History in the new South Africa: an introduction - Det danske ...

3 Macroeconomic policy in South Africa. From RDP
through GEAR to ASGISA
By Stephen Gelb
The South African economy performed very poorly from the mid-1970s. GDP growth
averaged only 3.3 percent per annum in the 1970s and 1.2 percent in the 1980s, and a fierce
policy-induced recession intended to cut inflation meant that growth between 1990 and 1993
was -0.6 percent per annum. When the post-apartheid era began in 1994, the expectation was
that economic growth would improve, but a decade later, the transition’s optimism has been
unfulfilled: only limited progress has been made in improving growth while distributional
equality has remained stagnant at best. GDP growth averaged only 2.9 percent per annum
between 1994 and 2004; with population growth of 2 percent per annum, per capita income
has barely increased at 0.9 percent per annum. In September 2005, the official unemployment
rate was 26.7 percent, and the broad rate (which includes those no longer looking for work)
was 38.8 percent. Poverty and inequality remain extreme. 32 percent of the population were
living on less than $2 per day in 1995, and this rose to 34 percent in the subsequent five years.
The Gini coefficient measuring inequality was 0.56 in 1995 and it increased to 0.58 in 2000
(Hoogeveen and Ozler, 2004). In 2000, the income share of the highest decile was 45.2
percent, while the lowest decile’s share was only 0.4 percent.
To be sure, there has been financial stability: consumer price inflation has been held below 8
percent almost permanently since 1996 compared with 15.3 percent in 1991 and 9 percent in
1994, and the fiscal deficit reduced from 7.3 percent of GDP in 1993 to below 3 percent since
1999. Yet it is fair to ask, first, whether this represents macroeconomic success, since the
external financial position has been extremely volatile, with currency crises and capital
inflows and outflows. Second, even if overall performance is regarded as successful, has the
price been too high, given the poor performance of output and employment growth.
This chapter examines macroeconomic policy and performance during the 1990s. It starts
with a discussion of the transition period because this shaped the policy choices of the
democratic government. The next section describes macroeconomic policy since 1994, which
has been articulated through the successive frameworks called the Reconstruction and
Development Programme (RDP) and Growth Employment and Redistribution (GEAR). The
section looks first at fiscal policies and then turns to monetary and exchange rate policies. The
third section examines macroeconomic performance, looking at investment, savings and the
balance of payments. The final section concludes by assessing the government’s new
economic framework, the Accelerated and Shared Growth Initiative for South Africa (ASGI-
SA), adopted in 2005.
The political economy of crisis and transition
The origins of post-apartheid policies are found in the ‘economic crisis’ which started during
the 1970s, characterised by a structural slowdown in economic growth reinforced by political
problems. The slowdown was triggered by the global recession following the collapse of the
Bretton Woods monetary system and the 1973 ‘oil shock’. In South Africa, spontaneous wage
strikes from 1973 and student uprisings from 1976 added to slower growth by causing capital
flight, while also forcing the government to relax many of the restrictions on the urban black
population. The growth slowdown continued during the 1980s despite a brief respite when the
15