Macro Eco Presentation.

8/3/2019 Macro Eco Presentation.

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A case on:

The South African Economy: Coping with the

Legacy of Apartheid

Presented by:Akshay gupta (11bsp1925)Ankit kochar (11bsp0108)Anshul malhotra ( 11bsp1931)Gagandeep singh (11bsp1381)Harshit kamra (11bsp1946)

Presented to:Prof. RL CHAWLA


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Introduction

Background Note

The South African Economy in the ApartheidEra

The Economy in the Post-Apartheid Era The Policy Initiatives The reconstruction and development

programme

GEAR policy (1996-2000) The GEAR effect

Subsequent Policy Initiatives

Outlook

Exhibits

Contents:


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DUTCH EAST INDIA COMPANY set up a provision station inCape of good hope.

Slaves were brought from indonesia to work, which causesconflicts between the natives.

In 1795, the british gained control of the cape from the dutch.

In 1834, emancipation for the slaves in all its colonies,which was opposed by slave owners.

By the mid 1850s almost all of the South africawas under white domination.


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In late 1860s discovery of diamond along the vaal river hada major impact on southAfricas economy.

THE LAND ACT, 1913, THE NATIVE POLL TAX, THE MASTERSAND SERVANTS ACT.

In 1933, SAP and the NATIONAL PARTY merged to formNITED PARTY.

In 1948, NP came up with an even stricter race basedpolicy called PARTHEID

In 1986, the white South African government tried todestroy those who resisted apartheid. Still, blacks increasedtheir actions against the government


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THE SOUTH AFRICAN ECONOMY IN THE APARTHEID

ERA

Apartheid was a system of racial segregation. The NP government

devised apartheid as a means for the white minority to control the

economic and social system of South Africa.

In the apartheid era, the government excluded the blacks from themainstream economy, with development efforts largely concentrated

on the whites. The early 1950s saw a spate of repressive laws being

passed.

In 1959 the promotion of self government act was passed. This wasinspired by the divide and rule policy that the british had perfected

over the years in their colonies. The blacks were allotted only 13% of

the land even when they formed around 80% of the population.


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The extension of university education act prohibited blacks from

studying in white universities and led to the creation of separate

educational institution for the blacks. The educational

infrastructure and quality for non whites were inferior to thosefor whites with the result that the non whites were unable to

upgrade their skills.

Despite the social inequalities the annual average growth rate of

the economy in the 1950s was around 4%. However the laws

barring blacks from entering white South Africa had a negative

impact on industry

The late 1970s and 1980s saw many world powers, especiallythe US and the UK, starting to put economic pressure on the

South African government over its apartheid policies, which

seemed to have become even more repressive over time.


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The Export-Import Bank of the US prohibited loans to firms

exporting to South Africa in 1978. The International MonetaryFund prohibited loans to South Africa in 1983.

Not only did the banks stop grant of new loans but they also

demanded immediate repayments of all outstanding debts. The

result was a severe debt crisis. The 1980s was also a period ofintense droughts , with agriculture being severely affected

These developments had an adverse effect on the economy ,

which recorded an average growth of 1.5% in the decade. Withpopulation outpacing GDP growth , the per capita income fell

by around 10 %.


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The economy in the post apartheid era

In 1994, the ANC was elected to power. With political control going out of

the hands of the white minority, the deprived sections of the population

were hopeful that their problems would finally start being addressed.

The government, therefore had on its hand the difficult task of bridgingthe income gap between the races, bringing better education and health

care.

The ANC government began by assessing the living conditions of the poor.

It was estimated that:

4.3 million families (most of them black) did not have adequatehousing,

12 million people lacked access to clean drinking water,

4.6 million adults were illiterate,

Most schools and hospitals in the black areas did not have electricity.


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The policy initiatives

In 1994, the government introduced the Reconstruction andDevelopment Programme (RDP), which primarily aimed to

reduce poverty and improve the living conditions of the poor.

The reconstruction and development

programe

The RDP was an integrated socio-economic policyframework that sough to gather together the people and

the resources of the country to eliminate the inequalities

caused by the apartheid system and build a democratic,

non racial, non-sexist republic.


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The white paper on RDP identified four key programs. They were:

Meet the basic needs of every south african

Develop south africas human resources Develop a prosperous, balanced regional economy and

Democratize the state and society.

The government set up a special cabinet comimitee (scc) to implement the program. A

core committee (cc) was also set up to support the SCC. The CC comprised ministers,

deputy ministers, and director-general of finance and state expenditure, publicadministration, constitutional development and public works.

The office of the president was also to aid the CC.

A fund called the RDP fund, was created to finance the various programs and sub-

programs under the RDP.

The government allocated rand 2.5 billion in the 1994-95 budget to the RDP fund.

Rand 5 billion in 1995-96.

Rand 12.5 billion in 1998.


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CONTD

Despite of the good intentions, the implementation of the RDP was from from

satisfactory.

Ineffective governmental control and lack of inter-departmental coordination

resulted in slow progress in 1995 and 1996.

For the first two years after the ANC government came to power, the economy

grew by only around 2.3 percent(average annual rate).

However the inflation rate falls from 20% to 10%.

The government realize that it would have to create the right environment for

the economy to achieve high growth, low defecit, a stable exchange rate, andmore jobs.

The government announced a new policy in 1996.


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THE GROWTH ,EMPLOYMENT,AND REDISTRIBUTION

POLICY(GEAR) (1996-2000)

The GEAR Policy was introduced by Finance minister Trevor Manuel in June 1996.

The policy primarily aimed to achieve a 6 % annual growth rate, increaseexports by 8% p.a and create 4 lacs new jobs every year by 2000.

The new policy was to help develop a competitive, fast growing economy throughfiscal and monetary discipline. The government aimed to control the deficit, checkdepreciation of the currency, and rein the inflation.

Unlike the RDP(Redistribution Policy) which put the stress on reducing theeconomic inequalities between the races, the GEAR S stress was more on jobcreation. For creating more jobs the government decided to expand the privatesector.

Therefore the policy suggested lowering the interest rates, reducing corporatetaxes to stimulate higher private investments. The government was also able toreduce its consumption expenditure and relax foreign exchange controls.


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THE GEAR EFFECT

In 1996,with the implementation of the gear policy, the government

appeared to have shifted its focus from social welfare to fiscal discipline

and liberalization.

Pundy Pillay, head of RDP policy unit insisted that the RDP remained avital component of government policy and is compatible with GEAR .

Under the gear policy,ie. between 1996 and 1999, South Africas GDP

grew in real terms by an average of only 2.1% annually, which was even

lower then the population growth rate.

Some analysts ascribed this lack of growth to the monetary policy

followed by the South African Reserve Bank(SARB).


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CONTD..

The government was able to control the budgetary deficit, which also was one of theobjectives of the GEAR policy. The deficit went down from 4.6% of GDP in 1996, to

2.4% of GDP in 1999.

Inflation too was brought under control. In 1999 the inflation rate was around 5%,

down from 7.4% in 1996.

However some analysts were of the view that the GEAR policy brought about

macroeconomic stability at the expenses of growth.

A WEFA(Wharton Econometric Forecasting Associates) report on South Africa in

January 2001 also had something to say-The poor did not enjoy any benefits of the

redistributed wealth. In fact they are even worse off.

Official statistics released by the government also clearly indicated that the whites

continued to remain a majority among high income earners and that very few blacks

were able to enter the high income group.


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SUBSEQUENT POLICY INITIATIVES

1. In 2001, 57% of the Blacks lived below poverty line.

2. The government had promised to redistribute 30 % of the land seized during

apartheid period, but 2% had been returned.

3. In 2003 Govt. passed Broad Based Black Economic Empowerment Act.

4. Govt. introduced BBSDP which offered support to black-owned enterprises.

5. After the act was passed Ministry of Trade & Industry issue codes of good

practice. Like:-

Code 100= Ownership scorecardCode 200= Management scorecard

Code 300= Employment Equity scorecard

Code 400= Skills of Blacks

6. In July, 2005 Mbeki launched ASGISA with an objective to eliminate poverty

and unemployment by 2014 and targeted a growth rate of 6% by 2014.


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OUTLOOK

1. Extreme disparities in income and wealth among the race

groups.

2. South Africa had become the most unequal country in the

world in terms of income distribution.

3. South Africa had one of the highest number of HIV positivepeople in the world.

4. Crime was also a serious problem, unemployment was the

major reason

5. In last president Mbeki also said, The government was

quite optimistic that it would be able to eliminate

unemployment and poverty by 2015.


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