What has happened in Eastern Europe and Russia opened the window of opportunity for us, which enabled us to make a quantum leap.It took courage.It wasn't my courage alone.It also took courage from Mr.Mandela to from within jail, decide and lead his movement to walk the road of negotiation rather than to continue on the road of conflict.I did not suffer as a result of this.If we did not do what we did and if we don't continue to do what we are doing, then this country, there is a dark scenario, then this country can go terribly wrong.It is in the best interests of all South Africans that for once, as all nations get an opportunity to do, we rise above small sectional interests and we grasp the opportunity of the moment.And I, as one of the Co leaders in this process, I'm doing that not with fear in my heart, not with hesitancy in my soul.I'm convinced that this is the only workable alternative.It took indeed about 350 years of open and violent confrontation between Afrikaners, British colonists and African societies to make the transition from conflict to negotiations and finally nation building.The colonial society established by the Dutch East India Company around the Cape region evolved into an industrialized gold exporter economy.The precedent was set very early for a racially divided society, and despite substantial economic transformation, the black majority social and political status evolved little since the 17th century.Blacks had to organize themselves and fight their way through innumerable political obstacles and sacrifices to finally start transforming South Africa into a multicultural democratic society.The victory against apartheid was a collective achievement.I'm a member of a great team of men and women in this country, some of whom stand head and shoulders above me in the sacrifices that they have made and in the achievements that they have scored.And but I take the the support and the compliments which I get as being directed to the organization to which I belong and that the wonderful heroes and heroines of our country coming from a diverse and from diverse political affiliations, that's how I regard it.On April 27th, 1994, millions went to vote in South Africa's first multiracial elections.When the results were read out on May the 6th, it was evident that no one party in the new parliament would be able to single handedly change fundamentally the negotiated constitution.Naturally, the ANC, with nearly 63% of the almost 20 million votes cast, reached a comfortable majority of 252 seats in the 400 seat national legislature.But the showings of both the National Party and the Encata Freedom Party were more than honorable.A relative balance was also achieved with a regional electoral results that is important in the new system of government comprising 9 regions with a fair degree of autonomy.While the ANC won in seven regions, including the PWV, the Pretoria, Johannesburg area, the National Party won the parliamentary majority in the Western Cape and the Encounter Freedom Party in the Kwazulu Natal provinces.In the wake of this political achievement, President Mandela was able to quickly appoint his first cabinet of National Unity.South Africa, with its new democratically elected government, started to resemble a normal developing country with a vocal trade union movement, a no less vocal class of entrepreneurs and a massive disadvantaged unemployed poor people with high expectations about their new country.After the electoral victory comes the challenge of managing the New South Africa and its 40 million people.This $111 billion economy is now emerging from a deep recession.GDP grew by 1% in 1993 and is expected to grow at 2 to 3% in 1994 after five years of decline.This gives reason for optimism.There's no doubt that the South African economy is in a in a recovery.It's not an amazing large recovery, but we're back to growth.Our exports are increasing daily and we supported fortunately by an increased gold price and virtually into the drought in many sectors.This is reflected in the indices in the Stock Exchange.Last year, the overall index went up 50% and so far this year the overall index has gone up by 20%.I think other positive indicators, of course, have been the decline in the inflation rate and the control in interest rates.But overall, all you have to do is open the newspaper each day and you see the company's results coming through.Yes, the economy is in an upswing.However, the government of national unity inherits an economy which has the appearance of good health, but in reality hides a number of structural weaknesses.For the last 30 years, the trend of the GDP growth rate has been declining.And most importantly, unemployment has increased dramatically in Johannesburg.Today there are several informal labor exchanges St.corners where the unemployed wait to be picked up for casual work at about $5 per day to.Me, I'm worried.For one thing, we'll wait here until later.Many people have got no place to sleep, you see.We'll wait here for the job.No job, no nothing.Maybe I wait here 5 days.Food.No job.What I must do?I must go to see if I'm still.The police will catch me is wrong.But you, you must try to to get me for the job, you see.Fetch me the job, See.I'm not with here for the long time.Because now I've got no money.I must wait there for the job.Looking for the job, you see no job, no nothing.I've got no money.What I can do?In South Africa, the percentage of the labor force without formal employment grew from about 25% in the 1960s to almost 50% today.Many of these structural problems of the South African economy have their roots in the development strategy that was pursued.Why didn't high investment generate more jobs and more satisfactory growth?For several reasons.First, domestic fixed investment declined during the 1980s.At the same time, a substantial increase in a capital intensity of the economy further Hanford employment growth.I think that's a fair criticism.I mean to answer your question whether in the past we have been, you know, leaning towards capital intensive projects based on the home market, but in a sense it's also essential, I mean even for the future and I'll explain why.Our main limitation to growth in this country has always been our balance of payments.As soon as we have the slightest growth, we run out of foreign exchange.So the IDC has always adopted an approach that we we feel we have to develop the capital intensive projects for export to create the foreign exchange to make it possible for us to also do the more labor intensive ones.As far as the accent on the local market is concerned, I think that also served a purpose in the past in the sense that we had many imports that could be replaced.But unfortunately it also led to with our policy of protection to our manufacturing industry becoming very uncompetitive.And this was aggravated during sanctions when in fact we had to do a lot of things whether we like to or not.Second, investment was increasingly channelled towards activities with lower than average capital productivity.Since the 1970s, South Africa has been getting less and less units of output per one unit of equipment.Capital productivity has been declining.3rd workers education and training was neglected.This lowered the return to investment and slowed labor productivity growth.Finally, since the early 1980s, rising wages and industrial unrest further dampened employment growth.Like many centrally planned economies, the apartheid model displayed its own economic limits well before the unfolding of its political crisis.The economy structural problems can only be corrected progressively.The temptation is strong to rely on the government to solve all problems.Although it is true that kick starting the economy through public expenditures generates jobs and growth, substantial job creation and sustainable growth will only come from the revival of private investment.And to raise private investment from its depressed level, policies need to be transparent, credible and stable.What private investors are looking for is obviously to make profits, and they think they're going to make profits if you've got a sound and stable government, which means that you want to have a sound constitution that's broadly acceptable to all.The second thing is that investors look for is growth in the market, which is also going to come from sound macroeconomic and fiscal policies, sound exchange rates, reasonable tariff rates, and also I would suggest an international competitive tax rates.These are all important to the country.Happily that all these things are more or less in place now.Nevertheless, the new government has to win a race against the clock.It faces the high expectations of the majority of the population, many of them living in shacks in squatter camps.To them, it wants to provide jobs and housing as tangible evidence of the new era.As we people here of what's name Paralink Squatter, we as a government that policemen let to let him we know that it's it's not as easy as that because there's so many to to be done by the government.But now at least we as a government to help us.Some of ours.Some of our people here have no residential have no have no have not material to pay for to pay for themselves.So they rely to others.So now we as a government please to give all what you can do to assist us, to improve us, Then we can live as the other people do.It's the funny man ever said.It her name is Nupumzi Langozi.She's from one of the rural areas.She has come here to visit her husband and only to find him that he's unemployed.So he's also suffering as well, just like her pleasure.They are leaving the schools by asking from the neighbors, help from the other.They're backing from other people because they used to have some stock.They've sold them all now.They got no other money to carry on with the living.Our people are entitled to have these high expectations because they can see their white counterparts enjoying the rights and privileges which are denied to them and therefore they are justified.But we have warned them that the task of addressing their basic needs is not one that can be achieved overnight.It is a process which, as you say, requires a great deal of of patience.Nevertheless, we understand that the urgency of a speed in addressing these problems.It's difficult for people who have suffered, who are now living in the world of hope that now that there's a black government, predominantly black government in this country, that there's going to be delivery.It's difficult to to to urge them to be patient.And for young people who have suffered, it's very difficult to understand that they need to be any patients.The challenge to the government is daunting.It has to offer visible change to the poor majority of South Africans.At the same time, it has to send the signals, particularly to the private sector, that it will maintain the objectives of economic and financial stability.There are already concerns being expressed about how additional social expenditures could raise the fiscal deficit to unsustainable levels.I think the danger signals for the economy from an expansionary fiscal policy are in fact already there.It is not as if it's something that lies ahead.I'm afraid that the the kind of budget deficit that we've already run up, we ended last year at 6.9% of GDP.The extent of the primary deficit, that is that we are borrowing not just for to fund the the interest on the debt that we'd made before, but even more than that, the fact that the interest on the government debt that we'd run up before has run up from something like 4% of government expenditure to just about 1/5 at present.Those are already danger signs.Indeed, excessive government expenditures as a percentage of available resources in the economy has been increasing, a problem which started with a previous administration.The Government of National Unity has reaffirmed its commitment to fiscal discipline.The deficit will be limited to 6 1/2 percent of GDP in the 199495 fiscal year and will be reduced further to avoid a debt trap.We must appreciate what has happened in this country.The government has overtaxed the population in order to support apartheid, increased taxes, We can no longer increase them.When they had increased taxes to such an extent that they could not be increased further, they started borrowing both from internal of the internal community and the international community.They have over borrowed.So we can neither increase our taxes nor borrow monies from abroad.Abroad.That is the problem that faces us.This means that we must observe fiscal discipline, which means that we must reduce the deficit, which is very high, and we must reduce taxes so as to attract investments.Investments are going to be absolutely crucial in order to expand the economy, because it is by expanding the economy that will be able to provide jobs for large numbers of people who have been excluded from participating in our economic system.Increasing participation in the economy translates into reducing unemployment.It will require new and bold policy directions.The Government of National Unity has endorsed the ANC's Reconstruction and Development program, commonly referred to as the RDP.Now the challenge is to translate the RDP into specific, manageable and efficient government programs.The RDP is essentially a growth and developmental strategy.It's about turning the ship of state around from the old priorities of apartheid to the new priorities of the RDP, which essentially deal with two issues.Firstly, improving the quality of life for people and meeting their social needs, but doing it in the context of a growing and dynamic economy.And that essentially is what the RDP about is about.It's focuses on major programs that deal with meeting basic needs such as housing or water or electrification, and also focusing on key questions of economic restructuring.What are the key sectors of our economy that need to be developed?How does our economy grow in the in the view of the fact that we're now part of a Gatt agreement where tariffs are going to be lowered?How do we increase competitiveness?How do we improve productivity and efficiency while it also improving the conditions of employment of workers in our country?I believe we have not done justice.The RDP had to be budgeted along with other transition costs.Taking these into account, a total of about four billion rands, more than $1 billion, is to be spent during fiscal years 199394 and 199495.And there are various estimates for the total cost of the whole program over the next five years ranging from 40 to 80 billion rands, the equivalent of 10 to 20 billion U.S.dollars.During the 199495 fiscal year, a temporary levy of 5% of taxable income above certain levels was proposed to cover part of the transition cost, but the bulk of the RDP expenditures will be offset by savings elsewhere.We have also implemented a budget in a very short time which has successfully devised a mechanism to fund the RDP in a sustainable, fiscally disciplined manner.And as we've implemented this fund and talked about it, we are finding it is a surprisingly useful mechanism to bring about a reordering of priorities in this new government and their departments.I think that's a major achievement.The work between Finance and the Minister without portfolio has been excellent and in recent days State expenditure Finance and the the.RDP ministry have worked through, I think, very important innovative budgeting mechanisms that will take us forward into future years.The 199495 budget provides for an initial allocation of 2 1/2 billion rands for the RDP's key sectors.The government is well aware that the RDP's programs will face implementation difficulties and bureaucratic bottlenecks.This is a reason why decentralization to provincial and local tiers of administration is going to be so critical.The national RDP is primarily a budgetary process, an analysis of the national budget and the allocations of money.Implementation is a provincial thing, and so as a provincial RDP head of Commission, my job is to look at implementation and policies.The RDP is not an economic document, it's a socioeconomic framework, and that's what guides us.So in the PWV, where there's been a lot of political violence and even a degree of criminal violence, we consider the question of public safety and security a major issue.And we're trying to link this question of security with things like socioeconomic activity.And immediately we're focusing on public security and housing and the 2GO together very closely, so that, for example, in an area like Tokosa, you've got houses which have been abandoned because of the security situation.Now we have to recover those houses for the public.And indeed in many of the townships there are no go zones arising out of the violence.So we want to recover that housing stock for the people and we can only do that if we introduce safety.This is just an example of the intersectoral way that the RDP works.The success of the RDP will depend to a very large extent on the stability of local communities.Local government has to be stabilized, it has to be democratized.And the only way you can democratize local government is through holding elections at local level.It will enable people to claim ownership of the process and owning the the the delivery processes at local level where people will no longer have an excuse not to pay for services rendered.They will not longer claim that the the local authorities are illegitimate and are not representative of their interest.They will be themselves in those structures and serving their own interest.So it will be necessary that they collect funds and in order to improve the quality of life of the people at local level.There are vast disparities among the various segments of the population.For instance, the average black income in South Africa is $1100 a year, compared to about $8200 for whites.In key sectors such as education and healthcare, there is also room for improvement.The reactions to the RDP are generally positive in the business community.Those who might have been anticipating populist overspending by the new government seem temporarily reassured.I think you can achieve the aims of the of the RDP over a period was out to undo fiscal and inflationary pressures.I think it will be necessary for the RDP expenditure to grow fairly slowly in the early years while the economy is growing and therefore while the tax base is being increased and the amount of money that will flow to the fiscus is increased accordingly.It it will it should also be possible to accelerate this grace by further processes of privatization in South Africa.There have been some this is something that's been conducted in many other countries in the world and it really means that the government is able to pursue its socio economic aims at that was out running into fiscal problems.And at the community level, there are those who look at the RDP's political and social dimension.Stabilization of the communities, the removal of violence, the removal of fear out of our communities will be a great, great help towards making this country a viable country.I must say that without the an element of stability, there are certain areas that will be left behind and I'm sure it's already happening.There are areas that are continuing to become slightly violent.Lots of development programs, even those that are driven by the RDP find it difficult to hit the ground there because of the tensions on the ground.And yet you need development in those areas to remove fears and tension.So to balance that, this is a challenge of this new government, the challenge of organization like mine to get into the communities there and while developing houses to develop hostels, because the two seems to be tension, do it same time simultaneously.And we, we, we, we, we must get in with training programs.The bigger chaps like the World Bank and the Development Bank of South Africa must come in with infrastructure, bulk infrastructure programs.And that's the only way.We know that they are close to 1,000,000 shacks in this country housing babies, 567 million people who are living in conditions which cannot be called communal conditions or civilized living conditions.Housing is only a fraction of South Africa's social backlog that the RDP seeks to address.The cost of delivering new houses and upgrading existing facilities in the four major metropolitan areas of South Africa is estimated at 4 1/2 to 12 1/2 billion rands.Housing is not just 4 walls and a roof, it's building communities is restructuring the lives of people and especially in the immediate.It's accepted by everyone that the housing sector can be the biggest single contributor to giving a kick start to the whole the whole economy.Because for every million Rand invested in housing, you create 200 jobs directly and indirectly compared to food, chemical and other sectors which are 20 to 30 for the same amount.So if you look at the general economic situation in the country with an unemployment rate of over 40%, housing is a very important feature of beginning to address the unemployment sector in addition.Now, besides all the economic virtues of the housing program of the RDP, it faces two enormous challenges.Politically, the program has to deal with a complex urban geography of the South African cities.Townships are a mixture of different neighborhoods with different political affiliations.One can quickly go from the affluent residential areas of the black middle class to the poverty of hostels.These hostels, which used to be minors accommodations, now house single migrant male workers who typically pay a monthly rent for A room.Other migrants prefer to build a shack in squatter camps where they can bring their families.In addition, a new local structure of representation is emerging in the townships.It has the difficult task of sorting out the new policy options and providing services to the community.Rivalry continues between the old system of counselors, the various factions within the civic organizations and competing political groups.In Mansfield, in Encata dominated hostel in Soweto, where most residents come from Kwazulu Natal, there's concern about the commitment for upgrading the hostels.The person at this moment who are, who are running this RTP, the construction development problem is none other than those who are members of the ANC.And they are the very same people who who are still campaigning that the hostel must be demolished.And this simply means that now we are singled out that they they don't want to sort of see the hostel being upgraded, but we'll try our level best to make sure that the hostel are upgraded.In the nearby ANC dominated squatter camp of Baralang, the electoral promises haven't been forgotten.We would ask them to create jobs and build houses for the people as they've promised before we voted them.Besides the political challenges, there are economic obstacles to the RDPS housing program.The government has committed to build 1,000,000 houses over the next five years.It has also devised a subsidy scheme proportional to income for poor households.Because of the existing budgetary constraints, the management of the scheme and its qualifying mechanism are being discussed.The challenge is to build a credible and efficient entitlement scheme that would enable each low income household to leverage both the financial market and the construction industry.Developers are displaying RDP individual houses at prices ranging from about 25,000 rands or about $7000, up to about 80,000 rands or about $23,000.The low cost houses for about 6000 rands less than $2000 are offered by some developers that may be exceptional and linked to other existing schemes.In most cases, an RDP house raises the question of how beneficiaries of a government subsidy would finance the difference between cost and subsidy, and what sort of queuing system can be organized at the community level.But does the building industry have the capacity to deliver a million houses in five years when it's barely building 30,000 a year now?First of all, I think in terms of the goal set by the RDP and by Slovo in particular in terms of the housing initiative, we believe that the RDP is an achievable goal.Now that's easy to say in a few words and it's perhaps a bit more complicated than just a few words.Frankly, the RDP doesn't meet next to the needs of South Africa in terms of housing.A million houses in five years doesn't only keep space with population growth, it doesn't eliminate the backlog.So frankly, we're a bit more ambitious than the RDP when it comes to building houses and we'd like to think that the bullying industry can in fact achieve a better rate of production than the RDP is is advocating because we believe that South Africa needs a better rate of production than that.However, the building industry suffers from a chronic problem that is common to many sectors in South Africa and is hidden during recessions.The thin pool of skilled workers is quickly exhausted in recoveries.We've just done a report for the Minister, Minister Slovo, which advocates that our present training of 20 million Rand a year needs to move up to something in the order of 200 million Rand a year over the next year or two.We have enough training institutions in this country.We need some more trainers and we need to produce, to give you an example, 45,000 artisans per annum to meet the requirements of of the RDP or our better interpretation of the RDP.Our increased requirement from the RDP.Now the best we've ever achieved in this country is 7000 artisans per annum and last year we only produced 3000.With increased demand for construction materials, prices are likely to go up and.Fuel.Inflation, despite spare capacity in the construction sector, but above all, Urban Development of the townships will require a change in attitude from the big developers and private investors.They're two different worlds here.These people stay in the, in your Hortons, you know, suntan areas, everything is rosy and safe.It's for them to get to a shipping and suit and talk to the people and understand that these are not animals.These are human beings like us.The discussions that are there and normal discussions and this people can be trusted, but we can't do that by removing control and you can't do that by getting one company to research how Plex think this year and how how is their Anna, you know, putting a thermometer there.They need to have some people who who's going to go to get there, see the level of thinking or themselves going to the Township because to some of them, it's prestige to go to a black Township.You know, when he's having tea at home.I wasn't.So how nice.And so it is part of his country.The RDP is a starting point to solve the structural economic problems of South Africa.It has to trigger deeper policy changes which by restructuring the South African economy, would reduce the level of unemployment significantly.This restructuring revolves around the following policy alternatives, more openness or more protectionism and more capital intensive or more labor intensive production.Which one of these alternatives will produce the highest GDP growth rate, with the highest labor content, and with the highest redistributive pattern?To answer this question, one has to know from which economic sectors is growth going to come in the future of South Africa.The share of GDP of the once powerful mining sector has been decreasing from more than 20% in 1946 to less than 10% in 1993.Mining and energy sectors combined employed today less than 9% of the labor force, as compared to 14% in 1946.The reasons behind the sector's decline are various, for instance, the fall in the prices of minerals and the lower grades in South Africa's minefields, which reduced productivity and.Profitability The dynamic services sector can help.South Africa has a sophisticated financial sector and there is scope for growth and job creation in exporting services like tourism.We can bring many more people and this is the beauty of tourism without major investment at this stage, without long leading times, immediately you can switch on and you can increase the number of tourists with a a direct effect in terms of job creation.Every 11-12 tourists coming to South Africa creates one direct and perhaps 3 or 4 indirect jobs.So immediately it will have a an impact on job creation and it will spread the job creation right through the country because the tourist goes to various cities and places of attraction.We have a great, particularly great advantage in terms of our our wild, our animals, our natural beauty and therefore I believe South Africa has the capability of becoming the number one ecotourist destination in the world.Land reform would be a necessary step of the agriculture sector aims at creating more jobs.Land appropriation, the provision of marketing and other forms of support to commercial farmers has left South Africa with an agriculture sector dominated by large scale capital intensive farms.Though the view is widespread that large scale farms are more efficient than smaller ones, this view is fallacious.Not only smallholders can be as efficient as large farmers, they farm in more employment intensive ways.But land reform is always a complex and delicate process.There are many issues involved.White farmers there started complaining about the activities of the squatter settlement and they forced the government through TPA to buy those properties back from them.So the situation then that exists today is that we've got properties that have been paid for lots of money, thousands and thousands rents of taxpayers money went to buy farms from this white farmers, but those farms cannot be used productively because of this security poser.Urban agriculture could also be an option for job creation and improving living standards.I think the agricultural sector can contribute in two or three ways within the context of the RDP framework.1 is yes, with the choice of of technologies one can consciously increase production and yet not decrease employment.Agriculture within the rural context and it's multiply effect can actually generate income within the rural areas and hence provide some kind of a living there.And the third is if you think of what was being said about the impact of farmers, vegetable farmers next to a Township where people are now taking on their back gardens, you one would be able to demonstrate how easy it is to grow and hence your your household level of food security, which again is a concern of the of the RDP.The bulk of economic growth and job creation will not come from agriculture.It needs to come from the growing manufacturing sector.The manufacturing sector employs today about 25% of the labor force as compared to a bit more than 10% after the Second World War.Growth of the manufacturing sector comes from both the export market and the domestic market.A favorite debate among economist is which market should be targeted primarily.South Africa like many other large developing economies has pursued a strategy of import substituent industrialization for a long time that basically provides a basis for a broad based industry, typically inefficient in the sense that they're prized assortions and productivity may be low, but the other, on the other hand the industry is there.The question is how does South Africa turn this import substitution based industry into a basis for, so to speak, a more open, export balanced kind of economy?The government is now publicly committed to a strategy of export LED growth and reducing protection for industries in line with a new GAT accords which will stimulate more competition in its domestic market going for an export oriented growth strategy.In a more open economy does not mean that all the economic debates are over.First, because opening up an economy might increase unemployment in the short term when uncompetitive factories shut down.Second, there are several possible routes to export LED growth from where South Africa is today.Exports can be relatively more capital intensive or labor intensive.The elusive project and aluminum smelter continues the South African tradition of.Highly capital intensive operation.We are putting up the world's biggest smelter ever built at one time 466,000 tons of production, three times the existing facilities capacity.It is going to be the biggest private sector project ever undertaken in South Africa.And it does meet all the criteria that I've talked about.Therefore scale technology, high productivity and therefore low labor employing capacity.That's that's true.But on the other hand, if we look at the needs of the new government, I mean what does the need that the new government need?Yes, it does need an immediate injection of job creating opportunities.Now there's nothing like spending 6.3 billion Rand of which 70% is being spent in the local economy to give a very short injection into the local economy.And that's exactly what is happening on the site itself.We are employing something like 6000 people on the site over a period of of three years in the local region.We of the labor being used of that 6000, some 70% comes from the local region that is the richest Bay Natal region.So it is it is really set that part of the world alight.Now as one moves then into the operating phase, it is true that the plant will only create job opportunities for probably 1300 skilled personnel, but it is going to earn for the country net foreign exchange earnings of 1 1/2 billion Rand.Now that for any new government must be important because it gives them the muscle to increase imports which they need to uplift the quality of life of their people.So we think of that is a very substantial and short term that revenue will start to flow into the country in about two years time.It's hard to pick winners, and economists haven't been very good at that.But South African data shows that over the medium term, each 50 million rands invested in fabricated metal products or high quality garments yields 25 to 40,000 jobs economy wide.The same 50 million invested in, for example, capital intensive projects like chemicals and the elusive type ones yields fewer than 10,000 jobs.Nevertheless, in labor intensive exports too, there are challenges at prevailing wages in the manufacturing sector.S Africans producers are uncompetitive internationally in products like garments or footwear for poor consumers, but in some niche markets, high quality textiles for high fashion markets such as those produced by this clothing factory in the Cape region, South Africa's manufacturing sector can penetrate highly competitive export markets.There is also export potential in high value fabricated plastic and metal products.This alloy wheels factory in the PWV region, for instance, exports 65% of its production to Europe and particularly Germany, where its main customer of BMW requires a high level of quality.I think our our strength fortunately has been in the fact that in this particular niche of business, we have had a three-year start.We had the the people that saw the the opening in the earlier years.And that head start has been very important because to start today from that point would be a weakness.Indeed.It would mean that we would have to become more capital intensive than we are today.I think we're able to support today a labor force which is in excess of our competitors generally.So that is of course is there's a weakness, but because we are where we are today and because we have a a very good support base of customers, we're able to absorb to some degree at this stage this higher labor content.We will over a period of time through increased cells the the taking up of the full capacity of our operation, we will maintain our workforce and and attain higher productivity, but we will not be seeking to increase this workforce anymore.Export success requires high product quality and reliability in meeting delivery schedules.Labor cost is obviously also important, but how far can you?Push for wage moderation without triggering labor conflicts in South Africa.There's no guarantee that would lower wages.The companies will necessarily employ more people than they need to.You know, the big challenge is that of of productivity on that front and the impact of wages.Unemployment, we would argue has been marginal.So This is why we are arguing for a strategy for growth that takes into account a high level of wages.The countries we are competing with potentially for markets, pay much better wages, but they compete better because they've got all the other factors of competition, right?So we're not going to be able to compete for wages with the Chinese workers.And that wouldn't be the right direction to go.We wouldn't accept it.I think the final point there is that in a post apartheid situation where you've got a fairly militant, politicized workforce, where you've got challenges that can be met by partnership, they are trade-offs for a partnership.An attack on wages would not be the basis for the trade off and it would destroy the whole project.I think serious companies are not scared about this.Like Business South Africa issued a statement saying there's no threat to business confidence from this.Andrew Levy, a well known consultancy firm, said this is normal and this is completely normal and it's part of a normal society to have strikes.Germany has got huge strikes for weeks and weeks in the metal industry, and they still do, you know, All right.Many of the trade union members who are employed recognize that their family members have no jobs, that there is some sense, an obligation to try to construct a social package will create opportunities for their families and their children.And that certainly they may have to be sacrifices made, but there's got to be some reciprocity further down the line.And insofar as structuring a social program, a social package, a tripartite relationship, I think the trading movement is mature and recognize the need for that.Inevitably, building a social package will be costly.Almost certainly the fiscal deficit is going to go up.There's a tremendous social backlog in in in South Africa and tremendous backlog of the social demands which which is going to have to be met essentially by the government.To meet that, the government's going to have to put more resources into, into education programs, health programs, pension funds, the sort of whole structure of a social safety net with which most countries have.That's going to cost money.It won't be entirely financed by taxes.That means they're going to have to be a bigger fiscal deficit.That fiscal deficit going to have to be supported either by borrowing within South Africa or borrowing outside South Africa.Some of the borrowing will take place outside South Africa.There is, of course, an important ongoing debate regarding the country's borrowing strategy.The new government wants to avoid both a domestic and foreign debt trap.After reaching a peak in the mid 1980s, Today, by international standards, South Africa has a relatively low foreign debt to GDP ratio.It gives the country a good leverage to decide when and how to tap international capital markets.However, the government's domestic debt to GDP ratio, which has been increasing since 1980 with the fiscal deficit, will have to be controlled to avoid a domestic debt trap.While the South Africans debate on the issue, there is great awareness, however, that external assistance needs to be used efficiently.For the moment, aid coordination will revolve around the RDP.The only way I see is that negotiations with foreign aid must be tagged on projects around the RDP, because the RDP is the only institution that really can begin to address some of the needs of the community.But the RDP, if it ties the hands of the donors to its own program, it is really reversing the roles of the donors as we know them internationally, where they pick and choose any program they wish.In this particular case, S Africans in the development sector, in the government will be inviting international donors on a blueprint, a white bear, a blueprint, that of RDP.This is a new thing and for me it's very encouraging.If we do it correctly, South Africa is not like the rest of the world.I think they will not have it very easy and like, you know, simply write their own programs here.We want involvement ourselves.Donor grant money and even project lending is likely to represent a minimal part of the involvement of the international community in South Africa, given the size of its economy.For instance, total US foreign assistance over the last couple of years has been well under $1 billion, less than 1% of South Africa's GDP.During the last six months, I have had a number of foreign pension funds, for example, that have come to see us to talk about the possibilities of investing again in South Africa.And many of these funds that have been on the level of 203040 billion and more dollars managed by these US and other pension funds have said in the in the past we have had as much as 2-3, maybe even 5% of our total pension funds invested in South Africa.It doesn't take much mathematics to see that when you start talking about, say, 5% of a $50 billion pension fund, that you're talking about very substantial resources that are much larger than what foreign donors can provide.So one of the things that has to be addressed here by bilateral donors, by multilateral donors, is the whole question of how do we help facilitate the flow of funds here?One of the unique approaches that we've used in South Africa is that for the first time, the bank did not only talk to the government, it talked to the opposition parties.One of the critical conditions necessary for our work work in South Africa before the transformation was that we had the freedom to talk to all the parties, the ANCPAC, IFP, the Nats.And when I say all of the parties, not just the political parties, but the NGOs, including the labor unions, the churches and those NGOs, community based organizations that have been helping the communities under the apartheid regime.This is quite unique.I don't know of any country where the World Bank talks to the opposition directly, but in South Africa, given its history and the process of transformation, the only way that the Bank would really be successful is to talk to all of the various parties.In the end, we've learnt a very good lesson that in fact the Bank needs to make its recommendations.It's analytical work open to the general public and through the debate that ensues, the Bank can learn a lot in in formulating whatever final recommendations that it has and.Became a South African.Eventually, it will be up to the South Africans themselves to set the pace for changing their economy and choosing the best development strategy according to their own priorities.And there is a great deal of political realism in accepting that the future may be less miraculous than the present honeymoon, but that problems can be solved and will be solved.Well, I've always said that if the South African problem can be solved, any problem in the world can be solved, because South Africa had within it the ingredients of every social evil that you can imagine, and not just gap between rich and poor, which is enormous, but extreme forms of racism.It's got the ethnic element in it.It's got all the components which normally lead to explosions and to violent confrontation.I think there will be bumps and there will be setbacks at times and the boat will be rocked at times.But I think that we have quality leadership from many sides in politics and in business and in society which will assure that we will manage those challenges as they come.If we achieve the continuance of the miracle, as you call it, then we will be able to play the role which I believe South Africa is destined to play also on the continent of Africa.The whole of Africa is praying that we will succeed and inside South Africa there is a great sense of responsibility also with regard to our neighbours.South Africans have this hope that somehow we have been chosen by God to do some special mission that nobody has ever done through all the generations in the past.You know, we are the, the rainbow children.And it's, it's letting the side down.If, if somebody does something that looks normal, but it's, it's conflictual.I think it's a sort of deeply romantic, idealistic notion that comes out of fact that we have done 1 miracle, we have done this political transition, we've got a successful election which nobody expected us to do, and it was done peacefully and everybody's in it, you know, and that's a miracle.But we are not going to run the whole country on miracles forever, you know?And I think unionists are one of the people with at least sentimental.What encourages us is the unity of all political groups, the unity of all sections of the population, the development of a common loyalty to a common fatherland.That is what is encouraging us, and with the support of the world, I think that we will be able to address our problems and to join the great international team in addressing the problems in the rest of the world.The.The.
South Africa: after the miracle...
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Timed Transcript
0:00:16.05
What has happened in Eastern Europe and Russia opened the window of opportunity for us, which enabled us to make a quantum leap.
0:00:25.85
It took courage.
0:00:26.81
It wasn't my courage alone.
0:00:28.33
It also took courage from Mr.
0:00:29.77
Mandela to from within jail, decide and lead his movement to walk the road of negotiation rather than to continue on the road of conflict.
0:00:48.84
I did not suffer as a result of this.
0:00:54.48
If we did not do what we did and if we don't continue to do what we are doing, then this country, there is a dark scenario, then this country can go terribly wrong.
0:01:10.8
It is in the best interests of all South Africans that for once, as all nations get an opportunity to do, we rise above small sectional interests and we grasp the opportunity of the moment.
0:01:26.08
And I, as one of the Co leaders in this process, I'm doing that not with fear in my heart, not with hesitancy in my soul.
0:01:37.68
I'm convinced that this is the only workable alternative.
0:02:05.8
It took indeed about 350 years of open and violent confrontation between Afrikaners, British colonists and African societies to make the transition from conflict to negotiations and finally nation building.
0:02:19.32
The colonial society established by the Dutch East India Company around the Cape region evolved into an industrialized gold exporter economy.
0:02:28.2
The precedent was set very early for a racially divided society, and despite substantial economic transformation, the black majority social and political status evolved little since the 17th century.
0:02:42.16
Blacks had to organize themselves and fight their way through innumerable political obstacles and sacrifices to finally start transforming South Africa into a multicultural democratic society.
0:02:53.96
The victory against apartheid was a collective achievement.
0:02:58.2
I'm a member of a great team of men and women in this country, some of whom stand head and shoulders above me in the sacrifices that they have made and in the achievements that they have scored.
0:03:12.04
And but I take the the support and the compliments which I get as being directed to the organization to which I belong and that the wonderful heroes and heroines of our country coming from a diverse and from diverse political affiliations, that's how I regard it.
0:03:38.04
On April 27th, 1994, millions went to vote in South Africa's first multiracial elections.
0:03:50.4
When the results were read out on May the 6th, it was evident that no one party in the new parliament would be able to single handedly change fundamentally the negotiated constitution.
0:04:01.56
Naturally, the ANC, with nearly 63% of the almost 20 million votes cast, reached a comfortable majority of 252 seats in the 400 seat national legislature.
0:04:14.16
But the showings of both the National Party and the Encata Freedom Party were more than honorable.
0:04:22.28
A relative balance was also achieved with a regional electoral results that is important in the new system of government comprising 9 regions with a fair degree of autonomy.
0:04:32.88
While the ANC won in seven regions, including the PWV, the Pretoria, Johannesburg area, the National Party won the parliamentary majority in the Western Cape and the Encounter Freedom Party in the Kwazulu Natal provinces.
0:04:52.36
In the wake of this political achievement, President Mandela was able to quickly appoint his first cabinet of National Unity.
0:04:59.64
South Africa, with its new democratically elected government, started to resemble a normal developing country with a vocal trade union movement, a no less vocal class of entrepreneurs and a massive disadvantaged unemployed poor people with high expectations about their new country.
0:05:22.08
After the electoral victory comes the challenge of managing the New South Africa and its 40 million people.
0:05:28.48
This $111 billion economy is now emerging from a deep recession.
0:05:33.92
GDP grew by 1% in 1993 and is expected to grow at 2 to 3% in 1994 after five years of decline.
0:05:43.24
This gives reason for optimism.
0:05:46.44
There's no doubt that the South African economy is in a in a recovery.
0:05:49.48
It's not an amazing large recovery, but we're back to growth.
0:05:52.56
Our exports are increasing daily and we supported fortunately by an increased gold price and virtually into the drought in many sectors.
0:06:00.92
This is reflected in the indices in the Stock Exchange.
0:06:04.2
Last year, the overall index went up 50% and so far this year the overall index has gone up by 20%.
0:06:10.84
I think other positive indicators, of course, have been the decline in the inflation rate and the control in interest rates.
0:06:16.6
But overall, all you have to do is open the newspaper each day and you see the company's results coming through.
0:06:21.64
Yes, the economy is in an upswing.
0:06:24.36
However, the government of national unity inherits an economy which has the appearance of good health, but in reality hides a number of structural weaknesses.
0:06:33.52
For the last 30 years, the trend of the GDP growth rate has been declining.
0:06:39.44
And most importantly, unemployment has increased dramatically in Johannesburg.
0:06:43.96
Today there are several informal labor exchanges St.
0:06:47.52
corners where the unemployed wait to be picked up for casual work at about $5 per day to.
0:06:53.68
Me, I'm worried.
0:06:54.48
For one thing, we'll wait here until later.
0:06:59.72
Many people have got no place to sleep, you see.
0:07:03.68
We'll wait here for the job.
0:07:06.36
No job, no nothing.
0:07:08.08
Maybe I wait here 5 days.
0:07:10.16
Food.
0:07:11
No job.
0:07:11.92
What I must do?
0:07:13.6
I must go to see if I'm still.
0:07:16.04
The police will catch me is wrong.
0:07:19.36
But you, you must try to to get me for the job, you see.
0:07:24.8
Fetch me the job, See.
0:07:26.84
I'm not with here for the long time.
0:07:28.96
Because now I've got no money.
0:07:30.76
I must wait there for the job.
0:07:32.24
Looking for the job, you see no job, no nothing.
0:07:34.96
I've got no money.
0:07:35.68
What I can do?
0:07:40.16
In South Africa, the percentage of the labor force without formal employment grew from about 25% in the 1960s to almost 50% today.
0:07:50.52
Many of these structural problems of the South African economy have their roots in the development strategy that was pursued.
0:07:57.72
Why didn't high investment generate more jobs and more satisfactory growth?
0:08:02.48
For several reasons.
0:08:03.88
First, domestic fixed investment declined during the 1980s.
0:08:08.44
At the same time, a substantial increase in a capital intensity of the economy further Hanford employment growth.
0:08:16.28
I think that's a fair criticism.
0:08:17.8
I mean to answer your question whether in the past we have been, you know, leaning towards capital intensive projects based on the home market, but in a sense it's also essential, I mean even for the future and I'll explain why.
0:08:34.04
Our main limitation to growth in this country has always been our balance of payments.
0:08:39.88
As soon as we have the slightest growth, we run out of foreign exchange.
0:08:44.92
So the IDC has always adopted an approach that we we feel we have to develop the capital intensive projects for export to create the foreign exchange to make it possible for us to also do the more labor intensive ones.
0:08:59.72
As far as the accent on the local market is concerned, I think that also served a purpose in the past in the sense that we had many imports that could be replaced.
0:09:11
But unfortunately it also led to with our policy of protection to our manufacturing industry becoming very uncompetitive.
0:09:18.92
And this was aggravated during sanctions when in fact we had to do a lot of things whether we like to or not.
0:09:25.6
Second, investment was increasingly channelled towards activities with lower than average capital productivity.
0:09:32.48
Since the 1970s, South Africa has been getting less and less units of output per one unit of equipment.
0:09:39.16
Capital productivity has been declining.
0:09:43.04
3rd workers education and training was neglected.
0:09:46.24
This lowered the return to investment and slowed labor productivity growth.
0:09:50.96
Finally, since the early 1980s, rising wages and industrial unrest further dampened employment growth.
0:09:58.6
Like many centrally planned economies, the apartheid model displayed its own economic limits well before the unfolding of its political crisis.
0:10:13.68
The economy structural problems can only be corrected progressively.
0:10:18.04
The temptation is strong to rely on the government to solve all problems.
0:10:22.4
Although it is true that kick starting the economy through public expenditures generates jobs and growth, substantial job creation and sustainable growth will only come from the revival of private investment.
0:10:34.64
And to raise private investment from its depressed level, policies need to be transparent, credible and stable.
0:10:41.36
What private investors are looking for is obviously to make profits, and they think they're going to make profits if you've got a sound and stable government, which means that you want to have a sound constitution that's broadly acceptable to all.
0:10:57.88
The second thing is that investors look for is growth in the market, which is also going to come from sound macroeconomic and fiscal policies, sound exchange rates, reasonable tariff rates, and also I would suggest an international competitive tax rates.
0:11:14.04
These are all important to the country.
0:11:16.72
Happily that all these things are more or less in place now.
0:11:22.2
Nevertheless, the new government has to win a race against the clock.
0:11:25.8
It faces the high expectations of the majority of the population, many of them living in shacks in squatter camps.
0:11:32.76
To them, it wants to provide jobs and housing as tangible evidence of the new era.
0:11:38.44
As we people here of what's name Paralink Squatter, we as a government that policemen let to let him we know that it's it's not as easy as that because there's so many to to be done by the government.
0:11:55.48
But now at least we as a government to help us.
0:11:59.68
Some of ours.
0:12:00.48
Some of our people here have no residential have no have no have not material to pay for to pay for themselves.
0:12:09.44
So they rely to others.
0:12:11.96
So now we as a government please to give all what you can do to assist us, to improve us, Then we can live as the other people do.
0:12:23.44
It's the funny man ever said.
0:12:28.48
It her name is Nupumzi Langozi.
0:12:31.36
She's from one of the rural areas.
0:12:34.04
She has come here to visit her husband and only to find him that he's unemployed.
0:12:38.6
So he's also suffering as well, just like her pleasure.
0:12:47.8
They are leaving the schools by asking from the neighbors, help from the other.
0:12:50.92
They're backing from other people because they used to have some stock.
0:12:54.24
They've sold them all now.
0:12:55.96
They got no other money to carry on with the living.
0:13:18.84
Our people are entitled to have these high expectations because they can see their white counterparts enjoying the rights and privileges which are denied to them and therefore they are justified.
0:13:36.96
But we have warned them that the task of addressing their basic needs is not one that can be achieved overnight.
0:13:47.6
It is a process which, as you say, requires a great deal of of patience.
0:13:55.52
Nevertheless, we understand that the urgency of a speed in addressing these problems.
0:14:03.16
It's difficult for people who have suffered, who are now living in the world of hope that now that there's a black government, predominantly black government in this country, that there's going to be delivery.
0:14:14.16
It's difficult to to to urge them to be patient.
0:14:18.12
And for young people who have suffered, it's very difficult to understand that they need to be any patients.
0:14:26.64
The challenge to the government is daunting.
0:14:29.12
It has to offer visible change to the poor majority of South Africans.
0:14:33.68
At the same time, it has to send the signals, particularly to the private sector, that it will maintain the objectives of economic and financial stability.
0:14:43.24
There are already concerns being expressed about how additional social expenditures could raise the fiscal deficit to unsustainable levels.
0:14:52.24
I think the danger signals for the economy from an expansionary fiscal policy are in fact already there.
0:14:59.28
It is not as if it's something that lies ahead.
0:15:02.4
I'm afraid that the the kind of budget deficit that we've already run up, we ended last year at 6.9% of GDP.
0:15:10.8
The extent of the primary deficit, that is that we are borrowing not just for to fund the the interest on the debt that we'd made before, but even more than that, the fact that the interest on the government debt that we'd run up before has run up from something like 4% of government expenditure to just about 1/5 at present.
0:15:32.12
Those are already danger signs.
0:15:34.16
Indeed, excessive government expenditures as a percentage of available resources in the economy has been increasing, a problem which started with a previous administration.
0:15:44.56
The Government of National Unity has reaffirmed its commitment to fiscal discipline.
0:15:49.36
The deficit will be limited to 6 1/2 percent of GDP in the 199495 fiscal year and will be reduced further to avoid a debt trap.
0:15:59.6
We must appreciate what has happened in this country.
0:16:03.8
The government has overtaxed the population in order to support apartheid, increased taxes, We can no longer increase them.
0:16:17.08
When they had increased taxes to such an extent that they could not be increased further, they started borrowing both from internal of the internal community and the international community.
0:16:33.24
They have over borrowed.
0:16:35.52
So we can neither increase our taxes nor borrow monies from abroad.
0:16:40.28
Abroad.
0:16:41.64
That is the problem that faces us.
0:16:44.76
This means that we must observe fiscal discipline, which means that we must reduce the deficit, which is very high, and we must reduce taxes so as to attract investments.
0:17:04.68
Investments are going to be absolutely crucial in order to expand the economy, because it is by expanding the economy that will be able to provide jobs for large numbers of people who have been excluded from participating in our economic system.
0:17:28.88
Increasing participation in the economy translates into reducing unemployment.
0:17:33.92
It will require new and bold policy directions.
0:17:37.8
The Government of National Unity has endorsed the ANC's Reconstruction and Development program, commonly referred to as the RDP.
0:17:46.4
Now the challenge is to translate the RDP into specific, manageable and efficient government programs.
0:17:53.52
The RDP is essentially a growth and developmental strategy.
0:17:57.48
It's about turning the ship of state around from the old priorities of apartheid to the new priorities of the RDP, which essentially deal with two issues.
0:18:08.24
Firstly, improving the quality of life for people and meeting their social needs, but doing it in the context of a growing and dynamic economy.
0:18:18
And that essentially is what the RDP about is about.
0:18:21.32
It's focuses on major programs that deal with meeting basic needs such as housing or water or electrification, and also focusing on key questions of economic restructuring.
0:18:35.52
What are the key sectors of our economy that need to be developed?
0:18:39.08
How does our economy grow in the in the view of the fact that we're now part of a Gatt agreement where tariffs are going to be lowered?
0:18:48.28
How do we increase competitiveness?
0:18:50.24
How do we improve productivity and efficiency while it also improving the conditions of employment of workers in our country?
0:18:57.84
I believe we have not done justice.
0:18:59.68
The RDP had to be budgeted along with other transition costs.
0:19:03.92
Taking these into account, a total of about four billion rands, more than $1 billion, is to be spent during fiscal years 199394 and 199495.
0:19:16.56
And there are various estimates for the total cost of the whole program over the next five years ranging from 40 to 80 billion rands, the equivalent of 10 to 20 billion U.S.
0:19:27.44
dollars.
0:19:28.64
During the 199495 fiscal year, a temporary levy of 5% of taxable income above certain levels was proposed to cover part of the transition cost, but the bulk of the RDP expenditures will be offset by savings elsewhere.
0:19:45.04
We have also implemented a budget in a very short time which has successfully devised a mechanism to fund the RDP in a sustainable, fiscally disciplined manner.
0:19:57.52
And as we've implemented this fund and talked about it, we are finding it is a surprisingly useful mechanism to bring about a reordering of priorities in this new government and their departments.
0:20:09.08
I think that's a major achievement.
0:20:11.08
The work between Finance and the Minister without portfolio has been excellent and in recent days State expenditure Finance and the the.
0:20:19
RDP ministry have worked through, I think, very important innovative budgeting mechanisms that will take us forward into future years.
0:20:27.6
The 199495 budget provides for an initial allocation of 2 1/2 billion rands for the RDP's key sectors.
0:20:36.84
The government is well aware that the RDP's programs will face implementation difficulties and bureaucratic bottlenecks.
0:20:44.48
This is a reason why decentralization to provincial and local tiers of administration is going to be so critical.
0:20:51.6
The national RDP is primarily a budgetary process, an analysis of the national budget and the allocations of money.
0:21:01.92
Implementation is a provincial thing, and so as a provincial RDP head of Commission, my job is to look at implementation and policies.
0:21:12.28
The RDP is not an economic document, it's a socioeconomic framework, and that's what guides us.
0:21:21.16
So in the PWV, where there's been a lot of political violence and even a degree of criminal violence, we consider the question of public safety and security a major issue.
0:21:31.96
And we're trying to link this question of security with things like socioeconomic activity.
0:21:39.08
And immediately we're focusing on public security and housing and the 2GO together very closely, so that, for example, in an area like Tokosa, you've got houses which have been abandoned because of the security situation.
0:21:54.6
Now we have to recover those houses for the public.
0:21:58.2
And indeed in many of the townships there are no go zones arising out of the violence.
0:22:04.04
So we want to recover that housing stock for the people and we can only do that if we introduce safety.
0:22:10.6
This is just an example of the intersectoral way that the RDP works.
0:22:16.84
The success of the RDP will depend to a very large extent on the stability of local communities.
0:22:24.48
Local government has to be stabilized, it has to be democratized.
0:22:29.64
And the only way you can democratize local government is through holding elections at local level.
0:22:35.68
It will enable people to claim ownership of the process and owning the the the delivery processes at local level where people will no longer have an excuse not to pay for services rendered.
0:22:54.52
They will not longer claim that the the local authorities are illegitimate and are not representative of their interest.
0:23:06.52
They will be themselves in those structures and serving their own interest.
0:23:10.72
So it will be necessary that they collect funds and in order to improve the quality of life of the people at local level.
0:23:20.44
There are vast disparities among the various segments of the population.
0:23:24.88
For instance, the average black income in South Africa is $1100 a year, compared to about $8200 for whites.
0:23:33.28
In key sectors such as education and healthcare, there is also room for improvement.
0:23:40.68
The reactions to the RDP are generally positive in the business community.
0:23:45.88
Those who might have been anticipating populist overspending by the new government seem temporarily reassured.
0:23:53.04
I think you can achieve the aims of the of the RDP over a period was out to undo fiscal and inflationary pressures.
0:24:02.08
I think it will be necessary for the RDP expenditure to grow fairly slowly in the early years while the economy is growing and therefore while the tax base is being increased and the amount of money that will flow to the fiscus is increased accordingly.
0:24:19.4
It it will it should also be possible to accelerate this grace by further processes of privatization in South Africa.
0:24:27.2
There have been some this is something that's been conducted in many other countries in the world and it really means that the government is able to pursue its socio economic aims at that was out running into fiscal problems.
0:24:43.16
And at the community level, there are those who look at the RDP's political and social dimension.
0:24:49.88
Stabilization of the communities, the removal of violence, the removal of fear out of our communities will be a great, great help towards making this country a viable country.
0:25:06.08
I must say that without the an element of stability, there are certain areas that will be left behind and I'm sure it's already happening.
0:25:15.72
There are areas that are continuing to become slightly violent.
0:25:20.8
Lots of development programs, even those that are driven by the RDP find it difficult to hit the ground there because of the tensions on the ground.
0:25:29.16
And yet you need development in those areas to remove fears and tension.
0:25:33.44
So to balance that, this is a challenge of this new government, the challenge of organization like mine to get into the communities there and while developing houses to develop hostels, because the two seems to be tension, do it same time simultaneously.
0:25:47.44
And we, we, we, we, we must get in with training programs.
0:25:50.52
The bigger chaps like the World Bank and the Development Bank of South Africa must come in with infrastructure, bulk infrastructure programs.
0:25:59.32
And that's the only way.
0:26:33.48
We know that they are close to 1,000,000 shacks in this country housing babies, 567 million people who are living in conditions which cannot be called communal conditions or civilized living conditions.
0:26:54.88
Housing is only a fraction of South Africa's social backlog that the RDP seeks to address.
0:27:00.8
The cost of delivering new houses and upgrading existing facilities in the four major metropolitan areas of South Africa is estimated at 4 1/2 to 12 1/2 billion rands.
0:27:12.44
Housing is not just 4 walls and a roof, it's building communities is restructuring the lives of people and especially in the immediate.
0:27:29.56
It's accepted by everyone that the housing sector can be the biggest single contributor to giving a kick start to the whole the whole economy.
0:27:44.24
Because for every million Rand invested in housing, you create 200 jobs directly and indirectly compared to food, chemical and other sectors which are 20 to 30 for the same amount.
0:28:01.64
So if you look at the general economic situation in the country with an unemployment rate of over 40%, housing is a very important feature of beginning to address the unemployment sector in addition.
0:28:17.76
Now, besides all the economic virtues of the housing program of the RDP, it faces two enormous challenges.
0:28:25.36
Politically, the program has to deal with a complex urban geography of the South African cities.
0:28:31.32
Townships are a mixture of different neighborhoods with different political affiliations.
0:28:38.24
One can quickly go from the affluent residential areas of the black middle class to the poverty of hostels.
0:28:45.16
These hostels, which used to be minors accommodations, now house single migrant male workers who typically pay a monthly rent for A room.
0:28:56.16
Other migrants prefer to build a shack in squatter camps where they can bring their families.
0:29:04.12
In addition, a new local structure of representation is emerging in the townships.
0:29:08.88
It has the difficult task of sorting out the new policy options and providing services to the community.
0:29:15.16
Rivalry continues between the old system of counselors, the various factions within the civic organizations and competing political groups.
0:29:24.08
In Mansfield, in Encata dominated hostel in Soweto, where most residents come from Kwazulu Natal, there's concern about the commitment for upgrading the hostels.
0:29:34.16
The person at this moment who are, who are running this RTP, the construction development problem is none other than those who are members of the ANC.
0:29:45.32
And they are the very same people who who are still campaigning that the hostel must be demolished.
0:29:50.96
And this simply means that now we are singled out that they they don't want to sort of see the hostel being upgraded, but we'll try our level best to make sure that the hostel are upgraded.
0:30:05
In the nearby ANC dominated squatter camp of Baralang, the electoral promises haven't been forgotten.
0:30:11.8
We would ask them to create jobs and build houses for the people as they've promised before we voted them.
0:30:18.44
Besides the political challenges, there are economic obstacles to the RDPS housing program.
0:30:24.28
The government has committed to build 1,000,000 houses over the next five years.
0:30:28.96
It has also devised a subsidy scheme proportional to income for poor households.
0:30:35.48
Because of the existing budgetary constraints, the management of the scheme and its qualifying mechanism are being discussed.
0:30:42.52
The challenge is to build a credible and efficient entitlement scheme that would enable each low income household to leverage both the financial market and the construction industry.
0:30:53.92
Developers are displaying RDP individual houses at prices ranging from about 25,000 rands or about $7000, up to about 80,000 rands or about $23,000.
0:31:07.32
The low cost houses for about 6000 rands less than $2000 are offered by some developers that may be exceptional and linked to other existing schemes.
0:31:18.32
In most cases, an RDP house raises the question of how beneficiaries of a government subsidy would finance the difference between cost and subsidy, and what sort of queuing system can be organized at the community level.
0:31:33.2
But does the building industry have the capacity to deliver a million houses in five years when it's barely building 30,000 a year now?
0:31:41.28
First of all, I think in terms of the goal set by the RDP and by Slovo in particular in terms of the housing initiative, we believe that the RDP is an achievable goal.
0:31:54.52
Now that's easy to say in a few words and it's perhaps a bit more complicated than just a few words.
0:32:00
Frankly, the RDP doesn't meet next to the needs of South Africa in terms of housing.
0:32:04.64
A million houses in five years doesn't only keep space with population growth, it doesn't eliminate the backlog.
0:32:10.56
So frankly, we're a bit more ambitious than the RDP when it comes to building houses and we'd like to think that the bullying industry can in fact achieve a better rate of production than the RDP is is advocating because we believe that South Africa needs a better rate of production than that.
0:32:26.12
However, the building industry suffers from a chronic problem that is common to many sectors in South Africa and is hidden during recessions.
0:32:34.08
The thin pool of skilled workers is quickly exhausted in recoveries.
0:32:38.88
We've just done a report for the Minister, Minister Slovo, which advocates that our present training of 20 million Rand a year needs to move up to something in the order of 200 million Rand a year over the next year or two.
0:32:53.08
We have enough training institutions in this country.
0:32:56.8
We need some more trainers and we need to produce, to give you an example, 45,000 artisans per annum to meet the requirements of of the RDP or our better interpretation of the RDP.
0:33:13.04
Our increased requirement from the RDP.
0:33:15.6
Now the best we've ever achieved in this country is 7000 artisans per annum and last year we only produced 3000.
0:33:23.12
With increased demand for construction materials, prices are likely to go up and.
0:33:27.64
Fuel.
0:33:28
Inflation, despite spare capacity in the construction sector, but above all, Urban Development of the townships will require a change in attitude from the big developers and private investors.
0:33:40.04
They're two different worlds here.
0:33:41.4
These people stay in the, in your Hortons, you know, suntan areas, everything is rosy and safe.
0:33:48.28
It's for them to get to a shipping and suit and talk to the people and understand that these are not animals.
0:33:54.48
These are human beings like us.
0:33:56.44
The discussions that are there and normal discussions and this people can be trusted, but we can't do that by removing control and you can't do that by getting one company to research how Plex think this year and how how is their Anna, you know, putting a thermometer there.
0:34:15.6
They need to have some people who who's going to go to get there, see the level of thinking or themselves going to the Township because to some of them, it's prestige to go to a black Township.
0:34:30.24
You know, when he's having tea at home.
0:34:32.28
I wasn't.
0:34:32.72
So how nice.
0:34:34.92
And so it is part of his country.
0:34:37.56
The RDP is a starting point to solve the structural economic problems of South Africa.
0:34:43.16
It has to trigger deeper policy changes which by restructuring the South African economy, would reduce the level of unemployment significantly.
0:34:52.64
This restructuring revolves around the following policy alternatives, more openness or more protectionism and more capital intensive or more labor intensive production.
0:35:03.56
Which one of these alternatives will produce the highest GDP growth rate, with the highest labor content, and with the highest redistributive pattern?
0:35:13.16
To answer this question, one has to know from which economic sectors is growth going to come in the future of South Africa.
0:35:20.4
The share of GDP of the once powerful mining sector has been decreasing from more than 20% in 1946 to less than 10% in 1993.
0:35:31.52
Mining and energy sectors combined employed today less than 9% of the labor force, as compared to 14% in 1946.
0:35:40.76
The reasons behind the sector's decline are various, for instance, the fall in the prices of minerals and the lower grades in South Africa's minefields, which reduced productivity and.
0:35:50.64
Profitability The dynamic services sector can help.
0:35:56.56
South Africa has a sophisticated financial sector and there is scope for growth and job creation in exporting services like tourism.
0:36:05.72
We can bring many more people and this is the beauty of tourism without major investment at this stage, without long leading times, immediately you can switch on and you can increase the number of tourists with a a direct effect in terms of job creation.
0:36:22.64
Every 11-12 tourists coming to South Africa creates one direct and perhaps 3 or 4 indirect jobs.
0:36:30.4
So immediately it will have a an impact on job creation and it will spread the job creation right through the country because the tourist goes to various cities and places of attraction.
0:36:44.88
We have a great, particularly great advantage in terms of our our wild, our animals, our natural beauty and therefore I believe South Africa has the capability of becoming the number one ecotourist destination in the world.
0:37:18.88
Land reform would be a necessary step of the agriculture sector aims at creating more jobs.
0:37:24.8
Land appropriation, the provision of marketing and other forms of support to commercial farmers has left South Africa with an agriculture sector dominated by large scale capital intensive farms.
0:37:37.72
Though the view is widespread that large scale farms are more efficient than smaller ones, this view is fallacious.
0:37:44.6
Not only smallholders can be as efficient as large farmers, they farm in more employment intensive ways.
0:37:51.56
But land reform is always a complex and delicate process.
0:37:55.44
There are many issues involved.
0:37:57.68
White farmers there started complaining about the activities of the squatter settlement and they forced the government through TPA to buy those properties back from them.
0:38:12.72
So the situation then that exists today is that we've got properties that have been paid for lots of money, thousands and thousands rents of taxpayers money went to buy farms from this white farmers, but those farms cannot be used productively because of this security poser.
0:38:32.88
Urban agriculture could also be an option for job creation and improving living standards.
0:38:38.8
I think the agricultural sector can contribute in two or three ways within the context of the RDP framework.
0:38:45.36
1 is yes, with the choice of of technologies one can consciously increase production and yet not decrease employment.
0:38:57.8
Agriculture within the rural context and it's multiply effect can actually generate income within the rural areas and hence provide some kind of a living there.
0:39:08.6
And the third is if you think of what was being said about the impact of farmers, vegetable farmers next to a Township where people are now taking on their back gardens, you one would be able to demonstrate how easy it is to grow and hence your your household level of food security, which again is a concern of the of the RDP.
0:39:33.92
The bulk of economic growth and job creation will not come from agriculture.
0:39:38.24
It needs to come from the growing manufacturing sector.
0:39:41.88
The manufacturing sector employs today about 25% of the labor force as compared to a bit more than 10% after the Second World War.
0:39:51.76
Growth of the manufacturing sector comes from both the export market and the domestic market.
0:39:57.08
A favorite debate among economist is which market should be targeted primarily.
0:40:01.92
South Africa like many other large developing economies has pursued a strategy of import substituent industrialization for a long time that basically provides a basis for a broad based industry, typically inefficient in the sense that they're prized assortions and productivity may be low, but the other, on the other hand the industry is there.
0:40:25.56
The question is how does South Africa turn this import substitution based industry into a basis for, so to speak, a more open, export balanced kind of economy?
0:40:40.16
The government is now publicly committed to a strategy of export LED growth and reducing protection for industries in line with a new GAT accords which will stimulate more competition in its domestic market going for an export oriented growth strategy.
0:40:56.4
In a more open economy does not mean that all the economic debates are over.
0:41:01.48
First, because opening up an economy might increase unemployment in the short term when uncompetitive factories shut down.
0:41:09.2
Second, there are several possible routes to export LED growth from where South Africa is today.
0:41:15.28
Exports can be relatively more capital intensive or labor intensive.
0:41:21.56
The elusive project and aluminum smelter continues the South African tradition of.
0:41:26.56
Highly capital intensive operation.
0:41:29
We are putting up the world's biggest smelter ever built at one time 466,000 tons of production, three times the existing facilities capacity.
0:41:41.24
It is going to be the biggest private sector project ever undertaken in South Africa.
0:41:45.96
And it does meet all the criteria that I've talked about.
0:41:48.32
Therefore scale technology, high productivity and therefore low labor employing capacity.
0:41:56.52
That's that's true.
0:41:58.48
But on the other hand, if we look at the needs of the new government, I mean what does the need that the new government need?
0:42:04.72
Yes, it does need an immediate injection of job creating opportunities.
0:42:10.44
Now there's nothing like spending 6.3 billion Rand of which 70% is being spent in the local economy to give a very short injection into the local economy.
0:42:25.2
And that's exactly what is happening on the site itself.
0:42:28.32
We are employing something like 6000 people on the site over a period of of three years in the local region.
0:42:37.32
We of the labor being used of that 6000, some 70% comes from the local region that is the richest Bay Natal region.
0:42:45.48
So it is it is really set that part of the world alight.
0:42:50.76
Now as one moves then into the operating phase, it is true that the plant will only create job opportunities for probably 1300 skilled personnel, but it is going to earn for the country net foreign exchange earnings of 1 1/2 billion Rand.
0:43:08.76
Now that for any new government must be important because it gives them the muscle to increase imports which they need to uplift the quality of life of their people.
0:43:19.6
So we think of that is a very substantial and short term that revenue will start to flow into the country in about two years time.
0:43:29.92
It's hard to pick winners, and economists haven't been very good at that.
0:43:33.92
But South African data shows that over the medium term, each 50 million rands invested in fabricated metal products or high quality garments yields 25 to 40,000 jobs economy wide.
0:43:47.68
The same 50 million invested in, for example, capital intensive projects like chemicals and the elusive type ones yields fewer than 10,000 jobs.
0:44:00.36
Nevertheless, in labor intensive exports too, there are challenges at prevailing wages in the manufacturing sector.
0:44:07.52
S Africans producers are uncompetitive internationally in products like garments or footwear for poor consumers, but in some niche markets, high quality textiles for high fashion markets such as those produced by this clothing factory in the Cape region, South Africa's manufacturing sector can penetrate highly competitive export markets.
0:44:30.96
There is also export potential in high value fabricated plastic and metal products.
0:44:36.04
This alloy wheels factory in the PWV region, for instance, exports 65% of its production to Europe and particularly Germany, where its main customer of BMW requires a high level of quality.
0:44:50.72
I think our our strength fortunately has been in the fact that in this particular niche of business, we have had a three-year start.
0:45:00.36
We had the the people that saw the the opening in the earlier years.
0:45:06.08
And that head start has been very important because to start today from that point would be a weakness.
0:45:12.4
Indeed.
0:45:13.4
It would mean that we would have to become more capital intensive than we are today.
0:45:18.04
I think we're able to support today a labor force which is in excess of our competitors generally.
0:45:24.24
So that is of course is there's a weakness, but because we are where we are today and because we have a a very good support base of customers, we're able to absorb to some degree at this stage this higher labor content.
0:45:38.96
We will over a period of time through increased cells the the taking up of the full capacity of our operation, we will maintain our workforce and and attain higher productivity, but we will not be seeking to increase this workforce anymore.
0:45:54.8
Export success requires high product quality and reliability in meeting delivery schedules.
0:46:00.64
Labor cost is obviously also important, but how far can you?
0:46:04.44
Push for wage moderation without triggering labor conflicts in South Africa.
0:46:09.72
There's no guarantee that would lower wages.
0:46:12.2
The companies will necessarily employ more people than they need to.
0:46:15.52
You know, the big challenge is that of of productivity on that front and the impact of wages.
0:46:21.92
Unemployment, we would argue has been marginal.
0:46:25.08
So This is why we are arguing for a strategy for growth that takes into account a high level of wages.
0:46:31.72
The countries we are competing with potentially for markets, pay much better wages, but they compete better because they've got all the other factors of competition, right?
0:46:43.04
So we're not going to be able to compete for wages with the Chinese workers.
0:46:47.2
And that wouldn't be the right direction to go.
0:46:49.44
We wouldn't accept it.
0:46:51.36
I think the final point there is that in a post apartheid situation where you've got a fairly militant, politicized workforce, where you've got challenges that can be met by partnership, they are trade-offs for a partnership.
0:47:08.4
An attack on wages would not be the basis for the trade off and it would destroy the whole project.
0:47:13.76
I think serious companies are not scared about this.
0:47:17.68
Like Business South Africa issued a statement saying there's no threat to business confidence from this.
0:47:22.84
Andrew Levy, a well known consultancy firm, said this is normal and this is completely normal and it's part of a normal society to have strikes.
0:47:35.56
Germany has got huge strikes for weeks and weeks in the metal industry, and they still do, you know, All right.
0:47:41.64
Many of the trade union members who are employed recognize that their family members have no jobs, that there is some sense, an obligation to try to construct a social package will create opportunities for their families and their children.
0:47:54.68
And that certainly they may have to be sacrifices made, but there's got to be some reciprocity further down the line.
0:48:01.44
And insofar as structuring a social program, a social package, a tripartite relationship, I think the trading movement is mature and recognize the need for that.
0:48:14.12
Inevitably, building a social package will be costly.
0:48:18.16
Almost certainly the fiscal deficit is going to go up.
0:48:20.76
There's a tremendous social backlog in in in South Africa and tremendous backlog of the social demands which which is going to have to be met essentially by the government.
0:48:32.72
To meet that, the government's going to have to put more resources into, into education programs, health programs, pension funds, the sort of whole structure of a social safety net with which most countries have.
0:48:47.52
That's going to cost money.
0:48:48.68
It won't be entirely financed by taxes.
0:48:50.72
That means they're going to have to be a bigger fiscal deficit.
0:48:53.28
That fiscal deficit going to have to be supported either by borrowing within South Africa or borrowing outside South Africa.
0:49:00.8
Some of the borrowing will take place outside South Africa.
0:49:03.84
There is, of course, an important ongoing debate regarding the country's borrowing strategy.
0:49:09.36
The new government wants to avoid both a domestic and foreign debt trap.
0:49:13.96
After reaching a peak in the mid 1980s, Today, by international standards, South Africa has a relatively low foreign debt to GDP ratio.
0:49:24
It gives the country a good leverage to decide when and how to tap international capital markets.
0:49:30.32
However, the government's domestic debt to GDP ratio, which has been increasing since 1980 with the fiscal deficit, will have to be controlled to avoid a domestic debt trap.
0:49:42.72
While the South Africans debate on the issue, there is great awareness, however, that external assistance needs to be used efficiently.
0:49:50.64
For the moment, aid coordination will revolve around the RDP.
0:49:55.08
The only way I see is that negotiations with foreign aid must be tagged on projects around the RDP, because the RDP is the only institution that really can begin to address some of the needs of the community.
0:50:15.6
But the RDP, if it ties the hands of the donors to its own program, it is really reversing the roles of the donors as we know them internationally, where they pick and choose any program they wish.
0:50:27.68
In this particular case, S Africans in the development sector, in the government will be inviting international donors on a blueprint, a white bear, a blueprint, that of RDP.
0:50:40.48
This is a new thing and for me it's very encouraging.
0:50:43.32
If we do it correctly, South Africa is not like the rest of the world.
0:50:47.52
I think they will not have it very easy and like, you know, simply write their own programs here.
0:50:52.04
We want involvement ourselves.
0:50:54.2
Donor grant money and even project lending is likely to represent a minimal part of the involvement of the international community in South Africa, given the size of its economy.
0:51:04.44
For instance, total US foreign assistance over the last couple of years has been well under $1 billion, less than 1% of South Africa's GDP.
0:51:14.28
During the last six months, I have had a number of foreign pension funds, for example, that have come to see us to talk about the possibilities of investing again in South Africa.
0:51:30.4
And many of these funds that have been on the level of 203040 billion and more dollars managed by these US and other pension funds have said in the in the past we have had as much as 2-3, maybe even 5% of our total pension funds invested in South Africa.
0:51:52.04
It doesn't take much mathematics to see that when you start talking about, say, 5% of a $50 billion pension fund, that you're talking about very substantial resources that are much larger than what foreign donors can provide.
0:52:08.04
So one of the things that has to be addressed here by bilateral donors, by multilateral donors, is the whole question of how do we help facilitate the flow of funds here?
0:52:20.92
One of the unique approaches that we've used in South Africa is that for the first time, the bank did not only talk to the government, it talked to the opposition parties.
0:52:33.4
One of the critical conditions necessary for our work work in South Africa before the transformation was that we had the freedom to talk to all the parties, the ANCPAC, IFP, the Nats.
0:52:48.4
And when I say all of the parties, not just the political parties, but the NGOs, including the labor unions, the churches and those NGOs, community based organizations that have been helping the communities under the apartheid regime.
0:53:04
This is quite unique.
0:53:05.8
I don't know of any country where the World Bank talks to the opposition directly, but in South Africa, given its history and the process of transformation, the only way that the Bank would really be successful is to talk to all of the various parties.
0:53:22.84
In the end, we've learnt a very good lesson that in fact the Bank needs to make its recommendations.
0:53:29.52
It's analytical work open to the general public and through the debate that ensues, the Bank can learn a lot in in formulating whatever final recommendations that it has and.
0:53:41.24
Became a South African.
0:53:44.44
Eventually, it will be up to the South Africans themselves to set the pace for changing their economy and choosing the best development strategy according to their own priorities.
0:53:54.68
And there is a great deal of political realism in accepting that the future may be less miraculous than the present honeymoon, but that problems can be solved and will be solved.
0:54:04.92
Well, I've always said that if the South African problem can be solved, any problem in the world can be solved, because South Africa had within it the ingredients of every social evil that you can imagine, and not just gap between rich and poor, which is enormous, but extreme forms of racism.
0:54:32.12
It's got the ethnic element in it.
0:54:34.16
It's got all the components which normally lead to explosions and to violent confrontation.
0:54:41.24
I think there will be bumps and there will be setbacks at times and the boat will be rocked at times.
0:54:48.16
But I think that we have quality leadership from many sides in politics and in business and in society which will assure that we will manage those challenges as they come.
0:55:07.12
If we achieve the continuance of the miracle, as you call it, then we will be able to play the role which I believe South Africa is destined to play also on the continent of Africa.
0:55:26.76
The whole of Africa is praying that we will succeed and inside South Africa there is a great sense of responsibility also with regard to our neighbours.
0:55:36.88
South Africans have this hope that somehow we have been chosen by God to do some special mission that nobody has ever done through all the generations in the past.
0:55:48.64
You know, we are the, the rainbow children.
0:55:52.2
And it's, it's letting the side down.
0:55:55.52
If, if somebody does something that looks normal, but it's, it's conflictual.
0:55:59.96
I think it's a sort of deeply romantic, idealistic notion that comes out of fact that we have done 1 miracle, we have done this political transition, we've got a successful election which nobody expected us to do, and it was done peacefully and everybody's in it, you know, and that's a miracle.
0:56:19
But we are not going to run the whole country on miracles forever, you know?
0:56:23.72
And I think unionists are one of the people with at least sentimental.
0:56:30.56
What encourages us is the unity of all political groups, the unity of all sections of the population, the development of a common loyalty to a common fatherland.
0:56:43.32
That is what is encouraging us, and with the support of the world, I think that we will be able to address our problems and to join the great international team in addressing the problems in the rest of the world.
0:57:35.68
The.
0:57:54.8
The.
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Detail
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Title
South Africa: after the miracle...
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Description
Documentary about economic and social conditions in post-apartheid South Africa.
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Creator
World Bank Group/NewsGroup
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Date
1994
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Language
English
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Filename
30159604 - South Africa - After the Miracle.mp4
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Usage Terms
The records that were created by the staff of The World Bank are subject to the Bank’s copyright. Please refer to http://www.worldbank.org/terms-of-use-earchives for full copyright terms of use and disclaimers.