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South Africa’s Economic Growth Challenge:Convergence or Divergence?
Haroon BhoratDevelopment Policy Research Unit
School of Economics, University of Cape Town
2014 SA Technical and Vocational Education and Training Conference
Tuesday, 18th November 2014
Outline
• The South African Economy: The Genesis of An Emerging Market Growth Trap– Economic Growth Trends In Global Comparison– Savings and Investment Trends – Export Composition and Global Competitiveness: Perpetuating a
Growth Trap
• The Socio-Economic Outcomes of our Growth Trap• Policy Challenges for Growth Convergence: Some Concerns
– Unintended Consequences: A Economic Growth Path Dependency? – Schooling, Skills and Higher Education: Building Linkages– Industrial Policy: From Capital Intensity to Relative Prices and the Informal
Sector
• Conclusions
The Genesis of A Growth Trap:Real GDP Index,1990-2013
Source: IMF World Economic Outlook, 2014
0
500
1000
1500
2000
2500
3000
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
GD
P In
dex
Brazil India Indonesia Malaysia Philippines South Africa Turkey
The Genesis of A Growth Trap:Average Annual growth of GDP p.c.:1990-2013
Source: IMF World Economic Outlook, 2014
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
South Africa Brazil Philippines Turkey Indonesia Malaysia Korea India China
CA
GR
, GD
P p
er c
apit
a
The Genesis of A Growth Trap:Gross Domestic Fixed Investment (Percentage of GDP)
0
10
20
30
40
50
60
China India Indonesia Korea Malaysia Philippines Brazil Turkey SouthAfrica
% o
f GD
P
1990 2000 20002010
Source: IMF World Economic Outlook, 2014
The Genesis of A Growth Trap:Gross Domestic Savings (Percentage of GDP)
0
10
20
30
40
50
60
China Malaysia India Indonesia Korea Philippines Brazil South Africa Turkey
% o
f GD
P
1990 2000 2010
Source: IMF World Economic Outlook, 2014
The Genesis of A Growth Trap:Exports as % of GDP
-15
-10
-5
0
5
10
15
20
25
30
Malaysia Indonesia Turkey South Africa Brazil Korea Philippines India China
% o
f GD
P
1990 2000 2010
Source: IMF World Economic Outlook, 2014
The Genesis of A Growth Trap:High-Technology Exports (Percentage of Manufactured Exports)
0
10
20
30
40
50
60
70
80
Brazil China India Indonesia Malaysia Philippines South Africa Turkey Korea, Rep.
2000
2012
Source: World Bank Databank
% o
f Man
ufac
ture
d E
xpor
ts
The Genesis of A Growth Trap:Manufacturing vs. Metals?
Source: World Bank Databank
0
10
20
30
40
50
60
70
80
90
100
Brazil China India Indonesia Malaysia Philippines SouthAfrica
Turkey Korea,Rep.
Manufacturing
Iron Ore & Metals
% o
f Mer
chan
dise
The Genesis of A Growth Trap:Unemployment Rates in the Emerging World
Source: IMF World Economic Outlook, 2014
0
5
10
15
20
25
30
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Une
mpl
oym
ent
Rat
e (%
)
Brazil China India Indonesia Korea Malaysia Philippines South Africa Turkey
The Socio-Economic Outcomes of our Growth TrapReal Growth Incidence Curve for South Africa, 1995-2010
Source: Statistics South Africa (1995 and 2013); Own Calculations using Per Capita Household IncomeNotes: 1. The 1995 population weights are based on the cross-entropy methodology calibrated using ASSA’s
2003 population model. 2. The 2010 population weights are based on the 2001 Population Census.
The Socio-Economic Outcomes of our Growth TrapIncome and Expenditure Inequality: Gini Coefficients, 1995 and 2010
Source: Statistics South Africa (1995 and 2010) and Authors own calculations Notes: The asterisk (*) sign suggests statistically significant at the five percent level
Income Expenditure
1995 2010 1995 2010
Total* 0.663 0.696 0.618 0.660
By Race of Household Head
African* 0.587 0.645 0.548 0.581
Coloured* 0.489 0.588 0.474 0.542
Asian 0.462 0.522 0.445 0.489
White 0.446 0.469 0.397 0.450
By Gender of Household Head
Male* 0.641 0.667 0.606 0.647
Female* 0.647 0.679 0.575 0.619
Policy Challenges for Growth Convergence: An Unintended Political Economy Path Dependency?
Source: S. Mahajan, World Bank, 2012.
Policy Challenges for Growth Convergence: Education: Standardised Test Scores: A Southern Africa Comparison
Source: SACMEQ (III) Notes: SACMEQ III was undertaken from 2005 to 2010, targeted all pupils in Grade 6 level (at the first
week of the eighth month of the school year) who were attending registered mainstream primary school. The desired target population definition for the project was based on a grade-based description and not age based description of pupils.
0
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300
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500
600
700T
anza
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Seyc
helle
s
Mau
ritiu
s
Swaz
iland
Ken
ya
Bots
wan
a
Zan
ziba
r
Zim
babw
e
Nam
ibia
Sout
h A
fric
a
Uga
nda
Moz
ambi
que
Leso
tho
Zam
bia
Mal
awi
SAC
MEQ
ReadingMathematics
Policy Challenges for Growth Convergence: Education: Average Grade Test Scores
Source: Development Indicators 2012, The Presidency, based on SACMEQ III project results
0
10
20
30
40
50
60
Mathematics Home Language
Grade 3Grade 6Grade 9
Policy Challenges for Growth Convergence: Education: Production Function Estimates of Schooling
Source: PALMS, 1995-2012. Authors own calculations.Notes: Standard errors in parentheses, ** p<0.05
Variables Coefficient
None -0.024
Primary -0.023
Secondary 0.145
Matric 0.159
Certificate -0.05
Degree 0.104**
Policy Challenges for Growth Convergence: Education: Production Function Estimates of Schooling
• These Learning Deficits are located in the Arts and Sciences.• Tend to Increase Over Time.• Shapes the Economic Growth Opportunities and Outcomes for the Country.• Creates the Market to Reduce Such Deficits.• Shows challenges in the schooling pipeline and FET system in bid to
contribute significantly to long-run economic growth.• TVET System:
– ‘Grade-Hiring Inflation’• The quality of both the schooling as well as the FET college system is
hampering labour market absorption of those qualified with less than a university degree.
Policy Challenges for Growth Convergence: Labour and Capital: Real Wage and Employment Growth
Source: Stats SA, QLFS 2000 - 2012
Policy Challenges for Growth Convergence: Labour and Capital: Annual growth in Capital Investment by Sub-Sector, 1990-2012
Source: Quantec-8.0% -6.0% -4.0% -2.0% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0%
A13411: Medical, dental and veterinary services [93]
A13412: Excluding medical, dental and veterinary services [94-96]
A1123: Other mining [22/24/25/29]
A12152: Basic non-ferrous metals [352]
A1231: Building construction [51]
A12193: Other manufacturing [392-393]
A12141: Glass and glass products [341]
A1221: Electricity, gas and steam [41]
A12123: Printing, publishing and recorded media [324-326]
A12133: Other chemicals and man-made fibers [335-336]
A1343: General government services [99]
A1312: Catering and accommodation services [64]
A1332: Business services [83-88]
A12154: Machinery and equipment [356-359]
A12101: Food [301-304]
A12142: Non-metallic minerals [342]
A12134: Rubber products [337]
A1122: Gold and uranium ore mining [23]
A12113: Leather and leather products [316]
A12153: Metal products excluding machinery [353-355]
A12182: Other transport equipment [384-387]
A12111: Textiles [311-312]
A12112: Wearing apparel [313-315]
Policy Challenges for Growth Convergence: Labour and Capital: Capital & Employment Growth:
Sample of Manufacturing Industries, 1996-2012
Source: PALMS, Quantec
-60%
-40%
-20%
0%
20%
40%
60%
Clothing andTextiles
Metal andmachinery
Coke,petroleum,
chemicals andrubber
Food andBeverage
Vehicles
Capital Employment
Policy Challenges for Growth Convergence: Transport: A Case of the Policy Trap and Growth Path Dependency
Source: National Ports Regulator, 2012
Policy Challenges for Growth Convergence: Transport: A Case of the Policy Trap and Growth Path Dependency
Source: M. Eichhorn (2014) “Building a pro-poor public transport subsidy for urban Cape Town”, Unpublished Masters Thesis. University of CapeTown, Cape Town.
7.950.2
110.05
0
20
40
60
80
100
120
Bus Taxi MyCiTi
City of Cape Town: Subsidy per passenger
Policy Challenges for Growth Convergence: A Study in Sectoral Contrasts I
Automotive Sector• Subsidies under Automotive Production Development
Programme (APDP) constitute 20% of total industrial support in South Africa. Highly capital-intensive; very poor job generator.
• Investments of R12 billion since 2000 have resulted in virtually no job growth in vehicle assembly.
• Employment in components production (including tires) has grown by barely over 1% p.a. over the same five-year period.
• Technical, skills and knowledge spillover effects? Repatriation of profits?
Policy Challenges for Growth Convergence: A Study in Sectoral Contrasts II
Clothing and Textile• In 2010/11, the clothing and textiles competitiveness
programme: to encourage production and job creation activities more directly.
• Estimated that 728 enterprises had been supported and approximately 62 350 jobs had been saved, although unclear how many new jobs have been created.
• Productivity incentives conditional on compliance with Minimum Wage regulation and the subsidy is generally taken up by larger firms.
Industrial Policy Revisited
• An industrial strategy focused on K-intensive industries.
• Symptomatic of the policy trap and the growth path dependency?
• Where is employment creation as a target in industrial policy?
• The role of microenterprise growth as a target in industrial policy?
Conclusions
• South Africa is the poster child for the middle income country growth trap analogy
• Can we:– Increase savings and investment?– Diversify exports?– Generate light-manufacturing jobs?
• Some of our Growth Path Dependency Constraints Reinforced by:– Political Economy Issues which lead and shape wage and investment decisions– Human Capital Investment not yet sufficiently positive return to economic
growth– ‘Path-dependent’ decisions in numerous areas related to microeconomic
policy which reinforce our growth trap
Thank you