GROWTH, EMPLOYMENT AND REDISTRIBUTION

A Long-run vision

As South Africa moves toward the next century, we seek:

· a competitive fast-growing economy which creates sufficient jobs for all workseekers;

· a redistribution of income and opportunities in favour of the poor;

· a society in which sound health, education and other services are available to all; and

· an environment in which homes are secure and places of work are productive.

A strategy for rebuilding and restructuring the economy is set out in this document, in keeping with

the goals set in the Reconstruction and Development Programme. In the context of this integrated

economic strategy, we can successfully confront the related challenges of meeting basic needs,

developing human resources, increasing participation in the democratic institutions of civil society

and implementing the RDP in all its facets.

1.2 Recent Economic Developments

Against the background of a successful democratic transition, the stagnation that characterised the

1980s has come to an end. Considerable progress has since been made in:

· securing a return to a long-term growth trend in excess of population growth;

· reducing the budget deficit, reforming the tax system and reprioritising public expenditure;

· bringing down inflation and easing the balance of payments constraint;

· opening the economy to international competition and securing access to new markets;

· integrating the civil service and transforming public sector institutions; and

· establishing policy frameworks for delivery of social services.

Notwithstanding these achievements, it has become increasingly evident that job creation, which is a

primary source of income redistribution, remains inadequate. It is widely recognised that the present

growth trajectory of about 3 percent per annum:

· fails to reverse the unemployment crisis in the labour market;

· provides inadequate resources for the necessary expansion in social service delivery; and

· yields insufficient progress toward an equitable distribution of income and wealth.

Recent exchange rate developments reinforce these conclusions. In February 1996 a depreciation,

which was largely a purchasing power parity correction, occurred. However, the subsequent

movements in the foreign exchange market reflected more fundamental economic uncertainties. The

depreciation presents both an opportunity and a threat. An uncoordinated response, embroiled in

conflict, will cause further crisis and contraction. Linked to an integrated economic strategy, on the

other hand, it provides a springboard for enhanced economic activity.

1.3 Points of Departure

Sustained growth on a higher plane requires a transformation towards a competitive outwardoriented

economy.

The strategy developed below attains a growth rate of 6 percent per annum and job creation of 400 000

per annum by the year 2000, concentrating capacity building on meeting the demands of international

competitiveness. Several inter-related developments are called for:

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· accelerated growth of non-gold exports;

· a brisk expansion in private sector capital formation;

· an acceleration in public sector investment;

· an improvement in the employment intensity of investment and output growth; and

· an increase in infrastructural development and service delivery making intensive use of labourbased

techniques.

The expansion envisaged in the above aggregates is substantial and entails a major transformation in

the environment and behaviour of both the private and the public sectors. This must include:

· a competitive platform for a powerful expansion by the tradable goods sector;

· a stable environment for confidence and a profitable surge in private investment;

· a restructured public sector to increase the efficiency of both capital expenditure and service

delivery;

· new sectoral and regional emphases in industrial and infrastructural development;

· greater labour market flexibility; and

· enhanced human resource development.

Accompanying the macroeconomic strategy set out below, several appendices provide details and

explanatory memoranda. Other coordinated policy programmes, such as the recently announced

National Crime Prevention Strategy, complement this framework. Taken together, the Government’s

approach to development and growth builds a bridge between the present constrained environment

and sustainable expansion within an increasingly competitive international context.

1.4 An Integrated Strategy

The core elements of the integrated strategy are:

· a renewed focus on budget reform to strengthen the redistributive thrust of expenditure;

· a faster fiscal deficit reduction programme to contain debt service obligations, counter inflation

and free resources for investment;

· an exchange rate policy to keep the real effective rate stable at a competitive level;

· consistent monetary policy to prevent a resurgence of inflation;

· a further step in the gradual relaxation of exchange controls;

· a reduction in tariffs to contain input prices and facilitate industrial restructuring, compensating

partially for the exchange rate depreciation;

· tax incentives to stimulate new investment in competitive and labour absorbing projects;

· speeding up the restructuring of state assets to optimise investment resources;

· an expansionary infrastructure programme to address service deficiencies and backlogs;

· an appropriately structured flexibility within the collective bargaining system;

· a strengthened levy system to fund training on a scale commensurate with needs;

· an expansion of trade and investment flows in Southern Africa; and

· a commitment to the implementation of stable and coordinated policies.

It is Government’s conviction that we have to mobilise all our energy in a new burst of economic

activity. This will need to break current constraints and catapult the economy to the higher levels of

growth, development and employment needed to provide a better life for all South Africans. We are

confident that our social partners will join us in the combined efforts needed to achieve this goal.