of supermarket-​driven SDPs. As the final link to customers, supermarkets
collect important information on consumer trends and purchasing patterns which
are critical for suppliers. In South Africa, supermarket SDPs have evolved to provide
support to qualifying suppliers to assist in their upgrading. Support has included tech-
nical assistance to meet minimum food safety and quality standards; access to infra-
structure; training and mentorship; business development and management; and
market-​readiness support. The programmes also generally include offtake and shelf
space commitments, and preferential trading terms such as faster payments (das Nair
and Landani 2020).
However, in other countries in the region, the South African supermarket chains
have few structured SDPs to develop processed food supplier capabilities. The lack
of capabilities and capacity of local suppliers is often cited as a reason for extensive
imports from South Africa (Ziba and Phiri 2017). Yet, supermarket local procurement
initiatives and support measures in the region are mostly limited to fresh produce,
with little support for suppliers of value-​added products. Support has mainly been
reactive to pressures from governments to source more locally (das Nair and Landani
2020). Coupled with limited support from respective national governments, suppliers
outside South Africa are unable to use the supermarket chains to sell via their store
networks in the region. Procurement practices by the supermarket chains mainly
through imports from South Africa thus displace locally manufactured food in host
countries, leading to deindustrialization of their food processing industries. The per-
sistent one-​way trade (Table 19.1) has resulted in mistrust and animosity towards
South African FDI in the region and has led to protectionist measures being imposed
to promote national industries. For instance, in Botswana, Zambia, and Zimbabwe
there have been bans on poultry, maize meal, and cooking oil imports, while duties
have been levied on other foods to protect local suppliers (das Nair et al. 2018; Black
et al. 2020).
An example of a national-​level intervention which combines incentives to de-
velop suppliers and a voluntary code of conduct governing supermarket behaviour is
the Namibian Retail Charter of 2016. Some South African supermarkets operating in
Namibia have signed up for the charter committing to procure locally to boost local
manufacturing and to develop local suppliers. The Namibian government spearheaded
the development of the Charter and provided complementary support in terms of
investments in infrastructure such as barcoding facilities. The initiative has seen some
results with increased local procurement of certain food products (das Nair and Landani
 Southern African Regional Value Chains and Integration    409

Table 19.1: Country share of intra-​SADC and total trade

SADC imports as a % of total imports SADC exports as a % of total exports
2000 2019 2000 2019

Angola 6 5 7 5
Botswana 77 69 11 14
Comoros 13 8 1 12
DRC 15 28 29 40
Eswatini 94 76 76 79
Lesotho 73 81 28 40
Madagascar 6 10 3 6
Malawi 53 25 18 19
Mauritius 17 11 7 20
Mozambique 52 27 36 19
Namibia 87 63 32 35
Seychelles 14 8 3 3
South Africa 1 6 15 23
Tanzania 13 6 7 25
Zambia 69 45 39 21
Zimbabwe 49 79 17 73

Source: IMF Direction of Trade Statistics (2000).

2020). For supermarket chains to be a catalyst for regional industrialization and in-
tegration by driving RVCs, and to tackle regional level supply side constraints, such
programmes need to be extended to suppliers in the region in a coordinated manner.
Building suppliers in the region benefits supermarket chains in the long run. A more
closely located and more competitive supplier base improves efficiencies, reduces the
carbon footprint, and reduces direct logistics, warehousing, and transport costs. It also
reduces reliance on imported food products and exposure to exchange rate risks. As
noted, climate change will put pressure on food systems, and there will be an increasing
need to diversify and develop stronger regional supplier bases to ensure shelves remain
stocked.
Supermarkets also benefit as lead firms when they participate in RVCs. By tailoring
their business models to meet different challenges, they upgrade their own capabilities.
For instance, Shoprite, as the first chain to expand into Africa, had to respond to major
infrastructural challenges in the region, such as weak telecommunications. It had to
invest in installing satellite link-​ups, systems for ordering stock, and global tracking
systems for trucks. Shoprite was also the first company in the region to communicate
electronically with customs authorities in some countries (Shoprite 2001).
410   Reena das Nair

19.4 Record of Regional Integration

in Southern Africa

In this section, the record of regional integration in southern Africa against key
objectives of SADC and SACU is briefly assessed, further highlighting factors that
affect regional integration and RVC development. It presents a high-​level overview of
outcomes with respect to economic objectives and is not intended to be an exhaustive
account of the successes and failures of SADC and SACU. Assessments of South Africa’s
trade, including to the region and its position with respect to the rest of Africa, is
undertaken in Chapters 20 and 21 in this volume, respectively.
The regional integration agenda is central in the SADC Treaty of 1992, aiming to
create free movement of people, capital, labour, goods and services, and reducing
barriers within the region (Tralac 2013). SADC’s stated vision, mission, and objectives
further speak to its commitment to deeper cooperation and regional integration.6
Similarly, SACU aims to promote regional integration and development, indus-
trial and economic diversification, intra-​regional trade and investment, and global
competitiveness.7
Regional integration has always been at the heart of the economic objectives of SADC
and SACU. However, a lack of focus with multiple themes and priorities pursued sim-
ultaneously through a proliferation of plans, a lack of capacity, limited human and cap-
ital resources for effective implementation, and vastly different levels of development of
member state economies, have meant that many (often over-​ambitious) targets have not
been met and desired outcomes not achieved.
To provide a more concrete implementation plan, the Regional Indicative Strategic
Development Plan (RISDP) was approved by the SADC Summit in August 2003.
A fifteen-​year plan (2005–​20), the RISDP defined priority intervention areas, policies,
strategies, and activities necessary to achieve integration. It outlined the following
targets for a trade-​led regional integration agenda—​the establishment of a Free Trade
Area (FTA) by 2008; a SADC customs union by 2010; a common market by 2015; a mon-
etary union and central bank by 2016; and a common regional currency and economic
union by 2018. While the objectives of RISDP were not legally binding on member
states, as part of the SADC Trade Protocol of 1996 (amended in 2010), the following
legally binding trade objectives continued to be pursued by SADC: the gradual elim-
ination of tariffs; adoption of common rules of origin; harmonization of customs rules
and procedures; attainment of internationally acceptable standards, quality, accredit-
ation, and metrology; harmonization of SPS measures; elimination of NTBs; and the
liberalization of trade in services. The Protocol on Trade in Services was further signed

6 https://​www.sadc.int/​about-​sadc/​overview/​; https://​www.sadc.int/​about-​sadc/​overview/​sadc-​vision/​,

accessed 1 December 2020.

7 https://​www.sacu.int/​show.php?id=395, accessed: 1 December 2020.
 Southern African Regional Value Chains and Integration    411

in August 2012. In August 2020, the SADC Vision 2050 and the extension of the RISDP
to 2030 were approved by the 40th Ordinary Summit (Gore 2020). Both aim to take for-
ward the regional integration agenda building on previous commitments with renewed
emphasis on industrial development and market integration, infrastructure, and human
capital development, and linking to the AfCFTA (Tralac n.d.).
Progress has been made in some areas in the first RISDP and on certain trade
protocols. For instance, the phasing-​down of tariffs resulted in achieving the 85 per
cent duty-​free threshold needed for the establishment of an FTA by 2008 (Tralac
2012). However, not all member states have yet implemented the FTA. The Democratic
Republic of the Congo, Comoros, and Angola are yet to do so. The ambitions for a
common market by 2015, a monetary union by 2016, and a single currency by 2018 did
not materialize, and few countries met the other targets, like the macroeconomic targets
on inflation of less than 3 per cent by 2017/​18 (UNECA et al. 2019).
But several targets were not met. As Tralac (2013) argued, the RISDP was premised
upon a linear integration model, which required member states sharing sovereignty,
strong common legal institutions overseeing integration, and strong political lead-
ership. With widely differing economic structures and levels of development, SADC
was not ready for this model. The transition from the FTA to a customs union requires
agreement on common external tariffs, amongst other things, and the divergences be-
tween economies make this difficult.
The focus in 2010 shifted back to creating a better-​functioning FTA (Tralac 2013).
Some progress has been made in reducing NTBs as part of this, but there is still sig-
nificant work needed. Key NTBs identified for intervention included customs clearance
processes, trade document requirements, rules of origin interpretations, standards har-
monization, and other costs of clearance of goods in transit.
Competitiveness in RVCs hinges on reduced transaction costs and smooth cross-​
border linkages (Tralac 2013). NTBs, like cumbersome border controls, regulations, and
corruption, make regional trade difficult and expensive. Customs and border delays sig-
nificantly raise trade costs. Estimates are that a one-​day delay in inland transit times
can reduce export values by about 7 per cent, costing around US$400 per day for a sta-
tionary truck at border posts. The delays have more damaging effects on perishable food
and time-​sensitive products (Vilakazi and Paelo 2017). Although not an SADC initia-
tive, the AU’s Programme for Infrastructure Development in Africa and the associated
Priority Action Plan aim to reduce these costs. One Stop Border Posts (OSBPs) were
key projects to enhance interconnectivity of markets and regional integration. OSBPs
are frameworks, facilities, and procedures to enable goods, people, and vehicles to stop
in a single facility to legally transit borders. In SADC, the Chirundu OSBP between
Zambia and Zimbabwe is the first fully functional OSBP in Africa (One Stop Border
Posts Sourcebook 2016). SADC also has the Regional Infrastructure Development
Master Plan to guide the implementation of coordinated, integrated, efficient, trans-​
boundary infrastructure networks in energy, transport, tourism, ICT, meteorology, and
water (Ngwawi 2018). Even with all these initiatives, there are significant challenges with
regards to infrastructure in the region.
412   Reena das Nair

Another NTB is anticompetitive conduct. As noted, despite there being re-

gional competition institutions, cartels which undermine RVCs and integration
have not been investigated regionally. In the agricultural sector, for example, fertil-
izer cartels have been prosecuted individually by national competition authorities
in South Africa and Zambia (Vilakazi and Roberts 2019). Even though the same
players implicated are present in, or export to, other SADC countries, whether
cartel conduct had impacted other countries has not been investigated. Cartel rents
provide incentives for incumbent firms to protect their markets from new entry,
undermining RVCs and trade.
Other areas, such as rules of origin, are highly contentious, with concerns that they
are too complex and onerous. The initial target of 2008 for the review of rules of origin
was not met (Tralac 2012). Restrictive rules-​of-​origin requirements in agro-​processing,
and in clothing and textiles (around double transformation requirements) still need
to be addressed (Andreoni and Boys 2020). Initiatives are underway in different
sectors to simplify these and this is also an area covered in Phase 1 of the AfCFTA
(Hartzenberg n.d.).
Some NTBs are a direct result of allowed exemptions. In SACU, for instance, Article
26 of the 2002 agreement provides for special and differential treatment for the protec-
tion of infant industries in all member states, except South Africa (UNCTAD 2005).
While this allows space for members to pursue their own development strategies,
it also restricts the emergence of RVCs, particularly in the food sector (Edwards and
Lawrence 2008).
The harmonization of standards and SPS measures have seen some progress
through the setting up of regional structures. The SADC Accreditation Service
was set up in 2009 in Botswana, with testing laboratories in other countries. Other
factors affecting integration, such as the protocol on finance and investment, were in
force by 2010, but lack of technical support and capacity has slowed implementation
(Tralac 2012).
Inter-​regional initiatives like the Tripartite FTA (COMESA-​EAC-​SADC) declaration
signed in 2011, have been riddled with delays and complexities. Comprising twenty-​six
countries, the agreement aimed to deepen integration through the harmonization of
policies and programmes across the three RECs on trade, customs, and infrastructure
development.8 But with different trade arrangements and rules about co-​existence of
multiple existing agreements, the process has been messy (Tralac 2013). By February
2020, only eight countries had ratified, with a remaining six needed to meet the
threshold.9
Closely related to the development of RVCs and regional integration is the SADC
Industrialization Strategy and Roadmap (2015–​63) adopted in 2015 to promote the

8 https://​w ww.sadc.int/​about-​s adc/​continental-​interregional-​integration/​tripartite-​cooperation/​,

accessed 5 December 2020.

9 https://​www.comesa.int/​implementation-​of-​the-​tripartite-​free-​trade-​area-​now-​in-​sight/​, accessed

5 December 2020.
 Southern African Regional Value Chains and Integration    413

‘structural transformation of the SADC region by way of industrialization, modern-

ization, upgrading and closer regional integration’ (SADC Industrialization Strategy
and Roadmap 2015: 1). It is anchored on three pillars: economic transformation,
enhancing competitiveness, and deeper regional integration, and focuses on three pri-
ority growth paths for accelerated industrialization: agriculture-​led growth (including
agro-​processing), natural resource-​ led growth (minerals beneficiation and pro-
cessing), and value-​chain linkages. The Roadmap recognizes some of the challenges in
agro-​processing discussed in section 19.3, such as the role of supermarket chains and
the difficulties faced by SME suppliers in upgrading and diversifying. It recognizes
the importance of modernizing production systems to bring them up to international
standards. The responsibility is with member states to implement the strategy. RVC
development, despite this Roadmap, has been poor. As noted, substantial public-​and
private-​sector coordination and resources are needed, and there is a large funding gap
in the region. RVC development within the SACU countries is also weak. A greater em-
phasis in SACU has been on plugging into GVCs, rather than in developing RVCs, as
highlighted in Chapter 18 in this volume.
On trade, as noted, SADC has amongst the highest intra-​regional exports of the RECs
with 15 per cent on average over 1995–​2019, with intra-​regional imports at 19 per cent
(UNCTAD trade data). But there is considerable heterogeneity in this trade and the
trade pattern is highly skewed (Table 19.1). South Africa dominates exports to the region
but hardly imports from it (Black et al. 2020). The share of exports from South Africa
to SADC grew from 15 per cent in 2000 to 23 per cent of total exports in 2019, while
the share of imports from SADC was just 1 per cent of total imports in 2000, growing
to 6 per cent in 2019. However, given South Africa’s size, it is still an important trading
partner for the other countries.
As noted, uneven trade patterns have resulted in antagonism towards South African
FDI and exports in the region, leading to protectionist measures. The skewed nature
of trade in the region has also increased other costs. Large volumes of exports leaving
South Africa and little reciprocal imports mean that trucks leaving South Africa full
of goods return empty, given the unavailability of return loads. This results in inbound
freight rates to South Africa being double the outbound rates, further disadvantaging
producers in the region trying to sell into South Africa (Ncube, Roberts, and
Vilakazi 2015).
The composition of SADC trade is noteworthy. Intra-​SADC trade is characterized
by more diversified manufactured goods than exports to the rest of the world (Black
et al. 2019). Greater exports of manufactured products can spur industrialization
by providing opportunities to upgrade, further motivating for the development of
RVCs in sectors with potential. For South Africa, SADC is a growing destination
for diversified manufactured exports (Figure 19.1a), particularly for food and bev-
erage products, and transport equipment (Figure 19.1b). Accompanying this trade
has been growth in trade of services in the form of FDI by South African firms in
retail, banking, insurance, transport, and business support services (Arndt and
Roberts 2018).
414   Reena das Nair

19.5 Conclusion

Changing global trends have led to greater attention being paid to how RVCs can be a
vehicle for industrialization and growth. In southern Africa, the record of RVC devel-
opment and regional integration has been poor, despite numerous protocols, strategies,
and plans as part of SADC and SACU mandates.
Using a GVC framework and taking into account regional dynamics, the case studies
in agro-​processing and retail value chains highlighted the opportunities available to
develop specific value chains, but also showed the serious challenges and bottlenecks
that prevent development. Desired outcomes will not be achieved if the same approach
to regional integration continues to be taken going forward. The AfCFTA presents an
opportunity to approach regional development differently and pragmatically. While
there are cross-​cutting issues to be fixed, such as border controls and weak infrastruc-
ture, value-​chain-specific interventions are necessary to develop RVCs. This requires
an understanding of power dynamics and the role of large firms in specific value chains
with potential. With advanced capabilities in several sectors, the spread of South
African lead firms or their exports to the region has created a skewed playing field in
which trade and investment have been one-​way. This has contributed to deindustrializa-
tion in other countries, creating tensions and triggering protectionist responses, further
undermining the regional development vision.
Developing RVCs requires a coordinated approach to investment, competition, and
industrial growth in the region to systematically, and in a coordinated manner, build
capabilities and reduce barriers. It requires long-​term compacts with lead firms in value
chains through public–​private partnerships. Development finance institutions also play
an important role in making funding affordable, accessible, agile, and patient.
Dealing with entrenched power in value chains requires coordination of national
and regional competition authorities. Phase 2 of the AfCFTA involves the develop-
ment of protocols on competition policy. This has to include commitments to curb
anticompetitive behaviour of large lead firms across borders. Regional competition
bodies need to work closely with national authorities to investigate firms that have
been implicated in anticompetitive conduct in one country, and which have activities
in others. Cooperation in investigations and processes to deal with such conduct needs
to be developed. Certain provisions, like the prohibition of the abuse of buyer power in
South Africa, that are not part of competition legislations of other countries may need to
be extended to the region.
Developing RVCs requires identifying mutually beneficial outcomes. This will ne-
cessarily create winners and losers in specific value chains in the short term, but the
premise is that, overall, the region as a whole is better off in the longer term. While South
Africa exports certain value-​added products to the region, it has to commit to import
products which other countries can produce more efficiently and sustainably. This has
to filter down to the procurement practices of lead firms on the ground. ‘Local’ content
 Southern African Regional Value Chains and Integration    415

policies or local sourcing requirements should take on a regional view so that these are
in line with a regional development vision. As South African FDI grows in the region,
there needs to be commitment to sourcing more from the region and contributing to the
development of supplier capabilities. Complementary investments and commitments
are needed from governments, finance institutions, international agencies, and donors
to develop the public infrastructure, facilities, and skills needed to build capacity.
In retail value chains, for instance, a voluntary ‘Regional Charter’ could be developed,
building on the Namibian model that encompasses commitments by supermarkets
on supplier development and a code of conduct when dealing with regional suppliers.
Formalizing and strengthening such programmes can facilitate upgrading and con-
tribute to levelling trade flows. Supporting alternative routes to market, like inde-
pendent retailers, wholesalers, and buyer groups at a regional level will also provide
suppliers with outside options, increasing their bargaining power with supermarkets.
Technology can further be strongly leveraged to facilitate regional linkages.
Expanding market access and payments can be facilitated through adoption of e-​
commerce and mobile money platforms. Blockchain technologies are also important
for traceability requirements which is important for rules of origin. This requires an
enabling regulatory framework at a regional level.
Past regional plans and strategies have failed to develop strong RVCs because they
remain high-​level plans with little direction on specifics and practical implementation.
These plans are often too wide or too ambitious, aiming to include all member states
in all interventions, with limited private-​sector involvement. In practice, development
of a selected RVC may only require commitments from two or three countries. This
chapter also showed that policymakers continue to make policies that only serve na-
tional interests. The political economy dynamics need to be carefully managed to en-
sure that powerful players do not lobby to protect their own interests, detracting from
a true regional agenda. This will not be easy given competing interests and pressure on
governments to protect local industries, but necessary if we are serious about regional
development.

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 Chapter 20

Sou t h Africa’s E c onomi c

Role in A fri c a

Mills Soko and Mzukisi Qobo

20.1 Introduction

The demise of apartheid paved the way for the re-​admission of South Africa into the
global community after decades of international ostracism. Since the end of apartheid,
South Africa’s role on the African continent has been far-​reaching and prominent. South
Africa has spearheaded the creation and strengthening of institutions dealing with de-
velopment, peace, and security—​notably the New Partnership for Africa’s Development
(NEPAD), the African Union (AU)—​as well as initiatives to deepen trade integration.
Private corporations and other non-​state actors have also independently ventured into
the continent for reasons driven by their corporate strategies and mainly for market ex-
pansion reasons. This chapter discusses South Africa’s role in Africa, focusing on polit-
ical and economic relations in the post-​apartheid period. It argues that South Africa’s
expansion into Africa has mostly been a product of a series of deliberate internal and
foreign policy decisions implemented by consecutive post-​apartheid governments. By
prioritizing the ‘African Agenda’, South Africa has sought to harness its representation at
the helm of continental institutions into meaningful foreign policy outcomes, including
economic diplomacy objectives. South Africa has largely succeeded in fulfilling the
goals outlined in its foreign policy and African Agenda. Nevertheless its actions, as the
discussion on the implementation of the Protocol on Trade’s rules of origin in the SADC
region shows, have also undermined the economic interests of neighbouring countries.
The degree to which South Africa will be able to sustain its foreign policy performance
in Africa in the future will depend on how far it weighs its domestic policy pressures
with its continental obligations, on how it responds to and accommodates the economic
concerns of its regional neighbours, and on how it manages African perceptions of the
country. In this chapter, we are more interested in the nexus between politics and trade.
We use a political economy lens to critique South Africa’s regional economic strategy
420    Mills Soko and Mzukisi Qobo

with particular reference to its role in the Southern African Development Community
(SADC), the Southern African Customs Union (SACU), and the broader African
continent.
The chapter has two sections. The first discusses South Africa’s political and diplo-
matic relations in Africa, focusing on the country’s African Agenda, its role in the evolu-
tion and consolidation of NEPAD, its relationship with the AU, and its contribution as a
provider of aid to Africa. The second section explores the country’s economic relations
on the continent with specific reference to the trade integration process in the SADC
(focusing specifically on the impact of the SADC Protocol on Trade), trade and in-
vestment trends in the region, the changing nature of SACU, as well as South Africa’s
prospects in the African Continental Free Trade Area (AfCFTA).

20.2 Political and

Diplomatic Relations

20.2.1 South Africa’s African Agenda

Several forces have shaped South Africa’s relations with the African continent and its
adoption of the African Agenda in the post-​1994 period. Africa’s economic underdevel-
opment has been uppermost in South Africa’s strategic thinking about the region (see
South African Government 1996; Dirco 2011: 20–​3, 2019: 8–​9). The continent’s under-
development has been exacerbated by many years of political instability and economic
mismanagement. South Africa’s relative economic dominance on the African continent,
the history of the ruling party, the African National Congress (ANC), as a liberation
movement whose anti-​apartheid struggle was actively supported by several African
states, as well as the changing global context in which the country has operated, have all
played an essential role in shaping South Africa’s regional engagements (Gelb 2001: 3).
South Africa’s vision of the African Agenda is informed primarily by its desire to shape
the African continent’s development agenda. The African Agenda is about ‘charting a
new strategic path in order to effect a turn-​around in the continent’s economy, politics,
governance and development orientation’ (Landsberg and Kondlo 2007: 1). Following
the end of apartheid, the newly installed ANC government set out a foreign policy
that underscored the country’s democratic credentials, African identity, and global
ambitions (Habib 2009). In sum, South Africa centred its foreign policy on the African
continent.
In a seminal article that Mandela wrote for the Foreign Affairs journal, he
stated: ‘South Africa cannot escape its African destiny. If we do not devote our energies
to this continent, we too could fall victim to the forces that brought ruin to its various
parts’ (Mandela 1993: 89). In this statement rests the normative grounding of the ANC
government’s policy posture towards Africa. It is an approach that was ‘premised on the
 South Africa’s Economic Role in Africa    421

belief that South Africa’s fortunes and future were indissolubly bound with those of the
African continent’ (Sidiropoulos 2008). It represented an unambiguous assertion that
South Africa viewed itself as an African country, not as part of the ‘Western bloc’, as was
the case during the apartheid era (see Nolutshungu 1994: 129–​36).
Under the Thabo Mbeki presidency, South Africa played an essential part in
recasting the security dialogue in Africa. The desire to infuse foreign policy with an
ethical grounding extended to the region. This activism on the part of South Africa
was apparent, for instance, in the SADC Protocol on Politics, Defence, and Security
Cooperation. The protocol spelt out a security agenda that straddled politico-​military
threats as well as non-​military threats, including inter-​state war; human rights abuses;
war crimes; crimes against humanity; humanitarian and natural disasters; and genocide
(Hammerstad 2005: 4). The African Agenda’s core goals include strengthening the AU
and its institutions, promoting regional integration within the SADC, advancing peace
and security in Africa, and contributing towards post-​conflict rebuilding and develop-
ment (Landsberg 2009: 1–​2). South Africa was central to the founding of the AU and in
negotiating NEPAD. In essence, the African Agenda is about South Africa’s role in the
AU, NEPAD, and the SADC. This is detailed in three key pillars of engagement with
Africa, outlined in the South African government’s Strategic Plan for 2006–​09.
As Maloka (2019: 48) pointed out, these pillars are: strengthening Africa’s multi-
lateral institutions, especially the AU and SADC; supporting the implementation of
NEPAD, Africa’s socio-​economic development programme; and bolstering bilateral
political and socio-​economic relations through effective structures for dialogue and co-​
operation. The African Agenda recognizes that promoting stability and sound govern-
ance across Africa is crucial for overall success. Before initiating the African Agenda,
South Africa’s policy had been conceptualized through the lens of the outcomes of the
Conference on Security, Stability, Development, and Cooperation in Africa. Through
the African Agenda, South Africa has sought to position itself as both a middle power
and champion of multilateralism in the global system. Following the end of apartheid,
the South African government set out to craft a foreign policy anchored on strong eth-
ical foundations. To dispense with the legacy of apartheid and improve its international
image, the government integrated the country into the global order, and it became an
active champion of multilateralism (Habib 2009). South Africa’s unwavering support
for multilateralism stemmed partly from a ‘desire to play a role as a bridge-​builder be-
tween the advanced industrial countries and developing countries, and to be seen as an
honest broker in international affairs’ (Qobo 2012: 4). The Mbeki administration, in par-
ticular, evinced an assertive multilateralist approach. Its focus was on collaborating with
other countries to craft collective solutions to global and regional problems.
The pursuit by the ANC government of national goals multilaterally has enabled
the country to capitalize on its moral and political authority derived from its nas-
cent democratic order, while also championing Africa’s integration into the global
system on terms that benefit the continent. Thus, foreign policy became more aimed
at boosting South Africa’s international status and using multilateral bodies to uphold
human rights and democratic global governance (Qobo 2012: 4), In this context, the
422    Mills Soko and Mzukisi Qobo

lingering apartheid-​era policy of destabilization in the Southern African region gave

way to dialogue and mediation. The new policy, which the Mbeki government sought
to export to the rest of Africa, focused on developing political solutions to conflicts and
championing initiatives designed to reduce regional insecurity (Mda 2004: 138).

20.2.2 NEPAD
NEPAD represents the policy and institutional expression of the African Agenda.
Adopted in 2001 and ratified in 2002, NEPAD was established to ‘promote accelerated
growth and sustainable development, eradicate widespread and severe poverty, and halt
the marginalisation of Africa in the globalisation process’ (NEPAD Secretariat 2001).
NEPAD’s four key objectives are to eliminate poverty, promote sustainable growth and
development, foster the African continent’s integration into the world economy, and
accelerate the empowerment of women. To this end, the programme has focused on
six strategic themes: namely agriculture and food security; climate change and natural
resource management; regional integration and infrastructure; human development;
economic and corporate governance; as well as cross-​cutting issues including gender,
information communication technologies, and capacity building (NEPAD Secretariat
2001). Programmatically, NEPAD has concentrated on, among other things, building
democracy; promoting regional cooperation and integration; building capacity and
human development with a focus on health, education, science, and technology as well
as skills development; increasing domestic savings and investments; growing intra-​
African trade and broadening access to markets of industrialized nations; generating
foreign direct investment; stimulating diversification of production and exports, es-
pecially in relation to agro-​industries, manufacturing, mining, mineral beneficiation,
and tourism; and building and upgrading infrastructure, including information and
communication technology, energy, transport, and water and sanitation (NEPAD
Secretariat 2001).
Yet NEPAD has been castigated by African scholars and civil society groups. There
are two major concerns that critics have raised about this programme. The first is
that NEPAD is a top-​down-approach, elite-​driven initiative. According to Landsberg
(2007: 205), it failed to sufficiently acknowledge the ‘experiences, knowledge and
demands of African people’. The second criticism has underlined the programme’s fix-
ation with external engagements, especially with the G8 countries. In its early years of
development, NEPAD exhibited over ​dependence on external financial support for its
implementation. This is in contrast to the earlier plans such as the Lagos Plan of Action
(1980), the African Alternative Framework for Structural Adjustment Programmes
(1989), and the Arusha Charter (1990) all of which called for collective self-​reliance and
popular participation.
NEPAD has recorded some notable successes but also spawned failures. The United
Nations on Conference on Trade and Development (2012: 3–​4) has highlighted the re-
surgence of Africa’s growth in the first nine years of the promulgation of NEPAD, during
 South Africa’s Economic Role in Africa    423

which the continent registered an impressive average increase of 5 per cent compared
to the period between 1990 and 1999 that saw a lacklustre performance at a 2.7 per cent
average growth rate. There was also growth in real output per capita from 0 per cent to
2.6 per cent over this period. The agricultural sector recorded progress. African nations
embraced the Comprehensive Africa Agriculture Development Programme, which
helped the continent pay close attention to agriculture and stimulate higher agricultural
productivity and output (United Nations 2011a).
NEPAD has also succeeded in facilitating the implementation of infrastructure
projects on the African continent. For instance, the Programme for Infrastructure
Development in Africa, unveiled at the AU’s 2010 summit in Kampala, outlined a com-
prehensive strategy for developing regional and continental infrastructure in Africa
(Khati 2006). Furthermore, NEPAD helped to project Africa to the global stage and
garnered international support for the continent. As a result of NEPAD, the Group of
Eight (G8) countries launched its Africa Action Plan in June 2002. More concretely,
external development funding through Official Development Assistance increased
from $21.4 billion in 2002 to $47.9 billion in 2010, with bilateral support from the
Development Assistance Committee of the Organisation for Economic Co-​operation
and Development growing from $13.4 billion to $29.3 billion during the same period
(UNCTAD 2012: 3).
The NEPAD plan was pivotal in shaping the dialogue platform between the G8 and
African leaders. As a result, a select group of African leaders became regular attendees
of the G8 summits. They would later be invited to also attend the G20 meetings. These
engagements between African leaders and their Western counterparts elevated Africa
on the global stage and ensured that the continent’s concerns were on the global agenda.
Another positive contribution NEPAD has made is in improving economic and polit-
ical governance in Africa, as illustrated by the introduction of economic reforms in tax
administration, access to credit, enforcement of contracts, as well as electoral issues and
processes (United Nations 2011b). The United Nations (UN) also turned its attention on
Africa and put in measures that improved coordination and coherence of development
support for Africa. Further, Africa earned UN endorsement for its NEPAD programme,
and this was done through the UN General Assembly resolution 57/​7 of 4 November
2002. This vote of confidence was not an insignificant development: it lent greater recog-
nition of NEPAD as a socio-​economic programme developed by Africans for Africans,
and a mechanism for development engagement between Africa and the rest of the
developed world.
Notwithstanding the progress made to date in executing the programmes and
activities of NEPAD, the African continent still has a long way to go before it can ac-
complish its important goals of eradicating poverty and reversing its marginal status
in the world economy. This weakness can be attributed to several factors that have
hobbled the continent’s progress, including capacity constraints; low levels of human
and financial resources; poor participation by local actors in the process; as well as the
paucity of measurable yardsticks for evaluating progress (Economic Commission for
Africa 2007).
424    Mills Soko and Mzukisi Qobo

20.2.3 African Union
Prior to 1994, South Africa’s engagements with the Organisation of African Unity
(OAU)—​the forerunner to the AU—​were carried out through its two key liberation
movements: the ANC and the Pan Africanist Congress. The OAU was instrumental in
lending international legitimacy to the anti-​apartheid struggle, but also in leading inter-
national efforts towards bringing about a peaceful negotiated settlement in South Africa
(Maloka 2019: 41). A key tenet of the country’s relations with the outside world has been
the belief that the country’s external policy should mirror the interests of the African
continent. During Mbeki’s first term as president between 1999 and 2004, the ‘African
Renaissance’ vision was distilled into the African Agenda. Mbeki’s notion of the African
Renaissance, first propounded in his celebrated ‘I Am an African’ speech to the South
African national legislature in May 1996, rested on the belief that Africans must address
the problems and ills afflicting the continent in order to attain cultural, scientific, and
economic revival (Mbeki 1996).
South Africa was influential in the creation of the AU. The AU was set up in 2002 in
the port city of Durban. As host of the AU’s inaugural summit, South Africa became
the first African state to chair the continental body. The conversion of the OAU into the
AU dovetailed with the founding of NEPAD and the African Peer Review Mechanism
(APRM). NEPAD was Mbeki’s initiative that was born outside the OAU. Other African
leaders later supported it, and its programme was adopted by the OAU in 2001.
Although the African Renaissance constituted the conceptual basis of Mbeki’s African
Agenda, NEPAD was the foremost implementation organ. South Africa has been
committed to consolidating the continental body and its constituent sub-​structures.
Since the founding of the AU, South Africa has been one of the top five budget
contributors to the AU budget. Every year, South Africa contributes in the region of
R125–​200 million to the AU budget, accounting for 15 per cent of the organization’s
total budget (Besharati 2013).
As the first chair of the AU, South Africa invested extensive diplomatic energy
and financial resources into making the continental body effectively operational
(Sidiropoulos 2008). For example, the cabinet cluster on International Cooperation,
Trade, and Security established an African Renaissance committee to prioritize the
AU, NEPAD, SADC, and SACU. From the outset, Mbeki worked hard to ensure that
‘the secretariats of NEPAD, the AU Parliament and the APRM were headquartered in
South Africa’ (Maloka 2019: 49). The South African corporate sector was also drafted in
to support the African Agenda. This occurred at two levels: first, through the NEPAD
Business Group and, second, through South Africa’s state-​owned enterprises including
the Development Bank of Southern Africa, Transnet, Telkom, and the Industrial
Development Corporation (Maloka 2019: 51). South Africa’s involvement as a central
actor in these initiatives provided a stage for the Mbeki administration to foster a pro-
gressive African agenda constructed around the ‘principles of integration, peace and se-
curity, democratic governance and economic growth’ (Landsberg 2007: 195).
 South Africa’s Economic Role in Africa    425

South Africa’s relationship with the AU, and previously the OAU, since the dawn of
democracy has not been without pitfalls. First, there were tensions between South Africa
and other African countries over the future shape of NEPAD, and whether it was appro-
priate to integrate this into the AU. Some countries felt strongly that the NEPAD secre-
tariat should be moved from South Africa to Addis Ababa. Second, Nigeria’s opposition
to Dr Nkosazana Dlamini-​Zuma’s bid for appointment as chair of the AU Commission
fractured the relations between the two countries. The decision by South Africa in
2012 to nominate her to lead the AU Commission was the result of the government’s
new secondment policy to encourage South Africans to apply for posts in African
regional institutions and the UN. Third, the cost of membership of the AU has been
highly prohibitive for a developing country like South Africa, even though the most
industrialized one in Africa. In 2009, the cost of membership stood at R200 million,
dropping to R125 million in 2012. Additionally, AU operations have been constricted by
the challenges of implementing the African Agenda, compounded by geo political dy-
namics and competing agendas of some states (Maloka 2019: 54–​5).
In recent years, the relationship between the AU and South Africa has been strained
by other issues. South Africa has been accused of acting in an inconsistent manner in
relation to how it takes positions within the AU and the UN Security Council. In 2011,
the country expressed opposition to intervention in Libya in the AU, while it voted in
the Security Council for Resolution 1973 which approved international intercession.
This resulted in the ouster of Muammar Gaddafi and the subsequent implosion of the
Libyan state. As one commentator noted: ‘South Africa has two platforms for projecting
power. One is the AU, and one is the UN, and at times these roles are contradictory’
(Schoeman, Kefale, and Alden 2017). The relationship has also been fractured by xeno-
phobic violence perpetrated by South Africans against migrants and refugees from
other African countries. Between 2000 and 2008, at least sixty-​seven people perished
under a harrowing wave of violence that was attributed to xenophobia in South Africa.
In 2015 , xenophobic violence, which started in the KwaZulu-​Natal province, erupted na-
tionwide, resulting in at least seven deaths and displacing about five thousand migrants
and refugees (Pambazuka News 2015). In September 2019, South Africa experienced
another wave of attacks against African foreign nationals. Reacting to the attacks, sev-
eral African countries, notably Nigeria, moved quickly to evacuate their citizens from
the country. The attacks elicited a sharp rebuke from the AU, with the AU Commission
chair Moussa Faki Mahamat denouncing them and expressing the AU’s willingness to
work with the South African government to deal with the problem.

20.2.4 South Africa as a Provider of Aid to Africa

Historically, South Africa has been a major supplier of aid to the African continent.
During the apartheid era, the Department of Foreign Affairs used the Economic
Cooperation Promotion Loan Fund (set up in 1968 and reviewed in 1986) to provide
financial aid to a number of African countries—​including Gabon, Zaire, Cote d’Ivoire,
426    Mills Soko and Mzukisi Qobo

Malawi, Equatorial Guinea, Comoros, Swaziland, and Lesotho—​as a strategy to gal-

vanize political backing for South Africa’s positions in multilateral institutions such
as the UN. The Fund was deployed as part of military tactics that underpinned South
Africa’s foreign policy goals against the backdrop of the Cold War and decolonization in
parts of the Southern African region. Moreover, the apartheid government utilized this
Fund to counter international isolation that was the consequence of economic sanctions
against South Africa (Besharati 2013: 17).
South Africa’s aid policy has been motivated by a mixture of political and economic
factors in the post-​apartheid era. Partly, it has been inspired by the internationalist
agenda that has been pursued by the ANC based on the historical links it had with the
world during the liberation years. It stemmed from the ANC’s commitment to repay
African countries who supported the liberation struggle in South Africa. It has also
been driven by a desire to contribute towards economic and political stability in Africa.
Additionally, South Africa has sought to use foreign aid as a tool of ‘soft power’ to mo-
bilize the support of African countries for its foreign policy ambitions and positions in
multilateral bodies such as the AU and UN. Some observers and economic actors within
South Africa have, in recent years, propounded the idea that South Africa should tie
development assistance in the region to trade and investment agreements (Besharati
2013: 25).
According to a study by Braude, Thandrayan, and Sidiropolous (2008), there are
no precise figures for South African development aid. This is due to deficiencies in
reporting, a consequence of there being no ‘systematic database that tracks South
African development assistance’ (Braude, Thandrayan, and Sidiropolous 2008: 13). Even
so, a report published by the National Treasury in 2006 showed that total transfers by the
National Treasury and other government agencies to African nations grew by nearly 26
per cent from 2002 to 2004 (R9.5 billion to R15.2 billion). The African Renaissance Fund
(ARF) emerged as the most coherent and well-​defined South African development as-
sistance programme. Disbursements from the ARF grew from R50 million in 2003/​04
to R100 million in 2005/​06. The ARF was created in 2000 under Mbeki’s administration
to replace the Economic Cooperation Promotion Loan Fund, which was birthed under
apartheid. The ARF’s normative thrust was Mbeki’s African Renaissance doctrine, and
was put together mainly as a mechanism to ‘establish partnerships, demonstrate soli-
darity and support the economic empowerment of Africa’ (Braude, Thandrayan, and
Sidiropolous 2008: 19).
Broadly, the ARF was designed to finance activities in the fields of democracy, so-
cial and economic development, conflict resolution, technical cooperation, capacity
building, as well as humanitarian and disaster relief. Some of its recipients include farm
projects in Zimbabwe, cultural programmes in Mali, humanitarian aid in Somalia,
water dams in Lesotho, and support for the African Cup of Nations football tournament.
The Fund has also been utilized to support peace initiatives in Burundi, the DRC, and
Comoros, and to bolster public administrative capabilities in Sudan. In some cases, it
was also used to repay the debts of Gabon, Comoros, Mozambique, Lesotho, the Central
African Republic, and Malawi (Braude, Thandrayan, and Sidiropolous 2008: 19).
 South Africa’s Economic Role in Africa    427

20.3 Economic Relations

20.3.1 South Africa and its Neighbours: Tensions

in Regional Trade Relations
The Southern African region has always been the centrepiece of South Africa’s ex-
ternal engagements. The ANC’s Reconstruction and Development Programme
(1994: 119) articulated the governing party’s approach to the region. It contended
that South Africa’s economic progress was bound up with the fortunes of its region.
South Africa is, without a doubt, a dominant player in the region. It was thus un-
surprising that the country’s entry into SADC was cheered as a spur for regional
prosperity. This entry coincided with important shifts in the global system. The end
of the Cold War and, subsequently, the demise of apartheid redefined the regional
political landscape.
South Africa was drawn into regional arrangements as a key partner, given its large
economy and institutional strengths. The establishment of SADC in 1992 happened
under these changing circumstances. As it evolved, SADC signalled a shift from old,
inward-​looking forms of integration. The new framework of integration in SADC
sought to embrace an open, deeper, and outward-​oriented model of economic inte-
gration. SADC member states expected this new era of regional integration to equalize
economic gains by narrowing trade imbalances and delivering benefits in the form of
infrastructure development and cross-​border value chains. SADC countries did not
view trade as an end in itself, but as a tool of economic progress, and South Africa was
expected to carry poorer countries on its shoulders as the regional economic power-
house (Alden and Soko 2005).

20.3.2 The SADC Protocol on Trade

20.3.2.1 The Evolution of the Trade Protocol
The SADC Trade Protocol was finalized and signed in 1996 amid major political shifts
in the region. As noted previously, it heralded new forms of open regionalism and
reconstituted the terms of engagement between countries in the region. Trade and in-
vestment moved to the centre of these new relationships. The adoption of the protocol
was also inspired by the ambition on the part of SADC countries to achieve economic
growth and development and facilitate their insertion into the world economy on bene-
ficial terms. The protocol was designed to liberalize intra-​regional trade in goods and
services, with the eventual goal of establishing a free trade area within the SADC re-
gion through a process of phasing down tariffs asymmetrically. In September 2000, four
years after the initial signing, the protocol came into force. Since its ratification, the im-
plementation of the trade protocol has moved at a glacial pace.
428    Mills Soko and Mzukisi Qobo

The smaller SADC states could not carry out deeper trade liberalization on their own
due to lack of structural complementarities; these countries produced similar products
and have historically competed in the same EU markets. The process of liberalization
was thus bound to be tortuous. South Africa’s lethargic leadership was unhelpful, es-
pecially in the early phases of the SADC Protocol on Trade. South Africa’s attention
was also divided during this time as its resources were devoted to launching the EU-​
South Africa Trade and Development Cooperation Agreement. It took a while to con-
clude the SADC Protocol on Trade, and it was only implemented from 2000, six years
after it was initially signed. The implementation of the agreement was bogged down by
many obstacles that amplified the complexity of yoking countries of varying economic
weights.
At the beginning of 2004, SADC countries adopted a Regional Indicative Strategic
Development Programme (RISDP) to complement the SADC Protocol on Trade.
This programme set unrealistic targets for achieving a SADC customs union by
2010, a missed deadline. The SADC Secretariat noted the attainment of a Free Trade
Agreement (FTA) in 2008 ‘as a step towards achieving a Customs Union and subse-
quently a Common Market’ (SADC Secretariat 2004). This objective, the RISDP stated,
would be achieved ‘on the basis of a greater commitment to the implementation of the
protocol on trade, appropriately designed rules of origin, and greater harmonization
of customs rules and procedures, including standards’ (SADC Secretariat 2004). The
RISDP outlines ambitious targets for realizing deeper integration: conclusion of talks
for the SADC customs union in 2010; conclusion of negotiations for the SADC common
market in 2015; diversification of industrial exports in 2015; and setting up of an SADC
monetary union in 2016 (SADC Secretariat 2004). These unrealistic targets were set des-
pite the known challenges with the slow pace of implementing the trade protocol. The
lethargy in enacting the protocol is attributable to a number of factors. First, although
SADC countries were aware of the challenges of implementing the protocol, they did
not have a credible plan to meet its ambitious targets. Second, the RISDP did not con-
sider problems on the ground, such as the preponderance of overlapping and multiple
integration schemes. Third, this regional strategy overlooked tensions that could be
induced by the impact of the new SACU Agreement on the SADC region. It also did not
take into full account the very complex negotiations between SADC member states and
the European Union under the aegis of the Economic Partnership Agreements (EPAs).
The SADC Protocol on Trade has undergone various amendments to address the
aforesaid challenges. Some of these amendments have been on technical issues related
to non-​tariff barriers, setting parameters for trade in sugar in the region, limitations
on second-​hand goods, and defining the dispute settlement mechanism. Even though
the protocol established the principle of asymmetry, designed to accommodate less-​
developed member states’ special concerns regarding the pace of liberalization, re-
strictive rules of origin prevented these countries from taking full advantage of South
Africa’s market. According to the asymmetry principle, South Africa and SACU
countries were expected to set the pace on tariff liberalization and offer more benefits
to the rest of the SADC countries. It was also expected that within three years of the
 South Africa’s Economic Role in Africa    429

entering into force of the protocol, SACU countries would provide duty-​free access to
over two-​thirds of total tariff lines. Most SADC countries depend on revenues generated
through tariffs at the border for their fiscal stability.

20.3.2.2 The Effects of the Rules of Origin

Rules of origin determine whether a product can be regarded as emanating from out-
side or from within the FTA. Put simply, it determines the nationality of a product, and
assigns it a level of benefit within the integrating area. Rules of origin delineate criteria
for determining products that are eligible for duty-​free market access or specified tariff
levels. The absence of rules of origin creates a strong incentive for trade deflection. The
requirement for value-​addition or ‘substantial transformation’ of a product in a member
country tends to be very strong in determining the rules of origin (Krueger 1993: 5–​6).
In the beginning, the SADC rules of origin were designed to be flexible, requiring only
35 per cent of local content in the traded product. However, these were later changed
as a result of pressure from South Africa and other SACU member countries. These
countries argued for complex and much tighter rules to protect import-​competing
sectors in auto, textiles and clothing, and sugar. South Africa advanced two reasons: one
related to the need to curtail trans-​shipment, where third countries use a country with
the lowest tariff rate to re-​export their product to the high-​tariff region; the other argu-
ment was that more stringent rules of origin would foster industrial development in the
region.
According to a World Bank report in 2005: ‘Specifying rules of origin on a product
by product basis offers opportunities for sectoral interests to influence the specification
of the rules in a protectionist way’ (World Bank 2005: 70). And these were the effects of
the kind of rules of origin preferred by South Africa. These rules created variation across
product lines. For instance, in some products, what is needed is a simple change of tariff
heading, while in other products a change of tariff chapter is required. Still, in others,
there was a detailed specification of requirements for value-​addition for those products
that would qualify for preferential treatment. This variation generated confusion for
customs officials in the region who had limited technical capacity. Given the prickly pol-
itical dynamics in the region, the prevailing trade arrangement in SADC could not pro-
mote harmonious relations. On the contrary, it compounded the existing tensions.
Some of the damaging effects of rules of origin highlighted by Flatters (2002: 34) in-
clude the following:

• Restrictive rules deprive producers of access to raw materials or intermediate

products from low-​cost international sources. This has a cost-​raising effect on the
consumers as high-​cost regional producers protected by a tariff would be preferred.
In this regard, consumers are deprived of access to cheaper sources of inputs and
producers are shielded from competition.
• Downstream industries bear the burden of high costs of input, which certainly goes
against exactly what rules of origin are intended for: encouraging industrial devel-
opment. In essence, they have a limiting effect on industry competitiveness.
430    Mills Soko and Mzukisi Qobo

In their current form, SADC rules of origin reveal the depth of protectionist interests
in South Africa. The General Agreement on Tariffs and Trade’s provisions on the rules
of origin set out broad principles on how these are to be applied. They state that rules of
origin should facilitate, and should not create unnecessary barriers, to the flow of inter-
national trade. They should be implemented in an impartial, transparent, and consistent
fashion. This contradicts what has happened in SADC, which has very complex and re-
strictive rules of origin similar to those applied in preferential agreements with highly
industrialized countries (World Trade Organization 1986: 211). Besides these complex
rules of origin, other intricate problems exist in the region, and their roots lie in mori-
bund institutions and dysfunctional economies. These problems include a lack of pol-
itical will to implement the protocol and overlapping memberships and competition
between various regional integration schemes.
Other countries in the region had a legitimate expectation that South Africa would
offer more concessions in giving them greater access to its market, and that it would
take a giant leap in liberalizing its tariffs. However, this is not what happened. During
the negotiations on the SADC Trade Protocol, South Africa insisted on stringent rules
of origin. It adopted an inflexible stance that inflamed the political sensitivities of
its regional counterparts, potentially eroding the reservoir of political influence the
country could hope to exercise in the future. South Africa has, for example, evinced a
strong commitment to protecting import-​competing interests at all cost. There have
also been issues related to standards. South Africa insisted that other SADC countries
should meet the technical standards set by the South African Bureau of Standards,
even though there was a lack of requisite infrastructure in most of these countries to
comply with some of the standards. This insistence created significant non-​tariff trade
barriers.
Other countries also presented problems for the implementation of the SADC
Protocol on Trade. In the middle of the implementation of the Protocol, Zambia
imposed restrictions on Zimbabwean milk. It insisted that milk originating from
Zimbabwe to Zambia should be labelled in Zambia’s local languages, something that has
a cost-​raising effect on imports. South Africa was also at one point slapped with protec-
tionist measures that went against the grain of the SADC Protocol on Trade. Early in the
negotiations, Botswana imposed restrictions on South African brown bread and milk
imports, ostensibly for infant industry protection. Wholesalers in Namibia prevailed on
government to enforce a ban on imports of horticultural products from South Africa to
protect the domestic industry.
Nonetheless, South Africa’s overwhelming dominance in regional trade has presented
difficulties in terms of the distribution of costs and benefits, while it has also posed a
threat to the economies of the other SADC countries. This has encouraged a slide to-
wards protectionism and anti-​liberalization in the region. McCarthy, for instance, has
averred that ‘South Africa’s competitive position and trade situation within the region
is characterized by a mercantilist pattern of one-​way trade which cannot form the basis
for region-​wide economic growth and development’ (McCarthy 1996). Compounding
this mercantilist trade pattern has been the creation of the SADC FTA in an industrially
 South Africa’s Economic Role in Africa    431

polarized region with the potential to produce a skewed pattern of distribution of costs
and benefits. As de la Rocha (2003: 10) cautioned: ‘Asymmetric distribution can also
be caused by agglomeration effects. Industry and investments tend to concentrate on
the more developed member in the regional block once the trade barriers are removed.’
Other likely negative outcomes of the SADC FTA observed by commentators include
diversion of trade to South Africa’s large manufacturing base, redistribution of revenues
from poor countries in the direction of South Africa, and further deepening of the
‘core–periphery’ dichotomy within the region (Holden 2003: 164). Such effects are not
politically sustainable in southern Africa.
Apart from South Africa’s mercantile trade policies and complex rules of origin,
there have been other impediments to trade in the SADC region. First, there have
been difficulties associated with trade facilitation and non-​tariff measures. These have
hindered the cross-​border flow of goods. Although some measures have been put in
place to ease trade flows—​including pre-​border clearance and other transit issues at the
border, training of officials in risk management, harmonization of computer systems,
development of single clearance documents, and standards and quality innovations—​
difficulties still abound, and progress has been slow. Second, owing to a lack of technical
capacity, customs officials took longer to implement new tariff rates. Third, progress
in most SADC countries has been stunted by uncompetitive industries, tiny markets,
undiversified economies, inadequate infrastructure, poor regulatory frameworks,
underdeveloped financial and capital markets, lack of modern technology, and un-
skilled personnel (Tekere 2012). Fourth, another problem afflicting SADC countries is
their enormous trade dependence on traditional European markets. This dependence
has hindered product diversification in these countries’ export baskets and undermined
intra-​regional integration.

20.3.3 The Changing Nature of SACU

20.3.3.1 The Democratization of SACU
The end of apartheid in South Africa created the conditions for the democratization
of SACU. The history of SACU demonstrates that the southern African region has
not always been treated respectfully by South Africa. Originally established in 1910,
SACU—​made up of South Africa and the BLNS states (Botswana, Lesotho, Namibia,
and Swaziland)—​is the oldest customs union in the world and the deepest form of in-
tegration in Africa. The SACU Agreement of 1910 provided for the governance of the
BLNS states as sub-​regions of the South African economy. It created a common market
anchored by a CET decided by South Africa, a common pool of currencies tied to the
South African Rand, as well as integrated administrative structures and infrastructure.
The agreement provided for the unrestricted exchange and flow of industrial goods and
for the disbursement of customs union revenue through a formula that specified a fixed
share for each of the countries (McCarthy 1998: 75).
432    Mills Soko and Mzukisi Qobo

Nonetheless, South Africa enacted policies that undercut the economic advance-
ment of the BLNS countries. The advent in South Africa in 1925 of an import substitu-
tion strategy, undergirded by high tariff walls, to promote industrial development had
an adverse impact on the BLNS economies. It encouraged trade diversion in the region
as the BLNS economies were compelled to purchase high-​cost South African goods. It
also led to a decline in the general level of customs income as a share of GDP. Moreover,
industrial growth behind high tariff barriers led to lopsided industrial development
concentrated in South Africa (Gibb 1997: 75).
The push for revising the SACU arrangement did not originate wholly from the BLNS
countries. South Africa was also interested in transforming the existing arrangement.
Following prolonged negotiations, the five SACU member countries concluded in
October 2002 an extensive, revised SACU Agreement. The 2002 SACU Agreement—​
which came into effect in July 2004—​brought about significant changes. It created new
democratic institutions for SACU, hailed as a victory for balanced regional integration.
Moreover, the agreement stipulates that SACU countries ought to execute trade
relations and negotiations with third parties as a single entity. It prescribes that no SACU
member state is allowed to conduct negotiations, or enter into new preferential trade
deals, with third parties, or change existing agreements without the consent of other
member states (Soko 2008). Of great significance, the agreement substantially revised
the revenue-​sharing formula among the SACU economies: the new formula is made
up of a customs component, an excise component, and a development component. In
this regard, customs revenues would be disbursed according to intra-​SACU imports,
implying that South Africa would provide compensation to the other SACU member
nations for the trade advantages—​the so-​called polarization effects—​it derived as a re-
sult of the customs union (Soko 2008).

20.3.3.2 SACU in the Post-​Brexit Era

Until the United Kingdom resolved to leave the European Union, it conducted trade
with South Africa under an EPA between the European Union and SADC countries
(Tralac 2018). The EU-​SADC EPA entered into force on 10 October 2016. The United
Kingdom’s departure from the European Union at the beginning of 2021, meant it would
no longer benefit from trading arrangements concluded by the European Union with
third parties, including the EU-​SADC EPA. Parallel to the existing EPA agreement,
SACU countries plus Mozambique (SACUM) struck an agreement with the United
Kingdom in 2019 to adopt the provisions of the EU-​SADC EPA into a new two-​way
trade agreement, in order to give certainty to consumers and exporters. The roll ​over
was calculated to ensure continuity in trade ties after the United Kingdom had left the
European Union (Department of Trade and Industry 2020).
Some of the provisions that the two parties adopted included ‘rules for trade in goods,
preferential tariff rates on all sides, trade remedies, technical standards for health and
safety for agricultural and industrial products, protection of South African and UK’s
geographical indications, and dispute settlement’ (Department of Trade and Industry
2020). Other technical issues included ‘tariff-​rate quotas, the sourcing of inputs from
 South Africa’s Economic Role in Africa    433

across the EU region into production for export; the treatment of bilateral safeguard
measures; other transitional arrangements; geographical indication; and the built-​in
agenda’ (Patel 2019).
In light of the advanced nature of its economy, South Africa does not enjoy
preferences for its fish, aluminium, and agricultural exports. A new trade clause was
inserted that permitted SACUM countries and the United Kingdom to cumulate and
utilize EU inputs for production to export to each other’s markets. This guaranteed the
continuity of integrated value chains across South Africa, the European Union and the
United Kingdom, especially in the car industry (Department of Trade and Industry
2020). The SACUM–UK agreement makes provision for transitional arrangements
that facilitate the transfer to it of some trading terms from the EU-​SADC EPA. These
include, among others, customs issues in respect of the protections of geographical
indications. The United Kingdom, for its part, is required to provide ‘adequate time for
exporters from SACUM nations to adjust to new technical rules for industrial goods in
cases where those diverge from EU regulations’ (Soko 2020). A deal was also agreed on
a built-​in agenda to deal with areas of interest in the future that could not be addressed
during the negotiations, including ‘market access issues, regional cumulation, export
taxes, technical barriers to trade, geographical indications, and electronic certification’
(Soko 2020).

20.3.4 Trade and Investment Trends

South Africa’s trade with the African continent is characterized by the export of indus-
trial goods and the import of mostly primary-​resource-​based goods (Fundira 2017).
This is reflected in the composition of the country’s trade exports and imports on the
continent (see Figures 20.1 and 20.2). Between 2010 and 2016, South Africa’s trade with

Mineral Products Products Iron Vehicles Plastics

Steel Aircraft Rubber
Vessels
10.21%
Chemicals 9.12% 5.53%
19.21% Vegetables Live Toys
Animals Sport
Apparel
Machinery 9.87% 1.99% 1.94%
4.82%
Prepared Textiles
Foodstuffs
Wood Pulp Paper
16.08% 9.52%
Figure 20.1 Composition of South Africa’s exports in Africa, 2019
Source: SARS (2020).
434    Mills Soko and Mzukisi Qobo

Wood Pulp Paper Machinery Photographic

Medical
Equipment

5.87%
15.24% Works of
24.35% Precious Metal Art
Vehicles Aircraft Vessels 4.93%
11.18%
Mineral Products
22.13% 10.29%
Figure 20.2 South Africa’s imports composition in Africa, 2019
Source: SARS (2020).

the continent was skewed heavily towards East and Southern Africa—​the so-​called
ESA region. The ESA region accounted for 88 per cent and 90 per cent of South Africa’s
African exports and imports respectively (Fundira 2017).
Both SACU and SADC account for the majority of intra-​African trade, dominated
considerably by South Africa (see Figure 20.3). In 2017, South Africa accounted for 71 per
cent of intra-​SACU exports (see Figure 20.3). SACU remains the most crucial trading
arrangement for South Africa (Makokera-​Grant and Makokera 2020) and it provides
important benefits for the country, including savings on import duties and transporta-
tion costs for South African businesses.

50
45
18.5
47.4

40
84.9 15.1
81.5

35
30
41.6

53.4

25
52.6

20
43.3
61.8 38.2
58.4

59.5 40.5

15
52.2
48.2
46.6

10
51.7

56.7
55.3

51.0
49.6
82.3
66.1

5
48.3 33.9 50.4 49.0 47.8 51.8
0 44.7 17.7
CEN-SAD COMESA EAC ECCAS ECOWAS IGAD SADC AMU

Rest of Africa 2010–2012 Rest of Africa 2014–2016

Intra-regional economic community 2010–2012 Intra-regional economic community 2014–2016

Figure 20.3 Intra-​ regional economic community trade in Africa, 2010–​

12 and 2014–​
16
(billions of dollars and percentage of total African trade)
Source: UNCTAD (2019).
 South Africa’s Economic Role in Africa    435

Since 1994, there has been a surge in outward foreign direct investment (FDI) by South
African firms to the African continent. South Africa is one of the major investment
suppliers to the continent (Kiss 2017) and the bulk of its FDI has been destined for the
SADC region (Draper, Kiratu, and Samuel, 2010). In 2014, South African investments
in Africa totalled $5.6 billion—​with the major investments in telecommunications,
mining, and retail. At the start of the decade, South African companies led a surge in
cross-​border greenfield projects, which rose by 18 per cent between 2009 and 2013.
Although South Africa’s FDI inflows declined by 15 per cent in 2019, the country
continued to be the biggest capital exporter in Africa (UNCTAD 2020). Almost half of
Africa’s large firms are from South Africa, with companies such as Bidvest, Anglo Gold
Ashanti, MTN, Shoprite, Standard Bank, Aspen Pharmacare, and Naspers being among
the prominent investors on the continent (Leke, Chironga, and Desvaux 2018).

20.3.5 The African Continental Free Trade Area

South Africa ratified the AfCFTA in February 2019. The AfCFTA was formally launched
at the 12th Extraordinary Summit of the AU in Niamey, Niger on 7 July 2019. It is
designed to establish a continent-​wide market for goods and services in Africa, generate
opportunities to grow intra-​Africa trade, create jobs, and develop power infrastruc-
ture. It brings together fifty-​four African countries with a combined gross domestic
product in excess of $3.4 trillion (Tralac 2020). It is one of the flagship projects of the
AU’s Agenda 2063, which seeks to tackle Africa’s developmental problems, including
youth unemployment, women’s empowerment, infrastructure development, and
industrialization.
Upon its implementation, the AfCFTA will cover a market of over 1.2 billion people
and will be the world’s biggest free trade area since the founding of the World Trade
Organization. It has the potential to bolster intra-​African trade by 52.3 per cent.
Currently, only 18 per cent of Africa’s exports go to other African countries. This is in
contrast to Europe and Asia, where intra-​continental trade is respectively at 70 per cent
and 60 per cent (Napoli 2021). Trading under the AfCFTA Agreement had initially been
scheduled to start on 1 July 2020, but it only began on 1 January 2021 due to delays caused
by the outbreak of the global coronavirus pandemic. Even though the AfCFTA is un-
likely to transform the trade patterns of individual countries in the short term, it will
nonetheless help to unlock opportunities to expand intra-​Africa trade and generate
spillover effects realized through creating dynamic markets of complementary goods
and services.
In 2019, 14.4 per cent of African exports went to other African countries, a small pro-
portion compared with the 52 per cent in intra-​Asian trade and 73 per cent between
European nations in the same year (Pilling 2020). While the AfCFTA is expected to
boost intra-​African trade, it is also projected to lay the basis for ultimately creating a
continental customs union (African Union 2018). That ambition may take many
decades to realize. Despite its great promise, the AfCFTA is likely to be faced with
436    Mills Soko and Mzukisi Qobo

similar challenges to those experienced in the implementation of the SADC Protocol on

Trade. The reality is that most countries on the African continent have been hamstrung
by, among others, poor leadership, a lack of political will, economic mismanagement,
an excessive reliance on tariffs for state revenues, weak institutions, deficient infrastruc-
ture, and overlapping memberships in regional integration schemes. Addressing these
problems is vital to fostering successful regional integration and placing the African
continent on an upward trajectory.

20.4 Conclusion

This chapter has examined South Africa’s role in Africa since 1994. Africa constitutes
the foremost priority in South Africa’s foreign policy. The South African government
regards the country’s long-​range national destiny as indivisibly tied to that of the wider
African region. South Africa’s foray into Africa has been a result of intentional internal
and external foreign policy decisions enacted by consecutive ANC administrations.
South Africa’s vision of the African Agenda has been informed by its desire to shape the
African continent’s development agenda.
NEPAD epitomizes the policy and institutional expression of the African Agenda.
It has produced clear successes. These include remarkable growth rates, higher agri-
cultural productivity, accelerated infrastructure development, increased external de-
velopment funding, and improved dialogue between African leaders and their G8
counterparts. Yet NEPAD has also been beset with failures and problems, including
financial, technical, and human capacity constraints. South Africa was influential in
the establishment of the AU and has invested extensive diplomatic energy and financial
resources into making the continental body effectively operational. Furthermore, South
Africa has been a major supplier of aid to the African continent. It has sought to use
foreign aid as a tool of ‘soft power’ to mobilize the support of African countries for its
foreign policy ambitions. However, the country’s relationship with the AU has not been
without problems. It has been fractured by, among others, tensions over the future shape
of NEPAD as well as the furore that marred Dr Nkosazana Dlamini-Zuma’s ascendancy
to the leadership of the AU Commission. Moreover, the cost of AU membership has
become highly exorbitant even by the standards of the most industrialized country on
the African continent, faced with the dilemma of balancing its domestic concerns with
its continental obligations.
The incidents of xenophobic violence against African migrants and refugees have
undermined South Africa’s foreign policy and damaged its international reputation.
They have limited the country’s ability to project its ‘soft power’ and sowed doubts about
whether it has the moral authority to lead Africa. The South African government ought
to do more to protect African migrants and refugees, enforce the rule of law, and im-
prove public-​order policing. Importantly, it must address the underlying causes of xeno-
phobia. South Africa must be mindful of, and attuned to, how its role and influence is
 South Africa’s Economic Role in Africa    437

perceived on the African continent. This is necessary if the country is to salvage its cred-
ibility and become accepted as a continental leader.
The southern African region has been the bedrock of South Africa’s external
engagements. The adoption of the SADC Protocol on Trade was inspired by the am-
bition on the part of SADC countries to achieve economic growth and development
and facilitate their insertion into the world economy on favourable terms. Given its
economic preponderance in the SADC region, other countries expected South Africa
to be more accommodative and accelerate its tariff liberalization. However, as the
issue of rules of origin has shown, South Africa has at times embraced mercantilist
trade practices that have inflamed political sensitivities in the region. South Africa
needs to do more to act in ways that balance its national interests with its regional
commitments.
Nevertheless, South Africa has acted differently in respect of SACU. By signing and
ratifying the 2002 SACU Agreement, the country created the conditions for the democ-
ratization of the customs union. Not only did it give birth to new democratic institutions
for SACU, it overhauled its negotiating procedures and recast its revenue-​sharing
formula. The transfer of the terms of the SADC-​EU EPA into the SACUM-​UK EPA
helped to forestall trade disruption and ensure continuity in trade ties after the United
Kingdom’s departure from the European Union. This augurs well for the future of trade
relations of the customs union and the United Kingdom. The AfCFTA, if successfully
implemented, has enormous potential to create a continent-​wide market for goods and
services, generate opportunities to grow intra-​Africa trade, and deliver jobs and power
infrastructure development. Notwithstanding its considerable promise, nonetheless,
the AfCFTA is likely to be faced with similar challenges to those experienced in the im-
plementation of the SADC Protocol on Trade.
South Africa has largely succeeded in fulfilling the goals outlined in its foreign policy
and African Agenda. Nonetheless its actions, as the discussion on the implementation
of the Protocol on Trade’s rules of origin in the SADC region has demonstrated, have
also undermined the economic interests of its regional neighbours. The degree to which
South Africa will be able to sustain its foreign policy performance in Africa in the fu-
ture will depend on how far it weighs its domestic policy pressures with its continental
obligations, on how it responds to and accommodates the economic concerns of its re-
gional neighbours, and on how it manages African perceptions of the country.

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 Chapter 21

Sou th Af ri c a ’ s
Internationa l T ra de

Lawrence Edwards

21.1 Introduction

South Africa faces an economic growth and employment crisis. Gross Domestic
Product (GDP) grew at a lacklustre average of 1.67 per cent per year from 2010 to 2019,
down from 3.5 per cent per year over the prior post-​apartheid period 1994 to 2009.1
The implication has been a failure of the economy to generate sufficient employment
opportunities to absorb new entrants into the labour force, resulting in sustained high
levels of unemployment. One reason for this weak growth is South Africa’s failure to
enhance its long-​run export performance, both in absolute terms and relative to its
middle-​income peers (Hausman and Klinger 2008). Export volumes per capita grew
at an annualized rate of only 0.45 per cent from 1960 to 2019 compared to over 3 per
cent in other resource-​abundant economies such as Argentina, Australia, Brazil, Chile,
and Malaysia. The implication has been that South Africa’s share of world merchandise
exports fell from 1.56 per cent in 1962 to 0.4 per cent in 2019.
There is no shortage of policy recommendations to enhance export performance
in South Africa. The Integrated National Export Strategy (DTI 2016), the National
Development Plan (NDP) Vision 2030 (National Planning Commission 2012), and
the Department of Trade and Industry’s Industrial Policy Action Plans all see raising
exports and diversifying the export bundle as central policy objectives. Under the NDP,
the objective is to increase export volumes by 6 per cent per annum by 2030, with non-​
traditional exports growing by 10 per cent a year.

1 This chapter draws on data from several sources including the South African Reserve Bank,

UN Comtrade data via the World Integrated Trade Systems, Statistics South Africa, World Trade
Organization database and the World Bank Development Indicator database. Unless otherwise specified,
all data values presented in the chapter are drawn from these sources.
442   Lawrence Edwards

Enhancing export growth is also imperative from a macroeconomic and growth per-
spective. South Africa’s macro-​competitiveness—​the ability of the economy to gen-
erate sufficient foreign exchange through trade to support the growth process (Thirlwall
1979)—​has diminished (Bell et al. 2002). Whereas during the 1960s a current account
deficit to GDP ratio of 2.1 per cent was associated with a two-​year average GDP growth
rate of 6 per cent, over the 2015–​18 period, a higher deficit ratio of 3.4 per cent was
associated with a growth rate of only 0.94 per cent per annum. The implication of this
decline in macro-​competitiveness is that a much higher export growth is required to
sustain a growth recovery. Should export growth not recover, South Africa faces the
prospect that higher economic growth will be choked off by a lack of foreign exchange,
as has occurred frequently in the past.2
This chapter uses South Africa’s integration in the global economy as a lens to under-
stand the dynamics behind South Africa’s economic performance. It first presents the
historical context leading up to South Africa’s current situation, commencing from
the country’s position as primarily a gold exporter pursuing an import substitution in-
dustrialization strategy, to its transition to a more open economy with the ending of
sanctions and tariff liberalization from the early 1990s.
The focus then shifts to a more critical assessment of South Africa’s trade perform-
ance in the post-​apartheid period. The post-​apartheid period is characterized by shifts
in government policy on international trade—​multilateral liberalization from 1994 to
2000, preferential tariff reform from 2000 and sector-​driven industrial policy from
around 2007—​and dramatic changes in the global trading order—​the rise of China
from 2001, and the emergence of global value chains in driving participation by firms
in international trade. Key questions debated in the literature will be considered: How
has trade liberalization contributed to structural change in the composition of trade,
including ‘premature deindustrialization’ of the South African economy? What is the
impact of the rise of China on trade, industrial production, and employment? Has trade
liberalization shifted South Africa onto a new export-​led growth path?
To illustrate these relationships, the chapter draws on new insights based on research
using disaggregated product-​level trade data and firm-​level data. The product-​level
trade data provides a deeper understanding of the product and destination/​origin dy-
namics that lie behind South Africa’s growth in international trade. The firm-​level data
provides a more nuanced understanding of the heterogeneity behind aggregate trade
flows. Analysis using this data opens up new insights on participation by South African
firms in international trade posing new challenges to policymakers.
The remainder of the chapter is structured as follows. Section 21.2 presents an over-
view of South Africa’s historical trade performance leading up to 1994. Section 21.3
discusses South Africa’s post-​1994 programme of tariff reform and provides an overview

2 Acute balance-​
of-​payment crises in response to foreign exchange outflows following the 1976
Soweto riots and the debt crisis in 1985 led to the imposition of emergency measures, including
surcharges and import controls, to curtail imports.
 South Africa’s International Trade    443

of trade performance. Section 21.4 then analyses the relationship between trade, pro-
duction, and employment in manufacturing. Section 21.5 concludes the chapter.

21.2 South African Trade Performance

up to 1994

South Africa’s historical growth process and industrial development from the late 1800s
to 1994 is defined by its participation in international trade. As covered in ­Chapters 2
and 3 of this volume, the discovery and export of gold and to a lesser extent diamonds,
transitioned the economy onto an export-​led growth path (Feinstein 2005). Gold
exports rose rapidly from close to zero in the early 1880s to 60 per cent of total exports by
1905–​09 and then 72 per cent by 1935 (Feinstein 2005: 101). Exports were further boosted
by the discovery of new gold reefs in the Transvaal and the Orange Free State from 1939,
with output of gold rising from 11 million fine ounces in 1945–​48 to an all-​time peak of
32.2 million fine ounces in 1970 (Feinstein 2005). The associated trends in trade volumes
of goods and services and real GDP (indexed such that 2010 = 100) are illustrated in
Figure 21.1. From 1946 to 1970, export volumes of goods and services, driven by gold,
grew by 7.5 per cent per annum. Real GDP also grew strongly rising by 4.6 per cent per
year in the 1950s and 5.3 per cent in the 1960s.
In addition to its direct impact on the economy during this period, the production of
gold generated large rents that served as a source of income and taxes and royalties to
government revenue that financed investment in infrastructure (Feinstein 2005). Gold

Trade volumes (goods and services) and real GDP, 2010 = 100
140

120
100
80
60
40
20
0
1994
1991
1985
1946

1970
1973

1988
1976
1979
1982

1997
2000
2003
2006
2009
2012
2015
2018
1949
1952
1955
1958
1961
1964
1967

Export volumes Import volumes GDP

Figure 21.1 Trade volumes (goods and services) and real GDP, 2010 = 100
Source: Own calculations using data obtained from the National Income and Production Accounts data provided by the
South African Reserve Bank. GDP is measured in market prices. Trade volumes include goods and non-​factor services.
Income receipts and payments are not included.
444   Lawrence Edwards

exports played a vital role in sustaining the country’s balance of payments and earning
of foreign exchange to offset the rise in imports associated with the high economic
growth. The extraction of gold attracted foreign capital to South Africa, leading to the
establishment of large mining houses that would later play a central role in the industri-
alization process through diversification of their investments and provision of technical
and managerial skills for manufacturing and other sectors (Feinstein 2005: 109).
Further gold production supported and enabled the process of industrialization,
serving as a source of demand for locally produced manufactured consumer and inter-
mediate goods, a process encouraged by the Import Substitution Industrialization
(ISI) policies following the enactment of the 1925 Customs Tariff and Excise Duties
Amendment Act (no. 36). The ISI policies initially focused on protecting semi-​durable
consumer goods, but from the 1930s protection extended to industrial products such
as cement and steel, and then from the 1950s into the upstream chemicals industry
(Bell 1993; Fallon and Pereira de Silva 1994). The Second World War provided a further
stimulus to local industry with domestic manufacturers responding to opportunities
created by shortages of imported products and new demands arising from South
Africa’s war effort (Feinstein 2005: 123). In addition, active state intervention shaped
the growth and composition of the manufacturing sector through the establishment
of the Electricity Supply Commission (Eskom) in 1923, the Iron and Steel Industrial
Corporation (ISCOR) in 1928 and then later the South African Coal, Oil and Gas
Corporation (SASOL) in 1950, giving rise to what Fine and Rustomjee (1996) termed the
mineral-​energy complex.
These policies drove a rapid increase in manufacturing as a share of GDP from 8.1 per
cent in 1926/​27 to 23 per cent by the 1970s, as well as a decline in manufactured imports
as a share of domestic production (101.4 per cent in 1936/​37 to 30.3 per cent in 1967/​68)
(Marais 1981: 36). The impact is evident in Figure 21.1 where import volumes grew slowly
relative to GDP in the 1950s. While exports of manufactured goods also rose in value
and as a share of exports (see Table 21.1), the increase was driven by the growing produc-
tion capacity in the sector rather than a shift towards export-​orientation (Holden 1990).
Gold, and other mining products, continued to dominate exports, and manufacturing
exports remained heavily oriented towards resource-​based products (mainly minerals-​
based). Concerns regarding the continued dominance of gold in exports led to the
Reynders Commission in 1969 that recommended export promotion policies to redress
some of the anti-​export bias of the existing tariff policies and stimulate manufacturing
export growth (Ratcliffe 1975).
The period 1971/​72 to 1994 signals dramatic shifts in South Africa’s trade and eco-
nomic performance, as can be seen in Figure 21.1. GDP growth fell from the highs
of the 1960s, with the country entering into a recession over the period 1990 to 1992.
Growth in real manufacturing gross value added also slowed during the 1970s, with
the sector’s share of real gross value added reaching a peak of 17.8 per cent in 1981 (23
per cent to 24 per cent if using nominal values). Real manufacturing value added at
the end of 1993 was actually lower than it was in 1981. The manufacturing share of non-​
agricultural employment also began to fall from its 1981 peak of 23 per cent. The process
 South Africa’s International Trade    445

Table 21.1: South African export composition by technology classification (values

and share structure)
1962 1970 1980 1990 2000 2010 2019

Total Value Trade (US dollar billions) 2.0 3.2 24.4 20.4 30.3 79.1 77.2
Annual growth in decade 5.8 20.4 –​1.8 4.0 9.6 –​0.2 5.8
Share total value (%)
Gold 44.0 36.7 53.3 31.7 13.2 10.3 6.0
Primary, excl. gold 33.7 37.5 25.2 36.5 33.4 30.2 29.7
Total Manufacturing 22.2 25.7 21.5 31.8 53.3 59.5 64.3
Share in manufacturing exports (%)
Resource-​based 84.0 69.3 60.8 50.2 35.7 40.7 43.2
Low technology 6.3 7.2 13.8 15.9 16.6 9.8 6.9
Medium technology 9.1 22.0 17.6 29.1 41.1 45.5 46.3
High technology 0.6 1.5 7.8 4.8 6.6 4.0 3.6
Commodity manufacturing 91.8 86.0 75.8 73.8 55.2 60.0 58.7
Non-​commodity manufacturing 8.2 14.0 24.2 26.2 44.8 40.0 41.3

Source: Own calculations using Feenstra et al. (2005) World Trade Flow database from 1962 to 2000,
and UN Comtrade data from 2001.
Notes: Categories are based on the Lall (2000) Technology Classification of exports. Excludes special
transactions that range from 0 to 3% of trade values. 1960s covers the period 1962–​70. Commodity
manufacturing includes Resource-​based manufactures plus Process industries (Synthetic fibres,
chemicals and paints, fertilizers, plastics, iron, pipes/​tubes).

of deindustrialization, or what Rodrik (2016) refers to as ‘premature deindustrialization’,

in South Africa had commenced at a level of GDP per capita and manufacturing share
of employment that was far lower than was the experience in the advanced and newly
industrialized countries.3
Trade performance from the 1971/​72 period was also poor. Export volumes plateaued
in absolute terms and relative to GDP, and only started a sustained recovery, driven by
manufactures, after a massive depreciation of the real exchange rate from 1984. By the
end of 1993, the volume of goods and services exports was only 26 per cent higher than
in 1971. Import volumes also stagnated during this period (Figure 21.1) driven lower by

3
South Africa achieved a peak manufacturing share of total employment of 17 per cent at 6,500 US
dollars per capita (1990 PPP dollars), compared to advanced economies where employment shares
peaked at 25–​33 per cent at approximately 14,000 US PPP dollars per capita (Rodrik 2016). Tregenna
(2016) adopts a more nuanced view of deindustrialization that takes into account whether the level of
manufacturing employment and GDP have also started to diminish. Even in this case, deindustrializa-
tion appears to have occurred from 1980 as real volumes of manufacturing collapsed, and the sector’s
share (real and nominal) of total GDP reached a peak. Manufacturing employment levels, however,
continued to rise, only starting to decline from the late 1980s.
446   Lawrence Edwards

weaker economic growth and the intermittent use of import surcharges to deal with per-
sistent balance-​of-​payments crises. Import surcharges were first used from 1977 to 1979
in response to the cessation of capital inflows after the Soweto riots in 1976, from 1982 to
1983 following the collapse in the gold price, and then again in 1985 after a sovereign debt
crisis ensued following the ‘Rubicon Speech’ by the then President Botha (Cassim et al.
2009). These surcharges reached up to 60 per cent for luxury items. Like exports, by 1993
import volumes were only 28 per cent higher than they were in 1972. This stagnation
of South African trade is even more striking when compared to trends in global trade
volumes that grew by 140 per cent over the period 1972 to 1993.
The principal reason for the poor growth in aggregate export volumes was the decline
in gold production that close to halved over the period 1970 to 1994 (Feinstein 2005: 206).
Non-​gold exports of goods and services actually increased moderately. Manufacturing
exports, for example, grew sharply following the depreciation of the Rand in 1985, driving
up aggregate export volumes (Figure 21.1). However, this growth was primarily driven
by vent-​for-​surplus sales in response to excess capacity following the domestic recession
and not new investment in export-​oriented production facilities (Fallon and Pereira de
Silva 1994). Further, the growth in non-​gold exports was insufficient to fully transition
South Africa onto a manufacturing export-​led growth path, unlike what was happening in
Malaysia at this time (Hausmann and Klinger 2008). The implication was that the export
bundle by 1994 was still heavily dependent on gold and other commodities.
Several reasons underpin this lack of transition into a manufacturing export-​led growth
path during the 1980s. Bell et al. (2002) argue that the composition of South African exports
was primarily an outcome of macroeconomic forces, including economic growth, and ex-
ternal forces rather than a lack of an ‘export culture’, or the ‘anti-​export bias’ created by pro-
tection (Bell 1993, 1997; Bell et al. 2002). In particular, South Africa experienced its own
version of the Dutch Disease effect in response to the unexpected boom in the gold price
from just under 200 US dollars in 1978 to a peak of 850 US dollars in 1980. The effect was
a sharp appreciation (38 per cent) of the real effective exchange rate from 1978 to 1983 that
undercut the relative profitability of manufacturing exports, particularly non-​commodity
exports. Global economic stagnation and world economic crises (e.g. oil crises) of the 1970s
further reduced demand for South African manufactured goods.
These explanations, however, discount the impact of domestic policies and the se-
vere structural and political problems that undermined the competitiveness of the
manufacturing sector. Although South Africa had already initiated several tariff reforms
during the 1970s and 1980s with the tariffication of import quotas and removal of im-
port licences, the tariff structure remained complex, and protection high (Belli et al.
1993). The late 1980s saw import barriers rise in response to the imposition of import
surcharges, and the award of tariff protection to businesses struggling during the eco-
nomic downturn (Holden 1992; Bell 1993; Cassim et al. 2009).4 High effective protection

4 For a detailed overview of South Africa’s tariff policies, including the political economy of tariff

policy, see Holden (1992), Bell (1993), Bell (1997) Casale and Holden (2002), Edwards (2005), Edwards
(2011) and Hirsch and Hines (2005).
 South Africa’s International Trade    447

rates and tariffs on imported intermediate inputs meant that production for the do-
mestic market continued to be incentivized as opposed to sales for the export market
(Fallon and Pereira de Silva 1994). The anti-​export bias arising from tariff protection
was higher for non-​commodity manufactures given their greater dependence on inter-
mediate inputs in production. The consequence was that tariff protection reinforced
the commodity-​intensity of the manufacturing export bundle (Edwards and Lawrence
2008a, 2008b). Finally, although new export incentives were introduced under the
General Export Incentive Scheme (GEIS) in 1990 to offset some of the anti-​export bias,
they primarily benefited the large capital-​intensive manufacturers of intermediate
products such as paper, steel, and basic chemicals, who received huge tax-​free windfalls
on products they would have exported anyway (Hirsch and Hines 2005).
The transition into manufacturing exports was also impeded by inherent structural
constraints associated with South Africa’s mining and apartheid policies. The migrant la-
bour system was inconducive to the creation of manufacturing jobs, where resident labour
was required. Job reservations and education policies diminished the supply of relatively
skilled labour required in manufacturing production (Feinstein 2005). These constraints
revealed themselves in rising capital intensity of production and low total factor product-
ivity growth (0.05 per cent per annum from 1972 to 1983) (Belli et al. 1993). Rising wages
without concomitant increases in productivity further increased production costs, nega-
tively affecting manufacturing export performance (Edwards and Golub 2004). The com-
petitive basis for manufacturing to launch into exporting had not yet been achieved.
Externally imposed trade sanctions during the 1980s further constrained South African
export performance, although the extent of the impact is debated as the trade sanctions
were narrowly targeted (agricultural goods, uranium, coal, oil, and iron and steel) and
widely circumvented by South African firms (Lipton 1988; Manby 1992; Evenett 2002).
The most profound effect of the sanctions on manufacturing exports may actually be
the investment ban and the pressure placed on foreign firms to disinvest from the South
African economy in the late 1980s. This constrained access to foreign direct investment
at a key time when this was needed to integrate South African manufacturing firms into
global value chains that were to emerge as the driving force behind manufacturing trade.

21.3 Trade Liberalization from 1994

The democratic election of 1994 coincided with a dramatic shift in South Africa’s
policies towards an open trade regime achieved through a tariff liberalization pro-
gramme negotiated during the Uruguay Round of the GATT/​WTO.5 The tariff structure

5 While this section refers to South African tariffs, South Africa is part of the Southern African

Customs Union (SACU) and consequently adopts the common external tariff of SACU. However, South
Africa de facto makes tariff determinations on behalf of the other members.
448   Lawrence Edwards

was rationalized and import weighted tariff rates on manufactured goods, inclusive of
surcharges, fell from 19.9 per cent in 1994 to 9.6 per cent in 2000 (Cassim et al. 2009).
Although contested in the literature (Fedderke and Vase 2001; Cassim 2003; Rangasamy
and Harmse 2003), the reductions in nominal tariffs led to even larger reductions in ef-
fective protection from 43.3 per cent to 14.9 per cent for manufacturing over the period
1994–​2000 (Edwards 2005). Openness of the economy was further enhanced through
the removal of import surcharges and the ending of trade and investment sanctions.
What drove the dramatic reductions in tariff protection? One explanation is that
South Africa participated as a ‘developed’ country during the Uruguay negotiations and
was therefore required to adopt large and rapid cuts in protection. Despite this, there was
broad political support for tariff reform by business, government, and labour, as well as the
African National Congress, who through its alliance partner the Congress of South African
Trade Unions (COSATU), actively participated in the consultations leading up to the offer
(Hirsch and Hines 2005). Bell (1997) argues that their interest in binding tariff reductions
was to signal a clear departure in economic policies from the apartheid regime, induce in-
dustrial efficiency through the curbing of domestic monopoly power, and lower consumer
prices. The apartheid regime, in turn, was interested in removing levers of industrial policy
from the future government. Actual tariff cuts on clothing and motor vehicles went beyond
what was required under South Africa’s offer to the WTO, reflecting significant unilateral
trade liberalization (Bell 1997). Domestic policy reforms further enhanced the shift towards
an open trade regime. This includes the Growth, Employment, and Redistribution (GEAR)
macroeconomic policy in 1996 that aimed to transform South Africa into a ‘competitive,
outward orientated economy’ (Republic of South Africa 1996), and the deregulation of agri-
cultural marketing and control boards established under the Agricultural Marketing Act
of 1968. The opening up of the economy, therefore, primarily arose from a domestic policy
programme, as opposed to being externally imposed.
While multilateral tariff liberalization largely came to a halt from 2000, aggregate pro-
tection continued to fall through preferential trade agreements. During the 1990s and
early 2000s, the policy objective was to conclude free trade areas (FTAs) that covered
substantially all trade. These include the Southern African Development Community
(SADC) Free Trade Protocol (from 2000); the South Africa-​European Union (EU)
Trade, Development and Cooperation Agreement (TDCA) (from 2000), which was
replaced by the SADC Economic Partnership Agreement in 2016; and a free trade
agreement with the European Free Trade Association (EFTA) in 2008. The effect of
these agreements was a reduction in tariffs by 2018 to 3.36 per cent for EFTA members,
2.37 per cent for EU members, and close to zero for SADC members.6 In the case of
SADC, however, overly complex and restrictive rules of origin requirement preclude
many SADC countries from accessing the South African market at these preferential
tariff rates (Brenton et al. 2005).

6
Based on calculations using the ad valorem components of SACU tariff rates at the 8-​digit level of
the Harmonized System classification.
 South Africa’s International Trade    449

In 2007, the then named Department of Trade and Industry launched the National
Industrial Policy Framework (DTI 2007), which was followed in 2010 by the Trade
Policy and Strategy Framework (TPSF) (DTI 2010). These policy documents articu-
late a critical assessment of the impact of tariff liberalization on the South African
economy and outlined a new approach towards tariff determinations that were to be
‘conducted on a case-​by-​case basis, taking into account the specific circumstances
of the sector involved’ (DTI 2010: 3). Any tariff reductions were to be concentrated
in upstream intermediate input industries, while protection on downstream
industries was to be largely preserved. In addition, the TPSF outlined a narrower
and more ‘strategic’ objective with respect to trade and investment agreements. Less
emphasis was to be placed on negotiating comprehensive free trade agreements,
with the focus shifting to partial scope agreements that cover a narrower range of
products. Trade with the region was also to be emphasized. Finally, a more defensive
stance towards multilateral tariff liberalization under the World Trade Organization
was adopted.
An important strength of the new approach towards tariff policy is that it emphasizes
greater coherence between the use of tariff instruments and industrial policies. While
tariffs provide protection to domestic industries, complementary targeted industrial
policies are often required to alleviate the fundamental supply constraints giving rise to
the firm’s competitiveness problems. Nevertheless, South Africa’s current trade policy
faces several severe limitations.
The policy is heavily focused on domestic concerns and has the danger of placing
South Africa at a disadvantage as its exporters seek access to the growing emerging
economies (Edwards and Lawrence 2012). On the multilateral liberalization front, two
of South Africa’s explicit objectives are to enhance market access to developed countries,
as well as to eliminate industrial countries’ subsidies and support to agriculture. Yet,
tariff barriers imposed by emerging economies on South African exports far exceed
those by developed economies where in several cases South Africa already has prefer-
ential access (e.g. the EU, the United States under the African Growth and Opportunity
Act, and Japan through the Generalized System of Preferences). The shift in focus to-
wards partial scope trade agreements, as reflected in the agreement with the Southern
Common Market (MERCOSUR) (from 2016) and a proposed agreement with India,
also do not give South Africa the same market access benefits that would be achieved
under a comprehensive free trade area (Edwards and Lawrence 2012).
In contrast, the prospects for improved market access into the region are stronger.
SACU members commenced negotiating the establishment of a free trade area between
the Common Market for Eastern and Southern Africa (COMESA), the East African
Community (EAC) and the SADC. This process has been surpassed by negotiations
around establishing the more extensive African Continental Free Trade Area (AfCFTA)
that commenced from 2021. Subject to the finalization of tariff phase-downs, sensi-
tivity lists, and rules of origin requirements, the AfCFTA agreement has the prospect
of providing South African firms with improved market access into the large regional
economies of Nigeria, Egypt, and Kenya.
450   Lawrence Edwards

A second concern with South Africa’s trade policy is that the commitment to deal with
tariffs on a case-​by-​case basis is unlikely to resolve the complexities and inefficiencies
in the current tariff structure that reflect the outcomes of historical policies. For ex-
ample, Edwards and Lawrence (2008b) find high levels of differentiation in tariff rates
within narrow industry groupings and argue that the tariff structure is costly in terms
of supporting employment, and, given relatively high tariffs on consumer goods, is re-
gressive in its impact on income distribution. An approach that sets individual tariffs
differentially is also prone to be captured by politically connected and economically
powerful vested interest groups. See, for example, Chapter 17 in this volume, which
discusses how corporate strategies of large lead firms dictate policy outcomes. Edwards
and Lawrence (2008b) recommend a simpler tariff structure comprising a few tariff
bands, with explicit processes and rules regarding exemptions for industrial policy
purposes. A simpler tariff structure would also facilitate the conclusion of regional trade
agreements, in particular customs unions that are the objective of the SADC agreement
as well as the AfCFTA.7
The defensive approach by the Department of Trade, Industry and Competition to-
wards tariff setting has been evident in active use of tariffs to protect domestic industries,
including wearing apparel, food products (chicken, wheat, sugar), machinery (top-​
loaded washing machines), and iron and steel products (tubes, pipes, hollow profiles),
amongst others. In several cases, the tariff increases are part of a package of incentives
for, and commitments by retail outlets to source locally and producers to invest in pro-
ductive capacity (e.g. the Retail-​Clothing, Textile, Footwear and Leather Master Plan)
reflecting the sectoral approach to industrial policy. A shift towards a more protective
stance is also reflected in the 2017 amendments to the Preferential Procurement Policy
Framework Act, which require all organs of the state to purchase designated products
locally. As of early 2020, twenty-​seven products with local content thresholds ranging
from 30 per cent to 100 per cent have been designated for local procurement. While
localization may have the capacity to raise demand for targeted domestic products, its
limitation is that, as a programme, it is unable to deal with structural impediments to
supply that cut across all industries, or serve as an instrument to enhance competitive
exports.

21.4 Trade Performance from 1994

Post-​1994 trends in South African trade flows have been studied extensively using
aggregate and industry-​level data. Increasingly, the focus has shifted towards
analysing product-​and firm-​level data as this has become available. A common

7
For analysis emphasizing the importance of sub sector specific trade and industrial policies, see
Roberts (2000) and DTI (2010).
 South Africa’s International Trade    451

theme in much of the literature has been the extent to which exports have grown
and diversified (Roberts 2000; Hausmann and Klinger 2008; Purfield et al. 2014;
Bhorat et al. 2019).
The aggregate trends in trade flows post-​1994 are shown in Figure 21.1. Export and im-
port volumes rose strongly relative to GDP from 1994, but faltered during the 1997 Asian
and 1998 Russian financial crises, and then again in the early 2000s. From 2004 to 2007,
exports grew very strongly, driven by the commodity boom, but imports rose even more
sharply leading to a current account deficit of 5.5 per cent of GDP in 2008. Towards the
end of 2008, trade volumes collapsed in response to the global financial crisis. While im-
port growth recovered relatively quickly, growth in export volumes has been tepid, even
lagging the weak GDP growth. By 2019, export volumes were only 3 per cent higher than
they were in 2008 and comprised a lower share of real GDP (29.5 per cent vs 32.5 per
cent), whereas import volumes were 17 per cent higher, leading to continued pressure on
the current account.
Behind these aggregate trends lie important changes in the geographic, industry,
product, and firm composition of trade flows. These aspects are discussed in the
following sub ​sections.

21.4.1 Diversification of Exports—​Industry, Product,

and Firm Dynamics
Table 21.1 shows evidence of broad changes in the industry composition of South
Africa’s export bundle from 1990. The importance of gold continued to decline with
manufacturing emerging as the dominant source of exports, reaching 64 per cent of
goods exports in 2019. The industry composition of manufacturing exports also saw
some diversification, with the share of medium-​technology products rising from 29
per cent in 1990 to 46.3 per cent in 2019. The principal determinants of this increase
are exports of motor vehicles and machinery and equipment. Motor vehicles and other
transport equipment alone made up 28.5 per cent of the total value of manufacturing
exports in 2019. Much of this growth can be attributed to the export and investment
incentives provided under the Motor Industry Development Programme (1995–​2012)
and the Automotive Production Development Programme (APDP) from 2012 (Black
2011; Madani and Mas-​Guix 2011).
Export growth, however, was not only concentrated in the vehicle industry. Using
data for manufacturing at the 3-​digit Standard Industrial Classification (SIC) level
reveals that exports rose as a share of sales in almost all industries, reflecting the broad-​
based re-​orientation of production towards exports.8 These broad-​based outcomes, in

8 Exports as a share of total sales rose in thirty-​six of the forty-​four industries from 1995 to 2010,

with an average increase of 7.6 percentage points. Very large increases (over 20 percentage points) were
experienced in machinery, electrical equipment, and motor vehicle industries.
452   Lawrence Edwards

part, reflect the outcome of reductions in the anti-​export bias arising from lower im-
port tariffs. Edwards and Lawrence (2008a), for example, calculate that reductions in
the implicit export tax from tariff liberalization from 1988 to 2003 was equivalent to an
improvement in export profitability of 34 per cent for commodity manufacturing and a
much higher 60 per cent for non-​commodity manufacturing. Further, their estimates
reveal that a significant portion of manufacturing export growth and diversification into
non-​commodity products from 1990 to 2002 can be attributed to reductions in the anti-​
export bias from trade liberalization.9
Drilling down to the firm level also reveals widespread participation in exporting,
irrespective of the industry classification (Matthee et al. 2018), as well as a close asso-
ciation between exporting and importing (Edwards et al. 2018, 2020). Manufacturing
exporters that import are also more productive, are less likely to exit from exporting,
have higher average export values (R14.4 million vs. R2.2 million), export more products
per destination (9.4 vs. 7.6), and to more destinations per product (2 vs. 1.4) compared
to exporters that do not import (Edwards et al. 2018). The implication is that improved
access to imported intermediate inputs and the backward integration of exporters into
global intermediate input supply chains that was made possible by tariff liberalization
have played a prominent role in driving South Africa’s post-​1994 export performance.
For a further disaggregated perspective, Table 21.2 presents several measures of concen-
tration, competitiveness, and export sophistication based on disaggregated product-​level
export data (the 3-​or 4-​digit level of the Standard International Trade Classification or the
6-​digit level of the Harmonized System [HS]) for South Africa. These indicators provide
further evidence of changes in South Africa’s export bundle. South Africa exports a wide
range of products with an export presence in over 90 per cent of possible 6-​digit HS lines
in all years. The range of countries it exports to high and increased from 194 in 1995 to
218 in 2019. The number of product varieties (defined as 3-​digit SITC product-​destination
combinations) rose from 11,633 to 18,345 over the period, reflecting a diversification
of South Africa’s export bundle. More than half of this increase took place from 1995 to
2000 when tariffs fell most strongly. According to the Revealed Comparative Advantage
measures, the number of 4-​digit SITC products that South Africa is revealed to be com-
petitive in, rose from 179 to 253 from 1995 to 2000, but this number then declined to 177
by 2019.
The concentration of exports, however, has risen, as is reflected by the rising share of
total exports accounted for by the top five destinations (36.9 per cent to 43.2 per cent)

9 Other studies that find a statistically significant positive relationship between aggregate or industry-​

level exports and tariff reductions include Tsikata (1999), Alves and Edwards (2006), and Edwards and
Lawrence (2008a). These findings contrast with the argument by Trevor Bell who, in several articles,
argued that the performance and composition of exports was primarily an outcome of macroeconomic
forces, including economic growth and changes in the real exchange rate associated with international
commodity prices (particularly gold) rather than a lack of an ‘export culture’, or the ‘anti-​export bias’
created by protection (Bell 1993, 1997; Bell et al. 2002). The results also contrast with the argument
made by the DTI (2010: xiii) that trade liberalization reinforced export specialization in resource-​based
products that reflect South Africa’s ‘static comparative advantage’.
 South Africa’s International Trade    453

and the top five products (at 3-​digit level, excluding gold) (32.3 per cent to 43.5 per cent)
over the period 1995 to 2019 (Table 21.2). Concentration levels are even higher when
using trade transaction data. Purfield et al. (2014: 21) use South African customs and ex-
cise transaction data for 20,000 firms from 2001 to 2012 and find that the top 5 per cent
of South Africa’s exporting firms account for more than 90 per cent of its exports—​a
comparatively high share compared to many other emerging economies. Relatively low
entry rates compared to many other emerging economies (Purfield et al. 2014; Edwards
et al. 2018), as well as a large degree of churn amongst smaller exporters (Matthee et al.
2018), imply that new entrants fail to make a substantive impact on export concen-
tration. As a consequence, the contribution of new exporters and products to export
growth remains low (and falling) (Purfield et al. 2014; Matthee et al. 2016a).
The firm-​level data therefore point to a lack of dynamics in the firm composition of
South African exports that impedes the diversification of South Africa’s export bundle.

Table 21.2: Indicators of export concentration and complexity

1995 2000 2010 2019

Measures of concentration
Number 6-​digit HS products exported (as % total 4,696 4,690 4,551 4,451
possible lines) (93%) (94%) (94%) (95%)
Number destinations 194 208 212 218
Number 3-​digit STIC product-​destinations 11,633 15,310 17,616 18,345
Share top 5 destinations 36.89 39.48 39.19 43.22
Share top 5 products, excl. gold 32.3 34.8 41.2 43.5
Measures of competitiveness and complexity
Number of products with RCA 179 253 195 177
Economic Complexity Index 0.31 0.27 0.13 -​0.02
Complexity Outlook Index 1.24 2.25 1.60 1.37
World market share: merchandise exports (%) 0.58 0.50 0.60 0.48
World market share: manufacturing exports (%) 0.36 0.34 0.47 0.38

Source: Own calculations using data from Un Comtrade via World Integrated Trade Solution, Harvard
Growth Lab’s ATLAS of Economic Complexity (https://​atlas.cid.harvard.edu/​) and the World Trade
Organization (https://​data.wto.org/​).
Notes: RCA denotes Revealed Comparative Advantage and is based on 4-​digit SITC Rev. 2 data. A value
greater than 1 implies that the share of the product in South African exports exceeds the share of
that product in world exports. The Complexity Outlook Index (COI) is a measure of how many complex
products are near a country’s current set of capabilities. A high COI value reflects an abundance of
nearby, complex products that rely on similar capabilities as those present in current production. The
Economic Complexity Index is a measure of the knowledge in a society as expressed in the products it
makes. The economic complexity of a country is calculated based on the diversity of exports a country
produces and their ubiquity, or the number of the countries able to produce them (and those countries’
complexity). The higher the index, the greater the economic complexity.
454   Lawrence Edwards

South Africa also appears to differ from other emerging economies where the concen-
tration of exports is truncated by too few large exporters (Fernandes et al. 2016). In con-
trast, the relatively high export concentration amongst firms in South Africa points to the
presence of a ‘missing’ middle. More firm-​level research is required to understand the dy-
namics behind this, but this feature of trade is consistent with the arguments presented in
Chapters 17 and 25 of this volume that market power and concentration in South Africa
have inhibited the emergence of competitive small and mid-​sized firms.
Despite some diversification of the export bundle, resource-​based products re-
main a salient feature of the country’s export profile, accounting for 43.2 per cent of
manufacturing exports in 2019 (Table 21.1). If mining and agricultural sector exports are
included, their combined value makes up 63 per cent of the total value of South Africa
exports of merchandise goods. Given South Africa’s abundance in natural resources, re-
source-​based products are expected to be a prominent feature of South Africa’s export
bundle. Nevertheless, several factors worked to amplify the contribution of resource-​
based products to South African exports post-​1994. Industrial policy, particularly in the
1990s, continued to incentivize large-​scale capital-​intensive projects in minerals-​inten-
sive industries such as the non-​ferrous metals and basic iron and steel sub s​ ectors. These
incentives took the form of an accelerated depreciation allowance (e.g. to Columbus
Stainless Steel and the Saldanha Steel plant), tax relief under the Strategic Industrial
Projects programme, artificially low electricity prices by Eskom, and investment
support for large-​scale mineral beneficiation projects by the state-​owned Industrial
Development Corporation. For fuller discussions on these incentives and industrial
policy in South Africa, see ­Chapters 17, 18, and 24 in this volume.
As will be discussed in more detail later, the rapid growth of China and its demand for
resources in the 2000s reinforced this trend. The resultant commodity boom re-​orientated
South African exports towards resource-​based and primary products, while Chinese
exports crowded out South African manufacturing exports in third markets (Edwards
and Jenkins 2014, 2015b). Chinese competition also displaced domestic manufacturing
production, undermining the supply base (Edwards and Jenkins 2015b). This initiated a
particular form of deindustrialization—​a shift of the economy into extractive industries,
rather than into services (Imbs 2013).10 A further contributing factor is market power by
entrenched lead firms in the upstream petrochemical and metals industries. This has
resulted in above-​competitive price levels for intermediate inputs, thus undermining the
competitiveness of downstream industries (see ­Chapter 25 in this volume).
One important caveat to the above analysis is services trade that is not shown in Table
21.1. According to South African Reserve Bank data, the growth in exports of services
exceeded that of goods from the mid-​1980s, with their share in the value of total exports
rising from 9 per cent in 1985 to 14 per cent in 2019 (with a peak of 18 per cent in 2003).

10 Based on South African Reserve Bank data, the share of mining in nominal gross value added rose

from 7.4 per cent in 2000 to 9.2 per cent in 2008. The share of mining in real GDP, however, fell from
13 per cent to 9.4 per cent over this period, reflecting a very weak real output response in mining to the
commodity boom.
 South Africa’s International Trade    455

The bulk of these services exports comprise travel and transport services (over 70 per
cent share), but with the rise in trade through global value chains, the share of business
and financial services has risen in importance. The contribution of services to exports is
even more important if indirect linkages are taken into account. In value-added terms,
services account for close to 40 per cent of South Africa’s exports, indicating the inten-
sive dependence of exporters on services inputs.11

21.4.2 Geographical Diversification
A further avenue for diversification is through the expansion of exports into new
markets. At the aggregate level, there have been substantial changes in the geographical
composition of South African exports. In 1995, the United Kingdom was the primary
export destination accounting for 11 per cent of South Africa’s export value (excluding
gold, platinum, and unspecified products), but by 2019 it had fallen out of the top five
destinations. China, which ranked as the eighteenth most important destination in 1995,
emerged as South Africa’s top export destination from 2009/​10, accounting for 15 per
cent of the country’s exports of goods in 2019.
For manufacturing goods, diversification into Africa, driven initially by the ending of
sanctions and from 2001 by the reductions in tariffs under the SADC FTA together with
relatively strong economic growth in the continent, has been a major contributor to ex-
port growth. The share of SADC countries (excluding exports to other SACU members)
in total South African exports rose from 7.1 per cent in 1994 to 13 per cent in 2019. If South
African exports to other SACU members are included, the SADC share is a high 26 per
cent in 2019. These exports are ‘desirable’ from an industrialization perspective as they
are strongly oriented towards manufactured goods. The implication is that, including
SACU exports, Africa accounts for around half of South Africa’s non-​mineral exports
(Purfield et al. 2014). In addition to being a source of demand for manufactured goods,
this trade has been accompanied by rapid growth in services alongside significant foreign
direct investment (FDI) from South African countries in sectors such as retail, banking,
insurance, transport, and business support services (Arndt and Roberts 2018). The estab-
lishment of the South African retail chains in the region has been particularly effective as
a conduit for South African goods to enter into the African markets. For a fuller discus-
sion on South African retail chains in the region, see ­Chapter 19 in this volume.
The product-​and firm-​level growth dynamics behind South African export trade to
the region also differs from those of the rest of the world. Using South African Revenue
Services (SARS) administrative data for, on average, 29,000 firms (5,700 exporters) per
year from 2010 to 2013, Matthee et al. (2018) find that firms exporting to SADC and other
African countries export a smaller proportion of their output, export less sophisticated

11
Own calculations drawing on the OECD Trade in Value Added data obtained from https://​stats.
oecd.org.
456   Lawrence Edwards

products, are more capital‐intensive, pay lower wages, and present no productivity pre-
mium between them and domestic‐orientated firms. Using transaction data over the
earlier 2001 to 2012 period, Purfield et al. (2014) find that exports to sub-​Saharan Africa
are less concentrated (top 1 per cent account for 46 per cent of export value, vs. 80–​
85 per cent for BRICS and EU), and the average export spell of products is shorter, the
value of new exporters lower, and growth of surviving exporters also lower. However,
the survival rates of firms exporting to Africa is higher than other regions.
The African market will continue to play an important role in driving the growth and di-
versification of South African exports, considering its rising population and the proposed
implementation of the African Continental Free Trade Agreement. The expectations are
high. As President Ramaphosa declared in his acceptance statement on assuming the chair
of the African Union for 2020 on 9 February 2020, AfCFTA is expected to ‘reignite indus-
trialisation and pave the way for Africa’s integration into the global economy as a player
of considerable scale’.12 However, the nature of the products exported and ad hoc use of
the African market by South African firm—​exporting when opportunities come rather
than seeking them out (Purfield et al. 2014)—​suggests more moderate expectations may
be required of the potential of trade with Africa to serve as a springboard for South African
industrialization and entry into highly competitive global markets.

21.4.3 Structural Transformation at the Product Level

Other research on exports has focused on the implications of structural shifts in the
product composition of South African exports for growth and factor usage (Hausmann
and Klinger 2008; Purfield et al. 2014; Bhorat et al. 2019). For example, Purfield et al.
(2014) use product-​level indicators of revealed factor intensity to show that South
Africa’s exports are concentrated in products with human capital and physical cap-
ital intensities beyond the country’s endowments (see also Matthee et al. 2016b). This
finding corresponds with that of Alleyne and Subramanian (2001) who use industry
data during the 1990s to show that South Africa is paradoxically revealed through trade
to be relatively capital abundant and a net exporter of capital-​intensive goods. Similarly,
at the firm level, compared to domestic-​oriented firms, manufacturing exporters are
larger, more productive, pay higher wages, and are more capital-​and skill-​intensive
(Matthee et al. 2016a, 2018: 104; Edwards et al. 2018). The product and firm compos-
ition behind South Africa’s exports thus gives rise to a mismatch between the intensity
of factors demanded in exports and the endowments available. The implication of this
finding is that continued export growth under the current structure is unlikely to absorb
less-​skilled labour, which accounts for much of South Africa’s unemployed.
Hausman and Klinger (2008) and Bhorat et al. (2019) present an alternative approach
to analysing South Africa’s structural transformation and path dependence by locating

12
http://​w ww.thepresidency.gov.za/​speeches/​acceptance-​statement-​president-​c yril-​ramaphosa-​
assuming-​chair-​african-​union-​2020.
 South Africa’s International Trade    457

its exports within a product space representation of the relatedness of products

developed by Hidalgo et al. (2007). Within this network are core areas where products
are proximate, plentiful, and easy for economies to transition into, and peripheral areas
where products (typically primary products) are more distant with fewer connections.
Rapid development is associated with transition into the dense part of the network
(Hidalgo et al. 2009).
Bhorat et al. (2019) use graphical visualizations of the product space to illustrate key
features of South Africa’s export structure. Products where South Africa has a compara-
tive advantage are rooted in commodities (platinum, iron ore and concentrates, coal,
gold and diamonds), horticulture (citrus, apples, potatoes, sugars) and agro-​processing
(juices, sugar products, edible products, eggs, jams, etc.) that are largely in the periphery
of the product space and have weak links into the dense part of the network. Only a few
products, such as passenger vehicles, filtering and purifying machinery, construction
and mining machinery, and pumps for liquids, are located within the dense part of the
network.
Using similar diagrams, Hausmann and Klinger (2008) illustrate that there was some
re-​orientation of the export basket towards the centre from 1995 following trade liberal-
ization, but the transition was weak relative to countries such as Malaysia that developed
capabilities in the export of electronics-​related goods from the 1980s. Bhorat et al. (2019)
extend this analysis to compare 1995 with 2015 and also find evidence of weak structural
transformation. They argue that South Africa actually experienced declines in the com-
plexity of its export bundle (Economic Complexity Index) and proximity to unexploited
product diversification opportunities (Opportunity Value Index) over this period, but a
closer look at these measures presented in Table 21.2 shows that the decline takes place
after 2000. The period 1995 to 2000, is characterized by rising or stable indicators of
Economic Complexity and Opportunity Value. Nevertheless, the overall implica-
tion drawn from the analyses is that South Africa’s endowments in natural resources,
combined with its location on the periphery of the product space, have impeded struc-
tural transformation.
The post-​1994 period thus presents a mixed picture with respect to growth and diver-
sification of South Africa’s export bundle. The overall picture is one in which there was
relatively strong growth and diversification of exports from 1995 to 2000, with stagna-
tion or reversal in some of these gains subsequently. The following section looks at the
implications of these trends for output and employment in manufacturing.

21.5 Trade, Labour,

and Deindustrialization

The liberalization of the economy has had far-​reaching implications for produc-
tion, productivity, prices, trade, and employment, amongst others, and has initiated
458   Lawrence Edwards

considerable debate on the merits of the policy. This is to be anticipated as the impact
of trade liberalization does not fall equally across all in society. A comprehensive evalu-
ation of the impacts of liberalization on the economy is beyond the scope of this chapter.
Rather, this section updates the prior reviews by Edwards (2006) and Cassim et al.
(2009) and presents new data to analyse the relationship between trade, production,
and employment.
While the post-​1994 period saw increases in trade volumes and export-​orientation,
these trends corresponded with declines in manufacturing employment both in abso-
lute levels and as shares of total employment. Depending on the data used, total em-
ployment in manufacturing fell from 1.43 million in 1994 to 1.3 million in 2000, and
then further to 1.2 million in 2019.13 Manufacturing’s share of non-​agricultural employ-
ment also fell from between 17 and 19 per cent in 1994 to under 12 per cent by 2019.
Some of the decline in manufacturing employment can be attributed to outsourcing-​
type reallocation and reclassification of services such as cleaning and security (Tregenna
2010). Nevertheless, the relatively poor manufacturing employment growth raises
concerns that trade liberalization accelerated the process of deindustrialization that had
commenced from the early 1980s.
To study the relationship between trade, production, and employment over the
period 1992 to 2019, Table 21.3 presents a Chenery-​style decomposition of output
growth and employment growth in manufacturing into Final Demand, Exports, Import
Penetration, and Technology.14 The decomposition extends the work of Edwards and
Jenkins (2015a) and therefore also isolates how China affects output and employment.
While these decompositions face several limitations (Edwards and Jenkins 2015a), they
are informative in providing a broad overview of structural changes in demand, trade,
and technology in the economy and how these relate to output and employment growth.
Several key features regarding South Africa’s post-​1994 growth in manufacturing can be
identified from Table 21.3. Output growth, which initially grew by a high 26.5 per cent
from 1992 to 2001, declined sharply over the following two periods 2001–​10 and 2010–​
19. The dominant driver of this trend is domestic demand which accounts for most of the
aggregate growth in the sector. Growth in exports also contributed significantly towards
raising output, particularly in the first period 1992–​2001 where it raised output growth
by 17 per cent. However, export growth only raised employment by 15.9 per cent over
the full period—​less than half its impact on output. This reflects the capital-​intensity of

13
The data for 1994 and 2000 are obtained from Statistics South Africa Survey of Employment
and Earnings (P0271), while the data for 2019 are obtained from the Quarterly Employment Statistics
(P0277).
14 The decomposition method is described as follows: gross output (X) is expressed as X = dD + E,

where d is the ratio of domestically produced goods to total demand, D is total demand (inclusive of
imports) and E is exports. This relationship can be decomposed into changes in demand (ΔD), export
expansion (ΔE) and import penetration (ΔdD) as follows: ΔX = dΔD+ΔdD+ΔE. This method can be
extended to study change in employment by decomposing total employment (N) into nΔX+ΔnX, where
n is employment per unit output X. The final term, ΔnX, is an indicator of how technological change
affects employment.
 South Africa’s International Trade    459

Table 21.3: Contribution to output and employment growth in manufacturing as share

initial total output or employment, 1992–​2019
1992–​ 2001–​ 2010–​ 1992–​2019
2001 10 19
Ultra-​L Medium Capital-​
Total intensive L-​intensive intensive

Decomposition of output
Growth of Domestic Demand 19.8 17.1 9.4 54.6 32.7 59.7 61.1
Increased exports 17.0 3.4 6.8 30.8 6.9 16.9 47.0
(of which exports to China) 0.3 0.6 0.3 1.4 0.2 0.6 2.3
Increased import penetration –​10.2 –​9.4 –​6.9 –​31.9 –​25.7 –​29.0 –​35.7
(of which imports from China) –​1.2 –​5.5 –​4.4 –​14.3 –​16.1 –​18.8 –​11.5
Net trade 6.8 –​6.0 –​0.2 –​1.1 –​18.8 –​12.1 11.3
% Change in Output 26.5 11.1 9.2 53.5 13.9 47.5 72.4
Change Output (Rmill) 142.1 74.9 69.6 286.6 16.1 64.1 206.4
Decomposition of employment
Growth of Domestic Demand 12.8 17.9 7.5 34.3 23.1 43.7 41.5
Increased exports 13.0 0.8 2.7 15.9 8.2 13.4 28.3
(of which exports to China) 0.2 0.3 0.3 0.7 0.2 0.4 1.7
Increased import penetration –​8.3 –​9.0 –​8.7 –​23.2 –​20.8 –​23.8 –​25.9
(of which imports from China) –​1.5 –​7.0 –​5.3 –​11.9 –​12.9 –​11.0 –​11.3
Net trade 4.6 –​8.2 –​5.9 –​7.3 –​12.6 –​10.4 2.4
Productivity –​31.4 –​14.5 2.5 –​41.8 –​45.0 –​36.9 –​41.5
% Change in Employment –​13.9 –​4.8 4.1 –​14.7 –​34.5 –​3.6 2.5
Change Employment (‘000) –​197.6 –​58.6 48.0 –​208.3 –​205.8 –​13.4 11.0

Source: Own calculations extending Jenkins and Edwards (2015a) using trade data obtained from UN
Comtrade via World Integrated Trade Systems, and employment and output data obtained from Statistics
South Africa.
Notes: Based on forty-​four manufacturing industries at the 3-​digit level of the SIC. Ultra-​labour-​intensive
and capital-​intensive groups comprises of the top and bottom third, respectively, of industries according to
average sales per worker from 1992–​2019. Medium-​labour-​intensive makes up the remaining industries.
Output and trade data are deflated using industry producer price indices obtained from Statistics South
Africa. The calculations assume common deflators for output and trade values within each industry.

South Africa’s export bundle as well as the much stronger contribution of exports from
capital-​intensive industries to growth in output (47 per cent) and employment (28.3 per
cent) compared to exports from ultra-​labour-​intensive industries (6.9 per cent and 8.2
per cent, respectively).
The contribution of exports to output growth over the full period, however, was
completely offset by rising import penetration that resulted in a small negative 1.1
460   Lawrence Edwards

per cent net trade impact. Looking within manufacturing, net trade reduced output
and employment growth in the ultra-​labour-​intensive and medium-​labour-​intensive
industries but contributed positively toward growth in capital-​intensive industries.
This structural shift in net trade towards capital-​intensive and skill-​intensive sectors
is also found in the factor-​content analyses of Bell and Cattaneo (1997) and Edwards
(2001a).
Looking across the sub-​periods, net trade had a positive impact on output and em-
ployment growth from 1992 to 2001 when tariff liberalization was at its most intense, as
is also found by Edwards (2001a, 2001b), Jenkins (2008), Dunne and Edwards (2007),
and Edwards and Jenkins (2015a). The contribution of net trade only turned negative
from 2001 as import penetration continued to rise very strongly and export growth
slowed. China is a central factor behind this change. Following its entry into the World
Trade Organization in 2001 and its rapid economic growth, commodity prices boomed,
and Chinese exports grew sharply. This had direct and indirect effects on the South
African economy. Indirectly, the commodity price boom improved South Africa’s terms
of trade, initiating a rise in commodity exports and improvements in South Africa’s
growth that stimulated demand for manufactured imports. The real effective exchange
rate appreciated, depressing growth in non-​commodity manufactured exports that
declined as a share of trade (see Table 21.1).
More directly, imports from China rose rapidly and by 2009 China had become
South Africa’s most important trading partner, surpassing the United States as a des-
tination for exports, and Germany as a source of imports. Although increased imports
from China partly replaced imports from other countries, Edwards and Jenkins (2015a)
find that most of the increase in Chinese penetration of the market was at the expense
of local production. The decompositions in Table 21.3 show that import penetration
by Chinese goods reduced output (employment) by 5.5 per cent (7 per cent) from 2001
to 2010 and by 7 per cent (5.3 per cent) from 2010 to 2019, with the strongest impact
in the ultra-​labour-​intensive sectors. In contrast to the impact of imports, exports of
manufactures to China did not add significantly to industrial growth. The net export
effect of exports to China may actually be lower than presented in Table 21.3, as Edwards
and Jenkins (2014, 2015b) estimate that Chinese competition crowded out South African
exports, particularly in African markets, with the strongest effects in medium-​and low-​
technology products.
As found in the other similar decomposition studies (Edwards 2001a; Jenkins
2008; Dunne and Edwards 2007; Edwards and Jenkins 2015a), the primary source of
employment losses are productivity improvements within industries that lowered
manufacturing employment by 41.8 per cent (or half a million jobs) from 1992 to
2019. However, some of this productivity improvement is itself explained by inter-
national trade, as is found at the aggregate level by Jonsson and Subramanian (2000)
and Fedderke (2002). Productivity improvements associated with international trade
are also found at the firm level. Using SARS administered firm data from 2010 to 2013,
Matthee et al. (2018) estimate total factor productivity premiums of 5 per cent for
exporters compared to firms only selling to the home market. This rises to 8–​10 per cent
 South Africa’s International Trade    461

for firms that export outside of Africa and is also higher for multi-​destination exporters.
Edwards et al. (2020) also use the SARS administered data and show how the use of
imports by manufacturing firms raises productivity through access to a wider range of
inputs and technology transfer. These results suggest that compositional shifts towards
exporters and increased use of imported intermediate inputs in response to liberaliza-
tion or competition from China account for some of the job losses through productivity
growth shown in Table 21.3.
Trade may also have contributed towards the persistence in wage inequality that has
been a dominant contributor to the rising Gini coefficient in South Africa (Wittenberg
2017) (see also C
­ hapter 9 in this volume, which provides a fuller discussion on inequality
in South Africa). South African manufacturing exporters pay higher wages and employ
relatively skilled labour compared to non-​exporters (Matthee et al. 2018). The within-​
firm dispersion of wages is also higher amongst exporters (Matthee et al. 2017). Growth
in manufacturing exports will thus have raised the relative demand for skilled and high
wage workers, placing additional pressure on wage inequality.
One limitation of the above research is that it ignores potentially important regional
variations in the impact of trade reform. Erten et al. (2019) and Lepelle (2020) respond
to this shortcoming by focusing on the local labour market impacts of trade liberaliza-
tion. Using a panel of cross-​sectional household data from 1994 to 2004, Erten et al.
(2019) find that workers employed in districts facing larger tariff reductions experienced
a significant decline in employment, driven primarily by a decline in manufacturing
sector employment. The displaced workers tend to exit the labour force entirely and
access government transfers, rather than transition into other sectors or migrate to less
affected regions. These effects were stronger in regions with relatively high union and
unemployment rates. Lepelle (2020), using more aggregated regional data over a longer
period, from 1996 to 2011, finds similar results, but shows that declines in employment
were concentrated amongst females. These papers are insightful in that they highlight
how labour market rigidities to the relocation of workers across industries or locations,
combined with differences in industry composition across regions, result in distinct
local labour market outcomes from trade liberalization. There is much scope for further
research in this area, including a study of how growth in exports impacted on local-​level
employment.

21.6 Conclusion

South Africa faces an export predicament. The country has experienced a long-​run
decline in its export performance relative to its peers. Its macro-​competitiveness has
also diminished, implying that an acceleration in economic growth will not be possible
without substantially improving export growth. This chapter analyses South Africa’s
participation in international trade as a way to better understand the dynamics behind
South Africa’s economic performance.
462   Lawrence Edwards

A key constraint to South Africa’s growth potential that was already apparent from
the 1970s is its failure to transition out of gold exports into an export-​led growth path
driven by manufacturing or an alternative commodity. The chapter highlights several
early reasons that underpin this failure—​commodity dependence and booms, struc-
tural constraints and isolation from international markets through the imposition of
sanctions, and domestic policies that constrained access to imports.
The 1990s saw a dramatic opening up of the economy through trade liberalization,
and a rise in both exports and imports as a share of output and consumption. However,
this did not lead to a sustained transition of the economy onto an export-​led growth
path, as was envisaged under the GEAR macroeconomic framework. While tariff lib-
eralization reduced the anti-​export bias and stimulated export growth and diversifica-
tion, these impacts were not sustained. An active industrial policy, implemented from
2007, also failed to make a significant mark on exports outside of motor vehicles. Trade
liberalization also exposed South African manufacturing firms to increased competi-
tion, leading to employment losses, particularly in labour-​intensive industries, such as
wearing apparel. The continued vulnerability of the South African manufacturing in-
dustry, which had not yet transitioned onto a competitive export-​oriented growth path,
was further exposed by China’s export-​led boom from 2001.
Although not discussed in detail in the chapter, South Africa appears to have fallen
into a lower-​level growth equilibrium following the financial crisis in 2007/​8. Export
and output growth in manufacturing and the rest of the economy has been very weak. In
contrast, imports have continued to rise, placing continued pressure on South Africa’s
balance of payments. The decline in commodity prices after 2008 and weaker global
growth in trade volumes explain some of this performance. A slow recovery in global
trade following the COVID-​19 pandemic will place further external demand pressures
on South African exports.
However, deeper and more structural supply factors are the primary constraints to
an export growth recovery. The lack of supply dynamism is reflected in the firm ex-
port data that reveal low levels of entry, declining product ranges, high and rising levels
of concentration (Purfield et al. 2014), and a diminished responsiveness of exports to
the exchange rate (Hlatshwayo and Saxegaard 2016; Edwards and Hlatshwayo 2020).
Adverse supply conditions include high trade costs linked to freight, transport, and port
services provided by state-​owned enterprises (Purfield et al. 2014); repetitive electricity
shortages; policy uncertainty (Hlatshwayo and Saxegaard 2016); and lack of competi-
tiveness in the domestic market (Purfield et al. 2014), amongst others. As manufacturing
production has become more skill-​intensive, globally and locally, the education system
has struggled to increase the supply of more skilled labour, a constraint that was also
prevalent during apartheid. Without resolving these supply constraints, it is unlikely
that export growth will improve substantially.
The AfCFTA presents an exciting opportunity to expand and diversify South African
manufacturing exports. With a growing large population, the continent presents an
important source of future demand for South African manufactured goods. However,
South Africa’s highly unbalanced trade with Africa, given its low imports from the
 South Africa’s International Trade    463

region, poses a threat to the successful implementation of the trade agreement. Looking
at other sectors, services trade, including maintenance and support services to the re-
gion, business process outsourcing (e.g. call centres), and tourism are identified as key
opportunities to expand exports (Arndt and Roberts 2018). Realizing these outcomes
will require active intervention by the state to improve domestic market conditions and
conclude international institutional agreements (e.g. trade, investment, and services
agreements) that govern trade.

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 Chapter 22

Innovation a nd
t echnol o gica l c ha ng e
in Sou th A fri c a

Erika Kraemer-​M bula

and Rasigan Maharajh

22.1 Introduction

The year 1994 saw the fall of the apartheid regime in South Africa and the beginning
of a new democratic era. Since then, the country has embarked on major government
reform, although the social structures built up during the stage of racial discrimination
have proven to be difficult to eradicate. Science and technology (S&T) were central to
the apartheid regime, manifest in the pursuit of big scientific missions and large-​scale
technology projects that fulfilled various purposes—​including the symbolic portrayal of
power and national superiority, as well as demonstration of self-​sufficiency by building
capabilities in key technological areas. However, the repressive and segregationist ra-
tionale embedded in apartheid’s S&T system posed a huge obstacle to developing broad-​
based human capabilities essential to sustain an industrial and economic development
agenda (Scerri 1998). Thus, the South African S&T system pre-​1994 has been described
as weak, fragmented, and lacking coherence (IDRC 1993). South Africa inaugurated
its new democratic era with an S&T system in disarray and incoherent governance
structures.
The current S&T system was severely impacted by exclusion, subjugation, oppression,
and exploitation ranging across approximately three and a half centuries. This chapter
explores the main achievements and remaining challenges in the contemporary South
African STI system, more concretely focusing on the period between the two White
Papers in 1996 and 2019. Moreover, it discusses the main shifts in policy emphasis
468    Erika Kraemer-Mbula and Rasigan Maharajh

(intents) of these two policy/​institutional developments in connection to the STI system

performance.
This chapter argues that the dominant discourses in the innovation and tech-
nology development literature in South Africa have been, and largely remain narrowly
constrained by the overarching neoclassical orientation of macroeconomic policy. The
general neo-​liberal reforms that followed the original White Paper of 1996 enabled the
maintenance of the STI system whilst seeking increased participation of the private
sector premised upon the fallacy that improved business performance would trickle
down into an improved quality of life for all (cf. RSA 2002). However, little evidence
exists of either of these two objectives being achieved. South Africa’s adoption of the
systems of innovation approach to development offered a progressive alternative to the
globally ascendant market-​biased approaches and their export-​led growth prescriptions
of the mid-​1990s. Without the wider congruence afforded by complimentary policy
approaches, the full utility and value of the NSI was lost and each separate ministry and
government department sought ‘siloed’ S&T outputs and outcomes, often failing to pro-
mote innovation impacts. The bureaucratic capture of the policy discourse, and its sub-
sumption under the fiscal and monetary policy diktats of the National Treasury further
entrenched this exclusion and relegation.
The chapter starts with a review of the evolution of STI policy in South Africa,
anchoring the contemporary developments between the two White Papers (in 1996
and 2019) in the inherited features of the apartheid regime in section 22.2. Section 22.3
describes the performance of the South African STI system from a quantitative perspec-
tive. This section also discusses some of the limitations of these indicators. In response
to such limitations, section 22.4 reflects on evolutionary economics and what it offers to
the analysis of South African STI policy; and section 22.5 concludes.

22.2 Evolution of STI Policy

in South Africa

The history of STI policy in South Africa has been shaped by its tumultuous political and
economic history, as it transited from colonial occupation to segregation through apart-
heid to its first democratic government. Several scholars have explored the complex evo-
lution of STI policy in South Africa from colonial to apartheid to present times, through
various lenses (Dubow 1995; Kaplan 1995, 1996, 2008; Kahn 2006, 2013; Maharajh 2011;
Marais 2000; Marais and Pienaar 2010; Mouton 2006; and Scerri 1998, 2009, among
others). Scholarly contributions have been complemented with multiple system-​wide
reviews, such as the 2007 Organisation for Economic Cooperation and Development
(OECD) Review of Innovation Policy (OECD 2007)—​which was informed by an
earlier local perspective on the system conducted by the National Advisory Council
on Innovation (NACI 2006); the 2012 Ministerial Review Committee report on the STI
 Innovation and technological change in South Africa    469

landscape (DST 2012); the Academy of Science of South Africa Review of the State of the
STI system in South Africa (ASSAf 2013); and the 2017 report of the STI Institutional
Landscape (STIIL) Review Panel, commissioned by the then Department of Science
and Technology. These contributions have helped identify gaps and policy dimensions
that could influence the STI system’s further evolution.
The STI policy environment post-​1994 reflected the urgency to break from the earlier
dispensation, resulting in a drastic shift in policy priorities and overall understanding of
the objectives of the STI system. It is, therefore, useful to anchor the contemporary ana-
lysis of STI in what was inherited from the earlier period.
The South African policy and institutional environment preceding the democratic
era was driven by the principles of racial segregation and dominance tightly preserved
by the apartheid regime. Hence the policy choices and options of the time reflected
the need to secure the viability and sustainability of such a worldview. In his account
of South Africa’s STI policy since the first national S&T planning framework in 1916,
Scerri (2009) reflects on the wide reach of policy dimensions, affected by what we now
relate to the functioning of the STI system, including labour, industrial development,
education, and science-​related policies, as the apartheid regime gradually forced more
and more sectors of the economy to comply with its discriminatory rules. Maharajh
(2011) provides a detailed account of the political economy, power struggles, and social
tensions driving the STI system under racial capitalism and apartheid. While govern-
ment valued scientific knowledge and research—​heavily subsidizing scientific research
in defence, energy, and areas related to industrial expansion—​it also put pressure on the
scientific community to segregate along racial lines (UNESCO 1967). Similarly, large-​
scale technological projects served to expand the apartheid state’s apparatus and display
its power (Edwards and Hecht 2010). In fact, the apartheid STI policy has been described
as mission-​oriented, by establishing capacities in strategic areas, such as atomic energy
and armaments (Kaplan 1996). However, these big missions appeared to be divorced
from other areas relevant to S&T policy, such as industrial development;1 and there was
little concern about their impact on building capabilities for the S&T system (Kaplan
1996). Moreover, there was no unified vision across government, with the management
of science and technology divided between the Department of Education (responsible
for science) and the Department of Trade and Industry (responsible for technology).
In his description of the dynamics of ‘racial capitalism’, Maharajh (2011) asserts that
most policy measures were aimed at maintaining a stable and steady availability of
‘cheap Black labour’, effectively inhibiting the aspirations of the vast majority of South
Africans. Notably, the educational inequalities created through policies such as the
Bantu Education Act of 1952, limited the educational potential of most of the popula-
tion, posing severe limitations to economic development and social equality (on educa-
tion, see C
­ hapter 33 by Branson and Lam in this volume). The advocates of these policies
expected that these limitations would be overcome through accelerated mechanization,

1
See Chapter 24 in this volume by Anthony Black on industrial policy.
470    Erika Kraemer-Mbula and Rasigan Maharajh

the development and adoption of labour-​saving technologies, and the importation of

skills through the immigration of whites into the country (Scerri 1998). Persistent low
levels of human capabilities and skills eventually shook the foundations of economic
development, rendering the country internationally uncompetitive. But more import-
antly, such distortions left a lasting scar in South Africa’s socio-​economic context and
remain extremely difficult to repair to date.
To inform the establishment of a new regime, the new democratic government
commissioned a review of the state of S&T in South Africa, sponsored by the Canadian
IDRC. The report confirmed that the S&T system inherited from decades of apartheid
was fragmented and uncoordinated, it did not serve the interests of all South Africans,
and it was ineffective and inefficient (IDRC 1993).
The democratic transition provided an opportunity to make radical changes to a
distorted and fragmented system inherited from a racialized system. It raised new
economic, political, and social imperatives, which widened the discourse about the
objectives of S&T. From discussions amongst the mass democratic movement, through
to the negotiations on a future dispensation for the post-​apartheid South Africa, a
broader preoccupation with national development emerged and also centred on the role
of S&T. As raised by Kaplan, there was a ‘need to develop an S&T system which simul-
taneously supports the emergence of an internationally competitive business sector and
the enhanced provision of infrastructure, such as housing, clean water and domestic
electricity’ (Kaplan 1995: 1).
The need for a more coordinated view of S&T crystallized in the establishment of
the first Department of Arts, Culture, Science, and Technology (DACST) in 1994, with
the role of overseeing and coordinating policy for the entire S&T system. Following
its formation, DACST initiated a process of policy formulation with a Green Paper
that, after subsequent consultation, led to the inaugural White Paper on Science and
Technology in 1996. The White Paper entitled ‘Preparing for the 21st Century’, was
adopted by the Cabinet in 1996, and suggested a radical departure from the approaches
utilized by the apartheid regime. It took the concept of national innovation system
(NSI) as an organizing framework; establishing broad goals of the system, identifying
the requirements that the NSI should meet and also the articulation of the main
stakeholders in the system (RSA 1996)–​those being the business sector, the higher-
​education sector, the science councils, government departmental research institutes,
and NGOs. This focus brought a renewed interest in the commercial viability of sci-
entific knowledge, and hence the collaboration between scientific research, the private
sector, and government organizations. Such policy focus on stimulating innovation
through networking and collaboration did, however, recognize the context of extreme
inequality, a legacy of exclusion, endemic unemployment, and widespread poverty that
characterized the lives of the majority of South Africans.
While the development of the White Paper of Science and Technology maintained
strong resonance with the Reconstruction and Development Programme of the newly
elected government, its adoption coincided with the introduction of the Growth,
Employment, and Redistribution (GEAR) strategy in 1997 (RSA 1996). It had two
 Innovation and technological change in South Africa    471

interrelated but distinct aims: to create economic growth and enhanced participation in
the economy; and to achieve this growth through the innovative social development of
the population (DST 2012: 9). Such an expansive and inclusive approach was, however,
stymied by the austerity of GEAR, which reduced government expenditures thereby
curtailing many of the more radical elements of S&T transformation.
Following the development of the broad policy framework through the White
Paper, DACST was split into two separate entities: The Department of Arts and Culture
(DAC) and the Department of Science and Technology (DST). The newly established
DST published the second foundational policy document: the National Research and
Development Strategy (NRDS) in 2002, which aimed to address the deficiencies of
South Africa’s S&T system by highlighting the low investments in R&D—​particularly by
the business sector; the declining and ageing scientific population—​skewed by gender
and race; the lack of an intellectual property (IP) framework; and generally the lack of
a coordinated governance system for the NSI, related to institutional fragmentation
(see critical review by Kaplan 2004). The NRDS also was supported by the National
Key Research and Technology Infrastructure Strategy, launched in 2004 in response to
earlier concerns raised by the findings of a National Research and Technology Audit
in 1998, which described South Africa’s infrastructure for research and technology
development as old, and not enabling South African researchers to compete effect-
ively internationally.2 More specifically, the NRDS argued that ‘the total capacity of the
system is about one-​third to one-​half the size it should be to form the basis of a com-
petitive knowledge-​based economy for South Africa in the medium to long term’ (RSA
2002: 40). Similarly, ‘this new R&D Strategy depends on doubling government invest-
ment in science and technology over the next three years, with more gradual increases
thereafter. This would raise the national investment to somewhat over 1 per cent, not yet
as large as many of our competitors, but enough to signal an appropriate, comprehen-
sive and sustainable strategy for the knowledge economy’ (RSA 2002: 17).
The earlier focus on the S&T system, explicit in the NRDS (RSA 2002), later shifted
towards a preoccupation for the commercialization of research outputs, materializing in
the Ten-​Year Innovation Plan (TYIP) (RSA 2008). The TYIP (2008–​18) had an explicit
focus on innovation as a route for economic progress, aiming to support the produc-
tion and dissemination of knowledge through innovation and entrepreneurship. The
Plan identified five Grand Challenges—the bioeconomy, space, energy, climate change,
and social dynamics—as key focus areas that would allow South Africa to advance in
emerging technologies by leveraging its natural resources.
Broad reviews of the STI system (OECD 2007; DST 2012; ASSAf 2013; and DST
2017) generally concur that despite the quantitative improvements in the STI outputs
since 1994, the innovation system appears to have failed to meet the needs of the ma-
jority as the quality of the changes has not radically transformed the economy, nor

2
It emphasized that only 10 per cent of the country’s equipment base at the time could be considered
as state-​of-​the-​art, with the remainder being largely outdated.
472    Erika Kraemer-Mbula and Rasigan Maharajh

significantly altered social relations consistent with the massive political reconstruction
engendered by the democratic breakthrough. See two illustrative statements below:

1. South Africa’s NSI is making insufficient contribution to poverty reduction and

wider inclusion in the mainstream economy. (OECD 2007)

2. The state’s investment in innovation has been biased towards ‘big science’ and in-
adequate focus had been placed on requirements for meeting the social develop-
ment priorities. (DST 2012)

Thus, South Africa remains an exclusionary and dualistic economy with one of the
highest and most persistent inequality rates in the world.
The centrality of the skills shortages in South Africa was confirmed by the OECD review
which characterized human resource development as ‘perhaps the issue that will be cen-
tral to all other aspects of the development of the STI system over the next decade’ (OECD
2007: 87). This concern arose from the large gap generated by the combination of slow growth
in the supply of university graduates capable of undertaking research, and the growing de-
mand for design and engineering skills generated by the increased rate of investment across
the economy (OECD 2007: 7). A critique of the high-​skills argument is presented by Kraak
et al. (2006), who argue that the national skills problem is not located only in the high-​skill
end of the spectrum, but also in terms of the intermediate and low-​skill needs. The report
from a ministerial review committee tasked to review the innovation landscape (DST 2012),
provided extensive recommendations to revive what it called a ‘fatigued’ system of education
policy changes and reforms. The Ministerial Review Committee recommends (amongst
others) the revitalization of technical colleges, preferential funding schemes for the devel-
opment of strategic skills, and measures to improve the academic job market by opening up
opportunities in public and research enterprises (DST 2012).
Twenty-​three years after adopting the first White Paper on Science and Technology in
1996, a new White Paper on Science, Technology and Innovation (STI) was endorsed by
Cabinet in March 2019 (RSA 2019). The new White Paper sets out to advance beyond the
initiatives established in its predecessor while prioritizing higher and inclusive economic
growth; speeding up socio-​economic development; promoting environmental sustain-
ability; improving government’s service delivery and decision-​making; and enhancing
the efficiency of institutions. While the new White Paper of 2019 acknowledges some
quantitative improvements (e.g. a three fold increase in publications, significant growth
in the participation of Black people and women in the research and development work-
force, and a rise in doctoral graduation rates), several challenges that were recognized
in the 1996 White Paper are again reiterated—​such as the severe deficits in the human
resource base and its insufficient transformation, inadequate funding for STI activities,
and lack of policy coordination across different government agencies. The new White
Paper accounts for global dynamics, marked by population trends, fast technological
developments in the digital space, changes in geopolitics, as well as the impending cli-
mate crises (RSA 2019)—On climate change, see Chapter 16 of this volume. See also
 Innovation and technological change in South Africa    473

Chapter 23 on the fourth industrial revolution in this volume. In terms of governance of

the STI system, the new White Paper makes concrete proposals for integrated STI policy
planning and implementation, such as establishing a ministerial STI structure and well-​
functioning ‘core’ policy nexuses to harmonize and coordinate implementation plans.

22.3 Performance of the South African

STI System: A Quantitative Perspective

The last twenty-​five years have witnessed various reforms and revisions of the in-
stitutional landscape related to STI, in the form of new policies and organizations
supporting, funding, and performing research, innovation, and technological advances.
The previous section indicated that STI policy has evolved into a comprehensive and
ambitious transformative agenda. One of its main priorities is to address the needs and
demands of the majority of citizens. This section assesses to what extent such policy
aspirations have manifested in improvements in STI performance.
South Africa’s STI system is often described as one of the most advanced on the con-
tinent (e.g. UNESCO 2015; AUDA-​NEPAD 2019). The assessment of its STI perform-
ance heavily relies on a set of standard indicators, which portray specific dimensions
of the system. This suite of indicators has gained relevance in decision-​making at many
levels. Their development and use have been primarily guided by the perceived need to
capture data that can be internationally comparable. They include (a) publications and
R&D efforts to measure the capacity for knowledge generation; (b) patents and innov-
ation data to measure innovativeness and technological sophistication; and (c) human
resources for STI to measure human capabilities in the system. Below, we describe the
STI system through the lens of these indicators, raising concerns about an over-​reliance
on quantitative measures to effectively assess the strengths, weaknesses, and broad
opportunities for STI to drive the ambitious, transformative agenda formulated in STI
policy.

22.3.1 South Africa STI Trends and Figures

22.3.1.1 Measures of Knowledge Generation
South Africa has positioned itself as the biggest producer of publications on the African
continent—​accounting for 77.4 per cent of the publications from SADC countries
(NACI 2020). It contributed to 25,372 articles in ISI-​listed journals in 2018, more than
twice those published in 2009 (10,774)3—see Figure 22.1. Its share of world output has

3
According to Mouton et al. (2019), this increase in figures must be viewed cautiously due to the
prevalence of predatory journal publications.
474    Erika Kraemer-Mbula and Rasigan Maharajh

30,000 0.90%
0.80% 0.81%
0.77%
0.73% 0.80%
25,000
0.65% 0.70%
0.62% 0.62%
0.57%
20,000 0.60%
0.50% 0.51%
0.50%
15,000
0.40%
10,000 0.30%
0.20%
5,000
0.10%
0 0.00%
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
South African Publications World Ratio

Figure 22.1 South African publications and world ratio (count)

Source: NACI (2020).

also doubled from 0.4 per cent in 2000 to 0.81 per cent in 2018. While its world ranking
in terms of the number of publications has improved (from position number 34 in 2000
to 28 in 2016), it is still surpassed by all other BRICS countries (China in position 2,
India 7, Brazil 13, and Russia 15 in 2016) (Mouton et al. 2019).
Publications concentrate in the area of natural sciences (34 per cent), social science
and humanities (38 per cent), and medical and health sciences (20 per cent), with these
areas of specialization having remained relatively stable over the past two decades
(Mouton et al. 2019). Scientific publications emerge mainly from five research-​intensive
universities (Cape Town, Witwatersrand, Pretoria, KwaZulu-​Natal, and Stellenbosch),
which account for about two-​thirds of all publications in the country. Networking
and linkages in knowledge production have also been on the rise, primarily through
collaborations in scientific publications with international partners outside Africa
(mainly universities in Europe and the United States). Overall, international collabor-
ation has increased from 34 per cent in 2000 to 52 per cent in 2016 (Mouton et al. 2019).
The use of publication data to explore the strengths and weaknesses of the science
system in South Africa has gained traction over the last two decades. Multiple scholars
have generated a large body of scientometric studies (Mouton et al. 2019; Kahn 2011;
Pouris 2012; among many others). These efforts culminated in the establishment of
the DST/​NRF Centre of Excellence in Scientometrics, and the Science, Technology
and Innovation Policy (SciSTIP) in 2014, which has been influential in shaping policy
interventions focused on promoting scientific productivity of South African science
and research institutions.
Turning to R&D data, the mainstream neoclassical literature adheres to a linear view
of technological progress, following a discrete path from basic and applied research to
 Innovation and technological change in South Africa    475

technological development and eventually to innovation. This view regards R&D as the
main driver of innovation (focused on technological innovation).4 In line with this per-
ception, R&D investment and R&D intensity have become key indicators to monitor
resources devoted to STI worldwide, including in South Africa.
In South Africa, the systematic collection of R&D indicators through R&D surveys
is conducted by CeSTII of the Human Science Research Council (HSRC).5 Since the
first surveys started in 1991/​92 (by the then Foundation for Research and Development)
to the present, the collection of R&D data has sought to follow the guidelines provided
by the Frascati Manual (OECD).6 The R&D surveys measure inputs into the conduct
of R&D (namely people, equipment, and funding) and cover the business, government
(including the science councils), higher-​education, and non-​profit sectors. The statistics
are used to develop science policy, to set government R&D priorities and funding levels,
and for monitoring and benchmarking purposes.
According to the last R&D survey in 2017/​18, R&D intensity (measured as South
Africa’s gross domestic expenditure on R&D (GERD)7 as a percentage of GDP) was 0.83
per cent, which remains considerably below the ambitious 1.5 per cent national policy
target. This percentage has remained more or less static for most of the past fifteen
years. On this basis, studies such as Mouton et al. (2019) have stressed South Africa’s
poor research funding performance. This becomes more evident when South Africa is
compared with the average in upper-​middle-​income countries, which stands at 1.46 per
cent (GERD as a percentage of GDP) (NACI 2020). Moreover, while these countries saw
a steady increase between 2008 and 2013, South Africa experienced a decline in the same
period. Although South Africa has the highest R&D intensity in Africa, it stands behind
China, Brazil, and Russia among the BRICS countries.
Most R&D in South Africa is funded by the government (46.7 per cent of total R&D)
in 2017/​18, and the business sector is the second-​largest funder. In terms of perform-
ance, business enterprise R&D spending (BERD) is typically considered an important
indicator of business commitment to innovation. In South Africa, the business sector is
the largest performer of R&D in 2017/​18 (representing 41 per cent of GERD), followed
by the higher-​education and science councils. However, although BERD has had an
increasing trend from 2012 to 2018 in nominal values, its share of the total R&D expend-
iture has been in decline—see Figure 22.2. To support business R&D, in 2006 the gov-
ernment introduced the R&D tax incentive programme, which gives a 150 per cent tax
deduction for expenditure on eligible R&D. The introduction of such an instrument had

4 In contrast, evolutionary economists generally consider R&D as just one input to innovation. From

an evolutionary economics perspective, only a small, albeit significant, proportion of all innovations
arise from R&D.
5 A summary of the results can be found at http://​www.hsrc.ac.za.
6 Some authors (Blankley and Kaplan 1997) note the inconsistency of the R&D data series as the

survey has been conducted by different agencies with differing methodological gaps in time.
7 GERD is an aggregated measure of in-​
house R&D expenditure performed domestically in five
sectors, namely government, science councils, higher education institutions, the business sector, and the
not-​for-​profit sector.
476    Erika Kraemer-Mbula and Rasigan Maharajh

18,000 70%
16,000 55.9% 57.7% 58.6% 60%
53.2%
14,000 49.7%
47.1%
44.3% 45.9% 45.3% 42.7% 41.4% 41.0% 50%
12,000
10,000 40%
8,000 30%
6,000
20%
4,000
2,000 10%

0 0%
7

8
00

00

00

01

01

01

01

01

01

01

01

01
/2

/2

/2

/2

/2

/2

/2

/2

/2

/2

/2

/2
06

07

08

09

10

11

12

13

14

15

16

17
20

20

20

20

20

20

20

20

20

20

20

20
BERD (ZAR millions) BERD/GERD

Figure 22.2 South African business expenditure on R&D (BERD) and the BERD/​GERD ratio,
2006–​18
Source: Molotja et al. (2019) and data from the National R&D Survey (HSRC 2020).

been suggested in earlier literature by authors such as Blankley and Kahn (2005) and
Kaplan (2001).
The outputs from the South African R&D survey have been widely analysed,
resulting in a rich literature using these data to raise several issues. Concurring with the
limitations raised by the NRDS in 2002, Walwyn (2008) highlights the importance of a
higher BERD for South Africa’s economy to shift from its dependence on resource-​based
industries towards more knowledge-​intensive economic activities. Walwyn contends
that this is particularly important for sectors that face intense international competition
such as food, metal products, and petrochemicals, which do not display high levels of
research intensity. In contrast, the largest proportion of BERD investment in 2017/​18 is
in ‘financial, intermediation, real estate and business services’, accounting for 48.8 per
cent of BERD. The manufacturing sector accounted for 28.2 per cent of BERD in 2017/​
18 (HSRC 2020). Molotja, Parker, and Mudavanhu (2019) find that R&D performance
in the business sector is concentrated in a few industries and a relatively small number
of large firms. Their study finds that most small and medium-​sized enterprises invest in
R&D projects only sporadically, for no more than two consequential years.

22.3.1.2 Measures of Technological Sophistication and Innovativeness

The use of patent statistics as a measure of technological advance rests on the assumption
that they reflect the inventive activities in technological innovation. Despite being
an outlier on the continent in patenting activity (AUDA-​NEPAD 2019), the number
of South African patents applications and patents granted has remained stagnant
throughout 1994–​2019, as shown in Figure 22.3.
 Innovation and technological change in South Africa    477

4,000

3,500

3,000

2,500

2,000

1,500

1,000

500

0
1994

1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011

2013
2014
2015
2016
2017
2018
2019
1995

2012
Patent applications (direct and PCT national phase entries)
Patent grants (direct and PCT national phase entries)

Figure 22.3 South African patent applications and patents granted, by country of origin,
1994–​2019
Source: WIPO IP Statistics Data Center (https://​www3.wipo.int/​ipstats).

This contrasts with the rapid increase in patenting activity in upper-​middle-​income

countries in the decade 2009–​2018, with patent applications per million more than
tripling (from 180 in 2009 to 634 in 2018); while in South Africa, there has been a ten-
dency for patent applications per million population to decline during the same period
(from thirty-​nine in 2009 to thirty-​two in 2018) (NACI 2020).
The level of innovativeness in the economy is also assessed using the National
Innovation Survey data.8 According to the latest Innovation Survey available, innovation
is pervasive across all sectors of the South African economy, with more than two-​thirds
(69.9 per cent) of South African businesses reporting being active innovators in 2014/​
16. The engineering and tech, manufacturing, and trade sectors reported the highest in-
cidence of innovation among all sectors of activity (HSRC 2020).9 Among those firms
that innovate, four types of innovation featured almost in equal shares: product innov-
ation (48.2 per cent), organizational innovation (42.0 per cent), marketing innovation
(41.7 per cent), and process innovation (34.6 per cent). The literature generally assumes
that innovation in developing countries tends to be incremental (e.g. improvements to
products and services), rather than radically new (Kraemer-​Mbula and Wamae 2010).
The innovation survey confirms this assumption since 80.5 per cent of innovative

8 Innovation surveys based on the Oslo Manual are embedded in an innovation systems framework,

highlighting the importance of linkages and collaboration across organizations. The surveys started in
2004 collected by the Centre for Science, Technology and Innovation Indicators (CeSTII) at the Human
Sciences Research Council (HSRC).
9 The 2014–​16 Business Innovation Survey is the sixth such survey undertaken in South Africa. The

results were released in July 2020.

478    Erika Kraemer-Mbula and Rasigan Maharajh

business turnover was generated by goods and services that were unchanged or margin-
ally modified.
Guided by the third edition of the Oslo Manual, the South African innovation survey
attempts to address the systemic dimension of innovation. One such systemic dimen-
sion relates to the interactions and collaborations across actors in the system, resulting
in knowledge flows conducive to innovation. South Africa’s innovation system displays
low collaboration levels, with only 20.8 per cent of innovation-​active enterprises
indicating any form of collaboration in their innovation development in 2014/​16
(HSRC 2020).
Less is known about the various effects that innovation activities have on firm per-
formance, employment, and broader socio-​economic aspects. Few studies have emerged
using the results from the Innovation Survey in South Africa. Some exceptions are
Sithole and Buchana (2021), who assess the impact of innovation on employment at the
firm level; and Machaka et al. (2019a) and Machaka et al. (2019b) who use the responses
from small South African firms in the Innovation Survey conducted from 2010 to 2012
to explore the factors that influence innovation activities in small manufacturing sector
firms, as well as the complementarity between various innovation knowledge sources.

22.3.1.3 Measures of Human Capabilities

The shortage of skills and human resources is one of the most cited constraints in South
Africa’s research and innovation system (OECD 2007; DST 2012). The provision of suffi-
cient graduates and researchers, especially at the tertiary level are referred to as enablers’
in the main policy documents in South Africa (NACI 2020).
Human resources in S&T are often proxied by the STI workforce, or R&D personnel—​
consisting of permanent and temporary members of the R&D system. From this lens,
there has been a notable upward trend in South Africa’s R&D human resources between
2001/​02 and 2017/​18, whether measured in personnel headcount or full-​time equivalents
(FTEs) (HSRC 2020)—see Figure 22.4. However, this positive trend has to be read with
caution, since methodological changes in the collection of R&D personnel data in the
2016/​17 R&D survey may have contributed to the increase in the headcount and number
of FTEs observed (HSRC 2020). More broadly, Pogue (2007) points out the limitations
of assessing the human resources in S&T by counting R&D personnel, since a more ac-
curate assessment would require not only capturing those that are active in the system,
but also those who are qualified but not currently employed in the system.
The social composition of the research system has undergone slow, although steady,
transformation over the past decade. The percentage of female researchers has increased
to reach 45.3 per cent of the total number of researchers in 2017. The number of African
researchers increased from 6,595 in 2008 to 10,815 in 2017, a vital trajectory to address
the distortions caused by apartheid’s racialized system. However, Blankley (1994) re-​
directs our attention to the broader ‘abyss in African school education in South Africa’,
confirmed by Kahn (2006), who states that the growth of the stock of high-​level skills
depends upon the flow that higher education receives from the school system—on
education, ​also see ­Chapter 33 by Branson and Lam in this volume.
 Innovation and technological change in South Africa    479

90000
80000
70000
60000
50000
40000
30000
20000
10000
0
20 /02

20 3

20 04

20 05

20 06

20 07

20 08

20 09

20 10

20 11

20 12

20 13

20 14

20 15

20 16

20 17
8
/0

/1
/

/
01
02

03

04

05

06

07

08

09

10

11

12

13

14

15

16

17
20

R&D personnel headcount R&D personnel FTE

Figure 22.4 R&D personnel, 2001–​18

Source: HSRC R&D surveys.

22.3.2 Limitations of Current Indicators

While available and widely used indicators provide a useful overview of the system,
they have certain limitations worth mentioning. Discussing their limitations does not
proclaim that they lack value or that they do not capture specific dimensions of the in-
novation process. Instead, it cautions against exclusive reliance on them since they offer
a partial representation of the innovation system, which requires further qualitative
contextualization.10

22.3.2.1 Knowledge Generation
Data on publications may give us an indication of the knowledge that is generated
within the scientific community; however, it tends to exclude other essential sources
of knowledge produced by actors outside the community and those based on tacit
knowledge (doing, using, and interacting) (Jensen et al. 2007). Criticisms around the
costs associated with access to scientific publications, the oligopoly of publishers, and
incentivization schemes premised upon publication in accredited journals abound
(e.g. Muller 2017 and Tomaselli 2018, among others). These scholars point to the per-
verse consequences of overdetermining publications as proxies of knowledge creation
and especially the commodification of the process and products themselves.

10
A similar point has been raised recently by Kruss et al. (2021).
480    Erika Kraemer-Mbula and Rasigan Maharajh

Turning to the R&D indicators, the literature using R&D data has highlighted some
of its limitations, as it does not fully capture (1) sectoral and firm specificities, nor (2) the
activities of micro, small, and medium enterprises. Moreover, early work by Scerri (1990)
cautions against the unquestioned use of R&D variables in the context of developing
countries due to the high proportion of imported technologies, making R&D statistics
an unsatisfactory estimate of a country’s ability to innovate new processes and services.
More broadly, the dangers of relying almost exclusively on R&D data to assess the in-
novative performance and technological advance of an STI system have been stressed by
scholars and practitioners (see Gault 2013).

22.3.2.2 Technological Advancement
While patents are commonly used as a proxy for technological advancement, there
are several limitations, which include: (a) many inventions are not patented, (b) many
patents have no commercial value, (c) not all innovation requires intellectual property
protection, and (d) there are other strategies beyond patents to protect intellectual prop-
erty (such as, secrecy or industrial designs).

22.3.2.3 Human Capabilities
Some studies in South Africa have addressed the dissonance of speaking of capabilities
whilst pursuing narrower human capital goals. Maharajh and Motala (2016) warn us
about the narrow and reductive assumptions underlying the human capital theory,
arguing that ‘linear representations of education’s role in socio-​economic development
are both unhelpful and misleading since there is [ . . . ] a wide range and complex array of
factors that are constitutive of such a relationship’ (2016: 29). The authors draw attention
to the qualitative attributes of education and training systems as well as the singularly
important historical issues of racist discriminatory practice, gender and rurality, social
fragmentation, and the power of capitalist concentration in conceptualizing human
capabilities and shaping adequate policy responses. In this vein, Maharajh and Scerri
(2011) also highlight the importance of aligning measures of human capabilities with
broader developmental goals.
While quantitative indicators provide a useful overview of the STI, there is also a
unanimous recognition that the South African STI system has had limited impact
in improving the lives of the majority. In response to such critical limitations, a key
question remains: Do quantitative indicators give us a full picture of the strengths,
weaknesses, and opportunities offered by knowledge, technology, and innovation dy-
namics in South Africa? We argue that addressing the severe and pressing challenges
affecting the country, as well as taking advantage of present and future opportunities,
requires complementary lenses to look at the STI system and explore possibilities
for STI policy. It requires an appreciation for the qualitative factors affecting change,
which are embedded in, and profoundly shaped by, culture, history, and institutions.
This lens is offered by evolutionary economics specifically, utilizing a progressive
reading of the neo-​Schumpeterian literature on innovation. This notion is further
discussed in the next section.
 Innovation and technological change in South Africa    481

22.4 Evolutionary Economics,

National Systems of Innovation,
and South Africa’s Contemporary
STI Policy Challenges

The relationship between science, technology, and innovation has been the subject of
debate amongst various schools of economics across previous centuries. It is, there-
fore, useful to locate neo-​Schumpeterian approaches within the broader history of eco-
nomic thought and contemporary policy debates. As noted by Roncaglia, ‘underlying
the debate there are quite often, hidden from sight but still very significant, different
approaches to economics, and not only different opinions on policy’ (2017: ix).
Besides the neo-​Schumpeterian approach being regarded as a heterodoxy, the epi-
stemic lacuna in the history of economic thought is also important. The voices and
experiences of those in the Global South often only find representation through
writing published in the Global North (Ndhlovu and Khalema 2015). The challenges of
decoloniality and decolonizing discourses on the economy, and the field of economics
more generally, requires much more attention from the current cadre of economics
scholars. Other chapters in this volume also carry forward theoretical roots that emerge
from across the various schools of economic thinking since the ‘marginalist revolution’
abandoned the classical approach, and rather shifted focus ‘to a new approach based
on a subjective theory of value and the analytical notion of marginal utility’ (Roncaglia
2017: 144).11
As noted earlier, the choice of a national system of innovation (NSI) approach to
the reform of South Africa’s S&T sector was determined by the country’s Cabinet in its
adoption of the 1996 White Paper on Science and Technology. In tracing the origins of
the NSI policy framework, Sharif argued that ‘it would be difficult to overemphasize
the extent to which the [NSI] concept originated as part of a direct attack on modern
mainstream economics’ (2006: 753). In a more recent review, Golichenko endorses
Sharif ’s perspective and states more boldly that the NSI conceptualization arose ‘due
to the dissatisfaction of a number of economists in the neoclassical mainstream of
economic theory and the inadequacy of the interpretations of the role of technology,
knowledge, and innovations in economic development within the standard main-
stream approaches’ (2016: 464). It is therefore important to locate the NSI framework
within a selected account of the history of economic thought to better understand its
counterfactual value.

11 This chapter does not have the latitude to expand more on the long history of the emergence of the

neo-​Schumpeterian approach and readers are encouraged to engage with Erik Reinert’s The Other Canon
Foundation (othercanon.org), Fagerberg et al. (2013), and an anniversary working paper of IERI (2014)
for more extensive treatment.
482    Erika Kraemer-Mbula and Rasigan Maharajh

The NSI concept finds its origins in classical political economists—​from Adam Smith,
to Ricardo and Marx—​whose reflections on the science, technology, and innovation,
were seen as necessarily bound within their historical context. In line with this, the work
of Schumpeter highlighted that innovation does not occur in a vacuum. Schumpeter’s
contribution, according to Metcalfe, posed at least three major challenges to the neo-
classical framing of general equilibria and these were: ‘the impossibility of predicting its
evolution ex ante even when the general rules of its functioning are understood; the irre-
versible effects of the growth of knowledge and the impossibility of placing an economy
in equilibrium if knowledge is not in equilibrium; and the inevitable link between indi-
viduality and personal knowledge such that socially situated individuals matter vitally
to the evolution of the system’ (Metcalfe 2009: 55–​6).
Richard R. Nelson, a primary contributor to neo-​Schumpeterian theory, describes, to-
gether with Sidney Winter, the neo-​Schumpeterian approach as accounting for ‘growth,
profits, and capital formation [which] are all generated largely by innovation’ (Nelson and
Winter 1977: 22). They highlight the importance of context in shaping the selection pro-
cess of innovation by stating that ‘firms also differ in the probability that they will create
an innovation, or adopt better technology used by others, over a given time period. Not
all innovations are superior to existing technology, so the selection process is a key part
of the model. Better technology, when it is created, is spread through the system both by
expansion of the innovating firm and by imitation’ (Nelson and Winter 1977: 22).
As argued by Helena Lastres, a wider array of neo-​Schumpeterian scholars, including
Giovanni Dosi, Nathan Rosenberg, Luc Soete, Carlota Perez, and Christopher
Freeman, amongst others, contributed since the 1970s to the task of ‘develop[ing]
analytical instruments and broader and more complex policy guidelines than those
offered by traditional economic theory’ (Lastres 2017: 2). It was not just these indi-
vidual researchers, but the broader institutional array that they represented, including
new research centres based in universities and the range of graduate students that they
mentored and who would come to populate a much more diverse and representative
array of evolutionary economists now distributed across world systems. Christopher
Freeman (1921–​2010), Richard Nelson (1930–​), and Bengt-​Åke Lundvall (1941–​) play a
major role in providing and popularizing a shared perspective around the concept of
a national system of innovation (NSI) for evolutionary economists. Besides the NSI
framework, critical concepts such as techno-​economic paradigms, socio-​institutional
structures, and path dependencies were generated and empirically tested.
Whilst this rich and complex intellectual history of economic thought underpins
South Africa’s adoption of the NSI perspective in seeking to reform its science and tech-
nology system and orientate it towards the generation of innovation as an outcome, little
engagement with this scholarly tradition is discernible in the local literature until after
the democratic breakthrough of 1994. For Mario Scerri, ‘the openness of the systems
of innovation approach lends itself to a wide range of ideological positioning, which
can range from Marxian to neoliberal ideological underpinnings without violating the
fundamental premises of the contra-​neoclassical evolutionary school. While the op-
positional positioning of the systems of innovation approach is against mainstream
 Innovation and technological change in South Africa    483

neoclassical economics, specifically in its core assumption of full information sets, this
cannot be used to infer its ideological slant, since both the neo-​liberal and Marxian
schools of thought have little in common with the neoclassical paradigm and much
more with the institutional basis of the systems of innovation approach’ (2017: 31–​2).
Drawing upon the econometric work by Fedderke, Kaplan argued that ‘the economy
shed labour such that labour made a negative contribution to growth. With low levels
of investment, capital made a much smaller, albeit positive, contribution to growth.
[Total Factor Productivity] TFP growth, by contrast, became the major source of
growth’ (2008: 1). Kaplan reflects on the experience of a National Treasury-​appointed
international panel which ‘examined South Africa’s policies for growth and specific-
ally its ambitions to achieve both a more ambitious growth target and simultaneously
more inclusive employment generating growth. A number of proposals were made by
the panel . . . However, the panel made no study of or recommendations in respect of
innovation or technological change more broadly—​despite this having been the prin-
cipal contributor to growth’ (2008: 2). This remains in stark contrast to the National
Development Plan (NDP), which mentions innovation at least 108 times in 489 pages
(RSA 2012). According to the NDP, ‘overall, South Africa’s global competitiveness needs
to be improved, and the system of innovation has a key role to play. It is the principal
tool for creating new knowledge, applying knowledge in production processes, and
disseminating knowledge through teaching and research collaboration’ (RSA 2012: 326).
Thus, and whilst various economic policy frameworks that were deployed to ad-
vance post-​apartheid reforms often include or at least support discrete science and
technology initiatives, they do not necessarily embrace the critique of neoclassical eco-
nomics that was advanced by neo-​Schumpeterian evolutionary perspectives. The failure
to achieve South Africa’s putative target of 1 per cent of ‘total intramural expenditure on
R&D performed in the national territory during a specific reference period’ as a pro-
portion of GDP and captured through the indicator of gross domestic expenditure on
R&D (GERD)12 provides at least a quantifiable verifiable objective that has not obtained
since 1996.
It is well known that South Africa remains one of the most unequal societies in the
world. Entrenched inequalities also manifest in the structure and functioning of the
innovation system. Inclusion as an ‘end’ has recently gained renewed policy attention
under the 2019 White Paper, raising a renewed interest in inclusive innovation in South
Africa, both in the literature as in policy practice.
Conceptually, inclusive innovation emerges from an evolutionary economy founda-
tion. Paying attention to innovations ‘below the radar’ (Kaplinsky et al. 2009), means
recognizing the importance of poverty alleviation and equality in order to have sustain-
able, long-​term economic development (Heeks et al. 2014). In South Africa, a body of
literature has started to emerge (Phiri et al. 2016; Hart et al. 2020, Petersen and Kruss
2019; Petersen et al. 2018, and others) not only expressing discomfort with an exclusive

12
Definition adopted from OECD (2015: 372).
484    Erika Kraemer-Mbula and Rasigan Maharajh

approach to innovation to serve global competitiveness and firm profitability but also
discussing new avenues of activating an inclusive innovation focus from a policy per-
spective. An early comparative study and systemic perspective by Kraemer- Mbula
and Wunsch-Vincent (2016) captures the importance of capturing the innovation
activities not only ‘for’ but ‘by’ marginalized communities, such as those in the informal
economy.13 These contributions complement the ongoing work done by the CeSTII
capturing innovation in informal communities and piloting the development of new
indicators.
The DSI is drafting a strategy to promote innovation for inclusive development (IID).
It defines IID as ‘innovation that addresses the triple challenge of inequality, poverty and
unemployment and enables all sectors of society, particularly the marginalized poor, in-
formal sector actors and indigenous knowledge holders to participate in creating and
actualizing innovation opportunities as well as equitably sharing in the benefits of de-
velopment’ (DST 2016: 11). These efforts open up new opportunities for the transform-
ation of South Africa’s innovation system, and at the same time raise new challenges
in terms of measurement, institutional development, alignment of policy networks
(Petersen and Kruss 2019), and integration of innovation policies with much broader
transformative social policies (Phiri et al. 2016).

22.5 Conclusion

The South African STI system has undergone significant changes across the span
of history. In this chapter, we argue that the dominance of orthodox macroeconomic
frameworks has retarded the flourishing of a heterodox-​inspired systems of innov-
ation approach and that South Africa’s adoption of the systems of innovation approach
to development offered a progressive alternative to the more fundamentalist neo-
classical market-​biased approaches, its export-​led growth orientation, and a belief in
trickle-​down theories. The bureaucratic capture of the policy discourse, the adoption
of austerity frameworks, and the persistence of rampant corporate corruption has fur-
ther reduced the progressive possibilities and opportunities arising from the innovation
systems and evolutionary economics in South Africa.
This chapter offers an overview of the South African STI system and its governance
through policy in the post-​apartheid period. The overview reveals that many of the
distortions and inequalities created by the apartheid regime have persisted over time,
despite the shifts in policy orientation. As noted by Scerri and Maharajh (2018) ‘building
a robust and sustainable system of innovation in South Africa remains possible, and in-
deed, still offers a plausible strategy for creatively destroying an inequitable past, tools
for confronting contemporary contradictions, and advancing foresight as a means of

13
See ­Chapter 35 in this volume by Rogan and Skinner on the informal sector.
 Innovation and technological change in South Africa    485

collectively defining a better future life for all’ (2018: 317). The chapter, therefore, argues
that an evolutionary approach offers the lens needed to capture the more qualitative and
institutional dimensions of the STI system for it to drive transformative change.

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 Chapter 23

S ou th Afri c a a nd
the Fourt h
Industrial Revolu t i on

Bhaso Ndzendze and Tshilidzi Marwala

23.1 Introduction

The Fourth Industrial Revolution (4IR) refers to the oncoming ubiquity of technology,
which will redefine society. As an industrial phenomenon, the 4IR is widely predicted
(based on present trends) to transform what have been manual-​labour-​dominated
sectors. Due to advances in robotics, sensors, and artificial intelligence, factories, farms,
and mines are seen as being likely to be run autonomously, with little human input in
terms of manual labour. Furthermore, advances in 3D printing are likely to eliminate the
manufacturing process as it has been for centuries through mass transformation of the
manufacturing process from being subtractive to being additive.
From past developments and present trends, it is clear that South Africa’s path to-
wards the 4IR entails household, private-​sector, and government incentives with
prospects for new forms of employment, a resuscitation and diversification of the South
African economy in a future-​proof manner, and more efficient service delivery. Risks
also persist, however. Among others, these include growing unemployment, encroach-
ment on decent wages, and pressure on the fiscus. The aim of taking advantage of the
4IR while minimizing its risks by government, businesses, and individuals, highlights
its own imperatives in terms of urgent reforms in governance to address gaps in edu-
cation, connectivity, infrastructure, energy, and inequality in access (along the lines of
gender, wealth, and between rural and urban areas) which pose major challenges.
In the first section, the chapter offers an overview of the concept of an industrial
revolution, and briefly reviews past industrial revolutions. We then discuss more re-
cent global industrial trends around 4IR technologies becoming more ubiquitous
and converging with one another. The second section reviews the implications for the
490    Bhaso Ndzendze and Tshilidzi Marwala

South African economy. In this regard, we look at the country’s economic prospects
in the 4IR based on recent trends, academic and policy literature, and historical
experiences with the first three industrial revolutions. In this section we ponder the
implications for a decent wage, also conduct sectoral analyses of industries and the ex-
tent to which they have already been impacted by the 4IR, and prospects for further
change under the 4IR. We also take stock of the adoption of various 4IR technologies
by government, business, and consumers in comparative perspective. This entails a
comparative analysis of South Africa’s performance vis-​à-​vis peer and globally leading
countries, and proceeds to a discussion of the country’s 4IR aspirations at the highest
level, with emphasis placed on the 2020 published recommendations of the Presidential
Commission on the Fourth Industrial Revolution before turning to an analysis of po-
tential obstacles and challenges ahead in the country’s publicized vision of an inclusive
4IR future. In the final section, the chapter concludes with a summary of the key issues
covered in the chapter.

23.2 The Fourth Industrial Revolution

Popularized in the English-​speaking world by British economic historian Arnold

Toynbee (1852–​83)1 in his posthumously published lectures at the University of Oxford
(1880–​81), the term ‘industrial revolution’ denotes the concept of a major shift in pro-
ductive processes. While deindustrialization indicates a debilitation or collapse of
industries due to underuse, industrial revolution refers to the introduction of new
machines and systems of production which result in greater output and efficiency
(Van Creveld 2010: 16). This is inevitably accompanied by social changes as well as
new patterns of migration and class structures that emerge given the deep shifts to the
world of work. Such a phenomenon began with the first industrial revolution (nom-
inally referred to as the Industrial Revolution) in mid-​eighteenth-​century England.
Before the Industrial Revolution, the industry was mostly manual, rural, and small
scale rather than mechanized, urban, and large scale. As such, men and women moved
across industries with relative ease; ‘there was much coming and going between manu-
facture and agriculture; and mines, furnaces, and cottage workshops suspended their
activities in the summer and early autumn so that the workers could help with the
harvests’ (Ashton 1967: 49). Why did the Industrial Revolution take place at the time
it did? While the Industrial Revolution led to social change, it was itself the product of
social antecedents; while there had been some ingenuity in the early eighteenth century,
industry ‘had to wait until the idea of progress—​as an ideal and as a process at work in
society—​spread from the minds of the few to those of the many’ (Ashton 1967: 57). This

1
To distinguish from his historian-​philosopher and international relations scholar nephew Arnold
J. Toynbee.
 South Africa and the Fourth Industrial Revolution    491

was signified by the growth of capital in large enough quantities, which made it possible
to construct large buildings and appliances. The process was all-​encompassing, with not
only the invention of new gadgets, but complimentary innovations in agriculture, trans-
port, trade, and finance which surged in concert. As T. S. Ashton puts it in The Industrial
Revolution, 1760–​1830, the process was characterized by the application of science to
industry, and ‘with a more intensive and extensive use of capital’ (1967: 142). For this
reason, the Industrial Revolution is to be seen as a movement instead of a period of time
or a singular event.
A set of new, higher-​order innovations that marked a second industrial age are noted
to have begun around the 1870s and proceeded until the middle of the twentieth century.
The second industrial revolution (2IR) has come to also be known as the technological
revolution. It was a period of rapid industrial development and growth for pre-​existing
industries from the first industrial revolution, brought about by several key factors, pri-
marily in countries such as Britain, Germany, France, Italy, Japan, and the United States.
These inventions include mass electrification (with the emergence of new sources of
energy such as electricity, petroleum, and oil); the expansion of long-​haul networks of
railroads; the development of chemical synthesis that introduced synthetic fabrics, dyes,
and fertilizers used in agriculture; widespread telecommunication over long distances
with the electrical telegraph; and the assembly line (Lambrechts, Sinha, and Marwala
2021). The third industrial revolution (3IR) took shape in the 1960s with the advent of
semiconductors and computing and got a further boost with the arrival of the Internet
in the 1990s (Schwab 2017: 7).
First postulated by the German government in its 2011 ‘Industrie 4.0’ (Industry 4.0)
national strategic initiative, the observation that the world is in the process of entering
a fourth industrial revolution has become a commonly held view among policymakers
and economists. Its origins as an aspirational and projected future have resulted in it
being seen as less of a pattern. Thus, a disputed concept (as we shall review in the next
section), it nonetheless entails some defining features which represent new modes of
production, consumption, and provision of services. The defining technologies of the
4IR, which have a production and service delivery component, include artificial intel-
ligence (AI), 3D printing (also known as additive manufacturing), new materials (such
as graphene), the Internet of Things (IoT), and blockchain. Within AI, the specialized
areas of robotics, machine learning (the fastest growing area of AI with the claim
to the majority of new patents and funding), and natural language processing (NLP)
stand to accelerate the nature of automation in manufacturing, transform the process
of invention, and erode human relevance in customer care respectively. Among these,
it has been suggested that there is nothing in them which precludes human–​machine
interaction. For its part, 5G is prognosticated (given its early deployment so far) to be
a key infrastructural technology which will enable the realization of smart homes, self-​
driving cars, and smart cities (Guerrera and Cheein 2020). The convergences of these
technologies thus provide the basis of the observations and predictions about the fu-
ture ubiquity of these 4IR technologies. Thus, many identify that the exceptional and
growing computational power and Big Data will become the distinguishing factor of
492    Bhaso Ndzendze and Tshilidzi Marwala

the current age of AI from previous ‘AI winters’ in which technology experienced major
setbacks in funding (roughly from 1974 to 1980, and again from 1987 to 1993).
These technologies have already changed the manufacturing process, with countries
such as China, South Korea, Japan, and the United States seeing rapid growth in smart
factories in the last ten years. These are factories that consist of relatively lower numbers
of personnel as they take advantage of automation. What most distinguishes them, how-
ever, is their ability to effectively communicate with one another in unison through
sensors that lead to a cyber–​physical integration which are the bases of the IoT. In a
2019 estimate by PricewaterhouseCoopers, Machine learning (ML) alone was noted to
represent about $2 trillion of today’s global economy and was predicted to reach some
$16 trillion by 2030 (roughly 10 per cent of current world GDP) given growth in pa-
tent applications—​being the third fastest-​growing category of all patents granted and
representing nearly 60 per cent of all new investment in AI. New avenues of AI are led
today by the private sector. These include the likes of Amazon (advantaged by owning
one the world’s largest data storage facilities, AWS); Google (through DeepMind and
the reinforcement learning-​ based AlphaZero); Huawei (through Ascend 910 and
Mindspore, which aims to uncover a new frontier in open access, AI-​based app develop-
ment); IBM (through Watson); and Samsung (through a self-​professed focus on the IoT
through Bixby and other facets of natural language processing and device-​driven AI).

23.3 The Fourth Industrial Revolution

and the South African Economy

Different scholars have problematized the degree to which the country, and the con-
tinent it is located in, ought to even consider the 4IR as relevant to them. In their article
in Technology Analysis and Strategic Management, Ayetimi and Burgess ask, for ex-
ample, ‘to what extent is the 4IR relevant to sub-​Sahara Africa where there is a large in-
formal economy, limited public infrastructure, where technical skills levels are low, and
advanced technology can be found in only a few sectors that are dominated by foreign
multinational companies and staffed by expatriate workers?’ (Ayentimi and Burgess
2019: 641). Sutherland firmly asserts that ‘4IR is not the result of careful historical ana-
lysis, rather it is a flag to rally and a rhetorical device for those trying to create particular
economic and commercial futures, hoping to ride waves of Schumpeterian economic
disruption caused by “extreme automation and extreme connectivity” ’, asserting that
‘this has been combined with strong lobbying by manufacturers and the WEF, seeking
to persuade governments to change their policies to support the deployment of 4IR
technologies and to mitigate their adverse socio-​economic effects. The consequences
of these neo-liberal efforts potentially destroy jobs, depress wages and increase inequality’
(2020: 233). A similar line of argument is adopted in c­ hapter 5 of the NPC’s 2020 draft report
‘Digital Futures: South Africa’s Digital Readiness for the Fourth Industrial Revolution’.
 South Africa and the Fourth Industrial Revolution    493

However, in all of these texts there is a recognition that the onset of the roll-out and
adoption of the 4IR is an inevitability precisely because of its alignment to powerful
interests in the form of large corporations of the Global North and the East. Indeed,
these critiques are cognizant of the 4IR and understand it instead as a harbinger of in-
equality, rather than an imagined or overhyped phenomenon. Moreover, some go so far
as to see it as presenting opportunity for South Africa and the broader continent. For ex-
ample, a 2019 paper notes that ‘the 4IR presents an important and valuable opportunity
to drive social and economic growth and leverage development across nation states, re-
gardless of their location or state of development—​and this applies particularly to the
sub-​Saharan African region’ (Ayentimi and Burgess 2019: 641). Others have included
suggestions that South Africa’s lack of a steady supply of electricity, among others, could
be an opportunity to leapfrog into alternative sources of energy, with some highlighting
that 5G is in any case set to bypass the current forms of connectivity which are lagging.
Indeed, the latter point is commonly made with much emphasis on the notion that if the
country is not an active participant, it could find itself retrospectively fitting foreign-​
developed technologies into its domestic contexts. Moreover, many see opportunities
for more efficient governance, with the 4IR being potentially utilized for better ser-
vice delivery and for the realization of smart cities and smart villages. For example, 4IR
technologies such as AI and blockchain could be utilized to curtail the loss of agricul-
tural produce in transit, as high as 90 per cent in some African countries to below 20
per cent, and thus assist small-​scale rural farmers. On the other hand, sociologist Grace
Khunou argues that 4IR technologies can bridge the fatherhood gap which has come
about in South Africa with the advent of the migrant labour system and other forms of
absenteeism through enhanced connectivity, though she highlights the lack of afford-
ability for the many (Khunou 2018).
Ayentimi and Burgess ultimately argue that its global origins mean that ‘the 4IR
has the potential to impact on all industries and all nations, regardless of their loca-
tion or state of development’ (Ayentimi and Burgess 2019: 646). On the other hand,
in their 2019 article (‘Review of Preparedness of Rural African Communities Nexus
Formal Education in the Fourth Industrial Revolution’) in the South African Review
of Sociology, Uleanya and Ke find that South Africa is ‘not preparing for the envisaged
industrial revolution like other western nations; rather, the focus remains on issues
such as decoloniality, decolonization and glocalisation’ (p. 91). History indeed casts a
long shadow and this is to be expected, given that South Africa’s industrial prospects
are shaped by its historical experience with industrialization. This is briefly considered
below. Emanating from such a historical review are the related and overlapping issues
of domestic innovation (and thus innovation policy, including the relative merits of
openness compared to protectionism), inclusivity, economies of scale, and human cap-
acity development.
The general industrial history of the country is summarized by Carien du Plessis and
Martin Plaut as follows: ‘from the beginning of colonialism in the seventeenth century
until late in the nineteenth century, the world regarded South Africa as not much more
than an outpost on the way to somewhere more useful’ (du Plessis and Plaut 2019: 111). It
494    Bhaso Ndzendze and Tshilidzi Marwala

was regarded as ‘a place of agricultural output’ (and conflicts). This underwent a trans-
formation in the late 1800s with the discovery of diamonds and gold in Kimberley and
the Witwatersrand basin. Subsequently, the country, united after 1910, saw roughly
four distinct phases. These entailed basic industrialization after the First World War,
secondary industrialization after the Second World War, ‘growth and then stagnation
under apartheid’, and the developmental policies under the African National Congress
which have seen mixed results typified by growing unemployment.
From 1912 to 1939, the country saw value-​added private manufacturing rise from
£8 million to £53.8 million. This was in large part due to industrialization policies put
in place in the interwar period (1919–​39) during which the country’s governments had
enacted the establishment of the Electricity Supply Commission (Eskom) in 1923, the
privately-​owned AE&CI (African Explosives and Chemical Industries) in 1924, and
the now-​privatized ISCOR in 1928. The 1932 Carnegie Commission of Investigation
on the Poor White Question in South Africa identified the existence of 300,000 poor
whites mostly in the Afrikaner community (out of 1.5 million Afrikaners). The gov-
ernment sought to close this gap by creating jobs through the expansion of secondary
industries. Thus, whereas in 1919 agriculture and industry were roughly equal in terms
of output, by 1939 industrial output was about two-​and-​a-​half times that of agricul-
tural output. This was greatly aided by the tariff regime, put in place in 1925. The onset
of the Second World War also presented an opportunity for further industrialization
and manufacturing. As the British South Africans, who were the country’s commercial
base, went to fight in the Second World War, they left open vacancies which were filled
by the increasingly urbanizing African population and manufacturers responded fa-
vourably to the opportunities created by wartime shortages of imported products and
the demands of the war economy (du Plessis and Plaut 2019: 112). This saw the volume
of outputs double, with the number of people employed in private manufacturing
growing from 440,000 in 1948 to 1.16 million in 1971. In the post-​Second-​World-​War
period, the country saw continued growth (by an average annual rate of 4 per cent until
the 1970s, and by as much as 5.8 per cent in the 1960s [Freund 2019: 191]) and diversi-
fication (though not to the same levels as other contemporaneous ‘miracles’ such as
Germany and Japan).
However, South Africa’s inward orientation and semi-​isolated global status were
its downfall: it caused a limited reach in the international market, for example more
advanced military weaponry was being produced elsewhere, all while domestic demand
for technology was confined to the well-​off white minority as a result of the country’s
apartheid policy. With neither extensive international nor domestic markets, the
country’s negative incentives depressed the expansion of whatever capacity for innov-
ation might otherwise have been commercially exploited (as evidenced by the innova-
tive oil-​from-​coal techniques pioneered by SASOL in 1950, the tellurometer in 1954, and
nuclear medicine from 1965 [Majozi and Marwala 2020]):

In general, South African manufacturing firms had no reputation for genuine

product innovation. Engineers were known for their ability to modify products
 South Africa and the Fourth Industrial Revolution    495

and processes, and South African manufactured products were and continue to be
made under license to intellectual property rights holders in the advanced industrial
economies. This is not surprising as the nature of South Africa’s protectionist regime
encouraged licensing and copying for the domestic market, not world class innov-
ation. (Hirsch 2005: 148)

Du Plessis and Plaut similarly observe that:

Displacement of more complex intermediate and capital goods was severely

constrained by several factors, including the small scale of South Africa’s domestic
market, the lack of necessary skills and technological capabilities, and the inability
to raise protection of these industries sufficiently to displace imports without doing
great damage to other domestic industries. The desperate poverty of the black urban
population also effectively closed off another possibility touted by some: ‘inward in-
dustrialisation’. (du Plessis and Plaut 2019: 115)

How much can South Africa’s economy be said to be meeting the prerequisites of the 4IR
or already observing large-​scale use of 4IR technologies and what are the implications
for the fiscus and decent wages? In line with this, what has been the policy response of
the government? These questions are reviewed below.

23.3.1 Decent Wages, Industrial Maturity, and the Fiscus:

Economic Effects and Implications of the 4IR
in South Africa
We have noted the thinly spread benefits of second and third industrial revolutions
manifest in the problems of policy. These are compounded by globalization and the
incapacity of South African firms to compete without the protectionist policies of the
apartheid era. This has been noted to be a major cause of inequality during apartheid
and of growing unemployment in the post-​apartheid era. There is, therefore, cause for
some concern regarding the country’s capability to meet certain prerequisites in order
to be viable in the 4IR. The notion that a country needs to meet certain prerequisites
holds substantial purchase in the literature (Hantraisa, Allin, Kritikos, Sogomonjan,
Anand, Livingstone, Williams, and Innes 2020: 2). South Africa’s own National Planning
Commission argues that:

There is a core set of indicators that all organisations require, and all have identified
the need for demand-​side data (via nationally representative surveys) to supplement
administrative supply-​side data and the limited set of ICT indicators from the census
and the annual national household survey conducted by Stats-SA. Historically, all
data has been collected on an ad hoc basis when resources could be secured. This
needs to be regularised, standardised and institutionalised and framed within the
context of an open-​data policy that safeguards privacy rights and makes anonymised
496    Bhaso Ndzendze and Tshilidzi Marwala

data enable the free flow of information required for more effective planning by gov-
ernment and service delivery entities, for private use by entrepreneurial and innova-
tive enterprise. (NPC 2020: v)

A mainstay among these criticisms is the lack of a stable supply of electricity, given the
country’s chronic shortages known as load-​shedding. This criticism is justified: electri-
city is crucial for the AI value chain, as it entails the use of energy to cool data centres
(with some 1–​1.5 per cent of global electricity consumption used to cool computers
the world over [Energy Innovatio 2020]). Added to this is the observation that a con-
siderable (albeit shrinking) portion of the country (43.7 per cent of the population in
2020) does not have access to the Internet; the country’s higher-​than-​average connect-
ivity costs (at 148 out of 228 countries on mobile data prices); and the rural–​urban divide
in digitization, for example only about 1.2 per cent of households in the rural areas of
Eastern Cape have access to the Internet. Other provinces are not much better. For ex-
ample, the KZN has a rural Internet penetration rate of 1.1 per cent, followed by North
West (0.9 per cent), and Limpopo (0.5 per cent) according to the most recently avail-
able General Household Survey (StatsSA 2015). Most rural regions are usually covered
by one of the two dominant service providers—​Vodacom and MTN—​and are not the
beneficiaries of competitive service offerings due to the absence of Cell C and Telkom,
who are typically less expensive. ‘As in the case of the mobile network, competition in
the fibre market is largely in the municipal areas and on the main transmission routes,
with most residential areas remaining without fibre connectivity to the home, and with
competition only on the main intercity transmission routes’ (NPC 2020: iv). This raises
issues about fairness, however; rural customers are essentially paying the same prices as
their urban counterparts for less service delivery. In this regard, the benefits of the 4IR
such as faster transmission at the behest of 5G, as well as access to learning opportunities,
are substantially stacked in favour of urban dwellers. In this regard, prerequisites are
nuanced across regions within the same country. Other realities in the country, how-
ever, mean that the 4IR stands to not only ‘miss’ those in disadvantaged areas, but also
subject others, particularly workers, to vulnerabilities.

23.3.1.1 Impact on Decent Wages

The role of technology as a long-​term labour substitute has long been a concern. In
the early twentieth century prominent economists, including John Maynard Keynes
(1962: 358), were pondering the implications of automation. A WEF Report, The Future
of Jobs, has stated that the coming years will see new work roles emerging, some work
roles remaining stable, and many becoming redundant. A 2018-​published study by the
Department of Arts and Culture, Nelson Mandela Metropolitan University and the
South African Cultural Observatory noted that ‘by 2030 over 2 billion jobs as we know
them today will have disappeared, freeing up talent for many and new 4IR fledgling
industries, fundamentally changing the nature of work’, and estimates that ‘60 per cent
of jobs that will exist towards the end of 2030, have not yet been conceived of or invented
 South Africa and the Fourth Industrial Revolution    497

yet’ (Adendorff, Lutshaba, and Shelverp 2018: 2–​3). This comes in a context in which the
push for the minimum wage has been increasingly vocal. The National Minimum Wage
for South Africa Research Initiative suggests that ‘in South Africa, the level of economy-​
wide output would be 2.1% higher with a national minimum wage (beginning at levels
between R3 500 and R4 600) and the average GDP growth rate is projected to be 2.8%–​
2.9% instead of 2.4% without a national minimum wage’ (2016: iii).
One of the distinct trends according to the available data is the growth in average
incomes in the manufacturing industry in South Africa. Using the 2017–​20 period as
a snapshot, we find that the country has seen consistent growth in wages, which have
been in keeping with the inflation rates of 5.27 per cent, 4.62 per cent, and 4.13 per
cent.2 However, the onset of COVID-​19 has caused a decline in manufacturing wages.
A major force behind this rise in incomes has been collective bargaining by workers
(of which 32 per cent are low earners [Isaacs 2016: iii]), which is threatened by auto-
mation. Automation will not only mean fewer workers, but also decreased bargaining
power for the few remaining workers. Thus, government will be faced with the option
of either allowing companies to operate relatively unimpeded (through relaxed labour
laws) or prioritizing workers, possibly to the detriment of retaining (foreign and do-
mestic) corporations. Global trends indicate that the former is more likely, given that
‘the 4IR is rewriting the rules of manufacturing because low-​cost labor is not an effective
strategy for attracting manufacturing investment as the cost of automation plummets,’
and ‘the 4IR facilitates the start of a trend toward reshoring manufacturing back to the
rich world’ (Lee, Wong, Intarakumner, and Limapornvanich 2020: 409). Doing other-
wise would possibly lead to a reduced fiscus. In section 23.3.1.2, we note that among
the principal concerns for directors is what they see as a lack of skilled workers in the
country. This is true in various industries, as we shall see, with corporations looking to
cut personnel costs and pursue the alternatives offered by the 4IR technologies.
In Figure 23.1 we compare the income levels in industries related to the 4IR (in black,
first six bars) and those which are not (in grey, last nine bars). Those in black are in
the robotics industry in particular. We note that the lowest paid among the sample (de-
sign engineers) earn substantially higher than the lower-​paid non-​4IR employees (retail
store manager) and indeed above the average in the non-​4IR careers. There is a high
barrier to entry into these jobs, however, as these are highly trained specialists, requiring
tertiary education (itself with very high cost inputs).
To be sure, there are areas of the 4IR which have a low barrier to entry and which
require little formal education. One of these is annotation. This refers to the labelling
of the physical objects in the physical world into a digital interface so that they may be
used in algorithms by AI. This is a tedious but necessary task which requires punctilious
human inputs. Engineers and company routinely outsource this work to low-​income

2
Trading Economics (2020), ‘South Africa average monthly wages in manufacturing’ [online] https://​
tradingeconomics.com/​south-​africa/​wages-​in-​manufacturing (last accessed 15 September 2020).
498    Bhaso Ndzendze and Tshilidzi Marwala

Design Engineer 284000

Project Engineer 318000
Production Manager 600000
Robotics Researcher 597000
Quality Manager 605000
Software Engineer R731,000
Supply Chain Management 509000
E-Commerce Software Development 402000
City Government 380000
Government Employees 377,000
National Average Salary 268644
Average Manufacturing Salary (Anuualised) 204072
Database Developer 162,000
162000
Quality Assurance/Quality Control Inspector 108,000
Personal Assistant 90000
Retail Store Manager 62000
0 100000 200000 300000 400000 500000 600000 700000 800000

Figure 23.1 4IR-​related and non-​related industrial wages in South Africa (annual, in ZAR)
Source: Trading Economics, ‘South Africa Average Monthly Wages in Manufacturing’ (2020) https://​tradingeconomics.
com/​south-​africa/​wages-​in-​manufacturing (last accessed 15 September 2020).
Chart by authors. Data sourced from Salary Data and Career Research Center (South Africa)
and the South African Department of Labour.

countries precisely due to this tedium. This could be a possible job creator. However,
there are three drawbacks in this regard. The first is that the process requires a smart-
phone with connectivity. Second, it favours those who are English speaking. Third, it is
not sustainable in the long run as the process is often project-​based and works towards
completion; as AI becomes more intelligent through ML, the extent of human annota-
tion may also be less required as AI increasingly learns unsupervised.

23.3.1.2 Industrial Maturity
Many South African firms have engaged in strategies pertaining to the 4IR. Our review
of the literature depicts an uneven landscape. Statistics South Africa (StatsSA) observed
that in 2019 manufacturing constituted slightly over 13.53 per cent of the country’s
GDP (or its fourth largest industry). Studies into this have posited that this had pre-
viously been higher but was declining due to trade openness and the subsequent im-
pact of imports. Hirsch interjects with some circumspection, as he regards the extent
to which the country engages in substantial manufacturing as overstated. He highlights
that a large part of South Africa’s ‘manufactured’ products are basic metals, such as iron,
steel, and aluminium as well as basic chemicals, wood pulp, and paper that represent
manufacturing only in the narrowest sense according to international classifications.
The processes rather entail final stages in the extraction of minerals than preparatory
beneficiation, and South Africa is reliant more on the advantage brought on by its cli-
mate and abundance of natural resources ‘than on acquired skills or expertise’ (Hirsch
2005: 117). Noticeably, as recently as 2019, the top five sources of employment in the
manufacturing sector are basic metals, fabricated products, and machinery equipment
(at 22 per cent), followed by food, beverages, and tobacco (at 20 per cent), and coke,
refined petroleum, and nuclear fuel (at 11.29 per cent), as well as wood and wood
 South Africa and the Fourth Industrial Revolution    499

products (11.29 per cent), and transport equipment (9.83 per cent). Overall, within the
country’s manufacturing sector, food and beverages constituted a share of 26 per cent,
followed by petroleum and chemical products (at 24 per cent), basic iron and steel (at
19 per cent), wood products (at 11 per cent), and textiles (at 3 per cent). Advanced and
semi-​advanced manufacturing constituted slightly over 11 per cent, with motor vehicles
(including parts and accessories) at 7 per cent, followed by electrical machinery and
communications and professional equipment at 2 per cent each. In the 2010–​20 period,
imports as a percentage of domestic manufacturing sales have hovered above 59.86 per
cent and reached a peak of 70.47 per cent in 2013.
Automation remains a minimal concern for directors, however, indicating a favour-
able view of this automated future. Rather, they emphasize the lack of specialized skill
among South African workers. The Director Sentiment report, an annual survey of
directors in the private sector (n = 475) active since 2016, notes in its 2019 edition that
the key concerns for directors are shortage of skilled labour in the country, poor infra-
structure, and policy uncertainty. Only 3 per cent of those surveyed stated that they were
most concerned by automation, while another low 3 per cent expressed concern over
high costs of IT infrastructure when expressing the main business challenges currently
facing their industry (Institute of Directors South Africa 2019: 22). As seen, high costs of
data connectivity mostly impact rural dwellers.
Promisingly, ‘the communications market has grown significantly in this uncertain
environment, with tens of billions of Rands annually in private investments in the exten-
sion of fibre networks and upgrading of mobile networks to support the roll-​out of data
services. Despite the introduction of a horizontal licensing regime over a decade ago, the
market remains structured around several integrated network and services operators.
MTN and Vodacom, in particular, dominate the mobile telecommunications market,
with a total market share of 78 per cent’ (NPC 2020: ii). In July 2020, MTN launched
5G coverage in 100 sites across multiple areas in Johannesburg, including Randburg,
Bryanston, Fourways, Lonehill, and Fairland (its HQ), another in Bloemfontein (at the
University of the Free State) and one in Cape Town (in Bloubergstrand) while Rain was
the first network to launch 5G in South Africa. Rain is differentiated from MTN in its
use of fixed-​wireless applications instead of mobile (McLeod 2020). On the other hand,
calls for allocation of spectrum by the Independent Communications Authority of
South Africa (ICASA) remain vocal, with ICASA having scheduled an auction for such
an allocation in late 2020.

23.3.1.3 Sectoral Analysis
In the main, there is no universally adopted measure of whether a country meets a hypo-
thetical 4IR threshold or scale and indeed such an index does not yet exist although
the most widely regarded is a 10 per cent critical mass threshold for every technology.
But one of the findings of the South African Presidential Commission on the Fourth
Industrial Revolution (PC4IR) is the country’s relative lack of measurement despite
much capacity for data-​gathering by government agencies and private-​sector players.
Moreover, some discernible proxies exist. Below we briefly review patterns in some key
500    Bhaso Ndzendze and Tshilidzi Marwala

sectors before turning to studying trends that may be termed 4IR indicators among peer
countries.

23.3.1.3.1 e-​Commerce
While e-​commerce is not necessarily exemplary of the 4IR (Amazon, for example, was
established in the 1990s), some aspects of its architecture are complimentary with nu-
merous 4IR technologies such as blockchain (with payments via cryptocurrencies and
tokens, for example), the IoT (especially the ability to track one’s order in real-​time),
and Big Data. The latter of the three, in particular, indicates the accumulation of data
which can be used to build digital profiles of users and thus inform recommendation
algorithms. This digitization of South African social and business life indicates a long-​
term shift away from a one-​size-​fits-​all model of general retail towards individually
customized retail, with implications for jobs and future skills requirements.
Retail represents some 15 per cent of South Africa’s GDP. South Africa’s online retail
market was around Rand 14 billion in 2019, representing some 1.4 per cent of its total
retail and 18.43 million e-​commerce users (Pillay 2019). Thus, the e-​commerce market
in South Africa has a high growth potential. The top three purchases consist of clothing,
books, and beauty products. A 2019 study indicates that when South Africans are
making online purchases, they often end up spending more than they commonly do in
brick-​and-​mortar stores. Crucial to this is the incentive of free deliveries after reaching
a certain price threshold (Davis 2019). Moreover, the majority of these online purchases
are on customers’ mobile phones:

As much as 18% (out of 29%) of South African internet users bought something on-
line via mobile phone in the past month (We Are Social, 2018), so having a mobile-​
friendly online store is important. Since many South Africans are using their mobile
phones to shop online, Visa has realised that one must make it easy for them to shop
online on a small mobile screen and hold the phone in one hand. (Davis 2019)

‘The three most popular online shopping categories for South African consumers who
shop online were clothing/​apparel (53 per cent), entertainment/​education (digital/​
downloadable) (51 per cent), and event tickets (51 per cent)’ (Davis 2019). When
shopping online, consumers mostly prefer local e-​commerce platforms like Takealot
(South Africa’s largest online retailer with over 10,000 parcel dispatches per hour
[Malinga 2019]) and Bidorbuy. Broadly, 84 per cent of purchases are from these local
platforms (Mkhosi 2017: 2). The most popular platform for international purchases is
Amazon.
In a nod to the growth potential of e-​commerce for small and medium enterprises
in the country, the government introduced the Electronic Communications and
Transactions Act in 2002 in order, among other objectives, to facilitate and regulate
electronic communications and transactions and promote human capacity develop-
ment (skills) in this budding sector as well as prevent forms of abuse of information
systems (Republic of South Africa 2002: 1). Nevertheless, the government is still
 South Africa and the Fourth Industrial Revolution    501

challenged in the regulation and taxation of externalized funds due to the difficulty of
tracking financial transactions. In this regard, ‘one of the responses emanating from the
South African Reserve Bank is incentivising merchants to adopt 3D Secure (under the
auspices of the Payment Association of South Africa; a division of the SARB)’ (Mkhosi
2017: 2).

23.3.1.3.2 Banking
The banking sector in South Africa exhibits contradictory trends towards the
4IR: digital inequality among its customers on one hand and incentives for cost-​cutting
through digitization on the other. Recently, South African banks have been cutting jobs
in pursuit of lowering costs and keeping up with slow economic growth in the country
and new competition in the industry from branchless (digital) competitors such as Bank
Zero, TymeBank, and Discovery. In 2019, the SARB and the Intergovernmental Fintech
Working Group initiated a programme to look into the appropriateness of policies and
regulatory regimes as a result of the fintech innovation (Marwala 2020: 120). One of the
key issues identified concerns the effects of income inequality and what these effects
may mean for the increasing digitization of banking. A similar conclusion was drawn by
the Centre of Excellence in Financial Services:

The country’s significant potential for digital innovation must be considered along-
side concerns of whether this will be exclusionary, and whether the transformation
will enhance or diminish domestic value creation.

Additionally, the report observes, digital banking still serves a ‘niche, relatively
affluent and financially savvy consumer market,’ in spite of the growing penetration of
smartphones. The country is still held back by considerable financial illiteracy (Marwala
2020: 120–​1). At the same time, however, the gloomy prospects for banking, even before
COVID-​19, has made investors weary of the sector such that banks’ valuations declined
by between 15 per cent to 20 per cent in 2019. As a consequence, banks will have to adapt.
Fourth industrial revolution technologies, particularly AI, hold substantial promise
(Marwala 2020: 121). In this regard, a 2019 PricewaterhouseCoopers report on the major
banks in the country notes that ‘staff costs continue to comprise the majority of overall
group costs, reflecting both the inflationary environment as well as the demand for crit-
ical talent in response to increasing specialization in the areas of risk, compliance and
IT’. According to sectoral analysis, by the year 2030 AI technologies will see banks shed
operating costs by some 22 per cent. A notable trend in South Africa has seen increases
in IT expenditure, ‘as the banks grow their direct investments in their applications and
systems infrastructure towards digitising their platforms’ (PWC 2019: 1). A transform-
ation is underway in South African banking.

23.3.1.3.3 Construction
Given the decline seen in the industry in the years since 2017 (StatsSA 2019 Q4) and
across the world (with a McKinsey Global Institute study noting that it was twice as
502    Bhaso Ndzendze and Tshilidzi Marwala

expensive in 2017 to construct a building than in 1970), a 2018 University of Johannesburg

study found that construction professionals are increasingly willing to adopt robotics
and construction automation. The study came to the conclusion that automation and
the introduction of robots in the industry ‘would have positive effects on the delivery of
the construction project by increasing quality of the construction product, enhancing
supervision, improving working conditions, cost-​effectiveness and it will also reduce
construction accidents if adopted’. On the other hand, we note that the use of robotics
will replace some manual labour, for example workers engaged in tasks such as excava-
tion will be affected by the deployment of robots. The report concludes that ‘workers will
need to be retrained to upgrade their skills to avoid replacement by automation and in
fact to be the operators of the machineries. Training and education may be required for
the construction professional that are threatened by the implementation of automation
to become familiar with the use of new technology.’ A recent start-​up, Build Robotics,
has carved a niche of about Rand 1.3 billion worth of signed contracts as of 2019, with au-
tonomous excavators that have lidar (a remote sensor method), GPS, and Wi-​Fi to map
and navigate surroundings (Business Insider 2019).

23.3.1.3.4 Mining
Mining conglomerates have been retrenching workers due to a trade-​off between
profitability and ‘bloated’ workforces. There is some debate in this industry as to the
desirability of 4IR technologies. Some note that automation, and technologically
advanced machinery, can emerge as an alternative to human labour; although start-​
up costs are high, the running costs of machinery are far cheaper than wage-​earning
workers. Recently, the mining sector in South Africa has been facing challenges
associated with cutting back large numbers of workers. The platinum sector has felt
the highest impact. In 2018, Implats, the world’s second-​largest platinum miner, stated
that some thirteen thousand employees stood to lose their jobs within the following
three years. Lonmin is also set to retrench roughly the same number of workers. The
same trend is noted in the gold sector. In late 2018, Gold Fields retrenched up to 1,560
employees (or 30 per cent of its workforce) at its South Deep mine in Gauteng. In some
important ways, however, the mining sector is fundamentally challenged in the ex-
tent to which it can adopt 4IR technologies. Particularly given the high temperatures
(at around 50oC), humidity (which causes the technologies to perform more slowly
and their materials to rust), and vibration levels in underground conditions, semi-
conductor devices, such as an AI-​powered robot, cannot operate efficiently or for very
long (Marwala 2020: 54).

23.3.1.4 Policy Imperatives and the Fiscus: The South African

Government and the 4IR
State involvement is one of the key accelerators of industrial change. This has been evi-
dent in past industrial revolutions and elements of it are evident in the current onset
of the 4IR. This was demonstrated, for example, by the developmental experience of
Japan, the ‘four Asian tigers’, and China and their resulting East Asian miracle (Lee,
 South Africa and the Fourth Industrial Revolution    503

Wong, Intarakumner, and Limapornvanich 2020: 408). Similarly, the United States and
China have close ties to technology companies, who in turn provide military and eco-
nomic advantage. The early discourse on the 4IR was led by the government of Germany
under the umbrella of ‘Industrie 4.0’ which was subsequently underpinned by the
‘Action Plan High-​Tech Strategy 2020’, launched by the German Federal Government
in 2010 to bring together the private sector, labour, research institutes, and even polit-
ical organizations. This is especially crucial given the unchartered ethical, security, and
legal territory presented by smart factories and its AI-​saturated environment (Banthien
2020).
COVID-​ 19 has generally accelerated the adoption of 4IR technologies by
governments world-wide. In a study for the journal Contemporary Social Science,
Hantrais et al. gather evidence from different areas about the impacts of COVID-​19
and show how ‘the pandemic supported changes in data collection techniques and dis-
semination practices for official statistics, and how seemingly insuperable obstacles
to the implementation of e-​health treatments were largely overcome . . . the pandemic
accelerated the uptake of digital solutions’ (Hantraisa, Allin, Kritikos, Sogomonjan,
Anand, Livingstone, Williams, and Innes 2020: 1–​2). The South African government
has similarly conceptualized its own role in the 4IR. The government of South Africa
reviews the country’s readiness for 4IR and its recommendations for going forward are
reviewed below before proceeding to a peer analysis.

23.3.1.4.1 PC4IR Recommendations and Potential Hurdles

President Cyril Ramaphosa established the Presidential Commission on the Fourth
Industrial Revolution (PC4IR) in 2018, which appointed commissioners in May of
2019. The PC4IR presented its report in August of 2020, following two years of work
characterized by hundreds of consultative sessions and stakeholder engagement
traversing various aspects of the South African economy, and research undertaken to
diagnose the country’s readiness for the 4IR and to identify opportunities as well as
mitigate risks. In its diagnosis, the Commission’s report argues that:

The high-​technology industries in which the country is seriously underperforming

are those of artificial intelligence, Blockchain, virtual/​augmented reality simula-
tion environments, automatic data-​processing machines, electrical and electronic
goods, biotechnologies, storage/​transmission, advanced materials, advanced sensor
platforms as well as medicinal products and pharmaceuticals. (2020: 98)

On the basis of these identified gaps, the PC4IR has made eight core recommendations.
These include investing in human capital, establishing an AI institute, establishing a
platform for advanced manufacturing and new materials, securing and availing data
to enable innovation, incentivizing future industries, platforms and applications of 4IR
technologies, building 4IR infrastructure, reviewing, amending, or creating policy and
legislation, and establishing a 4IR Strategy Implementation Coordination Council in
the Presidency.
504    Bhaso Ndzendze and Tshilidzi Marwala

In the March 2019 Skills Development Summit, the Department of Higher Education
and Training (DHET) noted that the 4IR ‘would have a significant impact on the future
skills that South Africa requires, as well as how the country prepares to meet that skills
demand through retraining people for future jobs’. Encouragingly, the DHET responded
by supporting large-​scale youth entrepreneurship programmes that took in some
1.1 million people in twenty-​one Setas (sector education and training authorities) across
the country, funded by some Rand 63 billion accumulated in the preceding five years
from the Skills Development Levy—​an additional 330,000 learners were financed by the
National Skills Fund. There has been no impact assessment on these programmes, how-
ever. Indeed the DHET, through deputy minister Buti Manamela, admitted that these
initiatives were not extensive enough. In terms of employment, the deputy minister
noted that the number of learners who were successfully absorbed into full-​time work
following their education was higher in modes such as apprenticeships, learnerships,
and internships while formal unemployment continued to rise. The government has
also expressed awareness of the 4IR pioneers who have left the country, in addition to
widespread concern that the PC4IR’s recommendations may not materialize (Jenkinson
2020). These have been informed by past experience.
The National Integrated ICT Policy has long observed that for there to be a ‘vibrant
and inclusive knowledge economy’ in the country there needs to be affordable access
to communication (equity); increased accessibility of services, devices, infrastruc-
ture, and content to all citizens (accessibility), and proper data governance ensured
(user protections). In turn, the NPC terms these ‘preconditions of an equitable digital
economy and society’ (2020: ii). The issue of allocation of spectrum has already been
mentioned. It is indeed exemplary of the characteristic delay in digital policy by the
government.
Through SA Connect, the government sought to realize 90 per cent broadband
access in the country by 2020 and 100 per cent by 2030 as part of the NDP and placed
priority on connecting all schools, health centres, post offices, and Thusong Centres.
‘However, progress with the big broadband push has been limited and characterized by
various uncoordinated initiatives’ (Mzekandaba 2019). This 2012 initiative was followed
by the adoption of the National Integrated ICT White Paper in 2016. The policy paper
emphasized private-​sector investment in the roll-out of seamless ‘critical infrastruc-
ture and services required for a modern economy’ (RSA 2016). The implementation of
this plan was delayed, however. At the same time, Connect SA’s initially ambitious goal
was scaled down to become a connectivity project led by Broadband Infraco (termed
an undercapitalized SOE) and with the Universal Service and Access Agency of South
Africa providing limited connectivity (NPC 2020: ii). The NPC review places politics
(especially the rapid turnover of ministers and directors general and the splitting of the
Communications Ministry into two departments) at the centre of these failures, delays,
and shifting targets.
With data extracted from Antonysamy (2019), PricewaterhouseCoopers (2019),
Standard Bank (2020), Mzakandaba (2020), Presidential Commission on the 4IR
(2020), Brothwell (2020), and Traxcn (2020) we take stock of the prevalence of adoption
 South Africa and the Fourth Industrial Revolution    505

of various 4IR technologies in South Africa up to 2020. What is evident from the ana-
lysis is that the 4IR—​as a vision and as a set of technologies that can lead to efficiency—​
has seen uneven adoption, with more adoption towards AI and the IoT, and low
adoption of blockchain and 3D printing, and with more leadership by the private sector
and, by extension, consumers, than by government. Additionally, Big Data generated
from South Africa has been accumulated and commercialized mainly by foreign multi-
national corporations such as Oracle, Uber, Google, Facebook, and their affiliates (e.g.
Instagram and WhatsApp). However, we can also deduce that the 4IR is engendering
increasing interest from government, business, and consumers, but that they are yet to
cross the nominally used 10 per cent adoption threshold set by industry watchers (see
WEF’s Deep Shift report, 2015).
In their survey-​driven study published in the journal Political Research Exchange,
Dermont and Weisstanner (2020: 1) find that ‘technology entrepreneurs have endorsed
a universal basic income (UBI) as a remedy against disruptions of the work force due
to automation.’ Noting the same three years earlier, Vegter inferred that this is perhaps
driven by a desire to create an insulating effect by Big Tech and automating corporations
as ‘those who create automation technology want to avert a popular or regulatory back-
lash to what they’re selling’ (2017). On the other hand, David Autor of MIT argues that
texts on automation which emphasize the future loss of employment ‘ignore the strong
complementarities that increase productivity, raise earnings and augment demand for
skilled labour’ (Autor 2015: 1). Frey and Osborne provide a quantifiable estimate of the
number of jobs they anticipate as susceptible to automation: roughly 47 per cent (Frey
and Osborne 2013: 1). This could provide a guide for policymakers and allow for targeted
interventions. Disadvantageously, these studies are conducted in the European Union
and the United States and data are scant on South Africa and the rest of Africa. This is
an important area for future research. While the government of South Africa (driven
by Minister of Social Development Lindiwe Zulu) has recently revived considerations
of providing a UBI, such debates (which have their origins as early as Mandela’s presi-
dency) have been revived by COVID-​19 and not by automation. Originally planning to
publish implementation plans in October 2020, the Ministry of Social Development has
deferred such discussions. Globally, not a single country pays its citizens an uncondi-
tional UBI but it has been observed that ‘the economic crisis caused by the coronavirus
has put the idea back on the table, even in fiscally conservative countries’ (Toyana 2020).

23.3.1.4.2 Peer Country Analysis

The World Economic Forum’s Global Competitiveness Index (GCI), which annually
tracks changes in countries’ performances across twelve pillars which contain a further
114 sub-​pillars, is notable for its utility in comparisons. Indeed, its underlying method-
ology rests on the assumption that it is not a country’s policies and their results in iso-
lation which matter, but the policies being taken by other countries as well and thus the
relative placement of one country vis-​à-​vis almost two hundred others. The country’s
performance compared to its self-​identified peer countries, the BRIC countries, shows
that South Africa is in fact outperforming them in terms of the WEF’s operationalized
506    Bhaso Ndzendze and Tshilidzi Marwala

capacity for innovation. However, the country is unable to match these countries for
scale in terms of exploiting and commercializing patents compared to the BRICS, while
also being unable to match the more established industrialized countries in terms of
private-​sector investment as well as government expenditure on R&D. Moreover, they
are more advantaged by their scale in line with Krugman’s theory. In 2020, the head of the
Office of Digital Advantage at the CSIR, Akhona Damane, estimated that ‘South Africa
spent 10 percent of its GDP on ICT goods and services, most of which are imported’ (see
Jenkinson 2020). The relatively smaller members, such as Brazil and Russia, are able to
compensate with their comparative strengths in energy, which is crucial for the oper-
ation of hyperscale data centres (Carnegie Endowment 2019). While Russia relies on its
oil abundance, Brazil on the other hand achieved energy self-​sufficiency in 2007 from
renewable energy resources and from the exploitation of offshore minerals since 2016.
Globally, leading states in terms of innovation also tend to invest more in R&D.
Germany, the United States, Japan, Israel, and South Korea have a gross expenditure
on R&D of more than 3 per cent of national GDP. The comparable national expenditure
figure in South Africa stands at about 0.7 per cent as of 2019, which falls short of the
government’s own target of an increase to 1.5 per cent.

23.4 Conclusions and Prospects

It is clear from the preceding analytical reviews that South Africa’s path towards the 4IR
is real, and driven by consumer, private-​sector, and government incentives. Moreover,
it entails prospects for new forms of employment, a resuscitation and diversification
of the South African economy in a future-​proof manner, and service delivery. On the
other hand, such aspirations highlight their own imperatives in terms of the urgency
of reforms in governance to address gaps in education, connectivity, infrastructure,
energy, and inequality in access (along the lines of gender, wealth, and between rural
and urban), and curbing the prospects of a brain drain, given the rapid advancement of
other countries towards the 4IR. This has been given further urgency by the COVID-​
19 pandemic, which has accelerated uptake of technologies and systems. Policy options
over the next decade will increasingly be shaped by trends in automation as companies
increasingly look to automation to be viable (and withstand competition by other, for-
eign companies), and as the government seeks to remain fiscally viable.

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 Chapter 24

I ndu stria l P ol i c y
in Sou th A fri c a

Anthony Black

24.1 Introduction

The manufacturing sector is widely seen to be an engine of growth and has received
much attention from policymakers as well as direct support. At the time of democra-
tization in South Africa, the sector faced a series of major problems. Industrial devel-
opment in the pre-​1994 era had been shaped by interventionist policies, focused on the
strategic concerns of the apartheid state, especially with regard to heavy industry. The
manufacturing sector was protected and generally uncompetitive. Since then it has been
through major phases of restructuring and become much more globalized.
But manufacturing has performed extremely poorly. Its share of output, invest-
ment, and employment have all declined sharply since 1994 and this has been in an
underperforming economy. In 2019, manufacturing accounted for just 13.2 per cent of
GDP, this share having declined from 21.0 per cent in 1994. The sector has shed employ-
ment at an alarming rate and continues to run a large trade deficit. In short, far from
being an ‘engine of growth’ it has contributed to South Africa’s economic malaise. This
presents a major dilemma for policymakers although, of course, manufacturing sector
outcomes do not just depend on industrial policy. There are a number of more im-
portant external influences, not least the overall health of the economy.
Globally, industrial policy in its various guises has gained greater acceptance,
including among institutions such as the World Bank (Wade 2011). In a 2019 IMF
Working Paper, Cherif and Hasanov make the case for what they term ‘technology and
innovation policy’ (TIP) based on the experience of the ‘Asian Miracles’. According to
them, the three key ingredients are (i) state intervention to address market failures that
limit the development of domestic firms in sophisticated industries; (ii) export orienta-
tion; and (iii) competition both internationally and domestically (Cherif and Hasanov
2019: 6). Industrial policy is once again central in economic policy thinking. While one
 Industrial Policy in South Africa    511

may not agree with Weiss (2011: 1) that ‘industrial policy has attracted considerable con-
troversy in the development context, possibly out of all proportion to its potential im-
pact (either positive or negative)’ the mode of implementation and impact in different
settings has certainly continued to be subject to much debate.
A starting point is the Kaldorian ‘laws’ about the special characteristics of
manufacturing. This argument sees manufacturing as an ‘engine of growth’ with dy-
namic effects that induce productivity growth in both manufacturing and non-​
manufacturing sectors.1 Even if these characteristics did not apply, there would still
be a case for industrial policy. Tradable services are growing rapidly and can also be
developed through industrial policy. Celebrated industrial policy successes, such as
Korea and Taiwan, have received much attention (Amsden 1992; Wade 1990). Within
Africa, such success stories are more difficult to find. Mauritius is one and perhaps
Ethiopia (Oqubay 2015) although in the case of the latter, it is quite early days. But there
have, of course, been more dismal outcomes, for instance in a number of Latin American
countries. In fact, it appears that industrial policy is more complicated in resource-​rich
countries, which frequently seem to misuse their endowments, not least on inefficient
efforts to industrialize. This leads us to another important issue—​the objectives of in-
dustrial policy in relation to comparative advantage and the degree to which industrial
policy should be used to develop sectors in advance of a country’s existing comparative
advantage.2
This chapter examines the evolution of South African industrial policy and assesses
its impact on the manufacturing sector. The elements mentioned above—​the import-
ance of manufacturing, industrial policy in resource-​rich contexts, and the use of indus-
trial policy to shift comparative advantage, loom large in the South African debate and
are central to any analysis.
Section 24.2 sets the context in relation to the prospects for middle-​income countries.
It also situates South Africa internationally in terms of the performance of the sector.
Section 24.3 examines the evolution of policy. Outcomes are examined in section 24.4
with special attention paid to three sectors (heavy industry, automotive, and light
manufacturing, especially apparel) as well as one ‘transversal’ sector (regional policy
and special economic zones). Section 24.6 concludes with some proposals for a way
forward.

24.2 The International Context

The international context since the 1990s has been characterized by trade liberalization
and globalization. The World Trade Organization was established, tariffs were reduced,

1
See Kaldor (1966), Thirlwall (1983), and UNIDO (2017).
2
See, for example, the debate between Justin Lin and Ha-​Joon Chang (2009).
512   Anthony Black

dozens of regional trade agreements were put in place, and China emerged as the work-
shop of the world. Many developing countries, especially outside of Asia, were not able
to compete and experienced significant deindustrialization.
More recently, globalization, as measured by the growth in trade and foreign direct
investment, has stalled as a result of a number of factors. First, tariffs are no longer
declining. In fact, protectionist pressures are building and have been given significant
impetus by the US-​China ‘trade war’. COVID-​19 has further disrupted supply chains
but the bigger threat is that the resulting economic slowdown could exacerbate protec-
tionist pressures across the globe.
In most upper-​middle-​income countries, manufacturing has been declining as a
share of GDP (Table 24.1). There is evidence that deindustrialization appears to have
happened at an earlier stage or ‘prematurely’ (Dasgupta et al. 2006; Rodrik 2016;
Tregenna 2009). Rodrik (2016), for example, shows that the share of manufacturing
in GDP in developing countries peaked at significantly lower income levels than

Table 24.1: Economic performance of selected middle-​income countries,

1994–​2019
Middle-​
South income
Africa Brazil Mexico Thailand Tunisia Turkey countries

Income per capita, 12,999 15,259 20,411 19,228 11,201 27,875 12,135
2019 ($)
Average annual 2.7 2.5 2.4 3.7 3.5 4.4 5.0
growth in GDP
1994–​2019 (%)
Average annual 2.1 0.8 2.3 3.9 3.2 5.0 –​
growth in
manufacturing value
added (%)
Manufacturing value 19.3 23.2 17.4 25.9 18.5 22.1 –​
added as ratio of
GDP, (%): 1994
Manufacturing value 11.8 9.4 17.3 25.3 14.3 19.0 18.8
added as ratio of
GDP, (%): 2019
Average growth in 2.9 4.6 6.3 6.1 6.7 7.8 4.9
total exports (%)
Total exports as ratio 29.9 14.3 39.1 59.7 49.8 31.6 24.7
of GDP, 2019 (%)

Source: Calculated from World Bank: World Development Indicators.

Notes: Income per capita is measured as GDP per capita for 2019, US$, at PPP exchange rates.
 Industrial Policy in South Africa    513

was the case for the developed world. This perspective has been questioned in the
sub-​Saharan African context by Nguimkeu and Zeufack (2019) who argue for a
greater emphasis on Dutch-​ Disease-​type factors in understanding the African
manufacturing experience.
Rodrik (2016) argues that technological progress is a convincing explanation of the
situation in the developed world because employment deindustrialization has been
much more pronounced than output deindustrialization. But in developing countries
where the decline in output share has been relatively larger this is a less convincing ex-
planation. Instead, globalization and trade liberalization have been bigger drivers of
premature deindustrialization in the developing world. Many countries lacked com-
parative advantage and the demise of protection led to the retreat of manufacturing
(Rodrik 2016). Indeed, what has occurred may not be so much a case of premature de-
industrialization but rather the concentration of manufacturing in a smaller number of
countries, most notably China (Haraguchi et al. 2017).
Table 24.1 presents basic growth parameters for a set of upper-​middle-​income
countries. South Africa has performed exceptionally poorly. Manufacturing value-​
added grew at an average rate of only 2.1 per cent per annum from 1994 to 2019. The
share of manufacturing in GDP fell in all countries. South Africa experienced the
greatest decline, apart from Brazil, with the share of manufacturing in GDP declining by
no less than 7.5 percentage points over this period, in spite of the fact that the economy
was growing only slowly. Low export growth has been a factor as has growing import
penetration.

24.3 The Evolution

of Industrial Policy

After 1994, the new democratic government embarked on a programme to develop

the industrial sector and introduced a stream of new initiatives and policies. The main
elements of industrial policy are summarized in Table 24.2. Zalk (2014: 327) divides
post-​apartheid industrial policy into two phases; with a ‘shift from neoclassical-​based
to structural-​based reforms’ taking place from 2007. While this sharp distinction is
probably overdrawn, especially in terms of actual policy impact, the earlier period did
include significant trade liberalization and privatization. Trade liberalization began
well before 1994, but after 1994 there were further tariff reductions and the elimin-
ation of most quantitative controls. Effective rates of protection on manufactured
goods had a weighted average of 35 per cent in 1984. These declined to 12.9 per cent
in 2000 and then to 9.5 per cent in 2006 (Edwards and Lawrence 2006; Black and
Roberts 2009).
These measures were complemented by a host of supply-​side measures to promote
exports, investment, and skills upgrading (Table 24.2). Special loan programmes were
514   Anthony Black

Table 24.2: A chronology of industrial policy

1991 Introduction of Section 37E of the Income Tax Act (accelerated depreciation for large-​
scale projects aimed mainly at the export market)
Introduction of Regional Industrial Development Programme (RIDP) (incentives for
industrial expansion in peripheral regions)
Early 1990s Introduction of Support Programme of Industry Innovation (SPII) and Technology and
Human Resources for Industry Programme (THRIP)
1995 Introduction of Motor Industry Development Programme (MIDP)
1995–​6 Establishment of small business support agencies: Centre for Small Business Promotion,
Ntsika Enterprise Promotion Agency, Khula Enterprise Finance, and the National Small
Business Council
1995–​8 Introduction of supply-​side incentives including Competitiveness Fund (to promote
competitiveness particularly by SMMEs);
Short-​Term Export Finance Guarantee Facility (aimed at SMME exporters); Life Scheme
(IDC low-​interest financing to export-​oriented projects); Duty Credit
Scheme (to promote exports by offering import rebate certificates
to exporters of clothing and textiles); Sectoral Partnership Fund (to promote groups of
firms to cooperate to address common problems); Workplace Challenge (to improve
productivity via joint training of workers and managers)
1996 Cancellation of Regional Industrial Development Programme (RIDP)
Tax holiday scheme introduced
Spatial Development Initiatives (to align public infrastructure provision with
Private-​sector investment on a regional basis)
1998 Competition Act introduced
1999 End of tax holiday scheme
Establishment of new competition authorities
2002 Announcement of Integrated Manufacturing Strategy with emphasis on knowledge
and technology
Introduction of Strategic Investment Programme (SIP) and Critical Infrastructure
Programme
2003 Advanced Manufacturing Technology Strategy
2005 Formation of Small Enterprise Development Agency (SEDA)
Establishment of Apex Fund to support loans to micro-​businesses
2007 Announcement of National Industrial Policy Framework (NIPF) and Industrial Policy
Action Plan (IPAP)
2010 Launch of Clothing and Textiles Competitiveness Programme (CTCP)
2011 Special Economic Zones Bill
Amendment of Preferential Procurement Regulations to enable the DTI to designate
products for local procurement by government.
2013 Introduction of Automotive Production and Development Programme (APDP)
2014 Industrial Policy Action Plan 2014/​15–​2016/​17
2015 Introduction of Black Industrialists Scheme (BIS) to support majority black-​owned
manufacturing firms. The BIS offers funding for medium-​sized investments.
2018 Industrial Policy Action Plan 2018/​19–​2020/​21
Launch of South African Automotive Masterplan (SAAM)
2019 Launch of South African Clothing, Textiles, Footwear and Leather Masterplan

Sources: Hirsch (2005); Black and Roberts (2008: 215); the DTI (2018).
 Industrial Policy in South Africa    515

put in place to develop small firms. A further objective was to promote ‘knowledge-​
intensive’ production and advanced technology (Black and Roberts 2009). These were
highlighted in the Department of Science and Technology’s Advanced Manufacturing
Technology Strategy (NACI/​DST 2003).
The net impact of this plethora of new measures is far from clear. The objective
was to counteract the previous government’s support for large-​scale capital-​intensive
industries and the legacy of poor productivity, and to facilitate the development of
non-​traditional manufactured exports (Hanival and Hirsch 1998; Joffe et al. 1995).
However, this has only happened to a limited degree (see section 24.4). While the
stated objective of policy has been to encourage higher value-​added activities,
labour-​intensive activities and smaller firms, in practice the weight of support
continued to be focused, at least in the early stages, on larger-​scale capital-​intensive
activities.
Government also embarked on a series of regional industrial policies in the form of
industrial development zones (IDZs), spatial development initiatives (SDIs), and spe-
cial economic zones (SEZs), the latter being introduced in 2011.
The year 2007 saw the introduction of explicit industrial policy in the form of the
National Industrial Policy Framework (NIPF). The NIPF was aimed at diversification
beyond commodities, intensification of the industrialization process, the promotion of
labour-​absorbing industrialization, greater black participation, and the development of
marginalized regions. It was accompanied by the first iteration of a series of Industrial
Policy Action Plans (IPAPs), which developed more targeted approaches in relation, for
example, to industrial financing, procurement, trade policies, skills development, and
innovation (Zalk 2014).
In addition, more selective strategies at the sector level were embarked upon.
These included further iterations of the Motor Industry Development Programme
(MIDP) and the introduction in 2013 of the Automotive Production and Development
Programme (APDP). In the clothing sector, which was hard hit by reduced protection,
the Clothing and Textiles Competitiveness Programme (CTCP) was introduced. These
strategies are discussed further in section 24.4.
There was a host of other measures as well. These included public–​ private
partnerships. In the case of mining capital equipment, the Mandela Mining Precinct was
established, as a partnership between the Chamber of Mines and government to under-
take research and to develop suppliers. A growing sector is business process services
(BPS), supported by the BPS Incentive Programme (DTI 2018). There was a growing
emphasis on black economic empowerment (BEE) and, in 2015, the Black Industrialists
Scheme (BIS) was introduced.
A more recent development has been the focus on ‘masterplans’ initially in the
automotive and garment sectors. These have been based on consultative processes
with industry and other stakeholders to forge a common vision and set ambitious
objectives.
516   Anthony Black

24.4 Industrial Performance

As indicated above, the manufacturing sector has performed poorly. Trade liberaliza-
tion, which started to take effect before 1994, led to rapid import penetration across
a wide range of sectors. The increase in import penetration ratios in major sectors is
indicated in Table 24.3. Imports of vehicles and parts rose rapidly in the automo-
tive sector although that was partly offset by rising exports. Imports since 1994 have
increased most rapidly in the labour-​intensive and ultra-​labour-​intensive categories
(Mercer 2019).3 In the important clothing sector, import penetration increased from 8.1
per cent in 1990 to 58.3 per cent in 2016 (Table 24.3).
The export of manufactures has increased but at a relatively pedestrian pace. The basic
pattern of reliance on mining exports has not changed very much. There has been some
diversification of total merchandise exports towards manufactured goods although this
is mainly due to the expansion in motor vehicle exports, which benefited from large-​
scale assistance. With the rapid increase in import penetration and modest growth in
exports, manufacturing has continued to run a large trade deficit, which amounted to
nearly Rand 300 billion in 2017 (DTI 2018).
Diversified exports have expanded more rapidly to the rest of Africa. The continent
accounted for 38.8 per cent of manufactured exports in 2017 and 25.3 per cent of total
exports, with the latter share showing a large increase from just 17.9 per cent in 1996
(DTI 2018). This is an important shift as the basket of exports to the rest of the con-
tinent consists of mainly processed manufactured goods with the four most important
categories comprising non-​electrical machinery, processed food, chemical products
(e.g. pharmaceuticals), and motor vehicles parts and accessories (DTI 2018: 15). Indeed,
the large trade surplus that South Africa has with the region in manufactured goods may
present a stumbling block to further integration (Black et al. 2021).

Table 24.3: Import penetration ratios in key sectors

Import penetration ratios (%)
1972 1990 2016

Motor vehicles 32.0 24.2 65.1

Food 8.0 7.6 17.0
Machinery 48.8 62.5 92.2
Clothing 16.4 8.1 58.3

Source: Adapted from Mercer (2019).

3
See Table 24.3 for the classification of these sectors.
 Industrial Policy in South Africa    517

The impact on employment has been severe. Manufacturing employment peaked at

1.79 million in 1981 and declined precipitously to just 1.22 million in 2019. The impact on
employment of weak manufacturing growth has been compounded by rapidly declining
employment intensity. In 2010 prices, employment per million rand of manufacturing
output declined from 3.1 in 1972 to 2.2 in 1990 and 0.8 in 2016 (Mercer 2019). The em-
ployment intensity of manufacturing has in fact declined much more rapidly than the
economy as a whole and reflects, in part, skill-​biased technical change across all sectors
but also important shifts between sectors.
Table 24.4 provides detailed employment data organized according to factor intensity.
Overall, employment has declined by 6.8 per cent over the period although it needs to be
noted that major employment losses took place during the 1980s and 1990s. The picture
is mixed across factor-​intensity categories. Most notable has been the further decline in
the ultra-​labour-​intensive sector.
The period from 2007, saw a shift to more intensive industrial policy being
implemented through a series of IPAPs. But this coincided with a number of very nega-
tive developments. The global financial crisis and associated recession was a major
external factor. Within South Africa, the onset of ‘state capture’ under the Zuma presi-
dency contributed to weakness in key institutions and state-​owned enterprises (Zalk
2014). The most damaging was the constraints on electricity output where poor planning
and a lack of maintenance led to rolling blackouts coupled with rapidly escalating elec-
tricity tariffs. But there were other constraints as well. High port charges and the lack
of rail capacity impeded exports. Problems in the commuter rail system added to the
difficulties of workers travelling long distances to work. In many areas, dysfunctional
local government inhibited firm operation and expansion.
The IPAPs have a sectoral focus as well as a set of transversal focus areas. The trans-
versal focus areas refer to cross-​cutting areas of policy implementation. In IPAP 2018/​
19–​2020/​21, they comprise public procurement and local content; industrial financing;
developmental trade policies; African integration and industrial development; spe-
cial economic zones; and innovation and technology (DTI 2018). In the following
sections we focus on industrial policy in three sectors (heavy industry, automotive, and
garments) and one transversal focus area (special economic zones).

24.4.1 Heavy Industry
The minerals-​energy complex4 that developed in the apartheid era was capital inten-
sive and depended on low cost, subsidized coal-​based electricity. As a result, it was also
highly emission intensive (OECD 2013). The share of capital-​intensive manufactures in
total manufactured exports increased from 27.9 per cent in 1970 to 49.4 per cent by 1990
although it has declined somewhat since then.

4
See Fine and Rustomjee (1996).
518   Anthony Black

Table 24.4: Manufacturing employment by sub s​ ector, 2000–​19, categorized

according to factor intensity
Annual Annual
average average
employment employment
growth growth
Factor-​ Employment, Share Employment, Share rate (%), rate (%),
Industry intensity 2000 (%) 2000 2019 (%) 2019 (2000–​09) (2010–​19)

Coke and Ultra-​ 12,201 0.93 23,063 1.89 10.75 –​1.56

petroleum capital-​
products intensive
Basic chemicals (UCI) 21,308 1.63 23,511 1.93 –​0.37 1.58
Non-​ferrous 19,704 1.51 14,939 1.22 0.94 –​3.15
metals
Other chemicals 36,315 2.78 69,846 5.73 3.66 3.75
Beverages 40,125 3.07 34,096 2.80 –​2.48 0.79
TOTAL UCI 129,654 9.91 165,454 13.56 1.65 1.07
Glass Capital-​ 12,028 0.92 8,394 0.69 1.27 –​4.17
Paper and paper intensive 24,159 1.85 33,069 2.71 –​5.12 –​3.98
products (CI)
Basic iron and 48,265 3.69 32,381 2.65 0.76 –​4.40
steel
Non-​metallic 54,758 4.19 51,489 4.22 –​0.23 0.08
minerals
Motor vehicles 111,598 8.53 90,786 7.44 –​2.06 –​0.09
Tobacco 2,766 0.21 2,738 0.22 –​0.96 1.00
TOTAL CI 253,573 19.38 218,858 17.94 –​0.48 –​0.98
Rubber Intermediate-​ 18,296 1.40 11,617 0.95 –​2.77 –​1.71
Other capital-​ 62,034 4.74 33,134 2.72 –​2.24 –​3.81
manufacturing intensive (ICI)
Food 195,257 14.93 209,499 17.17 –​0.86 1.63
Printing and 51,330 3.92 53,001 4.35 1.21 –​0.73
publishing
Other transport 13,578 1.04 17,487 1.43 2.67 0.68
equipment
TOTAL 340,495 26.03 324,738 26.62 –​0.76 0.29
Continued
 Industrial Policy in South Africa    519

Table 24.4: (Continued )

Annual Annual
average average
employment employment
growth growth
Factor-​ Employment, Share Employment, Share rate (%), rate (%),
Industry intensity 2000 (%) 2000 2019 (%) 2019 (2000–​09) (2010–​19)
Machinery Labour-​ 74,980 5.73 113,745 9.32 3.41 1.26
Textiles intensive (LI) 52,039 3.98 25,781 2.11 –​3.80 –​3.30
Plastics 51,738 3.96 49,176 4.03 –​2.72 2.07
TV, radio, and 21,961 1.68 12,240 1.00 –​5.05 –​0.84
communication
equipment
Electrical 40,243 3.08 49,334 4.04 –​0.75 3.22
machinery
Professional 15,402 1.18 17,111 1.40 1.13 0.29
and scientific
equipment
Metal products 100,926 7.72 103,938 8.52 0.75 –​0.22
Wood 51,638 3.95 47,236 3.87 –​1.97 1.11
TOTAL LI 408,927 31.26 418,560 34.31 –​0.34 0.60
Leather and Ultra-​ 8,656 0.66 4,808 0.39 –​4.72 –​0.89
leather products labour-​
Footwear intensive 18,254 1.40 8,585 0.70 –​7.32 –​0.08
(ULI)
Furniture 45,727 3.50 35,090 2.88 –​2.96 0.64
Clothing 102,825 7.86 43,700 3.58 –​5.63 –​3.11
Total ULI 175,463 13.41 92,182 7.56 –​5.11 –​1.56
Grand Total 1,308,111 100 1,219,792 100 –​0.82 0.08

Source: Derived from Quantec data.

Notes: The categorization according to factor intensity draws on Mercer (2019). Food includes: meat, fish,
fruit; dairy products; grain mill products; and other food products. Textiles include: other textile products.
Motor vehicles include: parts and accessories. Clothing includes: knitted, crocheted articles; and wearing
apparel. Wood includes: sawmilling and products of wood. Electrical machinery includes: electric motors,
generators, transformers; electricity distribution and control apparatus; insulated wire and cables; and
other electrical equipment. Metal products include: structural metal products; and other fabricated metal
products. Radio, television and communication equipment includes: household appliances. Machinery
includes: general purpose machinery; and special purpose machinery. Professional and scientific
equipment includes: office, accounting, computing machinery.

Revealed comparative advantage in heavy industry was partly a distortion resulting

from very substantial direct and indirect state support to the sector. This included
subsidized electricity and other forms of government support. For example, aluminium
production was based entirely on using low-​priced electricity to process imported
bauxite. Historically, cheap electricity has been a function not just of abundant coal
520   Anthony Black

resources, but also the extraordinary electricity pricing policy. Heavy over ​investment
in electricity capacity in the 1970s and early 1980s by Eskom, led government to set ex-
tremely low tariffs to attract huge investments in a series of metal processing plants.
And with capacity running out, agreements were still being reached in 2007 with Alcan
for an aluminium smelter at Coega, at highly favourable electricity prices (Black and
Roberts 2009). The proposed Rand 21 billion smelter, which would have exported most
of its output in primary form, was also in line for huge investment and tax allowances.
Given later developments, it is perhaps fortunate that emerging constraints on South
Africa’s generation capacity led to the cancellation of the project in 2009. The same
issues apply with regard to Eskom’s preferential pricing arrangements with other large,
energy-​intensive industries, such as BHP Billiton’s aluminium smelters.
While the clearly stated objective of industrial policy is to restructure the economy to
promote growth and jobs, some of the very substantial support programmes provided
by government have reinforced rather than altered the industrial development path,
especially in the first decade of the transition. An accelerated depreciation allowance
under the 37E incentive was given to major resource-​based projects in the 1990s such as
Columbus Stainless Steel and the now-​mothballed Saldanha Steel plant. From 2002 to
2005, the Strategic Industrial Projects (SIP) programme provided tax relief equivalent
to Rand 7.7 billion for large capital-​intensive projects, mostly in sectors such as steel,
ferroalloys, aluminium, and basic chemicals (Black and Roberts 2009).
Another related DTI initiative was the funding of mega projects (defined as more
than Rand 1 billion) and industrial development zones. State support for such projects
is multifaceted, including infrastructure support, industrial subsidies, cheap land and
water, as well as preferential electricity tariffs. These developments have generally been
aimed at large-​scale capital-​intensive and energy-​intensive projects (Black 2010).
Further direct state support for heavy industry has been provided by the state-​owned
Industrial Development Corporation (IDC), which has played an important role in
influencing economic growth in accordance with government’s strategic objectives. The
IDC supports firms by providing equity finance and loans, frequently at concessional
rates. Historically, it has funded large-​scale mineral beneficiation projects and has been
closely associated with the parastatals as well as with large private-​sector conglomerates.
The IDC has more recently increased the emphasis on labour-​intensive sectors such as
tourism, agriculture, and smaller-​scale enterprises (Black and Hasson 2016).
The long history of artificially low electricity prices has led the economy to its current
predicament where electricity supply is inadequate and prices are rising sharply. Rising
prices and supply interruptions have impacted very seriously on this sector even though a
number of the larger operations continue to receive special pricing deals. Since 2008, elec-
tricity constraints, and more recently over-​capacity in the global steel industry, have placed
a brake on heavy industry development and led to the abandonment of a number of major
proposed investments and the closure of foundries and other metal processing plants.5

5
The most recent major closure was that of Saldanha Steel, which was announced in 2019.
 Industrial Policy in South Africa    521

Also, the market power of large upstream producers in sectors such as steel and
chemicals (e.g. Arcelor-​Mittal and Sasol) profoundly disadvantaged more labour-​
intensive downstream production (Roberts and Rustomjee 2009). The lack of compe-
tition has enabled upstream producers to use import parity pricing, so that domestic
fabricators of metal and plastic products have derived no advantage from low domestic
production costs of key inputs such as steel and basic chemicals. In certain cases, gov-
ernment policy has exacerbated this situation, for instance in the imposition of a 10 per
cent tariff on steel in 2015, which imposed significant costs on downstream fabricators.

24.4.2 The Automotive Sector

The automotive sector has been the recipient of intensive industrial policy support and
is frequently cited as a policy success story (Hirsch 2008; Barnes et al. 2004) although
the policy has also come in for criticism.6 The sector has experienced a rapid increase
in exports with its share of manufactured exports increasing from 4.3 per cent in 1995
to over 20 per cent by 2019. But this is more a story of rapid international integration
than developing competitiveness. While exports have risen rapidly so have imports and
South Africa remains a net importer of automotive products.
The Motor Industry Development Programme (MIDP), introduced in 1995, had very
specific industrial policy objectives. In the early 1990s, as a result of high protection,
there was a proliferation of makes and models being produced in low volumes in South
Africa. In turn, this made it impossible for component suppliers to achieve anything
close to minimum efficient scale. The MIDP therefore aimed to increase the volume
and scale of production through a greater level of specialization in terms of both vehicle
models and components. This could be achieved by earning import credits on exports of
locally produced vehicles and components. These credits could be used to import either
additional models for sale in the domestic market, or components required in vehicle
assembly (Barnes et al. 2021).
Initially, this strategy was not wholly successful as a number of vehicle assemblers
opted in the short term for the lower-​risk option of generating large-​scale exports of
components, such as catalytic converters, in order to offset these duty liabilities.
Exports of catalytic converters which contain platinum-​group metals rocketed from
R389 million in 1995 to Rand 21.8 billion in 2016 after which they declined slightly
(AIEC 2020). Most light vehicle producers have now secured major ongoing vehicle
export contracts and have invested accordingly to upgrade assembly plants. However,
large export volumes have not led to an increase in local content. And, as a result of the
stagnating domestic market and poor investment climate, the government is on a weak
footing when bargaining with multinationals to achieve some degree of reciprocity, for
instance via higher levels of local content (Barnes et al. 2021). The result is that local

6
See, for example, Flatters and Netshitomboni (2007) and Kaplan (2019).
522   Anthony Black

content has actually slightly declined with some hollowing-​out of second-​and third-​tier
component suppliers.
In comparing the South African and Thai automotive industries, Barnes et al. (2017)
argue that while exports have expanded rapidly from both countries, global integra-
tion has turned out less favourably for the South African automotive industry. South
Africa’s high input costs into manufacturing, particularly for skilled labour (artisans,
technicians, and managers), have limited its competitiveness. As is well known,
outcomes in the training of artisans have been extremely poor. Indeed, a striking fea-
ture about the labour market in South Africa is not so much that wages of production
workers are higher than competitors (although in many cases they are), but the high
costs of managers and skilled staff. This conclusion is supported by earlier studies. For
example, a 2007 World Bank study found that unskilled workers in South Africa earned
slightly less than in Poland but somewhat more than in Brazil (Clarke et al. 2007).
However, managers’ wages were 2.5 and 3 times higher than in Poland and Brazil re-
spectively, and wages of professional and skilled employees in South Africa were also
much higher than in the other two countries (Black and Hasson 2016).
Other costs are also higher in South Africa. Port charges, a critical factor in the trade-​
intensive automotive industry, are notoriously high (DTI 2018). As indicated above,
electricity prices have risen sharply along with the ongoing problem of load-​shedding.
Mediocre economic growth and the failure to develop a low-​cost manufacturing en-
vironment have clearly limited South Africa’s attractiveness for foreign direct invest-
ment. Thailand, in contrast, has attracted much higher levels of investment which has
deepened the component supply base. Although both countries have seen very rapid
export expansion, Thailand provides a genuine export platform. Export growth has far
exceeded the expansion of imports and Thailand runs a large automotive trade surplus.
In South Africa, investment in exports has in part been driven by the desire to earn im-
port rebate credits, which support the import of vehicles and components.
The automotive industry is considered to be a flagship of South African industrial
policy and there have been positive achievements in modernizing and upgrading the
industry. However, limited progress with deepening the supply chain is indicative of the
weaknesses in manufacturing, and the same factors which militate against real competi-
tiveness in the sector are obstacles to downstream manufacturing in South Africa.

24.4.3 Light Manufacturing: Clothing

Light manufacturing has performed poorly. The ultra-​labour-​intensive (ULI) category
comprising clothing, leather, footwear, and furniture has been in decline since the early
1990s and from 2000 to 2019 employment declined a further 47.4 per cent (Table 24.3).
The key garment sector saw employment fall from the already low figure of 102,825 to
only 43,700 over this period. The footwear industry was also severely affected.
As per capita incomes rise, it is to be expected that the relative share of labour-​intensive
sectors will decline as these industries shift to lower-​wage economies. But the decline has
 Industrial Policy in South Africa    523

Table 24.5: Share of manufacturing value added in textiles and clothing,

1996–​2018
1996 2000 2004 2008 2010 2014 2018

South Africa 7.8 4.9 4.5 3.0 1.8 1.8 1.8

Brazil 8.1 6.9 5.9 5.6 6.6 6.6 6.8
Malaysia 4.6 4.1 2.8 1.9 1.9 1.7 2.1
Mexico 4.4 3.9 3.5 2.8 3.4 3.0 2.7
Thailand 8.6 12.4 7.9 8.8 6.4 6.0 6.0
Tunisia 34.0 35.1 29.6 23.3 21.9 19.2 17.6
Turkey 17.2 15.7 21.5 15.5 16.5 17.7 16.4

Source: World Bank, World Development Indicators.

been particularly rapid in South Africa, in spite of the fact that per capita incomes have
hardly risen. A key contributor to the decline in labour-​intensive employment has been
the poor performance of the textiles and clothing sectors. Their share of manufacturing
output declined from 7.8 per cent in 1990 to just 1.8 per cent in 2014 but has stabilized
since then (Table 24.4). While other middle-​income comparator countries have also seen
declines in the sector, none has been as rapid as in South Africa (Table 24.5).
This decline has particularly affected some poorer regions of the country. For ex-
ample, in the Eastern Cape the textiles, clothing, and leather sector was the largest
manufacturing employer with 26,000 workers in 1996, equal to 19.8 per cent of the
manufacturing labour force in the province. Already by 2012 employment had declined
to just 10,700 workers, just 11.8 per cent of a much smaller manufacturing labour force
(Kaplan et al. 2014: 25).
The contrast with comparator countries is striking. Malaysia, Mexico, Thailand,
Tunisia, and Turkey all have at least two of their top five export products in the
ultra-​labour-​intensive or labour-​intensive categories. Mexico’s main exports are cars
and oil, but it exports huge volumes of consumer electronics and machinery and office
equipment. Turkey exported $14.7 billion of apparel in 2016 and Malaysia’s main export
is consumer electronics, a labour-​intensive sector. Apparel is Tunisia’s major export with
revenues of $2.1 billion in 2016 (Black et al. 2016).
South Africa’s poor position in light manufacturing compared to other upper-​middle-​
income countries is all the more striking if account is taken of its exceptionally high
poverty rates. Although South Africa is an upper-​middle-​income country, a large sector
of the population has characteristics approximating that of a lower-​middle-​income
country. Apart from Tunisia, the comparator countries in Table 24.4 all have higher per
capita incomes on a PPP basis and much lower poverty levels than South Africa.
It is difficult to see how this sector would have survived trade liberalization unscathed,
but it was not helped by labour market policies, such as the extension of bargaining
524   Anthony Black

council wage settlements to non-​parties especially in non-​metropolitan areas (Nattrass

and Seekings 2016). The decline of ‘decentralized industries’ in and around the former
Bantustans, as incentives were withdrawn, was a further factor. Also important has been
the lack of government enthusiasm for mass employment in labour-​intensive (low-​
wage) manufacturing. While ‘decent work’ may be the ideal, the actual outcome has
been declining employment.
Measures to rescue the industry have included the Clothing and Textiles
Competitiveness Programme (2010) which has had some positive outcomes among
beneficiary firms. But more marginal (non-​metropolitan, lower-​wage) producers are
excluded. The recently announced masterplan will only provide support to ‘legal’ firms.
There has also been a tilt to greater protection with pressure placed on major retailers
to increase domestic sourcing. This may indeed be warranted to limit imports from
Asia, but if policymakers are serious about regional integration, they need to ensure that
growing clothing imports from the rest of Africa are not impeded.

24.4.4 Regional Policies and Special Economic Zones

In order to understand the development trajectory of regional policy, and SEZs in par-
ticular, it is necessary to take account of the history of spatial planning under apartheid.
To provide some kind of economic basis for the imposition of ‘grand apartheid’ from
the late 1950s, there was a series of regional development interventions to encourage
manufacturing firms to locate in designated growth points in peripheral economic
regions within, or close to, the Bantustans (Wellings and Black 1986). These growth
points offered incentives, including wage subsidies, specifically designed to attract
labour-​intensive firms (Tomlinson and Addleson 1987).
While the programme was an ideologically driven failure it did lead to significant
relocation and investment in labour-​intensive industries. By 1984, employment in the
‘decentralization points’ accounted for 21.7 per cent of total manufacturing employ-
ment, up from 8.8 per cent in 1972 (Wellings and Black 1986: 13). With the withdrawal of
incentives many of these decentralized industries collapsed, contributing to the decline
in manufacturing employment.
After 1994, the democratic government embarked on a range of interventions with a
regional development dimension (Nel and Rogerson 2014). The objective of spatial de-
velopment initiatives (SDIs) was to unlock development along regional and transport
corridors (Jourdan 1998), such as in the case of the Maputo Corridor, which developed
the link between Gauteng and the Mozambican port (Yang et al. 2020; Rogerson 2001).
From 2000, a series of IDZs were established close to major transport hubs, the
largest of which was Coega, outside Port Elizabeth but other sites included East
London, Richards Bay, and OR Tambo International Airport (ORTIDZ). The main
objectives were to promote export-​orientated manufacturing and attract foreign in-
vestment (Yang et al. 2020; Centre for Development and Enterprise 2012; DTI 2015;
Jourdan 1998). The lack of special incentives (Nyakabawo 2014) and poor planning and
 Industrial Policy in South Africa    525

marketing produced limited results (Yang et al. 2020) and it was decided to convert the
programme into an SEZ programme (DTI 2012). SEZs can aim at improving industry
competitiveness via good-​quality infrastructure, establishing clusters, addressing eco-
nomic distortions, or experimenting with reform. The actual rationale in South Africa
is not very clear.
The Special Economic Zones Bill of 2011 provided upgraded incentives in established
and new zones. Some of the aforementioned existing zones are well located close
to urban areas but others are more remote and clearly have locational disadvantages.
A number of the SEZs are located in the former Bantustans and some are far from
established nodes of economic activity. The location of SEZs in backward regions with
limited skills and weak infrastructure and linkages is likely to retard their ability to
attract investment (Farole and Sharp 2017).
There has been little to show for the colossal investments that have been made. Coega
is perhaps the most controversial because of its huge scale and underutilized capacity,
but overall performance has been unspectacular in terms of investment and employ-
ment. The DTI’s 2015/​16 SEZ Performance Analysis Bulletin states that of the 73,000
jobs created in the IDZs by that stage, as many as 88 per cent were in construction or ‘in-
direct’ jobs, with 8,500 workers employed in manufacturing and zone service industries
(Yang et al. 2020).
Since then, there has been some increase in the rate of new investment. According
to the Coega Development Corporation’s 2018/​19 Annual Report (Coega Development
Corporation, 2019) the five-​year target for operational jobs was exceeded. But the target
of only 8,902 jobs was rather modest (Black and Yang 2021). Cluster development
has been limited. For example, high-​profile investments by Chinese multinationals,
such as FAW and BAIC at Coega and Hisense in Atlantis, use very little in the way of
domestic parts.

24.5 Conclusion: What Role

for Industrial Policy?

The manufacturing sector has performed poorly with its share of output declining in a
low-​growth economy. To make matters worse the employment intensity of the sector has
declined quite rapidly. The reality is that South Africa is currently not a very competitive
manufacturing location as indicated by the pedestrian performance of manufactured
exports, and evident lack of progress with downstream manufacturing. The historic bias
of incentives towards heavy industry is one problem and has been damaging, not only
for employment but also for growth. The apartheid-​era legacy of limited skills develop-
ment is another. Unfortunately, this deficit has not been decisively addressed since 1994.
At the dawn of the democratic era, the pattern of manufactured exports reflected the
distorted pattern of development manifested in the ‘minerals-​energy complex’ with
526   Anthony Black

‘revealed comparative advantage’ in steel and basic metals, in part the result of heavy
state support and artificially cheap energy. South Africa’s extraordinary economic struc-
ture comprising a high level of resource dependence, a capital-​intensive export profile,
and massive structural unemployment has created a complex adjustment puzzle which
is far from being resolved.
In the democratic era, the manufacturing sector has been buffeted by a series of ad-
verse events. The first was trade liberalization. Opening the economy was supposed to
unleash labour-​absorbing export growth but this did not materialize. The one major
sector which did achieve rapid export growth was the automotive sector, assisted
by large-​scale subsidies. Given the generally weak export response and the fact that
exports are more capital intensive than imports, it is not surprising that employment
declined.
The second shock was to the mainstay of heavy industry resulting from infrastruc-
ture failures (e.g. unstable electricity supply and sharply rising prices) and the gradual
withdrawal of incentives. While electricity prices had been artificially low and the large
incentives for heavy industry were inappropriate, these changes have imposed huge
adjustment costs on the sector, which has suffered from falling investment and plant
closures.
A third and related shock has been the flatlining of mineral exports (in dollar terms).
Commodity prices of course play an important role but damage has been inflicted by
regulatory failure and lack of infrastructure capacity. The lack of mining export growth
impacted manufacturing in two ways; directly because it is a major source of demand
for engineering products, but more importantly because it is a major driver of domestic
consumption.
Fourth, there has been the decline of labour-​intensive manufacturing. This has
occurred in a high-​unemployment economy which is growing slowly relative to its
middle-​income peers. Import competition has been a major factor but the state has also
failed to mobilize the investments required to take advantage of South Africa’s huge
unemployed-​labour resources.
The objectives of industrial policy have been quite diverse, ranging from beneficiation
to small business support, as well as labour-​absorbing industry and the promotion of
the ‘knowledge economy’. Industrial policy has sought to shift industrial development
onto a different trajectory, but this has proved extraordinarily difficult and has met with
limited success (Roberts and Rustomjee 2009).
So what is the way forward? While industrial policy is usually defined as a set of
selective interventions to promote industrial upgrading, a more appropriate con-
ception may be to improve economy-​wide efficiency. Massive structural unemploy-
ment is without doubt the most glaring inefficiency facing the economy. The bulk of
our unemployed labour are unskilled or semi-​skilled and cannot easily be absorbed
into sophisticated industries. They could, however, be absorbed into labour-​intensive
activities, including in manufacturing (Black 2010).
In a diverse, middle-​income economy it is not appropriate to have a single industrial
policy objective. But South Africa still faces important choices and the crisis confronting
 Industrial Policy in South Africa    527

the country calls for a shift in emphasis. There are a number of options available. South
Africa is a mineral-​rich economy, and it may be possible, even sensible, to have an in-
dustrial policy which promoted capital-​intensive, resource-​based exports with employ-
ment being generated elsewhere in services, (protected) manufacturing for the domestic
market, or agriculture. Or industrial policy could target more advanced, leading sectors
which may lead to little direct employment growth, but which would generate the ex-
port expansion required to finance development with employment being created in the
protected sectors of the domestic economy (Black 2010). There are also sectors, such as
agro-​processing, which are not particularly labour demanding but where the indirect
employment multipliers (into agriculture) are very significant. But there remains an
important potential role for industrial policy to support more employment-​intensive
growth. This would also complement efforts to reduce carbon emissions and develop a
greener development path.
To move to a more labour–absorbing growth path, South Africa will need to ac-
tively intervene to create competitive advantage in more labour-​demanding economic
activities. Competition in light manufacturing is a reality and South Africa could do
much better than it has been doing.
But what of objectives such as moving up the value chain, technological upgrading,
and promoting the digital economy?7 These activities can and should be supported
and may be complementary to labour-​absorbing growth in some ways. But, in the
end, they constitute a partial development strategy in the South African context
because a large section of the (unemployed) labour force is not equipped with the
skills to be employed in these sectors. It is clear that manufacturing growth already
exhibits a strong skills bias which has raised wages for skilled workers and failed to
create large-​scale employment in the unskilled or semi-​skilled categories. Skills up-
grading is essential but currently skills are generally more highly priced than those of
our middle-​income competitors. It can also be argued that higher employment and
the growth in labour-​absorbing activities is the best way of promoting upgrading and
the acquisition of human capital (Black et al. 2016).
A key question is whether the incentive structure can be re-​shaped to facilitate
employment creation much more strongly. This means providing appropriate in-
frastructure and investments to improve competitive capabilities in more labour-​
demanding activities. It could also mean support for small firms and training,
particularly at a basic level and an examination of the regulatory environment.
Certain labour-​market rigidities do need to be addressed and there is a role for
targeted import protection as well. Incentives should subsidize labour and training
rather than capital investment, electricity, and infrastructure for capital-​intensive
firms (Black and Nasson 2016). A key challenge facing South African policymakers
is to mobilize the potential of an under-​employed and poorly skilled workforce.
Industrial policy has to play its part in this crucial endeavour.

7
See Andreoni et al. (2021).
528   Anthony Black

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 Chapter 25

C ompetition P ol i c y
in Sou th A fri c a

Liberty Mncube and Nicola Theron

25.1 Introduction

Competition policy encompasses the aim of promoting and maintaining competition

in the marketplace as well as, promoting other government policies that allow com-
petitive marketplaces to develop in a way that is not detrimental to society.1 The key
challenge is to get the balance right. In this chapter we will critically examine whether
the emphasis in South Africa on creating a more equal society, by also including public
interest goals such as employment protection, economic development, export promo-
tion, has diluted the impact of competition policy. It is useful to note that the early criti-
cism about including public interest goals in the Competition Act warned that this will
unnecessarily complicate the task of the competition authorities.2
Globally, the roots of competition policy are old. In its contemporary form, compe-
tition policy responds to the universal pursuit of economic power, in which those who
have market power seek more profits and wealth at the expense of those who do not.
Although the competition laws in each country differ widely, these laws share the pro-
tection of competition in markets as one common goal.3 Each country’s competition
law is designed to respond to distorting or oppressive economic power given the socio-​
economic context.
Competition policy has two main instruments, competition law and competition ad-
vocacy. Competition law is about enforcing competition rules against anti-​competitive

1
See Motta (2004). Competition policy is ‘the set of policies and laws which ensure that competition
in the marketplace is not restricted in such a way as to reduce economic welfare’.
2 See Reekie (1999).
3 For a review of competition policy in the European Union and the United States, see Motta (2004),

­chapter 1.
532    Liberty Mncube and Nicola Theron

market conduct. It focuses on anti-​competitive practices by private or public companies

to ensure that markets are competitive. Competition advocacy is about promoting less
anti-​competitive means of achieving the goals of other government policies. In other
words, competition advocacy is about achieving voluntary compliance with competi-
tion law in the design of other government policies.4
This chapter is about competition law and competition advocacy. Competition law
enforcement in South Africa has been characterized throughout by change and con-
troversy. Since the 1998 Competition Act was promulgated and the Competition
Authorities commenced their duties on 1 September 1999, the application of competi-
tion law has become much more active, with many high profile cases in key industries
being adjudicated by the competition authorities. Competition law has become an im-
portant feature of the economic landscape in South Africa, being one of the instruments
used by government to move the country to greater equity and greater efficiency.
This chapter will commence, in section 25.2, with a discussion of the context and
history of competition law (including competition law’s origins and evolution over
time). In section 25.3, we discuss the multiple goals of competition law. In South Africa,
as elsewhere, competition law has adapted to unique national experiences. In other
words, asserting relevance, South Africa chose to put both efficiency and equity goals
as the focus of its competition law. The focus on these twin goals has arguably been
strengthened in the amendments to the Competition Act of 2018. In section 25.4, we ex-
plain the substance of competition enforcement, using precedent-​setting competition
cases to illustrate the application in practice. In sections 25.5 and 25.6, we discuss the
interaction between competition and regulated sectors as well as competition and state-​
owned companies. In section 25.7, we briefly reflect on the limits of competition law and
how competition advocacy is used by the competition authorities to create awareness
about competition law and policy. In section 25.8 we conclude.

25.2 Context and Evolution

of South Africa’s Competition Laws

Although stemming from a basic need to confront the abuse of market power, the form
and intensity of competition laws are shaped by a country’s experience. South Africa is
a small open economy. Geographically, it is isolated from global markets. For much of
its history, it has been an unequal, exclusionary, and racially skewed society. Economic
policies in the nineteenth and twentieth centuries were shaped by a great dependence
on industries built around extracting raw materials, including gold, iron, diamonds, and

4 Other government policies with a potential to significantly affect competition include, among

others, industrial, consumer protection, standards, intellectual property rights (IPRs), trade and invest-
ment policy.
 Competition Policy in South Africa    533

other minerals.5 State protection was used to exclude black-​owned firms from effect-
ively participating in markets.
Throughout the twentieth century, racial discrimination and state protection
were combined to keep the vast majority of South Africans from participating in the
economy. Product markets and ownership of capital remained highly concentrated.
For example, in the years of apartheid (1948–​94), the economy was dominated by a few
diversified conglomerates, predominantly in mining, finance, and industry.6
South Africa’s first competition law statute, the Regulation of Monopolistic
Conditions Act, was adopted in 1955.7 It identified several anti-​competitive practices but
none of them was prohibited, in and of themselves. It was very cautious. The frame-
work of analysis was whether an anti-​competitive practice was in the public interest,
but public interest was not defined. The minister of trade and industry decided who and
what was investigated, including what remedies, if any, would be imposed.
Over the twenty years between 1955 and 1975, only eighteen investigations were
ordered by the minister and only in one case was action taken.8 The 1955 Regulation
of Monopolistic Conditions Act was replaced by the Maintenance and Promotion of
Competition Act of 1979. It established the Competition Board and introduced actions
against anti-​competitive mergers, but the framework of analysis remained whether con-
duct or a merger was in the public interest. Again, public interest remained undefined.
But the Competition Board could now decide to investigate anti-​competitive practices
on its own. Between 1979 and 1998, the Competition Board produced seventy-​five
formal reports.
Post-​1994 mistrust of concentrated markets and large white-​owned firms, who had
benefited from the past privileges, left South Africans with something of a dilemma.
Economic power concentrated in a few white hands was offensive. Against this back-
ground, the first democratic government gave high priority to the project of redressing
economic imbalances corresponding to concentrated markets and racial divisions. The
Competition Act of 1998 (Competition Act) became effective in September 1999. The
application of the Competition Act is the responsibility of independent institutions,
the Competition Commission (Commission), the Competition Tribunal (Tribunal),
and the Competition Appeal Court (CAC). The Commission mainly investigates
and prosecutes. The Tribunal largely adjudicates and reviews the decisions of the
Commission, while the CAC hears appeals and reviews the decisions of the Tribunal.
In February 2019, the Competition Amendment Act (2018) was signed into law.9
Up until the Competition Amendment Act (2018), the public interest goals were
only textually knitted into the merger control and the exemption provisions of the
Competition Act.10 The Amendment Act maintains the architecture of the Competition

5
OECD (2003).
6
OECD (2003).
7
Lewis (2012).
8
OECD (2003).
9
The main focus of the Competition Amendment Act is economic transformation.
10
Fox (2018).
534    Liberty Mncube and Nicola Theron

Act while aligning the operations with the stated purpose, particularly with regards to
public interest goals.

25.3 Multiple Goals

of Competition Law

As mentioned earlier, many countries have included multiple goals (in addition to effi-
ciency) in their Competition Law regimes. The economics profession has demonstrated
as early as the eighteenth century, that competition in markets increases efficiency,
maximizes a society’s resources and allocates them to their best use. The idea that active
competition policy can strengthen markets and efficiency is not disputed. The question,
however, is whether this should be the single goal of competition enforcement, to the
exclusion of all other equity and justice goals.
The answer to this question relies mainly on whether competition law is seen as an
instrument to rectify huge concentration of economic power and inequality. In the case
of South Africa this choice has been made, and South Africa has chosen to include mul-
tiple policy goals.11 The motivations of competition law are recorded in the preamble
of the Competition Act.12 The preamble details relevant contextual facts (apartheid
and other discriminatory practices of the past resulted in excessive concentration of
the economy).13 The preamble labels restrictions on free and full participation in the
economy by all South Africans as ‘unjust’. Importantly, the preamble suggests the kind
of outcomes that South Africa seeks to achieve through its competition law. It explains
that a credible competition law and institutions are essential for an efficient economy. It
explains further that an efficient economy balancing the interests of workers, owners,
and consumers, and focused on development, will benefit all South Africans.
It is important to point out that South Africa is not unique in its emphasis on public
interest goals as part of competition law. In the European Union, there are also multiple
factors considered as part of competition law, such as the promotion of market integra-
tion and environmental reasons.14 The critical question is whether the inclusion of mul-
tiple goals has detracted from the economic-​efficiency rationale.
The choice of a competition law goal or goals drives the outcomes. In South Africa,
the principal objective of competition law is stated as ‘to promote and maintain com-
petition’. This suggests that competitive markets, as an alternative to more intrusive

11
South Africa’s first democratic government intentionally made competition regulation its favoured
means of regulating private and public companies in the public interest.
12 In the United States, for example, the political motivations of the Sherman Act reflect the concerns

for small businesses and farmers who blamed the trusts for many economic misfortunes. See, generally,
Gotts (2019) and Hovenkamp (1988).
13 Buthelezi et al. (2019) point out that many of South Africa’s key sectors remain highly concentrated.
14 Motta (2004), c
­ hapter 1.
 Competition Policy in South Africa    535

government regulation or control, should allocate resources. The principal objective

is accompanied by six goals aimed at creating an inclusive economy. The first goal is
about economic efficiency (recognizing the total welfare standard). The second goal is
concerned with competitive prices and choices for consumers (recognizing consumer
welfare and consumer choice standards). The other four goals are concerned with equity
(or public interest). The first public interest goal is to promote employment. The second
public interest goal is to expand the opportunities to participate in world markets. The
third public interest goal is to ensure equitable opportunities for small and medium
enterprises (SMEs) to participate in the economy, and the fourth public interest goal is
to promote a greater spread of ownership, in particular to increase ownership stakes of
historically disadvantaged persons. The principal objective ‘to promote and maintain
competition’ is an intermediate objective, while economic development, capturing all
six goals, is a final aim.
Each society elects value choices that motivate its competition law and reflect the
problems that are important for its economy. Some critics of multiple goals point out
apprehensions about predictability15 and administrability16 of enforcement decisions.
Even if the apprehensions are appropriate, which is an open question, such concerns re-
flect a misunderstanding of multiple goals.
The fact that competition law explicitly encompasses both efficiency and public
interest goals requires implementation coherence. This helps avoid tensions and du-
plication of efforts, or indefensible softening of the competition process as the prin-
cipal driver of economic development. The Competition Act specifies what qualifies as
public interest to address the problem of discretionary bounds.17 In merger control, for
example, a complete competition analysis is done first and separately. The competition
analysis is followed by a public interest analysis. This separation makes it clear what a
competition analysis requires and what a public interest analysis requires. Because of
this separation, it is possible to observe trade-​offs.18 To third parties, the separation
makes it possible to predict competition enforcement outcomes. The separation has, in
our view, advanced the cause of both competition and public interest.
Lewis (2012), correctly, points out that the exclusion of public interest goals, for ex-
ample in protecting jobs, ensuring an equal opportunity for small businesses to par-
ticipate, and empowering the historically excluded and disadvantaged population,
would have meant no competition law in South Africa. The design of South Africa’s

15
Predictability looks at whether decisions are likely to be consistent in comparable cases and there-
fore means that outcomes will be predictable.
16 Administrability considers whether firms and competition authorities can implement standards in

an analytically cost-​effective manner.

17 See First and Fox (2015).
18 For example, in Tepco, after finding no competitive harm from an acquisition, the Tribunal was able

to assess the claim that the acquired black enterprise’s trademark should be separately preserved and
used by the acquiring company. It found that to do so would be costly and the principal would impose
such costs on prospective acquiring companies that the value of black businesses would be reduced. Shell
South Africa (Pty) Ltd and Tepco Petroleum (Pty) Ltd (66/​LM/​Oct01) [2002] ZACT 13 (2002).
536    Liberty Mncube and Nicola Theron

competition law allows it to fit the socio-​economic characteristics of South Africa. This
enhances its credibility and legitimacy.

25.4 Confronting the Exercise

of Anti-​competitive Market Power

Enforcing competition law involves enforcing prohibitions related to anti-​competitive

practices and regulating mergers. Anti-​competitive practices may involve horizontal
restraints, vertical restraints, or abuse of dominance, and are backward-​looking in na-
ture. We briefly review competition law enforcement instruments (including forward-​
looking merger control), below.

25.4.1 Merger Control
Merger thresholds classify mergers into large, intermediate, or small categories. This
classification is useful in determining the process of approval by the competition
authorities. For mergers categorized as large mergers, the Commission makes a recom-
mendation to the Tribunal on whether a merger should be approved (with or without
conditions) or prohibited. Small mergers do not need to be notified to the Commission,
but the Commission may sometimes request notification of a small merger if it considers
that the merger may lead to a substantial lessening of competition or may not be in the
public interest.
If the Commission decides to prohibit or decides to conditionally approve an inter-
mediate merger, any party to the merger may request the Tribunal to reconsider this
decision. Following the Tribunal’s decision, any party to the merger may request the
CAC to reconsider this decision. If one considers the period 1999 to 2019, only twelve
mergers were prohibited by the Tribunal, out of 1,537 cases decided. The vast majority of
the mergers have been approved (or conditionally approved).
Over the period 1999 to 2020, in only two of the five instances wherein the CAC was
asked to consider the Tribunal prohibition ((1) the proposed Mondi Ltd and Kohler
Cores and Tubes (a division of Kohler Packaging Limited) merger, and (2) the proposed
Imerys South Africa (Pty) Ltd and Andalusite Resources (Pty) Ltd merger)), has the
CAC agreed with the decision of the Tribunal to prohibit a merger. In another three
instances, the CAC overturned the Tribunal’s decision to prohibit the mergers.19

19 See e.g. the following cases: (1) Medicross Healthcare Group (Pty) Ltd and Prime Cure (Pty) Ltd

(Tribunal case number 55/​CAC/​Sept05); (2) Schumann Sasol (South Africa) (Pty) Ltd and Price’s Daelite
(Pty) Ltd (Tribunal case number 10/​CAC/​Aug01); and (3) Pioneer Hi-​Bred International and Another v
Competition Commission (Tribunal case number 113/​CAC/​Nov11).
 Competition Policy in South Africa    537

The majority of mergers raises no substantial lessening of competition and are rou-
tinely approved without conditions. However, in many contested merger cases, the
Commission is forced to litigate cases that are clearly anti-​competitive. In an ideal
world, the merging parties would not even consider requesting approval of an anti-​
competitive merger in the first place, or would abandon the request for approval
when the Commission makes its concerns known that the merger will result in a
likely substantial lessoning of competition or a negative public interest. The fact that
the Commission must litigate anti-​competitive mergers points to a limitation in the
current framework.20
The Competition Act prohibits mergers that are likely to substantially prevent or
lessen competition unless outweighed by efficiency gains or justified on certain public
interest grounds. The substantial lessening of competition (SLC) test focuses on
increased market power as the competitive harm to be prevented. Market power, in the
context of merger analysis, may be defined as the ability to increase prices profitably, re-
duce quality, reduce innovation, or reduce consumer choice from pre-​merger levels for
a significant period. This may arise through the individual decisions of the merged firm
and its competitors or through coordinated behaviour.
Merger analysis is predictive and requires the employment of an appropriate coun-
terfactual.21 In merger cases the assessment of the relevant counterfactual is an essential
part of the analysis. This involves a comparison of market outcomes that would prevail
without the merger. In many cases, competition authorities usually take the status quo as
the counterfactual to be compared with the scenario that is likely to prevail post-​merger.
The difference between the two scenarios informs the threshold question—​whether the
merger would lead to a likely substantial lessening of competition.
It is possible for a merger to increase efficiency while competition is lessened.
Efficiencies are balanced against the competitive detriment and the combined effects
assessed to see if, overall, consumers benefit (or total welfare increases). The key case
for guidance on efficiencies is the Trident/​Dorbyl merger.22 Merging parties have to
prove that efficiencies will outweigh the anti-​competitive effects. In the assessment of
whether the claimed efficiencies will outweigh the likely anti-​competitive effects of the
merger, competition authorities consider whether the claimed efficiencies (1) consti-
tute real efficiencies; (2) are verifiable (i.e. are capable of measurement); and (3) benefit
consumers. Further, efficiencies are expected to be timely, likely, and sufficient to out-
weigh the likely substantial lessening of competition.23 Efficiency claims must also be
merger specific and therefore be a direct consequence of the merger.

20
Grimbeek et al. (2013) point out that the Commission is less likely to approve mergers that they link
to markets that are less contestable.
21 See Life Healthcare Group (Pty) Ltd and Joint Medical Holdings Ltd (Case No: 74/​LM/​Sep11).
22 Tribunal’s Decision: Case no: 89/​LM/​Oct00.
23 See CAC decision in Pioneer/​Pannar: 113/​CAC/​Nov11, page 22.
538    Liberty Mncube and Nicola Theron

A merger that is not likely to give rise to a substantial lessening of competition may
still be prohibited on substantial public interest grounds.24 The public interest grounds
are limited and include the effect on: promotion of a particular industrial sector or re-
gion; promotion of a greater spread of ownership, in particular to increase the levels of
ownership by historically disadvantaged persons and workers in firms in the market;
promotion of employment; promotion of the ability of small businesses or firms
controlled by historically disadvantaged persons to effectively enter into, participate in,
or expand in the market; and promotion of the ability of national industries to compete
globally.
Remedies may be unilaterally imposed on merging parties by competition authorities
or agreed jointly with the merging parties for mergers which substantially lessen com-
petition or negatively affect public interest. Measures that aim to restore or maintain
the competitive structure of the market are classified as structural remedies. Ongoing
measures that are intended to control or limit the behaviour of merger parties are
classified as behavioural remedies. The purpose of remedies is to address possible
anti-​competitive effects of a merger or negative public interest effects. For example,
in the Wal-​Mart Inc and Massmart Holdings Ltd merger, following concerns that the
retrenchments of 503 employees by a division of Massmart in June 2010 occurred be-
cause of the merger, the CAC ordered that the employees retrenched by Massmart be
re-​employed. In relation to concerns about the effect of the merger on local suppliers to
Massmart, the CAC ordered the capital amount of the fund to be used to support local
procurement and to be increased to R200 million. Further, that fund were to be spent
over a period of five years.
While very few mergers have been prohibited outright, conditional approvals have
increased over time. Many of the conditional approvals related to public interest
concerns. For example, a fixed period where no retrenchments are allowed. In a country
with very high unemployment rates, a strong focus on employment retention is prob-
ably justified, especially if dealt with via a condition and not an outright prohibition. It is
too early to comment on the application of the Competition Amendment Act (2018) and
its increased focus on public interest criteria in merger control, but this is a developing
field which researchers will continue to monitor closely.

25.4.2 Abuse of Dominance
The abuse-​of-​dominance provision prohibits dominant firms from engaging in con-
duct that anti-​competitively excludes rivals (takes advantage of market power to pre-
vent rivals’ access to markets) or that exploits consumers (takes advantage of market

24 For example, in proposed merger between Anglo American Holdings Ltd and Kumba Resources Ltd,

after the Tribunal concluded that the merger was unlikely to result in any substantial lessening of compe-
tition, it stated that it must nevertheless evaluate whether the merger can be prohibited on public interest
grounds (Tribunal case 46/​LM/​Jun02 para 137 to 139).
 Competition Policy in South Africa    539

power to charge excessive prices or discriminate among customers). Enforcing abuse-​

of-​dominance provisions, in South Africa and in other parts of the world, is one of the
most complicated and contentious areas of competition policy in part because of the
evidential burden of proving such abuses.25
Over the period 1999 to 2020, the Tribunal has adjudicated twenty-​one litigated cases
of abuse of dominance (excluding settlements). Of the twenty-​one adjudicated cases,
the Tribunal dismissed seven cases, finding no contravention. The Tribunal found a
contravention on fourteen cases. Ten of the fourteen cases in which the Tribunal found
a contravention were appealed to the CAC. In four cases, the CAC overturned the de-
cision of the Tribunal. The CAC remitted one case back to the Tribunal for a thorough
evaluation. In the remaining five cases, the CAC found abuse of dominance. The in-
vestigation and litigation involving abuse-​of-​dominance cases have been protracted, in
most cases exceeding five years. This means that even where the complainants have been
successful, the difficulty and cost of those successes illustrate that the system places less
emphasis on the benefits of competition and concerns of increased market power.
A firm is dominant in a market if it has a market share of 45 per cent or more. If a firm
has a market share of between 35 and 45 per cent it is assumed to be dominant unless the
firm can show that it does not have market power. A firm with a market share below 35
per cent, is assumed not to be dominant unless it has market power. The Competition
Act defines market power as the power of a firm to control prices, exclude competition
or to behave to an appreciable extent independently of its competitors, customers, or
suppliers.
A dominant position is not in itself a contravention of competition law, it is only the
abuse of a dominant position that is prohibited. A firm that has a dominant position
in a market has a special responsibility to ensure that its conduct does not result in an
anti-​competitive effect that outweighs the pro-​competitive justification. Examples of
behaviour that would amount to abuse of a dominant position include charging exces-
sive prices, price discriminating, engaging in exclusionary conduct, and refusing a com-
petitor access to an essential facility when it is economically feasible to do so.
The first prohibited abuse-​of-​dominance practice is charging an excessive price to
the detriment of consumers or customers by a dominant firm. An excessive price is
determined by reference to whether the price concerned is higher than a competitive
price, and whether such difference is unreasonable. A competitive price is determined
by considering benchmarks such as the cost of producing that good or service (plus a

25
To illustrate, between 2003 and 2014, Europe’s enforcement decisions in abuse of dominance
accounted for only 20 per cent of all enforcement actions compared to 48 per cent of cartel enforcement.
Other jurisdictions such as the United States, focus less on this area of enforcement, in part due to the
dominant view that market exploitation by dominant firms attracts opportunities for new entrants and
erodes market power. Roberts (2012) examines the record of abuse-​of-​dominance cases in South Africa
after more than a decade of the new competition regime. He points out that the South African experi-
ence raises the question of whether conduct by a dominant firm, which has different dimensions, can be
readily pigeon-​holed in the way anticipated by the legislation.
540    Liberty Mncube and Nicola Theron

reasonable mark-​up) and the prices charged (by the respondent or relevant comparator
firm) in similar but competitive markets.
The Harmony Gold Mining Company Ltd v. Mittal Steel South Africa Ltd case was
South Africa’s first adjudicated case dealing with allegations of excessive pricing.
Harmony Gold lodged a complaint against Mittal Steel, alleging that Mittal (a near mon-
opoly in the steel market) was selling its flat steel products at an excessive price. Mittal
was found to have priced domestic sales of flat steel at import parity prices, whilst selling
flat steel products for export markets at the much lower export parity price. According
to Harmony Gold, the export parity price constituted the economic value of the product.
The price on domestic sales of flat steel products was excessive when compared to the
export parity price. The Tribunal found that Mittal was ‘super-​dominant’ and that its
import parity pricing was evidence of excessive pricing. On appeal, the Tribunal’s de-
cision was set aside by the CAC and remitted back to the Tribunal.26 The matter was
finally settled out of court before a final determination was made.
The next notable excessive-​pricing case was the Competition Commission v Sasol
Chemical Industries Ltd (the Sasol case), Sasol Chemicals (successor to the state-​owned
firm and beneficiary of state privileges), was alleged to have charged excessive prices for
its propylene and polypropylene products. The Tribunal found Sasol guilty of charging
excessive prices, considering Sasol’s history and past privileges. On appeal, the CAC
reversed the decision of the Tribunal. The CAC found that the prices in question did not
contravene the Competition Act.
In addition to the above litigated cases, the Tribunal has confirmed more than forty
cases involving allegations of excessive prices. Most of these cases relate to excessive-​
pricing or price-​gouging concerns in the aftermath of the COVID-​19 crisis and the sub-
sequent declaration of a state of National Disaster.27 To date, the most famous settlement
arising from a concern about excessive prices is the Hazel Tau settlement in 2002. The
settlement concerned allegations that the pharmaceutical companies had priced ex-
cessively for their patented drugs to treat patients during the dreadful HIV/​AIDS epi-
demic. The price of the drugs was alleged to have been excessive and was detrimental
to patients. The Tribunal and the CAC did not get the chance to hear arguments on the
case. The pharmaceutical companies settled the case and avoided opening their books
to reveal their costs. There are several benefits of settlements in competition cases.28 The
Commission saves resources that they would otherwise need to prosecute a competition
case. The Tribunal and the CAC save resources related to hearings and producing fully
reasoned decisions. For respondent firms, the benefits include a reduced fine and the

26
The CAC stated that the Tribunal’s approach was ‘fundamentally flawed’ and that the Tribunal’s
structural test and notion of ‘super-​dominance’ found no support in the Competition Act. The matter
was referred back to the Tribunal to re-​evaluate the evidence in line with the requirements of the
Competition Act.
27 See https://​ccle.sun.ac.za/​excessive-​pricing-​covid-​19/​ for a useful list of resources relating to

COVID-​19 excessive pricing cases.

28 The settlement procedure is not limited to abuse-​of-​dominance cases, it also relates to horizontal

and vertical restraints. Indeed, many cartels have been resolved through a settlement process.
 Competition Policy in South Africa    541

ability to avoid a protracted, costly litigation that can distract management and generate
negative publicity.
The second prohibited practice relates to a dominant firm which refuses a competitor
access to an essential facility when it is economically feasible to do so. The Competition
Act defines an essential facility as a resource or infrastructure that cannot reasonably be
duplicated and without access to which competitors cannot reasonably provide goods
or services to their customers. An abuse of dominance relating to refusing a competitor
access to an essential facility cannot be countervailed by efficiency gains. For example, in
the Competition Commission v Telkom SA SOC Ltd case, the Tribunal found Telkom to have
abused its dominant position in the telecommunications market by refusing to supply es-
sential access facilities to independent value-​added network services (VANS) providers.
The conduct took place between 1999 and 2004, a period during which Telkom was a mon-
opoly provider. Telkom admitted that the facilities in question comprised an essential fa-
cility and that it was economically feasible for it to supply these facilities. Telkom’s only
justification for its conduct was that, in its view, the Value Added Network Service Providers
(VANS) provided services illegally and that this justified its refusal. The Tribunal concluded
that Telkom’s conduct was contrary to the interests of both the VANS providers and their
customers. VANS and their customers relied on Telkom for network services. Further, that
it was unnecessary to show anti-​competitive harm in cases relating to refusing a competitor
access to an essential facility.
When different consumers are charged different prices for the same good and it costs
the firm the same amount to produce and serve these consumers, this is called price
discrimination. There are two grounds for prohibiting price discrimination. First, price
discrimination perpetrated by a dominant firm is considered an abuse when the con-
duct has the effect of substantially lessening competition and the sale relates to goods
or services of similar grade and quality to different buyers in an equivalent transaction.
The price discrimination must be related to prices charged; discounts, rebates, or credit
given or allowed; or payment method and terms of payment of goods and services. An
interesting case of price discrimination that dealt with the application of the substan-
tial lesson of competition test is the Nationwide Poles v Sasol (Oil) (Pty) Ltd case. The
Tribunal found that Sasol had engaged in unlawful price discrimination in the sale of
creosote. The complainant, Nationwide Poles, was a small player. Sasol was accused of
offering discounts to larger customers which it did not extend to small customers. On
appeal, the Tribunal was overturned by the CAC which did not find harm to competi-
tion, although Nationwide Poles as a small customer had suffered harm.
Second, as an outcome of the Competition Amendment Act in 2018, price discrimin-
ation provisions also prohibit dominant firms from price discriminating when they sell
to small and medium-sized businesses and to firms owned or controlled by historically
disadvantaged persons if the effect is to impede the ability of such firms to participate
effectively. Introduced in 2018, it is a bit too early to gauge the effect of the public interest
test and how it will be enforced.29

29
Competition Amendment Act 2018.
542    Liberty Mncube and Nicola Theron

The Competition Act also prohibits a firm from abusing its dominant position
through an exclusionary act. An exclusionary practice is defined as one in which a dom-
inant firm impedes or prevents another firm from entering into or expanding within
a market.30 Put differently, exclusionary practices include exclusive contracts, pricing
strategies, and other actions of dominant firms that deter entry of new rivals, force
current rivals to exit, or restrict them to niche markets. Exclusionary practices come in
a wide range of varieties, many of which are separately categorized in the Competition
Act, including engaging in margin squeeze, predation, and exclusive dealing.
A dominant firm can violate the abuse-​of-​dominance provisions of the Competition
Act if it engages in predation. Predation involves temporarily charging prices below an
appropriate specified cost benchmark (such as average variable costs, average avoid-
able costs). Predation can harm competition and consumers: for example, harm could
occur if a dominant firm priced below the appropriate cost to marginalize and force a
rival to exit and then, following the exit of the rival, increase prices to supra-​competitive
levels for a significant period. An interesting case on this prohibition is the Media 24
(Pty) Ltd v Competition Commission of South Africa case where the CAC overturned
the Tribunal’s decision. The Tribunal had concluded that Media 24 had contravened the
Competition Act by engaging in an exclusionary practice that involved selling a loss-​
making community newspaper below its average total cost (ATC). The Tribunal found
that Media 24 engaged in exclusionary conduct similar to predatory pricing conduct
when it sold below ATC with the purpose of excluding its rival from the market (this
intention was captured in its strategy documents). The CAC held that intention is irrele-
vant and that pricing below ATC but above average variable cost is not exclusionary.
An exclusive contract is a contract between a firm and its buyer whereby a buyer
commits not to make any purchase from a competing firm. In some circumstances,
exclusive contracts can be used by a dominant firm to foreclose a market, in fact, to
monopolize a market and thereby prevent the dominant firm’s rivals from competing
effectively. An interesting case involving exclusive contracts is the Competition
Commission v Computicket (Pty) Ltd case where the Tribunal found Computicket to have
contravened the Competition Act. Computicket had imposed exclusive agreements
on its inventory providers (buyers). On appeal, the CAC agreed with the Tribunal and
found Computicket’s exclusive contracts exclusionary.
A dominant firm may offer rebates on all units of a single product conditioned upon
the level of purchases. The rebates may be conditioned upon the quantity of product
purchased or on the percentage of needs. In some instances, these rebates may be a
strategy to foreclose the market and force rivals to exit the market. An interesting case
on the anti-​competitive use of rebates is the Nationwide v South African Airways and
Competition Commission v South Africa Airways cases where the Tribunal in both cases
found that SAA’s incentive schemes, in which commissions were paid to travel agents to

30
‘Exclusionary act’ is defined in the Competition Amendment Act (2018) as: ‘ “exclusionary act” means
an act that impedes or prevents a firm from entering into, participating in or expanding within a market’.
 Competition Policy in South Africa    543

incentivize them to book their clients onto SAA’s flights instead of rival airlines, such as
Comair and Nationwide, were exclusionary.
Up until this point, we have been discussing the exercise of market power by a
firm participating in the market as a seller. The Competition Act also recognizes that
market power can be exercised by a firm either as a seller or as a buyer. The buyer power
provisions prohibit dominant buyers in certain sectors from requiring or imposing un-
fair prices or trading conditions on firms that are small and medium-sized businesses,
or firms owned or controlled by historically disadvantaged persons. Introduced in the
Competition Amendment Act in 2018, it is a bit too early to gauge the effect of the buyer
power provisions and how they will be enforced.31

25.4.3 Horizontal and Vertical Agreements

The most egregious infringements in competition law relate to collusion. Collusion
between competitors is presumed to distort competition by allowing firms to exer-
cise market power that they would otherwise not have and is not afforded an efficiency
defence. Collusion is defined as an agreement between firms (explicit collusion) or a
concerted practice (tacit collusion) by firms in a horizontal relationship (or competitors)
involving price fixing,32 allocating markets,33 and collusive tendering.34 Mncube and
Grimbeek (2016) discuss the prevalence and persistence of cartels in South Africa. They
point out that South Africa’s first democratic administration took significant steps to
liberalize many of the formerly price-​regulated markets. Deregulation and liberaliza-
tion led to the break-​up of regulated cartels, but liberalization may have inadvertently,
by increasing competition in formerly protected markets, also increased the incentives
for firms to participate in cartels.
Detecting collusion is the biggest challenge to enforcing cartel prohibitions.
Unsurprisingly, firms seek to hide their involvement in collusive arrangements. The
most successful tool that has been used to uncover cartels is the corporate leniency
policy (CLP).35 CLP programmes grant complete or partial exemption from prosecution
for firms that collaborate with the competition authorities. A CLP was first introduced
in South Africa by the Commission on 6 February 2004 and modified in 2008. Very
few cartels were investigated and prosecuted under the Competition Act before the

31
Competition Amendment Act 2018.
32
An example of a price-​fixing case is the Competition Commission v Pioneer Foods (Pty) Ltd case in
which bread producers agreed to fix the prices of bread, maize meal, and wheat flour.
33 An example of a market-​allocation case is the Competition Commission v Pioneer Fishing (Pty) Ltd

case where firms agreed to allocate the supply of horse mackerel in different territories such as Limpopo,
Mpumalanga, and the North West Provinces.
34 An example of a collusive tendering case is the uncovering of bid-​rigging in the construction in-

dustry, which led to the fast-​track settlement process in February 2011.

35 See Competition Commission, Corporate Leniency Policy section 3.1 (2004).
544    Liberty Mncube and Nicola Theron

introduction of the CLP. The secretive nature of cartels, which makes it difficult to both
detect and investigate cartels, is perhaps one way to explain the above observation.
The CLP is meant to destabilize cartels by encouraging firms, of their own accord, to
defect and report their behaviour to the Commission. The CLP allows a cartel member
to receive immunity from prosecution before the Tribunal and from an administrative
fine. The cartel member is required to disclose all relevant information and evidence
relating to the workings of the cartel in return. Granting of immunity is a continuous
process. It only concludes when a final determination is made by the Tribunal or if the
decision is appealed, or a final judgement is made by the CAC.
Detecting collusive arrangements is combined with sanctions to reduce the extent of
collusive practices in the economy. Deterrence is the primary motivation of sanctions
imposed on firms found guilty of participating in cartels. Firms found guilty of collusion
are subject to an administrative penalty of up to 10 per cent of the firm’s annual turn-
over in the preceding financial year. The Tribunal considers the following aggravating
factors when it determines what should be the level of an appropriate penalty: (1) the
nature, duration, gravity, and extent of the cartel conduct; (2) whether the cartel con-
duct has resulted in any loss or damage; (3) the behaviour of the firm; (4) the market
circumstances in which the cartel conduct took place; (5) the level of profit derived by
the firm from the cartel conduct; (6) the degree to which the firm has co​operated with
the Commission and the Tribunal; and (7) whether the firm has previously been found
in contravention of the Competition Act. In addition to fines, competition authorities
can also order structural and behavioural remedies.
The Competition Act allows for the possibility that any person in a position of having
management authority within the firm could face criminal charges if they either cause
the firm to participate in collusive conduct, or knowingly accept collusive conduct. The
penalty for a person found guilty could include a fine with a monetary value of up to
R500,000 or a ten-​year maximum prison sentence, or both may be imposed. The possi-
bility of imprisonment provides a helpful supplement in achieving deterrence because
of the inadequacy of fines and remedies.
The Competition Act makes a distinction between collusive arrangements from all
other horizontal arrangements that may have the effect of substantially preventing or
lessening competition in the market but could be justified on efficiency reasons. Such
horizontal arrangements may include information exchange agreements, standard-​
setting agreements, cross-​licensing agreements, and joint ventures.36
Competition law also separates restrictive practices involving firms in a vertical rela-
tionship from those in a horizontal relationship. Vertical restraints are conditions and

36 An example of a case of a restrictive horizontal agreement (but not a collusion allegation) is the

Netstar case. In this case, the Tribunal found that three vehicle tracking firms and the Vehicle Security
Association had contravened the Competition Act by setting standards for anti-​theft devices in the
market for stolen vehicle recovery, which created barriers to entry, prevented rivals from entering or
expanding in the market and denied consumers the opportunity to benefit from lower prices, greater
choice, and innovation.
 Competition Policy in South Africa    545

restrictions on trade imposed by firms that are in a vertical relationship and serve two
motives.37 On the one hand, they may be used to enhance market power. For example,
reducing intra-​brand competition and inter-​brand competition, consumers unable to
exploit alternative sources may face high prices. Forcing distributors to resell goods at
minimum prices reduces intra-​brand competition and increases the opportunities for
collusion. On the other hand, vertical restraints may be important to the realization of
efficiencies.
The Competition Act prohibits an agreement between firms in a vertical relationship if
it has the effect of substantially lessening competition in a market, unless the agreement
can be justified by efficiency considerations which outweigh the anti-​competitive effect.
The complainant has the burden to prove an anti-​competitive vertical agreement. The
respondent is permitted an efficiency defence to rebut the complainant. There have
been very few cases litigated involving only concerns about anti-​competitive vertical
agreements. A key question in many vertical-​restraint allegations has been: who has
market power in a vertical relationship? Answering this question has been important in
analysing anti-​competitive effects. For example, several abuse-​of-​dominance cases have
also captured concerns relating to anti-​competitive vertical restraints. Only the practice
involving a supplier prescribing to a downstream reseller the minimum price at which a
good can be sold is prohibited by itself without any efficiency justification.38

25.4.4 Exemptions
The system of prohibitions described above relating to abuse of dominance, hori-
zontal, and vertical restraints is balanced by an arrangement for exemptions. There are
three groups of exemptions that can be granted by the Commission: (1) public interest
exemptions; (2) intellectual property exemptions; and (3) professional association
exemptions. The Commission is required to grant an exemption for a stated term.
On public interest exemptions, grounds for exemption include (1) maintenance or pro-
motion of exports; (2) promotion of entry into, participation in, or expansion within a
market of medium-sized businesses and small businesses or firms controlled by historically
disadvantaged persons; (3) changing capacity to stop decline in an industry; (4) economic
development, growth, transformation, or stability in a designated industry; and (5) promote

37
Examples of different forms of vertical restraints include, resale price maintenance, exclusive
contracts, exclusive territories, slotting allowances, and tying and bundling.
38 To establish a minimum resell price maintenance case, the complainant is required to establish (1) a

minimum resale price; (2) the implementation of the practice of minimum resale price maintenance;
and that there are ways in place to enforce or maintain the practice. An example is the Federal Mogul
Aftermarket Southern Africa (Pty) Ltd v Competition Commission case. Federal Mogul, a wholesale dis-
tributor of a range of motor vehicle components, imposed on its distributors a minimum price at which
they were compelled to sell its products. The Tribunal found that the practice of minimum resale price
maintenance had been established and imposed a fine on Federal Mogul. On appeal, the Competition
Court upheld the Tribunal’s decision.
546    Liberty Mncube and Nicola Theron

employment or industrial expansion. First, the Commission is required to establish whether

the restrictive practice is essential in order to achieve the public interest objective. Second,
the Commission is required to establish whether the agreement or practice will actually con-
tribute to the objective. To date, no application relating to vertical-​restraints prohibitions or
abuse-​of-​dominance prohibitions has been granted by the Commission.39 The exemptions
granted have all related to horizontal-​restraint prohibitions.
The Competition Act also makes provision for professional associations to apply for
exemption for their rules if the rules relate to restrictive horizontal or vertical practices.
Intellectual property (IP) is an important element of innovation and competition policy.
IP law tolerates the creation of market power, while competition law responds to the
abuse of market power. The IP exemptions relate to exempting agreements or practices
involving the exercise of IP and is key to policy coherence.
Very few exemptions have been granted since 2000. One example is the National
Hospital Network (NHN) exemption. The NHN is a non-​profit company. It is a co-​
operative venture that is controlled by its members. Its members are a group of inde-
pendent private hospitals. This group operates medical establishments such as day
clinics, sub-​acute facilities, and psychiatric facilities. These members are competitors
in the provision of private health-​care services. On 1 November 2018, the Commission
conditionally granted the NHN a five-​year exemption commencing from 1 November
2018 to 31 October 2023. The NHN sought the exemption in order to engage in collusive
conduct on the basis that the exemption would promote the ability of small businesses
or firms controlled or owned by historically disadvantaged persons to be competitive.
The 2018 exemption was not the first exemption granted to the NHN. The Commission
had previously granted the NHN three exemptions on the premise that the exemptions
were required for the objective of promoting the ability of small businesses or firms
controlled or owned by historically disadvantaged persons to be competitive. The first
exemption was granted in June 2006 for a period of five years. The second exemption
was granted in May 2010 for an additional five-​year period. The third exemption was
granted in October 2014 for a four-​year period.
The system of exemptions has helped alleviate tensions between competition policy
and other economic development policies, in particular industrial policy.40

25.4.5 Market Inquiries
Market-​inquiry provisions were only introduced in the Competition Act in 2013 and
allow the Commission to analyse the state of competition in a particular market ra-
ther than the conduct of individual firms in a market. The market-​inquiry provisions
allow the Commission, for example, to analyse and address alleged structural concerns

39
Correct as at 30 January 2021.
40
For a detailed examination of industrial policy in South Africa, see ­Chapter 24 in this volume by
Anthony Black.
 Competition Policy in South Africa    547

in a market. The Commission can conduct a market inquiry if any feature or combin-
ation of features in a market adversely affects competition in that market. A feature of
a market includes: (1) the structure of the market, including levels of concentration and
barriers to entry in a market; (2) The outcomes observed in the market, such as owner-
ship, prices, innovation, employment, and the ability of national industries to compete
in international markets; and (3) the conduct in that or any related market.
In a market inquiry, the Commission is required to decide whether any feature,
including structure and levels of concentration, impede, restrict, or distort competition.
The Commission is required to consider the impact of the adverse effect on competi-
tion on small and medium-sized businesses, or firms controlled or owned by historic-
ally disadvantaged persons when making its decision. The Commission may, in relation
to each adverse effect on competition, take action to remedy the adverse effect on com-
petition. The Commission can also make recommendations for a change of policy,
legislations, and regulations as well as recommendations to other regulatory authorities.
South Africa’s economy is laden with barriers to entry and its markets are highly
concentrated.41 Market inquiries represent a useful tool for competition authorities to
develop a better understanding of markets. Our view is that it is a good idea to study the
markets and see what can be done without losing the organic efficiencies of integration.
We note, however, that the recommendations from recently concluded inquiries, such
as the LP Gas Market Inquiry, the Healthcare Market Inquiry, the Retail Market Inquiry,
and the Data Services Market Inquiry (DSMI), had rather muted recommendations,
after years spent on investigating specific market features.
The recommendations from these inquiries have to be seen in the light of the fact
that these industries usually have multiple sector regulators. In the case of the DSMI,
the Inquiry by the Commission, coincided with a separate Inquiry by the sector regu-
lator, ICASA, the so-​called Broadband Inquiry. In fact, some of the recommendations
of the DSMI were that ICASA should further investigate certain aspects and findings.
Similarly, the Healthcare Market Inquiry made certain findings that related to the role of
the statutory body, the Council for Medical Schemes (CMS), and its failure to regulate
certain aspects of health-​care markets properly. Issues around joint jurisdiction have
not been settled in the application of Competition Law in South Africa.

25.5 Competition and

State-​owned Companies

The Commission is empowered to consider complaints against state-​owned companies

where a state-​owned company participates in a market as a firm providing goods or

41
Roberts (2017) studies barriers to entry in different markets in South Africa to consider the nature
and extent of these barriers and the implications for competition policy.
548    Liberty Mncube and Nicola Theron

services. In the AEC Electronics (Pty) Ltd v The Department of Minerals and Energy42
case, the Tribunal concluded that competition authorities cannot review the exercise
of state power by state functionaries. This suggests that competition authorities cannot
intervene in markets where state-​owned companies benefit from market-​distorting
decisions made by government or regulatory bodies. Competition authorities can inter-
vene in complaints relating to the conduct of state-​owned companies and have done
so, on several occasions. Below, we offer a brief review of some of the interventions
involving state-​owned companies.
First, we deal with the case of Telkom. Telkom is a vertically integrated provider
of telecommunications services in South Africa. The South African government
holds the largest shareholding. Telkom is subject to regulation by the Independent
Communications Authority of South Africa (ICASA). Telkom’s conduct has been the
subject of several complaints. The complaints relate to allegations that Telkom is abusing
its dominance. As an outcome of these complaints, Telkom has been found guilty of
engaging in exclusionary conduct. It has also admitted to engaging in several abuse
practices, including margin squeeze, in a settlement with the Commission which was
confirmed by the Tribunal in 2013.43 The settlement remedies included the implemen-
tation of functional separation between Telkom’s retail and wholesale divisions along
with the implementation of a transparent transfer pricing programme to ensure non-​
discriminatory service provision by Telkom to its retail business and rivals.
Second, there is the case of Eskom. Eskom is a state-​owned power utility, respon-
sible for generating 96 per cent of the country’s electricity requirements. Eskom is sub-
ject to regulation by the National Energy Regulator of South Africa (NERSA). Eskom
enjoys a near monopoly in generating electricity. It is a vertically integrated firm. Its
operations include generation and distribution and it owns the transmission network.
Eskom accounts for about 60 per cent of distribution; the remainder is distributed by
municipalities. Over the years, the Commission has received several complaints relating
to Eskom’s refusal to sign purchasing agreements with Independent Power Producers
(IPPs). To date, the Commission has not intervened on concerns about Eskom’s abuse of
dominance. Although there is clear evidence that it should.44
Third, another state-​owned company with a specific history of competition issues
is SAA. SAA (South African Airlines) is South Africa’s national airline. SAA is wholly
owned by the government. Over the years, SAA’s conduct has been the subject of several
complaints. The complaints have related to allegations that it is abusing its dominance, it
is engaged in cartel behaviour, as well as allegations that state support (bail​outs) to SAA
is distorting competition in the airline industry. SAA has been found guilty of engaging
in abuse-​of-​dominance and collusion conduct, not once but twice for each offence. SAA
has been a serial repeat offender. Financial penalties do not seem to deter a desire to en-
gage in anti-​competitive behaviour at SAA.

42
AEC Electronics (Pty) Ltd v Department of Minerals and Energy 48/​CR/​Jun09.
43
Tribunal case number: 016865.
44
Correct as at 30 January 2021.
 Competition Policy in South Africa    549

While competition authorities have treated state-​owned companies and private

firms equally, focusing on the conduct of the firms rather than the identity, important
challenges remain. For example, state support of failing state-​owned companies is con-
trary to the essential principle of competition law and policy that all firms, regardless of
state ownership, should compete on merit.

25.6 Competition and

Regulated Sectors

In regulated sectors, the Competition Act applies even where the competition issues
in question may be seen as falling within the purview of a sector regulator. When the
Competition Act first came into effect, it excluded conduct subject to public regulation
but was amended in 2000 to make provision for concurrent jurisdiction with sector
regulators.
Over the period 1999 to 2020, the Commission has asserted jurisdiction in many
cases involving concurrency. At the same time, it has also signed memoranda of
understanding with sector regulators spelling out how concurrent jurisdiction would
be managed and how coordination would operate.45 An interesting case relating to
concurrency arose in February 2009. The Commission referred an abuse-​of-​dominance
case against Telkom. Telkom did not answer the Commission’s case, preferring to
challenge the Commission’s decision. Telkom argued that the Commission failed to
adhere to the memorandum of understanding it had signed with ICASA. Telkom
argued that the agreement required ICASA to lead, given ICASA’s sector knowledge.
The Supreme Court of Appeal ultimately decided the case. The Supreme Court of
Appeal affirmed the competition authorities as the institutions mandated to enforce the
Competition Act but did not make a finding on whether the memorandum of under-
standing precluded the Commission from investigating and referring the complaint to
the Tribunal.
Mergers in the banking sector hold a special position in relation to the Competition
Act. The regulation of banks is largely the responsibility of the South African Reserve
Bank. The Banks Act of 1990 grants the minister of finance and/​or the registrar of banks
jurisdiction over bank mergers, subject to certain provisions. The Competition Act
was amended in 2001 to reflect the special status held by mergers in the banking sector.
Competition authorities cannot decide on mergers involving banks if the merging
parties have obtained the permission from the minister of finance, as per the Banks

45 It has signed a memorandum of understanding with ICASA, NERSA, the Ports regulator, the

Council for Medical Schemes, the National Gambling Commission, and the National Liquor Authority,
among others.
550    Liberty Mncube and Nicola Theron

Act, or the minister of finance decides that the bank merger concerned is in the public
interest.

25.7 Competition Advocacy

Competition authorities cannot interfere with policies adopted and implemented by

government; they are not empowered to strike down government policies, regulations,
and legislation even if these policies, regulations, and laws lead to a substantial preven-
tion or lessening of competition. In response to restrictions on competition imposed
by government, competition authorities can only advocate the benefits of competi-
tion to society, as well as to decision-​makers. Competition advocacy refers to activities
conducted by competition authorities associated with the promotion of a competitive
marketplace by means of non-​enforcement mechanisms.
Competition advocacy can be an effective tool to enhance compliance with the
Competition Act, as well as creating a competition culture. From the beginning, the
Commission has seen the value of advocacy, policy engagements, and education. Each
year, it launches a number of initiatives including information campaigns aimed at
communicating the work of the competition authorities, programmes to respond to and
influence government policies and draft legislation, workshops with key stakeholders
on the benefits of competition policy, and drafting guidelines on how it will interpret
important sections of the law.
In other words, every year the Commission engages with key stakeholders in order
to promote voluntary compliance with the Competition Act, both in the public and
the private sector. Competition issues can arise during government policy formulation
and implementation. To date, the Commission has taken seriously its duty to sensitize
policymakers on possible competition law synergies and/​or trade-​offs which arise from
certain policy measures. It should continue advocating on behalf of the competition
introduced by new entrants, building strategic partnerships with government, business,
consumers, and labour so that it can promote the work of the competition authorities
and create a competition culture. It should continue undertaking strategic market
inquiries to increase transparency in markets and identify competition distortions. It
should continue safeguarding opportunities to participate in markets by advocating
against prescriptive regulatory regimes.

25.8 Conclusion

After more than twenty years of the new competition regime in South Africa, many
markets still do not function well. Many sectors of the economy are characterized
by high barriers to entry, concentrated markets, presence of (current and former)
 Competition Policy in South Africa    551

state-​owned companies,46 informal markets, and regulations that limit competition.

Corruption remains a persistent and stubborn problem. To the basket of problems and
challenges, add the problem of inequality of wealth and economic opportunity, which is
also widespread.
Access to competitive and inclusive markets stands side by side with access to food,
health, shelter, education, environment, and infrastructure, among others, as crit-
ical tools to combat South Africa’s economic challenges. Over the period 1999 to 2020,
South Africa has built a credible competition law and effective structures to administer
the law. It did not happen instantaneously. There has been a great deal of learning by
doing. The enforcement of competition law has done much to bring better and more
affordable goods and services to all South Africans and to create an environment that
encourages economic participation by all South Africans and increases the competitive-
ness of South African business. Yet the goal of restructuring South Africa’s economic
order by controlling private and public enterprise in the public interest to create an effi-
cient, inclusive competitive economy focused on development, remains elusive.

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Bonakele, E. Fox, and Liberty Mncube (eds) Competition Policy for the New Era: Insights
from the BRICS Countries. Oxford: Oxford University Press.
 Chapter 26

Regul ation of Net work

Indu stri e s
in Sou th A fri c a

James Hodge and Tamara Paremoer

26.1 Introduction

Network industries provide essential infrastructure for citizens and the economy,
spanning utilities such as communications, energy, and transport (das Nair and Roberts
2017). Their key role in the economy and the belief that they exhibit natural monopoly
features1 along with network effects,2 resulted in them being the subject of public pro-
vision historically. However, thinking changed in the 1980s and 1990s resulting in a
wave of privatization and liberalization of network industries globally. These reforms
sought to tap into private investment to develop the infrastructure and create competi-
tion where feasible to improve efficiency and innovation. This was accompanied by the
establishment of economic regulators and toolkits with the twin aims of facilitating new
entry and regulating market power in the interim (Kim and Horn 1999).
The key challenges facing economic regulators of utilities are finding ways to con-
strain the monopoly power of incumbents (often through price regulation), ensuring
universal coverage where rolling out the network is socially desirable but comes at a
high cost, and incentivizing operational efficiency often through introducing com-
petition at the network nodes where it is possible to do so. These regulatory questions
are particularly challenging in developing countries because network industries often

1 Network industries are characterized by interdependent demand, increasing returns to scale, and

negligible incremental cost associated with producing the marginal unit of output.
2 External economies in consumption mean that the utility derived from a service with network

effects increases as more users join the system (Rohlfs 1974).

554    James Hodge and Tamara Paremoer

provide essential services, meaning that decisions around service provision and pricing
are thus politically important (Economides 2004).
In South Africa, growing debt and fiscal constraints, along with losses at inefficient
public enterprises, saw a policy shift to liberalization in the twilight of the apartheid era
with the publication of the 1987 White Paper on privatization and deregulation (Gumede
et al. 2016). This resulted in the corporatization of most network industry SOEs and
opening competition in areas such as aviation and telecommunications. Given the
hangover of debt and fiscal constraints to the new democratic government, this policy
direction was perpetuated. However, the new democratic government also had to deal
with the wide racial disparities in access to essential utilities, given the apartheid-​era
focus on delivery to the white minority. This required a focus on ensuring investment to
achieve universal access in services such as electricity and telecommunications.
Where the international experience was predominantly positive, such as tele­
communications and airlines, liberalization proceeded with regulators overseeing
monopoly components and facilitating the introduction of competition. In other
areas, such as electricity, rail, and ports, reform stalled following a shift in policy
thinking in 2002 to the Asian model of using SOEs and infrastructure to support
the ‘developmental state’ (see ­Chapter 27 in this volume on SOEs). In these cases,
regulators were left overseeing state monopolies with broad mandates that some-
times conflicted with regulatory principles of cost-​recovery and removal of cross-​
subsidies (Meyiwa and Chasomeris 2016). Government conflicts of interest resulted
in a weakened regulatory oversight that could not prevent mismanagement and
inefficiencies in core network infrastructure such as electricity and transport, as
outlined in C­ hapter 27 in this volume. This chapter explores the regulatory experience
in telecommunications, electricity, and transport.

26.2 Telecommunications

Telkom operated as a state telecommunications monopoly during the apartheid period.

Following international trends, the South African telecommunications sector began
its liberalization path in the early 1990s with the opening of the value-​added network
services (VANS) and customer premises equipment in 1993, followed by the licensing
of two mobile operators in 1994 (Horwitz 1997; Hodge 1999; Hawthorne et al. 2016). The
mobile licences included a requirement to cover 70 per cent of the population within
four years and a price cap on tariffs, restricting price increases to consumer price in-
flation (CPI) less a productivity factor set at zero per cent.3 At that stage, mobile phone

3 Price cap regulation involves setting the maximum aggregate increase in prices annually at CPI less

a productivity factor. The productivity factor represents the expected efficiency improvements that could
be achieved, expressed in percentage terms. An increase in productivity would warrant a lower price in-
crease than cost inflation. The price cap applies to the basket of services to enable optimal relative tariff
design by the operator.
 Regulation of Network Industries in South Africa    555

service was considered to have a limited market and the absence of a regulator meant
that regulation in line with best practice occurred through licensing. Broad consultation
over reform for the fixed-​line sector was left to the new government, which embarked on
a White Paper process and ultimately passed the Telecommunications Act 103 of 1996.

26.2.1 Fixed line
The policy for fixed line was driven by the over riding priority of network expansion
into underserviced areas to address the disparity in access. There would be a partial pri-
vatization of 30 per cent of Telkom to raise capital for investment and bring in manage-
ment expertise to modernize the network and improve efficiency. Telkom would also be
granted a five-​year exclusivity period to enable it to subsidize the roll-​out of 2.71 million
lines in underserviced areas and to rebalance tariffs (PMG 2000). Telkom would be
subject to a price cap during this period to prevent the abuse of monopoly power. The
five-​year transition period would then be followed by gradual liberalization, with the
introduction of a second national operator (SNO).
The White Paper on Telecommunications Policy of 1996 proposed an independent
regulator, the South African Telecommunications Regulatory Authority (SATRA),
to oversee the monopoly period and gradual liberalization. While early drafts of the
Telecommunications Act kept to this principle, the final version shifted this power to
the minister. This shift has been put down to lobbying by the strategic equity partner
(SEP) in Telkom and the government’s reluctance to cede control over the delivery of
key goals in the Reconstruction and Development Plan (RDP) to a regulator (Horwitz
and Currie 2007). The minister would set tariffs for the first three years, invite and issue
major licences under gradual liberalization, and approve all SATRA regulations. This
created problematic conflicts of interest given government shareholding and a desire to
maximize the enterprise value (Cohen 2003).
The minister set the initial price cap productivity factor for the first three years at a
low 1.5 per cent with a maximum 20 per cent movement in any single tariff under rate
rebalancing. The productivity factor used contrasted with actual labour productivity
achieved of 10.8 per cent for the five-​year period (Hodge 2004). Whilst the regulator,
at that point the Independent Communications Authority of South Africa (ICASA)
following the merger of SATRA with the Independent Broadcasting Authority, could
set the productivity factor for the next period, it was sabotaged from doing so effectively.
The licence conditions provided scope for Telkom to delay providing cost of accounts
(COA) required to inform the tariff regulation, and a lack of funding meant ICASA
lacked the skills and resources necessary to undertake a vigorous exercise. ICASA ul-
timately proposed a 5 per cent productivity factor but the minister refused to approve
the regulations and instead proposed a 1.5 per cent factor (ICASA 2005). In the mean-
time, Telkom pressed ahead with its own zero per cent productivity factor (Horwitz and
Currie 2007). Retail regulation ultimately fell away following the introduction of n SNO
in 2006.
556    James Hodge and Tamara Paremoer

The lack of independent regulatory oversight enabled pricing closer to monopoly

levels (Hodge 2004). This, combined with aggressive rate rebalancing that saw high resi-
dential price increases, ultimately undermined the universal service roll-​out as some
2m of the 2.7m lines were disconnected due to the unaffordable tariffs. Two other uni-
versal access initiatives also failed. The 1996 Telecommunications Act established the
Universal Service Agency (USA) which would administer the operator contributions to
the Universal Service Fund (USF). However, the USA, later renamed USAASA,4 lacked
capacity and was undermined by a dual reporting mandate to the minister and ICASA.
It is estimated that the first ten years saw it spend only a third of the USF funds, and pre-
dominantly on implementing telecentres against its own mandate (Lewis 2013). In 2001,
there were amendments to allow under-​serviced area licensees to operate in areas with a
fixed-​line teledensity of under 5 per cent.5 However, the lack of financial and regulatory
support along with the growth of mobile prepaid service meant that by 2007 none of
the original licensees were operational and the initiative was formally scrapped in 2009
(Lewis 2013).
The liberalization of VANS in 1993 saw a proliferation of service providers in Internet
access and virtual private networks (VPNs). VPNs were popular as it allowed businesses
to share expensive Telkom infrastructure in the core VPN network. Under the SEP
management aiming to maximize its returns over the exclusivity period, Telkom unsuc-
cessfully sought to have the Internet declared an exclusive service and prevent the resale
of infrastructure by VPN providers. Telkom did, however, use its position as exclusive
infrastructure provider to place the VANs in a margin squeeze by entering into com-
petition with them at retail rates below wholesale levels (Competition Tribunal 2012).
Telkom also at one point stopped supplying new lines to VANS and even discontinued
services to AT&T (Horwitz and Currie 2007). Whilst ICASA sought to make facility-
leasing regulations in 2000, these were initially passed but then reversed by the minister.
However, the lack of COA for Telkom also meant the proposed cost-​based pricing could
not be determined or enforced. The monopolistic pricing of international bandwidth,
through the SAT-​3 undersea cable required for Internet access, came to epitomize the
infrastructure wholesale problem, with South Africa quickly slipping down the global
rankings for Internet access (Esselaar et al. 2006).
The South African VANS Association (SAVA) ultimately took their complaint to
the Competition Commission in 2004 which referred a case of margin squeeze and
excessive pricing of wholesale infrastructure. The Competition Tribunal decided in
the Competition Commission’s favour in August 2012, fining Telkom R449 million
(Competition Tribunal 2012). The Commission subsequently referred a further case for
the period following this. At this point Telkom, under new management, sought to settle
with the Commission. The result was a far-​reaching settlement agreement which sought
to address high wholesale prices through almost Rand 1 billion in price cuts and margin

4
Universal Service and Access Authority of South Africa.
5
Telecommunications Amendment Act No. 64 of 2001.
 Regulation of Network Industries in South Africa    557

squeeze through the functional separation of the wholesale and retail businesses along
with transfer and retail pricing rules based on regulatory best practice (Competition
Tribunal 2013). The settlement effectively achieved a degree of wholesale regulation that
the sector regulator had failed to put in place.
The shift in thinking to a developmental state and the use of SOEs to expand infra-
structure became evident in the SNO process (Gillwald 2007). Instead of selling the
communications infrastructure of Eskom (Esitel) and Transnet (Transtel) to the SNO,
government took a 30 per cent stake in the SNO, Neotel, in exchange for the metro fibre
assets, and created a new state entity, Infraco, which would lease the national transmis-
sion fibre network to Neotel for five years. The result was that by the end of the managed
liberalization period, government would have a sizeable stake in all three infrastructure
providers and the largest mobile network operator (MNO), Vodacom, through Telkom.
This reduced the incentives for government to drive a real reform agenda and may
account for the lack of resources and independence of ICASA. Whereas the amended
ICASA Act in 2006 gave many of the powers back to the regulator, one form of control
was replaced by another as the ministry was empowered to appoint councillors and de-
termine its budget (Esselaar et al. 2006; Horwitz and Currie 2007).
In 2005, the Telecommunications Act was replaced by the Electronic Communications
Act No. 36 of 2005 (ECA), which sought to bring the legislation in line with increased
convergence and next generation networks built on Internet Protocol (IP). There was
a shift from licensing vertically integrated operators to horizontal licensing of network
services and pure services separately (Esselaar et al. 2006). The ECA permitted the regu-
lation of facilities leasing but required that all other economic regulation be justified by
ICASA through a section 67 market review process. That only permitted regulation of
firms with significant market power (SMP) in markets found to be ineffectively com-
petitive (Sibinda 2008; Granville and Irvine 2015). This would put the brakes on much-​
needed wholesale regulation in both the fixed-​line and mobile markets. Local loop
unbundling at Telkom was the subject of a policy decision in 2007 but even this was
eventually shelved after being opposed by the Portfolio Committee of Communications
in Parliament and a new minister which felt it would harm Telkom (Hawthorne 2015).
Similarly, self-​provisioning by VANS was initially envisaged but the policy directives
were withdrawn at the eleventh hour (Gillwald 2007). However, the mobile operators
were given the right to self-​provision fixed infrastructure due to being awarded a
technology-​neutral electronic communications network services (ECNS) licence.
The only upside to a lack of wholesale regulation of fixed line by ICASA was that it
incentivized infrastructure roll-​out by other operators once they secured the legal
right to do so. In international connectivity, the SNO would operate a landing station
for the new SAFE cable on which the SNO shareholder, VSNL, held a capacity share.
Soon thereafter came Seacom (2009), EaSSY (2010), and WACS (2012) with the MNOs
taking capacity share initially, given their ECNS licences. The MNOs also invested in na-
tional transmission networks along with the SNO, leveraging off their customer traffic
to secure demand for the new networks. Dark Fibre Africa (DFA) saw an opportunity
to service the MNOs jointly for metro fibre, developing a dark fibre network which was
558    James Hodge and Tamara Paremoer

‘lit’ by MNOs under their ECNS licences even if DFA did not have one. It is only many
years after the passing of the ECA that ECNS licences were awarded to new entrants
(Abrahams 2011). In fixed line this has mostly resulted in entry into fibre to the home/​
business (FTTH/​ FTTB) networks, with national transmission still dominated by
Telkom, Liquid Telecom (previously Neotel), Broadband Infraco (formerly Infraco),
and the mobile operators.

26.2.2 Mobile Market
The 1996 Telecommunications Act envisaged the licensing of two more MNOs after
five years. ICASA ultimately issued only one licence to Cell C which began operating in
late 2001 (Cohen 2003). As a new network starting off with no coverage, and up against
rivals with national coverage and a sizeable subscriber base, Cell C would have to rely on
national roaming and facilities leasing for infrastructure roll-​out in its formative years
to compete (Atiyas et al. 2017). In addition, interconnection rates would largely shape
their effective retail rates as their own subscribers would be making off-​net calls pri-
marily. The failure to regulate wholesale access to level the playing field for new entrants
was an error that was to be repeated in the mobile sector with severe consequences for
competition. In 2020, Vodacom and MTN collectively still accounted for approximately
80 per cent of mobile revenue (Competition Commission 2019).
The initial mobile interconnection rates of R0.20 (peak) and R0.10 (off-​peak) were
increased six f​old in 1999 by the two incumbents, with built-​in CPI or R0.02 annual
escalations. This precipitated the 1999 ICASA interconnection guidelines being
approved by the minister and the imminent licensing of a third operator. As the eco-
nomic literature on interconnection identifies, high interconnection rates are favoured
by established incumbents because it facilitates high profits without colluding and it
acts as a barrier to new entrants who face a greater proportion of off-​net calls which
attract the higher price. This enables the incumbents to discount on-​net calls to create
club effects to attract subscribers (Hodge 2004). The inbuilt escalations also obviated
the need for new agreements in the future, which ICASA would only be empowered to
oversee. Whilst the ICASA regulations stipulated a Long Run Incremental Cost (LRIC)
approach for major operators, it lacked the COA to undertake a LRIC assessment and
would need to declare the incumbents as major operators first. As a result, the new inter-
connection regulations found no application under the 1996 Act. The facilities leasing
regulations (ICASA 2000) of ICASA suffered from the same enforcement issues. As a
result, Cell C was severely hampered by excessively high interconnection rates as well as
high roaming and facilities leasing fees. Not only were the roaming charges high, but the
lack of seamless handover undermined network quality. No rate review of the mobile
licence price caps was undertaken in the mistaken belief that a duopoly would deliver
competitive rather than cooperative pricing (Hodge 2004).
It is only after the ECA was signed into law in 2006 that wholesale regulation was
back on the agenda. A wholesale interconnection review was undertaken in 2007 but
 Regulation of Network Industries in South Africa    559

legal challenges over the interpretation and requirements of the new section 67 market
reviews delayed implementation for years (ICASA 2007). It was revived when Telkom
decided to sell its share in Vodacom in 2009 and enter the mobile market in 2010.
Parliamentary pressure resulted in a deal with the MNOs to reduce interconnection
rates from R1.25 to 40c (peak) over a three-​year period. Following the initial glide path,
ICASA engaged in a further regulatory process to reduce interconnection fees based on
actual costing models. This saw a further immediate reduction to 20c (peak) and a glide
path thereafter. This reduction in interconnection fees saw prepaid call prices reduce by
over 40 per cent (Hawthorne 2018).
ICASA moved to regulate access to facilities under the 2009 regulations, promoting
infrastructure sharing for scarce metro and high sites. However, complaints have
persisted from the newer networks of frustrating access and high prices where it is
granted. The large asymmetry in site numbers between operators reduces the bargaining
power of the smaller networks and reduces the incentive of Vodacom and MTN to pro-
vide widespread access on equitable terms (Competition Commission 2019). Better
deals are done between the two leading MNOs as they bring similar site volumes to
the table. Roaming agreements suffer from the same asymmetrical bargaining power
issues as facilities leasing but are not regulated. Only MTN and Vodacom have national
coverage which makes the smaller networks dependent upon them to offer a national
service (Tzarevski 2019).
One of the biggest regulatory and policy failures has been in respect of spectrum
assignment. The International Telecommunications Union (ITU) seeks to get agreement
on spectrum assignment to different uses. In the early 2000s the ITU identified a po-
tential digital dividend for mobile and broadband services by shifting television from
analogue to digital (ITU 2012). The so-​called digital migration was to take place by 2015
globally. This high demand spectrum (HDS) was valuable as it lay in the sub-​1GHz range,
which provided broader coverage per cell and better building penetration. Despite
starting the policy process in 2007 with an objective of meeting the ITU deadline, South
Africa only looks set to license HDS to mobile operators in 2021. Delays have largely
resulted from litigation amongst broadcasters and policy flip-​flops on the inclusion or
not of encryption on the subsidized set-​top boxes. However, the policy approach to the
licensing of spectrum has also been equally litigated, with ICASA first releasing an in-
vitation to apply (ITA) for HDS in 2010, which was withdrawn while the minister made
policy directives. This was followed by another ITA in 2011, also withdrawn, and a fur-
ther one in 2015, also withdrawn to await policy directives. The latest ITA was released in
October 2020 (ICASA 2020).
The failure to release HDS has created some opportunities for fixed-​line operators
with bandwidth in the 1800MHz, 2300MHz, and 3500MHz bands to offer fixed-​
wireless broadband. Telkom’s own mobile service has suffered from the lack of sub-​
1GHz spectrum, given its late entry, but the fixed-​line business has launched Long Term
Evolution (LTE) wireless networks in urban areas as a fibre substitute, using 60MHz
in the 2300MHz band. This has allowed it to contest subscription-​based data-​rich mo-
bile packages (Competition Commission 2019). Others with 1800MHz and 3500MHz
560    James Hodge and Tamara Paremoer

spectrum included Wireless Business Solutions (WBS) and Liquid Telecom (formerly
Neotel, the SNO).
Desperate for spectrum, Vodacom made a failed bid for Neotel in 2014 to access its
spectrum after the deal was contested before the Competition Tribunal and ICASA.
Vodacom was then forced to strike a deal with RAIN, a consortium that acquired WBS,
whereby RAIN would be able to have deep passive sharing on Vodacom facilities in ex-
change for Vodacom getting a roaming agreement on this new RAIN network. A similar
deal has subsequently been done with Liquid Telecom. These deals have enabled RAIN
and Liquid Telecom to launch their own mobile and fixed-​wireless services to the
market with the remaining capacity not contracted, expanding the number of players.
However, they remain small and metro focused. MTN has also struck a deal with the
financially vulnerable Cell C whereby Cell C will convert its roaming agreement to a
similar deep passive sharing of the MTN network in exchange for capacity from its spec-
trum. These deals provide the basis for new entry but they also cement the leadership
of Vodacom and MTN because they are the only networks able to offer widespread site
access for the spectrum holders, leaving them with an effective spectrum advantage.
In 2017, the Competition Commission launched a Data Services Market Inquiry
(DSMI) into high data prices. This was followed shortly thereafter by a section 67 market
review by ICASA into mobile data prices (ICASA 2019). The Commission released its
final report in December 2019, finding that the mobile market was uncompetitive and
that data prices of Vodacom/​MTN were excessive and anti-​poor in structure, given the
vast differences in the price per MB for smaller prepaid bundles compared to postpaid
bundles (Competition Commission 2019). Vodacom and MTN elected to enter settle-
ment agreements with the Commission, agreeing to reduce monthly prepaid tariffs by
35–​50 per cent and to offer extensive zero-​rating of educational and government websites
along with some daily free data (Competition Tribunal 2020a and 2020b). The DSMI re-
port also recommended wholesale regulation of roaming and facilities leasing, as well
as legislative changes to enhance regulatory oversight, including wholesale revision of
section 67. It also recommended the promotion of fibre broadband and free public Wi-​
Fi to lower income areas to address inequality of address and create some constraints on
mobile pricing (Competition Commission 2019). These are being pursued through the
ICASA market review and proposed amendments to the ECA by the new Department
of Communications and Digital Technology (DCDT).

26.2.3 Telecommunications Conclusion
A common perception amongst industry analysts is that ICASA has failed to regulate
the telecommunications market effectively, permitting a situation of continued mo-
bile dominance and even areas of fixed-​line dominance twenty-​five years after the lib-
eralization process began. However, the regulator has also been hindered by a lack of
independence and resources by political design, as the state policy of ‘managed liberal-
ization’ was itself derailed by a shift to supporting state-​owned enterprises to deliver on
 Regulation of Network Industries in South Africa    561

infrastructure mandates. Ironically, it has primarily been the private investment in mo-
bile infrastructure that has succeeded in delivering on the universal service mandate but
a lack of mobile regulation has resulted in high prices and inequitable access. The better
resourced and independent Competition Commission has stepped in strategically in
both fixed line and mobile to provide impetus to sector reform through enforcement
and settlements. The 2020 to 2025 period will be critical as the mobile market moves to-
wards 5G services and fixed-​line firms establish widespread FTTH and backhaul fibre to
support both FTTH and 5G networks.

26.3 Electricity

Globally, the 1990s saw increasing debates regarding the restructuring of the electri-
city industry. Until then, regulatory interventions commonly focused on price regula-
tion, specifically preventing exploitative prices, preventing ‘cream-​skimming’ in service
provision, and ensuring that fees are levied in such a way that otherwise uneconomical
services would continue to be provided.
The first focus was the transmission grid, where there was general agreement that
access to the electricity grid should be open and non-​discriminatory. The two primary
approaches to achieving this were vertical separation of the transmission grid from pro-
duction/​distribution with independent grid managers regulating access to the grid or
retaining vertically integrated energy utilities but introducing neutral transmission
operators (OECD 20019). New Zealand and the Netherlands followed the first route
while countries like France and Germany followed the second. A second regulatory
question that emerged was the appropriate compensatory mechanisms for utilities with
universal service obligations. The general approach adopted was the establishment of
competitively neutral funds that would compensate companies with universal service
obligations (Tirole 2017).
In South Africa, the primary challenge facing policymakers in the early 1990s was the
vastly unequal access to electricity due to the racist policies of the apartheid state. To
contextualize the challenges and the interests at play, it is useful to provide a brief back-
ground to the evolution of South Africa’s electricity landscape and regulatory frame-
work. This discussion will also contextualize the politically powerful position that the
energy utility, Eskom, had to influence and challenge policy.

26.3.1 Eskom and the History of Energy Regulation

in South Africa
Much of South Africa’s early economic landscape was shaped by the discovery of
diamonds in Kimberley in 1867 and gold in the Witwatersrand in 1886, which led to
562    James Hodge and Tamara Paremoer

the agglomeration of services in certain nodes. The unequal provision was worsened
by the racialized allocation of state resources under formal apartheid. The same is true
for the electricity sector, with Kimberley being the first African city to install electric
streetlights in 1882. In about 1891, an electricity reticulation system was established
in Johannesburg and private provision of electricity continued to grow to meet the
demands of the mines. Prior to the establishment of Eskom, South Africa’s state-​owned
electricity utility, electricity provision was fragmented and decentralized, with gen-
eration and distribution facilities operated by municipalities and private companies
(Ramokgopa and Pietersen 2007).
The passage of the Electricity Act of 1922 paved the way for a regulated electricity in-
dustry and the emergence of a state-​owned utility, Eskom (or Escom at the time), tasked
with the provision of cheap and abundant electricity, particularly to the mining and
heavy industrial sectors (Ramokgopa and Pietersen 2007). A process of incorporating
regional transmission networks into a national grid ensued, with Eskom assuming con-
trol over generation and transmission and local authorities retaining some influence
over distribution, with the exception that Eskom directly supplied mines and heavy
industry. Eskom only extended its reach in distribution later under the electrification
drive in the early 1990s, as the country started its transition to democracy and extended
basic services to black communities in rural and urban areas.
In the early 1990s, Eskom embarked on a massive electrification drive connecting
1.75 million, mostly black, households by 1999 and 7.8 million households by 2004. Most
of these households were in poorer rural and semi-​formal urban township areas, thus
expanding Eskom’s distribution activities beyond heavy industrial users to domestic
and light industrial use. The utility emerged as a truly vertically integrated monopoly
in the 1990s with a notable presence from generation, through transmission to dis-
tribution and occupying an important and influential political space as distributor to
heavy users and newly connected black households. The prominent role of Eskom has
shaped the way it has positioned itself in response to moves to open the sector to greater
competition.
At present, Eskom is responsible for about 90 per cent of the electricity generated
in South Africa. It faces limited competition in generation from independent power
producers (IPPs) and some municipalities,6 who collectively generate less than 10 per
cent of South Africa’s electricity requirements. Eskom also is the sole transmission li-
censee (DME 2008) and accounts for about 60 per cent of distribution; the rest is
distributed by municipalities (Baker and Phillips 2019).
Eskom operates thirty power stations with a nominal generating capacity of 45,561
MW. The power utility is also building new power stations and high-​voltage power lines
to meet South Africa’s growing energy demand. The capacity expansion programme is
expected to be completed in 2022 (GCIS 2019).

6
Municipalities produced 26 per cent in the 1950s; see Marquard (2006).
 Regulation of Network Industries in South Africa    563

26.3.2 The Regulatory Landscape

Prior to the transition to democracy, Eskom assumed almost sole responsibility for
power planning in consultation with large power users (Eberhard, Kolker, and Leigland
2014 and Marquard 2006). Post-​apartheid, the responsibility for electricity regulation is
split between two ministries and an independent sector regulator. The Department of
Mineral Resources and Energy is responsible for energy policy while the Department of
Public Enterprises is the principal shareholder of the electricity utility. Power-​planning
resides with the minister of energy who is tasked with producing an energy plan
(known as the Integrated Resource Plan or IRP) and issues determinations on the size
and sources of new energy. The National Energy Regulator of South Africa (NERSA)
is responsible for economic regulation and issues licences in line with ministerial
determinations.
The National Energy Regulator (NER), which preceded NERSA, was established
in 1995 and was envisaged to be a strong, independent regulator that would act as a
broker between the powerful utility, users, and government. It was initially headed
by a former Eskom CEO and though it started with a strong dual focus on both policy
and economic regulation focus, the policy focus shifted to government as it developed
capacity in power-​planning and electricity-​system-​structuring and NERSA’s influ-
ence in this regard waned (Eberhard 2004 and Marquard 2006). The primary tool
available to NERSA to discipline the monopoly utility is thus the determination of
tariff methodologies and pricing frameworks to evaluate tariff applications from
licensees.
NERSA’s approach to tariff determination is reflective of the competing priorities
generally facing economic regulators as well as the particularly wide disparity in in-
come within South Africa. Its Electricity Pricing Policy tries to strike a balance between
the objectives of social equity, efficiency, and viability of the utility by ensuring that it
receives an appropriate rate of return to allow it to access finance at reasonable rates and
encourage necessary investment. The equity objective is reflected in, amongst others,
differential tariffs and the principle of cross-​subsidization with lower tariffs for low-​
income consumers and cost-​reflective tariffs for others (DME 2008).
An assessment of average electricity prices since 2003 (see Figure 26.1) shows that
average prices have been trending steadily upwards though the rate of increase has
declined from the steep increases in 2007/​08, associated with a period of significant
constraints in electricity supply as well as the start of Eskom’s new build programme.
The chart also points to a differential pricing system, with commercial users paying
the lowest tariffs and residential and agricultural customers facing the highest absolute
prices. The rate of price increases amongst various users has converged to around 5 per
cent per annum by 2018/​19.
Over the same period, Eskom’s generation performance and its ability to meet
the country’s energy demand has declined from a peak of supplying 97 per cent of
the country’s energy production in 2009 to 90 per cent in 2020 (Statistics South
Africa 2020).
564    James Hodge and Tamara Paremoer

Figure 26.1 Average electricity prices (c/​kWH)

Source: Eskom https://​www.eskom.co.za.

In 2007–​08, when South Africa first started experiencing regular rolling blackouts
(or ‘load-​shedding’ in local parlance), the constrained energy system was explained by
a combination of policy failure, inadequate systems planning, insufficient investment,
and ageing power stations. These challenges partly arose from the fact that the country
was still grappling with the optimal design of its electricity system to increase competi-
tiveness and attract private-​sector investment. During this time, Eskom was prevented
from adding generation capacity (Eberhard 2008). The complexity of the debates that
ensued (as well as lobbying by the incumbent utility) contributed to indecision on new
investment. The result was consistent high utilization of an ageing generation fleet
with reduced reserve margins, large maintenance backlogs and increasingly frequent
breakdowns.
These challenges in generation, difficulty in containing cost escalations, and the
increasing inefficiency of Eskom raises questions about the effectiveness of regulation
to promote efficiency. However, a closer look at Eskom’s most recent revenue application
(the multi-​year price determination for 2019/​20–​2021/​22 or MYPD4) process shows the
challenges facing the regulator in driving the objectives of equity and efficiency.
In the contested MYPD4 tariff application for the three-​year period from 2019/​20,
NERSA conducted a critical review of the utility’s sales forecast, noting that Eskom’s
forecast did not sufficiently consider users’ price elasticity of demand and the histor-
ical declining trends of sales volume in light of increasing prices and decreasing reli-
ability of energy availability. NERSA also cautioned against building inefficiency into
the tariff determination process and declined to approve some of the most costly and in-
efficient generation options included by Eskom in its application. The NERSA decision
 Regulation of Network Industries in South Africa    565

highlights that Eskom has failed to arrest declining performance of its plants and that
its energy availability factor (EAF) had decreased from 78 per cent to around 65.9 per
cent. NERSA insisted that an EAF of at least 71.5 per cent be used in the tariff applica-
tion, increasing to 73.5 per cent in 2022, to encourage the utility to improve the efficiency
of operations and to avoid building costly generation options into its production plan
(NERSA 2019b).
Further, in calculating Eskom’s allowable revenue, NERSA removed about Rand 69
billion in state support over the tariff period, arguing that the tariff determination pro-
cess already allows an efficient utility to cover its debt-​service obligations. Setting off the
cash injection against the utility’s allowable return on assets effectively constrained tariff
increases in the first year to 9.41 per cent (against the 22.59 per cent applied for). Eskom
successfully challenged the decision in the courts, though the decision is being appealed
by the regulator (Eskom 2019). In the context of these challenges, and the continued
poor performance of Eskom, the effectiveness of the fragmented regulatory approach
and reliance on price regulation to discipline the energy utility have not delivered the
desired results. In the following section we review the introduction of competition in
generation where reform has been slow. Eskom has been able to position itself to re-
sist fundamental reform and has, in relation to the introduction of independent power
producers (IPPs), been able to act contrary to state policy.

26.3.3 System Design and Introducing Competition

in Generation
Since the 1990s, government policy has proposed the unbundling of the vertically
integrated Eskom monopoly, introducing competition in generation/​distribution and
ensuring independent management of the transmission grid. The policy position was
set out in the democratic government’s first White Paper on energy policy released in
1998 (discussed below).

26.3.3.1 Distribution
In 1998, distribution was highly fragmented with more than four hundred distributors,
many of which were not financially viable. The White Paper proposed the consolida-
tion of some of these distributors into independent, financially viable regional energy
distributors that would benefit from economies of scale and skills.

26.3.3.2 Generation
Though the White Paper is clear that electricity generation would be opened to com-
petition from IPPs, it is cautious about the pace of restructuring of the energy sector.
The White Paper is clear that the drive to electrify underserved communities would be
the foremost government priority and that decisions on restructuring would be delayed
until the bulk of the electrification programme was completed.
566    James Hodge and Tamara Paremoer

26.3.3.3 Transmission
The White Paper proposes that Eskom be split into separate generation and transmis-
sion companies and that the transmission grid would be operated on open and non-​
discriminatory terms with transparent tariffs and full disclosure of cost and pricing
information to the sector regulator. The principles of open and fair access were already
incorporated into Eskom’s transmission licence at the time, in preparation of liberaliza-
tion of the energy sector.
The policy positions articulated in the 1998 White Paper were thus in line with leading
practice and principles about restructuring of energy markets for improved efficiency
at the time. Implementing these reforms could potentially have been transformative in
preventing the decline in the financial and operational performance of Eskom (Kessides
2020). However, many critical decisions about the restructuring of the energy sector
were not implemented. In 2019, twelve years after the publication of the White Paper, the
government has again committed to unbundling Eskom (DPE 2019).
The current unbundling represents a relatively weak form of vertical separation as
Eskom will be unbundled into three subsidiary entities managed by the current Eskom
management team and subject to current governance processes (Kessides 2020). The
possibility of splitting generation into several subsidiaries to introduce intra-​company
competition has also been mooted (DPE 2019). Concerns have been raised about the
sufficiency of such incremental structural reforms in reinvigorating performance and
improving the efficiency and operational performance of the entity, while noting that
there are some positive aspects of creating subsidiary entities as it retains coordination
efficiencies and reduced transaction costs.

26.3.4 Renewable Energy
In 2009, shortly after the first rolling blackouts exposed a concerning lack of gener-
ation capacity in the country, the government started evaluating the feasibility of feed-​
in tariffs for renewable energy. This proposal was eventually replaced by a system of
competitive tenders for renewable energy production with Eskom as the sole purchaser
(Eberhard et al. 2014). The programme, known as the Renewable Energy Independent
Power Producer Procurement Programme (REIPPP) was launched in August 2011. At
the time, the IRP estimated that about 17,800 MW of energy (or 9 per cent of energy
produced at the time) would be generated from new renewable-​energy sources over a
period of twenty years from 2010 to 2030.
The first round of projects (REIPPP Round 1) came on board relatively quickly, two
years after the approval of the first round of bids. Authors have praised the flexibility,
transparency, and technical capacity of the REIPPP programme, which operated as
an ad hoc unit within the Department of Energy and drew on expertise from both the
public and private sectors (Eberhard et al. 2014).
The REIPPP process also exhibited flexibility in its approach to bid design and pricing.
The first round of projects was contracted at relatively high prices, but lessons from each
 Regulation of Network Industries in South Africa    567

round have been built into successive REIPPP rounds and prices have reduced signifi-
cantly. Eskom, as the sole transmission licensee, would procure the entire offtake at
contracted prices and would face no costs in this regard, as all costs would be recovered
by tariffs on users.
Arguably, the biggest challenge to the success of the REIPPP programme came in
2016 when Eskom refused to sign outstanding power purchase agreements (PPAs) with
Independent Power Producers (IPPs) that won earlier bid windows despite a ministerial
determination requiring it to do so. The reasons cited by Eskom at the time were that it
had surplus generating capacity and the costs of the agreements were higher than the
cost at which Eskom could generate electricity itself.
The IPPs turned to NERSA and the Competition Commission for assistance in
gaining access to its transmission grid. The impasse was resolved in 2018, when inter-
vention by newly appointed ministers of public enterprises and energy resulted in the
PPAs being signed. During this time, renewable energy forums expressed concern at the
level of power the utility had to resist legal and political instruction to enter contracts in
line with government policy (Odendaal 2016).

26.3.5 Energy Conclusion
Despite long-​standing policy positions that advocate for liberalization and competition,
the pace of reforms in the electricity sector has been slow. This is at least partly explained
by the political importance of the energy utility, the ability of the insider-​incumbent to
respond to and lobby in the face of proposed policy changes and to undermine policy
changes that threaten its monopoly. Marquard (2006) writes that Eskom responded to
the introduction of the concept of unbundling in the White Paper by commissioning
paid research to play up the value of a single utility model. Similarly, Steyn (2013) notes
that in response to policy direction that contemplated unbundling Eskom into separate
entities for generation, transmission, and distribution, Eskom created three divisions
of the same names. Later, when the introduction of an independent system oper-
ator seemed imminent with the submission of the Independent Systems and Market
Operator (private) Bill to parliament in 2012, Eskom created a ‘Systems and Market
Operator Division’. It proposed that this unit could perform all the functions envisaged
for the independent systems operator. This points to the strategic advantages that im-
portant SOEs have to lobby government, particularly when faced with the prospect of
greater competition.

26.4 Transportation

In line with the shift to privatization and deregulation in the 1980s, the 1986 De Villiers
Commission recommended the corporatization of transport services under a single
568    James Hodge and Tamara Paremoer

entity. This resulted in the creation of Transnet through the Legal Succession Act of 1989
(Baloyi 2014). The liberalization of aviation (1990) and road freight transport (1988)
proceeded immediately based on the recommendations of the 1987 White Paper on pri-
vatization and deregulation, whilst ports and rail were left to the new democratic gov-
ernment. The White Paper on transport policy provided a broad vision which was to be
supplemented by modal strategic plans.7
That vision was for the Department to focus more on policy and strategy, and to in-
creasingly outsource to professional agencies the oversight of safety/​quality whilst
regulating monopolies to prohibit excessive tariffs (White Paper 1996). Economic regu-
lation of a ports authority was envisaged for the future, but most of the immediate focus
was on safety and quality regulation (Teljeur et al. 2003). This resulted in the creation of
the Civil Aviation Authority, the SA Maritime Safety Authority, the National Railway
Safety Regulator, and the South African National Roads Agency (SANRAL). SANRAL
would also be responsible for the development of road infrastructure funded by a fuel
levy and the determination of tolls on road concessions. The Department of Public
Enterprises (DPE) has some oversight as the shareholder, but this is not a substitute
for economic regulation as that mandate is primarily to ensure financial viability and
alignment of their operation to government policy (Baloyi 2014).

26.4.1 Aviation
South African Airways (SAA) was given a legal right under the 1949 International Air
Services Act to monopolize the major domestic trunk and international routes, with
Comair (1940s) and later BopAir and LinkAir (1970s) servicing smaller feeder routes.
The Domestic Air Transport Policy (1990) commercialized SAA and permitted domestic
competition. This saw the entry of FliteStar in 1991, which competed head to head with
SAA but faced persistent anti-​competitive conduct due to SAA’s control of airports and
landing slots, until it exited in 1994. This resulted in the move to separate airports and
navigation and placed them under new entities, namely the Airports Company Limited
(renamed ACSA) and the Air Transport Navigation Services (ATNS) in 1993 (Ellison
1992). The Airport Companies Act also established the Regulatory Committee, a part-​
time regulator, to set the tariffs for these two natural monopolies (1993). Following the
separation, another five airlines entered within two years and low-​cost carriers entered
in the early 2000s. As a result of the competition, there was no requirement to regulate
SAA tariffs and conduct outside of competition law. SAA did briefly get a EP in the form
of Swiss Air, but the shares were repurchased by the government after Swiss Air went
bankrupt following the collapse of international travel after 9/​11 terror attacks.
The Regulatory Committee makes use of a price cap for both ACSA and ATNS to drive
operational efficiencies whilst permitting a fair return on assets. The tariff permissions are

7
National Transport Policy White Paper 1996.
 Regulation of Network Industries in South Africa    569

for a five-​year period and are based on supporting business plans and demand projections.
This ensures that future infrastructure investments are anticipated and enabled by
tariff adjustments, such as negative productivity factors (Teljeur et al. 2003). All tariff
permissions must be approved by the minister. Aviation regulation is generally considered
to have been successful with major airports all upgraded for the 2010 World Cup and
operating relatively efficiently. ACSA itself briefly had an SEP in the form of Aeroporti
di Roma but the Public Investment Corporation (PIC) bought their share in 2005. ACSA
has also successfully bid to operate airports in Mumbai and Sao Paulo, along with the six
international and five local South African airports. In contrast, SAA as an airline has been
less successful, being subject to mismanagement and corruption that finally placed it in
business rescue in 2019 (see Chapter 27 in this volume).

26.4.2 Ports
The primary difficulty in reforming ports (and rail) was the massive cross-​subsidization
taking place within Transnet itself, whereby port charges supported rail investment.
As a result, port charges were high by global standards but this windfall did not trans-
late into greater port investment needed to relieve congestion and promote efficiency
(Teljeur et al. 2003). The other regulatory problem was that Transnet not only operated
the port infrastructure, but also provided port terminal services in competition with
private concessionaires. This created a conflict of interest as Transnet is both referee and
player, securing the most profitable container and automobile terminal concessions for
itself (Trade and Industrial Policy Strategies 2014).
The Department of Transport (DoT) issued the National Commercial Ports Policy
document in 2002, which set out the strategy for this mode. It recommended the separ-
ation of Portnet into two entities, namely Transnet National Ports Authority (TNPA) and
Transnet Port Terminals (TPT), which occurred that same year. It also recommended
the establishment of a port authority and a regulator to oversee it in line with the 1996
White Paper. The National Ports Act of 2005 established the ports regulator and the le-
gislative basis for TNPA to transfer its assets to a new entity outside of Transnet, namely
the National Ports Authority (NPA). However, the transfer of assets to the NPA is based
on a date set by the shareholding minister, and fifteen years later it still had not occurred
(NPA Act No. 12 of 2005). This is because of the continued cross-​subsidization that
occurs within Transnet and which would be precluded as soon as ports were transferred.
Whilst TNPA is operationally separate from TPT, the common shareholding means that
complaints of unfair treatment by private concessionaires persist with primarily compe-
tition law able to address such conduct (CAC 2017) even though the ports regulator can
hear complaints on some aspects of the service.
The ports regulator was operational in 2009 and proceeded to regulate tariffs from
2011. The tariff methodology is to set tariff increases to achieve a required revenue (RR)
which covers operational costs and a fair return on assets (i.e. a cost-​plus methodology).
It is generally accepted that this methodology is ill suited to ports, given that it provides
570    James Hodge and Tamara Paremoer

no incentives to improve operational efficiency (Meyiwa and Chasomeris 2016). The RR

is also heavily influenced by the regulatory asset base and the permitted return on those
assets, with criticisms that the asset base is inflated and investments are recouped over
short periods, which artificially inflate tariffs (Gumede and Chasomeris 2015). The ports
regulator has persistently not granted the increases requested by TNPA and has also
sought to make targeted tariff adjustments to promote export competitiveness. For in-
stance, export container tariffs were reduced by 43 per cent and those on vehicle exports
by 21 per cent. There is also a tariff discount provided, based on the extent of local bene-
ficiation (das Nair and Roberts 2017). However, the challenge is to gradually bring tariffs
down from the high levels found by the ports regulator in its April 2012 global com-
parison, whilst promoting investment to improve operational efficiency.

26.4.3 Rail
Rail had been used for employment creation during the apartheid era and had suffered
from a lack of investment despite being protected from road freight. However, the dis-
satisfaction with the service and inability to invest due to fiscal constraints resulted in
the liberalization of road freight transport in the late 1980s (Havenga et al. 2014). This
has resulted in a massive shift of general freight from rail onto road, largely blamed on
the fact that road usage charges do not reflect the costs of road development and those
charges are also primarily funded by non-​freight users. This has resulted in the poor
performance of the general freight business (GFB) of Transnet Rail and the need for
even greater levels of cross-​subsidization from both TNPA and from the more profit-
able dedicated ore lines (Truen 2008). The ore lines remain profitable due to the inability
to switch to road, and include the Coalink lines from the Mpumalanga coal fields to
Richards Bay and the Iron Ore lines from Sishen to Saldhana Bay. Despite generating
most of the profit, these subsidize investment in the GFB which undermines their own
capacity and efficiency (Havenga et al. 2014).
The National Freight Logistics Strategy 2005 sought to set out the detailed modal
strategy for rail. The policy continued to promote the Anglo-​Saxon reform approach
of separating rail infrastructure from rail services, allowing competition for services at
commercial rates and ensuring the rail infrastructure was profitable. However, this was
not well accepted at a time when policy thinking had shifted to the Asian developmental
infrastructure approach, which sought to achieve social objectives from infrastructure
SOEs rather than just ensuring their profitability. The same policy perspective made it
into the Green Paper on Rail Policy in 2011, but this was subsequently withdrawn and
replaced in 2013 with one that espoused an investment-​led reform rather than institu-
tional reform (Havenga et al. 2014). Around the same time, the DoT started a review and
update to the 1996 White Paper, which recommended the creation of a single transport
economic regulator that would then cover rail infrastructure too.
In late 2019, the Economic Regulation of Transport Bill was tabled before Parliament,
which seeks to put in place the proposed single regulator. The Bill cites as its purpose
 Regulation of Network Industries in South Africa    571

the consolidation of economic regulation under a single framework through the es-
tablishment of a Transport Economic Regulator (TER) with appeals to be heard by a
Transport Economic Council (TEC). As such, the Bill makes provision for the transfer
of existing regulatory functions to this new entity. The Objects of the Bill expressly
recognizes that logistics costs are unacceptably high, conditions do not exist for ef-
ficient infrastructure services, and the modes are dominated by SOEs with market
power. It also expressly recognizes that regulation is absent for rail despite oversight in
other areas. There is a shift back towards the potential of private service concessions on
the rail infrastructure which seems to have been driven by fiscal constraints for invest-
ment following the Zuma era. The Bill requires that the minister identify sectors that
require regulation based on the existence of a firm with market power or an essential
facility. The Bill continues to state that once the minister determines that this applies to
rail, then the TER must determine the costs of access, including the use of infrastruc-
ture to run trains, but extending to interconnection and even investment in infrastruc-
ture if it is not being provided.

26.4.4 Transportation Conclusion
Economic regulation has been successful in aviation in part due to consensus around
liberalization, well-​established global regulatory models, and a focus purely on tariffs
for the essential facilities rather than mediating competition. Regulation in ports and
rail has been held up by the complex web of cross-​subsidization and the shift in policy
towards a more developmental agenda for infrastructure SOEs. However, the lack of
economic growth, fiscal constraints, and huge debt from transport SOEs coming out of
the Zuma era has forced government thinking back to a reformist agenda as is evident in
the most recent ERT Bill. If enacted in its current form, it will permit the regulator to im-
pose much more discipline on SOEs, given that the mandate includes the requirement
for regulated entities to provide development plans, the setting of service standards,
and for oversight of complaints related to a wide range of issues including favouring
their subsidiaries, impeding intermodal connection, and failure to provide services on a
FRAND basis.

26.5 Conclusion

State conflicts of interest and the lack of a clear commitment to liberalization has dir-
ectly impacted on the success of network industry regulation. The initial momentum
towards liberalization in the 1990s, driven by global policy thinking, stalled in the early
2000s as policy thinking shifted to using SOEs to deliver on development objectives. In
essence, this reflects a lack of faith that effective regulation of private enterprises can de-
liver on important socio-​economic development mandates.
572    James Hodge and Tamara Paremoer

Where liberalization through private enterprise entry had already occurred, or had
been committed to in the 1990s (aviation and telecommunications), regulatory over-
sight has proceeded with pockets of success (airports, interconnection) amongst some
weaknesses in addressing wholesale regulation of dominant companies (mobile).
However, where liberalization reforms stalled, either regulation was abandoned entirely
(rail) or the regulators were left to simply preside over the tariffs of SOE monopolies (elec-
tricity, ports). This outcome is not conducive to effective regulation due to the conflicts of
interest of the state, a fact exploited by SOEs themselves through direct lobbying. After all,
regulation is primarily designed to oversee private enterprises in the context of liberal-
ization where such conflicts do not exist. Until there is a commitment to liberalization as
a policy, economic regulation in these sectors will not be effective in driving operational
efficiency and lowering tariffs. The SOE crisis that has emerged from the ten years to 2017
(see ­Chapter 27 in this volume) may provide some impetus for such a commitment.

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committee-​meeting/​9951/​.
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Ramokgopa, Bolden, and Edwina Pietersen. 2007. ‘Tariff history 2002–​2007’. Eskom [online]
https://​www.eskom.co.za/​CustomerCare/​TariffsAndCharges/​Documents/​Tariff_​History_​
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Teljeur, Ethel, Alison Gillwald, G. Steyn, and D. Storer. 2003. ‘Regulatory
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 Chapter 27

State-​O wned E nt e rpri se s

in Sou th A fri c a

Mark Swilling and Nina Callaghan

27.1 Introduction

By 2019, twenty-​five of the largest state-owned enterprises (SOEs) accounted for a fifth
of South Africa’s capital stock, a seventh of annual total investment in the South African
economy, and around 1 per cent of employment (Makgetla 2020). They are, therefore,
large-​scale institutions responsible for managing capital-​intensive infrastructures and
investments that play a key role in the national economy. Contrary to those who de-
pict South Africa as an ‘outlier’ when it comes to SOEs (usually via a narrow neoclas-
sical lens), internationally, SOEs are not in decline despite a global wave of privatization
(Nem Singh and Chen 2018). There are fifty-​eight listed and 1,617 unlisted SOEs in
OECD countries that collectively have assets equal to 32 per cent of GDP. Chinese SOEs
account for 67 per cent of the market value of all domestic listed enterprises. In Latin
America, on average SOE output accounts for 15 per cent of GDP per country.
Like other industrializing economies, SOEs have played a crucial role in the evolution
of the South African political economy. Following Bowman’s summary of the literature,
SOEs have traditionally played a number of roles, including the lowering of the cost
of doing business by providing low-​cost infrastructures, investing in high-​risk know-
ledge and capital-​intensive industries, providing finance (usually via development fi-
nance institutions) to priority industries that private banks stay away from, and actively
supporting a particular fraction of the business class that are deemed politically and
strategically significant by the governing elite (Bowman 2020). SOEs in South Africa
have played all four roles during the pre-​and post-​1994 eras.
The promise of 1994 was premised on the assumption that the new democratic
state would integrate South Africa into a worldwide ‘norm’ that Hart and Padayachee
refer to as ‘national capitalism [which] is the modern synthesis of nation-​states
and industrial capitalism, the institutional attempt to manage money, markets and
 State-Owned Enterprises in South Africa    577

accumulation through central bureaucracy for the benefit of a cultural community

of national citizens’ (Hart and Padayachee 2013: 57). As with all colonial-​enclave
economies premised on cheap labour and resources, the options are to replicate this
model disguised by nationalist rhetoric (the target of the Fanonist critique), success-
fully build an inclusive ‘national capitalist’ alternative (what, in theory, ‘development’
is supposed to be about), or introduce a post-​capitalist alternative (ranging from the
‘non-​capitalist road’ alternative of the mid-​twentieth century, the Soviet-​style statist
options, through to some of the current left-​wing social–democratic or even ‘develop-
mental state’ alternatives). South Africa opted for the second alternative, albeit a more
conservative version than what was envisaged in the Macroeconomic Research Group
(MERG) report that was rejected by the ANC leadership in 1993 (Padayachee and van
Niekerk 2019).
As Hart and Padayachee argue, South Africa has attempted to build ‘national cap-
italism’ on two occasions: the first was between the World Wars, but culminated in
apartheid after the Second World War where racism prevented the full realization of
the ‘national capitalist’ model; and the second was after 1994 when the promise of a
prosperous inclusive democracy was thwarted by state interventions that did little to
dismantle income and asset inequality in order to fully enfranchise the black African
majority. Following Feinstein (2005), Hart and Padayachee argue that the ‘national cap-
italism’ South Africa aspired to build after 1994 could only have been achieved if ‘the
home market is stimulated by equalising incomes across classes; a national system of
education ensures the development of a skilled labour force in support of industrialisa-
tion; citizenship is extended to the workplace (unions, bargaining, etc.); and the gov-
ernment cares for the health, welfare and housing of all the people’ (quoted in Hart and
Padayachee 2013: 60). Needless to say, this combination of developmental outcomes was
not achieved.
Given the focus of this chapter, what is significant is that SOEs were central to the first
attempt at building a (racially exclusive) ‘national capitalism’. They were not, however, a
central focus of the second attempt during the immediate post-​1994 era. They did, how-
ever, become central during the state-​capture years after 2009 because it was their pro-
curement spend that was used ostensibly to build a ‘black industrial class’. In reality, the
SOEs were, of course, looted by a Zuma-​centred power elite that came to power via a
silent coup (Bhorat et al. 2017).
It will be argued that the post-​COVID-​19 era is South Africa’s third opportunity to
build a fully inclusive form of ‘national capitalism’ driven by a post-​minerals-​energy-​
complex (MEC) industrialization programme. However, this is bound to fail if an ap-
propriate strategy for transforming and re-​deploying the SOEs is not put in place. This
will mean going beyond the current obsession with ‘fixing the SOEs’. A much greater
ambition and clearer vision is required. This chapter contributes to this discussion by
engaging with the National Planning Commission’s (NPC) recommendations for re-
structuring the SOE sector. However, to lay the foundation for this, it is necessary to
discuss the governance of SOEs during three eras: pre-​1994, post-​1994, and the state-​
capture years between 2009 and 2018.
578    Mark Swilling and Nina Callaghan

Given the renewed popularity of state-​led industrial development in Africa (Nem

Singh and Chen 2018), developmental-​state theory is now widely used to make sense of
current trajectories. However, for reasons that are unclear, developmental-​state theory
has largely ignored the role of SOEs, despite SOEs playing increasingly important eco-
nomic roles (Nem Singh and Chen 2018). Developmental-​state narratives are attractive
because they tend to idealize the Asian Tigers’ experience by depicting developmental
bureaucracies as autonomous, rational, relatively free of rent-​seeking, unconstrained
by clientelism, and institutionally well resourced. Research becomes a search for these
conditions or not, and policy is about putting them in place. However, as Whitfield
argues, this risks searching ‘for an ideal type of governance that never existed in the
first place’ (Bowman 2020:7) The alternative is to be found in the so-​called political
settlements literature which goes beyond the formal roles and characteristics of state
institutions. Similar to Swilling’s conceptualization of the composition of the ‘polity’
in developmental states drawing on ‘policy regime’ theory (Swilling 2020: 195–​226),
the political settlements literature argues that ‘understanding why widely adopted in-
dustrial policies succeeded in some instances but not others requires extending the
analytical frame to encompass the wider distribution of, and struggle for, organiza-
tional power and rents among social groups within and beyond the state’ (Bowman
2020: 8). What makes the difference between success and failure is not whether the
state is ‘autonomous’ or ‘developmental’, but whether the balance of forces within
and outside the state allows for the emergence of ‘pockets of effectiveness’ to flourish
(Bowman 2020: 8). This can happen in generally corrupt or relatively uncorrupted
polities, depending on the context. It is obviously easier to achieve in relatively uncor-
rupted polities. The upshot is that a more nuanced understanding of the institutional
context of each SOE is required to inform policy and governance of SOEs. In particular,
it creates the space for interventions that do not depend entirely on first ‘fixing every-
thing’ before anything is done.
In short, this chapter is informed by three questions: What is the role of SOEs in
driving industrialization within a ‘national capitalism’ framework, historically and
in the present? What were the relational dynamics and contestations that shaped and
undermined these roles? This provides the basis for the third: What role should SOEs
play in the third attempt to build an inclusive ‘national capitalism’ in South Africa?

27.2 SOEs during the Apartheid Era

The apartheid state enjoyed its most economically successful era between 1948 and the late
1960s. It was during this time that the axis upon which the economy turned, was clearly
defined as the MEC. Powerful alliances between finance, mining, energy, and its associated
industries locked in the key political, economic, and energy arrangements of apartheid
South Africa, glued together with cheap coal and cheap black labour (Fine and Rustomjee
1996). SOEs like Iscor, Eskom, the South African Coal and Oil Company (Sasol), and other
 State-Owned Enterprises in South Africa    579

chemical and mineral beneficiation industries, grew to dominate the MEC landscape.
Fine and Rustomjee (1996) estimate domestic investment in the steel and chemical sectors
at nearly 50 per cent of total investment in the economy in the 1970s, investments directed
mainly by another SOE, the Industrial Development Corporation (IDC).
SOEs served to buttress the MEC, allowing economic advantages for a core set of
industries and institutions, to the detriment of the growth of other industrial sectors
and more diverse actors (Fine and Rustomjee 1996). State-​directed industrializa-
tion provided sheltered employment for the white working class who also enjoyed the
added benefits of housing and food subsidies, pensions, and networked infrastruc-
ture for water, electricity, sanitation, and public transport around which a host of SOEs
proliferated. Not only did SOEs create the resilient arrangements for white capital and
citizen privilege, they also became apartheid’s lifeline during a period of tightening
international sanctions and disinvestment during the 1980s (Schneider 2018) providing
fuel, arms, minerals, energy, and food.
SOEs were the levers to power and racial dominance during apartheid, helping
to embed structural inequality in South Africa’s economy and create the obdurate
conditions for the MEC.

27.3 SOEs in Early Democratic

South Africa

The democratically elected government of 1994 was tasked to unravel over three hun-
dred years of structural inequality where the gains of industry were divided between
Afrikaner capital and foreign capital (Clark 2014; Hart and Padayachee 2013; Schneider
2018). Their answer to this overwhelming task was to open the doors to the market,
favouring privatization and liberal trade. Neoliberalism is characterized by a rejection
of the interventionist state that is seen as a hindrance to economic and political freedom.
State intervention is seen to throttle competition, which in turn, is understood to be
an equalizing force and sets limits on rent-​seeking. State institutions are further cast as
lethargic, inefficient bureaucracies that are easily corruptible to serve narrow interests
(Mazzucato 2015).
After focusing on political–constitutional transition during the lead-​up to 1994,
the African National Congress (ANC) came to power without a clear-​cut economic
policy framework (Padayachee and van Niekerk 2019). Nevertheless, President Nelson
Mandela introduced the first general developmental policy of democratic South Africa,
the Reconstruction and Development Programme (RDP), between 1994 and 1996. The
RDP ushered in the country’s biggest social welfare initiatives—​social grants, housing,
health, electrification, and school feeding schemes. Acknowledging the skewed benefit
that SOEs delivered during apartheid, the government intended to use them for redress,
as a way to fund transformation.
580    Mark Swilling and Nina Callaghan

Between 1994 and 1999, many SOEs were operating at a loss and became a drain on
the public purse. Privatization of SOEs, the transfer of state ownership rights to pri-
vate shareholders, was seen as a remedy for poor economic performance. This transfer
shifts the responsibility of delivering public goods and services from the state to the pri-
vate sector. It implies a steep social cost to poor consumers as prices are determined by
market mechanisms and regulation and not by a social contract (Parker and Saal 2003).
The RDP was abandoned in favour of the Growth, Employment and Redistribution
Strategy (GEAR) implemented between 1997 and 2005. By then, several lesser SOEs had
been restructured, an approach that was intensified during GEAR as a way to attract for-
eign investment. The economic policy came in for severe criticism for being too market
friendly while subjecting the poor to punishing austerity (Mosala, Venter, and Bain
2017). Market-​related tariffs, privatization, and flexible and relaxed exchange controls
were clearly motivated by neo-liberal ideas. This may have resulted in fiscal gains, but
the poor black majority were not given broad-​based access to the economy.
In this configuration, SOEs were not envisioned as solving democratic South Africa’s
most pressing problems. Nor were they strategically positioned as part of a nation-​
building project to build an inclusive national capitalism premised on an enlarged in-
ternal market coupled to an expanded manufacturing base. Even though GDP growth was
achieved, it did not translate into greater rates of employment, well-​being, or restorative
justice. Inequality and poverty actually rose during GEAR’s implementation. Fine (2010)
points to relaxed regulations as one of the main reasons for capital flight, with an estimated
20 per cent of GDP leaving the country during the post-​apartheid era up to 2012.
After a programme of restructuring SOEs during the GEAR years to set them up
for privatization, the idea of a wholesale sell-​off of SOEs was abandoned after 2002
following the adoption of the developmental-​state narrative at the 2002 ANC Policy
Conference. SOEs, together with the Public Investment Corporation (PIC), came to be
seen as key building blocks of a developmental state. However, the focus was on state
intervention in the economy and not the complex requirements to initiate an industri-
alization process (Greenberg 2006; Smith 2010). The Accelerated and Shared Growth
Initiative (ASGISA) was implemented from 2006 to 2009, including large investments
in physical and social infrastructure, much of which was executed via SOEs. The
Rand 787 billion infrastructure expenditure plan (9.7 per cent of GDP) was set to be
implemented between 2009 and 2012. The plan was considered by government as a way
of rectifying poor services in black communities and to provide a buffer against the
impact of the global recession following the economic crisis of 2008. Major SOEs like
Eskom, Transnet (transport and ports), Sanral (roads), Infraco (broadband), Telkom,
SARCC (roads), and Acsa (airports) were set for substantial inflows of funds to finance
counter-​cyclical infrastructure investments by the SOEs.
This shift from the GEAR-​oriented privatization strategies of the late 1990s, to the ‘de-
velopmental state’ approach to SOEs between 2002 and 2009, paved the way for what
followed during former President Jacob Zuma’s era from 2009 onwards. Whereas the
SOEs and the PIC became Mbeki’s delivery vehicle for infrastructure-​led growth after
2002, for Zuma SOEs were the honeypot at the centre of the state-​capture project. In
 State-Owned Enterprises in South Africa    581

his speech at the historic 2007 ANC Elective Conference, Mbeki admitted that Black
Economic Empowerment had failed because it depended on the white-​owned corporate
sector to create opportunities for black business. This reinforced internal ANC policy
thinking that maybe the future lies not in further dependence on the corporate sector, but
on using what were called ‘our assets’ to transform the racial composition of the economy.

27.4 Using Procurement to Build

a Black Industrial Class

During the Zuma era, the focus shifted to the procurement spend of SOEs. The stated
rationale was building a black industrial class. While a laudable and much-​needed goal,
given the dominance of white capital, this switch in practice had two consequences.
First, it reinforced a questionable assumption that capital-​intensive investments in
large-​scale infrastructures (i.e. ‘capital deepening’) leads to the type of growth and
development that is needed. Capital-​intensive investments have a poor Rand-​to-​
job ratio (Rodrik 2006). Second, it prepared the way for state capture as the shadow-​
state networks came to broker the deal-​making process that a focus on procurement
spend opened up. Within this context the rackets thrived. The conditions were ripe for
an assertive power elite to repurpose state institutions in the name of addressing the
contradictions of the Mbeki era.
The solution Zuma’s policy group offered was therefore unsurprising: heavy de-
pendence on the use of the procurement systems of the SOEs. As articulated by the
Department of Trade and Industry (DTI) from 2014 onwards, SOE procurement spend
held the key to building a ‘black industrial class’ (Department of Trade and Industry
2014). In reality, this meant re-​purposing the SOEs to become the primary mechanisms
for rent-​seeking at the interface between the constitutional and shadow states (Bhorat
et al. 2017). This became the strategic focus of the power elite that formed around Zuma.
To facilitate this, they needed brokers to help by-​pass regulatory controls and shift
money around (through local and international financial circuits) to finance deals, as
well as the transformation of the ANC into a compliant legitimating political machine.
The Gupta and BOSASA networks emerged as the anointed brokers of this expanding
rent-​seeking system. They were the grand masters of the dark arts of racketeering. They
actively and systematically established an interlinked set of rackets across the apexes of
key SOEs (Bhorat et al. 2017; Swilling, Foley, and Callaghan 2021).
Starting as a revolt against Thabo Mbeki, though not yet associated with a clear
ideology, the Polokwane moment in 2007 gave rise to a new power elite that used the
language of ‘radical economic transformation’ to bind together the new Zuma-​centred
political coalition. Claiming to speak for ‘ordinary people’, those who are not well
educated, who don’t speak English well, who live in shacks, small towns, and rural areas,
and who are excluded from the economy and the formal institutions of the state, this
582    Mark Swilling and Nina Callaghan

narrative gave rise to a politics profoundly mistrustful of the formal ‘rules of the game’,
whether of the constitution or legislation. The formal rules are rigged, this position
proclaimed, in favour of whites and urban elites and against ordinary people. Radical
economic transformation was thus presented as a programme that required changing—​
and frequently breaking—​the rules, even those of the Constitution. The argument was
compelling when viewed from the perspective of those who did not benefit significantly
during the Mbeki era. More significantly, it was a licence to unleash rent-​seeking rackets
on a grand scale. And at the centre of it all was an eminently believable lie: breaking the
rules is a necessary condition for building a robust black industrial class to displace the
dominance of ‘white monopoly capital’. The SOEs—​and their respective procurement
spends—​were at the very centre of this political strategy.

27.5 Current State of Play

Excluding the PIC, the SOEs directly managed over R2 trillion worth of assets by
2019. The PIC’s investments on behalf of the Government Employees Pension Fund
(GEPF) equals the total assets of all the SOEs put together, i.e. R2 trillion. This is also
equal to two-​thirds of GDP. To put this into perspective, all the other development fi-
nance institutions (DFIs) put together (i.e. DBSA, IDC, Land Bank, NEF, etc.) manage
investments worth only 5 per cent of GDP (Makgetla 2020).
Figure 27.1 presents a breakdown of the SOEs according to share of total capital assets.
Eskom, Transnet, and Sanral are by far the largest, with the Industrial Development
Corporation (IDC) and Development Bank of South Africa (DBSA) the largest DFIs.
In June 2020, the National Planning Commission (NPC) released a report entitled
‘The Contribution of SOEs to Vision 2030: Case studies of Eskom, Transnet and PRASA’
(NPC 2020c). The report concludes that four factors have contributed to ‘chronic under-
performance of some SOEs, and in some cases, near collapse’. These four are: ‘years of
uncertain policy expectations, precarious funding strategies, poor institutional account-
ability and poor governance, and political interference’. One key consequence has been
the failure of these SOEs to deliver large-​scale capital projects within approved budgets,
thus contributing in a major way to the current fiscal crisis of the South African state—​
what the report gently refers to as ‘macro-​fiscal stress’ (NPC 2020c: 9). In a PowerPoint
presentation entitled ‘Infrastructure SOEs Contribution to NDP Vision 2020’ presented
at the NPC-​GTAC webinar on 30 July 2020, some extreme cases of cost over-​runs, late
delivery, and poor value for money were presented, including:

• Gauteng Freeway Improvement Project—budget: Rand 11.4 billion; actual: Rand

17.4 billion
• Gautrain Rapid Rail Link System—budget: Rand 6.8 billion; actual: Rand 6.8 billion
• Eskom’s Ingual Pumped Storage Scheme—budget: Rand 8.89 billion; actual: Rand
25.9 billion
 State-Owned Enterprises in South Africa    583

SAA 1%
SAPO 1% ACSA 1%
13 others 2%
TCTA 2% CEF 2%
Land Bank 2%
Telkom 3%
Prasa 4%

Eskom 36%
DBSA 4%

IDC 7%

Transnet 17%

Sanral 18%

Figure 27.1 Assets by SOC and DFI (excluding PIC), in billions of Rand, 2019
Source: Makgetla (2020).

• Transnet’s New Multi-​product Pipeline—budget: Rand 12.7 billion; actual: Rand

30.4 billion
• Eskom’s Medupi: budget—Rand 70 billion; actual: Rand 208 billion
• Eskom’s Kusile: budget—Rand 80 billion; actual: Rand 239 billion
• PRASA—spent Rand 80 billion on new coaches, but 50 per cent are in operation
while quality of service has declined resulting in a significant reduction in the
customer base.

The NPC compares this to the SIPS14 new universities construction project and the
6,422MW of power procured by IPPs for Rand 210 billion—​neither of which cost gov-
ernment a cent and delivered on budget.
Unsurprisingly, the underperformance of SOEs resulted in reduced infrastruc-
ture spending by the SOEs, which impacted overall on all public-​sector institutions.
According to the NPC’s presentation to the NPC-​GTAC webinar, SOE investment in
infrastructure has been in decline since 2014, which contributes to the overall decline
in public-sector infrastructure spending and, therefore, gross fixed capital forma-
tion (GFCF). As discussed below, the post-​2002 policy switch resulted in a significant
jump in SOE infrastructure investments for a seven-​year period starting in 2007/​08,
after which it declined to a point in 2018/​19 nearly equal to where it was in 2007/​08
(NPC 2020a). As argued elsewhere, although Zuma became president in 2009, it was
only from 2014 onwards that all the necessary conditions were in place for grand-​scale
looting (Bhorat et al. 2017).
584    Mark Swilling and Nina Callaghan

By late 2020, the bond markets were becoming increasingly jittery about the po-
tential of a major SOE debt default to trigger a sovereign debt crisis. In the 3 August
edition of Credit Risk, the bulletin published by Rand Merchant Bank (RMB) Global
Markets Research, an article entitled ‘The Systemic Risk of SOE Funding’, raises
disturbing questions. Without referring explicitly to the possibility of an SOE debt de-
fault triggering a sovereign debt crisis, it is argued that the Land Bank default in 2020
and the SAA fiasco have deeply unsettled the bond markets. The article concludes, ra-
ther suggestively, as follows:

Although the Department of Public Enterprises (DPE) is unlikely to approve

applying business rescue proceedings given its experiences with SAA, one can’t rule
out a creditor applying for this via the courts—similar to SAA Express. The difference
between this potential situation, and that of either Land Bank or SAA, is that Denel
has JSE-​listed government-​guaranteed debt, which would become due and pay-
able under business rescue. The question remains, which fund manager holding
government-​guaranteed paper would be brave enough to make that call, knowing
full well SA’s fiscal situation? That said, these fund managers too have fiduciary duties
to follow. The alternative is National Treasury support. However, given the fiscal
issues the country is facing, how would/​could they attempt to do so? (Rushton 2020)

SOEs provide infrastructures that benefit the mines, energy, and refineries. At the same
time, except mainly for Transnet and Telkom, the SOEs have become an increasingly
serious burden for the sovereign. Eskom’s debt, in particular, has become a major threat,
having climbed to nearly 12 per cent of national debt and nearly 2 per cent of the na-
tional budget. Of the major SOEs, Eskom and Sanral are loss makers, while Telkom and
Transnet remain profitable (Rushton 2020).
Eskom is also the recipient of the largest chunk of government-​guaranteed debt
(Rushton 2020). Given that government adds together actual transfers and guarantees,
it is clear that Eskom dominates the picture.
An updated and detailed overview of guarantees is provided in Table 27.1 from the
National Treasury. Overall, actual exposure has increased from Rand 327.3 billion to
Rand 385.3 billion.
Once again, the dominance of the Eskom guarantee is very clear.
If SOEs were playing an appropriate counter-​cyclical role, one would expect them to
be in good-​enough standing to attract increased bank credit during hard times. This
has not been the case. Although total credit extended by banks to SOEs levelled off
at Rand 52 billion in 2020, there has been a steady decline since 2014, mirroring the
overall trends discussed in this chapter, both financial and institutional, as state capture
hollowed out these institutions. The declining year-​on-​year growth in bank credit to
SOEs reflects declining confidence in these institutions at exactly the time the opposite
was required. Bank credit for DFIs, however, has not declined, and some DFIs still suc-
cessfully hold bond auctions.
 State-Owned Enterprises in South Africa    585

Table 27.1: Government guarantee exposure

2017/​18 2018/​19 2019/​20
R billion Guarantee Exposure Guarantee Exposure Guarantee Exposure

Public 469.8 327.3 487,7 368.1 484.4 385.3

institutions of
which:
Eskom 350.0 250.6 350.0 285.6 350.0 297.4
SANRAL 38.9 30.4 38.9 39.5 37.9 39.9
Trans-​Caledon 25.7 18.9 43.0 14.3 43.0 13.5
Tunnel Authority
South African 19.1 11.1 19.1 15.3 19.1 17.3
Airways
Land and 9.6 3.8 9.6 1.0 9.6 0.9
Agricultural
Bank of South
Africa
Development 12.2 4.1 11.4 4.3 10.0 4.6
Bank of
Southern Africa
South African 4.2 0.4 2.9 –​ –​ –​
Post Office
Transnet 3.5 3.8 3.5 3.8 3.5 3.8
Denel 2.4 2.4 3.4 3.4 6.9 6.9
South African 1.1 0.9 2.8 0.2 1.9 0.2
Express
Industrial 0.4 0.1 0.5 0.1 0.5 0.1
Development
Corporation
South African –​ –​ 0.3 –​ –​ –​
Reserve Bank
Independent 200.2 122.2 200.2 146.9 200.2 161.4
power producers
Public–​private 9.6 9.6 10.5 10.5 8.7 8.7
partnerships

Source: National Treasury (2019).

So far, we have a high-​level view of the state of SOEs in South Africa’s political economy.
It is worthwhile taking a deeper dive into individual SOEs to understand the internal dy-
namics that reflect the kind of maladies explained in the NPC report. How did uncertain
policy, political interference, poor governance, and accountability actually play out in-
side these SOEs? This chapter now turns to case studies of Eskom and Transnet.
586    Mark Swilling and Nina Callaghan

27.6 Eskom Case Study

Eskom was reasonably well run during the immediate post-​apartheid period. It won
the Financial Times’ prestigious global power company of the year award in 2001 for
providing the world’s lowest-​cost electricity. In 2020, the rating agencies declared Eskom
as a major systemic risk for the South African economy and the Special Investigating
Unit (SIU) informed parliament that over 5,000 employees are being investigated for
possible criminal behaviour (Paton 2020).
The Eskom case reveals that the weakening of state-​owned institutions has deeper
roots than state capture during the years 2009 and 2018. Jaglin and Dubresson (2016: 6)
note that ‘Eskom’s crises, are institutional in nature and arise above all from the na-
ture of the relationship between Eskom and the state’. It is, in fact, a succession of
misalignments and readjustments that has left Eskom unable to deliver securely on its
electricity mandate as defined in the Electricity Act (Act 4 of 2006).
The De Villiers Commission was established in 1983 to ‘examine Eskom and electri-
city pricing throughout South Africa’ (Conradie and Messerschmidt 2000: 244). Its far-​
reaching recommendations ushered in a new techno-​political regime during the period
1987 and 2001 during which Eskom was incorporated as a company and the National
Energy Regulator (NER) was established. It went from being self-​regulating (in its para-
statal phase) to agreeing to politically directed price compacts to reduce the real price of
electricity between 1985 and 2000 by 20 per cent.
Two decades of liberalization of the industry led to the first coal-​power-​system emer-
gency in 2008. The steady increase in demand and the ‘sweat the assets approach’ in
the 1990s and 2000s meant higher volumes of coal were required to support the higher
generation load factors. This, in addition to lower expenditure on future fuel supplies,
meant that coal system buffers were eventually eroded over a two-​year period, leading
to the eventual collapse in coal security and the January 2008 load-​shedding crisis
(NERSA 2008).
In 1999, the government and the NER decided against allowing Eskom to start devel-
opment on the next base-​load power station, which was critical for the country’s supply
adequacy. This decision created severe energy insecurity within the next decade, and
South Africa is yet to recover from the economic reverberations this triggered.
While the utility remained state owned, the relationship dynamic between the utility
and government shifted critically, with the latter now playing the roles of energy policy-
maker, economic regulator, environmental regulator, shareholder, and appointer of the
board and executive leadership, with the utility becoming subordinate in the relation-
ship yet accountable for the management of the contradictory requirements from these
different spheres of government.
The three new power stations (Ingula, Medupi, and Kusile) were eventually
commissioned in 2005. This massive expansion was in addition to the requirement that
Eskom maintain peak performance from existing operating plants to meet demand.
 State-Owned Enterprises in South Africa    587

With support from the shareholder to respond urgently to the energy shortages (Mbeki
2008), Eskom, with limited skills and project development capacity, proceeded with the
new build programme and internalized all the mega-​project risks (engineering, pro-
curement, construction) to gain traction on the build programme.
Figure 27.2 illustrates the events of a tumultuous decade after the 2008 emergency
for Eskom. The viability of the organization declined as costs increased and revenues
declined amid frequent leadership changes. The decision to support the build pro-
gramme with government guarantees, instead of a larger equity injection in propor-
tion to the size of the capital investment, created a high-​risk condition for the sovereign,
which has subsequently materialized. The sovereign’s declining credit profile, due to the
extensive support it has provided to Eskom, has created a systemic risk for the financial
system. From the start of the build programme, the National Energy Regulator of South
Africa (NERSA) attempted to protect electricity consumers from tariff spikes. That
culminated in a decade-​long series of enormous revenue shortfalls, increased levels
of borrowing, and finally a company liquidity crisis in 2018 and a national fiscal crisis
in 2019.
From 2015, Eskom made a concerted effort to transform the ownership of the existing
forty-​year coal-​supply agreements from the diversified global mining companies to
new Broad-​Based Black Economic Empowerment entrants. This purchasing strategy,
in addition to the sustained under ​investment in the tied collieries, contributed to an-
other decline of the coal stockpiles, leading to a second coal emergency in a decade
in November 2018. This purchasing strategy led to a steep increase in coal costs as
high volumes had to be trucked over longer distances. By 2019, the board revoked this
decision and reverted to the previous coal strategy by re-​establishing the tightly co-​
ordinated coal supply and logistics chain between dedicated coal mines and power
stations (Eskom 2019).
From 2013 to 2018, customer arrears increased drastically, due mostly to a decline in
municipal payment levels. The contributing factors to this revenue loss was an inability
to exercise legal credit control processes and the limited results of government-​led
processes to address municipal government payment performance.
From 2014, the ethical tone of successive CEOs and the broader leadership declined.
This was reflected in direct instructions that subordinates over r​ ide governance controls
and intervene in the procurement and supply chains of Eskom (Corruption Watch
2019, 2020). Deteriorating employee relations, the weakened role and authority of the
board, together with a complete loss of business agility and an inability to control costs
and respond to operational crises led to the second major coal stockpile depletion in
November 2018 and deep load-​shedding in March 2019.
Jaglin and Dubresson (2016: 6, citing Hecht) note that Eskom is fundamentally viewed
as a techno-​political object through which technology and politics are entangled for ‘the
strategic practice of designing or using technology to constitute, embody or enact pol-
itical goals.’ In this context, Eskom was transformed into a corporatized state-​owned
entity that lost the ability to influence its business environment effectively. It remains
constrained by the following dynamics:
Figure 27.2 A tumultuous decade leading up to the second coal-​power-​system emergency in 2018 and the liquidity insolvency in 2019
Source: Erica Johnson in Mark Swilling, Robyn Foley and Nina Callaghan, 2021 (in refs)
 State-Owned Enterprises in South Africa    589

• the contradictions of state policy which, in turn, ultimately results in the weakening
of the balance sheet
• the inability to execute any decisions in its own interest as the interests of its
stakeholders and shareholders dominate decision-​making
• because of path-​dependent behaviours resistant to change, key stakeholders have
the ability to enact forms of soft violence on the state-​owned entity that remains a
constant and imminent threat.

In Parliament in September 2019, former Eskom chairman Jabu Mabuza said the com-
pany could only support debt of Rand 200 billion. However, at the end of March 2019,
Eskom had debt of Rand 440.6 billion. During the year to the end of March 2019, Eskom
paid interest of Rand 30.2 billion on its debt, which was equivalent to 16.8 per cent of its
revenues. An analysis of Eskom’s income statement shows that its costs were about 115.6
per cent of revenues in 2019. Therefore, the gap between revenues and costs is almost the
same as the interest payments. So, Eskom keeps borrowing to pay off its debt. With debt
of Rand 200 billion (instead of Rand 440.6 billion) during the year to March 2019, Eskom
would have slashed its interest payments by Rand 16.5 billion (or 9.2 per cent) of revenues
to Rand 13.7 billion, assuming an average interest cost of 6.85 per cent and approval by
NERSA of a more cost-​reflective tariff. None of this, of course, materialized. The result is
that Eskom’s debt ballooned to Rand 480 billion by the middle of 2020, with no strategy
in place to resolve the problem. Just over Rand 200 billion of this debt matures within the
next three years. At the time of writing (November 2020) it is clear that if nothing drastic is
done, it is conceivable that an Eskom payment default could trigger a sovereign debt crisis.

27.7 Transnet Case Study

The case of Transnet is an example of one of the major nodes of organized corruption
in South Africa’s recent history. One of Transnet’s focus areas during the 2010s was to
increase its freight transport operations capacity as a response to an expected growth
in demand. What followed was Transnet’s capital expansion programme, the Market
Demand Strategy (MDS), which kicked off in 2012 and had its sights set on the expan-
sion of rail, port, and pipeline infrastructure. As a Rand 300 billion capital investment
plan (with Rand 420 billion budgeted overall for operations) over seven years, Transnet’s
new procurement strategy attracted the attention of the rent-​seekers in the emerging
Zuma-​centred power elite, who pocketed billions.
With the implementation of the MDS, Transnet’s annual capital expenditure shot
up from Rand 28.3 billion in 2012 to Rand 36.4 billion in 2015, the largest amount ever
spent by Transnet in a twelve-​month period (DPRU 2020). However, spending began to
falter in 2016 as the projected economic growth failed to materialize and doubts about
the financial viability, and foundational assumptions of the MDS, resurfaced. Transnet
was also included in the Public Protector’s ‘State of Capture’ report in November 2016.
590    Mark Swilling and Nina Callaghan

Capital spending decreased in the following years and by 2018, the last year of the
strategy, half of the MDS budget remained unspent (DPRU 2020).
Evidence suggests that the first major move to enable access to substantial rents
at Transnet was the appointment of Malusi Gigaba as the new minister of public
enterprises in 2010 (DPRU 2020).
Gigaba oversaw the MDS, Transnet management, as well as the top positions which
he quickly filled with members of his shadow-​state network. In 2011 Brian Molefe—​
known for his close ties with the Gupta family—​was appointed as Transnet’s CEO. This
was followed by the reappointment of Siyabonga Gama as head of Transnet Freight
Rail (DPRU 2020) after being dismissed for awarding irregular contracts. Anoj Singh,
Transnet’s chief financial officer (CFO) from 2009 to 2015 oversaw the MDS and other
Transnet financial operations. These appointments were followed by the awarding of a
contract to ZPMC towards the end of 2011 (DPRU 2020). Of the R650-​million contract
for seven cranes, R95.6 million was transferred to a Gupta shell company as a kickback
payment.
By 2012, Iqbal Sharma—​another well-​known associate of the Guptas—​was appointed
as the head of the newly formed Board of Acquisitions and Disposals Committee
(BADC) (DPRU 2020), formed to oversee large infrastructure spending at Transnet.
Sharma was also connected to Salim Essa—​an important member of the state-​capture
network—​which resulted in the latter being paid billions of Rands in kickbacks from
Transnet deals between 2012 and 2016 (DPRU 2020).
This practice of absorbing illicit kickback payments into the estimated total cost of
large contracts at Transnet occurred for several years, with the Guptas being primary
beneficiaries. Procurement corruption, while a problem at many SOEs, was unique at
Transnet because of its scale and level of sophistication. The infiltration extended into
nearly complete control of Transnet, becoming more brazen over time as procurement
procedures and anti-​corruption mechanisms were routinely over​ridden.
The most brazen of the procurement contracts awarded was for over a thousand
locomotives at Transnet from 2012 to 2014. Two Chinese companies were awarded the
contracts totalling almost Rand 25 billion and kickbacks to the Gupta network made
up 25 per cent of the total contract (DPRU 2020). The process of confinement was the
preferred strategy to ensure specific firms were awarded the contracts as it bypassed
competitive tender procedures. Transnet later awarded four other contracts for a further
1,064 locomotives. The BADC approved the overall procurement budget even though
it had increased from Rand 38.1 billion to Rand 54.5 billion (a 43 per cent increase that
likely incorporated the kickback payments (DPRU 2020)).
Through analysis of the correspondence contained within the #GuptaLeaks, the
DPRU estimates that between 2013 and 2018 Transnet spent over Rand 37 billion on
deals linked with corruption, nearly Rand 8 billion of which was paid to firms linked to
the Guptas in direct kickbacks. Evidence shows Transnet executives worked to facilitate
the corruption.
Lack of delivery on contracts, unfulfilled contractual agreements around local con-
tent which specified that components of the trains had to be manufactured locally, and
 State-Owned Enterprises in South Africa    591

the dismantling of systems of control and oversight, are some of the legacies of state cap-
ture that occurred at this key South African SOE.

27.8 SOE Governance and the Third Bid

for an Inclusive ‘National Capitalism’

The national debate about the future of SOEs instigated by the NPC investigation into
the governance of SOEs comes at a crucial historical moment within the wider political
economy of the Global South. After three decades of privatization of SOEs at the end of
the last century, more and more SOEs are emerging across the Global South as part of
the so-​called new developmentalism. According to Singh and Chen:

After 2000, another variant of state-​led networks in newly industrialised countries

began to emerge—​competitive SOEs that can foster efficient allocation of state
resources to achieve developmental objectives. In the post-​Washington Consensus
era, convergence between market competition and re-​incorporation of SOEs con-
cretely offered a new developmental approach for emerging markets. Importantly,
new developmentalism shifts the analytical focus from state–​social alliances to-
wards the remoulding of state–​state relations. (Nem Singh and Chen 2018: 1079,
emphasis added)

The strategic focus since 2000 has been less about how SOEs relate to business, and
more about how states create appropriate institutional relations with and for SOEs that
enable them to be competitive, developmental, and accountable at the same time. The
two case studies confirm this argument—​they clearly show that it was the relations be-
tween the SOE and the relevant minister and/​or department that went wrong. In many
other Global South jurisdictions, the lessons are being learnt and appropriate govern-
ance structures put in place.
In short, using the language of this chapter, many industrializing countries in the
Global South are redeploying SOEs to foster more inclusive growth-​oriented modes of
‘national capitalism’. As Singh and Chen observe: ‘Crucially, many countries achieved
economic success with a large SOE sector’ (Nem Singh and Chen 2018: 1083).
It is arguable that the COVID-​19 crisis has starkly revealed the contradictions of
South African economic policy and practice. In a perfect storm, the fiscal challenges
created during the state-​capture years have been exacerbated by the impact of the
‘pancession’ on tax revenues, fiscal spending, and debt levels. As we have argued else-
where, there needs to be a fundamental break from past economic policy paradigms
(Moleko and Swilling 2020). The ‘New Wine into New Wine Skins’ report (Moleko and
Swilling 2020) recommends a policy package that effectively envisages what would be
South Africa’s third bid to create a fully-​inclusive ‘national capitalism’ at a time within
the Global South when similar strategic initiatives are underway.
592    Mark Swilling and Nina Callaghan

Substantiated by extensive research by the CSIR, the ‘New Wine’ report puts an energy
transition at the very centre of such a bid—​from an MEC-​centred economy premised
on coal-​fired power to an economy driven by a new vast decentralized and distributed
renewable-​ energy infrastructure. Although the Presidential Economic Advisory
Council (PEAC) may not share the economic assumptions of the ‘New Wine in New
Wineskins’ report, its October 2020 report does echo the report’s energy approach
(PEAC 2020):

What used to be a choice is now mandatory. Those countries not adapting to a

green transition will find themselves behind and excluded. They will be behind on
the innovation curve, the cost curve, will suffer from stranded assets and will face
increasing barriers to markets that have accelerated their own transitions.

The energy transition is ‘mandatory’ rather than a ‘choice’ because coal-​fired power
stations must close by prescribed dates. They cannot be replaced by more coal-​fired
power stations because nearly all major international and local funders have decided to
withdraw from coal assets. Renewables are now cheaper than fossil fuels by far. In short,
there is a structural techno-​industrial and financial imperative that prohibits the con-
tinuation of coal-​fired electricity. Just like the steam engine made the industrial revolu-
tion possible, so renewables will create a post-​MEC industrial complex (Swilling 2020b,
2020a, 2019). But all depends on whether Eskom—​South Africa’s biggest and most
troubled SOE—​can enable the transition.
Both the PEAC report and the NPC reports cited earlier clearly emphasize that none
of the above is possible without fundamentally re-​organizing the governance of the
SOEs. Clearly influenced by the post-​neo-liberal orientation of Mariana Mazzucato (a
member of the PEAC), the PEAC report refers to ‘mission-​driven’ public investments
via the SOEs. The NPC gives substance to this pragmatic approach by proposing a range
of ‘organizational reforms’ and more drastic ‘structural interventions’ along a con-
tinuum of options ranging from retention of 100 per cent public ownership through
to full privatization (NPC 2020b). The NPC warns against ideological approaches (‘na-
tionalization versus privatization’), preferring rather a contextual analysis of each case
to arrive at a pragmatic conclusion.
The NPC makes two important recommendations. The first is to narrow down and
standardize the mandates of the SOEs. Specifically, these should be: ‘(1) delivery of a
core economic mandate on commercial terms; (2) strong governance standards; and
(3) financial sustainability’ (NPC 2020b) The second is to better coordinate the govern-
ance of SOEs, including considering as a serious option the introduction of a new state
holding company that would own all—​or most—​of the SOEs, thus streamlining and
aligning policy and governance of SOEs, especially board appointments, and limiting
political interference.
In recognition of the need to address the governance challenge posed by the SOEs,
on 11 June 2020, President Cyril Ramaphosa appointed the Presidential State-​owned
Enterprise Council (PSEC) with the following mandate:
 State-Owned Enterprises in South Africa    593

The Council’s mandate includes strengthening the framework governing SOEs,

including the introduction of an overarching Act governing SOEs and the determin-
ation of an appropriate shareholder ownership model. The council will also ensure
that SOE-​specific interventions are implemented to stabilize companies through the
strengthening of their governance, addressing their immediate liquidity challenges
and implementing agreed turnaround strategies. Furthermore, the council will re-
view business models, capital structure and sources of financing for SOEs and will
monitor and mitigate risks.

This is a crucial intervention and in tone and inclination is similar to the NPC approach,
but both are somewhat at odds with the ‘mission-​driven’ approach emphasized in the
PEAC report: by comparison, the more narrow technocratic framing of the problem by
the PSEC and NPC is noteworthy.
Consistent with a common trend since 2018, except for the PEAC report, the focus of
the Presidency and DPE seems to be on ‘fixing the SOEs’. The root problem, however,
is political: the absence, since 1994, of a clear developmental vision for the SOEs and
how they should be managed accordingly. The passing of a new SOE Governance Act
and the creation of a new ownership model should be about creating a massive institu-
tional capacity and capital base for counter-​cyclical investing plus a wide range of new
investment instruments to promote diversification. This must include a reassessment of
the PIC’s mandate. Given the enormous size of the PIC, it cannot be allowed to pursue
pro-​cyclical and ‘safe’ investments that do little to diversify the economy. Government
must impose a clear public mandate on the PIC as part of the overall re-​organization of
the SOE sector.
The underlying cause of what the NPC refers to as the ‘near collapse’ of the SOEs can
be traced back to a political leadership that made a succession of specific strategic and
tactical decisions over a period of two and a half decades that resulted in the current state
of affairs. It is time they took full responsibility for this. Some of these decisions were
purely ideological, such as the decision to ignore Eskom’s requests from the late 1990s
to build more power stations because the political leadership was deluded by the neo-​
liberal belief that new power stations could be built by the private sector in a low-​cost
environment. Other decisions were explicitly about rent extraction, including the pol-
itical decisions during the Zuma era that resulted in the appointment of ‘crony boards’
and politically loyal CEOs to facilitate large-​scale looting, aided and abetted by some
of South Africa’s leading consulting, legal, and accounting firms. Whatever the reason,
the brutal reality is clear: the current crisis of the SOEs is caused by decisions made by
the political leadership, specifically members of the South African Cabinet. This has
much to do with an ever-​shifting mix of ideological misapprehensions and rent-​seeking
behaviours that began during the apartheid era and continued into the post-​1994 era.
A clear consistent strategic vision of the role of SOEs in national economic development
was absent during the Mandela, Mbeki, and Zuma presidencies.
The NPC recognizes this centrality of SOEs in a national project when it defines
SOEs as ‘engines of economic development’. Unfortunately, as demonstrated in
594    Mark Swilling and Nina Callaghan

the case studies and financial analysis presented in this chapter, the reality is very
different. According to both the NPC (2020) and Makgetla (2020), the key problem
with SOEs is that their developmental mandates and KPIs are unclear, with a narrow
focus on outputs rather than outcomes while overall governance is in disarray. Of the
thirteen SOEs that were examined closely by Makgetla (2020), only four had clear
mandates.
Table 27.2 provides an analysis of the executive and policy responsibility for thir-
teen SOEs. Not only is it clear that responsibility for SOEs is highly dispersed across
many different entities, but there are SOEs that are subject to a split between policy
responsibility and executive responsibility. Eskom is a perfect case in point, and a key
reason Eskom cannot resolve its problems. The Department of Mineral Resources and
Energy (DMRE) is responsible for energy policy (in particular the IRP and NERSA),
whereas the Department of Public Enterprises (DPE) is responsible for the governance
of Eskom as an institution. However, Eskom cannot resolve its governance and finan-
cial problems by closing down coal-​fired power plants and ramping up renewables

Table 27.2: Oversight of priority SOEs and DFIs

Other departments Other spheres
Company Shareholder Policy department affected affected

Eskom DPE DOE Economic Municipalities

departments; DEA
Sanral NDOT Same Economic Municipalities and
departments; DEA provinces
Transnet DPE NDOT The DTI, DMR, DAFF Municipalities and
provinces
Prasa NDOT Same DCOG, DTI Gauteng metros,
Cape Town
SAA NT NDOT Tourism Municipalities with
airports
CEF DOE Same The DTI
Denel DPE DTI Defence, DIRCO
SABC DOC Same GCIS
SAPO DTPS Same DSD Provinces and
municipalities
PIC NT Same Economic departments
IDC EDD Same The DTI, DSBD (oversees sefa)
DBSA NT Same DCOG Municipalities
Land Bank NT DAFF DRDLR Provincial
agriculture

Source: Makgetla (2020).

 State-Owned Enterprises in South Africa    595

(as required by DPE) if energy policy and implementation is driven by the coal-​and
nuclear-​oriented DMRE.
The ‘political settlements’ literature cited earlier argues for a focus on state–​state
relations. Table 27.2, which provides a snapshot of the incoherencies, clearly confirms
this contention. It also helps to contextualize one of the best-​kept secrets in the public
sector, namely the fractious nature of the relationships between SOE executives on the
one hand and the senior officials and ministerial advisors of the oversight ministries (e.g.
DPE, NT, and NDOT) on the other. The latter resent the substantially higher salaries
earned by the former, and compensate by abusing their authority (especially when it
comes to approving salary increases and bonuses). These conflicts—​some of which have
lasted for years—​undermine the collegiality required to jointly tackle massive strategic
challenges.

27.9 Conclusion

To conclude, given their historical role prior to 1994 and their sheer size and impact
(in terms of institutional capacity, assets, and capital deployment), a logical expectation
after 1994 is that the post-​apartheid democratic state would have strategically deployed
the SOEs (including the PIC) in ways that purposively directed capital investments to
diversify the economy, drive development, instigate socio-​technical innovations, and
deploy counter-​cyclical interventions. Instead, after 1994, blinded by the neo-​liberal
promise inscribed into the GEAR policy, despite rhetorical commitments to an inclu-
sive ‘national capitalism’, SOEs were regarded as fiscally burdensome and less significant
than the private sector. A key set of instruments for building an inclusive ‘national cap-
italism’ was therefore neglected, a strategic miscalculation consistent with the ANC’s
rejection of the economic policy framework proposed by the MERG on the eve of the
1994 founding election. This changed slightly after the adoption of the developmental
state narrative in 2002. However, little was done to rationalize the overall governance
of SOEs and to clarify their respective mandates. The unintended end result of these
strategic blunders was that the developmental-​state narrative created the legitimating
rationale for masking state capture during the Zuma years. Since 2018, the Ramaphosa
government has emphasized the need to ‘fix the SOEs’. This is all well and good, but
this does not resolve the real underlying cause of the problem: the absence of a clear
strategic political vision for SOEs as key drivers of a national economic development
programme to overcome South Africa’s key structural economic weakness, namely the
inherited enclave nature of the economy built on the colonial-​type foundations of the
mineral-​energy complex. For the first time ever, by triggering a large-​scale energy tran-
sition, South Africa has an opportunity to transcend the MEC and the enclavism that
it reproduces in favour of a more inclusive and more sustainable ‘national capitalism’.
However, this third bid for an inclusive ‘national capitalism’ will depend on the thor-
ough and complete restructuring of SOE governance in line with international trends
596    Mark Swilling and Nina Callaghan

in developing countries since 2000. As argued by the PEAC, this ‘mission-​oriented’

approach should become the strategic vision for the SOEs in a post-​COVID, green, and
inclusive economic recovery strategy.

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 Chapter 28

Bl ack Ec onomi c
Emp owerm e nt i n
Sou th Af ri c a

Thando Vilakazi

28.1 Introduction

The Black Economic Empowerment (BEE) policy has been one of the most direct
attempts by the African National Congress (ANC)-​led government to achieve racial
transformation in the South African economy. BEE was at first defined broadly as ‘an
integrated and coherent socio-​economic process that directly contributes to the eco-
nomic transformation of South Africa and brings about significant increases in the
number of black people who manage, own and control the country’s economy, as well as
significant decreases in income inequalities’ (DTI 2003).1
The chapter ambitiously focuses on distilling contemporary perspectives on BEE
and juxtaposing the BEE programme and its outcomes with a wider understanding
of ‘meaningful economic inclusion’ and participation—​in essence, introducing a dis-
cussion about the substance of inclusion. It seeks primarily to offer a pragmatic, crit-
ical view of how BEE’s implementation transpired, and the pathways forward. The
chapter first reviews the state of affairs with respect to black economic empowerment
in South Africa and considers key outcomes and understandings of BEE as a tool for
addressing constraints to economic participation of black people in the economy since
the democratic transition in 1994. For this, the chapter draws on the vast body of litera-
ture and reports that have considered aspects of empowerment in different sectors and
industries. Much has been written and said about BEE, and the literature contains many

1 In terms of the amended BEE legislation of 2013, black people are defined as Africans, Coloureds and

Indians who are citizens of South Africa by birth or descent; or who became citizens by naturalization in
different defined parameters.
600   Thando Vilakazi

very valuable resources. The chapter critically engages with the main cross-​cutting
insights and contributions in the literature in order to identify the gaps that exist in BEE
policy in the context of achieving meaningful economic inclusion, and explores the
likely pathways in the evolution of BEE policy going forward.
The chapter does this by first reviewing briefly the initial interpretations and intent
behind BEE and how it evolved from the 1990s. This is a helpful exercise as it highlights
an important point for the chapter—​that there was no clear policy from 1994 and so
black empowerment took on the narrow (ownership-​focused), least-​disruptive form
that it did up to 2000, in the interests of both white business in maintaining their pos-
ition as they diversified assets internationally and disposed of non-​core assets, and
the government in being cautious not to do anything too drastic with its policies that
would deter investors. In section 28.2 we consider how this precarious starting point
shaped the policy approach that emerged for achieving black economic empowerment
as embodied in the 2003 legislation, before focusing on key outcomes and challenges
encountered in implementing this framework from 2004 in section 28.3. The latter are
analysed through comparing recent evidence on empowerment outcomes against some
of the policy objectives of BEE but also a broader lens that considers the more significant
challenge of overcoming the systemic ways in which entrants remain excluded from the
economy, including very high barriers to entry in various sectors.
As a core contribution, we add to the debates an interpretation of what meaningful
inclusion could look like as a future pathway for South Africa, highlighting that looking
only at quantitative outcomes of BEE misses key issues in terms of the types of barriers
that sustain exclusion and concentration. We find that a broader, integrated approach
is required, which includes different policies such as for competition and procurement
and other measures to facilitate entry and participation in the economy. We find that
although BEE takes us in the right direction in this regard, it has not done enough and
we suggest priorities for the pathway forward that include a focus on the nature and im-
pact of high barriers to the participation of black businesses, the importance of funding
as part of a broader set of interventions, the importance of parallel social and economic
policies, and the strategic role that procurement and enterprise development can play in
the long term.

28.2 The Evolution of Black Economic

Empowerment Policy in South Africa

To ‘locate the empowerment project as part and parcel of the transformation of South
African society’ (BEECom 2001, Prologue by Cyril Ramaphosa, BEE Commission
chairman).

This was one of the central mandates of the BEE Commission which was appointed
by the umbrella body for black business organizations, the Black Business Council
 Black Economic Empowerment in South Africa    601

(BBC), in 1998. The Commission was tasked with deriving a clear strategy and def-
inition for BEE and finding avenues for the voice of black business to be united. This
statement is significant for our analysis in this chapter, when considering how the BEE
Commission report would come to shape the trajectory of BEE policy in South Africa in
fundamental ways.
First, BEE policy was not well located or spelt out in great detail in the Reconstruction
and Development Programme (RDP), the ANC’s primary manifesto for transforming
the society as it took leadership of the country in 1994, nor the Department of Finance’s
Growth, Employment and Redistribution (GEAR) economic policy of 1996. This
omission is somewhat surprising, given the extensive history of economic exclusion
of black South Africans which seemed to beg for concerted and immediate redress
once political freedom was achieved in 1994. While the need to empower black South
Africans through training, sector education, small business development, and public
procurement had been established in policy (including in the RDP), the RDP (and the
ANC’s Ready to Govern before that) had relatively limited detail putting forward black
empowerment as a central policy strategy, and certainly not in the form that it eventu-
ally took from 2003 (Hirsch 2005). The Department of Trade and Industry (DTI) would
later state that the government did not wish to define BEE too broadly so as to be tanta-
mount to the entire economic strategy of the country (DTI 2003), suggesting that BEE
had been, and would always be, subservient to a broader programme of economic policy
and socio-​economic transformation.
Second, it marked a critical shift in thinking about empowerment, brought about
by an important grouping of black businesspeople towards a more ‘broad’ interpret-
ation of BEE, no doubt a response to the popular concerns across various quarters that
the first five years of empowerment had been skewed towards the enrichment of a few.
There was a belief expressed at the Black Management Forum national conference in
1997 that the poor outcomes arose from this lack of control and vision for BEE and
disenchantment with a process driven by ‘white institutions’, ultimately resolving that
‘black people should direct and take charge of a new vision for BEE, a process that, until
then, had been conceptualised, controlled and driven by the private sector’ (BEECom
2001: 1).
Third, and following from the above, the statement suggests that empowerment as a
‘project’ was to be viewed as only one part of a wider process of transformation of the so-
ciety. This points to the often-​understated fact that various other processes and policies
of government were meant to contribute together to achieving (racial) transformation
in the society as a whole, and BEE would normatively play only a contributory rather
than a central role. In other words, policies in education, health-care, labour and com-
petition law or for state-​owned enterprises, for example, would also carry the burden of
socio-​economic and racial transformation of the society, ostensibly with positive impacts
on poverty reduction, human development, and economic growth and inclusion. In this
way, the policy was arguably a way to correct a market failure relating to redistribution
and a tendency to concentration in the context of South Africa’s emerging political settle-
ment and economic structure. We return to these issues in the analysis to follow.
602   Thando Vilakazi

The reality that the BBC was grappling with in 1998 was that there was no clear
strategy and policy on the part of the still very new government for attaining black eco-
nomic (rather than political) empowerment. Others have argued that there was in fact
a narrow strategy in place to achieve black economic empowerment which was not
embodied expressly in ANC and government policy documents but driven by leading
established white businesspeople in agreement with the incoming ruling elite (Moeletsi
Mbeki quoted in Davis 2020). That is, as part of the various bargains and trade-​offs
negotiated with business in the lead up to the elections in 1994, and thereafter, white
businesses had already recognized the risks that they faced in not putting something on
the table in terms of inclusion of black businesses, managers, and businesspeople in the
mainstream economy. There was also an opportunity to garner favour with the political
elite and shape government policies in exchange for making some overt strides towards
the inclusion of blacks in the upper echelons of business leadership (Bracking 2019). As
such, they embarked on a process of transferring ownership of certain business interests
to black South Africans (many from within the ANC’s ranks), particularly those such as
Cyril Ramaphosa (later president of South Africa), Tokyo Sexwale and various others
who had gone into the private sector to build a base of black capital.
This first period of black empowerment, between 1994 and 2000, is often referred to
as the first phase of BEE, characterized in the main by deals involving so-​called politic-
ally connected individuals—​but, critically, driven by established white business interests
including their advisors and financiers, notionally on their terms, and not black people,
as described by Ruel Khosa in 1999 (Ruel Khosa quoted in Hirsch 2005; 220). The pro-
cess is well described in the contributions of various authors, and effectively begins in
1993 when Sanlam (a major insurance conglomerate) sold 10 per cent of Metropolitan
Life (life assurer) to Methold, a consortium of black businesses and businesspeople
led by Dr Ntatho Montlana (later renamed New Africa Investments Limited (NAIL))
(Gqubule 2006; Hirsch 2005).
Some of the black businesspeople that served as executive directors of NAIL, which
went on to acquire several businesses in different industries, would come to be labelled
as the new BEE elite, berated for self-​enrichment and unduly hoarding the gains of the
empowerment process (Southall 2007; Freund 2007; Bracking 2019). This concern,
which has dominated the media, public perception, and writing about the empower-
ment process in South Africa (Bracking 2019), is a binary view that seems to obscure
some key issues. As BEE was not as yet clearly spelt out in policy throughout the 1990s,
it can be said to have taken on the form (in the first phase) that was perhaps the most
expected outcome—​that some white capitalists would seek strategically to offer mi-
nority ownership of existing businesses, and that only some black ‘capitalists without
capital’ would have the resources and strategic and socio-​political positioning to enter
into these relatively expensive arrangements at first (Southall 2007; Andreasson 2006).
In other words, there was logically no way in the absence of a clear policy that the first
phase of capital reform could have been broad-​based and all encompassing, especially
in a context where there was also still significant distrust and socio-​political tension be-
tween black and white South Africans, and where black businesspeople had no capital.
 Black Economic Empowerment in South Africa    603

It is not clear from literature and media why the ‘enrichment’ of a small group of
leading black businesspeople was viewed as necessarily problematic in the context
of an entire economy in which capital remained concentrated largely in the hands of
around six white-​owned conglomerate and family business groups (Fine and Rustomjee
1996; Hirsch 2005; Lewis 1995). On this point, Duma Gqubule, a leading author of the
BEECom report and subsequent scholarly contributions on BEE, puts it this way in his
book with reference to multiple similar BEE deals that took place after the NAIL trans-
action in 1993: ‘The real story is that hundreds of capital reform initiatives have delivered
negligible equity to black companies. The key issue is not that a few people have been
enriched through capital reform, but that so few have been empowered’ (Gqubule
2006: 35). Indeed, by the mid-​2000s very little progress had in fact been made on own-
ership or presence of black people on the boards of leading firms (Southall 2007), and
black representation on boards of Johannesburg Stock Exchange-​listed (JSE) companies
was 43 per cent in 2019, below the target of 50 per cent (BBBEE 2019).
Arguably, even some of those that had been enriched had not been empowered, and
not many had been enriched to begin with. In a broader sense, although poverty levels
are lower than in 1994, income inequality in South Africa remained amongst the highest
in the world (for a full discussion on inequality, see C­ hapter 9 in this volume) and un-
employment amongst the majority black population has been persistently high, as
addressed more comprehensively in ­Chapter 7 of this volume. In addition, inequalities
in terms of the distribution of wealth are significant and reinforced by poor design and
implementation of the broad set of policies meant to achieve transformation, of which
BEE is only one part—​Orthofer (2016: 23) finds that ‘wealth is much more unequally
distributed than incomes. One percent of the South African population owns at least
half of all wealth, the top decile together owns more than 90–​95 percent’; and inequality
in terms of assets and access to finance by race is significant (Chatterjee et al. 2020) and
shows limited progress in terms of black participation and transformation.
The ability of BEE, which also targets income inequality in its objectives, to contribute
significantly in addressing inequality and other social challenges stems at least in part
from the balance of power in the broader South African political settlement in which
economic policies have favoured and entrenched incumbent white business interests
(Chabane et al. 2006). The continued framing in the public discourse of BEE in terms of
ownership and control of existing businesses reflects the prevailing contests in the pol-
itical settlement over the division of existing rents and the strong position and influence
still held by leading business groups including through lobbying for policies that favour
their interests. In the context of liberalization and a largely orthodox economic policy
landscape, as has existed in South Africa, the approach adopted for BEE policy has ar-
guably reinforced rather than radically disrupted the concentration of ownership and
economic control of the economy historically held by large conglomerate and family
groups.
Furthermore, key policy debates have not been resolved, such as on land (re)distri-
bution as a key potential pillar for black wealth creation following outcomes of the na-
tional land audit in 2017, which showed ownership of agricultural holdings and farms,
604   Thando Vilakazi

for example, being 72 per cent owned by white South Africans (see RSA 2007; and, for a
fuller discussion of land reform issues, see ­Chapter 12 in this volume). The issue of land
ownership, which is extensive and beyond the scope of this chapter, also relates to the in-
ability of blacks to secure finance for business ventures; and outcomes have also not been
good in terms of critical issues for empowering a wider majority of marginalized people
in society, such as improving education and health sector outcomes, labour supply
quality improvements, employment equity, and skills development (see ­Chapter 31 in
this volume for a discussion of changing labour market dynamics), and making greater
strides in terms of ensuring that finance is reoriented as a tool to drive development and
inclusion, as discussed below and in ­Chapters 46 and 47 of this volume.
It seems reasonable also to have expected that those black businesspeople and
companies that had been involved in different deals from the mid-​1990s would in time
use the accumulated wealth to become industrialists and business owners in their own
enterprises, with the hope that they would empower others in turn. Indeed, some of the
‘big-​6’ BEE consortia2 that dominated the early deal-​making before 2003, about 72 per
cent of value, are still significant players in different economic sectors, such as finance
and mining, and have since built up and leveraged strong capital bases of their own as
we discuss below (see Andreasson 2006: 313; and Bowman 2019 on ARM). Some have
done so despite a context of deindustrialization and financialization of the economy
(Bell et al. 2018), which means a declining contribution of manufacturing value in the
economy as a whole. This is not to say that there have not been those who have sought
to benefit unduly from the BEE process, or use corrupt practices (Bracking 2019).
However, this is the case with most policies and in many countries (Khan 2001, 2010),
including in Malaysia, which is often cited as a comparator for successful affirmative
action policies, where there are also concerns about fronting, corruption, and extractive
practices (Lee 2015). It could be argued that barriers to accessing capital and resources
may be so significant and exclusionary, that there are few alternative pathways for cap-
ital accumulation but to leverage blackness and government resources.
A sympathetic view of the enrichment issue is that the process of inclusion was not
going to happen by itself and had to start somewhere, but the stock market crash of 1998,
the subsequent drying-​up of deals, and the poor economic performance of various deals
that had been concluded, made it clear towards the end of the 1990s that it was time for
a coherent policy framework. The DTI recognized ultimately that although the govern-
ment had instituted various laws cutting across different spheres of society to engender
holistic transformation,3 progress had been slow since 1994 and racial transformation
of ownership and control in the business sector was especially stubborn. The process
of black empowerment, which had been approached loosely through various pathways
at least in the public sector, had ‘lacked focus and an overarching strategic framework’
(DTI 2003: 10).

2
In 2003, African Rainbow Minerals (ARM), Mvelaphanda, Shanduka, Safika, Kagiso, and Tiso.
3
These included legislations for employment equity, land rights and tenure, a national empowerment
fund, preferential procurement, and other sector-​specific laws.
 Black Economic Empowerment in South Africa    605

The BEECom report of 2001, which was received by then President Thabo Mbeki,
informed a highly consultative policy development process led by the DTI, which
culminated in the publication of South Africa’s first black economic empower-
ment strategy and law in 2003 (DTI 2003). Since the passing of this law, most deals,
which by 2020 numbered in the thousands, have been broad-​based in some form
in terms of beneficiaries, with involvement of a wider range of beneficiaries, such
as ownership shares for employees and women, and emergence of various devel-
opment trusts, and community and education schemes (Patel and Graham 2012;
Intellidex 2015).
The main proposals put forward in the early 2000s were on the definition of
‘broad-​based’ empowerment, key tenets of a legal framework for BEE, a proposal to
institute a government BEE Commission to oversee black empowerment processes,
and suggestions on key criteria and measurement parameters for broad based em-
powerment (BEECom 2001). The Broad Based BEE Act 53 of 2003 (‘BEE Act 2003’)
was signed into law by President Mbeki in January 2004. Prior to this, black em-
powerment interventions had existed in various forms since the democratic tran-
sition in 1994, but without a central coordinating policy framework. As part of this
second phase (from 2000), various sectors entered into sector-​specific empower-
ment charters starting with the Liquid Fuels Charter in 2001 followed by mining
(we do not discuss these in this chapter, however there are very useful accounts that
focus on specific sectors, such as Bowman (2019)), and promulgation of the Act
was also accompanied by the creation of guidelines and associated Codes of Good
Practice, a balanced scorecard system for ‘gauging success’, and the establishment of
an Advisory Council on BEE to advise government and review progress (DTI 2003: 5;
BEE Act 2003, section 4).

28.2.1 BEE Legislation and Practice

The BEE Act defined broad-​based black economic empowerment as follows (BEE Act
2003, section 1):

The economic empowerment of all black people including women, workers,

youth, people with disabilities and people living in rural areas through diverse but
integrated socio-​economic strategies that include, but are not limited to—​
(a) increasing the number of black people that manage, own, and control enterprises
and productive assets;
(b) facilitating ownership and management of enterprises and productive assets by
communities, workers, cooperatives, and other collective enterprises;
(c) human resource and skills development;
(d) achieving equitable representation in all occupational categories and levels in the
workforce;
(e) preferential procurement; and
(f) investment in enterprises that are owned or managed by black people.
606   Thando Vilakazi

This policy approach is considered to be ‘broad-​based’ because it focused in its

objectives on various aspects of economic participation (ownership, management,
control of productive assets, investment, skills and capabilities, procurement, access to
infrastructure, and workplace inclusion) by various groups in society that had been pre-
viously marginalized including black women and youth, and those living in the rural
communities, amongst others (see BEE Act 2003, section 2). While the government’s
approach to BEE since the 1990s had never defined empowerment as only being about
ownership, in practice and in the public discourse the issues centred on the perceived
empowerment of a few black businesspeople (largely male) in the first phase, which
explains the increased emphasis on a broader approach that emerged.
Under the new strategy, ownership became one of seven main criteria against which
the empowerment credentials of businesses in South Africa would be assessed—​the
others being management representation, employment equity, skills development, pref-
erential procurement, enterprise development, and corporate social investment. These
criteria, as measured in terms of the clearly defined Codes of Good Practice and score-
card system, underpinned the implementation of BEE from 2004 onwards. Against
the scorecard, companies would receive classifications from empowerment verifica-
tion agencies designating their BEE ‘level’ as determined by their scores on the seven
different criteria.
Some authors have taken the view that the creation of the scorecard system, as
embodied in the Codes, and the related BEE verification agencies which would
be empowered to assess performance and issue certificates of BEE compliance to
companies, would turn BEE into a ‘technical exercise’ that was likely to lead to a focus
on superficial compliance rather than the broader objectives of the policy (Ponte et al.
2007: 944). Companies were rated by various agencies and given scores across points
levels with Level 1 being a well-​performing firm. Indeed, some authors published
roadmaps for how large firms could achieve compliance using different approaches to
scoring on the ownership criteria in the main, and how best to identify strategic BEE
partners so as to manage certain risks and get partners that would still add some value
to the business (Sartorius and Botha 2008). However, it is hard to see how else the task
of enlisting established white-​owned businesses to start the process of incorporating
black people and businesses in their enterprises and value chains could have happened
without a relatively simplified codification system (to deal with a very complex set of
problems) which at least provided certainty for firms. Moral suasion would not work,
and nor did the ‘rainbow nation’ ethos.
A more important question is whether the system, as it was designed in the early
2000s, could drive the economy towards the targeted outcomes. We consider the de-
tail of this question in the section to follow. However, we can already interpret from the
revisions of BEE policy mechanisms, which led to an amendment of the law in 2013, that
some things did not work as well as anticipated.
The BBBEE Amendment Act (46 of 2013) (‘BEE Act 2013’) was signed by the presi-
dent in January 2014, and became law in October 2014, some ten years since the first act
came into force. It sought to strengthen the previous legislation in several important
 Black Economic Empowerment in South Africa    607

ways and remained in effect as the prevailing BEE legislation at the time of writing.
The amendments provided for, amongst other things, measures to enhance compli-
ance by public entities and monitoring and evaluation; to provide for incentive schemes
to support black-​owned and managed businesses; to provide for various penalties
and offences such as those to do with fronting practices by businesses; and to estab-
lish the BBBEE Commission to deal with compliance with the legislation and enhance
awareness (BEE Act 2013). Greater emphasis was also placed in the amendments on
increasing access to finance and incentives for black-owned businesses of various sizes.
In many ways, the 2013 Act was seen as a step by the government towards more stern
enforcement of BEE rules (DTI 2014; Bracking 2019). The changes emphasized the
fact that government needed to address lack of compliance by state-​owned companies
(which previously had an option not to comply), and low compliance in the private
sector because the system was previously based on voluntary compliance by businesses
(PMG 2015). It also signalled the government’s intention to focus more on other
obstacles facing black businesses beyond access to capital, such as access to markets and
supply chains of established companies (PMG 2015).
The new Act also led to the 2015 revisions of the Codes, primarily amending the
balance between different criteria through reducing the generic scorecard from having
seven scoring elements to five; namely, ownership (weight 25, up from 20), management
control (15), skills development (20), enterprise and supplier development (ESD) (40),
and socio-​economic development and sector specific contributions (5); and setting
minimum requirements of 40 per cent of the available score on three ‘priority elements’
being ownership, skills development, and ESD (RSA 2013). The ESD element combines
two previous elements from the seven-​element system, being preferential procure-
ment and enterprise development (of suppliers), and the management control element
combines employment equity and management control (BBBEE Commission 2017).
There are various criteria and targets within each element for firms to be able to score
points and obtain a BEE Level rating from 1 to 8 (there are various exemptions for small
and micro enterprises—​PMG 2015). The revisions to the codes also included provisions
for multinational companies to circumvent having to transfer ownership to black South
Africans by contributing to equity-​equivalent programmes approved by the DTI (RSA
2013; Bracking 2019).4
It is this latest revision of the BEE legislation and implementation that provides the
entry point for our analysis of the outcomes of BEE. What have been the outcomes and
what pathways exist for enhancing the racial transformation of South Africa’s economy
in future?

4 Includes initiatives or investments that ‘promote and advance enterprise and supplier development,

research and development and critical and core skills’ (see CDH at: https://​www.cliffedekkerhofmeyr.
com/​en/​news/​publications/​2014/​bee/​bee-​alert-​3-​november-​bee-​amendment-​act-​and-​draft-​codes-​of-​
good-​practice.html and https://​infrastructurenews.co.za/​2014/​03/​24/​new-​codes-​in-​bee/​).
608   Thando Vilakazi

28.3 Progress with Black Economic

Empowerment: Evaluating Outcomes
and Substance

More than anything, BEE laws put the ordinarily uncomfortable subject of
transforming the race of capital in South Africa firmly into the boardroom and
corridors of businesses, and society as a whole. It is a pervasive theme in the dis-
course of many government departments and business platforms, including amongst
the largest listed firms. As noted above, this level of discourse about race and its eco-
nomic implications in the country is likely not to have existed absent a concerted
effort to drive home the message about scorecards, affirmative action in the work-
place, and maintaining good BEE levels. The Malaysian experience tells us that chan-
ging the culture and societal norms of the marginalized majority and elite interests is
especially important in driving racial transformation (see foreword by former prime
minister of Malaysia in Gqubule 2006). These strides, which are arguably more im-
portant than outcomes on the measures themselves, have been attained seemingly in
the face of stern opposition and concern with BEE policy and its impact on economic
efficiencies.
It is easy to underestimate the scale of this task and how long it should be expected to
take, especially in undoing the damage of many decades of apartheid policies. While it is
not the task of this chapter to estimate how long it will take South Africa to achieve even
mildly palatable levels of racial transformation, it is of some significance that Malaysia’s
affirmative policies, as part of its New Economic Plan, were put in place in 1971 (Gqubule
2006), some fifty years ago by 2021, and that the process to transform that society, al-
though there has been significant economic progress, is still ongoing and very imperfect
(Lee 2015).
This lens is helpful in that it allows us to reflect on BEE policy in context, and with a
healthy dose of (critical) realism. This approach is taken not to excuse poor outcomes
or to be sympathetic to policymakers. Instead, it is helpful in the context of this volume
because it enables us to reflect on both the successes and limitations of the policy when
considered in context, and to focus on capabilities built in the BEE policy machinery
that can be leveraged for future progress.
The assessment that follows is structured according to key thematic areas, which are
by no means comprehensive of all issues to do with BEE policy in South Africa, but are
critical in our view from the perspective of driving meaningful economic participation
as a goal of the policy. These include BEE and its ability to engage with barriers to entry
in the economy; funding as a critical enabler for BEE; the importance of the transform-
ation project cutting across various policy areas and not just BEE; and critical issues
around supplier development, procurement, and recent evidence on emerging black
manufacturing firms.
 Black Economic Empowerment in South Africa    609

28.3.1 Barriers to Meaningful Participation

of Black Enterprises
The BEE Act of 2003 and the accompanying strategy referred to the idea of engendering
effective and meaningful participation of black people in the economy, without defining
the term. However, this framing suggests that there is a desirable substance to inclusion
that the policy seeks to achieve, and black companies and individuals simply getting a
foot in the door is not enough. In other words, there is an important aspect of the quality
of inclusion of black businesses and businesspeople, and not only their quantitative in-
clusion, that matters.
This substantive understanding of participation is also envisaged in different
ways in other legislation, such as in the amended Competition Act of 1998 (amended
2019) which added a definition of participation as ‘the ability of or opportunity for firms
to sustain themselves in the market’ (Competition Act of 1998, as amended, section 1). In
recent studies of competition and industrial development in the South African economy,
meaningful participation has been referred to as the ability of (smaller and/​or black-​
owned) firms to enter markets and grow their businesses, and to become effective rivals
insofar as they are able to compete with incumbent firms to influence market outcomes
(Vilakazi, Goga, and Roberts 2020). In the context of BEE, the draft mining charter of
2018 is the most comprehensive in referring to various aspects of meaningful partici-
pation including BEE shareholders having (voting) rights in meetings and decision-​
making to do with key aspects of the business; their ability to leverage their interests to
invest in other projects; access to unencumbered net value of their interests; access to a
proportion of dividends declared; and, being recognized as clearly identifiable partners
in the form of BEE entrepreneurs, communities, and employees (Deloitte 2018).
In the context of BEE policy, and future policy pathways, it is important that there is
some clarity on what is desired in terms of outcomes. This is critical as it sets the appro-
priate benchmark for measuring success or failure of the programme. The government
in the legislation and the mining charter seems to aim for participation that is more
comprehensive in terms of the participation of black South Africans. The approach is
akin to the broader definitions of inclusive growth:5

Inclusive growth is both an outcome and a process, which ensures that everyone can
participate in the growth process, both in terms of decision-​making, for organizing
growth progression as well as in participating in the growth itself (and earning in-
come). On the other hand, it goes some way towards ensuring that everyone equit-
ably shares the benefits of growth. Inclusive growth implies participation and benefit
sharing. Participation without benefit sharing will make growth unjust and sharing
benefits without participation will make it a welfare outcome. (Emphasis added)

5
See https://​www.redi3x3.org/​inclusive-​growth#_​ftn1 [Accessed: 9 October 2020].
610   Thando Vilakazi

The focus on both the process and the sharing of benefits is a useful starting point. It
links to BEE policy in that the policy seeks to address the barriers to participation in the
process (albeit inadequately as argued below), as well as highlighting the importance of
ownership and control so that black South Africans can share in the benefits, including
through employment and reduction of income inequalities. The implication is that there
needs to be a very good understanding of factors that can inhibit participation and/​or
benefit sharing.
The economic barriers which keep out rivals in various sectors of the South African
economy are significant (Vilakazi et al. 2020). They include a range of often mutually
reinforcing factors that make it particularly difficult for new entrants to participate and
grow. Barriers affect all potential entrants but are higher for many black businesses be-
cause they are often also excluded on the basis of race and not being welcomed into value
chains and business networks, as well as in terms of access to capital owing to a lack of
collateral and a historical asset base to leverage (Bosiu et al. 2020; Vilakazi et al. 2020).
This compounds the effect of various other barriers which include anticompetitive
strategic behaviour by incumbent firms to foreclose rivals; high switching costs and
long-​term arrangements which limit the ability to access customers; legacy contrac-
tual agreements between established businesses and asymmetric bargaining power of
smaller rivals and suppliers; challenges in accessing strategic routes to market and value
chains; poor access to finance from both private- and public-sector funders; denial of
access to essential infrastructures; regulatory provisions which are lobbied for by large
firms and often skewed against disruptive entrants; and various structural features of
key industries such as banking, finance, telecommunications, and emerging technology
markets where network economies and first-​mover advantages mean that the odds
are stacked against entrants in terms of expansion and effective participation as rivals
(Vilakazi et al. 2020; Bosiu et al. 2020).
Through the 2013 amendments, BEE laws and codes have shifted to increase the em-
phasis on funding and other non-​financial support for black companies (PMG 2015).
However, the systemic nature and sector specificity of some of the barriers listed above
suggest that BEE policy tools on their own are limited in their ability to address the
constraints. For example, collusion or exclusionary practices by incumbents cannot be
addressed through BEE, however in some industries it is precisely the fact that these
practices exist that means black rivals are kept out, sometimes unknowingly. Addressing
barriers of this nature requires competition enforcement and industrial policies in
support of entrants, that extend beyond what BEE can accomplish within its legal remit.
The above concern speaks to a core limitation of the approach taken on BEE. Although
the scorecard mechanism provides incentives for firms to improve procurement from
black-​owned suppliers, for example, it largely leaves it up to the companies themselves
to determine the nature and terms of engagement between those black suppliers and the
procuring firms. That is, in focusing on the score it is agnostic as to what terms of trade
those suppliers are offered for example, or the forms of patronage and (racial, gender,
and other) biases that mean one supplier or individual is chosen over another. It has
been shown in recent research that smaller suppliers, including black-​owned firms, often
 Black Economic Empowerment in South Africa    611

experience unfavourable terms, and are often disadvantaged in terms of the asymmetric
bargaining relationships they have with powerful buyers (CCSA 2019; Chisoro-​Dube
and das Nair 2020). Many black businesses repeat a concern that they simply do not feel
trusted by white counterparts, and so they are denied opportunities even where they
offer sophisticated or competitive products or services (Bosiu et al. 2020).
BEE laws were not designed to address some of the more specific barriers which really
keep black firms out. However, a coordination with other policy areas, such as competi-
tion law and industrial development strategies, seems to have been envisaged although
not necessarily implemented in practice (DTI 2003). There are also crucial links to
funding, perhaps the most pervasive constraint for black enterprises, which affect both
the ability to enter markets organically and grow and the ability to acquire interests in
existing enterprises through BEE initiatives.

28.3.2 Deals and Funding Are Only Part of the Story

By 2018, the value of BEE deals concluded in South Africa since 1994 amounted to more
than Rand 600 billion (~US$ 50 billion, 2018) (Gqubule 2018). It has been a very expen-
sive process, although it has also generated at least some value for its beneficiaries—​an
Intellidex study released in 2015 found that the top 100 companies on the JSE alone had
generated value for beneficiaries from BEE deals (net asset value after debt and other fi-
nancial obligations were deducted) of approximately Rand 317 billion (Intellidex 2015).
At the heart of the issue is that many black South Africans still do not have access to
finance to support capital accumulation, starting at the level of a highly asymmetric dis-
tribution of household wealth (Chatterjee et al. 2020). Furthermore, proposed changes
to BEE regulations are likely to foreclose a large proportion of potential BEE deal-​
making funding in finance and mining, which have underpinned large proportions
of transformation spend and value since the 1990s (Gqubule 2018). These are also still
strategic sectors in the context of the economy as a whole (Fine and Rustomjee 1996;
Bell et al. 2018). Specifically, the ‘once empowered always empowered’ or continuing
consequences principle (reinforced through DTI pronouncements and court judgments
in 2018) means that firms are not required to top up their empowerment credentials after
a black empowerment partner exits a partnership, and they retain their status (Bowman
2019; Gqubule 2018). This issue has been especially critical in mining in the context
of heavily contested conditions of the mining sector charter—​the government had
proposed that it would require companies to first raise their empowerment credentials
again before applying for any new licences (Bowman 2019).
Industrial financing of deals and firms in the BEE process has been extensive from the
1990s including in various NAIL transactions (DTI 2003; Gqubule 2006). The Industrial
Development Corporation (IDC) has been the primary development finance institu-
tion (DFI) in this regard. However, the IDC has lagged in terms of its focus on financing
entry of new black industrialists and riskier ventures linked with diversification of the
economy (Goga, Bosiu, and Bell 2019). In other words, the bias seems to have been to
612   Thando Vilakazi

support BEE deals and investments in existing sectors and incumbent enterprises
(Goga et al. 2019). In many ways this is a function of the IDC’s mandate as South Africa’s
largest DFI, and its funding constraints. Most relevant for this chapter is that the scale
of funding required to continue to drive transformation through BEE is significant
and requires a durable commitment from DFIs and no doubt private financiers. The
challenge is that this cannot be guaranteed and depends also on conditions in global and
domestic capital markets. It is precarious that the fate of black empowerment is almost
solely dependent on the outcomes in volatile financial markets, although this is some-
what unavoidable, given the risks of the value of transactions being completely eroded,
as we saw in the late 1990s with the stock market crash and more recently in the global
financial crisis of 2007/​08.
The above suggests that while BEE ownership deals are important because they can
bring about access to decision-​making, wealth, and economic control fairly rapidly,
they can only be part of the picture if racial transformation of the economy is to be dur-
able. Longer-term dynamism and structural transformation is more likely to come from
supporting rivals that can challenge incumbent players. As of 2020, there are no signifi-
cant black-​owned businesses listed in the top tiers of the Johannesburg Stock Exchange
(JSE), and certainly very few firms in the entire JSE that are black companies that have
been started and grown by black South Africans since the 1990s (see Bosiu et al. 2017a).
The exact level of black ownership of companies on the JSE is disputed, at around 3 per
cent if one considers direct black ownership, the JSE estimates 23 per cent (which is not
significant in any event, and certainly not proportional to racial distributions in the
population) when accounting for foreign ownership; and institutional holdings such as
pension funds, and there are others still (National Treasury 2017). Average black own-
ership has improved in some sectors (Vilakazi and Ponte 2020), but overall, across the
economy (based on reporting companies only), black ownership was only 29 per cent
in 2019 and some sectors like agriculture have black ownership as low as 12 per cent
(BBBEE Commission 2019), which also corresponds with the severe inequalities in land
ownership in agriculture mentioned above (RSA 2007). These are disturbing outcomes,
which lend some support to the popular view that BEE has been a disaster in South
Africa (see, for example, Saba 2018). Arguably, long-​term racial transformation, social
stability, and economic dynamism will require both new rivals and greater participation
in existing enterprises by black South Africans.
It is important to note that BBBEE policies and scoring criteria actually do not only
focus on ownership, contrary to the view in the public discourse and reporting, and a
fair reading of the criteria shows that the four other elements do command a signifi-
cant share of scores, although not all are considered priority elements. However, there
has been a focus in practice and public discourse on ownership scores as the primary
and most obvious barometer of transformation, and companies have used ownership
changes as one of their main compliance strategies, which has meant that outcomes
have generally been slow across other areas. The more significant issue here is that the
incorporation of the black business elite into the commanding heights of the economy
has, in the context of South Africa’s evolving political settlement, also served to align
 Black Economic Empowerment in South Africa    613

interests of black and white elites and mitigated some of the potential tensions with the
ruling elite and those black groups in society with significant holding power (which is
not necessarily equivalent to electoral outcomes) that could seek more radical shifts
in the distribution of economic power (MacDonald 2006; Ponte et al. 2007; Gqubule
2006; Andreasson 2006; Mondliwa and Roberts 2020; Vilakazi and Ponte 2020). In
addition, a narrow focus on these scores in analysis has not been helpful and there are
more interesting perspectives emerging on important related issues such as changing
the structure of the economy, addressing market power and concentration, and the lack
of investment in the economy even by so-​called transformed large firms (Bosiu et al.
2017b).
Companies have leant on ownership transfers as a key strategy for achieving BEE
score targets, most evident in the outcomes observed in concentrated sectors such as
industrial fisheries (Vilakazi and Ponte 2020). The reality is that for many large firms
it turned out to be less disruptive to business processes to diversify ownership of the
business slightly to a carefully selected minority BEE partner (Sartorius and Botha
2008), than to have to completely change to procuring inputs from unfamiliar black-​
owned suppliers, or introduce untrusted or untested black managers or employees in
key positions linked to the competitive and productive strategy of the business. Indeed,
in the first decade of BEE the majority of high-​level appointments of black South
Africans in established businesses were in relatively non-​core areas such as personnel
management and transformation portfolios (Southall 2007). Management cultures
and practices are still biased against black individuals (Bergh and Hoobler 2019), and
it is likely that the same skewing is true for how funding is allocated, even by public
institutions (Goga et al. 2019; Bosiu et al. 2020).

28.3.3 Procurement, Enterprise and Supplier

Development Are Strategic Priorities
Opening up access to markets through private and public-sector procurement and en-
terprise development and supplier development has been prioritized because of its po-
tential to develop organic black-​owned businesses that build capabilities and an asset
base over time. This lever is especially important in the context of the discussion about
economic barriers above.
The use of state procurement as a lever to empower black enterprises has not been
successful (Crompton and Kaziboni 2020). Very few state-​owned enterprises (SOEs)
comply and enforcement of rules about sourcing from black suppliers has not been ef-
fective at all (BBBEE Commissioner as quoted in Saba 2018; and, BBBEE Commission
2019). Black-​owned manufacturing firms have expressed the same concerns about
the ineffectiveness and difficulty of accessing state procurement processes, and the
lack of coordination between organs of state (Bosiu et al. 2020). This is problematic to
the extent that it is hard to see when the issues will be addressed—​approximately 90
614   Thando Vilakazi

per cent of state procurement is done by a handful of the largest SOEs such as Eskom
(power utility), PRASA (passenger rail), PetroSA in petroleum products, and Transnet
(various logistics and supply chain infrastructure) (PMG 2015)—​some of which are
very troubled organizations, including significant links to corrupt activities. There have
been significant challenges in terms of corruption, misappropriation, and inadequacy of
policy tools employed, such as in procurement by Transnet in rail and under the Black
Industrialists Policy which aims to develop black manufacturing firms (Crompton
and Kaziboni 2020; Bosiu et al. 2020). It is striking that after around two decades of
the implementation of BEE in its contemporary form, the BBBEE Commission has in
2019 still had to recommend what seems to be an obvious point that government itself
needs to improve its implementation of empowerment priorities, stating that ‘organs of
state and public entities must align their requirements and criteria for licencing, grants,
incentives, public private partnership (PPP) and procurement to include broad-​based
black economic empowerment compliance as it is mandatory under section 10 of the B-​
BBEE Act’ (BBBEE Commission 2019: 97).
The parallel issue with respect to the private sector relates to enterprise and sup-
plier development, which also incorporates measures of procuring from black-owned
enterprises. There has been some progress. For example, BBBEE Commission data
shows that in 2019 firms in all sectors of the economy, other than property, achieved
scores of more than 50 per cent on average of the ESD target score in the scorecard
(BBBEE Commission 2019). While some sectors such as construction (92 per cent
score) lend themselves more to developing black suppliers, it is evident that raising
scores across the board in this area should be an absolute priority for structural trans-
formation of the economy, particularly where black businesses are involved in supplying
intermediate inputs to manufacturing and high-​value-​added manufactured products.
However, the problem has been that for certain value chains procurement from
black businesses has only meant sourcing ancillary cleaning and transport services
(Vilakazi and Ponte 2020), which are important in the context of job creation but less
so in terms of building diverse capabilities in shifting to the production of high-​value-​
added manufactured goods—​a potential driver of long-​term growth. At issue is whether
a broader form of inclusion can be fostered in which strong, medium-​sized firms can
emerge, survive, and build capabilities over time to compete effectively with established
players. Their ability to do this is critical as it can also mean progressively reduced de-
pendence on various forms of state support, and potential for local sourcing and sup-
plier development within their own supply chains to take place as the recent evidence
on so-​called black industrialists is starting to show (Bosiu et al. 2020). In this regard,
there is other recent evidence of a progressive shift by large firms away from short-​term
corporate social investment initiatives with black suppliers, to more sustainable models
of supplier development, which include elements of funding and opening up access
to markets (das Nair and Landani 2020). The impacts of the progression are yet to be
analysed in detail.
Ultimately, driving inclusion of black-​owned enterprises is about recognizing that
goals of equity can in some cases be achieved alongside market efficiency objectives
 Black Economic Empowerment in South Africa    615

(Lewis 1995; Atkinson 2015). Furthermore, growth achieved without inclusion will over
time raise social tensions which will render the growth path and political settlement
unsustainable and unstable. In the prevailing policy context, this means that getting
BEE policy and implementation right, along with corresponding policies to build the
capabilities of black people and businesses, is critical.

28.3.4 Driving Transformation across All Spheres

of Society Is Critical
Although BEE was thought of as one part of the broader set of national policies to trans-
form South African society, it has necessarily taken on far greater significance. This is
because BEE speaks to the fundamental alignment of holding power and benefits in the
political settlement of South Africa because it relates to who controls resources, access,
and capital, and how that aligns to the political and other sources of power and influence
of various groups in society (Khan 2010). The perceived and actual misalignment of
holding power and benefits in the prevailing South African political settlement, which
is not about a settlement ‘event’ such as the 1994 elections but a consideration about
the wider balance of forces in the society over time (Khan 2018), has fuelled much of
the contemporary discourse about radical economic transformation, state capture, and
the continued marginalization of the black majority in society (Bhorat et al. 2017; Von
Holdt 2019).
The race (and gender) defined asymmetries and marginalization run deep and in all
spheres of the society (Von Holdt 2019; Terreblanche 2002; MacDonald 2006), such
that they require tremendous and sustained coordinated effort and an unbearably long
time to disentangle and address. In this regard, it was appropriate that various policy
documents in the 1990s set out very comprehensive objectives for racial transformation
across diverse spheres of the society, including education and training, small business
development, health-care and housing, labour laws, employment equity and empower-
ment of women and youth, and competition and economic regulation. All of these
policies have direct and indirect links with economic outcomes, but few go straight to
the heart of the issue of changing the ownership and control of capital in the manner
that BEE does. However, they are critical insofar as they affect aggregate outcomes in the
society that, in turn, shape medium-​and long-​term economic outcomes.
The challenge is that outcomes in these different critical areas have been poor, al-
though there has been substantial progress. For example, education and health-care
system outcomes, as key determinants of long-​term growth, have by most accounts not
been good since 1994 as discussed in Chapter 33 on the economics of education and
­Chapter 39 on health-care in this volume. South Africa has not been as successful as
hoped in achieving equity and empowerment of previously marginalized groups in
the workplace, or addressing wage and gender-​based income and wealth inequalities,
whether defined on race or non-​race parameters as discussed above. The net effect is
616   Thando Vilakazi

that in key areas, such as economic sector relevant training and education, for example,
black South Africans including the youth still lag in terms of skills (see ­Chapter 31 on
labour market trends and Chapter 32 on youth employment in this volume). The coun-
terweight has been to encourage companies to contribute to skills development and
training through increasing the weight of this element in the scorecard system, but this
places the responsibility and burden on firms that are likely not to fill this gap compre-
hensively, if at all, not least because they may not be able to appropriate fully the benefits
of training a particular employee who may progress and leave the company.
In other economic policy areas, failures of coordination have meant that struc-
tural transformation of the economy has not occurred and there is no clear path for
achieving racial transformation alongside industrial development and structural
change (Bell et al. 2018). Strategies to increase the quantity and quality of employment
are critical as well as part of a broader conception of black empowerment (Gqubule
2006)—​BEE policy in the formal definition adopted in 2003 seeks also to address
income inequality and a key channel for doing so is through wage employment and
ensuring related rights in terms of conditions of employment and labour protections.
BEE policy initially sought to contribute to addressing these issues primarily through
scores given for achieving (narrowly) specified goals on the racial composition of em-
ployment in different tiers of company structures (employment equity and skills devel-
opment provisions), which were surprisingly de-​emphasized in the 2015 revisions to
the codes in not being recognized as priority elements. However, a plausible rationale
for this shift is that, other things equal, various aspects of labour empowerment are
encompassed more comprehensively in other laws (DTI 2003) (also true of other areas
such as state procurement), and it seems unlikely that the problem of exclusionary la-
bour markets would be solved by making BEE policy the primary vehicle for this aspect
of societal transformation.
To illustrate the point above with a simple example, while education and sector skills
development policies could drive empowerment of blacks through improving their
skills in general terms, BEE was arguably meant to work in a complementary manner
by ensuring that businesses absorbed these black individuals into their businesses and
gave them opportunities including in management and more firm-​specific training.
Presently, it seems there are obvious gaps in implementation and reporting on BEE, and
various BBBEE Commission reports only deal with broad quantitative shifts without
critical engagement with the reasons for specific outcomes (see BBBEE Commission
2017, 2019). For example, a key gap seems to be the fact that there is no clear way for
identifying specific reasons why companies have performed so poorly on black manage-
ment control, which encompasses employment equity and management involvement
(average score 39 per cent in 2019, down from 45 per cent in 2018 (BBBEE Commission
2019)), whether this is because there is an underlying systemic deficiency in the quality
and quantity of specific skills supplied by the education and training system, or other
factors including institutional racism and norms, and how those can be addressed to
improve the BEE scorecard outcomes. In other words, BEE policy should have a broad,
cross-​cutting ambition in that it seeks to change multiple aspects of the South African
 Black Economic Empowerment in South Africa    617

business environment more directly and comprehensively than most other economic
policies; however, this is not to say that BEE policy should effectively become the de facto
transformation policy in South Africa. Perhaps one of the reasons for the more skewed
and narrower critiques of BEE in literature and public discourse is this problem—​that
BEE policy as the proverbial ‘straw man’ is understood very broadly, often without due
acknowledgment, that it was ostensibly only part of a wider nexus of policies that were
also meant to drive transformation. To make the focus of BEE interventions to be about
more than deracialization of existing structures, it is critical that its analytical, policy,
and practical linkages to other areas such as labour, competition, health, and industrial
policies are better understood.
In this regard, policy coordination is critical but absent in key areas. For example,
the links between various aspects of economic policy, let alone other spheres, are not
well formed. Competition laws and industrial policies would be the natural companions
for BEE policy, to the extent that these policies can help to address various barriers to
entry such as funding, anticompetitive behaviour by incumbents, and other market
access constraints. However, there is no clear link and coordination of strategies in each
of these areas, despite a common understanding in the National Development Plan
that high concentration and high barriers to entry are pervasive constraints to dyna-
mism and participation in the economy (Vilakazi et al. 2020). It is perhaps this failure
of coordination and implementation across different policy areas that has also led to the
2019 amendments of the competition laws, where there has been an efficient institution
leading enforcement, to expand the remit of the regulators on issues of economic inclu-
sion and participation, particularly of firms owned by historically disadvantaged South
Africans.

28.4 Conclusion

The chapter takes on the ambitious task of engaging with the nuances of policy forma-
tion, implementation, and outcomes with respect to black economic empowerment in
South Africa. Part of the reason that the task is a challenging one is that much has been
written and said about BEE, most of which concludes that there has been an outright
policy failure. Indeed, the outcomes are not good by various measures. The chapter
distinguishes itself by offering a slightly different, pragmatic view of the progress made,
and not made, in the two decades since 2000, recognizing as some authors do that BEE
is a policy imperative in South Africa for economic and socio-​political reasons, and it
is not going away. As such, in the context of this volume, it more relevant to also cast
an eye to key issues and pathways for advancing the policy agenda going forward. The
chapter also adds to the debate the key question about the substance of inclusion and
what meaningful participation could mean, suggesting ultimately that a deeper form of
racial transformation of the economy, rather than simply leaving the door ajar for black
people, is required and desirable.
618   Thando Vilakazi

Understanding the ways in which the existing BEE framework can be built on to
drive this form of transformation requires understanding that the forms of barriers
that prevent meaningful participation by black South Africans are varied and signifi-
cant (and need to become the focus of policies across the board). The chapter canvasses
some of these barriers, why they may be more acute for black businesses, and why
empowering black businesses through an emphasis on funding, procurement, and
enterprise and supplier development is especially important because it creates much-
needed new black businesses and can help to reduce concentration in the economy.
Compared to ownership transfers that do not significantly change the economic
incentives and orientation of predominantly white-​owned businesses, this appears to
be a more desirable form of transformation for achieving long-​term economic dyna-
mism and growth.
By focusing on these issues, the chapter accomplishes at least two things. First,
through drawing together what we already know about the evolution and effect-
iveness of BEE, a critical, pragmatic perspective can be formed about the effective-
ness of the policy in the context of other policies. Second, it points towards a new
thinking about BEE, focused on enhancing the quality and not only the quantity of
participation by integrating a nuanced understanding of the barriers that keep black
businesses and people out of the economy. A broader, integrated policy approach is
required that incorporates other policies and measures to facilitate entry and par-
ticipation in the economy, such as competition and procurement interventions. We
find that although BEE has taken South Africa in the right direction towards inclu-
sion, not enough has been achieved with the policy in its contemporary form, and
we suggest priorities for the pathway forward that include a focus on the nature and
impact of high barriers to the participation of black businesses, the importance of
funding as part of a broader set of interventions, the importance of parallel social
and economic policies, and the strategic role that procurement and enterprise devel-
opment can play in the long term. A narrow focus on BEE alone will not bring eco-
nomic freedom.

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 Chapter 29

E ntrepreneursh i p a nd
SMMEs in Sou t h A fri c a

Boris Urban

29.1 Introduction

Entrepreneurship and small, medium, and micro enterprises (SMMEs) have been
recognized as imperatives for national economic development globally and in South
Africa, which can contribute to macroeconomic growth, poverty alleviation, and em-
ployment creation (ILO 2019; Stam and Bosma 2015; Venter and Urban 2015).
The central argument guiding this chapter is that since 1994, although the South
African government has consistently and publicly supported SMMEs and repeatedly
categorized small businesses as key to unlocking inclusive growth of the economy, in
reality, this sector does not match the rhetoric. Currently in South Africa, entrepreneurs
and SMMEs face a multitude of obstacles and the country’s established-​business own-
ership rate is considerably below the average for the overall African region and for other
developing countries (Bosma et al. 2020; Urban 2020).
In addressing the main argument, this chapter starts in section 29.2 with a critical
overview of the complexity of describing entrepreneurship and SMMEs due to the
heterogeneity of entrepreneurship and SMMEs in South Africa, which range from in-
formal, survivalist enterprises to formal, high-​growth enterprises. Reflecting on the
growing scholarship on entrepreneurship as a field of study, it is observed that the dis-
course is moving away from considering entrepreneurs as a relatively homogeneous as-
semblage of actors to a set of typologies. This section draws on a diverse literature for
conceptual approaches and international comparisons, while maintaining the focus on
South Africa.
While recognizing shortcomings related to sourcing reliable and representative
SMME data in South Africa, different statistics from multiple sources are analysed in
section 29.3. These figures indicate this sector is dominated by mostly micro and small
informal enterprises, which do not contribute significantly to the GDP, nor generate
 Entrepreneurship and SMMEs in South Africa    623

much productive employment. Historically, the small business sector in South Africa
has been marginalized and, as a result, there is a prominent political focus on micro
enterprises in the informal sector, and on the other hand, large firms dominate the in-
dustrial space, while the ‘missing middle’ typified by small and medium enterprises is
largely neglected (Bhorat et al. 2018; Urban 2020).
Section 29.4 describes and critically evaluates the entrepreneurial ecosystem in South
Africa, where several major factors inhibiting the start-​up and growth of SMMEs are
analysed. It is clear from the analyses that a number of structural, institutional, and
policy factors obstruct SMME growth and development in South Africa. This section
ends by emphasizing that an effective entrepreneurial ecosystem is best arranged as a
set of interdependent actors and factors, coordinated in such a way that they enable pro-
ductive entrepreneurship.
Section 29.5 is focused on policy critique and future considerations. Notwithstanding
the limited efficacy of entrepreneurship policy, governments around the world continue
to introduce entrepreneurship and SMME policy. In South Africa, policymakers fail to
recognize that while state-​sponsored entrepreneurship interventions in some instances
may have positive results, there are ‘opportunity costs’ associated with such policies and
may have the unintended consequence of squandering resources and fostering non-​
productive entrepreneurship.
The chapter ends with a concluding section where, in the final analysis, it is
ascertained that SMMEs in South Africa, as a result of a mix of structural and policy
caveats, do not live up to their potential as the key to unlocking growth of the economy.
While this chapter focuses on economic aspects, the content is based on a more hol-
istic perspective of entrepreneurship, which draws on literature from other disciplines
through diverse analytical perspectives; consequently, publications in a wide range of
journals have been cited. Moreover, although this chapter can be read and cited as a
stand-​alone, authoritative reference on entrepreneurship and SMMEs in the South
African economy, many of the themes and analytical perspectives in this chapter are
directly related to other chapters in this handbook. In particular, these include the
chapters on the informal sector in South Africa by Michael Rogan and Caroline Skinner
(­Chapter 35) as well as Erika Kraemer-​Mbula and Rasigan Maharajh’s chapter on innov-
ation and technological change in South Africa (­Chapter 22).

29.2 An Overview of Entrepreneurship

and SMMEs

During the apartheid era, black South Africans were largely prohibited from owning
property, preventing them from using their property as a form of collateral, which had a
negative effect on their ability to start businesses. During this era, not only was there an
absence of small businesses in the dominant sectors of the economy, but also very little
624   Boris Urban

attention was paid to small enterprise promotion in public policy. Since the dawn of
democracy in 1994, South Africa has faced numerous economic, political, and so-
cial challenges, particularly in terms of extensive unemployment and inequality
(SEDA 2020; Urban 2015). Responding to these challenges, the government has
prioritized small business and entrepreneurial development (Rogerson 2004). South
Africa’s policy framework for entrepreneurship, in the context of SMMEs, originated in
its White Paper on the National Strategy for the Development and Promotion of Small
Business (RSA 1996).
At the same time, entrepreneurship development is part of a sizeable industry in
South Africa, which has witnessed a proliferation of incubators, innovation and tech
hubs, accelerators, and start-​up boot camps, most of which seem to have adopted a
US Silicon-​Valley-​business-type model. These entities provide a somewhat clichéd
approach to start-​ups, characterized by sleek websites and extensive public relations
endeavours, but offer little by way of demonstrating what measurable impact they are
having on increasing overall entrepreneurial activity and employment rates in South
Africa (Urban 2020).

29.2.1 Conceptualizing Entrepreneurship and SMMEs

Notwithstanding the conceivable significance of entrepreneurship for economic devel-
opment, definitional controversies persist. Indeed, there is no shortage of definitions
of entrepreneurship and an explanation for such assortment of definitions is that
researchers tend to define entrepreneurs based on the premises of their own background
or disciplines (Bygrave 1989). Economists tend to accentuate the classic models of eco-
nomic behaviour and innovation, while management experts emphasize the resource-
fulness and organizing competencies of entrepreneurs (Shane and Venkataraman 2000;
Venter and Urban 2015).
Schumpeter (1934) arguably launched the field of entrepreneurship, not only by
associating entrepreneurs with innovation, but also by demonstrating the importance
of entrepreneurs in ‘creative destruction’ and hence economic development. Kirzner’s
(1997: 62) definition is focused on the entrepreneur as someone who ‘facilitates adjust-
ment to change by spotting opportunities for profitable arbitrage’, while Knight (1921)
identified the entrepreneur as someone who deals with the uncertainty involved in the
exploitation of opportunities. More recently, Shane and Venkataraman (2000: 220)
suggest research on entrepreneurship focuses on ‘the central question of the entrepre-
neur in terms of why, when and how some people and not others discover and exploit
opportunities’.
The complexity of defining entrepreneurship is further due to the variety of contexts
in which it occurs, as distinguished by: (1) level (e.g. individual, team, firm, commu-
nity); (2) type of organization (family, small business, corporate, franchise); or (3) geo-
graphic location (Kloepfer and Castrogiovanni 2018). Furthermore, a standard,
internationally recognized definition of SMMEs, or micro​, small​, and medium-​sized
 Entrepreneurship and SMMEs in South Africa    625

enterprises (MSMEs), or small and medium-​ sized enterprises (SMEs) does not
exist. The variations in classifications differ due to specific country legislation, where
countries use different threshold conventions, and in particular, because the enterprise
dimension ‘small’ and ‘medium’ are often qualified in accordance with the size of the
domestic economy (OECD 2009). According to the ‘revised definition for SMMEs in
South Africa, as contained in the amended Schedule 1 in terms of the National Small
Enterprise Act of 1996, the size or class of enterprise/​enterprise category is defined
using two proxies: total full-​time equivalent (FTE) of paid employees, and total annual
turnover’ (RSA 2019: 111). The proxies used to define the size depend on the sector or
sub​sector within which the enterprise falls. For instance, the classification of SMMEs
for the manufacturing sector are: (1) medium (51–​250 full-​time employees (FTE); ≤
210 million); (2) small (11–​50 FTE; ≤ 50 million); and (3) micro (0–​10 FTE; ≤ 15 million)
(RSA 2019).
While the prescribed SMME definitions with strict size classifications are useful as
they are simple to grasp and facilitate statistical analyses, such generalized measures do
have several limitations. In many instances, these SMME classifications tend to conceal
the real nature of entrepreneurship, where the number of individuals involved is highly
dependent on the sector of the business. For instance, while ten people may consti-
tute a very small manufacturing enterprise the same number is a sizeable number of
individuals for a medium-​sized specialized consultancy practice (Venter and Urban
2015). Self-​employment, business ownership rates, or new venture creation, as defined
by the series of Global Entrepreneurship Monitor (GEM) reports, suffer from the same
problems as they typically refer to the level and/​or the dynamics of entrepreneurship
and identify the percentage of the working-​age population that is engaged or willing
to engage in entrepreneurial activity (Bosma et al. 2020). This is a shortcoming, since
‘with emphasis on national representativeness, the GEM consortium has had to
trade sample size for the breadth and depth of empirical measures’ (Bergmann et al.
2014: 251).

29.2.2 Different Typologies of Entrepreneurial Activity

The central argument driving this chapter is elucidated with the recognition that
entrepreneurship is a complex phenomenon and judging from some of the funda-
mental restrictions in defining entrepreneurship and SMMEs, it seems that merely
to seek out and focus on some concept of the ‘average’ entrepreneur, or the ‘typical’
enterprise is ineffectual (Bygrave 1989). Researchers show that entrepreneurship, as a
field of study, is moving away from considering individual entrepreneurs as a relatively
homogeneous set of actors to a set of typologies (Kloepfer and Castrogiovanni 2018).
Recognizing that entrepreneurship and SMMEs are difficult to define precisely and
there seem to be fundamental differences in theory and practice related to these terms,
several juxtapositions are briefly analysed to emphasize the heterogeneous nature of
entrepreneurship:
626   Boris Urban

Productive vs. unproductive entrepreneurship: Baumol (1990) illustrates, by

using historical evidence, that entrepreneurs respond to the incentive structures
underpinning an economy. Institutional factors provide incentives for rent-​seeking
entrepreneurial activities (such as crime and corruption) versus socially productive
entrepreneurial activities (such as the establishment of new enterprises). In this regard,
entrepreneurial activity is viewed according to the outcomes it delivers and is based on
the composition of incentives in a specific environment.
High-​ growth entrepreneurship vs. replicative entrepreneurship: High-growth
ventures, which are only a tiny subset of all ventures, contribute disproportionately
to innovation, while replicative entrepreneurs produce or sell goods and services al-
ready present in the marketplace (Venter and Urban 2015). The vast majority of all
entrepreneurs in developing markets appear to be of the replicative variety, where the
Schumpeterian view that entrepreneurship is a major engine of economic growth has
not been proven empirically for developing countries (Naudé 2008).
Local vs. systemic entrepreneurship: Local entrepreneurship is ‘socially productive
entrepreneurial activity that is limited to a small number of market transactions, does
not entail a complex division of labour, nor involve a deep accumulation of capital,
and primarily rests on personal and informal relations’. On the other hand, the term
‘systemic entrepreneurship refers to socially productive entrepreneurial activities
that go beyond the local level and takes place through the establishment of organiza-
tional structures that enable the exploitation of opportunities beyond the initial local
level’ (Sautet 2013: 392–​3). Whereas the distinction between local and systemic is not
clear-​cut, it is important to recognize that in some places in the world, the possibility
for local entrepreneurship to become systemic does not exist due to a lack of any real
opportunities in the environment (Kujinga and Urban 2017).
Opportunity-​ motivated vs. necessity-​ driven entrepreneurs: Since its incep-
tion, the GEM has distinguished between opportunity and necessity as primary
motivations for entrepreneurial activity (Bosma et al. 2020; Bowmaker-​Falconer and
Herrington 2020). However, it is widely acknowledged that this dichotomy may not
fully reflect the nuances in motivations for founding a business (Urban 2015; Williams
and Kedir 2018). Consequently, the GEM has now changed how they measure motives
for starting a business. The latest GEM results indicated that there is substantial vari-
ation in motivations across economies, sometimes between neighbours, and some
commonalities between vastly different economies (Bosma et al. 2020).

29.2.3 Alternative Perspectives on Entrepreneurship

Social entrepreneurship: Several researchers and governments are looking at entre-
preneurship having not only an economic purpose or Schumpeterian rationale, in terms
of entrepreneurs driving innovation and stimulating structural changes in an economy,
 Entrepreneurship and SMMEs in South Africa    627

but also increasingly recognizing a social component to entrepreneurship (Bosma

and Levie 2009; Kujinga and Urban 2017; Nicholls 2006). Social entrepreneurship has
been proposed as a way for developing new, sustainable models of social-​sector value
and systemic impact, based on satisfying local needs, which address a range of social
issues in innovative and creative ways (Nicholls 2006). Social entrepreneurship reflects
diverse initiatives and activities that might manifest through philanthropic efforts,
non-​profit organizations (NPOs), non-​governmental organizations (NGOs), and or-
ganizational social initiatives such as corporate social responsibility (CSR) projects.
Social entrepreneurship has direct relevance to South Africa in terms of its transforma-
tive role in reducing severe inequalities (Venter and Urban 2015). A growing number of
studies indicate that the social enterprise sector across sub-​Saharan Africa is still highly
influenced by local, international, and bilateral political and economic decisions that
often challenge the success of social entrepreneurship initiatives (Kujinga and Urban
2017). While the social enterprise sector in South Africa is difficult to estimate, a survey
of social enterprises in South Africa indicates that the majority of social enterprises
do not depend on grants and donations, and are generally small, with only 12 per cent
generating an income of over R1 million. The vast majority employ between one and
50 people, and serve fewer than a hundred beneficiaries a month (Myers et al. 2017).
A more established measure of social entrepreneurship activity (SEA) (Bosma and
Levie 2009) shows that early-​stage social enterprise activity in South Africa is about the
same as the average rate reported across all forty-​nine countries. Despite the prolifer-
ation of social entrepreneurship in South Africa, the survival of many social enterprises
and NGOs remains questionable and the legislation and policies created to empower
previously disadvantaged groups through social enterprises has at best achieved mixed
results (Venter and Urban 2015).
Sustainable or green entrepreneurship: The early 1990s saw an increasing focus
on the market opportunities offered by the sustainability agenda, predominantly
from an environmental perspective, which is often termed ‘green entrepreneurship or
ecopreneuring’ (Marks and Hidden 2017). There is a wide diversity of initiatives that
may be considered instances of sustainability entrepreneurship. For instance, Honey
Care Africa, while focused on providing jobs and economic opportunities, has created
a new model of bee farming by emphasizing the environmental benefits of bee farming,
with bees providing vital pollination services to surrounding ecosystems (Urban 2015;
Venter and Urban 2015). Research on sustainable practices in South Africa is only
emerging but shows that many SMMEs do not as yet see sustainable practices as a com-
petitive advantage, except in the instances where valued clients or customers impose it
upon them (Marks and Hidden 2017). Based on the changing trends facing the world
today, there seems to be a noticeable change regarding how economic and business ac-
tivity is becoming more deeply rooted in social and environmental frameworks, and
where so-​called impact investors are seeking to ‘invest for a purpose’ and look for some
form of social return (Nicholls 2006; Urban 2015).
628   Boris Urban

29.3 The Entrepreneurship and SMME

Landscape in South Africa

Several reports are generated every year, which highlight a number of wide-​ranging
factors facing SMMEs, and generally focus on the macro-​and micro-​ economic
environments. Recognizing this widely available descriptive work, only select
descriptives are presented and analysed in this section. Furthermore, it must be
acknowledged that there is restricted established descriptive research providing reli-
able and valid information and trends on SMMEs in South Africa (Bhorat et al. 2018;
SEDA 2020). As a result of such deficiencies related to sourcing reliable and represen-
tative SMME data in South Africa, the statistics in this section instead reflect multiple
sources that are often contradictory. Moreover, it must be understood that each data
source or study tends to use different approaches to classify SMMEs in South Africa,
which, when recognizing the inherent variation in entrepreneurial activity as discussed
in the preceding section, makes comparability across datasets problematic.

29.3.1 Number of SMMEs in South Africa

According to a baseline study conducted by the Small Business Institute (SBI), the
number of formal SMMEs in South Africa was approximately 260,000 firms in 2016.
In 2016, there were 176,333 firms defined as micro (66 per cent of the total), 68,494 small
firms (26 per cent of the total), and 17,397 medium ones (6.5 per cent of the total) (SBI
2018). Contrastingly, the ‘Annual Review of Small Businesses and Cooperatives report
(DSBD 2017) indicated the total number of people that identify as self-​employed in 2016
(regardless of the business registration status) was approximately 2.2 million’ (SEDA
2020: 32). An annual report published by the Small Enterprise Development Agency
specified that the ‘total number of SMMEs amounted to approximately 2.6 million in
the third quarter of the 2018 financial year, with formal SMMEs making up approxi-
mately 29 per cent of all SMMEs. The data further indicated that the number of SMMEs
has increased by 13.6 per cent year on year for the 2017 to 2018 period’ (SEDA 2020: 33).
The SMME Quarterly Update, Third Quarter 2019, reported that there were 2,653,424
SMMEs, of which 779,297 were formal SMMEs and 1,791,431 informal SMMEs, together
providing 11,592,677 jobs (SEDA 2019; StatsSA 2019). In the year up to the ‘third quarter
of 2019, the number of SMMEs grew by around 97,000 against a backdrop where the
available jobs declined by around 100,000’ (SEDA 2019: 15).

29.3.2 Formal vs. Informal SMMEs

In South Africa, the ‘share of SMMEs operating in the informal sector stood at 68
per cent in the third quarter of 2019, with the share operating in the formal sector
 Entrepreneurship and SMMEs in South Africa    629

at 29 per cent. These ratios have been very stable since 2010’ (SEDA 2019: 16). It has
been noted that SMMEs in South Africa tend to possess qualities of survivalist firms,
especially those in the smaller size categories. The ‘largest group of SMME owners
are own-​account workers (businesses with no employees), constituting about 63 per
cent of the self-​employed’ (Bohart et al. 2018: 11). Moreover, own-​account workers’
‘characteristics indicate that SMMEs, as opposed to large firms, present more self-​
employment opportunities for workers with fewer labour market opportunities,
such as females, young workers, Africans, and less educated workers. Together, the
high proportion of young business owners (less experienced), low levels of educa-
tion, and low median wages for SMME owners indicate that SMME owners have rela-
tively low skills levels’ (Bhorat et al. 2018: 11). Consequently, the informal sector is a
relatively small source of secondary employment in South Africa, which is often an
overlooked fact in terms of the South African SMME landscape (Bhorat et al. 2018;
ILO 2019). ‘South Africa has a relatively small rate of informality, with only 29 percent
of individuals in informal employment. This is less than half the average informality
rate for sub-​Saharan Africa, and well below the informality rate of many developing
regions’ (Bhorat et al. 2018: 17). Reflecting on the heterogeneous nature of the in-
formal sector in South Africa, it seems for some, informal entrepreneurs are seen as
survivalists, pushed into this realm by their inability to find formal employment, and
view informal entrepreneurship as unregulated, low paid, and an insecure kind of
survival-​driven self-​employment. On the other hand, others seem to regard informal
entrepreneurship as a sensible economic approach pursued by entrepreneurs whose
outlook is suppressed by state-​imposed institutional restrictions, and view informal
entrepreneurship as the road to advancement (Venter and Urban 2015; Williams and
Kedir 2018).

29.3.3 Demographics Factors of SMME Owners

This sub s​ ection considers two key characteristics of any given population that may have
a significant influence on the level of entrepreneurial activity, namely age and gender
(Bosma et al. 2020).

29.3.3.1 Age
Different age groups have different levels of entrepreneurial activity, and according to
the GEM report (Bosma et al. 2020), economies in all geographic regions show bell-​
shaped age distributions with the highest entrepreneurship rates generally occurring
among 25-​to 34-​year-​olds. Plausible reasons for these age groups being so prevalent in
entrepreneurial activity is that individuals in early-​to mid-​career trajectories ‘have had
time to develop their knowledge and skills through education as well as through work
experience’ (Venter and Urban 2015: 234). In South Africa, ‘entrepreneurial activity has
almost doubled from 7.5 per cent in 2017 to 14.3 per cent in 2019 in the age group 45 to
54 years, but has decreased in the age bracket 35 to 44 years’ (Bowmaker-​Falconer and
Herrington 2020: 15).
630   Boris Urban

29.3.3.2 Gender
According to the GEM report, the majority of countries continued to have higher male
levels of entrepreneurial activity, than female levels in 2019 (Bosma et al. 2020). In South
Africa, the ratio of male to female entrepreneurial activity has changed from 1.52 (12.5
male: 8.2 female entrepreneurs) in 2017, to 1.14 (10.9 male: 9.6 female entrepreneurs)
in 2019, indicating that female entrepreneurship is on the rise (Bowmaker-​Falconer
and Herrington 2020). However, the majority of female entrepreneurs in South Africa
operates within the crafts, hawking, personal services, and retail sectors, where low tech-
nology is utilized in these undifferentiated businesses and they tend to have relatively
lower revenue and employ less staff, than those owned by men (SEDA 2019). Several
studies confirm that female entrepreneurs are confronted with greater obstacles than
men are when starting small enterprises. Factors influencing such discrepancies include
discrimination and bias, lower educational and business experience levels, limited capital
and assets, fewer business-​oriented networks and support mechanisms, and differentials
in societal norms and gender expectations (Bosma et al. 2020; Venter and Urban 2015).

29.3.4 SMMEs Sector and their Geographic Location

South African SMMEs ‘trade predominantly in the wholesale and retail sector, which
represents almost half (46.1 per cent) of all early stage entrepreneurship activity (down
from 50.4 per cent in 2015), with the manufacturing sector growing significantly since
2015 (3.6 per cent to 13.1 per cent)’ (Bowmaker-​Falconer and Herrington 2020: 8). The
overtrading in the wholesale and retail sector by SMMEs is often attributed to signifi-
cant barriers to entry in terms of skills and capital as well as the price competitive nature
of these sectors, which increases the likelihood of business failures. This situation is fur-
ther exacerbated due to the oligopolistic structure of the retailer sector where dominant
retailers with high buying power purchase at highly competitive rates, creating barriers,
and eroding any competitive advantage for SMMEs (Bhorat et al. 2018; SEDA 2020).
Nearly a third of ‘SMMEs operated in Gauteng in the third quarter of 2019, followed by
close to 16 per cent in KwaZulu-​Natal and 13 per cent in the Western Cape. Growth in
the Western Cape was a staggering 37 per cent over this period, with the province gaining
more than 96,000 SMMEs. This gain coincides with an even greater number of job losses
(109,000 jobs) in the formal sector of the Western Cape economy (StatsSA 2019). Gauteng
experienced the largest decline in number of SMMEs (close to 24,000; 2.7 per cent de-
crease), with close to 29,000 formal sector jobs being created. The Northern Cape suffered
the greatest proportional decline (30 per cent), probably as the severe drought there forced
many farmers and agriculturally linked SMMEs out of business’ (SEDA 2019: 21).

29.3.5 Different Types of Entrepreneurial Activity

A key GEM indicator is the early-​stage TEA rate in a country, which measures the
number of individuals who are considered ‘nascent entrepreneurs (individuals who
 Entrepreneurship and SMMEs in South Africa    631

Table 29.1: Types of entrepreneurial activity, by region and select country

as percentage of adult population
New Early-​stage total Established
Nascent business entrepreneurial business
entrepreneurship ownership activity (TEA) ownership
Region Country rate rate rate* rate

Africa Egypt 5.0 1.8 6.7 1.5

Madagascar 8.4 11.4 19.5 20.2
Morocco 7.3 4.4 11.4 7.9
South Africa 7.3 3.7 10.8 3.5
Asia and China 5.3 3.6 8.7 9.3
Oceania India 9.4 5.9 15.0 11.9
South America Brazil 8.1 15.8 23.3 16.2
Europe Russia 4.6 4.8 9.3 5.1
United 6.5 3.1 9.3 8.2
Kingdom
North America United States 11.8 5.9 17.4 10.6
South Africa’s 21/​50 31/​50 25/​50 44/​50
rank /​50
countries

Source: Adapted from Bosma et al. (2020) and Bowmaker-​Falconer and Herrington (2020).
Note: *Read as ‘Early-​stage entrepreneurial activity rate (TEA rate) was 10.8 per cent of South Africa
adult population in 2019’.

have committed resources to starting a business but have not yet paid salaries or wages
for more than three months)’ (Bosma et al. 2020: 26). TEA also measures the ‘new
business ownership rate (owners of a new business that is less than 42 months old)’
(Bosma et al. 2020: 26). South Africa has relatively low scores across the GEM measures
of entrepreneurial activity when compared to other countries. Table 29.1 shows the
scores for these different types of entrepreneurial activity measures by different regions
where select countries were nominated to show how South Africa compares to other
African countries (Egypt, Madagascar, Morocco), BRIC nations (Brazil, Russia, India,
China), and developed countries (the United Kingdom, the United States). In the
African region, which includes a limited sample of four countries, South Africa’s TEA
rate, at 10.8 per cent (population aged between 18 and 64 engaged in various levels of
entrepreneurial activities), was below the average of 12.1 per cent for the African region
in 2019. In addition, South Africa was ‘below the 8.3 per cent average for the African
region at 3.5 per cent of established-​business ownership, which measures the per-
centage of the adult population who are currently owner-​managers of an established
business, which has paid salaries or wages, or any other form of payment for more than
42 months’ (Bosma et al. 2020: 19). Relative to other BRIC nations, while China (8.7
632   Boris Urban

per cent) and Russia (9.3 per cent) lag behind South Africa (10.8 per cent) in terms of
the TEA rate, this advantage disappears once the established-​business ownership rate
is similarly compared with both China (9.3 per cent) and Russia (5.1 per cent), which
both surpass South Africa (3.5 per cent). Similarly, the United Kingdom (8.2 per cent)
and the United States (10.6 per cent) have higher established-​business ownership rates.
South Africa’s low established-​business ownership rate is worrying as it implies that
most businesses are not surviving beyond 42 months. There can be little doubt that this
points to difficulties in transitioning from an early-​stage entrepreneurial business into
established businesses. Table 29.1 also shows South Africa’s rank out of the fifty countries
surveyed in the GEM study. While it has a relatively competitive rating in terms of nas-
cent entrepreneurship (21/​50), this dwindles considerably when established-​business
ownership (44/​50) is measured (Bosma et al. 2020).

29.3.6 Employment Provided by SMMEs

Contrasting findings are reported with regard to employment provided by SMMEs in
South Africa. According to the SBI, while constituting 98.5 per cent of formal firms in
South Africa, the SME sector only contributed 28 per cent to employment (SBI 2018).
Findings by Bhorat et al. (2018) using 2013 data on labour market dynamics in South
Africa, show that 58 per cent of workers are employed in SMMEs, and most of these
are found in the SMME category of ten to forty-​nine employees, considered to be small
businesses. According to the ‘Quarterly Labour Force Survey (StatsSA 2019) in the third
quarter of 2019, the SMME sector provided 70 per cent of all jobs in South Africa (11.6
of 16.6 million), up from 61 per cent (10.1 of 16.6 million) a year ago’ (SEDA 2019: 16).
Internationally, there has been growing recognition of the role of self-​employment and
micro-​enterprises in driving employment (see ILO 2019). Drawing on a database from
household, labour, and other statistical surveys conducted in a representative set of
ninety-​nine countries between 2009 and 2018, the ILO (2019) report shows that in many
countries, the self-​employed and micro-​enterprises make up more than 50 per cent of
total employment. The regions with the highest employment share of self-​employment
also reveal the highest employment share of the informal sector and the highest share of
employment in agriculture (ILO 2019). Based on the findings it seems as if some form of
entrepreneurial activity can certainly contribute towards poverty alleviation, particu-
larly where employment opportunities in the formal sector are limited.

29.3.7 Contribution of SMMEs to South Africa’s GDP

Sources differ in the stated contribution of SMMEs to South Africa’s GDP, where,
according to Statistics South Africa, the ‘SMME sector contributes approximately
42 per cent to South Africa’s GDP, while others estimate that SMMEs contribute an
estimated 45 to 50 per cent of GDP’ (DTI 2004, cited in Bohart et al. 2018: 4). According
 Entrepreneurship and SMMEs in South Africa    633

to the annual financial statistics, the contribution to GDP by formal SMEs outside of
agriculture, estimated as post-​tax profit plus employment costs, is calculated at 33 per
cent of the total for formal private enterprises. Most estimates put the share of the in-
formal sector in the South African GDP at around 6 per cent. Since the public sector
contributes a fifth of the GDP, that would mean that small business as a whole, including
medium-​sized enterprises, contributed just under a third of the non-​agricultural GDP
(REB 2019). The ‘DSBD, in its Annual Review of Small Businesses and Cooperatives,
using both StatsSA and Quarterly Labour Force Survey (QLFS)’ data indicate a 17 per
cent increase in micro enterprises’ contribution to GDP. There is a reduction of 13 per
cent for small and very small enterprises, and a 6 per cent increase for medium and large
enterprises (SEDA 2020: 35). Critically, it has been argued, ‘slow economic growth in
itself may cause the wrong allocation of ability and entrepreneurship. It is well known
that when economic growth is low and employment opportunities in the formal sector
are scarce, that self-​employment will rise, and that this increase will include a large pro-
portion of people with low levels of entrepreneurial ability’ (Naudé 2008: 104). Under
this scenario, the ‘quality of the entrepreneurial pool in a country worsens from both the
inflow of low-​ability entrepreneurs as well as the outflow of high-​ability entrepreneurs.
This will lead to further restrictions from the side of credit markets, in the form of higher
interest and/​or collateral requirements, and the consequence is that poor countries may
be caught in a self-​reinforcing entrepreneurial development trap’ (Naudé 2008: 107).
As the per capita income of the country increases, industrialization and economies of
scale allow larger and established firms to take advantage of the increasing demand of
growing markets and to increase their relative role in the economy (Urban 2020). These
larger firms, because they provide the necessary employment in the form of more stable
jobs, tend to result in a reduction of entrepreneurial activity (Audretsch et al. 2007).
Furthermore, there is some evidence that entrepreneurial activity rises again as income
per capita increases and countries with the highest levels of GDP show increasing early-​
stage entrepreneurial activity, particularly in terms of opportunity-​driven activities.
This explanation of entrepreneurial activity is often stylized as the ‘U-​Curve’ (Bosma
et al. 2020).

29.3.8 Overall Impressions
The South African entrepreneurship and SMME landscape is largely dominated by
micro and small informal enterprises. Many of these informal micro enterprises tend
to be survivalist firms, which do not contribute significantly to the GDP, nor generate
many productive employment opportunities. Compared to informal business, formal
small and medium enterprises typically have more capital and skills, use more advanced
technologies, and employ more people. However, SMMEs as a whole remain under-
developed by international standards and South Africa has a low established-​business
ownership rate, which is disturbing as it indicates that most businesses are not surviving
in the long-​term.
634   Boris Urban

29.4 The Entrepreneurial Ecosystem

in South Africa

Widespread research shows that a foremost precondition for a productive SMME sector
in any country is the presence of an ‘enabling environment’. For instance, the series
of GEM reports (Bosma et al. 2020), the Global Entrepreneurship and Development
Institute (GEDI) (Acs and Szerb 2010), as well as the Global Competitiveness Index
(GCI) (WEF 2020), measure ‘entrepreneurial environment conditions which focus on
institutions, infrastructure, macroeconomic environment, health and primary educa-
tion, higher education and training, good market efficiency, labour market efficiency,
financial market development, technological readiness, market size, business sophisti-
cation, and innovation’ (World Bank 2019: 612).
Global Performance Indicators (GPIs), such as the aforementioned, rate and rank
states against one another, and deliberately package information to influence the
perceptions of states and publics and the decisions of economic actors (Doshi et al.
2019). The Ease of Doing Business (EDB) index, a widely used GPI and adopted in
many reports (see Global Entrepreneurship Monitor (GEM) studies), is regularly used
to compare the ease of doing business across different economies (WEF 2020; World
Bank 2019). Despite its dominance, the EDB indicator occupies a contested space and
faces criticisms about its accuracy and validity. Since it was launched in 2003, the EDB
has attracted criticism for its anti-​regulation bias. Inspired by the ‘Index of Economic
Freedom’ at the conservative Heritage Foundation, the report has encouraged countries
to take part in the ‘deregulation experience’ including reductions in employment pro-
tection, lower social-​ security contributions and lesser corporate taxation. Doshi
et al. (2019) demonstrate how the EDB ranking system affects policy through bureau-
cratic, transnational, and domestic political channels. According to these authors, by
benchmarking and especially by ranking, the World Bank intentionally exerts com-
petitive social pressure on states to deregulate. Furthermore, unions and the ILO have
criticized the EDB for neglecting the consequences of business deregulation for workers.
The World Bank eventually removed labour-​related components from the Index. Even
so, the EDB is at odds with the changing focus of the World Bank, with reports such
as the ‘Balancing Regulations to Promote Jobs’ manual. Perhaps, as Doshi et al. (2019)
suggest, the case of the World Bank’s EBD Index is a reminder that widespread com-
parative quantification simply reinforces global power structures.
Notwithstanding there is no universal agreement about the definition of the entre-
preneurial ecosystem, and the causal links within the system (Stam and Bosma 2015), a
broad range of factors essential to the entrepreneurship problem in South Africa (Urban
2015), are analysed in this section, specifically factors where there has been convergence
of research and policy findings. This section then ends by demonstrating the import-
ance of interactions between different elements of an entrepreneurial ecosystem.
 Entrepreneurship and SMMEs in South Africa    635

29.4.1 Education
Education is widely accepted as having a positive relationship with running a successful
business and enterprise growth (Marvel et al. 2016). In all countries, an educated popu-
lation with the requisite knowledge, skills, and capacity for innovation has proven vital
to driving competitiveness, productivity, and sustainable growth (Stam and Bosma
2015). Human capital in the form of ‘entrepreneurial skills and competencies are cen-
tral to the successful establishment and performance of SMMEs, where extensive re-
search shows positive links between various human capital factors and entrepreneurial
success’ (Marvel et al. 2016: 611). Historically, the series of GEM reports emphasize that
the education system in South Africa has failed entrepreneurs, where from ‘2017 to
2019, there was a significant drop in education completion beyond the primary edu-
cation level. This finding is extremely concerning as primary education level amongst
total early-​stage entrepreneurs is vital for any developing nation’ (Bowmaker-​Falconer
and Herrington 2020: 17). Moreover, the lack of quality education in South Africa and
subsequent poor coverage of science, technology, engineering, and medicine (STEM)
education, results in the majority of youth entrepreneurs converged in low-​technology
sectors (SEDA 2020).

29.4.2 Access to Finance
For many SMMEs, access to finance is hindered by a range of demand-​and supply-​
side obstacles, such as skills shortages, poor management practices, and workforce
training limiting their productivity and innovation (OECD 2009). Several reports re-
veal that a dearth of adequate finance is a critical barrier to SMME growth in South
Africa (SEDA 2020). Similar to many developing and emerging nations, start-​up
funding in South Africa ‘often comes from personal savings or money from family,
where the youth, women, and people in townships and rural areas are likely to be par-
ticularly disadvantaged when it comes to accessing financing for their start-​ups’ since
they also lack collateral and have excessive outstanding debt (Ndou and Urban 2019: 5).
Furthermore, as many as two-​thirds of applications for bank credit submitted by new
SMEs in South Africa are rejected, according to SEDA (2020). Additionally, South
Africa has little tradition in business angel investment activity, despite being a key
funding option for entrepreneurs worldwide. In South Africa, a significant amount of
the capital available from venture capitalists is dedicated to the well-​developed late-​
stage investment market, and finance for seed and start-​up phases remains insufficient
(Ndou and Urban 2019). Notwithstanding this access to funding obstacles, alternative
financing/​funding options are becoming more prevalent in the South African entrepre-
neurial ecosystem, where a ‘blended financing model’ in the form of the Small Business
Innovation Fund aims to lower financial costs for entrepreneurs with a Rand 1 billion
budget for the 2019/​20 period (Bowmaker-​Falconer and Herrington 2020: 46).
636   Boris Urban

29.4.3 Access to Markets
Many SMMEs in South Africa face restricted market access and opportunities to par-
ticipate in market exchanges and networks (Venter and Urban 2015). Moreover,
restricted market access for SMMEs is generally cited due to the concentrated nature
of the South African economy, which is dominated by large private companies (Bhorat
et al. 2018) and monopolies are prevalent in the retail and wholesale, energy supply,
telecommunications, financial services, and transport sectors (Bowmaker-​Falconer and
Herrington 2020). These ‘big players’ often hold a majority of the market share, with
established supplier relationships prohibiting SMMEs from taking advantage of any
real market opportunities. Such hindrance to gain entry into the market is evident in-
sofar as most small enterprises in South Africa are predominantly found in trade and
business services and the informal sector is overwhelmingly concentrated in the retail
sector. Such limited entrepreneurial activities prohibit SMMEs from climbing up the
value chain and they remain suppressed and uncompetitive (Ndou and Urban 2019).

29.4.5 Access to Technology
Technology is a powerful instrument to advance entrepreneurial activity in any country,
where the use of the e-​commerce, Internet, and smartphones has seen exponential
growth in both developed and developing countries (WEF 2020). In South Africa a
lack of suitable skills, weak supporting infrastructure, inadequate policy and leader-
ship, as well as cultural barriers have been cited as obstacles that prevent the potential
of technology and the digital economy to be fully realized (Bosma et al. 2020; SEDA
2020). Moreover, research shows that the role of ICT in fostering financial inclusion
and growth in developing countries is not very promising, as a very small percentage of
SMMEs in both the formal and informal sector are able to access and utilize technology
to position themselves successfully in a competitive landscape (WEF 2020). This phe-
nomenon has been noted as the ‘digital divide’, which clearly disadvantages women and
youth in rural areas and the informal economy in South Africa (SEDA 2020).

29.4.6 Access to Support Networks

In the field of entrepreneurship, social networks as a form of social capital have emerged
as an important contextual factor, as typified by the social structure within which the
actor is located (Venter and Urban 2015). Social exchanges typically occur between
families, kin, and other investors to help new firms get started, while educational
establishments and media encourage entrepreneurship through promoting role models
and highlighting entrepreneurial events. For instance, the South African Business
Angel Network, as well as a host of government and private incubator organizations,
 Entrepreneurship and SMMEs in South Africa    637

such as the Awethu Project and the Tshimologong Digital Innovation Precinct, support
entrepreneurs in South Africa (Venter and Urban 2015). Typically, entrepreneurs and
SMMEs might use social capital in the form of networking to mitigate risks and over-
come challenges, specifically in the informal economy. However, studies indicate that
SMME owners cite a lack of networks in South Africa that can provide support in terms
of opportunities, funding avenues, markets, and information sources (Ndou and Urban
2019). While networks may exist, low levels of awareness, and the ability of SMMEs to
access and utilize such networks is limited in South Africa (DSBD 2017; SEDA 2020).
Research also shows that most networks’ members are either friends or family members,
and networking is largely unstructured and coincidental in nature, where often, because
of inadequate systems within government departments, SMMEs are subject to or com-
plicit in corruption (SEDA 2019). The result is that nascent entrepreneurs are reluctant
to deal with government departments or agencies since they anticipate corruption and
cronyism (Ndou and Urban 2019).

29.4.7 Regulatory and Political Environment

The regulatory environment includes existing national laws, rules, policies, and regu-
latory bodies which will permit certain behaviours while restricting others. In South
Africa, government often creates regulatory burdens for entrepreneurs due to ideo-
logical differences or inertia, inefficient government bureaucracy (red tape), and as a
result of a lack of coordinated focus and policy instability (Bowmaker-​Falconer and
Herrington 2020; DSBD 2017). The cost of regulatory compliance is extremely high for
entrepreneurs and SMMEs who have to deal with restrictive employment laws, which
are one of the biggest regulatory obstacles they face (Ndou and Urban 2019). Moreover,
small business owners report that the current regulatory environment is more appro-
priate and advantages big business as opposed to small business (DSBD 2017), where
poor service delivery puts an unnecessary burden on already very scarce manage-
ment resources, which constrains SMMEs’ performance and growth (SEDA 2020).
Furthermore, starting a business requires extensive ‘infrastructure; specifically trans-
port networks, communication systems, provision of electricity, and other utilities. This
is particularly important for SMMEs, for whom the costs and time spent using infra-
structure are a relatively high proportion of income’ (Bohart et al. 2018: 47). Poor phys-
ical and ICT infrastructure prevents SMMEs from operating efficiently and accessing
international markets. Additionally, in several instances, red tape (which is a code word
for rent-​seeking activities, such as nepotism and corruption) concerning infrastruc-
ture and regulations results in unproductive entrepreneurship. Crime has also been
frequently cited as a matter of concern for SMMEs specifically, as it disproportionately
affects SMMEs relative to large firms (Bohart et al. 2018). Crime is not only an unpro-
ductive economic activity but any incentive to reinvest in a business is eroded once a
small business owner has been a victim of crime (DSBD 2017).
638   Boris Urban

29.4.8 An Enabling Entrepreneurial Ecosystem

Scholarly research shows that the broader institutional environment together with the
more immediate business environment affects the level of entrepreneurial activity of
a country. In any context, the entrepreneurial ecosystem needs to be analysed as a re-
ciprocal process between an individual entrepreneur and the external environment,
with the entrepreneur and his/​her environment interacting and influencing each other
(Stam and Bosma 2015). Two decades of empirical research have generated a great
number of studies demonstrating that entrepreneurial activity depends on interactions
between three components: individuals, organizations, and institutions (Bosma
et al. 2020).
While an effective entrepreneurial ecosystem is best designed as a ‘set of inter-
dependent actors and factors coordinated in such a way that they enable productive
entrepreneurship’ (Stam and Bosma 2015: 331), an important point is to recognize how
the wider ecosystem structure of the South African economy affects entrepreneurship.
Several structural factors impede the South African entrepreneurial ecosystem. These
include issues such as a poor-​performing economy in terms of GDP growth and an
economy dominated by large firms. Moreover, South Africa’s dual economy excludes a
high proportion of the population from participating in the formal economy, which is
exacerbated by inadequate education and energy infrastructure, and an unusually low
share of employers and self-​employed people in the labour force, which leads to per-
sistent poverty and inequality (REB 2017, 2019; Urban 2020).
These wider ecosystem conditions highlight that even though ecosystem elements
can support each other, they can never completely replace one another. In this sense,
the elements of the broader economy and entrepreneurial ecosystem interact in com-
plex and specific ways that lead to unique configurations of different regional and local
ecosystems (Bosma et al. 2020). Larger firms are also part of the ecosystem and large
firms in terms of knowledge spillovers influence SMMEs, their access to networks, and
opportunities to collaborate with other players in the ecosystem. Upstream and down-
stream linkages with larger companies are vital for SMMEs and the benefits of such
inter-​firm linkages can be crucial for the competitiveness of entire supply chains, at both
local and global levels. In this respect, close interdependence and coordination between
large and small businesses represents an important source of value and competitiveness
along supply chains (OECD 2009). Such reciprocity between large firms and SMMEs
is important in South Africa as large firms dominate employment growth (in terms of
both the number of jobs added and growth rates in the 2011 to 2016 period) (SBI 2018).
Moreover, large companies often have procurement systems constructed to acquire
goods on a scale beyond the scope of small businesses (REB 2017).
Since SMMEs are often embedded in local ecosystems, which represent their primary
source of knowledge, skills, finance, business opportunities, and networks, it is also im-
portant to consider factors affecting framework conditions at the local level, and how
interventions developed at the national level are suited to local conditions (OECD 2009;
 Entrepreneurship and SMMEs in South Africa    639

Urban 2015). For instance, instead of focusing on one or two isolated factors, such as
start-​up finance, which tends not to have the anticipated effect as a stand-​alone inter-
vention, a synergistic combination of several relevant local ecosystem factors is required
for any intervention to have a positive effect on entrepreneurship in a specific region.
Studies conducted in the South African context demonstrate how interactions between
various institutional factors and different motivational and behavioural outcomes such
as self-​efficacy have a positive effect on small businesses (Urban 2015). Recognizing that
the entire entrepreneurial process unfolds because ‘individuals act and are motivated
to pursue opportunities’ (Shane and Venkataraman 2000), concentrating on the ‘actor’
in the entrepreneurial ecosystem is imperative, since to be an agent is to make things
happen intentionally by one’s own actions (Bygrave 1989; Venter and Urban 2015; Welter
and Smallbone 2011). Agency in the form of an entrepreneurial mindset and behaviours
has been shown to interact positively with the institutional environment and have an
impact on entrepreneurship activity (Audretsch et al. 2007; Krueger et al. 2000). In this
sense, the environment is ‘not something that can be taken as a given, but instead is
enacted by entrepreneurs. Environments are neither certain nor uncertain in them-
selves, but thinking makes them so—​action develops in a duality between agency and
structure’ (Welter and Smallbone 2011: 110).

29.5 Policy Critique

and Future Considerations

Over the past twenty years, the South African government has launched a number
of policy initiatives designed to support SMMEs, including a new Ministry of Small
Business Development established in early 2014. The National Development Plan
(NDP), as a fundamental socio-​economic strategy is designed to eliminate poverty
and reduce inequality in South Africa by 2030. This broad-​spanning and large-​scale in-
vestment project aims to develop the economic infrastructure, education, social wel-
fare, science, and innovativeness of the country (Venter and Urban 2015). Additionally,
the small business policy framework is propelled primarily by the Small Business
Development Act which has as its objective the stimulation of growth and development
of the South African SMME sector. The Department of Trade and Industry (DTI) in
South Africa also has a number of schemes to support the funding and advancement
of SMMEs, namely in the form of the Small Enterprise Development Agency (SEDA),
which provides business development and support services for small enterprises
through its national network. Part of the central dilemma driving this chapter relates
to the lack of implementation of these policies and quality of support services that vary
considerably and where in many areas, the business advisors are not properly trained
nor do they have the practical skills and experience required to give advice to small
business entrepreneurs (Bowmaker-​Falconer and Herrington 2020).
640   Boris Urban

Notwithstanding the unproven efficacy and limited empirical results of entrepreneur-

ship policy, governments around the world continue to introduce entrepreneurship
and SMME policy instruments, even though they are separate entities (Acs et al. 2016).
Whereas entrepreneurship policy is focused on the ‘pre-​start, the start-​up and post-​
start-​up phases’ of the entrepreneurial process and aims primarily to encourage more
individuals to consider entrepreneurship as a career option, SMME policy, in contrast,
is focused on growing the ‘existing population’ of SMMEs by developing interventions
and support measures to encourage their sustainability (Acs et al. 2016; Stam and Bosma
2015). This differentiation seems to be lost on South African policymakers.
A missing part of the policy puzzle in South Africa is the failure by government
to recognize that while state-​ sponsored entrepreneurship interventions in some
instances may have positive results, there are ‘opportunity costs’ associated with such
policies and actions which may be unexpected and have the unintended consequence
of fostering non-​productive entrepreneurship (Baumol 1990; Shane 2009). Policy
actions and programmes aimed at start-​ups often subsidize low-​growth firms that
add little to employment and economic development. In this regard Shane (2009: 141)
declares, ‘policy makers believe a dangerous myth, insofar as they think that start-​ups
are a “magic bullet” that will transform depressed economic regions, generate innov-
ation, create jobs, and conduct all sorts of other economic wizardry’. According to
Shane (2009), this belief is flawed because the typical start-​up is not innovative, creates
few jobs, and generates little wealth. Certainly, to obtain more economic growth by
having more start-​ups, these new ventures would need to be more innovative and
productive than existing companies are, but generally, this is not the case (Acs et al.
2016; Shane 2009). In many instances policymakers find themselves picking winners
from among the population of nascent entrepreneurs (Acs et al. 2016), which inad-
vertently stimulates a disproportionate number of people to start new businesses in
competitive industries with lower barriers to entry and high rates of failure (Shane
2009). In other words, a policy intended to foster productive entrepreneurship may
‘perversely’ suppress viable entrepreneurial ventures while inadvertently supporting
ideas and enterprises that are non-​viable or accepted by the market (Acs et al. 2016;
Shane 2009). In reality, most governments and policymakers do not have a convincing
record of picking winners, principally as the economic value of any offering must itself
be ascertained through the trial-​and-​error process of entrepreneurship (Shane 2009;
Shane and Venkataraman 2000).
While offering prescriptive advice is not the point of this chapter, it may be useful
to stress the many voices which call for evidence-​based interventions to improve and
enhance SMME policies (Acs et al. 2016; Rogerson 2004; Shane 2009; Stam and Bosma
2015; Urban 2020). In South Africa, policymakers and SMME development agencies
have been criticized for not providing a ‘level playing field’ for SMMEs, which could
be achieved by strengthening competition legislation to lower barriers to entry for new
operators in banking, telecoms, and other sectors where large companies dominate.
However, one single policy cannot affect entrepreneurial activity as there is a broad
range of issues underlying the entrepreneurship problem in South Africa. In which
 Entrepreneurship and SMMEs in South Africa    641

case prioritizing interventions at a macro-​level, combined with the political deter-

mination to introduce a new system of regulation, taxation, and incentivization, are
necessary to save small businesses and help reduce their vulnerability, especially as
a post-​COVID strategy. Perhaps a more ordered approach could make a significant
difference to SMME policy if it focused on separating direct versus indirect support
to SMMEs by developing reliable infrastructure (physical and digital), ensuring a
region-​specific mix of small business-​ friendly regulation, while also developing
strategies to mitigate potential business costs of monopolies, crime, and corruption.
Similiar to other countries, policymakers may encourage entrepreneurship through a
low-​regulation route and simultaneously adopt a high-​support route (in the form of
mentors, information, training, or finance) in which the number and severity of ob-
structive regulations are minimized to enable growth (Stam and Bosma 2015; Ndou
and Urban 2019).
Recognizing the heterogeneity of the South African SMME landscape, and to avoid
a ‘one-size-fits-all’ approach, a dynamic evolutionary ecosystem approach is needed to
develop an overall coordinated enabling environment which makes it possible to con-
struct and compare different regional entrepreneurial ecosystems in their evolution and
performance over time (Audretsch et al. 2007; Ndou and Urban 2019). In this regard, a
policy framework is required that encompasses broad policies that influence SMMEs
as well as specific targeted high-growth entrepreneurship policies (OECD 2009). These
policy interventions often span the boundaries of ministries and government agencies,
as well as levels of government, making it difficult to coordinate in the current South
African public-​sector milieu characterized by political intrigue and pointless party
posturing. In the final analysis, public-​sector integrity and transparency, coupled with
public administration efficiency and quality of public-​services offerings are essential for
a vigorous SMME sector (OECD 2009; Urban 2015).

29.6 Conclusion

This chapter highlights the complexity of understanding entrepreneurship and SMMEs

in South Africa due to the heterogeneity in entrepreneurial activity and the variety of
contexts in which it occurs. It is argued that although the South African government has
publicly and consistently supported SMMEs, in reality, entrepreneurs and SMMEs face
a multitude of obstacles and the country’s established-​business ownership rate is still
far below the average for other developing countries. Notwithstanding the lack of con-
sistent and accurate data, a descriptive and analytical overview highlights that the South
African SMME landscape is dominated by mostly micro and small informal enterprises,
which do not contribute significantly to the GDP, nor generate many productive em-
ployment opportunities. Additionally, in analysing the entrepreneurial ecosystem in
South Africa, a number of structural, institutional, and policy issues are exposed as
major hurdles inhibiting the start-​up and growth of SMMEs.
642   Boris Urban

It is further established that documenting SMME activity rates has become a major
focus of research and in the process some of the wider issues addressed by theory have
disappeared (Urban 2015). Providing more emphasis on prior research and theories
surrounding entrepreneurship as a field of study is advocated, rather than simply
constructing a highly descriptive statistical annual profiling of the SMME activity rates
and ecosystem factors. Realizing that entrepreneurship and SMMEs are difficult to de-
fine, as there are fundamental differences in theory and practice related to these terms,
the point is made that the entrepreneurship process is premised upon opportunity rec-
ognition and innovations, which is influenced by the configuration of incentives in a
specific environment.
Historically, in South Africa the SMME sector has been marginalized in favour of
big business and currently there is a political attachment to micro enterprises in the in-
formal sector. Consequently, it is not entirely surprising that productive, systemic, high-​
growth entrepreneurial activity is largely missing and most SMME activity is survivalist
in nature. Accordingly, if fostering an enabling entrepreneurial environment is desirable
for policymakers, the importance of coordinating and achieving synergistic interactions
between the ‘agent in the entrepreneurial drama’ and a wider set of ecosystem factors in
the economy is pivotal.
Analogous to the entrepreneurship process, translating policy into actual entrepre-
neurial activity depends not only on the formulation of policy but rather more so on the
quality of its execution. While it is almost clichéd to note that South Africa requires less
policy formulation and more effective policy implementation, in the entrepreneurship
context this observation is critical, as the economic value of any offering must itself be
realized through the navigating of the entrepreneurship process.
In addressing the principal problem steering this chapter, it is shown that govern-
ment officialdom as well as corruption both in the public and private sectors stifle entre-
preneurial activity, where in several instances SMME policy results in unproductive
entrepreneurship. In the final analysis, entrepreneurship in South Africa is a highly
constrained activity that does not live up to its potential as the key to unlocking inclusive
growth of the economy, as many ideologues would have us believe.

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 Chapter 30

Urbaniz at i on,
Ag gl om erat i on, a nd
E c onomic Dev e l op me nt
in Sou th A fri c a

Ivan Turok

30.1 Introduction

Around the world, economists of various persuasions have been developing a deeper
understanding of the importance of geography for economic growth and development
(Porter 2003; Krugman 2011; Glaeser 2011; Collier and Venables 2017). An initial interest
in transport costs has broadened into the positive effects of spatial concentration
on productivity and innovation. Proximity between firms and households in cities is
believed to generate economies of scale and foster interactions which promote learning,
improve efficiency, stimulate enterprise, and raise investment returns.
Although disentangling cause–​effect relationships is difficult within these ‘agglomer-
ation economies’, there is increasing empirical endorsement, including from new digital
and satellite data available at granular resolutions (Duranton and Puga 2020; Jones et al.
2020). This body of knowledge also indicates that the process of urbanization is gener-
ally beneficial for drawing dispersed populations and resources closer together, creating
more productive jobs, and lifting people out of poverty (Spence et al. 2009; OECD/​EC
2020). It suggests that dense, compact forms of urban development are most advanta-
geous, along with transport and digital connectivity within and between cities (Lall et al.
2017; Ahlfeldt and Pietrostefani 2019).
Belief in the significance of agglomeration economies has begun to influence na-
tional economic policies and infrastructure plans (Pike et al. 2017). There is a growing
sense that cities need to be treated as distinct economic units because this is where the
wealth of nations is increasingly created (Glaeser and Joshi-​Ghani 2015). Tackling the
 Urbanization, Agglomeration, and Economic Development 647

congestion, higher costs, pollution, and other negative externalities in burgeoning cities
can therefore have disproportionate benefits for national prosperity. The uplift in land
and property values arising from well-​configured urban development can also generate
valuable additional tax revenues for reinvestment in essential infrastructure to render
the whole process cumulative and self-​sustaining (Ingram and Hong 2012).
These propositions have been embraced by international organizations such as the
United Nations (2020), OECD (2014, 2018), and World Bank (2009, 2013). They have
endorsed a new emphasis on cities in global thinking on sustainable development, both
to harness the progressive potential of rapid urbanization underway across Africa and
Asia, and to mitigate the risks that it will prove dysfunctional and degrade the envir-
onment (Turok and McGranahan 2013; United Nations 2016). Successful outcomes
are believed to depend on governments establishing capable institutions to guide the
process because market mechanisms cannot organize urban development effectively
or provide sufficient public goods and services to leave no one behind (Collier and
Venables 2015; Scott and Storper 2015).
Economists in South Africa have shown limited interest in the spatial economy, or in
the contribution cities make to development. With some exceptions, political elites and
economic policymakers have also been ambivalent with the result that building better
cities is not viewed as an economic priority (SACN 2016; Duminy et al. 2020). There is
no common vision or shared objectives across government towards urban development,
nor even an agreed approach towards using vacant state-​owned urban land effectively.
Instead of integrative place-​based policies, the government has emphasized spatially
blind measures, such as industrial sector masterplans and universal access to public
services and housing. The latter are intended to redress historic injustices through a
rights-​based framework that is largely indifferent to geography.
Hesitancy about urbanization neglects the global experience of cities as dynamic pro-
duction systems that create opportunities to foster all-​round progress. Agglomeration
principles are also relevant to the structural constraints to growth and inclusion
arising from South Africa’s large territory and the fractured form of its cities and towns
(National Treasury 2018). The separation between places of work (or production)
and living (or social reproduction) hampers economic and social progress in many
situations, especially dormitory townships and the former homelands (Todes and Turok
2018; World Bank 2018). It renders urban labour markets less efficient, marginalizes
poor black communities, and adds to the costs of transport for commuters and service
delivery for taxpayers (SACN 2016; National Treasury 2018). There is little sign that
these spatial scars of apartheid are disappearing, either through spontaneous economic
processes or through government spatial plans that repeatedly espouse urban integra-
tion and spatial transformation (Gardner 2018; Turok 2018; McKenna 2020).
The purpose of this chapter is to assess the contribution of cities to economic devel-
opment in South Africa. It also examines distinctive features of the country’s urban
trajectory. The discussion challenges some aspects of agglomeration theory and some
attitudes towards urbanization. It argues that the economic benefits of cities are not
automatic but instead depend on a conducive context. The way urban growth is shaped
648   Ivan Turok

and supported through investment in public infrastructure and inclusive institutions is

particularly important. The chapter argues that South Africa’s spatial divides impede in-
clusive growth, and that more could be done about urban consolidation.
The structure is as follows. Section 30.2 sets the context with a brief history of the
country’s urban growth. The rest of the chapter is organized around three fundamental
features of the urban morphology, namely the triangular relationship between the lo-
cation of firms, households, and the transport system. Section 30.3 discusses how ag-
glomeration affects the performance of firms and industries. Section 30.4 considers
how households are accommodated in expanding cities. Section 30.5 examines how the
transport system connects urban areas. Section 30.6 concludes.

30.2 South Africa’s History

of Urbanization and Urban Policy

South Africa emerged as a resource-​based economy in the nineteenth century, with a par-
ticular settlement pattern shaped by that reality. Urbanization was dominated for many
decades by the need for cheap migrant labour to mine gold, diamonds, and other minerals,
which meant that coercion was a long-​standing feature (Wilson 1972). The rural–urban
transition also differed from the pattern in many other countries where structural trans-
formation involved rising agricultural productivity and even more productive urban in-
dustrialization. This parallel process fuelled a generalized increase in living standards and
widespread investment in infrastructure. Agriculture never developed to its full potential
in South Africa, and the same is arguably true about manufacturing.
As the twentieth century progressed, many mining towns developed complemen-
tary manufacturing functions, including engineering, steel, and chemicals. Many of
these were established by the largest mining corporations in order to control their inter-
mediate inputs and profit from emerging opportunities, even branching into various
financial services (Harrison and Zack 2012). These conglomerates benefited from signifi-
cant internal economies of scale and scope, while booming cities elsewhere in the world
were characterized more by external economies associated with independent firms
driving up productivity through competition (Jacobs 1984; Glaeser 2011). A pattern of
concentrated ownership and oligopoly was established in South Africa which became
an enduring feature of many economic sectors (Fine and Rustomjee 1996).
South Africa’s fastest growing economic centres emerged in and around Gauteng,
which soon became the country’s leading metropolitan region (Harrison and Zack
2012). Coastal towns also prospered by functioning as international entrepÔts and re-
gional service centres (Turok 2014). They enabled the export of minerals from the in-
terior, allowed essential inputs to be imported, and coordinated the processing of
agricultural goods for domestic consumption and export. Therefore, geographical
advantages conferred by natural features were uppermost in fashioning South Africa’s
 Urbanization, Agglomeration, and Economic Development 649

spatial economy for many decades. Natural resources remain important in determining
whether many towns grow or decline (especially those specializing in mining and
tourism), although the economics of agglomeration are more important in moulding
the major cities. An essential message is that the country’s wealth has been largely
created in cities and towns.
Colonial and apartheid governments played instrumental roles in urban develop-
ment, typically to enforce racial separation and probably hindering economic dyna-
mism in the process. They were responding out of fear to accelerating urbanization
during the first half of the twentieth century, caused by the mining boom and indus-
trialization. Less than a fifth of the country’s population (18 per cent) lived in urban
areas in 1911, which doubled to 35 per cent in 1951 (Turok 2014). Ideological efforts to
suppress black urbanization intensified between the 1950s and 1980s (World Bank 2018;
Duminy et al. 2020). This conflicted with the interests of the thriving urban economy,
which required a more stable, skilled, and enlarged workforce over time. The stringent
restrictions on permanent urban residence gave rise to a detrimental form of (circular)
migration between rural and urban areas (Bank et al. 2020). Meanwhile, callous controls
on where racial groups could live within cities created a fractured urban structure with
poor black communities removed to sterile townships on the periphery. Local govern-
ment was weak, fragmented along racial lines, and mainly responsible for basic infra-
structure services and regulating the development of land.

30.2.1 Urbanization Post-​apartheid
During the transition from apartheid the rate of urbanization increased following the
removal of migration controls. This sealed the country’s position as one of the most
urbanized on the continent, with two-​thirds of the total population now living in urban
areas (UNDESA 2018). Figure 30.1 shows the increasing importance of large cities and
the relative decline of rural areas. This trajectory mirrors global trends, but it has not been
embraced by decision-​makers post-​apartheid (Turok et al. 2021a). In the absence of a na-
tional policy to prepare for urban growth, municipalities have battled to keep pace with
the demands for public services and shelter, resulting in swelling informal settlements
and escalating social protests (Scheba and Turok 2020). Such events focus public
attention on the downsides of urbanization, while the less visible benefits are overlooked.
Many land occupations occur on hazardous sites and perpetuate the haphazard structure
of cities. Little has been done to plan ahead for urbanization by making serviced land
available in advance of human settlement (SACN 2014; Turok 2016a; Gardner 2018).

30.2.2 Urban Policies and Politics

Local government consolidation during the 1990s signalled a promising future, as the
eight largest cities were equipped with more robust administrations than the previous
650   Ivan Turok

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%
1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030

Urban centres Urban clusters Rural

Figure 30.1 South Africa’s population distribution, 1975–​2030

Source: European Commission Global Human Settlements Data, https://​ghsl.jrc.ec.europa.eu/​.
Note: Urban centres are cities with over fifty thousand inhabitants in contiguous dense areas;
urban clusters are towns with over five thousand inhabitants in contiguous semi-​dense areas;
rural areas consist mostly of low-​density areas.

patchwork. Single-​tier metropolitan authorities were given wide territorial boundaries

to reflect their functional urban areas (including surrounding commuting zones) and
to prevent leapfrog development into neighbouring localities. The metros incorporated
the outlying townships and affluent suburbs to permit effective redistribution, with vital
powers to raise property taxes for reinvestment in public services. They were required
to prepare Integrated Development Plans to cover the five-​year electoral cycle, in con-
junction with other spheres of government to ensure alignment of plans and budgets.
Metro responsibilities were broader than their predecessors, although housing and
public transport were assigned to the provinces (SACN 2014). Subsequent problems
have stemmed more from harmful political practices and institutional cultures than
from deficient structures. Undue political interference, unstable leadership, and exces-
sive central regulation have impaired the developmental agenda originally envisaged,
aggravated by inappropriate senior appointments, mismanagement, and a loss of spe-
cialist expertise (Palmer et al. 2017; van Ryneveld 2018; Olver 2020; World Bank 2018).
Many townships have benefited from improved public services, although the funda-
mental course of urban development continues to bear a strong imprint of the apartheid
past, reflecting inertia in the built environment and the durability of fixed assets. Deep
inequalities in labour market earnings and stark neighbourhood contrasts also make it
practically difficult to reshape settlement patterns and integrate diverse communities.
Cities continue to be encumbered by low residential densities in well-​located areas,
poor transport systems, and high mobility costs (SACN 2016; National Treasury 2018;
 Urbanization, Agglomeration, and Economic Development 651

World Bank 2018). Hierarchical, command-​and-​control attitudes, and bureaucratic

behaviours within government constitute another form of path dependency. Top-​down,
sectoral policies take precedence over cross-​cutting spatial plans and the building of
stronger relationships with civil-​society organizations, which impedes trust and ac-
countability (Todes and Turok 2018; Duminy et al. 2020; McKenna 2020). This, in turn,
hampers the metros’ ability to respond to community concerns and initiatives, including
engaging with informal activities. The strength of functional silos within government
also inhibits the metros’ capacity to coordinate infrastructure investments and to plan
in an integrated way according to the unique economic assets and priorities of each city.

30.2.3 Urban–​Rural Tensions
An intangible legacy of the past is the ambivalent attitude of many decision-​makers to-
wards urbanization, and perhaps even a fear of the city (Turok et al. 2021a). The polit-
ical economy of urban areas is inevitably more complicated and contested than rural
areas because of the diverse interests involved. Meanwhile, the provinces have become
more powerful than envisaged in the Constitution, as the main political parties have
adopted federal structures along provincial lines. The ruling party originally envisaged
strong metros to expedite socio-​economic development and democratic accountability,
but provincial leaders have tended to usurp their authority. The rural provinces have
acquired disproportionate influence through their superior ability to mobilize party
membership and popular votes, reflecting the widespread dependence of jobs and
livelihoods on state patronage in these regions (van Ryneveld 2020). A risky and un-
healthy misalignment has arisen between the locus of power within the party and the
location of the economy in the big cities. It has aggravated the underlying contradiction
at the heart of government between the desire of politicians to spend public resources
(preferably on popular necessities) and the need to help generate those resources
through supporting (and then taxing) productive activities.
During the Zuma era there was very little backing for cities as strategic economic units
worthy of special attention (Duminy et al. 2020). The narrative of an urban–​rural divide
prevailed, highlighting countryside hardships. The emphasis on rural areas in land re-
form policy (covering redistribution, restitution, and tenure security) is a good example,
ignoring the centrality of urban land reform to building more prosperous and equitable
cities (PAPLRA 2019). Persistent equivocation over urbanization is reflected in sparse
economic data at the city level, and meagre state funding for systematic or sustained
urban research. Provincial economic data are more comprehensive, yet these are mostly
administrative units rather than functional areas. The national statistics agency does not
even have a robust definition of urban areas; it continues to use an old administrative cat-
egorization. Data deficiencies help to explain the limited awareness of spatial dynamics
among the country’s economists, despite flourishing interest elsewhere in the world.
One exception is the Cities Support Programme (CSP) located within the National
Treasury. Since 2012, the CSP has sought to improve metro capabilities to carve out their
652   Ivan Turok

own agendas by introducing new skills, knowledge, and decision-​making systems. These
encourage city plans and developments that are more integrated, inclusive, and resource
efficient (Turok 2016a; Duminy et al. 2020). There are some positive initiatives in the
pipeline, although few changes on the ground as yet.

30.3 Spatial Concentration and

the Performance of Firms

30.3.1 Theoretical Advantages of Agglomeration

There is a substantial body of knowledge on the economic advantages of agglomeration
stretching back to Alfred Marshall. It has grown to encompass multiple perspectives ra-
ther than constituting a singular theoretical framework. One interpretation stems from
the so-​called New Economic Geography (NEG) (Krugman 2011) and another from
established economic geography (e.g. Storper 2011). The essential ideas in these and
other approaches proceed as follows. Firms and workers that depend on each other for
inputs and outputs cluster together for ease of access. They interact in many different
ways, creating a dynamic system with many synergies and cumulative effects (Glaeser
2011; Storper 2013). Dense networked cities promote entrepreneurship, creativity,
business dynamism, knowledge spillovers, larger markets, and faster growth (Jacobs
1984; Glaeser and Xiong 2017). Firms specialize in particular products or tasks, which
amplifies their capabilities and productivity. Many cities also benefit from specializing
in particular functions (‘localization economies’) and exchanging outputs with other
places (Lall et al. 2017; Iammarino et al. 2019). ‘Tradable’ goods and services are crucial
because their growth is not constrained by local demand and they often generate size-
able multiplier effects.
NEG agglomeration theory emphasizes increasing returns to scale as the main causal
mechanism. This gives metropolitan areas exceptional advantages over smaller cities
(World Bank 2009). Major cities offer businesses deep labour pools, a large choice of
suppliers and customers, and extensive professional services and communications in-
frastructure. This suits the biggest firms and generates the greatest returns on public
and private investment. Researchers have successfully quantified these benefits using
econometric techniques, finding that doubling the city size raises productivity by be-
tween 2 and 5 per cent (Melo et al. 2009; Graham and Gibbons 2019). Furthermore, the
benefits of proximity to the main hubs of economic activity decay rapidly with distance,
which suggests that low density sprawl undermines economic vitality by lengthening
commuting times and limiting business interactions (Rice et al. 2006).
NEG theory postulates that national living standards benefit from concentrating ac-
tivity in the largest cities and that wider disparities with other regions are the price to
pay for these productivity gains (Glaeser 2011). Governments should not try to diffuse
 Urbanization, Agglomeration, and Economic Development 653

activity to smaller cities and towns by investing in place-​based policies (World Bank
2009). Agglomeration economies should provide sufficient benefits for aggregate
growth and national income to compensate places left behind and leave everyone better
off. The theory also proposes that people be encouraged to migrate from poorer regions
to the large cities. In other words, the solution to geographical inequalities is regional
integration and factor mobility (World Bank 2009). Improved transport links will di-
minish the spatial frictions of distance and division, reduce the surplus rural popula-
tion, and fuel the metropolitan growth machine.
More expansive perspectives challenge these ideas as reductionist and
oversimplified, especially the argument that bigger is necessarily better (Iammarino
et al. 2019; Sunley et al. 2020). NEG portrays agglomeration economies as having uni-
versal applicability and an almost law-​like quality, regardless of the context. Alternative
approaches view agglomeration as a potent force, but neither immutable not determin-
istic. The prosperity of cities is driven by various factors besides their size and density
(including their economic structure and social diversity), implying that second-​order
cities can also thrive. Social and political institutions are crucial in mediating ag-
glomeration economies—​either helping or hindering their realization (Feldman and
Storper 2018). For example, there are stronger traditions of business collaboration,
information sharing, and mutual learning in some cities than in others (Storper et al.
2015). Countries with a long history of racial division and mistrust are bound to face a
greater hindrance in this respect.
Diseconomies of scale cannot be ignored either, such as congestion, overloaded in-
frastructure, and social discord. Local public institutions can alleviate certain growth
pressures through far-​sighted spatial planning and active urban management (OECD
2018; Turok 2017). The crucial point is that agglomeration processes don’t operate in
the same way in different places, because formal policies, rules, and organizing systems
differ, along with informal norms and conventions. Political economy frameworks may
help to make sense of these dynamics, including whether the plans of city governments
are endorsed or undermined by private interests (such as property developers) and by
regional and national spheres of government (Olver 2020). The relevance of agglom-
eration processes to informality is generally neglected in established theories, but also
needs to be factored in.
Built-​environment institutions are particularly important in countries experiencing
rapid urbanization (Collier and Venables 2015, 2017; World Bank 2013; Turok 2016b).
They have the potential to perform multiple functions which strengthen agglomeration
economies and limit opportunistic rent-​seeking, wasted resources, and speculative
landholding to create artificial scarcity. Municipalities can signal the city’s future growth
trajectory to developers through their land-​use plans, zoning schemes, and building
regulations. Plans need alignment with government infrastructure investments to give
them teeth and credibility. They make possible the efficient configuration of employ-
ment nodes, residential areas, and transport connections, which adds enduring value
to the occupiers of land by ensuring activities complement each other and avoid erratic
development.
654   Ivan Turok

City governments perform additional functions in pursuit of this ‘urban premium’

(Turok 2016c). Sensitive design and management of the public realm (from educa-
tional facilities and transport systems to public open spaces) is important for human
interactions to be harmonious, inclusive, and cooperative, rather than estranged, dis-
cordant, and exclusionary (Gieryn 2000). Carefully calibrated regulatory procedures
reduce the burden of compliance and costly delays in developing and refurbishing
buildings—​essential for the adaptive re​use of property in dynamic economies (Turok
et al. 2021b). Many of the benefits of agglomeration are capitalized in land values, so
the capacity to understand the incentives and functioning of the property market, and
to raise property taxes, is essential to achieve desired outcomes and to fund expanded
municipal services. Otherwise much of the value of well-​structured cities accrues
to property owners, who become unreasonably wealthy (Collier and Venables 2015;
Olver 2020).

30.3.2 South Africa’s Urban Experience

The paucity of reliable economic data on city-​level output, per capita income, and la-
bour productivity obstructs systematic research. Statistical deficiencies also blunt policy
responses to the distinct economic problems and potential of the major cities. Estimates
suggest that South African cities have generally performed better than towns and rural
areas, although not well by international standards. The metros, in particular, make a
disproportionate contribution to the national economy. They generate 57 per cent of
national output and 50 per cent of all formal and informal employment, with 40 per
cent of the country’s population (National Treasury 2018). This differential is reflected in
the employment rate. Over 52 per cent of adults in the Gauteng metros have a job (des-
pite high in-​migration), 45 per cent in the coastal metros, 43 per cent in the secondary
cities, 41 per cent in the commercial farming areas and only 21 per cent in the former
homelands (Turok 2018).
South Africa’s major cities have outpaced the rest of the country for some time. The
rate of economic growth of Gauteng and Cape Town—​the two largest agglomerations—​
averaged 3.5 per cent between 1993 and 2016, compared with 2.7 per cent nationally
(National Treasury 2018). Cities also make a disproportionate contribution to public
finances, the main source of which is personal income tax (PIT). The share of national
PIT paid by the three relatively urbanized provinces of Gauteng, Western Cape, and
KwaZulu-​Natal is 75 per cent, with the other six provinces paying the remainder. Gauteng
alone pays 46 per cent, with more economic activity, more taxpayers, and more pro-
ductive, higher-​skilled jobs paying higher salaries and taxes (Turok 2018). The presence
in Gauteng of government departments and the headquarters of many state-​owned
enterprises is relevant too. Nearly a third (29 per cent) of Gauteng’s jobs are professional,
technical, or managerial, compared with only one-​seventh (14 per cent) in the Northern
Cape. What’s more, Gauteng residents pay more than twice as much PIT on average as
people elsewhere, indicating the higher average earnings and employment levels.
 Urbanization, Agglomeration, and Economic Development 655

Whether rural residents become better off by moving to cities is crucial for urbaniza-
tion. Visagie and Turok (2020a) used a unique dataset that tracks the progress of 30,000
individuals over time through repeat surveys. The decision to migrate pays off for most
people, contrary to the popular view that migrants are unskilled and can’t compete for
jobs, leading to discontent and despair. Two-​thirds of rural-​to-​urban migrants who
were poor in 2008 managed to exit poverty by 2014, adding up to approximately 385,000
people nationwide. These people succeeded in finding some kind of job, even if casual
and low paid. Their progress was all the more surprising considering the depressed state
of the labour market over this period and the low level of social mobility in the country
(Statistics South Africa 2019). Using their own initiative to escape poverty by moving to
the city has been one of the few opportunities for advancement open to people living in
the countryside.

30.3.3 The Experience of Different Industries

The importance of tradable goods and services was outlined earlier. South Africa’s cities
have developed distinctive economic capabilities over time that have helped to create
jobs and raise incomes. These specializations are poorly understood. Manufacturing has
been most important since the contraction in gold mining. The metros have 2.5 times
as many manufacturing jobs per resident as the rest of South Africa (National Treasury
2018). The main manufactured exports are motor vehicles, iron and steel, machinery,
chemicals, and processed food (World Bank 2018). Compared with many other middle-​
income countries, South Africa’s exports have under performed for years (Bhorat et al.
2019). Urban infrastructure limitations are partly responsible, including inefficient
harbours, port logistics, shortfalls in electricity supply, and the relatively high cost of
urban operating environments (National Treasury 2018; World Bank 2018).
Lack of international competitiveness is one of the reasons why every major city in
South Africa has experienced deindustrialization in recent decades. Local exporters
have struggled to expand in external markets and foreign imports have displaced local
production, leading to business contractions and closures. Manufacturing was particu-
larly important in the cities of Durban, Ekurhuleni (East Rand), and Port Elizabeth,
which is why deindustrialization has hit them hardest, with little diversification into
other tradable sectors. The overall level of employment in Durban and Port Elizabeth
slumped by 15 per cent between 2008 and 2017, and in Ekurhuleni by nearly 10 per cent
(SACN 2016). The other large metros were less badly affected. Total employment in
Johannesburg increased by 5 per cent over the same period, Cape Town by 8 per cent
and Tshwane (Pretoria) by 12 per cent. This is meagre considering the underlying popu-
lation growth. The 1995–​2008 period was better for South Africa’s cities than the subse-
quent decade, reflecting the national economic malaise since the Great Recession and
the end of the commodities boom (SACN 2016).
Poor manufacturing performance in some other comparable countries has been
offset by stronger growth in tradable services, covering finance and insurance, business
656   Ivan Turok

services, digital technologies, creative industries, tourism, health, and higher education
(Hoekman and de Velde 2017; Newfarmer et al. 2019). High-​productivity services seem
to benefit more from agglomeration than manufacturing because of the importance of
high-​level skills and knowledge spillovers, that is, human interaction in exchanging in-
formation and ideas (Graham and Gibbons 2019; Glaeser 2011). There has been some
growth in most of these sectors in South African cities, albeit more modest than in
other countries, suggesting that South Africa has few globally competitive service firms
(Bhorat et al. 2019). Export growth has been stronger for traditional services, such as
transport and tourism, than for advanced services.
The main source of services growth in Gauteng has been business and financial
services, the output of which expanded by a sizeable 7.4 per cent per annum between
1995 and 2017, compared with 3.8 per cent in KwaZulu-​Natal, 2 per cent in the Western
Cape, and 2 per cent in the Eastern Cape (Visagie and Turok 2020b). These jobs are
predominantly white collar and less accessible than manufacturing to workers without
secondary education. Most of these services have a large non-​tradable component, so
they probably do not generate the same local spinoffs as manufacturing or mining. The
strong growth of financial services has raised broader questions about the phenomenon
of financialization and its potential drawbacks for local and national economic devel-
opment (Fine and Rustomjee 1996; Karwowski et al. 2018). The fact remains that the
finance sector generates a striking 40 per cent of total corporate income tax in South
Africa, so its contribution to public finances, at least, cannot be neglected.
In most cities there has been moderate growth in transport, retail, personal services,
private security, and public services. Their productivity is generally rather low and they
serve predominantly local markets, so they play little role in spurring broader growth.
Recognizing tourism as a tradable sector, the government sought to boost this by
hosting the World Cup in 2010. It used the event as a catalyst for investments in public
transport, football stadia, and precinct upgrades. There were some benefits to construc-
tion and related sectors, but they proved short-​lived in the absence of successor events
(Bhorat et al. 2019). Insufficient efforts were made to sustain tourism demand, and most
of the stadia have become white elephants. Meanwhile individual cities have had some
success in promoting business tourism by building international convention centres.
Higher education is another sector with export potential. South African cities have rep-
utable universities that could attract more students from the sub-​continent.

30.3.4 Towards More Granular Analysis

Recent work has begun to disaggregate the sectoral analysis more systematically to iden-
tify specific strengths of each city using location quotients (Visagie and Turok 2020b).
Johannesburg’s economy has become skewed towards financial services, with nearly
twice as many jobs as expected, given its size. Finance generated over thirty thousand
additional jobs for the city between 2008 and 2017. Johannesburg is the headquarters
 Urbanization, Agglomeration, and Economic Development 657

of the country’s major banks, insurance companies, and stock exchange. Most are
clustered, along with related professional services (legal, accountancy, IT, and man-
agement consultancy) in Sandton, South Africa’s premier commercial precinct located
in the northern suburbs, with the costliest real estate in the country. The international
component of financial services is illustrated by the five main banks having Rand 600
billion worth of assets tied up in other African countries, representing 12 per cent of their
total assets (Thompson and Donnelly 2020). Standard Bank and Absa have the biggest
footprints on the continent. The former generates about 31 per cent of its earnings from
the rest of Africa and has 3.8 million customers there (Turok and Visagie 2020)
The telecommunications sector is similar in some respects to finance. Two South
African corporations have expanded beyond the domestic market and become im-
portant service providers elsewhere on the continent. There are few other South
African corporates producing high-​value tradable services that have become successful
exporters (Bhorat et al. 2019). Fast-​growing African cities offer possibilities in sectors
such as engineering, real estate, infrastructure, and design. SA companies have proven
capabilities in these fields, but seem to have lacked the ambition and/​or appropriate
strategies to succeed (Turok and Visagie 2020). Global consolidation risks South Africa’s
leading business service firms being acquired by foreign multinationals and ending up
as outposts in their international networks. It may not be far-​fetched to envision a SA
government committed to city-​building and forming strategic alliances with private-​
sector and NGO expertise to offer a competitive package of professional urban services
to enable other African countries to plan and manage urbanization better.
Sandton’s experience indicates how agglomeration processes can operate at a
localized scale. It also illustrates the significance of active and deliberate management of
dense urban spaces. Many of Sandton’s corporate offices moved there from downtown
Johannesburg during the 1990s. Similar decentralization trends occurred in Pretoria,
Durban, and other smaller cities (Turok et al. 2021b). The shift was prompted by tu-
multuous changes during the political transition, spurred by many black people moving
from the townships to be closer to jobs. There was a positive aspect to people claiming
spaces from which they had been excluded. Yet, the proliferation of street hawkers,
minibus taxis, and hustlers provoked an exodus of white businesses to the suburbs. Their
loss of confidence in the inner city was compounded by municipal service breakdowns
and flouting of bylaws while local government was being reorganized. Civic leaders
ignored the inherent value of the central city and failed to respond to the opportunity
created by thousands of working people eager to live nearby. Instead, hundreds of
buildings were literally abandoned and assets written-​off as occupiers and owners fled
to suburban nodes, attracted by private-​property interests and rival municipalities.
In Durban, for example, the dominant landowner Tongaat Hulett orchestrated a
major greenfield commercial precinct in Umhlanga, which has hastened the central
business district’s (CBD)’ decline since the 1990s. McKenna (2020) cites a range of other
examples of ‘mega-​projects’ in Gauteng that are likely to have similar effects. Tighter
planning controls around Cape Town and more responsive institutions governing its
658   Ivan Turok

CBD mostly avoided the same fate and actually created a more attractive and upmarket
place to invest, work, live, study, and visit. Nevertheless, the sizeable incentives to bypass
or short-​circuit the city’s plans and regulations mean that property developers continue
to cultivate privileged relationships with political leaders and senior officials in order to
get their projects approved (Olver 2020). Where they have succeeded, the results have
perpetuated socio-​spatial divisions and encroached upon environmentally sensitive
areas and public open spaces.
Elsewhere, the level and timing of CBD disinvestment varied from city to city, but
signs of renewal emerged within a decade (Turok et al. 2021b). Small entrepreneurial
developers observed the pent-​up demand to live centrally and began to convert run-​
down buildings into affordable housing and related uses. They targeted novel markets
shunned by the major developers, such as lower-​paid workers, freelancers, students,
and young black professionals (CDE 2020). Some organized street cleaning, security
services, and landscaping to tackle the physical degradation and decay in their precincts.
These initiatives are bringing renewed energy and investor interest to unexpected places.
They illustrate that intense settlement stresses the urban environment and needs careful
local oversight, including maintaining the infrastructure and governing the public
realm. Government indifference towards the interrelated processes of urbanization and
densification is a recipe for social division, instability, and the destruction of value.

30.4 Housing and Urban Density

Although housing is not a tradable sector, it needs to be planned in relation to the labour
market and other urban assets. Urbanization is less productive or inclusive if people
moving to cities cannot find affordable places to live that are accessible to workplaces.
Maximizing workers’ choice of employers and vice versa improves the fit in terms of
skills and aptitudes. Labour-​market matching is a cornerstone of agglomeration, leading
to higher productivity, more job stability, and raised incomes. Dispersed cities with long
travel-​to-​work distances tend to exclude less-​skilled job-​seekers.
Since housing is the largest user of urban land, its location and density have a
major bearing on the city’s morphology. Flexible access to a diverse residential stock
(including rental options) is important for people to obtain more suitable accommoda-
tion as their family circumstances or earnings change. The property market tends to dis-
tribute households across the city according to their ability to buy into neighbourhoods
with different quality attributes, and property developers reinforce these segmented and
segregated patterns. Without state support, the poor will end up in the least desirable
places with restricted access to opportunities. For all these reasons, housing needs to
be conceived of as intrinsic to a broader vision of compact, integrated, and variegated
settlements, and institutionalized accordingly. These are the kinds of places where social
and economic outcomes improve over time (Jacobs 1984).
 Urbanization, Agglomeration, and Economic Development 659

30.4.1 The Government’s Mass Housing Programme

Urban housing was one of the government’s top priorities in 1994. This commitment
stemmed from the previous regime denying black people the right to own property in
urban areas and calling a halt to housebuilding in the 1980s in an attempt to curtail ur-
banization. This resulted in overcrowded township housing and mushrooming squatter
settlements in places where people could evade eviction. Consequently, decent housing
became a prominent demand for social redress and dignity, and a fundamental right
inscribed in the Constitution. Yet, a narrow policy response has limited housing’s con-
tribution to building more functional cities that can ensure economic advancement as
well as social justice.
The government’s chosen approach gave it exceptional control over the quan-
tity and type of housing delivered, with a bold target to produce one million ‘RDP’
(Reconstruction and Development Programme) houses within five years. State-​led
provision avoided the need to involve the private sector and to engage with the wider
housing system to achieve broader gains. However, accepting full responsibility for
solving the problem let the banks, private developers, and even employers off the hook
(Savage 2014). RDP housing was conceived as something separate from other residen-
tial property—​a form of social compensation instead of the first step on the ladder of
an integrated property market. The houses were designed as free-standing starter units,
with little funding set aside for the land (Gardner 2018). Qualifying households earning
less than R3,500 a month (about half the population) were given these units on condi-
tion they did not sell them for eight years. Homeownership was the preoccupation, with
little attention to the benefits of renting in urban settings.
High expectations were converted into accelerated delivery from approximately
60,000 units in 1994/​95 to about 230,000 five years later. By 2020, over 3 million units
had been built altogether, amounting to over 40 per cent of the country’s total housing
stock (McKenna 2020). This is a notable achievement, with the sheer scale dominating
other formal housebuilding. Households have benefited from living in solid and safer
structures with internal services. Yet, housing has been treated essentially as a con-
sumption good, with little consideration for how it might help address the underlying
problem families face of economic hardship, and how housing can help to build better
cities. The delivery imperative has also been used to justify not devolving housing
responsibilities to the metros, where implementing a more holistic approach would be
more feasible.
The housing programme has not improved people’s skills or connected them to the
labour market. Most projects have been large-​scale, monofunctional, and in marginal
locations where the whole community is poor and detached from social networks
offering useful information about job vacancies (SACN 2014; Turok 2016a; McKenna
2020). The desire to accelerate production meant using large greenfield sites that could
be delivered quickly. Many were on the outskirts of existing townships and far from jobs
and amenities, thereby entrenching segregation, inequality, and low-​density sprawl
660   Ivan Turok

(Gardner 2018; World Bank 2018; CDE 2020). Many households have found themselves
trapped in isolated places, unable to sell their homes legally because of the eight-​year
rule and a 1.1 million backlog of transferring title deeds. Potential buyers also struggle to
get bank mortgages in these areas, so resale prices are sluggish and fall further and fur-
ther behind suburban houses prices (Savage 2014; Marais et al. 2020).
Mass housing has been a classic silo intervention from the centre: restricted in scope,
insulated from economic reasoning, and out of sync with city needs. It contradicts the
logic of agglomeration, whereby households benefit from the opportunities created
by dense economic networks, diverse social connections, and well-​connected infra-
structure systems. The programme has also been susceptible to fraudulent tendering,
corruption, and substandard construction (GTAC 2016; SACN 2014). Olver (2020)
tells the alarming story of how weak checks and balances enabled a cabal of regional
politicians and building contractors in Port Elizabeth to misappropriate sizeable
housing resources over a lengthy period—​a pattern repeated elsewhere. These are
among the reasons why the rate of delivery has fallen throughout the country since 2010,
and the housing backlog has risen (Gardner 2018; McKenna 2020). Unfulfilled promises
have triggered social unrest, with community protests and land occupations regularly
obstructing construction projects.

30.4.2 Backyard Rental Housing

Meanwhile, an alternative approach to low-​cost housing has been evolving from
the ground up in response to these weaknesses. It involves the adaptive reuse of
existing settlements to create higher densities, greater diversity, and more economic
opportunities (Scheba and Turok 2020; CDE 2020). Poor homeowners and small-​scale
developers have been deploying their modest resources to meet the demand for af-
fordable housing by constructing rental units in their backyards (Gardner 2018). This
generates a regular income for their families and demonstrates a viable market for such
housing in the accessible parts of townships and inner suburbs. Backyard dwellings are
also helping to create local jobs and skills during construction and subsequent main-
tenance. These features help to explain why backyarding has taken over as the fastest
growing housing segment, expanding three​fold in Gauteng over the last fifteen years
(Hamann et al. 2018), and with considerable potential for further growth.
The burgeoning backyard sector is more responsive to the locational needs
of households than mass housing. The supply of decent rental units matches the
requirements of many young working people who want flexibility and who can’t afford
to purchase their own property, or who don’t qualify for free houses (CDE 2020; Scheba
and Turok 2020). A cohort of emerging developers and homeowners are using their
own ingenuity and common sense to construct improved accommodation. This has
progressed over time from shacks to solid brick and mortar structures with internal
ablutions (Turok and Borel-​Saladin 2016). These provide more secure and healthier
living conditions for people who can afford a basic rent, but much less than typical
 Urbanization, Agglomeration, and Economic Development 661

formal market rentals. There has been further evolution in some localities to two-​storey
rental units and small blocks of flats on infill sites. Several private finance firms have
acknowledged the potential by providing loans and practical assistance to help people
construct these buildings in return for a share of the rent. Otherwise they rely on un-
secured personal loans and borrowing from family and friends.
Yet, the very success of backyarding is creating other challenges that require
attention, including overloaded infrastructure and safety hazards. When ten or
more families occupy sites designed for single families, there are heightened risks
of electricity breakdowns, water and sewage system failures, and the spread of fires.
Most dwellings do not comply with municipal bylaws, zoning schemes, or building
regulations because these procedures are too onerous. The government doesn’t
know what to do about this, or about backyard housing generally (Scheba and Turok
2020). Public officials assume they can govern these places through formal rules and
standards that are just too burdensome. The regulations were designed in different
circumstances and aren’t realistic or appropriate in the current context (CDE 2020;
McKenna 2020). Some officials try to enforce compliance but are obliged to retreat
in the face of community resistance and threats. Most just look the other way and
disregard everyday occurrences of non-​compliance. Widespread indifference and
neglect risk a vicious cycle of vulnerability, ungovernability, and slum formation as
rising population densities overload public services, infrastructure falls into disrepair,
public spaces deteriorate, public trust dwindles, and the ability of government to en-
force any rules at all is eroded. Municipalities already collect very little from prop-
erty taxes or service fees in these areas, despite some landlords now earning quite
substantial rents.
A more favourable scenario would involve the negotiation of some kind of social
compact whereby public authorities simplify the regulatory framework, offer con-
structive assistance, and upgrade their infrastructure services in return for people
complying with essential standards and beginning to contribute to local taxes. A pur-
poseful, hands-​on strategy to retrofit, rehabilitate, and maintain townships in this way
would create the conditions for more liveable and prosperous neighbourhoods into the
future. With guidance and ingenuity, one could also envisage the creation of mixed-​
use high streets and vibrant precincts accommodating all kinds of retail activities, per-
sonal services, and workshops on the ground floor of two-​or three-​storey residential
units (Charman et al. 2020). External support, including bank financing, could help
some backyard developers to upscale and become more significant providers of afford-
able housing with a bigger impact on the backlog. This scenario requires municipalities
to engage more deliberately with the existing processes underway on the ground.
Streamlining regulations and offering advice with building design and structural
standards would improve the quality of dwellings and provide safeguards for the health
and safety of residents. Formal recognition of these new rental properties would also
increase their long-​term resale value and bring them into the tax system. National gov-
ernment could help with the regulatory reforms and dedicated funding to expand the
bulk infrastructure.
662   Ivan Turok

30.5 Transport and

Urban Connectivity

An efficient and affordable transport system is vital to connect jobs and housing in ways
that maximize the choices available to workers and firms. Spatial mobility also fosters
social mobility by expanding job-​seeker horizons and opportunities. The speed, safety,
and reliability of transport networks are relevant, including how easily commuters can
transfer between different modes. Every city has a different built form and history of
transport investment, so devolving policy levers and operational controls to local
authorities seems sensible to improve transport planning and system responsiveness.
Yet this is complicated in practice, especially with an incoherent transport network in
place and limited existing institutional capabilities available.
Public transport plays a particularly important role in South African cities because
of their disjointed built form and long distances between most townships and eco-
nomic nodes (Turok 2014). Most poor black households face very lengthy commutes
and high travel costs, typically consuming between 20-​40 per cent of their incomes (van
Ryneveld 2018). Cities are also burdened by the legacy of a transport system designed to
control where people lived and how they travelled. Transport infrastructure was used to
separate different groups and marginalize black communities in isolated locations. The
system for white communities was dominated by building roads for private car travel.
Key decisions were centralized within national and provincial government, where the
transport sector was well resourced with strong technical (engineering) capacity to
pursue its mandate. There was little competence for transport planning at the city level,
confounding any simple objective of devolution.
Transport was identified as one of five priority areas for socio-​economic develop-
ment by the 1994 government, although policy did not change greatly in practice.
The historic emphasis on private road-​based transport continued, illustrated by the
massive Gauteng Freeway Improvement Project, despite doubts about roadbuilding
as a lasting solution to traffic congestion (van Ryneveld 2018). Meanwhile, investment
in the commuter rail network continued to be neglected. The Constitution stated that
public transport was an overlapping responsibility of the three spheres of govern-
ment. In practice this seems to have frustrated the formulation of an alternative, more
transformative strategy. The most significant initiative in the democratic era was the
boost to public transport linked to the 2010 World Cup. It was driven from the centre
by the government giving large capital grants to the metros to implement bus rapid
transit (BRT) systems, the operating costs of which were to be met by local ratepayers.
This was the first major injection of public transport funds to city authorities in the
country’s history (van Ryneveld 2018).
The idea was imported from Latin America by consultants and intended to become
the backbone of each city’s public transport network, absorbing and replacing minibus-​
taxis. However, within a few years it became apparent that BRT was ill suited to SA’s low
 Urbanization, Agglomeration, and Economic Development 663

densities and long travel distances. Commuting patterns are tidal rather than two-​way,
with little seat turnover during each trip. Consequently, ticket revenues are far lower
as a share of operating costs than in cities elsewhere. This has created serious financial
burdens for municipalities and provoked doubts about whether BRT can be sustained
into the future (Duminy et al. 2020). The whole experience raises question-​marks about
the government foisting an inappropriate system onto the cities, and about the com-
petence of the metros in relation to transport planning (van Ryneveld 2018). BRT has
become an additional stand-​alone service and achieved little by way of reforming other
parts of the transport system. This is reminiscent of the RDP housing programme in
standing separate from the wider property market.
Current urban mobility arrangements face three additional challenges. First, insti-
tutional responsibilities and funding streams are fragmented, which is a serious hin-
drance to integrating the transport network. Commuter rail is managed by a national
agency, which has suffered from mismanagement and corruption for many years
(Chipkin and Swilling 2018). The service has deteriorated to the point where it barely
functions in several cities, causing increased road congestion. Over the years, there has
been no apparent effort to encourage residential development around the stations on
land owned by the agency, which would increase ridership and generate income for re-
investment in the service. The bus system is managed by provincial governments based
on subsidies provided to private companies. The service is widely considered to be inef-
ficient and the vehicle fleet is outdated (Turok 2014). The 2009 National Land Transport
Act advocated transferring public transport functions to the metros, but progress has
been very slow (van Ryneveld 2018). Inadequate technical capacity is an obvious obs-
tacle, along with resistance from vested interests and lack of clarity on how this should
happen (Duminy et al. 2020). Devolution poses serious financial risks to the metros, al-
though it also offers the potential to transform everyday travel experiences for millions
of people and to create better cities.
Second, urban transport planning is poorly articulated with land-​use and built en-
vironment decisions. This is partly because the transport functions are dispersed across
agencies, but also because the transport sector operates in a silo with its own regulations,
procedures, professional skillsets, and traditions (Turok 2014). City governments
lack the policy instruments and know-​how to coordinate transport investments with
housing decisions, spatial plans, land-​use controls, and infrastructure projects. The
Cities Support Programme has endeavoured to strengthen municipal capacity in trans-
port planning, which may in due course facilitate devolution (Duminy et al. 2020). To
shift inherited settlement patterns and densify the built environment will require more
determined efforts to develop infill sites (many of which are publicly owned), to inten-
sify activity in the inner cities and along transport corridors, and to convert and re-
develop low-​rise buildings in the inner suburbs for residential purposes (Turok 2016a).
Third, public transport is dominated in practice by minibus-​taxis, which traditionally
have fallen outside the scope of transport plans and subsidies. Two-​thirds of all public
transport trips for work and study use minibus-​taxis—​twice as many as trains and buses
combined (van Ryneveld 2018). The taxi industry is more flexible and responsive to
664   Ivan Turok

commuter needs than the formal transport system. It also generates many employment
opportunities and operates with very little government funding. However, taxis have ex-
ploitative labour practices, a poor safety record, and do not operate scheduled services
(Charman et al. 2020). Operating licences are regulated by provincial governments,
so the metros tend to exclude taxis from their transport plans. Nevertheless, there is
gradual acceptance across government that taxis need to be incorporated into plans for
a future hybrid public transport system which would be more flexible and cost-​effective
than the current infrastructure-​heavy rail and BRT services (World Bank 2018; Duminy
et al. 2020). The transition will be difficult to manage because the industry is currently
largely informal, often unruly, and socially powerful, which fits uncomfortably along-
side the rule-​bound procedures of the state. Purposeful leadership with an appetite
for negotiation and creative problem-​solving will be required to integrate taxis into a
superior transport network. Strengthening the role of civil-​society organizations and
community groups would help to promote the interests of commuters and not just those
of more powerful stakeholders.

30.6 Conclusion

There are compelling arguments and increasing evidence from around the world that
agglomeration promotes economic dynamism and social progress. The economies of
scale and frequent business and human interactions foster learning, expedite labour
market matching, and enable the sharing of resources and infrastructure. Yet, large
dense cities also generate adverse effects, including congestion, overcrowding, and so-
cial discord. These drawbacks tend to be more conspicuous than the benefits and exert
a bigger influence on the attitudes of decision-​makers. Consequently, many public
officials are sceptical about urbanization and do not appreciate the need—​or lack the
appetite—​to actively support, guide, and manage the process.
Ambivalence towards urbanization is problematic because it inhibits a common
vision and coordinated strategy across government towards building cities. Without
anticipatory investment in urban land and infrastructure and dynamic shaping of the
public domain, large-​scale urban growth is likely to be detrimental to the economy, so-
ciety, and environment. A constructive approach that prepares the ground and delib-
erately engages with the processes at work stands a much better chance of realizing the
potential of urbanization to raise productivity, boost private investment, and generate
employment. Increasing the capabilities of city governments responsible for planning,
regulating, and framing the built environment can make a major contribution to
successful urban development.
The post-​apartheid government has taken a more neutral stance towards urbanization
than the previous regimes. Robust metropolitan authorities were created to manage city
growth, but without some of the essential policy levers in land, housing, and transport to
densify well-​located areas and improve the spatial form. Efforts to empower the metros
 Urbanization, Agglomeration, and Economic Development 665

and hold them accountable for leading the way in national economic development lost
momentum after the 1990s. By treating different places even-​handedly, national gov-
ernment has avoided inflaming sensitivities surrounding territorial issues. However,
relatively little positive action has been taken to overcome the spatial distortions of
apartheid and to harness the developmental possibilities of better structured cities.
Policies towards housing and transport have inadvertently perpetuated inefficient and
unfair urban forms. This has aggravated the racialized reproduction of poverty and in-
equality that dates back more than a century.
Some of the dilemmas faced are illustrated by the growth of urban informality—​in the
labour market, housing, transport, and other sectors. On the one hand, informal modes
of provision show signs of dynamism, creativity, and adaptation to the requirements of
poor communities. Grassroots initiatives, energy, and capacity are being mobilized to
meet everyday needs, exposing weaknesses in many formal policies in the process. On
the other hand, many of those involved as workers, households, and service users lack
important safeguards and protections because of governance limitations in many in-
formal systems. In view of the capacity constraints facing the state, informal practices
need to be recognized and ways found to strengthen and regularize them. This requires
a shift in approach from regulatory compliance and top-​down delivery methods, to-
wards more of an enabling, capacity-​building role. Municipalities need to get more
closely involved in understanding developments on the ground and working together
with civil ​society actors and interests on joint projects to chart the way forward.
Experimenting with different forms of practical assistance for informal enterprises
and new governance arrangements is likely to be important, along with more research,
evaluation, and evidence collection.

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 PA RT I V

T H E L A B OU R
M A R K E T,
DI ST R I BU T ION ,
A N D S O C IA L P OL IC Y
 Chapter 31

Changing Dyna mi c s
in the Sou th A fri c a n
L ab our Ma rket

Haroon Bhorat, Ben Stanwix,

and Amy Thornton

31.1 Introduction

At the centre of many of South Africa’s major economic problems sits the country’s
labour market, where the most striking feature is a narrow unemployment rate that
is approaching 30 per cent and has remained above 20 per cent for the last twenty-​
five years (StatsSA 2019). Unemployment in South Africa is a long-​run structural
challenge—​with deep historical origins that are evident in the structure, level, and na-
ture of economic growth. The large numbers of people who cannot find work, and thus
earn zero incomes, underpin rates of household poverty that remain stubbornly high
and have not shifted dramatically since the end of apartheid. Similarly, extreme levels
of income inequality persist, driven primarily by growing labour market inequality,
which is estimated to account for between 85 and 91 per cent of total income inequality
in the country (Leibbrandt et al. 2010, 2012). In the face of such enduring unemploy-
ment, poverty, and inequality then, what are some of the major changes that have
taken place in the labour market over the last two decades, and how can these help to
make sense of South Africa’s tepid post-​apartheid economic growth and development
trajectory?
In this chapter we draw on existing research, and our own analysis of household
survey data, to examine three broad areas of labour market transition. First, we docu-
ment a trend of de-​industrialization and skills-​biased change. This involves quantifying
674    Haroon Bhorat, Ben Stanwix, and Amy Thornton

a relatively rapid shift in the structural composition of employment and output, where
we observe an expansion of employment in skilled occupations, and growth that is
concentrated almost exclusively in the tertiary sectors. Second, we analyse changing la-
bour market returns and highlight a U-​shaped pattern of wage growth driven by real
gains at the top and, to a lesser extent, the bottom of the distribution, with negative wage
growth for workers in the middle. Wage growth at the bottom of the distribution is likely
owed to minimum wages, but other explanations for this U-​shaped pattern relate to oc-
cupational shifts and changes in the returns to education. We also allude to the rise of
the public sector and a public-sector union class that commands a considerable wage
premium—​a fundamentally new feature of the domestic labour market. Finally, a series
of policy interventions that include progressive labour market regulation, the introduc-
tion of minimum wages, and several active labour market policies, have reshaped the
regulatory structure of the labour market in important ways. Yet, despite these efforts to
improve employment security and wages for vulnerable workers, evidence suggests that
the violation of labour market regulations is widespread, and that high unemployment,
declining union membership in the private sector, and limited enforcement, undermine
the bargaining power of workers in South Africa.

31.2 Data

The analytical work in this chapter makes use of nationally representative household
survey data from Statistics South Africa (StatsSA) for the 2000–​19 period. Specifically,
for 2000–​07 we use the Labour Force Survey (LFS) which was a cross-​sectional, house-
hold survey, conducted biannually. From 2008 to the present, we use the Quarterly
Labour Force Survey (QLFS), which replaced the quarterly LFS. Both surveys contain
individual-​and household-​level data on individuals aged fifteen years or older and in-
clude a wide array of demographic and labour market information. Earnings data for
the QLFS series is released once a year in the form of the Labour Market Dynamics
data (LMD). These three datasets are combined in the Post-​Apartheid Labour Market
Series (PALMS) version 3.3, a stacked cross-​sectional dataset created by DataFirst at
the University of Cape Town (UCT). The PALMS is a harmonized dataset of microdata
from sixty-​nine household surveys conducted by StatsSA between 1994 and 2019 and
allows for a more sophisticated treatment of key labour market variables, especially
when using survey weights to assess changes over time. As made clear by Wittenberg
(2017a, 2017b) there are important structural breaks in the available household survey
data that is collected in the PALMS. This is particularly problematic for information on
wages, and as such we choose to begin the majority of our analysis from the year 2000
onwards, where the data are relatively more reliable. Note also that the earnings data in
this version of PALMS ends in 2017, which was the latest release of the LMD data when
the version was compiled.
 Changing Dynamics in the South African Labour Market    675

31.3 Trends in Output, Employment,

and Earnings

Over the last two decades there has been a structural shift in the South African economy,
which mirrors trends observed in the rest of the world. This pattern of structural trans-
formation involves a shift away from the primary and secondary production that has
long characterized South Africa’s economic base, toward services-​related activities
in the tertiary sector (Nattrass and Seekings 2011; Andreoni and Tregenna 2018). For
much of the twentieth century, agriculture, mining, and later manufacturing, were the
backbone of the country’s economy (Feinstein 2005). Together these sectors accounted
for about half of both value a​ dded to GDP and employment in the 1960s (Bhorat et al.
2020a). This began to shift in the late 1980s as the protectionism that had defined the
apartheid economy was reduced, and eventually dismantled during a period of rapid
trade liberalization during the 1990s (Edwards and Lawrence 2008). These changes, in
combination with industry-​specific factors and global trends, led to a steady decline
in the contribution of the primary and secondary sectors to South Africa’s GDP and
in turn, to the country’s economic growth trajectory. Since 2000, a variety of low-​and
high-​productivity services sectors have risen to prominence as the main engines of both
GDP and employment growth in South Africa.
To document these shifts Figure 31.1, below, plots GDP and employment growth
between 2000 and 2019, by main sector. The x-​axis measures contribution to GDP
growth and the y-​axis employment growth. Each bubble is weighted by the size of
employment in 2019, and sectors that lie above the 45-​degree line have seen labour-​
absorptive growth—that is, employment growth has exceeded output growth. As
the figure shows, the only significant sectors in this category are Community, Social,
and Personal Services (CSP) and Financial and Business Services (FIN). The Utilities
(UTIL) sector also reports positive growth, but only accounts for a small share of total
employment and is primarily comprised of parastatals. Of the five sectors exhibiting
positive value ​added to GDP and employment, four are services related—​CSP, FIN,
Transport (TRNPRT), and Wholesale and Retail Trade (WRT). The only other sector in
this category is Construction (CONST), which itself contains several services-​based sub​
sectors. In contrast, the aggregate decline of Manufacturing (MANU), Mining (MIN),
and Agriculture (AGRI) is evident, characterized by a combination of negative em-
ployment growth and marginal contributions to GDP. For the once-​dominant mining
sector, growth in employment and value ​added to GDP has been zero, on average, across
the period.
The sharp rise of the services sector at the aggregate level has come as a consequence of
two separate trends. First, the rapid growth of financial and business services, which has
absorbed a large share of the economy’s scarce, high-​skilled individuals. And second, a
growth in low-​paid and relatively low-​skilled service jobs, such as security guard work,
care work, or casual manual work, which have grown at least partly because these types
676    Haroon Bhorat, Ben Stanwix, and Amy Thornton

Annual average growth rate of employment (%) FIN

4
UTIL CONST

CSP
2 TRNPRT
WRT

0 MANU
MIN
AGRI

–2
–1 0 1 2 3 4 5 6
Annual average growth of value added to GDP (%)

Figure 31.1 Value a​ dded and employment growth by sector, 2000–​19

Source: GDP data from the South African Reserve Bank; employment data from PALMS v3.3.
Notes: AGRI = Agriculture; MANU = Manufacturing; MIN = Mining; WRT = Wholesale and Retail Trade;
TRNPRT = Transport; UTIL = Utilities; CSP = Community, Social, Personal Services; FIN = Financial Services;
CONST = Construction. Employment data weighted using survey weights for a sample of all employed, excluding self-​
employed agricultural workers.

of services cannot be offshored or outsourced to mechanized production systems. What

we observe then, in contrast to the so-​called Asian Tiger model of manufacturing-​led
growth, is that South Africa has followed a pattern of what could be seen as ‘premature
deindustrialization’ (Palma 2005; Rodrik 2016). The manufacturing sector has never
emerged as a major driver of growth in South Africa—​and instead what we observe is
that a diverse range of services has become dominant (Andreoni and Tregenna 2018;
Bhorat et al. 2020a).
To crystallize this point we look more closely at employment data for the main in-
dustry and occupation codes in South Africa between 2000 and 2019, in Table 31.1 and
Table 31.2, respectively. Industries are categorized into the standard three groupings
(primary, secondary, and tertiary), and occupations are divided by skill level. Looking
at Table 31.1, we estimate that about 4.9 million new jobs were created over the period,
and 4.3 million of these (or 89 per cent) were in the tertiary sector. More specifically,
the Finance and CSP sectors each accounted for about a third of the total increase,
making them by far the most important sources of employment growth. Notably, these
employment increases took place in a period when the primary sectors shed close to
300,000 jobs.
There are also important intra-​sectoral changes that took place, which are not obvious
from the aggregate figures. For example, much of the increase in financial services em-
ployment is due to a growth in contract work, formally called Temporary Employment
Services (TES), which we discuss in more detail below. In addition, growth of CSP jobs
 Changing Dynamics in the South African Labour Market    677

Table 31.1: Sectoral employment distribution and change, 2000–​19

Sectors Employment Growth Employment shares Share of Change
2000–​19 (%)
Absolute Relative 2000 2019 2000–​19
(000s)

Primary –​296.62 –​0.20 12.86 7.22 –​0.06

Agriculture –​149.33 –​0.16 8.12 4.79 –​0.03
Mining –​147.29 –​0.27 4.74 2.43 –​0.03
Secondary 919.59 0.38 20.85 20.19 0.19
Manufacturing 179.33 0.11 14.15 11.01 0.04
Utilities 56.83 0.59 0.84 0.93 0.01
Construction 683.42 1.01 5.86 8.25 0.14
Tertiary 4,392.93 0.58 65.53 72.57 0.89
Trade 870.27 0.34 22.35 20.94 0.18
Transport 423.93 0.71 5.16 6.18 0.09
Finance 1,653.27 1.74 8.2 15.78 0.34
CSP 1,491.35 0.70 18.35 21.91 0.30
Domestic services –​45.89 –​0.03 11.47 7.76 –​0.01
Total 4,933.55 0.43 100 100 1.00

Source: Own calculations using PALMS v3.3.

Notes: Adjusted using sampling weights for a sample of all employed excluding self-​employed
agricultural workers.

has been bolstered by an expanding public sector, which in 2019 accounted for around
20 per cent of total employment. The expansion of the public sector has played a central
role in driving up total union membership, and the public-sector wage bill, in South
Africa over this period. We observe then that the growth in services has occurred across
different portions of the wage and skill distribution, with implications for how services-​
led growth impacts on both wage and household inequality.
Changes at the occupational level require a slightly more nuanced analysis since
the patterns are less clearly defined than at the sectoral level. The data show that four
occupations—​managerial, clerk, service work, and elementary occupations—​account
for 4.2 million, or 85 per cent, of all jobs generated over the 2000–​19 period. What this
suggests is that to some extent across the skill categories growth is happening at the
poles, where both highly skilled work and elementary occupations have grown relatively
quickly. At the upper end of the skill spectrum, growth in managerial occupations has
been assisted by the robust expansion of employment in the public sector and the finan-
cial and business services sector. Within elementary occupations, it is manual work in
mining, construction, and manufacturing that has grown.
678    Haroon Bhorat, Ben Stanwix, and Amy Thornton

Table 31.2: Occupational employment distribution and change, 2000–​19

Occupations Employment Growth Employment shares (%) Share of Change
2000–​19
Absolute Relative 2000 2019 2000–​19
(000s)
High Skill 1,255.94 1.08 10.07 14.67 0.25
Managers 912.11 1.46 5.42 9.33 0.18
Professionals 343.84 0.64 4.65 5.34 0.07
Mid–​High Skill 323.65 0.28 10.03 8.99 0.07
Technicians 323.65 0.28 10.03 8.99 0.07
Mid–​Low Skill 2,066.79 0.36 49.95 47.54 0.42
Clerks 645.38 0.59 9.49 10.57 0.13
Service 1,239.56 0.84 12.75 16.45 0.25
Skilled agriculture –​328.71 –​0.92 3.11 0.18 –​0.07
Trades workers 372.40 0.23 13.86 11.97 0.08
Operators 138.17 0.11 10.74 8.37 0.03
Low Skill 1,334.63 0.39 29.52 28.78 0.27
Elementary 1,440.50 0.63 19.87 22.66 0.29
Domestic workers –​105.87 –​0.09 9.65 6.12 –​0.02
Total 4,933.55 0.43 100 100 1.00

Source: Own calculations using PALMS v3.3.

Notes: Adjusted using sampling weights on a sample of all employed excluding self-​employed
agricultural workers.

However, employment has also expanded for services workers and clerks—​both
situated toward the middle of the wage distribution. Most service work jobs offer
returns that are slightly below the median, while clerks occupy the ‘bottom’ of the top
end of the distribution, around the 80–​85 percentile (Bhorat et al. forthcoming). The
growth in service work is strongly related to the expansion in personal care occupations
for women and protective service occupations for men, which are classified under the
CSP sectoral classification. Clerical work is largely a female vocation in South Africa,
and growth here is related to the success of the financial and business services sector, as
well as wholesale and retail trade (Bhorat et al. forthcoming).
Finally, a new dynamic that has accompanied the dramatic shift toward services and
away from primary and secondary sector employment has been the increasing casual-
ization of labour (Budlender 2013; Bhorat et al. 2016). Accurately identifying this trend
empirically is notoriously difficult because South Africa’s labour market surveys are not
designed to measure casual or outsourced work and, as a result, accurate data does not
exist. However, labour economists have reached some consensus about a sub-​industry
 Changing Dynamics in the South African Labour Market    679

classification in the survey data that can be used as a blunt instrument to trace the ex-
pansion of casual work.1 Individuals working for temporary employment agencies, or
labour brokers, are classified under this code, but the consistency of this identification
is not easy to evaluate so it remains a preliminary exercise. Nevertheless, using this
approach, it is possible locate large shares of low-​skilled service workers in jobs that are
commonly linked to outsourcing, such as security guards, and office and hotel cleaners,
among others.
We estimate that the Business NEC sub s​ ector included a total of 1.2 million workers
in 2019, having trebled in size since 2000. The sector’s share of employment grew from
2.9 per cent of total employment to 7.7 per cent over the period. As alluded to above,
more than 45 per cent of those employed within this category are protective services
workers, and an additional 20 per cent are cleaners in hotels or offices. The remaining 30
per cent of workers are from a wide range of occupational categories, none with a share
contributing more than 3 per cent of the total.
This growing trend of outsourced, temporary work is concerning inasmuch as work
of this nature is more precarious, less well-​protected, and generally leaves workers more
vulnerable (Budlender 2013). The data suggest that most workers associated with this
type of employment are low-​paid, low-​skilled, service workers, making an important
connection between casualization and the shift toward services in South Africa.
Conventionally, ‘tertiarization’ is associated with advanced economies getting richer, or
at least, a higher share of output from services is regularly linked to higher per capita
income (Eichengreen and Gupta 2013). The premature deindustrialization that appears
to be taking place in South Africa, by contrast, suggests two stylized facts. First, the de-
cline of manufacturing and the rise of services as a share of GDP has meant that the
services sector—​in its multiple forms across the productivity spectrum—​has generated
the overwhelming majority of all jobs in South African since 2000. Second, this rise in
services has led to a possible bifurcation in employment trends—​where services-​driven
employment growth has created a more rapid expansion in well-​regulated high-​skilled
high-​productivity jobs, but also in increasingly precarious low-​productivity jobs that
have grown partly because they cannot be outsourced or replaced by machine or com-
puter technology.

31.3.1 Earnings
At the same time as the South African economy has shifted toward services, there have
been substantial changes to the national wage structure, which are partly connected to
this shift but also influenced by a range of other non-​market factors. To characterize a
key feature of these changes, Figure 31.2 plots the average annual growth rate of wages,

1
Specifically, this relies on the three-​digit Standard Industrial Classification category of ‘Business Not
Elsewhere Classified’ (Business NEC, code 889).
680    Haroon Bhorat, Ben Stanwix, and Amy Thornton

3
Annual average growth rate of wages (%)

-1
0 10 20 30 40 50 60 70 80 90 100
Wage percentile

Figure 31.2 Annual average growth rate of employee earnings, 2000–​17

Source: Own calculations using PALMS v3.3.
Notes: Adjusted using bracket weights. Annual average growth rate of wages calculated by averaging the year-​to-​year
change in wages at each wage percentile for all years between 2000 and 2017.

across the wage distribution, between 2000 and 2017; the latest year of available earnings
data in our dataset. The figure shows that returns have grown consistently to the top
end of the distribution, and this skills-​biased trend in earnings growth is consistent with
the relative labour demand shifts observed above. A range of highly skilled occupations
within the services sector has thus seen rapid employment growth and a significant in-
crease in real wages. At the bottom end of the distribution, we also observe positive wage
growth over the period. Here the effects of an expanding sectoral minimum wage re-
gime that legislated consistent real wage increases over the period appears to have had a
measurable impact.
Perhaps most striking, however, is that wages toward the middle of the distribu-
tion have experienced the weakest growth. Indeed, we observe negative real growth
between the 40th and 65th percentiles. This U-​shaped pattern of wage growth fits
with an established narrative of ‘wage polarization’—​a trend that characterized wage
growth in many advanced economies in the early to late 2000s, associated with rising
inequality (Autor et al. 2003; Goos et al. 2014). This pattern can be at least partially
explained by the ‘routine-​biased technical change’ hypothesis, which links job de-
mand to how easily a job can be either automated or replaced by a machine or com-
puter (Firpo et al. 2011). Jobs that involve more routine tasks are thus at higher risk of
replacement and are also more commonly located around the middle of the earnings
distribution. In South Africa, jobs with a significant component of tasks that can be
identified as routine are found in occupational categories such as machine operators
and bookkeepers, but also a variety of ‘white-​collar’ administrative jobs that have been
 Changing Dynamics in the South African Labour Market    681

replaced to a greater or lesser degree by computers and other mechanized techno-

logical processes.
At the bottom end of the wage distribution, and in addition to the non-​routine
elements of some low-​wage work, there is another factor that protects employment
from mechanization and offshoring. This is the degree to which the work must be
done on site. Consider, for example, personal care workers and security service
workers, which together account for about 738,000 jobs, or 4.5 per cent of total em-
ployment, in 2019. This work cannot, or can only to a limited extent, be replaced
by computer technology or offshored, and much of it requires a significant on-​site
component. These two features protect the existence of such jobs in the middle-​and
lower-​skilled occupational categories (Bhorat et al. forthcoming). It is perhaps no co-
incidence then that in aggregate the sectors and occupations that are expanding are
primarily those involving non-​routine tasks, and those with key elements that can
only be done on site.
While these explanations are plausible, it is unlikely that the shape we observe
in Figure 31.2 is driven primarily by routine-​biased technical change, as it has been
conceptualized in industrialized countries. There remain a number of other country-​
specific reasons that help to explain the hollowing out of wage growth in the middle
of the distribution, not related to the task content of jobs. These include the patterns of
structural transformation described above, as well as the changing role of education, the
shifting structure of union membership, and the role of minimum wages. We turn our
attention to each of these issues below.

31.3.1.1 Returns to Education
Over the post-​apartheid period the educational composition of the employed has
transformed dramatically, with significant implications for labour market returns. The
roll-​out of free access to public schooling has resulted in South Africa boasting some
of the highest enrolment rates for its income level (Spaull 2013). The share of employed
individuals who achieved a high school qualification rose from 20.8 per cent in 2000
to 33.4 per cent in 2019. By 2019, slightly more than one-​fifth (22.8 per cent) of those
employed had some form of post-​secondary educational qualification.2
Critically, quality has not kept pace and one effect of increased enrolment has been
to undermine returns to high school education relative to other qualification levels. We
observe that those with the lowest and the highest levels of education have experienced
the greatest improvement in returns, whilst those with high school and incomplete high
school education have seen their returns stagnate for most of the two decades since
2000. The observed growth in returns for the least educated is almost certainly related
to many of these workers occupying low-​paid but minimum-​wage-covered jobs, which
would have benefited from regularly legislated real wage increases (Bhorat et al. 2020c).

2
This includes diplomas and certificate-​type qualifications, which can refer to vocational training
qualifications.
682    Haroon Bhorat, Ben Stanwix, and Amy Thornton

It is clear though that returns have mainly accrued to the most highly skilled. In this
regard, Branson et al. (2012) describe what they call a ‘skills twist’, where the swelling of
high school graduates, in combination with a deterioration of the quality of the high
school certificate, has benefited those able to study further. As such, returns have con-
sistently increased for the most highly educated individuals in the labour market. This
has interacted positively with the growth of the financial and business services sector
which offers many well-​paying jobs to these highly qualified graduates. Together then
we see that sectoral, occupational, and educational trends have come together to ensure
concentration of returns to the most skilled.
In contrast, a number of factors have combined to undermine returns for high school
graduates. First, deteriorating quality in the schooling system has meant that employers
have become less convinced about the strength of the signal sent by a high school cer-
tificate. And second, the increased supply of high school graduates has dovetailed with
the marginal employment and output performance in the secondary sectors described
above, where many such graduates would previously have found work. In effect then, a
large group of similarly educated (but possibly less-​skilled) individuals are competing
for a dwindling pool of blue-​collar jobs and together these factors have served to erode
wage growth in the middle of the distribution (Bhorat et al. 2020c).

31.3.1.2 Union Wage Premiums and the Public Sector

An important, and growing, segment of the labour market where we observe signifi-
cant employment and earnings growth is in the public sector, and in particular for
public-sector union members. Indeed, union membership in South Africa is increas-
ingly connected to the rise of the public sector, which has shifted the composition of
union membership away from the private sector. While the number of private-sector
union members grew from 1.6 million in 2000 to 2.1 million in 2019, the private-sector
unionization rate has fallen from around one-​third in the 1990s, to less than one-​fifth in
2019 (Kerr and Wittenberg 2019). In contrast, the proportion of the public sector that is
unionized ballooned in the 1990s, and since the early 2000s has consistently exceeded
60 per cent. The result is that in 2019 the public sector had a larger total number of union
members than the private sector, despite total employment in the public sector only
accounting for 20 per cent of total employment.
The proportional decline in the share of private-sector union membership is directly
linked to employment shifts above, where employment in highly unionized sectors,
such as mining, have decreased significantly, whilst casualization of the labour force has
increased. This has had implications for the relationship between union membership,
public-sector employment, and wages. We illustrate this basic relationship in Figure
31.3 below. The figure presents a plot of wage distributions for union and non-​union
members in both the public and private sector.
It is clear that across the income distribution, on average unionized workers earn more
than non-​unionized workers, with the wage distribution of public-sector unionized
workers being furthest to the right. This segmentation is cemented by the modes of the
non-​union wage distribution, where these are significantly to the left of the modes of the
 Changing Dynamics in the South African Labour Market    683

.6

.5

.4

.3

.2

.1

0
0 5 10 15
Public & Union Non-Public & Union
Public & Non-Union Non-Public & Non-Union

Figure 31.3 Wage distributions by union status and public/​private sector, 2017
Source: Own calculations using PALMS v3.3.

unionized workers’ wage distributions. More detailed econometric work that estimates
these wage premia suggests that for unionized workers, the public-sector wage premium
is 20.7 per cent (Kerr and Wittenberg 2017). Certainly an important feature of the current
labour market then is the wage wedge that now exists between unionized public-sector
workers, and other formal sector workers.
In summary, the data on earnings suggest that two main sub-​groups in the economy
have been able to accrue most of the returns in the labour market. First, those who are
highly skilled and who remain a relatively small proportion of the employed. Second,
a public-sector union class, which has grown substantially, and suggests that securing
government employment commands a significant wage premium. The majority of the
labour market, with lower skill levels, have faced continued contractions in the trad-
itionally labour-​absorbing sectors where they would typically find employment. While
for many at the bottom of the earnings distribution, the main source of wage growth has
likely been due to above-​inflation increases in sectoral minimum wages.

31.4 Policy Interventions

31.4.1 Minimum Wages
In addition to the aggregate wage and employment shifts discussed above there are a
series of policy interventions that have also played an important role in shaping the
South African labour market over the post-​apartheid period. One of the most influen-
tial has been the introduction of sectoral minimum wage laws. Starting in 1999, a series
684    Haroon Bhorat, Ben Stanwix, and Amy Thornton

of minimum wage laws were gradually introduced in low-​wage sectors with limited
union coverage, beginning with contract cleaners, domestic workers, and farm workers,
and expanding to cover the wholesale and retail sector, private security, as well as the
taxi and hospitality industries. By 2007, these new regulations covered approximately
five million workers, and among the poorest 20 per cent of workers, 80 per cent were
covered by a minimum wage (DPRU 2016).
Crucially, these sectoral minimum wages were increased annually, at rates above
inflation, and econometric evidence shows that they significantly raised the average
earnings of covered workers. These positive wage effects did not have any observable
negative employment effects in general, with the exception of agriculture where job
losses did result. At the aggregate, however, consistent real minimum wage growth does
appear to have played a role in shaping returns at the bottom end of the earnings distri-
bution (Bhorat et al. 2020).
In 2019, minimum wage coverage in South Africa was expanded further through the
introduction of a National Minimum Wage (NMW). This new minimum wage is set
close to the median of the national wage distribution and as such it applies to almost
half of all workers in South Africa. The legislated minimum wage rate of R20 per hour
is also a substantial increase on the previous sectoral rates that it supersedes, and in
Figure 31.4 we calculate the proportion of employees by sector who earn less than the
NMW in 2017.
The data show that while on average 46 per cent of workers in South Africa earn less
than the legislated hourly rate, there is substantial sectoral variation around this figure.
Yet regardless of these sectoral nuances a wage floor that covers half of all workers is
extensive when compared internationally. As one example, in the United Kingdom na-
tional minimum wage coverage is below 7 per cent (Low Pay Commission 2018). The

.6
Sub-Minimum Wages (%)

.4

.2

0
Private households

Average

Construction

Wholesale & Retail

Manufacturing

Transport
Mining

Financial Services
Electricity

Agriculture
Community

Figure 31.4 Proportion of workers earning below the national minimum wage by sector, 2017
Source: Own calculations using PALMS v3.3.
 Changing Dynamics in the South African Labour Market    685

new national minimum wage, and the considerable wage increases required in certain
sectors, thus constitute an important break from the arrangements of the past. On the
assumption that there are no major negative employment impacts, amidst reasonable
compliance with the law, the policy would generate significant additional wage gains for
several million low-​wage workers.

31.4.1.1 Labour Market Regulations and Non-​compliance

Beyond minimum wages a relatively comprehensive set of laws governing workers’
rights were created in the years immediately following the end of apartheid, and these
are set out in different sections of legislation. The Basic Conditions of Employment Act
of 1997, for example, details a set of specific employment regulations that apply to low-​
wage workers. These are complemented by minimum wage policies, and together pro-
vide a relatively thorough wage and non-​wage legislative foundation that aims to protect
vulnerable workers.
There is, however, a significant gap between the regulations that exist on paper
and the reality that low-​wage workers face. Indeed, the measured incidence of non-​
compliance across the suite of existing labour regulations shows that a substantial
proportion of workers do not enjoy the regulatory protections afforded to them by
law (Bhorat et al. 2020). As noted above, one of the most significant areas of regula-
tory violation is earnings, but, violation of non-​wage employment regulations is also
widespread. Around 30 per cent of all workers have no access to paid vacation or sick
leave, 5.1 million employees report that they are not registered for unemployment insur-
ance, and 2.2 million workers work longer hours than is legally permitted. Overall then
we observe that violation levels across both wage and non-​wage legislation is very high
on average, but that this varies considerably by a range of demographic and structural
factors.
The underlying determinants of non-​compliance are not yet well understood, but
there are several important factors worth noting that do impact on compliance. In
particular, areas with higher rates of unemployment are clearly associated with more
extensive underpayment of wages. This points to the fact that in areas with higher un-
employment, workers have less bargaining power, making them more vulnerable to
wage exploitation. Bhorat et al. (2020) expand on this observation and note that it holds
for both wage-​related and non-​wage-related violations. More detailed econometric
work also suggests that violation levels are strongly influenced by both firm size and
union membership status; violation at the firm level is lower among larger firms and at
the individual level is lower for union members (Bhorat et al. 2017).

31.4.2 Active Labour Market Policies

At a macro level the combination of low economic growth and skills-​biased structural
change has, along with other factors, helped to reinforce high levels of unemployment.
In an effort to combat this, the state has turned increasingly to direct job creation efforts,
686    Haroon Bhorat, Ben Stanwix, and Amy Thornton

and introduced four relatively large-​scale Active Labour Market Policies (ALMPs)
over the last two decades. The first of these is the Expanded Public Works Program
(EPWP), introduced in 2004, which is a labour-​intensive demand-​side policy providing
temporary work placements for the unemployed. This was followed, in 2010, by the
Community Works Program (CWP), which is a sub-​programme of the EPWP and
offers employment with the more focused intention of improving community welfare.
In many ways the CWP is South Africa’s version of a classic employment guarantee
scheme and, for example, includes the creation of jobs for community care workers and
teaching assistants. In 2014, the government launched its first wage subsidy scheme—​
the Employment Tax Incentive (ETI)—​which aims to reduce youth unemployment by
lowering the cost of hiring younger workers. Finally, while these three programmes
are all designed to address long-​term structural problems, in 2009 the government
introduced a job re-​training scheme (known as the Training Layoff Scheme) to address
the short-​term adverse employment impacts of the 2009 global financial crisis.
To gain insight into the comparative efficiency of each of these schemes Figure 31.5
estimates the cost per beneficiary in each case. The EPWP, or public employment
scheme, has by far the highest cost per beneficiary, at an average of US$1,810 per work
opportunity created. It also provides a large number of work opportunities—​around
780,000 in 2016/​17. The CWP, by contrast is less than a third of the cost, at $562 per
work opportunity. This is likely due to the lower administrative burden of administering
the CWP, relative to the suite of programmes available under the public employ-
ment scheme. In quantitative terms, the job re-​training scheme appears to be the least

2 000 1200 000

1 800
1000 000 Jobs Supported/Created in Most Recent Year
1 600
Cost per Benenficiary (US$)

1 400
800 000
1 200

1 000 600 000

800
400 000
600

400
200 000
200

0 -
EPWP CWP Lay off Wage Subsidy
Scheme

Cost per Beneficiary Jobs Supported/Created in Most Recent Year

Figure 31.5 Cost per beneficiary and jobs created by ALMPs in South Africa
Source: Bhorat et al. (2019).
 Changing Dynamics in the South African Labour Market    687

successful of the ALMPs, at a relatively high cost per beneficiary (US$980) with very few
workers retrained under the scheme. This is probably a result of the short time span for
which the scheme was implemented.
The most successful of the schemes appears to be the wage subsidy, or ETI, which
has thus far reached the largest number of beneficiaries at the lowest per capita cost. In
total, the ETI supported over one million workers in 2015/​16, at a cost per beneficiary of
US$211. However, it is not clear from a descriptive analysis how many of these supported
jobs would have been created regardless of the subsidy, although early econometric evi-
dence appears to support the notion that the subsidy has had a positive, albeit small, net
employment effect.

31.5 Conclusion

The aim of this chapter has been to describe some of the major developments that have
shaped the South African labour market over the last twenty years. Perhaps the biggest
aggregate shift we observe is the decline of the primary sectors as drivers of employment
and economic growth, the stagnation of the secondary sectors, and an increasingly cen-
tral role being played by the tertiary sector. This trend of services-​led growth is one of
premature deindustrialization and has taken place alongside occupational shifts that
have favoured the most highly skilled individuals. We note that without any mitigating
factors, an increasingly services-​oriented economy means that job prospects for most
people in the labour force, who have limited formal training and skills, are not good.
Skills-​biased shifts reinforce the problem of structural unemployment in South Africa,
where there is a clear mismatch between the skills required in the labour market and
those possessed by the majority of unemployed individuals.
Labour market returns have also changed in important ways. Aggregate wage growth
has been the highest for those at the top of the income distribution, and for those with
high levels of formal education, in line with the occupational trends. We observe that
returns to education are decreasing for those with only high school qualifications, which
includes many individuals in the middle of the distribution. Alongside the effects of
structural transformation this may go some way to explaining the hollowing out of wage
growth for those in the middle of the income distribution. For low-​wage earners there
is a more positive story of relatively small but positive real earnings growth, where it
appears minimum wage legislation has to some extent accounted for this trend.
Key policy interventions have contributed to a changing labour market. New la-
bour legislation introduced in the post-​apartheid period established a suite of legisla-
tive protections for low-​wage workers in particular, including sector-​specific minimum
wages. A new NMW, introduced in 2019, builds on this pre-​existing sectoral system but
is set relatively high on the national wage distribution, requiring wage increases for close
to half of all workers. Critically, despite the well-​developed labour market regulations
that provide employment and wage security for workers on paper, the reality is that
688    Haroon Bhorat, Ben Stanwix, and Amy Thornton

regulatory non-​compliance is widespread. A final set of interventions worth noting are

four relatively ambitious active labour market policies that, in different ways, attempt
to decrease unemployment. We suggest that while the results of these programmes are
difficult to assess with accuracy, at present, existing evidence suggests that their effects
have been rather limited.

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tury’, in Robert Ross, Anne Mager, and Bill Nasson (eds) The Cambridge History of South
Africa. Cambridge: Cambridge University Press.
Palma, José Gabriel. 2005. ‘Four sources of de-​industrialisation and a new concept of the
Dutch Disease’, Beyond Reforms: Structural Dynamics and Macroeconomic Vulnerability,
3(5): 71–​116.
Rodrik, Dani. 2016. ‘Premature deindustrialization’, Journal of Economic Growth, 21(1): 1–​33.
Spaull, Nicholas. 2013. ‘South Africa’s education crisis: The quality of education in South
Africa 1994–​2011’. Report commissioned by the Centre for Development and Enterprise,
Johannesburg.
StatsSA (Statistics South Africa) 2019. Quarterly Labour Force Survey 2019 Q1–​Q4. Pretoria.
Wittenberg, Martin. 2017a. ‘Wages and wage inequality in South Africa 1994–​2011: Part 1–​Wage
measurement and trends’, South African Journal of Economics, 85(2): 279–​97.
Wittenberg, Martin. 2017b. ‘Wages and wage inequality in South Africa 1994–​2011: Part 2–​
Inequality measurement and trends’, South African Journal of Economics, 85(2): 298–​318.
 Chapter 32

T he You th L ab ou r Ma rket
in Sou th A fri c a

Cecil Mlatsheni

32.1 Introduction

The current generation of youth in South Africa has arguably the greatest opportunities
of any past generation; however, they are also confronted with many challenges. In gen-
eral, a key objective of a young person is to achieve independence, financial and other-
wise. Central to achieving this objective is the labour market. However, the reality is that
many young people in South Africa experience difficulty entering the labour market;
this is evident from the labour market statistics that will be discussed below. The break-
down in the transition from schooling to work often occurs amidst threats of poverty,
compromised health (both physical and mental), teen pregnancy, substance abuse,
gangsterism, and crime (Mlatsheni 2012). As such, causality and interrelationships be-
tween these challenges and unemployment manifest in complex ways.
Youth in South Africa is defined as those individuals between the ages of 15 and 35.
This relatively wide age range, by international standards, was appropriate at the time
it was set, given the disruption to education as a result of youth activism, which was a
feature of the pre-​democratic era, and consequent late starting of schooling and slow
progression through the schooling system (Everatt and Sisulu 1992; Truscott 1993;
Van Zyl Slabbert 1994; Anderson, Case, and Lam 2001). The standard ILO definition
of youth for labour market purposes has an upper bound of 24. Nevertheless, the 15–​
35 age range is arguably still relevant for South Africa as many young people are un-
able to gain financial independence well into their thirties. However, cognisance has
to be given to the non-​homogeneity of youth, for instance, 15–​24-​year-​olds may face
challenges of transitioning from schooling to work while 30–​35-​year-​olds may struggle
with establishing a career path to facilitate wealth accumulation.
This chapter begins by outlining some of the key features of the South African youth
labour market, citing recent statistics and those at notable points in the economy’s
 The Youth Labour Market in South Africa    691

progression. At times reference is made to the 15–​24 age category for international com-
parison. Following that, an account is given of why youth struggle to find jobs in South
Africa, after which some key policies and interventions that have been implemented to
address youth unemployment are discussed. This is followed by a brief conclusion.

32.2 Key Features of the South African

Youth Labour Market

The overall unemployment rate has hovered around a quarter of the labour force since
1994. The youth unemployment rate for the 15–​24-​year-​old searching unemployed, for
the sake of international comparability, has generally been greater than 50 per cent,
whereas it has been around 40 per cent by the South African youth-​age definition of
15–​35. By comparison, the world average youth unemployment rate (aged 15–​24) in
2020 is 13.8 per cent and for Africa, it is 10.5 per cent (ILO 2020). The relatively low
youth unemployment rate for Africa is likely a by-​product of the difficulty of capturing
labour market performance where there is a high degree of informality (ILO 2020).
Furthermore, 36 per cent of youth are searching unemployed while 15 per cent are
discouraged.
Racial and gender disparities in access to work are entrenched features of the South
African labour market. Recent statistics reflect that African youth (aged 15–​35) have the
worst unemployment rate compared to the other race groups at 57 per cent, followed by
coloured youth at 41 per cent, Indian youth at 27 per cent, and white youth at 15 per cent.
Young women (aged 15–​35) experience a higher unemployment rate of 57 per cent while
that of young men is 49 per cent (QLFS 2020: Q1). African women have the worst un-
employment rate at 62 per cent followed by African men at 52 per cent. Coloured women
have an unemployment rate of 40 per cent and coloured men have an unemployment
rate of 42 per cent, while white women and men display unemployment rates of 14 per
cent and 16 per cent respectively. For the sake of international comparison, the un-
employment rate for searching unemployed 15–​24-​year-​old males is 55 per cent and for
females it is 63 per cent, while comparable statistics for males in Africa reflect an average
unemployment rate of 10.4 per cent and for females 11 per cent (ILO 2020).
Youth unemployment was on a path of improvement during the boom years of 2003–​
08, reaching a low in 2008, but has steadily increased ever since. Currently youth un-
employment is at 53 per cent by the 15–​35 age classification. Economic growth has also
not approached the admirable levels achieved in the mid-​2000s. The relationship be-
tween economic growth and employment creation is indeed well established. The im-
plication of this is that efforts to significantly reduce youth unemployment are being
hamstrung by sluggish economic growth. However, as discussed later, there is scope for
employment creation, though on a smaller scale, as reflected by successes achieved by
intermediaries and public works programmes, for example. There is also urgent need for
692   Cecil Mlatsheni

these and other micro-​level interventions, given the adverse effects of unemployment
on youth.
From 2008 to 2020 youth (aged 15–​35) experienced an increase in the unemployment
rate of 14 percentage points, from 38 per cent to 53 per cent by the broad definition, while
for non-​youth (aged 36–​64) an increase of 10 percentage points was observed, from 17
per cent to 27 per cent. The general trend has been one of worsening unemployment and
youth have been hardest hit.
Regarding the nature of work that youth acquire, 75 per cent work in the formal
sector, 20 per cent work in the informal sector, while 5 per cent work in private
households. The distribution is fairly similar between youth and non-​youth (aged 36–​
64) in that 72 per cent of non-​youth work in the formal sector, 18 per cent work in the
informal sector, and 10 per cent work in private households. In addition, 50 per cent of
youth have permanent contracts whereas 67 per cent of non-​youth have jobs of a per-
manent nature. Half of the youth are working in permanent jobs whereas two-​thirds
of non-​youth hold permanent jobs. Close to 20 per cent of youth are employed in jobs
of limited duration. A sizeable 30 per cent of youth and 22 per cent of non-​youth are
employed in jobs of unspecified duration, which spells uncertainty for these workers as
these jobs could end at any time. Taking the preceding statistics together one can sum
up that just under half of youth wanting to work have jobs and that of those, half have
security of employment.
The disproportionate effect of unemployment on youth is exacerbated by duration
of unemployment. The long-​term unemployment rate for the working-​age population,
measured as a percentage of total unemployed, was 57 per cent in 2008 at the end of the
economic boom and had increased to 72 per cent by 2020. For youth (aged 15–​35) long-​
term unemployment is 70 per cent and for the aged 36–​64 cohort it is 74 per cent. By way
of comparison, for select countries, the long-​term unemployment rate in 2019 was 11.5
per cent in Colombia, 9.9 per cent in Namibia, 12.9 per cent in Costa Rica, 12.7 per cent
in the United States, 25.1 per cent in the United Kingdom, 38 per cent in Germany, 37.8
per cent in Spain, 57 per cent in Italy, and 70 per cent in Greece (OECD 2021).
Long unemployment duration could lead to discouragement such that affected
individuals end up disengaging with the labour market and studies (Mlatsheni 2012).
What is worse is that 57 per cent of youth (aged 15–​35) and 44 per cent of youth (aged
25–​35) have never worked for pay. In more developed countries such as the United
States and Canada, the unemployed in times of increased joblessness increase uptake of
training. Those who are youth tend to stay longer in school and they extend the period
of living with their parents (Topel and Ward 1992; OECD 2010a). These options are not
always available in the developing-​country context, such as that of South Africa. There
is also long-​standing evidence that lack of viable options often encourages criminal ac-
tivity even in developed countries. In France, crime rates increase and in the United
States the probability of incarceration increases as joblessness increases (Topel and
Ward 1992).
Labour market discouragement is a serious concern, as duration of unemployment
has negative consequences on the self-​esteem of job-​seekers as well as on the likelihood
 The Youth Labour Market in South Africa    693

of an employer hiring them. The negative consequences of long-​term unemployment

are well documented (Hammarstrom and Janlert 1997). A meta-​analysis across 237
cross-​sectional and 87 longitudinal studies found that mental health worsens with job
loss and improves when a person obtains a job (Paul and Moser 2009). However, un-
employment is not always a cause of mental of illnesses, rather mental illnesses can lead
to unemployment (Blakely et al. 2003).

32.3 Why Youth Struggle to Find Jobs

32.3.1 Insufficient Employment Opportunities

Availability of employment opportunities is the chief determinant of the level of the
overall unemployment rate. Economic conditions and the structure of the labour
market have an important bearing on employment opportunities. Ultimately ag-
gregate demand is the main macroeconomic determinant of youth unemployment
(O’Higgins 2001). When an economy is in a slump or is not growing at a fast enough
pace, employment creation tends to be dampened. Under such circumstances, labour
market interventions aimed at increasing employment generally fail to have signifi-
cant impact.
The period between 2003 and 2008 provides evidence of the importance of aggre-
gate demand: two million jobs were created in the South African economy during
this period when economic growth averaged 4.9 per cent (National Treasury 2011).
A number of economic shocks rocked the global economy, such that the South African
economy was also adversely affected. The economy was already beginning to slow down
at the time of the 2008–​09 recession and it subsequently went into recession. The nega-
tive effects of the global economic shocks were dampened by prudent macroeconomic
policies. Nevertheless, South Africa lost close to 1 million jobs during the 2008–​09 re-
cession (IMF 2011). In addition to this, by 2011 the ratio of employment to the working-​
age population had declined from around 45 per cent in 2008 to 40 per cent in 2011,
implying that employment had remained below the pre-​crisis level. The labour market
has therefore remained in a relatively depressed state. The effects of the 2008–​09 global
recession served to reverse any employment gains that had been made in the earlier
period of peak economic growth. It is only in 2013 that employment levels returned, for
the first time, to the levels of 2008. The lack of sustained economic growth has led to the
overall unemployment rate consistently hovering around 25 per cent.
In addition to economic growth, the structure of that growth and the structure of the
economy are important determinants of job creation. The South African economy has
been characterized as exhibiting skills mismatch, where the skills in demand are out of
alignment with the skills sets of the unemployed (Bhorat et al. 2013). In addition, the
skills shortage may be a consequence, rather than a cause, of the structure of our growth
(Hausmann 2008).
694   Cecil Mlatsheni

It is arguable that poor economic performance is as much an obstacle to non-​youth

employment as it is to youth employment because a fall in aggregate demand would lead
to a general increase in the number of lay-​offs and a fall in new hires. However, to the
extent that the nature of the employer–​employee relationship is different for youth and
non-​youth, the influence of economic performance on employment would be different
for youth and adults. The opportunity cost to employers of firing youth is lower than
that of firing adults, partly because youth are less generally likely to be unionized or
protected by legislation (Rees 1986) and past investment in them by the employer is
likely to have been lower.

32.3.2 Education
Global evidence confirms that generally the higher the level of educational attainment
of youth, the higher the probability of them finding employment (World Bank 2007).
In the case of South Africa, the strongest effects are observed post matric (van der Berg
and van Broekhuizen 2016). However, as the discussion below reveals, even youth who
have completed secondary schooling often struggle to find employment and this is an
enduring feature of the labour market. This should send a signal to youth to acquire as
much education as possible in order to improve employment prospects. Indeed, there
is evidence that youth pick up on this signal as a significant number of those who drop
out of secondary schooling anticipate returning to their studies and even aim to achieve
a tertiary-​level qualification (De Lannoy 2008). In reality, about half of youth who start
school proceed to complete grade 12 (Spaull 2015). The reasons for dropping out include
financial constraints, grade repetition, and teen pregnancy (Branson et al. 2015), all of
which can be linked to socio-​economic status. Many youths who exit the schooling
system prior to completing matric ultimately enter the labour market in a manner that
could be described as premature, given that unemployment plagues even youth with
post-​matric tertiary qualifications. These findings suggest that there is a problem with
youth’s work-​readiness upon entering the labour market at all education levels.
Analysis of the Quarterly Labour Force Survey (QLFS 2020: Q1) reveals that, of the
youth (aged 15–​24) who are no longer pursuing studies, 46 per cent have not completed
grade 12, while 42 per cent have completed grade 12 but no further. This set of statistics
highlights two challenges that have a bearing on the employability of youth: one is
completing secondary schooling and the other is progressing from secondary schooling
to tertiary education. Studies indicate that youth see the value of education as a means to
improve their career prospects (Graham 2012; Swarts et al. 2012), however, in addition
to the challenges that lead to dropping out of secondary schooling mentioned above,
poor quality of education and poor schooling environments can result in weak school-​
leaving grades, and thus limit access to higher education. Teacher absenteeism, resource
shortages, and infiltration of violent behaviour are some factors that mar the learning
environment (Swartz et al. 2012). In addition, poor performance by learners in sec-
ondary school is partly rooted in learning gaps developed in primary school (Mlatsheni
 The Youth Labour Market in South Africa    695

2006; Spaull 2015). Besides these constraints, some youth may opt for earlier entry into
the labour market and thus a low-​paying, mediocre job because of immediate pressure
to supplement family income, more especially when there are younger siblings in need
of support.
The South African education system offers a technical and vocational training avenue
both for youths who complete secondary education and those who do not. Learners
are able to pursue studies through the Technical Vocational Education and Training
(TVET) system and the National Certificate (Vocational) (NC(V)). However, the reach
of these initiatives is limited in that only 8 per cent of 15–​24-​year-​old youth attend uni-
versity or college (Branson et al. 2015). Funding, learner preparedness, and quality of
teaching and learning are among the significant limiting factors in extending coverage
to a larger proportion of youth in need of the TVET line of study.
The unemployment rate for youth (aged 15–​35) with grade 10 completion only is 60
per cent, for those with grade 11 completion it is 63 per cent, while for those who have
completed matric it is 51 per cent (QLFS 2020: Q1). It is clear from these statistics and
also borne out by multivariate analysis (Mlatsheni and Ranchhod 2017) that prema-
ture entry into the labour market, in terms of qualifications and work-​readiness, is
characterized by large-​scale joblessness. Furthermore, failure to satisfactorily com-
plete secondary schooling and to advance to further studies affects later productivity
while the foregone earnings and lack of skill accumulation may make it difficult to
escape poverty. The benefits of schooling are recognized worldwide, as in 2007 inter-
national evidence was that across sixty-​one developing countries the average return
per year of schooling was 7.3 per cent for men and 9.8 per cent for women (World
Bank 2007).

32.3.3 Geographical Isolation, Cost of Job Search,

and Perceptions of Opportunity
Another reason why many youths do not actively search for work is the cost of accessing
areas that could potentially provide employment. This factor predominantly affects
black youth, as townships are often situated far from business centres. The formal expos-
ition of the effects of distance on labour market outcomes was first given by Kain (1968)
as the ‘spatial mismatch hypothesis’ in relation to the United States. In the US con-
text, the location of jobs was becoming increasingly decentralized and poor minority
households (mainly black) were being left behind in central cities through constraints
in housing choices. These developments decreased the employment prospects of the
individuals concerned through lesser job access and earnings.
The South African situation is similar in that individuals from poor households
(mainly black) are far from where jobs are located. However, the difference in South
Africa is that it is the jobs that have historically been concentrated in the cities while
the location of poor households has been on the outskirts. The cost of a single trip from
a township to seek work in a city or industrial centre is significant for an unemployed
696   Cecil Mlatsheni

person. Graham et al. (2019) estimated the average monthly transport cost for job
search amongst youth to be R280, roughly 10 per cent of the effective minimum wage
calculated via sectoral determinations. Furthermore, data from the March 2005 Labour
Force Survey reveal that of the youth who did not seek employment or start their own
business, 49 per cent said it was because there were no jobs in their area, while 23 per
cent said that they lacked the money necessary to look for work. Taken together, over 70
per cent of non-​searchers indicated that their location constrained them from looking
for work, as lack of money to search is brought about by lack of proximity to employ-
ment sources. This phenomenon has persisted, as in 2020 the QLFS indicates that 72 per
cent of youth cite lack of jobs in the area and 5 per cent cite lack of finance for transport
as reasons for not searching for work.
Perceptions of the likelihood of finding employment become an important issue
when the cost of job search is binding. It is logical that youth perceptions of the la-
bour market have a strong effect on the effort they make to search actively for employ-
ment. International evidence reflects that such perceptions are formed in part by the
characteristics of the neighbourhoods in which youth reside (Case and Katz 1991). In
a study of poor neighbourhoods in Boston, Case and Katz (1991) find that neighbour-
hood peers significantly influence youth behaviour, including the propensity to work.
Furthermore, a neighbourhood can negatively influence labour market outcomes
through absence of positive role models, lack of informal job contacts, and the presence
of disruptive forces. There exists evidence of negative effects of perceptions on job
search in the South African literature as well (Wittenberg 2002). Wittenberg (2002),
using a number of household datasets, finds that the proportion of the unemployed
engaged in active search hardly ever reaches 50 per cent, a factor which suggests that
very often discouragement is based on perceptions of opportunity rather than per-
sonal experience. In addition, the disappointment that often accompanies failure to
find employment can manifest as a type of paralysis that prevents any structured active
job search (Graham and Mlatsheni 2015). It follows from the above-​mentioned litera-
ture that where perceptions of the labour market are overly pessimistic, the inadequate
search attempt that results then feeds back and contributes to further entrenching youth
unemployment.

32.3.4 Networks and Social Capital

Obtaining finance for prolonged active job search is a challenge for many young
people and it follows that they would rely on their networks to help them find work.
Although most do not claim to use networks as their main search method, it is never-
theless the most common method of obtaining employment amongst youth (Schoer
and Leibbrandt 2006; Ingle and Mlatsheni 2016). Indeed, having an employed friend
or relative, either residing in the same household or a different one, has a significant
effect on employability of youth. The NIDS data indicate, for example, that of youth
who were unemployed in one wave and employed in the next, about half were informed
 The Youth Labour Market in South Africa    697

of the job by a friend or relative in a different household (Ingle and Mlatsheni 2016).
This is a long-​standing feature of the functioning of the youth labour market. Evidence
from Khayelitsha/​Mitchell’s Plain Survey (KMPS) conducted in Cape Town in 2000
also indicates that more than 55 per cent of the respondents obtained their current job
through friends and relatives (Schoer and Leibbrandt 2006).
Information asymmetry between young job-​seekers and potential employers is a
further impediment that is mitigated by use of networks. Employers often recruit via
networks (Bernstein 2014; De Lannoy et al. 2020). Intermediaries such as the Harambee
Youth Employment Accelerator and the Digital Jobs Fund programme, operating
within the landscape of the South African youth labour market, have achieved results
that suggest the existence of challenges of job matching and signalling of attributes
by youth (De Lannoy et al. 2020). Furthermore, these intermediaries are able to pro-
vide mentoring and training that fills some of the soft skills deficiencies that may be
present in unemployed youth. In addition, randomized control trials conducted with
South African youth lend further support to this notion. Specifically, these studies find
that assessing work-​seekers and giving them results of their skills sets to share with
employers increases call-​backs and employment, also standardized reference letters im-
prove employer response rates to job applications by youth (Abel et al. 2020). In the ab-
sence of these measures, to limit information asymmetry employers often rely on their
employees to recommend workers to fill vacancies.

32.4 An Account of Key Policies

Implemented to Address Youth
Unemployment in South Africa

Significant reduction in the unemployment rate will come through economic growth.
However, prospects of achieving the requisite level of growth are bleak in the short to
medium term. With long-​term unemployment at close to 40 per cent, what is needed
is policy to keep unemployed youth engaged with the labour market to mitigate the ill
effects of prolonged unemployment outlined earlier. Active labour-​market policies must
be central as they can improve job matching, fill the gap when employers and workers
underinvest in training, and mitigate the effects of recession by providing temporary
employment or creating incentives for employers to hire (World Bank 2012). Even when
active labour-​market policies do not result in significant job creation, they are not a
waste because they play an important role in ensuring that youth remain in touch with
the labour market (OECD 2010a).
The most vulnerable and marginalized group of youth is arguably that which is not in
employment, education, or training (the NEETs). Youth who find themselves in these
circumstances are not acquiring human capital in the form of studies or training, nor
are they gaining any on-​the-​job experience. This category of youth needs to be targeted
698   Cecil Mlatsheni

for policy intervention as some of them have quit their studies prematurely (and the
mechanisms behind these decisions have to be understood), while the majority lack
skills that would give them an edge in the labour market. Furthermore, these idle youth
generally come from disadvantaged backgrounds. In a sense, intervention at this stage
is tantamount to an exercise in damage control because, as the literature confirms, the
greatest rewards result from early and sustained interventions (Garces et al. 2000). With
a given range of policies in place to assist youth, policymakers have to recognize the im-
portance of getting as many of the targeted youth to use the resources available to them
to mitigate the ill effects of unemployment.

32.4.1 Public Training Policies

The National Skills Development Strategy (NSDS) gives direction with regard to
training. The National Skills Fund (NSF) and the Sector Education Training Authorities
(SETAs) are responsible for implementing the NSDS. Training is carried out by national,
provincial, and local governments with the private sector partnering in most cases (De
Lannoy et al. 2020). The range of training that is provided in general can be classified
as either apprenticeships, learnerships, internships, or other work-​integrated learning,
service programmes, or solely skills training.
The apprenticeships that have been available to youth in South Africa involve skills
training and practical training through work-​integrated learning. For example, youth
can train in trades as plumbers, mechanics, and electricians. The learnerships are usu-
ally focused on non-​trade jobs with the participant being an employed individual with
a matric qualification. The internships are generally targeted at youth with some post-​
secondary schooling qualifications (De Lannoy et al. 2020).
There is some evidence that learnerships and apprenticeships have had a positive
effect on job placements, with most participants transitioning into employment that
lasts up to five years (Kruss et al. 2012). Participants in learnership programmes, in par-
ticular, report an increase in soft skills but not technical, numeracy, or literacy skills
while apprenticeship participants show an increase in technical and soft skills (Kruss
et al. 2012). Other research indicates that learnership participants enjoy higher wages
than non-​participants and that they enjoy greater job satisfaction in the short term but
that effect weakens with time (Rankin et al. 2014).
Furthermore, playing an arguably significant role as far as the provision of training
in intermediate-level technical and vocational skills is concerned, are the tech-
nical and vocational education and training colleges (TVET). However, according to
the White Paper for Post-​School Education and Training, even though numbers of
students enrolled in TVET colleges have increased over the years, enrolment is still
lower than that of universities, whereas the reverse has to be the case in order to effect-
ively plug the gap in mid-​level skills (Department of Higher Education and Training
2014). In addition, the TVET offerings of programme and qualifications mix (PQM)
is reported to be complex to administer, difficult for students to understand, and often
 The Youth Labour Market in South Africa    699

poorly administered. Many lecturers do not have the necessary workplace experience
that would enable them to deliver effective vocational programmes (Department of
Higher Education and Training 2014). Furthermore, technical skills acquisition and
apprenticeships need to be bolstered. An inadequate level of apprenticeships impacts
on youth disproportionately because youth make up the bulk of the unemployed and
unskilled. Furthermore, learnerships are more suited to workers employed in the formal
economy, whereas the most vulnerable youth are either unemployed or engaged in
survivalist micro-​enterprises. In addition, the learnership contract requires a willing
employer, but many employers have traditionally been discouraged by the heavy ad-
ministrative burden involved in the process. However, the NSDS has undergone a re-
vamp and the Department of Higher Education and Training (DHET) has implemented
reforms to make the system more effective and accountable.
Global evidence highlights the importance of aligning skills taught with labour de-
mand (World Bank 2012). A number of other factors have been found to be useful in
ensuring increased effectiveness of public training programmes: (1) tight targeting of
participants; (2) keeping the scale of programmes relatively small; (3) training resulting
in a qualification that is recognized and valued by the market; and (4) having a strong
on-​the-​job training component and therefore strong links with local employers. There
is evidence that the outlook of youth involved in training programmes is improving
(World Bank 2012), which would be beneficial in the South African context of the high
duration of unemployment and the subsequent discouragement.
However, there can be substitution and deadweight losses associated with training. In
some instances, individuals who are hired after training would have been employed anyway.
Therefore, evaluation should indicate whether the hired workers substituted others, or
whether they were hired because the training signalled higher productivity to employers.
Furthermore, global evidence indicates that public training agencies are often too
slow to respond to the changing needs of firms and job s​ eekers. To counter this, where
feasible, public training funds could be directed to private and non-​profit training
providers (intermediaries) on a competitive basis. Performance-​based tendering can
create incentives for more relevant training.

32.4.2 Job-​Search Assistance
In South Africa passive job search may be due to financial constraints that are brought
about by the high costs of actively searching for a job, accompanied by the low prob-
ability of finding employment. As discussed earlier, this is a factor that predominantly
affects black youth, as townships are often situated far from business centres. Indeed, the
labour-​force surveys indicate that the majority of non-​searchers indicated that their lo-
cation constrained them from looking for work. Often youth search for jobs in manner
that is not efficient, such as submitting CVs to firms that are not looking to hire and
applying for widely advertised positions in which they compete with a multitude of
other applicants (Graham et al. 2019).
700   Cecil Mlatsheni

The National Youth Development Agency (NYDA) provides a number of avenues

to assist job search and improve matching. The schemes include the Graduate
Development Programme (GDP) and Job Protection Programme (JPP) to help jobless
graduates and matriculants to find jobs; the National Youth Service allows youth to gain
work experience while providing community service; the Jobs and Opportunity Seekers
and graduate database aim to link jobless youth with employment opportunities; and
Youth Advisory Centres (YACs), which are walk-​in centres in communities, where
youth can access all NYDA resources, including career counselling.
However, many high-​and middle-​income countries have overhauled their job-​search
services with a move towards private provision as opposed to public provision (World
Bank 2012). In South Africa intermediaries are achieving success in this sphere. The
challenge is scaling the existing useful job-​search measures, such as active placement
methods, raising the motivation of the unemployed, as well as encouraging and
monitoring job-​search behaviour. There is scope for the NYDA to play a coordinating
role in the quest to scale useful interventions. With a policy of job-​search assistance
there is, of course, an underlying assumption that there exists a significant degree of fric-
tional unemployment and matching constraints within the economy.

32.4.3 Subsidies to Private-​Sector Employment

South Africa has in place the Employment Tax Incentive (ETI) as a subsidy that is directed
at incentivizing the employment of youth. Since the beginning of 2014 employers can
claim reduction in taxation for each qualifying youth hired (aged 18–​29). The aim of the
ETI is to lessen the cost and risk to employers of hiring youth. Employers are encouraged
to incorporate a training component for the youth they hire. Early evaluations of the ETI,
at six months and twelve months into the programme, reflected no effect on youth em-
ployment and that the new hires claimed by the ETI would have occurred even in the
absence of the programme (Ranchhod and Finn 2015). Evaluations at two to three years
of the programme’s implementation also report no significant impact on youth employ-
ment and allocative inefficiency in that employment created would have occurred in any
event (Ebrahim et al. 2017). The degree of allocative inefficiency of the ETI is estimated to
be 57 per cent (National Treasury 2011). However, a modest net increase in employment
of youth was reported for small firms with less than fifty employees and those with less
than 200 employees (Ebrahim et al. 2017; Rankin and Chaterjee 2016).
Subsidies to private-​sector employment can be directed either at the employer or the
worker. Employer-​side subsidies, like the ETI, provide financial incentives to firms to
hire workers by reducing hiring and employment costs. The structure of the subsidies
varies greatly across countries because they are likely to be targeted at different specific
groups in each country. The subsidies can be in the form of reimbursing a firm for a
fraction of the wages of the covered workers or training costs or a one-​off bonus. The
subsidies usually carry a stipulation that employment must last a certain minimum
period. Employer-​side subsidies can be either targeted or untargeted, but targeted
 The Youth Labour Market in South Africa    701

subsidies are more common, and indeed found to be relatively more successful. A disad-
vantage of untargeted subsidies is that they could lead to deadweight losses and a substi-
tution by individuals who would have found employment anyway.
However, in some instances, high deadweight and substitution effects may be
tolerated because part of the objectives of the policy would have been to rearrange the
queue of job-​seekers, such that the individuals who struggle most to find employment
move further forward in the job queue. In addition, the real costs of wage subsidies are
often not easy to calculate (World Bank 2012).

32.4.4 Direct Job Creation in the Public Sector

The Expanded Public Works Programme (EPWP) is a key medium-​to long-​term
strategy by the South African government to create labour-​intensive jobs in order to
ease the plight of the unemployed. It includes a training and skills development com-
ponent to facilitate easier transition into self-​employment and formal employment.
The policy was initially formulated as the National Public Works Programme (NPWP)
in 1998. It had limited success and fell short of set targets in its early phase. In 2004 it
was redesigned as the EPWP with expanded targets (Mayer et al. 2011). The target for
the first phase of the programme (2004–​09) was to provide 1 million jobs, the second
phase (2009–​14) had a target of 4.5 million jobs, while a target of 6 million jobs was set
for the third phase (2014–​19). Focus on reaching more youth through the programme
has intensified as of the beginning of 2020. Among the most recent stated goals by the
Department of Public Works and Infrastructure is the desire to create 5 million jobs in
the five-​year period to 2024 and that 55 per cent of those be allocated to youth.
Evaluations of the EPWP indicate the following: that the employment opportunities
created have been shorter than the targeted duration, the poverty alleviating effects
of the programme are limited, and the EPWP has limited effect on employability of
participants outside of the programme (Department of Public Works 2015).
The Community Work Programme (CWP), rolled out in 2008, is an additional public
employment programme that is designed to provide an employment safety net. The
CWP is implemented at the local level and is designed to enrol a maximum of 1,000
people per site. It offers two days of work a week, eight days a month, or 100 days a year
(Philip 2013). The CWP differs from the EPWP in that it is community based and relies
on community members to identify specific developmental projects. The scope of the
projects encompasses early childhood development, school support, food gardens,
community safety, and promoting arts, culture, and recreation (Philip 2013). The CWP
has met its goal of providing an employment guarantee of regular part-​time employ-
ment and where training has occurred it has been successful such that some participants
are able to use the CWP training to develop a career path in the care sector (Philip 2013).
Internationally, there has been a marked move away from public-​sector job-​creation
programmes in favour of other active measures because of the disappointing results
achieved in terms of helping unemployed people get permanent jobs in the labour
702   Cecil Mlatsheni

market (Martin and Grubb 2001; OECD 2010b). It is becoming increasingly clear,
though, that public-​works programmes have a better chance of becoming jobs ladders
when they also offer additional technical and life-​skills support.
However, there is still a great deal of debate around the use of these programmes be-
cause they can fulfil objectives other than just the creation of permanent jobs. Public-​
sector, employment-​creation programmes can be used to help the most disadvantaged
unemployed to maintain contact with the labour market, especially in times of weak
aggregate demand and scarcity of vacancies (Fay 1996). Furthermore, in countries such
as South Africa and India these programmes have attracted women mainly, providing
temporary earnings opportunities to many poor households. However, the number of
days of work offered has not been enough to significantly lessen poverty (OECD 2010b).

32.4.5 Support for Self-​employment

Promotion of entrepreneurship—​and especially small, medium and micro enterprises
(SMMEs)—​is a concrete intervention strategy in the face of high levels of unemploy-
ment. The Quarterly Labour Force Survey (2020: Q1) reveals that 5 per cent of the
employed are entrepreneurs employing at least one worker, among youth the com-
parable statistic is 3 per cent, while for those over the age of 34 the figure is 6 per cent.
In addition, 8 per cent of employed youth are own account workers, while 11 per cent
of non-​youth (aged 36–​64) fall into this category. These statistics suggest scope for
increased entrepreneurial activity by youth. There have been ongoing initiatives to pro-
mote the development and sustainability of SMMEs in South Africa. The Small Business
Act was passed in 1995 and subsequently organizations such as the Small Business
Council and Ntsika Enterprise Promotion Agency were established, as well as the Small
Enterprise Development Agency in 2004. The EPWP is also charged with providing
SMME support. However, despite these initiatives, SMMEs struggle to thrive.
Success as an entrepreneur depends on a person’s intrinsic entrepreneurial ability,
availability of investment capital, risk-​absorption capacity, financial management skills,
enterprise development, and—​very importantly—​market accessibility (Lazear 2005;
Oosterbeek et al. 2010). It seems clear from this as well as the analysis of formal-​sector
firm data (Kerr et al. 2013) that entrepreneurship is not easy and even when it happens it
does not necessarily have large employment multipliers.

32.5 Conclusion

Failure of the labour market to absorb young entrants as they transition from schooling
to work has an ill effect on youth and on society in general. Policy must therefore en-
sure that youth remain in touch with the labour market and that long-​term unemploy-
ment is minimized. The most significant impact on youth unemployment will come
 The Youth Labour Market in South Africa    703

from healthy economic growth that will result from investment. Government has to
create an enabling environment and reduce corruption. Nevertheless, intermediaries
operating on the supply side are having some success in teasing out ‘veiled’ demand for
labour by reducing the risk of hiring youth that arises from information asymmetry and
lack of work-​readiness. Such interventions within the youth labour market need to be
supported via public–​private partnerships and scaled up. Government has to continue
offering opportunities via programmes such as the EPWP and CWP and follow through
on the planned infrastructure investment strategy.
In addition, efforts to shift the education system towards a dual system, such as the
famed German system, should be intensified. The German approach fosters a tradition
of vocational orientation within the secondary school education system. Involvement of
the private sector and community (in this case workers and unions) in the content and
certification of vocational training, as well as the content and conditions governing on-​
the-​job training, is a key component of this system. These measures will ensure a labour
force with a higher and more relevant skills base, ready to capitalize in the event of an
upswing in the economy.

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 Chapter 33

The Ec onomi c s
of Educat i on i n
Sou th Af ri c a

Nicola Branson and David Lam

33.1 Introduction

The quality of education provision in South Africa is strongly stratified by race, geo-
graphical location, and income. Where a child is born and the income level of their
parents overwhelmingly predicts their educational trajectory (Finn et al. 2016) and sub-
sequent welfare as an adult (Patrinos 2015). Inequalities in education are therefore an
important link in understanding the relationship between inequality, unemployment,
and economic growth in South Africa.
Much work has been done in the post-​apartheid years to build a unified educa-
tion system in South Africa. Education provision in South Africa is guided by na-
tional policies including the Constitution of the Republic of South Africa, 1996, which
recognizes basic and further education as a right for all South Africans that the state
must make ‘progressively available and accessible’ (Section 29(1)b). In this chapter we
show that while there have been substantial improvements in educational attainment in
South Africa, with narrowing racial gaps in the years of education attained, there con-
tinue to be large disparities in education outcomes, leading to differences in the pro-
portion of South Africans completing secondary school or studying further by race.
Low post-​secondary enrolment largely reflects limited, and starkly unequal, levels of
learning in primary and secondary schools.
Credit constraints, while secondary to academic performance, mean that some
low-​income students who are eligible to enrol in university do not enrol, or enrol in
college rather than university.1 Furthermore we note that the college system, while in

1 In the South African system, the term ‘college’ refers to public Technical and Vocational Education

and Training (TVET) and private Further Education and Training (FET) colleges that offer vocational,
occupational, and artisan training, and does not include universities.
708    Nicola Branson and David Lam

principle able to cater to the large share of learners leaving the schooling system without
completing matric, has relatively low levels of enrolment and has seen limited growth
since 2015, even though increased technical and vocational education and training
(TVET) enrolment is stated as a national priority.
Finally, we turn to the labour market to look at the impact of education on em-
ployment and earnings for working-​age adults. South Africa has very high returns to
post-​secondary education by world standards, and employment rates are much higher
for post-​secondary graduates than for those with less education. Higher education is
becoming increasingly important in the link between education and inequality.

33.2 Education, Race, and Class

in South Africa

Education provision in South Africa was segregated by race and location even be-
fore the Bantu Education Act of 1953 was promulgated under the apartheid gov-
ernment (Fiske and Ladd 2004). Under apartheid there were different education
systems for each race group,2 with education for Africans purposefully inferior to
that of whites in terms of enrolment requirements,3 curriculum, resources, teacher
qualifications, and performance evaluation (Pillay 1984; Fiske and Ladd 2004). For
example, in 1974/​75, per capita spending on African learners was only 6.7 per cent of
per capita spending on whites, with coloured and Indian per capita expenditure at
20.7 per cent and 28.3 per cent of white’s, respectively (Pillay 1984). The enrolment
rate4 in 1970 was 54 per cent for Africans, compared to 96 per cent for whites, 84
per cent for Indians, and 75 per cent for coloureds. Since 1994, government educa-
tion policy has focused on creating a coordinated system to redress these inherited
educational inequalities (for example, the South African Schools Act (1996);
Further Education and Training Act (1998); Employment of Educators Act (1998);
National Norms and Standards for School Funding (2006); and the South African
Qualifications Authority Act No. 58 of 1995).
Two and a half decades into democracy, education inequalities along racial and spa-
tial lines persist. Leibbrandt and Díaz Pabón (­Chapter 9 in this volume) emphasize that
a ‘detailed understanding of the intersectionality of race and class and gender and space’
is required in thinking about inequalities in South Africa. In this chapter, we unpack

2
There were seventeen separate education departments, eleven for Africans, four for Whites (one per
province), one for Indians, and one for Coloureds.
3 Compulsory education was up until age 15 for Whites, Indians, and Coloureds, and four years for

Africans (Pillay 1984).

4 Ratio of enrolled to population aged 5–​19 years.
 The Economics of Education in South Africa    709

inequalities in education and frequently use the apartheid racial classifications to disag-
gregate the national picture. The disaggregation is driven by the availability of measures
in the national datasets. As we will show, however, this simple classification, while
blurring slightly at the edges with time, continues to paint a stark picture of inequalities
in educational attainment in South Africa.

33.3 Education Provision

in South Africa

Following South Africa’s transition to democracy, the South African Qualifications

Authority (SAQA) Act of 1995 initiated the establishment of the National
Qualification Framework (NQF).5 The objective of the NQF was to create a single
system covering all education and training, including basic education, higher edu-
cation, and vocational and occupational training. The NQF has ten levels, with
qualifications in three sub-​frameworks: (1) General and Further Education and
Training Qualifications, (2) Higher Education Qualifications, and (3) Occupational
Qualifications.

33.3.1 General and Further Education and Training

Qualifications Sub-​framework: NQF Levels 1–​4
Compulsory education consists of schooling for learners aged 7–​15, or the completion
of grade 9, whichever occurs first (South African Schools Act 1996). Compulsory edu-
cation is divided into the foundation phase (grades R–​3), intermediate phase (grades
4–​6), and senior phase (grades 7–​9), all at NQF level 1. Although compulsory education
is from age 7, grade R, introduced in 2001, targets learners turning age 5 by 30 June in the
year of attendance. The National Development Plan (NDP) goal for 2030 is two years
of pre-​primary education, but while enrolment in grade R is close to universal (94 per
cent in 2018), only around three-​quarters of learners enrol in a pre-​grade R year (van der
Berg et al. 2020).
Upon completing grade 9, learners may continue to the further education and
training phase in the schooling system and work through grades 10, 11, and 12, which
align with NQF levels 2, 3, and 4, respectively. The first national standardized examin-
ation taken within the public-​school stream is in grade 12, commonly referred to as the
matric examinations. Learners passing the matric examinations are awarded a National

5
This section draws heavily from Branson, Culligan, and Ingle (2020).
710    Nicola Branson and David Lam

Senior Certificate (NSC) at NQF level 4. A learner can pass the matric examinations
with a bachelor pass (previously called matric exemption), diploma pass, or higher cer-
tificate pass. The type of NSC pass determines the type of post-​secondary institution the
learner is eligible to apply to.
Alternatively, learners may opt to leave the schooling system at age 15 and pursue fur-
ther education and training via the college system. The college system includes pub-
licly funded TVET colleges that offer vocational, occupational, and artisan training and
community colleges (CET) that focus on providing youth and adults who did not com-
plete school with basic literacy, numeracy, and other skills required for employment.
Learners receive qualifications based on their courses of study. Learners who take the
NC(V) route obtain a National Certificate (Vocational) at NQF level 4, the vocational
equivalent of the NSC.

33.3.2 Higher Education Qualifications Sub-​framework:

NQF Levels 5–​10
Post-​
secondary education, aimed toward equipping students with skills for
the economy, falls under the Higher Education Qualifications sub-​ framework,
with qualifications from NQF levels 5 to 10. NQF levels 5 to 7 are undergraduate
qualifications and NQF levels 8 to 10 are postgraduate qualifications. These
qualifications are predominantly provided by public and private universities, but
students can also obtain qualifications at NQF level 5 and 6 from public TVET and
private FET colleges.

33.3.3 The Occupational Qualifications Sub-​framework:

NQF Levels 1 to 8
The Occupational Qualifications sub-​framework facilitates the provision of occupa-
tional education. Occupational qualifications are envisaged to address the needs of the
labour market and therefore tend to be occupation-specific. The qualification certifies
that the individual has the theoretical knowledge, practical skills, and workplace ex-
perience associated with a trade, occupation, or profession. Occupational educa-
tion is provided by skills development providers that are accredited by the Quality
Council for Trades and Occupation and include learnerships, internships, and skills
programmes. These providers include, but are not limited to, TVET colleges, private
colleges, companies, universities of technology, and non-​governmental organizations
(NGOs).
With this mapping of the education and training system in South Africa, section 33.4
describes trends in educational attainment for different cohorts.
 The Economics of Education in South Africa    711

33.4 Trends in Educational Attainment

and Educational Inequality

South Africa has experienced substantial improvements in education in recent decades,

with racial and gender gaps in educational attainment narrowing and an overall decline
in schooling inequality. Figure 33.1 shows mean years of education (highest completed
year of formal education) by year of birth and population group in the 2016 Community
Survey (CS).
A striking feature of Figure 33.1 is that African education was rising rapidly before
the end of apartheid. Africans born in 1991 (age 25 in 2016) completed 10.8 years of edu-
cation on average, 5.8 years more than those born in 1950. The gap in completed years
of education between whites and Africans fell from 7.1 years to 1.9 years between the
1950 cohort and the 1991 cohort. The pace of increase has been considerably slower since
the end of apartheid, however, with average schooling of Africans rising only 0.3 years
between the 1980 cohort and the 1991 cohort, and with the gap between whites and
Africans only falling from 2.5 years to 1.9 years. The gap between coloured and African
schooling was 2.3 years in the 1951 cohort, but was eliminated by the 1975 cohort and has

Mean years of education by year of birth and population group

13

12

11
Mean years of schooling

10

4
1950 1955 1960 1965 1970 1975 1980 1985 1900
Year of Birth

All African Coloured Indian White

Figure 33.1 Mean years of education by year of birth and population group
Source: Own Calculation using Community Survey 2016; three-​year moving averages.
712    Nicola Branson and David Lam

remained closed. The gap in mean education attainment between those living in urban
versus traditional and farm areas has steadily decreased across the cohorts (not shown),
from over four years in the 1950 cohort to a difference of less than a year for those born
in 1991.
Figure 33.2 shows the trend in the proportion completing grade 12 (matric), a critical
education milestone. The proportion of Africans completing grade 12 increased from 8
per cent in the 1950 cohort to 53 per cent in the 1991 cohort. The white advantage over
Africans in secondary completion rates was 64 percentage points in the 1950 cohort,
falling to 33 percentage points by the 1991 cohort.
One disappointing pattern in Figures 33.1 and 33.2 is the limited progress made
since the end of apartheid. Mean completed education of Africans who started school
in 1994 (born in 1987) is only 0.7 grades higher than those who were age 20 in 1994.
The gap between African and coloured education has almost been eliminated, but both
groups continue to have about 1.9 years lower educational attainment than whites.
While African and coloured students are progressing well into secondary school, there
has been less improvement in the share reaching grade 12 and passing the grade 12 ma-
triculation exam. As shown in Figure 33.2, the proportion of South Africans completing
secondary school has been rising at a fairly slow rate for those born since 1975. The pro-
portion of Africans completing grade 9 has risen to over 80 per cent, but the proportion

Proportion completing secondary by year of birth and population group

1

.9

.8
Proportion with grade 12 and above

.7

.6

.5

.4

.3

.2

.1

0
1950 1955 1960 1965 1970 1975 1980 1985 1900
Year of Birth

All African Coloured Indian White

Figure 33.2 Proportion completing secondary by year of birth and population group
Source: Own calculations using Community Survey 2016; three-​year moving averages.
 The Economics of Education in South Africa    713

Proportion completing post-secondary (of those with 12+ years of education)

By year of birth and population group

.6

.5
Proportion completing post-secondary
(of those with 12+ years of ed)

.4

.3

.2

.1

0
1950 1955 1960 1965 1970 1975 1980 1985 1900
Year of Birth

All African Coloured Indian White

Figure 33.3 Proportion completing post-​secondary (of those with twelve+ years of education)
by year of birth and population group
Source: Own calculations using Community Survey 2016; three-​year moving averages.

of those 9th graders who go on to complete grade 12 has been declining (around 50 per
cent in recent cohorts).
Figure 33.3 shows that the proportion of secondary school graduates who go on to
complete some kind of post-​secondary education6 has also declined steeply for African
and coloured cohorts, widening the racial gap in post-​secondary educational attainment
for younger cohorts. About 40 per cent of Africans and whites born before 1955 who
completed 12 years of education went on to complete post-​secondary education, with
a rate of around 30 per cent for coloureds and Indians. This rate has steadily declined
for the African and coloured cohorts born subsequently; only 20 per cent of those born
in 1990 who completed 12 years of education converted this into a post-​secondary
qualification. Figure 33.1 showed that this decline coincides with growth in the share
of Africans and coloureds completing secondary education; a five f​old increase is evi-
dent between the 1950s and 1975 cohorts. The proportion of Indians converting grade 12
to a post-​school qualification remained stable however, even with similar, if not larger,
increases in grade 12 attainment.

6
Post-​secondary education includes all qualifications at NQF level 5 and above, including diplomas
and certificates requiring matric as well as university degrees.
714    Nicola Branson and David Lam

33.4.1 Enrolment, Grade Advancement,

and Grade Repetition
Although Africans in recent cohorts end up with 1.9 fewer years of schooling than
whites, this is not mainly due to Africans dropping out of school. As shown by Branson
and Lam (2010), grade repetition plays a major role. This is seen in Table 33.1, which
shows how the racial gap in education emerges as youth progress through school. The
first four columns show that school enrolment is almost universal for all population
groups between ages 6 and 15, after which schooling is no longer compulsory. While
coloured youth begin dropping out at around age 15, enrolment for Africans remains
high, with 87 per cent enrolled at age 17 and 74 per cent enrolled at age 18, almost iden-
tical to whites. In spite of similar enrolment rates, educational attainment for Africans
drops progressively further behind whites as youth advance through school. By age 15,
Africans are more than half a grade behind whites, and by age 18 the gap is 1.1 grades.
Grade repetition plays a key role. The last three columns of Table 33.1 show that 6–​7 per
cent of coloured and African students are repeating a grade until age 14. Repetition rates
increase substantially in secondary school, with 24 per cent of African and 23 per cent of
coloured 18-​year-​olds enrolled in school repeating their current grade. These high rates
of grade repetition at ages 16 onwards are consistent with a strategy called ‘weeding’ (Van
der Berg et al. 2019), where weaker students in grades 10 and 11 who are thought unlikely
to pass the matriculation exam are purposefully held back in an attempt to achieve high
matric pass rates for the school.
Grade repetition varies dramatically across socio-​ economic levels. Using the
National Income Dynamics Study (NIDS), Branson et al. (2014) find that 30 per cent
of low-​income students in grade 11 in 2008 repeated at least one grade in the next two
years. This compared to only 8 per cent of high-​income students. Lam et al. (2011), using
longitudinal data from the Cape Area Panel Study (CAPS), found that grade repetition
was badly targeted, especially in poor schools. A CAPS-​administered literacy and nu-
meracy exam was much less correlated with grade advancement for Africans than it was
for other groups, suggesting that predominantly Black schools do a poor job deciding
which students to hold back. This evidence of poor evaluation is consistent with van der
Berg and Shepherd’s (2010) finding of little correlation between continuous assessment
marks provided by teachers and the externally evaluated matriculation exam. Van der
Berg et al. (2019) estimate that grade repetition costs around 8 per cent of the national
budget for basic education and note that policies promulgated to limit grade repetition
(Burger et al. 2015; Kika and Kotze 2019) have had little long-​term impact.
For African youth the combination of high enrolment rates into the late teens and
frequent grade repetition creates a situation in which Africans spend 1.5 more years
going to school than whites, but end up with a grade less schooling (Branson and
Lam 2010). Columns 1–​8 in Table 33.1 show that Africans and whites have similar
enrolment rates at ages 18–​20, combining enrolment rates in school and college/​
university. Africans are mainly enrolled in secondary school, however, while whites
Table 33.1: Enrolment, educational attainment, and grade repetition by age
Repeated previous year (of
Enrolled in school Enrolled in college or university Years of education those enrolled in school)*

Age African Coloured Indian White African Coloured Indian White African Coloured Indian White African Coloured White
5 90% 77% 80% 82% 0% 0% 0% 0% 0.1 0.1 0.1 0.1 1% 2% 0%
6 96% 94% 91% 93% 0% 0% 0% 0% 0.6 0.4 0.6 0.4 3% 2% 1%
7 97% 96% 96% 96% 0% 0% 0% 0% 1.3 1.1 1.4 1.1 5% 3% 1%
8 97% 96% 95% 96% 0% 0% 0% 0% 2.0 1.9 2.1 1.9 6% 4% 4%
9 97% 96% 96% 97% 0% 0% 0% 0% 3.6 3.5 3.7 3.5 7% 5% 1%
10 97% 97% 94% 97% 0% 0% 0% 0% 4.2 4.0 4.4 4.1 6% 8% 0%
11 97% 95% 95% 96% 0% 0% 0% 0% 4.8 4.7 5.2 4.9 7% 11% 3%
12 97% 95% 93% 97% 0.0% 0.0% 0.0% 0.0% 5.6 5.6 6.1 5.7 7% 5% 2%
13 96% 95% 92% 95% 0.0% 0.1% 0.1% 0.1% 6.6 6.5 7.1 6.7 6% 5% 4%
14 96% 92% 94% 95% 0.1% 0.2% 0.3% 0.2% 7.4 7.5 8.2 7.8 7% 5% 0%
15 95% 89% 93% 95% 0.1% 0.6% 0.6% 0.5% 8.2 8.2 9.1 8.8 11% 14% 1%
16 92% 82% 90% 93% 0.4% 1.2% 0.5% 1.0% 9.0 9.1 9.9 9.7 15% 10% 3%
17 85% 70% 70% 86% 1.5% 1.9% 3.4% 2.2% 9.6 9.8 10.6 10.5 16% 13% 4%
18 66% 33% 27% 36% 8% 9% 30% 28% 10.1 10.2 11.4 11.2 24% 23% 3%
19 47% 16% 10% 10% 13% 12% 42% 44% 10.3 10.5 11.6 11.7 28% 22% 0%
20 31% 7% 4% 4% 16% 13% 43% 49% 10.5 10.6 11.7 11.8 30% 27% 0%
21 19% 3% 3% 3% 16% 12% 36% 47% 10.6 10.7 11.9 12.0 34% 13% 0%
22 12% 2% 2% 2% 14% 10% 34% 36% 10.7 10.7 11.9 12.3 33% 23% 0%
23 7% 1% 1% 2% 12% 7% 21% 27% 10.7 10.7 11.9 12.4 33% 67% 0%
24 5% 1% 2% 1% 9% 5% 18% 20% 10.8 10.7 12.0 12.7 37% 100% 0%
25 0% 0% 0% 0% 12% 5% 18% 17% 10.8 10.7 12.1 12.7 35% 0% 0%

Sources: Data sourced from Community Survey 2016 for enrolment and years of education; GHS 2017/​18 for repetition as this variable is not in the Community
Survey. Indian repetition rates are excluded due to small sample sizes in GHS.
716    Nicola Branson and David Lam

transition into tertiary education. Many will be surprised that the African enrolment
rate of 60 per cent (47 per cent + 13 per cent) is higher than the 54 per cent enrolment
rate of whites at age 19. But 78 per cent of enrolled Africans are still trying to finish
secondary school, while 82 per cent of enrolled whites are attending post-​secondary
institutions.
Table 33.1 highlights low enrolment in the college and university system for learners
under age 18. The percentage of 15-​and 16-​year-​olds enrolling in college or university is
below 1.2 per cent in all population groups. This is corroborated by Papier (2009) who
notes that the college system is not typically used as an alternative pathway through
FET for learners, but rather used by those scholars who have already at least attempted
grade 12.
The distribution of post-​secondary enrolment across university and college differs
across race groups, with African and coloured youth more likely than white and Indian
youth to enrol in college than university. For example, 64 per cent of Africans between
the age of 20 and 25 who are enrolled out of the school system are enrolled in college,7
compared to 18 per cent of white, 24 per cent of Indian and 50 per cent of coloured youth
at these ages (own calculations, Community Survey 2016).
Figure 33.4 displays post-​secondary qualification attainment by NQF level and year
of birth. The figure shows a rapidly increasing share of post-​secondary qualifications at
NQF level 5 (N4–​6 and certificates) for those born from 1970 onwards, with a decline
in the share in NQF levels 7 and above. NQF level 5 qualifications are predominantly
obtained in college, while qualifications at NQF level 7 and above can only be obtained
from universities. These changes have implications for the distribution of skills in the
labour market.
Gender differences in education in South Africa have moved in the direction of a fe-
male advantage. Girls progress through school faster than boys in all population groups
and end up with higher educational attainment (Anderson et al. 2001; Lam et al. 2011).
Branson et al. (2014), using national longitudinal data, show that close to 40 per cent
of boys in grades 1–​4 in 2009 repeated at least one grade over the next two years, about
double the level for girls. Boys are also more likely than girls to drop out in secondary
school. This selection results in an academically stronger group of boys reaching grade
12 and writing the NSC (Spaull and Makaluza 2019), evident in higher average pass rates
for boys (82.8 per cent compared to 80.1 per cent) (DBE 2020b).
While South Africa has made large strides in improving average educational
attainment, the rate of tertiary education completion among Africans and coloureds
who reach matric has not kept pace. With a labour market that increasingly favours
those with tertiary education, failure to close racial gaps in education at the completed
secondary and tertiary education level plays an important part in perpetuating the cycle
of inequality. We examine this in section 33.7 below.

7
College here includes TVET, CET, and private colleges.
 The Economics of Education in South Africa    717

Proportion of post-secondary qualifications .5

.4

.3

.2

.1

0
1950 1955 1960 1965 1970 1975 1980 1985 1990
Year of Birth

NQF level 5 NQF level 6 NQF level 7 NQF level 8 NQF level 9 or 10

Figure 33.4 Proportion of post-​secondary qualifications by level and year of birth

Source: Own calculations using Community Survey 2016; three-​year moving averages.

33.5 Education Funding

and Private-​user Fees

Around 15.1 million South Africans were enrolled in some form of education in 2019,8
representing around 26 per cent of the population or a gross enrolment ratio of 59 per
cent using the population aged 5–​29 as the denominator (DBE 2020a; DHET 2020a).
Seventy per cent of enrolment is in compulsory education (grades R–​9), with a further
19 per cent of enrolment at NQF levels 2–​4. Enrolment in post-​secondary education
(NQF level 5 and higher) represents only 9 per cent of total enrolment.
Most primary and secondary schools (hereafter schools) in South Africa are publicly
funded. In 2019, 92 per cent of the approximately 25,000 schools in South Africa were
classified as public, with the remaining 8 per cent classified as independent (i.e. private
schools) (DBE 2020a). Furthermore, 95 per cent of learners attend public schools, close

8 Information in this section draws from the most recent published institutional reports—​the

DBE school realities report of learners in 2019 and the DHET Statistics for Post-​school Education and
Training in South Africa, 2018.
718    Nicola Branson and David Lam

to 12.5 million learners. Enrolments at NQF levels 2–​4 (grades 10–​12 or NC(V) 2–​4) are
concentrated in the schooling system, with only 12.7 per cent of learners at this level
enrolled in colleges (DBE 2020a; DHET 2020a). Similarly, the share of students enrolled
in NQF 5–​7 (post-​secondary) education at colleges is relatively low (26 per cent), with
most students at that level enrolling in universities. Provision of post-​secondary edu-
cation, particularly undergraduate enrolment, is predominantly provided by public
universities (77 per cent).
Provision of education in the South African system varies across institutions on
several dimensions, many originating from inequalities in the past. One dimension is
differences in funds available and the ratio of public to private funding (typically user
fees) inputs.

33.5.1 The National Education Budget

In 2018/​19, the education departments spent about Rand 335 billion on education,
around 6.8 per cent of GDP), 5 per cent on basic education and 1.8 per cent on post-​
secondary education and training (Department of National Treasury, 2019). Seventy-​
three per cent of the education budget went into the basic education schooling system,
3 per cent to TVET colleges, 0.7 per cent to CET colleges, and 10 per cent to universities.
A further 6.8 per cent of the education budget was allocated to the National Student
Financial Aid Scheme (NSFAS), which funds students from families with annual house-
hold incomes below R350,000 enrolled in TVETs and universities. The remaining 5.7
per cent of the education budget went to skills development institutions, including the
National Skills Fund, the National Skills Authority, and twenty-​one Sector Education
Training Authorities (SETAs).

33.5.2 Education Funding and User Fees

User fees are an important dimension of education funding. Public schools are divided
into quintiles based on the socio-​economic level of the school’s neighbourhood. Schools
in quintiles 1–​3 are classified as no-​fee schools and are prohibited from charging fees.
Schools in quintiles 4 and 5 may charge fees determined by School Governing Bodies
and voted on by parents (SASA, section 21). The National Norms and Standards for
School Funding (DBE 2006, amended last in 2014) allocates non-​personnel public ex-
penditure to schools on a pro-​poor basis; 60 per cent of non-​personnel resources are
allocated to the poorest 40 per cent of learners, such that lower quintile schools receive
higher allocations per learner. Personnel expenditure allocations, however, are based
on the number of posts at the school and the education and experience levels of the
teachers and principal. Motala and Carel (2019) show that schools in quintiles 4 and 5
tend to attract more highly qualified teachers and principals, and therefore command
a higher share of the personnel expenditure budget. They show that with 80 per cent of
 The Economics of Education in South Africa    719

the education budget assigned to personnel expenditure, this results in a total learner al-
location of public funds that is pro-​rich and not redistributive. Furthermore, fee-​paying
schools have discretionary funds from fees that can be used to improve school resources
and employ additional teachers and support staff (Motala and Carel 2019).
University income is comprised of public funds, student tuition fees, and third-​stream
income.9 Student fees accounted for about a third of university incomes in 2018, up from
around a quarter in 2000 (DHET 2020b). The increased reliance on fees was largely in
response to decreasing state funding, which fell from 49 per cent of total university in-
come in 2000 to 39 per cent in 2015 (DHET 2020b) and was a catalyst for student protests
between 2014 and 2017. Protests culminated in the announcement by former president
Zuma of ‘fee-​free education’ for families with incomes below R350,000 via the NSFAS.
The NSFAS is a public entity under the Department of Higher Education and
Training that provides bursaries to academically eligible students from households
with incomes below R350,000 and further subsidizes the NC(V) or NATED/​Report 191
(N1 to N6) courses at 80 per cent of the total programme cost at TVET colleges (DHET
2020b). Prior to 2018, funding for students was provided as a loan, part of which could
be converted to a bursary upon good academic performance. The number of students
funded via NSFAS grew from 25,574 in 1994 to 586,763 in 2018, with reports that this
growth was not sufficient to cover all eligible students in need of funding (Barberton
et al. 2016). In addition, the programme was criticized for burdening already socio-​
economically disadvantaged students with debt, poor administration that resulted
in late payment, and for providing insufficient loan amounts to cover the full cost of
studying (FCS). The 2018 NSFAS policy change addressed these issues by committing
to providing bursaries covering the FCS to all first-​time entering students from families
with household income below R350,000. Debates about whether this commitment is fi-
nancially sustainable continue in public and policy circles.
The tuition fee component of university income has therefore always been partly state
funded via the NSFAS, but the ratio of public to privately funded tuition fees has grown
substantially over the past two decades, with large variations in reliance on state-​funded
tuition fees across institutions (Barberton et al. 2016).

33.6 Academic Performance

and Inequality within the System

Figure 33.1 showed improvements in average educational attainment in South Africa.

Yet, these improvements conceal low levels of cognitive learning and stark inequalities
in learner performance. International tests with standardized measures show that

9
Third-​stream income includes donations, endowments, investment income, and money generated
through research and entrepreneurial activities (DHET 2019).
720    Nicola Branson and David Lam

cognitive learning in most South African schools is extremely poor by international

standards, and very unequal. This has implications for performance on the national
matriculation exam and limits post-​secondary options and subsequent labour market
outcomes, perpetuating the cycle of inequality.

33.6.1 Performance on Standardized Tests

South Africa scores near the bottom on international tests such as TIMSS and PIRLS,
and performs poorly even when compared to other African countries. In the 2007
SACMEQ study10 of grade 6 learners, South Africa ranked 10th in reading and 8th in
mathematics out of fifteen countries, worse than low-​income countries such as Kenya,
Tanzania, Swaziland, and Zimbabwe. Twenty-​seven per cent of South African 6th
graders were classified as functionally illiterate and 40 per cent as functionally innu-
merate (Moloi and Chetty 2010).
Learner outcomes, as measured by international tests, have improved over time, albeit
from a very low base (Gustafsson 2020; Van der Berg and Gustafsson 2019)11. Gustafsson
(2020) shows that once the 2011 PIRLS test is calibrated to be comparable with the 2006
and 2016 tests, average grade 4 reading scores increased from 250 in 2006 to 295 in 2011
and to 320 in 2016. TIMSS grade 9 mathematics scores increased from 285 in 2003 to
350 in 2011 and 370 in 2016 (Gustafsson 2020). Improvements on the NSC are also evi-
dent. Van der Berg and Gustafsson (2019) show that the number of African matriculants
achieving high-​level mathematics scores12 increased by 65 per cent between 2002 and
2016, an increase higher than the increase in the number of Africans writing matric.

33.6.2 Inequality in Performance across Schools

Performance across South African schools is extremely unequal. Van der Berg and
Gustafsson (2019) examine inequalities in performance on international tests within
the school system. In 47 per cent of schools, not a single learner reached the TIMSS
Intermediate International Benchmark of 475. This is almost double that of the second
most unequally performing country, Saudi Arabia. Furthermore, in the next 33 per cent
of schools, while at least one learner meets the intermediate benchmark, none meet the
high international benchmark (550). Similarly, they show that in the SACMEQ 2007

10
Spaull and Pretorius (2019) note that the quality and comparability of the SAQMEQ 2013 data has
not yet been established. We therefore defer to the 2007 data.
11 The TIMSS and PIRLS low international benchmark is 400, representing that students have a basic

knowledge of mathematics and literacy. Average scores for South Africa are below this level in both
TIMSS and PIRLS.
12 Mathematics scores above an annual threshold determined by the top performing 20 per cent of

White learners.
 The Economics of Education in South Africa    721

study, South Africa has the second-​to-​highest level of inequality in performance after
Mauritius, out of fifteen countries included.
To analyse the nature of inequality in performance across schools, Van der Berg and
Gustafsson (2019) regress SACMEQ 2007 test scores on the average socio-​economic
status of the school and its square. They find that close to half of the inequality in per-
formance across South African schools is explained by the average wealth/​socio-​
economic status of the school, double that apparent in Mauritius and argue that once
school socio-​economic characteristics are controlled for, individual socio-​economic
variables explain very little further variation in inequality. The school a learner attends
will therefore overwhelmingly affect their performance, and this is largely determined
by where a learner is born.13

33.6.3 Factors Associated with Performance Differentials

International studies show that quality early childhood development (ECD) can play an
important part in levelling the playing field for learners entering primary education (see
van Huizen and Plantenga (2018) for a review). The South African national government
recognizes this in policy; the 2030 NDP targets include universal access to two years of
pre-​primary education and general ECD services for children aged 0–​3 and, in 2015,
the Integrated Early Childhood Development Policy, a multi-​sectoral comprehensive
package of ECD services, came into effect (Republic of South Africa 2015). However, im-
plementation of ECD falls short of policy intentions and provision varies across space,
income level, and race in terms of access, length of exposure, quality of provision, and
state funding (Hall et al. 2017; Gustafsson 2017; Ashley-​Cooper et al. 2019). For example,
in 2018, 66 per cent of children aged 3–​5 living in the poorest 20 per cent of households
were attending an early learning programme, compared to 82 per cent of children living
in the richest 20 per cent (own calculations, Statistics South Africa 2019). As a result,
current ECD provision typically further dis-​equalizes opportunities for children from
poorer backgrounds (van der Berg et al. 2013).
Teacher subject matter and pedagogical knowledge have been shown to be lacking in
South Africa (Taylor and Taylor 2013; Hoadley 2016). Consequently, learners in many
South African schools struggle to acquire the foundational numeracy and literacy skills
for subsequent learning. Most foundation teachers in South Africa are not taught to
teach ‘reading for meaning’, a task the Funda Wande: Teaching Reading for Meaning
project has set out to address (Spaull 2016). The right to learn in any of the eleven official
South African languages (RSA 1996)14 adds an additional complexity, as teachers have
limited opportunities to learn how to teach reading, particularly in African languages.

13
Eighty-four per cent of learners attended their closest school (Hall 2019).
14
The Language in Education Policy of 1997 qualifies, however, that this right can only be realized
where reasonably practical, defined as when there are forty (thirty-​five) or more learners within a pri-
mary (secondary) grade requesting the language of instruction.
722    Nicola Branson and David Lam

The prioritization of improving learner outcomes is exemplified in the NDP target

that schools will have better educational outcomes and every 10-​year-​old child will be
able to read for meaning by 2030. State and donor interventions have thus focused on
developing and evaluating the impact of structured pedagogical interventions (Cilliers
et al. 2020) that provide curriculum-​aligned learning materials such as graded readers
(not readily available in all African languages), lesson plans, and teacher professional
development, found to be successful in improving foundation numeracy and literacy in
international research (e.g. Popova et al. 2018).

33.6.4 Access and Performance at University and College

Differences in cognitive learning during primary and secondary school limit choices for
post-​secondary skill attainment. Figure 33.3 showed that the proportion of Africans and
coloureds converting their grade 12 into a post-​secondary qualification has decreased
steadily over the past four decades, while the rate has remained constant for Indians and
whites. Furthermore, Africans who continue their studies after school are more likely
to enrol in college than university. Performance on the NSC determines eligibility to
study at university and is unequal across schools. In 2019, for example, 37–​40 per cent of
learners in quintile 1–​3 schools and 45 per cent in quintile 4 schools who passed the NSC
achieved a bachelor’s pass, compared to 61 per cent in quintile 5 and 58 per cent in inde-
pendent schools (DBE 2020b).
Van Broekhuizen et al. (2019) show the strong link between NSC performance—​both
in average score and whether the learners took mathematics and physical science—​and
university access. Only 9.2 per cent of learners from quintile 1 schools who took the 2008
NSC exam enrolled in a public university within six years, compared to 45.2 per cent of
learners from quintile 5 schools. However, restricting the sample to those who passed
the NSC with a bachelor’s pass, the differences were reduced, with 63 per cent of quintile
1 and 70 per cent of quintile 5 learners enrolling in the public university system within
six years. Controlling further for NSC score and subjects taken does not remove the
difference completely, however, as learners from poor schools were less likely to enrol at
university. Two other studies using longitudinal data support the finding that academic
performance is the main factor determining post-​secondary access—​for enrolment in
both college and university—​though credit constraints continue to play a part (Lam
et al. 2013; Branson and Kahn 2019).
Furthermore, Branson and Kahn (2019) find that the relationship between enrol-
ment in college and test scores represents an inverted U-​shape for low-​and high-​
income learners but increases linearly for middle-​income students. These findings
are consistent with the NSFAS funding policy prior to 2018. High performing
students from low-​income households had access to NSFAS funds, and therefore
 The Economics of Education in South Africa    723

could choose university over college, while those in middle-​income households

did not, and therefore appear to have opted for the less-​expensive college option.
The NSFAS model from 2018 is designed to alleviate the financial constraint from
students’ decisions about whether, when, and where to enrol in post-​secondary
education.
Completion rates within the university sector have improved and dropout rates
have decreased over the past decade but continue to vary by mode (contact versus dis-
tance), gender, qualification programme, and race (DHET 2019). For example, tracking
the 2008 entrance cohort for ten years, the DHET (2019) show that the dropout rates
for contact students was 27.7 per cent, compared to 70 per cent for distance-​learning
students. Women outperform men in all qualifications, and white and Indian students
outperform their African and coloured counterparts in all qualifications (DHET 2019).
Racial differences mainly reflect differences in academic performance on entering
university, however. Van Broekhiuzen et al. (2019) show that once school quintile,
NSC score, and whether the learner took mathematics and physical science subjects
are taken into account, African students are less likely than white students to drop
out and are equally likely to complete their qualification in six years. White students
retain certain advantages, however. For example, they are more likely to enrol in de-
gree programmes—​the qualification with the highest labour market rewards—​and
are more likely to complete their qualifications in four years. This advantage may re-
flect differences in educational preparedness not accounted for in the model, or other
challenges discussed in the literature (Branson et al. 2015).
Beyond academics, the background socio-​ economic characteristics of students
enrolled in the TVET college system are similar to learners who attempt matric but do
not enrol in education thereafter (Branson and Kahn 2019). University students, on the
other hand, come from, on average, more advantaged backgrounds, have parents with
higher educational attainment, and reside in households with higher income levels
during their matric year.
The NDP goal to increase enrolment in TVET colleges to 2.5 million students by 2030
illustrates that government recognizes the TVET colleges as providers of an alterna-
tive education pathway for students. However, although enrolment in TVET colleges
more than doubled between 2010 and 2015, there has been a decline in enrolment since
(DHET 2020a).
Many of the public colleges have encountered management hurdles, limited teaching
capacity, and funding constraints (DHET 2013). In addition, colleges have, to date,
maintained a reputation as being institutions that provide inferior education to those
who do not have the academic marks to attend university. Confusing course structures
and application processes, lack of student support, low course completion rates, and the
disconnect between course content and the skills demanded in the labour market have
not helped to improve the status of South African public colleges.
724    Nicola Branson and David Lam

33.7 The Relationship between

Education, Employment, Earnings,
and Inequality

The previous sections have analysed some of the important economic determinants
of education outcomes. In particular, we have seen how inequality in income and
resources is associated with large disparities in educational attainment and the quality
of education received. In this section, we look at how inequality in education in turn
affects inequality in employment and earnings when learners enter the labour market.
We begin by looking at the distribution of education in the working-​age population. We
then look at the relationship between education and labour market outcomes. Last, we
discuss some of the implications for income inequality in South Africa and its transmis-
sion across generations.

33.7.1 The Distribution of Education in the

Working-​age Population
The improvements in education across birth cohorts, documented in Figures 33.1–​33.3,
imply that the distribution of education in the working-​age population has also been
increasing. Figure 33.5 shows, for 1993 to 2018, mean years of education of the working-​
age population (defined as ages 25–​59 to allow most people to complete their educa-
tion) and the proportion within each category of completed education. Mean years of
completed education (highest grade completed) in the working-​age population has
risen steadily from 7.7 years in 1993 to 10.5 years in 2018. There have been significant
declines in the proportion of the working-​age population with no schooling (13 per cent
to 3 per cent) and the proportion with one to seven years (30 per cent to 12 per cent),
and significant increases in the proportion with grade 12 (14 per cent to 31 per cent) and
beyond grade 12 (9 per cent to 16 per cent). The proportion with incomplete secondary,
grades 8–​11, has remained relatively constant, as movement into the category from lower
grades has replaced movement out of the category into higher grades.

33.7.2 The Relationship between Education

and Employment
As documented in other chapters in this volume (Mlatsheni, ­Chapter 32; Heintz and
Naidoo, ­Chapter 7) South Africa has some of the highest unemployment rates in the
world. The probability of being employed is strongly associated with education. Figure
 The Economics of Education in South Africa    725

Education distribution of working-age population (25–29) by year

12

11

Mean
10

8
Proportion

.4

.3

.2

.1

0
1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
Year

Mean years of Education Incomplete Secondary (8–11)

Grade 12 Beyond Grade 12 Grades 1–7 No Schooling

Figure 33.5 Education distribution of working-​age population (aged 25–​59) by year

Source: Own calculations using Post Apartheid Labour Market Series PALMS and General Household Survey; three-​year
moving averages.

33.6, below, shows the proportion of the population employed by years of completed
education for Africans and whites aged 25–​59 in 1994/​95 and 2017/​18.15
The figure shows that less than 50 per cent of working-​age Africans with under eight
years of completed schooling were working in both 1994/​95 and 2017/​18. The proportions
working at these lower levels of schooling are surprisingly constant in the two periods.16
This constancy masks some changes when looking at men and women separately (not
shown). For example, for African men with under eight years of schooling, the propor-
tion employed fell over this 24-​year period from about 60 per cent to 50 per cent. For
African women with under eight years of schooling, the proportion employed increased
from about 25 per cent to 35 per cent.
As seen in Figure 33.6, employment probabilities remain relatively flat for
Africans until around grade 12, when they begin to increase substantially. Whites

15 We pool two years to increase sample size, given small numbers of observations for some years of

education.
16 We do not show White employment rates below eight years of schooling due to the very small

sample sizes.
726    Nicola Branson and David Lam

Relationship between schooling and employment, 1994–95 and 2017–18, Ages 25–59
1

.9

.8

.7
Proportion working

.6

.5

.4

.3

.2

.1

0
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Highest grade completed

1994–95 White 2017–18 White 1994–95 African 2017–18 African

Figure 33.6 Relationship between schooling and employment, 1994/​95 and 2017/​18, ages 25–​59
Source: Own calculations using PALMS.
Notes: Highest grade completed represents school grades between grades R/​0 and 12, with NQF levels 5 and 6
represented by highest grades 13 and 14, and NQF levels 7–​10 (university) classified as grade 15.
NC(V) 2–​4 and NATED 1–​3 are classified as grades 10–​12.

have relatively similar employment rates as Africans at grades 8 and 9, but white em-
ployment increases faster in the incomplete secondary grades, with whites having
significantly higher employment at grade 12. The African schooling–​employment
gradient is very steep above grade 12, with Africans who have completed univer-
sity (shown as grade 15) having almost the same high employment rates as whites,
around 90 per cent. Indeed, there has been a lively debate (see Van Broekhuizen
(2016) for a summary) about the level of graduate unemployment in South Africa.
As is evident from Figure 33.6, however, the problem has been much exaggerated
and was partly a result of people with pre-​NQF level 5 certifications being classified
as graduates.
While white labour force participants have an employment advantage at schooling
levels around grades 11 and 12, the racial differences at most grades are not enormous.
Although in 2018, the overall employment rate for Africans was 54 per cent, compared to
76 per cent for whites, whites’ higher education levels are more important in explaining
this difference than are racial differences in employment rates at specific levels of
education.
 The Economics of Education in South Africa    727

33.7.3 The Relationship between Education and Earnings

In addition to the strong relationship between education and employment shown in
Figure 33.6, there is a strong relationship between education and earnings for those
who have jobs. High rates of return to education in South Africa have been the focus
of an extensive literature, with particular focus on the high returns to post-​secondary
education, some of the highest in the world (Mwabu and Schultz 1996, 2000; Keswell
and Poswell 2004; Branson and Leibbrandt 2013; Salisbury 2016; Patrinos and
Psacharopoulos 2020).
Figure 33.7 shows the relationship between earnings and highest grade completed for
Africans and whites in 1994/​95 and 2017/​18. The figure is based on earnings regressions
in which the natural logarithm of earnings is regressed on dummy variables for
each year of completed schooling, age, age squared, a female dummy, and province
dummies, with separate regressions for Africans and whites in each period. As with
standard log-​earnings regressions, a 0.1 point difference in log earnings translates into
approximately a 10 per cent difference in earnings. We do not present estimates for

Relationship between schooling and earnings, 1994–95 and 2017–18, Ages 25–59
Log earnings minus log earnings of Africans with zero schooling

2.5

1.5

.5

0
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Highest grade completed

1994–95 White 2017–18 White 1994–95 African 2017–18 African

Figure 33.7 Relationship between schooling and earnings, 1994/​95 and 2017/​18, ages 25–​59
Source: PALMS and General Household Survey.
Notes: Highest grade completed represents school grades between grades R/​0 and 12, with NQF levels 5 and 6
represented by highest grades 13 and 14, and NQF levels 7–​10 (university) classified as grade 15.
NC(V) 2–​4 and NATED 1–​3 are classified as grades 10–​12.
728    Nicola Branson and David Lam

whites below nine years of schooling due to small cell sizes. The figure shows predicted
log earnings at each schooling level relative to predicted log earnings for Africans with
zero schooling in that year (only individuals with positive earnings are included).
For example, in 1994/​95, Africans who had completed grade 10 had 0.96 higher mean
log earnings than Africans with zero schooling. Exponentiating this log difference,
this translates into 2.6 times higher earnings for Africans with grade 10. Whites had
1.6 higher mean log earnings than Africans with zero schooling, or 5.1 times higher
earnings. Whites with grade 10 education earned 1.9 times higher earnings than
Africans with grade 10 in 1994/​95.
Figure 33.7 shows the strong relationship between education and earnings in both
periods, with high returns for both population groups. For Africans in 1994/​95, each
year of additional schooling increased earnings by around 15 per cent for grades between
4 and 11, very high by international standards (Patrinos and Psacharopoulos 2020), with
even higher returns for grade 12 and above. Although whites had an earnings advan-
tage over Africans at every grade level in 1994/​95, the education–​earnings gradient was
somewhat flatter for whites.
An important feature of Figure 33.7 is the decline over time in returns to schooling
for Africans through grade 11. This has been observed for some time in previous
studies (Moll 1996; Keswell and Poswell 2004; Salisbury 2016). The return to an add-
itional year of schooling in the grades 5–​11 range fell from rates of around 15 per cent
in 1994/​95 to rates of 5–​7 per cent in most grades by 2017/​18. While the rate of return
to these grades declined over time, the rate of return to grade 12 and higher increased
substantially. The earnings advantage of university-​educated Africans (shown as
grade 15) over grade-​12-​educated Africans rose from an already high 2.1 times higher
earnings in 1994/​95 to 3.4 times higher earnings in 2017/​18. The increasing returns
to tertiary education are an important part of the education–​earnings relationship in
South Africa and have been observed in the United States and most other countries
(Patrinos and Psacharopoulos 2020). This increase in returns to schooling at the
highest levels of schooling has been an important contributor to increasing earnings
inequality in many of these countries (e.g. Juhn et al. 1993; Lam and Levison 1991),
and has had a dis-​equalizing effect in South Africa as well (Lam et al. 2015; Branson
et al. 2012).
Comparing the African and white lines in Figure 33.7, there is a large earnings gap
at every level of education. In contrast to the data on employment in Figure 33.6,
large gaps in earnings at each education level are an important factor explaining the
overall African–​white earnings gap, over and above the higher levels of education
among whites. The earnings gap is smaller at the highest levels of education, how-
ever, and there is evidence of a narrowing of the gap over time. Looking at those with
university education, whites had 47 per cent higher earnings than Africans in 1994/​
95, but this had decreased to 16 per cent in 2017/​18, controlling for age, gender, and
province.
 The Economics of Education in South Africa    729

33.8 Conclusion: Education

and the Intergenerational
Transmission of Inequality

Linking this chapter with themes found in many of the other chapters in this volume,
it is clear that education plays a central role in explaining South Africa’s high levels of
inequality in employment and income. This is the result of both inequality in education
outcomes, as documented throughout this chapter, and impacts of education on em-
ployment and income that are among the strongest in the world. While the increases in
education in the working-​age population, shown in Figure 33.5, are an important sign of
progress, they have also had the effect of pushing the population into the range of edu-
cation where the earnings–​education gradient is the steepest. This change can have a
dis-​equalizing effect, even though the improvements in education, in and of themselves,
may have had an equalizing effect. The large increase in returns to post-​secondary
education, shown in Figure 33.7, have also had a significant dis-​equalizing effect. Lam
(2020) shows that many countries in the world have had declining inequality in educa-
tion accompanied by rising inequality in earnings, with the increase in returns to post-​
secondary education playing a major role. South Africa is following this pattern, with
the slow increase in post-​secondary education contributing to the high and rising rates
of return.
Inequality in income among parents strongly translates into inequality in educa-
tion outcomes for the next generation. The large disparities we have documented in
grade attainment and performance are heavily influenced by the disparities in access to
resources among parents and the school a child subsequently attends.
Continued policy emphasis on improving learner acquisition of foundational nu-
meracy and literacy skills, particularly in quintile 1–​3 schools, should therefore remain a
key priority. To date, careful evaluation work has shown that there is potential, through
carefully crafted interventions, to improve the classroom learning environment. The
next crucial step is to implement these interventions nationally and monitor the quality
with which they are integrated into classroom practices.
The importance of developing learning materials and pedagogical knowledge and
procedure in African languages has also been raised as a formidable challenge to the
South African schooling system. A review of the language policy, with the possible
adoption of a few languages that can be taught well may be the way forward.
The distribution of state funds within the education sector provides concrete insight
into policy priority. The commitment of resources to ECD and the college sector are
not as strong as they should be, given the importance of these two sectors in the South
African education landscape and policy discussion. While rigorous empirical evi-
dence of the importance of ECD in South Africa is still limited, international literature
730    Nicola Branson and David Lam

highlights the fact that quality ECD can contribute significantly to levelling the playing
field for children from unequal socio-​economic backgrounds. At the other end of the
education spectrum, the current reality is that 40 per cent of learners will not complete
matric or will not be eligible to study at university. The college system has the potential
to provide these learners with further education that could improve their labour market
and life outcomes. Current college-​programme provision falls far short of this, however.
Commitment of state resources focused on improving the quality of education provided
in these institutions needs to be on a par with that in basic schooling and university
education.
South Africa continues to be in a cycle where space, income, and racial inequalities de-
termine the quality of education an individual receives, reproducing inequalities in em-
ployment and earnings across generations. The critical role of education in determining
intergenerational welfare, makes addressing inequality in education opportunities of
fundamental importance to South Africa.

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 Chapter 34

Gender and Work i n

Sou th Af ri c a

Daniela Casale, Dorrit Posel,

and Jacqueline Mosomi

34.1 Introduction

Historically, access to paid employment and economic resources in South Africa

was sharply differentiated by both race and gender. Women’s participation in the labour
market was affected not only by legal restrictions on where people of colour could live and
work, and the types of work they could do, but further by ‘internal structures of control’
(Walker 1990: 178) in the household and the community. These included gender ideology,
women’s economic dependence and social pressure that enabled fathers, husbands, and
chiefs to reinforce women’s traditional roles in reproduction and household labour.
The transition to democracy saw the removal of many of the structural constraints
that inhibited the labour-​force participation of both African women and men, and it
ushered in a very progressive constitution that emphasizes dignity, justice, and equality.
The South African government further introduced a range of protective labour and
equal opportunity legislation intended to redress both race and gender inequality. This
includes the Basic Conditions of Employment Act (1997), the Employment Equity Act
(1998), and minimum wage legislation in low-​wage employment (for example, for con-
tract cleaners in 1999, domestic workers in 2002, agricultural workers in 2003, and na-
tionally in 2018). Marking a formal policy commitment to reducing gender inequality,
South Africa has also been a signatory to numerous regional and international gender
protocols (Posel and Casale 2019).
In this chapter, we draw on existing research and our own analysis of national micro-​data
from 1994 to 2019, to trace changes in women’s participation in both paid and unpaid work.
We show that progress over the post-​apartheid period has been uneven. Whilst we describe
important and significant advances, for example in a narrowing of the average gender wage
gap, and the employment of more women in high-​skilled occupation types, we show also
736    Daniela Casale, Dorrit Posel, and Jacqueline Mosomi

that gender divisions of labour in the home and in the paid economy persist. We first review
and detail participation in the post-​apartheid labour market from the perspective of gender,
and then describe gender differences in household labour and care obligations. At the time
of writing, South Africa had emerged from a very strict national lockdown in response to
the COVID-​19 pandemic, and we consider how this crisis illuminates the vulnerability of
women in the labour market, the importance and the demands of work undertaken in the
home, and women’s primary responsibility for this work.

34.2 Gender Differences in

the Labour Market

Global research on long-​term labour market trends has documented a rise in women’s
labour-​force participation relative to men’s, and particularly during the 1980s,1 with
women’s share of employment increasing as a result. However, in most countries, men
remain considerably more likely than women to be labour-​force participants, and many
of the jobs that women have gained have been in precarious or non-​standard forms of
employment—​the types of jobs that have also been on the rise in recent decades (ILO
2018). Standing’s (1989, 1999) well-​known reference to the ‘feminization’ of the labour
force therefore held an intended double-​meaning: women were increasingly likely to
participate in the workforce; and, in a fast-​changing global economy, the work avail-
able was increasingly of a ‘flexible’ or ‘informal’ nature, attributes often associated with
female labour. In this section, we show that South Africa mostly conforms to these
global trends, although significant gains have also been realized. We highlight some of
the more distinctive features of women’s rising labour-​force participation, including the
very large gap between the number of women who want to work and who find work, and
the intersection of gender with race disadvantage in the labour market.
Although labour market data collected by South Africa’s statistical agency prior to
1994 were not nationally representative and overlooked large parts of the population
living in the former homelands, there is some limited evidence from the pre-​democracy
period that women’s participation in the labour market was increasing from around the
middle of the twentieth century already (Posel and Todes 1995; Standing et al. 1996).
Estimates based on the Population Census, for example, suggested that in 1960 women
accounted for 23 per cent of the labour force; by 1985 this figure had risen to 36 per cent;
and by 1991 it had grown further to 41 per cent (Standing et al. 1996: 60).
In 1994, Statistics South Africa (StatsSA) started collecting nationally representative
data that allowed a more rigorous analysis of labour market dynamics, first with the
October Household Surveys (OHS) from 1994 to 1999, then with the biannual Labour

1
In recent decades, however, labour-​force participation rates globally have slowly declined for both
men and women, but with a slower decline for women (ILO 2018).
 Gender and Work in South Africa    737

Force Surveys (LFS) of 2000 to 2007, and finally with the Quarterly Labour Force Surveys
(QLFS) from 2008 onwards. In the early years of post-​apartheid data collection (1994 to
2000 especially), sampling and survey design features changed quite often, unfortunately
compromising comparability of some of the key statistics over time (see Mosomi 2018
for more details). Some of this ‘noise’ is evident in the data series we present here, and we
refer to this where relevant. However, to ensure that we use the most comparable datasets
and definitions available given these limitations, we rely on the Post-​Apartheid Labour
Market Series (PALMS) from 1994 to 2019 for our empirical analysis.2

34.2.1 Broad Trends in Labour-​force Participation,

Employment, and Unemployment
Consistent with the trend of the pre-​democracy period, women’s labour-​force participation
continued to increase after 1994. Despite some volatility in the early period (likely due to
sampling issues and survey design), Figure 34.1 shows a general upward trend in the per-
centage of the working-​age population wanting, and searching for, work, with the growth in
labour-​force participation rates considerably larger for women than men. Female labour-​
force participation rose from about 40 per cent in 1994 to 54 per cent in 2019, while male
labour-​force participation rose from 60 per cent in 1994 to 67 per cent in 2019 (see also
selected years of data in Table 34.1). Mirroring global trends, women’s share of the labour
force therefore grew over the period, from 42 per cent in 1994 to 46 per cent in 2019. Much
of the increase in women’s labour-​force participation reflects changes in African women’s
labour supply (Mosomi 2019a). For instance, while African women’s labour-​force participa-
tion rates rose from 36 to 53 per cent between 1994 and 2019, the increase was much smaller
(although from a higher base) for white women, from 55 to 59 per cent.3
The ‘feminization’ of the labour force in post-​apartheid South Africa derives partly
from the removal of apartheid laws that inhibited the labour supply of African women
(and men) and their ability to migrate to places of employment (Posel 2014). It also likely
reflects (and reinforces) several other societal shifts (Casale and Posel 2002; Ntuli and
Wittenberg 2013; Mosomi 2019a). Social norms about women’s work have been chan-
ging, bolstered by the raft of new labour legislation introduced in the post-​apartheid
years to encourage the hiring of women. Women’s levels of education have also been
rising (and now surpass those of men on average) (Spaull and Makaluza 2019), while

2
The PALMS dataset is created and updated by a team at DataFirst at the University of Cape Town,
who collate the labour market data from all of the above-​mentioned surveys conducted by StatsSA and
package them in a comparable and reliable form for public use (Kerr et al. 2019). At the time of writing,
the data were available up until Quarter 2 of 2019.
3 The key labour market statistics shown in Table 34.1 are disaggregated further by race in

Supplementary Table S.1 and the occupational distributions by race are shown in Supplementary Figure
S.1, available in the longer working paper version of this chapter, which can be accessed at DOI:10.13140/​
RG.2.2.32400.84483.
738    Daniela Casale, Dorrit Posel, and Jacqueline Mosomi

70

Labour-force participation rate (%)

60

50

40

30
1995 2000 2005 2010 2015 2020
Year

Financial crisis Female Male

Figure 34.1 Labour-force participation rates by gender, 1994–​2019

Source: Own calculations from PALMS V3.3.
Notes: Labour-​force participation is defined as the percentage of the working-​age population (aged 15–​65) that is
employed or looking for work (reflecting the official definition of unemployment). The vertical line at 2000 marks the
changeover from the OHS to the LFS, and the vertical line at 2007 is the changeover from the LFS to the QLFS.

fertility rates have fallen (Moultrie and Timaeus 2003). Collectively these factors would
have raised the opportunity cost of remaining in the home rather than joining the paid
workforce. But many women have likely also been ‘pushed’ into the labour market
out of need (Casale and Posel 2002). Women have been less able to share the costs of
household maintenance and childcare obligations with a partner, as marriage rates
have declined substantially over the period (particularly among Africans), and the per-
centage of households that rely on income earned only by women has risen apace (Posel
2014; Posel and Hall, ­Chapter 37 in this volume).
Research taking stock of these changes in labour-​market participation during the first
decade of democracy concluded that they were not all positive, and women’s increased
participation in the paid economy had not ‘bought’ women very much in terms of job
security and earnings (Casale 2004; Casale and Posel 2005; Posel 2014). As evidenced in
countries throughout the world, much of the increase in women’s share of employment
during the first post-​apartheid decade derived from women’s work in low-​skilled jobs
and self-​employment in the informal sector, typically poorly paid and precarious work.4

4 A portion of the increase in informal activities between 1994 and 2001 would very likely have been

a result of changes in survey design and the improved collection of data on more marginal employment.
However, given the low absorptive capacity in the formal labour market, some of this increase no doubt
reflected real changes in employment (Casale and Posel 2002).
Table 34.1: Key labour market statistics by gender, selected years from 1994–​2019
All 1994 2001 2007 2011 2017 2019
Female Male Female Male Female Male Female Male Female Male Female Male

Working-​age population (000s) 12,586 11,450 14,979 13,498 16,535 15,316 17,775 16,676 19,264 18,320 19,710 18,846
Strict labour force (000s) 5,054 6,843 7,476 8,538 8,245 9,858 8,686 10,426 10,376 12,299 10,575 12,631
Broad labour force (000s) 6,405 7,696 9,502 9,662 10,484 11,135 9,959 11,423 11,763 13,366 12,121 13,846
Strict LFP rate (%) 40.2 59.8 49.9 63.3 49.9 64.4 48.9 62.5 53.9 67.1 53.7 67.0
Broad LFP rate (%) 50.9 67.2 63.4 71.6 63.4 72.7 56.0 68.5 61.1 73.0 61.5 73.5
Strict unemployed (000s) 1,271 1,164 2,437 2,214 2,125 1,965 2,383 2,383 3,100 3,195 3,330 3,385
Broad unemployed (000s) 2,621 2,017 4,463 3,337 4,363 3,242 3,656 3,380 4,487 4,262 4,876 4,600
Strict unemployment rate (%) 25.1 17.0 32.6 25.9 25.8 19.9 27.4 22.9 29.9 26.0 31.5 26.8
Broad unemployment rate (%) 40.9 26.2 47.0 34.5 41.6 29.1 36.7 29.6 38.1 31.9 40.2 33.2
Employment rate (%) 30.1 49.6 33.6 46.9 37.0 51.5 35.5 48.2 37.8 49.7 36.8 49.1
Employed (000s) 3,784 5,679 5,039 6,324 6,120 7,893 6,303 8,043 7,276 9,105 7,245 9,246
—​Paid employed/​employees 3,451 5,209 4,115 5,349 5,131 6,694 5,444 6,750 6,405 7,756 6,273 7,563
—Self-​employed, registered 34 154 111 280 158 375 120 373 112 377 123 390
—​Self-​employed, unregistered 286 285 725 640 782 780 671 867 708 940 776 1,260
Mean monthly earnings (rands) 4,372 7,103 5,237 8,036 6,589 9,620 7,475 10,268 7,088 9,757 –​ –​
Median monthly earnings (rands) 3,073 4,429 2,492 4,486 3,261 4,707 3,481 4 826 3,026 4,371 –​ –​

Source: Own calculations from PALMS V3.3.

Notes: The working-​age population consists of individuals aged 15–​65. The official/​strict unemployment rate includes only the searching
unemployed. The broad or expanded unemployment rate also includes the non-​searching unemployed. Correspondingly, the strict labour force
includes the employed and the searching unemployed, while the broad labour force includes the employed, the searching unemployed, and the
non-​searching unemployed. Self-​employed registered refers to individuals operating businesses registered for VAT. Earnings data in PALMS are
only available up until 2017 and shown here in 2017 prices.
740    Daniela Casale, Dorrit Posel, and Jacqueline Mosomi

Furthermore, in South Africa, a large part of women’s rising labour supply translated
into unemployment, with particularly high rates among African women. Using the
longer series of data covering the full post-​apartheid period, we find similar trends with
respect to unemployment and women’s growing representation in low-​skilled work, but
we also highlight some of the gains made over the period.
Figure 34.2 (left frame) shows that the employment rate for women (the percentage
of working-​age women with employment) rose from 30 to 37 per cent between 1994 and
2019, while men’s employment rate remained largely unchanged at 50 per cent (see also
Table 34.1). Women’s share of employment therefore increased over the period, from
40 to 44 per cent. However, as Figure 34.2 (right frame) clearly illustrates, many female
(and male) labour-​force participants did not find work and joined the growing ranks
of the searching unemployed. While there was some decline in unemployment rates
in the economic growth years of the 2000s (pre-​financial crisis), the overall trend has
been upward: from 1994 to 2019, the percentage of female labour-​force participants who
were unemployed and searching for work rose from 24 to 31 per cent, while the male un-
employment rate increased from 17 to 27 per cent (Table 34.1).
These unemployment rates are considerably higher than in most other countries for
which there are data. Yet, unemployment rates in South Africa are even higher still, and
the gender gap in unemployment larger, if we use the broad or expanded definition of
unemployment, which includes the non-​searching unemployed. By 2019, the broad

Employment rate Unemployment rate

60 35

30
Unemployment rate (%)

50
Employment rate (%)

25

40 20

15

30
10
1995 2000 2005 2010 2015 2020 1995 2000 2005 2010 2015 2020
Year Year

Financial crisis Female Male

Figure 34.2 Employment and unemployment rates by gender, 1994–​2019

Source: Own calculations from PALMS V3.3.
Notes: The employment rate is the percentage of the working-​age population (aged 15–​65) that is employed. The
unemployment rate only includes the unemployed who searched for work.
 Gender and Work in South Africa    741

unemployment rate for women was 40 per cent compared to 33 per cent for men (Table
34.1). Childcare constraints, living further away from centres of employment, and fewer
resources to fund costly job search, likely contribute to why relatively fewer unemployed
women than men report actively searching for work (Posel et al. 2014), and they also
help to explain why racial differences among women remain stark. In 2019, the broad
unemployment rate among African women was 45 per cent, compared to only 11 per
cent among white women.
In absolute terms, approximately 5.7 million additional women entered the labour
force, broadly defined (i.e. the searching and non-​searching unemployed) from 1994 to
2019, and of these, roughly 2.3 million joined the unemployed, while the other 3.4 million
found work. The large majority of the new jobs recorded for women (2.8 million) were
in wage employment, with only 600,000 in self-​employment, mostly (500,000) in the
informal sector (or in unregistered businesses). Approximately 6.1 million more men
joined the labour force over the period, with 3.5 million men finding employment. Much
of this also reflected wage employment, but men were more likely than women to enter
self-​employment, which increased by 1.2 million (although also mostly in the informal
sector).
Ideally, we would want to track which of the jobs in wage employment were formal
versus informal. Unfortunately, there is no easy way to classify employees consistently
over the entire period. One option is to analyse who has a written contract with their
employer, information consistently available since 2001. The data suggest that for both
women and men with wage employment, the percentage with a written contract has
increased since 2001, possibly due to the strengthening of labour legislation over the
period and particularly with respect to domestic workers. By 2019, similar percentages
of men and women in wage employment—​about 80 per cent—​reported having a written
contract with their employer (own calculations based on QLFS data).5
Gender differences in self-​employment likely reflect different constraints that women
and men face when starting their own businesses, whether in the formal or informal
sector. Consistent with the labour force statistics, Global Entrepreneurship Monitor’s
latest report on South Africa found women less likely than men to be involved in early-​
stage entrepreneurial activity, with only seven women entrepreneurs for every ten male
entrepreneurs. They also found women more likely than men to open a business out
of necessity rather than choice or opportunity (34 per cent of female compared to 18
per cent of male entrepreneurs) (Global Entrepreneurship Monitor 2018). In addition,
South Africa performs quite poorly on global rankings when measured both in terms
of female business ownership (ranking 39th out of fifty-​eight countries, with only 22
per cent of all business owners being women) and on a composite score measuring
whether country conditions are conducive to narrowing the gender gap in entrepre-
neurship (35th out of fifty-​eight countries, down from earlier years) (Mastercard 2019).

5
Further analysis of trends in the informal sector and in informal employment in South Africa is
available in Rogan and Skinner, C­ hapter 35 in this volume.
742    Daniela Casale, Dorrit Posel, and Jacqueline Mosomi

Barriers identified as affecting women entrepreneurs specifically include limited access

to formal credit; difficulties accessing markets for their goods; less developed networks
compared to men; fewer role models; lower self-​confidence and a greater fear of failure;
and difficulties juggling work and childcare responsibilities (Global Entrepreneurship
Monitor 2018; Mastercard 2019; Rogan and Alfers 2019).6

34.2.2 Occupational Segregation
Further insight into women’s changing participation in the labour market is provided
by tracking occupation of employment. Job segregation along gender and racial lines
has been a long-​standing feature of the South African labour market (Maconachie 1989;
Casale 2004; Gradin 2018; Espi et al. 2019). Table 34.2 shows that in 1994, women were far
more likely than men to be employed in jobs classified as ‘low-​skilled’ according to the
International Standard Classification of Occupations (ISCO)—​38 per cent of employed
women compared to 29 per cent of employed men. One in every five employed women
was a domestic worker (a category on its own given the size and distinct features of this
occupation in South Africa), and 18 per cent worked in other elementary occupations;
while only 4 per cent of employed men were domestic workers and a quarter worked in
elementary occupations.
By 2019, the percentage of both employed women and men who were working in
low-​skilled occupations fell to 35 per cent and 23 per cent respectively, consistent with a
general trend towards more skilled employment in South Africa. However, the decline
among women was driven particularly by changes in paid domestic work. For women,
the number employed in domestic work increased in absolute terms (207,000) but by
relatively less than the overall increase in female employment, producing a considerable
fall in the percentage of employed women in domestic work, to 13 per cent. Nonetheless,
domestic work became even more feminized over the period because, by 2019, there
were also almost no men employed in this category.

6 A topic which we have not covered in this chapter is the scourge of gender-​based violence in South

Africa. A KPMG study in 2014 estimated that the direct and indirect effects of gender-​based violence
cost South Africa between Rand 28.4 billion and Rand 42.4 billion per year, or between 0.9 per cent and
1.3 per cent of GDP. To our knowledge, however, there has been no published research in the economics
literature in South Africa which tries to measure the relationship between gender-​based violence (or
its threat) and women’s participation in the labour market. Undoubtedly, the threat of gender-​based
violence will influence women’s ability to move freely and to work unusual hours or in less frequented
spaces (see Rogan and Alfers (2019) for some anecdotal evidence on self-​employed women in the
informal sector), but there will also be more insidious effects which will constrain women’s ability to
participate in the labour market, their productivity when at work, and the conditions under which they
work. It is not surprising that in a 2016 Gallup World Poll of 142 countries, the two most commonly
cited constraints to labour-​force participation were the ‘struggle to balance work and family’ and ‘abuse,
harassment or discrimination’ (ILO 2017). This very important topic warrants much more attention in
the South African economics literature than it has received to date.
Table 34.2: Occupational distributions by gender, 1994 and 2019
Occupation Change Change 1994 distribution 2019 distribution 1994 2019
1994–​2019 1994–​2019
% of % of % of % of Share of Share of
Female Male employed employed employed employed occupation occupation
(000s) (000s) females males females males female (%) female (%)

Legislators, senior officials, and 377 659 3 7 7 12 22 31

managers
Professionals 150 113 8 5 6 4 50 52
Technical and associate professionals 374 294 11 7 11 8 51 53
Clerks 545 86 19 7 17 5 64 72
Service workers and shop and market 855 866 12 10 18 15 45 48
workers
Skilled agricultural and fishery workers –​6 –​43 0 1 0 0 15 18
Craft and related-​trade workers 55 792 4 17 3 19 15 11
Plant and machine operators and –​15 264 5 17 2 13 16 12
assemblers
Elementary occupations 921 699 18 25 22 23 32 43
Domestic workers 207 –​165 20 4 13 0 79 96
Total 3,463 3 565 100 100 100 100 40 44

Source: Own calculations from PALMS V3.3.

Note: Sample contains all employed individuals aged 15–​65.
744    Daniela Casale, Dorrit Posel, and Jacqueline Mosomi

However, from 1994 to 2019, women’s employment in other elementary occupations

rose in both absolute and relative terms (by 920,000 jobs or four percentage points).
For men, the increase was smaller (700,000 jobs), and the percentage of employed
men in elementary occupations fell to 23 per cent. As a result, women’s share in elem-
entary occupations grew from 32 to 43 per cent over the period (final two columns of
Table 34.2).
At the upper end of the occupational distribution, both women and men became
more likely to find employment in ‘high-​skilled’ work (classified as the top two occu-
pational categories in Table 34.2), with the percentage of the employed working in these
top occupations increasing from 11 to 13 per cent for women, and from 12 to 16 per cent
for men. The percentage of women and men working as professionals declined over the
period, so changes in the percentages of high-​skilled workers were driven by increased
employment in the category ‘legislators, senior officials, and managers’ specifically.
Because the relative growth here was greater for women (off a smaller base) than for
men, women’s share of this top category rose from 22 to 31 per cent. Nonetheless, in 2019
women remained heavily under-​represented in this work relative to their share of total
employment (44 per cent).
These broad occupational patterns and trends are further segregated by race. The most
extreme instances are in the low-​skilled categories. Less than 1 per cent of employed
white women were in domestic work and less than 2 per cent were in other elemen-
tary occupations in 2019, compared to 16 and 26 per cent respectively of employed
African women. In contrast, 17 per cent of employed white women were in the profes-
sional occupations and 23 per cent in the top managerial category in 2019, whereas the
corresponding figures for employed African women were just 5 and 4 per cent respect-
ively. Therefore, while women have made progress in accessing higher-​skill jobs since
1994, for African women specifically, this progress has been slow.

34.2.3 Earnings
Differences in the types of employment women access affect their earnings potential.
Figure 34.3 shows that women’s average monthly earnings remained well below those of
men’s over the entire period. However, there was a marked decline in the gender gap at
the mean over time. The ratio of female to male mean earnings grew from 0.616 to 0.726
between 1994 and 2017 (the latest year for which earnings data are available in PALMS—​
see Table 34.1).
However, if we consider median wages or wages at the 50th percentile (also shown
in Figure 34.3), the gender gap in earnings has hardly changed: the ratio of female to
male median earnings was 0.694 in 1994 and 0.692 in 2017 (Table 34.1).7 This finding

7 Also evident from Figure 34.3 is how mean earnings diverge from median earnings over the period

for both men and women, indicative of rising wage inequality in post-​apartheid South Africa (see Bhorat
et al., C
­ hapter 31 in this volume for more discussion on wage polarization in the post-​apartheid period).
 Gender and Work in South Africa    745

15000

Monthly earnings (2015 Rands)

10000

5000

0
1994 1998 2002 2006 2010 2014 2018
Year

Financial crisis Mean female Mean male

Median female Median male

Figure 34.3 Real monthly earnings by gender for the employed (mean and median), 1994–​2017
Source: Own calculations from PALMS V3.3.
Notes: Sample contains all employed (self-​and wage-​employed) aged 15–​65. Earnings reported in brackets weighted by
bracket weights. The vertical line at 2000 marks the changeover from the OHS to the LFS, and the vertical line at 2007 is
the changeover from the LFS to the QLFS.

is consistent with other research examining the gender wage gap in South Africa in
the post-​apartheid period. Mosomi (2019b), in a detailed analysis of the gap across the
earnings distribution, shows how the fall in the gender gap at the mean was driven by a
decline at the bottom (10th percentile), and to a lesser degree, at the top (90th percentile)
of the earnings distribution, while the gap at the median was largely stagnant. The falling
gender gap at the lower end of the earnings distribution likely reflects the introduction
of minimum wage legislation which would have benefited low-​skilled African women
especially. At the upper end of the distribution, employment equity and equal pay legis-
lation (coupled with a rising demand for tertiary-​educated workers) may have benefited
higher-​skilled women relatively more (Mosomi 2019b).
Nonetheless, among the employed, a substantial gender gap in earnings remains.
A consistent finding from the South African literature that explores the reasons for the
gender wage gap is that a large part remains unexplained by observable characteristics
(see, among others, Grün 2004; Casale and Posel 2011; Bhorat and Goga 2013; Mosomi
2018, 2019b). In other words, differences in the individual, household, and job
characteristics of women and men, as captured in household and labour-​force surveys,
cannot fully explain the gender gap in earnings. Some of the unexplained gap may reflect
746    Daniela Casale, Dorrit Posel, and Jacqueline Mosomi

pay discrimination, where women and men receive different returns for similar types of
work. But information captured in large surveys is also often not fine-​grained enough to
capture some of the nuanced differences in attributes and workplace experiences.
For example, surveys used to analyse wage gaps show that among the employed,
women on average are more educated than men (especially among the younger cohorts).
They are more likely to complete their matric and graduate with a bachelor’s degree, and
they tend to outperform (or at least do not do worse than) men in terms of achievement
scores (van Broekhuizen and Spaull 2017; Spaull and Makaluza 2019). However, what
is not included in many surveys (and therefore econometric analyses of wage gaps) is
detail on subject choice or field of study. Education research shows that women remain
under-​represented in the more lucrative STEM (science, technology, engineering, and
mathematics) fields, and are instead more likely to enrol in the ‘care economy’ subjects
such as education, psychology, and the health professions (van Broekhuizen and Spaull
2017; Spaull and Makaluza 2019; Statistics South Africa 2019a).
A similar point can be made with respect to the occupational categories described
earlier. Wage gap studies using national micro-​data highlight that women’s uneven dis-
tribution across the broad occupational categories is an important driver of the wage
gap, but what they cannot account for is that even within these broad categories, women
do different kinds of jobs from men which are rewarded differently (Casale and Posel
2011). Consider, for example, the professional occupations (a category in which women
are over-​represented relative to their share of total employment): women are much
more likely to be teachers and nurses, while men are more likely to be headmasters and
doctors. Budlender (2019: 65) argues that even though South Africa has tried to legislate
equal pay for equal work in the Employment Equity Act, [i]t is not that women are paid
less for the same job, but rather that women are paid less because the jobs that they do
are seen as women’s (care) work, and women’s (care) work is under-​valued.’
In addition, even within similar job categories, women might be employed at lower
‘grades’ due to gender bias in hiring and promotion, or due to family commitments and
gender norms that hold women back from applying for or accepting higher-​paying,
higher-​responsibility jobs. For example, our earlier analysis showed that women are in-
creasingly entering the managerial occupations (despite remaining under-​represented
in this category). However, more detailed data from the Johannesburg Stock Exchange
(JSE) show that very few women are appointed at the highest echelons of business and
the corporate sector. In companies listed on the JSE as at April 2019, only 8.1 per cent of
executive directors, 12.8 per cent of chief financial officers, and 3.3 per cent of chief ex-
ecutive officers were women, with female executive directors earning on average 74.5 per
cent of what their male counterparts earned (PWC 2019: 32).
A further, and enduring, constraint affecting women’s access to the labour market is
the additional responsibility they face in the home. As we show in more detail in the
next section, women continue to perform the bulk of unpaid childcare and house-
work in South Africa. While this unpaid labour is valuable in and of itself, it is also vital
to sustaining the paid economy (Budlender and Brathaug 2002; Oosthuizen 2018).
However, it reduces the time and energy that women can devote to their careers.
 Gender and Work in South Africa    747

For a start, it affects women’s ability to pursue higher education. Although women are
more likely to graduate with a matric (grade 12) or a bachelor’s degree in South Africa,
they remain under-​represented in postgraduate studies (Spaull and Makaluza 2019).
This is an area which warrants more research, but it may be related to women nearing
peak child-​bearing age. Among the youth aged 18 to 24 years who were not in an edu-
cational institution in 2017, a lower percentage of women than men (17.7 versus 21.6 per
cent) reported being satisfied with their completed level of study, and a much higher
percentage of women than men (20.7 versus 1.3 per cent) reported not studying fur-
ther due to family commitments (Statistics South Africa 2019a, based on the General
Household Survey 2017).
Further, unpaid care work affects women’s likelihood of participating in the labour
market, their tenure in employment,8 and the returns to their employment, often
referred to as the ‘motherhood penalty’ (Magadla et al. 2019).9 The double burden of
paid and unpaid labour is perhaps particularly acute in the South African context, as
many women looking after children are not married or living with the father of their
children and typically cannot rely on men’s (income) support (Posel et al. 2016; see also
Posel and Hall, ­Chapter 37 in this volume).

34.3 Gender, Household Labour,

and Unpaid Care Work

The preceding section described how women’s participation in paid work outside
the home has increased considerably in South Africa in recent decades. Nonetheless,
women remain primarily responsible for housework and the provision of caring la-
bour in the home. Quantitative evidence for South Africa is captured in a range of
national household surveys, and two dedicated Time Use Surveys (TUS) from 2000
and 2010.
Consistent with the gender gap in labour-​force participation, women are far more
likely than men to specialize in household production as full-​time ‘homemakers’.
An analysis of data from the National Income Dynamics Study (NIDS), for example,
shows that 98 per cent of all African adults who reported being a full-​time housewife

8
In addition to women often exiting the labour market during child-​bearing episodes, women
are more likely to engage in part-​time work which allows them to juggle employment and childcare
responsibilities (Posel and Muller 2008). In 2019, 20 per cent of women compared to 11 per cent of men
were in part-​time work (measured as less than 35 hours a week) and 57 per cent of part-​time employment
was accounted for by women (authors’ own calculations based on the QLFS 2019).
9 While the causal relationship between fertility and labour market outcomes is very hard to estimate,

detailed and careful work by Branson and Byker (2018) found that teen childbearing was related to both
lower schooling attainment and lower earnings in young adulthood.
748    Daniela Casale, Dorrit Posel, and Jacqueline Mosomi

or homemaker from 2008 to 2017 are female (Posel and Bruce-​Brand 2021). Most of
these women are mothers10 of co-​resident children, and they are considerably more
likely to live in rural households and households with lower levels of assets, where the
demands of domestic work are more labour intensive (see e.g. Rubiano-​Matulevich and
Viollaz 2019).
As women’s labour-​force participation has increased, so the share of working-​age
women (15–​65 years) who report not working because they are full-​time homemakers
has declined, from an estimated 16 per cent in 1995 to less than 7 per cent in 2018 (own
calculations from the OHS 1995 and NIDS 2018). However, even where women are not
housewives or ‘stay-​at-​home mothers’, they spend far more time on household and
caring labour than men. This has been clearly illustrated with quantitative data on how
people spend their time (Budlender et al. 2001; Charmes 2006; Rubiano-​Matulevich
and Viollaz 2019).
South Africa is among only a handful of countries in Africa that have conducted
time-​use surveys. These surveys collect detailed information on how people (aged
10 years and older) allocate their time both inside and outside the home, over a twenty-​
four-​hour cycle. Data from the most recent survey (the TUS 2010), reported in Table
34.3, show that the modal activity for both working-​age women and men is time spent
on personal care (which includes sleeping, eating, and personal hygiene). But the next
most common activity among women is household maintenance (which includes
housework and household shopping), an activity in which nine out of ten women
engaged on a daily basis (compared to seven out of ten men), and on which women
spent almost four hours a day on average (compared to less than 100 minutes by men)
(Table 34.3, upper frame).
The TUS data record considerably less time spent on caring labour compared
to household work. An important reason for this finding, which is documented also
in other developing countries (Budlender and Lund 2011), is that childcare is often
undertaken alongside other activities (such as cooking and cleaning). As the TUS data
reported here only capture the primary activity undertaken in each time slot, it is likely
that the average time spent on childcare is considerably under ​estimated.11 Nonetheless,
a sizeable gender gap is still evident in time allocations to caring labour. The gap arises
partly because women in South Africa are more likely than men to live with children
(Posel et al. 2016; see also Posel and Hall, ­Chapter 37 in this volume). But even among
only those adults who co-​reside with at least one young child, Table 34.3 (middle frame)
shows that women are far more likely than men to provide any caring labour, and they
spend significantly more time on this activity.

10
Full-​time homemaking is distinctive in South Africa in that almost half of these women were not
married or in a cohabiting union.
11 Average time spent on childcare is considerably larger when this time is calculated only for those

who undertake any caring labour (i.e. the conditional mean), but it remains substantially lower than
average time spent on housework.
 Gender and Work in South Africa    749

Table 34.3: Mean total time and activity participation rates by gender, 2010
Mean total time Activity participation rate
Women Men Women Men
All working-​age adults (aged 15–​65)
Household maintenance 224.2** 97.9 91.6** 69.8
Care of persons 31.7** 4.4 28.7** 5.3
Market work 155.8** 255.5 42.0** 55.0
Personal care 744.2 739.3 100.0 100.0
Leisure 236.8** 289.0 90.6** 92.4
Other 47.3** 53.9 17.7 18.9
Working-​age adults living with at least one child (<7 years)
Household maintenance 253.2** 79.6 94.1** 58.4
Care of persons 77.9** 14.6 65.4** 14.7
Market work 147.7** 351.4 41.4** 68.7
Personal care 729.5 721.2 100.0 100.0
Leisure 212.7** 259.5 89.8 91.7
Other 19.0 13.8 10.4 10.0
Working-​age adults with employment and working
Household maintenance 121.0** 51.4 86.1** 59.5
Care of persons 16.7** 3.0 21.3** 4.7
Market work 506.1** 563.7 100.0 100.0
Personal care 652.3 654.8 100.0 100.0
Leisure 135.6** 160.2 84.4 86.7
Other 8.4 7.0 8.8 6.8

Source: TUS (2010).

Notes: Population weights have been applied. Mean total time is calculated by allocating each
30-​minute timeslot in the time diary to the first activity reported. The sample for employed working-​
age adults is restricted to adults who were also working on the day of the time diary. Participation
rates are calculated as the percentage of adults who spent any non-​zero time on the activity. Leisure
includes time spent on mass media and social or cultural activities. Other activities include community
service and learning. Asterisks indicate that means or percentages by gender are significantly different
at the 5 per cent level.

As expected, given the labour market statistics presented above, men spend more
time on market work than women, and time spent on housework and care work is mark-
edly lower among both employed men and women. However, as described in Table
34.3 (lower frame), the gender gap remains sizeable and significant among those with
employment, with employed women spending more than twice as much time per day
on household labour as men. Women’s responsibility for household maintenance and
750    Daniela Casale, Dorrit Posel, and Jacqueline Mosomi

caring labour has also been shown to persist beyond retirement age (Grapsa and Posel
2016), which provides further evidence that the gendering of work in the home is not
simply the counterpoint to gender differences in labour-​force participation.12
National micro-​data collected in NIDS shed further light on women’s responsibility
for childcare specifically, because they make it possible to identify whether primary
caregivers receive support with childcare (and from whom), as well as who provides
primary care to which children across the diversity of household types found in South
Africa. Using the first wave of these data from 2008, Hatch and Posel (2018) show that
most children (almost 90 per cent) who live with their mother receive primary care
from their mother, but for more than 70 per cent of children, primary caregivers report
assistance with childcare from others.13 As most African children live in households
without a resident father (almost 70 per cent in 2018, see also Posel and Hall, ­Chapter 37
in this volume), they are far less likely than other children to receive primary or assisted
care from their father. Rather, and consistent with a large body of literature on the im-
portance of grandmothers in the provision of childcare in South Africa (Schatz and
Ogunmefun 2007; Hill et al. 2008; Moore 2013), African children are considerably more
likely to be cared for by their grandmother than by their father.14
The NIDS data also describe women’s economic responsibility for the care of chil-
dren. For example, Hatch and Posel (2018) show that most African children are reported
as receiving financial support for schooling from women. This is typically the child’s
mother, but when mothers are absent, for reasons of labour migration or mortality, then
other women in the household provide financial support. Econometric research also
identifies how, through receipt of the social pension, grandmothers have been able to
provide financial care to grandchildren, leading to children who are better nourished,
healthier, and more likely to attend school than in the absence of pension income (Duflo
2003; Edmonds 2006).
Over the last two decades, a sizeable body of research has developed that reviews
the presentation of fathers in this literature as absent from the child’s household and
therefore as ‘discouraged and shirking their responsibilities’ (Clark et al. 2015: 576; see
also Madhavan et al. 2008; Makusha et al. 2012). Qualitative studies are important in
highlighting the ways in which fathers contribute to childcare that are not captured in
quantitative surveys (Montgomery et al. 2006). But administrative data also document
low levels of compliance with (and the ineffective legal enforcement of) child mainten-
ance payments from fathers (Carnelly 2012); and data from South Africa’s Department

12 The extra time that women spend on household and caring labour is more on average than the extra

time that men spend on market work, and women therefore allocate significantly less time to leisure
than men.
13 In reporting on assistance with childcare in NIDS, respondents are not directed to consider only

people who are resident in their household.

14 Less than 1 per cent of children were identified as receiving primary care from someone unrelated

to the child, which would include paid domestic workers or childminders. However, the definition of
primary care in NIDS included helping children with homework and taking care of children’s health,
which are roles that domestic workers are probably less likely to perform (Hatch and Posel 2008).
 Gender and Work in South Africa    751

of Home Affairs show that most registered births (63 per cent in 2018 for example) are
missing information on the child’s father15 (Statistics South Africa 2019b).

34.4 Gender and Crisis: A Note on

the COVID-​19 Pandemic

At the time of writing, it was too early to tell how the COVID-​19 crisis would affect
women’s socio-​economic status relative to men’s over the longer-​term. However, early
evidence from a range of countries suggests that the pandemic and the associated
lockdowns have exacerbated pre-​existing gender inequalities. A rapid assessment
survey called the NIDS-​CRAM16 provides some idea of the socio-​economic effects of
the crisis in South Africa thus far. The evidence emerging from this survey suggests that
women in South Africa have been particularly hard hit (Casale and Posel 2020; Casale
and Shepherd 2020). Women accounted for two million, or two-​thirds, of the almost
three million net job losses recorded between February and April 2020 (covering the
strictest phase of the lockdown), with the more vulnerable groups of women (African,
less educated, low skilled) affected most. Among those who retained employment,
women also saw a much larger decline in working hours than men. A key reason for
this is that the sectors that are typically large employers of women have also been the
sectors most affected by lockdown restrictions and the need for social distancing,
namely non-​essential retail, tourism and hospitality, personal care, early childhood
services, and domestic work.
Furthermore, women’s ability to work or work long enough hours has been affected
by the concurrent ‘childcare shock’ precipitated by the crisis (Casale and Posel 2020;
Casale and Shepherd 2020). Unpaid work in the home is typically hidden from view in
the measurement of economic output. However, the importance and extent of house-
hold and caring labour has been clearly revealed and magnified during the COVID-​19
pandemic. During the early months of the lockdown period in South Africa, all schools
and childcare centres were closed, and the employment of paid caregivers in the home
was suspended. The NIDS-​CRAM data describe a sizeable increase in the amount of
time spent on childcare in the home over this period (Casale and Posel 2020; Casale
and Shepherd 2020). Although this was the case for both women and men who lived

15
Where parents are unmarried, a father can only be registered on the child’s birth certifi-
cate with both the mother’s and the father’s consent (in accordance with the 1992 Births and Deaths
Registration Act).
16 The National Income Dynamics Study (NIDS)—​
Coronavirus Rapid Mobile Survey (CRAM)
interviewed a sample of adults from the pre-​existing NIDS to try and ensure as representative a sample
as possible given the difficulties of conducting fieldwork during lockdown restrictions. At the time of
writing, NIDS-​CRAM had visited the sample twice, with the intention for an additional three rounds to
be conducted over the ongoing lockdown period.
752    Daniela Casale, Dorrit Posel, and Jacqueline Mosomi

with children, women were significantly more likely than men to provide extra care and
to expend more hours on this care, gender differences that persisted also among the
employed. The requirement that people ‘work from home’ wherever possible, further
made visible the difficulties of negotiating paid work and reproductive labour, a double
burden that is experienced most acutely by women.

34.5 Concluding Discussion

In this chapter we have described some of the significant gains that women have made
since the transition to democracy. Laws to prevent gender discrimination in the work-
place have been strengthened, women’s education has risen (and, on average, now
surpasses that of men), and their participation in the paid economy has increased sub-
stantially. Legislation governing minimum wages and conditions of employment have
benefited lower-​skilled women especially, and at the upper end of the distribution, a
greater share of women have been hired in the top managerial occupations. As a re-
sult, the ratio of female to male average earnings has improved over the post-​apartheid
period.
However, large gaps remain. Women have entered the labour market in increasing
numbers over a period characterized by lacklustre economic growth and insufficient job
creation. With labour supply outstripping demand, particularly for women, unemploy-
ment has grown considerably during the post-​apartheid period, and unemployment
rates among women are persistently higher than among men. Furthermore, women re-
main over-​represented in low-​skilled low-​paying occupations and under-​represented in
high-​skilled managerial positions and in business ownership.
In addition, the gains and the losses have not been distributed equally among women,
with African women overall experiencing far less favourable labour market outcomes.
That women suffer multiple sources of disadvantage at the intersection of gender, race,
and class, among others, is especially evident in the South African context, and is an
area that warrants much more attention than this overview chapter could provide. This
has been brought into stark relief by the early evidence emerging on the COVID-​19
pandemic, which has shown that the most vulnerable groups of women have borne the
brunt of the job losses thus far.
The COVID-​19 crisis has also exposed the value of unpaid care work to society,
and how challenging it is to juggle these responsibilities alongside the demands of
paid work. As feminist economists have long argued, for as long as women retain pri-
mary responsibility for the household and the provision of care, gender inequalities
in access to employment, type of employment, and returns to employment will persist
(Bergmann 1981).
In South Africa, where many women are the primary breadwinner in their house-
hold, and where the responsibility for children rests largely with women, their access to
labour-​market income has important consequences also for the socio-​economic status
 Gender and Work in South Africa    753

of the people they support. Even though a greater share of social grant beneficiaries are
women, women (and children) remain more likely to live in poverty than men (Posel
and Rogan 2009, 2012; Posel et al. 2016). Women need to be supported in their dual
role of breadwinner and caregiver, but further progress will be dependent on tackling
some of the deep-​seated structural and institutional constraints that women face. Key
among these is the need to challenge deeply entrenched gender norms from very early
on (through improved messaging at schools, for example) and to invest more heavily in
social-​care infrastructure rather than see the provision of care as only a private responsi-
bility (Button et al. 2018).

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 Chapter 35

The Sou th A fri c a n

Inform al Ec onomy

Michael Rogan and Caroline Skinner

35.1 Introduction

Since Keith Hart first coined the term ‘informal sector’ to describe the multiple eco-
nomic activities of the urban poor in Accra, Ghana, in the late 1960s, the phenomenon
it seeks to describe, and the role it plays in development, have been contested. Those on
the right of the ideological spectrum often see the informal sector in celebratory terms
as a commendable manifestation of untrammelled entrepreneurship or as the source of
unfair competition. Those on the left, in contrast, view, what they refer to as the informal
economy, as a manifestation of systemic exploitation, often reinforced, facilitated, or
created by the state. At the heart of these disagreements are different stances on the
(existing and desired) economic system and relationship between the economy and the
state, as well as between the formal and informal sectors.
The chapter begins with a review of the literature and key policy debates on the South
African informal economy through the lens of Chen’s (2012, 2018) taxonomy of informal
economy debates into legalist, dualist, voluntarist, and structuralist schools of thought.
Attention is then turned to an empirical analysis of this segment of the labour force
using Statistics South Africa’s Quarterly Labour Force Surveys (QLFSs). The analysis
picks up from previous studies by identifying key trends in informal employment since
2008. Key features of the informal economy are outlined through the lens of gender
and status in employment. The chapter concludes by reflecting on the dominant policy
issues in the post-​apartheid period, and on whether and how such policy choices align
with existing evidence on the nature of the South African informal economy.
758    Michael Rogan and Caroline Skinner

It was only in 2003 that the International Conference of Labour Statisticians (ICLS)
endorsed definitional norms. These outline that the ‘informal sector’ refers to em-
ployment and production that takes place in unincorporated, small, or unregistered
enterprises while ‘informal employment’ refers to employment without social protection
through work both inside and outside the informal sector. The ‘informal economy’ refers
to all units, activities, and workers so defined and the output from them (Hussmanns
2004). Statistics South Africa (StatsSA) has adopted these norms and includes them
with the public releases of the QLFS micro-​data. This chapter makes use of the ICLS/​
StatsSA operational definitions.1

35.2 Informal Sector/​E conomy Debates

and Contestations

Hart’s detailed analysis of the multiple economic activities of the urban poor in Accra,
challenged the predominant view among development economists that ‘traditional’
activities had little capacity for autonomous growth and would disappear with ‘devel-
opment’. The ILO quickly adopted the notion of the informal sector, instituting a range
of support programmes first in Africa and then elsewhere. The concept itself, how-
ever, was treated with some suspicion by those on the left. Bromley (1978) for example,
argued that the idea offered ‘the possibility of helping the poor without any major threat
to the rich’ (1978: 1036). Central tensions about the transformative potential of the in-
formal sector remain to this day. In capturing the source of these tensions, Chen (2018)
synthesizes nearly half a century of debates by identifying four schools of thought—​the
legalists, dualists, voluntarists, and structuralists, each with differing views on the causes
and composition of the informal sector/​economy. Each school of thought is reviewed in
turn and used as a lens through which to view the South African policy and academic
debates.

1
Employment in the informal sector is measured as consisting of both employees and the self-​
employed. Employees are identified as being in the informal sector if they work in establishments that
employ less than five people and do not report income tax being deducted from their salaries. The self-​
employed includes employers, own-​account workers, and persons helping unpaid in their household
business who are not registered for either income tax or value-​added tax. Informal employment includes
all persons in the informal sector (as above) as well as employees in the formal sector and in private
households who do not have a written contract of employment and are not entitled to a pension or
medical aid.
StatsSA has changed the way it classifies workers in private households, largely domestic workers, over
time. Earlier rounds of the QLFS (2008–​11) defined all domestic workers as ‘informal’ but, from 2012
onwards, the criteria of access to a written contract and basic benefits were also applied to employees in
private households. In this chapter, the latter approach is adopted across the QLFS series.
 The South African Informal Economy    759

35.2.1 The Legalist School—​Deregulation

and Property Rights
The legalist position, exemplified by the work of De Soto, promotes the view that in-
formal entrepreneurs exist because they are excluded from the formal sector due to cum-
bersome government regulations (1989). De Soto’s think tank—​the Institute for Liberty
and Democracy—​has worked with numerous governments across the Global South to
reduce bureaucratic burdens and to design programmes of deregulation. The key goal
is to release informal enterprises from government regulation. Since 2000, De Soto has
drawn attention to the extension of property rights, so that informal entrepreneurs can
convert their informal assets into real capital assets (De Soto 2000), a position that has
been critiqued. Porter (2011) for example, argues that legal title deeds can have the effect
of raising land and housing prices to the point that the poor are priced out.
Given that the apartheid state fashioned and refined a multifaceted system of legal and
other restrictions on black South Africans’ economic activities (Southall 1980), a focus
on bureaucratic burdens has resonance in South Africa. During the post-​apartheid
period, reducing the bureaucratic burdens on small enterprises has been a significant
focus, as evidenced particularly in small business development policy (see, for example,
the Department of Small Business Development 2020). The celebratory tone of this lit-
erature is echoed in the work of the Sustainable Livelihoods Foundation. Their informal
enterprise area census data in multiple townships across South Africa demonstrate the
diversity within, and spatial spread of, township informal enterprises. A resounding
theme is the call for deregulation at national but also local levels (Charman 2017;
Charman et al. 2020).

35.2.2 The Dualist School—​‘Survivalists’, Enterprises,

and Entrepreneurs
Dualists subscribe to the notion that informal units and activities have few (if any)
linkages to the formal economy but, rather, operate as a distinct, separate sector of the
economy and that the informal workforce—​assumed to be largely self-​employed—​
comprises the less advantaged sector of a dualistic or segmented labour market (Chen
2018: 30). These views were particularly prevalent in the early years of theorizing the in-
formal sector both in Africa (Hart 1973; ILO 1972) and Latin America (Tokman 1989) but
continue to be implicit in more recent economic analyses of the informal sector (see,
for example, Fourie 2018; Grimm et al. 2012; Grabrucker et al. 2018). Dualists pay little
attention to the link between informal enterprises and government regulations and
focus on the state providing a series of supply-​side measures such as training, access to
credit, and infrastructure.
In the South African economics debates, a prominent iteration of the dualist pos-
ition is the analysis of who, in the informal sector, survives and/​or ‘does better’ and why.
760    Michael Rogan and Caroline Skinner

Makaluza and Burger’s (2018) analysis, for example, finds a lower tier of survivalist-​
oriented operators and an upper tier of more growth-​oriented entrepreneurs. They find
that the survivalists are in the majority and are predominantly black South Africans and
women. Similarly, Lloyd and Leibbrandt (2018) use the panel component of the QLFS
to measure transitions into and out of informal-​sector self-​employment. Their work
showed the significance of prior work or employment experience to the survival of in-
formal enterprises.
Over much of the post-​apartheid period, access to training (both business skills and
industry specific) and credit have been a focus of informal-​sector policy (Rogerson
2008; Skinner 2018). The first national policy initiative dedicated to the informal
sector—​the 2014 National Informal Business Upliftment Strategy (NIBUS)—​identified
three groups of informal operators: survivalists, emerging informal enterprises, and
micro-​entrepreneurs. Through credit and training support, combined with regulatory
reforms, the policy aims to graduate informal businesses from these three ‘pre-​formal’
categories into formal small businesses. This suggests that the Department of Small
Business Development’s approach has been underpinned by a dualist and legalist con-
ception of the informal sector.

35.2.3 The Voluntarist School—​Regulation Evasion and

the ‘Shadow Economy’
What Chen describes as the voluntarist position, popular among neoclassical
economists, is exemplified in the work of Maloney (2004) and his colleagues at the
World Bank (Perry et al. 2007). Drawing on surveys conducted in Latin America,
they argue that the informal sector is comprised of informal entrepreneurs who
choose—​or volunteer—​to work informally. Informal entrepreneurs do so to avoid
taxation, commercial regulations, electricity, and other costs of operating for-
mally. In line with standard neoclassical economics, they argue that the state should
remedy market failures, coordinate the provision of public goods, and maintain level
playing fields, including reforming labour markets to reduce labour costs (Perry
et al. 2007: 1, 14).
While many South African analysts have argued for labour market reforms, including
opposing wage minima (Centre for Development Enterprise 2019; Bhorat et al.
2016a), when it comes to their analyses of the informal sector they tend to adhere to
more legalist and dualist conceptions of the informal sector (Centre for Development
Enterprise 2020; Bhorat et al. 2016b; and Cassim et al. 2016). In fact, analyses of in-
formal employment transitions have tended to provide evidence which challenges the
voluntarist approach. Valodia and Devey (2012), using the panel component of the la-
bour force survey, show considerable churning between formal and informal employ-
ment. Most importantly, they find that the movements occur in both directions—​not
just formal to informal—​and demonstrate few, if any, income benefits for those moving
 The South African Informal Economy    761

from formal to informal employment (2012).2 These findings suggest that, in the South
African case, those in informal employment are not likely to be opting out of the formal
economy to avoid regulation as the voluntarist view suggests.
A variant of the voluntarist approach is the notion of the ‘shadow economy’ (Schneider
and Enste 2000; Schneider et al. 2010). In this conceptualization, informal activities are
placed alongside illegal activities in painstaking calculations of all economic activities
that would be taxable if they were reported to the tax authorities. These estimates are
made by calculating the discrepancy between income and expenditure statistics in na-
tional accounts (Medina and Schneider 2018) but also through analyses of electricity
usage3 (Medina et al. 2017). These results are used to argue for decreased tax rates,
simplified taxation systems, and a deregulation of labour markets. The International
Monetary Fund’s (IMF) analysis of South Africa’s informal sector is informed by this
approach (Medina et al. 2017; IMF 2017). They argue for improved tax compliance (for
bigger operators); access to finance but also electricity as well as decreasing the costs of
exporting and enforcing contracts (IMF 2017: 60).

35.2.4 The Structuralist School—​Formal-​

and Informal-​sector Linkages
The perspectives reviewed so far pay little or no attention to informal wage workers
nor to the linkages between the formal and informal sectors. The structuralist frame-
work, in contrast, sees the informal and formal economies as intrinsically linked
and characterized by unequal power relations in market and employment relations.
They see both informal enterprises and informal wage workers as subordinated to the
interests of capitalist development while providing cheap goods and services. This
view was first expounded by Moser (1978) and developed and nuanced by Portes,
Castells, and Benton (1989). Meagher, drawing on this tradition but focusing on Africa
(1995: 277) outlines her position on the relationship between the state and the informal
sector:

Ambiguous or inconsistent policy and policy that is difficult to enforce, represent

an implicit encouragement of informalisation. It creates a climate suitable for the
expansion of exploitative structures of informality, since it fails to provide active
protection and support for informal actors and provides gaps in the legal structure
permitting stronger economic players to make use of informal labour.

2 Lloyd and Leibbrandt’s (2018) analysis of transitions between different work status using recent data

(but different categories) confirm Valodia and Devey’s findings of significant mobility of individuals
between different statuses. They find that informal-​sector wage employment is the most unstable
working status.
3 The electricity consumption growth rate, assumed as a good indicator of overall economic activity, is

subtracted from the GDP growth rates.

762    Michael Rogan and Caroline Skinner

Recent analyses of African informal economies outline the multiple ways in which
corporations make use of the informal economy by, inter alia, strategizing ways to tap
into the ‘fortune’ at the base of the income pyramid (Prahalad 2004). Three special
issues on the topic—​Meagher and Lindell (2013); Meagher, Mann, and Bolt (2016), and
Leliveld and Knorringa (2018)—​detail the multiple ways in which multinational firms
draw on informal workers’ energy and ideas. Much of this literature uses the notion of
‘adverse incorporation’ and draws attention to the largely unfavourable terms of inclu-
sion into various value chains.
There is a rich tradition of research in South Africa that is informed by a structur-
alist position in understanding labour ​market dynamics in general (Wolpe 1972), and
the informal economy in particular (Preston-​Whyte and Rogerson 1991). In the im-
mediate post-​apartheid period, labour sociologists and lawyers pointed to the growth
of casualization and subcontracting of work (Kenny and Webster 1998; Theron and
Godfrey 2000). In time this was supplemented with detailed studies of the changing
nature of work in different sectors (Mosoetsa 2001; Kenny 2004). Webster et al. (2008)
showed multiple interconnections between formal and informal activities in small-​scale
clothing manufacturing, mining, waste and metal recycling, and shebeens (informal al-
cohol retail). They show how the interactions between the formal and informal sectors
were characterized by unequal power relations and asymmetrical interdependence.
Similarly, Du Toit and Neves have outlined the nature of adverse incorporation of in-
formal operators in agricultural value chains (2007, 2018).
In analysing the informal economy overall, one of the enduring puzzles has been the
relatively small size of the South African informal sector amidst some of the highest
levels of open unemployment in the world (Kingdon and Knight 2004). Structuralist
analysts have explained this puzzle by showing how the uneven nature of the relation-
ship between the informal and the formal sectors limits activities in the informal sector.
Philip (2018), for example, shows how economic concentration in the formal sector
constrains sales and output growth, as well as employment creation in the informal
sector.
Similarly, the inability of the South African informal economy to absorb the impact of
crises has suggested that there are structural constraints or barriers to informal employ-
ment. For example, there is a widely held expectation that, particularly in developing-​
country contexts, the informal economy will absorb job losses from the formal sector
during economic crises or downturns. However, evidence from the South African la-
bour market during the 2008/​09 global economic crisis revealed that the informal
sector was affected disproportionately by the crisis, relative to the formal sector. The
informal sector contracted, in both relative and absolute terms, during the crisis (Verick
2010; Rogan and Skinner 2018). Similarly, Essers’ (2014) analysis of pre-​and post-​crisis
employment transitions revealed very little movement into informal self-​employment,
either from other types of employment or from the unemployed.
Each of the perspectives outlined in this section hold very different assumptions
about the agency of those working in the informal economy. We are called to see
survivalists attempting to put food on the table by the dualists, entrepreneurs navigating
 The South African Informal Economy    763

labyrinthine bureaucracies by the legalists, savvy evaders of taxation and regulation

by the voluntarists, and exploited workers by the structuralists. Each approach places
varying amounts of attention on the role of the state and has different implications for
policy. As Chen notes, each of these perspectives in any given country or region will
contain elements of truth and reflect different ideologies at play (2018: 31). The rich lit-
erature on the South African informal sector and economy, viewed through the lens
of these schools of thought, sheds light on different aspects of this segment of the la-
bour market in the South African case. Against this backdrop, the chapter turns now
to an overview and empirical analysis of the size and shape of the post-​apartheid South
African informal economy.

35.3 The Size and Nature of

the Post-​Apartheid Informal Economy

Research and data on the size of the South African informal economy can be broken into
roughly three different phases. First, the early post-​apartheid studies suggest that there
was a sharp increase in informal employment following the relaxation of apartheid-​era
controls on movement and economic activities. Both Muller (2003) and Devey et al.
(2006), using StatsSA’s October Household Surveys (OHS), found that the size of the
informal economy roughly doubled between 1995 and 2000. These authors, however,
note that at least part of this increase was due to improvements in data collection. Casale
and Posel (2002), also using OHS data and reflecting on the same period, show a fem-
inization of the labour force and attribute this, in part, to the growing concentration of
women in low-​paid and informal employment.
Second, in 2000 StatsSA introduced the bi-​annual labour force survey (LFS), allowing
for further improvements in the measurement of the informal economy. Heintz and
Posel (2008), generating estimates for the 2001–​04 period, showed that, likely due to
improvements in labour legislation, the share of informal employment in total employ-
ment had in fact contracted (2008). Wills (2009), assessing the 2005–​07 period found
the share of informal employment in total employment stabilized with about 4 million
informal workers accounting for between 30 and 34 per cent of employment in 2005 and
2007, respectively. Both analyses found that while there were roughly equal numbers of
women and men in informal employment, a larger share of women’s employment was
informal. Moreover, both studies found women had significantly lower earnings than
men (Heintz and Posel 2008: 37; Wills 2009: 31–​2).
Third, in 2008, and coinciding with a growing consensus on the adoption of ICLS
definitions, StatsSA introduced the QLFS. Budlender (2011) using 2010 (Q2) data found,
similar to Wills, that roughly a third of the South African workforce was informal and
that the share of women’s employment (39 per cent) in the informal economy was higher
than men’s (29 per cent). Since then, men’s share has increased such that, by 2019, Rogan
764    Michael Rogan and Caroline Skinner

and Alfers (2019) found there was gender parity in urban areas with about 30 per cent
of both women’s and men’s work being informal. This can be attributed, in part, to a
growing share of men in informal sector employment from 2010 onwards (Rogan and
Skinner 2018; Statistics South Africa 2015). Notwithstanding these gendered shifts, there
remains considerable gender inequality within the informal economy with women
being over-​represented in the lowest-​earning types of informal employment but also
experiencing an earnings gap within informal occupations (see Magidimisha and
Gordon 2015; Rogan and Alfers 2019).
During the onset of the COVID-​19 pandemic in early 2020, the vulnerability of
women informal workers was compounded significantly (see Casale et al., C ­ hapter 34
in this volume). Early assessments found, over the period of the initial government lock-
down, women in informal employment reported a 49 per cent decrease in their typical
working hours compared with a 25 per cent reduction reported by men. Women in self-​
employment within the informal sector experienced a nearly 70 per cent reduction in
typical earnings (conditional on retaining their livelihoods) while men reported a 60
per cent reduction in earnings (Rogan and Skinner 2020: 1). Therefore, women in in-
formal employment experienced a larger negative impact from the COVID-​19 crisis,
relative to men, while also starting from a lower level of earnings.
Before turning to an empirical analysis of national micro-​data, it is important to out-
line several additional characteristics of informal employment in South Africa. As pre-
viously noted, a well-​documented feature is the small size of the South African informal
economy, in comparison to other middle-​income countries and the rest of the continent.
Globally, 61 per cent of all employment is informal, while in Africa as a whole, nearly 86
per cent of all employment is informal (ILO 2018: 13). In terms of its socio-​demographic
attributes, with respect to race, black South Africans predominate—​in 2019, for ex-
ample, they constituted 89 per cent of the informal economy despite accounting for only
75 per cent of total non-​agricultural employment (own calculations from the QLFSs).
Further, informal employment is more prevalent in rural areas than formal employ-
ment. Just under 30 per cent of informal workers live in the traditional authority (rural)
areas compared with only 15 per cent of formal workers (own calculations from the 2019
QLFS: Q3).
Informal employment is also characterized by significantly lower levels of education
compared with formal employment. Informal workers are more likely to have had no
schooling and are less likely than formal workers to have completed secondary school
and to have attained any level of tertiary education. Not surprisingly, earnings are far
lower in the informal economy with informal-​sector earnings accounting for less than
half of mean and median earnings in the formal sector (Rogan and Skinner 2018; but
see also Makaluza and Burger 2018). Finally, it should be noted that immigrants are not
well captured in labour force surveys. Nonetheless, in South Africa there are persistent
 The South African Informal Economy    765

claims of large numbers of immigrant informal workers and policy tends to have a
strong, and often punitive, focus on foreign participation.

35.3.1 Recent Trends in Informal Employment

Extending the earlier empirical work described in the previous section, Figure 35.1 offers
the most up-​to-​date estimates of informal employment in South Africa and shows that,
consistent with earlier figures, the informal economy has included a workforce of be-
tween 4 and 5 million over the past decade. Following a short, but sharp, decrease in
the period following the global economic crisis, where roughly 350,000 informal-​sector
jobs were ‘lost’ between 2008 and 2009, the informal economy has been a constant fea-
ture of the South African labour market. After 2014, there was a steady increase in the
size of the informal economy, particularly driven by increases in the number of men
in informal employment. By the third quarter of 2019, the South African informal
economy was comprised of about 4.8 million workers.
Figure 35.2 illustrates the share of total non-​agricultural employment, which is in-
formal, by gender, and shows a shift in gendered shares in informal employment over
time. In 2008, and as documented in much of the post-​apartheid literature, informal
employment was a greater share of women’s employment (35 per cent) relative to men
(28 per cent). While the overall share of employment which is informal was relatively
constant over the period (at about 30 per cent), the share of female employment which is

6000000
No. of employed in the informal economy

5000000

4000000

3000000

2000000

1000000

0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Women Men

Figure 35.1 Total non-​agricultural employment in the South African informal economy, by
gender (2008–​19)
Source: Own calculations from the QLFS Q3, 2008–​19. The data are weighted.
766    Michael Rogan and Caroline Skinner

40

35

30
%
25

20

15
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Women Men Total

Figure 35.2 Percentage of non-​agricultural employment in informal employment, by gender

(2008–​19)
Source: Own calculations from the QLFS Q3, 2008–​19. The data are weighted.

80
70
60
% 50
40
30
20
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Women Men Total

Figure 35.3 Percentage of non-​agricultural informal employment in the informal sector, by

gender (2008–​19)
Source: Own calculations from the QLFS Q3, 2008–​19. The data are weighted.

informal decreased between 2008 and 2014. By 2019, about 30 per cent of both male and
female non-​agricultural employment in South Africa was informal. Figure 35.2, there-
fore, shows that informal employment has consistently accounted for just under a third
of total employment while moving towards gender parity in employment shares.

35.3.2 The Contribution of Informal-​sector Employment

to the Informal Economy
One aspect of these gendered changes in the composition of the informal economy can
be seen in the contribution of informal-​sector employment to total informal employ-
ment. Figure 35.3 shows that an increasing share of informal employment in South Africa
is in the informal sector. In 2008, just over half (54 per cent) of informal employment
 The South African Informal Economy    767

25

20

15
%
10

0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Women Men Total

Figure 35.4 Percentage of total non-​agricultural employment in the informal sector, by gender
(2008–​19)
Source: Own calculations from the QLFS Q3, 2008–​19. The data are weighted.

was in the informal sector and, by 2019, this had increased to 64 per cent. A part of the
increase in total informal employment is, therefore, likely to have been driven by the
informal sector. Much of this increase is in male informal-​sector employment (an in-
crease from about 1.3 million in 2008 to about 1.9 million in 2019). The percentage of
women in informal-​sector employment increased from only 49 per cent to 55 per cent
between 2008 and 2019. Among men, however, the increase was from 58 per cent to
72 per cent. Therefore, over the same period that the informal economy expanded (by
more than 400,000 workers), the share in the informal sector also increased substan-
tially and significantly.4
Perhaps a clearer way to view the expansion of the informal sector, as well as the gen-
dered trends in informal-​sector employment, is to consider the share of total (non-​
agricultural) employment in the informal sector (Figure 35.4). In 2008, about 17 per cent
of both men and women’s total non-​agricultural employment was in the informal sector.
Following the decrease in informal-​sector employment during the global financial
crisis, there is evidence of a steady increase in informal-​sector employment among men.
At the same time, the share of female employment in the informal sector has remained
fairly constant over the same period. From 2016 onwards, the share of women’s informal
employment and total employment in the informal sector began to increase again.
However, the long-​held perception of the informal sector as a ‘feminized’ sector has, to a
large extent, been reversed over the past decade.

4 The other reason for the expanding share of informal-​sector employment in the informal economy

is the decrease in informal employment in the formal sector over the period. Between 2008 and 2019
there was a 34 per cent decrease in the number of women working informally in the formal sector and a
27 per cent decrease in the number of men (own calculations from the QLFSs). This finding is consistent
with earlier work (Heintz and Posel 2008) which suggested that compliance with protective labour
legislation may explain decreases in informal employment in registered firms.
768    Michael Rogan and Caroline Skinner

35.3.3 Status in Employment within

the Informal Economy
One way of identifying heterogeneity in informal employment as well as gender
segmentation is through the analysis of status in employment. Figure 35.5 below
identifies changes in the percentage of women and men in informal employment who
are own-​account workers, employees, employers, and contributing family workers.
Between 2008 and 2019, women have been significantly more likely than men to be
self-​employed own-​account workers in the informal sector. Over half of all women
working in the informal economy were in this category for the period under review
while a smaller and relatively constant share of men (about 40 per cent) were own-​
account workers during the same period. Men were consistently more likely to be
informal employees (both inside and outside of the informal sector) with just over 40
per cent being identified in this group. Perhaps the largest (relative) gender difference
in status in informal employment, however, is in the share of women and men who
are self-​employed employers (i.e. they hire other informal workers). These are typic-
ally the highest earners in the informal economy (see Rogan and Alfers 2019) and in
each of the three years depicted in the graph below, men are between two and three
times more likely to be employers than women (e.g. 6.5 per cent of women compared
with 15.4 per cent of men in 2019). Thus, the gender differences in status employment
appear to be an ongoing feature of the South African informal economy, with women
concentrated in the types of employment associated with lower earnings (Rogan and
Alfers 2019).

100
90
80
70
60
% 50
40
30
20
10
0
2008 2014 2019 2008 2014 2019
Women Men
Status in employment

Own-account Employee Employer Contributing family

Figure 35.5 Status in employment within the informal economy, by gender (2008–​19)
Source: Own calculations from the QLFS Q3, 2008–​19. The data are weighted.
 The South African Informal Economy    769

35.3.4 Informal Employment by Industry Sector

Another persistent feature of the South African informal economy is the difference in
the distribution of women and men across industry sectors. As outlined in Figure 35.6
while roughly equal shares of women and men are employed informally in wholesale
and retail trade (about 30 per cent) and manufacturing (about 7 per cent), there are large
differences in the other key sectors. Most notably, the single largest group of women
(37 per cent) in informal employment is employed in private households (largely as
domestic workers). In contrast, only 9 per cent of men in informal employment work
in private households. The modal group for men (29 per cent) is wholesale and retail
trade but nearly a quarter (24 per cent) are employed in construction (compared with
only about 1 per cent of women). Two other significant gender differences are the much
larger shares of women in the community and social sector and the greater percentage
of men in transport (e.g. in the taxi industry). Within the community, social, and per-
sonal services sector (where the vast majority of informal work is within the informal
sector), some of the key informal activities are child-​care, hairdressing, cooking, trad-
itional healing, cleaning, and different categories of labourers.
The industry shares of men’s informal employment have remained largely constant
over time while women’s shares have changed in several ways. The two notable changes
over the decade are women’s decreasing share in trade and a corresponding increase in
community and social services (own calculations, not shown in the graph). In contrast,
while the percentage of women’s overall employment in domestic work has decreased
­ hapter 34 in this volume) the percentage of women’s in-
since 1994 (see Casale et al., C
formal employment in domestic work only decreased slightly (and not significantly)
from 38 per cent in 2008 to 37 per cent in 2019 (own calculations from the QLFSs).

40 36.8
35
30.7
29
30
24.4
25
% 20 17.7
15 13.7
9.4
10 7.6 6.9 7.5 8
5.7
5 1.4 0.8
0
Private Trade Community Manufacturing Finance Construction Transport
households

Women Men

Figure 35.6 Sectoral distribution of informal employment, by gender (2019)

Source: Own calculations from the QLFS Q3, 2008–​19. The data are weighted.
770    Michael Rogan and Caroline Skinner

40
36.3 36.2
35
30.7
30

25
20.3 19.9
% 20
15.3
15 12.6
8.9 9.1
10 6.5
4.3
5
0
0
Community Trade Manufacturing Finance Construction Transport

Women Men

Figure 35.7 Sectoral distribution of informal employment within the formal sector, by
gender (2019)
Source: Own calculations from the QLFS Q3, 2008–​19. The data are weighted.

35.3.5 Informal Employment outside of the Informal Sector

Research and policy interest often focuses on the informal sector (DSDB 2020; Fourie
2018; Charman et al. 2020). However, a picture of informal employment within formal-​
sector firms, is an important feature of the post-​apartheid informal economy. While
often excluded from policy discussions, this type of work has some parallels with terms
such as ‘precarious’ and ‘non-​standard’ employment or the ‘gig economy’ in the broader
literature (Standing 2011). In the third quarter of 2019 there were about 670,000 in-
formal workers employed in the formal sector. Not surprisingly, there are also gender
differences in the sectoral distributions of informal employment among this group
(Figure 35.7). Women in informal employment in the formal sector (excluding private
households) are concentrated in the community and social services sector (36 per cent),
wholesale and retail trade (31 per cent), and, to a lesser extent, manufacturing (20 per
cent). Examples of the types of occupations that women report within the social and
personal services sector include child-​carers, hairdressers and beauticians, and various
types of cleaners and helpers. As with employment within the informal sector, men tend
to dominate in the construction and transport sectors.

35.4 Conclusion

This overview of the South African informal economy has shown that informal employ-
ment over the post-​apartheid period has formed a large share of the workforce—​about
 The South African Informal Economy    771

30 per cent. While the contribution to total employment has not changed appreciably,
dynamics in the informal economy, more broadly, and within the informal sector, in
particular, have often run counter to expectations. The evidence shows that the smaller
size in comparison to developing-​country counterparts, and the sclerotic nature of the
informal sector alongside high and increasing levels of unemployment, have been due,
in part, to the limited absorption of newcomers. This suggests that the South African
informal economy is not a ‘free-​entry’ sector. This characterization of the informal
economy has been most pronounced during times of economic crisis. During the 2008–​
09 global economic crisis, for example, in contrast to expectations of conventional
theory, the informal sector actually contracted. In addition, the informal economy is
segmented and exhibits a high degree of heterogeneity in terms of status in employ-
ment, industry sector, and in earnings and vulnerability to shocks. Overlaid onto this
heterogeneity are stark differences in the types of informal work in which women and
men are engaged. At the same time, the past decade coincided with the reversal of the
hitherto well-​documented finding of a larger share of women’s employment in the in-
formal economy.
Against this backdrop, there has been increased international attention on the South
African informal economy. At the 2015 International Labour Conference, United
Nations member states and their organized business and labour counterparts agreed
on the first international labour standard specifically on the informal economy—​
Recommendation 204 (R204). Significantly, South Africa was identified as one of the
ILO’s target countries for R204 implementation from the outset and set up an R204 task
team. R204, entitled ‘Transition from the Informal to the Formal Economy’, represents a
significant shift in discourse away from dualist and legalist conceptions of the informal
sector as small entrepreneurs who evade taxes and regulations, towards vulnerable
workers and economic units (including own-​account workers) who need protection
and incentives to formalize (ILO 2015). So how does the shift in international discourse
combined with the dominant characteristics of the South African informal economy
align with the South African government’s policy approach?
The National Development Plan (NDP) assigns a large role to the informal sector as
an employment generator, projecting that the informal-​sector and domestic work will
create between 1.2 million to 2.1 million jobs by 2030 (National Planning Commission
2012: 121). The NDP chapter on the economy, however, says nothing about how existing
operators in the informal sector will be supported, nor how barriers to entry will be
addressed to help generate new jobs. As noted in section 35.2, the Department of Trade
and Industry’s, and, since its establishment in 2014, the Department of Small Business
Development’s, policy response to the informal sector has concentrated largely on
access to finance, training, and regulatory issues. Assessments suggest that state and
other service providers have struggled to extend these services to all but the larger and
better-​resourced informal-​sector enterprise owners and/​or have been unable to reach
scale (Skinner 2018; Rogerson 2008, 2016). Given the gendered segmentation of the in-
formal economy, this support has, thus, been biased to men.
772    Michael Rogan and Caroline Skinner

With respect to regulatory issues, but also enterprise support, a key driver in the South
African government’s approach, since 2010, has been the exclusion of immigrants. This
is despite research showing the multiple contributions that immigrants working in the
informal sector make to local economies (Crush et al. 2015; Zack 2017). NIBUS, for ex-
ample, highlights the lack of ‘regulatory restrictions’ to control ‘the influx of foreigners’
as a key issue and cites, as good practice, Ghanaian legislation that restricts business
ownership, in a range of sectors, to citizens (2014: 22). National government’s 2013
attempt to implement similar legislation failed but provinces are now seeking to insti-
tute their own legislation along these lines. The focus on curtailing immigrants drives
a more punitive approach to the informal sector in general and diverts attention from
the real, urgent need to support and enhance opportunities for all those working in the
informal sector.
The raft of laws introduced in the post-​apartheid period to protect workers—​the
Labour Relations Act of 1995, the Basic Conditions of Employment Act of 1997, and the
Unemployment Insurance Act 2011, among others—in theory should apply to formal
and informal workers alike. In addition, since 1999 the Employment Conditions
Commission has set minimum wages in sectors known to have high levels of precar-
ious work, including domestic work, agriculture, security, the taxi industry, and retail.
This was supplemented with the introduction of a national minimum wage in 2018.
Compliance levels with both minimum wages and labour protections have been shown
to be low (Bhorat, Kanbur, and Mayet 2011; Bhorat et al. 2020). Consider, for example,
domestic workers, where 44 per cent were paid below national minimum wages, 73 per
cent had no paid leave and 87 per cent no maternity leave (Bhorat et al. 2020: 8). Up
until a 2019 court challenge, domestic workers were not considered ‘employees’ under
the Compensation for Occupational Injuries and Diseases Act, demonstrating signifi-
cant gaps in legislation. The government’s R204 Task Team has been tasked with looking
at these and other legislative gaps.
The structuralists’ provocations are an important reminder that dynamics within
the informal economy (between employers and employees, for example) and be-
tween large corporations (as suppliers but also competitors for land) and the informal
economy often have an exploitative dimension that warrants protection measures. The
R204 Task Team is a positive first step in tackling decent work deficits for informal wage
workers. Policy measures, however, need to be nuanced in order to address the differing
constraints which affect a diverse workforce. For those in the informal sector, economic
concentration in the formal sector acts as a structural barrier, often overshadowing
supply-​side constraints, such as a lack of finance or skills (and efforts to overcome them).
The state would do well to pay more attention to sectoral segmentation within the in-
formal sector in general, and how dynamics in the formal sector shape opportunities.
This suggests the ambit of policy analysis and intervention should be extended—​trade,
industrial, competition, and land use policy, among others, all have implications for
those working in the informal economy. Finally, if the developmental impacts of policy
are to be maximized, segments of the informal economy where women dominate need
to be prioritized.
 The South African Informal Economy    773

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 Chapter 36

Migrat i on
and Rem it ta nc e s
in Sou th A fri c a

Mark A. Collinson and Mduduzi Biyase

36.1 Introduction

The window of time covered can be considered post-​apartheid South Africa, but the
subject matter still has apartheid’s legacy all over it. The economic base of rural South
Africans is surprisingly low, because there is high inequality at a national level within
and between racial groups. Rural livelihoods were severely disrupted by the apartheid
system and labour migration became entrenched by a combination of government
coercion and industrial recruitment systems. Although apartheid ended in 1994 and
there are no restrictions to mobility or residential rights, the rural areas constituted as
former ‘Bantustans’, remain home to the country’s most socio-​economically deprived
populations. Migration patterns did not change radically in the manner expected when
apartheid ended. Temporary migration, mostly for labour, has persisted as a migration
stream linking rural and urban areas and mines.
High levels of labour migration can be disguised in statistical reports, but, in June
2012, the conditions of labour migrant miners were brought to world attention through
violent conflict with police resulting in thirty-​four protestors dying and seventy-​eight
injured at the Lonmin mine in North West Province. The violent and tragic outcome was
seen by many as a culmination of the effects of appalling living conditions, the high risk
of work accidents, short-​term work contracts, the background of poverty, and power-
lessness in the workplace. The conditions of current livelihood-​seeking enforce a regime
of temporary migration, just as they did in the apartheid period.
As in most countries, it is hard to get a full account of either migration or remittances.
Two reasons are the complexity of migration itself and the paucity of data. Migration
definitions require a spatial component, a distance or barrier, over which a person must
778    Mark A. Collinson and Mduduzi Biyase

cross to be considered a migrant, and a time threshold required for which a person must
stay long enough. For most surveys this means that the study design excludes migrants
or uses a proxy respondent while the migrant lives elsewhere. And there are no sys-
tematic records of migrations or remittances. Nevertheless, since migration is widely
experienced, it is important that patterns and impacts are understood in a balanced
way, despite lacking complete data. Migration statistics depend on definitions used in
the data collection. For this reason, the national household survey, National Income
Dynamics Survey, (NIDS) and the South African Population Research Infrastructure
Network (SAPRIN), which is a network of Health and Demographic Surveillance
Systems (HDSS) nodes, are co-​analysed to offer a complementary perspective on migra-
tion and remittances, their profiles, trends, and impacts.

36.2 Survey of the Literature

Until the early 1980s, theoretical analysis in the field of international and internal mi-
gration was largely entrenched in the neoclassical perspective, which viewed migration
as an ‘individual utility-​maximizing decision’. This view posits that individuals com-
pare expected economic opportunities in urban areas and current place of residence at
the time of considering migrating. If wages and other related opportunities are higher
in the urban areas, the migrants are likely to move to the urban areas. The movement
of individuals in pursuit of a better life is expected to continue until opportunities
have equalized between the two areas. In the 1980s and 1990s, the development of the
New Economics of Labour Migration (NELM), pioneered by Stark and Bloom (1985)
and Stark (1991), stirred a new wave of interest in migration. Unlike the neoclassical,
the NELM placed emphasis on the household as a decision-​making unit rather than
individuals. NELM views migration as a joint decision made by the resident and
non-​resident members to cope with markets imperfections and maximize income
(Stark 1991).
Extensive literature has examined the factors that motivate individuals and their
family members to move from rural to urban areas in South Africa (Bell 1972; Kok
et al. 2003; van der Berg et al. 2004; Posel et al. 2006; Cross 2006; Camlin et al. 2014;
Collinson et al. 2006; Collinson 2010; Beguy et al. 2010; Reed 2013; Casale and Posel
2002). Studies on internal migration have brought evidence that supports some of the
theories described above. Bell (1972) observed that, although the decision to migrate
depends on expected wages in both areas (origin and urban areas), other factors (not
related to income) also play important roles in the decision. Cross (2006) found that
employment, housing, and education are key in shaping migration decisions in South
Africa. Other factors include age, gender, and marital status (Kok et al. 2003; van der
Berg et al. 2004; Posel et al. 2006). Other aspects of research include the feminization of
internal migration (Camlin, Snow, and Hosegood 2014; Collinson et al. 2006; Collinson
2009; Beguy et al. 2010; Reed et al. 2010; Casale and Posel 2002), enduring trends of
 Migration and Remittances in South Africa    779

temporary migration (Kok and Collinson 2006; Posel 2006, 2020), and more recently
child migration in relation to maternal migration (Hall and Posel 2019).
A small but growing body of literature is studying the determinants of international
migration (especially from neighboring countries) to South Africa. Traditionally, South
Africa attracted a lot of labour migrants (predominantly mine, agricultural, and do-
mestic workers) from neighbouring countries such as Botswana, Zambia, Zimbabwe,
Mozambique, Lesotho, and Malawi. Many years after the dismantling of apartheid, mi-
gration from the SADC region still contributes a substantial proportion of migration
flows into South Africa. In 2011, South Africa received in the region of 68 per cent of
the total international migrants from the SADC region. An inflow of migrants to South
Africa is caused by economic factors like perceived wage differential and non-​economic
factors such as weak infrastructure and political instability in the countries of origin
(Wa Kabwe-​Segatti and Landau 2008).
While employment usually plays a role, it is often not the main reason for migrating
to South Africa. Studies (Lucas 1987; Oucho, Campbell, and Mukamaambo 2002; Cross
2006; De Vletter 2000; Ginsburg et al. 2016; Chikanda 2007) have found evidence
that wage differentials and job opportunities between South Africa and neighbouring
countries are the main determinants of migration flow to South Africa. Lucas (1985)
used the National Migration Survey (NMS) and multinomial logit model to examine the
impact of wage differentials and employment prospects on migration in Botswana. He
found that migration from Botswana to South Africa is predominantly shaped by wage-​
rate differentials and employment probability. Similarly, Chikanda (2007) examined
the factors responsible for migration of health professionals from Zimbabwe to South
Africa and found that nurses were more likely to move in pursuit of better economic
opportunities. In Botwana, Oucho, Campbell, and Mukamaambo (2000), found that
jobs and social services were cited as the main factors that motivate individuals to mi-
grate to South Africa.
De Vletter (2006: 26) carried out an inter-​regional analysis of South, Central, and
Northern Mozambique to examine the effect of migration on development. Drawing on
the ANE/​Austral Survey of Rural Households (1999–​2001) and the SAMP Migration and
Remittance Survey (MARS) (2004), he concludes that: ‘Although a significant number of
households in the South have migrant and commuter members working for wages in the
domestic economy (mainly in the industrial enclave of Maputo-​Matola), the most sig-
nificant flow of wage-​seeking labour has been and continues to be to South Africa.’
So far, we have focused on factors motivating migrants to move into South Africa.
An equally important question is what causes South Africans to leave. Several studies
have looked at the determinants of in-​migration, but few examine determinants
of emigration from South Africa (Myburgh 2004). Myburgh (2004) investigated
this and determined that the decision to migrate was responsive to the wage gap be-
tween South Africa and the desired destination country, such as the United States, the
United Kingdom, or Australia. Other factors such as immigration restrictions are also
highlighted in the analysis. They were unable to refute that other factors such as vio-
lence and affirmative action could have intensified the pressure to leave South Africa
780    Mark A. Collinson and Mduduzi Biyase

in the early 90s. Hatton and Williamson (2003) looked at the factors that influence
international migration in and out of the African continent and list unfavourable eco-
nomic performance and wage differentials as the main factors. Crush (2000) looked
at determinants of emigration from South Africa using the SAMP. The results show
that the respondents (mostly skilled white South Africans) were unhappy with ‘quality
of life’, affirmative action policy, and government performance. Similarly, a study on
South African health professionals located in Canada found that the leading self-​
reported motives for leaving were security concerns and what the future holds for their
children.
While the act of migration is a household strategy involving the migrant and other
family members, it is not the ultimate goal of the process. Sending money (derived from
this process) to the household of origin is what manifests the strategy adopted by the
household (Cai 2003). Why do migrants send money? The literature identifies two key
reasons, namely, altruism (Agarwal and Horowitz 2002; Lucas and Stark 1985; Stark and
Lucas 1988; Sana and Massey 2005; van Dalen et al. 2005; Banerjee 1984; Johnson and
Whitelaw 1974; Lillard and Willis 1997), and self-​interest (see Bernheim et al. 1985; Stark
and Lucas 1988; Hoddinott 1994; Lucas and Stark 1985; Rappaport and Docquier 2006;
Cox 1987; Cox et al. 1998; de la Briere et al. 2002). Altruistic senders remit money because
they care about the welfare of the receipt household. On the other hand, self-​interested
senders remit to benefit themselves, such as safeguarding future inheritance. Lucas and
Stark (1985) find support for the inheritance-​linked motives in Botswana. Poirine (1997)
and Lillard and Willis (1997) reach similar conclusions in Nepal and Malaysia. Regmi
and Tisdell (2002) find similar support for the remittances–​inheritance connection in
Nepal. Biyase and Tregenna (2016) find similar evidence in South Africa, that altruism
partially motivates remitters, who send money because there are emotional connections
to the origin household. Multiple motivations to send money usually operate simultan-
eously. Chami and Fischer (1996) argue that contractual arrangements may not be as
self-​interested as they appear, since altruism can lead to risk-​sharing arrangements that
are self-​enforcing. Posel (2001: 166) points out that senders may not be equally altruistic
to all the household members, and they may respond to the needs of some rather than
others. Reaching a similar conclusion, Hagen-​Zanker and Siegel (2007: 15) emphasize
the importance of context on remittance motivations.
Several studies have investigated the effect of remittances on poverty in South Africa
(see Biyase 2018; Biyase 2012; Collinson 2010; Gerritsen et al. 2013; Woolard and Klasen
2005; Wilson and Ramphele 1989; Maitra and Ray 2003; Adato et al. 2003; Leliveld 1997).
Some take an unambiguously positive view that remittances play a key role in the lives
of the rural poor. Woolard and Klasen (2005) suggest that an increase in remittances has
a potential to lift many poor households (10.6 per cent) out of poverty, while a decrease
in remittances can push a significant number of households (11 per cent) into poverty.
There is also evidence to suggest that many migrants (especially African migrants) send
a large portion of their incomes to those left behind, representing a substantial part of
the receiving household’s income (Wilson and Ramphele 1989; Maitra and Ray 2003;
Adato et al. 2003; Leliveld 1997).
 Migration and Remittances in South Africa    781

Having a migrant does not guarantee a benefit from remittances. In fact, there is a
sceptical view that the movements of members from their origin households can im-
pose costs on those left behind and worsen their standard of living. A proponent of this
view, Aliber (2001) highlights the deterioration in conditions for children left in the care
of grandparents in rural areas.
Despite some contradiction, the literature tends to view remittances as making a sub-
stantial contribution to reducing poverty. However, the magnitude of reduction varies
by geographic diversity, and different types of remittances, data sources, and analytical
methods.

36.3 Methods

NIDS and HDSS will provide information on migration, households, and remittances.
Measures of migration stocks show who are the migrants in a given population and what
their characteristics are, providing migration prevalence rates. These will be obtained
from NIDS data. Migration flows are migration incidence rates, which are events of mi-
gration occurring as a function of the population at risk. Flows will be measured using
the SAPRIN HDSS data.

36.3.1 NIDS
Commenced in 2008, NIDS is the first face-​to-​face longitudinal survey of South African
individuals and their households. It is nationally representative and has conducted
repeated waves of survey follow-​up on a baseline of 28,247 members in total, residing in
7,301 households. Five waves have now been completed and migration rates and trends
can be computed for over the nine years, 2008 to 2017.

36.3.2 SAPRIN
SAPRIN is a network of HDSS nodes, each of which keeps track of an open cohort,
which is the full population of over 100,000 people, and keeps a record of who enters,
who leaves, namely, who dies, who is born, who migrates into the population, who
migrates out. In this analysis, we have taken the SAPRIN data, available online, which
comprise the longitudinal data from DIMAMO, Agincourt, and AHRI populations.
Each SAPRIN node is a fully functioning health and demographic surveillance system
(HDSS), which is a longitudinal population platform that enables individual follow-​up
and systematic recording of vital events (Kahn et al. 2012; Tanser et al. 2008; Alberts
et al. 2015). Individual and household indicators routinely collected include: births and
deaths (by cause), residence and migration, socio-​economic status, disease monitoring,
782    Mark A. Collinson and Mduduzi Biyase

and measures of well-​being represented by labour status, education, and social pro-
tection. The first three founding SAPRIN nodes, which have been brought together to
form a harmonized national network, are SAMRC/​Wits University Rural Public Health
and Health Transitions Research Unit (Agincourt) HDSS in Mpumalanga, established
in 1992 with a current population of 120,000; University of Limpopo DIMAMO HDSS
Limpopo Province, established in 1996, with a population 35,000, now expanded to
100,000; and the Africa Health Research Institute (AHRI) HDSS in KwaZulu-​Natal,
established in 2000, with a population 125,000.

36.3.3.1 Household Definitions
In NIDS, household membership requires three criteria: (i) a person has lived in this
dwelling at least fifteen days in the last twelve months, or arrived in the last fifteen days
and this is now their usual residence, or resides here at least four nights a week; (ii) they
share food from a common source with other household members; and (iii) they con-
tribute to or share in a common resource pool.
In the HDSS, a household is a group of persons who live together and provide them-
selves jointly with food or other essentials for living, or a single person who lives alone.
Residency is identified by asking whether each person resided for at least four nights out
of the last seven, and has done so for at least six months. It is a de jure household defin-
ition including people who reside and eat together, plus the non-​resident members who
would on return.

36.3.3.2 Migration
In NIDS, migrants are identified from the household roster and adult questionnaire.
Temporary migrants need to spend a month or more in the year away for purposes of
employment (Posel 2010). Individuals who have permanently moved from their usual
place of residence can be identified in the adult questionnaire.
In the HDSS, temporary migration is when a person out-​migrates and does not end
their household membership. People are referred to as temporary migrants if they were
absent from the household for more than six months of the year. The main reasons for
temporary migration are ‘working’, ‘education’, and ‘looking for work’.
Definitive migration is when a person out-​migrates and, in doing so, terminates their
household membership. This definition follows the classic definition that migrants are
people who experience a change in residence. The main reasons given in the HDSS
for definitive migration are ‘union formation or dissolution’, ‘to live with another’, and
‘new dwelling for household’. Definitive and temporary migration types are mutually
exclusive and exhaustive. We conducted event-​history analysis on both for in-​and
out-​migration. The analytic method was developed and described by the Multi-​centre
Analysis of the Dynamics in Internal Migration and Health (MADIMAH) (Ginsburg
et al. 2016). The data are organized into a sequential series of demographic events for
each individual. The ‘stset’ suite of commands in Stata V16 were used to conduct event-​
history analyses on the migration types. Trends in migration rates were computed using
calendar time as the temporal basis for the analysis. Age–​sex profiles of migration were
 Migration and Remittances in South Africa    783

computed using age as the temporal basis for the analysis. In-​migration rates were
computed by reversing time in the event-​history analysis as described by Bocquier
(Bocquier et al. 2017, 2019). It involves starting at the right censor date and running time
backwards until an in-​migration event occurs, to get hazard rates of in-​migration. The
method computes daily hazard rates and the graph shows a running average.

36.3.3.3 Remittances
In NIDS, remittances are contributions sent by labour migrants to their origin house-
hold. The information on remittances in national surveys varies between surveys (see
Posel 2010). Questions on remittances appear in different parts of the questionnaire. In
some surveys they are in sections on labour migration, whereas in NIDS, information
on remittances is located in different parts of the questionnaire. ‘Consequently, infor-
mation is collected not only on income transfers received from migrant workers, but
also on contributions received from other individuals, including absent household
members who are not identified as migrant workers, and individuals who are not house-
hold members (for example in the case of child maintenance payments)’ (Posel 2010).
This results in the disparity between the recipient households and households that re-
port migrant workers (Posel 2010). Remittances are included in all waves of the NIDS
using the following question: ‘In the last 12 months, did you receive money, food or any
other kind of contribution from people who do not usually sleep under this roof for four
nights a week? If you receive maintenance for you or your child, please include it here.’
Within HDSS operations, remittances were recorded in a Temporary Migration
module conducted in the annual census update rounds in years 2002, 2007, 2012, and
2017. For each census round, individuals identified as temporary migrants were enrolled
into the module and the household respondent answered questions about their migra-
tion. This included questions about the types and amounts of remittances received by
the households.

36.4 Findings

36.4.1 Migration: Profiles and Trends

Migration prevalence was recorded as the proportion of non-​resident household
members to all household members in each NIDS wave. Figure 36.1 shows the age–​sex
profile of migrant prevalence rates for the period 2008 to 2014. Graphical illustrations re-
veal that the shapes of the distribution (for both males and females) resemble a standard
age shape found in many studies in this field (Rogers and Castro 1981). Specifically,
the distribution follows an inverted U-​shape, with the peak occurring among young
adults—​for both males and females the probability to migrate is substantially higher
in ages 20–​29. The shapes of the distribution are not very different between males and
784    Mark A. Collinson and Mduduzi Biyase

40%
35%

Migration prevalence
30%
25%
20%
15%
10%
5%
0%
0–9 10–19 20–29 30–39 40–49 50–59 60–69 70–79 80+
Person’s age

M_2008 M_2010 M_2012 M_2014

F_2008 F_2010 F_2012 F_2014

Figure 36.1 Migration prevalence, by age, sex, and period, NIDS, 2008–​14
Source: Own calculations using NIDS 2008, 2010, 2012 and 2014 data.

females. There are similarities between boys and girls, in ages 0–​9, although male rates
are slightly higher than female rates in most other age groups.
While the migration prevalence rates for both men and women mostly reach a peak at
age 20 to 29, from this age onwards the male rates exceed female rates. How has the dis-
tribution for males and females changed for the period 2008 to 2014? There is a strong
upward trend across ages (except for the 2010 period), although higher in the cohorts
aged 30–​39 years. While men were more likely to migrate than their female counterparts
in 2008, this gap has narrowed in subsequent years as more and more women are able
to migrate. Our analysis of the age–​sex trends are broadly in accordance with previous
South African studies which find that the difference between male and females is not as
big as it used to be (Reed 2013; Collinson et al. 2006).
To observe the trends in labour migration and non-​resident household membership
from a household perspective, Table 36.1 draws data from a range of sources as shown
by Posel (2020). We updated the migration trends by adding the 2017 column from the
NIDS Wave 5. The table shows estimates of households with non-​resident members and
labour migrants for all households, African households, and rural African households.
What stands out is that African households were the most likely to contain non-​resident
members and labour migrants. Across all three household types (i.e. All households,
African, and African rural) there was a downward trend in the labour migrant and non-​
resident members. Apart from a decrease in labour migrant and non-​resident household
members between 2008 and 2010, migration estimates (in general) rose slightly in 2012
and 2014, though relatively below the 2008 estimates. Migration fluctuation is linked to
the economic shocks and subsequent economic recovery which took place around that
time. As Posel says, ‘the large decline (particularly in migration for reasons of employ-
ment) coincided with the global financial crisis and the economic recession in South
Africa, falling employment may have undermined both the means for labour migration
to occur and the return to this migration.’ Posel attributes the later increase in migration
(especially labour migration) to the economic recovery and ‘modest employment growth’.
 Migration and Remittances in South Africa    785

Table 36.1: Households with labour migrants and non-​resident members

Households with migrants 2008 2010 2012 2014 2017

Households with labour migrants

All households 10.6% 3.6% 7.4% 8.1% 3.87%
African households 12.3% 4.1% 8.4% 9.7% 4.35%
African rural households 21.8% 5.5% 14.8% 15.6% 6.90%
Households with non-​resident member
all households 16.40% 9.20% 13.20 10.80% 17%
African households 18.20% 9.30% 14.40 12.40% 19%
African rural households 28.20% 10.60% 21.60 18.90% 24%

Source: Posel (2020) and own calculations derived from NIDS (2017).

36.4.1.1 South African Population Research Infrastructure Network

Using the longitudinal SAPRIN data, two further details are added to the picture of
these migrants. First, migration incidence rates can be computed as hazard rates,
showing the occurrence of migration as a function of the population at risk. Second,
migration is separated into two mutually exclusive categories, namely definitive and
temporary migration, to enable an analysis of the causes and consequences of migra-
tion by type. Migration rates are given by age and sex, and as trends over time for these
migration types.

36.4.1.2 Comparing the Three Nodes and the Combined

Population: Age–​Sex Profiles
Figure 36.2 shows the age–​sex profile plots for temporary out-​migration for the whole
SAPRIN population compared with each nodal population, namely Agincourt, AHRI,
and DIMAMO. An aim of the comparison is to make the case that the populations are
sufficiently similar in demographic structure and dynamics, such that the SAPRIN
population is a good representation of any node. Then, the whole SAPRIN population
can be considered a typical case for the South African rural African population. The
main difference observed between the nodes is the density of migration. For temporary
out-​migration, the AHRI node in KwaZulu-​Natal has a mode for men of 23 per cent and
for women 19 per cent, whereas for Agincourt it is 14 per cent for men and 7 per cent for
women and for DIMAMO, 8 per cent for men and 6 per cent for women. Yet, the age-​
profiles by sex are virtually identical.

36.4.1.3 Comparing Four Migration Types: Age–​Sex Profiles

Figure 36.3 gives the age–​sex profiles of four migration types, namely: temporary in-​
migration, definitive in-​migration, temporary out-​ migration, and definitive out-​
migration. Definitive out-​migration comprises people leaving the study site with the
786    Mark A. Collinson and Mduduzi Biyase

(a) temporary-outmigration All Age Profile both Sexes (b) temporary-outmigration AHRI Age Profile both Sexes

2
.15
Migration Rate

Migration Rate
.15
.1

.1
.05

.05
0

0
0 20 40 60 80 0 20 40 60 80
Person’s Age Person’s Age
95% Cl 95% Cl 95% Cl 95% Cl
Sex = Male Sex = Female Sex = Male Sex = Female

temporary-outmigration Agin Age Profile both Sexes temporary-outmigration DIM Age Profile both Sexes
(c) (d)
.2

2
.15

.15
Migration Rate

Migration Rate
.1

.1
.05

.05
0

0
0 20 40 60 80 0 20 40 60 80
Person’s Age Person’s Age
95% Cl 95% Cl 95% Cl 95% Cl
Sex = Male Sex = Female Sex = Male Sex = Female

Figure 36.2 Age-​sex profiles of temporary migrants of the combined SAPRIN populations
and each of the three nodes: AHRI, Agincourt, and DIMAMO
Source: Original analysis by M. Collinson using SAPRIN data from the website http://​saprindata.samrc.ac.za/.​

aim of making their new residence home. It is dominated by women aged 18–​35 years
and in this age group men are much less likely to migrate. The mode for men is age 35,
when approximately 5 per cent of men make a definitive out-​migration. For definitive
in-​migration, the age–​sex profile is a close mirror of the out-​migration profile. People,
especially young adult women, possibly with children, are both leaving and entering
the three nodal populations at similar rates, for joining or setting up new households.
Temporary out-​migration is when people leave the study area with the aim of returning
home later. Young men and women are roughly 20 years old when they decide to leave.
Around 11 per cent of women and 16 per cent of men leave at this age. Men continue to
have higher levels of out-​migration for temporary migration at all adult ages, until they
reach 70 years of age. Temporary in-​migration is return migration after a period of tem-
porary migration. The mode is right-​shifted for both sexes, but especially men, which
means the age ​patterns, from a life-​course perspective, show young people becoming
temporary migrants and returning later. There is a second mode of return migration for
men aged 60, due to retirement.
In sum, young women and children are the most likely to make definitive migrations.
Men are less likely to make definitive migrations and when they do, they are usually
ten years older than women making the same kind of migration. With temporary mi-
gration, those leaving are mostly young men. Young women are less likely to leave for
temporary migration, but for those who leave, this occurs mostly in the young adult
 Migration and Remittances in South Africa    787

(a) definitive-outmigration All Age Profile both Sexes (b) definitive-inmigration All Age Profile WholePeriod bySex
.1

.1
.02 .04 .06 .08
Migration Rate
.02 .04 .06 .08
Migration Rate
0

0
0 20 40 60 80
0 10 20 30 40 50 60 70
Person’s Age Person’s Age
95% Cl 95% Cl 95% Cl 95% Cl
Sex = Male Sex = Female Sex = Female
Sex = Male

temporary-outmigration All Age Profile both Sexes temporary-inmigration All AgeProfile wholePeriod bySex
(c) (d)

.15
2

Migration Rate
.15
Migration Rate

.1
.1

.05
.05 0

0
0 20 40 60 80 0 10 20 30 40 50 60 70
Person’s Age Person’s Age
95% Cl 95% Cl 95% Cl 95% Cl
Sex = Male Sex = Female Sex = Male Sex = Female

Figure 36.3 Age-​sex profiles of the four migration types in the combined SAPRIN population
Source: Original analysis by M. Collinson using SAPRIN data from the website http://​saprindata.samrc.ac.za/.​

age ​group. Those returning from temporary migration are mostly men in the 25–​65 age
range, while women return mostly in their mid-​twenties to thirties.

36.4.1.4 Comparing Migration Incidence Rates for Definitive

and Temporary Migration
Figure 36.4 gives the trend in migration incidence rate for the four migration types,
namely, temporary in-​migration, definitive in-​migration, temporary out-​migration,
and definitive out-​migration, for the combined SAPRIN population. From the year 2000
onwards, the trends of definitive out-​migration and in-​migration are well matched. The
levels peak in 2000 and then decline over time. For definitive in-​migration there is a sec-
ondary peak in 2005 after which it falls further. By 2017, the rates have fallen to around
3 per cent per year for definitive out-​migration and ~2 per cent per year for definitive
in-​migration. Female migration is higher than male migration, with the gap narrowing
over time. From 2000, the harmonized data from all three nodes are combined.
Temporary migration has higher levels for men than women, but both show high levels
that are sustained. For out-​migration the levels rise steeply for men and women until
around 2003 and then level off at 6 per cent per year for women and 8 per cent per year
for men. This has declined slightly since but remains high at 6 per cent per year for men
and 5 per cent per year for women who become temporary migrants. Temporary in-​
migration, returning home after a period of oscillating between home and workplace,
is the steadiest trend in the analysis. From 2002 to 2017, there were around 3 per cent
788    Mark A. Collinson and Mduduzi Biyase

Figure 36.4 Trend in migration incidence rate for the four migration types in the combined
SAPRIN population.
Source: original analysis by M. Collinson using SAPRIN data from the website http://​saprindata.samrc.ac.za/.​

of women per year and 4 per cent of men making these migrations. The year 2010
coincided with an especially high level of men returning to rural homes.
In sum, permanent migration is gradually declining over time, while temporary mi-
gration remains stable and is a major component of life for adults, especially young
adults, of both sexes, but men more than women.

36.4.1.5 Remittances: Profiles and Trends

In years 2012 and 2017, remittance amounts received by households in the NIDS sample
and the Agincourt HDSS were both measured in the field and can be compared. In 2012,
the mean monthly amount was R1,247 in NIDS, plus extra amounts for clothes and food,
whereas in the HDSS it was R976. In 2017, the mean cash amount had increased to R1,397
per month in NIDS and R1,301 per month in Agincourt.
 Migration and Remittances in South Africa    789

Table 36.2: Population, migration, and remittance characteristics, 2002, 2007,

2012, 2017, in Agincourt HDSS data
2002 2007 2012 2017

Full population M 33,372 38,085 43,843 58,582

F 35,897 41,114 47,416 63,956
No. of temporary migrants M 8,124 11,115 13,517 17,474
F 4,178 5,981 8,395 12,267
% temporary migrants M 24% 29% 31% 30%
F 12% 15% 18% 19%
Of the temporary migrants,
Cash remitted M 45% 44% 42% 24%
F 29% 30% 28% 16%
food M 6% 10% 10% 1%
F 12% 13% 14% 2%
clothes M 1% 4% 1% 0%
F 1% 4% 3% 1%
no. of temporary migrants who remitted cash M 4,031 3,944 4,564 2,170
F 1,528 1,512 1,981 945
mean cash amount remitted in last month M R471 R662 R1,115 R1,505
F R310 R501 R837 R1,097
standard error M 7 12 24 50
F 6 13 25 50

Source: Own calculations on data from SAMRC/​Wits Rural Public Health and Health Transitions
Research Unit (Agincourt).

Table 36.2 shows the population, migration, and remittance characteristics in

2002, 2007, 2012, 2017 in the Agincourt HDSS data. In 2002, in the Agincourt data,
there were 33,372 males and 35,897 females in the surveillance population, of which
24 per cent of men and 12 per cent of women were temporary migrants. The per-
centage of male migrants who remitted cash in the month prior to interview was 45
per cent and the average amount was R471. The percentage of female migrants who
remitted cash was 29 per cent and the average amount was R310 in the prior month.
The age group 30–​39 is the most likely age for a person to send remittances, for both
men and women.
The situation evolved over the fifteen-​year period. Population supplementation
occurred due to natural growth and expansion of the HDSS field ​site (Kahn et al. 2012).
The percentage of temporary migrants increased for men and women, but most rapidly
for women. The percentage of migrants who remitted cash was stable for women around
790    Mark A. Collinson and Mduduzi Biyase

29 per cent and for men around 44 per cent, until the end of the period. In 2017, the per-
centage of migrants who remitted dropped substantially for male and female migrants.
The average amount remitted has increased over time. For female remitters it has grown
from R310 per month in 2002 to R1,097 in 2017. For male remitters, it has increased from
R471 to R1,505 per month over this period.

36.5 The Distributional Effects

of Internal Remittances
on Expenditure Patterns

This section uses NIDS to explore the distributional effects that remittances have on the
expenditure patterns in the household of origin. Do remittances make a difference to the
welfare of those left behind? The literature review highlighted some of the key motives
for sending money to the household of origin. Among them, altruism is perceived to
be a key reason. That is, migrants send money out of a concern for the socio-​economic
welfare of those left behind. It is therefore conceivable that the receiving households
may spend their remittances on food consumption and human capital. NIDS data com-
prise comprehensive information on spending on food, education, and other related
spending components. The information on food and human capital/​education was
obtained from the household questionnaire. The household questionnaire provides
data on food expenditure. In terms of human capital/​education, respondents were asked
about spending on school fees and tuition, schoolbooks, including stationery, uniforms,
and other school-​related expenses. Guided by the extant literature and availability of
data, we control for variables that influence the expenditure pattern, such as race (white,
coloured, Indians, with blacks as the base category), region (Eastern Cape, Northern
Cape, Free State, KwaZulu-​ Natal, North West, Gauteng, Mpumalanga, Limpopo,
and Western Cape as a reference category) and age. We also controlled for number of
members less than 5 years old, marital status (not married, with married as the reference
category), gender (male included as the base category), and household size.
To capture the effect of remittances on spending patterns, we estimate the OLS and
quantile regressions. The OLS estimator is employed to relate expenditure pattern to
remittances and takes the form:
Expit = xit β + ε it � (1)

is our dependent variable of interest (i.e. food and human capital/​education); xit
Expit
represents a vector of explanatory variables informed by the extant literature, including
gender, married status, age, household size, and regional dummies; εit denotes the dis-
turbance term. Although the OLS does shed some light on the relationship between
remittances and expenditure pattern, it has some shortcomings. For example, it is
 Migration and Remittances in South Africa    791

unable to show how the effect of remittances may influence the expenditure pattern dif-
ferently for those at the lower tail of the spending distribution to those at the upper tail
of the spending distribution. The quantile regressions, on the other hand, are able cap-
ture the expenditure dynamics. This is expressed as follows:

Expit = xitβ + µ
θ iθ
with
θ (
Quint Expit | xit = xit tβ
θ) (2)

Where Exp and xit are as described above; Quint Exp | x represents θth quantile
it θ it it ( )
of the expenditure pattern given xit .
The estimator of βθ can be achieved by solving the following:

min
β∈Rk ∑ θ expit − xit' β + ∑ (1 − θ) expit − xit' β (3)
expit ≥ xit' β expit < xit' β

The conditional distribution of the expenditure can be easily traced through the
movement of θ from zero to 1.
Table 36.3 provides the OLS and quantile estimates of the distributional effect
that remittances have on the per capita food consumption and human capital. The
estimates derived from the OLS regression will serve as a benchmark for our preferred
specification—​quantile regression. Row 6 of Table 36.3 provides the OLS estimates of
the relationship between remittances and spending on human capital and education. It
reveals that the amount of money received by the rural households is a significant pre-
dictor of their food consumption and human-​capital spending—​positively and signifi-
cantly related to these expenditure components.
While the OLS estimates shed some light on the relationship between remittances and
spending pattern, it fails to capture the distributional impact of remittances on spending

Table 36.3: Quantile estimates of the effect of remittances on expenditure

patterns
Quantiles Food expenditure Human capital
Coef. Std. Err. Coef. Std. Err.

τ = (0.15) 0.219*** [0.019] 0.144** [0.067]

τ = (0.25) 0.204*** [0.014] 0.168** [0.077]
τ = (0.50) 0.182*** [0.013] 0.184*** [0.063]
τ = (0.75) 0.187*** [0.016] 0.260*** [0.067]
τ = (0.85) 0.148*** [0.020] 0.310*** [0.058]
Pooled-​OLS 0.182*** [0.013] 0.184*** [0.063]
No of obs. 2,981

Source: Own calculations on NIDS data.

Note: ***p < .01; **p < .05; *p < .1.
792    Mark A. Collinson and Mduduzi Biyase

pattern. To accurately capture the effects of remittances, we present the quantile

estimates at five points of the food consumption and human capital distribution: 0.15,
0.25, 0.50, 0.75, 0.85. As expected, the estimated coefficient of our independent variable
of interest (remittances) is not uniform across the quantiles—​it displays a fair amount
of variation in the magnitude. Specifically, the estimated coefficient of remittances
appears be relatively bigger at the 15th, 25th, 50th, and 75th quantiles, and then falls
abruptly as we approach the 85th quantile. This is in line with Bang, Mitra, and Wunnava
(2018) who observed that remittances had more impact at the lowest levels of the ex-
penditure distribution. They believe that ‘expanding migration (and hence remittance)
possibilities would have a tremendous impact in alleviating the joint problem of poverty
and income inequality in Nigeria’. Our finding (that remittances make a difference) is
also corroborated by Collinson (2010) who found evidence to suggest that remittances
play an important role in the socio-​economic status of the remaining rural households
in South Africa.
The remittance coefficients in the 15th quantile of Table 36.3 show that remittances
bring about roughly a 21 per cent increase in food consumption for these poor
households. The results suggest that remittances do reach the poorest and that they
are an important food security strategy for those households at the lower tail of the
spending distribution. This finding should not be interpreted to mean that remittances
are non-​developmental in nature. As Crush (2012: 1) puts it: ‘Not only is this an ex-
tremely narrow perspective, it also means that the food needs of households are rarely
given much consideration as development objectives and outcomes.’ The estimated
coefficients for the control variables (not shown here) are very much in accordance with
our expectations: households living in Eastern Cape, KwaZulu-​Natal, Limpopo, cor-
relate with less food spending compared to households in the Western Cape. While a
bigger household size and being a female household member are associated with lower
food expenditure (see Table 36.3).
The effect of remittances on human capital is shown in the second last column of
Table 36.3. Consistent with Ajefu and Ogebe (2020), remittances are shown to be im-
portant in explaining spending patterns, which are positive and significant across all
five quantiles, although strongly significant among the 50th, 75th, and 85th quantiles.
Holding other things constant, our estimates predict that a R10 increase in remittances
leads to increased spending on human capital by R1.4 at 0.15 quantiles, R1.6 at 0.25
quantiles, R1.8 at 0.50 quantiles, R2.5 at 0.75 quantiles, and R3.0 at 0.85 quantiles. These
findings demonstrate that rural households use remittances crucially on food spending
at the lower end of the expenditure distribution, and on education at the higher end.

36.6 Conclusion

Given the country’s socio-​political history and economic systems, before, during, and
after apartheid, we need a definition of migration that recognizes temporary migration.
 Migration and Remittances in South Africa    793

The prospective longitudinal data has a structure suited for collecting information
on whether or not an out-​migrant remains a member of their household while away.
This combination of household membership information and migration event infor-
mation creates the ability to discriminate temporary from definitive migration in pro-
spective surveillance. One of the main points made is to reinforce existing literature that
shows the persistence of labour migration in post-​apartheid South Africa, which can be
studied in new ways due to this extended migration definition.
Regarding migration, NIDS has shown us that at a national level there are high
levels of non-​resident household membership. As much as 24 per cent of African rural
households have a non-​resident member. This reflects temporary migration, especially
of young adults. The proportion of people who are temporary migrants grows from
2004 to 2017 in all age groups. Although there are fluctuations that show that the levels
are sensitive to socio-​economic conditions and were very low in 2010. The overall up-
ward trend is confirmed by the household-​level data on the proportion of households
with non-​resident household members. SAPRIN shows that temporary migration rates
remain persistent over time, while definitive migration shows a gradual decline in mi-
gration incidence after 2003.
Why is temporary migration sustained, and at the national level, why does it even
grow. As was the case under apartheid, temporary migration is still influenced by socio-​
economic conditions. The pressure is no longer legal or racial, but the national spatial in-
equality of opportunity and resources. Adding pressure are former, often international,
investments. For example, at Lonmin, while the conditions for labour migrants were
appalling, the profits were being traded in London. Low investment in labour conditions
has meant that rural households must endure labour migration and manage life with
key members absent. The likelihood of return migration, which ends a period of tem-
porary migration, remains high. Rural households remain the basis for social life. There
are powerful emotional ties to origin places and, furthermore, life is cheaper and safer
there, which sustains temporary migration.
The underlying social structures of temporary migration, as described by the NELM
theory, were introduced earlier. As a household, there is a decision-​making process to
provide an insurance on livelihoods. It is a household strategy and can include diversi-
fication of potential income streams. It is rare that a person decides to migrate on their
own. The commitment from the household is what enables young people to migrate and
it cements a commitment to remit back when the person is a migrant.
The impression given by the findings is that there is a positive role that temporary mi-
gration plays in providing small but meaningful remittances, mostly of money, but also
clothes and food. What has not been explored here is the range of costs to the household,
which help to explain why more households do not send temporary migrants. These in-
clude financial costs, but the two main areas of concern are health and social connection.
Migrants suffer higher risks of illness, both of communicable and non-​communicable
disease, poor mental health, and of acquiring cardio-​metabolic conditions later in life
through exposure to stress, smoking, alcohol, and obesogenic lifestyles (Pheiffer et al.
794    Mark A. Collinson and Mduduzi Biyase

2019). The absence of the migrant often means that a spouse or partner raises their chil-
dren alone, which can be detrimental for children and all concerned.
The National Census 2011 showed that migration to a metropolitan area is a key
stream in the urbanization process, especially from other metropolitan areas, and
migrants move to large cities from a range of other settlement types (Census 2011). This
is the case with all racial groups. A modest indication of reverse flows exists, which is
more pronounced for Africans. The census has a strict de facto household definition and
does not record non-​resident household members, due to the risk of double counting.
So, the migration recorded to a metropolitan area would, to some extent, most likely
be temporary migration. This explains why rural populations are not declining, despite
net ​migration contributing to urban growth. In addition to remitting back to the origin
household, temporary migrants can be expected to return home after one or more
periods away.
The impact of remittances on rural households is to act as an income stream, which,
along with government grants, keeps poor rural households afloat. The analysis showed
that remittances were needed for food purchases in the poorer households and were
more likely spent on education in better-​off households. This shows inequality at a dis-
trict level, whereas earlier we were discussing it at the national level as being a direct
driver of temporary migration.
Remittances are a benefit for better-​off rural households, who can afford to send a
temporary migrant, and for worse-​off rural households, who do so as a last resort for
survival. A blind spot is the poorest households, who do not have a migrant sending
them remittances. They depend on social protection and may even sit outside this, due
to documentation issues. A way of identifying the poorest households is that they are
small, and do not have non-​resident household members linked to them.
Gender is an important lens for understanding migration and remittances. The
temporary migration of young adult women is growing faster than male. Female
remittances are important for the households, less in amount than in persistence.
Female remittances especially go back to households that are among the poorest
of the poor. Low remittance amounts from women relate to the kinds of jobs avail-
able at the lowest rung of payment, including domestic work, factory and office
cleaning, or agricultural labour. Health risks incurred by migrants can include poor
access to reproductive health services, which should be targeted for migrant women
and men.
Regarding international in-​migrants in South Africa, the earlier discussion of systems
theory helps to explain how the socio-​political history between neighbouring countries,
for example Southern Africa, leads to a high likelihood of links between them. In this
sense, cross-​border labour migration occurs in similar ways to the internal migration
described here. Essentially, rural–​urban links can be cross-​border, and these are the
migrations that are temporary in the sense that migrants do not end their membership
in the origin household while away.
In the background, South Africa and the region are locked into a system of eco-
nomic interdependence, which tends to predict that rural and otherwise r​emote
 Migration and Remittances in South Africa    795

residents are largely forced into labour migration to access tertiary education and
employment opportunities. Under these conditions, remittances are vital to the
rural economy. Policies that are pro-​poor and improving health systems for the
poor need to bear in mind that there are high levels of temporary migration, by men
and women.

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 Chapter 37

The Ec onomi c s
of Hou se h ol d s
in Sou th A fri c a

Dorrit Posel and Katharine Hall

37.1 Introduction

Households in South Africa typically include some type of family grouping, although
most households do not comprise a nuclear family unit and household boundaries are
often permeable. In this chapter, we explore the nature of household formation in South
Africa through both a review of existing research and the empirical analysis of publicly
available national micro-​data (stretching from 1995 to 2018). The objective of the em-
pirical analysis is to provide an accessible overview of the distinctive features of house-
hold forms in South Africa and to map how these have changed since the transition to
democracy.
The chapter first offers a brief historical perspective on households in South
Africa, sketching some of the ways in which apartheid disrupted the family, while
also acknowledging the fluidity and complexity of traditional family structures.
The chapter then focuses on a description and discussion of changes in living
arrangements during the post-​apartheid period. Important trends which we iden-
tify include the increase in household formation, the decline in average household
size and a rise in single-​person households; the relative fall in households that in-
clude a cohabiting (heterosexual) couple and the considerable growth in households
where adults are either only women or only men (female-​and male-​dominated
households); the persistence of stretched households that include people who are
not regularly resident in the household; and from the perspective of children, the
decline in the share of children who live with both parents and an increase in the
 The Economics of Households in South Africa    801

share who live only with their mother. In the final part of the chapter, we investigate
the relationship between household type and economic precarity. Given the diver-
sity of household forms in South Africa, this discussion first highlights some of the
problems that arise when comparing resource access across households of different
size and composition.

37.2 A Brief Historical Perspective

on Household Formation
in South Africa

Any study of family and households in South Africa needs to recognize the varied
traditions and kinship idioms that historically underlie household formation. While
the ‘Western’ kinship idiom, for example, is rooted in the concept of a conjugal unit,
African tradition is based on a consanguineal and specifically patrilineal system of
descent (Russell 2003). Within the conjugal system, a new couple typically leave their
respective childhood homes and set up an independent household in which they live
together, raise their children, and remain together after their children leave to form
their own households. In the agnatic tradition, however, the new wife is absorbed into
the husband’s family, including his homestead and ancestry, giving rise to extended
and multigenerational family arrangements linked through the patrilineal line of
descent.
This tradition helps to explain why, historically, household composition and size
have been complex and fluid in South Africa. The extended kinship system and
fluid household arrangements within the agnatic idiom enabled African families
to adapt domestic strategies in response to changing circumstances, and it was pre-
cisely this adaptability and extended support system that the colonial and apartheid
systems exploited in the development of the migrant labour system (Murray 1981;
Russell 2003).
Migrant labour in South Africa was entrenched through the policy of separate de-
velopment. An arsenal of racially discriminatory laws, developed over more than half
a century, was designed to control population movement and specifically restrict the
permanent settlement of African households in urban areas. Section 10 of the Group
Areas Act was tightened multiple times to ensure that the dependent family members
of African migrant workers could not acquire residential rights in white South Africa
(Bekker and Humphries 1985; see also Schirmer, C ­ hapter 2 in this volume). The
cessation of township housing development in favour of single-​sex hostels further
created structural housing shortages that were designed to exclude the possibility of
family co-​residence.
802    Dorrit Posel and Katharine Hall

The Promotion of Bantu Self-​Government Act, passed in 1959, heralded the estab-
lishment of the Bantustans. These were to become ‘independent’ homelands, effectively
creating labour reserves where population movement was to be formally controlled at
border posts. In this way, the ‘internal’ labour reserves were set up to replicate the ex-
tractive migrant labour arrangements already established with neighbouring countries
(Murray 1981; Bank et al. 2020). All those classified as African in the Population Register
were assigned to a homeland according to language or ethnic group, irrespective of
whether they had any connection with that part of the country (Bekker and Humphries
1985). African households were forcibly removed from economic centres to the rural
homelands, with over 3.5 million individual removals taking place between 1960
and 1983 (Platzky and Walker 1985). It was envisaged that the precarious livelihoods
in the under-​developed Bantustans would ensure a steady supply of labour, and that
remittances from wage labour would be just enough to maintain the survival of the rural
household.
Patterns of circular or oscillating migration were therefore embedded in ‘stretched’
housing arrangements, with labour migrants retaining membership in their house-
hold of origin, to which they would return when they lost employment, became ill, or
retired (Spiegel, Watson, and Wilkson 1996). As South African cities grew, the share of
Africans resident in the homelands increased from 40 per cent in 1960 to 59 per cent in
1993 (Simkins 1981; Hall 2017). The devastating success of the homeland policy is even
more pronounced when we consider children separately: by 1993, 66 per cent of African
children under 15 years were living in the rural homelands, up from 42 per cent in 1960
(Hall 2017).
The apartheid regime deliberately fractured African families and households.
This ‘legacy of family disruption’, underpinned by legislation that was only revoked
in the 1980s, has undoubtedly had a lasting impact on household structure and
settlement patterns (Budlender and Lund 2011; Amoateng and Heaton 2007). But
there are long-​standing debates about what these effects are and what kinds of
changes might have been expected in the post-​apartheid period (see e.g. Simkins
1986; Ziehl 2001; Posel and Casale 2003; Russell 2003; Amoateng and Heaton
2007; Hall 2017; Thornton and Wittenberg 2019; Posel 2020). For example, there
were some expectations that as the labour control systems started to crumble and
people had the freedom to move, urban migration rates would rise substantially,
and the probability of permanent family co-​migration would also increase. In
turn, this would usher in more homogenous types of households and particularly
a move towards nuclear living arrangements. However, it was also recognized that
the structural constraints to co-​resident family life may be so deeply entrenched
that they would be slow to ‘normalize’, which also raised questions about what
‘norm’ households might return to, given the historical diversity in kinship systems
and global changes in family and household forms. In the next section, we ex-
plore household formation since the end of apartheid and we present data which
show that while living arrangements in South Africa have been changing in recent
decades, households overall have not become more nuclear.
 The Economics of Households in South Africa    803

37.3 Patterns and Trends

in Household Formation in
the Post-​apartheid Period

To trace broad patterns and trends in household formation in post-​apartheid South

Africa we use national micro-​data, highlighting changes in types of households over
the period as well as continuities with the apartheid past. There are many ways in which
households can be categorized. We adopt an approach that is sensitive to both gender
differences in household formation and the living arrangements of children. Specifically,
we divide all households into four mutually exclusive types (these are shown in Table 37.1,
sections d–​g). We distinguish among households that include at least one co-​resident
adult heterosexual couple (where couples need not be formally married and adults are
older than seventeen); households where all adults are female; households where all
adults are male; and the residual category of households, which includes both male and
female adults but no co-​resident heterosexual couple. In this typology, households are
classified according to the characteristics of adults who live in the household for at least
four of seven days in the week. To investigate further the nature of household formation
in the post-​apartheid period, we also describe the prevalence of non-​resident members
among all households, thereby identifying households that are ‘stretched’ over space.
The data for the analysis come from a range of nationally representative house-
hold surveys that have been conducted since the democratic transition: the October
Household Surveys (1995 and 1997); the Labour Force Survey (September 2000); the
General Household Surveys (from 2002 to 2018); and the National Income Dynamics
Study (2008–​17). (See Oqubay et al., ­Chapter 1 in this volume, for more information on
these national microdata.) The descriptive statistics relevant to the discussion in this
section are reported in Table 37.1 and Figures 37.1a to 37.1d.

37.3.1 Number, Size and Composition of Households

Over the post-​apartheid period, households in South Africa have become markedly
smaller, falling in average size from 4.4 people in 1995 to 3.2 in 2018 (Table 37.1a; see
also Amoateng et al. 2007; Wittenberg et al. 2017; Thornton and Wittenberg 2019).1 The
reduction has occurred alongside a substantial increase in the number of households,
which grew from approximately 9.1 million in 1995 to 16.7 million households in 2018.
This rise (of more than 80 per cent) was considerably larger than the increase in the
population over the same period (approximately 45 per cent). Consequently, although

1
Average household size in South Africa in 2018 was lower than the global average of four people per
household (measured across 153 countries or regions) (United Nations 2019).
Table 37.1: Household types and union formation in South Africa, 1995–​2018
1995 1997 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
a) Number, size, and composition of households

No of households (millions) 9.1 9.2 11.1 10.8 11.4 12.1 12.9 14.3 14.1 14.9 15.7 16.7
Average household size 4.4 4.6 3.9 3.7 3.5 3.4 3.6 3.5 3.7 3.4 3.3 3.2
(0.02) (0.02) (0.02) (0.02) (0.02) (0.02) (0.02) (0.02) (0.02) (0.02) (0.02) (0.02)
One-​person households (%) 12.3 10.0 19.9 21.4 24.5 23.5 20.0 21.8 19.6 23.5 24.9 25.7
Includes child/​ren (%) 67.4 69.5 60.8 58.4 55.1 54.4 57.5 55.1 56.3 53.5 51.6 51.2
Includes three generations (%) 13.7 17.4 13.2 11.0 11.2 10.5 11.0 10.4 11.5 9.7 9.0 10.9

b) Households that are stretched to include a non-​resident member* 2017

Share of all households —​ —​ —​ —​ —​ —​ 16.9 9.0 16.9 26.3 17.9

Share of urban —​ —​ —​ —​ —​ —​ 11.1 7.9 12.2 19.6 14.7
Share of rural —​ —​ —​ —​ —​ —​ 28.4 11.1 27.3 40.4 25.4

c) Rates of union formation among adults (18 years and older) (union = currently married or cohabiting with a partner)

Share of all adults 48.8 46.8 45.1 46.0 44.2 44.6 44.0 43.2 42.6 41.9 42.5 42.2
Share of urban 50.9 49.2 47.1 47.5 46.4 48.2 47.0 46.7 46.6 46.4 46.1 45.9
Share of rural 46.2 43.1 42.2 43.6 40.8 37.0 37.9 36.8 34.4 35.4 34.7 34.2
Women (%) 47.2 44.8 43.4 43.8 42.2 42.9 42.3 41.7 41.1 40.6 41.1 40.5
Men (%) 50.7 49.0 47.0 48.5 46.6 46.5 45.8 44.9 44.2 43.4 44.1 44.1

(continued)
 1995 1997 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
d) Households that include a co-​resident (heterosexual) couple

Share of all households 50.8 —​ 43.8 42.4 40.3 40.4 41.0 42.0 43.7 38.2 37.2 36.8
Share of urban 57.1 —​ 48.8 47.0 44.8 44.8 45.7 46.3 49.2 44.5 41.7 41.2
Share of rural 42.9 —​ 36.5 35.0 33.0 30.7 31.5 33.7 32.3 29.2 27.1 26.5
Includes child/​ren (%) 77.0 —​ 73.3 70.8 68.7 66.8 68.5 66.9 67.7 67.2 65.0 64.7
Includes 3 generations (%) 13.4 14.2 12.4 12.0 10.6 11.7 12.0 11.9 10.9 10.0 10.2
Average household size 4.9 —​ 4.7 4.5 4.4 4.2 4.4 4.3 4.4 4.2 4.1 4.0
(0.02) (0.03) (0.03) (0.03) (0.03) (0.03) (0.03) (0.03) (0.02) (0.02) (0.02)

e) Households that are female dominated (adults are only women)

Share of all households 16.2 20.7 19.7 24.8 25.2 25.4 24.2 22.2 19.9 24.8 25.3 25.0
Share of urban 13.8 16.1 16.8 22.1 22.9 22.8 20.7 20.0 17.6 22.3 23.1 22.7
Share of rural 19.3 27.9 23.8 29.1 28.8 30.9 31.1 26.5 24.7 28.5 30.4 30.6
Includes child/​ren (%) 68.4 72.3 69.2 61.4 58.2 57.8 63.7 60.1 60.9 59.5 58.3 58.7
Includes 3 generations (%) 12.0 14.2 10.2 7.7 7.0 8.2 7.5 7.8 8.8 7.6 7.5 7.6
Average household size 3.6 3.8 3.4 3.0 2.9 2.8 3.0 2.9 3.0 2.9 2.8 2.8
(0.04) (0.03) (0.04) (0.03) (0.03) (0.03) (0.03) (0.03) (0.04) (0.03) (0.03) (0.03)
f) Households that are male dominated (adults are only men)

Share of all households 10.6 8.3 19.2 17.2 19.2 18.8 17.9 19.3 18 20.3 20.7 21.4
Share of urban 10.8 8.6 19.3 16.8 18.9 20 18.7 19.7 18 18.6 20.6 21.2
Share of rural 10.4 7.7 19.0 17.7 19.8 16.3 16.2 18.7 18.1 22.7 20.9 21.8
Includes child/​ren (%) 8.9 13.3 8.4 8.4 8.6 8.1 10.0 8.6 7.7 7.7 6.1 5.5
Includes 3 generations (%) 0.5 1.0 0.8 0.4 0.3 0.3 0.4 0.3 0.3 0.3 0.3 0.3
Average household size 1.4 1.6 1.4 1.4 1.3 1.4 1.5 1.4 1.4 1.4 1.3 1.3
(0.02) (0.02) (0.02) (0.02) (0.01) (0.02) (0.02) (0.02) (0.02) (0.01) (0.01) (0.01)

(continued)
Table 37.1: Continued
1995 1997 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

g) Mixed households (men and women) without a co-​resident (heterosexual) couple

Share of all households 22.1 —​ 16.9 15.1 14.8 14.9 16.5 15.9 18.1 16.3 16.5 16.4
Share of urban 18.4 —​ 14.9 13.9 13.2 12.3 14.7 13.9 15.1 14.5 14.5 14.8
Share of rural 27.1 —​ 19.9 17.0 17.3 20.8 20.1 19.9 24.3 19.0 21.0 20.3
Includes child/​ren (%) 72.4 —​ 77.1 73.7 71.7 72.0 71.6 71.1 71.3 68.3 67.4 68.0
Includes 3 generations (%) 21.8 —​ 28.4 24.9 24.8 32.6 22.9 22.3 24.7 21.8 19.9 20.5
Average household size 5.1 —​ 5.4 5.2 5.0 5.0 4.9 4.9 5.2 4.8 4.7 4.7
(0.04) (0.05) (0.05) (0.04) (0.04) (0.04) (0.04) (0.05) (0.05) (0.04) (0.04)

h) Children’s co-​residence with biological parents (children <18 years)

Percentage of children living with:

Mother + father —​ —​ —​ 39.3 37.2 36.3 35.6 34.3 34.1 34.2 34.6 33.8
Mother only —​ —​ —​ 37.4 39.1 39.5 39.2 39.5 39.7 41.8 41.7 43.1
Father only —​ —​ —​ 3.1 3 3.1 2.9 3.4 3.4 3.6 2.9 3.3
Neither parent —​ —​ —​ 20.2 20.8 22.5 22.3 22.8 22.8 20.4 20.8 19.8

Source: October Household Survey (1995, 1997); Labour Force Survey (September 2000); General Household Surveys (2002, 2004, 2006, 2008, 2010,
2012, 2014, 2016, 2018). * Data source is the National Income Dynamics Study 2008–​2017 (Waves 1–​5).
Notes: The data have been weighted to represent population estimates. It is not possible to identify co-​resident couples in the October Household
Survey (1997). Standard errors are in parentheses.
 The Economics of Households in South Africa    807

100
80

Percentage
60
40
20
0
1995 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

Figure 37.1a Percentage of households with at least one co-resident heterosexual couple, 1995–2018

50
40
Percentage

30
20
10
0
1995 1997 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

Figure 37.1b Percentage of households that are female dominated, 1995–2018

50

40
Percentage

30

20

10

0
1995 1997 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

Figure 37.1c Percentage of households that are male dominated, 1995–2018

100
80
Percentage

60
40
20
0
2002 2004 2006 2008 2010 2012 2014 2016 2018

African Coloured Indian White

Figure 37.1d Percentage of children living with both biological parents, 1995–2018
808    Dorrit Posel and Katharine Hall

‘population growth accounts for the bulk of new household formation, there is a genuine
increase in the rate at which people are forming households’ (Thornton and Wittenberg
2019: 4). Thornton and Wittenberg (2019), who explore household formation over a
shorter period (from 1995 to 2011), find that this increase is evident particularly among
women, a point to which we return below.
Part of the decrease in average household size reflects a large rise in single-​or one-​
person households (Amoateng et al. 2007; Wittenberg et al. 2017), a trend that also has
been documented in many countries in Europe, South and East Asia, and in North
America (Jamieson et al. 2009; United Nations 2019). In 1995, 12 per cent (or 1.1 million)
of all households in South Africa were single-​person households and 4.5 per cent of the
adult population lived alone. By 2018, single-​person households comprised almost 26
per cent (or 4.2 million) of all households in the country, and almost 10 per cent of the
adult population lived alone.
The majority of single-​person households are located in urban areas (almost 70 per
cent in 2018) and living alone is often associated with the development of more nu-
clear types of living arrangements (Amoateng et al. 2007; Wittenberg and Collinson
2007), reflecting greater possibilities for adults to form independent households be-
fore marriage, or to maintain households in the event of union dissolution or death
of a partner. However, single-​person households were also a characteristic feature of
apartheid’s restrictions on family migration, particularly for male migrant workers in
the mining and manufacturing industries, and on commercial farms. Their persistence
and growth primarily in urban areas could therefore also reflect continuing constraints
on family migration, despite the absence of regulatory restrictions.2 For example,
in 2018, a fifth of single-​person households (and 24 per cent of single-​person male
households) were accommodated in informal dwellings in the backyards of other homes
or in informal settlements—​a substantially higher rate of informality than households
with more than one resident member.
Even accounting for the increase in single-​person households, the average size of
households in South Africa has fallen considerably in recent decades. This is associated
with a general decline in fertility rates, reflecting rising levels of education, increased
access to contraceptives, and falling marriage rates (see, e.g., Moultrie and Timaeus
2003; Palamuleni et al. 2007). The fertility decline has contributed to a substantial fall in
the share of all households that include at least one child (younger than 18 years), from
67 per cent in 1995 to a little over half (51 per cent) in 2018. The percentage of households
that include at least three generations (children, working-​age adults, and the elderly) has
also fallen over the period (from 14 to 11 per cent).

2 Some part of the early increase in single-​person households likely reflects changes in the

measurement or sampling of households over the period (Ziehl 2001; Wittenberg and Collinson 2007;
Kerr and Wittenberg 2013). For example, the 1995 October Household Survey under-​sampled migrant
worker hostels, which are classified as single-​person households (Wittenberg and Collinson 2007);
while prior to 1999, smaller households at multiple-​dwelling units were under-​sampled (Kerr and
Wittenberg 2013).
 The Economics of Households in South Africa    809

37.3.2 Stretched Households
The standard definition of household membership used in household surveys, including
most of those analysed in this chapter, requires people to ‘normally reside’ in the house-
hold for ‘at least four nights a week’. An exception is the National Income Dynamics
Study (NIDS), which allows respondents to identify people as household members
even if they only lived in the household for fifteen days of the previous year. If these
individuals do not meet the usual residency requirement of four nights a week, they are
then classified as non-​resident household members.
This broader residency requirement for household membership makes it possible to
identify households that have flexible boundaries and that are stretched across space.
Although the pass laws which restricted African urbanization and family migration
were formally abolished in 1986, a range of studies have described the continuation
of these individual migration patterns and the persistence of stretched households in
the post-​apartheid decades (see e.g. Posel and Casale 2003; Collinson et al. 2007; Posel
2020). The ‘double-​rootedness’ or ‘trans-​locality’ (Bank et al. 2020) of many urban
migrants in South Africa has been explained both by ‘push factors’ in destination areas,
including the limited availability and cost of family accommodation and the precarity
of employment, and by ‘pull factors’ at places of origin, which are home to culture and
ancestors, where important rituals are performed, and where retirement aspirations
are sometimes reflected in ongoing investments and upgrading of the rural homestead
(Bank 2015; Hall and Posel 2019; Bank et al. 2020).3
The NIDS data from 2008 to 2017, reported in Table 37.1b, show that almost one in
five households in 2017 included a non-​resident household member, and that there was
little change overall from a decade before. The frequency is higher in rural areas (where
25 per cent of households had a non-​resident member), which points to the persistence
of traditional labour migration patterns from rural households. Non-​resident house-
hold members would also include people who commute on a weekly basis for employ-
ment purposes as well as pupils and students who live away from home while they are
studying, helping to account for the not insignificant share of urban households (15 per
cent in 2017) that also include non-​resident members.

37.3.3 Household Formation and Union Formation

Marriage or union formation is typically an important reason for the formation of new
households or the movement of people from one household into another (Fafchamps
and Quisumbing 2008). At the start of the post-​apartheid period, just over half of all

3 The durability of these migration patterns in the absence of institutional enforcement has also been

documented in other countries in sub-​Saharan Africa and has been linked particularly to conditions in
the labour and housing markets (see, Potts 2010).
810    Dorrit Posel and Katharine Hall

households in South Africa (51 per cent in 1995) included at least one heterosexual
co-​resident couple (formally married or ‘living together like husband and wife’). But
marriage rates have fallen as household formation has increased, and unions have there-
fore become a less common characteristic of households. By 2018, less than 40 per cent
of all households included a cohabiting couple (Table 37.1d).
Available evidence suggests that, historically, non-​marriage in traditional African
societies was very uncommon: marriage occurred at an early age, and out-​of-​wedlock
pregnancies would be expected to result in marriage (Preston-​Whyte 1981; Moore 1994;
Kaufmann et al. 2001). However, low and falling marriage rates, particularly among
Africans, have been documented since at least the 1960s (Hunter 2010). The decline
during the apartheid years has been attributed mostly to the effects of influx control
legislation and the migrant labour system, which led to long periods of separation be-
tween individual migrant workers and those who remained behind, reducing the
possibilities of marriage (Preston-​Whyte 1981; Hunter 2006).
The continued decline since the democratic transition, together with the widening
of racial differences in union formation and the de-​linking of reproduction and
marriage, suggest that other factors are also at play (Posel and Rudwick 2014). Some
studies have argued that rising levels of education among African women have reduced
the desirability of marriage (Garenne et al. 2001), although attitudinal data describe
strong marriage aspirations among both African women and men (Posel and Rudwick
2013). Other studies emphasize economic constraints that delay or inhibit the ability to
marry (Hosegood et al. 2009; Hunter 2010; Posel and Casale 2013; Posel and Rudwick
2014). In the context of high and rising rates of unemployment, and the traditional
marriage practice of bridewealth (paid by the prospective groom to the family of the
bride), these economic constraints are felt most acutely by African men (Casale and
Posel 2010; Posel and Casale 2013). They are also perhaps most binding in rural areas
(Yarbrough 2018), which are more traditional and where there are far fewer employ-
ment opportunities. This would help to account for why rates of union formation are
lower and have declined more steeply in rural compared to urban areas (Table 37.1c). In
2018, a little over a third of adults who were resident in rural areas were married or in
a cohabiting union (down from 46 per cent in 1995), compared to 46 per cent of urban
adults (51 per cent in 1995).4
Patterns and trends in households that include a co-​resident couple largely mirror
those in marriage rates. Households in urban areas are more likely than rural households
to include a co-​resident couple, and this gap widened considerably after 1995. By 2018, ap-
proximately 42 per cent of urban households contained a co-​resident couple, compared
to just 27 per cent of rural households. However, not all married couples live together, and
again there are spatial differences in patterns of co-​residence. In 2018, for example, 20
per cent of rural adults and 10 per cent of urban adults who were married did not have a

4 This comparison is not influenced by the relative share of the elderly in rural and urban areas. In

2018, 33 per cent of adults aged 18 to 59 in rural areas were married or cohabiting, compared to 45 per cent
in urban areas.
 The Economics of Households in South Africa    811

spouse who was a resident member of their household. The ‘absence’ of the spouse from
the household explains why the share of households with a cohabiting couple is even
smaller than the low rate of union formation recorded particularly in rural areas.

37.3.4 Female-​ and Male-​dominated Households

As households with a co-​resident heterosexual couple have become relatively less
common, so the frequency of other types of households has grown and household for-
mation has become more gendered. Differences in living arrangements and access to
resources between women and men are frequently depicted using data on household
headship, which are routinely collected in household surveys, and then distinguishing
between female-​and male-​headed households (see e.g. Ray 2000; Posel 2001; Posel and
Rogan 2012; Rogan 2013; Thornton and Wittenberg 2019; United Nations 2019). Studies
for South Africa describe an increase in the share of households that are female headed
over recent decades, and they find higher rates of poverty among this broad house-
hold type, compared to male-​headed households (Posel and Rogan 2012; Rogan 2013;
Thornton and Wittenberg 2019).
However, there are also concerns about what headship data capture, and whether
headship is interpreted uniformly across different cultures and contexts, or even within
the same household (Posel 2001; Ziehl 2001; Budlender 2003; Budlender and Lund 2011;
Rogan 2016). For example, the person reported as head may represent the main decision​
maker or primary breadwinner in the household, but in multigenerational households,
for example, nominal headship could be assigned simply to the oldest person, or
to the oldest male if patriarchal arrangements are assumed. The concept of headship
further presumes that households are hierarchical, obscuring more egalitarian forms
of households where decision-​making is shared. The prevalence of female-​headed
households is ‘often used to approximate the percentage of households that do not have
an adult male member’ (United Nations 2019: 12). But, as Budlender and Lund (2011)
observe, a sizeable share of female-​headed households in South Africa (they identify 42
per cent in 2002) includes at least one resident male adult.
We highlight differences in the living arrangements and economic status of women
and men using a slightly different typology: we identify households that are ‘female-​
dominated’ (households where all adults are female, Table 37.1e) or ‘male-​dominated’ (all
adults are male, Table 37.1f). All female-​dominated households will be female headed,
and all male-​dominated households male headed, but our classification does not require
using self-​reported information on headship. We can directly identify (rather than ap-
proximate) the percentage of households without resident male adults, which offers a
clearer comparison of how economic resources vary across households that rely on the
income accessed or earned only by women or only by men (and how these households
differ to those that include both men and women).
In 1995, approximately a quarter (27 per cent) of households included resident adults
of one gender only (16 per cent of households were female-​dominated, while 11 per cent
812    Dorrit Posel and Katharine Hall

were male-​dominated). As the relative share of households with co-​resident couples has
declined, so these household types have become far more common. By 2018, almost half
(46 per cent) of all households had resident adults of only one gender (25 per cent were
female-​dominated, and 21 per cent were male-​dominated).
The growth in both female-​and male-​dominated households has clearly exceeded the
overall (and high) growth rate in household formation. From 1995 to 2018, the number
of female-​dominated households rose from approximately 1.5 million to 4.2 million
households (an increase of over 180 per cent); while the number of male-​dominated
households increased from almost 1 million to 3.6 million (a rise of about 270 per cent).
In addition to gender differences in composition, these two household types differ
significantly in other respects. In comparison to male-​dominated households, female-​
dominated households are far larger, and they are much more likely to include children
(under 18 years) and adults of pensionable age (over 59 years). Reflecting overall trends
in household size and composition, female-​dominated households have become smaller
over the post-​apartheid period, and the shares with children and elderly women have
fallen. But differences between female-​and male-​dominated households remain stark.
In 2018, close to 60 per cent of all female-​dominated households included children and
8 per cent included three generations, while less than 6 per cent of male-​dominated
households included children and only 0.3 per cent included three generations.
Female-​dominated households have also remained relatively more common in rural
than urban areas, reflecting lower rates of union formation, and a greater likelihood
that households are stretched (with women still more likely than men to remain in the
household of origin). Male-​dominated households, in contrast, continue to be as likely
to occur in urban areas as rural areas, and most are one-​person households (78 per cent
in 1995 and 80 per cent in 2018). A significantly greater share of men than women live
alone (14 per cent compared to 5 per cent in 2018), although rates of union formation are
higher among men than among women.5 Gender differences in one-​person households
reflect differences in the ability to live alone (both in terms of affordability and social
acceptance) (Jamieson et al. 2009); but they also underscore the persistence of gender
differences in child-​care responsibilities, as well as labour migration patterns and
household types that were shaped by apartheid’s laws and the nature of accommodation
in urban areas and on commercial farms.

37.3.5 Mixed Households (Women and Men) without

a Co-​resident Couple
The residual category of households in the typology we employ is that which includes
both female and male adults but not a co-​resident heterosexual couple (Table 37.1g).

5
This is partly because women typically marry men who are older than they are and outlive their
partner.
 The Economics of Households in South Africa    813

The frequency of this household type has remained relatively unchanged from 2000
to 2018, accounting for between 15 and 18 per cent of all households. It is therefore the
least common of the household forms. Like all households, these kinds of households
have also become smaller on average although they have remained the largest in average
size. This household type is the most likely to include children and the elderly, and it is
also the most likely to be a skip-generation household (where children and the elderly
are present, but there are no resident working-​age adults in the household).6 Similar to
female-​dominated households, mixed households without a co-​resident couple are rela-
tively more common in rural areas.

37.3.6 Households and the Living Arrangements

of Children
Living arrangements of children in South Africa are distinctive from many other
countries in that most children do not live in households with both their biological
parents. For example, an international study of forty-​nine countries (from Europe,
North and South America, Asia, Oceania, and Africa) found that although there were
clear changes in family formation around the world, ‘children are still most likely to live
in two-​parent families in all countries except South Africa’ (Child Trends 2014: 3; see
also Posel and Devey 2006). A more recent study of seventy-​seven countries ranked
South Africa as having the lowest rates of parent–​child co-​residence, with neighbouring
states Namibia, Swaziland, Lesotho, and Zimbabwe also featuring in the ‘bottom’ ten
countries (Martin and Zulaika 2016).
What these international studies do not show is the extent to which children in South
Africa are co-​resident with extended family members, with or without their biological
parents, and that kin other than parents play a substantial role in childcare (see e.g. Case
and Ardington 2008; Hatch and Posel 2018; Casale et al., ­Chapter 34 in this volume).
Some of the household arrangements described in this chapter arise from the need to
strategize around the dual responsibilities of income generation and childcare. For ex-
ample, a female-​dominated household may include a mother who works and her adult
sister, cousin, or mother, who does not work and can provide care for the children.
As households with a co-​resident couple have become relatively less common, so
the percentage of children living with both parents has fallen. The share of children
who live with their mother and not their father has increased alongside the increase
in female-​dominated households. As a result, over the last decade, children have be-
come significantly more likely to live in a household with only their mother than with
both their parents (Table 37.1h). Although male-​dominated households have also grown

6 The share of all households that are skip-generation declined from approximately 12 per cent in 2002

to 10 per cent in 2018. Among mixed households specifically, 25 per cent were skip-generation in 2002
compared to 20 per cent in 2018.
814    Dorrit Posel and Katharine Hall

considerably, these are mostly single-​adult households and only a very small percentage
of children (less than 4 per cent) live in a household with their father and not their
mother.
Some part of parental absence is explained by parental mortality, particularly in the
context of the HIV/​AIDS epidemic, where child-orphaning rates peaked in the late
2000s (Hall 2017). The share of children living with neither parent increased during
the 2000s, from 20 per cent in 2002 to 23 per cent in 2010, before falling back to 20 per
cent in 2018. But where parents are absent from a child’s household, this is mostly be-
cause the parent is living elsewhere, either because parents are not a couple or because
a parent is working away from the child’s home (Posel and Devey 2006; Budlender and
Lund 2011; Hall and Posel 2020). For example, of the approximately 4.7 million chil-
dren who do not have a co-​resident mother in 2018, less than 20 per cent are maternally
orphaned. Where parents are not in a relationship or are not able to live together for
reasons of employment, then children are far more likely to live with their mother than
their father. Single orphans are more likely to live with their mother, partly because
more children lose their father than their mother, and because most paternal orphans
live with their mother, whereas most maternal orphans do not live with their father
(Hall 2017).
The patterns in household types described in this section all remain highly
differentiated by race (Figures 37.1a to 37.1c). Households where members are African7
are far less likely than other households to include a co-​resident couple, reflecting much
lower rates of union formation and a higher occurrence of stretched households; in-
stead, they are considerably more likely to be either female- or male-dominated. As a
result, the living arrangements of children also vary significantly by race (Figure 37.1d),
and particularly between African children and white and Indian children. For example,
whereas only 29 per cent of African children lived in a household with both parents in
2018, this was the case for three-quarters or more of white and Indian children. These
differences in living arrangements, in turn, are associated with substantial differences in
the economic status of households in which children reside (Posel and Rudwick 2013).

37.4 Household Types

and Economic Well-​being

Economic access to resources has been found to vary substantially according to the size
and composition of households. For example, and as is commonly evidenced in a wide

7 The race of the household is identified through the race of the household’s reference person

(designated as the head or acting head). This conceals households where people of different race groups
live together, but the micro-​data identify very little racial mixing in union or household formation in
South Africa.
 The Economics of Households in South Africa    815

range of countries (Lanjouw and Ravallion 1995), money-​metric poverty rates in South
Africa increase sharply with household size so that single-​person households are far less
likely than larger households to be poor (Posel and Rogan 2016). These money-​metric
poverty rates are typically calculated by aggregating and then averaging all resources in
the household and comparing a household per capita income (or expenditure) measure
to a per capita poverty line. However, when poverty is measured subjectively, by asking
people to assess the economic status of their household, the association between house-
hold size and poverty is much less evident. Rather, subjective poverty rates appear to de-
crease with household size before increasing, so that small households are considerably
more likely to be subjectively poor than to be measured as expenditure or income poor
(Posel and Rogan 2016). Similarly, if poverty is identified using asset measures rather
than per capita household income or expenditure, the link between household size and
poverty is far less evident (Cramer et al. 2020).
An important reason for the divergence between money-​metric and subjective or
asset poverty rates is that per capita measures are not sensitive to economies of scale in
the household. Because many goods consumed in the household (including housing)
are non-​rival and the cost of services is also often fixed, the costs of living do not increase
linearly as household size increases. When resources are scarce, living together in larger
households may be a particularly important livelihood strategy (Klasen and Woolard
2009; Posel et al. 2020), which is concealed in per capita assessments. A few studies that
have estimated equivalence scales for South Africa find clear evidence of economies of
scale in household consumption8 (Woolard and Leibbrandt 2001; Posel et al. 2020), but
the application of these scales is difficult to standardize across studies, reducing their
appeal. The scales also fail to address a further limitation of per capita measures, namely
the assumption that all resources are pooled and equally shared across all (resident)
household members.
Given marked differences in the size and composition of the different household types
we identify in this chapter, we compare economic precarity (or its absence) with simple
proxy measures of economic access derived from the General Household Surveys: the
main source of income for the household; the likelihood that household members never
went hungry in the previous year; and whether the household had run out of money to
buy food for five or more days in the previous month (Table 37.2).
In comparison to other household types, households with a co-​resident couple appear
to have the lowest levels of precarity: they are most likely to rely on earnings and to re-
port never experiencing hunger; and they are the least likely to have run out of money for
food in the last month. Female-​dominated households and mixed households without a
co-​resident couple, in contrast, are significantly less likely than other households to rely
on wages or salaries as their main source of income and they depend relatively more on
pensions or other social grants, and on remittances. In 2002, they were also less likely

8
The scales also estimate the ‘adult equivalence’ of children (or the consumption of children relative
to that of adults).
 816    Dorrit Posel and Katharine Hall

Table 37.2: Economic well-​being across household types

% of households where . . . All Households Female-​ Male-​ Mixed
households with a co-​resident dominated dominated (no couple)
couple (no couple) (no couple)
2002
Main income source is
-​ Earnings 59.2 71.0 44.6 65.7 45.1
-​ Remittances 14.4 4.6 26.1 16.6 17.5
-​ Pension/​grants 16.1 14.8 18.6 5.5 28.5
-​ Other 6.8 7.7 6.1 5.8 6.2
-​ Unspecified 3.5 1.9 4.6 6.5 2.7
Food security
-​No one went hungry 73.8 78.9 69.8 75.1 64.7
2010
Main income source is
-​ Earnings 61.3 73.3 43.4 68.9 47.0
-​ Remittances 9.4 1.9 16.7 14.4 11.0
-​ Pension/​grants 22.8 19.5 32.4 9.1 35.1
-​ Other 1.5 1.5 1.6 1.8 1.2
-​ Unspecified 5.0 3.9 5.8 5.8 5.7
Food security
-​No one went hungry 81.5 85.6 80.7 79.8 74.0
-​No money for food (5/​30 days) 7.7 6.1 9.0 7.5 10.4
2018
Main income source is
-​ Earnings 64.2 77.8 48.1 70.9 51.0
-​ Remittances 9.0 1.4 16.3 12.7 8.9
-​ Pension/​grants 21.1 17.1 29.3 8.3 34.5
-​ Other 1.4 1.2 1.6 1.7 1.3
-​ Unspecified 4.2 2.5 4.7 6.5 4.2
Food security
-​No one went hungry 85.9 89.7 84.5 84.0 82.2
-​No money for food (5/​30 days) 6.4 4.9 7.3 6.7 8.1

Data: General Household Survey (2002, 2010, 2018).

Notes: The data have been weighted to represent the population of households. Information on money for food
was not collected in the 2002 survey. The main income source of ‘other’ includes the sale of farming produce and
rental income.
 The Economics of Households in South Africa    817

than households with a co-​resident couple and male-​dominated households, to report

never experiencing hunger.
Following the democratic transition, one of the most noteworthy changes in South
Africa’s social and economic policy has been the dramatic expansion of the non-​
contributory social grant programme (see also Patel, C ­ hapter 40 in this volume). For
example, from 2003 to 2018, the number of social grant recipients increased from ap-
proximately 7.9 million to 17.5 million, an increase associated particularly with a rise in
the number of grants paid to the caregivers of children (the child support grant) and to
the elderly (the older persons grant) (SASSA 2018/​2019). This is reflected in an overall
increase in the share of households for whom social grants are reported as the pri-
mary source of income. Given that the majority of children live with and receive care
from women, that women tend to outlive men, and that gender differences in access to
paid employment and earnings remain persistent (see Casale et al., ­Chapter 34 in this
volume), it is not surprising that reliance on social-​grant income is far more pronounced
among female-​dominated than male-​dominated households.
One of the most important social grants received by women is the child support
grant, which is very small in value (in 2018, it represented less than a third of the upper-​
bound national poverty line). Households that rely on this social grant as a main income
source will therefore be very vulnerable to poverty. The older persons grant, in contrast,
is among the largest of the social grants: in 2018, its value was approximately 140 per cent
of the upper bound poverty line. However (and unlike in many developed countries),
the elderly who receive the social pension are not more likely to live alone or independ-
ently of other family members (Edmonds, Mammen, and Miller 2005). With persist-
ently high rates of unemployment and relatively high rates of adult mortality, the social
pension is also often the primary source of income support in the household. Studies
highlight the importance particularly of grandmothers in providing financial care to
grandchildren whose mothers are deceased or not resident in the household because
they are working or seeking work elsewhere (see e.g. Duflo 2003; Case and Ardington
2008; Ardington et al. 2009).
Although the monetary value of social grants is insufficient to lift women and the
children they support out of poverty, grants have been very important in reducing the
depth of poverty (Posel and Rogan 2012). This is illustrated through changes in the in-
cidence of hunger in the household and access to food. In 2002, approximately 70 per
cent of female-​dominated households and 65 per cent of mixed households without a
co-​resident couple reported never experiencing hunger in the previous year. By 2018,
these shares had risen to 85 per cent and 82 per cent respectively. Moreover, differences
across household types narrowed considerably and were no longer statistically signifi-
cant. Similarly, although households with a co-​resident couple remained the least likely
of the households regularly to run out of money to buy food, differences across house-
hold types were markedly reduced by 2018.
However, social grants are often only part of a livelihood strategy in low-​income
households, and they are complemented by additional sources of income, including in-
come transfers from other family members (for example, in the form of remittances),
818    Dorrit Posel and Katharine Hall

or low-​income employment (Wills et al. 2020). In 2018, for example, 30 per cent of
households whose main income source was pensions/​grants also generated income
through earnings, and 16 per cent also received remittances. The hard lockdown in re-
sponse to the COVID-​19 pandemic in South Africa highlighted the limitations for these
households of relying only on social grants to provide protection. With the suspension
of most economic activity during April 2020, many grant-​receiving households lost
access to other sources of income, and more than half of grant-​receiving households
reported running out of money to buy food during that month (Wills et al. 2020).

37.5 Concluding Comments

Despite low and falling marriage rates and high rates of unemployment, the number
of households in South Africa has grown substantially over the post-​apartheid period,
and households have become significantly smaller on average. These trends cannot be
interpreted as the emergence of less complex and more nuclear types of households
in the absence of legal restrictions on where people can live and with whom. Rather,
the increase in household formation has been associated with a large relative decline
in households with a co-​resident heterosexual couple (which include nuclear house-
hold forms), and an accompanying rise in the number and share of households where
the only adults are female (female-​dominated households) or male (male-​dominated
households).
Trends in female-​and male-​dominated households may partly reflect the greater eco-
nomic and social freedom experienced by some women and men to live independently.
But the increase in male-​dominated households is driven by a growing household form
where men live alone. Together with the persistence of stretched households (that include
non-​resident members and that are relatively more common in rural areas), these trends
point also to the durability of individual migration patterns that prevailed during the
apartheid decades. Moreover, as the formation of female-​dominated households has risen,
so also the share of these households that rely on social-​grant income has grown apace.
From the perspective of children, these changes are reflected in an increase in par-
ental, and specifically paternal, absence from the child’s household. Children in South
Africa are distinctive in that they are more likely to live with their mother than with both
of their parents, a pattern that has become even more pronounced in the contemporary
period. Children who live in female-​dominated households or mixed households
(without a co-​resident heterosexual couple) experience less economic security overall
than children who live with a co-​resident couple. However, the social-​grant programme
has been crucial in providing some measure of economic protection to children and
their caregivers, and the occurrence of hunger appears to have declined considerably
as the programme has expanded. Nonetheless, as the crisis associated with COVID-​19
has also highlighted, social grants alone are insufficient to maintain food security in
households.
 The Economics of Households in South Africa    819

For reasons of space and scope, there are numerous aspects of household formation
in South Africa which this chapter has not addressed, or which warrant further study.
For example, given the historical importance of labour migration into South Africa,
more research is needed on the formation of households among non-​South African
migrants. Although polygamy is permitted in accordance with customary law, there has
been very little research on the economics of polygamous relationships in the contem-
porary period, perhaps at least partly because it is difficult to identify these relationships
reliably, if at all, using the available national micro-​data. Further work is also needed
to investigate the reasons for the increase in single-​person households as well as both
female-​and male-​dominated households, and to compare the allocation of resources
within the different types of households. More generally, the dynamics of house-
hold formation in South Africa require a research agenda on households that is also
dynamic and that evolves as circumstances in the country change. It will be beneficial
also to strengthen the disciplinary links in research on the formation and economics of
households, for example, by drawing on sociological methods to explore the strategic
choices that underlie household formation and inter-​household systems of support.

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 Chapter 38

F o od Securit y, Hu ng e r,
and Stu nt i ng
in Sou th A fri c a

Julian May

38.1 Introduction: Is There a Food

Security Problem?

With less than a decade remaining before the targets set by the Sustainable Development
Goals (SDGs) are to be attained, the Food and Agriculture Organization (FAO) has
warned that the world is not on track to achieve SDG 2: the eradication of hunger by
2030 (FAO 2020a). About 690 million people in the world were living with hunger in
2019 (FAO et al. 2020b), an increase of 60 million since the global commitment to the
SDGs. Globally, moderate or severe food insecurity rose between 2015 and 2019, with
women being more likely than men to face moderate or severe food insecurity (FAO
2020a). In 2017, the Global Hunger Index (GHI) showed that fifty-​two out of the 119
countries for which there are GHI scores, are rated as having either ‘serious’, ‘alarming’,
or ‘extremely alarming’ hunger (IFPRI 2018). This absence of progress is in contrast to
the decades-​long decline in extreme poverty, that was only recently reversed following
the COVID-​19 pandemic (World Bank 2020).
Furthermore, preferences for foods that result in diet-​related non-​communicable
diseases (NCD) raise concerns that the global nutrition goals set by the World Health
Assembly in 2012 will also not be met. The Global Nutrition Report (GNR 2020: 35)
concludes that the world is off course on almost all of the six nutrition targets including
overweight and obesity of children and adults, child stunting, adult diabetes, and the
prevalence of anaemia among adult women.
This takes place in the context of substantial loss and wastage of food. An estimated
30 per cent of all food produced for human consumption is lost between harvest and
824   Julian May

retail, or wasted by consumers (FAO 2011). This is also an SDG Target (12.3) that calls for
the halving of per capita global food waste and the reduction of food losses along supply
chains. The COVID-​19 pandemic in 2020 has exacerbated global hunger, disrupted
food value chains, and is expected to have lasting consequences for food and nutrition
security (FAO 2020a).
Although ranked as food secure by the Economist’s Global Food Security Index in
2019, South Africa faces similar challenges. Despite an average daily food energy supply
that has exceeded national requirements for two decades (EIU 2019; FAO 2020b), South
Africa was on track for only two of the six global nutrition targets in 2019 (GNR 2020).
The country’s population faces a food and nutrition insecurity problem comprising a
double burden of malnutrition: under ​nutrition and micro n ​ utrient deficiencies, and
over ​weight/​obesity.

38.2 What Is Food

and Nutrition Security?

Food security exists when all people at all times have physical and economic access to
sufficient, safe, and nutritious food to meet their dietary needs and food preferences for
an active and healthy life. Four dimensions of food security are usually considered: avail-
ability, access, utilization, and stability (CFS 2012). Food availability refers to the supply
side and is determined by the level of food production, stock levels and net trade.
Economic and physical access to food focuses on the demand side and is concerned
with incomes, expenditure, markets, and prices. Utilization deals with food preferences,
the quality and safety of diets, and the intra-​household distribution of food. Finally, the
stability of these dimensions over time, and vulnerability to their fluctuations, is also
important. This includes risks arising from climate change, political instability, eco-
nomic conditions, and pandemics.
Nutrition security is more than food security, and should be the ultimate goal of
policies that seek to influence the production, distribution, and consumption of food
(Ingram 2020). Nutrition security exists when secure access to an appropriately nutri-
tious diet is coupled with a sanitary environment and adequate health services and care.
It goes further than food security to include aspects of caring practices, health, and hy-
giene, including how food is utilized by the body and the biological capacity to absorb
nutrients (FAO, IFAD, and WFP 2015).
Excessive focus on increasing food production, closing yield gaps to boost availability,
and reducing costs and wastage to improve access, risks underplaying the utilization
and stability dimensions, as well as the agency of actors in the food system. It may also
draw attention away from drivers of food and nutrition security emanating outside the
food system, such as poverty, inequality, and patriarchy. These are beyond the influence
 Food Security, Hunger, and Stunting in South Africa    825

of conventional food and nutrition policies and require a coordinated intersectoral

approach (WHO 2017a).
Although the dominant food system has succeeded in generating sufficient finan-
cially inexpensive calories to feed the world’s population, it has not been successful in
providing food and nutrition security to all. Failures include ensuring the stewardship
of the natural resources required for the sustainable production of food; the stability of
prices; and the utilization of food so that diets are balanced, safe, affordable, and healthy
for all. Indeed, the economic imperatives of entrepreneurs in the food system may often
preclude the meeting of the nutritional needs of consumers, and the sustainability of
the system itself. Governments face similar tensions when balancing policies that foster
healthy food environments with those that promote trade and investment.
A growing literature identifies food and nutrition security, and its components, as a
public or common good (cf. Page 2013; Hyeston 2016; Timmermann 2018; Pahl-​Wostl
2019). This builds from Kaul and Mendoza’s (2003: 80) view that society may deem
some private goods as being ‘de facto public in their consumption’, and thus take steps
to modify the ‘(non) rivalry and (non) excludability’ of their costs and benefits through
public policy. In the case of food and nutrition security, this is reflected in Article 25 of
the Universal Declaration of Human Rights (UNDR) and Article 11 of the International
Covenant on Economic, Social and Cultural Rights (ICESCR). In South Africa, Section
27(1)(b) of the Constitution provides for the progressive right of access to sufficient food
while Section 28(1)(c) provides for the absolute right of children to basic nutrition.
Food itself is rivalrous and exclusive: the consumption of food by one actor reduces
its availability for others; and it is possible for some to be excluded from access to food.
Food is also a commodity possessing exchangeability that extends its value beyond the
dimensions of food security (Appadurai 1988: 82): trade in grain derivatives being an ex-
ample implicated in the 2008 global food crisis (de Schutter 2009).
In contrast, food and nutrition security is partially non-​rival or non-​excludable,
possessing the characteristics of both a private and a public good. While consumer
demand for one component (food itself) is private, other components have jointly
produced private and public characteristics. These include the safety of food, the food
ecosystem, and the scientific knowledge used to improve the food system. Cornes and
Sandler (1994) refer to such goods as impure public goods.
As with other public goods, the provision of food and nutrition security confronts
a number of economic problems. Free-​rider problems are one example: some will
benefit from its presence without contributing towards the full costs of its production.
Furthermore, different groups (households, communities, classes, nations) may lay
competing claims to food security through their collective action. As a result, food and
nutrition security presents a ‘multilevel’ collective action challenge in which groups of
actors, faced with a common collective concern, will need to find ways of acting together
with their different interests in mind. Adding to this complexity, some actors in the food
system may not share the collective concern, even though their actions directly impinge
upon its resolution (Basarto et al. 2016).
826   Julian May

38.3 Food and Nutrition Security

in the Pre-​colonial, Colonial,
and Apartheid Era

In the case of South Africa, food and nutrition security is caught up in the persistent
inequalities and inequities arising from its colonial and apartheid history. Evidence in
the pre-​colonial period is sparse but recent work suggests that extreme food insecurity
was less widespread than portrayed by colonial reports (Hannaford 2018).
Accounts of well-​developed food systems suggest that knowledge of managed agri-
cultural systems had spread along Africa’s trade routes. These transferred crops,
skills, and technologies between the irrigated production of Egypt, the biodiversity
of Ethiopia, and the pastoralists of southern Africa (Chigadora 1997). Along with the
cultivation of crops such as sorghum, finger millet, and bulrush millet, pre-​colonial
communities benefited from an abundance of wild plant and animal foods. The crops
cultivated are both more drought resistant and more efficient in their uptake of key soil
micronutrients than maize or cassava, both introduced to Africa during the sixteenth
century to become the continent’s staple foods (McCann 2005).
Although drought posed a periodic threat to this food system, the moral duties of
sharing seed, crops, and livestock noted in ­Chapter 2 in this volume are accredited as being
pillars of famine mitigation strategies throughout Africa. They also assisted the diffusion
of maize and other non-​indigenous seed across the continent (Cherniwchan and Moreno-​
Cruz 2019). Other pillars of ensuring food security included shifting diets from one food
source to another; entomophagy, the consumption of insects; human mobility in relatively
land-​abundant areas; and extensive networks of kin and patronage (Wylie 1989).
In South Africa, drought, pests, and cattle diseases certainly played a role in periodic
episodes of food insecurity, especially when exacerbated by warfare. But many regions
were recorded as being highly productive, and amply endowed with grains, vegetables,
livestock, and milk (Wilson 1969). An example is the intensive farming systems of
Bokoni discussed in ­Chapter 2 of this volume.
Two events in the colonial period are notable in their impact on food and nutrition in-
security: the mfecane, a period of war, migration, and disruption between 1815 and about
1840; and the Great Cattle Killing that started in 1856. In the case of the first, the impact
on food security differed according to the duration and extent of disruption and did not
result in widespread hunger. The second, in which about 400,000 cattle were slaughtered
in the Eastern Cape following a prophecy that this act would drive out the colonialists,
resulted in South Africa’s only recorded mass famine (Stapleton 1991; Breckenridge 2008).
Despite these shocks, colonial warfare, and the dispossession of land, a South African
peasantry briefly emerged that responded to new opportunities following the dis-
covery of diamonds (described more fully in C ­ hapter 2 of this volume). Using policies
concerning land, taxation, water, and labour, the colonial state was soon able to dis-
rupt the pre-​existing rural economies in South Africa. These simultaneously sought to
undermine the emergence of a commercially astute black farming class, as well as the
 Food Security, Hunger, and Stunting in South Africa    827

self-​sufficiency of subsistence producers. This laid the basis for the oscillating migrant
labour system that facilitated apartheid capitalism’s super-​exploitation (Wolpe 1972).
Extended during the apartheid era, state-​regulated discrimination in almost all eco-
nomic and social activities, forced removals and land dispossession; and restrictions on
spatial mobility and urban residence combined to deepen all aspects of food insecurity
among the black population of South Africa. The Balkanization of South Africa into
homelands designated for different ethnic groups, characterized by crowded conditions
and poor infrastructure, resulted in hunger, malnutrition, and poor living conditions
for the majority of the country’s black citizens. Betterment Planning imposed villagiza-
tion in some of the homelands, while removing agricultural land rights. Together these
policies resulted in the stripping of assets for the production of food and the structural
conditions for persistent food and nutrition insecurity (Terreblanche 2002).
Accurate estimates for food insecurity are difficult to source for the apartheid era. The
government did not collect such information and actively suppressed attempts to gather
the data necessary. However, independent observers described protein-​calorie defi-
ciency diseases as being common among the black population, especially in rural areas,
and commented on pellagra, other nutritional diseases, and widespread child stunting
(Mechanic 1973).
Data on income poverty give some sense of the scale of deprivation. Using sample
surveys undertaken in 1959, De Gruchy (1960) estimated that some 50 to 75 per cent
of the African population of urban South Africa were unable to afford a diet and a life-
style determined to be minimally adequate. By the mid 1970s, African poverty rates
increased to between 68 and 77 per cent, suggesting a surge in deprivation during the era
of ‘grand apartheid’ (Terreblanche 2002). By the mid 1980s, poverty rates for the rural
areas designated for African settlement were estimated at about 75 per cent, compared
to 43 per cent for the total population (Simkins 1984). In 1993, data collected from the
first nationally representative sample survey showed that just over half (52 per cent) of
all African households in rural areas had a per capita expenditure that fell below a min-
imal income for a basic diet (Carter and May 1999).
With this history, described as ‘apartheid’s assault on the poor’ by Wilson and
Ramphele (1989: 204, 230), it is unsurprising that poverty reduction was prioritized by
the first democratic government when it was elected in 1994. Many of the policies and
interventions that were introduced directly addressed food and nutrition insecurity.

38.4 Food Security in South Africa

in the Second Millennium

38.4.1 Availability
Turning to the first of the four pillars of food security, sufficient food has been avail-
able for everyone in South Africa since 2000 until 2019 (StatsSA 2019a). The FAO’s
828   Julian May

125

% of total energy requirement

124
123
122
121
120
119
118
2000–2002
2001–2003
2002–2004
2003–2005
2004–2006
2005–2007
2006–2008
2007–2009
2008–2010
2009–2011
2010–2012
2011–2013
2012–2014
2013–2015
2014–2016
2015–2017
2016–2018
2017–2019
Figure 38.1 Dietary energy supply, 2000–​17
Source: FAOSTAT (2020).

measure of food energy adequacy demonstrates this in Figure 38.1. This shows the daily
per capita calories available to South Africans, expressed as a percentage of the total
per capita calories required to provide the population with an energy adequate diet.
Calories are calculated from all food production, food imports, or from stockpiles, less
food that is exported, used in manufacturing, feed, seed, or wasted.
Figure 38.1 shows that aggregate food supplies steadily rose until 2014, continuing a
trend from 1997, not only in absolute terms but also faster than population growth. This
had increased from around 2,800 kilocalories per person per day in the early 1990s to
over 3,000 kcal/​capita/​day by 2011, well above the 2,100 kcal used for South Africa’s Food
Poverty Line (FAO 2020b). Although there has been a modest decline, dietary energy
supply still exceeded needs by 20 percentage points in the 2017–​19 category. Due to its
well-​developed transport infrastructure, South Africa is able to import and distribute
food when necessary, and is the most cost-​efficient country in Africa in terms of food
transportation (FAO et al. 2020).
However, this apparent strength in the availability of food rests on a vulnerable and
conflicted agricultural sector. The Census of Commercial Agriculture (CoCA) reports
that there were 40,122 farms/​farming units involved in commercial agriculture in 2017,
with little change since CoCA-​2007, but a decline of almost one-third since CoCA-​1993
(StatsSA 2020; ­Chapter 10 in this volume).
The sector is also shedding livelihoods, and employed 757,628 workers in 2017, a
modest decline from 2007, but substantially lower than the 2 million workers employed
by the sector in the 1970s. In addition, 2.9 million households (19.9 per cent of the
population) were involved in agricultural activities in 2011, declining to 2.3 million
households (13.8 per cent) in 2016 (StatsSA 2019b). Most are African households
engaged in subsistence production (farming for an extra source of food), with about
180,000 that are market-​oriented (Cousins 2018).
The greatest share of agricultural produce to formal markets is sourced from 15,000
small, medium, and large-​scale commercial farmers who earn 95 per cent of total in-
come and employ close to 90 per cent of all agricultural workers. Farms with an annual
 Food Security, Hunger, and Stunting in South Africa    829

income below R1 million make up almost half of the total number, leading the authors of
­Chapter 10 in this volume to assert that South Africa is a nation of relatively small family
farms, many of which cannot generate a livelihood solely from agriculture.
Chapter 10 also shows that these farmers operate in an environment that generally
has low agricultural potential and that produces at relatively high cost to attain the same
unit of output as most countries in the world. South Africa is a semi-​arid area, with low
and erratic rainfall and ­Chapter 16 in this volume details the likely impacts on all types
of agriculture, and in all parts of South Africa. The prospects of increasing food and nu-
trition insecurity are concerning and align with international projections. In general,
climate change, whether towards ‘hotter and drier’ or to ‘hotter and wetter’, is expected
to negatively impact on the availability dimension of food security (Wheeler and Von
Braun 2013).
Finally, the persistence of a highly unequal and racially skewed land distribution
discussed in ­Chapter 12 in this volume, together with poor labour relations, results in
contestation and uncertainty. This shows no signs of being resolved, and despite the pol-
itical attention directed towards land reform, land redistribution has not succeeded.
Since its inception in 1995, the land redistribution programme has transferred a meagre
5.5 per cent of commercial agricultural land to black farmers.

38.4.2 Accessibility
Unlike the availability of food at the national level, household access to food in South
Africa is inadequate when compared to countries of similar economic development.
South Africa’s Food Poverty Line (FPL) is the Rand value below which individuals are
unable to purchase or consume enough food to supply them with the minimum per
capita per day caloric energy requirement for adequate health. In 2019, this was equiva-
lent to R561.00 per person per month. It can be compared to the Lower Bound Poverty
Line of R810.00, which includes the purchase of essential non-​food items, and is the
benchmark for targets set in the National Development Plan (NDP).
In 2015, 25.2 per cent of the population lived below the FPL (StatsSA 2017a), showing
an increase in the prevalence of food poverty since 2011, although still below the high of
33.5 per cent reported following the food and financial crises of 2008/​09. As discussed
in more detail in C ­ hapter 8 of this volume, deprivation has spatial, race, and gender
dimensions. Due to the country’s history of systematic discrimination against the black
population, all forms of poverty continue to exhibit a strong racial pattern with the
prevalence of food poverty highest among women and Africans. Although rural areas
continuously record much higher levels of food poverty than urban areas, the popula-
tion living in urban informal settlements has the highest prevalence.
Surprisingly, Statistics South Africa reports that the self-​assessed hunger of South
African households has fallen sharply since 1993. Figure 38.2 shows this trend continuing
from 23.8 per cent in 2002 to below 10 per cent in 2018, with a slight increase during the
food price crisis and the global financial crisis of 2008/​10 (StatsSA 2019a). The measure
830   Julian May

35

30

25
% Population
20

15

10

0
2002
2003
2004
2005
2006
2007
2008
2010
2011
2012
2013
2014
2015
2016
2017
2018
Hhds Pop

Figure 38.2 Self-​assessed hunger, 2002–​17

Source: StatsSA (2019a).

is based on the respondent’s perception of whether adults or children ‘sometimes’, ‘often’,

or ‘always’ went without food during the year prior to the survey.
Although the trend of declining hunger appears reassuring, measurement of food
and nutrition insecurity is complex, and self-​assessment approaches to the measure-
ment of food and nutrition security have been critiqued. Perceptions of hunger have
been found to be weakly correlated with other indicators that directly gather informa-
tion about the adequacy of diets including calorie consumption, dietary diversity, or the
physical growth of children (De Weerdt et al. 2016). Reasons for these differences in-
clude respondent bias, the consumption of foods that satisfy hunger but have little nutri-
tional content, and the use of a single dimension of the comprehensive Household Food
Insecurity Access Scale (HFIAS).
The HFIAS is a composite indicator, based on multiple questions concerning house-
hold experiences, used to measure the access component of household food insecurity.
When all components of the HFIAS are combined, the prevalence of households with
inadequate food security actually increases between 2012 and 2015 to reach 22.5 per cent
of the population. As with food poverty, women are more likely than men to be food in-
secure, Africans are more likely than any other race, and households in poorest quintiles
have experienced the largest decline in their food security (World Bank 2018).
Data gathered during the COVID-​19 lockdown in 2020 show that these trends have
worsened. Soon after the introduction of South Africa’s hard-​lockdown policies in April
2020, StatsSA (2020c) used a convenience sample and web-​based questionnaire to re-
port a doubling of self-​assessed hunger, albeit from a low base due to the biases inherent
in their methodology. Using a pre-​existing probability sample frame and telephone
interviews, the National Income Dynamics Study—​Coronavirus Rapid Mobile Survey
(NIDS-​CRAM) shows an increase in child and adult hunger following the lockdown,
 Food Security, Hunger, and Stunting in South Africa    831

and an increase in the share of households who reported running out of money for food
(Bridgeman et al. 2020). This stood at 47 per cent in April 2020 declining to 37 per cent
in June 2020, and can be compared to the General Household Survey (GHS) 2018 in
which 25 per cent of households reported that they had run out of money to buy food.
Finally, AskAfrika (2020) used a telephone interview and quota sample to report
that self-​assessed adult hunger reached 41 per cent during the hard lockdown. This
improved to 32 per cent at the time that most businesses resumed operation in July
2020, but reverted to 37 per cent at the time when most restrictions had been removed in
October 2020. Overall, the access dimension of food and nutrition security seems likely
to be compromised into the future due to unemployment and the constrained fiscal
environment.

38.4.3 Utilization
It is in the dimension of utilization that the weaknesses of the South African food system
are fully revealed. The FAO calculates the prevalence of undernourishment as an esti-
mate of the proportion of the population whose habitual food consumption is insuffi-
cient to provide the dietary energy levels that are required to maintain a normal active
and healthy life. It is expressed as a percentage and shown in Figure 38.3.
Although the prevalence of undernourishment is relatively low, the trend is flat from
2000 until 2011 and worryingly, is now increasing. This points to structural weaknesses
in how food is utilized in South Africa. First, the South African diet is predominantly a
cereal-​based diet that has little diversity and is low in animal foods, vegetables, and fruit.
The intake of fruit and vegetables by South Africans is around 200 grams per person per
day (Nel and Steyn 2002), half the WHO recommendation of 400 grams per day (WHO
2003), and resulting in micro nutrient intake also being lower than recommended (Faber
et al. 2017). The prevalence of anaemia for adults aged 15 and older is 31 per cent for
women and 17 per cent for men. The same applies to 34 per cent of girls and 17.2 per cent
of boys 15 years and older, and 10.7 per cent of children under five (StatsSA 2017; Reddy
et al. 2013). Vitamin A has been a concern and an estimated one-third of children were
found to be deficient in this important micronutrient in 2002 (Coutsoudis et al. 2019).
Poor dietary diversity scores (DDS) reflect this. In 2017, 36 per cent of households
were categorized as having a low DDS, a slight improvement on the situation in 2009
when 39.7 per cent of adults had a low DDS (Jonah and May 2019; Labadarios, Steyn,
and Nel 2011). There was little variation by age group but respondents in rural informal
areas were most likely to have a low dietary diversity (59.7 per cent) followed by those in
urban informal areas (46.6 per cent).
A low DDS is not the only dietary concern. The consumption of salt, sugar, and
calorie-​dense/​nutrient-​poor food is excessive. Almost one-​fifth of respondents in the
South African National Health and Nutrition Examination Survey (SANHANES)
reported high fat intake in 2012, with younger age groups more likely to report higher
levels (Shisana et al. 2014). The National Risk Behaviour Survey shows that almost 40
832   Julian May

Prevalence of undernourishment
6 3,5
5 3
4 2,5

Millions
2
3
%

1,5
2 1
1 0,5
0 0
2000–2002
2001–2003
2002–2004
2003–2005
2004–2006
2005–2007
2006–2008
2007–2009
2008–2010
2009–2011
2010–2012
2011–2013
2012–2014
2013–2015
2014–2016
2015–2017
2016–2018
2017–2019
Prevalence Population

Figure 38.3 Prevalence of undernourishment, 2002–​19

Source: FAOSTAT, 2020.

per cent of South African learners in grades 8 to 11 regularly consumed food items high
in fat, such as fast foods, cakes, and biscuits, and half regularly drank sugary beverages
(Reddy et al. 2013). These are the third most commonly consumed food/​drink items
among young urban South African children (aged 12–​24 months), more often than
milk. A similar pattern is revealed in SANHANES for sugar intake, with the highest
score again in the 15–​24-​years age group (27 per cent). Mean per capita salt intake in
South Africa is also a concern, and significantly exceeds WHO’s recommended 5 grams
per day (Eksteen et al. 2015).
The impact is evident in worrisome trends in persistent stunting, poor maternal
health, and diet-related NCDs in adults and children. Child nutritional status was
identified as an important concern prior to the country’s transition to democracy by
Zere and McIntyre (2003). They reported that 24.5 per cent of children younger than
five years were stunted in 1993, 17 per cent were underweight and 8.9 per cent were
wasted. Comparing data from ten national surveys stretching over twenty-​three years,
Devereux et al. (2019) conclude that there had been no significant change in under-​
five child stunting by 2016, a conclusion also reached by Said-​Mohamed et al. (2015)
from cohort studies. The most recent data available, South Africa’s Demographic
and Health Survey (SA-​DHS), reported that 27 per cent of children under the age of
59 months were stunted (StatsSA, 2017b). Although low compared to the stunting
rates of low-​income countries that can exceed 40 per cent, when compared to its
gross national income (GNI), South Africa’s stunting prevalence lies well above that
for most countries that are at a similar level of economic prosperity. Importantly all
indicators of under ​nutrition are associated with income, and decline for children
living in households with higher incomes: an association that is unchanged since 1993
(May and Timæus 2014).
The consequences of stunting are severe for the children who are affected and have
long-​term implications for the economy. Casale and Desmond (2016) find that although
 Food Security, Hunger, and Stunting in South Africa    833

physical growth recovery from stunting can occur, children who recover still perform
significantly worse on cognitive tests than children who do not experience early mal-
nutrition, and nearly as poorly as children who remain stunted. Further, Casale (2020)
shows that children who recovered from stunting in early childhood complete fewer
years of schooling compared to those that have not been stunted. International evidence
has shown an association between childhood stunting and subsequent success in the la-
bour market, most likely due to incomplete schooling (McGovern et al. 2017).
The reasons for the lack of progress are uncertain. Public investments in child and
maternal nutritional programmes have increased significantly since 1993, along with so-
cial protection policies for mothers and children. This includes a cash transfer for chil-
dren from birth until 18 years of age that reaches some 12 million beneficiaries. Poverty
is one element, and household expenditure and wealth are associated with stunting of
children who are under five years of age (Jonah and May 2019). Child malnutrition is
also linked to the physical environment in which children live.
In terms of access to services and to health-​care facilities, 45 per cent of all children
(8.5 million) live in rural areas, most of whom live in traditional housing, 9 per cent
(1.6 million) live in informal settlements or backyard shacks, and 32 per cent and 31 per
cent live in households that do not have adequate water on site or adequate sanitation
(Sambu and Hall 2019). This means that between 5 and 6 million children are exposed
to a significant risk of gastro-​intestinal infection in relation to hand and food hygiene,
sanitation, and supply (Voth-​Gaedderta et al. 2020). This has been referred to as food
and nutrition security’s blind spot and concerns the capacity to absorb nutrients from
food that has been ingested (Chambers and von Medeazza 2014). Finally, the impact of
South Africa’s high prevalence of HIV infection on pre-​and neo-​natal nutritional status
has not been established.
South Africa is also experiencing an increase in the prevalence of overweight and
obese adults, and in the childhood and pubertal periods. In 2003, 56 per cent of adult
African females were either overweight or obese compared to 29 per cent of males (DoH
2008). By 2016 this had increased to 68 per cent of adult women and 31 per cent of men,
the highest in sub-​Saharan Africa. Among children, 8.6 per cent of boys aged 15–​18 years
and 26.9 per cent of girls, are overweight or obese, as are over one-​fifth of 13–​14-​year-old
adolescents and 13 per cent of under-​fives (StatsSA 2017; Reddy et al. 2010).
Obesity and stunting are linked, and often found in the same household. Wave One
of the National Income Dynamic Survey (NIDS) undertaken in 2008 found that there is
at least one obese adult in 45 per cent of households with a stunted child, and an under-
weight child in 37 per cent of households with at least one obese adult. Overall, NIDS
found that there is both an overweight adult and an under-​nourished child in one out
of every eight South African households. The risk of being overweight or obese has
also been linked to prior nutritional status. The National Food Consumption Survey
(NFCS), undertaken in 1999, found that the odds ratio of being overweight among the
stunted children was nearly twice that of children of appropriate height (Steyn et al.
2005). Micronutrient deficiencies of both children and adults have also been found to
coexist with high levels of overweight and obesity (Steyn et al. 2005).
834   Julian May

38.4.4 Stability
The stability dimension of food and nutrition security refers to fluctuations in the avail-
ability, costs, and quality of food. The extended drought of the late 1920s and the vola-
tility in rainfall since the 1990s, discussed in ­Chapter 16 of this volume, are noteworthy.
In 2015, the lowest annual rainfall since 1904 triggered a drought that reduced the na-
tional maize harvest by 14 per cent relative to the 2011–​15 average, and by a further 25
per cent in 2016, a cumulative loss of 35 per cent in two years (FAO 2020b). In 2017/​18,
the Western Cape was declared a drought disaster area, followed by the Eastern Cape in
2019. BFAP (2019: 12) noted that financial strain was increasing among maize farmers
due to the on ​going arid conditions, and that farmers were seeking less risky alternatives
to growing South Africa’s staple food.
The impact has carried over to the cost of food. After decades of relative food price
stability, during the global food crisis of 2007–​09, speculative behaviour in food com-
modity markets and the diversion of food crops to fuel production led to increases in the
prices of staple foods through the world (de Schutter 2009). This has also been the case
in South Africa, which experienced multiple episodes of rapid food inflation between
2002 and 2016 (Louw et al. 2017). Increases in global food prices, exchange rate depre-
ciation and increased input prices are among the drivers for this dimension of food
and nutrition insecurity. Of concern is the long-​running impact of the drought which
resulted in food inflation lasting well after the production shock. The shock emanating
from COVID-​19 may well have a similar impact.
The stability dimension of food security is further compromised by the relative price
of healthy foods compared to highly processed foods that are associated with energy-​
dense, nutrition-​poor diets. Globally, the price of nutritionally dense foods has been
rising, while food that is nutritionally compromised has become more affordable. In
some developing country economies, the cost of fruit and vegetables has risen more rap-
idly than any other food source (Wiggins and Keats 2015). This is also the case in South
Africa, where, in 2018, while there was an increase in the price of all food due to drought,
this was especially so for the price of fresh produce.
A cost analysis of diets revealed that, for thirty-​ three out of forty-​ two price
comparisons, healthier food options in South Africa are more expensive. Eight out of
the ten foodstuffs that had the largest increase in prices were vegetables. The conse-
quence is that, on average, healthier diets cost almost 70 per cent more than less healthy
diets (Temple et al. 2011). Low-​income households are more likely to purchase foods
with high energy but low nutritional content. Wealthier families are exposed to such
foods but can afford foods that have better nutritional value.
There are also geographic disparities that further affect the stability dimensions of
food security in South Africa. The Quarterly Food Price Monitoring report produced by
the National Agricultural Marketing Council (NAMC) shows that consumers in rural
areas pay more than consumers in urban areas to buy the same basket of selected food
products (Government Gazette 2014).
 Food Security, Hunger, and Stunting in South Africa    835

COVID-19 and lockdown policies are having an impact. The Pietermaritzburg

Economic Justice and Dignity Group (PEJDG 2020) shows that the average cost of an
adequate household food basket increased sharply during the lockdown period, and has
continued to rise.

38.5 What’s to Be Done?

In addition to embedding food and nutrition security in the Constitution, South Africa
has adopted a plethora of policies to deal with food and nutrition security, most of which
recognize the public good nature of food security. In some cases, South Africa has been
a global role model. The rapid roll-out and coverage of the Child Support Grant (CSG)
described in C­ hapter 40 of this volume is an example of an unconditional means-​tested
cash grant that has been shown to improve children’s access to food, but not necessarily
to healthy food (Grinspun 2016; Zembe-​Mkabile et al. 2018). The national vitamin A sup-
plementation programme was introduced in 2002. Once again, roll-​out has been efficient
but concerns have been raised that this may have fostered dependency on a ‘technical fix’,
leaving the central issue of poor nutrition unresolved (Coutsoudis et al. 2019). Food forti-
fication is another important intervention, and South Africa’s interventions for folic acid
and iodine have an estimated benefit–​cost ratio of 30:1, comparable with international
best practice (Osendarp et al. 2018). However, the lack of adequate monitoring and en-
forcement and poor compliance with standards by industry are potential issues.
South African policies have also addressed issues of diet. This included ending the
free distribution of formula milk for HIV-​positive mothers and legislating against
the marketing of breastmilk substitutes. Recently, the taxation of sugar-​sweetened
beverages was introduced in 2018. This is expected to reduce the risk of diabetes, govern-
ment expenditure on diet-​related NCD, and health-care expenditure-​induced poverty.
However, consumer and producer behaviour may offset these gains (Saxena et al. 2019).
As noted in ­Chapters 39 and 40 of this volume, aligning the specific goals of social
and health interventions with multi d ​ imensional problems such as food and nutrition
security is a recurrent concern. The provision of this coordination is the goal of South
Africa’s overarching aspirational document, the NDP, which specifically mentions food
security as a goal (NPC 2011). This is given further substance with the National Policy
for Food and Nutrition Security (NPFNS), passed by cabinet in 2013 and subsequently
gazetted in 2014 (DAFF 2014). The NPFNS builds on the NDP and seeks to establish
a platform for increasing, and better targeting, public spending in social programmes
that impact on food security. The policy is framed in terms of the recognition of the
right to food in the South African Bill of Rights, and commits government to increasing
access to production inputs for the emerging agricultural sector; leveraging govern-
ment food procurement to support community-​based food production initiatives and
smallholders; and strategically using market interventions and trade measures which
836   Julian May

will promote food security. Another important coordinating intervention for food
and nutrition security is the Strategic Plan for the Prevention and Control of Non-​
Communicable Diseases, 2013–​17, which sets targets for salt intake and for overweight
and obesity.
The NPFNS acknowledges the complex nature of food and nutrition security and
the importance of interventions that target increased access to affordable healthy food.
However, due to weak consultative processes, the NPFNS is argued to have led to policy
directives that were ‘deemed inadequate by a wide cross-​section of people’ (Pereira and
Drimie 2016). As a result, despite the establishment of an inter-​ministerial National
Food Security and Nutrition Plan (NFSNP) in 2017 (PMG 2017), which is coordinated
by the Office of the President, there is little evidence of any concrete action from national
government. While a policy framework has been put in place, the NPFNS and NFSNP
lack the legislative structures necessary to achieve their goals and objectives (Hendriks
and Olivier 2015). In addition, the South African government has shown no appetite for
direct interventions such as the management of food prices (Kirsten 2015).
In some cases, provincial Growth and Development Plans have gone further, and in
the case of the Western Cape, a provincial food security and nutrition strategy has been
adopted and is being implemented (Western Cape Government 2016). Termed ‘Nourish
to Flourish’, this strategy commits to providing food and nutrition literacy interventions
targeting diverse age groups; food-​sensitive economic and spatial planning; influencing
municipal planning for food and nutrition; promoting a climate-​resilient low-​carbon
agricultural sector; and building an inclusive food economy that recognizes the role of
informal traders as an important source of affordable food for low-​income households.
The strategy also addresses food security governance and the establishment of multi-​
stakeholder processes. Although it is too soon to assess the impact of the strategy,
the response to COVID-​19 in the Western Cape largely followed its ‘whole of society’
approach and appears to have had a positive impact (WCEDP 2020).
Addressing South Africa’s land question is also mentioned by the NFSNP as a strategy
to improve food security. The Integrated Growth and Development Plan (IGDP) of 2012
mentions addressing high food prices, improving smallholder access to markets and
support services, and recognizes the need for an integrated approach to ensuring food
security. The country’s national agricultural policies also include strong support for food
security, but again with no mention of nutrition. For example, the Agricultural Policy
Action Plan (APAP), 2015–​19, places emphasis on value-​chain interventions to improve
food security, and also notes the importance of research and innovation, climate-​smart
agriculture, trade, and agribusiness development and support. Nutrition and safety are
not given attention.
As noted at the outset of this chapter, responding to coordination problems is of vital
importance for an impure public good. Although establishing a credible coordinating
authority is important, there are other intervention options that can be considered.
‘Cash Plus’ is an example. Cash transfers such as the CSG have been found to achieve
greater impact when combined with other services that amplify the direct income
benefits (Roelen et al. 2017). These include behaviour-​change communication around
 Food Security, Hunger, and Stunting in South Africa    837

nutrition, feeding, and hygiene practices; supplementary feeding; and micro-​finance, all
linked to the delivery platforms used by the social protection policies.
‘Double Duty’ interventions is another option. These address the double burden
of malnutrition by exploiting synergies between the drivers of under ​ nutrition,
overconsumption and micronutrient deficiencies. This can simultaneously reduce the
risk or burden of undernutrition (including wasting, stunting, and micronutrient de-
ficiency or insufficiency) and overweight, obesity, or diet-​related NCDs (WHO 2017b).
Examples of existing interventions adopted by South Africa to address food and nu-
trition security that could be widened to become Cash Plus or Double Duty include
the National School Nutrition Programme, the different supplementation distribution
programmes, and the growth-​monitoring health services used to detect child mal-
nutrition. These visits are also an opportunity to promote healthy-​eating options for
both mothers and children. The distribution of food parcels as part of Humanitarian
Food Assistance during COVID-​19 was a missed opportunity to include healthier food
items and to encourage their consumption. Opportunities also exist for programmes
promoting agricultural productivity, which could encourage the cultivation of healthier
crops, including those that have been biofortified. Finally, funds from the sugar tax
could be used to directly cross-​subsidize interventions promoting healthy lifestyles.

38.6 Conclusion

Despite repeated commitment to the reduction of poverty, South Africa remains one
of the most unequal countries in the world in terms of income distribution. These
inequities extend to food and nutrition security outcomes such as childhood stunting
and the malnutrition experienced by adults. This puzzle of ‘poverty amidst plenty’ has
its roots in South Africa’s political economy of colonial dispossession and the poverty-​
producing actions of the apartheid era. Food and nutrition insecurity continue to act as
a form of ‘slow violence’ against the most vulnerable in South Africa (Hayson 2020).
The economic costs of hunger and malnutrition are often overlooked and the benefits
of interventions are under ​estimated or neglected. However, internationally, food and
nutrition security interventions have been found to have a healthy benefit–​cost ratio of
17.9:1 (McGovern et al. 2017). This suggests that food and nutrition security should fea-
ture more prominently in all spheres of South Africa’s government. People uncertain of
whether they will be able to meet their food energy needs are unlikely to take risks with
the resources that they do have available, recognizing the consequences if the invest-
ment does not yield a return. This will constrain entrepreneurship in the informal sector
and the smallholder agricultural sector. Hungry children are unlikely to perform well at
school, limiting their opportunities when they enter the labour market. Malnourished
children and adults are likely to be susceptible to other forms of illness, driving up the
costs of health care, and the risk of catastrophic health expenditures.
838   Julian May

Achieving food security in South Africa will require more than changing how food is
produced or consumed. Instead, a range of publicly funded, coordinated interventions
will be needed that cover health, economic, social, agricultural, and innovation policies,
as well as measures that regulate the activities of the private sector and that guide the
behaviour of consumers. Finally, provincial and municipal food and nutrition strategies
point to the role that must be played by local government. This is both in terms of spatial
planning for food and nutrition security, as well as in the implementation of comple-
mentary actions that support better diets and safer food consumption.

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 Chapter 39

T he Ec onomic s of H e a lt h
in Sou th A fri c a

Ronelle Burger and Mosima Ngwenya

39.1 Introduction

Apartheid left South Africa with an unequal society, and a health system to match.
More than twenty-​five years later the system remains polarized. The country’s history
of segregation and unfair resource distribution along racial lines still influences health
and poverty still predicts health outcomes. The poor, with fewer means to cope and
lower immunity to disease, are more likely to run the risk of disease and trauma. The
last census found that men aged 40 to 59 from the poorest quintile were six times more
likely to die within the next year than the corresponding group from the richest decile
(StatsSA 2011). Life expectancy, according to the most recent statistics by population
group, 2009, is seventy-​one for white South Africans but forty-​eight for black South
Africans. Unequal health outcomes are largely socially determined: death rates from
illnesses like HIV, TB, and diarrhoea, for example, are high among the poor but virtually
unknown among the more affluent.
The unfair distribution of health services affects overall well-​being, social welfare,
household income, productivity, and growth. Ill health can cause economic losses via
premature deaths, inability or limited ability to work, missed days of work, lowered prod-
uctivity, and discouragement to look for work. Estimates of the GDP impact are large
but varied and based on strong assumptions (e.g. WHO 2019; Lund et al. 2012). Such
estimates rarely account for the wider social cost: illnesses that keep patients bedridden
for long periods may impose a burden of care on the household and the community. This
was most evident during the early phase of the HIV epidemic, where many patients had
to rely on home-​based care. A further concern is paediatric illnesses that require hospital-
ization. The result may be long-​term separations between children and their caregivers,
causing distress and possibly affecting child development (Meyerson et al. 2020).
 The Economics of Health in South Africa    845

39.2 Historical Background

The socio-​economic determinants of health in South Africa today have roots in the co-
lonial and apartheid eras. Spatial segregation under these dispensations has shaped the
current racial disparities in the country’s health. Under apartheid, blacks were relegated
to ‘homelands’ or Bantustans, where they suffered from overcrowding, poverty, and dis-
ease. To support their families, men sought work as migrant labourers in the big mining
cities. The resulting breakdown of traditional African family structures had long-​lasting
implications for socio-​economic and health outcomes.
The apartheid system relegated blacks and coloureds to living in areas far from city
centres. These ‘townships’ were often overcrowded, with shacks or small brick houses
without electricity or adequate sanitation—​an environment that encouraged the spread
of disease. Diarrhoea was a hundred times more prevalent in black than white children
in 1971, and typhoid fever forty-​eight times more prevalent in the black than the white
population in 1978 (Heywood 2007). Mortality for children under two in 1984 was also
substantially higher for black and coloured than white children, largely because of mal-
nutrition (Andersson and Marks 1988). Malnutrition was rife—​which is discussed in
greater detail in ­Chapter 38 in this volume—​largely because of the low wages paid to the
migrants and because the small patches of land that were allocated were unsuitable for
the subsistence farming necessary to provide a balanced diet.
The often stressful and unhealthy workplaces and the lack of a social support struc-
ture contributed to substance abuse among migrant workers. The dop stelsel, or tot
system, which remunerated workers partly with alcohol, helped to create a culture that
normalized alcohol abuse (Williams 2016). The overcrowded and poorly ventilated
single-​sex mine hostels, and the increase in sexual partners because the men were away
from home for months or years at a time, contributed to the spread of disease, carried by
infected men to the homelands.
Another factor which influenced health outcomes was the disparity in the quality of
education for race groups during the apartheid era. The link between health and edu-
cation is well established, with empirical work showing health being connected to a
person’s health literacy and mother’s education. As documented in ­Chapter 33 of this
volume there were large educational disparities between race groups. Per capita funding
for white schools was twenty times higher than that for black and coloured schools in
1989, and there were also large discrepancies in the training of teachers (McKeever 2017).
In post-​apartheid South Africa, socio-​economic determinants of health continue
to play a part in health outcome disparities, in particular, risky sexual behaviour,
smoking, alcohol abuse, obesity, stunting, and poor diet, with the effects still being
more pronounced among the poorest. In 2015, a study found that the alcohol attribut-
able mortality ratio was 727 deaths per 100,000 in the low socio-​economic groups and
163 in the high groups (Probst et al. 2018). A panel survey covering 2008 to 2017 found
846    Ronelle Burger and Mosima Ngwenya

obesity and stunting were more common in the black population, with stunting being
more common in the lowest income quintile (Sartorius et al. 2020).

39.3 The ‘Quadruple Burden of Disease’

Overwhelmingly, mortality is attributable to four factors in South Africa: communicable

diseases such as HIV/​AIDS and TB; maternal and child mortalities; non-​communicable
diseases (NCDs); and high levels of violence, injuries, and trauma, commonly referred
to as the ‘quadruple burden of disease’.

39.3.1 HIV/​AIDS
HIV/​AIDS has been a major disease burden in South Africa since the 1990s. In 2015,
close on eight million people with HIV, one-​fifth of all those in the world, lived in
South Africa (UNAIDS 2019). This large burden is partly due to a decade of HIV/​AIDS
denialism under President Thabo Mbeki. Mbeki’s administration denied that there was
a link between HIV and AIDS deaths and also that antiretrovirals (ARVs) were an ef-
fective treatment for HIV. The resulting delay in treatment is estimated to have led to
the loss of more than 330,000 lives from 1998 to 2008 (Chigwedere et al. 2008). The HIV
activist organization, the Treatment Action Campaign, sued the government for failing
to provide HIV-​positive pregnant women with nevirapine to prevent mother-​to-​child-​
transmission and used social protest and advocacy to promote universal access to HIV
treatment. The government started providing antiretroviral treatment (ART) in 2004,
but access improved considerably after 2008 when it had stronger political backing. In
2019, South Africa’s ART programme was the biggest globally.
The ART programme was successful in lowering HIV-​related deaths. Figure 39.1
shows trends in deaths from HIV and TB compared to deaths from non-​communicable
diseases. As a result of the decline in HIV incidence, and the expansion of ARTs
increasing health and life expectancy for people living with HIV, deaths from HIV and
TB have declined. Consequently, communicable diseases as a broad cause of death cat-
egory was no longer the leading cause of death by 2009, overtaken by NCDs (StatsSA
2018). However, HIV remains one of the five leading causes of death in South Africa
(using the narrower ICD-​10 categorization). In 2019/​20 the government spent R20
billion, about one-​tenth of consolidated government health expenditure, on HIV pre-
vention and ART.
HIV is most prevalent in the most vulnerable groups, particularly poor black South
Africans. Lower income quintiles also have a higher probability of dying from HIV/​
AIDS because of poverty-​related factors such as insufficient nutrition for successful
ART treatment, poor access to decent health care, and excess consumption of alcohol,
which increases HIV risk factors (Probst et al. 2016). According to the 2012 South
 The Economics of Health in South Africa    847

60%

50%

40%

30%

20%

10%

0%
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Deaths from injury Maternal & perinatal deaths,
deaths from nutritional causes &
HIV and TB deaths other communicable deaths
Noncommunicable deaths

Figure 39.1 Shifts in mortality trends in South Africa, 1997–​2017

Source: StatsSA (2020)

African HIV prevalence survey (Shisana et al. 2014), 72 per cent of the country’s HIV
cases were black South Africans between the ages of 25 and 49. HIV prevalence was 31%
for black South Africans aged 25–49; but much lower for other races in this age group: 6
per cent for coloureds, 1 per cent for Indians and Asians, and 0.8 per cent for whites.

39.3.2 Tuberculosis
TB is the leading cause of death in South Africa.1 In 2019, South Africa was one of the
eight countries responsible for two-​thirds of the world’s TB burden. In that year an
estimated 360,000 people contracted TB, 58 per cent of whom were HIV positive. It is
estimated that 0.6 per cent (or 615 per 100,000) of the South African population develop
TB each year, which places South Africa second on the ranking of highest TB incidence,
after Lesotho only to Lesotho. The country’s fight against TB is complicated by high
levels of HIV-​TB co-​infections, the onset of drug-​resistant viral strains, and a section of
the population disproportionately affected because of poor nutrition, inadequate sani-
tation, overcrowded living spaces, and poor access to health care (WHO 2020).

1 This is based on the categorization of the ICD-​10 (International Classification of Diseases and

Related Health Problems), the five leading causes of disease have not changed between 2015 and
2017: tuberculosis topped the list; followed by diabetes. Cebrovascular diseases and other forms of heart
disease were in position three or four; and HIV ranked fifth (StatsSA 2020).
848    Ronelle Burger and Mosima Ngwenya

Most theories of the disease’s historical origins in South Africa suggest that it was
either introduced into the indigenous population by European settlers or existed in
a latent form and became infectious only once the social structure of the indigenous
population changed (Packard 1989). However, its link with the South African mines and
apartheid land laws has been well established in the South African TB literature (see
e.g. Coovadia et al. 2009; Heywood 2007). The miners’ work environment, cramped
and insanitary hostel conditions, inadequate protective clothing, and poor nutrition
encouraged infection, and mining regulations requiring infected workers to return to
their homelands ensured that TB spread to the rural population.
Post-​democracy TB policies have focused mainly on public-​health-​sector reforms such as
community-​based primary health care (PHC) and clear referral links between the smallest
district facilities and high-​care health facilities. The government has also adopted the World
Health Organization’s directly observed treatment short-​course (DOTS) TB control strategy
and incorporated it into subsequent TB control strategies. Although these strategies have
improved the detection and treatment of TB to some extent, controlling its spread has proved
to be challenging. Factors such as HIV prevalence, which facilitates TB infection; socio-​
economic factors such as poor nutrition, housing, and health-​care access; and treatment
non-adherence with medication directions, which has led to drug-​resistant strains of TB are
some of the main challenges the government has faced (Van Rensburg et al. 2005).

39.3.3 Maternal and Child Deaths

Many of the causes of maternal and child deaths today are rooted in South Africa’s his-
tory of segregation. Maternal and child illness and deaths during the apartheid era were
concentrated in the black population. During the 1980s, the overall causes of both ma-
ternal and child deaths in vulnerable communities were largely due to socio-​economic
circumstances and inadequate health services—​particularly PHC. Maternal deaths
and ill health were largely due to septicaemia, complications from illegal abortions,
and inadequate antenatal care. Malnutrition affected two-​thirds of black and coloured
two-​and three-​year-​olds. Malnutrition and bad sanitation were responsible for 10 per
cent and 50 per cent of the deaths of black and coloured children under the age of ten
(Andersson and Marks 1988).
Significant progress has been made since the end of apartheid in reducing ma-
ternal and child deaths through PHC reforms, strengthening district health systems,
and enrolling HIV pregnant mothers in Prevention of mother-to-child transmission
(PMTCT) programmes.
The ‘Saving Mothers 2017’ report shows that by 2016, after peaking in 2008, maternal
deaths had fallen by 24 per cent (NDOH 2017). South Africa has a high maternal mor-
tality ratio: estimates vary, but systematic reviews have shown a fair degree of convergence
at about 120 deaths per 100,000 live births (Damian et al. 2019). This ratio far exceeds
the target of the 2030 Sustainable Development Goals and also the ratios of upper-​
middle-​income countries with similar per capita public-​health expenditure—​even when
 The Economics of Health in South Africa    849

controlling for the higher number of HIV-​related maternal deaths due to 31 per cent
of pregnant women in South Africa being HIV positive (Woldesenbet et al. 2019). The
‘Saving Mothers’ reports have shown that three in five institutional maternal deaths may
have been preventable, and that such deaths were more likely in rural areas (Moodley
et al. 2018). Neonatal mortality has declined but is still higher than expected for an upper-​
middle-​income African country (Damian et al. 2019). Audits have shown that a quarter
of neonatal deaths may have been preventable (Rhoda et al. 2018). The under-​five child
mortality ratio has declined significantly over the past decade. In 2017 it was 32 per 1000
live births, approaching the 2030 Sustainable Development Goal of 25.

39.3.4 Non-​communicable Diseases
In 2005, mortality from non-​communicable diseases (NCDs) outstripped mortality
from communicable diseases (StatsSA 2018). As Figure 39.1 shows, 49 per cent of deaths
in South Africa in 2016 were caused by NCDs. The country has high levels of undiag-
nosed and uncontrolled hypertension and diabetes. The 2011–​12 South African National
Health and Nutrition Examination Survey (SANHANES) found that 36 per cent of South
Africans had hypertension, but about half of hypertensives had neither been screened nor
diagnosed and only one in ten hypertension cases were controlled (Berry et al. 2017). In
2013, diabetes moved from the fifth underlying cause of death in South Africa to second
and, in 2015, the International Diabetes Federation estimated that around 2.3 million
South Africans had diabetes. Further problems are poor control of patients’ diabetes and
inadequate screening for complications and co-​morbidities. Co-​morbidities complicate
the treatment of chronic diseases in South Africa and are widespread: in 2015 an estimated
49 per cent of PHC patients had co-​morbidities and 14 per cent had multi-​morbidities.
A study using data from the National Income Data Study (2008–​15) estimated that
smoking and alcohol abuse accounted for, respectively, 7 per cent and 28 per cent of the
inequalities in a range of health outcomes, including depressive symptoms and chronic
illness diagnosis (Mukong et al. 2017). In 2015, the alcohol-​attributable mortality ratio
per 100,000 adults was 727 in the low socio-​economic groups and 163 in the high socio-​
economic groups (Probst et al. 2018).
In South Africa, the lifetime prevalence for having any mental health disorder was 30
per cent in 2003 and 2004, with anxiety disorders being the most prevalent (Herman
et al. 2009). These estimates are from the South African Stress and Health (SASH) study,
which remains the best available source of information on mental health disorders.
Estimates of adequate treatment coverage for mental health conditions vary from 1 per
cent to 27 per cent—​depending on data and definitions of adequate treatment—​with
poor black rural inhabitants overrepresented amongst the untreated (Docrat et al. 2019;
Pillay 2019; Jack et al. 2014). The South African Lancet Health Commission report (2019)
suggested that the National Department of Health’s failure to implement the 2013–​20
Mental Health Policy Framework and Strategic Plan reflected a lack of commitment to
prioritizing mental health despite the high levels of unmet needs.
850    Ronelle Burger and Mosima Ngwenya

39.3.5 Violence, Injuries, and Accidents

Violence is the leading cause of death in this category, followed by transport and road
accidents. South Africa’s homicide rate was six times higher than international rates in
2009 (Matzopoulos et al. 2015). The high prevalence of violence against women and chil-
dren in particular has been more widely recognized in recent years. The Governance,
Public Safety and Justice Survey shows that 38 per cent of the population experienced
some form of sexual offence in the period 2018–​19 (StatsSA 2019). The Optimus Study
provides the most reliable and representative data on child abuse for children aged 15
to 17. Using data from 2001, this nationally representative study found that 15 per cent
of girls and 10 per cent of boys had experienced some form of sexual violence in their
lifetime (Ward et al. 2018). The high levels of violence in South African communities
are attributable to a long list of factors, including deprivation, unemployment, social
inequality, ‘toxic masculinity’, weak parenting, alcohol misuse, access to guns, and inad-
equate law enforcement (Seedat et al. 2009).

39.4 Polarized and Ineffective

Health-​care Provision

Under apartheid, government spending on health care was racially allocated: per capita
spending in 1985 was R451 for whites, R245 for coloureds and R115 for blacks (Heywood
2007). In 1982, Johannesburg General Hospital, a whites-​ only hospital, received
the same health budget as KwaZulu, a black district with a population of five million
(Heywood 2007). As a result, black hospitals were overcrowded, under-​staffed, and
short of vital resources and equipment. These discrepancies were especially detrimental
to rural populations because pre-​1994 medical care was mostly hospital-​based, with
very little public access to PHC facilities for the poor (Bradshaw and Steyn 2001).
These inequalities persist: resources remain inequitably distributed between and
within provinces. The two most affluent provinces, Gauteng and the Western Cape,
and economically active geo-​settings such as urban and farm areas, generally have the
lowest mortality and morbidity rates for most illnesses (Otterbach and Rogan 2017;
Weimann et al. 2016). The spatial and socio-​economic differences are also reflected in
social determinants of health, such as housing, education, and sanitation (NDOH 2015;
Burger, et al. 2017; Otterbach and Rogan 2017).
More than twenty-​five years after the fall of apartheid, South African’s health system
is still polarized, comprising an expensive but comprehensive private-​sector health care
system and an affordable but overburdened public system with inconsistent quality of
care and long waiting times. PHC services are free. Physical access is rarely cited as a
constraint for those living in towns and cities, but it is a problem for people in remote
areas or the former homelands (Burger and Christian 2018).
 The Economics of Health in South Africa    851

Access to nurses, doctors, and specialists differs noticeably between the public and
private systems. Doctors are usually the entry point into the private system, and nurses
for the public system. There are vast disparities in resourcing, with health-​care workers
unevenly distributed between the public and private sector and across provinces. The
private sector employs two-​thirds of the doctors and one half of the nurses, but delivers
care to only one in five South Africans (McIntyre et al. 2007; StatsSA 2019; Gray et al.
2016; Barron and Padarath 2017).
Given the differences in the consistency of care and convenience of access in the
public sector—​and in particular the unpredictable waiting times—​it is not surprising to
see that even the poorest will consult a private doctor, despite the cost, and even though
the public services are free and accessible. This trend seems particularly pronounced
for acute illness and injury, where private providers represent one-​fifth of health-​care
utilization. This raises concerns about the quality of public health care, given that pri-
vate GPs charge by the poorest quintile of households. The equivalent of $20 for a visit
and this payment represents approximately two days’ wages for the median employed
worker not covered by a medical scheme (Burger et al. 2012).

39.4.1 Public and Private Hospitals, Primary Healthcare

By the 1980s the number of hospital beds available to whites was double the number
for blacks (Heunis 2004). A similar disparity can be seen today between private and
public hospitals. In 2016, the public sector had 1.8 beds per 1000 people and the pri-
vate sector 3.3; Chile, Brazil, and the United Kingdom, for comparison, lie between these
two extremes at 2.1, 2.3, and 2.6 respectively (OECD 2017). The private sector’s critical-​
care beds have increased since 2016 and their ratio of critical care per population now
exceeds that of all OECD countries (van den Heever 2019; OECD 2017). The private,
for-​profit hospital sector is well resourced and caters to wealthy, urban, and formally
employed households, who would also usually have medical scheme coverage. The
public sector, catering for the majority, struggles with higher staff workloads, budget
constraints, and deteriorating infrastructure. An analysis of hospital accreditation data
for the period 2001 to 2015 by the Council for Health Service Accreditation of Southern
Africa found consistently high scores for private hospitals but much variability in the
scores for public hospitals (see Figure 39.2; Ranchod et al. 2017).
Post-​apartheid reforms have prioritized the improvement of PHC to increase access
to care. Health-​care facilities have been made more physically accessible, with 1,600
facilities being built or upgraded since 1994 (South African Government News Agency
2014). Burger et al. (2012) found that poor households reported substantially shorter
travelling times to health-​care facilities following this expansion of the network of PHC
facilities. To assist further, primary-​care user fees were abolished—​first in 1994 for vul-
nerable individuals such as the elderly, pregnant women, breastfeeding mothers, and
young children, and then in 1996 for the rest of the population. Findings are mixed on
how the free service affected utilization and health outcomes. Brink and Koch (2015)
852    Ronelle Burger and Mosima Ngwenya

100
90
80
70
60
50
40
30
20
10
0
District hospital Regional hospital Tertiary hospital Central hospital Private general hospital

Figure 39.2 Public- and private-sector hospital accreditation scores, COHSASA

Source: COHSASA data, 2001–2014

and Koch (2017) found no effect on utilization; Tanaka (2014) found the service led to
improvements in children’s weight-​for-​age.

39.4.2 Health Promotion
Although the public and private systems are both still largely stuck in a curative mindset,
country-​wide efforts have been made to promote the social determinants of good health
and deal with the causes of disease and injury. Among these have been a public smoking
ban, a tax on sugar-​sweetened beverages, steps to improve environmental health factors,
such as living conditions and air and water quality, and promotion of better indi-
vidual health choices by expanding health literacy and encouraging more physical ac-
tivity and better diet. Worldwide population-​based surveys from 2001 to 2016 found
that one in three women and one in five men had inadequate levels of physical activity
(Guthold et al. 2018). A recent technical review report by the South African Medical
Research Council (Freeman et al. 2020) found that the government’s efforts to expand
and support health promotion were not having the envisaged impact on the burden of
disease because these efforts remained underfunded and neglected and were not ad-
equately supported by a platform for multi-​sector collaboration. The report outlined the
importance of investing in health literacy and taking a people-​centred approach.

39.4.3 Doctors, Nurses, and Community Health Workers

The skills mix in both the public and the private health system is wasteful and less than
ideal, increasing the cost of health care. In the private sector there is an over-reliance
on GPs and specialists; in the public sector there is room for more task-​shifting to
 The Economics of Health in South Africa    853

community health workers and lower-​tier workers. There is also a stark difference in the
way the public and the private sectors are staffed.
In 2019, the private sector had sixty-​nine full time equivalent (FTE) specialists per
100,000 people but the public sector only seven. In 2015, Chile had 110 and the OECD an
average of 274; clearly the South African health-​care system suffers from a serious skills
shortage (Wishnia et al. 2019). The country’s public health system also varies widely,
with ten FTE specialists per 100,000 in the Western Cape in 2019 but only one per
100,000 in Limpopo (NDOH 2020).
Primary-​care facilities are mainly nurse-​based—​with GPs available on referral or in
clinic-​based casualty. In 2019, nurses made up 56 per cent of health-​care providers in
the public sector, with 282 nurses for every 100,000 public-sector users (NDOH 2020).
Concerns have been expressed about an erosion of professionalism, which has been
associated with the stressful work environment, poor supervision, inadequate manage-
ment of absenteeism, and staff shortages (Rispel and Bruce 2015).
The number of community health workers (CHWs), the foot soldiers of the health
system, has been expanded. In 2019 they constituted 22 per cent of public-​sector health
providers, with one CHW for every 895 public-​sector users (NDOH 2020). The aim of
the CHW system is to strengthen community-​based health promotion, disease pre-
vention, and home-​based care (Bresick et al. 2019). A ward-​based PHC outreach team
consists of six to ten CHWs, with one outreach team leader who is an enrolled nurse and
one data capturer, and is intended to serve about six thousand people.
While CHWs are widely lauded as a way to increase effectiveness and reduce the ex-
pense of South Africa’s health system, they face many challenges. Their remuneration
tends to be low, and they often receive poor support, struggle with transport, are not
well integrated into the mainstream health system, and are hampered by confusion
about reporting lines (Assegaai and Schneider 2019; Nyalunga et al. 2019). These poor
working conditions mean that CHW positions tend to see high levels of attrition, which
affects the effectiveness and sustainability of programmes that rely on CHWs to form
relationships of trust with community members.

39.5 Government Budgets,

Medical Schemes
and Out-​of-​p ocket Expenditure

Between 2008 and 2017, 8 per cent of GDP was channelled to the health system. As
Figure 39.4 shows, this is double the share for countries with comparable GDP per
capita levels, such as Egypt, Algeria, China, and Sri Lanka, and the same share as health
spending in the United Kingdom, and in South Africa’s neighbour Eswatini (formerly
Swaziland). But although South Africa’s spending share is comparatively high, half of
854    Ronelle Burger and Mosima Ngwenya

20000

18000

16000

14000

12000

10000

8000

6000

4000

2000

0
95/96
96/97
97/98
98/99
99/00
00/01
01/02
02/03
03/04
04/05
05/06
06/07
07/08
08/09
09/10
10/11
11/12
12/13
13/14
14/15
15/16
16/17
17/18
18/19
19/20
20/21
Public Medical scheme

Figure 39.3 Real per capita health expenditure

Source: Analysis by Mark Blecher, National Treasury

this funding went to private health markets which serve only one in five of the popula-
tion. Consequently, there are large discrepancies between private and public per capita
expenditure (see Figure 39.3).
The government is not meeting the African Union countries’ Abuja Declaration
target of spending at least 15 per cent of the public budget on health, spending 13 per cent

0.12

0.1
Expense (% of GDP)

0.08

0.06

0.04

0.02

0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017

Egypt, Arab Rep. Algeria Sri Lanka China

Eswatini United Kingdom South Africa

Figure 39.4 Health Expenditure as a percentage of GDP

Source: World Bank Data
 The Economics of Health in South Africa    855

of the consolidated government budget on health in 2018/​19. Figure 39.4 shows that real
per capita public health expenditure had been flat since the 2012/​13 financial year in the
context of a decade of low economic growth, fiscal constraints, and rising input costs
(Blecher et al. 2017).
The public health system is funded largely from national taxes and this revenue is
allocated to provinces through a mix of conditional and unconditional transfers. The
rest comes from own revenue from rates, taxes, and user fees. Revenue is distributed to
provinces using a weighted population-​based formula, the provincial equitable share
(PES), with conditional grants used to fund vertical programmes like those for HIV or
TB or to top up the PES (Van den Heever 2019). The public health system is free at point
of service for the entire population, apart from access to the hospital system, which
is subject to a means test allowing free access for lower-​income groups while higher-
income groups are required to pay in full (though this is poorly enforced in practice).
The private health system is funded via contributions to medical schemes and
direct payments from households (out-​ of-​
pocket expenditure). Contributions to
medical schemes are tax exempt, but reforms are underway to remove this exemp-
tion. Membership of a medical scheme is voluntary, but access is guaranteed through
open enrolment—​the scheme cannot decline an application. Medical schemes are not
allowed to vary prices according to the health status of the individual. They are allowed
to apply a penalty to those who join the scheme after their thirty-​fifth birthday and they
can implement no-​claim waiting periods, generally three months but often twelve, for
pre-​existing conditions. They are required to provide a defined package of prescribed
minimum benefits, which in 2018 covered twenty-​ seven chronic and 270 acute
conditions and represented 51 per cent of total benefits paid (McLeod and Ramjee 2007;
Priceless South Africa 2017; Competition Commission 2019).
Health insurance in South Africa is provided primarily through not-​for-​profit
schemes regulated by the Medical Schemes Act, 131 of 1998. Some other insurance
products, such as gap cover, provide supple­mentary cover. In recent decades, med-
ical schemes have covered about one in six South Africans. Coverage is determined by
skilled formal employment and affordability and concentrated in the top two income
quintiles (Ranchod et al. 2017; McLeod and Ramjee 2007; Smith and Burger 2013).
Households can purchase hospital cash plan insurance, but this does not provide cover
at actual cost. There is currently much uncertainty about the legality of these products.
Out-​of-​pocket expenditure (Figure 39.5) is the share of expenditure on health that is
paid directly by households. Measures of this expenditure are often used to capture the af-
fordability of health care and medical schemes coverage. While these measures are widely
used and credible, they suffer from some shortcomings, the main one being that countries
with prohibitively high health-​care costs may have low actual levels of out-​of-​pocket ex-
penditure because people simply cannot afford to access health-care. It is thus vital to ana-
lyse measures of out-​of-​pocket expenditure alongside measures of unmet health needs.
Out-​of-​pocket expenditure in South Africa between 2008 and 2017 represented an average
of just over 8 per cent of medical expenditure. This is lower than the upper-​middle-​income
country mean of 34 per cent and also lower than the United Kingdom’s 12 per cent share
856    Ronelle Burger and Mosima Ngwenya

50
45
Out-of-pocket expenditure (% of 40
current health expenditure) Brazil
35
World
30
Thailand
25
United Kingdom
20
Upper middle income
15
10 Eswatini

5 South Africa

0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Figure 39.5 Out-​ of-​
pocket health expenditure as percentage of health expenditure in
purchasing power parity
Source: World Bank Data

over the same period. In South Africa, out-​of-​pocket spending is largely on private
health-care and very little is from people without medical schemes cover (Morudu
and Kollamparambil 2020; van den Heever 2019; Ranchod et al. 2017).
Medical expenditure that represents an excessive share of a household’s non-​
discretionary expenditure for the month, typically using a 40 per cent threshold, is
termed ‘catastrophic health expenditure’ (CHE). An in-​depth analysis of CHE in South
Africa from 1995 to 2015 showed that the share of households with CHE has ranged from
0.04 per cent to 2.5 per cent depending on the year and the definition of the denomin-
ator for the expenditure share calculation (Koch and Setshegetso 2020). A cross-​country
comparison of CHE estimates that only 0.03 per cent of South African households are
affected, which is considerably lower than in other developing countries, and in line
with developed countries like the United Kingdom and Switzerland at the low end of
the spectrum (Xu et al. 2003). Given that public PHC facilities have no user fees and that
the household surveys cited earlier show little evidence of unmet health needs, there is
no concern that these low levels of CHE are driven primarily by prohibitively high costs.
There is no evidence of affordability being a constraint to health-​care access, but these
estimates do not include travel costs, which can be prohibitive for those who live far
from their closest PHC facility and hospital (Burger and Christian 2018).

39.6 Incentives and Accountability

The waste and ineffectiveness in the public and private sectors have many
causes, including the inefficient skills mix mentioned earlier. The main cause
is lack of incentives to motivate funders, managers, and providers to prioritize
 The Economics of Health in South Africa    857

cost-​effectiveness and responsiveness to the needs of patients. Both sectors could

benefit from stricter rationing of care, improved demand management, better use of
evidence in clinical, management, and policymaking decisions, and stronger clin-
ical governance. Clinical oversight is inadequate in primary-​care facilities, where
most of the public go for health-care. Private-​sector hospitals have little scope for
oversight because they do not employ doctors; their doctors are paid directly by
patients. Clinical governance is also largely absent in private practices: peer review
and treatment guidelines are rare.
From the perspective of the patient, there is little scope for rewarding quality and
encouraging quality improvement through informed choices by beneficiaries and the
public. The relative rarity of health visits means that the individual’s own personal ex-
perience tends to be a poor guide to quality because it tends to be based on a low number
of observations. This poses a disadvantage to beneficiaries because informed choice is
reliant on transparency and reliable updated public information on the past perform-
ance of funders and providers. However, such information is rarely available in the
South African health system because funders and providers are not required to report
health and quality outcomes. The lack of comparable quality and outcome indicators for
providers also means that funders cannot contract on value.
Lack of accountability, poor quality of care, poor record-​keeping, and opportunistic
law firms have led to a steep rise in medical liability claims and pay-​outs—​in both the
public and the private sector. There is concern that this may prompt doctors and nurses
to resort to defensive medicine, which amplifies the costs of care. But the biggest con-
cern is undoubtedly that this diverts scarce public funds for health spending: the 2019
Budget Review shows that between March 2015 and March 2018 claims against health
departments rose from R29 billion to R80 billion, and payments for claims grew from
R499 million to R3 billion (National Treasury 2019).

39.6.1 The Public Sector

The public h
​ ealth system suffers from weak beneficiary and needs responsiveness partly
because of fragmentation, lack of coordination, and inadequate performance manage-
ment. Staff do not always adhere to protocols and policies and there is insufficient over-
sight and accountability (National Planning Commission 2012). The Office of Health
Standards Compliance was established in 2014 to safeguard and promote the interests of
beneficiaries. Its purpose is to regulate and certify the quality of care at health facilities
by inspecting them and enforcing compliance with prescribed norms and standards. It
hosts and supports the office of the Health Ombud, who is responsible for addressing
malpractices and non-​compliance with prescribed norms and standards in the health
system to safeguard the rights of patients and beneficiaries. The OHSC’s 2018/​19
inspections of 730 public clinics and hospitals found that fewer than one in five facilities
were compliant with norms and standards (OHSC 2019). But a shortage of staff restricts
the OHSC’s reach (South African National Lancet Commission 2019).
858    Ronelle Burger and Mosima Ngwenya

Organizational and individual performance problems are hard to solve because of in-
formation asymmetries, varying levels of health literacy, and the difficulty of finding
affordable real-​time and local measures of facility and practitioner performance. The
2020 Human Resources for Health plan notes that competent managers remain in
short supply at many levels of the health system (NDOH 2020). A further problem for
the health system is the prevalence of corruption and what the South African Lancet
Commission on High Quality Health Systems called ‘unethical leadership’ (Rispel and
Bruce 2015; South African National Lancet Commission 2019).
The Department of Health has a mixed track record. On the one hand there are not-
able recent successes such as been setting up the Central Chronic Medicine Dispensing
and Distribution programme, which allows patients to avoid long waiting times at
public primary-​care facilities by collecting their medicine from supermarkets, private
pharmacies, and community sites such as churches.
But there have been some tragic failures, a notorious one being the deaths of at least
144 mental health patients in 2016. In an effort to save money, the Gauteng Department
of Health decided to end its contract with Life Esidimeni and transfer more than
a thousand mental health patients from the Life Esidimeni psychiatric hospital in
Johannesburg to local NGOs and hospitals, many of which lacked psychiatric expertise
and offered substandard care. The Health Ombud’s report concluded that the lack of
expertise and the low standard of care were responsible for the patients’ suffering and
deaths from neglect, cold, dehydration, infection, and starvation (Makgoba 2017;
Msomi and De Villiers 2018; Capri et al. 2018).
Community health committees have been set up to give communities a say in
decision-​making. However, these committees are often dysfunctional or non-​functional
for reasons such as members having a poor understanding of their role, facilities and
providers failing to support them, poor inter-​sectoral collaboration, and a lack of polit-
ical will (Levendal et al. 2015).

39.6.2 The Private Sector

Since private practitioners generate income on a fee-​for-​service basis, there is an incen-
tive for them to provide more health-​care services than the patient needs, and little or no
financial incentive for the patient to object: medical schemes will cover the bulk of the
cost, or all of it if the charge is within the prescribed minimum benefits. Over-​servicing
not only wastes valuable resources but may also be bad for the patient. Insufficient over-
sight is a concern. Practitioners must belong to the Health Professions Council of South
Africa. They may also belong to professional associations, but these can serve as quasi-​
collusive forums (Competition Commission 2019).
Similar incentive problems can be seen in the private hospital sector. In South Africa
the private hospital market is concentrated in three large hospital groups (Netcare, Life
Healthcare, and Mediclinic) which represent 83 per cent of the market based on beds
and 90 per cent based on admissions. Private hospitals have a poorly enforced regulatory
 The Economics of Health in South Africa    859

system and there is no private health-​care facilities regulatory body (Competition

Commission 2019).
The medical schemes market and the administrator market are similarly concentrated.
Of the open medical schemes, in 2017 Discovery Health Medical Scheme had a 56 per
cent market share and Bonitas Medical Fund 10 per cent. Of the restricted medical
schemes, in 2017 the Government Employees Medical Scheme had a market share of 46
per cent and the South African Police Service Medical Scheme 13 per cent (Competition
Commission 2019). The top three administrators (Discovery Health, Medscheme, and
MMI Health) had a combined market share of 84 per cent, based on gross contribution
income. It is a matter for concern that both these markets have seen conditions worsen
in recent years. Between 2000 and 2017 the number of schemes fell from 163 to eighty-​
one and the top three administrators increased their combined market share from 57 per
cent to 84 per cent. The Competition Commission found that there were high barriers
to entry and that there had been no real entry into the administrator market for several
years, despite Discovery Health’s reporting persistently high profits. A further matter
for concern is that the lack of a mechanism to adjust for risk between medical schemes
gives the schemes an incentive to compete by attracting low-​risk patients. The number
of benefit options, their complexity, and their lack of comparability impedes transpar-
ency and informed consumer choices (Competition Commission 2019).

39.7 Looking Ahead

South Africa has seen a number of high-​ level policy initiatives to improve the
health system’s allocation and use of resources. The two most ambitious have been
the Competition Commission’s Health Market Inquiry and the National Health
Insurance plan.

39.7.1 Health Market Inquiry

The Competition Commission’s 2019 Health Market Inquiry (HMI) findings and
recommendations were based on six years of investigating the private health-​care sector,
looking for factors that prevented, distorted, or restricted competition in the private fa-
cility, practitioner, and funder markets. The HMI found that the sector has high and
rising costs and overuses health-​care resources without improving patient outcomes.
This threatens its sustainability.
On the supply side, the HMI recommended the establishment of a health-​care regulatory
authority that would be responsible for health-​care capacity planning, facility licensing,
the practice code numbering system, economic value assessments, and developing a na-
tional health information dataset, and a framework for tariff negotiations. These functions
would also benefit the public sector, including how the government contracts with the
860    Ronelle Burger and Mosima Ngwenya

private sector. However, this regulatory authority would require buy-​in and commitment
from a wide range of stakeholders, many of whom have entrenched positions and might
resist the change. The HMI recommended establishing an independent outcome meas-
urement and reporting organization, with the first phase to be developed within two to
three years, to give facilities and practitioners access to the comparable outcome infor-
mation that is necessary to improve clinical processes. This organization’s success would
depend on doctors’ and facilities’ participation. The HMI recommended reviewing the
Health Professions Council of South Africa’s ethical rules, and suggested how practitioner
associations could discourage anti-​competitive behaviour.
On the funder side, the HMI made recommendations on increasing transparency.
Medical schemes should offer a standardized benefit package that would cover cata-
strophic expenditure and out-​of-​pocket hospital and primary care and would ultim-
ately replace the prescribed minimum benefits. The Council for Medical Schemes
would revise and review this package every two years. Schemes could offer a risk-​rated
supplementary benefit for care which is not included in the package. Large medical
schemes said they currently offer many benefit options to satisfy their members’ specific
requirements and cautioned that, depending on how it was designed, the package could
remove competition in the market.
To shift the focus of competition to value for money and innovative models of care
and away from risk factors such as age, the HMI recommended a risk adjustment mech-
anism and income cross-​subsidization. This would require significant investment.
Previous attempts to introduce a risk equalization fund have stalled as government
focus has shifted to the proposed National Health Insurance.

39.7.2 National Health Insurance

The aim of the National Health Insurance (NHI; planned but not yet implemented at
the time of writing) is to achieve better health outcomes and promote cohesion, soli-
darity, and social justice in the health system. To reduce the inequity and waste in the
South African health system, the plan proposes a number of reforms, including the
pooling of tax money designated for health in a single fund to enable effective risk cross-​
subsidization and drive down prices by maximizing negotiating power. The NHI fund
will purchase services, equipment, and medicine from both private and public providers.
Evidence from similar reforms in South Korea and Thailand suggest that there would
also be significant administration cost savings (Mabaso 2012; Blecher et al. 2016).
The NHI aims to implement a single provider platform with a shared data repository.
It will also provide access to higher levels of care via GP contracting. GP contracting is
recognized as important for facilitating buy-​in from taxpayers, representing 10 per cent
of the South African population, who are predominantly medical-​scheme members re-
liant on private practitioners and hospitals for their health-​care services.
Perverse incentives for over-​treatment will be avoided by eliminating fee for service
(FFS) and opting for a needs-​based capitation payment where providers will receive fixed
 The Economics of Health in South Africa    861

reimbursements based on the size and underlying disease burden of the population that
they are contracted to advise and treat. The decisions to opt for this form of reimburse-
ment and to specify the reimbursement mechanism in the Bill have both been criticized.
The NHI will also create contracting units for primary health care, to take responsi-
bility for local service delivery. These units will cover public clinics, community health
centres, facility-​linked community health-​care workers, district hospitals, and private-​
sector providers.
The NHI plan has some opportunities for improved oversight and monitoring, via ac-
creditation by the NHI Fund and certification by the OHSC. Non-​compliant providers
will risk losing their accreditation status. The Bill refers to performance management as
part of contracting but offers very little detail on what this would entail and what informa-
tion it would be based on. The development of such systems will require some investment
and it may be difficult to assess private and public providers using the same yardstick. The
NHI plan would require a significant investment in the set-​up of an integrated real-​time
information system that can inform and support purchasing and contracting.
There have been intense public debates about the limited and complementary role of
medical schemes under the NHI, as well as the reduced role for provincial governments.
The NHI plan is also often criticized for lacking clarity, especially when it comes to crit-
ical components such as rationing and gatekeeping, governance, and quality assurance and
improvement. Disagreement between the National Treasury and the National Department
of Health on the funding of the NHI has hampered the advancement of plans. One of the
stumbling blocks has been the slow progress in costing the additional expenditure required
to implement the NHI. One set of recent estimates of the funding shortfall by 2025 ranges
from R33 billion to R72 billion, depending on assumptions (Blecher et al. 2019).
Those who argue for the NHI say that the piecemeal and incremental health system
reforms that have been attempted until now have not sufficiently improved health equity
and thus a more disruptive and radical health s​ ystem reform is required. Opponent point
to the lack of evidence such as comparable international case studies and results from local
pilot studies to support such a bold move, such as comparable international case studies
and results from local pilot studies. Such evidence is needed to assure South Africans that
the proposed change would deliver the envisaged outcomes. The NHI was first proposed
in 2011 but progress with planning has been extremely slow and some of the original core
ideas have become outdated. McIntyre (2019) advises that it is vital to ‘learn by doing’,
piloting rival mechanisms and arrangements to detect and solve problems at an early
stage, and designing an approach that will work for the local context.

39.8 The COVID-​19 Pandemic IN 2020

South Africa, along with the rest of the world, was affected by the COVID-​19 pandemic
and by the measures taken to flatten the curve and contain the spread of the virus. By
December 2020, South Africa had seen more than 22,000 official COVID-​19-​related
862    Ronelle Burger and Mosima Ngwenya

deaths. The excess deaths—​ comparing actual deaths to expected deaths using
projections based on historical data—​exceeded 50,000 deaths by December (MRC
2020). Rapid surveys documented a dramatic increase in depressive symptoms and
hunger, with a sharp drop in employment and income, which hit females and casual
low-​skilled, low-​wage workers the hardest (Spaull et al. 2020).
The impact on health-​care utilization was considerable. Surveys and routine data
showed a dramatic drop in the use of both public and private health-​care facilities during
the stricter lockdowns of alert levels 5 and 4 in April and May 2020 (Burger et al. 2020;
Mashego 2020; Moultrie et al. 2020). Routine data suggest that the recovery was slow and
there was concern about HIV tests and contraception in particular. Modelling projections
and evidence from previous epidemics show that missed or delayed vaccinations, chronic
care visits, and contraception consultations would have cumulative and long-​term nega-
tive health impacts that would dwarf the damage done by COVID-​19 (Sochas et al. 2017;
Roberton et al. 2020; WHO 2020; WHO and UNAIDS 2020).
Fiscal constraints were a major concern. The country was facing a public debt
crisis prior to the pandemic and at the time of writing R500 billion of COVID-​19 re-
lief spending had put further considerable pressure on the budget, partly financed by
an IMF loan of $70 bn. The government had responded by implementing zero-​based
budgeting. It was not yet clear what implications this would have for the time frame of
planned health ​system reforms.

39.9 Conclusion

In South Africa children too frequently inherit their parents’ poverty. This transmission
can work along various pathways, including poor health. Children of poor parents have
lower levels of cognitive development, are more likely to be stunted, and more of them
die young.
South Africa’s unequal social landscape is mirrored in its health outcomes. This
chapter has described the reciprocity in the relationship between the health system and
the social landscape: historic social divides feed the fragmentation and inequality of the
health system, which in turn serves to perpetuate and entrench the country’s apartheid
legacy of socio-​economic inequality.

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 Chapter 40

So cial Secu ri t y a nd
So cial Deve l op me nt
in Sou th A fri c a

Leila Patel

40.1 Introduction: Social Security

and the Challenge of Poverty
and Inequality

South Africa’s expansive social security and social development programme is widely
acclaimed for its positive effects on the triple challenges of poverty, unemployment, and
inequality. It is upheld as an exemplar of a middle-​income country that has gone fur-
thest in growing social protection to promote development. However, the persistence of
extraordinarily high rates of poverty, unemployment, inequality, and low levels of eco-
nomic growth remains South Africa’s key social and economic challenge more than two
decades after the ending of apartheid and the modernization of its social welfare system.
Social security,1 consisting of non-​contributory social assistance and social insurance
(contributory schemes linked to employment) and informal social and family provi-
sion, are the three main channels to mitigate risk, reduce poverty, and prevent people
from falling into poverty. Social insurance, namely unemployment insurance, reaches
only 60 per cent of the labour force who receive time-​limited benefits that make up a
proportion of their earnings. In view of very high unemployment levels, the vast ma-
jority of the poor are unemployed, or employed in precarious and low-​wage work and
in the informal sector. This group of people does not receive social benefits of any kind.
Family, household, and community resource flows are also fairly significant in size but

1
In the contemporary literature, the term, social protection, is now widely used as an umbrella
concept denoting a set of policies, instruments, and actions, either by state or non-​state actors to address
poverty and vulnerability (UNDP 2019). These terms are used interchangeably in this chapter.
870   Leila Patel

come under pressure in times of economic adversity. The protracted nature of pov-
erty is coupled with the low levels of economic and employment growth discussed in
­Chapters 6 and 7 of this volume. This is especially so for people with fewer skills and for
certain groups of people who are vulnerable due to their race, age, gender, and/​or ability
to engage in employment due to chronic illnesses or a disability. Poverty is also due to
earning low wages and linked to a person’s place of residence, such as if they live in an
urban informal settlement or a rural area, and their family structure—​particularly when
the head of the household is female with children; the size of the household is another
determining factor (World Bank 2018a).
Consequently, social assistance which includes mostly unconditional cash transfers
for different categories of vulnerable people has grown from three million beneficiaries
in 1995 to over eighteen million beneficiaries in 2020. To mitigate the impact of the
COVID-​19 pandemic, social assistance was temporarily expanded, reaching twenty-​
three million beneficiaries by the end of August 2020. Social relief of distress measures
introduced to mitigate the pandemic’s economic effects have expanded the social pro-
tection system, which is now reaching 40 per cent of the population and has become the
bedrock of the country’s social security and welfare system. Although income and multi​
dimensional poverty levels improved from 1996 to 2015, income poverty rose between
2011 and 2015 and continued to grow; non-​monetary indicators of poverty stagnated
over the same period. South Africa is also one of the most unequal societies in the world
with a Gini coefficient of 0.63 in 2015 and an unemployment rate of 30.1 per cent in the
second quarter of 2020 compared to 29 per cent in the first quarter before the declar-
ation of the National State of Disaster on 27 March (StatsSA 2020a). The COVID-​19 pan-
demic reversed significant gains in human development indicators, such as adult and
child hunger, compared to earlier periods (Bridgman et al. 2020). The future trajectory
of social security and developmental welfare services, including other sectoral social
spending on education, health, and housing, hangs in the balance in a constrained fiscal
environment, a 16.5 per cent GDP contraction of the economy, and employment losses
estimated to be around three million people (Ranchod and Daniels 2020). Economic re-
covery and increased opportunities for the poor to participate in a more rapidly growing
economy are needed—​but this topic is beyond the scope of this chapter.
This all raises important questions about the role of social security and social welfare
in economic and social development, and their interconnections. The chapter begins in
section 40.2 with a short review of the nexus between social policy and development
in the Global South. This provides the backdrop to issues and debates in contemporary
South Africa. Section 40.3 follows with a brief overview of the evolution of social wel-
fare and the key conceptual features of the post-​apartheid welfare regime. Although
the term, social security, is used interchangeably with, social protection, in the contem-
porary social policy literature, the focus in this chapter is on statutory social security
which includes social assistance and social insurance (unemployment insurance), with
only a cursory note on non-​state provision. Social policy is taken to refer to public
action to meet social needs, and usually refers to the meeting of welfare needs: social
security, welfare services, health, education, and housing. Economic policies—for ex-
ample, fiscal policies and taxation—​do have implications for meeting welfare needs
 Social Security and Social Development in South Africa    871

and are important for this discussion, but these are not considered here. Section 40.4
outlines the nature and scope of contemporary social security and social development
policies and their impacts. Finally, the chapter concludes by considering the policy
issues and future trajectory of social security and economic and social development.

40.2 Social Protection and Inclusive

Economic and Social Development

There has been an exponential growth of social protection and cash transfers in the
Global South since the late 1990s. By 2018, over 140 countries implemented social
protection policies, according to the ASPIRE database compiled by the World Bank
(2018b), with close to fifty new programmes initiated in Africa since the new millen-
nium (UNDP 2019). A diversity of approaches and innovative policies exists, made up
of—​among other things—​conditional and unconditional cash transfers, school feeding
schemes, food transfers, public employment programmes, and fee waivers (World Bank
2018b), social insurance schemes, labour market policies such as minimum wages, in-
formal individual, household-​and community-​level support, and external provision
from local and international organizations.
The significance of social protection in the Global South and its influence on global
social policy should not be underestimated. The growth of social assistance around the
world has inspired global social policy agendas, as reflected in the ILO’s National Social
Protection Floor initiative, which encourages governments and international develop-
ment agencies to support the provision of a basic minimum level of income and standard
of living for the poor. Social protection also features prominently in the United Nations
Agenda 2030 and Goal 1 of the Sustainable Development Goals. Although social security
is enshrined in the United Nations Declaration of Human Rights of 1948, advancements
in low-​and especially middle-​income countries have highlighted the importance of so-
cial security and social development policies as instruments in the realization of uni-
versal social and economic rights. In this regard, Leisering (2019: 57) contends that the
global principle of universalism, associated with a concern of the state with the welfare
of its citizens, the recognition of their dignity, and of the equal and inalienable rights of
human beings, is the ‘ideational driving force behind cash transfers’. The principle of
universality may be realized through different policy instruments, is guided by policy
goals, normative beliefs, and is often confused with uniformity of benefits (Barrientos
et al. 2014). Important distinctions are being made in many developing countries be-
tween systemic universalism, such as the effective integration of different channels of
provision on the one hand and programmatic universalism and targeting on the other.
Different social policy approaches underlie the debate between proponents of univer-
salism (state-​centred) versus residual or targeting (market-​centred). Kabeer (2014) calls
for a more pragmatic and incremental approach to universalism that takes account of
costs and benefits, institutional and wider social and economic externalities.
872   Leila Patel

There is some convergence between Southern and Northern social protection

models: in both contexts, social policy emerged in response to industrialization, ur-
banization, and related social problems and social questions. Although there is signifi-
cant diversity in the social policy approach in the Global South, different scholars point
to its saliency and the ways in which the social policy responses of the Global South
challenged the dominant wisdom of development thinking and of development agencies
in the 1980s and 1990s (Midgley 2020; Surender 2019; Leisering 2019; Barrientos 2013;
Hanlon et al. 2010; Mkandawire 2010).
Three key points are pertinent to this discussion: the first relates to the notion that so-
cial spending was not affordable in poor countries; second, it was undesirable as it would
redirect spending away from productive investments to consumption spending; and,
third, it created negative incentives and dependency on the state. This is countered by
proponents of social protection who argue that expanded social spending smooths con-
sumption deficits but also leads to productive investments, such as in assets, equipment,
education, and to further livelihood strategies (Nnaeme et al. 2020; Hanlon, Barrientos,
and Hulme 2010; Neves et al. 2009). Midgely (2015) argues that social assistance is an in-
vestment in human capital development and is a ‘productivist’ investment that could yield
long-​term returns in education, employment, and income, thereby contributing positively
to economic development. When social assistance (protective) and social insurance (pre-
ventive) systems are effectively integrated, they could reduce poverty and inequality. The
new social protection paradigm emerging in countries in the Global South moved be-
yond income and consumption needs towards a multi-​dimensional approach to poverty
(Barrientos et al. 2013) and resonates with Sen’s (1999) human capabilities approach.
These ideas are increasingly being validated by a growing body of empirical evi-
dence from different countries, although longitudinal studies are still scarce and more
rigorous research is needed. Evidence from a systematic review of non-​contributory so-
cial assistance in low-​and middle-​income countries over a period of fifteen years based
on data from 165 studies showed there were improvements in outcomes such as mon-
etary poverty; education; health and nutrition; savings, investment, and production;
work; and empowerment. No effects were found in reductions in adult work effort and
increased fertility (Bastagli et al. 2019). Furthermore, Hagen-​Zanker et al. (2017) found
positive impacts on women’s and girls’ well-​being, especially in education and employ-
ment, with no differential effects on boys and girls, along with increases in women’s
decision-​making power and choices. However, these studies also suggest that much
more rigorous research is needed to assess the impact of social protection in different
domains and in regions beyond Latin America.

40.3 South Africa’s Welfare Regime

South Africa has a long history of social security and social welfare service provision
dating back almost a hundred years. Social security provision also emerged in response
 Social Security and Social Development in South Africa    873

to worker struggles and demands for higher wages and improved working conditions;
it reflected the tensions over these issues between white workers, who were a more
privileged group, and black workers. The depression of the 1930s, with its deepening
poverty and unemployment, was a turning point in the adoption of formal statutory so-
cial security provision, consisting of social insurance (contributory schemes) and social
assistance (non-​contributory) policies. What was distinctive in the South African case
was the impact of colonialism and apartheid welfare policies on poverty and inequality,
and the disruption of family life due to the migrant labour system that coincided with
racial, gender, and spatial inequalities. These continue to remain the country’s most sig-
nificant social and economic challenges.
Patel (2015) notes that apartheid welfare policies were, by and large, indicative
of the post-​Second World War welfare consensus, reflecting Keynesian economics
and Beveridge’s social policy proposals advocating substantial fiscal investments to
promote economic and social development. Social provision was racially stratified
and favoured white workers and the poor and vulnerable. But social rights, and so-
cial security claims more specifically, were also strongly articulated by opposition
movements to colonialism and apartheid, such as the Freedom Charter of 1955 and
anti-​apartheid opposition movements in the 1980s. It is therefore no coincidence,
then, that socio-​economic rights claims against the state would be the central focus
of the emerging welfare regime in a post-​apartheid society. Section 27 of the Bill of
Rights guarantees health care, food, water, and social security; the right to adequate
housing (Section 26); children’s rights (Section 28); and education (Section 29).
Section 27(c) guarantees the progressive realization of the right to social security,
including social support for those who are unable to provide for themselves and their
dependents.
Post-​apartheid welfare policies attempted to redesign the racially differentiated
and inequitable welfare system of the past to be more redistributive and rights based.
The redistributive principle was central to the Reconstruction and Development
Programme, the electoral programme of the ANC in 1994 which was later adopted as
the RDP Act 79 of 1998. The RDP was an integrated social and economic policy frame-
work linking economic growth and redistribution as an integrated process with social
and economic investments in building productive capacity and investments in human
resource development, building the economy while simultaneously investing in
meeting people’s basic needs, reconstructing family and community life, and linking
democracy and development by means of a people-​centred development approach
(ANC 1994: 11).
In keeping with the RDP’s basic needs approach, and with the explicit
goal of addressing not just income poverty, the programme also advocated a
multidimensional approach to poverty reduction. The White Paper for Social
Welfare (Department of Welfare 1997) gave expression to the RDP and provided a
policy framework for social welfare, referred to as developmental welfare. Two key
integrated programmes, social security and developmental welfare services, formed
the pillars of the welfare system in post-​apartheid South Africa. Social security was
874   Leila Patel

defined as social insurance (contributory schemes made up of contributions from

employers and employees) and social assistance (non-​contributory, means-​tested
cash and in-​kind benefits that were publicly funded); these formed the foundation of
the system. While the policy approach favoured the most disadvantaged, the policy
also advocated promoting incremental universal access to all members of society to
realize their dignity, social security, and welfare services. A pluralist system of social
provision based on both public and private provision was envisaged (Department of
Welfare 1997: Section 26). The goals of social security were defined as poverty allevi-
ation, poverty prevention, social compensation, and income distribution, and as so-
cial investments in human capabilities that link welfare and the economy and thereby
promote inclusive growth and development.
The overhaul of social security and social development was not a seamless pro-
cess. Advocacy by civil s​ ociety organizations, labour movements, researchers, and
policy advocates played a significant role in expanding and reforming existing so-
cial security as well as challenging government’s shift in the late 1990s away from a
basic needs approach to the neo-​liberal agenda in the Mbeki presidency and then
again towards the notion of a developmental state in the Zuma presidency be-
tween 2009 and 2018. Social security spending remained stagnant at first, but small
increases were made over time to accommodate reforms of existing programmes—
for example, the greater inclusion of children following the adoption of the Lund
Committee’s proposals to phase out maintenance grants and in creating the Child
Support Grant (CSG). The issues, challenges, and trade-​ offs in policy choices
are well documented in Lund (2008). Other reforms included the extension of
the age of eligibility for the CSG and the adoption of a more generous means test; the
equalizing of the age of eligibility of access to pensions for men and women; and the
extension of social grants to refugees and permanent residents. A gap remained in
provision for those in informal employment. A proposal for a universal basic income
grant was also advocated by a coalition of civil ​society organizations in the late 1990s
and the Taylor Commission of Inquiry into a Comprehensive Social Security System
in 1998, which was not adopted due to its unaffordability and, possibly, different ideo-
logical positions. The proposal for a Basic Income Grant has since re-​emerged on the
development agenda. Finally, social protection commitment remains high on the
government’s agenda and is integral to the country’s National Development Plan 2030.

40.4 Nature and Scope

of Social Security

40.4.1 Social Assistance
The South African Social Security Agency (SASSA) paid 18.3 million social grants to
11.4 million beneficiaries before the declaration of the National State of Disaster on 27
March 2020 when a hard lockdown of the economy began. To mitigate the impact of the
 Social Security and Social Development in South Africa    875

COVID-​19 pandemic a Rand 500 billion COVID-​19 Support Package was announced
that included additional health support, municipal water and sanitation, wage pro-
tection through the Unemployment Insurance Fund (UIF), job protection and credit
guarantees, and social assistance, which made up 10 per cent (Rand 40 billion) of the
overall package. The stimulus package was aimed at individuals and firms and amounted
to 6.5 per cent of GDP (Bhorat et al. 2020).
Temporary social relief of distress measures were introduced that involved various
top-​ups of existing social grants, the creation of new social relief of distress for Child
Support Grant (CSG) caregivers, and a new grant, the COVID-​19 Social Relief of
Distress (COVID-​19 SRD) grant for unemployed persons and those who do not have
access to formal public assistance, including financial aid for students in tertiary edu-
cation. The strategy built on the country’s existing and expansive social assistance in-
frastructure but targeted those who were previously excluded from social assistance for
temporary relief. This may have laid the basis for the provision of income protection
for unemployed persons. The expanded social protection net brought an additional
5.3 million new beneficiaries into the system. In total, social assistance consisting of
existing and new beneficiaries amounted to 23.3 million beneficiaries, reaching 40 per
cent of the population as of July 2020. Table 40.1 below sets out the different types of so-
cial grants, the target groups, and the reach of the grants.
The provinces with the largest social grant expenditure and beneficiaries are (in
descending order) Limpopo (55 per cent); Eastern Cape (53 per cent); Northern Cape
(47 per cent); KwaZulu-​Natal (46 per cent); Free State (45 per cent); Mpumalanga (43
per cent); North West (40 per cent); Western Cape (29 per cent); and Gauteng with the
lowest number of beneficiaries (26 per cent) (SASSA 2020). The different types of grants
available are pensions for the elderly, the CSG, disability grants, foster care grants, the
care dependency grants, grants-​in-​aid, and a war veterans grant. Social relief of distress
grants (SRD) are provided for in specific circumstances, such as national disaster, death
of a caregiver/​breadwinner and when a person is medically unfit to work for less than
six months. The CSG has the largest reach followed by old age pensions and disability
grants. The values of the respective grants vary for historical reasons; they started off
at different rates and were increased incrementally. The Old Age Pension (OAP) and
Disability Grant (DG) are income protection programmes, while the CSG was set at a
lower level and was conceived of as supplementary benefits to support poor caregivers
and families to improve food security.
The CSG was introduced in 1998, first for children under six years of age, and was later
expanded to include all children under 18 years. All the grants are paid to South African
citizens, permanent residents, and refugees and are subject to means testing. Specific age
requirements apply and DGs are conditional on a medical assessment. The design of the
CSG is novel in that it is gender-​neutral in its targeting and may be accessed by the pri-
mary caregiver of the child, who may be a parent, relatives, or non-​relatives. However,
most beneficiaries (98 per cent) are women (Khan 2018). Initially there were no behav-
ioural conditions attached to grant receipt but since 2010 soft conditions relating to
school attendance have been introduced. The payment system was overhauled and has
transitioned from a direct cash payment to payments via banks, of which the Postbank
(a public entity) now distributes the bulk of the social grants (71 per cent).
876   Leila Patel

Table 40.1: Social assistance: Type, target group, level of grant, and number of
beneficiaries as at end of July 2020
Number of
Type of social grant Target group Level of grant beneficiaries

Social pensions Persons over the age of R1,860 3,702,918

60 years COVID-​19 temporary top-​up
of R250 per month for four
months
Disability grants Persons medically R1,860 1,039,567
diagnosed as disabled COVID-​19 temporary top-​up
over the age of 18 years of R250 per month for four
months
Child Support Grant Paid to the primary R445 per child 12,85, 228
caregiver(s) of children COVID-​19 temporary top-​up of
under 18 years R300 for month of May
COVID-​19 Social Relief of
Distress temporary grant paid
to caregiver of child of R500
per month for three months
(June-​August) (reaching
7.1 million caregivers).
Foster care grants Foster parents caring for R1,040 347,642
children under 18 years COVID-​19 temporary top-​up
following a statutory of R250 per month for four
process months (May to end of August
2020)
Care dependency Parents or caregivers R1,860 157,172
grant caring for a child with a COVID-​19 temporary top-​up
severe disability of R250 per month for four
months (May to end of August
2020)
Grants-​in-​aid A person with a physical R1,860 265,396
or mental condition
requiring regular
attendance by another
person
War veterans Veterans of Second World R1,860 50
War No top-​up
COVID-​19 Social For unemployed not R350 per month paid for three 5.3 million
Relief of Distress in receipt of social months (May, June and July
(SRD) grant assistance, social 2020)
insurance or student
financial aid

Source: Compiled by author based on SASSA data as at end of July 2020.

 Social Security and Social Development in South Africa    877

40.4.2 The Impact of Social Assistance on Poverty

and Inequality
Multiple studies have found that government spending on social assistance has
contributed significantly to poverty reduction in South Africa (Köhler and Bhorat 2020;
Bhorat et al. 2020; World Bank 2018a; van der Berg et al. 2009; Leibbrandt et al. 2010;
Samson et al. 2004). The same trend is evident in reducing levels of inequality, although
the labour market also played an important role (Hundenborn et al. 2018; Leibbrandt,
Finn, and Woolard 2012). More specifically, based on 2015 data, social assistance
transfers reduced the poverty headcount by 8 per cent and the poverty gap by 30 per
cent. It also reduced the Gini coefficient by 1.7 per cent, which is high relative to other
countries (World Bank 2018a: 72–​3). In these respects, social assistance has proved to be
highly effective in reducing income poverty and inequality.
Other developmental effects are worth noting. Wills et al. (2020) found that house-
hold hunger and food poverty were reduced largely due to social grants. Hunger
decreased from a high of 30 per cent in 2010 to 25 per cent in 2018 and almost doubled
(47 per cent) between May and June in 2020 during the early stages of the coronavirus
pandemic. Even though hunger levels improved somewhat in July and August of 2020,
the country is far from where it was in 2018 (Wills et al. 2020; Bridgman et al. 2020).
Social grant top-​ups, the TERS, school feeding, and informal social relief (for example,
food aid) are likely to have mitigated the negative impact of the crisis on food poverty
and hunger.
Social grants are also associated with reducing the depth of poverty for women and
female-​headed households. However, women continue to be poorer than men even
when additional income from grant receipt is accounted for (Posel and Rogan 2012).
The gendered nature of poverty, low levels of skills to compete in the labour market, a
lack of childcare support, and the sexual division of care which increases women’s care
burdens are some of the reasons for the high rates of gender inequality in the society.
Women have been most negatively impacted by the lockdown, with two-thirds of job
losses experienced by women (Casale and Posel 2020), reversing earlier positive trends.
Since the value of the OAP is more than the CSG, it has had more significant effects on
poverty (Leibbrandt et al. 2010). However, the temporary CSG top-​up in 2020 proved
to be more progressive in income distribution than the new COVID-19 Social Relief
of Distress (SRD) Grant (see Bhorat, Oosthuizen, and Stanwix 2020). The latter was,
however, successful in reaching a new category of people who were not previously in
receipt of social grants. The 2020 economic crisis also affected individuals in vulnerable
households living in higher-​income bands that were reached by the COVID-​19 SRD
grant (Bhorat, Oosthuizen, and Stanwix 2020) and the TERS (Bridgman et al. 2020).
Social grants also enable productive activities by supporting individual agency in the
pursuit of livelihood activities, by providing seed funding, the purchase of equipment
878   Leila Patel

for income generation initiatives, to offset business expenses, and in the management
of cash flow, to mention a few (Nnaeme, Patel, and Plagerson 2020; Neves et al. 2009).
Further, they contributed to growth in per capita consumption spending of 10.4 per-
centage points at the Lower Bound Poverty Line and resulted in a 1.8 percentage point
change in inequality of consumption between 2006 and 2015 (World Bank 2018a). Grants
also ensure a minimum standard of living for older persons and people with disabilities.
Pensions enable older persons to remain in their families and in their communities;
serve to empower them, improve their self-​esteem, and result in improvements in
their levels of life satisfaction (Møller 2011) and their material well-​being (Ardington
and Lund 1995). Disability grants contribute to reducing income disparities between
persons with and without disabilities (Graham et al. 2014). Positive social outcomes
associated with the CSG are in school enrolment (Biyase 2016; Eyal and Woolard 2013;
DSD, SASSA, and UNICEF 2012; Case et al. 2005); mental health (Eyal and Burns 2019;
Harpham et al. 2011); greater caregiver engagement in activities that are associated with
children’s well-​being; and women’s empowerment in financial decision-​making (Patel,
Knijn, and van Wel 2015). Although there is evidence of positive nutrition effects due
to the CSG (Aügero et al. 2007), persistent malnutrition remains a problem. This is due
to multiple factors, including the low monetary value of the CSG, pooling of household
resources leading to inadequate food access, administrative barriers to access such as
identity documents, inadequate care of children and women, and insufficient access to
services (Devereux and Waidler 2017; Coetzee 2013). Although school feeding is not al-
ways acknowledged as a social protection policy, it reaches over nine million children
through the Primary School Nutrition Programme. However, no rigorous national im-
pact evaluations have been conducted (Devereux et al. 2018).
Regarding the behavioural impacts of grant receipt, Makiwane (2010) and Rosenburg
et al. (2015) do not find an increase in teenage pregnancy associated with receipt of the
CSG. These findings are countered by Oyenubi and Kollamparambil (2020) who find
to the contrary, using different estimations and assessments over a longer time period.
More research is therefore needed. It should, however, be noted that the overall national
fertility rate declined from 2.9 in 1998, when the CSG was introduced, to 2.6 in 2016
(StatsSA 2020b). Evidence on the interaction of public assistance and behaviour such
as adult labour supply is mixed (Bertrand et al. 2003; Ardington, Case, and Hosegood
2009). Qualitative research shows that grant beneficiaries demonstrate a high degree
of willingness to work but find it difficult to do so in a context of high unemployment
(Surender et al. 2010). Low levels of education, care burdens, and the high opportunity
costs of work-​seeking are barriers to work-​seeking and employment. Education, gender,
and spatial inequalities also underlie income inequality and impede economic partici-
pation. Micro-​level impacts of women’s experiences of the CSG demonstrate the com-
plexity of the relational effects of social grant receipt on beneficiaries. How beneficiaries,
especially in relation to the CSG, are perceived by others in their communities and
how they perceive themselves, also serves to undermine their dignity. In this regard,
Hochfeld and Plagerson (2017) found that some female beneficiaries reported having to
mediate negative views about their deservingness of the grants.
 Social Security and Social Development in South Africa    879

40.4.3 Other Poverty-​targeted Public and Private

Social Provision
Cash transfers form part of a wider package of non-​monetary social policies for persons
who are income poor and who qualify for assistance subject to means testing. Different
means tests exist to access a variety of services such as public health care, subsidies
for children in registered early childhood education facilities, housing subsidies, and
free basic services (water and sanitation services). State-​ sponsored employment
programmes exist for the working-​age poor due to a shortage of jobs in formal labour
markets. Six million temporary employment opportunities were to be created by 2019
in infrastructure, environment, and culture, in non-​profit organizations involved in
community development, and in the social sector, such as early childhood develop-
ment, home-​based care, school nutrition, and crime prevention, to mention a few. These
programmes were to provide training and a stepping-​stone to formal and informal em-
ployment. No rigorous national impact evaluations have been conducted; many admin-
istrative and delivery challenges continue to exist; under-​funding and tensions arise
from participants’ expectations of more secure long-​term employment (McCord 2012).
Access to the National School Nutrition Programme (NSNP) for children is an im-
portant social protection measure. School-​fee waivers for children in no-​fee schools
target schools in quintiles one to three. Fee waivers and allowances were introduced for
students from low-​and middle-​income families at public higher-​education institutions,
including public employment programmes. Finally, welfare services for vulnerable
children and families include child protection services, social services for persons
with physical and mental disabilities, older persons, people with chronic illnesses,
services for victims of violence, including gender-​based violence, crime prevention
and substance abuse programmes, and shelters for homeless persons. Government
also subsidizes non-​governmental organizations and faith-​based organizations to de-
liver welfare services on its behalf. Poor coordination exists across all the government
departments that deliver these services and at different levels of government.
Government spending on social services amounted to 59 per cent of the total na-
tional budget in 2019/​20. Of this total, education spending was the highest (20 per cent),
followed by social development (16 per cent), health (12 per cent), and community de-
velopment (11 per cent) (National Treasury 2020). Social assistance makes up 94.5 per
cent of the social development budget and the remainder is spent on welfare services
which have historically been under-​funded. The growing social assistance budget has
left little room to grow developmental welfare services such as livelihood support and
promotive and preventive family and community-​based interventions to complement
social assistance programmes. At different times, social assistance expansion crowded
out spending in education and health, while new initiatives such as fee-​free higher edu-
cation crowded out allocations to basic education.
Private-​sector resource flows through corporate social responsibility (CSR) were a
significant spend of Rand 10.2 billion in 2019, of which half is allocated to education,
while the rest is allocated, among others, to social and community development (15 per
880   Leila Patel

cent), food security and agriculture (9 per cent), and health (7 per cent). These resource
flows complement public provision and are aligned with government priorities with
room for innovation. Increased allocations to food security and agriculture are a recent
development (Trialogue 2019). NGOs delivering welfare services have historically been
reliant on support from private donors and from government transfers. These transfers
have not kept abreast of the rising costs of welfare services over the years. During the
COVID-​19 pandemic, CSR funding and support from faith-​based organizations, and
development support for NGOs from local and international organizations, declined
significantly, leaving these organizations in a precarious position. It will take some time
for these resource flows to improve as they are dependent on a growing economy. Last,
another source of support to poor households is resource flows from family, friends,
neighbours, NGOs, community-​based organizations, and local savings and credit
rotating schemes. No accurate assessment exists of the scope of external in-​kind support
to households. There is evidence that in-​kind support, such as food aid from non-​state
organizations and informal systems of support, were fairly significant during the early
stages of the pandemic and had substantial reach (Wills et al. 2020). These local-​level
support systems complement formal social protection programmes and are seldom
considered in impact evaluations.
To sum up, South Africa has an extensive package of social provision consisting of so-
cial assistance and other social development programmes. Some of these are expansive
in their reach in education, school feeding, and health. However, the quality of educa-
tion and health is poor. Overall, these are crucial in reducing both multi​dimensional
poverty and inequality gaps in access to services beyond cash transfers. The National
Development Plan 2030 was intended to be an integrated social and economic develop-
ment framework, but has been mired in implementation challenges, poor governance,
leakage due to corruption, and an incapable state that is not able to deliver its develop-
mental goals (National Planning Commission 2011).

40.4.4 Social Insurance: Nature and Scope

of Unemployment Insurance
A variety of employer and employee contributory social insurance schemes exist to
protect employees and their dependents against risks that could disrupt their income-​
earning capacity. Typically, these include unemployment insurance, provident funds,
and benefits such as medical, maternity, illness, disability, occupational injuries, family,
and survivor benefits. Occupation and private retirement, death and medical schemes
are estimated to make up 64 per cent of GDP (Kruger 2013). In 2018, the General
Household Survey estimated that 17 per cent of people have a private medical aid benefit
(Department of Health 2018). Workers in small and medium-sized enterprises have
much lower levels of access (12 per cent); those in low-​wage employment in agriculture
and domestic work have the least access (Kruger 2013).
The UIF Act 63 of 2001 authorizes employees and employers to contribute 1 per cent
respectively of their monthly salary to the fund. Claimants are entitled to benefits in
 Social Security and Social Development in South Africa    881

proportion to their income during employment, on a sliding scale between 30 per cent
and 60 per cent of their monthly or weekly income while employed. The UIF benefit
can be claimed for up to 238 days. Only those who contributed to the fund may claim
benefits (Leibbrandt et al. 2010). Approximately 60 per cent of the labour force is covered
by UIF (DPRU 2018). The UIF is considered more suited to supporting frictionally un-
employed persons but is ineffective in supporting the bulk of the unemployed who have
not contributed to the fund. For these reasons Leibbrandt et al. (2010) argue that social
assistance is the most appropriate means of supporting the unemployed. Informal em-
ployment makes up a third of total employment, about 4.5 million people (Bassier et al.
2020). South Africa’s hard lockdown had a deleterious impact on informal workers, with
women being most severely affected (Rogan and Skinner 2020). Vulnerable workers are
distributed across all income bands, with over half residing in middle-​income households
(54 per cent); 19 per cent in deciles 3 and 4, and 13 per cent in the poorest households in
deciles 1 and 2. The remainder (14 per cent) are in the upper deciles (Bhorat et al. 2020).
To mitigate the economic impact of the crisis, scaling up food aid, expanding coverage of
UIF to informal workers, social grant top-​ups, and improving systemic challenges in the
roll-out of the COVID-​19 SRD grant were proposed (Rogan and Skinner 2020).
Last, the COVID-​ 19 temporary Employer-​ Employee Relief Scheme (TERS) was
established and implemented via the UIF. Its purpose was to prevent the temporary de-
struction of jobs due to the closure of businesses. The benefit was to be paid for up to three
months by covering the cost of salaries of employees on an income-​replacement rate sliding
scale of 38 per cent for higher earners and up to 60 per cent for low earners. The maximum
amount payable was R6,638.40 per month and the minimum R3,500 per month. The
Department of Employment and Labour paid out Rand 34 billion in 7.4 million payments
while continuing to make its normal benefit disbursements amounting to Rand 4 billion
in 677,000 payments to beneficiaries since March 2020 (Bridgman et al. 2020). The TERS
was extended for a further month, and termination of benefits in a situation where eco-
nomic recovery has been extremely slow and likely to be protracted, raises questions about
the nature and scope of future income-​protection schemes.
Finally, although not discussed in this chapter, it should be noted that legislation
to establish a national health insurance scheme has been adopted. The establishment
of a universal pension insurance scheme is under discussion and involves complex
negotiations with many competing parties and interests of private insurance companies
and of organized workers.

40.5 Conclusions: Policy Issues

and Future Trajectories

As regards the big social questions about how to progress poverty reduction and re-
distribution in contemporary South Africa, the role of social assistance is now widely
acknowledged and there is a growing political constituency among low-​and middle-​
income voters supporting collective responsibility of the state for social welfare
882   Leila Patel

(Sadie and Patel 2020). What is at issue is how best to achieve this. Several high-​level
policy solutions arise from this review and from policy advocacy by civil ​society
organizations: first, social security reforms are needed that centre on filling the gaps,
such as support for the long-​term and chronically unemployed and informal workers;
increased benefit levels of social grants, especially the CSG to more effectively address
malnutrition, are proposed; and innovative outreach is needed to improve inclusion of
large numbers of children who qualify but do not receive the CSG—​estimated to be 17.5
per cent (DSD, SASSA, and UNICEF 2016).
Second, there is a growing acknowledgement that unless there is employment growth
through various public and private measures, and in creating more sustainable work
opportunities, social assistance on its own has a limited effect on lifting people out of
poverty and in improving income mobility. Employment growth and better-​quality jobs
would bring more people into the social insurance system and build a larger middle
class. The intensification of the social and economic challenges due to the COVID-​19
crisis is likely to be protracted and may further deepen structural unemployment, with
some jobs being lost permanently. Ongoing monitoring of the economic recovery over
time is likely to aid more effective policymaking. Social policy solutions are needed
that extend interim social relief in the short to the medium term and address systemic
improvements to overcome delivery challenges. South Africa may do well to follow
other countries that maintain social registers of people in need to aid planning but also
to improve the responsiveness of social support.
Third, the temporary expansion of social assistance due to the pandemic brings
new challenges in managing the termination of the grants as initially intended or a
gradual phasing out of the grants as the economy begins to recover and employment
is regenerated. This will be a tricky political issue to manage in the face of a social and
humanitarian crisis and holds the potential for significant political destabilization. It
is likely that the COVID-​19 SRD grant may, by default, become the new basic income
grant. Government announcements that these options are being explored suggest that
this might emerge in future. While it is likely that a targeted income protection is likely
to emerge for unemployed and informal workers, there is also pressure for a universal
basic income for all income groups. However, questions remain as to the affordability
of these policy options, given high government debt and current economic constraints.
Also, establishing the likely distributional effects of the different proposals and cost–​
benefit analyses would aid policy engagement and decision-​making. Other questions
are related to what the mix of social security and social insurance strategies might be and
how these may be better integrated to ensure universal income protection at a systemic
level. Furthermore, improvements in delivery are needed to counter the inefficiencies
that undermine beneficiaries’ dignity. Given the current fiscal constraints, which cannot
be wished away, consideration needs to be given to the fact that social policies and social
development programmes are likely to be crowded out by expanded income protection.
Concentrating simply on income protection without paying attention to the other
dimensions of human well-​being may narrow the focus solely to income poverty and
inequality. Growing cash transfers at the expense of non-​monetary forms of social
 Social Security and Social Development in South Africa    883

provision, including social, health, education, and basic services, could be equally coun-
terproductive. What is needed are carefully designed, evidence-​based complementary
interventions that will strengthen human agency and tackle systemic barriers. These
interventions should assist vulnerable populations by providing them with health
services, substance-​abuse services, programmes that tackle gender-​based violence, and
programmes to strengthen families and boost community-​level livelihoods. These, along-
side other similar interventions, should ultimately aim at breaking the intergenerational
cycles of disadvantage by addressing the complex and multi​dimensional aspects of
human well-​being. How far social rights and redistribution should go continues to be
vigorously debated in the context of significant institutional and growth constraints.
Ultimately, some realism may be needed, as well as innovative thinking, to bridge the
divide between what is desired and what is possible, and to find solutions that will take
the country forward on a path towards a more egalitarian future. Finally, this case study
demonstrates the potential of social protection policies and social development innov-
ation to respond to contemporary national and global social questions and challenges
including large-​scale social and economic transformation of societies.

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 PA RT V

THE
M AC ROE C ON OM Y
 Chapter 41

The Macroec onomi c s

of Sou th A fri c a n
E c onom ic G row t h

Philippe Burger

41.1 Introduction

Except for the 1990s, a decade with a first half characterized by political uncertainty and
transition, no decade in the last seventy years has had as low a real economic growth rate
as the 2010s.1 The importance of economic growth for poverty reduction in a country
such as South Africa is not new (cf. Dollar and Kraay 2004, who discuss the importance
of this link globally within the setting of trade openness). With a one-​to-​one relation-
ship between employment growth and real GDP growth, the average increase in both
was only 1.7 per cent per year over the period 2010 to 2019 (also see Creamer, ­Chapter 6
in this volume, for a discussion on economic growth and employment). Therefore, with
high levels of inequality, poverty, and unemployment, the South African economy needs
to grow much faster.
To gain a better understanding about economic growth in South Africa in the period
since 1994, this chapter addresses two aspects of economic growth: (1) the determinants
of economic growth in South Africa and (2) what growth policies can support and im-
prove economic growth.
The chapter shows that during the late 1990s and 2000s higher levels of total factor
productivity (TFP) contributed to higher economic growth. However, since 2008
TFP deteriorated, and as a result, so too economic growth. The chapter argues that,

1
Average real GDP growth per decade: 1950s: 4.7 per cent; 1960s: 5.5 per cent; 1970s: 3.3 per cent,
1980s: 2.2 per cent; 1990s: 1.4 per cent; 2000s: 3.6 per cent; and 2010s: 1.7 per cent (SARB 2020, and
author’s own calculations).
892   Philippe Burger

in particular, lower private ​investment levels contributed to lower economic growth.

A number of authors studying economic growth from the perspective of New Growth
Theory globally argue that higher levels of investment relative to GDP stimulate higher
economic growth (cf. Mankiw, Romer, and Weil 1992; Hamilton and Monteagudo 1998;
Bruns and Ioannidis 2020; Vedia-​Jerez and Chasco 2016; Afonso and St. Aubyn 2017;
and Mourougane et al. 2016). Because investment embodies technology, a higher level
of investment contributes to higher productivity and a permanently higher level of eco-
nomic growth (Hamilton and Monteagudo 1998; also see Durlauf, Johnson, and Temple
2005, who argue that the inclusion of the investment/​GDP ratio in growth equations
serves as a test to distinguish Neoclassical and New Growth Theories).2 Unfortunately,
this means the obverse also holds: lower investment, embodying lower levels of tech-
nology, contributes to lower levels of growth.
Over time various policy proposals to enhance economic growth in South Africa
emerged. These include labour-​intensive, export-​driven, and investment-​driven growth
policies. Most of these also informed government policy. The chapter argues that the im-
plementation of a well-​designed combination of these policies will be needed to attain
higher levels of economic growth.

41.2 The Determinants of Economic

Growth and the Role of Total
Factor Productivity

Neoclassical Growth Theory as expounded by Solow (1956, 1957) explains economic

growth in terms of three contributing factors: employment, capital, and total factor
productivity (TFP), and it does so in the form of a Cobb-​Douglas production function:

Yt = At K t1−α Lαt (1)

where Yt is GDP, At is total factor productivity (level of technology), Kt is fixed capital

stock, Lt is labour, and α is labour’s share in income. Using the Cobb-​Douglas pro-
duction function one can calculate the contributions of employment, capital, and
TFP to growth each year. This can be done for the economy in the aggregate, that
is, on a macroeconomic level, but also per sector of the economy. The discussion
below presents such a breakdown on both the macroeconomic and sectoral levels and

2 Note that this is contrary to Neoclassical Growth Theory, which postulates that higher investment

can contribute to a permanent increase in income and a temporary increase in the economic growth rate,
but not a permanent increase in economic growth. New Growth Theory postulates that higher invest-
ment can contribute to a permanent increase in economic growth. For more detail, see section 41.4.
 The Macroeconomics of South African Economic Growth    893

discusses it against the background of past literature (see Arora and Bhundia 2003;
Du Plessis and Smit 2009; Eyraud 2009; and Inglezi-​Lotz, van Eyden, and Du Toit
2014 on the calculation of factor contributions to growth for South Africa). The dis-
cussion below recognizes the shortcomings of the standard Solow (1956, 1957) decom-
position (cf. Inglezi-​Lotz et al. 2014), but following Fedderke (2018), it also recognizes
that various alternatives meant to address these shortcomings are themselves not free
of problems. These alternatives also use the standard model as benchmark. Moreover,
Fedderke (2018: 184) found that even when the implications of imperfectly competi-
tive pricing for TFP, and the influence of the impact of increasing returns to scale and
Schumpeterian growth are dealt with explicitly, it does not alter the inferences drawn
from the standard Solow decomposition. Hence, the standard model provides an ad-
equate approximation of the contributions capital, labour, and technology make to
growth.

41.2.1 Trends in Total Factor Productivity: A

Macroeconomic View
Fedderke and Simkins (2012) and Fedderke (2002) argue that economic growth in
developing countries often starts with capital contributing significantly to economic
growth. However, as the economy develops, capital’s contribution wanes and gives way
to an increasing contribution by technology (TFP). For various sample periods between
1970 and 2010 (depending on the study), Inglezi-​Lotz, Van Eyden, and Du Toit (2014),
Du Plessis and Smit (2009), and Fedderke (2002) found that South Africa followed a
similar pattern, with TFP becoming more important relative to capital and labour as
a contributor to economic growth. However, Janse van Rensburg, Fowkes, and Visser
(2019: 7) found that this pattern did not persist into the 2010s, a finding the updated ana-
lysis below bears out.
Figure 41.1 presents the contribution TFP, capital, and labour made to economic
growth for the period 1994 to 2019.3 Especially noticeable is the contribution of TFP
prior to 2007 and since. With the exception of 1998, TFP’s contribution to economic
growth was positive from 1994 to 2007. Thus, the level of TFP improved during that
period, contributing to higher economic growth. However, since 2008 and with the
exception of 2010 and 2011, TFP’s contribution to economic growth has been negative,
indicating a reversal of the earlier trend. Figure 41.1 also shows that capital and labour’s
contributions to economic growth have also deteriorated since 2016.

3 The results of Figure 41.1 were calculated using an alpha of 0.612. The alpha was derived from com-

pensation of employees and net operating surplus data in the National Accounts in the South African
Reserve Bank Quarterly Bulletin and set as the average for the period 1994–​2019. Employment data were
obtained from the World Bank database (World Bank 2020).
894   Philippe Burger

4
% change

-2

-4
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
TFP Employment Capital GDP grow

Figure 41.1 Contributing factors to economic growth

Source: SARB (2020); StatsSA (2020a, 2009), and author’s own calculations.

41.2.2 Total Factor Productivity: A Sectoral View

Table 41.1 presents a similar analysis to Figure 41.1, but for economic sectors.4 It presents
a breakdown for the average annual contributions of labour, capital, and TFP to average
economic growth for the period 2001–​19,5 as well as two sub-​periods 2001–​08 and
2010–​19.6 Although Fedderke (2018) used different data for employment, the findings

4 Table 41.1 uses data from StatsSA on sectoral gross value a

​ dded, compensation of employees, and
gross operating surplus for each sector, with alphas calculated per sector. Employment data are the
September values from the Labour Force Survey (2000–​07) and Quarterly Labour Force Survey (2008–​
19) of StatsSA, with StatsSA ensuring that the data from the former are consistent with the latter.
5 It runs for the period 2001–​19 because it relies on the Labour Force Survey (LFS), available from

2000 to 2007, and the Quarterly Labour Force Survey (QLFS), available from 2008 until the present.
Employment data for government and personal services do not appear separately in the QLFS and are
therefore not represented in Table 41.1. Preference is given to LFS and QLFS data over SARB data as the
latter do not include informal employment, while the LFS and QLFS do include it. The informal sector
employs approximately 18 per cent of the employed in 2019 Q4 and is estimated as contributing approxi-
mately 6 per cent to GVA in 2014 (StatsSA 2020a; Chen 2018: 35). Leaving it out of the analysis would
skew the analysis in favour of larger firms and, because the basis of classification of firms as formal or in-
formal depends on whether or not they are registered for taxation, would be arbitrary.
6 Note that 2009, a year characterized by the large negative shock resulting from the global financial

crisis, is not included in either sub-​period because its inclusion would distort the averages for the sub-​
periods. Splitting the analysis into two sub-​periods also allows for limiting the effect of outsourcing of
services that occurred in the 2000s to the first sub-​period. Large numbers of cleaners and security guards
were outsourced during the 2000s. These workers were removed from, say, manufacturing and added to
business services in the finance, real estate, and business service sector (see Tregenna 2016: 114).
 The Macroeconomics of South African Economic Growth    895

Table 41.1: Contributing factors to sectoral output growth, average per

annum growth
Labour Capital TFP GVA

Total GVA 2001–​19 0.7% 1.1% 0.7% 2.5%

2001–​08 1.0% 1.0% 2.1% 4.1%
2010–​19 0.9% 1.1% –​0.3% 1.7%
Agriculture 2001–​19 –​0.7% 0.0% 2.0% 1.3%
2001–​08 –​1.9% 0.1% 4.7% 2.8%
2010–​19 0.8% –​0.1% –​0.2% 0.5%
Mining 2001–​19 –​0.1% 1.6% –​1.6% –​0.1%
2001–​08 –​1.2% 1.2% 0.1% 0.0%
2010–​19 1.0% 1.7% –​2.4% 0.3%
Manufacturing 2001–​19 0.0% –​0.2% 1.8% 1.6%
2001–​08 1.1% 0.6% 1.9% 3.6%
2010–​19 –​0.3% –​0.7% 2.3% 1.3%
Electricity, gas, and water 2001–​19 1.0% 3.9% –​4.2% 0.7%
2001–​08 1.4% 1.3% –​0.5% 2.2%
2010–​19 1.3% 5.5% –​7.0% –​0.3%
Construction 2001–​19 1.6% 2.9% 0.2% 4.7%
2001–​08 3.1% 4.2% 1.6% 9.0%
2010–​19 0.7% 1.6% –​1.4% 0.9%
Wholesale, retail, hotels, and 2001–​19 0.4% 1.2% 1.1% 2.6%
restaurants 2001–​08 0.8% 1.7% 1.5% 4.0%
2010–​19 0.5% 0.8% 0.7% 2.0%
Transport, storage, and 2001–​19 0.6% 2.4% 0.4% 3.4%
communication 2001–​08 0.8% 2.0% 3.0% 5.8%
2010–​19 0.7% 2.6% –​1.4% 1.9%
Finance, real estate, and 2001–​19 1.8% 1.1% 1.1% 4.1%
business services 2001–​08 2.7% 1.4% 2.5% 6.6%
2010–​19 1.2% 0.9% 0.3% 2.4%

Source: StatsSA (2020a, 2020b, 2009), and author’s own calculations.

896   Philippe Burger

largely correspond with his findings for the period 2001–​07, with TFP in general making
a positive contribution to sectoral output growth.
For the period 2010–​19, Table 41.1 shows that TFP contributed negatively to the output
growth in agriculture; mining; electricity, gas, and water; construction; and transport,
storage, and communication; and positively to output growth in manufacturing; whole-
sale, retail, hotels and restaurants; and finance, real estate and business services.
Most notable is the –​7 per cent growth in TFP in electricity, gas, and water in the
period 2010–​19, even though the sector’s capital stock grew on average by 5.5 per cent.
The increase in its capital stock largely results from the construction of the Medupi
and Kusile power stations, which have been, despite the amounts spent on capital,
underperforming in terms of output. Due to management, maintenance, and finan-
cial (including corruption) problems at Eskom (South Africa’s electricity supplier),
this sector has seen a decrease in output in the period 2010–​19. This decrease has
been reflected in frequent load-​shedding (planned electricity blackouts) affecting the
economy when electricity supply cannot match demand.

41.2.3 Explaining the trends in Total Factor

Productivity: Human Capital Investment
Fedderke (2006) and Fedderke and Simkins (2012) explore factors explaining the con-
tribution of TFP using New Growth Theory. Whereas Neoclassical Growth Theory, as
formulated by Solow (1956, 1957), specified TFP as exogenous, New Growth Theory,
as formulated by Romer (1986, 1990), Lucas (1988), and Aghion and Howitt (1992),
endogenizes TFP. Romer (1986, 1990) explains TFP by the level of physical capital in-
vestment, while Lucas (1988) does so using both physical and human capital investment.
In Schumpeterian models, technical progress results from resources directly dedicated
to it (Fedderke and Simkins 2012; Aghion and Howitt 1992).7
Fedderke (2006) argues that for the period 1970–​2000 the Lucas approach better
explains TFP growth than the Romer approach. In addition, Fedderke (2006) and
Fedderke and Liu (2017) also found support for the Schumpeterian explanation
by considering the impact of research and development (R&D) expenditure on
manufacturing sector output. R&D, however, is undermined by an underperforming
South African education system, which, although it saw improved access, has failed
to deliver larger numbers of school leavers with the mathematical and scientific skills
needed for R&D (Fedderke and Simkins 2012).
These views correspond with Hanushek (2015) and Hanushek and Woessmann (2015,
2012, 2008), who in panel studies of countries that include South Africa, show that it is
the quality, not the number of years of education, that determines, inter alia, a country’s

7
Also see Aghion, Braun, and Fedderke (2008) on the relationship between competition and
productivity.
 The Macroeconomics of South African Economic Growth    897

growth rate. Using the number of years of education as a human capital measure
assumes that ‘a year of school in Japan has the same value in terms of skills as a year
of school in South Africa. In general, this is implausible’ (Hanushek 2015: 34). Instead,
Hanushek (2015) and Hanushek and Woessmann (2015, 2012, 2008) use international
test scores measuring mathematics and science skills of school learners as proxy for the
quality of education and show that countries with higher test scores tend to have higher
economic growth rates. They also show that once they control for the quality of educa-
tion, the quantity of education (years of schooling) does not explain growth.
The most comprehensive international test scores for school learners are the
Trends in Mathematics and Science Study (TIMSS) and the Progress in International
Reading Literacy Study (PIRLS). In both TIMSS and PIRLS South Africa finds it-
self either last or second-​last out of groups of countries that include both developed
and emerging ​market economies (Burger 2018: 304–​12). Following the findings of
Hanushek (2015) and Hanushek and Woessmann (2015, 2012, 2008), South Africa’s
poor performance on international test scores corresponds with its poor economic
growth performance.

41.3 Openness, FDI,

and Export-​driven Growth

A deteriorating TFP, and the lack of human capital underlying it, is not the only ex-
planation for South Africa’s low economic growth rate. Exploring the reasons for South
Africa’s low economic growth and high unemployment rate, Rodrik (2006) found
that the share of tradable good sectors (manufacturing, agriculture, and mining) in
total output fell in the 1990s and early 2000s, and ascribed this largely to South Africa’s
deteriorating international competitive position and intensified import competition.
Prices in manufacturing (as measured by the manufacturing sector’s GVA deflator) fell
relative to the GDP deflator, while wage rates did not fall to safeguard jobs, indicating
that the profitability of the manufacturing sector came under pressure. Sectors with
a larger proportion of low-​skilled workers also performed worse in terms of output
growth. Workers who then lost their jobs in manufacturing were subsequently not
absorbed by the informal sector, leading to the high unemployment rate characterizing
South Africa. In principle, a solution would be a drop in the wage rate. However,
Rodrik (2006) acknowledged that this was politically out of the question, given the
expectations linked to the political transition that occurred in the 1990s. More prefer-
able, Rodrik (2006) argued, would be an export-​driven growth policy, particularly for
low-​skilled manufacturing subsectors. Specifically, he argues for the creation of high-​
productivity, high-​wage jobs to absorb low-​skilled workers, supported by a macroeco-
nomic policy that keeps the exchange rate stable and competitive to encourage exports,
and an industrial policy that encourages private investment and entrepreneurship,
898   Philippe Burger

1.5 25%

1.4

1.3 20%
Relative Index (2000 = 1)

1.2
15%

% of GDP
1.1

1
10%
0.9

0.8 5%
0.7

0.6 0%
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Share of Manufacturing in GVA (RHS) Manufacturing deflator/GDP deflator (LHS)
Manufacturing TFP/Total TFP (LHS) Manufacturing real wage/Total real wage (LHS)

Figure 41.2 Manufacturing relative to the aggregate economy

Source: SARB (2020); StatsSA (2020a, 2009), and author’s own calculations.

specifically in industries in which the country can develop a comparative advantage.

Recommendations to pursue export-​driven growth were not new, even in 2006 when
Rodrik suggested it. The government’s GEAR policy ten years earlier already stated
export-​driven growth as an objective. Nevertheless, the competitiveness and prof-
itability of exports remained a problem, though there are signs that conditions in the
manufacturing sector might have stabilized.

41.3.1 Competitiveness of the Manufacturing Sector

The fall in the relative price of manufacturing goods, as measured by the sector’s deflator
relative to the GDP deflator, continued until 2011 (see Figure 41.2). After a brief drop
in manufacturing’s real wages relative to real wages in the economy in the early 2000s,
the sector’s relative wages increased sharply until 2013. The sector’s TFP relative to the
economy’s TFP remained stable, but since 2009 started to increase. Therefore, since the
early 2010s, conditions in the manufacturing sector stabilized relative to the economy
in the aggregate. This is also observable in the manufacturing sector’s stable share in
GVA of approximately 13 per cent since 2011 (see Figure 41.2). The improved stability
could arguably serve as foundation for an export-​driven manufacturing-​based policy,
as proposed by Rodrik (2006). The question is whether the focus should be on export
 The Macroeconomics of South African Economic Growth    899

diversification or specialization, a question explored by Naudé, Bosker, and Matthee

(2010).

41.3.2 The Diversification and Specialization of Exports

and the Skills Needed in Export Production
Naudé et al. (2010) focused on a regional (magisterial district) level and specifically the
relationship between economic growth per district and the degrees of export diver-
sification and specialization in districts. They found that, for the period 1996 to 2001,
districts with higher growth were not the districts with a higher level of export diver-
sification. Rather, higher growing districts tended to be districts with higher levels of
export specialization. Especially agriculture and mining stood out as sectors in districts
with higher levels of export specialization and therefore economic growth (Naudé et al.
2010: 569). Naudé et al. (2010) argued that their findings support the importance of
openness to trade, and favouring regional clustering of industry to benefit from spe-
cialization. In addition, they also found that districts with higher levels of human cap-
ital tended to grow faster, indicating the importance of underpinning an export-​driven
growth policy with a human capital development strategy.
Not only is the higher specialization in the mining sector associated with higher dis-
trict growth, but mining in general remained the main beneficiary of foreign direct in-
vestment (FDI) flows. However, because mining is capital intensive and sectors such
as manufacturing are more labour intensive, there is limited transference of higher
knowledge and skills developed as a result of FDI flows (Strauss 2015). With FDI mostly
benefiting mining, FDI’s contribution to productivity and economic growth in sectors
outside mining is thus limited (Strauss 2015). Therefore, although higher levels of export
specialization in agriculture and mining support higher growth (as found by Naudé
et al. 2010), mining does not contribute much to inclusive economic development (as
found by Strauss 2015).
Related to Strauss’s finding, Hausmann and Klinger (2008) argue that South Africa
specializes (and therefore has a comparative advantage) in sectors that are peripheral
in the product space, where such space is defined in terms of the re-​deployability of
skills from low-​growth sectors to potential growth sectors. For instance, South Africa
specialized in deep-​level mining, but the skills used in deep-​level mining are of little use
in most other sectors (Hausmann and Klinger 2008: 626). With exports still dominated
by mining, this peripheral nature of South African products, according to Hausmann
and Klinger (2008), limits the country’s export capacity and explains its poor export
performance. It also explains why the country has trouble diversifying its export basket.
Hausmann and Klinger (2008) argue that agricultural goods hold more growth poten-
tial, as these goods are less peripheral and therefore allow for diversification to sectors
900   Philippe Burger

close to their product space. They cite tropical agriculture products, cereals, and animal
products as examples, as well as some chemical products and machinery (Hausmann
and Klinger 2008: 627–​8). Hausmann’s Center for International Development (CID) at
Harvard University also produces the Atlas of Economic Complexity, which includes
an Economic Complexity Index (ECI) for each country (Center for International
Development 2020). Economic complexity ‘expresses the diversity and sophistication
of the productive capabilities embedded in the exports of each country’ (Center for
International Development 2020). The CID argues that the ECI explains differences in
income and predicts income across countries. South Africa’s ECI has fallen from 0.32
in 1995 to –​0.02 in 2018, indicating a deterioration in the complexity of the country’s
exports.8

41.3.3 TFP, Product Market Price Elasticity and Openness

of Trade
Fedderke (2018) also adopts a sectoral approach, but focuses on TFP, product market
price elasticity, and openness of trade. He argues that different sectors of the economy
experience different TFP growth. He also finds that the price elasticity of demand in
the economy is less than one. As a result, sectors with higher TFP growth see a relative
rise in their real output over time, which in turn results in their relative prices falling.
However, even though the falling prices might stimulate demand, with the price elas-
ticity of demand less than one, the increase in demand does not offset the fall in price,
resulting in their share in total output falling relative to sectors with lower TFP growth.
Fedderke (2018) argues that policies focused on labour and wage growth need to be
augmented by policies that will focus on the supply side of the economy and improve the
country’s international competitiveness. Improved international competitiveness is also
a recommendation by Aghion, Fedderke, Howitt, and Viegi (2013), who explore the im-
pact of trade liberalization on growth in the context of a Schumpeterian growth model
with technological innovation.
To improve international competitiveness, create skills that are more transferable
between industries, and facilitate the development of export specialization that allows
for the transference of higher knowledge and skills developed as a result of FDI flows,
will require higher levels of human capital. Since the creation of human capital through
the schooling process is time-consuming, human capital creation might require much
higher levels of skilled immigrants and the importation of know-​how (Hausmann 2019).

8
Developed countries also experienced a deterioration, with the average value falling from 1.54 to
1.27. South, South-​East and East Asian countries saw a rise from –​0.06 to 0.28. Especially China saw
a steep rise, from 0.32 to 1.34. Note that South Africa’s and China’s ECIs were the same in 1995. Latin
America and the Caribbean deteriorated from –​0.32 to –​0.44, while Africa improved slightly from –​0.97
to –​0.86.
 The Macroeconomics of South African Economic Growth    901

41.4 Growth Policies to Support

and Improve Economic Growth

Export-​driven growth, as discussed above, formed an integral component of most of

the South African government’s growth strategies since 1994. These include the 1996
Growth, Employment and Redistribution (GEAR) strategy, the 2006 Accelerated
and Shared Growth Initiative for South Africa (ASGISA), as well as the 2012 National
Development Plan (NDP). Common to most of these plans were also two other growth
strategies: (1) labour-​intensive growth, and (2) investment-​driven growth.

41.4.1 Labour-​intensive Growth
Almost every growth policy the South African government put forward since 1994
proposed labour-​ intensive growth as a solution to the country’s unemployment
problem. Economic literature also identifies sectors with high employment multipliers
and considers various policy interventions to promote labour-​intensive growth in South
Africa (cf. Zalk 2019; Black 2016; Tregenna 2016; Black and Gerwel 2014). Increased la-
bour intensity can, according to Black and Gerwel (2014), be achieved either by ensuring
economic sectors become more labour intensive, or by economic activity shifting from
less to more labour-​intensive sectors.
One possibility is a combination of labour-​intensive and export-​driven growth,
whereby policy promotes industries that are both labour-​intensive and hold export po-
tential. However, Hausmann and Klinger (2008: 628) warn that in South Africa labour-​
intensive export sectors are not the sectors in which South Africa holds a competitive
advantage, and redeploying skills to these sectors from sectors in which South Africa
does hold a competitive advantage, will be difficult.
Zalk (2019), however, argues that in agriculture there is a subgroup of agricultural
products that are high-​value, labour-​intensive, and export-​oriented in nature. He argues
that the output growth of this group of agricultural products holds the potential to create
up to 300,000 jobs, both directly and indirectly. Tregenna (2016) identifies a number
of sectors and subsectors, such as agriculture, clothing, textiles, wholesale and retail,
and catering and accommodation services, that are characterized by high employment
multipliers, while Black and Gerwel (2014) argue that such sectors should receive more
government support. Black and Gerwel (2014) also argue that policy should specifically
focus on supporting small manufacturing firms and small-​scale farmers.

41.4.1.1 Employment Intensity and Output Growth Potential

In general, proposals for labour-​intensive growth focus on the high employment inten-
sity of the growth in some sectors, but do not consider the output growth potential of
these sectors. Both these aspects, however, deserve attention, as high economic growth
902   Philippe Burger

can make up for low employment intensity. Starting with the same number of employees
in two sectors, a sector with an employment intensity half that of the other sector, but
with an output growth double that of the other sector, creates as many jobs as the other
sector. Compare the agriculture, construction, transport, and finance sectors in South
Africa. Table 41.2 shows that agriculture and construction are the two most labour-​
intensive sectors in South Africa, with respectively on average 11.05 and 12.45 workers
per million Rand of output produced during the period 2010–​19, and an employment
intensity of growth (employment growth divided by GVA growth) of respectively 6.2
and 2.0. GVA in these two sectors, though, grew on average by only 0.5 per cent and 0.9
per cent per annum during this period, compared to total GVA growing at 1.7 per cent.
As a result, employment grew on average by 3.1 per cent in agriculture and 1.8 per cent
in construction per annum. By contrast, the finance sector, which is much less labour
intensive with only 3.61 workers per million Rand of output and an employment inten-
sity of only 1.38, saw average GVA growth of 2.4 per cent per annum, and employment
growth of 3.3 per cent per annum on average. A similar picture emerges for the transport
sector, which employs only 3.57 workers per million Rand of output produced and an
employment intensity of growth of only 1.11, but because its GVA grew on average by 1.9
per cent per annum, its employment grew on average by 2.1 per cent per annum. Thus,
notwithstanding their low labour intensity, the finance sector outperformed both agri-
culture and construction in terms of output and employment growth, while transport
outperformed construction.
This does not mean that labour-​intensive growth is unimportant, but merely shows
that without output growth, labour-​intensive growth does not create employment
growth. It does, however, raise the question whether policy should focus on generating
growth in labour-​intensive sectors, or rather growth in high-​growth sectors with spill-
over effects and supply chain networks into other sectors, that can therefore serve as
locomotives to pull the rest of the economy with them. This is a question the literature
does not address, but which deserves more attention.

41.4.1.2 Capital and Labour Intensity

Table 41.2 also shows that even though agriculture is a labour-​intensive sector, at 4.06 it
is also a sector with a high capital/​output ratio. Its capital/​output ratio has the same order
of magnitude as that of the transport and finance sectors and is significantly higher than
that of mining, manufacturing, and trade, and eight times that of construction. Putting
it differently, to produce R1 of output in agriculture requires eight times as much capital
as in construction and significantly more than in mining, manufacturing, and trade.
Therefore, in an economy running short on saving, notwithstanding its high labour in-
tensity, policymakers should consider the wisdom of promoting agriculture, given that
it is not a high-​output-​growth sector and requires much higher levels of investment per
Rand of output. However, as shown by Hausmann and Klinger (2008) and Zalk (2019),
there might be agricultural subsectors with more promise in terms of exports, labour in-
tensity, and growth potential than the sector on average.
Table 41.2: Sectoral characteristics (average 2010–​19 or values in either 2010 or 2019)
Empl intensity
GVA growth Empl growth of growth Output Output Workers/​Output Empl Empl Capital (R’000)/​
Average 2010–​19 (A) (B) (B)/​(A) share 2010 share 2019 (R’mil) share 2010 share 2019 Capital/​Output Worker

Total GVA 1.7% 1.7% 1.00 100% 100% 5.60 100% 100% 2.74 489.6
Agriculture 0.5% 3.1% 6.20 2.6% 2.4% 11.05 4.9% 5.4% 4.06 372.4
Mining 0.3% 2.7% 9.00 9.2% 7.9% 1.78 2.4% 2.6% 2.52 1423.0
Manufacturing 1.3% –​0.5% –​0.38 14.4% 13.4% 4.67 13.3% 10.8% 1.60 341.6
Electricity, gas, and –​0.3% 5.4% –​18.00 2.7% 2.3% 1.85 0.7% 0.8% 9.74 5240.8
water
Construction 0.9% 1.8% 2.00 3.8% 3.6% 12.45 8.2% 8.2% 0.48 39.1
Wholesale, retail, 2.0% 1.2% 0.60 14.9% 15.1% 7.80 22.6% 20.8% 0.73 93.0
hotels, and
restaurants
Transport, 1.9% 2.1% 1.11 9.2% 9.5% 3.57 5.9% 6.0% 4.04 1133.2
storage, and
communication
Finance, real 2.4% 3.3% 1.38 21.0% 22.9% 3.61 12.4% 15.2% 4.11 1145.5
estate, and
business services

Source: SARB (2020); StatsSA (2020a, 2020b), and author’s own calculations.
904   Philippe Burger

What complicates the matter further is that the employment growth that did take
place in South Africa favoured skilled workers over semi-​skilled and low-​skilled
workers. The number of workers employed in skilled categories increased by 33.1
per cent over the period 2008Q1 to 2019Q4, from 1.8 million to 2.4 million, while the
number of semi-​skilled and low-​skilled workers only increased by 9.6 per cent (from
8.4 million to 9.2 million) and 13.6 per cent (from 4.2 million to 4.8 million) (StatsSA
2020a and author’s calculations). Given that the unemployed in South Africa tend to
have lower levels of schooling than the employed, the question is whether a labour-​
intensive growth strategy will be able to reverse the trend towards employing more
skilled compared to semi-​and low-​skilled workers.

41.4.2 Investment-​driven Growth
Higher levels of investment relative to GDP remained a stated objective in every
government growth plan since the GEAR policy of 1996. Unfortunately, though, as
Creamer in C ­ hapter 6 of this volume shows, investment relative to GDP fell over the
last decade. President Ramaphosa in 2018 set a $100 billion investment target over a
five-​year period and the government held several investment summits in pursuit of
that target.
According to Neoclassical Growth Theory higher levels of capital formation can
permanently increase the level of output per capita, but not the rate at which output
grows (Solow 1956, 1957). Subsequent developments in New Growth Theory, how-
ever, postulated that higher investment relative to output can lead to a permanently
higher economic growth rate. In multi-​country panel studies, Mankiw, Romer,
and Weil (1992) and Hamilton and Monteagudo (1998) more than two decades ago
found a strong relationship between economic growth and the level of the invest-
ment/​GDP ratio. Hamilton and Monteagudo (1998: 508) ascribed this largely to in-
vestment embodying new technology, with the new technology boosting economic
growth. Later authors, such as Bruns and Ioannidis (2020) for sixty-​three developed
and emerging market countries (including South Africa), Vedia-​Jerez and Chasco
(2016) for South American countries, as well as Afonso and St. Aubyn (2017) and
Mourougane et al. (2016) for OECD countries, also found a positive effect of the
investment/​GDP ratio on economic growth. Some authors also distinguished be-
tween the effects of public-​and private-​sector investment on economic growth (cf.
Afonso and St. Aubyn 2017; Mourougane et al. 2016). While Afonso and St. Aubyn
(2017) found a positive effect of private-​sector investment on economic growth,
they found in most, but not in all cases, a positive effect of public-​sector investment
on growth.
To explore the relationship in South Africa, the Appendix, section 41.6, contains an
analysis using the general-​to-​specific (GETS) procedure developed by David Hendry
to estimate a per capita economic growth equation. Private-​and public-​sector invest-
ment entered the regression separately, along with a number of control variables (for
 The Macroeconomics of South African Economic Growth    905

details see the Appendix, section 41.6). The GETS procedure identified the private-​
sector investment/​GDP ratio, the change in the GDP deflator (a proxy for inflation) and
the change in the labour share in income (as proxy for profitability and labour power)
as the determinants of economic growth. The public-​sector investment/​GDP ratio was
not identified as determinant, possibly because change in public-​sector investment lags
change in private-​sector investment.9
These results suggest that higher economic growth requires higher levels of espe-
cially private-​sector investment relative to GDP. Specifically, the results show that a 1
percentage point increase in the private investment/​GDP ratio leads to a permanent
increase of 0.355 percentage point in per capita GDP growth (see Appendix, section
41.6, for more detail). Thus, with the private investment/​GDP rate at approximately
12 per cent, it will require an increase to approximately 15 per cent to raise per capita
GDP growth by 1 percentage point.10 Policy attention should therefore turn to the
determinants of private-​sector investment. Fedderke (2004), Fedderke and Luiz (2008),
and Fedderke and Simkins (2012) consider the determinants of investment behaviour.
They highlight the importance of the expected rate of return on capital, the user cost of
capital, sectoral demand uncertainty, systemic uncertainty, as well as property rights as
determinants of investment. Fedderke and Luiz (2008) argue for improved institutions
that will lower uncertainty and thereby improve economic growth.
Investment-​driven growth can also be combined with export-​driven and labour-​
intensive growth, subject to the limitations identified in the above discussion of
export-​driven and labour-​intensive growth. The need to link investment-​driven and
export-​driven growth becomes apparent when realizing the pressure that an increase
in investment, via increased imports, could place on the current account of the balance
of payments (Frankel, Smit, and Sturzenegger 2006). A higher investment/​GDP ratio
needs to be accompanied by a higher domestic saving/​GDP ratio or a larger current-​
account deficit relative to GDP, financed by foreign saving inflows. For the current
account not to deteriorate when imports increase as a result of a higher investment/​
GDP ratio, will require combining the investment-​driven policy with improved exports,
and an improvement in domestic saving.11

9
To explore this an auxiliary regression system was estimated, also using the GETS procedure, with
the change in private and public investment/​GDP ratios as endogenous variables, as well as a number of
exogenous control variables. The procedure identified the one-​year lag of the change in the private in-
vestment/​GDP ratio as determinant of both the change in the private and public investment/​GDP ratios.
This confirms the lagged behaviour of public investment—​that is, both per capita growth and the public
investment/​GDP ratio react to changes in the private investment/​GDP ratio (see Appendix, section 41.6,
for more detail).
10 This may not seem like a large increase, but at a sample period average of 0.9 per cent per capita

growth, it takes seventy-​seven years to double the size of an economy in per capita terms, while at 1.9 per
cent, it takes only thirty-​six years.
11 At issue here is the balancing of the national accounts identity: (Saving/​GDP –​Investment/​GDP) +

Government current balance/​GDP = (Exports –​ Imports)/​GDP.

906   Philippe Burger

41.5 Conclusion

Though improving and contributing to economic growth during the 1990s and most of
the 2000s, total factor productivity (TFP) has been deteriorating for more than a decade,
thereby constituting a drag on economic growth since 2008. Economic literature has
demonstrated the importance of investment, suggesting that higher levels of investment,
by embodying more technology, contributes to improved TFP, and thus higher economic
growth. In South Africa, too, there is a strong positive relationship between economic
growth and in particular private-​sector investment as a proportion of GDP (public-​
sector investment usually followed with a lag), with lower private investment/​GDP ratios
accompanying lower per capita GDP growth in recent years.
The literature also highlights a number of reasons why investment is not higher. These
include the expected rate of return on capital, the user cost of capital, sectoral demand, and
systemic uncertainty identified by Fedderke and Simkins (2012). The ability of the economy
to absorb new technology also depends on levels of human capital, and the literature points
to shortcomings of the education system that limit the country’s levels of human capital,
and the need to import the needed know-​how through immigration.
To improve economy growth, policy typically focuses on three options: export-​driven,
labour-​intensive, and investment-​driven growth. This chapter shows the need for nuance
in the discussion on the role of labour-​intensive and export-​driven growth. Not all forms of
labour-​intensive and export-​driven growth are ideal. For instance, the peripheral industry
aspects Hausmann and Klinger (2008) identified need attention, highlighting the need to
develop a comparative advantage in skills that are re​deployable to other industries, and
developing sectors where the transference of higher knowledge and skills developed as a re-
sult of FDI flows, can take place between sectors. The discussion also draws attention to the
level of capital and thus the amount of saving needed to produce a unit of output.
Last, given the pressure an investment-​driven growth policy might place on the
current account of the balance of payments, an investment-​driven growth policy will
need to be paired with a finely tuned export-​driven policy, focusing on sectors and
subsectors where the country can develop a competitive advantage and export special-
ization, which again highlights the need for human capital development.

41.6 Appendix

Equation A1 is a standard growth regression, estimated in a time-​series context for the

period 1962–​18 using the GETS approach developed by David Hendry.12

12
The general-​to-​specific (GETS) procedure includes all possibly relevant explanatory variables
and their lags in a general unrestricted model (GUM). The GUM may also include Impulse Indicator
 The Macroeconomics of South African Economic Growth    907

−1 + ∑β 5+ i dlnDef t + i
g t = β0 + β1dI tPr + β 2 I tPr−1 + β3 dI tPu + β 4 I tPu
i=0
1 1 1 n
+ ∑β7+i dLSt +i + ∑β9+i dTt −i + ∑β11+i Opt −i + ∑β13+ j IISt − j + ε t
i=0 i=0 i=0 j =0
(A1)
Real per capita GDP growth ( gt ) was regressed on its lag, a constant, lagged values of
both the private and public investment/​GDP ratios (I tPr and I tPu ), and current values
of the change in both private and public investment/​GDP ratios (dI tPr and dI tPu). It also
includes a number of control variables (most of the control variables are common to
growth equations—​see appendix B in Durlauf, Johnson, and Temple 2005). These are
the change in the GDP deflator (lnDeft) and its lag, openness (Opt ) and its lag (defined as
the sum of exports and imports expressed as a ratio of GDP), the change in the labour
share in income (LSt ) and its lag, and the change in the ratio of taxes on production
and products to GDP (Tt ) and its lag. Openness can have either positive or nega-
tive impacts on growth. A higher level of openness can improve competitiveness of
industries and contribute to higher growth, or more open trade can expose industries
to competitive pressures that they fail to address and thereby contribute to lower
growth as these industries fail. Thus, if there is a relationship between openness and
growth, its sign can be either positive or negative. Inflation and higher taxes might im-
pact negatively on economic growth, hence dlnDeft and dTt are expected to have nega-
tive signs. Labour share serves as a cyclical indicator of corporate profitability (since
1 − LSt equals the share of the net operating surplus in income). Hence, dLSt is expected
to have a negative sign.
Note that Equation (A1) could have simply regressed per capita growth on the
private-​and public-​sector investment/​GDP ratios and their lags. However, to capture
the short-​and longer-​term impacts of the investment/​GDP ratios, β1I tPr−1, and β3 I tPu−1, were
both subtracted and added to the right-​hand side (see Equation A2). Because invest-
ment forms part of GDP, a short-​run, contemporaneous effect (bias) is to be expected
in the event of a change in the investment/​GDP ratio (Jones 1995: 510). By adding
and subtracting β1I tPr−1, and β3 I tPu−1 on the right-​hand side allows for the isolation of the

Saturation (IIS) dummies to deal with outliers. An IIS dummy is created for each observation (minus
one), that is, for each year in the sample period, and included in the GUM. Including all these
variables and dummies of course creates a degree-​of-​freedom problem. To deal with this problem,
the GETS procedure divides all the variables and dummies into blocks. In the first round of estima-
tion the dependent variable is regressed, in turn, on each of the blocks of variables. The statistically
significant variables so identified are then grouped together, and the remainder of variables again
divided into blocks. The dependent variable is then again regressed on the full group of statistically
significant variables selected in the first round, and successively the blocks of the remaining statistic-
ally insignificant variables. Variables selected as statistically significant in the first round might turn
insignificant and drop out, while others might be added in later rounds. Successive rounds of estima-
tion follow, with a set of diagnostic and encompassing tests used to decide when additional rounds do
not improve estimation, and a parsimonious model is reached. The procedure itself is automated in
the PCGive component of Oxmetrics. For more detail on the procedure, see Campos, Ericsson, and
Hendry (2005) and Ericsson (2010).
908   Philippe Burger

contemporaneous effect (see Jones 1995: 510–​11 performing a similar transformation),

and focus to turn to the longer-​run effect as captured by β2 I tPr−1, and β4 I tPu−1 to establish the
impact of investment on growth.13

−1 + ∑β k + i xt −i
g t = β0 + β1dI tPr + β 2 I tPr−1 + β3 dI tPu + β 4 I tPu
i=0
1

( ) (
= β0 + β1 I tPr − I tPr−1 + (β1 + γ 1 ) I tPr−1 + β3 I tPu − I tPu )
−1 + (β 3 + γ 2 ) I t −1 + ∑β k + i xt −i
Pu

i=0 (A2)

where β2 = β1 +� γ 1 and β4 = β3 + γ 2 , and xt represents the other variables in the equation.

If β2 = 0 and/​or β4 = 0, it serves as an indication that private and/​or public investment/​
GDP have no long-​term impact on economic growth, confirming Neoclassical Growth
Theory over New Growth Theory.
Panel A in Table A41.3 presents the results. It shows the change in private-​sector invest-
ment/​GDP, the lag of private-​sector investment/​GDP, the change in the log GDP deflator, the
change in labour share and its lag as determinants of real per capita growth. The coefficient
of 0.355 on the private-​sector investment/​GDP ratio shows that a 1 percentage point increase
in the investment/​GDP ratio leads to a permanent increase of 0.355 percentage point in per
capita GDP growth. Note further that the GETS procedure eliminated the public-​sector in-
vestment/​GDP ratio from the regression, meaning that a change in the public-​sector invest-
ment/​GDP ratio does not have a permanent impact on per capita growth.
This might be for one of three reasons: (1) public-​sector investment, by virtue of the
infrastructure it creates, crowds i​n private-​sector investment. Thus, although it has
no direct impact on economic growth, public-​sector investment is a determinant of
private-​sector investment, which, in turn impacts economic growth. (2) Government
increases public-​sector investment in reaction to better economic conditions, in which
case it is not a determinant of growth. In this case, if private-​sector investment stimulates
growth, private-​sector investment will precede public-​sector investment. (3) There is no
relationship between public-​and private-​sector investment whatsoever. To explore this
question, a two-​equation system was estimated using the GETS procedure, with the two
dependent variables being the change in private-​and public-​sector investment/​GDP
ratios, as well as lags of the change in the log GDP deflator, the change in labour share,
and openness as exogenous control variables (see Equation A3). The regressions also in-
clude impulse indicator saturation dummies.

−1 + β13 dlnDef t −1 + β14 dLSt −1 + β15Opt −1 + ∑β16+ j IISt − j + ε t

dI tPr = β10 + β11dI tPr−1 + β12 dI tPu Pr

j =0

−1 + β 23 dlnDef t −1 + β 24 dLS t −1 + β 25Opt −1 + ∑β 26+ j IISt − j + ε t

dI tPu = β 20 + β 21dI tPr−1 + β 22 dI tPu Pu
(A3)
j =0

13
This transformation of the I t variables is similar to what is done to transform level variables in a
VAR system to change-​in-​level variables in a VECM.
Table 41.3: Real economic growth and investment (1962–​2018)
PANEL A: Real economic growth per capita—​investment model

Change in Private Investment/​GDP 1.196 (0.000) [0.392]

Private Investment/​GDP(–​1) 0.355 (0.000) [0.664]
Change in lnGDP deflator –​0.417 (0.000) [0.601]
Change in Labour Share –​0.855 (0.000) [0.546]
Change in Labour Share(–​1) –​0.554 (0.000) [0.344]
I:1976 0.038 (0.010) [0.129]
I:1982 0.046 (0.009) [0.131]
I:2018 –​0.032 (0.018) [0.110]
mean(Y): 0.009
se(Y): 0.025
AR 1–​2 test: F(2, 47) (prob) 0.628
ARCH 1–​1 test: F(1, 55) (prob) 0.467
Normality test: Chi2(2) (prob) 0.637
Hetero test: F(10, 43) (prob) 0.521
Hetero-​X test: F(20, 33) (prob) 0.537
RESET23 test: F(2, 47) (prob) 0.322

PANEL B: Public and private investment/​GDP auxiliary regression model

Private investment/​GDP Public investment/​GDP

Private Investment/​GDP(–​1) 0.475 (0.000) 0.615 (0.000)

Change in lnGDP deflator(–​1) –​0.033 (0.093) –​0.088 (0.000)
Change in Labour Share(–​1) –​0.176 (0.000) –​0.096 (0.030)
I:1975 0.012 (0.049) 0.041 (0.000)
I:1985 –​0.008 (0.170) 0.017 (0.006)
I:1988 0.020 (0.002) 0.003 (0.677)
I:2009 –​0.029 (0.000) –​0.004 (0.515)
Constant 0.003 (0.086) 0.006 (0.001)
Single-​equation diagnostics
AR 1–​2 test: F(2, 47) (prob) 0.374 0.352
ARCH 1–​1 test: F(1, 55) (prob) 0.509 0.404
Normality test: Chi2(2) (prob) 0.812 0.681
Hetero test: F(6, 46) (prob) 0.050 0.864
Hetero-​X test: F(9, 43) (prob) 0.091 0.884
Vector diagnostics
AR 1–​2 test: F(8, 88) (prob) 0.286
Normality test: Chi2(4) (prob) 0.877
Hetero test: F(18, 124) (prob) 0.120
Hetero-​X test: F(27, 120) (prob) 0.299
RESET23 test: F(8, 88) (prob) 0.933

Source: Author’s own calculations.

Notes: Values in ( ) represent p values, while values in [ ]‌represent the Partial-​R2 for each variable.
910   Philippe Burger

The results are reported in Panel B of Table A41.3 and show that the lag in the change
in the private-​sector investment/​GDP ratio is a determinant of both the change in the
public-and private-​sector investment/​GDP ratios, confirming the lagged behaviour of
the public-​sector investment/​GDP ratio.

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 Chapter 42

Investm e nt i n
Sou th Af ri c a

Ciaran Driver and Laurence Harris

1.1 Introduction

What is the significance of investment for South Africa? One textbook response sees
investment as a component of aggregate demand. Investment in that context is taken
to include not just company machinery, equipment, and structures but any expansion
of the residential housing stock, inventories, and government capital spending. This in-
vestment component of aggregate demand—​or the balance between investment and
saving—​is relevant for studying the business cycle and for macroeconomic stabilization
policy.
A different perspective—​the one that most concerns us in this chapter—​stems from
the role of investment in supplying productive assets. An increased capital stock with
or without a change in the capital-​labour ratio generally increases the economy’s cap-
acity to supply future goods and services. Since new capital generally incorporates new
production technology, this channel also raises total factor productivity which raises
capacity output. For developing economies, investment in manufacturing has generally
been seen in this way as a driver of growth, though the proposition is contestable.
South Africa’s economic strategies since 1994 have attempted to promote GDP
growth while reducing poverty and inequality. Public-sector investment to meet those
objectives has been an important government lever. While private business investment
in manufacturing and other sectors is indispensable for sustained growth, it has proved
less amenable to promotion by policy interventions.
In section 42.2 we review the evolution of South Africa’s investment, gross fixed cap-
ital formation, since 1994. Notable features of the country’s experience since then have
been low average annual GDP growth and low levels of gross fixed capital formation
in most sectors of the economy, including manufacturing. The reasons for the latter
have been much studied and we review the academic evidence in section 42.3, focusing
914    Ciaran Driver and Laurence Harris

particularly on relationships between investment, the user cost of capital, and uncer-
tainty. In section 42.4 we consider aspects of private firms’ investment in manufacturing
within the broader economic system. In section 42.5, we address issues of economic
policy for investment and section 42.6 concludes with a brief review of the current state
of knowledge.

42.2 South Africa’s Investment Record

In economies that experienced rapid growth and industrialization in the twentieth

century—​‘economic miracles’—​high GDP growth was associated with high rates of in-
vestment as a share of GDP. Post-​1994, South Africa has not experienced similar levels
of investment. The last five years of the data up to 2019 show that investment as a share
of GDP in nominal terms averaged about 19 per cent, barely higher than the 17 per cent
for the first five years after 1994. The comparable real ratios show a marginally better
improvement from under 15 per cent to nearly 20 per cent due to the fall in the relative
price of capital goods over the period.
The estimated growth of South Africa’s capital stock (Figure 42.1) suggests three
phases. Following the establishment of democracy, marked by a brief small upturn in
investment, the capital stock grew at a low average annual rate of less than 1 per cent be-
tween 1994 and 2003. In the second phase, from 2003 to 2008, South Africa experienced
a relatively high GDP growth rate during the global commodity boom with the an-
nual rate of real growth of the capital stock rising to over 4 per cent in 2008. The boom
years preceding the ‘great financial crash’ prompted government hopes that even higher

0.25

0.2

0.15

0.1

0.05

0
19 4
19 5
19 6
19 7
19 8
20 9
20 0
20 1
20 2
20 3
20 4
20 5
20 6
20 7
20 8
20 9
20 0
20 1
20 2
20 3
20 4
20 5
20 6
20 7
20 8
19
9
9
9
9
9
9
0
0
0
0
0
0
0
0
0
0
1
1
1
1
1
1
1
1
1
19

Nominal share Real Share Real Stock Growth

Figure 42.1 Gross fixed capital formation as a percentage of GDP (nominal and real ratios)
and growth of the real capital stock
Source: SARB. Nominal share given by the ratio of KBP6009J/​KBP6006J; Real share given by KBP6009Y/​KBP6006Y. Real
capital stock growth given by year-​on-​year growth of KBP6149Y.
 Investment in South Africa    915

growth rates could be achieved and sustained. In the third phase, the decade after 2008,
the higher investment rates that were expected did not materialize. Annual real fixed
capital growth rarely exceeded 3 per cent and declined towards an average of 2 per cent
in the run-​up to 2020. The proportion of South Africa’s spending allocated to fixed in-
vestment has continued to be low, having shrunk from 23.5 per cent in 2008 to less than
18 per cent in 2019.
The five years of solid investment growth up to 2008 that characterized South Africa
has parallels in many other developing countries and is unlikely to reflect simply do-
mestic policies. As shown in Table 42.1, major Asian countries such as India and China
were also experiencing an investment boom. Developments after 2008 show a lot of
cross-​country variation with some countries maintaining or even increasing their in-
vestment share, while for others, including South Africa, it decreased. Brazil and Chile,
two comparable developing countries had similarly low and declining (after 2008) in-
vestment ratios, while India, having invested as much as 35 per cent of GDP in 2008,
also reduced its investment rate thereafter, though it remained at 1.5 times South Africa’s
in 2019.
Subsequent to the period of relatively strong GDP and investment growth in South
Africa from 2003 to 2008, there has been a marked shift in the private–​public compos-
ition of investment. Public-​sector investment, particularly in electricity and transport
infrastructure, has grown somewhat faster than investment by private businesses.
Figure 42.2 charts the evolution of both private-​sector investment and public invest-
ment (both general government and public corporations), showing that the gap widened
in the final stage of the commodities boom and remained elevated after 2008. Despite
some reduction in public investment towards the end of the period, the public-​sector
ratio of the total still averaged about 34 per cent in the decade up to 2019, compared with
a figure of about 29 per cent for the 1990s.
Figures 42.3 shows the shifting asset composition of investment within the private
and public sectors. In parallel with the relative shift from private to public investment,
capital expenditure on construction works grew while expenditure on machinery
and equipment stagnated. This is mainly due to the fact that the public sector is more
construction-​intensive than the private sector but it is also the case that even within the
private sector, expenditure on construction grew relative to machinery after 2008, pos-
sibly reflecting the contracting-​out of public works. Data on residential construction
that appear in the private-​sector graph also reveal the importance of this type of expend-
iture in propelling the pre-​2008 surge in investment.
While Figure 42.3 appears to show private-​sector investment holding up better after
2008 than the public sector, it should be noted that these figures are for gross invest-
ment, that is without taking account of depreciation. The effect on growth of the capital
stock may be better captured by net investment. Normally net and gross investment do
not diverge greatly but the big change in composition towards construction activity in
South Africa does make a difference, given that construction works depreciate much
slower than machinery and equipment. Figure 42.4 shows that net public investment,
Table 42.1: Gross fixed capital formation as a percentage of GDP
1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019

South Africa 15.8 17.0 17.6 16.1 15.5 16.0 17.2 20.6 21.5 19.1 20.4 20.3 18.8 17.9
Indonesia 26.3 28.4 28.3 20.1 19.7 19.5 23.6 24.9 31.1 31.3 32.0 32.8 32.2 32.3
Malaysia 38.9 43.6 43.1 21.9 25.1 22.4 22.3 22.4 22.0 22.2 26.5 25.9 25.1 23.0
Mexico 20.8 16.4 19.8 21.1 19.9 19.8 20.7 21.9 22.1 22.3 21.3 22.5 22.1 20.9
Russian Federation 20.4 21.1 18.3 14.4 18.9 18.4 17.8 21.0 22.0 21.3 21.9 20.6 22.0 21.0
Brazil 19.3 20.3 19.1 17.0 18.4 16.6 17.1 18.0 19.1 20.6 20.9 17.8 14.6 15.4
Chile 26.6 25.8 27.7 21.4 21.6 21.2 22.2 20.7 22.5 23.1 24.8 23.8 21.0 22.4
China 37.1 32.3 31.0 32.5 33.5 38.3 39.4 37.9 43.8 43.9 44.5 42.1 41.9 –​
India 23.7 25.1 25.4 27.5 29.9 28.3 32.8 35.8 34.0 34.3 31.3 28.7 28.1 27.5

Source: Created from World Development Indicators Series: Gross fixed capital formation (% of GDP).
 Investment in South Africa    917

700000

600000

500000

400000

300000

200000

100000

0
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
General Government Public Corporations Private Business Enterprises

Figure 42.2 Composition of real gross capital formation (R million at constant 2010 prices),
private and public sectors
Source: SARB general government KBP6100Y; public corporations KBP6106Y; private business enterprises KBP6109Y.

having been much lower than gross public investment up to the mid 2000s, is approxi-
mately equal to it after 2008.

42.3 Evidence on Firms’ Investment

Decisions and Public Policy Analyses

Existing public policy towards private investment in South Africa may be interpreted as
a policy canon of three propositions with recommendations (shown in italics):

1. Traditional economic theory such as the cost of capital and proxies for profitability
are supported. Credit constraints may exist but evidence is weak. Fiscal prudence
and low corporate taxation are required to reduce equilibrium real interest rates and
permit lower exchange rates, which support investment.
2. Uncertainty, in relation to political economy or instability of driving variables,
deters investment. Macroeconomic stability is required to reduce the risk premium.
Real exchange rate instability may also deter investment.
3. Concentration inhibits investment and growth opportunities while increasing
downstream costs; mark-​ups are relatively high and not declining. Continued
trade liberalization is needed to increase domestic competition, reduce input costs,
918    Ciaran Driver and Laurence Harris

Panel (a) Private Sector

300000
250000
200000
150000
100000
50000

0
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Residential Housing Construction Works Machinery and Equipment

Panel (b) Public Sector

120000
100000
80000
60000
40000
20000
0
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Construction Works Machinery and Equipment

Figure 42.3 Asset composition of private-​sector and public-​sector gross fixed capital forma-
tion (R million at constant 2010 prices)
Source: SARB. Private sector: residential housing KBP6113Y; construction works KBP6121Y; machinery and equipment
KBP 6129Y. Public sector: construction work KBP6120Y; machinery and equipment KBP6128Y.

re-​orient sales to export demand, improve total factor productivity through learning
and upskilling, and diversify into new sectors including services. Anti-​trust and sec-
toral policies are additional tools.

These three components of the policy canon are reviewed and evaluated below.1

1
To say that there was considerable consensus around these views is not to say that everyone
agreed on the relative priority of each component. Some argued that the policies pursued were too
timid, for example, in relation to trade liberalization (Federer 2009). Others regretted that stability
was not prioritized enough so that interest and exchange rate volatility remained damaging to invest-
ment (Kaplan 2007). By contrast, others argued that competition effects dwarfed those of uncertainty
in blocking reallocation towards high TFP sectors (Viegi and Dadam 2018). A different—​but not ne-
cessarily oppositional view—​was that insufficient attention was given to the kind of growth, its sustain-
ability, and appropriateness for the political and social context (Black 2016).
 Investment in South Africa    919

0.18
0.16
0.14
0.12
0.1
0.08
0.06
0.04
0.02
0
–0.02
1990 1995 2000 2005 2010 2015 2020 2025

Net, Public Net, Private Gross, Public Gross, Private

Figure 42.4 Gross and net nominal capital formation as a ratio of nominal GDP, private and
public sectors
Source: SARB. Gross private KBP6109J; Gross public sum of KBP6100J and KBP6106J. Net private KBP6190J; net public
sum of KBP6188J and KBP6189J. Nominal GDP at market price KBP 6003J.

42.3.1 User Cost of Capital

Much discussion of the causes of South Africa’s low investment rate and policies to
address it turns on the cost of capital.2 The proposition that firms’ desired capital stock,
and, by extension, their rate of investment is an inverse function of an interest rate
(acting as the user cost of capital) is widely accepted in South African policy debates, as
it is elsewhere. However, the idea is not strongly supported by South African data.
One example of such a policy perspective is the recommendation from TIPS
(2000): ‘creating the appropriate conditions for rising investment rates through an al-
teration of the real user cost of capital’ (2000: 3). The Treasury view was that ‘from 2001,
low interest rates, achieved via disinflation and a more sustainable fiscal policy, have
contributed to a steady increase in investment growth rates’ (Faulkner and Loewald
2008: 6). Similarly, a UNDP study (Kearney and Odusola 2011: 10) explains post-​
transition higher investment rates in South Africa up to 2008 as ‘stimulated by lower
user cost of capital’. And at various times since 2000 public debates over South Africa’s
inflation-​targeting monetary policy have focused on the effects of high interest rates on
aggregate investment and thereby employment and growth (Bold and Harris 2018).

2 In a credit (debt) economy the user cost of capital is identified as ‘the’ interest rate which is the

borrowing rate adjusted for firm-​level taxation and depreciation. In an economy where firms have access
to equity finance as well as credit (debt), the user cost of capital is determined by both interest and the
cost of equity. The user cost of capital can include a premium to compensate the suppliers of finance for
uncertainty, or risk that cannot be eliminated by diversification, and the firm itself can require capital
projects to yield a higher rate to compensate for uncertainty about expected profitability.
920    Ciaran Driver and Laurence Harris

By contrast, evidence is weak. Fedderke (2009) reports that in thirteen estimates of

South African investment functions conducted by different authors, the user cost is
only significant in five of these, none of which has an elasticity greater than 0.1. TIPS
(2000), based on earlier work by Fedderke, reports that in disaggregated estimates, the
user cost was significant only for the fabricated goods sector, while its elasticity was low
in overall results. In another study from the World Bank Group (2017), estimation—​
comprising a million observations which normally implies very high t-​values—​found
statistical significance for the long-​run capital response to user cost in only nine out of
eighteen sectors. Furthermore, in a comparative study of different investment models
for South Africa, Van Eyden et al. (2012) found that the addition of a user cost variable to
the standard accelerator model actually increased the mean square error for most of the
forecast horizons.
Direct survey evidence for South Africa is available in the World Bank investment
climate report (Clarke et al. 2007). This shows that the cost and availability of finance
was rated as major or very severe by only one in five respondents and ranked no more
than eighth in a list of constraints, contrasting with other countries in the continent.
Furthermore, external finance was said to be demand, rather than supply, constrained
(2007: 13).
The absence of evidence for a user-​cost effect, or for anything other than a weak
and partial effect, is in keeping with long-​standing findings in advanced countries,
where any user-​cost effect in investment studies, if significant at all, appears with
a low elasticity (Sharpe and Suarez 2014). Part of the explanation for this may be
that the discount rates used by firms (hurdle rates) are often multiples of the user
cost due to the allowances for irreversibility and various forms of uncertainty
(Dixit 1992).

42.3.2 Uncertainty
South African policy papers regularly include uncertainty in any list of constraints on
growth and, in particular, fixed investment.
Empirical estimates of the effect of uncertainty are difficult, partly because of the im-
precision of any broad concept and the need to distinguish between types of uncertainty,
and partly because of difficulties in measuring uncertainty, however defined. Debates
over the role of uncertainty in South African economic performance have focused on
two main types. Attention to firms’ uncertainty about future price movements such as
future interest rates or exchange rates has been associated with discussions of whether
macroeconomic policy should aim to stabilize them. A different type of uncertainty, un-
certainty about government policy, has been widely seen as a disincentive to private in-
vestment. In most studies of price uncertainty, past and current price volatility is used
as a measure of uncertainty about future values, which requires implausible and often
unstated assumptions. The measurement of policy uncertainty—​over the regulatory
regime or property rights, for example—​remains problematic despite the construction
 Investment in South Africa    921

of measures based upon word frequency for uncertainty and other terms in newspaper
coverage.3
Apart from conception and measurement there is the question of theory and what
it predicts in terms of uncertainty effects. There are several approaches. Introducing
uncertainty in an investment model involves complementing an expectations term
with higher moments. As a result, any simple economic optimization involves non-​
linearities which may bias the result up or down. Nevertheless, there is little direct
evidence that firm’s decision-​making captures such intricacies. Modern dynamic real
option approaches deal with the timing of irreversible investment under uncertainty.
These models generally argue that uncertainty leads to delay (with a higher hurdle
rate) but they can predict the opposite effect if ex post upward adjustment is difficult.
Furthermore, industrial specifics also matter; firms supplying monopsonistic suppliers
such as supermarkets may need to increase capacity under uncertainty due to the risk of
losing contracts through failure to supply. Finally, a simpler argument is that decision​
makers are risk averse, thus explaining a negative effect of uncertainty on investment.
For the case of South Africa, there has been some limited work on investigating the
investment response to uncertainty. Fedderke (2009: 186) reports that it ‘exercises a stat-
istically significant and strong effect [and] unambiguously lowers investment rates’. In
particular, ‘systematic uncertainty’ was significant in seven of the eleven cases where it
was entered in different studies. However, the index of systematic uncertainty used has
been criticized by Du Plessis and Smit (2007) as more relevant to the apartheid period
and only two of the eleven studies cover the post-​transition period. Three studies for
the three decades after 1970 (by Fedderke and co-​authors) find support for sectoral un-
certainty measured as a standard deviation of sectoral output, but two early studies by
another author show user cost variability to be positive for investment. A further study
(Kumo 2006) with annual data 1970–​2003 uses Garch uncertainty measures in different
macroeconomic series, finding a significant negative effect for GDP volatility and that
of the real exchange rate.4 Using quarterly data from 1989 to 2016, Pane and Pedro
(2016) find no significant relation between private-​sector investment, and a narrow
measure of uncertainty, volatility of the nominal Rand exchange rate. A major diffi-
culty with interpreting the estimated effect of uncertainty in econometric output is that
‘perceptions of uncertainty vary counter-​cyclically’ (Bond et al. 2005: 14). On account of
this any investment model has to be specified with all relevant cyclical factors included
before uncertainty effects can be identified.
Some survey-​based approaches do suggest that macro instability matters for invest-
ment in South Africa. Clarke et al. (2007) found that macro stability ranked in the top
four constraints, ahead of labour regulation and crime but behind labour skills, with
over 30 per cent registering it as a major constraint. This broke down as 28 per cent of
non-​exporters and 44 per cent of exporters, perhaps not surprising in view of the wild

3
Baker, Bloom, and Davis (2016).
4
The fact that these two variables are the only significant dynamic terms in the estimation may
suggest some misspecification.
922    Ciaran Driver and Laurence Harris

swings of the nominal exchange rate in the early 2000s. Nevertheless, Clarke et al. (2007)
also found that relative to peer countries, no reported constraint on investment was par-
ticularly strong. Furthermore, in the (unpublished) 2008 update survey, the compar-
able figure for macro stability was only 7 per cent, possibly because electricity prices had
become a major focus by then. Reviewing the survey evidence, Kaplan (2007) argues
that ‘macroeconomic policies have not brought stability in key prices that matter for
investors and particularly for exporters—​the interest rate and especially the exchange
rate . . . this has stifled investment—​more particularly on the part of new entrants who
tend to rely more heavily on borrowing’. He does not, however, provide any independent
evidence for this, relying on observations in Clarke et al. (2007).
Uncertainty may have different effects in different contexts. One important aspect
of this for South Africa is whether uncertainty deters investment in industries or firms
differentiated by market power or level of concentration. Theoretical work suggests no
simple answer as to which type of firm would react positively to uncertainty. On the
one hand it is argued that firms with pricing power (generally large firms) may fear pre-​
emption more, resulting in over ​investment. Other studies suggest that firms facing
monopsonistic demand (generally small firms) tend to install higher capacity under un-
certainty so as to ensure continuity of supply and maintain recognized preferred status
(Driver and Whelan 2001). For South Africa, Chortareas et al. (2020) finds a positive
effect (5 per cent significance for a sample of 177 firms) on investment of uncertainty
(measured by firm-​level daily inter-​year stock price variation). It is also argued that
market power attenuates that influence. However, their study records a median market
share for the sample of only 0.2 per cent with an interquartile range between 0.1 per cent
and 0.3 per cent. Thus, any attenuation of the uncertainty effect due to market power is
relying on a small number of data points.5
Relating all these findings to policy is clearly difficult. Most policy papers tend to
assume that uncertainty is damaging, requiring interventions to address macroeco-
nomic stability. It is not clear that this conclusion can be drawn from the complex
results of academic studies, or even from survey-​based studies. Even if uncertainty
is a major constraint on investment—​which it may well be—​the pursuit of macro-​
level stability, such as inflation targeting, may result in increased micro-​level uncer-
tainty, depending on the instruments used. In general, uncertainty can be resolved
by augmenting markets with coordination (industrial policy) or by allowing well-​
functioning markets to find an equilibrium; the best balance between these two is likely
to be context specific.
Despite these difficulties, clearly identifiable uncertainty about investment conditions
in specific major South African industries can safely be said to have hindered major

5
Chortareas et al. (2020) follow closely the model in Baum et al. (2008) for the United States where,
however, a negative sign was found for firm-​level stock market volatility in their US sample. The positive
sign might reflect that the measure does not just capture uncertainty; for example, firms that are known
to be takeover targets may experience turbulent returns with the recorded firm investment affected by
acquired assets.
 Investment in South Africa    923

investment projects. For example, at various times uncertainty about regulatory change
or government’s energy strategy has undoubtedly hindered fixed capital formation in
electricity generation by Eskom and, in recent years, hindered the opening of the sector
to investment in clean energy generation by independent power producers.6 Similarly,
several years of uncertainty about the contested regulatory provisions of a third Mining
Charter, obtaining until its publication in 2018 and implementation in 2019, undoubt-
edly restricted miners’ investment plans. Notwithstanding the difficulty of estimating
links between various types of uncertainty and investment by firms throughout size
deciles and across diverse sectors, policy uncertainty’s effect on such major industries
has undoubtedly interrupted and slowed their investment.

42.3.3 Concentration and Market Power

South African industry is highly concentrated. A study by the Competition Commission
(Buthelezi et al. 2018) finds that most 2-​digit industrial sectors in South Africa have
defined markets with dominant firms. Specifically, agribusiness and intermediate
industrials each have more than a fifth of product markets in which dominant market
firms record a more than 45 per cent share. More than 7 per cent of product markets
in each of ICT, transport, pharmaceuticals, and financial services have dominant firms
defined similarly.
The policy canon has tended to argue that this situation deters investment, justifying
a focus on increased trade competition and anti-​trust policy. A representative view has
been that the ‘highly concentrated nature of output markets and associated pricing
power . . . represent . . . a constraint both to investment and to growth prospects’
(Fedderke 2009: 195). Similar views are expressed in Hausmann (2008), World Bank
(2014), Viegi and Dadam (2018), and World Bank Group (2018). Nevertheless, there is
some controversy over the absolute and relative (to comparator countries) size of profit
mark-​ups in South Africa. Some claim that despite high domestic concentration, profit
mark-​ups have not been comparatively high nor did they rise after the transition (Du
Plessis et al. 2015; Zalk 2014). This controversy may simply reflect sectoral differences.
Black and Hasson (2016: 293) argue that upstream firms in concentrated sectors do not
face effective competition from imports and can set prices to compete with imports: this
ensures a margin over the export price and disadvantages domestic users of inputs
such as metals and basic chemicals.7 Domestic concentration is then more damaging,

6 A survey of manufacturing firms in the Johannesburg area reveals the high weight they give to un-

stable electricity supply in preventing expansion (Kaziboni 2018).

7 Presumably the absence of a serious foreign threat in some sectors is due to the relatively low level of

FDI flows into South African industry that requires system-​level explanation. Manufacturing inward an-
nual FDI averaged $0.6 billion between 2017 and 2019, which is just about enough to buy two medium-
sized gas-​powered plants.
924    Ciaran Driver and Laurence Harris

0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
17
19
19
19
19
19
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
Non-Financial Corporations Manufacturing

Figure 42.5 Ratio of nominal gross capital formation to gross operating surplus
Source: SARB and, for manufacturing: statistical release P0441 Gross Domestic Product Annual estimates various editions
and ceicdata.com.

particularly where entry barriers such as scale, sunk cost, or endogenous barriers such
as heavy advertising, are effective.
Fedderke et al. (2018) report important findings on the joint effects of concentration
and barriers to entry. While finding no direct correlation between mark-​ups and con-
centration, sectors with high barriers to entry (high asset requirements) and high con-
centration tend to have higher mark-​ups, though here also there are exceptions. That
perspective is given added credence by findings that productivity gains in individual
sectors of industry do not seem to have sector-​wide effects as would be expected were
the most profitable industries mobile enough to use their surplus funds in breaking
into new technologies and markets or with the same effect occurring through stock
market re​allocation to venture capital.8 Such a scenario of a ‘capital strike’ has been
argued to characterize some industrial sectors in the United States where the percentage
of reinvested profits appears to have fallen since around 2000 for some concentrated
sectors (Gutiérrez and Philippon 2017).
However, such a phenomenon does not appear to characterize the South African
economy. As shown in Figure 42.5, the ratio of nominal expenditure on capital goods
to the gross operating surplus increased after 2008 for both the whole non-​financial
corporate sector, and for the manufacturing sector. The ratios since 2008 also compare
favourably to the 2018 EU27 non-​financial ratio, which is around 0.6. This may seem
surprising but it may be that the South African ratios for this period reflect the squeeze
in profit margins after 2008, with obligatory replacement investment soaking up much
of retained earnings.
The effects of concentration on investment deserves further detailed study. In par-
ticular there is a need to distinguish good and bad concentration and to understand
the mechanism of entry and mobility barriers on investment in firm and industry panel
studies (Mondliwa et. al. 2021).

8
It may also be that surplus funds are swallowed up in the creation of barriers to entry.
 Investment in South Africa    925

42.4 A System View

of South African Investment

The perspectives on investment discussed so far are rooted in economic theory that
treats aggregate investment as the sum of investment decisions by individual firms
acting independently in response to signals from the economy as a whole, signals
encapsulated in the user cost of capital modified to account for uncertainty. At the same
time, policy discussions of South Africa’s low aggregate investment and low growth
take a more holistic approach, seeing them as the outcome of systemic weaknesses in
interrelated economic, political, and social spheres. In this section we review the neces-
sity, but also the difficulties, of adopting a systems approach and give some examples of
it in practice.
There is a long list of factors that have been seen as systematically constraining in-
vestment and growth. These include high crime rates, perceived corruption, low edu-
cational attainment, shortage of skilled labour, spatial disconnect between jobs and
population, high degree of regulation measured by ‘ease of doing business’, public-
sector failures on policymaking and implementation, labour market institutions, and
extreme income inequality. Private-​sector investment has also been discouraged by
failures of public corporations’ management—​interacting with government failures
in planning and implementation—​in the delivery of reliable electricity supplies, ad-
equately educated labour-​market entrants, or fast and cost-​effective rail and port transit.
A survey of manufacturing firms in the Johannesburg area reveals the high weight they
give to unstable electricity supply and employees’ low educational attainment in literacy
and numeracy as problems preventing expansion (Kaziboni 2018).
While it is easy to list potential hindrances to investment, it is harder to prioritize
them. Casual inspection shows that some of the comparator countries listed in Table
42.1 do worse on several of these factors and yet have had better investment rates. For ex-
ample, over the last quarter century, South Africa scores second or third best on political
stability, rule of law, and perception of corruption and scores best on cost of a business
start-​up as a percentage of average income (TheGlobalEconomy.com). Clearly there
must be complex interacting sets of forces that explain entrenched national economic
patterns such as investment rates.
Such complexity is captured in conceptual frameworks that adopt a systems view
to explaining regularities in a national economy. Many such regularities remain per-
sistent, even under globalization, and indeed it is their time-​invariant property that
makes some econometric sets of analysis uninformative. The type of systems frame-
work that is needed here is exemplified in the ‘systems of innovation’ literature. This
emphasizes the role of institutions, and the interaction of social, political, organiza-
tional, and economic forces that explain constancy and change (Edquest 2005). An
early pioneer of the National Systems of Innovation (NSI) approach, Freeman (1987),
defined it as ‘the network of institutions in the public and private sectors whose
926    Ciaran Driver and Laurence Harris

activities and interactions initiate, import, modify and diffuse new technologies’
(quoted in Oughton et al. 2021). These authors also note that firms’ innovation ‘depends
not just on their own internal resources and capabilities, but also on the wider institu-
tional environment, including: the systems of finance, corporate governance, educa-
tion, and research; and government policies such as public investment in R&D, the
setting of standards and legislation for intellectual property rights, as well as the de-
gree of trust in political institutions.’ Arguably these influences cannot be captured by
partitioning the total variance of an economic series, such as fixed capital formation, to
discover a set of causal factors; there is simply too little variation in any time-​series for
the full set of possibly non-​linear, reciprocal, complementary, and interacting effects to
be identified. Perhaps treating them as a complex system of relationships and applying
multi-​disciplinary approaches beyond econometrics (perhaps including case-​studies,
network analysis, sociological, and political economy methods) can yield insights into
particular countries’ innovation systems.
The institutions and interrelations that make up a country’s NSI imply that, in-
stead of being the sum of independent decisions by individual firms, the country’s
rate of innovation is a collective phenomenon. At one level, it is promoted by col-
lective (public) investment of resources and ‘social capital’ in education systems,
justice systems, and other fields. More directly, each firm’s innovation is linked with
others. Innovation in firms within a supply chain feeding final goods producers
(suppliers of parts to automobile manufacturers, for example) is necessarily
coordinated with that of enterprises further along the same chain; when the auto-
mobile manufacturer adopts new technology it does so in a manner coordinated
with the suppliers of parts.
The NSI approach to understanding innovation is also applicable to a systems view
of investment. Simply adding measures of selected systemic factors to South Africa’s
investment regressions yields limited insights. The individual firm model does not
take into account the complementarities involved in the system, such as that be-
tween public-​sector infrastructure investment and private-​sector manufacturing
investment.
There is thus a direct parallel between investment and innovation that explains the
need for a systems approach to capital formation, particularly in technology-​using
sectors. Investment that incorporates new technology is the main form of fixed cap-
ital expansion in manufacturing; consequently the same type of systems as affect in-
novation are likely to affect such investment. For any consideration of investment
as a driver of sustainable economic growth in South Africa, such innovation through
capital-​borne technology diffusion is central. Even for investment expansion using un-
changed technology, individual firms’ investment is subject to very similar hindrances
as innovation—​ sunk costs, irreversibility, uncertainty, and perhaps difficulty in
appropriating the full economic gains under competitive conditions. This implies that a
measure of central coordination is needed. A fully credible government-​driven strategy
for national growth can promote private firms’ investment by, in effect, acting as a signal
that overcomes the coordination failures of market mechanisms, such as price signals or
 Investment in South Africa    927

strategy forums; by contrast, an economy with dysfunctional institutions hinders firms’

ability to plan for fixed capital expansion.

42.5 Implications for Policy

What lessons can policymakers draw from theory and empirical studies of investment?
It is useful to pose the issue in terms of targets and instruments. What is needed is (i) an
exercise in judgement with respect to targets and (ii) recognizing a freedom to experi-
ment with non-​traditional instruments.9 In effect the activities of (i) and (ii) are what
constitutes any creative public policy but such policy is better carried out in full and con-
scious recognition of what the process involves. Otherwise different parts of policy—​
industrial policy say—​will be separated from the remainder without the cohesion that
an overall planning process can achieve.10

42.5.3 Illustrative Targets
42.5.3.1 Should Investment Be Employment Intensive?
One example of target-​setting is the judgement call on whether investment policy
should focus on employment objectives in addition to productivity. The fact that
the employment-​growth elasticity is of the order of 0.5 means that growth has to
be sustained at historically high levels to make a serious impact on unemployment.
Private-​sector jobs have been added since 2005 in large numbers but at a rate only one-
fifth the rate of population growth. Without faster employment growth, even if political
stability is maintained, there is a continual risk of distributional strife. As a corollary
of this, inward FDI sentiment for South Africa fails to reflect the national reputational
advantage for law and stability; no doubt this poor sentiment carries over to domestic
investment as well.11 Policy that correctly identifies this constraint then has to make fur-
ther judgements in respect of targets for structural change in capital stock and the pri-
oritization of sectors.

9 Blanchard et al. (2010: 10) did us a service with the comment that: ‘The bad news is that the crisis

has made clear that macroeconomic policy must have many targets; the good news is that it has also
reminded us that we have in fact many instruments.’ We need to extend that understanding to industrial
policy.
10 In South Africa, important policy initiatives have been based on a system view with foundations

consistent with a ‘National System of Investment’ approach. The National Development Plan 2030,
adopted in 2012, is a foundation document of that type as is the Industrial Policy Action Plan in support of
coordination—​across government institutions and along industry supply chains (IPAP 2018/​19–​2020/​21).
11 For indicators on FDI sentiment, see TheGlobalEconomy.com.
928    Ciaran Driver and Laurence Harris

42.5.3.2 Should Investment Be Directed towards Labour-​intensive

Manufacturing?
Figure 42.6 shows that while many sectoral capital shares remained fairly constant
over the full period—​both finance and other services being the most important with a
combined share in excess of 50 per cent—​there were marked increases in the combined
share of construction and energy which almost doubled to over 11 per cent by the end of
the period. By contrast the share of manufacturing which was maintained until 2008,
fell thereafter by 3 percentage points to little over 7 per cent by the end of the period.
Along with agriculture, this was the only industry to show virtually no growth in abso-
lute value of the capital stock over the entire period.
An investment-​induced increase in aggregate employment can result from a redistri-
bution of capital from sectors that have a low elasticity of employment with respect to
investment to those with a high elasticity but the situation is complicated because the in-
direct employment effects need to be included. Agriculture and six other manufacturing
sectors are among the top ten sectors in respect of total (direct plus indirect) employ-
ment multipliers (Tregenna 2016); yet all of these apart from food are static or in decline.
In South Africa, manufacturing is the only sector located in the high productivity but
shrinking employment share quadrant (Bhorat et al. 2018). Countries with a highly dy-
namic manufacturing sector tend to show growing productivity and employment for

0.4

0.35

0.3

0.25

0.2

0.15

0.1

0.05

0
19 3
19 4
19 5
19 6
19 7
19 8
20 9
20 0
20 1
20 2
20 3
20 4
20 5
20 6
20 7
20 8
20 9
20 0
20 1
20 2
20 3
20 4
20 5
20 6
20 7
20 8
19
9
9
9
9
9
9
9
0
0
0
0
0
0
0
0
0
0
1
1
1
1
1
1
1
1
1
19

Manufacturing Construction and Energy Transport

Finance and Related Social and Personal Services All other Industries

Figure 42.6 Broad sectoral shares of the real capital stock

Source: SARB: manufacturing KBP6142Y; construction and energy KBP6144Y + KBP6143Y; transport KBP6146Y;
finance and related KBP6147Y; social and personal KBP6148Y; all other industries KBP6140 + KBP6141Y + KBP6145Y.
All series expressed as shares of total.
 Investment in South Africa    929

manufacturing. Policymakers may be tempted to view the shrinking manufacturing

sector as an indication that capital allocation away from manufacturing and to-
wards services is inevitable, in line with the deindustrialization that has characterized
most economies as they transition from the development stage. Nevertheless, some
caution is needed here for two reasons. First, the re​allocation of resources away from
manufacturing has not followed a pattern of re​allocation from low to high productivity
and has not raised overall productivity much, if at all. One analysis suggests that between
2000 and 2014, 97 per cent of labour productivity growth occurred within sectors, that is,
across firms. The same analysis shows that there is no correlation between sectoral prod-
uctivity and change in employment shares in South Africa (Bhorat et al. 2018). A second
reason for caution is that much of the decline in employment share in manufacturing
may simply reflect outsourcing and reorganization with previous functions such as fleet
management, maintenance, or accountancy services provided in-​house. This transfers
the value-​added and capital expenditure to the services sector (Tregenna 2016). Such
a change is likely to have been rapid as manufacturing firms inserted themselves in
global value chains. Some studies have shown that manufacturing exports support in-
direct manufacturing jobs, accounting for an effect over four times greater than direct
manufacturing employment with a shift in the labour content of global-​value-​chain-​
intensive manufacturing sectors away from direct manufacturing to indirect services
(Cali and Hollweg 2017; World Bank Group 2017).
These considerations suggest that the manufacturing sector and its capital allocation
should be a continuing and perhaps renewed focus of interest. Within that broad sector
there will be subsectors that provide different benefits; some with high productivity but
perhaps not generating employment, while others have the prospect of increased prod-
uctivity and employment. Certainly, some sectors, such as metal fabrication, plastics,
transport, and agro-​processing, show co-​movement of employment and capital invest-
ment (Zalk 2014). Productivity does need to be a key consideration of industrial policy,
since that is a requirement for sustainability, but forward-​looking policy cannot re-
peat the mistakes of the trade policy that led to the permanent erosion of some labour-​
intensive sectors in the 1990s. Serious consideration should be given to plans to build a
large light manufacturing sector as a pillar of industrial strategy (Black 2016).

42.5.4 Illustrative Instruments
42.5.4.1 Can Private Investment Be Targeted with the Instrument
of Public Investment?
Does an increase in public investment ‘crowd out’ private-sector investment? Or does
it stimulate the latter, ‘crowding in’ private investment? Crowding out may occur if
government borrowing for public projects raises interest rates generally, reducing the
net present value of private firms’ potential projects; or if it creates a shortage of real
resources, particularly labour, with appropriate skills such as engineering and project
930    Ciaran Driver and Laurence Harris

management skills. But crowding in can occur if public investment in projects such as
those that reduce transport costs stimulates private firms to invest in projects that would
otherwise have been unviable.
A recurring theme in South Africa’s national growth strategies since 1994 has been
the promotion of public-​sector investment, with the implicit justification that it would
promote growth both directly and through crowding in private investment. The effect
of public-​sector gross fixed capital formation is likely to depend on the type of public
investment.
Establishing the existence of a crowding-​in effect is difficult in principle and there
is a paucity of studies testing for its presence in post-1994 South Africa. However, re-
search using long-​run data finds historical support for positive impacts of public-​sector
infrastructure capital and investment on GDP, growth, total capital, and product-
ivity (Perkins et al. 2005; Fedderke and Bogetic 2006). In data spanning 1875 to 2001,
Fedderke et al. (2006) find that the public-​sector stock of infrastructure assets has a
positive effect on the level of GDP, arising indirectly from a positive effect on the total
capital stock, with a capital–​infrastructure elasticity of 1.37.
Fedderke and Bogetic (2006) also find a positive relationship between economic in-
frastructure, particularly transport and electricity infrastructure, and labour product-
ivity in manufacturing, using both stock and flow measures of capital. The estimates
are obtained from a panel of twenty-​four manufacturing sectors between 1975 and
2000 after controlling for endogeneity of infrastructure. The positive relation may re-
flect either a direct effect of improved transport and energy supplies on manufacturing
productivity, and/​or a crowding-​in effect in stimulating private firm’s productivity-​
enhancing investment, but the paper does not investigate these channels separately. In
a VAR model, Kumo (2012) obtains results for productivity consistent with those, but
yields no information on a crowding-​in effect on private investment.
Understanding the effectiveness of public investment on private incentives may turn
out to rest on the specifics of the programme—​the technical capacity, the organization
of its installation, or the management of its operation. Underlying this question is a
broader one of the relationship of the state to private industry. Failures of the former
may be attributed to insufficient capacity to deal with so many wide-​ranging policy
issues. Failures of private industry may stem from a reluctance of the state to partner
with it or from a shareholder-​centric form of governance that does not require directors
to take account of costs and benefits external to the firm.

42.5.4.2 Tax Subsidies as Instruments?

A type of investment-​promoting instrument that has been used extensively in South
Africa and elsewhere is subsidizing the user cost of capital through tax allowances
for investment costs (through accelerated depreciation tax rules, for example, or cap-
ital allowances). In South Africa, such subsidies have been sector specific, as shown by
the World Bank Group (2017: Table 22) in a study that considers their potential effect
 Investment in South Africa    931

in determining the allocation of capital to sectors with high employment multipliers.

Empirical estimates in that study, and the studies conducted for the Davis Tax
Committee, indicate that such effects vary by sector but are not strong in general (Davis
Tax Committee 2018: 6). Such findings of the weak effects of the existing system of
targeted investment subsidies conform with the conclusions reached above in section
42.2, about the weakness of evidence for the user-​cost-​of-​capital effect on investment
that underpins the individual firm approach to investment studies.

42.6 State of Knowledge

Gross fixed capital formation in South Africa has been on a rising trend since 1994
but the investment to GDP ratio has not reached levels historically experienced by
developing countries in ‘economic miracle’ periods of rapid growth. The comparison
does not yield simple conclusions because, whereas the latter countries had started
from positions of low industrialization or wartime destruction, South Africa already
had established, but distorted, industrial sectors at the start of the democratic period.
But to achieve its economic and social goals post-​1994, governments needed sus-
tainable significant increases in GDP per capita, linked to industrial restructuring. It
implied a high rate of aggregate investment, and investment in industries including
manufacturing. Within the rising trend of investment over the period, business invest-
ment in manufacturing has stagnated relative to other sectors. Why? And what can
be done?
Explanations of low investment that rely upon the theories underpinning the policy
canon do not have adequate empirical support, partly because the amount of published
research on them using South African data is small and partly because published results
do not consistently show strong relationships between firms’ investment, user cost of
capital, uncertainty, or measures related to the degree of monopoly.
More fundamentally, the theories are limited by modelling the behaviour of indi-
vidual firms acting independently in response to market signals. An alternative per-
spective sees aggregate and sectoral investment as the outcome of interactions within
a system of firms, institutions, and markets with both complementary relations (such
as are assumed to exist between public investment in infrastructure) and competing
interests. A system perspective may implicitly underlie the government’s recent
programmes for growth as well as the policy perspectives of business organizations and
other civil ​society bodies. But fuller understanding of South Africa’s ‘national system
of investment’ is needed if it is to lead to an effective strategy. In particular, while South
Africa’s institutions appear consistent with a system that can support high investment,
the complex and ‘soft’ links between them and the effective implementation of policies
warrant interdisciplinary study.
932    Ciaran Driver and Laurence Harris

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 Chapter 43

Publ ic Finance a nd Fi s c a l
P ol icy in Sou t h A fri c a

Tania Ajam

43.1 Introduction

Against a socio-​economic backdrop of high levels of racialized poverty, deprivation,

structural unemployment, and inequality fostered by decades of white supremacist
policies and centuries of colonialism and slavery, South Africa entered democracy in
1994 with a fiscal sustainability crisis, a potential debt trap inherited from the apart-
heid regime, and deeply entrenched racially based discrimination in the provision and
funding of public services. In certain respects, the South African experience was like
many post-​conflict economies transitioning to democracy, which face enormous devel-
opment and security needs, but limited state and revenue capacity and substantial debt
overhangs, as they grapple with transition arrangements, establishing fiscal institutions,
reprioritizing budgets from military to social welfare and economic objectives, and
managing external aid (Boyce and O’Donnell 2007). South Africa, however, also
inherited a mature, functional tax administration system which obviated dependence
on international aid.
This chapter focuses on the trajectory of post-​apartheid fiscal policy, focusing on
growth, equity, and sustainability trends, and their underlying drivers. Section 43.2
briefly outlines the evolution of fiscal policy between 1994 until the global financial crisis
in 2008. Section 43.3 analyses fiscal policy in the decade of state capture in the aftermath
of the global financial crisis until 2019. Section 43.4 concludes with some reflections on
post-​state-​capture renewal and the impact of the coronavirus pandemic.
936   Tania Ajam

43.2 Post-​apartheid Fiscal Policy

before the Global Financial Crisis
(1994–​2008)

The fiscal policy after 1994 is well documented in the academic literature (Ajam 2014;
Ajam and Aaron 2007; Burger and Calitz 2015; Burger, Siebrits, and Calitz 2016; Jooste,
Liu, and Naraidoo 2013; Mabugu et al. 2013; World Bank 2014). Two broad phases can be
discerned: 1994 to 1999 (the democratic transition and institution building) and 2000 to
2008 (enhanced revenue mobilization and institutional consolidation).

1. 1994–​99: Because of the decision not to repudiate apartheid debt in 19941 (which
then amounted to 48.7 per cent of GDP, of which 96.3 per cent comprised domestic
debt held by South African financial institutions), the newly elected democratic
government faced the dual challenges of managing the apartheid debt legacy,
while mobilizing the additional financial resources required to eliminate racial
and gender discrimination in the funding of public services, and expand services
to the previously marginalized black majority. The 1996 Constitution enshrined
justiciable socio-​economic rights (e.g. to basic education, health care, water, and
food). There was also a need to finance various sunset clauses conceded as part
of the negotiated settlement (such as job guarantees for white civil servants from
the National Party’s apartheid regime) while simultaneously diversifying the
public service by recruiting black teachers, nurses, and other civil servants to
eliminate service backlogs, especially in rural areas. Redistribution and redress
necessitated substantial reprioritization towards social services (basic education,
health, and social development) from defence spending, and several new social
grants were introduced (such as the Child Support Grant in 1998). The four pro-
vincial administrations of ‘white South Africa’ and the ten nominally independent
black homelands were replaced by nine provincial governments, responsible for,
inter alia, implementing health and basic education policies but with limited own
revenues and a virtually complete reliance on intergovernmental grants from na-
tional government, doled out in the annual division-​of-​revenue process. A consti-
tutionally compliant intergovernmental fiscal system encompassing the national,
provincial, and local spheres of government was established, with a medium-​term
intergovernmental budget process within a stable fiscal framework. A medium-​
term expenditure framework with annually revised three-​year rolling budgets
was introduced in the 1998/​99 fiscal year. The first democratic local government

1 South African public debt was almost completely Rand denominated and not foreign debt, therefore

default would have impacted negatively on South African pension funds, banks, and the financial system
in general.
 Public Finance and Fiscal Policy in South Africa    937

elections were held in 1995/​96 and from 2000 onwards, new demarcations and a
unified, wall-​to-​wall local government system were put in place. While budgets
were decentralized to provincial and local government, wage bargaining remained
centralized, with overspending on personnel budgets frequently co-​existing with
rollovers of unspent capital budget funds.
2. 2000–​08: This period saw sustained economic growth, buoyed by the com-
modity boom which improved South Africa’s terms of trade, rather than its
productivity and competitiveness (Fedderke 2014). By 2001, credit ratings
agencies, Standard and Poor’s, Moody’s, and Fitch, had all elevated South
Africa’s foreign and local currency debt to investment grade. The fiscal position
improved in terms of credibility, sustainability, solvency, and equity until the
global financial crisis and subsequent recession. After several years of primary
surpluses, the debt-to-GDP ratio declined from just under 50 per cent in 1996/​
97 to just over 25 per cent in 2008/​09. The fiscal consolidation2 of the previous
period had created the fiscal space for a more expansionary, infrastructure-​led,
stimulatory fiscal stance. Notable were the reforms within the South African
Revenue Service (SARS), which improved tax administration and broadened
the tax base sufficiently to allow both a significant expansion in social services,
and substantial tax relief and fiscal surpluses. A number of studies employing
different modelling methodologies have investigated the cyclicality of fiscal
policy over this period, with mixed results. Du Plessis, Smit, and Sturzenegger
(2007), for instance, find evidence of pro-​c yclicality between 1994 and 2006.
Amra, Hanusch, and Jooste (2019) suggest that until 2006 there appeared to
be consistency between the intended counter-​c yclical fiscal policy stance and
the actual fiscal policy stance, as measured by the structural deficit (based on
an estimation of what government revenue and expenditure would be if output
were at its potential level, with business-​c ycle variations stripped out). Between
2007 and 2008, the conventional budget balance was in surplus, but the struc-
tural budget balance was already in deficit, suggestive of a more pro-​c yclical
actual fiscal stance. Both conventional and structural budget balances swung
into deficit in 2009 and 2010 in the wake of the global financial crisis, which
was counter-​c yclical. Between 2011 and 2014, both conventional and structural
budgets deteriorated during the upward phase of the business cycle, suggesting
a period of pro-​c yclical actual fiscal stance despite the National Treasury’s
stated policy intention of counter-​c yclicality (Amra et al. 2019). By contrast,
Akanbi (2013) characterizes fiscal policy actions as counter-​c yclical for the en-
tire period between 1994 and 2011.

2
Fiscal consolidation refers to policies to reduce government deficits and arrest the future accumula-
tion of the stock of debt (OECD 2011).
938   Tania Ajam

A key element was the Occupation Specific Dispensation (OSD) in 2007, which sought
to attract scarce skills into the public sector with increased remuneration, that in sub-
sequent years placed significant upward pressure on the public-​sector wage bill. Also
salient was the strength of the National Treasury and the degree of fiscal transpar-
ency. In 2007, South Africa scored second in the Open Budget Survey, a position which
it retained in 2019 (International Budget Partnership 2019). While fiscal aggregates
appeared healthy over this period, public spending in sectors such as basic education
and health were highly operationally inefficient, with disappointing developmental im-
pact. A structural feature of the fiscal landscape, which persists today, is the inability
to spend effectively on the infrastructure projects needed to alleviate service delivery
backlogs, particularly in former black townships and rural areas.

43.3 Fiscal Policy during the Era

of State Capture (2009–​19)

During this period, while inflation remained stable within the 3–​6 per cent target range,
long-term average economic growth rates plummeted, from nearly 4 per cent before
the global financial crisis to between 1 and 1.5 per cent in the subsequent period until
2019 (National Treasury 2019), dragged down by the deterioration in South Africa’s
terms of trade after the commodity boom had collapsed, and a host of other domestic
factors. These include prolonged policy uncertainty (especially around broad-​based
black economic empowerment, contestation around the mining charter, and expropri-
ation without compensation). In 2017, 2018, and 2019, real GDP growth rates stood at 1.4
per cent, 0.8 per cent, and 0.2 per cent respectively, with per capita GDP growth rates
declining since 2015 and levels of savings remaining low (National Treasury 2020b). The
unemployment rate which had declined to 22.5 per cent in 2008, rose to 23.7 in 2009 in
the wake of the global financial crisis and further to 28.7 per cent in 2019, exacerbating
poverty and inequality (National Treasury 2020b). Deindustrialization continued apace
over the decade, and the public sector, especially through state-​owned enterprises
(SOEs), became a primary driver of short-​term employment.
The declining potential growth rate of the South African economy appears to have
been driven by deteriorating total factor productivity and supply-​side constraints
(such as the frequent electricity outages—​euphemistically dubbed ‘load-​shedding’—​
by Eskom, the state electricity utility, and prolonged drought and consequent water
shortages). Public-​sector investment had remained high over the period, partly as a re-
sult of a strategy to ignite growth based on infrastructure investment and at the same
time improve access to services for under-​serviced poor households—​what Creamer
(2014) styles as ‘reconstructive fiscal policy’, aimed at growing tax bases to curb budget
deficit growth. Contingent liabilities due to government guarantees to SOEs like Eskom
also increased markedly.
 Public Finance and Fiscal Policy in South Africa    939

Public investment to GDP ratios during 2006–​16 exceeded the long-​term average
for 1994–​2017. However, while public investment levels remained fairly high, efficiency
of investment—​as captured by indicators like the incremental capital output ratio
(ICOR)—​worsened, attributable mainly to the poor SOE performance. Van Rensburg,
Fowkes, and Visser find that:

The share of investment from the (broad) public sector has risen sharply however,
mainly because of state-​owned enterprises. It is becoming clearer that these in-
vestment projects were increasingly co-​opted for patronage spending and self-​
enrichment, a misallocation of capital that has curtailed the efficiency of investment
and therefore the country’s longer-​term growth potential. (2019: 9)

They contend that if the longer-term (2000–​17) ICOR of 5.9 had been maintained, then
growth between 2011 and 2017 would have been 3.4 per cent annually, versus an actual
average rate of 1.6 per cent.
Conspicuous by its absence in the period under review was a coherent economic
policy. A National Development Plan was adopted in 2012, but core fundamentals of
the plan had still not been implemented by 2021 (such as the allocation of spectrum
and the stabilization of the political-​administrative interface), bedevilled by a political
economy impasse and weakening state capacity. The National Treasury’s 2019 draft eco-
nomic plan, ‘Economic Transformation, Inclusive Growth, and Competitiveness’, which
attempted to chart a growth path for the South African economy, remains contentious
(National Treasury 2019).
This decade fell largely within the tenure of former President Jacob Zuma, who
had assumed office after the 2009 general elections and resigned in February 2018,
facing charges of racketeering, corruption, money-​laundering, and fraud relating
to 783 payments he allegedly received in connection with an arms deal. Unlike mere
corruption, state capture amounted to nothing less than the creation of a ‘shadow
state’ that subverted the formal, constitutional state and parasitically extracted public
resources—​primarily, though not exclusively, from SOEs—​to benefit an interlocking
network of corrupt individuals (including the notorious Gupta and Watson families),
with the support of former President Zuma, many factions within the governing party,
and a cohort of senior public-​sector officials (Swilling et al. 2017). The governance and
fiscal institutions which had been established earlier were systematically disempowered
by state capture, deployment of incompetent cadres, and a supine Parliament which
failed to hold the Executive accountable (Ajam 2020). Examples abound: the attenu-
ation and capture of the SARS as laid bare by the Nugent Commission of Inquiry into
Tax administration and Governance at SARS; the Inquiry into the Public Investment
Corporation and the Zondo Commission of Inquiry into Allegations of State Capture,
Corruption and Fraud in the Public Service; as well as a litany of auditor-​general reports
on fraud and mismanagement in national, provincial, and local spheres. Following
two consecutive years of significant tax revenue shortfalls in 2016/​17 and 2017/​18, and
allegations that value-​added tax (VAT) refunds had been systematically withheld to meet
940   Tania Ajam

revenue targets, retired judge Robert Nugent was appointed in May 2018 to investigate
‘reports in the public domain that undermine taxpayer morality’ and recommend ‘cor-
rective measures’ necessary to restore taxpayer confidence (Nugent 2018). A succession
of five ministers of finance were appointed and recalled by President Zuma between
2014 and 2018 (one of whom was in office for only a weekend), destabilizing the National
Treasury.
Instead of decreasing expenditure in line with the declining potential output rates,
government increased its spending, as can be seen in Table 43.1. Main budget expend-
iture increased from 30.8 per cent of GDP in 2008/​09 to 32.9 per cent in 2019/​20.
The average deficit to GDP ratio between 2008/​09 and 2019/​20 was 4.5 per cent. From
a modest main budget deficit of 1.1 per cent (and a primary surplus3 of 1.3 per cent) in
2008/​09, the deficit to GDP ratio in 2009/​10 increased sharply to 6.5 per cent in the wake
of the global financial crisis, as counter-​cyclical fiscal policy intent sought to stimulate
the economy between 2008/​09 and 2014/​15. Unfortunately, economic growth did not
materialize. Tax revenues (particularly corporate income tax) took a protracted time to
rebound to their pre-​global financial crisis levels, and accumulated fiscal buffers were
exhausted. Amra et al. speculate that the commodity boom period of 2001 to 2007 might
have been mistaken for a permanent increase in output, resulting in over-​optimistic
growth forecasts by the National Treasury, and fiscal policy intention ‘decoupled from
the actual dynamics of the economy until 2014/​15’ (2019: 17).
In 2013/​14, fiscal policy objectives began to shift, with government committing to an
expenditure ceiling, with all new policy initiatives over the following three years to be
financed from savings, efficiency gains, and reprioritization. With debt service costs
rising from 2.3 per cent to 3 per cent of GDP between 2008/​09 and 2014/​15, government’s
intended fiscal stance became more contractionary and pro-​cyclical in 2014/​15, with
increases for the first time in two decades in all marginal personal income tax (PIT)
rates, except the lowest tax bracket. This saw the tax to GDP ratio increase to 26.1 per
cent in 2015/​16, from 25 per cent the previous year (see Table 43.1). ‘Budget Review 2015’
noted that while fiscal policy had ‘supported the economy for the past seven years, this
counter-​cyclical approach has reached its limits. The budget deficit is largely struc-
tural and cannot be reduced through a cyclical upturn in revenues’ (National Treasury
2015: 30). Fitch and Standard and Poor’s downgraded the sovereign credit rating to BB+
in early 2017 (though Moody’s retained an investment grade rating). The primary deficit
narrowed from -2.3 per cent of GDP in 2012/​13 to –​1 per cent in 2017/​18 and 2018/​19, far
too little to restore fiscal sustainability. As reflected in Figure 43.1, the main budget debt-
to-GDP ratio escalated from 50.5 per cent in 2016/​17 to 63.5 per cent in 2019/​20.

3
The primary balance (surplus or deficit) is the difference between total revenue and non-​interest ex-
penditure and is a better measure of government’s discretionary spending than the conventional surplus/​
deficit because it excludes interest payments which are obligatory. When revenue exceeds non-​interest
expenditure there is a primary surplus, which is associated with a more contractionary fiscal stance,
whereas primary deficits are regarded as more expansionary.
Table 43.1: Actual and projected main budget revenue, expenditure, and budget balances in South Africa 2008/​09–​2020/​21
2020/​21
R billion/​percentage 2008/​ 2009/​ 2010/​ 2011/​ 2012/​ 2013/​ 2014/​ 2015/​ 2016/​ 2017/​ 2018/​ 2019/​20 Budget COVID-​19
of GDP 09 10 11 12 13 14 15 16 17 18 19 Preliminary 2020 Supplementary

Main budget revenue 683.5 664.5 672.8 745.3 800.1 887.4 965.5 1076.2 1137.9 1196.4 1275.3 1345.3 1398.0 1099.5
29.7% 27.1% 24.5% 24.2% 24.0% 24.5% 25.0% 26.1% 25.7% 25.5% 25.9% 25.8% 22.6%
Main budget expenditure 708.5 824.1 806.0 889.9 965.5 1047.8 1131.9 1244.6 1305.4 1404.9 1506.6 1690.6 1766.0 1809.2
30.8% 33.6% 29.3% 28.9% 29.0% 28.9% 29.3% 30.2% 29.5% 29.9% 30.6% 32.9% 32.5% 37.2%
Non-​interest ependiture 654.1 766.9 739.8 813.5 877.4 964.6 1017.1 1115.8 1158.9 1242.3 1324.8 1485.8 1536.7 1572.7

Debt-​service costs 54.4 57.1 66.2 76.5 88.1 101.2 114.8 128.8 146.5 162.6 181.8 204.8 229.3 236.4
2.3% 2.2% 2.3% 2.5% 2.7% 2.8% 3.0% 3.1% 3.3% 3.4% 3.6% 4.0% 4.2% 4.9%
Main budget balance –​25.0 –​159.6 –​133.2 –​144.6 –​165.4 –​160.4 –​166.4 168.4 –​167.5 –​208.6 –​231.3 –​345.3 –​368.0 –​70.7
–​1.1% –​6.5% –​4.8% –​4.7% –​5.0% –​4.4% –​4.3% –​4.1% –​3.8% –​4.4% –​4.7% –​6.7% –​6.8% –​14.6%
Primary balance 29.4 –1​ 02.5 –​67.0 –​68.1 –​77.2 –​59.2 –​51.6 –​39.6 –​21.0 –​45.9 –​49.5 –​140.5 –​138.7 –​473.2
1.3% –​4.2% –​2.4% –​2.2% –​2.3% –​1.6% –​1.6% –​1.0% –​0.5% –​1.0% –​1.0% –​2.7% –​2.6% –​9.7%

Source: Budget Reviews, various years.

Note: Budget 2020 refers to the appropriation which was tabled in February 2020. The COVID-​19 Supplementary Budget refers to the emergency budget tabled in June
2020 as a result of the coronavirus pandemic.
942   Tania Ajam

145

135 SCENARIO B
125

115
Per cent of GDP

105 October 2020 MTBPS

92.9 94.6 95.3 95.1 94.5
95 90.1 93.3
85.6
SCENARIO A
85 86.0 87.4 86.8
81.8
82.1 84.8
81.8
75 77.9 73.5
June 2020 adjustment budget
65 63.3

55 56.6
53.0
50.5
45
2016/17

2017/18

2018/19

2019/20

2020/21

2021/22

2022/23

2023/24

2024/25

2025/26

2026/27

2027/28

2028/29
Figure 43.1 Debt outlook scenarios—​trajectories of gross debt to GDP in South Africa, 2016/​
17–​2028/​29
Source: National Treasury (2020c: 51).

In 2018, South Africa’s general government gross debt of 56.7 per cent exceeded the
emerging-​market and middle-​income country average of 51.1 per cent. Brazil (87.1 per
cent), Argentina (86.4 per cent), and India (69.6 per cent) had higher debt-to-GDP
ratios, while Malaysia (55.5 per cent), Mexico (53.6 per cent), China (48.8 per cent), and
Thailand (42 per cent) had lower ratios (IMF 2020b).
South African public debt is largely Rand denominated and held by domestic pension
funds and other financial institutions, with a relatively benign, longer-​term maturity
structure. Foreign-​currency-​denominated debt amounted to only 10.1 per cent of total
debt in 2019/​20 (limiting exchange rate risk). However, international investors were the
largest holders of domestic-​currency-​denominated government bonds in 2019/​20 (37.1
per cent of the portfolio, down from 41.4 per cent in 2017/​18). Despite concerns about
sovereign credit risk, international investors increased their holdings by Rand 8 billion
in 2018/​19 and Rand 95 billion in 2019/​20, encouraged by persistently low interest rates
in advanced economies (National Treasury 2020a). Contingent liabilities, comprised
mainly of guarantees to Eskom and to a lesser extent SANRAL, SA Airways, and other
SOEs in crisis—​reached Rand 979.9 billion in 2019/​20 (National Treasury 2020a),
intensifying fiscal risk.
While the National Treasury generally was able to enforce the expenditure ceiling on
national and provincial government departments and municipalities, Eskom bailouts in
2017/​18 and the unexpected announcement outside of the normal budget process of the
introduction of fee-​free higher education in December 2017, as a Parthian shot by the
departing President Zuma, saw expenditure rise to 29.9 per cent and 30.6 per cent of GDP
in 2017/​18 and 2018/​19 respectively (see Table 43.1). Bypassing the budget process in order
 Public Finance and Fiscal Policy in South Africa    943

to ratify an unplanned, uncosted policy, such as fee-​free higher education, was a clear sign
of the National Treasury’s waning ability to enforce fiscal discipline (the Medium Term
Budget Policy Statement in October 2017 just two months previously had given no ink-
ling of this material spending commitment). The National Health Insurance Bill, tabled
in 2019, envisaged that public health expenditure would increase from the prevailing
level of 4 per cent of GDP to 5 to 6 per cent per annum (National Treasury 2019), a struc-
tural increase in spending without any concomitant structural increase in revenue,
based on an unrealistic assumption of a 3 per cent real growth rate per annum (Davis Tax
Committee 2017). These proposed social policies of government clearly contradicted the
National Treasury’s fiscal policy stance and detracted from its credibility.
After the introduction of the OSD, the total main budget wage bill more than tripled
from Rand 154 billion to Rand 518 billion between 2006/​07 and 2018/​19. Personnel head-
count had only increased at a modest average annual growth of 1.2 per cent over the
period, from 1.2 million to 1.3 million full-​time equivalents. By contrast, average re-
muneration in the public service rose 66 per cent after adjusting for inflation over the
same period, largely concentrated in 2009/​10 and 2010/​11, with the fastest rises in high-​
skill professions, such as medical doctors, teachers, and lawyers. While the StatsSA
Quarterly Employment Survey indicated that the average remuneration across 110 non-​
agricultural sectors and sub s​ ectors in 2018/​19 was just under R273,000, the National
Treasury estimated that the average remuneration of national and provincial govern-
ment employees was R393,000 in 2018/​19 (National Treasury 2019).
While fiscal policy successfully constrained fiscal aggregates, other inconsistent gov-
ernment policies failed to restrain ‘bottom-​up’ pressures such as public-​sector wages,
administered prices (such as electricity and water tariffs), cost over-​runs and delays
on major infrastructure projects such as Eskom’s Kusile and Medupe power stations
and low-​cost housing developments which had to be ‘rectified’ (a euphemism for vir-
tually rebuilding because initial construction was so poor). This resulted in ‘austerity
without fiscal consolidation’, as the mounting salary bill crowded out spending on the
complementary goods and services required for service delivery (such as medicines and
textbooks), and the pressures of increasing public-​sector wages and benefits drove the
burgeoning cost of the employment budget, limiting the creation of new public-​sector
jobs and the filling of vacancies, especially in provincial governments. As a result, the
quality of public services, such as health and basic education, deteriorated with little
appreciable fiscal consolidation (Sachs 2020). South Africa’s medium-​term expend-
iture framework did not successfully reconcile bottom-​up sectoral pressures with the
enforcement of top-​down fiscal aggregates, nor succeed in aligning policy, planning,
budgeting, and implementation.
With powerful public-​sector unions in tripartite political alliance with the governing
party, centrally bargained public-​sector wages are de facto a first claim on the fiscus in
South Africa and political economy dynamics render wage increases virtually irrevers-
ible, thus increasing the rigidity of budgets (Amra et al. 2019), particularly at subnational
levels. By 2019/​20 there were 17,996,000 social grant recipients in South Africa (National
Treasury 2020a). The high level of social spending entitlements necessary to protect the
944   Tania Ajam

most vulnerable households from abject poverty in one of the world’s most unequal
societies further limits fiscal discretion.
In 2017, South Africa spent 15.3 per cent of GDP on social services (education, health,
and social protection). Russia (19.7 per cent) and Turkey (19 per cent) spent a greater
share of GDP on social services, whereas China (13.9 per cent) and Indonesia (5.3 per
cent) spent a much lower proportion. South Africa, however, spent a greater share of its
GDP (3.6 per cent) on public order and safety in 2017 than Russia (2.3 per cent), Turkey
(2 per cent), China (1.5 per cent), and Indonesia (1.1 per cent). Similarly, South Africa
spent a larger proportion of its GDP in 2017 on general public services (11.5 per cent) in
comparison with Russia (6.7 per cent), Turkey (5.4 per cent), Indonesia (4.9 per cent),
and China (2.9 per cent) (IMF 2020a).
In the period under review, not only was investment spending inefficient, but also
expenditures on public health and education, with disastrous consequences not only
for equity and economic mobility of poor, black youth who bear the brunt of joblessness
in South Africa, but also for productivity, competitiveness, and long-​term growth. In
relation to basic education, South Africa came last of fifty countries in the Progress in
International Reading Literacy Study 2016 (PIRLS) which suggests that 78 per cent of
South African grade 4 children cannot read for meaning in any language (Howie et al.
2017). Considerable disparities in the quality of public health services and serious de-
livery challenges remain (Health Systems Trust 2019). The root causes of ineffective
infrastructure and social services spending fall predominantly beyond the purview of
fiscal policy or the National Treasury, and any effort to improve the developmental im-
pact of public expenditure are contingent on the political will, a workable social com-
pact, and enhanced governance and capacity of other organs of state.
Main budget revenues stood at 22.5 per cent of GDP in 1994/​95 (Ajam and Aron
2007) and peaked at 29.7 per cent in 2008/​9 (as reflected in Table 43.1). Between 2010/​11
and 2013/​14, tax rates stayed largely unchanged but the tax to GDP ratio did not recover,
remaining at 24–​24.5 per cent of GDP, curtailed by low rates of economic growth, lower
compliance levels, and diminished enforcement capacity at SARS. In December 2018,
the Nugent Commission of Inquiry into Tax Administration and Governance by SARS
laid bare the disastrous consequences of actions by the former SARS commissioner
appointed by President Zuma, Mr Tom Moyane, who ‘arrived without integrity and
then dismantled the elements of governance one by one’, resulting in ‘massive failure of
integrity and governance at SARS’ (Nugent 2018: 3–​4).
Table 43.2 delineates trends in tax-​revenue collection by revenue source for the period
under review. Several revenue mobilization measures taken between 2015/​16 and 2019/​
20 increased the main budget tax to GDP ratio to 26.2 per cent in 2019/​20 (as shown in
Table 43.1). The top marginal PIT tax rate of 40 per cent, which had prevailed for thir-
teen years previously, was increased to 41 per cent in 2016/​7 and again to 45 per cent for
2018/​19, with below-​inflation adjustments to tax rebates and tax brackets. There were
also hikes in the dividends tax (from 15 to 20 per cent in 2017/​18), the capital gains tax,
the fuel levy, excise duties on alcohol and tobacco products, as well as transfer taxes and
estate duties. Despite a recession in 2018, VAT was increased by 1 per cent to 15 per cent
Table 43.2: Main budget revenue by source 2008/​09 to 2020/21
2008/​ 2009/​ 2010/​ 2011/​ 2012/​ 2013/​ 2014/​ 2015/​ 2016/​ 2017/​ 2018/​ 2019/ ​ 2020/​
09 10 11 12 13 14 15 16 17 18 19 20 21
Actual revenue Revised Budget
R billion collections estimate 2020

Personal 195.1 205.1 226.9 250.4 275.8 309.8 353.0 388.1 424.5 461.0 492.1 527.6 546.8
income tax
Corporate 165.5 134.9 132.9 151.6 159.3 177.3 184.9 191.2 204.4 217.4 212.0 216.7 230.2
income tax
STC/​ 20.0 15.5 17.2 22.0 19.7 17.3 21.2 24.2 31.6 28.6 30.5 29.7 31.8
dividends
tax and
interest-​
withholding
tax 1
Taxes on 9.5 8.8 9.1 7.8 8.6 10.5 12.5 15.0 15.7 16.6 15.3 16.0 17.5
property 2
Value-​ 154.3 147.9 183.6 191.0 215.0 237.7 261.3 281.1 289.2 298.0 324.8 344.2 360.6
added tax
Specific 20.2 21.3 23.0 25.4 .28.4 29.0 32.3 35.1 35.8 37.4 40.8 46.8 48.8
excise
duties
Fuel levies 24.9 28.8 34.4 36.6 40.4 43.7 48.5 55.6 62.8 70.9 75.4 79.3 83.4
Customs 22.8 19.6 26.6 34.2 39.0 44.2 40.7 46.3 45.6 49.2 55.0 56.3 59.5
duties
Other 12.8 16.7 20.5 23.6 27.6 30.5 31.9 33.5 34.6 37.5 41.9 42.3 46.8
taxes 3
(continued)
Table 43.2: Continued
2008/​ 2009/​ 2010/​ 2011/​ 2012/​ 2013/​ 2014/​ 2015/​ 2016/​ 2017/​ 2018/​ 2019/ ​ 2020/​
09 10 11 12 13 14 15 16 17 18 19 20 21
Actual revenue Revised Budget
R billion collections estimate 2020
Total gross 625.1 598.7 674.2 742.6 813.8 900.0 986.3 1070.0 1144.1 1216.5 1287.7 1358.9 1425.4
tax revenue
Non-​tax 20.8 15.3 16.5 24.4 28.5 30.7 30.9 57.3 33.3 35.8 35.9 36.1 36.0
revenue4
Less: SACU –​28.9 –​27.9 –​15.0 –​21.8 –​2.2 –​43.4 –​51.7 –​51.0 –​39.4 –​56.0 –​48.3 –​50.3 –​63.4
payment 5
Total main 617.0 586.1 672.8 745.3 800.1 887.4 965.5 1076.2 1137.9 1196.4 1275.3 1,344.8 1398.0
budget
revenue

Source: National Treasury Budget Reviews (National Treasury 2020a), various editions.
Notes:
1) STC refers to the Secondary Tax on Companies.
2) Taxes on property include donations tax, estate duty, securities transfer tax, and transfer duties.
3) Other includes: the health promotion levy, air departure tax, electricity levy, plastic bag levy, Universal Service Fund, CO2 motor
vehicle emissions, incandescent light bulb levy, tyre levy, etc.
4) Non-​tax revenue includes sales of goods and services, fines, penalties and forfeits, interest, dividends and rent on land
(including mineral and petroleum royalties and mining leases and ownership) and sales of capital assets.
5) Payments made in terms of the South African Customs Union.
 Public Finance and Fiscal Policy in South Africa    947

in April 2018. Two new taxes were introduced: a tax on sugar-​based beverages for health
promotion purposes in 2018, and a carbon tax as part of South Africa’s broader climate​
change-​mitigation strategy.
Despite this intensified tax effort, by 2019/​20, actual tax revenue collection had fallen
short of projected revenues six consecutive times, contributing to widening deficits.
Actual tax-​revenue collection undershot the revised revenue-​collection target of Rand
1302.2 billion by Rand 14.5 billion in 2018/​19, 90 per cent of which was due to under
collection on taxes on income and profits (SARS 2020).
Tax buoyancy is a simple measure of the responsiveness of tax collection to economic
growth, encompassing both growth-​and policy-​induced changes. Taxes are considered
buoyant if revenues increase by more than 1 per cent for a 1 per cent increase in GDP.
The average buoyancy for the first twenty-​five years of post-​apartheid South Africa
was 1.08 per cent, implying that tax-​revenue growth roughly kept pace with economic
growth rates over the long term. During the commodity boom, buoyancies hit a high
mark of 1.55 in 2004/​05, then gradually decreased until the aftershock of the global fi-
nancial crisis, which sees sharply contracting tax revenues and a considerable drop in
buoyancy to –​0.71 in 2009/​10. Thereafter, buoyancies rose until 2015/​16, exceeding the
long-​term average. Given the tax increases in 2016/​17 and 2017/​18, tax proceeds would
have been expected to exceed economic growth rates. Tax buoyancy, however, declined
to 0.97 and 1.00 in those years respectively, below the long-​term average (SARS 2020).
As noted previously, this under ​performance could be attributed to the sluggish growth
rate, exacerbated by SARS’ diminished effectiveness.
PIT, corporate income tax (CIT) and VAT collectively comprise roughly 80 per cent
of tax revenues in the period under review. Buoyancy ratios vary across different tax
handles depending on their structure. As a progressive tax, the buoyancy of PIT tends
to exceed 1. The buoyancy of a broad-​based VAT such as in South Africa is generally
around unity. CIT as a proportional tax (at 28 per cent over the period) tends to be more
volatile, with lower buoyancies in a contracting economy, and vice versa (SARS 2020).
Table 43.2 indicates that PIT increased in nominal terms in 2009/​10, post-​global finan-
cial crisis, and that VAT and CIT took two and five years respectively to recover to their
global-​financial-​crisis level. CIT, and to a lesser extent VAT, have declined as a pro-
portion of tax revenue, while PIT and the fuel levy increased in importance. The slow
recovery of CIT is due to the long time companies took to return to profitability and
the accumulated assessed losses which could be carried forward to offset subsequent
profits. This was exacerbated by volatility in commodity prices and the exchange rate,
drought, electricity load-​shedding, and the downgrade of some major banks and insur-
ance companies to ‘junk status’ in 2017/​18 (SARS 2020).
Because of structurally high unemployment rates, South Africa’s tax bases are very
narrow, reflecting severe underlying income distribution inequality. According to the
Quarterly Employment Survey, of the 38.727 million people between the ages of 15 and
64 in South Africa in December 2019, only 16.383 million were employed in the formal,
informal, or private household sectors (StatsSA 2020). In 2019/​20, only 6.562 million
individuals were expected to submit PIT tax returns, and 552,611 companies were
948   Tania Ajam

registered as employers. Contrast this to the nearly 18 million individuals receiving so-
cial grants in 2009. On 31 March 2019, less than a million companies (903,320) submitted
CIT tax returns and there were roughly half a million active VAT vendors (441,710).
The PIT system is progressive, with the lowest tax bracket (R70,000 to R350,000)
comprising 16.8 per cent of taxes assessed in 2018/​19 and the brackets above R500,000
Rand contributing 67.6 per cent of taxes assessed (SARS 2020).
The fiscal system is highly redistributive, reducing inequality before taxes and social
grants, where the incomes of the richest decile are more than a thousand times greater
than the lowest decile (a Gini coefficient4 of 0.77), to a post-​fiscal p
​ olicy outcome where
they are about 66 times the lowest decile (a reduced Gini coefficient of 0.59). In 2014,
social grants lifted about 3.6 million people out of poverty (measured as those living on
less than $2.50 a day in purchasing-​power-​parity dollars) and halved the rate of extreme
poverty (with the share of the population living on $1.25 a day or less falling from 34.4
per cent to 16.5 per cent). It is ironic, however, that South Africa’s distribution outcome
after fiscal policy is still more unequal than comparable middle-​income countries before
fiscal policy—​Armenia, Brazil, Bolivia, Costa Rica, El Salvador, Ethiopia, Guatemala,
Indonesia, Mexico, Peru, and Uruguay (World Bank 2014).
The consolidated budget is more comprehensive than the main budget in that it
includes SOEs. It is germane that the balance for SOEs, which was in modest surplus
in 2009/​10 and 2010/​11, has swung into deficit since, with substantial deficits in 2018/​19
and 2019/​20, largely driven by Eskom (National Treasury 2020a). This suggests that the
burden of fiscal adjustment was largely borne by subnational government, while SOEs
appeared to exhibit little fiscal restraint.
This is perhaps more clearly illustrated in relation to the constitutionally mandated
annual division of revenue among the national, provincial, and local spheres of govern-
ment. In 2010/​11, 48.1 per cent of revenue collected nationally by SARS (after debt ser-
vice costs and the contingency reserve had been top sliced) went to the national sphere,
43.6 per cent to provincial governments and 8.2 per cent to local government. In 2016/​
17, the national share of revenue declined to 47.9 per cent, to permit an increase in the
local government revenue share to 8.9 per cent, while the provincial share declined to
41.5 per cent. In 2019/​20, the national share increased to 50.1 per cent (driven largely
by Eskom and other SOE spending), while the local government share declined to 8.5
per cent, with cuts in infrastructure conditional grants to subnational governments.
Given that provincial governments are responsible for the provision of health and
basic education and have virtually no fiscally significant sources of own revenue, and
that municipalities have been facing increasing numbers of indigent households which
require subsidized access to water, electricity, and other basic services, it is clear that
fiscal austerity at subnational level could coexist with profligacy within the national
sphere. This is exacerbated by above ​inflation-​rate, centrally bargained public-​sector

4
The Gini coefficient is a measure of income inequality in a country, ranging from zero (perfectly
equal) to 1 (perfectly unequal).
 Public Finance and Fiscal Policy in South Africa    949

wage outcomes which far exceed the rate of growth of intergovernmental transfers to
subnational governments.

43.4 Fiscal Policy since 2019:

Post-​capture Recovery and
the Coronavirus Pandemic

After President Cyril Ramaphosa assumed office in 2018, the devastating cost of a
decade of state capture, corruption, and poor fiscal choices became even more starkly
apparent. The start of this phase was punctuated by the global coronavirus pandemic
which has further dampened domestic growth prospects, and further reduced South
Africa’s fiscal space.
The February 2020 Budget continued simply to defer fiscal adjustment: main budget
expenditure at 32.5 per cent of GDP in 2020/​21 was expected to decline only margin-
ally from 32.9 per cent in the previous year, while tax revenues as a proportion of GDP
were also anticipated to decrease slightly to 25.8 per cent from 26.2 per cent the pre-
vious year (see Table 43.1). The main budget deficit expanded to 6.8 per cent of GDP.
Gross loan debt was expected to increase to 71.6 per cent of GDP by 2022/​23 (R4.38
trillion), with net debt reaching 67.8 per cent of GDP over the same period. Government
acknowledged that debt ‘is not expected to stabilize over the medium term’ (National
Treasury 2020b: 84). In March 2020, Moody’s downgraded the sovereign credit rating
for foreign-​and local-​currency debt by one notch to ‘junk status’ from Baa3 to Ba1 with
a negative outlook, triggering South Africa’s departure from the benchmark World
Government Bond Index (WGBI) of local-​currency debt, thereby increasing the cost of
borrowing.
No new tax increases were proposed since they were perceived as hindering economic
recovery and unlikely to increase revenues anyway (given that gross tax buoyancy was
expected to fall to 0.93 at the time of the February 2020 budget), with increased revenues
from indirect taxes directed towards PIT relief (National Treasury 2020a). This appears
to indicate that the inflexion point on the Laffer curve5 had already been reached.
Government also pointed out that the tax burden in South Africa (as captured by the
tax to GDP ratio) is already significantly higher than other middle-​income developing
countries (National Treasury 2020a). The IMF World Economic Outlook database
suggests that, in 2018, South Africa’s general government tax to GDP ratio (29.0 per
cent) exceeded the average for emerging-​market and middle-​income countries of 27.6
per cent. In that year, Argentina (34 per cent), Algeria (33.7 per cent), Brazil (30.9 per

5 The Laffer curve postulated a U-​shaped relation between tax rates and tax receipts, indicating that

setting rates above a certain optimal level is likely to produce less revenue because they disincentivize
taxable endeavours and vice versa.
950   Tania Ajam

cent), and Columbia (30 per cent) had higher tax to GDP ratios than South Africa,
whereas China (28.3 per cent), Morocco (26.2 per cent), Chile (23.9 per cent), Mexico
(23.5 per cent), Thailand (21.4 per cent), India (20.2 per cent), and Malaysia (19.4 per
cent) had lower ratios (IMF 2020b).
To moderate the public-​sector wage bill, in April 2020 government reneged on the
wage increases for 2020/​21 which it had agreed upon in the Public Service Co-​ordinating
Bargaining Council, as the last leg of a three-​year wage agreement negotiated in 2018. It
offered Rand 13 billion wage increases in 2020/​21 to the roughly 1.2 million public-​sector
workers, instead of the Rand 32 billion which had originally been approved. This was
contested in the Labour Court by the public-​sector unions and the matter was still unre-
solved by April 2021.
In March 2020, South Africa—​like most countries around the world—​was suddenly
hit by the global coronavirus pandemic. A very stringent lockdown was declared as a
public health response, which was relaxed in stages, but still had not been lifted com-
pletely fourteen months later. For the first time since the 1918 Spanish Flu epidemic,
the economy has been hit by real supply-​and-​demand shocks, which disrupted both
domestic production and global supply chains, and simultaneously depressed de-
mand in the domestic and global economies. In April 2020, government announced a
raft of emergency response initiatives to contain the virus, cushion the impact of the
lockdown on the most vulnerable citizens, extend a social safety net, prevent company
insolvencies, reduce job losses, and avoid a collapse in wage payments. While the public
health and national lockdown responses have managed to prevent loss of life and cur-
tail much of the direct public health-​related damages of the coronavirus pandemic, the
economic impact of this COVID-​19 crisis has been dire, especially for the poor and the
informal sector.
The COVID-​19 response package of Rand 500 billion was announced, comprising
Rand 310 billion for tax relief, a credit guarantee scheme, and wage protection, with the
remaining Rand 145 billion of the package announced later in a special supplementary
budget in June 2020, and Rand 45 billion which was clarified in the budget in February
2021. This supplementary budget was financed predominantly through reprioritized
spending (e.g. the delay of infrastructure projects) and loans from the IMF, New
Development Bank, and African Development Bank.
The main budget deficit deteriorated markedly from the 2.6 per cent of GDP for 2020/​
21, as envisaged in the February 2020 budget, to 14.6 per cent in the COVID-​19 sup-
plementary budget (as evidenced by Table 43.1) and a substantial 15.7 per cent of GDP
on the consolidated budget (which includes municipalities, SOEs, and social-​security
funds). Debt service costs rose sharply to nearly 22 per cent of main budget revenue and
4.9 per cent of GDP (as reflected in Table 43.1) and 11.6 per cent of consolidated expend-
iture in 2020/​21.
The most striking departure from pre-​ COVID-​ 19 sustainability trends was a
lockdown-​induced tax collapse estimated at Rand 304.1 billion in the special adjust-
ment budget. Additional funding from the World Bank and other international finan-
cial institutions only amounted to about Rand 80 billion in additional resources, much
 Public Finance and Fiscal Policy in South Africa    951

less than the tax shortfall. The lockdown ban on cigarette and alcohol sales alone cost the
fiscus Rand 10 billion over four months in excise taxes, and created an extensive black
market in smuggled goods (Merten 2020)
After the shock of the global financial crisis in 2008/​09, tax revenue only recovered
about six years later. The National Treasury’s projections indicate that the post-​pandemic
tax recovery path might only recover at a similarly long lag (National Treasury 2020b).
This means that government is, for all intents and purposes, spending money that it does
not have and has little prospect of generating through tax revenue in the short to medium
term. Tax compliance, which sat at 69.3 per cent tax compliance of 2012/​13, fell to 65 per
cent in 2018/​19 (SARS 2020) and may deteriorate further, as middle-​class taxpayers be-
come increasingly disaffected. Ideally, it would not be necessary to increase tax rates,
merely improve enforcement in customs and reduce base erosion/​profit shifting. Despite
an experienced, new SARS commissioner and progress in the right direction, SARS
still faces a severe capacity constraint, with around six hundred to seven hundred crit-
ical skills vacancies existing in the skillsets required by a modern tax authority: forensic
auditing, investigation, data analytics skills, and specialist legal expertise.
The imperative for fiscal consolidation to narrow the structural gap between revenues
and spending is therefore compelling, but must also be balanced by the need to support
post-​COVID economic recovery and a buoyant tax base. In the June 2020 COVID-​19
supplementary budget, the minister of finance initially proposed an ‘active’ debt stabil-
ization trajectory, which aimed to arrest the gross debt-​to-​GDP ratio at a peak of 87.4
per cent of GDP in 2023/​24 before falling to under 73.5 per cent in 2028/​29, rather than
the passive approach which could lead to debt spiral (see Figure 43.1).
With a steeper 7.8 per cent forecasted contraction of the economy in 2020/​21 than
the 7.2 per cent decline estimated in June 2030, Rand 8.7 billion lower tax revenues and
increased spending pressures from SOEs, social ​security funds, and municipalities,
the Medium Term Budget Policy Statement 2020 (MTBPS) in October 2020 proposed
a more gradual debt stabilization path. The MTBPS expects the debt-to-GDP ratio to
reach 85.6 per cent in 2021/​22, rising to 92.9 per cent by the end of the medium-term ex-
penditure framework period, and peaking at 95.3 per cent in 2024/​25 before stabilizing
(see Figure 43.1). The National Treasury also provides an illustrative bad case scenario
(Scenario A) where spending reductions and structural reforms are not implemented,
resulting in a primary deficit 2.4 per cent of GDP higher than the MTBPS baseline, in
which the debt-to-GDP ratio explodes and does not stabilize. In Scenario B, economic
reforms boost growth and closes the primary deficit more rapidly than the baseline fore-
cast, stabilizing the debt-​to-​GDP ratio at 92.4 per cent in 2025/​26 (see Figure 43.1).
The auditor-​general’s second real-​time audit report on Rand 148.06 billion in COVID-​
19 expenditures until 30 September 2020 highlighted widespread irregularities, poor
controls and systems, and indicators of potential fraud. These include payment of Social
Relief of Distress grants to 67,770 ineligible applicants and temporary employee/​employer
relief scheme payments to individuals who were deceased, below the legal age of employ-
ment, working in government, or receiving other Unemployment Insurance Fund (UIF)
benefits. Procurement controls were compromised with poor quality personal protective
952   Tania Ajam

equipment being supplied at inflated prices, two to five times the national prescribed
prices, and tenders awarded to companies without the requisite tax clearance certificates,
registration on the central supplier data base etc. (Auditor-​General 2020).
The precarious balance between the proverbial ‘rock’ of pro-​cyclical fiscal policy and
the ‘hard place’ of debt unsustainability is a difficult one to strike. Fiscal multipliers show
the impact of public spending on GDP. Recent fiscal multiplier estimates between 2009
and 2019 dropped from 1.6 to less than zero, suggesting that fiscal consolidation might
not necessarily undermine growth (South African Reserve Bank 2020). Fiscal con-
solidation must not only focus on containing expenditure, but also growing revenues
through employment and economic growth. It is therefore imperative that inclusive-​
growth-​enhancing reforms are implemented in partnership with the private sector as
a matter of urgency, despite the severely constrained fiscal and economic environment.
While inclusive growth is necessary for economic and fiscal sustainability, and equity
and social justice are prerequisites for political sustainability, environmental sustain-
ability in the face of the climate emergency and the need for innovative financing for a
just carbon transition will become increasingly foregrounded.
It is also the nature and composition of fiscal consolidation, and not just its quantum,
which affects growth. Cuts to the public-​service wage bill are likely to be less growth-​
compromising than to infrastructure investment, much of which has already been
deferred due to COVID-​19 reprioritization. If there is a trade-​off between maintaining
transfers at current levels or increasing the public-​sector wage bill, from a constitutional
prioritization perspective, transfers to the most vulnerable should be prioritized. At
the same time, further borrowing to fund government dissaving in the form of public-​
service wages or increased transfers (though the political path of least resistance) will
simply deepen the fiscal crisis.

43.5 Concluding Remarks

The coronavirus pandemic merely amplified the trends towards unsustainability arising
from a decade of the country’s failure to cut its fiscal coat according to its cloth—​increasing
expenditures despite a structural drop in economic growth potential after the com-
modity boom, as interest rates far exceeded economic growth rates and debt service costs
rose markedly as a proportion of taxes collected. This was compounded by a decade of
corruption, state capture, load shedding, policy uncertainty, and and a host of domestic
policy implementation failures. The precarious fiscal policy outcomes are but a manifest-
ation of deeper political economy and structural challenges that stymie growth, not their
root cause. Any solutions to the growth problem—​and by extension the fiscal dilemma—​lie
therefore in these domains. To persist in deferring structural reforms and continue to pin all
hopes on an infrastructure-​led growth surge, without resolving the underlying governance
and capacity challenges, calls to mind the definition of madness frequently attributed to
Einstein: doing the same thing over and over again, but expecting different outcomes.
 Public Finance and Fiscal Policy in South Africa    953

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 Chapter 44

Public De bt i n
Sou th Afri c a

Manoel Bittencourt

44.1 Introduction

After four decades of official racial segregation, South Africa transitioned to a non-​
racial democracy in 1994 when the first universal elections took place. And although
South Africa did not present some of the macroeconomic maladies that other young
democracies did shortly after their own democratic transitions, say, high government
debt and hyperinflation (Bittencourt 2011), inevitably for a country that presented, in
one way or another, segregationist labour market policies until 1994, South Africa has
also presented relatively high levels of income inequality, with a Gini coefficient of 63.02
in 2014 (Milanovic 2019).
The above background, that is to say, racial segregation, transition to democracy,
and high inequality, allows me to borrow from a rich and diverse body of literature
so that I can draw a clearer picture of government debt dynamics in South Africa.
The starting point though is, as always with debt, how macroeconomic performance,
say, economic growth and inflation, affect government debt. Barro (1979) argues
that increases in income play a counter-cyclical role on debt and also that there is a
predicted positive effect of expected inflation on nominal debt. And Easterly (2001,
2011) reports that the growth slowdowns of the 1980s and 1990s are behind the govern-
ment debt crises that some developing countries experienced at the time. In similar
vein, Hall and Sargent (2011) report that growth reduced the debt-to-GDP ratio in the
United States in the post-​Second World War period. And although Aizenman and
Marion (2011) report that inflation was used to reduce debt in the United States in
the post-​Second World War period, the effect of inflation tends to be less clear-​cut. In
the South African context, both variables are of interest in the sense that the country
has experienced modest and erratic growth over time, and also episodes of relatively
high inflation in the 1980s. So I start, from the beginning, by looking at the role of
 Public Debt in South Africa    957

macroeconomic performance, growth, and inflation on government debt in South

Africa.
In addition, in order to get a more nuanced picture of debt in South Africa, I take a
look at the role of democracy on government debt. Brender and Drazen (2005) argue
that governments in young democracies tend to present higher debt ratios to GDP at
the initial stages of their democratic transitions. This increase in debt is because the
new political coalitions coming into power face many challenges: crumbling public in-
frastructure, skewed provision of public goods, low or skewed wages of civil servants,
or even the need to renew the entire civil service. Needless to say, given the nature of
the apartheid regime, the new political coalition coming into power in 1994 was faced
with a considerable backlog in terms of public infrastructure (Calitz and Siebrits 2003).1
So I look at whether the political regime in place in South Africa—​which includes
periods of less democracy, transition, and universal democracy—​has had any effect on
government debt.
Furthermore, Akhmedov and Zhuravskaya (2004) argue that young democracies,
such as the twenty-​six-​year-​old South African democracy, mature over time, that
is, with time the electorate learn the nuts and bolts of the democratic game and force
governments to behave more responsibly in terms of debt creation. In other words, with
democratic maturity the electorate become less myopic and ends up forcing—​by pun-
ishment in the polls—​governments to minimize overspending before elections.
Moreover, some will argue that with the release of Nelson Mandela from prison
in 1990, the transition towards universal democracy was inevitable and therefore
announced in advance. I follow Persson and Svensson (1989) and Alesina and Tabellini
(1990) and look at whether, during the last four years of the National Party in power,
they engaged in activities, such as widespread conspicuous consumption, which would
leave the new political coalition with a considerable amount of debt to be repaid in the
initial stages of the new democratic regime in 1994.
In addition, increases in government debt might be due to the relative high-​income
inequality seen in South Africa and the need for redistribution to the median voter
(Meltzer and Richard 1981; Woo 2003; Pickering and Rockey 2011). Complementary to
that, it can be that democracy when in its infancy faces ideological opposition and there-
fore the new regime tries to buy out the electorate by provision of public goods, such
as education and health, so that democracy becomes ideologically acceptable and ‘the
only game in town’ (Brender and Drazen 2007). All the same, democratic transitions are
costly, which would justify higher government debt in an unequal young democracy,
such as South Africa.
In order to get an overview of the interplay amongst government debt, macroeco-
nomic performance, political regime characteristics, and inequality, I use national
time-​series data from South Africa covering the 1970–​2016 period. And I then get

1
The political coalition, or alliance, in power since 1994 includes the African National Congress, the
South African Communist Party, and the Congress of South African Trade Unions.
958   Manoel Bittencourt

some correlations, plot some graphs, and also run some Ordinary Least Squares (OLS)
regressions. About the findings: first, the correlations are in line with Barro (1979),
Easterly (2001, 2011), and Hall and Sargent (2011), that is to say, the much-​needed eco-
nomic growth correlates negatively with debt.2 Inflation, however, plays less of a role
in debt. Second, government debt in South Africa has indeed increased during the
democratic period (Brender and Drazen 2005, 2007; Shi and Svensson 2006). Generally
speaking, the high levels of inequality, and the corresponding demand for redistribution
in South Africa, are probably playing a role in government debt.
Third, the correlations do not suggest that the South African democracy is maturing,
or that government debt has started receding as time after democratization passes by,
which contrasts with Akhmedov and Zhuravskaya (2004). In this case some will argue
that the South African democracy, barely twenty-​six years old, is still young at heart
or without much democratic capital (Persson and Tabellini 2009). More concretely,
the persistent high levels of income inequality and the corresponding demand for re-
distribution to the median voter are probably playing a role in keeping debt at a par-
ticular level. Fourth, the correlations do not suggest that the outgoing National Party
bequeathed high debt to the new democratic coalition coming into power, evidence
which contrasts with the prediction by Persson and Svensson (1989) and Alesina
and Tabellini (1990). In this case, the new coalition coming into power was not only
well coordinated with the outgoing regime (more on that later), but also probably
constrained by the institutional and international framework in place in 1994. And to be
clear about the framework in place in 1994, the fall of the Berlin Wall in 1989, the subse-
quent collapse of the Soviet Union in 1991, the end of the Cold War and the acceptance
of the Washington Consensus at the time are all part of the framework that the African
National Congress (ANC) faced in 1994 (Dunning 2004; Calitz and Siebrits 2003).
Fifth, the data suggest that income inequality correlates positively with debt, and
the correlations actually become statistically significant during the democratic period.
These correlations suggest that the coalition in power since 1994 has been more respon-
sive to inequality and to the needs of the median voter and is engaging in redistribution.
More concretely, public expenditure on education correlates positively and signifi-
cantly with debt. Encouragingly, those correlations suggest that the coalition in power
is creating debt in order to invest in human capital formation, which is an important de-
terminant of economic growth and prosperity (Jones and Romer 2010).
Why is this exercise of looking at the data relevant and informative for a better under-
standing of the recent South African debt dynamics? First, the growth literature suggests
that large governments tend to be detrimental to economic activity. This is because gov-
ernment (consumption) tends to play little constructive role in private productivity
(Barro 1990, 1991). Needless to say, it all depends on what governments do with the debt
created; for instance, education and health tend to be seen as productive investment

2
Burger and Calitz (2020), using South African data, also report some evidence of the effect of
growth on debt.
 Public Debt in South Africa    959

which feeds into ideas and growth (Collin and Weil 2018). Government wastefulness,
on the other hand, tends to have the opposite effect on prosperity (more on that later).
Second, public choice theory suggests that higher government spending tends to reduce
subjective life satisfaction. This reduction in life satisfaction happens when governments
maximize their own well-​being by favouring particular interest groups. And this mis-
allocation of resources tends to be detrimental to general well-​being and life satisfaction
(Bjørnskov, Dreher, and Fischer 2007). And with the benefit of writing the previous sen-
tence in November 2020, it seems that unproductive government spending and the role
of interest groups have been high on the recent political and economic agenda in South
Africa (Madonsela 2016).
In sum, to have a balanced overview of debt in South Africa, we have to take into
account not only the role of macroeconomic performance, but also the richness of South
African history, that is to say, the roles of political regime characteristics, the changing
face of the median voter, inequality, and redistribution on debt.

44.2 The Stylized Facts

For most variables, the data I use cover the 1970–​2016 period. This is a particularly rich
period in recent South African history: it includes periods of some economic growth,
early 2000s; less growth, early 1990s; some inflation, early 1980s; less inflation, 2003
onwards; less democracy, 1970–​90; political instability, the 1980s; political transition,
1990–​93; universal democracy, 1994 onwards, and persistently rising inequality.
The variable for government debt (govdebt) is the ratio of general government public
debt to GDP from the Historical Public Debt Database (HPDD) provided by the IMF
and compiled by Abbas, Belhocine, ElGanainy, and Horton (2010). And general gov-
ernment debt includes central, state, and local governments. Given my purposes in this
chapter, this dataset and its extensive coverage over time are convenient because it allows
me to check the role of macroeconomic performance on debt and also the differences, if
any, between a less democratic regime and a fully fledged democracy in terms of govern-
ment debt dynamics in South Africa.3
For real income, per capita (income), and economic growth (growth) I use data from
the World Bank. And data on inflation (inflation) is provided by the World Bank as well.
It is predicted that growth reduces debt-to-GDP ratios and that inflation correlates nega-
tively with debt.
For democracy or political regime characteristics, I use the Polity2 variable (polity)
from the Polity IV database, which is the difference between the democ and autoc
indicators compiled by Polity IV. These indicators contain information on the com-
petitiveness and openness of executive recruitment, competitiveness of political

3
And it also allows for international comparisons, particularly with other developing countries.
960   Manoel Bittencourt

participation, and constraints on the executive. Although the polity variable ranges
from –​10 to 10 (with higher numbers indicating more democracy), I normalize it so that
it ranges from zero to 1. A positive polity correlation with government debt suggests that
more democratic regimes are associated with higher debt.
I also use information from the Polity IV database of when South Africa transitioned
to universal democracy to construct a dummy variable (democ) that captures the whole
democratic period, a procedure which is in line with Przeworski et al. (2000) and
Papaioannou and Siourounis (2008b) dichotomous classifications. South Africa gets 1s
from 1994 onwards, with zeros elsewhere. Given that the dummy democ accounts for the
whole democratic period, a positive democ correlation with government debt suggests
that universal democracy is associated with higher debt.
Moreover, using information from the Polity IV database again I construct a vari-
able which counts the number of years since the transition to universal democracy
(mdemoc). Although South Africa entered a period of transition into democracy in
1990, South Africa transitions to universal democracy in 1994, which I consider year 1,
and then I count all the way to 2016, which is year 23, with zeros elsewhere. In this case,
a negative and significant mdemoc correlation with government debt suggests that debt
decreases as democracy gets older, or alternatively that democracy, or the electorate,
mature over time. Or to put it another way, governments become more responsible and
efficient when creating debt, or constrained, with a less myopic electorate and better
checks and balances in place.
Still using information from the Polity IV database, I then construct a dummy vari-
able for the last four years of apartheid (apartend), with 1s between 1990 and 1993, and
zeros elsewhere. A positive and significant apartend correlation with government debt
suggests that the F. W. de Klerk government generated higher debt, debt which would be
partly inherited by the new democratic coalition coming into power in 1994.
To illustrate, Figure 44.1 depicts government debt, income per capita, inflation,
and the political regime characteristics in South Africa during the 1970–​2016 period.
Interestingly enough, although the data depicts an increase in debt from 2009 onwards,
in all, government debt has been hovering around 40 per cent of GDP throughout the
period. To be clear, it is not that there has been no variation, but that South Africa has
not experienced changes in debt as dramatic as other developing countries, for instance,
Brazil: 33 per cent of GDP in 1980 and above 100 per cent of GDP in 1989. To inter-
nationally compare, South African debt was 50 per cent of GDP in 2015, compared to
46 per cent for the G-​20 emerging countries and 91 per cent for the G-​20 advanced
countries in 2015. In sum, government debt in South Africa is not much higher than
the G-​20 emerging countries and lower than government debt in developed countries
(Burger, Stuart, Jooste, and Cuevas 2012). The second and third panels depict real in-
come and inflation. Income in the 1980s suffered considerable losses, which coincide
with the second oil shock, and the political instability and the international sanctions
due to apartheid. It has been on the rise, however, since the early 1990s, which coincides
with the emergence of full democracy. And inflation, after the international macro-
economic instability of the 1970s and early 1980s (due to the two oil shocks), has been
 Public Debt in South Africa    961

(a) 50 (b) 7500

7000
40
govdebt

income
6500
30
6000

20 5500
1970 1980 1990 2000 2010 2020 1970 1980 1990 2000 2010 2020
year year
(c) .25 (d) .95

.2 .9

.85
inflation

polity
.15
.8
.1
.75
.05 .7
1970 1980 1990 2000 2010 2020 1970 1980 1990 2000 2010 2020
year year

Figure 44.1 Government debt, the macroeconomy, and political regime characteristics, South
Africa, 1970–​2016
Sources: IMF, World Bank, and Polity IV.

displaying a downward trend since the early 1990s. The fourth panel depicts the pol-
itical regime characteristics during the apartheid regime (1970–​89), the transition to a
non-​racial democracy during the 1990–​93 period and then the stabilization of universal
democracy from 1994 onwards.
Moving forward, data on income inequality (inequality) is the estimated household
income (pay) inequality variable which is provided by the University of Texas Inequality
Project. This variable is estimated from the relationship between UTIP–​UNIDO, some
other conditioning variables, and the World Bank’s Deininger and Squire datasets. As
with govdebt, this dataset and its extensive coverage over time is convenient because it
allows me to specifically study the differences, if any, between a less democratic regime
(1970s and 1980s) and a fully fledged democracy (1994 onwards) in terms of inequality
and debt dynamics in South Africa.4
Figure 44.2 depicts the persistent positive trend in inequality in South Africa during
the 1970–​2015 period. A positive inequality correlation with government debt suggests
that the coalition in power, and the debt it creates, is somehow responsive to demand
for redistribution coming from the median voter. Needless to say, the face of the median
voter in South Africa changed in 1994 with a non-​racial universal democracy.

4
And it also allows for international comparisons.
962   Manoel Bittencourt

48 6.5

6
46
inequality

educgdp
5.5
44
5

42 4.5
1970 1980 1990 2000 2010 2020 1970 1980 1990 2000 2010 2020
year year

4.2
4
healthgdp

3.8
.3.6
3.4
3.2
1970 1980 1990 2000 2010 2020
year

Figure 44.2 Income inequality, and government expenditure on education and health,
South Africa
Sources: University of Texas Inequality Project and World Bank.

And in order to get a more concrete idea of the actual role of redistribution demanded
by the median voter on government debt, I use data on the provision of public goods
such as education and health on debt. Why education and health? Collin and Weil (2018)
use the Human Capital Index, which takes into account school attendance, test scores,
and adult health, survival rates, child stunting and mortality, to argue that the Index
correlates positively with economic growth and prosperity. In short, education and
health are human capital and human capital determines growth and prosperity. I use a
number of variables provided by the World Bank. The first one is government expend-
iture on education as a percentage of GDP (educgdp) and it covers the 1987–​2016 period.
The second one is the share of education in government expenditure as a percentage
of total general government expenditure on all sectors (educgov). The data covers the
2001–​17 period.
The second panel of Figure 44.2 depicts educgdp. At first blush, in terms of
numbers this variable has not seen much variation over time and there is no dis-
cernible trend in the data. Nevertheless, the data suggest that South Africa has been
spending/​investing more in education since 2010 than it was back in 2000. Positive
correlations between public expenditure on education and government debt suggest
that the government is responsive to the needs of the median voter when creating
debt, in this case, the need for human capital formation in a technologically driven
economy.
 Public Debt in South Africa    963

In addition to education, I use a couple of variables accounting for the provision of

health. The first is public health expenditure as a percentage of GDP (healthgdp) and it
covers the 1995–​2014 period. The second one is the share of government expenditure
spent on health (healthgov) and it covers the 1995–​2014 period as well. The third panel
of Figure 44.2 depicts healthgdp. Yet again, in terms of numbers this variable has not
seen much variation over time and it is difficult to spot a discernible trend in the data.
Nonetheless, the data suggest that South Africa has been spending/​investing more in
health since 2010 than it was back in 2000. Just like before, health is a proxy for human
capital accumulation, and positive correlations between public expenditure on health
and government debt suggest that the government is being responsive to the needs of
the median voter when creating debt.5

44.3 Evidence

I start by looking at the statistical correlations between government debt and all variables
accounting for macroeconomic performance and political regime characteristics. Apart
from the dummies, the other variables are now in logs. I report the descriptive statistics
and the correlation matrix in Table 44.1.
First, growth and inflation correlate negatively and significantly with government
debt, which suggest that both macroeconomic variables tend to be associated with
lower debt. Polity correlates positively and significantly with government debt, which
suggests that more democratic regimes tend to be associated with higher debt. To re-
inforce, the variable democ, which accounts only for the period from 1994 onwards also
correlates positively and significantly with debt. Furthermore, the variable mdemoc,
which accounts for democratic maturity, does not suggest that some sort of democratic
maturity—​maturity of the electorate and of government—​is actually taking place in
South Africa. And the variable accounting for the last four years of the apartheid regime,
apartend, does not suggest that the outgoing National Party engaged in some sort of
conspicuous consumption, or higher debt, in its final years.
Figure 44.3 depicts the OLS regression lines, which confirm the negative correlations
between growth and inflation, and the positive correlation between polity and govern-
ment debt during the 1970–​2016 period.
In Tables 44.2 and 44.3, I report some OLS regressions which confirm the statistical
correlations above. Specifically, in Table 44.2 growth correlates negatively and signifi-
cantly with government debt, which highlights the importance of economic growth in
reducing the debt ratio (Easterly 2001, 2011; Hall and Sargent 2011). Inflation, although

5 Ideally, data on number of teachers per pupil and doctors per patient in the public sector would

be available, which would proxy for quality of public goods provision. That sort of disaggregated data
would also minimize the effect, if any, of the public-sector wage bill increases on expenditure (Burger
and Calitz 2020).
964   Manoel Bittencourt

Table 44.1: Descriptive statistics and the correlation matrix

Obs Mean Min Max Source

govdebt 46 3.60 3.14 3.90 IMF

growth 31 0.373 –​2.70 1.49 World Bank
inflation 50 –​2.37 –​3.23 –​1.39 World Bank
polity 46 –​0.199 –​0.356 –​0.051 Polity IV
democ 48 0.5 0 1 Polity IV
mdemoc 48 6.25 0 24 Polity IV
apartend 48 0.083 0 1 Polity IV
govdebt growth inflation polity democ mdemoc apartend
govdebt 1
growth –​0.5437* 1
inflation –​0.3824* 0.1345 1
polity 0.3085* 0.0249 –​0.6592* 1
democ 0.2981* –​0.0657 –​0.7123* 0.9597* 1
mdemoc 0.1240 –​0.2396 –​0.7082* 0.7627* 0.7873* 1
apartend –​0.0674 0.2962* –​0.0558 –​0.3015* –​0.2374 1

Note: * p<0.05.

negative, is less clear-​cut. For instance, in regression four, I use data covering only the
1994–​2017 period and the inflation estimate is not significant, which confirms that infla-
tion has been relatively lower since 1994. And therefore the possibility of using inflation
to inflate the debt away has been minimized. In Table 44.3, polity and democ, regressions
one and two, correlate positively and significantly with government debt. In all, these
correlations are in accord with the prediction by Brender and Drazen (2005), which
suggests that young democracies are indeed associated with higher debt.
On the other hand, mdemoc and apartend (regressions three and four), just as before
in the correlation analysis, play no role on debt. Some comments: perhaps with more
time, and longer runs of data, democratic maturity will play a role on debt, and the
institutional and international framework in place during the last National Party gov-
ernment might have played a role in constraining itself at the time. And here perhaps
the former President F. W. de Klerk, talking to The Guardian newspaper back in 2010,
comes in handy: ‘The government that came into power after the April 1994 elections
was going to need a budget. It was drafted by our finance minister, Derek Keys, and
he convinced them of the necessity to stay within the free-​market principles that had
been in force in South Africa for decades. The ANC has stuck to these principles and
that is one of the great positives.’ And, from a different perspective, van Niekerk and
Padayachee, writing in the Mail and Guardian back in 2018 seem to be on the same
page: ‘We argue that, in terms of the economic policy debates of the 1990s, the ANC
 Public Debt in South Africa    965

4 4
3.8 3.8
3.6 3.6
3.4 3.4
3.2 3.2

–3 –2 –1 0 1 2 –3.5 –3 –2.5 –2 –1.5

growth inflation

govdebt Fitted values govdebt Fitted values

4
3.8
3.6
3.4
3.2

–4 –3 –2 –1 0
polity

govdebt Fitted values

Figure 44.3 OLS regression lines, government debt, growth, inflation, and polity, South
Africa, 1970–​2016
Sources: IMF, World Bank, and Polity IV.

leadership was gradually seduced by the outgoing apartheid government and its key
associated figures, which had been shifting towards market-​friendly economic policy
since the early 1980s.’ These statements summarize well that both coalitions, the old
and the new, not only coordinated their policy actions during the transition, but were

Table 44.2: Government debt and the macroeconomy

(1) (2) (3) (4)
VARIABLES OLS OLS OLS OLS (1994–​2016)

growth –​0.146*** –​0.146*** –​0.207***

(0.0427) (0.0413) (0.0459)
inflation –​0.170*** –​0.118* 0.0765
(0.0621) (0.0687) (0.131)
Observations 30 46 30 19
R-​squared 0.296 0.146 0.365 0.558

Notes: Standard errors in parentheses; *** p<0.01, ** p<0.05, * p<0.1.

966   Manoel Bittencourt

Table 44.3: Government debt and political regime characteristics

(1) (2) (3) (4)
VARIABLES OLS OLS OLS OLS

polity 0.393**
(0.183)
democ 0.112**
(0.0542)
mdemoc 0.00323
(0.00389)
apartend –​0.0450
(0.100)
Observations 46 46 46 46
R-​squared 0.095 0.089 0.015 0.005

Notes: Standard errors in parentheses; *** p<0.01, ** p<0.05, * p<0.1.

also, in terms of fiscal (and monetary) policy, constrained by the institutional and
international framework in place in 1994 which includes the end of the Cold War and
the Washington Consensus becoming the accepted wisdom at the time (Dunning
2004; Calitz and Siebrits 2003).
Second, in Table 44.4, I report the descriptive of the variables’ accounting for inequality,
redistribution, and provision of public goods. The only statistically significant correlation
is the one between government expenditure on education as percentage of GDP (educgdp)
with government debt. The other correlations, although positive, are not statistically sig-
nificant. Figure 44.4 depicts the OLS correlations. They are all positive, but the one between
government expenditure on education as a percentage of GDP and debt is the strongest one
(the upper second panel).
In Table 44.5, I report some OLS regressions. The regression in column one confirms the
not significant correlation above between inequality and government debt. Interestingly
enough, when I run a regression accounting only for the democratic period, then inequality
correlates positively and significantly with government debt. That correlation suggests that
the democratic coalition coming into power in 1994 has been relatively more responsive
to inequality and, above all, to the needs of the median voter (Meltzer and Richard 1981;
Woo 2003).
Government expenditure on education, regressions three and four, correlates posi-
tively and significantly with government debt as well. Encouragingly, these correlations
suggest that, when creating debt, the coalition in power has been responsive to the me-
dian voter and is (productively) spending/​investing in human capital formation, a de-
terminant of economic growth and prosperity (Collin and Weil 2018). On the other
 Public Debt in South Africa    967

Table 44.4: Descriptive statistics and the correlation matrix: Public goods

Obs Mean Min Max Source

govdebt 46 3.60 3.14 3.90 IMF

inequality 44 3.81 3.75 3.87 UoT Inequality Project
educgdp 28 1.70 1.57 1.85 World Bank
educgov 14 2.95 2.88 3.02 World Bank
healthgdp 20 1.28 1.16 1.45 World Bank
healthgov 20 2.61 2.54 2.67 World Bank
govdebt inequality educgdp educgov healthgdp healthgov
govdebt 1
inequality 0.228 1
educgdp 0.633* 0.273 1
educgov 0.522 0.582* 0.076 1
healthgdp 0.241 0.339 0.744* –​0.295 1
healthgov 0.342 0.463* 0.614* –​0.021 0.764* 1

Note: * p<0.05.

4 4 4

3.8 3.8 3.8

3.6 3.6 3.6

3.4 3.4 3.4

3.2 3.2 3.2

3.75 3.8 3.85 3.9 1.6 1.65 1.7 1.75 1.8 1.85 2.85 2.9 2.95 3 3.05
inequality educgdp educgov

govdebt Fitted values govdebt Fitted values govdebt Fitted values

4 4

3.8 3.8

3.6 3.6

3.4 3.4

3.2 3.2

1.1 1.2 1.3 1.4 1.5 2.55 2.6 2.65 2.7

healthgdp healthgov

govdebt Fitted values govdebt Fitted values

Figure 44.4 Government debt, inequality, and redistribution, South Africa

Sources: IMF, UoT Inequality Project, and World Bank.
968   Manoel Bittencourt

Table 44.5: Government debt, inequality, and redistribution

(1) (2) (3) (4) (5) (6)
VARIABLES OLS OLS (1994–​2016) OLS OLS OLS OLS

inequality 1.305 4.131*

(0.857) (2.230)
educgdp 1.395***
(0.334)
educgov 1.946*
(0.917)
healthgdp 0.451
(0.428)
healthgov 1.680
(1.087)
Observations 44 21 28 14 20 20
R-​squared 0.052 0.153 0.401 0.273 0.058 0.117

Notes: Standard errors in parentheses; *** p<0.01, ** p<0.05, * p<0.1.

hand, regressions five and six do not suggest that the expenditure on health is having
much of a dent in government debt.6 7

44.4 Discussion

In a nutshell, the data suggest that economic growth matters for government debt
(Easterly 2001, 2011; Hall and Sargent 2011), (low) inflation matters less (Hall and
Sargent 2011), and that the young South African democracy presents relatively higher
debt (Brender and Drazen 2005). This chapter is not about economic growth, but the
role of economic growth on debt cannot be underestimated, that is to say, growth
matters (Burger and Calitz 2020)! About democracy: the higher government debt
might be, as well put by Brender and Drazen (2007), because of the many challenges
that young democracies face from the outset (crumbling, or non-​existent, public in-
frastructure, high levels of income inequality and demand for redistribution, and ideo-
logical opposition to democracy by particular groups in its early stages) consequently

6 I have also run regressions with corrections for serial correlation and heteroscedasticity. The

correlations are quantitatively similar to the ones above. Available on request.

7 I have also run regressions using central government debt. The correlations are similar to the ones

above. Available on request.

 Public Debt in South Africa    969

there is a need to buy out the electorate so that democracy becomes ‘the only game in
town’. And all these reasons apply to the South African case, a country which presented,
in one way or another, segregationist labour market policies until 1994 and conse-
quently with a considerable backlog in terms of provision of public goods (Calitz and
Siebrits 2003).
Furthermore, the data do not suggest that democracy in South Africa, or
governments and the electorate, are maturing, or becoming less myopic, over time. All
the same, perhaps the young South African democracy, barely twenty-​six years old, is
still young at heart. More concretely, the correlations for South Africa contrast with
what has happened in Russia since democratization (Akhmedov and Zhuravskaya
2004). Some thoughts about these differences: South Africa, at the point of universal
democratization in 1994, was probably less developed and with less public infra-
structure than Russia and therefore had to spend/​invest more on all sorts of long-​run
projects (education and health); another possibility is the role of inequality and the
need for redistribution in unequal South Africa and in more equalitarian Russia on
government debt. In all, those developmental and institutional differences might be
playing a role on debt creation.
Moreover, the data do not provide evidence for the Persson and Svensson (1989), and
Alesina and Tabellini (1990) predictions, that is to say, the young South African dem-
ocracy would inherit from the outgoing National Party high levels of government debt,
which would have to be repaid by the new democratic coalition coming into power in
1994. In addition to the coordination seen between the National Party and the African
National Congress, a possible explanation for this no effect is the international scen-
ario in 1994, that is to say, the end of the Cold War and the acceptance at the time of
the Washington Consensus might have played a role in how policies were implemented
by both coalitions. Also, the old and the new coalitions were able to see what had
happened to the South American countries that re-​democratized in the 1980s and which
implemented certain populist policies and which ended up experiencing debt crises and
also hyperinflationary episodes (Bittencourt 2015, 2019).
In addition, the variables inequality and public expenditure on education correlate
positively and significantly with government debt. Those correlations suggest that
the democratic coalition coming into power in 1994 has been somehow responsive
to the needs of the median voter (Meltzer and Richard 1981; Woo 2003) and has been
spending/​investing in human capital formation, which in itself is an important deter-
minant of economic growth and prosperity. Given the importance of having a healthy
population for growth and prosperity, perhaps more attention should be given to public
expenditure on health as well.
In sum, although the data encouragingly suggest that the democratic coalition in
power since 1994 has been responsive to income inequality and also to the needs of the
median voter in a technologically driven society, one cannot emphasize enough the
need for constant improvement in public governance and quality of productive public
spending/​investment. The words ‘corruption’ and ‘wastefulness’ have been in the media
too often in the last ten years or so. To illustrate, Figure 44.5 depicts wastefulness of
970   Manoel Bittencourt

4.5 4

3.8
4
govwastefulness

3.6
3.5

3.4

3
3.2

2.5 1 1.1 1.2 1.3 1.4

govwastefulness
1970 1980 1990 2000 2010 2020
year govdebt Fitted values

Figure 44.5 Government debt and government wastefulness, South Africa

Sources: IMF and World Economic Forum.

government spending and, in this case, higher values indicate less wastefulness. This
variable is provided by the World Economic Forum.
The first panel shows that wastefulness of government spending in South Africa has ac-
tually increased over time. And the second panel shows the OLS regression line between
government debt and wastefulness of government spending, and the negative correl-
ation suggests that wastefulness of government spending is associated with higher gov-
ernment debt. And yet again, the young South African democracy faces many important
challenges, that is to say, modest and erratic economic growth, limited bandwidth in terms
of fiscal capacity, high-​income inequality, and demand for redistribution, and therefore
wastefulness of government spending is to be avoided at all costs so that the debt is actually
productively invested in public goods, such as education and health, and not wasted.
A couple of words of caution: the exercise I conduct above in order to better under-
stand the dynamics of debt in South Africa is unashamedly simple: ideally more data
points and also more disaggregated data on education and health would be available.
All I am doing is looking at the stylized facts, gathering some robust correlations, and
interpreting the correlations in the light of the literature and of South African history.
And correlations do not imply causation! So we need to take the above correlations with
caution. Nevertheless, the above sheds some light on the recent history of government
debt in South Africa. And there is much more that can be done: for instance, since 1994
South Africa has had two different ethnicities in power, Khosa and Zulu, and looking at
how these two different ethnicities, and constituencies, have managed government debt
and provision of public goods would complement the above (Walters, Bittencourt, and
Chisadza 2019).
 Public Debt in South Africa    971

Last, as Hayek (1960) pointed out: ‘As is true for liberty, the benefits of democracy will
show themselves only in the long run, while its more immediate achievements may well
be inferior to those of other forms of government’, meaning that democratic maturity
might bring other benefits to South Africa. For instance, Papaioannou and Siourounis
(2008a) and Acemoglu et al. (2019) report positive effects of democracy on long-​run
economic growth. And growth plays a role in debt. But sustained growth is still to come.

Acknowledgements

I thank an anonymous referee, Philippe Burger, Estian Calitz, Niek Schoeman,

participants at the OUP workshops, and the editors for comments.

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 Chapter 45

Monetary P ol i c y
in Sou th A fri c a

Nicola Viegi

45.1 Introduction

South Africa officially adopted inflation targeting in the year 2000, one of the first
adopters among emerging-​market economies. Few years later, Aron and Muellbauer
(2007) reviewed the performance of the regime and their evaluation was certainly posi-
tive. The economy was growing at a healthy 5 per cent per year and inflation was under
control, even when facing some significant external shocks. Inflation and output vola-
tility had declined and the only preoccupation was the increasing private-​sector debt
levels. The consensus was that a combination of sound fiscal policy, exchange rate
flexibility, and inflation targeting would anchor the long-​term growth of the economy.
Twenty years later, the prospect of the South African economy and of its monetary
policy are much more uncertain. After two large global shocks and ten years of weak
economic performance, the monetary policy framework is under pressure.
Economic success and failure cannot be attributed to a single policy instrument.
Nevertheless, monetary policy plays an important role and its working helps to under-
stand the structural weaknesses of the country. The objective of this chapter is two​
fold: first we want to evaluate the role that monetary policy had in the economic evo-
lution of South Africa after the global financial crisis of 2007–​09; second, we want to
discuss the main challenges that monetary policy has faced and will probably face in the
future, especially after the COVID-​19 crisis has accelerated the underlying trends of low
growth and high public debt.
South African monetary policy has received considerable attention and there is a
large literature looking at its historical development. Aron and Muellbauer (2007) re-
view monetary policy in the first ten years of democratic South Africa and describe the
change in the policy approach from an eclectic combination of monetary and exchange-​
rate targeting to the adoption of inflation targeting that made policy more transparent
 Monetary Policy in South Africa    975

and predictable. Nowak and Ricci (2006) cover similar ground, but with a longer histor-
ical view that shows the difficulty of breaking the inflationary patterns developed in the
1980s and the beginning of the 1990s. The literature has also focused on the performance
of the inflation-​targeting regime (Du Plessis, Smit, and Sturzenegger 2007; Frankel,
Smit, and Sturzenegger 2008), its effect on private-​sector expectations (Reid 2009;
Kabundi, Schaling, and Some 2015), its credibility (Kabundi and Mlachila 2018), and its
transparency and communication (Reid and Du Plessis 2010). After the global financial
crisis, the independence of the South African Reserve Bank, its mandate and its policy
framework, have come under renewed scrutiny (Comert and Epstein 2011; Padayachee
2014), mainly as a response to continuing economic stagnation.
The main aim of this chapter is to locate South African monetary policy in the con-
text of the economic structure in which it has to operate. The main argument is that to
understand monetary policy and to evaluate the policy regime, one has to understand
the constraints a central bank faces. This is particularly true after the global financial
crisis, when South African monetary policy had to confront an unprecedented inter-
national shock and a structurally weakening national economy, and it will be more so
after the COVID-​19 crisis, when monetary policy will have to contend with a critical
fiscal position and possible continuing economic stagnation.
In the next section we review the evolution of the monetary policy framework
followed by the South African Reserve Bank and its policy rules. We will then review
three underlying structural constraints that affect monetary policymaking, that is, long-​
term growth, labour market dynamics, and external balance. Finally, we will look at
the fiscal and monetary interdependence which will be central in South African pol-
icymaking for the foreseeable future. The last concluding section emphasizes the im-
portance of consideration of inflation targeting a robust policy framework that has
demonstrated an ability to adapt and take on new roles and new instruments while
maintaining a strong long-​term anchor of stability.

45.2 South African Monetary Policy:

Instruments and Targets

The monetary policy consensus of the last thirty years sees short-​term business-​cycle
management within a framework of strong long-​term anchors of monetary and fiscal
stability (Woodford 2003). The ability to operate short-​run counter-​cyclical policies
is greater when the long-​term objectives are also strongly defined. Operationally
this means:

• an emphasis on the Central Bank’s institutional independence to minimize the in-

fluence of short-​run political pressures that then builds credibility by the pursuit of
long-​term price stability
976   Nicola Viegi

• a clear policy framework, captured by well-​defined intermediate policy objectives

and procedures, which allow the Central Bank ‘constrained discretion’ to react op-
timally to the economic cycle while maintaining a strong nominal anchor
• transparent policymaking, implemented through publication and distribution
of the information set used in the decision-​making process (inflation forecasts,
modelling strategies, assumptions) and a clear demonstration of accountability
(publication of minutes, regular appearance in front of parliamentary committees,
and regular press conferences).

This consensus is behind the constitutional provisions in Article 224 of the South
African constitution that guarantees the independence of the SARB and defines its long-​
term objectives.1 This consensus is also behind the SARB early adoption of inflation
targeting as a monetary policy regime in the year 2000.
This policy framework is based on the acknowledgement that monetary policy in the
long run can only influence nominal variables such as inflation and exchange rate. If
this is the case, it is appropriate for monetary policy to define a long-​term desired infla-
tion level as an expression of what monetary policy can and should achieve (Svensson
2010). On the other hand, monetary policy can have a strong short-run effect on tem-
porary deviations of real quantities, like output and employment, from their long-​
term trends. The importance that monetary policy gives to this temporary real effect
of monetary policy defines the monetary policy framework. A policy of ‘strict infla-
tion targeting’, would focus only on controlling inflation with the shortest possible
horizon, which in a small open economy would be practically equivalent to exchange
rate targeting. This will stabilize inflation at the cost of highly variable interest rates and
real variables.
In order to avoid excessive real fluctuations, a policy of ‘flexible inflation targeting’
takes a more gradual approach to monetary policy, aiming to achieve the inflation
target at a longer horizon than possible. This gives consideration of the negative effect
of real fluctuations and uses short-​run inflation variation as a nominal shock absorber.
This approach to policymaking emphasizes the objectives of policy and de-​emphasizes
its instruments. The more the long-run objectives are credible and are embedded in
private-​sector expectations, the more flexibility monetary policy will have to react to
short-​run shocks using whatever instrument (interest rate policies, balance sheet
policies, macro-​prudental policies etc.) is more suitable at that particular time.
The convergence of a large number of central banks towards this policy framework
and the persistence of the framework even after the global financial crisis show that it

1
Article 224 of the constitution states: ‘The primary object of the South African Reserve Bank is to
protect the value of the currency in the interest of balanced and sustainable economic growth in the
Republic. The South African Reserve Bank, in pursuit of its primary object, must perform its functions
independently and without fear, favour or prejudice, but there must be regular consultation between the
Bank and the Cabinet member responsible for national financial matters.’
 Monetary Policy in South Africa    977

provides the best available combination of flexibility around a well-​defined objective

based on a sound general understanding of the functioning of the economy.
This approach to policymaking has generated a large literature evaluating the way a
central bank reacts to the deviation of inflation from its target in order to identify the
central bank’s preferences, operating procedures, and final objectives.
The literature has focused on estimating policy reaction functions and evaluating
policy changes through the years. Aron and Muellbauer (2002) were the first to
analyse South African monetary policy using a reaction function specification,
although they showed that the latter was not very suitable for periods dominated
by exchange rate management policies and financial repression. The Taylor rule
approach has become more popular in evaluating monetary policy since democ-
ratization, financial liberalization, and the adoption of the inflation targeting.
Ortiz and Sturzenegger (2007) use a DSGE model to estimate the SARB policy rule,
showing that the SARB anti-​inflation stance was somewhat moderated by a greater
weight on output than was typically found in inflation-​targeting central banks.
Klein (2012) confirms this result by investigating the dynamics of the implicit in-
flation target since the adoption of inflation targeting. He finds that the implicit
inflation target tended to drift towards the upper level of the target band (6 per
cent), implying that the SARB had relatively high tolerance for inflation, especially
after the outbreak of the global financial crisis. Naraidoo and Paya (2012) explain
these results by using a non-​linear specification that shows significant policy inertia
when inflation is inside the target range.
Coco and Viegi (2020) review these results by considering the underlying
change in potential output (Fedderke and Mengisteab 2017) and natural interest
rate (Kuhn, Ruch, and Steinbach 2017). The results identify three periods of the
inflation-​t argeting experience. In the first period, from 2000 to the global finan-
cial crisis, monetary policy follows a standard policy rule with a strong inflation
stabilization stance while developing communication and policy tools to im-
prove the credibility of the system. In the second period, after the global financial
crisis, monetary policy changes emphasis, focusing more on output variation and
allowing convergence of inflation and inflation expectation to the upper end of the
target band of 6 per cent.
In the final phase, after 2014, monetary policy becomes more inertial, following the
downward trend in the natural interest rate and in long-​term growth, with a diminished
attention to cyclical output variations. This reflects an increasing uncertainty in output
gap estimates at a time real growth was moving close to stagnation (Orphanides 2002).
This increasing inertia in monetary policy after the global financial crisis highlights one
aspect that is often underestimated when analysing policymaking: monetary policy in
an emerging-​market country is driven mainly by external events, pervasive uncertainty,
and by changes in the underlying economic structure.
In what follows, we will focus on three aspects that have been important in
explaining the uncertainties in South African monetary policy and its developments
going forward.
978   Nicola Viegi

45.3 Structural Constraint

to Monetary Policymaking

Monetary policy in South Africa, as in any country, has to operate in a context of eco-
nomic institutions, policies, and economic structure, which affect the efficiency of mon-
etary policy and its ability to reach its policy objectives. In the South African case, there
are three main constraints to monetary policy: persistent low real growth; a high level of
unemployment; and a dependence on international capital.

45.3.1 Monetary Policy and Economic Growth

The first constraint to monetary policy is the persistent low economic growth in the
years since the global financial crisis. In these years South Africa had an average real
growth rate just above 1 per cent, with only Argentina, Russia, and Brazil producing a
worse performance in the period among all emerging countries.
More importantly, this growth performance was driven by a decline in the potential
output of the economy, estimated to be below 1 per cent at the beginning of 2020,2 and
driven by a level of investment barely enough to cover the depreciation of past capital.
This downward trend in potential output puts two kinds of pressures on monetary
policy. First, the uncertainty in potential output increases short-​run volatility and
increases policy uncertainty, inducing delayed response or difficulty targeting.3 Second,
it reignites a long-​standing discussion about the long-​run effect of monetary policy and
about the possibility that monetary policy could play a more direct ‘developmental’ role
(Epstein and Yeldan 2008).
Stiglitz (2008) argued that inflation targeting is not the right policy framework to
deal with large external shocks and that it has imposed more restrictive conditions than
would have been necessary. This line of reasoning has been followed by many South
African commentators. For example, Kantor (2017) has argued that ‘the insistence on
inflation targeting regardless of the causes of inflation has made South African mon-
etary policy highly procyclical’ (2017: 34), inducing a credit bubble during the expansion
phase and worsening the recession after the global financial crisis. Match this pro-​
cyclicality with a strong hysteresis effect, and short-​run over-​reaction becomes long-​
run stagnation in capital accumulation and growth (Jordà. Singh, and Taylor 2020).
This debate raises two questions: first, has monetary policy been pro-​cyclical during the
inflation-targeting period? Second, can a different kind of monetary policy be used ac-
tively to promote growth?

2
See, for example, Anvari, Ehlers, and Steinbach (2014) and Fedderke and Mengisteab (2017).
3
Orphanides and Williams (2002) and Taylor and Williams (2010).
 Monetary Policy in South Africa    979

The evidence seems not to support a pro-​cyclical monetary policy in South Africa,
or an increase of the average real interest rate after the adoption of inflation targeting.
Du Plessis et al. (2007) show the stabilizing effect that monetary policy played before
the global financial crisis. Alton (2018) finds instead that monetary policy is strongly
counter-​cyclical only when one considers the real-​time estimates of the output gap (i.e.
the data available to the policy maker at the time). When considering instead the ac-
tual historical realization of the output gap, monetary policy was strongly pro-​cyclical,
especially in the expansion phase 2000–​07. The reason for this difference is not the
source of shocks but the uncertainty around the trend growth rate of the economy
(Orphanides 2002). In the period leading up to the financial crisis, the acceleration in
growth was interpreted as a structural improvement, not a cyclical boom. When infla-
tion accelerated faster than expected, real interest rates became negative, reinforcing the
cycle. Post-​crisis, interest rates were cut strongly to support growth and then kept low as
growth underwhelmed, on the assumption that the growth was largely cyclical. Instead,
the output gap was lower than predicted because the potential output was lower as
well. In fact, monetary policy has maintained an expansionary stance until 2016, when
growing inflationary pressures convinced the Central Bank to raise the policy rate and
aim at the middle of the target band at 4.5 per cent (Coco and Viegi 2020).
The second argument instead aims at actively using the monetary instrument to
target real growth. By a more expansionary monetary policy, by using a higher inflation
target, or by using the Central Bank as a ‘creditor of last resort’ for emerging enterprises,
monetary policy might be able to permanently affect the growth path of the economy
with an insignificant price of higher inflation. The relationship between inflation and
growth has been on the research agenda for a long time, starting from Sidrauski’s Journal
of Political Economy paper ‘Inflation and Economic Growth’ (Sidrauski 1967) where the
author elaborated the Tobin hypothesis that inflation would induce faster capital accu-
mulation by penalizing money savings.
The question is ultimately an empirical one, that is it possible to find a positive long-​
run causal relation between monetary policy and economic growth? There are few papers
looking at the inflation–​growth relationship in South Africa. Mariotti (2002) uses co-​
integration techniques to investigate (among other things) the impact of different levels
of inflation on long-​run economic growth. Her results suggest that the impact of infla-
tion on growth is, in fact, negative at levels over 1 per cent. Similar results are obtained by
Hodge (2006) who uses Ordinary Least Square regressions to show that higher inflation
is associated with lower growth in South Africa over the long and short term.
Unfortunately, neither co-​integration nor OLS constitute an identification strategy of
a causal relationship that can be used for policy purposes. Until the 1980s inflation in
South Africa was in line with any G7 country: moderate and increasing inflation was
the combination of negative external supply shocks and a limited policy response, as
discussed in Orphanides (2002). The stagflation period in South Africa persisted during
the 1980s, when the shocks were mainly internal and in many ways more dramatic
than the previous decade. The policy response was difficult given the dimension of the
shock, but inflation was never out of control and there is little evidence of a systematic
980   Nicola Viegi

expansionary bias in SARB policies. Not only was inflation never out of control, but
also peak inflation in South Africa was below peak inflation in almost any other OECD
country and significantly below any other country at a similar level of development.
After democratization, inflation indeed moves downward, stabilizing around just be-​
low the upper band of the inflation target, but it is above inflation in OECD and most
emerging markets. There are still a few shocks to contend with, and the aftermath of the
global financial crisis saw increasing pressure on the SARB to expand the economy be-
yond the mandate of price stability. But the SARB has largely resisted this pressure and
monetary policy has been fairly orthodox across the whole sample, while fighting large
and persistent supply (and fiscal) shocks. This is true even after democratization when
monetary policy was more focused on output and growth (Coco and Viegi 2020). If
monetary policy was never used autonomously to promote growth then South African
data cannot be used to identify the relationship between voluntary inflationary policies
and growth.
An alternative approach is to extrapolate from a cross-​section of countries, as in the
panel analysis of Barro (1995), Sarel (1996), and Khan and Ssnhadji (2001) or to analyse
the history of countries that have tried to use active monetary policy to promote growth,
as in De Gregorio et al. (1992) and Dornbusch and Edwards (2007) for Latin America
populist policies. In this literature, the relationship between inflation and growth is
negative for levels of inflation above a threshold higher than the inflation ever recorded
in South Africa. South Africa, then, should be in the area of uncertainty, where inflation
could have a positive effect on growth. What is then the source of the negative correl-
ation between inflation and growth in South African data?
One response is in the nature of the shocks and the policy response that followed. The
results in Mariotti (2002) and Khan and Ssnhadji (2001), among others, are compatible
with an economy where permanent negative supply shocks are accommodated by ‘neu-
tral’ monetary policy.
This is consistent with Orphanides (2002), which analyses the conduct of monetary
policy in the United States in the 1970s. This helps also in interpreting the critique of
the SARB monetary policy coming from Stiglitz (2008) and Kantor (2017): for these
authors monetary policy should not respond to supply shocks and accept a permanent,
one-​off, increase in inflation. Rather, in the opinion of the SARB, anchoring inflation
expectations to the target breaks the linkage between inflation stabilization and growth
and reduces the need to generate recessions to control the inflation rate.
Recently Jordà et al. (2020) have used an instrumental variable identification of
monetary policy to find strong long-​term hysteresis effects of exogenous monetary
shocks on capital and total factor productivity, but not on labour hours. They present
a micro-​funded model to show that these long-​run effects can be generated in a New
Keynesian model with nominal rigidities and insufficient stabilization in an endogenous
growth model.
These results point to a direction of research that looks at the inner mechanism
of the transmission of monetary policy, especially through real interest rate, risk
premiums, the cost of government borrowing, and wages. The first mechanism looks
 Monetary Policy in South Africa    981

at the interaction of international finance and internal macro-​conditions to determine

the equilibrium real rate in the economy. The wage connection directly addresses the
question of whether a change in monetary anchor would have real effect and in which
direction. The next two sections will analyse these two channels of transmission of mon-
etary policy.

45.3.2 Monetary Policy and the Labour Market

The functioning of the labour market is critical for the functioning of monetary
policy.4 The negative relation between the rate of change in wages and the unemploy-
ment rate has been central to our understanding of the working of the economy, at least
since the seminal article of William Phillips on ‘The Relation between Unemployment
and the Rate of Change of Money Wage Rates in the United Kingdom, 1861–​1957’
(Phillips 1958).
In the context of the standard monetary framework, a change in nominal wages
affects employment because of its effect on firms’ marginal costs and, given the monop-
olistic competitive market structure, on price inflation. The resulting inflationary effect
induces a contractionary monetary response, which causes a reduction in employment.
The cost of adjustment will be higher the less sensitive wage dynamics are to demand
conditions. If wages do not respond to demand conditions, the potential sacrifice ratio
of a contractionary monetary policy can be significantly high.
The South African economy’s response to the 2008 international financial crisis has
given the strongest evidence yet of the relevance of the labour market in determining
the response of the economy to external shocks (Dadam and Viegi 2015). While South
Africa suffered a relatively mild GDP response, in line with most emerging countries,
the negative employment response was dramatic and persistent, and much worse than
almost any other country, with a loss of around 5 per cent of employment in the first year
after the global financial crisis hit emerging countries. The reason for this dismal em-
ployment performance can be found in the contemporaneous dynamic of labour costs,
which increased sharply at the beginning of the recession.
This event highlighted two issues in relation to the South African economy: first,
while unemployment is a structural phenomenon, there is a large dynamic of job
destruction—​and to a lesser extent of job creation. This has already been highlighted
by the labour market literature, in particular by Banerjee et al. (2008) and Kerr (2018).
Second, wages do not respond strongly to labour market conditions. This second

4
While we will consider only the cyclical characteristics of the labour market, unemployment is a
structural defining characteristic of the South African economy. For the last twenty years the unemploy-
ment rate, in its narrow definition, has fluctuated around 25 per cent and had reached 30 per cent just be-
fore the COVID-​19 crisis. Unemployment is largely among young, unskilled Africans. Its dimension and
persistence are sources of uncertainty and instability (Banerjee et al. 2008).
982   Nicola Viegi

observation has important implications for the efficiency of monetary policy and the
functioning of any inflation-​targeting regime. In particular, a change in nominal wages
affects employment because of its effect on firms’ marginal costs and, given the monop-
olistic competitive market structure, on price inflation (Erceg, Henderson, and Levin
2000). The inflationary effect of wage increases induces a contractionary monetary re-
sponse which causes a reduction of employment. The cost of adjustment will be higher
the less sensitive wage dynamics are to demand conditions. Consequently, if wages are
very responsive to employment conditions, monetary policy can reduce inflationary
pressures on the economy by a relatively small contraction in demand. On the other
hand, if wages are not very responsive to demand conditions, the potential sacrifice ratio
of a contractionary monetary policy can be very significant.
The weak connection between wages and employment can be easily seen in the data.
Dadam and Viegi (2015) estimate the relationship between wage inflation and employ-
ment for South Africa for the period 1970–​2014 using a reduced form New Keynesian
wage Phillips curve, first introduced in the literature by Galí (2010). The main result
is that private-​sector wages become progressively less sensitive to labour market
conditions, which affects wage bargaining across the economy. Von Fintel et al. (2015)
explain the micro-​source of this result: wage inflexibility is driven by sub-​samples of
large firms with high concentrations of unionized workers insulated from the pressure
of high unemployment.
This lack of responsiveness of real wages implies a very flat Phillips curve relating in-
flation with unemployment and thus a very high sacrifice ratio, that is, the real cost of
inflation stabilization. Kabundi, Schaling, and Modeste (2019) confirm these results,
showing a slow reduction in the Phillips curve slope after the global financial crisis. This
result is also confirmed by the difficulty of finding a strong Phillips-​curve relationship
between output gap and inflation in South African data (Fedderke and Liu 2018).
On the other hand, Kabundi et al. (2019) show a reduction in inflation inertia and a re-
duction in inflation volatility that they attribute to an increase in anchoring expectations
to a time-​varying inflation target and an increase in the credibility of the SARB. An in-
crease in anchoring expectations to inflation targeting and an increase in credibility
of the SARB is consistently shown across the literature (Miyajima and Yetman 2018;
Kabundi and Mlachila 2018; Chen and Creamer 2019). This is against a reduction in the
use of the instrument, as discussed previously.

45.3.3 Monetary Policy and External Constraints

South Africa is a peculiar emerging country: compared to countries at the same stage
of development, South Africa does not suffer from the ‘original sin’ of past debt default
or hyperinflation (Calvo and Reinhart 2002). This has favoured the development of a
large and well-​connected financial market which provides the country with relatively
easy access to international capital markets; until now, the national government could
always borrow in domestic currency and at long maturity, thus reducing the effect of
 Monetary Policy in South Africa    983

short-​run fluctuations on the country balance sheet. These characteristics favoured a

‘consumption-​led’ growth strategy that has relied on international capital inflows to
finance the economic expansion of the country. The current account has persistently
remained negative. A ‘consumption-​led’ growth model has two consequences relevant
for monetary policy:

• If no other instrument targets the external balance, monetary policy is constrained

by the need to keep open access to international capital to finance a persistent
current account deficit.
• The economy becomes more sensitive to international financial flow direction,
with higher exchange rate volatility.

This raises the question of the influence that global factors have in shaping local
policy. South Africa has adopted a combination of free capital mobility with a fully
flexible exchange rate to maintain a high degree of monetary independence. This is
in accordance with the Mundellian trilemma hypothesis (Obstfeld, Shambaugh, and
Taylor 2005) by which an independent monetary policy regime is compatible with free
international capital mobility only at the cost of letting the exchange rate be determined
by market forces. This has been the consensus in international economics for decades
and it justifies the policy framework chosen in many emerging countries.
The financial crisis raised questions over the validity of this consensus view. Rey
(2016), at the Jackson Hole meeting of 2013, famously raised the possibility that global
financial flows are transmitting US monetary policy to the rest of the world. Rey (2015,
2016) argues that because the US dollar plays a central role in international transactions,
US monetary policy is transmitted to other countries through an international credit
and/​or risk-​taking channel. This transmission generates a strong co-​movement in risky
assets across the globe, thus generating a global financial cycle. The transmission of the
global financial cycle to local economies compels monetary policy in each country to
react to prevent local financial instability instead of focusing on its main macroeco-
nomic objective. Any country faces a dilemma: either allow free movement of capital
and lose monetary independence or introduce capital controls or macro-​prudential
tools to regain control of the instruments and goals of monetary policy. These results are
striking and have strong implications for policymaking in emerging countries.
This work is obviously very important for the conduct of South African monetary
policy and has generated a recent body of literature testing this hypothesis in the South
African context.
The literature has analysed three aspects of the relationship between monetary policy
and global finance. The first strand of literature has analysed directly the presence of a
South African financial cycle and its connection with the global financial cycle.5

5 After the global financial crisis, estimating the local financial index has been one monitoring instru-

ment developed by all central banks. For South Africa see Gumata, Klein, and Ndou (2012), van Eyden
and Gupta (2015), and Farrell and Kemp (2020) among many others.
984   Nicola Viegi

Kabundi, Loate, and Viegi (2020) analyse the co-​movement between global and local
risky financial assets. Their analysis shows a strong correlation of cycles after the global
financial crisis. These results on increasing financial co-​movement are widespread in
the literature for different asset categories and risk measures.
What this correlation means for the conduct of monetary policy is an open question.
First, as suggested by Rey (2015, 2016) and Bruno and Shin (2015), the presence of a high
correlation between local and global financial cycles is the first indication that South
Africa’s monetary policy may be dependent on US Federal Reserve policy. Monetary
policy is not independent to pursue internal objectives as its stance is fully dictated by
the expansionary (contractionary) effect of capital inflows (outflows). In this set-​up,
monetary policy independence is regained by macro-​prudential policies that break the
link between capital flows and internal credit conditions.
In fact, Kabundi et al. (2020) show, using a large Bayesian VAR, that quantitative-​
easing shocks in the United States had an expansionary effect on South African asset
prices (as predicted by Rey 2015) but a negative effect on the real economy because the
credit channel is muted. US expansionary policies induce capital flows towards the
South African economy, with international financial intermediaries looking for higher
yields in emerging markets. This induces an increase in domestic asset prices but not an
increase in economic activity, as credit to the private sector is not affected by the flow of
capital. The revaluation of the exchange rate instead induces a contractionary effect on
output and inflation. A monetary authority that follows inflation targeting will reduce
the policy rate to expand the domestic economy. This dynamic is consistent with the
traditional Mundell-​Fleming model and emphasizes the role of the exchange rate as an
absorber of external shocks.
The other connection that is relevant to monetary policy is the relationship between
the financial cycle and the country risk premium that highlights another emerging
weakness of the South African macroeconomy, that is, its fiscal dynamics. Figure 45.1
shows the South African government total debt over GDP, the South African risk pre-
mium as measured in the J.P. Morgan Emerging Market Bond Index, and the Chicago
Board Options Exchange’s CBOE Volatility Index (VIX), a popular measure of global
volatility. The internal source of the drift in risk premium is clearly the increasing public
debt coupled with the reduction in long-​term growth and productivity (Fedderke 2020).
The short-​run volatility of the risk premium is instead determined mainly by the risk
appetite of the international investor, with large risk premium variations around the
underlying trend. The sensitivity of the economy to global financial conditions is crit-
ically dependent on country-​specific characteristics. Hassan, Paul, and Redford (2015)
analyse the emerging-​market exchange rate response to the ‘Taper Tantrum’, triggered
by a speech to the US Congress by Ben Bernanke, then Federal Reserve chairman,
on 22 May 2013, signalling a gradual reduction in the monthly volume of US Federal
Reserve stimulus. Because the announcement was a surprise to the global market, it
represents a ‘natural experiment’ to evaluate the external vulnerability of countries and
its determinants. Hassan et al. (2015) show that the strongest correlations are between
 Monetary Policy in South Africa    985

70 7

60 6

50 5

South Africa Government Debt/GDP

40 JP Morgan EMBI+SA 4
Risk Premium (Right Axis)

30 3

20 2

10 1
VIX

0 0
20 Q1
20 Q3
20 Q1
20 Q3
20 Q1
20 Q3
20 Q1
20 Q3
20 Q1
20 Q3
20 Q1
20 Q3
20 Q1
20 Q3
20 Q1
20 Q3
20 Q1
20 Q3
20 Q1
20 Q3
20 Q1
20 Q3
20 Q1
20 Q3
20 Q1
20 Q3
20 Q1
20 Q3
20 Q1
20 Q3
20 Q1
20 Q3
20 Q1
20 Q3
Q1
02
02
03
03
04
04
05
05
06
06
07
07
08
08
09
09
10
10
11
11
12
12
13
13
14
14
15
15
16
16
17
17
18
18
19
20

Figure 45.1 South African government debt and EMBI+SA risk premium
Source: Bloomberg.

the level of foreign exchange reserves, the current account balance in the previous years,
and the level of external debt. In all of these variables, South Africa has seen a marked
deterioration in the last ten years, making the economy particularly vulnerable to
external shocks.
These results are confirmed by Abiad et al. (2015) who give a wider analysis of the
determinates of resilience in emerging-​market economies. The first determinant of
resilience is flexibility in policy instruments to respond to shocks, represented by in-
flation targeting and fiscal counter-​cyclical measures. But the more fundamental de-
terminant is the underlying policy space, represented by low inflation, low public debt,
current account surpluses, low external debt, and high reserves. Low inflation and ac-
cumulation of reserves are also the most direct instruments to reduce speculative finan-
cial flows (Hassan 2015) because they allow reducing the interest rate differential with
the US dollar, thus reducing speculative appeal of the currency and the cost of reserve
accumulation.
Moreover, socio-​economic conditions affect the long-​run resilience of a country
to external shocks. In particular, the level of inequality and the level of education
influences a country’s ability to respond to shocks by worsening the political economy
trade-​off (Alesina and Drazen 1991) and reducing the country’s ability to adapt to change
(Aizenman et al. 2018).
South Africa is weak on all these dimensions: dependent on foreign capital, with
low buffer stocks, high inequality, and high public debt. Without significant structural
adjustments, monetary policy is condemned to fight worsening external conditions
with increasingly weak instruments.
986   Nicola Viegi

45.3.4 Monetary and Fiscal Policy Interdependence

The main constraint to monetary policy going forward, though, is the current South
African fiscal dynamic. After the global financial crisis, South African government debt
has embarked on a growth trajectory which has worsened significantly with the onset of
the COVID-​19 crisis. Government debt is expected to grow above 100 per cent of GDP
by 2024/​25, according to the National Treasury.
This produces two phenomena: access to international financial markets has been
limited and the spread between the policy rate and long-​term rates has increased dra-​
matically, burdening the government with an increasing interest rate bill. These are both
symptoms of a loss of credibility of fiscal plans and an increase in the risk premium.
Affects the government’s ability to find resources but also it affects the private sector’s
access to capital, with consequences for the potential growth trajectory of the country
(Reinhart and Rogoff 2010).
The reduction of the government debt burden has become the first policy priority for
the next decade. There are two main approaches to reducing the debt burden (Reinhart,
Reinhart, and Rogoff 2015): either the real economy grows out of debt and the debt
burden is reduced by running primary surpluses and selling government assets; or the
value of debt is reduced by some form of default on the debt, like debt restructuring, un-
expected inflation, or repressing private finance.
Both approaches have consequences for monetary policy. In the first case, monetary
policy should support the fiscal stabilization effort by reducing the policy rate to miti-
gate the recessionary effect of fiscal contractions. This is not possible when the policy
rate is at the zero lower bound, as it is in many developed countries, affected by risk of
deflation, and a liquidity trap. But it is certainly possible in South Africa, where mon-
etary policy has more traditional and unconventional monetary policy space.
The second approach requires monetary policy to be constrained by the need for
fiscal solvency, a policy that is only constrained by the effect that it has on private-​sector
behaviour.6 As discussed by Buiter (2014), the policy can successfully reduce the debt
burden without long-​term economic consequences if ‘the State can issue un-​backed, ir-
redeemable fiat money or base money with a zero nominal interest rate, which can be
produced at zero marginal cost and is held in positive amounts by households and other
private agents despite the availability of risk-​free securities carrying a positive nominal
interest rate’ (2014: 2). In short, a necessary condition is that private-​sector behaviour
is not affected by the change in policy and it absorbs the excess money creation in their
portfolio as private wealth.7 This condition is unlikely to be respected when the amount
of money financing is large, permanent and fiat money have close substitutes in other
currencies, or other assets and the state cannot credibly commit to long-​term solvency.

6 See Turner (2013) and Reichlin, Turner, and Woodford (2013) for early discussion of monetary

financing in the context of policies at the zero lower bound.

7 This is the same condition behind the popular Modern Monetary Theory assertion that a country

able to issue sovereign currency cannot default on its debt (Kelton 2020).
 Monetary Policy in South Africa    987

In fact, recent models discussing money financing like Galí (2019) implicitly assume
a credible long-​term nominal anchor for the economy and thus assume that money
financing is credibly transitory.
This is unlikely to be the case in South Africa and in other emerging countries.
Historical experience, mainly from Latin America, shows the perils of money financing
of public debt (Kehoe et al. 2020) and the permanent damage it can do to the country’s
financial development, access to capital, and credibility of policies.
On the other hand, the COVID-​19 crisis has accelerated the accumulation of public
debt in many emerging countries that are now experimenting with ways to monetize
this exceptional transitory shock without affecting long-​term economic stability. This
requires the ability of policymakers to commit to long-​term goals, which underlines the
importance of credible and independent monetary policy institutions.

45.4 Conclusions

South Africa comes out of the COVID-​19 crisis as an extremely fragile country, with
very little protective buffer stocks. Resources have been used to support current con-
sumption and the economy has become increasingly dependent on international finan-
cial markets to finance the double deficit on the fiscal and external balance. Monetary
policy has been constrained by maintaining a real interest rate high enough to ensure
capital continues to flow in.
The future of monetary policy in South Africa will depend on how the country deals
with the constraints analysed above. The country needs to return to growth and build
strong resilience in its economic and social institutions. Monetary policy can help in the
transition process if the policy is strongly anchored to long-​term stability objectives and
the Central Bank remains credibly independent from short-​run political pressures.

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 Chapter 46

Banking and Fi na nc e
in Sou th A fri c a

Penelope Hawkins *

46.1 Introduction

The South African banking and non-​bank financial industries—​including insur-

ance and pension funds and other financial intermediaries—​may be seen as one of
the winners of the post-​democratic economy. The sector has expanded and diversified
and has retained significant political and social power, despite fears that the ANC-​led
government would implement policies that would diminish them. This success, while
associated with economic growth, has not been without cost to the rest of the economy.
This has much to do with the national and international regulatory regime that, in
striving for stability, accords protection from new entrants and preserves profitability. In
a world of uncertainty, the stability priority means that consumer protection and alloca-
tion of financial support to small businesses takes second place.
The argument is developed with an overview of the economic significance of the
South African Financial sector - which comprises far more than the intermediaries
typically associated with finance in section 46.2. This is followed by introduction to
the balancing act required of regulators in the finance sector as well as the approach of
bank regulators ​in section 46.3. Section 46.4 provides further detail on concentration
and diversity in banking—​given that it is individually the largest and most influential of
the financial industries—​and presents peculiarities in terms of measurement of its con-
tribution to the wider economy. Finally, section 46.5 ponders the future in light of the
much vaunted FinTech and section 46.6 concludes.

*
Many thanks to Sodiq Arogundade of the University of Johannesburg, South Africa, for research
assistance.
 Banking and Finance in South Africa    993

46.2 The Economic Significance of

the Banking and Finance Sector

The financial sector has become increasingly sophisticated and diverse over the decades.
Like other infrastructure services in the tertiary sector, such as provision of electricity,
we notice how important they are when they fail. But the question is how to evaluate
them when they are not failing (Hawkins 2002). One way to evaluate banks is to examine
the extent to which they meet their functional roles; f​ or banks, the provision of finance
for investment and the ability to allocate resources—​sometimes known as its micro-
economic function (Studart 1995: 65)—​is one dimension of a functional evaluation.
The other is the stability of the system—​including stability of the means of payment—​
usually seen as the macroeconomic function of the sector. The regulatory challenge is to
ensure reasonable stability while ensuring that the financial sector remains allocatively
functional.
But in order to evaluate the functional roles of the sector, an understanding of the
financial sector is a first step. One approach to the latter is to distinguish the financial
intermediaries (banks, insurers, collective investment schemes, and microlenders, for
example) from financial auxiliaries (members of exchanges, fund managers) and finan-
cial market infrastructure, which includes payments clearing and settlement systems.
By convention, financial intermediaries are divided into those that take deposits
(banks) and those that do not. While the role of deposit-​takers (banks) is straightfor-
ward: to take existing deposits (and loans to a small degree) and loan these funds, and, at
the same time, make new loans and create new deposits (new money), this places them
in an exceptional position in the monetary system, as bank liabilities are used as money
or the means of payment. Given that deposits are money, and the vast majority of bank
assets are advances or credit to the public, banks are able to create additional money
when required by households, businesses, and government (with the assistance of the
central bank). The central bank supports the industry in many ways, not least of which is
to provide confidence in the money created by banks (Dow 1993).
Of the non-​ deposit-​ takers, intermediaries are further divided into contractual
providers, such as insurers and retirement or pension fund providers, and the rest—​
other financial intermediaries (OFIs). As discussed widely before and after the global
financial crisis, the role and diversity of intermediaries in this category has risen dra-
matically, with the term ‘shadow banking’ being replaced by ‘OFIs’, in acknowledgement
that the activities of OFIs are far more significant than a shadow. In South Africa, OFIs
include collective investment schemes (divided in turn into money-​market and non-​
money-​market funds), and finance corporations (​associated with lease finance, special
purpose vehicles, and microlenders). Within these categories, which are on the whole
private-​sector players, ​there are public-​sector institutions, such as the two public banks
(Postbank and Land Bank) and public financing corporations (like the Development
Bank of South Africa). These public institutions are separately reported.
994   Penelope Hawkins

Table 46.1 provides a scheme of the South African financial corporate sector based on
reporting to the main financial regulators—​the South African Reserve Bank (SARB),
the Financial Services Conduct Authority (FSCA), and the National Credit Regulator
(NCR), the regulator of consumer credit.2
Of course, any scheme like this simplifies considerably the inherent connectedness
of a sector with cross-​holdings and influence throughout its varied parts. Major bank
holding companies can claim to offer a universal set of transactional, lending, invest-
ment, and insurance products and services,3 indicating their activity across all finan-
cial intermediary types. The cross-​holdings of the major banks and the major insurers
provided an initial legacy for this interdependence involving, prominently, Nedbank
and Old Mutual, and FNB and Momentum. Life insurance assets are invested in
equities and investment funds and the major banks directly or indirectly finance a large
portion of investment products created by OFIs. Moreover, given the potential threat
to their intermediation role by securities, banks are involved in the creation of mar-
ketable debt instruments, and hold many of these in portfolio (Faure 2013). Banks and
OFIs globally—​and in South Africa—​have become increasingly more interconnected
through credit and funding relationships (SARB 2019).
While analyses of the financial sector typically focus on the financial intermediaries,
the financial auxiliaries and financial market infrastructure (FMI) play an important
and essential role in the functioning of the sector (see Table 46.1).
The role of financial auxiliaries is to facilitate the primary activities of the financial sector,
as brokers and members of the exchanges, as fund managers undertaking research that
aids price discovery, as credit bureaux assisting credit providers and consumers, as debt
counsellors rehabilitating debt-​stressed consumers, and as payment distributors ensuring
the interface between households and financial providers. The number and diversity of
these roles has increased over time. For example, debt counsellors and alternative dispute
resolution agents are a consequence of the National Credit Act (NCA) No. 34 of 2005.
The FMI is essential to allow financial intermediaries and auxiliaries to play their
role. No banking system could operate without reliable payment, clearing, and settle-
ment systems, which allow for payments to be cleared and then settled, whether these
be normal retail payments, such as a household paying its bills, or large settlements
of millions of Rand. Similarly, a stockbroker, or member of the stock exchange, would
be irrelevant if it were not for a functioning exchange and security depository. The
Systemically Important Payments Systems (SIPSs) in South Africa include the re-
tail payment system owned and operated by BankservAfrica; the large value payment
system (LVPS) known as the South African Multiple Option Settlement System
(SAMOS), o ​ wned by the SARB; and STRATE LVPS, w ​ hich clears the delivery and
payment legs of equities, bonds, and money-​market transactions.

2 There are others, notably the South African Revenue Service (SARS) and the Financial Intelligence

Centre (FIC), but these are of less importance in the description of the sector and its economic
significance.
3 FirstRand home page www.firstrand.co.za inconsistently shown 12 December 2020.
 Banking and Finance in South Africa    995

Table 46.1: Overview of the South African financial sector

Financial sector, including Description and number of corporations and firms reporting to
corporates and other firms Financial Regulators

FINANCIAL INTERMEDIARIES
Financial intermediaries essentially solve the differences (or conflicts) that exist between ultimate
lenders and borrowers in terms of their requirements: size, risk, return, term of loan, etc.
Deposit intermediaries
Private-​sector banks
Non-​deposit intermediaries
Contractual intermediaries (CIs)
Insurers
Pension funds, provident funds, Pension and provident funds are established in terms of the
retirement funds
Other financial intermediaries
(OFIs)
Collective investment schemes
(CISs)
Finance companies
Special purpose vehicles (SPVs)
Local and foreign-​controlled banks, licensed as deposit takers to
the general public and firms. Ten locally controlled banks, including
Capitec, FNB, Nedbank, and Standard bank; six foreign-​controlled
banks, including ABSA.
Indemnity insurance (payable to cover assessed loss) and non-​
indemnity insurance (fixed amount payable) when and if insured
events take place, e.g. fire or death. Around seventy life insurers,
including ABSA, First Rand, Liberty, Momentum, Old Mutual,
Sanlam. Around ninety non-​life insurers, including Alexander
Forbes, Hollard, Santam. Micro-​insurers, including burial schemes,
are listed with the FSCA.
Pension Funds Act 24 of 1956, as amended. Around five thousand
official and privately administered pension and provident funds
are registered with the FSCA.
OFIs raise funds (not in the form of deposits) to acquire financial
assets. These institutions are involved in the financing of
investment and capital formation.
Invest in securities, property, and participation bonds in terms of
the Collective Investment Schemes Control Act 45 of 2002. Three
categories: money market, non-​money market, and property unit
trusts. Exchange traded funds (ETF), hedge funds, and private
equity funds are also broadly reporting under this CIS category.
An industry of around 1,500 firms, of which 1,300 are non-​money
market funds, including Allan Gray, Coronation, Cadiz, Momentum.
Finance companies obtain funds in the form of loans, debentures,
or notes, with the sole objective of lending or investing these
funds again in the form of mortgage loans, hire-​purchase and
leasing finance. Micro lenders (if incorporated) are included in this
category. Around 60+ reporting to SARB.
The type of special purpose entity (SPE) referred to is a legal entity
that holds assets for securitization and issues debt securities. It is
normally a ‘Limited’ company, created to fulfil a narrow, specific, or
sometimes temporary objective. Around thirty reporting to the SARB.
(continued)
996   Penelope Hawkins

As hinted above, many of the auxiliary players are owned by major banks and insurers,
Table 46.1: Continued
Financial sector, including Description and number of corporations and firms reporting to
corporates and other firms Financial Regulators
Micro lenders Reporting to the National Credit Regulator, microlenders on-​lend
to households and small businesses. More than eight hundred
registered credit providers, including banks, retailers, and
microcredit providers. By mid 2020, this represented a book of
R1.96 trillion.
Public financial institutions Banks—​Postbank, Land Bank. Public-​sector financial intermediaries
that are owned or controlled by general government, excluding the
SARB. Central Energy Fund (Pty) Limited (CEF), Development Bank
of Southern Africa (DBSA), Industrial Development Corporation of
SA Limited (IDC), Small Enterprise Finance Agency Limited (SEFA),
and National Empowerment Fund National Housing Finance
Corporation Limited are among those reporting financials to the
SARB.
FINANCIAL AUXILLIARIES
Facilitators of the lending and borrowing process (the primary market) and the secondary markets.
Includes members of exchanges, trust companies, representatives of foreign banks, securities and
fund managers. The latter are actively involved in sophisticated financial market research and in
price discovery. Debt counsellors, credit bureaux, alternative dispute resolution agents, and payment
distribution agencies have also formed as auxiliary services providers around the consumer credit
industry.
FINANCIAL MARKET INFRASTRUCTURES (FMIs)
FMIs are broadly divided into those that facilitate the payment, clearing, and settlement of a broad
range of financial transactions, from individual retail electronic fund transfers to the settlement
of securities traded by financial firms. Systemically important payments systems (SIPSs) in South
Africa include the retail payment system owned and operated by BankservAfrica (Pty) Limited, the
large value payment system (LVPS) known as the South African Multiple Option Settlement System
(SAMOS), the LVPS known as the Southern African Development Community—​Real-​time Gross
Settlement System (SADC-​RTGS) and the LVPS—​which clears the delivery and payment legs of
equities, bonds, and money-​market transactions—​owned and operated by Strate (Pty) Limited. Non-​
payment FMIs, include exchanges, clearing houses, central counterparties (CCPs), central securities
depositories (CSDs), and trade repositories (TR). These include JSE and A2X, JSE Clear, Granite, and
Strate.

Source: Author’s compilation based on Faure (2013), SARB (2017), and webpages of FSCA, NCR,
and SARB.

As hinted above, many of the auxiliary players are owned by major banks and insurers,
and banks hold shares of important FMIs. For example, the banking industry owns the
retail payments infrastructure—​BankservAfrica—​with the big four banks holding all
but around 6 per cent held by the smaller banks (Banking Enquiry 2008). Moreover,
the big four banks have more or less equivalent shares—​of around 12–​14 per cent each
of STRATE (with the JSE being the majority shareholder at 44 per cent). The point here
 Banking and Finance in South Africa    997

is to underline that while the discussion will focus on the financial intermediaries, the
cross-​holdings of financial auxiliaries and ownership of the infrastructure by the main
banks is both crucial to their operations and a nexus of power—​a matter that will be fur-
ther taken up in section 46.4.
As represented in the aggregate GDP data, the financial sector of South Africa (which
includes not only banks, insurers, pension funds, OFIs, the financial auxiliaries, and
FMI but also, somewhat misleadingly, real estate and business services) contributed just
under 20 per cent of the country’s GDP in 2019. It has been this way since around 1999,
rising from around 16 per cent at the time of democracy in 1994, and around 10 per cent
in the 1960s (see Figure 47.2 in C ­ hapter 47 of this volume). As the largest individual
sector in the South African economy, the financial sector contributed almost a third of
the tertiary sector in 2016. The financial sector a​ s described in Table 46.1,​contributed
around 9.5 per cent of GDP in 2016, ​of which just under half—​4 per cent of GDP—​was
attributed to commercial banks (Botes and Kuhn 2017).
While the broad economic contribution of the sector has remained steady for
around two decades, Figure 46.1 shows that the relative importance of the different
intermediaries—​by virtue of their share of the financial assets—​has changed over time.
While the banking industry remains dominant in terms of assets, the data reveal that
assets have shifted towards OFIs—​at an increasing rate before the global financial crisis
(see Figure 46.1 below), and then at a somewhat slower rate thereafter. The share of assets
attributed to OFIs has increased from 8 per cent to 21 per cent in the period from 2002
to 2018. This is consistent with international trends, as, while the banks continue to own

45.0

40.0

35.0

30.0

25.0
%

20.0

15.0

10.0

5.0

0.0
2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

South African Reserve Bank Banks Other Financial intermediaries

Insurance companies Pension funds Public financial enterprises

Figure 46.1 Distribution of financial assets between financial intermediaries

Source: SARB Financial Stability review, 2019. https://​www.resbank.co.za/​en/​home/​publications/​publication-​detail-​pages/​
reviews/​finstab-​review/​2019/​9276.
998   Penelope Hawkins

160.0 40.0

140.0
30.0

120.0

20.0
100.0

Growth rate
% of GDP

80.0 10.0

60.0
0.0

40.0

–10.0
20.0

0.0 –20.0
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Bank Assets, % of GDP
Gross Loans and Advances, % of GDP
Bank Assets to GDP (Year-on-Year Growth, % -RH)
Gross Loans and Advances to GDP (Year-on-Year Growth, % RH)

Figure 46.2 Bank assets and loans and advances

Source: Bank assets and loans, Prudential Authority, SARB, 2019. https://​www.resbank.co.za/​en/​home/​publications/​
prudential-​authority/​pa-​annual-​report.

the largest share of financial assets globally, the growth in the share held by OFIs has
grown at the fastest rate (SARB 2019). Apart from public financial enterprises, whose
share has increased marginally from 12 per cent to 13 per cent, and the SARB, whose
share remained stable at just under 5 per cent, the other intermediary types—banks,
insurers, and pension funds—have lost relative shares to the OFIs, with the loss from
insurance some 43 per cent by the end of the period and the loss from pension funds
some 38 per cent. This represents an organic shift towards OFIs that is explained in
the Financial Stability Review due to legislative changes associated with the Financial
Advisory and Intermediary Services Act 37 of 2002 (FAIS)—​effective in 2004, and the
Regulation 28 of the Pensions Funds Act 24 of 1956—​effective in 2011, which together
have made multi-​asset funds an investment instrument of choice due to capital gains
benefits and ease of compliance (SARB 2019).
In Figure 46.2, the value of the banking industry’s assets over the past two decades
has typically matched or been slightly larger than the value of GDP, as can be seen from
the left-​hand axis. By 2019, bank assets amounted to R5.6 trillion, or 111 per cent of GDP,
down from the lofty days of 133 per cent in 2008, at the height of the global financial
crisis (but see Box 46.1). Loans and advances, which make up the bulk of bank assets
 Banking and Finance in South Africa    999

Box 46.1: Measuring the contribution of banks

Sophisticated and pervasive financial sectors have the capacity to ‘invigorate or incapaci-
tate’ the rest of the economy (Haldane 2010). A well-​functioning financial sector can play an
important role in channelling resources to the best firms and investment projects. Indeed,
Keynes saw the key economic role of banks as their capacity to influence the rate of invest-
ment through financial provision (Keynes 1971: 327).
But measuring the contribution of the financial sector is not as straightforward as for
other sectors where value ​added is typically measured by subtracting input costs from
gross revenue. Indeed, since the 1970s, the performance of banks around the world has
been measured by return on equity (ROE), rather than, say, earnings per share (EPS)
(Pennachi and Santos 2018). In the case of banks, while fees are an important part of their
revenue for advice and payments services, measuring their key role as intermediaries
requires estimating the interest turn between what is paid for deposits and what is charged
for loans. While the current measurement convention (Financial Intermediaries Services
Indirectly Measured—​FISIM—​has been around since the 1993 update of the UN System of
National Accounts, its weaknesses in using a risk-​free interest rate to proxy the pure cost of
borrowing funds has been criticized—​and reviewed –​as the original formula incorporated
banks’ compensation for bearing risk as part of their output (e.g. Bean 2016).
The implication of this is that when risk is rising, the contribution of the financial sector
to the real economy was overestimated, as was apparent in 2008 during the global financial
crisis when banks were failing, their measured contribution to GDP rose (this occurred,
for example in the United Kingdom, and as we have seen, in South Africa). Underlying this
measurement difficulty is a more conceptual one of whether the sector systematically mis-​
measures risk—​and hence misprices for risk (Haldane 2010).
The argument goes that for a given return on assets (ROA), higher leverage mechanically
boosts a bank’s ROE. Banks can do this a) by undertaking more investment in low-​weighted
risk classes, or b) by lowering lending standards (such as happened in the lead-​up to the sub-​
prime boom leading to the global financial crisis, see Financial Times 2014). This flatters the
return and potentially the yield, while apparently making them look safer as in (a) or more at-
tractive to investors (as in the case of b). Indeed, it can be argued that the high return on equity
capital for banks can be explained by a systematic assumption of higher risk to achieve higher
ROEs. This appears to be a global phenomenon that has much to do with the short-​term
earning imperatives of publicly listed banks (Falato et al. 2018). This approach means both
banks’ profits and their contribution to GDP have been flattered by the mis-​measurement of
risk, leading effectively to a risk illusion, which has had real costs to the economy.
Various studies (Falkena et al. 2004, Banking Enquiry 2008) have concluded that South
African banks remain one of the most profitable banking sectors in the world, as measured
by ROAs and ROEs (see Table 46.2). Even during the Banking Enquiry process when one of
the major banks submitted criticism of the lack of inflation-​sensitive comparisons in Falkena
et al., the bank had to conclude that South African banks were among the most profitable in
the world with an average ROE of just under 25 per cent per annum (average 1996–​2005), mar-
ginally below than of Australia, Nigeria, and the United States (Banking Enquiry, ch. 2: 39–​
40). While the ROE has reduced in recent years for the top five banks to just under 20 per cent
(SARB 2019), this has had much to do with the implementation of Basel III requirements—​
something which substantially reduced ROEs in other banking sectors, e.g. in the United
States, where the ROE was 11.3 per cent on 2019, having slumped to between 5 and 10 per cent
after the implementation of Basel III in 2009 from the mid-​teens (Maverick 2020).
1000   Penelope Hawkins

Table 46.2: South African banks: Two decades at a glance

2001 2019

Bank assets/​GDP % 94.1 111.4

Loans and advances as a % of GDP 68.4 83.0
Mortgage assets (household and corporate sector)/​total banking sector assets % 54 43
Bank deposits/​GDP % 79.5 92.9
Registered banks 41 16
Mutual banks 2 4
Co-​operative Banks 2 4
Local branches of foreign banks 14 16
Market share of assets of the ‘big five’ banks (%) 74.2 89.5
Return on Assets (%) 1.2 1.3
Return on Equity (%) 29 17

Source: South African Reserve Bank: Registrar of banks, Annual Reports.

Have made up an increasing share, so that by 2019, the value of loans and advances was
equivalent to 83 per cent of GDP, from 68 per cent in 2001. Its peak of 100 per cent in
2007, was the result of growing credit advancement to households immediately prior
to, and after, the effective implementation of the NCA, which became effective in June
2006. Credit extended to the private sector grew by some 67 per cent between January
2004 and September 2006, with growth in credit cards (including those offered by
retailers), vehicle financing, and mortgages prominent (Hawkins 2006b). In part, this
was attributed to the economic cycle, but the promulgation of the NCA to replace the
outdated and inhibitory Usury Act No. 73 of 1968 led to a strategy by providers to grow
their market share. In addition, there was an element of pre-​emptive credit offering
as, for the first time, under the NCA, South African credit providers were obliged by
law to evaluate the affordability of existing credit exposure of the potential client. Even
where the client had not utilized such credit—​as in the case of the credit limit on a credit
card—​this would need to be taken into account when offering credit, and the holding
of an account with a large facility could crowd-​out new credit options. At the time, ex-
tension of credit limits on credit cards, store cards, and mortgages to existing and new
customers was common. Gross loans and advances grew by 36 per cent year on year
in 2006 (see Figure 46.2 Right-hand axis). In countries where the ratio of loans and
advances of the banking industry to GDP is much lower, such as Brazil in the early 2000s
when this ratio was around 25 per cent (Economist 2003), the inability of banks to gen-
erate loans may be seen as an inhibitor to economic growth. While this is clearly not the
case in South Africa, the primary driver of the finance–​growth nexus is the appropriate
allocation of capital. One argument is that better financial systems provide a better al-
location of capital, not necessarily more overall credit (Philippon 2016). This begs the
 Banking and Finance in South Africa    1001

Total Assets of Pension Fund Industry

4000 18

3500 16
14
3000
12
2500
R’ Millions

10
2000

%
8
1500
6
1000 4
500 2

0 0
2010 2011 2012 2013 2014 2015 2016 2017 2018

Total Assets of Pension Funds R’Mn Year on Year Growth, % (RH)

Figure 46.3 Assets of the pension fund industry

Source: Financial Stability Review 2020, SARB.

question of whether the composition of credit is efficient, and if financial intermediation

contributes enough to productivity growth. South Africa’s performance in this regard is
probably better than most with the share of non-​mortgage lending to the non-​financial
sector (which may also be seen as real economy credit), that is, loans to non-​bank firms
and consumers excluding mortgages at 50 per cent in 2017 compared with just on 20 per
cent in the United Kingdom and 70 per cent in Italy (Oughton 2017).4 However, see also
section 46.4 on the long-​term under-​provision of loans to small businesses.
Turning now to the insurance industry, taken together the assets of the life and non-​
life insurance industry amounted to around R3 trillion by mid-​2020, with the life insur-
ance industry accounting for 92 per cent of this (SARB 2020). The insurance industry
remains a systemically important industry, i​n particularly as the large value of asset
holdings of life insurers indicates the extent to which insurers fund the public and pri-
vate sectors, the concentration in the life insurance sector (the five largest companies
hold more than 70 per cent of total life insurance assets), and the close to 50 million
life insurance policies the industry represents. As holders of equity and bonds, insurers
support the liquidity in financial markets. A more typical way of examining the value-​
added of the insurance industry would be to deduct the industry’s liabilities from its
assets as the insurance industry cannot create assets in the same way that banks can.

4 Over time, the composition of the loan book to the non-​

financial sector in South Africa has
changed; whereas residential mortgages accounted for 32 per cent of the book in 2006, by 2019, this had
nearly halved to 18 per cent, a​ s growth of general loans and advances for both households and corporates
outstripped the growth in any other category (SARB, 2020). The growth of general loans and advances
for households has tripled since 2010 and include the range of consumer loans includs unsecured credit
and microloans defined in the NCA.
1002   Penelope Hawkins

Given that liabilities of the long-​term insurance sector have outgrown assets in recent
decades, the industry’s assets less liabilities were equivalent to only 3 per cent of GDP in
2018, relative to 12.2 per cent in 2000. For the short-​term or non-​life insurance industry,
assets less liabilities expressed as a ratio to GDP have remained steady in recent years, al-
though they have fallen from 2.2 per cent in 2000 to 1.4 per cent in 2018. This gives rise to
the question of the solvency of the industry, however, at levels of 1.9 per cent and 1.8 per
cent of the life and non-​life insurers in mid-​2020, this is well above the minimum regu-
latory requirement of 1 per cent.
As for the pension fund industry, official and private self-​administered funds together
held assets to a value of R3.5 trillion by the end of 2018, equivalent to 71 per cent of GDP at
the time (see Figure 46.3). The industry comprises around five thousand registered pri-
vate and official funds. The growth rate in assets achieved in 2018 was a mere 1.9 per cent
in 2018, down from its highest at 17 per cent in 2012. The largest allocation of pension
fund assets was to equity (ordinary shares) at 45 per cent and government bonds (17 per
cent). By the end of 2020, the pension fund industry accounted for around 22 per cent of
government bond holdings, about the same level it held in 2001 (SARB 2020). We turn
now to a discussion on regulation of the sector.

46.3 Regulating the Financial

Sector—a Question of Balance

The nature of banks’ balance sheets—​whose liabilities are the means of payment
(deposits) and whose assets are predominantly loans to entrepreneurs, investors, and
households-leads to the major regulatory challenge. In a world of one extreme, if banks
were to concentrate on maximizing the function of the assets side of the balance sheet,
they would provide finance for investment and development projects, some of which
would—​in an uncertain world—​fail. This in turn could lead to losses on the liabilities
side of the balance sheet, potentially undermining financial stability. The problem fa-
cing prudential regulators is to provide for the ‘protection of the payments system from
the consequences of the losses which may ensue from development financing’ (Minsky
1994: 10–​11).
The negative consequences of the failure of an inherently fragile financial system are
well documented with bank crises associated with the cumulative long-​term negative
reduction in GDP of 10 per cent (Borio 2003). Given that the consequences of a crisis
include economic disruption and an undermining of confidence in the monetary and
payments system, ​much regulatory effort has gone into ensuring stability. It is argued
here, that while efforts to generate stability are often upset by regulatory arbitrage
creating unexpected sources of instability—​to witness the global financial crisis which
began in 2007—​the prioritization of stability has a long-​term cost to the economy in
terms of loans forgone, stifled innovation, and risk-​averse loan portfolios.
 Banking and Finance in South Africa    1003

The imperative for regulators to guarantee creditors a stable means of payment involves
ensuring that there should be no losses on the liabilities side of the balance sheet (Kregel
2012). And this has cost implications; i​n good times, while banks do indeed create
loans, their inherent risk aversion means that credit is refused before full employment,
with investment and employment foregone. In bad times, including when bank failure
is on the cards, banks are typically bailed out—​with the key objective to protect the value
of deposits and the payments system. The regulatory bias to stability—​which becomes
inculcated by the banks—​is a systemic issue with the incidence of costs on society.
In South Africa, prudential regulation has created high barriers to entry to the sector
as well as to the payments system, as will be seen in section 46.4. This has created substan-
tial returns to incumbency, with high and stable profits and persistent concentration of
market shares of the main banks, with only the smaller banks having lower returns over
time. The complacency associated with this outcome creates a bias that naturally skews
financial provision away from relatively unknown and potentially risky small firms and
enterprises, which are obliged to rely on their own funds (Hawkins 2002). Moreover, in
times of disruption, such as the global financial crisis, it is the small businesses that are
most likely to first be excluded from provision, depicted by the collapse of 40 per cent in
small and medium-sized enterprise (SME) credit exposures (comprising loans of up to
R12.5 million in value) between 2008 and 2010 (Davel 2020). It is no wonder then that, in
times of crisis, such as the coronavirus pandemic, the South African government’s reli-
ance on its stable and profitable banks to act as the transmission channel by which to en-
courage loans and supportive stimulus to small businesses in response to the COVID-​19
pandemic and lockdown has inevitably failed (Financial Times 2020).5
Another balancing act is that between innovation and consumer protection. While
innovation is driven by the profit motive, ​the nature of financial products is such that
they are credence products, w ​ hich means that it is difficult for consumers to assess
their value—​even after purchase—​and so transparent and conduct regulation typ-
ically play catch-​up. The extent to which market conduct of the financial sector ad-
equately protects the consumer is at issue here. The Enquiry into Competition in South
Africa Banking (Banking Enquiry) which published its results in June 2008, found that
poorer households with less sophisticated financial needs suffered from inappropri-
ately designed products while being crassly charged too much. For much of the period
under review here—​roughly 2000 to 2019—​regulation was split along the lines of pru-
dential regulation of banks by the Bank Supervision Department of the SARB—​with
market conduct regulation effectively by​passed for banks, and the Financial Services
Board (FSB)—​responsible for both prudential and market conduct regulation for non-​
banks. That this led to gaps and inadequate consumer protection was acknowledged by
the South African National Treasury in 2014:

5 The government’s Rand 500 billion post-​COVID-​19 Stimulus package relies heavily on Rand 200

billion that has been provided to the local banks to on-​lend to small business. By the end of October
2020, the creation of guaranteed loans by banks fell short of 10 per cent of the value extended by the
government.
1004   Penelope Hawkins

Financial customers are not adequately protected in South Africa, and more needs
to be done to ensure that the providers of financial products and services treat
their customers fairly. Some examples of abuse in the financial sector are high fees
and a multiplicity of incomprehensible charges, the design and sale of inappro-
priate products, and reckless lending often paired with disgraceful (and illegal)
debt-​collection practices. Poor market conduct, where financial institutions are
conducting their businesses in ways that prejudice clients and customers, amplifies
challenges relating to low savings and over-​indebtedness, and undermines steps
taken to make the financial sector more accessible to South Africans in order to im-
prove financial inclusion.

This position by the National Treasury was the culmination of several years of
work which pointed out that the prioritization of stability (and profitability) of the
sector often relegated consumer interests. While this is not unusual in the financial
sectors around the world,6 in South Africa, with its very high levels of inequality
and exclusion, consumer protection demands more attention. Since the estab-
lishment of the FSCA in 2018, treating customers fairly has been set at the core of
market conduct regulation and requires that regulated entities are able to demon-
strate that in all their dealings with customers (including design and complaints
handling):

• Customers can be confident they are dealing with firms where Treating Customers
Fairly (TCF) is central to the corporate culture
• Products and services marketed and sold in the retail market are designed to meet
the needs of identified customer groups and are targeted accordingly
• Customers are provided with clear information and kept appropriately informed
before, during, and after point of sale
• Where advice is given, it is suitable and takes account of customer circumstance
• Products perform as firms have led customers to expect, and service is of an accept-
able standard and as they have been led to expect
• Customers do not face unreasonable post-​sale barriers imposed by firms to change
product, switch providers, submit a claim, or make a complaint.

This attempt at a more consistent and even approach by the market conduct regulator is
commendable—​while of course it still has to be realized. It remains realistic to assume
that during times of crisis, ​and for a time thereafter, ​prudential matters (stability) will
always trump market conduct (fairness). A case in point is the reaction of the authorities
to the impact of the economic lockdown associated with the coronavirus pandemic in
2020 (still playing out at the time of writing). The Financial Stability Review (2020) talks
of the profitability of different kinds of financial intermediary after the first eight months

6 The Payment Protection Insurance scandal in the United Kingdom, in which consumers were sys-

tematically pushed into highly profitable (and often unnecessary) insurance lines on loans from the early
2000s is one prominent example.
 Banking and Finance in South Africa    1005

of the pandemic. The matter of lapsed life-​insurance policies, expressed as a percentage

of new policies issued, rose from 65 per cent in 2010 to 91 per cent in 2019 and then to an
extraordinary level of 126 per cent by September 2020 (SARB 2020). From the stability
perspective, the concern was that insurers were under pressure from premium loss.
There was no mention of cost of the very high levels of lapse rate itself ​a consequence
possibly of a combination of mis-​selling, financial pressure from diminished disposable
income, or disillusionment, which falls to consumers who have paid premiums for some
period—​without any benefit.

46.4 Banking Concentration,

Diversity, and Market Conduct

As the largest and most interconnected industry within the financial sector, the banking
sector has a long history of good, if not stellar, profitability, with high levels of concentra-
tion and low levels of contestability. Like many banking industries elsewhere, in spite of
competition in terms of products and services, banking industries remain concentrated,
with the largest banks typically capturing additional demand when the market grows,
given their advantages of incumbency (Dick 2007).
The South African banking landscape can be historically characterized as one with rela-
tively little diversity, particularly from the perspective of retail banking. The four major
banks ABSA, First Rand, Nedbank, and Standard Bank, together with the next biggest
bank in terms of assets, Investec, made up around 90 per cent of the market in 2019 (see
Table 46.2).7
This high level of concentration has increased gradually since 2001, when the
‘big five’ banks accounted for 74 per cent of the assets, at the time considered high.
While there were several building societies in South Africa in earlier decades, during
the 1980s legislation allowed for the blurring of lines between banks and building
societies and, by 1994, building societies were no more. The Mutual Banks Act of 1993
allowed for mutual banks to fulfil the role of building societies, but this met with little
success. By the end of 2004, there were only two registered mutual banks. Post dem-
ocracy, as part of a general policy for liberalization, both new foreign and domestic
banks were registered, leading to higher contestability and reduced concentration.
In the period following deregulation in 1994, there was an influx of niche and for-
eign banks, so that by 2002, forty-​three banks were registered. The failure of two small
banks in 2002 (Saambou and Unifer) led to the demise of the smaller banks and one
of the larger banks, BOE. But by 2004, there were only twenty registered commercial

7
While the banks that really influence the landscape are the big four, it is convention to talk of the ‘big
five’, especially in cross-​country comparisons. The SARB publish data for the ‘big five’.
1006   Penelope Hawkins

banks, and after the failure of African Bank—​which was caught in its own risk illusion
(see Box 46.1)—​in 2012 (Hawkins 2018), the number fell further, with only sixteen
licensed commercial banks by 2019. As frequently happens after a crisis, even h ​ igher
concentration levels than before were experienced in each case, as the failing banks’
assets are absorbed by incumbents.
Bank failure in South Africa has several times led to the dusting-​off of the discussion
of the appropriate financial regulatory architecture, with the choice between a ‘super’
all-​doing regulator, or a regulatory split along prudential and market conduct lines
(Feasibility 2005b). The matter of the appropriate financial regulatory architecture was
resolved by the promulgation of the Financial Sector Regulation Act 9 of 2017 (the FSR
Act) in which prudential authority for all financial intermediaries as well as systemic
regulation became the responsibility of the Prudential Authority (PA) housed in the
SARB, and the FSCA having its remit as market conduct regulator for the entire sector.
(Previously, as mentioned in section 46.3, financial regulation was more fragmented.)
Ever since democracy, at least, there has been pressure to address the financial exclu-
sion of the majority of black South Africans—​which has included pressure to address
the monolithic nature of the banking licence. South Africa has little history of public
retail banking provision, with the Postbank operating under exemption and not as a
licensed entity and therefore unable to participate fully in the payments system or offer
loans.8 Given this, the publication of the Dedicated Banks Bill (the Bill), which made
provision for second-​(savings and loans) and third-​tier (savings) banks to supplement
the first-​tier commercial banks in 2004, was seen as a possible means to address ex-
clusion and competition. An important difference between first-​tier and second-​and
third-​tier banks is the philosophy of the legislation and regulation defining them. Stated
somewhat in the extreme: in the case of first-​tier banks, everything is allowed unless
prohibited in law, while for second and third tiers everything is prohibited unless specif-
ically permitted in terms of legislation (Falkena et al. 2004). The publication of the Bill
generated substantial interest from non-​bank firms—​retailers, cell-​phone companies,
and micro-​lenders to provide a limited range of banking services to South Africans.
There was considerable potential for such firms to provide banking services in non-​
traditional—​and possibly more cost-​effective—​ways and promote access to banking
services in otherwise underprovided areas9 (Feasibility 2005a). The process highlighted
the imperative of any new entrant, having access to the clearing system for payments, to
play a role in cost reduction or improved access (Hawkins 2006b).
In terms of contestability, the National Payments System (NPS) has played a pivotal
role in ensuring the market dominance of the big four players, who have long played
the role of gatekeeper of the system, ensuring that no technological advance (such as
payments with mobile phones, or cash-​back at point of sale) could be introduced

8 The licensing of Postbank is complicated, requiring legislative change and ring-​fencing, given that

financial services are not its core business (PMG 2020).

9 Accessibility embraces the concepts of geographical proximity, appropriateness, simplicity, and

affordability.
 Banking and Finance in South Africa    1007

without the acceptance of each of the big banks. Moreover, the pricing of interchange
in the system has benefited the big four by making any network transactions highly
profitable and to ensure returns on their ATM infrastructure. The early days of techno-
logical innovation (from the late 1990s to around 2008) are littered with company
failures unable to penetrate the payments system (e.g. Wizzit, a mobile payments plat-
form). Despite the need to address widespread financial exclusion in South Africa, the
Bill had the potential to pose a considerable challenge to the incumbent banks, their
cost structures, and legacy infrastructure (such as ATMs). As there was no regulatory
support for these payment initiatives, or the Bill, it was quietly shelved, leaving the es-
sentially monolithic nature of banking in South Africa in place.10
The tension between societal pressure to address lack of contestability and the stolid
regulatory position that change should not disturb continuity—​is an ongoing tendency
in South Africa’s financial regulatory regime (Hawkins 2006a). The global financial crisis,
for example, confirmed the importance of a stable financial sector. In pointing out that our
banks and financial sector remained relatively unaffected by the ravages of the global finan-
cial crisis, South African regulators implied that the social cost of long-​term stability and
ability to capture profits by the sector had all been worthwhile. Ironically, more or less con-
current with the global financial crisis, the Banking Enquiry (2008) argued that a system
with weak contestability, a monolithic licensing structure, slow and lacklustre regulatory re-
form, and unmitigated power in the payments system was neither functional nor desirable.
The Banking Enquiry, a two-​year inquiry that published its findings in June 2008,
pointed out that even after banks had met the criteria for obtaining a bank licence, they
still needed to meet the requirements and the associated start-​up costs of becoming a
clearing bank (with access to the clearing and settlement infrastructure of the payment
system), should they want to become part of the payments system. This involved cap-
ital costs associated with IT systems, acquiring infrastructure such as point-​of-​sale
devices and ATMs, and initiation fees for the Payments Association of South Africa
(PASA) and FMI, such as SAMOS and BankservAfrica (the dominant switch of the re-
tail payment streams); and should they want to issue debit or credit cards, Mastercard
and Visa, they would have to obtain permission from each of the incumbents to par-
ticipate in such streams, as well as negotiate an interbank fee for accepting and pro-
cessing payment instructions with each existing member, with little negotiating power
(Banking Enquiry 2008).
For non-​banks, the situation was even worse, they were precluded from being
members of PASA, because the requirement was first to be a member of the Banking
Council of South Africa, clearly reserved for banks. This left them in the invidious

10 Instead, the old Mutual Banks Act No 124 of 1993 was offered as an alternative and two more mu-

tual banks were registered after 2015, one of which has since failed. By 2020, three mutual banks are
registered, no building societies, and a very small credit union movement. This includes four co-​
operative banks and twenty-​three registered savings and credit co-​operatives (SACCO’s). Together,
they account for around 0.1 per cent of the deposits of the industry of R5,055 trillion in 2019 (SARB,
Prudential Authority report 2019/​20).
1008   Penelope Hawkins

position of having to rely on the banks (their competitors) to process their payment
instructions and enable them to fulfil their mandate to their clients. While this control of
the payments system affected financial auxiliaries, it also affected other intermediaries—​
to wit the domination of the microcredit industry by South African banks. While
microlending is the prerogative of non-​banks elsewhere, in South Africa, the control of
the payments system—​particularly in collections from salaried civil servants with bank
accounts—​has been a profitable activity for the four major banks, as well as Capitec (the
biggest bank in terms of numbers of retail clients in 2019). The capacity of the commer-
cial banks to harvest extraordinary returns from the lower retail market segment—​not
only through small loans priced at the legislative maximum, but also on an array of pen-
alty fees—was noted by the Banking Enquiry.11
But timing is everything, and the publication of the Enquiry at the time when the
fallout from the global financial crisis was ravaging other economies, meant that its more
substantive recommendations were ignored. While some changes were made during the
Banking Enquiry process itself, for example, there was some simplification of fees and
improved pricing transparency, the mandatory requirements in order to be a member
of the Banking Council you had to be a member of PASA was dropped, and there was an
allowance made for non-​bank players within the oversight process of the SARB. But the
fact that, even ten years on, digital entrants are registering for bank licences suggests the
gatekeeping into the payments inner circle continues and remains highly profitable.
In 2017, a presentation to the SARB showed that, when compared with the G7
countries, the country has a markedly higher concentration of assets, with the biggest
three banks in South Africa accounting for over 65 per cent of assets compared to under
50 per cent for the United Kingdom and just over 30 per cent in France (Oughton 2017).
Moreover, it was the least diverse banking system, with in effect zero per cent of retail
deposits held by non-​plc banks. (The highest was Germany with over 70 per cent of re-
tail assets held by non-​plc banks. Even the United States was considerably higher than
South Africa at just under 20 per cent.)
We turn now briefly to the possibility that FinTech will change the competitive land-
scape in South Africa.

46.5 FinTech—​a Game Changer?

Financial technology, popularly known as FinTech, covers digital innovations in

payments, lending, and funding as well as cryptocurrencies and digital currencies. Such

11
The Banking Enquiry highlighted the returns from the mass market segment, including the penalty
fees applied on such accounts; ​not only were the fees higher in these entry-​level market segments but the
incidence many times higher than would fall on a premium bank package offering. The Banking Enquiry
recommended that the maximum penalty fee be set to R5, from R45 in some instances. ABSA bank was
the first to comply.
 Banking and Finance in South Africa    1009

innovations have the capacity to disrupt existing systems and blur industry boundaries,
particularly areas in disintermediation and payment streams. But they also create sig-
nificant privacy, regulatory, and regulatory challenges. Examples of FinTech innovations
include cryptocurrencies and blockchain, new digital advisory and trading systems,
peer-​to-​peer lending and crowdfunding, and mobile payment systems (Philippon 2016).
In the area of payments, new technologies may disrupt the efficiency with which
funds are transferred, as well as through the emergence of digital and cryptocurrencies
(Federal Reserve Bank of St. Louis 2019).
While it is generally accepted that FinTech may disrupt some of the legacy systems
within banks and the financial players, it is also so that, since the mid-​2000s, South
African banks have been partnering and absorbing FinTech players into their businesses,
ensuring naturally that innovation is not a threat to their incumbency. As of end 2019,
there were approximately twelve different crypto asset trading platforms operating in
South Africa,12 with a market capitalization value of approximately Rand 6.5 billion. The
Intergovernmental FinTech Working Group was established to consider crypto with
the participation of the main South African financial regulators and industry players
in 2016, with a sub-​group the Crypto Assets Regulatory Working Group (CARWG),
established in 2018 with the objective of ‘a coherent and comprehensive policy stance
on crypto assets, while ensuring the continued integrity and efficient functioning of fi-
nancial markets, maintaining financial stability, protecting the rights and interests of
customers and investors, and combating illegitimate cross-​border financial flows, ML/​
TF’ (Money laundering/terrorist financing) (IFWG CAR 2020). The first Crypto Assets
Regulatory (CAR) position paper was published in April 2020, taking the stance that
the crypto world will no longer be allowed to be at the periphery of regulation and that
innovations in the sector will be cautiously monitored for least disruption.
Since, regulations are likely to be more effective if they are put in place early, when the
industry is still young, it will best serve the interests of society if basic principles of trans-
parency, open access, limited leverage, and limited maturity transformation can be put
in place by regulators for FinTech and cryptocurrencies as soon as possible.

46.6 Conclusion

Banks, together with the rest of the financial sector, are highly regulated by regulators
that attempt to keep the sector stable and fair. Although the basic role of banks may be
fairly simple, their basic fragility and risks they face in an uncertain world are complex,
and failure of a major financial intermediary will have significant costs for the rest of the
economy. For this reason, regulation tends to err on the side of caution, where stability is

12
This includes companies such as Altcoin Trader, Bitcoin.com, Chainex, CoinBR, CoinDirect,
Edcoin, Ice3X, Luno, ProjectUbu, ProsperiProp, and VALR.
1010   Penelope Hawkins

prioritized. This leads to a system where change is viewed with caution and profitability
for the systemically important institutions is virtually assured.
But this cautious stance means the financial sector, while making an important and
necessary contribution to the functioning of the economy, places a toll on the eco-
nomic society it serves. Given the sustained profitability of the sector, it is not by ac-
cident that finance professionals accounted for a substantial share of the increase in
the share of national income going to the top 1 per cent of income earners since the
rise of financialization since the 1980s.13 Moreover, while bank failure—​in the sense
of illiquidity or insolvency—​is obvious, the failure of banks to extend loans to small
businesses that may generate employment, is hidden. In the same way, when pension
funds invest in poorly chosen investments, this is scarcely brought to light, although
pensioners will ultimately feel the pinch.
It is in the interests of society to be more fully aware of the compromises made by
regulators to support the financial sector, so that the balance does not skew too far away
from fairness and sound market conduct, while maintaining an acceptable level of
stability.

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 Chapter 47

Financiali z at i on
i n Sou th A fri c a

Ewa Karwowski

47.1 Introduction

Financialization has become a popular concept across the social sciences, especially
since the financial crisis of 2008/​09 (Mader, Mertens, and van der Zwan 2020). While
there still is debate about the exact understanding and meaning of this phenomenon,
the accepted working definition is that financialization refers to ‘the increasing role of
financial motives, financial markets, financial actors and financial institutions in the op-
eration of the domestic and international economies’ (Epstein 2005: 3).
While a healthy and strong finance sector is crucial to support investment and em-
ployment creation (see ­Chapter 46 in this volume), financialization researchers high-
light the detrimental consequences of an excessively large and powerful financial sector
on economy and society in rich countries and increasingly in developing and emerging
economies (Karwowski and Stockhammer 2017). They are generally sceptical of claims
that deregulating finance is benevolent for growth and development (as put forward by
the financial deepening hypothesis), highlighting the financial instability and socio-​
economic insecurity that it brings about. Thus, the financialization literature highlights
the dangers of a financial sector disconnected from production and employment, in-
stead generating rents from ballooning secondary markets and asset price inflation.
Manifestations of financialization can be observed across all four domestic macroeco-
nomic aggregates; these are households, firms, the financial sector, as well as the public
sector. Additionally, financialization has an important international dimension, par-
ticularly in developing and emerging economies (Karwowski 2020). Countries tend to
experience financialization differently since sectors can be affected to varying degrees,
while domestic institutions mitigate external financialization pressures. Therefore, the
phenomenon unfolds in a variegated rather than uniform manner across countries and
regions, while financial systems retain their local specificities rather than converging
1014   Ewa Karwowski

internationally. In South Africa, financialization has been shaped by its colonial and
apartheid past, especially the strong links of South African corporations and banks to
the international financial centre of London (Ashman and Fine 2013; Mohamed 2017).
Low growth and investment, an outcome of the finance-​led accumulation regime, have
also resulted in the continuity of extreme inequality and high levels of unemployment.
In the Global South, financialization mainly affects emerging economies since they
possess relatively developed financial markets in comparison to poorer countries. South
Africa is the only African economy for which there is a substantial financialization lit-
erature. In comparison to other emerging economies, South Africa is relatively strongly
financialized as stock-​market capitalization is extremely high, making Johannesburg
one of the top financial centres in the Global South. Furthermore, financial inflows into
the country are comparatively large, JSE-​listed companies are well integrated into global
value chains and household debt is high (see Karwowski 2020 for a comparative study
across emerging economies).
This chapter will use the macroeconomic aggregates as organizing principle,
proceeding in five parts. First, the role of non-​financial companies (NFCs) in South
Africa’s financialization experience will be summarized, followed by the financial sector,
households, and finally, the state. A brief discussion of how South Africa’s integration
into international financial structures shapes financialization follows. The final part
serves as conclusion.

47.2 Shareholder Value

and NFC Financialization

Large corporations have been an important driver of financialization in South Africa,

similarly to companies in rich economies and especially the United States. The
financialization of NFCs unfolds through the growing importance of shareholders, who
can push corporations to focus on their financial operations and profits at the expense
of investment into production and employment, that is, on shareholder-​value (SHV)
generation (Lazonick and O’Sullivan 2000). Large listed NFCs and especially their
managers often instrumentalize the SHV narrative to justify their actions and goals.
For emerging economies, the integration into global value chains can expose domestic
companies to SHV generation. Equally, entry of foreign competitors into the domestic
market as a consequence of trade and financial liberalization can also put local NFCs
under pressure to assume financialized behaviour. National history and institutions
mitigate these external influences, shaping specific (and variegated) financialization
outcomes at home.
In the case of South Africa, the way capitalist production emerged in the country
explains the strong presence of financialized behaviour among NFCs. Most major South
African corporations can be traced back to the mining finance houses that emerged from
 Financialization in South Africa    1015

around the turn of the twentieth century, thanks to the country’s resource wealth which,
however, created large funding needs due to the deep and relatively poor quality of gold
deposits and the necessity to consolidate ownership of diamond mining rights to keep
prices high (Kubicek 1979; Innes 1984). Initially, these funding needs were met by foreign
capital from Europe and especially London. Thus, South African NFCs have historically
strong links abroad. Over the twentieth century, mining finance houses expanded their
operations, becoming diversified conglomerates, a trend accelerated by the disinvest-
ment of foreign capital during the 1980s when the apartheid regime became increasingly
internationally isolated due to its racist policies. By the late 1980s, five mining finance
houses controlled most of the economic activity in the country. This was illustrated
through the ownership structure of market capitalization on the Johannesburg Stock
Exchange (JSE). These five1—​Liberty Life/​Standard Bank, SA/​Old Mutual, SANLAM,
Rembrandt/​Remgro, and Anglo American—​accounted for more than 80 per cent of the
JSE’s worth. Anglo American alone, the leading Mining Finance house, held 60 per cent
of JSE market capitalization at its peak in 1987 (Karwowski 2015a).
As South Africa reintegrated into the world economy with the end of apartheid
in 1994, the country’s conglomerates were keen to expand abroad and tap into inter-
national financial markets. They favoured an orthodox macroeconomic policy package,
including fiscal conservatism, trade, and financial liberalization, and benefited from the
removal of controls on the exchange rate and cross-​border financial flows (McGregor
and Zalk 2017; Padayachee and Fine 2019). The reintegration of South Africa into global
financial markets and value chains exposed corporations to the demands of SHV gen-
eration (see Bowman 2018 for a discussion of the impact of SHV on the platinum in-
dustry). This is illustrated in the increased presence of foreign shareholders among
JSE-​listed companies. While foreign ownership was negligible in the late 1980s, it grew
to 10 per cent of JSE capitalization by the early 2000s and to 30 per cent a decade later
(Mohamed 2017).
The rising importance of shareholders is one of the earliest manifestations of
financialization. Financialization was first observed in the US economy where a change
in the interaction between large corporations and the financial sector was identified,
reaching as far back as the 1960s. There is an active debate in the academic literature,
trying to establish where power lies in the relationship between shareholders and
corporations or whether there is a conflict of interest between these two camps at all
as principle–​agent models suggest (Knafo and Dutta 2020). The dominant view sees
increased power of shareholders, manifested in a wave of mergers and hostile takeovers
among US-​listed companies during the 1980s, put corporates under pressure to gen-
erate and maintain shareholder value through dividend payments, share buybacks, and
high stock prices. The intensified focus on keeping shareholders happy resulted in a de-
cline in NFCs’ capital spending and a shift towards short-​term financial investment in

1
Anglovaal is typically mentioned as sixth dominant conglomerate although the majority of its assets
were held in industry rather than mining or finance (Barr and Kantor 1994; Chabane et al. 2006).
1016   Ewa Karwowski

rich countries (Stockhammer 2004; Orhangazi 2008) as well as emerging economies

(Demir 2007, 2009; Hecht 2014). To keep dividend payments high and engage in share
buybacks boosting stock prices, companies have been observed to run up debt as SHV
generation is expected to continue regardless of corporate profits (Crotty 2005; Baud
and Duran 2011; Bayliss 2014). Given that manager pay is standardly linked to financial
performance indicators nowadays, the alternative explanation is that a handful of US
corporations actively embraced financialization as early as the 1960s and their success
made other corporations imitate this strategy (Knafo and Dutta 2020).
In South Africa, shares of domestic conglomerates were believed to trade at a dis-
count in the early 1990s given their complex ownership structures, including multiple
layers and strategic cross-​holdings (Barr and Kantor 1994). The increased presence
of foreign shareholders arguably generated pressure on conglomerates, who them-
selves had ambitions to reassume international positions. Restructuring through re-​
focusing on core business and unbundling other operations was claimed to secure
higher equity prices on the JSE. There are doubts that share prices benefited from
unbundling (Barr and Kantor 1994). The outcome of these restructuring processes
unfolding during the late 1990s was a move of the conglomerates’ operational focus
abroad and an increase in foreign ownership at home. In the late 1990s, major South
African companies, after unbundling, shifted their primary listing to the London
Stock Exchange (LSE), becoming global players while typically retaining a secondary
listing on the JSE. The largest such listing was that of Anglo American in 1999, the
year in which most unbundling deals took place (sixty, in total worth Rand 80 billion;
Chabane et al. 2006).
While the internationalization of South African conglomerates, facilitated by
loosened capital controls, constitutes some historical continuity, it did not result in
higher domestic investment as promised by proponents of financial liberalization.
Investment expenditure in the country has remained subdued since the end of apart-
heid, rarely exceeding 20 per cent in the new South Africa (Karwowski, Fine, and
Ashman 2018). Instead, South African companies have been observed to increas-
ingly accumulate liquid and short-​term financial assets (Newman 2015: Karwowski
2018). Liquid assets can in turn be used for speculative mergers and acquisitions ac-
tivity (M&A) (Karwowski 2015b). Simultaneously, legal and illicit capital flows abroad
accelerated, peaking in 2007 at 20 per cent of GDP, showing the full extent of large
corporations’ move abroad (Ashman, Fine, and Newman 2011). Given low capital
spending levels and sluggish employment creation, this type of investment behaviour
is highly problematic. Popular discontent with corporate strategies in South Africa
resulted in the accusation that domestic NFCs engaged in non-​patriotic behaviour by
failing to invest despite abundant corporate liquidity. The view of major companies was
that there were no sufficiently attractive investment opportunities present. Given high
and persistent unemployment and the strain on government resources reducing fiscal
space for government investment (see ­Chapters 31 and 43 in this volume), this corporate
view can become a circular argument, pointing towards deficient demand which could
be alleviated by increased NFC investment, especially if labour intensive.
 Financialization in South Africa    1017

To deliver on SHV generation JSE-​listed companies have increased their indebtedness

dramatically since the late 1990s, emulating the behaviour of their rich country peers.
Their debt rose from around 10 per cent of fixed assets in the 1970s through to the mid-​
1990s to 60 per cent by 2000 (Newman 2015). Such aggressive balance-​sheet leveraging
is necessary to distribute large dividends. To illustrate, between the late 1980s and 2015,
dividend pay-​outs (as share of operating profit) doubled from 2 to 4 per cent among JSE-​
listed NFCs, while share buybacks grew from Rand 3 billion in 2000, the year they were
first permitted, to Rand 41 billion in 2009 (Isaacs and Kaltenbrunner 2018). However,
such financialized practices can leave corporations in a financially fragile position and
with excess capacity when the economic cycle turns, as Bowman (2018) shows for the
South African platinum industry. Among platinum mining companies financialized
practices resulted in large cash distributions to investors, balance-​sheet engineering and
costly outlays on M&A activity during the boom years of the commodity super cycle.
The industry was, however, left in a financially precarious position with the onset of
the downturn, aggravating distributional tensions in the sector as management sought
to maintain SHV by restoring internationally competitive rates of return on capital
through redundancies and restructuring.

47.3 The Changing Financial Sector

under Financialization

Financial sector deregulation and financial liberalization, especially in emerging

economies, are instrumental in facilitating financialization. The former fuels fi-
nancial sector growth, while the latter encourages cross-​border financial flows. As
financialization takes hold of finance, the financial sector grows in terms of GDP con-
tribution and (albeit less so) employment, starting to dominate the overall economy.
Qualitative changes in the sector entail banking disintermediation, meaning the re-​
orientation of large companies away from bank credit to capital markets (Lapavitsas
2013). This, in turn, fuels stock market capitalization, an acceleration in equity turnover,
and the growth of foreign investors as well as offshore over-​the-​counter (OTC) sales.
A further change is the proliferation of new financial products and potential actors.
The South African financial sector was substantially deregulated during the 1980s.
Today, it has become highly profitable, capturing around a quarter of gross operating
surplus generated in the country by 2017 (StatsSA 2018). While only about half a
million people work in the sector (ILO 2018), finance is the single largest contributor
to South African GDP, exceeding one-fifth of South Africa’s annual output. This is just
short of twice the sector’s contribution in 1990 (Figure 47.1). Similarly, JSE market cap-
italization almost doubled since 1990, accounting for more than three times GDP today
(World Bank 2021). This is well above other emerging markets and only exceeded by
Hong Kong, a small city economy housing a global financial centre, and Saudi Arabia.
1018   Ewa Karwowski

25%

20%

15%

10%

5%

0%
60
63
66
69
72
75
78
81
84
87
90
93
96
99
02
05
08
11
14
17
19
19
19
19
19
19
19
19
19
19
19
19
19
19
20
20
20
20
20
20
Finance Manufacturing Mining Wholesale

Figure 47.1 GDP shares by sector, 1960–​2017

Source: SARB (2018).

Consequently, Johannesburg is a relatively important financial centre among emerging

economies and on the African continent, if not globally (Karwowski 2020). Financial
centres host internationally operating companies and function as nodes between the
national and global financial spheres. Therefore, they constitute a core dimension of
financialization.
Unusual for an emerging economy, financialization pressures in the financial sector
were not primarily introduced by foreign banks.2 Four South African banks, namely
ABSA, First Rand (FNB), NedBank, and Standard Bank, together own four-​fifths of
total banking assets in the country (The Banking Association South Africa 2014). They
dominate consumer lending while business banking tends to be more competitive with
a stronger presence of foreign banks. The flipside of increased shareholder power typ-
ically is the shift of large NFCs away from financing investment through bank loans
to capital markets. Consequently, banks lose their major clients, having to focus on
household lending instead (Lapavitsas 2013). While the former trend seems much less
pronounced in South Africa (Teles 2012), large banks nevertheless re-​oriented lending
towards mortgages and consumer loans during the 1990s. Instead of intermediating

2
Compare Gabor (2010) on the financialization of banking practices in Central Eastern Europe and
dos Santos (2013) for emerging economies more broadly.
 Financialization in South Africa    1019

between saving households and businesses who seek bank loans to fund investment,
as the standard economics textbook suggests (Mishkin and Eakins 2012), in the late
2000s South African NFCs have become net lenders while households were in def-
icit, shouldering increasing debt (Newman 2015). Among the Big Four, household
borrowing accounts for the largest individual credit position by sector, followed by loans
to the FIRE (finance, insurance, and real estate) industry (Karwowski 2018). Hence,
banks’ loan books illustrate the financialization of domestic banking. The real economy
and especially employment seem to have benefited little from buoyant financial-​sector
growth. In fact, manufacturing has experienced a steady decline since the late 1980s,
coinciding with the rise of the financial sector (Figure 47.1). While the reasons for this
decline are manifold, South African banks might be exacerbating this trend by favouring
household and FIRE credit at the expense of manufacturing. Manufacturing credit as
share of total credit extension by the Big Four fell from above 20 per cent to 7 per cent
between the late 1990s and 2016 (Karwowski 2018).
Like other large corporations, South African banks, and financial companies more
broadly, have internationalized since the end of apartheid. South African banks have
since gained a strong foothold across the African continent. Standard Bank has a par-
ticularly strong presence, trading in more than a dozen African countries (Karwowski
2015a). The entrance of foreign banks embracing financialized practices into middle-​
income countries has brought about and accelerated financialization in those hosting
economies (dos Santos 2013). Thus, South African banks might contribute to spreading
financialization across the continent.

47.4 Households and the

Financialization of Everyday Life

Household financialization is typically characterized by a growing entanglement of

households, and everyday life more broadly, with financial markets, logics, and tech-
nology. Individuals become aware of, and increasingly identify with, their balance
sheet. Rising debt burdens can be a catalyst for such a change in perceived identity.
Macroeconomically, rising household debt—​including consumer loans and mortgage
credit—​is a symptom of the financialized accumulation regime which often results in
subdued investment, low growth, and consequently a weak labour market. In Anglo-​
Saxon economies, stagnating wages paired with a roll-​back of public provision have
encouraged household borrowing. Given changing borrowing patterns among NFCs,
households have become major bank clients. In extreme cases, such as the United States,
their consumer and mortgage loans drive growth as credit-​fuelled consumption and
residential real estate investment replace ailing business investment as the main engines
of growth. Housing bubbles and the realization that homes and homeowners are finan-
cially exploitable are a major aspect of financialization (Aalbers 2008).
1020   Ewa Karwowski

In South Africa, around half of total private-​sector credit is taken out by households
and has ballooned over the past three decades. In 1990, total credit in the South African
economy equalled 60 per cent of GDP. This figure rose to 90 per cent just before the
global financial crisis (Newman 2015). Thus, the vast majority of GDP growth (namely,
more than 3 percentage points of an average growth rate just above 4 per cent) during
the boom years of the early 2000s was based on household consumption and supported
by credit. The price for this credit-​led growth boom were high levels of household in-
debtedness, making it an unstable accumulation regime. As a result, household savings
dwindled, turning negative in net terms before the global financial crisis. Over the same
time period, credit card debt more than doubled from just over 1.5 per cent of GDP in
2000 to more than 3 per cent before the crisis (Newman 2015). This unsustainable path
has continued since the global financial crisis because unsecured lending, unlike other
types of credit, did not experience a decline in the aftermath of the 2008 crisis. Instead,
there is evidence that unsecured debt—​in the form of store and credit cards for higher-​
income groups and informal credit among the poorest—​has risen substantially, increas-
ingly financing basic consumption for the population at the lowest end of the income
distribution (R0–​1,500 per month) (Newman 2015).
The household credit boom has made financial subjects of South African citizens,
introducing financial logics and technologies into their everyday lives. Since the early
2000s, international credit bureaus (including Experian and Transunion) have built
vast financial databases in the country with the aim of selling the data to banks and other
lending institutions. Available data are so comprehensive that South Africa has been
praised for offering among the world’s highest quality of credit information (Migozzi
2020). Thus, citizens’ financial behaviour and data have been transformed into a mar-
ketable product. Simultaneously, South Africans need to navigate these new financial
logics, especially in the attempt to enter the housing market.
Aggressive credit extension has fuelled house price inflation in the run-​up to the
global financial crisis, creating problems of housing affordability for many South
Africans. During the boom years in the early 2000s, growth in mortgage volumes
accelerated from around Rand 130 billion in 1995 to Rand 850 billion by 2007, almost
doubling as a share of GDP (from 23 per cent to 41 per cent). The domestic boom
was brought to an end by tightened lending regulation brought in by the National
Credit Act in 2007 and further exaggerated by the global downturn that followed.
Nevertheless, total outstanding mortgages were worth almost R1.3 trillion in 2016,
equalling to 30 per cent of GDP. While returns on housing were modest during the
1990s this changed in the subsequent decade (Ashman, Mohamed, and Newman
2013). South Africa experienced one of the strongest housing booms internationally,
outpacing rising residential real estate prices in the United States and United Kingdom
in real terms (see Figure 47.2). Given extreme income and wealth inequality present in
South African society, coupled with a lack of housing, the growth in residential real es-
tate prices and household debt burdens has been unevenly spread geographically and
across racial lines. While the three big metropolitan centres (Gauteng, Cape Town,
and Durban) lead house price inflation across the country, even neighbourhoods
 Financialization in South Africa    1021

40

30

20
Annual percentage change

10

–10

–20

–30
00

01

02

03

04

05

06

07

08

09

11

12

13

14

15

16
20

20

20

20

20

20

20

20

20

20

20

20

20

20

20

20
South Africa US UK

Figure 47.2 Real house price inflation in the United States, United Kingdom, and South Africa,
2000–​16
Source: Karwowski (2018).

within those urban settings are unevenly affected, shaped by the apartheid past.
Migozzi (2020) argues that the housing boom has exacerbated racial inequalities. In
Cape Town, ‘the median price in formerly white-​only areas was 7.4 times higher than
that of black townships and 3.2 times that of colored areas [in 2016]. Existing contrasts
in terms of size, architecture, building materials, or finishes do not fully explain such a
significant gap’ (Migozzi 2020: 649).
Only property-​owning or income-​rich households have access to mortgage finance
in South Africa. Based on extensive interviews with estate agents and mortgage brokers
in Cape Town, Migozzi (2020) reports that among households attempting to enter the
housing market, high-​income individuals and especially public servants are favoured
by mortgage lenders. In contrast, self-​employed individuals need to prove substantial
income to be considered for a loan. Lenders’ focus on public servants is a side effect
of South Africa’s weak labour market. Unemployment has remained stubbornly high
(well above 20 per cent in its formal measure), while wages have stagnated. Hence, the
wage bill as share of total social surplus has fallen from 56 per cent in 1994 to just over
50 per cent by 2010 (Bond 2013). Low and stagnant wages have generated a need for
unsecured loans which was further exacerbated by the global financial crisis. Between
2007 and 2012, unsecured lending tripled from less than Rand 10 billion to almost
1022   Ewa Karwowski

Rand 30 billion (Newman 2015). Over-​indebtedness has contributed to working-​class

households’ desperate demands for wage increases, most famously and tragically in the
case of the Marikana mineworkers in 2012. During wildcat strikes, thirty-​four miners
were killed by the South African Police Service in the Marikana area close to Rustenburg
on 16 August 2012. Microfinance institutions have a strong presence in the Marikana
area and were reportedly charging exorbitant fees, especially on defaulting customers
(Bond 2013, see also Bowman 2018).
Since the global financial crisis, the housing market has been stagnant as prices
have reached a plateau (see Figure 47.2), generating debt sustainability problems for
households that took on mortgages at the peak of the boom, expecting further increases
in prices. House price inflation has boosted the wealth of property-​owning classes.
There is some evidence that South African households have, in turn, increased their
borrowing to finance consumption, while channelling more funds into the acquisition
of financial assets (Ashman et al. 2013). Consequently, households have reconfigured the
composition of their wealth over the past three decades or so. Individuals have shifted
their savings away from bank balances and non-​financial assets, other than real estate,
particularly towards financial assets held with pension funds and long-​term insurers.
This trend mimics developments in many Anglo-​Saxon economies where institutional
investors have substantially grown in size and importance since the 1980s as funded
pension systems have replaced pay-​as-​you-​go arrangements (Evans 2009). In South
Africa, financial assets made up about half of households’ total assets in the mid-​1970s,
rising to around 70 per cent since the late 1990s (Ashman et al. 2013).
This reconfiguration is driven by the changing saving behaviour of very wealthy South
Africans, meaning the top 10 per cent of the wealth distribution. South Africa is among
the most unequal societies in the world. Wealth inequality is even more pronounced
than disparities in income. Financial assets are most unequally distributed as 85 per
cent of these assets are concentrated in the hands of the top 10 per cent most wealthy
(Ashman et al. 2013). As real estate and financial assets inflate while employment and
remuneration remain weak—all attributes of a financialized accumulation regime—
wealth inequality is further exacerbated.

47.5 The Role of Financial

Liberalization and the State
in Financialization

In emerging economies financialization is often introduced from outside by foreign

banks and corporations or through Washington Consensus-​style policies forcefully
implemented as part of IMF or World Bank loan conditionality. While there is some
debate about the role of the IMF and especially the 1993 loan it provided on the eve of
South Africa’s democratic elections (Kasrils 2014), the evidence suggests that neo-liberal
 Financialization in South Africa    1023

policies that fuelled financialization were actively embraced by the new ANC govern-
ment rather than imposed through IMF conditionality (Padayachee and Fine 2019).
Hence, in South Africa financialization has been encouraged through the actions of
state entities and policy reforms (Isaacs 2014). Efforts to liberalize financial markets go
back to the late 1970s and the Commission of Inquiry into the Monetary System and
Monetary Policy in South Africa (known as the De Kock commission), which published
three reports, spanning the years 1979 to 1985. While financial opening-​up was subse-
quently halted due to the 1985 debt moratorium, the banking sector was deregulated do-
mestically in the 1980s, encouraging financial-​sector growth and concentration.
Financial-​sector reforms that fostered financialization include the removal of quan-
titative credit controls and the relaxation of prescribed asset ratios for pension funds
and pensions invested with insurance companies in the early 1980s (Ashman et al. 2013).
The 1990s saw a lifting of restrictions for official pension funds to invest in public fixed-​
interest securities only, meaning investment could expand into equities. In 2007, regu-
lation against selling investment products fell away, leading to the growth in private
investment funds and savings products (such as unit trusts), including the entry into
savings by established insurance companies (Ashman et al. 2013). Starting in 1993, ex-
change rate controls were gradually lifted with the two-​tier exchange rate regime (that
is, the financial Rand) removed in 1995. While there remain some limited controls in
place, capital flows are mostly liberalized as the Rand is a free-​floating currency.
Following the logic of macroeconomic orthodoxy, South Africa introduced inflation
targeting in 2000, resulting in a high interest rate environment while opening avenues
for financial accumulation. Paired with financial liberalization, inflation targeting has
entrenched financialization and its logics in South African policymaking. As finan-
cial liberalization fostered Rand volatility (see next section) the build-​up of foreign ex-
change reserves was necessary to stem potential sudden stops or reversals in financial
inflows if more direct intervention into the exchange rate, typically during the 1990s in
many emerging economies, was to be avoided. However, foreign currency reserves are
costly since US Treasury Bills (T-​Bills), for instance, yield a lower return than the South
African Reserve Bank (SARB) must pay on its own liabilities. Isaacs and Kaltenbrunner
(2018) estimate this spread at over 7 percentage points for the post-​apartheid period.
Thus, reserve accumulation, which has surged among emerging and developing
countries globally since the 1990s, constitutes a transfer of resources from poor to rich
countries and from the public to the private sphere (Ocampo 2014). At the same time,
it encourages financialization introduced through foreign financial inflows since it
guarantees Rand—dollar convertibility to international investors, allowing them quick
and easy exit from the local economy.
The logic of inflation targeting calls for sterilization operations to follow financial
inflows and reserve accumulation, mopping up domestic ‘excess’ liquidity with the
proclaimed goal of keeping inflation in check. Given the principle of central bank in-
dependence, which has been embraced alongside inflation targeting, such operations
are financed through borrowing in domestic capital markets. For this purpose, the
SARB employs debentures, reverse repos, and foreign-​exchange swaps, all representing
1024   Ewa Karwowski

lucrative and relatively safe instruments for domestic and foreign investors to accumu-
late financial profits. Between 2002 and 2010, sterilization through borrowing by the
SARB doubled from Rand 22.5 billion to Rand 45 billion (Isaacs and Kaltenbrunner
2018). Once again, this is costly since returns on SARB’s borrowing operations to pri-
vate investors exceed the central bank’s income from liquidity provision to the domestic
banking sector. To ensure even greater market liquidity for financial investors, the SARB
introduced reverse repos and debentures with shorter maturity spans (namely, seven-​
and fourteen-​day instruments) in 2012. Subsequently, investors overwhelmingly shifted
from mainly holding fifty-​six-​day debentures, which accounted for nearly half of SARB
debentures in 2008 to the seven-​day instrument, making up two-​thirds of debentures by
2016 (Isaacs and Kaltenbrunner 2018).

47.6 International Integration,

Cross-​b order Flows,
and Financialization

Financialization in emerging and developing countries has an important inter-

national dimension due to their subordinate position in the global financial infrastruc-
ture (Karwowski 2020). For emerging economies, the price for their integration into
global financial structures is heightened exchange rate volatility. Foreign investors rank
emerging currencies further down the currency hierarchy when assessing the liquidity
of financial assets (Kaltenbrunner 2015). Thus, currencies like the Rand are sought-​after
(if risky) investment assets. In times of international financial turmoil, investors how-
ever prefer the safe haven of the dollar which offers low returns but a high degree of
liquidity.
Ever since the Greenspan put, that is, the US Federal Reserve’s extremely loose mon-
etary policy in response to the 1987 stock market crash, the United States (followed by
other rich economies) have increasingly embraced low interest rates and high US-​dollar
liquidity as a crisis response. Coupled with ‘privatized Keynesianism’ (Crouch 2009),
where asset prices support consumption and finance private pensions as public pro-
vision retreats, this policy stance meant that rich-​country financial investors started
seeking yield in new asset classes (such as mortgage-​backed securities) and also abroad,
especially in the developing world where interest rates are high. This mechanism
represents a fundamental connection between, on the one hand, financialization in rich
countries shaping global financial structure, and emerging and developing economies,
on the other (Bonizzi 2017). The fact that global ‘push’ factors influence cross-​border
flows rather than local ‘pull’ factors has been also acknowledged in the literature on
global financial cycles. Up to 80 per cent of movements in international portfolio flows
have been estimated to arise from global factors, exercising a lasting effect on capital
inflows in contrast to domestic ‘shocks’ (Guichard 2017; Byrne and Fiess 2016).
 Financialization in South Africa    1025

Thus, financial inflows have introduced financialization through external pressures

to South Africa. While foreign liabilities, that is domestic assets held by foreigners,
averaged half of GDP value between the mid-​1950s and mid-​1980s, this figure has risen
well above 100 per cent more recently (to 137 per cent in 2015; Isaacs and Kaltenbrunner
2018). More importantly, the composition of foreign financial inflows has moved to-
wards portfolio investment, that is short-​term and potentially speculative inflows into
domestic equity and bonds aiming at capital gains rather than long-​term investment
income. Foreign portfolio investment into South Africa is facilitated by the trading
of JSE-​listed equity on major US stock exchanges and on OTC exchanges (Isaacs and
Kaltenbrunner 2018). The shares of more than a quarter of JSE-​listed companies can be
bought and sold in such a manner, which is unusually high for an emerging economy.
Equally, foreign inflows into South African private and government bonds have risen
since the 1990s, accelerating during the 2000s. Between 2003 and 2016, non-​residents
increased their share of bond market capitalization more than four ​fold (from 5 to
22 per cent). Foreign investment funds held almost a third of South African govern-
ment bonds by 2016 (growing from just below 10 per cent in the early 2000s; Isaacs
and Kaltenbrunner 2018). Crucially, South African foreign liabilities are increasingly
denominated in Rand, illustrating the internationalization of the currency. While the
large majority (>80 per cent) of foreign debt was also foreign denominated in 1990, there
has been a noticeable shift towards Rand denomination over the past three decades. By
2010, non-​residents held more Rand-​denominated debt than otherwise (Isaacs and
Kaltenbrunner 2018).
During the 2000s, the issuance of financial assets denominated in emerging market
currencies (led by the Rand) experienced a surge offshore in international markets.
These assets tend to have a high turnover and have been linked to carry trade operations.
For the Rand this means the currency is internationalizing, illustrated by the fact that
in 2013 four-​fifths of all Rand trading was undertaken offshore. A major driver of this
move offshore are operations of large (formerly) South African conglomerates who have
moved their headquarters and stock exchange listings abroad (Isaacs and Kaltenbrunner
2018). While the shift towards Rand denomination reduces exchange rate risk for do-
mestic debt issuers, since the mismatch between earning capacity in Rand and payment
commitments in a foreign currency is eliminated, Rand internationalization comes at
the cost of increased exchange rate volatility. More foreign investors hold larger Rand
positions and their portfolio considerations shape movements of the Rand exchange
rate (Isaacs and Kaltenbrunner 2018). Given the short-​term investment horizon of for-
eign investors (visible in the high turnover of this market segment), increased currency
volatility can be linked to financialization. This, in turn, can undermine production in
the real economy as exporters are now facing heightened exchange rate risk.
The last observation is particularly important in the context of a resource-​rich
emerging economy such as South Africa where further catching-​up towards rich
countries is required. Catching-​up typically involves improving domestic technology
and skills, and expanding domestic manufacturing. However, financialization fuelled by
financial liberalization might contribute to deindustrialization through a new version
1026   Ewa Karwowski

of Dutch Disease in resource-​rich countries like South Africa. For instance, there is evi-
dence that financial inflows into the booming Australian mining sector during the last
commodity cycle have rendered domestic manufacturing uncompetitive due to cur-
rency appreciation (Weller and O’Neill 2014). Similar observations have been made
for Colombia which attracted significant foreign portfolio flows, especially between
2009 and 2015 when commodity prices collapsed. These mounting liabilities resulted
in growing payments to foreign investors, forcing the current account into deficit due
to dividend outflows despite a trade surplus (Botta, Godin, and Missaglia 2016). While
there has been no concrete research addressing the financial Dutch Disease for South
Africa, the country’s conditions resemble those in Australia and Colombia in many
respects, flagging potential impediments to growth and development and a future re-
search avenue.

47.7 Conclusion

This chapter has outlined the broad contours of financialization and the specific
characteristics of the phenomenon in South Africa. Colonial and apartheid history
shape the country’s financialization experience. While international integration,
and in particular cross-​border flows, are important to understand the country’s situ-
ation, financialization has importantly been driven from within South Africa. Large
corporations, especially the historically dominant domestic conglomerates, have
resumed their global positions after the end of apartheid in 1994. This has introduced
SHV considerations, either as pressures or readily embraced by corporations them-
selves, into domestic production. Hence, many companies have adopted investment
strategies that create financial fragility. Much of the domestic industry has seen a sub-
sequent decline, while the financial sector expanded in size and profitability, taking on a
dominant role. Today South African financial companies, and in particular banks, rep-
resent the gateway to the rest of Africa.
As domestic investment dwindles and the labour market remains flagging, growth
has become increasingly dependent on credit-​fuelled consumption. The early 2000s
saw a spurt in debt-​led growth which, however, came at the cost of house price inflation
and rising household indebtedness. Nevertheless, debt-led growth is unsustainable as
individuals are pushed into over-​indebtedness, while exacerbating inequality, already at
extremely high levels in South Africa even before the arrival of financialization.
Macroeconomic policies, especially financial-​sector deregulation, financial liber-
alization, and, later, inflation targeting, have encouraged financialization. Reserve ac-
cumulation, the flipside of financial openness and a floating currency, paired with
SARB’s sterilization operations, which follow the inflation-​targeting logic, have further
entrenched financialization, creating lucrative and safe accumulation opportunities for
private investors at home and abroad.
 Financialization in South Africa    1027

Today, South Africa is one of the most integrated emerging economies in global fi-
nancial markets. The Rand has internationalized with around half of total foreign-​held
debt denominated in local currency. While Rand internationalization has the advan-
tage of eliminating the currency mismatch for debt issuers, the downside is increased
exchange rate volatility. This is particularly damaging for domestic exporters who are
faced with higher levels of uncertainty. Thus, financialization in an emerging-​country
setting, where further structural transformation to catch up with rich countries is neces-
sary, is particularly damaging and can undermine the process of development.

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 Index
Tables, figures and boxes are indicated by t, f and b following the page numbers
3D printing (additive manufacturing) 489,
491–​92, 504–​5
5G 125, 491–​92, 493, 496, 560–​61
37E incentive 520
A economic role in Africa 435–​36
Abbas, S.A. 959
Abiad, A. 985
ABInBev 355–​56, 358
ABSA 656–​57, 1005, 1008n.11, 1018–​19
Abuja Declaration 854–​55
abuse of dominance 536, 538–​43, 545–​46, 548,
549
Academy of Science of South Africa Review of
the State of the STI system 468–​69
accelerated depreciation allowance 454
Accelerated and Shared Growth Initiative
(ASGISA) 82, 275, 580, 901
accountability 857, 976
Acemoglu, J. 113n.3, 971
ACSA 568–​69, 580
Active Labour Market Policies
(ALMPs) 685–​87
Adesina, J.O. 162
AEC Electronics v Department of Minerals and
Energy 547–​48
AECI 52–​53, 353, 357–​58
Afonso, A. 904
Africa 425–​26, 764, 900n.8
see also economic role of South Africa in
Africa
Africa Future Growth AgriFund 254–​55
Africa Growth and Opportunity Act
(AGOA) 382–​83, 386
‘African Agenda’ 419–​22, 424–​25, 437
African Alternative Framework for Structural
Adjustment Programmes 422
African Bank 1005–​06
African Continental Free Trade Agreement
(AfCFTA)
international trade 449–​50, 456, 462–​63
regional value chains and integration 396–​97,
411, 412, 414, 437
African Development Bank 950
African Economic Community (AEC) 397
African Explosives and Chemical Industries
(AE&CI) 494
African Farmers’ Association of South Africa
(AFASA) 199t
African Growth and Opportunity Act 449
African National Congress (ANC)
Alliance 77
banking and finance 992
Black Economic Empowerment (BEE) 599,
601, 602
Department of Economic Planning 71
‘Discussion Document on Economic
Policy’ 71
economic history 1948-​94 48, 59, 61, 62–​63
economic role of South Africa in
Africa 420, 421–​22, 424, 426, 436
energy 292
financialization 1022–​23
Fourth Industrial Revolution 493–​94
international trade 448
land and agrarian development 241–​44,
245, 252
Land Manifesto 242–​43
mining and minerals 264, 276
1032   Index
African National Congress (ANC) (cont.)
Morogoro Conference 242–​43
Policy Conference (2002) 580
politics and policymaking (1994
onwards 66n.1, 72–​73, 85–​86, 87
Black Economic Empowerment (BEE)
programme 78, 79–​80, 81
economic crisis and decline (2007-​
17) 81–​82, 83–​84
economic policy and political
settlement 71–​72
organized labour 68
political parties 69–​70
the State 69
strategy mapping pre-​1990 70
post-​apartheid development trajectory 91,
93, 94–​95, 96, 97, 100–​1, 105–​6, 107–​8
public debt 958, 964–​66, 969
‘Ready to Govern’ 71, 93, 601
state-​owned enterprises (SOEs) 576–​77,
579, 580–​81, 595–​96
value chains and industrial
development 379–​80
African Peer Review Mechanism
(APRM) 424
African Renaissance 424
African Renaissance Fund (ARF) 426
African Union (AU)
Agenda 2063 435
Commission 425
economic role of South African in
Africa 419–​20, 421, 424–​25, 426, 436
Extraordinary Summit (Niamey) 435
health 854–​55
Kampala summit (2010) 423
Programme for Infrastructure
Development in Africa 411
regional value chains and integration 397
Afrikaner Revolution (1948) 50–​53
age factors
entrepreneurship and SMMEs 629
migration and remittances 778–​79,
782–​84, 784f, 785–​88, 786f, 787f,
789–​90, 794–​95
social security and social
development 869–​70
unemployment 137, 138t
agglomeration see urbanization and
agglomeration
Aghion, P. 896, 900
agrarian development see land and agrarian
development
‘agrarian radicals’ 253
Agri SA 199t
Agricultural Census 203–​5, 204t, 207
agricultural cooperatives 70, 251–​52
Agricultural Marketing Act 1968 448
Agricultural Policy Action Plan (APAP) 836
Agricultural Sector Unity Forum (ASUF) 199
Agricultural Survey 204t
agriculture
agro-​processing 218–​19
animal feed sector 209, 235–​36
animal feed-​to-​poultry sector 398, 401–​4
annual food inflation rate 213f
annual growth 200
cereals see cereals
climate change and green transition 327,
333–​35, 338, 341
coffee 211
commercial agriculture: size and
structure 197, 203–​7, 206t, 214
contraction 200
crops 198, 201t, 207, 209
cultivated land use by agricultural
system 333f
dairy sector 202t, 209, 212f, 213–​14, 223,
224, 224t
dryland farming 327
economic growth constraints 131
economic history 1948-​94 47, 55
economic history pre-​1948 44
economic role of South Africa in
Africa 422–​23, 433
entrepreneurship and SMMEs 632
family-​based operations 203
farm numbers and farm employment 204t,
208–​9
farm structure 204t, 205t
farm-​in rights 287
farming communities, pre-​colonial,
emergence of 27
food prices 212–​14
food security and hunger 828–​29

Fourth Industrial Revolution 494
fruit see fruit sector
game farms 250–​51
GDP 8t, 201t, 202t
gender factors in labour market 735
hay 202t
horticulture 197, 198, 201t, 206t, 207, 209,
211, 250–​51, 457
households according to population
groups 205t
industrial policy 520
informal economy 772
input industry 209–​10
international trade 447, 449, 454
investment 928
irrigation demand 334, 336
labour market 675, 677t, 684f
land and agrarian development 241–​42
land capability map 196f
macroeconomics of economic growth 895t,
896, 897–​98, 899–​900, 901–​2, 903t
micro-​enterprises 205–​6, 214
mixed farming 206t
natural resource base 195–​97
nuts 209, 211, 212f, 214
output mix, top ten commodities 202t
part-​time farmers 203
political economy 197–​99
potatoes 200–​1, 207t, 213–​14, 457
pre-​colonial farming communities,
emergence of 27
productivity 198
relative share 200
remuneration 278
responses to expanding internal
markets 38–​41
role and contribution in economy 200–​1
seasonal, temporary and permanent
labour 208
segregation 197
services 206t
share of black farmers in commercial
agriculture 207t
share of production 201t
social security and social development 880
soybeans 207t, 209–​10, 213–​14, 403–​4
structural changes 201t
Index   1033
sugar cane 39, 202t, 212, 213–​14, 224t, 334,
353, 358, 429, 457
sunflower seeds 213–​14
support 197
suppression 197
tea 211
tobacco 221–​22, 233t, 358, 361, 498–​99, 518t
tomatoes 207t
trade patterns and trade policies 210–​12
unemployment 142–​43, 146–​47
urbanization and agglomeration 648–​49
value chains 762
value of production 201t
vegetables 202t, 212f, 212, 223, 224t, 224,
225–​26
viticulture/​wine industry 32, 33, 200–​1,
207t, 211, 224, 224t, 225
wood and wood products 218, 222–​23, 230–​31,
232–​34, 233t, 307–​8, 498–​99, 518t
agro-​processing
components of industries 221–​24
diversity 219
economic growth constraints 131
economic role of South Africa in
Africa 422
employment trends 231–​34
food and beverage subsector 223–​26
industrial policy 526–​27
international trade 457
investment 929
leather and leather products 228–​29
potential 235–​36
profile and trends 219–​21
size 219
structure 234–​35
textile and clothing sector 226–​28
trade 217–​18
value chains and industrial
development 375, 377
wood, wood products and furniture 230–​31
see also processed food sector; and under
Southern African regional value
chains (RVCs) and integration
AHRI 785
Air Transport Navigation Services
(ATNS) 568–​69
Airport Companies Act 568
1034   Index

Aizenman, J. 956–​57 abuse of dominance 536, 538–​43, 545–​46,

Ajefu, J. 792 548, 549
Akanbi, O. 937 exemptions 545–​46
Akhmedov, A. 957–​58 horizontal and vertical agreements 536,
Alcan 519–​20 540n.28, 543–​46, 548
alcoholic beverages sector 211, 212f, 224t, 353, market inquiries 546–​47
358, 361 merger control 536–​38, 549–​50
Alesina, A. 957, 958, 969 anti-​export bias 446–​47
Alfers, L. 164, 763–​64 antimony 52
Algeria 854f, 949–​50 apartheid 3, 44, 94, 96, 105, 106, 608
Aliber, M. 781 agriculture 195
Alkire, S. 159 agro-​processing 234
Alkire-​Foster methodology 162, 167 competition policy 533, 534
Alleyne, T. 456 corporate structure, industrial development
allocative inefficiency 700 and structural change 360, 361, 364
AlphaZero 492 economic growth constraints 111, 115, 116,
Alton, T. 979 127, 132
aluminium sector 267, 270–​7 1, 357, 433, 498–​ economic history pre-​1948 48, 49, 50, 51–​52,
99, 519–​20 53, 55–​56, 58, 59–​61, 62, 63
Amazon 492, 500 economic role of South Africa in
Amra, R. 937, 940 Africa 420–​22, 425–​26
AMSA 268, 273, 274–​75 education 708–​9
Andalusite Resources 536 energy sector 283–​84, 286–​87, 288, 289–​90,
ANE/​Austral Survey of Rural Households 779 291, 293
Anglo American Bevcon 353 entrepreneurship and SMMEs 623–​24
Anglo American Corporation financialization 1014–​15, 1020–​21, 1026
(AAC) 269–​70 food security and hunger 826–​268, 837
corporate structure, industrial development Fourth Industrial Revolution 493–​94, 495
and structural change 353–​54, 354t, growth (1946-​70) 111–​14, 113f
355–​56, 357, 358, 361, 363 health and healthcare 628, 844, 845, 848,
economic history 1948-​94 48, 51, 52–​53, 55, 850, 854–​55
56–​58 household economics 800–​1, 802, 810, 818
financialization 1014–​15, 1016 industrial policy 510, 517, 524, 525
post-​apartheid development inequality 175, 179, 181–​82, 185–​86
trajectory 95–​96 informal economy 759
Anglo American Holdings and Kumba 538n.24 innovation and technological change 467,
Anglo Platinum 269–​70, 355–​56 468, 469, 470, 484–​85
AngloGold 355–​56 international trade 447, 448, 462
AngloGold Ashanti 270, 435 investment 921
Anglovaal 1015n.1 labour market 675
animal feed sector 209, 235–​36 land and agrarian development 240, 253,
animal feed-​to-​poultry sector 398, 401–​4 255–​56, 258
animal-​maize production nexus 209 migration and remittances 777, 793
Annual Review of Small Businesses and mining and minerals 262, 269, 278, 279,
Cooperatives report 628 280
anti-​competitive market power 412, 531–​32, network industries regulation 554–​55,
536–​47 561–​62, 570
 Index   1035

politics and economic policymaking since economic role of South Africa in

1994 67, 69–​70, 72, 73, 75, 76 Africa 429, 433
poverty 157 electric vehicles (EVs) 297, 301, 324, 383–​84
public debt 957, 960–​61, 963 Fourth Industrial Revolution 498–​99
public finance and fiscal policy 935, 936–​37 industrial policy 515–​16, 516t, 518t, 521–​22, 526
social security and social international trade 451–​52
development 872–​73 urbanization and agglomeration 655
state-​owned enterprises 577, 578–​79, 593 value chains and industrial
unemployment 136, 137, 139–​41, 144, development 377–​85, 391, 392
147–​48, 152 Automotive Production and Development
urbanization, agglomeration and economic Programme (APDP) 381, 382–​83, 385,
development 647, 649, 650–​51, 664–​65 451, 515
apparel see textiles and clothing autonomous vehicles (AVs) 384–​85
apprenticeships 698–​99 Autor, D. 505
ArcelorMittal 267, 274, 357, 362, 521 AVI Limited 223, 358
Argentina 942, 949–​50 aviation sector 567–​69, 571, 572
Armscor 62–​63 see also in particular South African Airways
Aron, J. 974–​75, 977 (SAA)
artificial intelligence (AI) 489, 491–​92, 493, Awethu Project 636–​37
496, 497–​98, 501, 503, 504–​5 Aydemir, M.O. 311–​12
Arusha Charter 422 Ayentimi, D.T. 492, 493
Ashanti 355–​56
Ashton, T.S. 490–​91 B
Asia 212, 435 Bahre, E. 162–​63
Asian crisis (1997) 451 BAIC (China) 525
AskAfrika 831 balance-​of-​payments constraint 4, 48, 114,
Aspen Pharmacare 435 445–​46
assets 176–​79, 913, 918f, 997f, 998f, 1016 ‘Balancing Regulations to Promote Jobs’
Associated British Foods 358 manual 634
Association of Mineworkers and Construction Balkanization of South Africa 827
Union (AMCU) 271, 280 Banerjee, A. 981–​82
Astral 358, 403 Bang, J.T. 791–​92
asymmetric information and imperfect Bank Zero 501
markets 145 Banking Council of South Africa 1007–​08
AT&T 556 Banking Enquiry process 999b
Atkinson, Theil and Palma indexes 176–​77 banking and finance
Atlas of Economic Complexity 899–​900 access to finance for entrepreneurs 635
AUC/​OECD report 377 Black Economic Empowerment
automation 497, 499, 501–​2, 505 (BEE) 604, 611–​12
automotive industry competition policy 549–​50
autonomous vehicles (AVs) 384–​85 concentration, diversity and market
battery and hydrogen propulsion 297, 300, conduct 1005–​08
301 contractual intermediaries (CIs) 995t
catalytic converters 267 contractual providers 993
corporate structure, industrial development corporate structure, industrial development
and structural change 351–​52, 352t, and structural change 352t, 353, 358–​59
353, 362 cross-​holdings 994
1036   Index

banking and finance (cont.) inequality 181–​82

deposit intermediaries 995t land and agrarian development 243, 252,
economic significance 993–​1002 253
finance companies 995t politics and economic policymaking 69
finance and investment protocol 412 see also former Bantustans
financial auxiliaries 994, 995t Barbier Rebellion 31
financial companies 67 Barclays Bank International 60–​61
financial intermediaries 993, 995t, 997–​98, bargaining councils 146–​47
997f, 999b Barloworld 358
financial market infrastructure (FMI) 994, Barnato, B. 34, 35
995t, 1007 Barnes, D.F. 314
financialization 1018f, 1018–​19 Barnes, J. 380–​81, 389, 522
FinTech 1008–​09 Barro, R. 956–​58, 980
Fourth Industrial Revolution 501 Basel III requirements 999b
informal economy 769, 769f, 770f Basic Conditions of Employment Act
labour market 675–​76, 677–​78, 677t 1997 145, 685, 735, 772
large value payment system (LVPS) 994 Basic Income Grant 874
macroeconomics of economic growth 895t, Bassier, I. 178
896, 901–​2, 903t BATSA 355–​56, 358
measurement of contribution of battery and hydrogen propulsion 297, 300, 301
banks 999b Baum, C.F. 922n.5
micro-​economic function 993 Baumol, W. 626
mining and minerals 263 bauxite 519–​20
non-​deposit intermediaries 995t Beit, A. 34
non-​deposit takers 993 Belhocine, N. 959
other financial intermediaries (OFIs) 993, Bell, T. 53, 54, 60, 446, 448, 452n.9, 459–​60,
994, 995t, 997–​98 778–​79
overview of financial sector 997t Benton, L. 761
politics and policymaking (1994 Bernanke, B. 984–​85
onwards) 76 Bernstein, H. 245
privately-​owned banks 32–​33, 995t Betterment Planning 827
public sector institutions 993, 995t beverage sector see food and beverage sector
regulation of financial sector 1002–​05 Bezuidenhout, C. 164
state-​owned enterprises (SOEs) 578–​79 Bhorat, H. 163–​64, 456–​57, 632, 685
Treating Customers Fairly (TCF) 1004 BHP 356n.4, 357, 361
Banking Inquiry (Inquiry into Competition BHP Billiton 519–​20
in South African Banking) 1003, Bidcorp 358, 362, 365
1007–​08 Bidorbuy 500
Banks Act 1990 549–​50 Bidvest 354t, 358, 362, 365, 435
BankservAfrica 994, 1007 Big Data 491–​92, 500, 504–​5
Bantu Education Act 1952 469–​70, 708 ‘bigness, problem of ’ 350, 363–​64
Bantustans Bill of Rights 243–​44, 835–​36, 873
economic growth constraints 111–​12, 113 Births and Deaths Registration Act
economic history 1948-​94 60 1992 751n.15
health 845 Biyase, M. 780
household economics 802 Black, A. 226, 232, 234–​35, 380–​81, 901, 923–​24
industrial policy 524 Black Business Council (BBC) 600–​1, 602
 Index   1037

black consciousness movement 68 Blankley, W. 475–​76, 478

Black Economic Empowerment (BEE) blended financing model 635
Advisory Council 605 blockchain 491–​92, 493, 500, 503, 504–​5
Black Economic Empowerment Act Bloom, D. 778
2003 605, 606–​7, 609, 610 Bloomberg 19, 383–​84
Charter 288 Bluedorn, J. 985
Codes of Good Practice 605, 606, 607 Board of Acquisitions and Disposal
Comm report (2001) 603, 605 Committee (BADC) 590
Commission 79, 600–​1, 605 Board of Trade and Industries 42–​43
compliance 606 Boart Longyear 358
Consortia (Big-​6) 604 Bocquier, P. 782–​83
corporate structure, industrial development BOE 1005–​06
and structural change 354 Bogetic, Z. 930
economic growth constraints 128, 129, 131 Bohlmann, H.R. 314, 318
elite 602 Bokoni intensive farming terraces (1500s-​
energy 287, 290, 291 1820) 26, 29–​31, 826
evaluation of outcomes and Bolt, M. 762
substance 608–​17 Bonitas Medical Fund 859
barriers to meaningful participation of BopAir 568
black enterprises 609–​11 Border Areas 53
deals and funding 611–​13 Border Wars 59–​60
procurement, enterprise and supplier Borras, J. 244–​45
development 613–​15 BOSASA 581
transformation, criticality of 615–​17 Bosker, M. 898–​99
evolution 600–​7 Boston Consulting Group 384–​85
first phase 602 Botev, J. 904
industrial policy 515 Botha, L. 36–​37
legislation and practice 605–​7 Botha, P.W. 57–​58, 62–​63, 445–​46
mining and minerals 277 Botswana 4, 5f, 6t, 7f, 8t, 9t, 10f, 12t, 430, 431–​
politics and economic policymaking 78–​81 32, 779
post-​apartheid development Bowman, A. 576, 1017
trajectory 95–​96 Boxer 359
rules 607 BP 285
scorecard system 606, 607, 610–​11, 612–​13, Branson, N. 682, 714, 722–​23, 747n.9
616–​17 Braude, W. 426
state-​owned enterprises (SOEs) 580–​81 Braunstein, E. 150
verification agencies 606 Brazil 4, 5f, 6t, 7f, 8t, 9t, 10t, 12t, 14, 106–​7
see also Broad-​Based Black Economic banking and finance 998–​1001
Empowerment (BBBEE) energy and emissions intensity 285f
black industrial class and state-​owned entrepreneurship and SMMEs 409t,
enterprises (SOEs) 82–​83, 581–​82 630–​32
Black Industrialists Policy 613–​14 health 851, 856f
Black Industrialists Scheme (BIS) 515 industrial policy 512t, 513, 523t
Black Management Forum 79, 601 investment 915, 916t
Black Rock Institute 270, 384–​85 public debt 960–​61
Blake, R. 163 public finance and fiscal policy 942, 949–​50
Blanchard, O.J. 927n.9 Brender, A. 957, 963–​64, 968–​69
1038   Index

Bretton Woods 48, 50–​51, 58, 114 capabilities approach 184

Brink, A.S. 851–​52 capacity utilization 139
British United Shoe Machinery 41–​42 Cape Area 26, 31–​33, 39, 41–​42
Brito, R.D. 150 Cape Area Panel Study (CAPS) 20t, 714
Broad-​Based Black Economic Empowerment Cape Patriot Movement 31
(BBBEE) 587, 612–​13 capital
Broad-​Based Black Economic Empowerment accumulation 139–​40, 143–​44, 978
(BBBEE) Act 79, 288–​89, 613–​14 cost of 917
Broad-​Based Black Economic Empowerment deepening 581
(BBBEE) Commission 606–​7, 613–​14, flight 150–​51, 580
616–​17 fractions of 49–​50
Broadband Infraco 504, 557–​58 income 178
Broadband Inquiry 547 -​intensive bias 144
Bromley, R. 758 and labour intensity 902–​4
Bruno, V. 984 macroeconomics of economic growth 892,
Bruns, S. 904 893–​96, 894f, 895t
Brynjolfsson, E. 119–​20n.14 mobility 983
Buchana, Y. 478 monetary policy 978, 980
Budget Review 2019 857 physical capital 141, 896
budgets see public finance and fiscal policy requirements 296–​97
Budlender, D. 746, 763–​64 social capital 696–​97, 926
Buiter, W.H. 986–​87 stock 896
Burger, P. 119–​20n.14 stock, fixed 140f, 140, 892–​93
Burger, R. 160–​61, 184, 759–​60, 851–​52, 958n.2 strike 924
Burgess, J. 492, 493 user cost of 917, 919–​20
business angels 635 see also human capital; and under
business cycle, short-​term 975 investment
business enterprise R&D spending Capital & Counties 359
(BERD) 475–​76, 476f capitalism 49–​50
Business Innovation Survey 477n.9 white monopoly 84
Business NEC 679 Carel, D. 718–​19
business ownership rates 625 Cargill 223
Business Process Services (BPS) Incentive Carnegie Commission of Investigation on
Programme 515 the Poor White Question in South
business services sector 352t, 656, 675–​76, Africa 494
677–​78, 895t, 896, 903t cartels 403, 540n.28, 543–​44, 548
Business Unity South Africa 67 Casale, D. 763, 832–​33
Buthelezi, T. 55–​56, 534n.12 Case, A. 696
Buyer Power provisions 407 ‘Cash Plus’ 836–​37
Byerlee, D. 200 Cassim, R. 457–​58
Byker, T. 747n.9 Castells, M. 761
Bystedt, B. 150 casualization of labour 678–​79
catastrophic health expenditure (CHE) 856,
C 860
Calitz, J. 298, 958n.2 catering and accommodation services 352t,
Campbell, E. 779 901
Canada 470 Cattaneo, N. 459–​60

cattle/​beef sector 27–​28, 29, 33, 38–​39, 200,
202t, 207t, 209, 211, 250–​51
Cell C 558, 560
Census of Commercial Agriculture
(CoCA) 828
Census data 17, 69, 162, 163
Central Bank
banking and finance 993
constrained discretion 976
as creditor of last resort 979
financialization 1023–​24
institutional independence 975
monetary policy 976–​77, 979, 987
see also South African Reserve Bank
(SARB)
Central Chronic Medicine Dispensing and
Distribution programme 858
Central Energy Fund (CEF) 287, 290, 594t
Central Energy Fund (CEF) Act 1977 290
Centre of Excellence in Financial Services 501
Centre for International Development
(CID) 899–​900
Centre for Research into Economics
and Finance in Southern Africa
(CREFSA) 70
Centre for Science, Technology and
Innovation Indicators (CeSTII) 475,
483–​84
Centres of Footwear and Leather Goods
Entrepreneurship 229
cereals 206t, 212f, 212, 224t
barley 225–​26
millet 27, 30, 826
oats 250–​51
rice 211, 213–​14
sorghum 27, 30, 826
wheat 31, 32, 33, 207t, 211, 213–​14, 225–​26,
250–​51, 334
see also maize
CET 431
Chamber of Mines 37
Chami, R. 780
Chancellor House 80
Chant, S. 162
Chasco, C. 904
Chase Manhattan bank 58, 60–​61
Chatterjee, A. 178–​79
Index   1039
chemicals industry 53–​54, 209
agro-​processing 220t
corporate structure, industrial development
and structural change 351–​52, 352t,
353, 357, 358
economic history 1948-​94 51
Fourth Industrial Revolution 498–​99
industrial policy 516, 518t, 520, 521
international trade 444
mining 262–​63
plant protection 209
state-​owned enterprises (SOEs) 578–​79
urbanization and agglomeration 648, 655
Chen, G.C. 591
Chen, M. 757, 758, 760, 762–​63
Cherif, R. 510–​11
Chevron 290
Chicago Board of Exchange (CBOE) Volatility
Index (VIX) 984–​85
Chikanda, A. 779
child maintenance payments 750–​51, 783
Child Support Grant (CSG)
food security and hunger 835, 836–​37
household economics 817
politics and policymaking (1994
onwards) 75
public finance and fiscal policy 936–​37
social security and social development 874,
875, 876t, 877–​78, 881–​82
unemployment 148
Chile 851, 853, 915, 916t, 949–​50
China 4, 5f, 6t, 7f, 8t, 9t, 10f, 12t, 13, 14
economic growth constraints 119–​21
energy and emissions intensity 285f
entrepreneurship and SMMEs 409t, 630–​32
health 854f
industrial policy 511–​12
international trade 442, 454, 455, 458,
460–​61, 462
investment 915, 916t
macroeconomics of economic growth 900n.8
public finance and fiscal policy 942, 944,
949–​50
state-​owned enterprises (SOEs) 576
unemployment 151
value chains and industrial
development 379–​80, 386–​88, 390
1040   Index

Chingumira, G. 236 Clothing and Textiles Competitiveness

Chitiga, M. 160 Programme (CTCP) 227–​28, 387–​88,
Chortareas, G. 922 389, 515, 524
Christie, R. 53–​54 Clover 223
chrome 52, 264–​65, 265f, 266f, 267, 268, 270, coal industry 261, 262–​66, 265f, 266f, 267, 268,
275 269–​70, 272, 273–​75, 279
chromium 268 climate change and green transition 333–​34,
Citibank International (CIBL) 60–​61 340–​41
Cities Support Programme (CSP) 651–​52, 663 corporate structure, industrial development
citrus fruits sector 200–​1, 202t, 207t, 209, 211, and structural change 353–​54, 357, 361
214, 457 economic growth constraints 119
Civil Aviation Authority 568 economic history 1948-​94 55, 58
Clarke 921–​22 energy 284, 285, 296–​97
Clarke, N. 57 energy and climate change 307–​8, 309–​10,
class 3 310t, 318–​19
economic history 1948-​94 49 industrial policy 519–​20
gender factors in labour market 752 international trade 447, 457
inequality 176, 177, 180, 184f, 185, 187 state-​owned enterprises (SOEs) 586, 587,
middle class 68, 93, 183–​84, 185, 188 588f, 592
upper class 93 value chain 261
working class 68 see also coke sector; Kusile power station;
classical economics 482 Medupi power station
see also neo-​classical theory Coalink lines 570
climate change and green transition Coco, A. 977
2C scenario 330, 336, 338 Coega Development Corporation Annual
carbon dioxide emissions 10f, 315–​16, 315f Report 525
energy 284 Coetsee, K. 70
hydroclimate 324–​25, 330 coke sector 220t, 310t, 351–​52, 352t, 498–​99,
low-​carbon economy transition 339–​42 518t
median temperatures 330 collective investment schemes (CISs) 995t
Paris Forever (PF) scenario 330, 333–​34, Collin, M. 962
336, 338 Collinson, M.A. 791–​92
past analysis 326–​29 collusion 403, 543–​44, 546, 610
probabilistic projections of future Colombia 692, 949–​50, 1025–​26
climates 329–​33 Columbus Stainless Steel 454, 520
rainfall distribution 325t Comair 568
regional value chains (RVCs) and Commercial Agriculture Census 201
integration 398, 403–​4 commissions of inquiry 58–​59
runoff 336–​38, 337f, 341–​42 commodity boom 262, 263, 914–​15, 937, 940, 947
water and food systems, impact on commodity cycle 120f
agricultural system 333–​34 Common Market for Eastern and Southern
crop yields 334–​35 Africa (COMESA) 400–​1, 449
irrigation demand 336 Communal Land Rights Act 2004 252
synthesis 338–​39 communications see telecommunications and
water resources 336–​38 communications sector
WMAs 330–​33, 339 Communications Ministry 504
see also energy and climate change community health committees 858

community health workers (CHWs) 853
community and social services sector 352t, 675,
676–​77, 677t, 678, 769, 769f, 770f, 770
Community Survey (CS) 20t, 203–​5
Community Works Programme
(CWP) 685–​87, 701, 702–​3
comparative advantage 452n.9, 511
Compensation for Occupational Injuries and
Diseases Act 772
Competition Act 1998 74–​75, 407, 531, 532, 533,
534, 535, 537, 539, 541, 542, 543–​44, 545,
546, 549–​50, 609
Competition Act 2013 546–​47
Competition Amendment Act 2018 533–​34,
538, 541, 542n.30, 543
Competition Appeal Court (CAC) 533, 536,
538, 539, 540–​41, 542, 544
Competition Authorities 532
Competition Board 533
Competition Commission 533, 536, 537,
540–​41, 543–​44, 545–​48, 549, 550
agriculture 214
health 859–​60
investment 923
network industry regulation 556–​57,
560–​61, 567
politics and economic policymaking 74–​75
regional value chains and integration 400–​1,
403, 407
Competition Commission v Computicket 542
Competition Commission v Pioneer
Fishing 543n.33
Competition Commission v Pioneer
Foods 543n.32
Competition Commission v Sasol 540
Competition Commission v South African
Airways 542–​43
Competition Commission v Telkom 541
Competition and Consumer Protection
Commission 405
competition policy
abuse of dominance 536, 538–​43, 545–​46,
548, 549
administrability 535
behavioural remedies 538
competition advocacy 531–​32, 550
competition laws 531–​34, 550, 551
Index   1041
competition laws -​multiple goals 534–​36
deterrence 544
horizontal and vertical agreements 536,
540n.28, 543–​46, 548
industrial policy 510–​11
inter-​brand competition 544–​45
intra-​brand competition 544–​45
macroeconomics of economic growth 900
minimum resell price maintenance 545n.38
politics and economic policymaking 76
predictability 535
rebates 542–​43
refusing competitor access to essential
facility 539, 541
regulated sectors 549–​50
state-​owned companies 547–​49
structural remedies 538
see also anti-​competitive market power
Competition Tribunal 74–​75, 533, 536,
538n.24, 539, 540–​41, 542–​43, 544,
547–​48, 556–​57, 560
competitive advantage 527
competitive prices 534–​35
Competitiveness Improvement Programmes
(CIP) 387–​88
Comprehensive Africa Agriculture
Development Programme 422–​23
computable general equilibrium (CGE)
model 160
concentration and market power 917–​18,
923–​24
confectionery and bakery products 214, 223,
224, 224t, 235–​36
Conference on Security, Stability,
Development and Cooperation in
Africa 421
Congress of South African Trade Unions
(COSATU) 59
international trade 448
mining and minerals 264
politics and policymaking (1994
onwards) 68, 71, 72, 73, 74
post-​apartheid development trajectory 94,
96, 97–​98, 99, 100
consanguineal system 801
Constitution 116
Bill of Rights 243–​44, 835–​36, 873
1042   Index
Constitution (cont.)
education 707
energy 292
food security and hunger 825, 835
land and agrarian development 245
monetary policy 976
public finance and fiscal policy 936–​37
Constitutional Guidelines for a Democratic
South Africa 70, 242–​43
construction industry
Black Economic Empowerment (BEE) 614
Fourth Industrial Revolution 501–​2
informal economy 769, 769f, 770f, 770
investment 915–​17, 928f
labour market 675, 677t, 677, 684f
macroeconomics of economic growth 895t,
896, 901–​2, 903t
Consultative Business Movement (CBM) 71
Consumer Price Index (CPI) 20t, 150, 554–​55
consumption-​led growth model 982–​83
cooperation structures 73–​75
cooperation traditions 28, 29
Copenhagen Climate Change Conference 318
copper sector 27, 52, 263
Cornes, R. 825
Coronavirus Rapid Mobile (CRAM)
Survey 20t, 751–​52, 830–​31
corporate leniency policy (CLP) 543–​44
corporate social responsibility (CSR) 626–​27,
879–​80
corporate structure, industrial development
and structural change
corporate structure and implications for
structural change 363–​65
importance of structural change and
corporate structure for industrial
development 349–​51
industrial development and structural
change
continuity and change 353–​55
manufacturing and services 351–​53
top 100 companies 355–​56, 365–​69
large firms and structural change 356–​63
finance 358–​59
industrials 356–​58
internationalization 361–​62
policy firm strategy alignment 362–​63
Remgro 360–​61
services, other 359–​60
corruption
Black Economic Empowerment
(BEE) 604, 613–​14
competition policy 550–​51
economic growth constraints 123–​24, 127, 128
energy 293, 295
entrepreneurship and SMMEs 626, 636–​37,
640–​41
health 858
investment 925
land and agrarian development 254, 256
macroeconomics of economic growth 896
network industry regulation 568–​69
politics and policymaking (1994
onwards) 84, 85
post-​apartheid development
trajectory 99–​101, 104
public debt 969–​70
public finance and fiscal policy 949, 952
social security and social
development 880
state-​owned enterprises (SOEs) 589, 590
urbanization and agglomeration 659
value chains and industrial
development 390
youth labour market 702–​3
cost-​plus price 272–​73, 274
Costa Rica 692
cotton sector 207t, 218
Council for Health Service Accreditation of
Southern Africa 851
Council for Medical Schemes
(CMS) 547, 860
Council for Scientific and Industrial Research
(CSIR) 50–​51, 53
Council of Unions of South Africa
(CUSA) 59
counter-​cyclicality 123, 937, 940, 975, 979
Country Bird Holdings (CBH) 403
COVID-​19 pandemic 16
banking and finance 1003, 1004–​05
competition policy 540–​41
economic growth constraints 117n.8,
120–​21
energy and climate change 309
 Index   1043

food security and hunger 823–​24, 830–​31, D

834, 835, 836, 837 Dadam, V. 923–​24, 982
Fourth Industrial Revolution 497, 501, 503, Dai, H. 306
505, 506 dairy sector 202t, 209, 212f, 213–​14, 223, 224,
gender factors in labour market 751–​52 224t
health 861–​62 Damane, A. 505–​6
household economics 817–​18 Dark Fibre Africa (DFA) 557–​58
industrial policy 512 Data Services Market Inquiry (DSMI) 547,
inequality 178, 183, 187 560
informal economy 764 DataFirst 20t
international trade 462 David, A. 163, 181–​82
monetary policy 975, 986, 987 David Jones 362
National State of Disaster (March David Tax Committee 930–​31
2020) 540–​41, 870, 874–​75 Davies, R. 49–​50, 98
post-​apartheid development Davis, M. 314
trajectory 102–​3, 105, 107–​8 De Beers 34, 56, 57, 269–​70
poverty 157, 161, 165, 168, 169 De Gregorio, J. 980
public finance and fiscal policy 935, 949–​52 de Groot, J. 310–​11
regional value chains (RVCs) and De Gruchy, J. 827
integration 400 de Kiewiet, C.W. 49
social security and social development 870, de Klerk, F.W. 62–​63, 66n.1, 960, 964–​66
874–​75, 877, 879–​80, 882 de Kock commission (Commission of
state-​owned enterprises (SOEs) 591 Inquiry into the Monetary System and
Support Package 874–​75 Monetary Policy 58–​59, 1022–​23
Temporary Employer-​Employee Relief de Kocks family 54–​55
Scheme (TERS) 881 de la Rocha, M. 430–​31
value chains and industrial De Soto, H. 759
development 382 De Villiers Commission 567–​68, 586
see also Social Relief of Distress grant De Vletter, F. 779
(SRD) 875, 876t, 877, 880–​81, 882 debt
Creamer, K. 938 crisis (1985) 442n.2
Credit Suisse 178 outlook scenarios 942f
crime 626, 637, 640–​41, 692, 925 rescheduling agreement 58
Crompton, R. 290 service costs 130
cronyism and political connectedness 128–​29, see also public debt
636–​37 decentralization 53, 524, 657
Cross, C. 778–​79 Dedicated Banks Bill 1006
crowding-​in 929–​30 deflation 986
crowding-​out 929–​30 deindustrialization 454, 512–​13, 604, 655, 938,
Crush, J. 792 1025–​26
Crypto Assets Regulatory Working Group see also premature deindustrialization
(CAR WG) 1009 Delany, A. 162–​63
cryptocurrencies 1008–​09 democracy
Customs Tariff and Excise Duties Amendment social 97–​100, 105–​6
Act 1925 444 transition to (1994-​2010) 112, 113f
cyclicality 921 universal 959, 960–​61
see also counter-​cyclicality; pro-​cyclicality Democratic Alliance (DA) 86
1044   Index
Democratic Party (DP) 69–​70
Demographic and Health Survey (DHS) 832
Denel 584, 594t
Department of Agriculture, Forestry and
Fisheries (DAFF) 218
Department of Arts and Culture (DAC) 471,
496–​97
Department of Arts, Culture, Science and
Technology (DACST) 470
Department of Commerce and Industry 42
Department of Communications and Digital
Technology (DCDT) 560
Department of Education 469
Department of Employment and Labour 881
Department of Environmental Affairs
(DEA) 316
Department of Foreign Affairs 425–​26
Department of Health 849, 858, 861
Department of Higher Education and
Training (DHET) 698–​99, 719, 723
Department of Home Affairs 750–​51
Department of Mineral Resources and Energy
(DMRE) 285n.6, 288–​89, 299, 316, 563,
594–​95
Department of Public Enterprises (DPE) 563,
568, 584, 593, 594–​95
Department of Public Works and
Infrastructure 701
Department of Science and Innovation
(DSI) 484
Department of Science and Technology
(DST) 468–​69, 471
Advanced Manufacturing Technology
Strategy 513–​15
Department of Small Business
Development 760, 771
Department of Trade, Industry and
Competition (DTIC) 403–​4, 450
agro-​processing industries 229
Black Economic Empowerment (BEE) 601,
604–​5, 607, 611
entrepreneurship and SMMEs 639
industrial policy 441, 520
informal economy 771
international trade 452n.9
National Industrial Policy Framework 449
SEZ Performance Analysis Bulletin 525
state-​owned enterprises (SOEs) 581
STI, innovation and technological
change 469
Trade Policy and Strategy Framework
(TPSF) 449
value chains and industrial
development 387–​88
Department of Transport (DoT) 570
Department of Transport (DoT), National
Commercial Ports Policy 569
deregulation
agriculture 197
energy 288, 290, 291
financialization 1017–​18, 1026
informal economy 759
land and agrarian development 245
network industry regulation 567–​68
Dermont, C. 505
Desmond, C. 832–​33
devaluation 43, 52, 54–​55
Development Bank of South Africa
(DBSA) 53, 252, 424, 582, 585t, 993
development finance institutions (DFIs) 582,
583f, 584, 594t, 611–​12
developmental state
economic growth constraints 126–​29
economic history 1948-​94 48, 50–​53
network industries regulation 554
politics and policymaking (1994
onwards) 81
post-​apartheid development trajectory 104
state-​owned enterprises (SOEs) 578, 580–​81,
595–​96
Devereux, S. 832
Devey, R. 760–​61, 763
devolution 663
diamond mining 269–​70, 558–​59, 648, 826–​27
competition policy 532–​33
corporate structure, industrial development
and structural change 353–​54, 361
economic growth constraints 113n.3
economic history 1948-​94 52–​53, 56, 57
economic history pre-​1948 33–​34, 38–​39,
43–​44
energy and climate change 317
financialization 1014–​15
Fourth Industrial Revolution 493–​94
 Index   1045

inequality 184 Easterly, W. 956–​58

international trade 443, 457 Eastern Cape
Díaz Pabón, F.A. 708–​9 agriculture 196
Dieden, S. 310 economic history pre-​1948 38
Digital Jobs Fund programme 697 energy and climate change 318–​19
digitalization 8–​9, 296, 300–​1, 365, 500, 501 food security and hunger 826, 834
DIMAMO 785 Fourth Industrial Revolution 496
Director Sentiment report 499 industrial policy 523
Disability Grant (DG) 875, 876t, 877–​78 land and agrarian development 249–​50,
Discovery Health 359–​60, 362, 365, 501, 859 249f
Distell 358 migration and remittances 790, 792
Dlamini, J. 63 poverty 166t
Dlamini-​Zuma, N. 425, 436 social security and social development 875
Domestic Air Transport Policy 568 urbanization and agglomeration 656
domestic work sector 677t, 735, 741, 742, 744, Eastern Cape wars of 1877-​78 and 1881 38
769, 880 Eckstein family 34
Dorbyl 358 Economic Complexity Index 457, 899–​900
Dornbusch, R. 980 Economic Cooperation Promotion Loan
Doshi, R. 634 Fund 425–​26
DPRU 590 economic crisis (1970s) 58–​60
Drazen, A. 957, 963–​64, 968–​69 economic data 16–​19
Dresdner Bank 58 Economic Freedom Fighters (EFF) 83, 253
DSBD Annual Review of Small Businesses and economic growth
Cooperatives 632–​33 agriculture 200
DSSAT model 334–​35 agro-​processing 217–​18, 235
Du Plessi, S. 893, 979 black economic empowerment 601
Du Plessis, C. 493–​94, 495 climate change and green transition 323,
du Plessis commission on trade and industrial 329, 333–​34, 338, 341
policy 58–​59 corporate structure, industrial development
Du Plessis, S. 921, 937 and structural change 358–​59
Du Toit, A. 762, 893 economic history 1948-​94 47–​48, 48t, 50,
dualist school -​survivalists, enterprises and 53, 54–​55, 56, 58, 60–​61, 62, 63
entrepreneurs 758, 759–​61, 762–​63 economic role of South Africa in
Dubresson, A. 586, 587 Africa 424, 427, 430–​31, 437
Dunne, P. 460 education 707
Dutch Disease effect 446, 512–​13, 1025–​26 energy and climate change 305, 306, 309,
Dutch East India Company 31 319
energy sector 284, 294, 299
E entrepreneurship and SMMEs 626, 632–​33,
e-​commerce 500–​1 640
earnings see wages Fourth Industrial Revolution 493, 501
Ease of Doing Business (EDB) index 634 gender and work 740, 752
EaSSY 557–​58 health and healthcare 854–​55
East African Community (EAC) 397, 449 inclusivity 10–​11, 105–​7
East Asia 900n.8 industrial policy 520, 522
East and Southern Africa (ESA) innovation and technological
region 433–​34 change 470–​7 1, 472–​73
1046   Index
economic growth (cont.)
international trade 441, 442, 443–​44, 445–​46,
455, 460, 461
investment 926–​27
labour market dynamics 673, 675, 685–​86, 687
mining and minerals 262, 266
nature of
environmental sustainability 10
innovation 8–​9
investment 7
sectoral composition 7–​8
structural transformation 7–​8
technological upgrading 8–​9
network industries regulation 571
politics and economic policymaking 75t,
75–​78, 81, 82
post-​apartheid economic development 92–​93,
94, 100–​1, 102
poverty 161
public debt 956–​58, 959, 962, 963–​64,
966–​69, 970, 971
public finance and fiscal policy 937, 938,
940, 944, 947, 952
rate 5–​6
rates before and after 1948 48t
social security and social development 869,
873
state-​owned enterprises 589–​90
urbanization and agglomeration 646, 654
value chains and industrial
development 383
youth labour market 691–​92, 693–​94, 702–​3
see also economic growth constraints;
poverty, inequality and
unemployment; macroeconomics of
economic growth
economic growth constraints
apartheid growth model and its
crisis 111–​14
borrowing costs 130–​31
crisis of apartheid (1971-​93) 112, 113f, 113–​14
electricity infrastructure 124
global impacts and global commodity
cycle 118–​22
macroeconomic imbalances and policy
uncertainty constraining growth and
investment 122–​24
persistent low growth (2011-​19) 112, 113f
policy perspectives and overcoming
constraints 129–​32
post-​apartheid constraints and
performance 115
racial and gender exclusion 115–​18
road infrastructure 125
sectoral reforms 131
state capacity and developmental
state 126–​29
telecommunications infrastructure 125–​26
welfare transfers 130
economic history 1948-​94
academic perspectives 48–​50
Afrikaner Revolution (1948) and
Developmental State 50–​53
Anglo American Corporation (AAC) and
the mining industry 56–​58
economic crisis (1970s) 58–​60
international financial pressure (1980s) 60–​61
minerals-​energy complex (MEC) 53–​56
economic history pre-​1948
agricultural responses to expanding
internal markets 38–​41
Bokoni intensive farming terraces
(1500s-​1820) 29–​31
colonialism and racial agrarian order in the
Cape 31–​33
manufacturing and industrial policy
(1900s-​1940s) 41–​43
mineral discoveries 33–​37
pre-​colonial farming communities,
emergence of 27
settlement of interior and dynamics of
economic change (1000s-​1700s) 27–​29
Economic Partnership Agreements
(EPAs) 428
Economic Regulation of Transport (ERT) Bill
2019 570–​7 1
Economic Research on South Africa (EROSA) 70
economic role of South Africa in Africa
economic relations
African Continental Free Trade Area
(AfCFTA) 435–​36
rules of origin 419–​20, 429–​31
SADC Trade Protocol 419–​20, 427–​31,
435–​36, 437

Southern African Customs Union
(SACU) 419–​20, 424, 428–​29, 431–​33,
434, 437
tensions in regional trade relations 427
trade and investment trends 433–​35
political and diplomatic relations 419–​26
‘African Agenda’ 419–​22, 425, 437
African Union (AU) 419–​20, 421, 424–​25,
426, 436
aid provision 425–​26
New Partnership for Africa’s
Development (NEPAD) 419–​20, 421,
422–​23, 424–​25, 436
Economic Strategy for South Africa 217
Economic Trends and Industrial Strategy
Research Groups 70
education 12, 14
academic performance and
inequality 719–​23
inequality across schools 720–​21
performance differentials 721–​22
post-​secondary access and
performance 722–​23
standardized test performance 720
age 728
attainment trends and inequality 711–​16
enrolment, grade advancement and
grade repetition 714–​16
Bantu 94
Black Economic Empowerment
(BEE) 615–​17
class 708–​9
completion rates 723
compulsory education 708n.3, 709, 717
dropping out 714, 723
early childhood development (ECD) 721,
729–​30
economic growth constraints 118
economic history 1948-​94 55–​56
employment earnings and inequality 724–​28
education and earnings 727–​28
relationship between education and
employment 724–​26
working-​age population and education
distribution 724
energy and climate change 314–​15
enrolment rate 708
Index   1047
entrepreneurship and SMMEs 635, 638
free higher education 85
funding 717–​19, 729–​30
gender factors 711, 716, 723, 725, 728,
737–​38, 747
health 845
higher education 708
household economics 808
income 730
inequality 181, 185, 729–​30
informal economy 764
investment 925
language policy 729
literacy 729
macroeconomics of economic
growth 896–​97, 906
matric examinations 709–​10
migration and remittances 778–​79, 790–​91,
792, 794
monetary policy 985
national education budget 718
numeracy 729
post-​secondary education 707–​8, 709–​10,
714–​18, 728, 729–​30
completion 713f, 713, 717f
pre-​primary education 721
primary education 717–​18, 722
provision of 709–​10
general and further education training
qualifications 709–​10
higher education qualifications 710
occupational qualifications 710
public debt 957, 958–​59, 962, 966–​68, 969, 970
public finance and fiscal policy 944
race 708–​9, 711, 714, 723, 726, 730
return to 681–​82, 687
secondary education 712–​13, 712f, 714–​16,
717–​18, 722
social security and social development 878
socio-​economic factors 714, 723
STI, innovation and technological
change 469–​70, 472, 478
teacher subject matter and pedagogical
knowledge 721–​22
unemployment 138t, 141
years of education 711f
youth labour market 690, 694–​95
1048   Index
Edwards, L. 352–​53n.1, 450, 451–​52, 457–​58,
459–​61
Edwards, S. 980
efficiency wage theories 147
Egypt 409t, 630–​32, 854f
El Ganainy, A. 959
Electricity Act 1922 317, 562
Electricity Act 2006 586
Electricity Distribution Industry Holdings
(EDI) 292
Electricity Pricing Policy 563
electricity sector 283, 286, 292, 294, 296, 299,
301
climate change and green
transition 340–​42
corporate structure, industrial development
and structural change 357
economic growth constraints 120, 121–​22,
129–​30, 131
economic history 1948-​94 53–​54
energy and climate change 307–​8, 310t,
310–​14, 311f, 313f, 317–​18, 319
Fourth Industrial Revolution 496
illegal connections 313
industrial policy 517–​20, 522, 526
infrastructure 124
investment 915, 921–​22, 925, 930
labour market 684f
markets 292–​95
mining and minerals 262f, 267, 274, 277
post-​apartheid development
trajectory 101–​2
prices 267, 273, 564f
remuneration 278
see also Eskom; load-​shedding (rolling
blackouts); under network industry
regulation; utilities sector (electricity,
gas and water)
Electricity Supply Commission see Eskom
Electronic Communications Act
(ECA) 557–​59, 560
electronic communications network services
(ECNS) licence 557–​58
Electronic Communications and Transitions
Act 2002 500–​1
‘elephant consortium’ 80
embedded autonomy 129, 131–​32
employment
agriculture 208–​9
agro-​processing 217–​18, 219, 221f, 221–​23,
222f, 226–​27, 227t, 231–​34, 232f, 233t, 236
Black Economic Empowerment (BEE) 616
economic growth constraints 117f, 119, 131
elasticity 141–​42
energy and climate change 309–​10, 310t
entrepreneurship and SMMEs 632
industrial policy 517, 518t
inequality 177, 184–​85
intensity and output growth
potential 901–​2
international trade 458, 459t, 459–​60
investment 927
labour market 676f
leather and leather products 229, 229t
macroeconomics of economic growth 892,
894f
migration and remittances 778–​79
mining and minerals 261, 265, 266, 279
monetary policy 976
post-​apartheid development
trajectory 102–​3
programmes linked to infrastructure
investment 130
protection legislation 147–​48
sectoral shares 143t
wood, wood products and furniture 230,
231t
see also Growth, Employment and
Redistribution Strategy (GEAR);
under labour market; self-​employment
Employment Compound Annual Growth
Rate (CAGR) 226
Employment Conditions Commission 772
Employment of Educators Act 1998 708
Employment Equity Act (EEA) 164, 735, 746
employment subsidies, private sector 700–​1
Employment Tax Incentive (ETI) 685–​86,
687, 700–​1
energy
consumption per capita and GDP per
capita 307f
demand 285
electricity markets 292–​95
emerging generation technologies 300

emissions intensity 285f
free carry 287
future tranches of capacity 295–​301
additional capacity from energy-​
efficiency measures 300–​1
liquid fuels 297–​98
natural gas 298
power-​generating capacity 298–​300
intensity 285
investment 928f
ladder 314
market-​orientation 296–​97, 300, 301
natural gas markets 291
path dependence 296–​97
petroleum markets -​downstream 286–​91
policy landscape 286
politics and policymaking (1994
onwards) 85–​86
power-​generating capacity 298–​300
smart technologies 300–​1
state-​owned enterprises (SOEs) 578–​79
transitions 295–​97
value chains and industrial
development 375
see also energy and climate change;
minerals-​energy complex (MEC)
energy availability factor (EAF) 295, 298,
564–​65
energy and climate change
economic perspective 306, 307–​12
environmental perspective 306, 315–​16
greenhouse gas (GHG) emissions 315, 318,
324, 329, 335
primary energy shares 308f
social perspective 306, 312–​15
transition 316–​19
Energy Policy White Paper (1998) 286, 287,
288–​89, 291, 292, 293–​94, 295, 297,
300, 301
engineering industries 357, 358, 648, 657
entrepreneurship and small, medium and
micro enterprises (SMMEs)
alternative perspectives 626–​27
conceptualization 624–​25
contribution of SMMEs to GDP 632–​33
demographic factors of SMME
owners 629–​30
Index   1049
age 629
gender 630
early-​stage total entrepreneurial activity
(TEA) 631t
employment provided by SMMEs 632
enabling environment 634
entrepreneurial ecosystem 634–​39
downstream linkages 638
education 635
enabling 638–​39
finance, access to 635
individuals 638
institutions 638
inter-​firm linkages 638
markets, access to 636
organizations 638
regulatory and political environment 637
structural factors 638
support networks, access to 636–​37
technology, access to 636
upstream linkages 638
established business ownership 630–​32, 631t
formal vs informal SMMEs 628–​29
gender factors in labour market 741–​42
high-​growth entrepreneurship vs.
replicative entrepreneurship 626
informal economy 759–​60
local vs systemic entrepreneurship 626
markets, access to 636
micro-​entrepreneurs 760
nascent entrepreneurship 630–​32, 631t, 640
new business ownership rate 630–​32, 631t
number of SMMEs 628
opportunity-​motivated vs. necessity-​driven
entrepreneurship 626
policy critique and future
considerations 639–​41
productive vs. unproductive
entrepreneurship 626
SMME sectors and geographic location 630
social entrepreneurship 626–​27
state-​sponsored entrepreneurship 640
support networks, access to 636–​37
sustainable or green entrepreneurship 627
total annual turnover 624–​25
types of entrepreneurial activity
(TEA) 630–​32
1050   Index
entrepreneurship and small, medium and
micro enterprises (SMMEs) (cont.)
typologies of entrepreneurial
activity 625–​26
Epstein, G. 150
equivalence scales 183
Erten, B. 151, 461
ESD 607, 614
Esitel 557
Eskom 586–​89
Black Economic Empowerment
(BEE) 613–​14
climate change and green transition 340–​41
economic growth constraints 124, 129
economic history 1948-​94 50–​51, 55, 57, 62–​63
energy 283, 292, 293–​95, 298, 299, 301
energy and climate change 312, 313, 317, 318
Fourth Industrial Revolution 494
industrial policy 519–​20
international trade 444, 454
investment 922–​23
macroeconomics of economic growth 896
mining and minerals 267, 272, 273–​74,
275–​76
network industry regulation 557, 561–​65,
566–​67
politics and policymaking (1994
onwards) 77, 80, 84
post-​apartheid development trajectory 104
public finance and fiscal policy 942–​43,
948–​49
state-​owned enterprises (SOEs) 578–​79,
580, 582, 584, 585, 592, 593, 594–​95, 594t
see also Kusile power station; load-​shedding
(rolling blackouts); Medupi power station
Eskom Just Energy Transition Office 341
Eskom Roadmap 293, 294–​95, 300
Espi, G. 164
Essa, S. 590
Essers, D. 762
Essex, S. 310–​11
Eswatini 854f, 856f
Europe 212, 435–​36, 539n.25
European Free Trade Association (EFTA) free
trade agreement 448
European Union 211–​12, 383–​84, 449, 455–​56,
534, 924
European Union-​South Africa Trade
and Development Cooperation
Agreement 428
European Union-​South African Economic
Partnership Agreement 382–​83
European Union-​Southern African
Development Community (SADC)
Economic Partnership Agreement
(EPA) 432, 433, 437
excessive pricing 539–​41, 556–​57
exchange rate 974, 976, 977, 983, 984, 1023, 1025
exclusionary conduct 539, 542, 548, 610
Expanded Public Works Programme
(EPWP) 685–​87, 701, 702–​3
Export Trading Group (ETG) 360–​61
export-​driven growth see under
macroeconomics of economic growth
agriculture 198, 210–​11, 211t, 212f, 212
competitiveness 349–​50
composition of 433f, 445t
concentration and complexity 453t
industrial policy 516, 526
intra-​African 396–​97
mining and minerals 262–​63
orientation 510–​11
processed food and beverage sector 225–​26
promotion 130
urbanization and agglomeration 655–​56
wood, wood products and furniture 230–​31
expropriation without compensation
(EWC) 252–​53
extended kinship system 801
external shocks 974, 978, 979–​78, 980, 981
see also global financial crisis (2007/​08)
Exxaro 270, 357
F
fabricated products sector 498–​99, 920
Facebook 504–​5
Falkena, H. 999b
family-​controlled conglomerates 364
Farmer Support Programmes 252
Farrar, G. 34
Farrell, G. 54
FAW (China) 525
Fedderke, J. 460–​61, 483, 892–​93, 896, 900,
905, 906, 920, 921, 924, 930

Federal Mogul Aftermarket Southern Africa v
Competition Commission 545n.38
Federale Mynbou (Fedmyn) 57
Federated Chamber of Industries (FCI) 42–​43
Federation of South African Trade Unions
(FOSATU) 59
Federation of Unions of South Africa
(FEDUSA) 68
Feinstein, C. 37, 50, 577
female-​headed households 13, 877
household economics 803, 804t, 807f, 811–​12,
813–​14, 815–​17, 816t, 818–​19
inequality 182, 185
poverty 157, 161, 162, 169
femininization of labour force 736, 737–​38,
742, 778–​79
ferroalloys sector 264–​66, 267, 268, 520
fertility rates 737–​38, 808
fertilizer sector 206t, 209, 400–​1
FGT measure (Foster, Greer and
Thorbecke) 158–​59
finance see banking and finance
Financial Advisory and Intermediary Services
Act 2002 997–​98
financial auxiliaries 994, 995t
financial deepening hypothesis 1013
Financial Intelligence Centre (FIC) 994n.2
financial intermediaries 993–​1010, 995t, 997f,
999b
Financial Intermediaries Services Indirectly
Measured (FISIM) 999b
financial market infrastructure (FMI) 994,
995t, 1007
Financial Sector Conduct Authority
(FSCA) 1004, 1006
Financial Sector Regulation (FSR) Act
2017 1006
financial services 355, 364–​65, 656–​57, 684f,
923, 928, 928f
Financial Services Board (FSB) 1003
Financial Stability Review 997–​98, 1004–​05
financialization
Black Economic Empowerment
(BEE) 604
changing financial sector 1017–​19
corporate structure, industrial development
and structural change 355
Index   1051
households and financialization of everyday
life 1019–​22
international integration and cross-​border
flows 1024–​26
liberalization 1022–​24
private sector credit 1020
shareholder value (SHV) and non-​financial
companies (NFC) 1014–​17
urbanization and agglomeration 656
Fine, B. 53–​54, 62, 118, 284n.4, 444, 578–​79,
580
Finn, A. 163, 183–​84, 186
FinTech 1008–​09
First Boer War (1880-​81) 38
FirstRand (FNB) 355–​56, 994, 1005, 1018–​19
fiscal policy see public finance and fiscal policy
Fischer, J.H. 780
Fitch 937, 940
Flatters, F. 429
FliteStar 568
Floor, W.M. 314
Food and Agriculture Organization
(FAO) 218, 823, 831
food and beverage sector 211, 212f, 212, 218,
221–​26, 224t, 232–​34, 233t, 518t
corporate structure, industrial development
and structural change 353, 358
Fourth Industrial Revolution 498–​99
regional value chains (RVCs) and
integration 413
see also alcoholic beverages sector
Food Poverty Line (FPL) 828, 829
Food Pricing Monitoring Committee
(FPMC) 213
food sector 351–​52, 352t, 357, 412, 516t, 518t
see also food and beverage sector; processed
food sector
food security and hunger
accessibility 824–​25, 829–​31
availability 824–​25, 827–​29
climate change and green transition 333–​34
definition of food and nutrition
security 824–​25
dietary energy supply 828f
‘Double Duty’ interventions 837
drought 834
exclusion 825
1052   Index
food security and hunger (cont.)
gender factors 830
malnutrition 168–​69, 824, 827, 833, 837, 845,
848, 877–​78, 881–​82
micronutrient deficiencies 824, 833, 837
non-​rival or non-​excludable 825
pre-​colonial, colonial and apartheid
era 826–​27
private good 825
public good 825
rivalrous and exclusive food 825
self-​assessed hunger 829–​31, 830f
solutions 835–​37
stability 824–​25, 834–​35
stunting 823, 827, 832–​33, 862
undernutrition 824, 832f, 837
underweight 832, 833
utilization 824–​25, 831–​33
wasting 832, 837
food system see under climate change and
green transition
footwear industry 41–​42, 221–​22, 228–​29, 232,
518t, 522
Ford 41–​42, 378–​79
foreign direct investment (FDI)
corporate structure, industrial development
and structural change 355
economic role of South Africa in Africa 435
industrial policy 512, 522
international trade 455
investment 923n.7, 927
regional value chains (RVCs) and
integration 396, 400–​1, 408, 413, 414–​15
unemployment 150–​51
value chains and industrial
development 391
see also under macroeconomics of
economic growth
former Bantustans 160–​61, 252, 254, 523–​24,
525, 777
Foskor 51
fossil fuels 307–​8, 315–​16, 315f, 319, 324, 340
see also coal industry; natural gas industry;
oil industry
Foster-​McGregor, N. 376
Foundation for African Business and
Consumer Services (FABCOS) 67–​68
Foundation for Research and Development 475
Fournier, J.-​M. 904
Fourth Industrial Revolution 8–​9, 284,
295–​96
3D printing (additive manufacturing) 489,
491–​92, 504–​5
artificial intelligence (AI) 489, 491–​92, 493,
496, 497–​98, 501, 503, 504–​5
automation 497, 499, 501–​2, 505
banking 501
Big Data 491–​92, 500, 504–​5
blockchain 491–​92, 493, 500, 503, 504–​5
construction 501–​2
cryptocurrencies 1008–​09
digitalization 8–​9, 296, 300–​1, 365, 500, 501
e-​commerce 500–​1
industrial maturity 498–​99
Internet of Things (IoT) 491–​92, 500, 504–​5
machine learning (ML) 491–​92, 497–​98
mining 502
natural language processing (NLP) 491–​92
peer country analysis 505–​6
policy imperatives and fiscus: government
involvement 502–​3
Presidential Commission on the Fourth
Industrial Revolution (PC 4IR)
recommendations and hurdles 503–​5
robotics 8–​9, 489, 491–​92, 501–​2
sectoral analysis 499–​500
virtual/​augmented reality 503
wages 496–​98
Fourth Industrial Revolution Strategy
Implementation Coordination
Council 503
Fowkes, D. 893, 939
Frame, P. 60
Frame Textile Group 60
France 50, 1008
Frascati Manual 475
Fredericks, F. 163–​64
Free Basic Electricity (FBE) programme 311–​12
Free State 166t, 249f, 265–​66, 317, 790, 875
Free Trade Area (FTA) 410–​11, 428, 429,
430–​31, 448
Freedom Charter 1955 873
Freedom Front 69–​70
Freeman, C. 482, 925–​26
 Index   1053

Freund, B. 54 Gencor (General Mining and Finance

Frey, C.B. 505 Corporation) 51, 53, 57, 363
Friedman, M. 49 gender factors 3, 11, 13, 14–​15
fruit sector 202t, 207t, 209, 211, 212f, 212, 214, Black Economic Empowerment (BEE) 615
250–​51, 457 entrepreneurship and SMMEs 630
agro-​processing 218–​19, 223, 224t, 224, exclusion 115–​18
225–​26 food security and hunger 829, 830
see also citrus fruits sector health 844
Fruit and Veg City (Food Lovers’ Market) 406 household economics 803, 817
FSCA 994 inequality 176, 177, 180, 181, 182, 187
full-​time equivalent (FTE) 478, 624–​25, 853 informal economy 757, 763–​64, 765–​68,
Funda Wande: Teaching Reading for Meaning 765f, 766f, 767f, 768f, 769f, 770f, 770–​7 1
project 721–​22 land and agrarian development 249–​50
furniture industry 221–​22, 518t, 522 migration and remittances 778–​79, 782–​84,
see also wood, wood products and furniture 784f, 785–​88, 786f, 787f, 789–​90, 794–​95
Further Education and Training Act 1998 708 social security and social
development 869–​70, 877, 878
G STI, innovation and technological
Gaddafi, M. 425 change 471, 480
Galí, J. 982, 986–​87 unemployment 137, 138t
Gallup World Poll 742n.6 youth labour market 691
Gama, S. 590 see also gender factors in labour market
Game (Masmart/​Walmart) 406 gender factors in labour market
Gandidzanwa, C. 210 childcare constraints 740–​41, 751–​52
Garch uncertainty measures 921 Covid-​19 pandemic 751–​52
Garg, A. 306 earnings 744–​47
Gas Act 2001 291 education 747
Gaunt, T. 314 elementary occupations 744
Gauteng family commitments 746
agro-​processing 223–​24 femininization of labour force 736, 737–​38,
climate change and green transition 341 742
economic growth constraints 125 high-​skilled work 744
entrepreneurship and SMMEs 630 household labour and unpaid care
financialization 1020–​21 work 746, 747–​51, 752
health 850, 858 low-​skilled work 742, 744, 752
land and agrarian development 249f ‘motherhood penalty’ 747
migration and remittances 790 occupational segregation 742–​44
mining and minerals 266 part-​time work 747n.8
poverty 160–​61, 163, 166t professional occupations 744, 746
social security and social development 875 tertiary educated workers 744–​45
urbanization and agglomeration 648–​49, trends in participation and
654, 656, 657–​58, 660–​61 employment 737–​42
Gauteng City-​Region Observatory Quality of unemployment 738–​41, 740f, 752
Life Survey 20t, 162 work/​family balance 742n.6
Gauteng Freeway Improvement Project 662 gender-​based violence 742n.6, 882–​83
Gbadegesin, T.F. 162 General Agreement on Tariffs and Trade
Gelb, S. 50, 61, 102 (GATT) 71–​72, 151, 430, 447–​48
1054   Index
General Export Incentive Scheme
(GEIS) 446–​47
General Household Survey 20t, 160–​61, 496,
803, 815, 830–​31, 880
General Motors (GM) 41–​42, 385
general unrestricted model
(GUM) 906–​7n.12
general-​to-​specific (GETS) procedure 904–​5,
906, 908
Generalized System of Preferences 449
geographical diversification 455–​56
Germany 285f, 502–​3, 692, 703, 1008
Gerwel, H. 901
Ghaddafi, M. 81–​82
GHG (hospital group) 362
‘gig economy’ 770
Gigaba, M. 84, 100–​1, 590
Gilliomee, H. 57, 63
Gini coefficient
energy and climate change 313
inequality 176–​77, 178–​79
international trade 461
public debt 956
public finance and fiscal policy 948
social security and social development 870,
877
Glen Grey Act (1894) 39
Glencore 270, 290, 291, 356n.4, 361
Glencore Merafe 270
Global Competitiveness Index (GCI) 634
Global Entrepreneurship and Development
Institute (GEDI) 634
Global Entrepreneurship Monitor
(GEM) 625, 626, 629–​30, 634, 635,
741–​42
global financial crisis (2007/​08) 6
banking and finance 999b, 1002, 1007
economic growth constraints 119, 120–​21,
122, 123–​24
financialization 1021–​22
food security and hunger 829–​30
industrial policy 517
informal economy 762, 765, 767, 770–​7 1
land and agrarian development 250
migration and remittances 784
monetary policy 974–​75, 977, 981, 983
politics and economic policymaking 82–​85
public finance and fiscal policy 937, 938,
940, 951
unemployment 137
youth labour market 693
global food crisis (2007-​9) 825, 829–​30, 834
Global Food Security Index (Economist) 824
Global Hunger Index (GHI) 823
global impacts and global commodity
cycle 118–​22
Global Nutrition Report (GNR) 823
Global Performance Indicators (GPIs) 634
Global Production Networks (GPN) 399–​400
global value chains (GVCs) 397–​98, 399–​401,
412–​13, 414, 442
global value chains (GVCs) and industrial
development
automotive industry 377–​85, 391, 392
clothing and textiles industry 377, 378,
385–​91, 392
downstream production 376, 377
low value added 376
upstream location 376
globalization 62–​63, 388, 512, 513
Goga, S. 164
Going Concern status 294
Gold Fields 269–​70, 502
gold mining 264–​65, 265f, 266f, 266, 267, 268,
269–​70, 279
competition policy 532–​33
corporate structure, industrial development
and structural change 353–​54, 361
economic growth constraints 119
economic history 1948-​94 50–​52, 55, 56–​57,
58, 61, 62–​63
economic history pre-​1948 33–​34, 35–​37,
43–​44
energy and climate change 317
financialization 1014–​15
Fourth Industrial Revolution 493–​94, 502
international trade 443–​44, 445t, 445–​46,
451, 452n.9, 457
politics and policymaking (1994
onwards) 72
Goldberg, G.S. 170
Goldfields 55, 269–​70, 356n.4
Goldman Sachs Group 294
Golichenko, O. 481
 Index   1055

Gonzalez-​Eguino, M. 310–​11 economic role of South Africa in Africa 432

Google 492, 504–​5 education 718
Gordhan, P. 98, 100–​1 energy 284, 285f
Governance, Public Safety and Justice energy and climate change 307, 309
Survey 850 entrepreneurship and SMMEs 638
government debt see public debt financialization 1016, 1017–​18, 1018f,
Government Employees Medical Scheme 859 1020–​21, 1025
Government Employees Pension Fund Fourth Industrial Revolution 492, 498–​99,
(GEPF) 582 500, 505–​6
government expenditure 962f gender factors in labour market 742n.6
government grants and subsidies 178 growth and GDP per capita 92–​93, 92f
government guarantee exposure 585t health 844, 853–​54
Government of National Unity 69 industrial policy 510, 512–​13
government services 352t international trade 441, 442, 443, 444–​46,
Gqubule, D. 603 451, 454n.10
Graduate Development Programme investment 913–​15, 914f, 916t, 919f, 921,
(GDP) 700 930, 931
Graham, L. 695–​96 labour market 675, 679
grain mill sector (including starches and macroeconomics of economic
animal feed) 223, 224t, 235–​36 growth 891–​93, 894f, 897–​99, 904–​6,
grants-​in-​aid 876t 907–​8, 910
Great Depression 34, 40 mining and minerals 261–​62, 263f, 263–​64,
Great Trek (1938) 47 265f, 266, 275–​76
Greece 692 monetary policy 981, 984–​85, 986
Green Accords 341 politics and policymaking (1994
Green Economy Barometer 341 onwards) 82, 83f
Green Economy Inventory 341 post-​apartheid development trajectory 94,
green energy complex 129 95, 96, 97, 98, 102–​3
Green Paper on Rail Policy (2011) 570 public debt 957, 959, 960–​61, 963, 966
green transition see climate change and green public finance and fiscal policy 936–​37, 938,
transition 939, 940–​43, 944–​47, 949–​50, 951, 952
Greenpeace 62 sectoral composition 8t
Grimbeek, S. 537n.20, 543 social security and social development 870,
Grindrod 360–​61 874–​75, 880
Grocery Retail Market Inquiry state-​owned enterprises (SOEs) 576, 580, 582
(GRMI) 407–​8 STI, innovation and technological
gross domestic expenditure on R&D change 475, 483
(GERD) 475–​76, 476f gross fixed capital formation (GFCF) 7f, 583
gross domestic product (GDP) 5f, 6t, 9t, 10–​11 gross national income (GNI) 178–​79
agriculture 201 gross value added (GVA) 389, 444–​45, 895t,
banking and finance 997–​1002, 999b 898–​99, 901–​2, 903t
climate change and green transition 328–​29, Group Areas Act -​Section 10 801
333–​34, 340 Group of Eight (G8) countries 422, 423, 436
corporate structure, industrial development Africa Action Plan 423
and structural change 351, 355 Group of Twenty (G 20) countries 423,
economic growth constraints 112, 113f, 114, 960–​61
118, 118n.9, 119, 120f, 120, 122, 122f, 123, 127 Growth and Development Plans 836
1056   Index

Growth, Employment and Redistribution Hazel Tau settlement 540–​41

Strategy (GEAR) health
Black Economic Empowerment (BEE) 601 alcohol abuse 845–​47, 849
international trade 448, 462 anaemia 823, 831
land and agrarian development 244 Black Economic Empowerment (BEE) 615–​16
macroeconomics of economic catastrophic health expenditure
growth 897–​98, 901, 904 (CHE) 856, 860
and Mbeki project 94–​97 communicable diseases 846
politics and economic policymaking 74, Competition Commission Health Market
75, 77, 81 Inquiry 859–​60
post-​apartheid development trajectory 93, defensive medicine 857
99–​100, 107 diabetes 823, 835, 849
state-​owned enterprises (SOEs) 580, diarrhoea 845
595–​96 dietary diversity scores (DDS) 831–​32
STI, innovation and technological doctors, nurses and community health
change 470–​7 1 workers 852–​53
Growthpoint Properties 359 economic history 1948-​94 55
Guajardo, J. 985 government budgets, medical schemes and
Gumede, V. 165 out-​of-​pocket expenditure 853–​56,
Gupta family 84, 100–​1, 581, 590, 939–​40 854f, 856f
Gustafsson, M. 720–​21 health insurance 855
health promotion 852
H healthcare provision, polarized and
Hagen-​Zanker, J. 780, 872 ineffective 850–​53
Hall, G.J. 956–​58 historical background 845–​46
Hall, S. 28 hypertension 849
Halsnaes, K. 306 immunity to disease, reduced 844
Hamilton, J. 904 incentives and accountability 856–​59
Hantrais, L. 503 life expectancy 102, 844, 846
Hanuch, M. 937 mental health 692–​93, 849
Hanushek, E. 896–​97 mortality 102, 814, 817, 844, 845–​47, 847f,
Harambee Youth Employment Accelerator 697 849, 850, 858, 861–​62
Harare Declaration 70 National Health Insurance (NHI) 860–​61
Harmonized System (HS) 452 non-​communicable diseases (NCDs) 823,
Harmony 270 832, 835, 837, 846, 847f, 849
Harmony Gold vs. Mittal 540 overweight and obesity 823, 824, 833, 837,
Hart, K. 56, 576–​77, 757, 758 845–​46
Hartogh, T. 389 paediatric illnesses 844
Hasanov, F. 510–​11 pellagra 827
Hassan, S. 984–​85 post-​apartheid development trajectory 102
Hasson, R. 923–​24 private sector 858–​59
Hatch, M. 750 public debt 957, 958–​59, 962, 963, 966–​68,
Hatton, T.J. 779–​80 969, 970
Hausmann, R. 456–​57, 899–​900, 901, 902, public finance and fiscal policy 944
906, 923–​24 public hospital, private hospitals and primary
Havenga, K. 54–​55 healthcare 851–​52, 852f, 853–​55, 856–​58,
Hayek, F.A. 49, 971 859–​60
 Index   1057

substance abuse 845, 882–​83 female-​dominated household 803, 804t,

tuberculosis 844, 846, 847–​48, 847f, 855 807f, 811–​12, 813–​14, 815–​17, 816t,
typhoid fever 845 818–​19
violence, injuries and accidents 846, 850 financialization of everyday life 1019–​22
Vitamin A supplementation gender differences 803, 817
programme 831, 835 household formation and union
see also COVID-​19 pandemic; food security formation 801–​2, 804t, 809–​11
and hunger; HIV/​AIDS household size and composition 180–​405
Health and Demographic Surveillance household types and economic
Systems (HDSS) 20t, 777–​78, 781–​83, wellbeing 814–​18, 816t
788, 789–​90 living arrangements of children 803, 813–​14
Health Ombudsman 858 male-​dominated households 162, 185n.10,
Health Professions Council 858, 859–​60 800–​1, 804t, 807f, 811–​12, 813–​14, 815–​
healthcare groups 355 17, 816t, 818, 819
Healthcare Market Inquiry 547 mixed households without co-​resident
heavy industry 515–​21 couple 803, 804t, 812–​13, 815–​17, 816t,
Heintz, J. 150, 763 818
Hendry, D. 904–​5, 906 non-​resident members 803
Hertzog, B. 42–​43, 56 number, size and composition of
Het Volk/​South African Party (SAP) 36–​37 households 803–​8, 804t
Hidalgo, C.A. 456–​57 single-​person households 808, 812, 819
Highveld 28, 35 stretched households (non-​resident
Hino, H. 180 member) 804t, 809, 812, 814
Hirsch, A. 91–​92, 102, 104, 116, 494–​95, 498–​99 union formation 804t
Hirschman, A. 54 Household Food Insecurity Access Scale
Hisense (China) 525 (HFIAS) 830
Historical Public Debt Database (HPDD) 959 household labour and unpaid care work 746,
Hitachi Power Systems 80 747–​51, 752
HIV/​AIDS 81–​82, 98, 102, 540–​41, 814, 833, housing 658–​61
844, 846–​47, 847f, 848, 855 backyard rental housing 660–​61
Hochfeld, T. 878 bubbles 1019
Hodge, D. 979 house price inflation 1020–​21, 1021t
homelands 802, 827, 845, 848 market 1022
see also Bantustans mass housing programme
Honey Care Africa 627 (government) 659–​60
horizontal agreements 536, 540n.28, 543–​46, 548 post-​apartheid development
horticulture 197, 198, 201t, 206t, 207, 209, 211, trajectory 101–​2
250–​51, 457 projects 55–​56
Horton, M. 959 Howitt, P. 896, 900
hotels and restaurants sector 895t, 896, 903t Huawei 492
Houghton, D.H. 47–​48, 49 Huber, M. 313
household economics human capital
agnatic idiom 801 entrepreneurship and SMMEs 635
children’s co-​residence with biological Fourth Industrial Revolution 503
parents 804t, 807f, 818 investment 896–​97
co-​resident (heterosexual) couple 803, macroeconomics of economic
804t, 807f, 813–​14, 815–​17, 816t, 818 growth 896–​97, 899, 906
1058   Index

human capital (cont.) labour’s share in 892–​93

migration and remittances 790–​92
public debt 958, 962–​63, 966–​68, 969
STI, innovation and technological
change 480
unemployment 141
see also education; health
Human Capital Index 962
Human Resources for Health plan 858
Human Sciences Research Council
(HSRC) 19, 475
Humanitarian Food Assistance 837
Hundenborn, J. 177, 182
hunger see food security and hunger
hydrocarbons 296–​97
hydroclimate 324–​25, 330
hydropower 341–​42
hyperinflation 982–​83
hysteresis effect 978, 980
I 549, 555–​56, 557–​59, 560–​61
IBM 492
Illovo 358
Imerys South Africa 536
impact investors 627
Impala Plats 356n.4
imperfectly competitive pricing 892–​93
Imperial 358
Import Substitution Industrialization
(ISI) 52–​53, 54, 283, 284, 287, 297
energy sector 283, 284, 287, 297
international trade 444
regional value chains (RVCs) and
integration 403–​4
value chains and industrial
development 378–​79, 386, 387
imports 516, 516t, 897–​98
agriculture 211t, 211
agro-​processing 236
composition of 434f
Impulse Indicator Saturation (IIS) 906–​7n.12
Inclining Block Tariff System (IBTS) 312
inclusive development and economic
growth 105–​7
inclusive growth 127–​28, 131
income 3–​4, 6
inequality 176–​79
mining and minerals 279
politics and policymaking (1994
onwards) 75t
post-​apartheid development trajectory 101,
105
poverty 159, 165
public debt 957, 958, 959, 960–​61, 962f
source decompositions 178
top-​end 178–​79
see also National Income Dynamics Study
(NIDS)
Income and Expenditure Survey (IES) 17, 20t,
176–​77
Income Tax Act 299
incorporation, adverse 762
incremental capital output ratio (ICOR) 939
Independent Broadcasting Authority 555
Independent Communications Authority of
South Africa (ICASA) 499, 547, 548,
Independent Communications Authority of
South Africa (ICASA) Act 2006 557
Independent Power Producers (IPP) 290, 292,
294, 298, 299–​300, 548, 554, 565, 567, 583
Independent Power Producers Procurement
Office (IPPO) 292
Independent Systems and Market Operator
(private) Bill 567
Index of Economic Freedom 634
India 4, 5f, 6t, 7f, 8t, 9t, 10t, 12t, 13
energy and emissions intensity 285f
entrepreneurship and SMMEs 409t,
630–​32
international trade 449
investment 915, 916t
public finance and fiscal policy 942, 949–​50
Indian Affairs Department 55–​56
Indonesia 916t, 944
Industrial Board 42
industrial development see corporate structure,
industrial development and structural
change; global value chains (GVCs) and
industrial development; manufacturing
Industrial Development Corporation
(IDC) 50–​51, 54–​55
agro-​processing 227–​28

Black Economic Empowerment
(BEE) 611–​12
economic role of South Africa in
Africa 424
industrial policy 520
international trade 454
mining and minerals 267
state-​owned enterprises (SOEs) 578–​79,
582, 594t
value chains and industrial
development 389
industrial development zones (IDZs) 515,
524–​25
industrial maturity 498–​99
industrial policy
1900s-​1940s 41–​43
automotive sector 521–​22
chronology 514t
evolution of 513–​15
heavy industry 515–​21
international context 511–​13
masterplans 515
regional policies and special economic
zones (SEZs) 524–​25
role 525–​27
textiles and clothing 522–​24
see also under mining and minerals
Industrial Policy Action Plans (IPAPs) 98, 217,
218, 515, 517, 927n.9
industrial relations bargaining trap 388
Industrial Revolution 490–​91
‘Industrial Strategy Project’ report 71, 94
industrialization 579, 649
see also Import Substitution
Industrialization (ISI)
industrials 356–​58
inequality
categorical inequalities and household
composition 180–​83, 185
comparator economies 12t
contradictory approaches 100–​1
demographic changes 184–​85
economic inequality 176
entrepreneurship and SMMEs 638, 639
financialization 1022
food security and hunger 824–​25
income, wealth and assets 176–​79
Index   1059
investment 913
labour market 680–​81
monetary policy 985
persistent inequality 185
post-​apartheid development trajectory 105
poverty 157, 159, 163–​64, 165, 170–​7 1
public debt 956, 957–​58, 959, 961, 966, 967f,
968t, 969, 970
public finance and fiscal policy 938
recurring inequality 185
rural 181–​82, 185
social inequality 176
social mobility 183–​86
social mobility
intergenerational inequality 185–​86
intra-​generational inequality 183–​85
social security and social development 869–​71,
872–​74, 877–​78, 880, 882–​83
spatial dynamics 182
urbanization and agglomeration 181–​82,
664–​65
wealth 176–​79
see also poverty, inequality and
unemployment
inflation and inflation targeting
financialization 1013, 1023–​24, 1026
monetary policy 974–​75, 976, 977, 978–​80,
981–​82, 984, 985
public debt 956–​58, 959, 960–​61, 963–​64,
965f, 968–​69
unemployment 150
informal economy
contribution of informal-​sector employment
to informal economy 766–​67
dualist school -​survivalists, enterprises and
entrepreneurs 758, 759–​61, 762–​63
entrepreneurs 760
gender 757, 763–​64, 765–​68, 765f, 766f,
767f, 768f, 769f, 770f, 770–​7 1
industry sector 769
informal employment 758
agro-​processing 226–​27, 232
gender factors in labour market 736,
738–​40, 741–​42
outside of informal sector 770
social security and social
development 880–​82
1060   Index

informal economy (cont.) Integrated Early Childhood Development

informal sector 758 Policy 721
entrepreneurship and SMMEs 632–​33, Integrated Growth and Development Plan
636–​37, 641 (IGDP) 836
youth labour market 692 Integrated National Electrification
legalist school -​deregulation and property Programme (INEP) 312
rights 758–​59, 760–​61 Integrated National Export Strategy 441
micro-​entrepreneurs 760 Integrated Resource Plans (IRPs) 124, 284–​85,
non-​agricultural employment 765–​66, 293, 298, 306, 563, 594–​95
765f, 766f, 767f, 767 integration see regional value chains (RVCs)
private households 769, 769f, 770f and integration; Southern African
recent trends 765–​66 regional value chains (RVCs) and
rural areas 764 integration
self-​employment 758n.1, 759–​60, 764, 768, 771 intellectual property (IP) 545, 546
status 757 Intellidex study 611
status in employment 768 interest rates 976, 977, 979, 980–​81, 1023
structuralist school -​formal-​and informal-​ Intergovernmental Fintech Working
sector linkages 758, 761–​63, 772 Group 501, 1009
trade 769, 769f, 770f internal combustion engines (ICE) 297–​98,
transformative potential of informal 383–​84
sector 758 International Air Services Act 1949 568
voluntarist school -​regulation evasion and International Conference of Labour
shadow economy 758, 760–​61 Statisticians (ICLS) 758, 763–​64
Infraco 557–​58, 580 International Cooperation, Trade and
Inglesi-​Lotz, R. 307–​8, 314, 893 Security 424
Ingula power station 586–​87 International Covenant on Economic, Social
Inkatha Freedom Party (IFP) 69–​70, 71, 72 and Cultural Rights (ICESCR) 825
Innes, D. 56–​57, 61 international credit bureaus 1020
innovation 8–​9, 9t International Diabetes Federation 849
and consumer protection 1003 International Energy Agency (IEA) 285,
marketing 477–​78 287–​88, 310
organizational 477–​78 international financial pressure (1980s) 60–​61
policy 76 International Information and
process 477–​78 Communications Technology
product 477–​78 Council 77
see also science and technology industry (STI), International Investment Advisory
innovation and technological change Council 77
Innovation for Inclusive Development International Labour Conference -​‘Transition
(IID) 484 from the Informal to the Formal
Innovation Survey in South Africa 478 Economy’ (Recommendation
Instagram 504–​5 204) 771, 772
Institute for Liberty and Democracy 759 International Labour Organization (ILO) 632,
Institute for Motor Vehicle Productivity 634, 690, 758
(IMVP) 379–​80 National Social Protection Floor
insurance industry 352t, 995t, 1001–​02, initiative 871
1018–​19 International Monetary Fund (IMF) 19
Integrated Development Plans 649–​50 economic history 1948-​94 48, 60–​61

financialization 1022–​23
health 862
informal economy 761
politics and policymaking (1994
onwards) 71–​72
post-​apartheid development trajectory 99
public debt 959
public finance and fiscal policy 950
Staff Paper 119n.13
Working Paper 510–​11
World Economic Outlook database 949–​50
International Standard Classification of
Occupations (ISCO) 742
International Standard Industrial
Classification (ISIC) Rev 4 218, 221
International Telecommunications Union
(ITU) 559
international trade
exports diversification -​industry, product
and firm dynamics 451–​55
firm-​level data 442
labour and deindustrialization 457–​61
liberalization from 1994 447–​50
performance from 1994 450–​57
exports diversification -​industry,
product and firm dynamics 451–​55
geographical diversification 455–​56
structural transformation at product
level 456–​57
product-​level data 442
trade performance up to 1994 443–​47
volumes of trade 443f
internationalization 355, 361–​62, 364–​65
Internet of Things (IoT) 491–​92, 500, 504–​5
internships 698
Invenfin 360
Investec 354t, 1005
investment 7
asset composition 918f
capital formation
gross fixed 913–​14, 914f, 916t, 918f
gross and net nominal 919f
nominal gross 924f
real gross 916t
capital stock 914–​15, 928f
concentration and market power 917–​18,
923–​24
Index   1061
-​driven growth 904–​5
economic growth constraints 122, 122f, 123f
economic history 1948-​94 62
employment intensity 927
GDP 913–​15, 914f, 916t, 919f, 921, 930, 931
incentives 76
labour-​intensive manufacturing 928–​29
macro stability 921–​22
macroeconomic imbalances and policy
uncertainty constraining 122–​24
macroeconomics of economic
growth 891–​92, 906, 910
mining and minerals 275–​76, 276f
monetary policy 978
operating surplus (gross) 924f
private sector 75t, 913, 915–​17, 917f, 918f,
919f, 921, 925, 929–​30
profitability 917
public sector 913, 915–​17, 917f, 918f, 919f,
925, 929–​30, 938
state of knowledge 931
system view 925–​27
tax subsidies 930–​31
uncertainty 917, 920–​23
unemployment 140–​41
user cost of capital 917, 919–​20
see also foreign direct investment (FDI)
Ioannidis, J. 904
iron ore industry 264–​66, 265f, 266f, 267, 268–​
69, 270, 274–​75
competition policy 532–​33
corporate structure, industrial development
and structural change 351–​52, 352t,
353–​54
economic growth constraints 119
economic history 1948-​94 50–​51, 58
economic history pre-​1948 27, 30
Fourth Industrial Revolution 498–​99
industrial policy 518t
international trade 447, 454, 457
urbanization and agglomeration 655
Iron Ore lines 570
Iron and Steel Industrial Corporation
(ISCOR) 50–​51, 57, 62–​63, 267, 272,
274, 357, 362, 444, 494, 803
IRRDEM model 336
Irvine’s Africa 403
1062   Index

Isaacs, G. 1023 Kahn, M. 475–​76, 478

Italy 692, 998–​1001 Kaldorian laws 511
Kaltenbrunner, A. 1023
J Kantor, B. 978, 980
Jaglin, S. 586, 587 KAP Industrial Holdings 358
Janse van Rensburg, T. 893 Kaplan, D. 49–​50, 470, 476, 483, 921–​22
Japan 47, 449 Katz, L. 696
Jeeves, A. 36 Kaul, I. 825
Jenkins, R. 151, 458, 460 Ke, Y. 493
Jeppe, J. 34 Kelly, G. 162–​63
job creation 279, 333–​34, 981–​82 Kerdachi, N. 57
job destruction 981–​82 Kerr, A. 981–​82
Job Protection Programme (JPP) 700 Keynes, J.M. 496–​97, 999b
job search assistance 699–​700 Keynesianism
Jobs and Opportunity Seekers (JOBS) 700 privatized 1024
Johannesburg Stock Exchange (JSE) 8 see also neo-​Keynesianism
agro-​processing 235–​36 Keys, D. 72, 964–​66
banking and finance 994 Khan, M.S. 980
Black Economic Empowerment (BEE) 603, Khayelitsha/​Mitchell’s Plain Survey
611, 612 (KMPS) 696–​97
corporate structure, industrial development Khoisan 33
and structural change 353–​54, 354t, Kholwa 39
355, 356f, 358–​59, 364–​65 Khosa, R. 602
economic history 1948-​94 53 Khunou, G. 493
economic history pre-​1948 35 kickbacks 590
financialization 1013–​15, 1016, 1017–​18, 1025 Kirzner, I. 624
gender factors in labour market 746 Klasen, S. 162–​63, 780
mining and minerals 264, 269, 270 Klein, N. 977
politics and policymaking (1994 Kleu commission on trade and industrial
onwards) 67, 82–​83 policy 58–​59
value chains and industrial Klinger, B. 456–​57, 899–​900, 901, 902, 906
development 378 Knight, F. 624
Johnston, B. 200 Knorringa, P. 762
joint-​stock mining corporations 34 knowledge
Jonsson, G. 460–​61 economy 526
Jooste, C. 937 intensive production and advanced
Jordá, O. 980 technology 513–​15
J.P. Morgan Emerging Market Bond tacit 479
Index 984–​85 Koch, S.F. 851–​52
Just Transition 297 Kohler Cores and Tubes 536
Koisan 31
K Kolamparambil, U. 878
Kabeer, N. 871 Kraak, A. 472
Kabundi, A. 982, 984 Kraemer-​Mbula, E. 483–​84
Kaggwa, M. 164 Kremen, E. 170
Kahn, A. 722–​23 Kruger regime 35–​36, 37
Kahn, B. 114 Kruss, G. 479n.10
 Index   1063

Kumba 269–​70, 274–​75, 355–​56, 357 inequality 181

Kumo, W.L. 930 output, employment and earnings
Kusile power station 123–​24, 293–​94, 340, trends 675–​83
586–​87, 896, 943 earnings 679–​83
KwaZulu-​Natal education, returns to 681–​82, 687
agriculture 196 union wage premiums and public
agro-​processing 223–​24 sector 682–​83
climate change and green transition 326, 341 policy interventions 683–​87
economic role of South Africa in Africa 425 Active Labour Market Policies
energy and climate change 317 (ALMPs) 685–​87
entrepreneurship and SMMEs 630 minimum wages 681, 683–​85, 687–​88
Fourth Industrial Revolution 496 regulations and non-​compliance 685
health 850 public sector 676–​77
land and agrarian development 249f, reform and poverty 170
249–​50 regulations and bargaining agreements 145,
migration and remittances 785, 790, 792 147
politics and policymaking (1994 rigidities 145–​46
onwards) 69–​70 supply side 148
poverty 166t workplace conditions 72
social security and social development 875 see also gender factors in labour market;
urbanization and agglomeration 654, 656 youth labour market
KwaZulu-​Natal Income Dynamics Study Labour Market Dynamics (LMD) data 17–​18,
(KIDS) 20t 20t, 674
Kyoto Protocol 318 Labour Party 42–​43
labour productivity and unemployment 139,
L 141–​42, 143–​44
labour force Labour Relations Act (LRA) 1995 106, 772
overview 102–​3, 103t Labour Relations Act (LRA) Amendment
participation 136, 137f 2014 147
labour force participation rate (LFPR) 11, 12t, labour surplus economies theory 139–​40
117–​18 Lagos Plan of Action 422
Labour Force Survey (LFS) 16–​18, 20t, 674 Lam, D. 714, 729
gender factors in labour market 736–​37 Lamoreaux, N. 350, 363–​64
household economics 803 Land Act (1913) 39–​40
informal economy 763 land and agrarian development
macroeconomics of economic agrarian dualism 240, 258
growth 894n.4 ‘agrarian question’ 257
youth labour market 695–​96 collectivization and state farming 243
see also Quarterly Labour Force Survey commercial farming sector 245, 246, 247–​48,
(QLFS) 249–​51, 255–​56
labour intensive growth see under commodification 256–​57
macroeconomics of economic growth demand-​led processes 244–​45
labour laws 146–​47 dispossession 241
labour market dualist pattern of land use, ownership and
challenges 4 tenure 246, 246t, 255
data 674 elite capture 256
dynamics 677t elite pacting 255
1064   Index

land and agrarian development (cont.) Leibbrandt, M. 163, 180, 183–​84, 708–​9, 759–​60,
forced resettlement 241 761n.2, 880–​81
‘homelands’ 240, 241, 243 Leisering, L. 871
land concentration 256, 257 Leliveld, A. 762
land inequality, financialization and elite Lepelle, R. 461
capture 254–​55, 256, 257 Lesotho 388–​89, 388t, 390, 392, 431–​32
‘land question’ 241–​43, 257 Leutwiler, F. 58
land reform budgets 251f Lewis, A. 139–​40
market-​based/​market-​assisted land Lewis, D. 535–​36
reform 244–​45, 254 Lewis and Marks 56–​57
mixed tenure system 242–​43 liberalism 50, 112–​13
ownership of land 603–​4 see also neo-​liberalism
political economy of transition 241–​45 liberalization
post-​apartheid land reform 246–​53 agriculture 197
property rights 240–​41, 242–​43, 244 Black Economic Empowerment (BEE) 603
re-​regulation 245 financial liberalization 1017, 1022–​24,
redistribution of land 241, 242–​44, 245, 246–​ 1025–​26
48, 247t, 249–​52, 249f, 250f, 256, 257–​58 industrial policy 513, 516, 526
‘reserves’ 240 international trade 447–​50
restitution of land 241, 243–​44, 247–​49, labour market 675
247t, 249f, 252, 257–​58 land and agrarian development 255–​56
small-​scale/​smallholder farming 243, macroeconomics of economic growth 900
246–​47, 252–​53 network industry regulation 553, 555, 556,
state-​owned land 246 560–​61, 567–​68, 571–​72
tenure reform 241, 243–​44 state-​owned enterprises (SOEs) 586
Land Bank 251–​52, 584, 594t, 993 unemployment 151
Land Claims Court 248–​49 Liberty Life/​Standard Bank 354t, 1014–​15
Land Commission 243 Liebenberg, C. 72
Landless Movement of South Africa Life 359–​60
(LAMOSA) 248–​49 Life Esidimeni 858
Landsberg, C. 422 life expectancy 102, 844, 846
Language in Education Policy 721n.14 Life Healthcare 859
large firms see under corporate structure, life insurance 994
industrial development and structural Lillard, L.A. 780
change; multinational enterprises Limpopo
(MNEs); state-​owned enterprises (SOEs); agriculture 196
transnational corporations (TNCs) competition policy 543n.33
Lastres, H. 482 energy and climate change 317
Latin America 576, 900n.8 Fourth Industrial Revolution 496
Latin American debt crisis 61 health 853
Lawrence, R. 450, 451–​52 land and agrarian development 249f
learnerships 698–​99 migration and remittances 790, 792
leather and leather products industry 218, mining and minerals 265–​67
221–​22, 228–​29, 232, 233t, 518t, 522, 523 poverty 166t
Legal Succession Act 1989 567–​68 social security and social development 875
legalist school -​deregulation and property Lindell, I. 762
rights 758–​59, 760–​61, 762–​63 LinkAir 568

Lipton, M. 50
Liquid Fuel and Oil Act 1947 289–​90
Liquid Fuels Charter 605
liquid fuels sector 297–​98, 340
Liquid Telecom 557–​58, 559–​60
liquidity trap 986
Liu, Y. 896
livestock 198, 201t, 206t, 207, 209, 211, 212f,
223, 224, 224t, 377, 826
pigs 209, 214
poultry 200, 202t, 207t, 209, 225
sheep/​goats and wool 27, 32, 33, 200–​1,
207t, 211, 212, 250–​51
see also cattle/​beef sector; dairy sector
Living Conditions Survey (LCS) 20t, 176–​77
Living Standards Measurement Survey 20t
Lloyd, N. 759–​60, 761n.2
load-​shedding (rolling blackouts) 293–​94,
295, 340, 496, 564, 566, 896, 938, 952
Ļoate, T. 984
local content programmes (LCPs) 378–​79,
380, 385
localization economies 652
Lombard, J. 49
London Stock Exchange (LSE) 1016
Long Run Incremental Cost (LRIC) 558
Long-​Term Adaptation Scenarios
(LTAS) 327–​29, 329n.3, 339
Lonmin 270, 502, 777, 793
Louw, L. 49
Low Emission Development Strategy
(LEDS) 316, 341
Lower Bound Poverty Line 829, 877–​78
LP Gas Market Inquiry 547
Lucas, R.E. 779, 780, 896
Luiz, J. 905
Lund Committee 874
Lundval, B.-​A. 482
M storage 895t, 896, 903t
Mabugu, R. 160
Mabuza, J. 589
McAfee, A. 119–​20n.14
McCarthy, C. 430–​31
MacDonald, D. 54
Machaka, R. 478
machine learning (ML) 491–​92, 497–​98
Index   1065
machinery and equipment industry 352t, 358,
451, 457, 498–​99, 516t, 518t, 655, 915–​17
McIntyre, D. 832, 861
McKenna, L. 657–​58
MacMillan, W.H. 49
macroeconomic data 19
macroeconomic imbalances constraining
growth and investment 122–​24
macroeconomic level 101
macroeconomic performance 956–​58, 959, 963
Macroeconomic Research Group (MERG) 70,
71, 93, 94–​95, 115, 576–​77, 595–​96
macroeconomic stability 922
macroeconomics of economic growth
contributing factors 894f, 895t
FDI 899, 900, 906
gross domestic product (GDP) 891–​93,
894f, 897–​99, 904–​6, 907–​8, 910
investment-​driven growth 904–​5, 906
labour 893–​96, 895t, 900
labour-​intensive growth 901–​4, 906
capital and labour intensity 902–​4
employment intensity and output growth
potential 901–​2
openness, FDI and export-​driven
growth 897–​900, 906, 907
diversification and specialization of
exports and skills necessary for export
production 899–​900
manufacturing relative to aggregate
economy 898f
manufacturing sector
competitiveness 897–​99
total factor productivity (TFP), product
market elasticity and openness of
trade 900
public debt 961f, 965t
real economic growth and investment 909t
sectoral characteristics 903t
total factor productivity (TFP) 891–​97, 906
human capital investment 896–​97
macroeconomic view 893
sectoral view 894–​96
Madagscar 388–​89, 388t, 392, 409t, 630–​32
magicians (market matrix) 76f, 76, 77
Mahamat, M.F. 425
1066   Index

Maharajh, R. 469–​70, 480, 484–​85 manufacturing

Mailula, T. 316 1900s-​1940s 41–​43
Maintenance and Promotion of Competition competitiveness 897–​99
Act 1979 533 corporate structure, industrial development
Maisonnave, H. 160 and structural change 351–​53, 364–​65
maize 30, 38–​39, 200, 202t, 207t, 209–​10, 211, economic growth constraints 131
213–​14, 225–​26, 250–​51, 334, 335, 826, economic history 1948-​94 47, 51, 55
834 economic history pre-​1948 27, 44
Makaluza, N. 759–​60 economic role of South Africa in
Makgetla, N. 593–​94 Africa 422
Makiwane, M. 878 entrepreneurship and SMMEs 630
Malaysia 4, 5f, 6t, 7f, 8t, 9t, 10f, 12t, 457, 523t, 523 financialization 1018f, 1018–​19
Black Economic Empowerment Fourth Industrial Revolution 494, 495, 497,
(BEE) 604, 608 498–​99
industrial policy 523t, 523 industrial policy 510, 511, 512–​13, 516–​17,
international trade 457 518t, 521, 526
investment 916t informal economy 769, 769f, 770f, 770
New Economic Plan 608 international trade 444–​45, 445t, 446, 447–​48,
public finance and fiscal policy 942, 949–​50 451–​52, 454, 455, 456, 458–​60, 461,
male-​headed households 162, 185n.10, 800–​1, 462–​63
811–​12, 813–​14, 815–​17, 818, 819 investment 913, 928–​29, 928f, 930
Malema, J. 83 labour market 675–​76, 677t, 677, 684f
Malinvaud, E. 138–​39, 141, 152 macroeconomics of economic growth 895t,
malnutrition 168–​69, 824, 827, 833, 837, 845, 896, 897–​98, 902, 903t
848, 877–​78, 881–​82 post-​apartheid development trajectory 102
Maloka, E. 421 relative to aggregate economy 898f
Maloney, W. 760 sectoral composition of GDP 8t
Manamela, B. 504 unemployment 142–​43, 149, 151
Mandela Mining Precinct 515 urbanization and agglomeration 655–​56
Mandela, N. value chains and industrial
economic growth constraints 115 development 375
economic role of South Africa in value-​added 9t
Africa 420–​21 Maphumulo 163
Fourth Industrial Revolution 505 MapSPAM dataset 335
land and agrarian development 249 Mapungubwe 28
politics and economic policymaking 70, 71, Maputo Corridor 524
72, 73, 74, 80–​81, 85 Marais, H. 53–​54
post-​apartheid economic development Marakech Agreement 210
trajectory 93 Marcus, G. 98
public debt 957 margin squeeze 548, 556–​57
state-​owned enterprises (SOEs) 579, 593 marginal utility 481
manganese 52, 119, 264–​65, 265f, 266f, 267, marginalization 615
268, 270 Marias, J. 47
Mankiw, G. 904 Marikana strikes and massacre 261, 266–​67,
Mann, L. 762 271, 279, 1021–​22
Manuel, T. 72, 74, 82, 93, 98, 99 Marion, N. 956–​57
Manufacturers Hanover Trust 60–​61 Mariotti, M. 979, 980
 Index   1067

Maritime Safety Authority 568 Mellor, J. 200

market allocation 543 Mendoza, R.U. 825
‘market believers’ 253 Mental Health Policy Framework and
Market Demand Strategy (MDS) 589–​90 Strategic Plan 849
market inquiries 546–​47 merger control 535, 536–​38, 549–​50
market matrix 76f meso-​data 19
market-​privileging liberal approach 49 metals industry 58, 220t
Marketing Act (1937) 41 corporate structure, industrial development
Marketing of Agricultural Products Act and structural change 352t, 353, 357, 358
1996 210 economic history 1948-​94 51
Marks, S. 41–​42 industrial policy 518t, 521, 525–​26
Marquard, A. 567 investment 929
marriage rates 12, 808 mining and minerals 262–​63, 262f, 270–​7 1
Marshall, A. 652 non-​ferrous 352t, 454, 518t
Marxism 112–​14 see also ferroalloys sector
Mass Democratic Movement in Metcalfe, S.J. 482
Broederstroom 71 Methold 602
master and servants laws, coercive 37 Metropolitan Life 602
Mattes, B. 779–​80 Mexico 512t, 523t, 523, 916t, 942, 949–​50
Matthee, M. 455–​56, 460–​61, 898–​99 Mfengu 38
Mauritius 388–​89, 388t, 392 micro datasets 20t
Mawby, A.A. 35 micro enterprises see entrepreneurship and
Mazzucato, M. 592 small, medium and micro enterprises
Mbeki, T. (SMMEs)
Black Economic Empowerment (BEE) 605 micro lenders 995t
economic role of South Africa in microcredit industry 1007–​08
Africa 421, 424, 426 middle class 68, 93, 183–​84, 185, 188
HIV/​AIDS 846 middle-​income countries and economic
land and agrarian development 249 performance 512t
politics and economic policymaking 77, 78, ‘middle income trap’ 4, 8–​9
79, 80–​81, 82, 83, 85 Midgely, J. 872
post-​apartheid economic development 93, Migozzi, J. 1020–​22
96, 97, 98, 99, 102 migration
social security and social development 874 circular or oscillating 649, 809
state-​owned enterprises (SOEs) 580–​82, 593 double-​rootedness or trans-​locality 809
Meagher, K. 761, 762 gender factors in labour market 737–​38
Media 24 vs Competition Commission 542 health 845
medical liability claims and pay-​outs 857 household economics 801–​2, 819
medical schemes 855, 858, 859, 860 informal economy 764–​65, 772
Medical Schemes Act 1998 855 labour system 37
Mediclinic 359–​60, 858–​59 pull factors 809
Medium Term Budget Policy Statement push factors 809
(MTBPS) 951 urbanization and agglomeration 649, 655
Medium-​Term Strategic Framework 327 see also migration and remittances
Medscheme 859 migration and remittances
Medupi power station 80, 123–​24, 293–​94, age-​sex profiles 778–​79, 782–​84, 784f, 785–​88,
340, 586–​87, 896, 943 786f, 787f, 789–​90, 794–​95
1068   Index
migration and remittances (cont.)
altruism 780, 790
child maintenance payments 783
child migration 778–​79
context, importance of on remittance
motivations 780
cross-​border 794
definitive migration 783, 785–​87, 787f, 788f,
792–​93
density 785
distributional effects of internal remittances
on expenditure patterns 790–​92, 791t
education 778–​79, 790–​91, 792, 794
employment and housing 778–​79
expanding migration 791–​92
feminization of internal migration 778–​79
fluctuations 784
food security 790–​92, 794
future prospects for children 779–​80
Health and Demographic Surveillance
Systems (HDSS) 777–​78, 781–​83, 788,
789–​90
health factors 781–​82, 794
household definitions 782
human capital 790–​92
immigration restrictions 779–​80
in-​migration 782–​83
incidence rates for definitive and temporary
migration 787–​88, 788f
inheritance-​linked motives 780
international migration 779–​80, 794
job opportunities 779
literature, survey of 778–​81
maternal migration 778–​79
migration 782–​83
migration flows 781
migration stocks, measures of 781
National Income Dynamics Study
(NIDS) 777–​78, 781, 782, 783–​84, 788,
790, 793
out-​migration 792–​93
permanent migration 788
poverty 780, 781
prevalence 783–​84, 784f
profiles and trends 783–​90
quality of life, affirmative action,
government performance 779–​80
remittances: profiles and trends 148, 783,
788–​90, 789t
security concerns 779–​80
self-​interest 780
social services 779
social structures 793–​94
socio-​economic status (SES) 791–​92, 793
temporary migration 777, 778–​79, 782–​83,
785–​87, 786f, 787f, 788f, 788, 789–​90,
792–​95
unfavourable economic
performance 779–​80
violence and affirmative action 779–​80
wages 779–​80
Miller 362
millet 27, 30, 826
Milner administration 36–​37
Mineral and Petroleum Resources
Development Act (MPRDA) 79, 287
minerals see minerals-​energy complex (MEC);
mining and minerals
Minerals Council 277
Minerals and Petroleum Resources
Development Act 2002
(MPRDA) 253, 276–​77
minerals-​energy complex (MEC)
economic growth constraints 118–​19,
120–​22, 129
economic history 1948-​94 48, 53–​56
energy 284, 296–​97, 301
industrial policy 517, 525–​26
international trade 444
state-​owned enterprises (SOEs) 578–​79,
595–​96
minimum wages 680–​81, 683–​85, 687–​88
gender factors in labour market 735, 752
informal economy 772
unemployment 145, 146–​47
youth labour market 695–​96
see also National Minimum Wage (NMW)
Mining Charter 276–​78, 609, 922–​23
mining and minerals
aluminium sector 267, 270–​7 1, 357, 433,
498–​99, 519–​20
antimony 52
bauxite 519–​20
beneficiation 267, 277, 422, 520, 578–​79
 Index   1069

Black Economic Empowerment unemployment 142–​43

(BEE) 604, 605, 611 unions 271
chrome 52, 264–​65, 265f, 266f, 267, 268, uranium 52, 447
270, 275 urbanization and agglomeration 648–​49
chromium 268 value chains 261–​63, 264, 268, 270, 272, 273,
coal see coal industry 375, 377
copper 27, 52, 263 vanadium 52
corporate structure, industrial development workplace conditions 278
and structural change 269–​7 1, 353, see also Anglo American Corporation
355–​56, 358 (AAC); minerals-​energy complex
dependence on 4 (MEC)
diamonds see diamond mining Mining and Petroleum Resources
discoveries 33–​37 Development Act (MPRDA)
economic growth constraints 121–​22, 131 2002 272–​73, 274–​75, 291
economic history 1948-​94 47, 55 Ministerial Review Committee 472
economic history pre-​1948 27, 34–​35, 44 Ministerial Review Committee, Report on the
economic role of South Africa in STI landscape 468–​69
Africa 422, 435 Ministry of Labour 77
financialization 1014–​15, 1018f Ministry of Small Business Development 639
fossil fuels see fossil fuels Ministry of Social Development 505
Fourth Industrial Revolution 502 Minoil 361n.13
industrial policy 515, 516 Minorco 355, 361
industrial policy and mining value Mitra, A. 791–​92
chain 272–​78 MittalSteel 362
domestic prices of mining MMI Health 859
products 272–​75 Mncube, L. 543
ownership 276–​78 mobile network operators (MNOs) 557–​59
public investment 275–​76 model of market-​assisted land reforms
inequality and mining value (MALR) 240–​41
chain 278–​80 Modern Monetary Theory 986n.6
international trade 454, 454n.10 Modified Hargreaves 336
iron ore see iron ore industry Molefe, B. 590
labour market 675, 677t, 677, 682, 684 Moll, T. 47–​48
macroeconomics of economic Molotja, N. 476
growth 895t, ​896–​900, 902, 903t Momentum 994
manganese 52, 119, 264–​65, 265f, 266f, 267, Mondi 230, 355–​56, 361, 536
268, 270 monetary policy
migration and remittances 777 economic growth 978–​81
mining-​gate price 272–​73 expansion phase 978–​79
ownership 276–​78 external constraints 982–​85
platinum see platinum industry fiscal policy independence 986–​87
politics and policymaking (1994 instruments and targets 975–​77
onwards) 85–​86 labour market 981–​82
post-​apartheid development trajectory 106 private-​sector debt 974
poverty 164 volatility 978
production structure 264–​69 money-​metric poverty rates 814–​15
state-​owned enterprises (SOEs) 578–​79 money-​metric wealth 179
1070   Index

monopolies 553–​54, 556, 562, 636, 640–​41 Myburgh, A. 779–​80

Monteagudo, J. 904 Mzimvubu 330, 331t, 332t, 334, 335, 339
Montlana, N. 602
Moody’s 937, 940, 949 N
Morocco 409t, 630–​32, 949–​50 Naidoo, J. 59
Morris, M. 49–​50 Naidu, S. 971
mortality 102, 814, 817, 844, 845–​47, 847f, 849, Namibia 415, 430, 431–​32, 692
850, 858, 861–​62 Namibian Retail Charter 2016 408–​9
Moser, C. 761 Naraidoo, R. 977
Mosomi, J. 164 Naspers 354t, 355–​56, 360, 365, 435
Motala, E. 480 National Accounts in the South African
Motala, S. 718–​19 Reserve Bank Quarterly
Motlanthe, K. 77, 81, 249, 252, 264 Bulletin 893n.3
Motor Industry Development Programme National Advisory Council on Innovation
(MIDP) 77, 380–​81, 382, 385, 451, 515, 521 (NACI) 468–​69
motor vehicles see automotive industry National African Farmers’ Union
Mourougane, A. 904 (NAFU) 199t
Mouton, J. 473n.3, 475 National African Federated Chamber
Moyane, T. 944 of Commerce and Industry
Mozambique 779 (NAFOC) 67–​68
Mpumalanga National Agricultural Marketing Council 207,
agriculture 196 834
competition policy competition national capitalism 576–​77, 578, 591–​96
policy 543n.33 National Census 20t, 794
economic history pre-​1948 29–​30, 163, 166t National Certificate Vocational (NCV) 695
energy and climate change 317, 318–​19 National Climate Change Response
land and agrarian development 249f Strategy 316
migration and remittances 790 National Council of Trade Unions
mining and minerals 265–​66, 275 (NACTU) 68
social security and social development 875 National Credit Act 2005 994
Mtero, F. 254 National Credit Act 2007 1020–​21
MTN 360, 362, 435, 496, 499, 558, 559, 560 National Credit Regulator (NCR) 994
Mudavanhu, P. 476 National Development Plan (NDP) 15–​16
Muellbauer, J. 974–​75, 977 agriculture 208–​9, 214
Mukamaambo, E. 779 agro-​processing 217
Muller, C. 763 Black Economic Empowerment (BEE) 617
Multi-​centre Analysis of the Dynamics climate change and green transition 327, 341
of Internal Migration and Health economic growth constraints 126, 131
(MADIMAH) 782–​83 education 709
multi-​year price determination energy 286
(MYPD4) 564–​65 entrepreneurship and SMMEs 639
Multichoice 360 food security and hunger 829, 835–​36
multinational enterprises (MNEs) 67, 223, 762 Fourth Industrial Revolution 504
multiple correspondence analysis 162 inequality 176–​77
Mundell-​Fleming model 984 informal economy 771
Mushongera, D. 162 investment 927n.9
Mutual Bank Act 1993 1005–​06, 1007n.10 macroeconomics of economic growth 901

politics and economic policymaking 82
post-​apartheid development trajectory 93,
99–​100
public finance and fiscal policy 939
social security and social
development 874, 880
STI, innovation and technological
change 483
target 721–​22, 723
Vision 2030 441
National Economic Development and Labour
Council (NEDLAC) 73–​75, 77, 107–​8
National Economic Forum 71–​72
National Empowerment Policy 78
National Energy Act 2008 293
National Energy Regulator (NER) 563, 586
National Energy Regulator of South Africa
(NERSA) 289–​90, 292, 548, 563,
564–​65, 567, 587, 589, 594–​95
National Finance Corporation (NFC) 52–​53,
56–​57
National Food Consumption Survey
(NFCS) 833
National Food Security and Nutrition Plan
(NFSNP) 836
National Freight Logistics Strategy 570
National Growth and Development Strategy
(draft) 77
National Health Insurance Bill 942–​43
National Health Insurance (NHI) 85, 859,
860–​61
National Hospital Network (NHN) 546
National Income Data Study 849
National Income Dynamics Study (NIDS) 20t
education 714
fifth wave (2017) 164, 166, 167–​69
first wave (2008) 164, 165, 166, 167–​69
food security and hunger 833
fourth wave (2014) 164, 166, 167–​69
gender factors in labour market 747–​48, 750
household economics 803, 809
imputation method 164
inequality 177n.1, 178n.4, 183, 185–​86
migration and remittances 777–​78, 781,
782, 783–​84, 788, 790, 793
poverty 157, 160–​61, 162, 164–​65, 166, 168, 169
recall method 164
Index   1071
second wave (2010) 164, 166, 167–​69
third wave (2012) 164, 167–​69
youth labour market 696–​97
National Income Dynamics Study (NIDS)-​
Coronavirus Rapid Mobile (CRAM)
Survey 20t, 751–​52, 830–​31
National Industrial Policy Framework
(NIPF) 515
National Informal Business Upliftment
Strategy (NIBUS) 760, 772
National Infrastructure Plan 275
National Innovation Survey data 477–​78
National Innovation System (NSI) 470, 471, 472
National Integrated ICT Policy 504
National Key Research and Technology
Infrastructure Strategy 471
National Land Transport Act 2009 663
National Migration Survey (NMS) 779
National Minimum Wage (NWM) 85, 107–​8,
135, 684, 687–​88, 772
National Minimum Wage for South Africa
Research Initiative 496–​97
National Norms and Standards for School
Funding 708, 718–​19
National Party (NP)
economic history 1948-​94 48, 51, 55,
57–​63
economic history pre-​1948 42–​43
energy and climate change 317–​18
land and agrarian development 243–​44
politics and policymaking (1994
onwards) 66n.1, 69–​70, 71
public debt 957, 958, 963, 964–​66, 969
public finance and fiscal policy 936–​37
National Payments System (NPS) 1006–​07
National Planning Commission (NPC)
climate change and green transition 341
‘Contribution of SOEs to Vision 2030’ 582
Digital Futures: South Africa’s Digital
Readiness for the Fourth Industrial
Revolution 492
energy 297, 298
Fourth Industrial Revolution 495–​96, 504
‘Infrastructure SOEs Contribution to NDP
Vision 2020’ 582–​83
state-​owned enterprises (SOEs) 577, 585,
591, 592, 593–​94
1072   Index
National Policy for Food and Nutrition
Security (NPFNS) 835–​36
National Ports Act 2005 569
National Ports Authority (NPA) 569
National Public Works Programme
(NPWP) 701
National Qualifications Framework
(NQF) 709, 716, 717
National Railway Safety Regulator 568
National Research and Development Strategy
(NRDS) 471, 476
National Research and Technology Audit 471
National Risk Behaviour Survey 831–​32
National School Nutrition Programme 837, 879
National Senior Certificate (NSC) 709–​10,
716, 720, 722, 723
National Skills Authority 718
National Skills Development Strategy
(NSDS) 698–​99
National Skills Fund (NSF) 504, 698, 718
National Small Enterprise Act 1996 624–​25
National Strategy for Sustainable
Development and Action Plan 341
National Student Financial Aid Scheme
(NSFAS) 718, 719, 722–​23
National System of Investment 927n.9
National Systems of Innovation (NSI) 468,
925–​26
National Treasury (NT) 18
agro-​processing 236
banking and finance 1003, 1004
economic role of South Africa in Africa 426
Economic Strategy for South Africa 217
‘Economic Transformation, Inclusive
Growth and Competitiveness’ 939
health 861
investment 919
monetary policy 986
public finance and fiscal policy 937–​38,
940, 942–​43, 944, 951
state-​owned enterprises (SOEs) 595
urbanization and agglomeration 651–​52
National Union of Mineworkers (NUM) 59,
264, 271, 280
National Water Act 1998 253
National Youth Development Agency
(NYDA) 700
National Youth Service 700
Nationalist Government 56
nationalist populism 253, 256
nationalization 71, 242–​43, 317
Nationwide Poles v Sasol 541
Nationwide v South African Airways 542–​43
Natives’ Land Act 1913 197, 241, 247, 249
natural gas industry 284, 287, 298, 301
climate change 307–​8, 310t
economic growth constraints 131
markets 291
see also utilities sector (electricity, gas and
water)
natural resource base 195–​97
Naudé, W. 898–​99
Ndinda, C. 162
Ndlovu, V. 307–​8
NDOT 595
Nedbank 994, 1005, 1018–​19
Nelson Mandela Metropolitan University 496–​97
Nelson, R.R. 482
Nem Singh, J. 591
Nene, N. 100–​1
neo-​classical theory 481–​83, 484, 760, 891–​92,
896, 904, 908
neo-​Keynesianism 99–​100
neo-​liberal constitutionalism 49
neo-​liberalism 70, 94, 579
neo-​Schumpeterian approach 481, 482
Neotel 557–​58, 560
Nepi Rockcastle 359
nepotism 637
Nestlé 223
Netcare 359–​60, 362, 858–​59
Netstar 544n.36
network industry regulation
conflicts of interest 555, 571–​72
cost of accounts (COA) 555
dual reporting mandate 556
electricity 554, 561–​67, 572
distribution 565
Eskom 557, 561–​65, 566–​67
generation 565
regulatory landscape 563–​65
renewable energy 566–​67
system design and competition 565–​66
transmission 566

fibre to the home/​business (FTTH/​FTTB)
networks 557–​58, 560–​61
high demand spectrum (HDS) 559–​60
Internet Protocol (IP) 557
Long Term Evolution (LTE) wireless
networks 559–​60
mobile network operators (MNOs) 557–​59
second national operator (SNO) 555,
557–​58
spectrum assignment 559
telecommunications 554–​61, 572
fixed line 555–​58
mobile market 558–​60, 572
transportation 554, 567–​7 1
aviation 567–​69, 571, 572
ports 567–​68, 569–​70, 571, 572
rail 567–​68, 570–​7 1, 572
virtual private networks (VPNs) 556
networking and linkages 474, 696–​97
Neves, D. 762
New Africa Investments Limited (NAIL) 602,
611–​12
new business ownership rate 630–​32, 631t
new Development Bank 950
new developmentalism 591
New Economic Geography (NEG) 652–​53
New Economics of Labour Migration
(NELM) 778, 793
New Growth Path (NGP) 82, 93, 98–​99,
100, 217
New Growth Theory 891–​92, 896, 904, 908
New Keynesian model 980, 982
new ownership model 593
New Partnership for Africa’s Development
(NEPAD) 419–​20, 421, 422–​23,
424–​25, 436
New Partnership for Africa’s Development
(NEPAD), Business Group 424
‘New Wine into New Wine Skins’
report 591–​92
Ngcuka, B. 80
Nguimkeu, P. 512–​13
Nigeria 425
Nixon, R. 58
Noble, M. 160–​61, 181–​82
non-​communicable diseases (NCDs) 823,
832, 835, 837, 846, 847f, 849
Index   1073
non-​ferrous metals 352t, 454, 518t
non-​financial companies (NFC) and
shareholder value (SHV) 1014–​17, 1019
non-​governmental organizations
(NGOs) 243, 245, 626–​27, 710, 879
non-​money-​metric wealth 179
non-​profit organizations (NPOs) 626–​27
non-​tariff barriers (NTBs) 411–​12
Nordhaus, W.D. 305
North East 325, 330, 331t, 332t, 334, 335
North West
agriculture 196
competition policy competition
policy 543n.33
Fourth Industrial Revolution 496
land and agrarian development 249f
migration and remittances 790
mining and minerals 265–​67
poverty 166, 166t
social security and social development 875
Northern Cape
entrepreneurship and SMMEs 630
land and agrarian development 249, 249f
migration and remittances 790
mining and minerals 265–​67, 275
poverty 166, 166t
social security and social development 875
urbanization and agglomeration 654
‘Nourish and Flourish’ strategy 836
Nowak, M. 974–​75
Nqutu 163
Ntsika Enterprise Promotion Agency 702
nuclear power 59–​60, 62–​63, 310t, 498–​99
Nugent Commission of Inquiry into Tax
administration and Governance at
SARS 939–​40, 944
Nugent, R. 939–​40
Nwosu, C. 162
O
Occupation Specific Dispensation (OSD) 938,
943
occupational employment distribution and
change 677t
occupational segregation 742–​44
Ocean Group 223
Oceana 358
1074   Index

October Household Surveys (OHS) 16–​17, Oucho, J. 779

20t, 736–​37, 763, 803, 808n.2 output
O’Dowd, M. 49 agro-​processing 217–​18, 221–​23, 222f, 227t,
OEMs 362 230, 232–​34, 236
Office of Health Standards Compliance energy and climate change 310t
(OHSC) 857 international trade 458–​60, 459t
Official Development Assistance (ODA) 423 leather and leather products 228–​29
Ogebe, J. 792 macroeconomics of economic growth 897–​98
oil industry 284, 287, 288, 289, 290, 307–​8 monetary policy 976, 977, 978, 979, 980,
oil prices 48, 119 982, 984
oil shocks 960–​61 unemployment 141–​42
Old Age Pension (OAP) 875, 877 wood, wood products and furniture 230, 231t
Old Mutual (SA Mutual) 354t, 363, 994 see also under labour market
Older Persons Grant 148–​49, 817 output-​capital ratio 139
oligopolies 51, 62, 77, 630, 648 output-​employment elasticities 141–​42, 142t
Olver, C. 660 outsourcing 351–​52
O’Meara, D. 49–​50 overweight and obesity 823, 824, 833, 837,
Omnia 357 845–​46
Omotoso, K. 162 Oyenubi, A. 878
One Stop Border Posts (OSBPs) 411 Ozler, B. 163
one-​person-​one-​vote rule 114
Open Budget Survey 938 P
openness see under macroeconomics of PACT government (National Party and
economic growth Labour Party alliance) 42–​43, 51–​52
Oppenheimer, E. 52, 56–​57 Padayachee, V. 56, 576–​77, 964–​66
Oppenheimer family 56, 361 Pain, N. 904
Oppenheimer, H. 52, 57 Pan Africanist Congress 424
Opportunity Value Index 457 Pane, L. 921
Optimus Study 850 Papaioannou, E. 960, 971
Oracle 504–​5 paper and paper products 222–​23, 230, 231t,
Orange 325, 330, 331t, 332t, 334, 335, 338, 233t, 498–​99, 518t
Orange Free State 39–​40, 50–​51, 52, 56–​57, 443 corporate structure, industrial development
ordinary least squares (OLS) 790–​92, 957–​58, and structural change 353, 358, 361
963–​64, 965f, 966, 970, 979 Papier, J. 716
Organization of African Unity (OAU) 397, Paris Agreement on Climate Change 296, 306
424, 425 Parker, S. 476
Organization for Economic Cooperation and Parliament’s High-​Level Panel 252
Development (OECD) 576, 647, 853 Parmalat 223
Development Assistance Committee 423 Patel, E. 82, 98–​99
Review of Innovation Policy 468–​69, 472 Patel, L. 162–​63, 873
Organization of the Petroleum Exporting patents 9t, 476–​77, 477f, 480
Countries (OPEC) 114 patriarchy 824–​25
Orphanides, A. 979–​80 patrilineal system 801
Orthofer, A. 178–​79, 603 Paul, M. 984–​85
Ortiz, A. 977 Paya, I. 977
Osborne, M.A. 505 Payments Association of South Africa
Oslo Manual 477n.8, 478 (PASA) 500–​1, 1007–​08
 Index   1075

Pedro, R. 921 financialization 1015, 1017

Pellicer, M. 181 Fourth Industrial Revolution 502
Pembani Remgro Infrastructure Fund 360–​61 international trade 457
pension funds 881, 995t, 1001f, 1002 Plaut, M. 493–​94, 495
Pensions Funds Act 1956 997–​98 Pogue, T.E. 478
personal care occupations 678, 681 Poirine, B. 780
personal income tax (PIT) 654, 940, 944–​48, 949 policy firm strategy alignment 362–​63
personal services sector policy regime theory 578
corporate structure, industrial development policy uncertainty constraining growth and
and structural change 352t investment 122–​24
informal economy 769, 770 political economy 15, 197–​99, 241–​45, 264,
investment 928f 397–​98
labour market dynamics 675, 676–​77, 677t, political regime 957–​58, 959–​61, 961f, 963,
678 966f
urbanization and agglomeration 656 political settlements 578, 595
Persson, T. 957, 958, 969 politics and economic policymaking (1994
Petroleum Agency of South Africa onwards)
(PASA) 287 big business/​business 67
petroleum industry 220t, 268–​69, 283, 284, black business 67–​68
285, 297, 301, 498–​99 Black Economic Empowerment
corporate structure, industrial development (BEE) 78–​81
and structural change 351–​52, 357 black middle class 68
energy and climate change 309, 310t cooperation structures 73–​75
industrial policy 518t crisis and decline (2007-​17) 81–​85
petroleum markets -​downstream 286–​91 economic policy and political settlement
Petroleum Products Act 1977 288 (1990-​96) 71–​72
Petroleum Products Amendment Act historical background 66
2003 288–​89 organized labour 68
PetroSA 80, 286–​87, 289–​90, 291, 613–​14 political parties 69–​70
Philip, K. 762 politics of growth 75–​78
Phillips curve 982 poor 69
Phillips, L. 36 precariat 68–​69
Phillips, W. 981 state 69
physical capital 141, 896 strategies (pre-​1990) 70
PicknPay 358, 359, 406 whites 69
Pietermaritzburg Economic Justice and working groups 77
Dignity Group (PEJDG) 835 Polity IV database 959–​60
Piketty, T. 119–​20n.14, 176 Polokwane conference (2007) 84, 581–​82
Pioneer Foods 223, 234 polygamy 819
Piraino, P. 185–​86 Pongola 325, 330, 331t, 332t, 334, 335
Pitman, W.V. 336–​38 population census 203, 736
Plagerson, S. 162–​63, 878 population distribution 83t, 650f
plastics industry 352t, 352–​53n.1, 518t, 521, 929 populism, rural 81
platinum industry 119, 121n.15, 264–​67, 265f, Porter, L. 759
268, 270, 271, 275, 279, 280 Portes, A. 761
corporate structure, industrial development Portfolio Committee of Communications in
and structural change 353–​54, 361 Parliament 557
1076   Index
Portnet 569
ports 567–​68, 569–​70, 571, 572
Posel, D. 182, 183, 750, 763, 780, 784
post-​apartheid constraints and
performance 115
post-​apartheid economic development
trajectory
developmental outcomes, evidence
for 101–​4
developmental state 104
economic growth and inclusive
development 105–​7
economic policies 93
Growth, Employment and Redistribution
(GEAR) and Mbeki project 94–​97
inequality: contradictory approaches 100–​1
social democracy and Zuma
regime 97–​100
Post-​Apartheid Labour Market Series
(PALMS) 18, 20t, 674, 736–​37, 744
post-​mineral-​energy-​complex (MEC)
industrialization programme 577
Postbank 875, 993, 1006
Poultry Master Plan 401–​2, 404
poultry sector 200, 202t, 207t, 209, 225
poverty
asset poverty 158
chronic poverty 183–​84, 185
conceptual and theoretical issues 158–​59
dynamics of poverty 164–​69
education 159–​60, 162, 163, 166, 168t,
168–​69
employment opportunities, lack of 162
entrepreneurship and SMMEs 638, 639
estimated poverty rates 165t, 166t
extreme poverty 160, 186
feminization of poverty and gender
dimensions 157, 161–​62, 162t, 163, 166,
167t, 170
food poverty line (FPL) 161, 165
food security and hunger 824–​25, 827, 833,
835, 837
headcount ratio 158, 159, 161, 161t, 162t, 165t,
166, 167–​68
health 166, 168t, 844, 845, 846–​47
household economics 817
income poverty 158
inequality 175, 187–​88
investment 913
land and agrarian development 246–​47
line 69
living standards 166, 168t
lower-​bound poverty line (LBPL) 161
migration and remittances 780, 781
money-​metric measures 158, 159, 162, 165, 166
multidimensional poverty index (MPI) 158,
159–​60, 162, 166–​69, 167t
non-​money-​metric measures 159
persistent poverty 183–​84
policy implications 170
post-​apartheid development trajectory 102
poverty gap 158, 159, 161, 161t, 162, 165, 165t,
166
poverty line 158, 159, 160–​61, 165, 169
prevalence 159
public finance and fiscal policy 938
relative poverty 158
rural poverty 169, 170t
selected studies 159
service poverty 158
severity and intensity 166, 168–​69
social security and social
development 869–​7 1, 872–​74, 877–​78,
880, 881–​83
squared poverty gap 158, 161, 161t, 165t, 166
subjective poverty 158
transient poverty 183–​84
trap 188
trends 161t
upper-​bound poverty line (UBPL) 161
urban poverty 169, 170t
urbanization and agglomeration 664–​65
see also poverty, inequality and
unemployment
poverty, inequality and unemployment 3–​4,
10–​15
agriculture 196
climate change and green transition 340
economic growth, inclusivity of 10–​11
economic history 1948-​94 62
inequality 14–​15
macroeconomics of economic growth 891
post-​apartheid development
trajectory 102–​3, 105–​7
 Index   1077

poverty 13–​14 industrial policy 513

unemployment 11–​13 land and agrarian development 254, 256–​57
Power, E. 55–​56 network industry regulation 553, 567–​68
power purchase agreements (PPAs) 292, 293, politics and policymaking (1994
299, 567 onwards) 71
powerbrokers (market matrix) 76f, 76, 77 state-​owned enterprises (SOEs) 576, 579,
PRASA 594t, 613–​14 580, 591
Prasad, G. 310 pro-​cyclicality 937, 952, 978–​79
precarious or non-​standard employment 68–​ processed food sector 223–​24
69, 679, 770, 772 composition 224
predation (competition) 542 export trends 225–​26
Preferential Procurement Policy Framework industrial policy 516
Act 450 regional value chains (RVCs) and
premature deindustrialization 444–​45, 513, integration 398, 400–​1
675–​76, 679, 687 urbanization and agglomeration 655
Presidential Advisory Panel on Land Reform Production Incentive (PI) 387–​88
and Agriculture 252 production volume index 221
Presidential Climate Change Coordinating professional associations 545, 546, 858
Commission 341 Programme for Infrastructure Development
Presidential Commission on the Fourth in Africa 423
Industrial Revolution (PC 4IR) 499–​ programme and qualifications mix
500, 503–​5 (PQM) 698–​99
Presidential Economic Advisory Council Progress in International Reading Literacy
(PEAC) 47, 592, 593, 595–​96 Study (PIRLS) 118, 720, 897, 944
Presidential Labour Market Commission Progressive Association 35
Report 77 Project for Statistics on Living Standards and
Presidential State-​owned Enterprise Council Development (PSLSD) 16–​17, 18, 20t,
(PSEC) 592–​93 177n.1
Pretorius, E. 720n.10 Promotion of Bantu Self-​Government Act
price cap productivity factor 555 1959 802
price cuts 556–​57 property rights 759
price discrimination 539, 541 Prosus 355–​56, 360
price fixing 543 protectionism 59–​60, 70, 512, 675
price gouging 540–​41 economic role in Africa 429, 430–​31
price regulation 553–​54 Fourth Industrial Revolution 493, 494–​95
Pricewaterhouse Coopers 58, 492, 501 Southern African regional value chains and
primary health care (PHC) 848, 849, 850, 851–​ integration 404, 405, 408, 413, 414
52, 853, 856 provincial equitable share (PES) 855
Primary School Nutrition Prudential Authority (PA) 1006
Programme 877–​78 prudential regulation 1003
Princeton Global Forcing (PGF) database 330 Przeworski, A. 960
printing and publishing industry 231, 518t PSG 354t
Priority Action Plan 411 public choice theory 958–​59
Pritchett, L. 75–​76 public debt
private hospital and insurance groups 359–​60 descriptive statistics and correlation
privatization matrix 964t, 967t
co-​operatives 245 evidence 963–​68
1078   Index
public debt (cont.)
growth, inflation and polity 965f
income inequality and education and health
expenditure 962f
inequality and redistribution 967f, 968t
macroeconomy 961f, 965t
monetary policy 974, 985f
political regime characteristics 961f, 966t
stylized facts 959–​63
wastefulness 970f
public finance and fiscal policy
budget deficit 130–​31
budget reprioritization 131
budget revenue by source 945t
budget revenue, expenditure and budget
balances 941t
budgets, conventional and structural 937
counter-​cyclicality 937, 940
debt outlook scenarios 942f
fiscal policy since 2019: post-​capture
recovery and COVID-​19
pandemic 935, 949–​52
GDP 936–​37, 938, 939, 940–​43, 944–​47,
949–​50, 951, 952
post-​apartheid policy 936–​38
democratic transition and institution
building (1994-​99) 936–​37
enhanced revenue mobilization and
institutional consolidation (2000-​
2008) 936, 937
pro-​cyclicality 937, 952
reconstructive policy 938
state capture (2009-​19) 938–​49, 952
tax rates 944–​48, 949–​50
public goods 957, 962, 966, 967t, 968–​69, 970
public interest test 534–​36, 538, 541, 545–​46
Public Investment Corporation (PIC) 80,
270, 568–​69, 580–​81, 582, 593, 594t,
595–​96, 939–​40
public order and safety 944
Public Protector’s ‘State of Capture’
report 589–​90
Public Service Co-​ordinating Bargaining
Council 950
public services 656, 944
public-​private partnerships 291, 515, 702–​3
publication data 474f, 474
Puma Energy 290, 291
puppet authorities 69
Purfield, C.M. 452–​53, 455–​56
Q
Quality Council for Trades and
Occupation 710
Quality of Life Survey 246
Quantec data 19, 403–​4
Quarterly Employment Statistics (QES) 18–​19
Quarterly Employment Survey 943, 947–​48
Quarterly Food Price Monitoring Report 834
Quarterly Labour Force Survey
(QLFS) 16–​19, 20t
entrepreneurship and SMMES 632–​33
gender factors in labour market 736–​37,
741, 747n.8
informal economy 757–​58, 759–​60, 763–​64
labour market 674
macroeconomics of economic
growth 894n.4
post-​apartheid economic
development 102–​3
unemployment 146n.5
youth labour market 694–​96, 702
Quick Response (QR) platforms 378, 389–​90
R
racial factors 3, 11, 13, 14–​15
racial capitalism 469–​70
racial factors
agrarian order in the Cape 31–​33
agriculture 198, 206
Black Economic Empowerment (BEE) 615
competition policy 533
economic growth constraints 111, 112, 115, 127
economic history 1948-​94 49–​50, 56, 58, 59
economic history pre-​1948 43–​44
education 707, 708–​9, 711, 713–​14, 716, 721,
723, 726, 730
exclusion 115–​18
financialization 1020–​21
food security and hunger 829
gender factors in labour market 735, 736,
740–​41, 742, 744, 752
health 844, 845
households 810, 814

inequality 176, 177, 180, 182, 185–​86, 187
informal economy 764
innovation and technological change 467,
469, 471
land and agrarian development 246–​47, 253
migration and remittances 777, 790
mining and minerals 280
network industries regulation 554
politics and economic policymaking since
1994 66, 82, 87
post-​apartheid economic development
trajectory 94, 96, 106
poverty 165, 166, 170
public debt 956–​57
racial state and mineral discoveries 33–​37
segregation 14, 39–​40, 649
social security and social
development 869–​70, 872–​73
state-​owned enterprises 579, 580–​81
STI, innovation and technological
change 480
unemployment 135, 137
urbanization, agglomeration and economic
development 649, 653
youth labour market 691
see also apartheid; Black Economic
Empowerment (BEE)
Racial Fordism 50
rail sector 567–​68, 570–​7 1, 572
Rain 499, 560
Ramaphosa, C.
Black Economic Empowerment (BEE) 602
Fourth Industrial Revolution 503
international trade 456
land and agrarian development 249
macroeconomics of economic growth 904
mining and minerals 264
politics and economic policymaking 79,
85–​86
post-​apartheid economic development 93,
100–​1, 105
public finance and fiscal policy 949
state-​owned enterprises (SOEs) 592,
595–​96
Ramphele, M. 827
Ranchhod, V. 181
Rand Mines 34–​35, 50–​51
Index   1079
Ravallion, M. 13
RCL Foods 234, 358, 360–​61, 403
real estate sector 657, 895t, 896, 903t, 1018–​19
Reconstruction and Development
Ministry 77
Reconstruction and Development Programme
(RDP) 16–​17
Black Economic Empowerment (BEE) 601
economic role of South Africa in
Africa 427
energy and climate change 318
land and agrarian development 244,
257–​58
network industry regulation 555
politics and policymaking (1994
onwards) 71
post-​apartheid development trajectory 93, 95
social security and social
development 873–​74
state-​owned enterprises (SOEs) 579
STI, innovation and technological
change 487
urbanization and agglomeration 659,
662–​63
Reconstruction and Development Programme
(RDP) Act 1998 873
Reddy, A.K.N. 312
Reddy, V. 55–​56
Redford, S. 984–​85
redistribution 127–​28, 957–​58, 959, 966, 967f,
968t, 969, 970
see also Growth, Employment and
Redistribution Strategy (GEAR)
Regional Charter 414–​15
Regional Economic Communities
(RECs) 396–​97, 412, 413
regional electricity distributors (REDs) 292
Regional Indicative Strategic Development
Plan (RISDP) 410–​11
regional policies 524–​25
regional value chains see Southern African
regional value chains (RVCs) and
integration
Regmi, G. 780
Regulation of Monopolistic Conditions Act
1955 533
Regulatory Committee 568–​69
1080   Index

Reinert, E. 481n.11 Rhodes Food Group 223

Rembrandt 47, 53, 354t, 1014–​15 Ricci, L.A. 974–​75
Remgro 354t, 357, 358, 360–​61, 1014–​15 Rich, M. 361n.13
remittances see migration and remittances Richemont 355–​56, 360, 361
renewable energy 285, 296, 300, 301–​2 Richmond, S. 779–​80
climate change 306, 309–​10, 317, 318–​19 Risk Mitigation Independent Power Producer
climate change and green Procurement (RMIPPP) emergency
transition 324, 340 programme 299
economic growth constraints 129–​30 risk premiums 980–​81, 984–​85, 985f
network industry regulation 566–​67 road infrastructure 125
power generation programme 284 Roberts, S. 234–​35, 539n.25, 547n.41
state-​owned enterprises (SOEs) 592 Robinson, J. 35–​36, 113n.3, 971
see also wind and solar energy robotics 8–​9, 489, 491–​92, 501–​2
Renewable Energy Development Rodrik, D. 151, 444–​45, 512–​13, 897–​99
Zones 129–​30 Rogan, M. 162, 164, 763–​64
Renewable Energy Independent Power Romer, D. 904
Producer Procurement Programme Romer, P. 305, 896
(REIPPP) 299, 300, 318, 566–​67 Rompco pipeline 291
rentiers (market matrix) 76f, 76, 77 Roncaglia, A. 481
Renwick, R. 73 Rosenburg, M. 878
research and development (R&D) 9t, 505–​6, Rosenstein-​Rodan 54
896 Rostow, W.W. 49
STI, innovation and technological Rothmans 53
change 471, 474–​76, 478, 479f, 480, 483 routine-​biased technical change
Restrepo, P. 971 hypothesis 680–​81
Retail Market Inquiry 547 Royal Bafokeng Holdings 80
retail sector RSA data 336
corporate structure, industrial development rubber industry 218, 221–​22, 231, 233t
and structural change 352t, 353, 359 ‘Rubicon Speech’ (Botha) 445–​46
economic role of South Africa in Africa 435 Ruiters, G. 311–​12
entrepreneurship and SMMEs 630 rule of law 925
Fourth Industrial Revolution 500 rules of origin 412, 419–​20, 429–​31
informal economy 769, 770, 772 Rupert, A. and Rupert family 47, 53, 60, 62–​63,
international trade 455 360, 361
labour market 675, 678, 683–​84 Rushton, K. 584
macroeconomics of economic growth 895t, Russia 59–​60, 409t, 451, 630–​32, 916t, 944
896, 901, 903t Rusticelli, D. 904
regional value chains (RVCs) and Rustomjee, Z. 53–​54, 62, 118, 284n.4, 444, 578–​79
integration 398, 400–​1
urbanization and agglomeration 656 S
return on assets (ROA) 999b SA Connect 504
return on equity (ROE) 999b SA Townships 56–​57
Revealed Comparative Advantage 262–​63, SA/​Old Mutual 1014–​15
452, 519–​20, 525–​26 Saambou 1005–​06
Rey, H. 983, 984 SABC 594t
Reynders Commission 444 SABMiller 354t, 355
Rhodes, C.J. 34 SACMEQ study 720–​21
 Index   1081

Safmarine 51 see also innovation; technology/​

SAICCOR 51
Said-​Mohamed, R. 832
St. Aubyn, M. 904
Saldanha Steel plant 454, 520
SAMOS 1007
Samsung 492
Sandler, T. 825
Sandton 656–​57
Sanlam 51, 53, 57, 354t, 355–​56, 358, 602,
1014–​15
Sansom, B. 29
Sappi 230, 358, 361
Sarel, M. 980
Sargent, T.J. 956–​58
SASOL see South African Coal, Oil and Gas
Corporation (SASOL)
Savemore 359
‘Saving Mothers 2017’ report 848–​49
Scaw Metals 52–​53
Scerri, M. 469, 480, 482–​83, 484–​85
Schaling, E. 982
Schlosser, C.A. 329
Schonland, B. 55
School Governing Bodies 718–​19
Schotte, S. 160–​61, 163, 183–​84
Schumpeter, J.A. 482, 624
Schumpeterian growth models 892–​93, 896, 900
science, technology, engineering and
medicine (STEM) education 635, 746
science, technology and innovation (STI)
evolution of 468–​73
evolutionary economics, national systems
of innovation (NSI) and contemporary
STI policy challenges 481–​84
performance: quantitative
perspective 473–​80
current indicators, limitations of 479–​80
human capabilities 478, 480
knowledge generation 473–​76, 479–​80
technological sophistication and
innovativeness 476–​78, 480
trends and figures 473–​78
qualitative indicators 480
quantitative indicators 480
technology and innovation policy
(TIP) 510–​11
technological
Scientometrics and Science, Technology
and Innovation Policy (SciSTIP) -​
Department of Science and Technology
(DST) NRF Centre of Excellence 474
Seacom 557–​58
Second Boer war (1899-​1902) 39
second industrial revolution (2IR)
(technological revolution) 491
Second World War 43, 444
section 67 market review process 557, 560
Sector Education Training Authorities
(SETAs) 698, 718
sectoral composition 7–​8
sectoralism 50
security services industry 656, 679, 681, 683–​
84, 772
Selbourne regime 36–​37
self-​employment
entrepreneurship and SMMEs 625, 628–​29,
632–​33, 638
gender factors in labour market 738–​40,
741, 742n.6
informal economy 758n.1, 759–​60, 764,
768, 771
youth labour market 701
Sen, A. 186–​87, 872
Sen, K. 151, 184
services sector 675, 676, 677t, 679, 687
business services 352t, 656, 675–​76, 677–​78,
895t, 896, 903t
catering and accommodation
services 352t, 901
corporate structure, industrial development
and structural change 351–​53, 359–​60,
364–​65
domestic work 677t, 735, 741, 742, 744, 769,
772, 880
hotels and restaurants 895t, 896, 903t
industrial policy 511
labour market 675–​76, 678–​80
post-​apartheid development trajectory 102
regional value chains (RVCs) and
integration 413
sectoral composition of GDP 8t
security services 656, 679, 681, 683–​84, 772
1082   Index

services sector (cont.) see also entrepreneurship and small, medium

tourism 263, 422, 520, 648–​49, 656 and micro enterprises (SMMEs)
urbanization and agglomeration 656 small and medium-​sized enterprises (SMEs)
value chains and industrial development 375 banking and finance 1003
see also community and social services competition policy 534–​35
sector; personal services sector energy and climate change 310
settlement of interior and dynamics Fourth Industrial Revolution 500–​1
of economic change regional value chains (RVCs) and
(1000s-​1700s) 27–​29 integration 400, 407–​8
Sexwale, T. 602 see also small, medium and micro
shadow economy 760–​61 enterprises (SMMEs)
Shane, S. 624, 640 Smil, V. 306–​7
shareholder value (SHV) 350, 1014–​17, 1026 Smit, B. 908, 921, 937
Sharif, N. 481 Smuts, J. 36–​37, 42, 50–​51, 55
Sharma, I. 590 social accounting matrix (SAM) 160
Sharpeville 60 social capital 696–​97, 926
sheep/​goats and wool 27, 32, 33, 200–​1, 207t, social democracy 97–​100, 105–​6
211, 212, 250–​51 social grants 93, 107, 162–​63, 817–​18, 948
Shepard, D. 714 social infrastructure 107
Shin, H.S. 984 social mobility 183–​86, 187
Shoprite 358, 362, 406, 409, 435 intergenerational inequality 185–​86
Sibanye 270, 356n.4 intra-​generational inequality 183–​85
Sibanye Gold 269–​70 social networks 636–​37
Sibanye Stillwater 269–​70 social pacts 106–​7
Sidiropolous, E. 426 Social Partner Dialogue for a Just
Sidrauski, M. 979 Transition 341
Siegel, M. 780 social pensions 876t
significant market power (SMP) 557 social policy 102, 170–​7 1
Simkins, C. 893, 896, 905, 906 Social Relief of Distress (SRD) grant 875,
Simons, J. 54 876t, 877, 880–​81, 882, 951–​52
Simons, R. 54 social security and social development
Singh, A. 590 care dependency grant 876t
Siourounis, G. 960, 971 cash transfers 871, 879
Sirius Real Estate 359 developmental welfare 873–​74
Sithole, M.M. 478 economic growth constraints 123–​24
Skills Development Levy 504 education 879–​80
slavery and abolition of slavery 32, 33 food security and agriculture 879–​80
Small Business Act 1995 702 food transfers 871
Small Business Council 702 foster care grants 876t
Small Business Innovation Fund 635 health 879–​80
Small Business Institute (SBI) 628, 632 informal social and family provision 869–​70,
Small Enterprise Development Act 639 879–​80
Small Enterprise Development Agency Old Age Pension (OAP) 875, 877
(SEDA) 628, 635, 639, 702 Older Persons Grant 148–​49, 817
small, medium and micro enterprises policy issues and future trajectories 881–​83
(SMMEs) 702 poverty and inequality 869–​7 1, 872–​74,
Quarterly Update 628 877–​78, 880, 882–​83

poverty-​targeted public and private social
provision 879–​80
public employment programmes 871
public finance and fiscal policy 944
school fee waivers 871, 879
school feeding schemes 871, 880
social assistance (non-​contributory and
protective) 869–​7 1, 872–​78, 876t, 879,
880–​82
social and community
development 879–​80
social grants 877–​78, 880–​82
social insurance (contributory and
preventive) 869–​7 1, 872–​74, 882
social policy 870–​7 1, 872
social protection and inclusive economic
and social development 871–​72
social protection policies 833
unconditional cash transfers 870, 871
unemployment insurance 869–​70, 872–​73,
874–​75, 878, 880–​82, 953
welfare regime 872–​74
welfare services 879
see also Child Support Grant (CSG)
socio-​economic status (SES) 29, 694, 752–​53,
791–​92, 793
see also class
Soekor 287
Solow decomposition 892–​93
Solow, R. 892, 896
Some, M. 982
South Africa Budget Review 130n.18
South Africa Population Research
Infrastructure Network (SAPRIN) 20t
see also under migration and remittances
South Africa-​European Union (EU) Trade,
Development and Cooperation
Agreement (TDCA) 448
South African Airways (SAA) 584, 594t
competition policy 548
network industry regulation 568–​69
post-​apartheid development trajectory 104
public finance and fiscal policy 942
South African Automotive Benchmarking
Club 380
South African Automotive Masterplan
(SAAM) 381, 383, 385
Index   1083
South African Breweries (SAB) 353, 355–​56,
358, 362
South African Bureau of Standards 430
South African Business Angel Network 636–​37
South African Coal, Oil and Gas Corporation
(SASOL) 51, 270, 273, 291, 298, 578–​79
corporate structure, industrial development
and structural change 354t, 357, 362
economic growth constraints 119
Fourth Industrial Revolution 494
industrial policy 521
South African Communist Party (SACP) 71,
81, 96, 97–​98, 99, 100
South African Cultural Observatory 496–​97
South African Customs Union
(SACU) 388–​89
-​MERCOSUR Preferential Trade
Agreement (PTA) 211–​12
-​Mozambique-​UK Economic Partnership
Agreement 211–​12
South African Index of Multiple
Deprivation 242f
South African Lancet Health Commission on
High Quality Health Systems 849, 858
South African Long-​Term Adaptation
Scenarios Flagship Research
Programme 323–​24
South African Medical Research Council
(SAMRC) 852
South African Multiple Option Settlement
System (SAMOS) 994
South African National Health and
Nutrition Examination Survey
(SANHANES) 831–​32, 849
South African National Roads Agency
(SANRAL) 127, 275–​76, 580, 582, 584,
594t, 942
South African Police Service Medical
Scheme 859
South African Post Office (SAPO) 594t
South African Qualifications Authority
(SAQA) Act 1995 708, 709
South African Rail Commuter Corporation
(SARCC) 580
South African Reserve Bank (SARB) 19, 994,
997–​98, 1006, 1008
3D Secure 500–​1
1084   Index
South African Reserve Bank (SARB) (cont.)
Bank Supervision Department 1003
competition policy 549–​50
economic history 1948-​94 52–​53, 54–​55
financialization 1023–​24, 1026
Fourth Industrial Revolution 501
international trade 454n.10, 454–​55
monetary policy 974–​75, 976, 977, 979–​80, 982
politics and policymaking (1994 onwards) 74
public finance and fiscal policy 937
unemployment 150
South African Retail Clothing, Textiles,
Footwear and Leather Value Chain
Masterplan 392, 450
South African Revenue Service (SARS) 18, 19,
455–​56, 460–​61, 994n.2
public finance and fiscal policy 939–​40,
944, 948–​49, 951
South African Schools Act 1996 708
South African Social Security Agency
(SASSA) 874–​75
South African Stress and Health (SASH)
study 849
South African Telecommunications
Regulatory Authority (SATRA) 555
South African VANS Association
(SAVA) 556–​57
South Asia 305, 900n.8
South-​East Asia 900n.8
South 32 270
Southern Africa 376–​77
Southern Africa Agri Initiative (SAAI) 199t
Southern African Customs Union (SACU)
Agreement of 1910 431
Agreement of 2002 432, 437
economic role of South Africa in
Africa 419–​20, 424, 428–​29, 431–​33,
434, 437
international trade 447n.5, 449, 455
regional value chains (RVCs) and
integration 397–​98, 410, 412–​13, 414
Southern African Customs Union (SACU)
plus Mozambique (SACUM) 432, 433
-​United Kingdom EPA 437
Southern African Development Community
(SADC)
Accreditation Service 412
agriculture 213
agro-​processing 225
Economic Partnership Agreement 448
economic role of South Africa in
Africa 421, 424, 427, 434–​35
free trade agreement (FTA) 455
Free Trade Protocol 448
Industrialization Strategy and
Roadmap 412–​13
international trade 449–​50, 455–​56
migration and remittances 779
Protocol on Politics, Defence and Security
Cooperation 421
Regional Cooperation in Competition and
Consumer Policies declaration 400–​1
Regional Indicative Strategic Development
Programme (RISDP) 428
Regional Infrastructure Development
Master Plan 411
regional value chains (RVCs) and
integration 397–​98, 400, 410, 411–​12,
413–​14
regional value chains (RVCs), agro-​
processing 401, 402f, 404–​5, 407
Secretariat 428
STI, innovation and technological
change 473–​74
Summit 2003 410–​11
Trade Protocol 405, 410–​11, 419–​20, 427–​31,
435–​36, 437
Treaty 1992 410
value chains and industrial
development 388–​89
Vision 2050 410–​11
Southern African Migration Project (SAMP)
Migration and Remittance Survey
(MARS) 779–​80
Southern African Power Pool (SAPP) 341–​42
Southern African regional value chains
(RVCs) and integration
agro-​processing 398, 401–​9, 412
animal feed-​to-​poultry 398, 401–​4
sugar-​to-​confectionery 398, 401, 404–​6
supermarket chains 398, 400–​1, 406–​9
buyer-​driven value chains 399
functional upgrading 399
global value chain (GVC) framework 399–​401

governance 399
intersectoral upgrading 399
intra-​regional trade 397, 409t, 413
process upgrading 399
producer-​driven value chains 399
product upgrading 399
record of regional integration 410–​13
upgrading 399, 400–​1, 406–​7
Southern Common Market
(MERCOSUR) 449
sovereign debt crisis 445–​46
Soweto riots 442n.2, 445–​46
soybeans 207t, 209–​10, 213–​14, 403–​4
Soytas, U. 311–​12
Spain 692
Spar 358, 359, 406
spatial development initiatives (SDIs) 515, 524
spatial mismatch hypothesis 695
Spaull, N. 720n.10
special economic zones (SEZs) 515, 524–​25
Special Economic Zones (SEZs) Bill 2011 525
Special Investigating Unit (SIU) 254, 586
special purpose vehicles (SPVs) 995t
Sri Lanka 854f
Ssnhadji, A.S. 980
stagflation 979–​80
Stallard Commission 112n.1
Standard Bank 355–​56, 435, 656–​57, 1005,
1018–​19
Standard Industrial Classification
(SIC) 451–​52
Standard Industrial Trade Classification
(SITC) 452
Standard and Poor’s 937, 940
Standing, G. 736
Stark, O. 778, 780
state capacity 126–​29
‘state capture’ 293, 517, 577, 580–​81, 590, 591,
595–​96, 615, 938–​49, 952
state intervention 42, 510–​11
State Land Lease and Disposal Policy
(SLLDP) 246–​47
State-​Owned Enterprise (SOE) Governance
Act 593
state-​owned enterprises (SOEs)
apartheid era 578–​79
banks 32–​33
Index   1085
Black Economic Empowerment
(BEE) 613–​14
competition policy 547–​49, 550–​51
corporate structure, industrial development
and structural change 364
current state of play 582–​85
early democratic era 579–​81
economic growth constraints 123–​24
economic history 1948-​94 51–​52, 55, 59–​60
economic role of South Africa in Africa 424
energy 283, 291, 299, 301
Eskom case study 586–​89
governance and bid for inclusive national
capitalism 591–​95
industrial policy 517
mining and minerals 275–​76
network industry regulation 554, 557, 560–​61,
567, 570–​72
politics and policymaking (1994
onwards) 70, 71, 76, 84
post-​apartheid development trajectory 94,
95–​96, 106
procurement and black industrial
class 581–​82
public finance and fiscal policy 938, 948–​49, 951
Transnet case study 589–​91
Statistics South Africa (StatsSA) 16–​18, 19, 20t
agriculture 201–​3, 213
entrepreneurship and SMMEs 632–​33
food security and hunger 829–​31
Fourth Industrial Revolution 498–​99
gender factors in labour market 736–​37
inequality 176–​77, 179, 181–​82, 183–​84
labour market 674
macroeconomics of economic growth 894n.4
mining and minerals 270
poverty 159, 161, 162, 165
steel industry 267, 268–​69, 270, 272, 274
corporate structure, industrial development
and structural change 351–​52, 352t,
357, 362
economic history 1948-​94 50–​51, 52–​53, 57
Fourth Industrial Revolution 498–​99
industrial policy 518t, 520–​21, 525–​26
international trade 444, 447, 454
state-​owned enterprises (SOEs) 578–​79
urbanization and agglomeration 648, 655
1086   Index

steel value chain 261 supermarket chains 355, 358, 359, 362, 398,
Stern, D.I. 309 400–​1, 406–​9
Steyn, E. 567 supplier development programmes (SDPs) 408
STI Institutional Landscape (STIIl) Review Survey of Employers and the Self-​employed
Panel 468–​69 (SESE) 19
Stiglitz, J. 978, 980 Survey of Employment and Earnings (SEE)
STRATE LVPS 994 18–​19
strategic equity partner (SEP) 555, 556, survivalists 759–​60
568–​69 Sustainable Development Goals (SDGs) 317,
Strategic Fuel Fund 290 823–​24, 848–​49, 871
Strategic Industrial Projects (SIP) Sustainable Livelihoods Foundation 759
programme 454, 520 Sutherland, E. 492
Strategic Plan for the Prevention and Svensson, L. 957, 958, 969
Control of Non-​Communicable Swaziland 30, 388–​89, 388t, 390, 392, 431–​32
Diseases 835–​36 Swilling, M. 578
Strauss, L. 899–​900 Swiss Air 568
strikes 48, 59, 62–​63, 114, 271, 279 Swiss Banking Corp 58
see also Marikana strikes and massacre Systematic Analysis of Climate Resilient
structural change see corporate structure, Development (SACReD) 327–​29, 328f
industrial development and structural Systemically Important Payment Systems
change (SIPSs) 994
structural transformation Systems and Market Operator Division 567
agriculture 200 systems theory 794
agro-​processing 219
at product level 456–​57 T
economic growth 7–​8 Tabellini, G. 957, 958, 969
labour market 675, 681, 687 Takealot 360, 500
structuralist school -​formal-​and informal-​ Tanaka, S. 851–​52
sector linkages 758, 761–​63, 772 Tanzania 388t
stunting 823, 827, 832–​33, 862 tariffs 42–​43, 210–​11
Sturzenegger, F. 937, 977 taxation
sub-​Saharan Africa 305, 455–​56, 492 administrative tax 18
subjective theory of value 481 corporate income tax (CIT) 947–​48
Subramanian, A. 456, 460–​61 data 20t
substantial lessening of competition (SLC) personal income tax (PIT) 654, 940, 944–​
test 537, 545 48, 949
Suckling, J. 61 public finance and fiscal policy 937, 944–​
Sugar Act 1978 405 48, 949–​50
sugar cane 39, 202t, 212, 213–​14, 224t, 334, 353, subsidies 930–​31
358, 429, 457 value added tax (VAT) 947–​48
Sugar Cooperation Agreement 405 Taylor Commission of Inquiry into a
Sugar Export Corporation 405 Comprehensive Social Security
Sugar Industry Agreement 2000 405 System 874
Sugar Master Plan 405–​6 Taylor rule 977
sugar-​to-​confectionery 398, 401, 404–​6 Technical Vocational and Training (TVET)
Sulla, V. 102 system 695, 698–​99, 708, 710, 718,
Super Group 358 719, 723

technology/​technological
access (entrepreneurship) 636
capabilities 349–​50
change see science and technology industry
(STI), innovation and technological
change
innovation 198, 301–​2
lock-​in 296–​97, 301
progress 4, 896
technology and innovation policy
(TIP) 510–​11
transfers 61
upgrading 8–​9, 9t
see also innovation; science, technology and
innovation (STI)
Telecommunications Act 1996 554–​55, 556, 558
telecommunications and communications sector
5G 125, 491–​92, 493, 496, 560–​61
broadband access 504
Cell C 558, 560
corporate structure, industrial development
and structural change 352t
economic role of South Africa in Africa 435
fixed line 555–​58
industrial policy 518t
information and communication
technology (ICT) 923
infrastructure 125–​26, 131
innovation and technological
change 498–​99
internet penetration rate 496
macroeconomics 895t, 896, 903t
media platforms and telecoms 359
mobile phone and ICT companies 355
network industries regulation 554–​61, 572
professional equipment 498–​99
urbanization and agglomeration 657
Telkom 580, 584
competition policy 548, 549
economic role of South Africa in
Africa 424
network industry regulation 554–​55, 556–​58,
559–​60
politics and policymaking (1994
onwards) 80
Temporary Employer-​Employee Relief
Scheme (TERS) 881
Index   1087
Temporary Employment Services
(TES) 676–​77
temporary work 678–​79
Ten-​Year Innovation Plan (2008-​18)
(TYIP) 471
Tencent 360, 365
Tepco 535n.18
terms of trade 5
Terreblanche, S. 54, 57
tertiary sector see services sector
Textile and Clothing Industry Development
Programme 227–​28
textiles and clothing sector 221–​23, 226–​28,
232–​34, 233t, 235–​36
economic history 1948-​94 47
economic role of South Africa in
Africa 429
Fourth Industrial Revolution 498–​99
industrial policy 515–​16, 516t, 518t, 522–​24
international trade 462
macroeconomics of economic growth 901
regional value chains (RVCs) and
integration 412
value chains and industrial
development 377, 378, 385–​91, 392
Thailand 512t, 522, 523t, 523, 856f, 942, 949–​50
Thandryan, P. 426
third industrial revolution (3IR) 491
Thornton, A. 803–​8
Tiger Brands 223, 234, 358
Tilly, C. 182
Time Use Surveys (TUS) 20t, 747, 748
Timmer, P. 200
Tisdell, C.A. 780
TLU-​SA 199t
tobacco industry 221–​22, 233t, 358, 361,
498–​99, 518t
Tobin hypothesis 979
Tomlinson Commission (1956) 51–​52
Tongaat Hulett 223, 234, 358, 657–​58
top 100 companies 355–​56, 356f, 365–​69
Topalova, P. 985
Total 287, 298
total factor productivity (TFP) 483, 913, 938, 980
see also under macroeconomics of
economic growth
tourism sector 263, 422, 520, 648–​49, 656
1088   Index
Toynbee, A. 490–​91
Toyota 47
tractors and farm machinery industry 209,
210t, 210
Trade and Industrial Policy Strategies
(TIPS) 919–​20
Trade Related Investment Measure
(TRIM) 380
Trade in Services Protocol 410–​11
trade unions 271, 676–​77, 681, 682–​83
Traditional Courts Bill 254
Traditional Leadership Governance
Framework Act 254
Training Layoff Scheme 686–​87
Tralac 411
transfer payments 148–​49
Transitional Executive Council 71–​72
Transkei 38
transnational corporations (TNCs) 355, 357,
361, 362
Transnet 273–​75, 424, 589–​91
Black Economic Empowerment
(BEE) 613–​14
mining and minerals 275–​76
network industry regulation 557, 567–​68,
569
politics and policymaking (1994
onwards) 84
state-​owned enterprises (SOEs) 580, 582,
584, 585, 594t
Transnet National Ports Authority
(TNPA) 569–​70
Transnet Port Terminals (TPT) 569
Transnet Rail 570
transparency 857, 860, 976
Transport Economic Council (TEC) 570–​7 1
Transport Economic Regulator (TER) 571,
877
transport equipment sector 220t, 413, 498–​99
transport sector
bus rapid transit (BRT) systems 662–​63
climate change and green transition 341
corporate structure, industrial development
and structural change 352t
informal economy 769, 769f, 770f, 770, 772
investment 915, 923, 928f, 929, 930
labour market 675, 677t
macroeconomics of economic growth 895t,
896, 901–​2, 903t
minibus-​taxis 663
network industry regulation 554, 567–​7 1
politics and policymaking (1994
onwards) 85–​86
rail 567–​68, 570–​7 1, 572
and urban connectivity 662–​64
urbanization and agglomeration 646, 656
Transtel 557
Transvaal 35–​37, 39–​40, 41–​42, 52, 443
climate change and green transition 325,
330, 331t, 332t, 334, 335, 338, 339
Treatment Action Campaign 846
Tregenna, F. 445n.3, 780, 901
Trends in Mathematics and Science Study
(TIMSS) 720–​90, 897
Trident/​Dorbyl merger 537
trilemma hypothesis (Mundell) 983
Tripartite Alliance 100
Tripartite Free Trade Area (T-​FTA)
(COMESA-​EAC-​SADC) 412
Trust Bank 47
Tshimologong Digital Innovation
Precinct 636–​37
tuberculosis 844, 846, 847–​48, 847f, 855
Tunisia 512t, 523t, 523
Turkey 4, 5f, 6t, 7f, 8t, 9t, 10f, 12t, 14
energy and emissions intensity 285f
industrial policy 512t, 523t, 523
public finance and fiscal policy 944
Turok, I. 655
TymeBank 501
U
U-​Save 359
Uber 504–​5
Uleanya, C. 493
Umkhonto we Sizwe (ANC army) 59–​60
unbundling 557, 1016
uncertainty 917, 920–​23, 978, 979, 980
unemployment 12t
broad or expanded definition 136
classical (Marxian) unemployment 138–​39
demand side 145
economic growth constraints 117f, 119
financialization 1016, 1021–​22

gender factors in labour market 738–​41,
740f, 752
growth rate 140f
household economics 817, 818
inequality 177, 187–​88
informal economy 770–​7 1
involuntary unemployment 139, 149
Keynesian unemployment 138–​39, 142
labour market 685–​86, 687–​88
location 137
microeconomic perspectives 145–​49,
897–​98, 901, 904
monetary policy 978, 981–​82
narrow or strict definition 136, 146n.5
non-​searching unemployment 137
not in employment, education or training
(NEETs) 697–​98
open unemployment 141, 142
politics and policymaking (1994
onwards) 72, 75
post-​apartheid development trajectory 101,
102–​4
post-​apartheid economic policy 149–​52
poverty 161, 168
public finance and fiscal policy 938, 947–​48
searching unemployment 137
structural causes 138–​44, 145, 526
supply side 145
trade policy 151
trends and patterns 136–​38
voluntary unemployment 148
see also poverty, inequality and
unemployment; youth unemployment
Unemployment Insurance Act 2011 772
Unemployment Insurance Fund (UIF) Act
2001 880–​81
Unemployment Insurance Fund (UIF)
benefits 874–​75, 881, 951–​52
Unifer 1005–​06
Union Acceptances Ltd (UAL) 56–​57
Union Bank of Switzerland 58
Union of South Africa 36–​37, 39–​40
Union Steel Corporation 41–​42
United Conference Ticket (UCT) 35
United Democratic Front 59
United Kingdom 47, 432, 692
banking and finance 998–​1001, 1008
Index   1089
energy and emissions 285f
entrepreneurship and SMMEs 409t,
630–​32
health 851, 854f, 855–​56, 856f
house price inflation 1021f
international trade 455
Payment Protection Insurance
scandal 1004n.6
United Nations 425–​26, 647
Agenda 2030 871
Conference on Trade and
Development 422–​23
Declaration of Human Rights 871
Development Programme (UNDP) 919
Environmental Programme 339–​40
Framework Convention on Climate Change
(UNFCCC) 316
General Assembly resolution 423
‘oil for food’ programme in Iraq 80
Security Council Resolution 425
System of National Accounts 999b
United States 47, 692
banking and finance 999b, 1008
competition policy 539n.25
Comprehensive Anti-​apartheid sanctions
bill 48
Department of Agriculture (USDA)
methodology 336
entrepreneurship and SMMEs 409t,
630–​32
Federal Reserve 984, 1024
financialization 1015–​16
house price inflation 1021f
international trade 449
monetary policy 984
Sherman Act 534n.12
value chains and industrial
development 384
United States-​China trade war 512
Universal Declaration of Human Rights
(UNDR) 825
universal democratization 969
Universal Service and Access Authority of
South Africa (USAASA) 504, 556
Universal Service Fund (USF) 556
universalism 871
University of Texas Inequality Project 961
1090   Index

unspecified duration contracts 692 van der Bijl, J.J. 57

upper class 93 Van Eyden, R. 893, 920
Upstream Petroleum Resources Development Van Niekerk, R. 964–​66
Bill 287 Van Onselen, C. 34, 35–​36
uranium sector 52, 447 Van Reenen family 32–​33
urbanization and agglomeration Van Rensburg, T. 939
built environment institutions 653 van Rooyen, D. 100–​1
dormitory townships 647 vanadium 52
economic history pre-​1948 43 vector autoregression (VAR) model 930, 984
former homelands 647 Vedia-​Jerez, D. 904
historical background and urban vegetables sector 202t, 212f, 212, 223, 224t, 224,
policy 648–​52 225–​26
policies and politics 649–​51 Venkataraman, S. 624
post-​apartheid urbanization 649 venture capitalists 635
urban-​rural tensions 651–​52 Vereeniging Brick and Tile Company 41–​42
housing and urban density 658–​61 vertical agreements 536, 540n.28, 543–​46, 548
backyard rental housing 660–​61 vertical integration 562, 565
mass housing programme Verwoerd, H.F. 51–​52
(government) 659–​60 Victoria Falls Power Company 57
informal settlements 649, 665 Viegi, N. 900, 923–​24, 977, 982
post-​apartheid 649 villagization 827
spatial concentration and firm Visagie, J. 655
performance 652–​58 Visser, E. 893, 939
different industries, experience viticulture/​wine industry 32, 33, 200–​1, 207t,
of 655–​56 211, 224, 224t, 225
sectoral analysis 656–​58 Vodacom 80, 355–​56, 360, 496, 499, 557, 558–​
theoretical advantages of 59, 560
agglomeration 652–​54 Vodaphone 80
urban experience 654–​55 voluntarist school -​regulation evasion and
squatter settlements 659 shadow economy 758, 760–​61
townships 649, 650–​51, 659 von Fintel, D. 146, 982
transport and urban connectivity 662–​64 Von Holdt, K. 128
user cost of capital 917, 919–​20 Vorster, B.J. 60
Usury Act 1968 998–​1001 VSNL 557–​58
utilities sector (electricity, gas and water) 675,
677t, 895t, 896, 903t W
WACS 557–​58
V Wade, R. 127
Valodia, I. 760–​61 Wage Board 43
value added 676f, 999b wages
see also gross value added (GVA) distributions by union status and public/​
value added network services (VANS) 554–​55, private sector 683f
556, 557 economic growth constraints 123–​24, 130
value chains 350, 375–​93, 496 economic history 1948-​94 48, 62
Van Benthem, A.A. 309 elasticities 145–​46
Van Broekhuizen, H. 722, 723 Fourth Industrial Revolution 496–​98
van der Berg, S. 714, 720–​21 gender factors in labour market 744–​47
 Index   1091

inequality 177, 181f poverty 160–​61, 162, 163, 166t

informal economy 763 social security and social development 875
intergenerational transmission 186f urbanization and agglomeration 654, 656
labour market 680f WhatsApp 504–​5
macroeconomics of economic wheat 31, 32, 33, 207t, 211, 213–​14, 225–​26,
growth 897–​99, 900, 981–​82 250–​51, 334
migration and remittances 779–​80 White Paper on Energy Policy (1998) 565–​66,
mining and minerals 278 567
monetary policy 980–​81 White Paper on National Climate Change
polarization 680–​81 Response (2011) 323–​24, 327
politics and policymaking (1994 White Paper on National Integrated ICT
onwards) 72 (2016) 504
reservation wage 148 White Paper on the National Strategy for the
rigidities 146–​47 Development and Promotion of Small
see also income; under labour market; Business (1995) 623–​24
minimum wages White Paper for Post-​School Education and
Wal-​Mart Inc and Massmart Holdings Ltd 538 Training (2014) 698–​99
Walwyn, D. 476 White Paper on Privatization and
war veterans grant 876t Deregulation (1987) 554–​55, 567–​68
Wassenaar, A. 60 White Paper on Science and Technology
wastefulness 969–​70, 970f (1996) 467–​68, 470–​7 1, 481
water White Paper on Science, Technology and
runoff 336–​38 Innovation (STI) (2019) 467–​68,
and sanitation 101–​2 472–​73, 483
scarcity 338 White Paper for Social Welfare (1997) 873–​74
system see under climate change and green White Paper on Telecommunications Policy
transition 1996 555, 564, 570
Watson family 939–​40 White Paper on Transport Policy
Webster, E. 162–​63, 762 (1996) 567–​68
Wehrner Beit and Co 36 wholesale sector
Weil, D. 904, 962 corporate structure, industrial development
Weiss, J. 510–​11 and structural change 352t
Weisstanner, D. 505 entrepreneurship and SMMEs 630
Werker, E. 75–​76 financialization 1018f
Wernher, J. 34–​35 informal economy 769, 770
Wessels, A. 47 labour market 675, 678, 683–​84, 684f
Western Cape macroeconomics of economic growth 895t,
agro-​processing 223–​24 896, 901, 903t
climate change and green transition 325, Wiehahn Commission on labour
326, 330, 331t, 332t, 334, 335, 338, 341 relations 58–​59
economic history 1948-​94 55–​56 Williamson, J.G. 779–​80
energy and climate change 318–​19 Willis, R.J. 780
entrepreneurship and SMMEs 630 Wills, G. 763, 877
food security and hunger 834, 836 Wilson, F. 827
health 850, 853 wind and solar energy 124, 129, 131, 297, 299,
land and agrarian development 249f 301–​2, 340
migration and remittances 790, 792 Winter, S. 482
1092   Index

Wireless Business Solutions (WBS) 559–​60 land and agrarian development 241–​42
Wittenberg, M. 14, 674, 696, 803–​8 unemployment 151
Witwatersrand Trades and Labour Council 35 Wright, J. 298
Woessmann, L. 896–​97 Wunnava, P.V. 791–​92
Wolpe, H. 49–​50, 56, 113–​14 Wunsch-​Vincent, S. 483–​84
World Economic Forum (WEF) 115, 969–​70
wood, wood products and furniture 218, X
222–​23, 230–​31, 232–​34, 233t, 307–​8, Xaba, M.B. 162–​63
498–​99, 518t Xstrata 361n.13
Woolard, I. 162–​63, 178, 780
Woolworths 358, 362, 406 Y
workhorses (market matrix) 76f, 76, 77 Yeldan, E. 150
working class 68 Youth Advisory Centres (YACs) 700
World Bank 19, 20t youth labour market
Deininger and Squire datasets 961 aggregate demand 693
economic history 1948-​94 47, 48, 60–​61 apprenticeships 698–​99
economic role of South Africa in education 690, 694–​95
Africa 429 education drop-​outs 694–​95
energy and climate change 306 employment opportunities,
Enterprise Survey (WBES) 19 insufficient 693–​94
entrepreneurship and SMMEs 634 geographical location 695–​96
financialization 1022–​23 information asymmetry 697
industrial policy 510–​11, 522 internships 698
investment 920, 923–​24, 930–​31 job search costs 695–​96
land and agrarian development 240–​41, learnerships 698–​99
245 neighbourhood peers 696
macroeconomics of economic networks and social capital 696–​97
growth 893n.3 opportunity perceptions 695–​96
public debt 959, 962 skills mismatch 693
public finance and fiscal policy 950–​51 socio-​economic status 694
Rural Restructuring Proposals 244 technical skills acquisition 698–​99
urbanization and agglomeration 647 see also youth unemployment
World Development Indicators (WDI) 19 youth unemployment 12, 138, 691–​93, 694,
World Economic Forum (WEF) 492 695, 696, 697–​702
Future of Jobs 496–​97 direct job creation in public sector 701–​2
Global Competitiveness Index job-​search assistance 699–​700
(GCI) 505–​6 poverty 170
trilemma index 296–​97 private-​sector employment
World Health Assembly 823 subsidies 700–​1
World Health Organization (WHO) 848 public training policies 698–​99
World Trade Organization (WTO) self-​employment support 702
Agreement on Subsidies and Yu, D. 163–​64
Countervailing Measures 381 Yudelman, D. 36–​37
agriculture 197
economic role of South Africa in Africa 435
Z
food security and hunger 831–​32
Zalk, N. 513, 901, 902
industrial policy 511–​12
Zambia 403–​4, 405, 430
international trade 449, 460
Zambia Sugar 405
 Index   1093

Zere, E. 832 energy 290, 293

Zeufack, A.G. 512–​13 industrial policy 517
Zhuravskaya, E. 957–​58 land and agrarian development 244,
Zikhali 102 248–​50
Zimbabwe 430, 779 network industry regulation 570–​7 1
Zimbalist, Z. 169 politics and economic policymaking 80–​82,
Zizzamia, R. 160–​61, 184 83–​85, 86
Zondo Commission of Inquiry into Allegations post-​apartheid economic development 93,
of State Capture, Corruption and Fraud 105, 107–​8
in the Public Sector 939–​40 public finance and fiscal policy 939–​40,
ZPMC 590 942–​43
Zulu, L. 505 social democracy 97–​100
Zuma, J. social security and social development 874
corporate structure, industrial development state-​owned enterprises (SOEs) 580–​82,
and structural change 364–​65 583, 589, 593, 595–​96
education 719 urbanization and agglomeration 651–​52