‘But to reduce the rate of inflation and the budget deficit meant that there should be a drastic cut in government expenditure and we took that decision. And we are ruthless in making sure that we cut down government expenditure, bring down the rate of inflation as well as the budget deficit. From an inflation which was in two digits when we took over, about 13 per cent, we were able to reduce it to between 4 and 5 per cent … And we therefore inherited a situation whereby there was huge unemployment in this country. We did not have and do not have the resources to address that unemployment …
‘We are able to go to the United Nations at a time when we owed more than US$100 million in the form of arrears for membership, which the apartheid government did not pay when it was suspended … I had to go to the United Nations and to speak to [Bill] Clinton, Boris Yeltsin, Jacques Chirac and others, Jiang Zemin, and to ask them to write off this debt, which they did.
‘I then came back to my country confident that now that I have got this arrears debt written off, I’m going to get this R254 billion written off and I asked the Minister of Finance to give me a breakdown of this debt. I nearly fell on my back when I was given these particulars. More than 90 per cent of this debt we owed to our workers there. What the apartheid regime did here was to take pension funds and to support, to enrich themselves out of those pension funds. We could not write off that debt because, if we wrote off that debt, a government which writes off a debt, which it owes to its workers, we would lose all credibility. So we have no alternative but to pay that debt.’24
Going back to 1994, apart from what was owed to South African pension funds, there were loans from foreign banks and the IMF.*
Initially, to deal with the limited resources, government agreed to keep recurrent state expenditure to a sustainable level and thereby reinforce the RDP ministry and fund as a lever for reorienting the civil service towards reconstruction and development, greater efficiency and more representative personnel.25
These measures, including limited privatisation of state assets, proved inadequate to attract much-needed investments. There was a disappointing response from the private sector, despite the government’s investor-friendly approach. Many businesspeople suspected the government of hiding a big stick with which to beat them up.
In August 1995 – following a recommendation by the NEC of the ANC – the cabinet established a special ad hoc Committee on Growth, chaired by President Mandela and including the ministers of finance, trade and industry, home affairs and the minister responsible for the RDP, as well as the two deputy presidents.26 Among the committee’s remits was overseeing the National Growth and Development Strategy. This was an extensive process due for completion during 1996.27 Before the deadline came up, however, the government responded to volatile currency and insufficient investor confidence with an announcement in June 1996 of a macroeconomic plan, the Growth, Employment and Redistribution (GEAR) strategy.
In introducing GEAR, Mandela had to urge belt-tightening, to court investors, to reopen doors into the world economy. He also had to engage with the ANC’s alliance partners and deflect demands from ministers vying for a bigger slice of the available cake.
Heated discussion occurred around the full implications of the GEAR policy. There were vociferous critiques of what some saw as a ‘movement from a development policy with a socialist resonance – the (RDP) – to one decidedly neo-liberal in form and substance – the Growth Employment and Redistribution (GEAR) policy’.28 Notwithstanding such brickbats, however, there was a general, if grudging, acceptance by society that GEAR should be given a chance. It received a further shot in the arm at the ANC’s fiftieth national conference in December 1997 where it was resolved that the ‘emphasis in the RDP on macroeconomic balance has been a consistent part of ANC policy and has been mentioned in every policy document since 1990. The strategy for Growth, Employment and Redistribution (GEAR) aims at creating the environment of macroeconomic balances required for the realisation of the RDP. In this, therefore, the GEAR does not seek to displace the RDP.’29
Whenever he was asked about the social system that the ANC was pursuing, Mandela’s response exemplified his pragmatic approach. ‘We are not concerned with labels,’ he said, after a lecture he gave in Singapore in 1997, ‘whether our system is capitalism or socialism. We are concerned with delivering services to the masses of our people who were denied all the basic rights of citizenship, who could not go to school, who could not acquire knowledge, skills and expertise. We have declared in our election manifesto that our aim is to better the lives of our people.’30
There were criticisms from the business sector, too. Mandela commended corporate responses to his personal appeals to fund the building of schools and clinics or for participation in projects such as Business Against Crime, and Rural Safety. In reality, however, business was proving reluctant to invest in the country’s future. Business couldn’t be depended on as a partner in reconstruction and development.
The application of the GEAR policy was not always coherent. But it was generally intended to achieve balance. However, the difficulties of this were often exacerbated by external events, such as the Asian financial crisis from 1997 to 1998. The Reserve Bank’s retrograde policy attempts to defend the exchange rate by using its minuscule foreign currency and gold reserves had the reverse effect of shooting the interest rates up to the levels last seen in the 1980s.
One of the proposals of the Labour Market Commission, which Mandela had supported, was for a social contract of government, business and labour. Although the National Economic Development and Labour Council was launched in 1995 with great hopes that it would help forge that contract, by the end of Mandela’s presidency the goal was only achieved in word rather than in deed.
Dealing with the inherited economic crisis was just one prerequisite for addressing the twin scourges of poverty and exclusion.
Reflecting back on this period, Mandela later writes: ‘[Previously,] we refer to the view of Mr Meyer Kahn in which he expressed his disappointment that the increase in the police budget was only 3.7 per cent in monetary terms. There were many others, Cabinet Ministers included, who also complained about the cutting down of government expenditure.
‘I discussed the matter with Ms Gill Marcus, [who in 1999 became] Deputy Governor of the South African Reserve Bank, and she said that looking back over South Africa’s development since 1994, there is no doubt that our country has achieved a number of remarkable successes. Economic policies had to address the consequences of decades of apartheid discrimination, while at the same time meet the stringent requirements of a rapidly changing world where globalisation was the dominant trend.
‘While South Africa was emerging from its long period of isolation, it emerged into a world that itself was undergoing rapid changes. The information age and new technologies, deregulation and liberalisation have all contributed to a world we hardly recognised. The challenge for us was not just to catch up with the rest of the world, but in fact to become part of a dynamic world in which international principles and standards, codes of conduct, best-practice rules, corporate governance and so on, set the parameters in which countries are judged as fit investment destinations or trading partners.
‘Integration into the international financial network was reinforced by South Africa’s participation in various international forums, including bodies such as the World Trade Organisation, the International Monetary and Fiscal Committee, the Group of 20, the International Organisation of Securities Commissions (which promotes the development of efficient securities and future[s] markets) and the Basel Committee Core Principles Liaison Group, concerned with sound banking supervision.
‘Government initiatives to integrate South Africa into the international financial markets focused on foreign investment and the liberalisation of capital flows.
‘The challenges facing a new democratic government in 1994 were daunting, and often underestimated. The phenomenal achievements are often not recognise
d because the magnitude of the problem is not fully realised. Unravelling the apartheid state infrastructure, including the Bantustans, which were extensively underpinned by an intricate legal spider’s web, was a feat in itself. But above all, the new government found economic chaos and coffers that were virtually empty.
‘While we recognise that many challenges still face us, not least among them tackling the high level of unemployment and attaining higher rates of growth, even our sharpest critics will acknowledge that an ANC government has put in place sound monetary and fiscal policies, and that the economy is better managed than ever before.
‘Prior to 1994, South Africa’s economic growth rates were in decline. In the 1985–1990 period, the South African economy’s annual average growth rate was 1.0 per cent, falling to 0.2 per cent in the 1990–1994 period. In contrast, during the period 1994–2000, South Africa recorded an annual average economic growth rate of 3.0 per cent. Although not yet sufficient to absorb new entrants into the job market, significant structural reforms have been introduced, creating solid foundations that should help ensure future sustainable growth.
‘The government had to grapple with a large budget deficit. It had to come up with a new economic policy mix aimed at stabilising the macroeconomic fundamentals and build foreign investor confidence.
‘The opening up of the South African economy from 1994 (as measured by SA merchandise imports plus exports relative to GDP) has had many positive effects, not least among them the development of a significant export market. The importance of external demand for South Africa’s products is reflected in the five consecutive quarterly current account surpluses on the Balance of Payments that we have recorded as at June 2001.
‘The government deficit has been reduced to two per cent of GDP in 2000, markedly lower than the 7.2 per cent in [the] fiscal year 1992/3. This is far below the deficit level of most developed economies.
‘On the monetary policy front, the South African Reserve Bank has helped to improve the interest rate environment, another growth-positive factor from the very high levels of 25 per cent in the eighties to 13.75 per cent in June 2001. The low or normalised interest rate levels are conducive to stronger fixed capital investment.
‘The rate of inflation has come down significantly. From a level of 15.5 per cent in the period 1985–1990 to 12.5 per cent in the period 1990–1994, inflation has maintained an average of 7.3 per cent in the period 1994–2000. Recognising the importance of price stability, the government and the South African Reserve Bank introduced an inflation-targeting framework, with an initial target of between 3–6 per cent average in 2002. Thus the prevailing inflation trend is downwards.
‘A critical issue that faces many countries in transition is collection of taxes, one of the key hallmarks of governance. South Africa’s young democracy faced an even greater challenge given that the African majority had resisted taxation (e.g. Bambatha poll tax rebellion*), as they were not willing to fund their own enslavement. Therefore the task was not only to bring millions of new taxpayers into the net, but also to ensure everyone paid their fair share. Tax reform was an integral part of the overall fiscal strategy.
‘The success with regard to reorganising the entire tax system, including customs and cross-border management, has played a significant part in government being able to reduce its borrowing requirement, and hence also the budget deficit. It has enabled significant tax reform to take place … Corporate income tax has been significantly reduced.
‘Despite cutting taxes, both personal and corporate, and virtually eliminating fiscal drag, the South African Revenue Service has consistently exceeded the stringent targets set for total revenue collection. This has been achieved by improved infrastructure, smarter methods of work, better systems and enforcement, as well as recognition by the taxpaying population that everyone has a responsibility to pay their fair share.
‘Foreign investor confidence has improved markedly as a result of the government’s commitment to macroeconomic discipline. In the year 2000 alone, the turnover in the bond market rose to a record R10.5 trillion and a record turnover in shares of R537 billion.
‘Debt service costs rose during the 1990s from 15 per cent to over 20 per cent of the budget in 1998/9. This steadily eroded the resources available for delivery of services; for instance, the amount spent on servicing debt was roughly equal to the amount spent on education, the greatest expenditure items on the budget. This trend has been reversed and it is expected that by 2002/3 debt service costs will fall to 4.4 per cent of GDP, releasing an additional R10bn to spend on services. By 2005, it is estimated that interest on debt will be reduced to 16.4 per cent of consolidated spending.
‘The macroeconomic strategy followed since 1996 focused firmly on building foundations for sustainable long-term growth. This requires higher levels of savings (currently hovering around the 15.5 per cent of GDP ratio) and investment. Government dis-saving has significantly reduced, and it will not be long before the local government sector will make a positive contribution to the national saving effort.
‘The budget deficit has been lowered from 7.2 per cent of GDP in 1992/3 to 4.6 per cent of GDP in 1996/7 and to 2.0 per cent of GDP in 2000/01.
‘Had the government not followed this course, our economy would not have performed so well.’31
* * *
Towards the end of Mandela’s presidential term in 1999, the first parliament had passed over five hundred new laws, eighty-seven of them of a socio-economic character, creating a framework for the transformation of South African society.32
Mandela comments: ‘By the end of September 1999, 436 land-redistribution projects involving 55,507 households had received ministerial approval. These projects involved 13780,4463 hectares of land, which totals 1.6 per cent of the total rural land in the country.*
‘Legislation also seeks to restore land and provides other remedies to people dispossessed by racially discriminatory laws and practice. By 31 December 1998 a total of 13,931 households had land restored to them involving 264,615 hectares of land. R13 million has been paid to a further 782 households as compensation.
‘Legislation to protect labour tenants from eviction was passed. It also provided a mechanism to labour tenants to buy land on which they were staying. At the end of September 1999, 349 labour tenant projects involving 434 households and 7,181 hectares have been approved by the Department of Land Affairs.
‘Another piece of legislation increases the security of tenure of farm workers and protects them from unfair eviction.
‘Much progress has been made since 1994, notwithstanding certain challenges, some of which are matters of common knowledge.’33
* * *
Housing, like land, mirrored – most dramatically – the consequences of South Africa’s history of legislated inequality. As with land reform, both the housing programme and its enabling legislation had to undo multiple restrictions and barriers put in place by apartheid.
‘Segregation was the bedrock of the apartheid government with overcrowded and poorly policed black townships situated far away from white areas.
‘The primary object of the democratic government was to introduce a uniform and non-discriminatory national housing policy, and to replace the more than 17 administrations managed by Bantustan, Coloured and Indian officials.
‘We were faced with the formidable challenge of providing accommodation for the multitude of people who never enjoyed the most elementary privilege of having a shelter, and with a backlog of between two and three million. It was the top priority of the new government to reduce that backlog.
‘Apart from the new government building houses, we also provided finance to enable emerging building contractors, some of whom are women, to participate in the industry. We also devised a scheme to enable poor people to have loans to extend their houses. Low-income earners are provided with alternative finance packages. People had to have houses irrespective of their circumstances.
‘For some time
the pace of delivery was hampered by lack of capacity to implement it across the three levels of government. Notwithstanding formidable problems, such as the existence of slums throughout the country, we were able to make progress.
‘From 1994 up to March 1999 a total of R10.7 billion was spent on housing delivery and we approved subsidies to over 800,000 units providing shelter to three million people.
‘Through Operation Mayibuye in the Gauteng Province, we restored ownership of property to those who left their properties because of unrest.*
‘We launched a pilot project on hostels redevelopment and converted 32 single-sex hostels into family homes, while 25 are currently being upgraded.
‘Our programme has supported the involvement of women in an industry that was hitherto the monopoly of males.
‘We also have housing subsidies for the disabled and for people in the rural areas.
‘A pilot project on energy-saving houses, concentrating on the low-income market, is gaining popularity, and has reduced the incidence of carbon-monoxide poisoning among these groups.
‘The low-cost housing delivery has contributed directly and in-directly to economic growth as well as to a marked increase in the Gross Domestic Product.
‘It is estimated that for every house built, one permanent and three temporary jobs are created. Since the beginning of our programme we have created 681,203 permanent jobs and two million temporary ones.
‘Furthermore, the housing sector has an influence on the balance of payment through imports used directly in housing construction.
‘By concentrating on the disabled, pensioners and a wide range of homeless people we have put the poor at the centre of our housing policy delivery agenda.
‘We are steadily improving the capacity to deliver more houses at the average of 200,000 houses per year. We have also passed legislation bringing security of tenure to labour. Tenants on farms [are] one of the most oppressed and exploited section of our people.
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