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South Africa: Export for Jobs - the Way to Shared Growth
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Business Day (Johannesburg)
OPINION
9 May 2008
Posted to the web 9 May 2008
Ricardo Hausmann
Johannesburg
IF GOD decided on how fast a country would grow based on its virtues, SA would be growing faster than China. Since 1994, the country has been able to replace a system that denied basic economic and political rights to the majority of its people with a true democracy.
It managed to make the transition while strengthening peace, macroeconomic stability, trade openness and property rights. Inflation was brought down from double-digit levels to less than a third of its 1990 level. The rating of the country in external credit markets became one of the best in the developing world. And yet, for the first post-apartheid decade, the rate of growth remained subdued at 1,1% per capita, unemployment doubled and inequality of incomes rose.
So, why has God not been more generous with SA's growth rate?
In 2005, the government asked me to put together a team of international economists and South African experts to ask this question and suggest policy actions. The team wrote some 20 papers, and a summary of its analysis and recommendations has been made public this week.
We found that at the core of SA's shared growth problem is the lack of dynamism of its tradable sector. SA's export growth in real per capita terms is among the slowest in the world. This is in part related to the fact that mining is an important component of the export basket and the natural endowment on which it is based has obviously not grown, while the country's population has gone from 17-million in 1960 to more than 47-million today.
The only way to sustain growth in exports per capita with a declining share of mining activities would have been through a vigorous expansion of either agriculture, manufacturing or export-oriented services, such as tourism or call centres.
Yet the first three activities shed jobs in absolute terms over the past two decades, while services have been underperforming.
Moreover, we found that the number of South Africans that are working -- about
13-million -- is an unusually low fraction of the working-age population.
In comparable countries in Latin America, east Asia and eastern Europe, the number of people employed would be 50% higher, or some 6-million more people.
In SA, this population would be predominantly black, young, female and with no post-matric education.
A strategy of shared growth should be concentrated on including this population in the economy through productive jobs. However, the pattern of growth that SA has been on is focused on the expansion of the nontradable sector, which is skill-intensive.
This pattern of growth worsens the mismatch between the skill level of the population and the type of employment demand of the economy.
Therefore, the team proposed that a strategy for shared growth should be based on the relative expansion of the tradable sector. In three words, the strategy can be called "export for jobs". First, jobs are the secret to shared growth because it is the way to effectively include people into the revenue streams and the opportunities of an expanding economy.
Second, jobs have to be matched with the people you have, not the people you wish you had.
Third, exports will need to grow fast in order to bring down the uncomfortably
high current account deficit without causing a major slowdown.
To effect this change in strategy, we argued in favour of a more competitive and stable real exchange rate. We proposed that to achieve this goal, fiscal policy needs to make a bigger contribution to national savings in the short run and be explicitly more countercyclical in the medium term. We also proposed an industrial policy geared at accelerating the rate at which SA identifies and exploits new export opportunities and a trade policy designed to support export growth by making inputs more competitive.
We argued for a more liberal immigration policy for high-skilled individuals, for reforms to the labour training system and for a wage subsidy to accelerate school-to-work transitions.
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We also noted the potential for shared growth and black economic empowerment to complement each other, as well as the trade-offs between them. In a nutshell, the goal of making the top of society black can increase the legitimacy and sustainability of the whole system but may come at the cost of reducing opportunities at the bottom. We therefore proposed a rebalancing of the BEE scorecard in order to give more weight to actions that incorporate those who are currently excluded into the economy.
Growth miracles have often been triggered by small changes. If the goal of shared growth becomes a shared social value, it is easier for the government and society to agree on actions required to achieve it. Therein may lay the ultimate secret of growth.
Hausmann is the director of Harvard's Centre for International Development and chairman of the International Advisory Panel for Asgi-SA.
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