A Low Growth Trap Amidst the Skills Challenge in South Africa Professor Haroon Bhorat DPRU, UCT 29 September 2016
Outline The South African Economy: The Genesis of An Emerging Market Growth Trap Economic Growth Trends In Global Comparison Savings and Investment Trends Export Composition and Global Competitiveness: Perpetuating a Growth Trap The Socio-Economic Outcomes of our Growth Trap Policy Challenges for Growth Convergence: Some Concerns Unintended Consequences: A Economic Growth Path Dependency? Schooling, Skills and Higher Education: Building Linkages Industrial Policy: From Capital Intensity to Relative Prices and the Informal Sector Conclusions
CAGR, GDP per capita The Genesis of A Growth Trap: Average Annual growth of GDP p.c.:1990-2013 10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% South Africa Brazil Philippines Turkey Indonesia Malaysia Korea India China Source: IMF World Economic Outlook, 2014
% of GDP The Genesis of A Growth Trap: Gross Domestic Fixed Investment (Percentage of GDP) 60 50 40 30 20 10 0 China India Indonesia Korea Malaysia Philippines Brazil Turkey South Africa 1990 2000 2000 2010 Source: IMF World Economic Outlook, 2014
% of GDP The Genesis of A Growth Trap: Gross Domestic Savings (Percentage of GDP) 60 50 40 30 20 10 0 China Malaysia India Indonesia Korea Philippines Brazil South Africa Turkey 1990 2000 2010 Source: IMF World Economic Outlook, 2014
% of GDP The Genesis of A Growth Trap: Exports as % of GDP 30 25 20 15 10 5 0-5 Malaysia Indonesia Turkey South Africa Brazil Korea Philippines India China -10-15 1990 2000 2010 Source: IMF World Economic Outlook, 2014
% of Manufactured Exports The Genesis of A Growth Trap: High-Technology Exports (Percentage of Manufactured Exports) 80 70 60 50 40 30 2000 2012 20 10 0 Source: Brazil China India Indonesia Malaysia Philippines South Africa Turkey Korea, Rep. World Bank Databank
% of Merchandise The Genesis of A Growth Trap: Manufacturing vs. Metals? 100 90 80 70 60 50 40 Manufacturing Iron Ore & Metals 30 20 10 0 Brazil China India Indonesia Malaysia Philippines South Africa Turkey Korea, Rep. Source: World Bank Databank
Unemployment Rate (%) The Genesis of A Growth Trap: Unemployment Rates in the Emerging World 30 25 20 15 10 5 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Brazil China India Indonesia Korea Malaysia Philippines South Africa Turkey Source: IMF World Economic Outlook, 2014
The Socio-Economic Outcomes of our Growth Trap Real Growth Incidence Curve for South Africa, 1995-2010 Source: Notes: Statistics South Africa (1995 and 2013); Own Calculations using Per Capita Household Income 1. The 1995 population weights are based on the cross-entropy methodology calibrated using ASSA s 2003 population model. 2. The 2010 population weights are based on the 2001 Population Census.
The Socio-Economic Outcomes of our Growth Trap Income and Expenditure Inequality: Gini Coefficients, 1995 and 2010 Income Expenditure 1995 2010 1995 2010 Total* 0.663 0.696 0.618 0.660 By Race of Household Head African* 0.587 0.645 0.548 0.581 Coloured* 0.489 0.588 0.474 0.542 Asian 0.462 0.522 0.445 0.489 White 0.446 0.469 0.397 0.450 By Gender of Household Head Male* 0.641 0.667 0.606 0.647 Female* 0.647 0.679 0.575 0.619 Source: Notes: Statistics South Africa (1995 and 2010) and Authors own calculations The asterisk (*) sign suggests statistically significant at the five percent level
Policy Challenges for Growth Convergence: An Unintended Political Economy Path Dependency? Source: S. Mahajan, World Bank, 2012.
Tanzania Seychelles Mauritius Swaziland Kenya Botswana Zanzibar Zimbabwe Namibia South Africa Uganda Mozambique Lesotho Zambia Malawi SACMEQ Policy Challenges for Growth Convergence: Education: Standardised Test Scores: A Southern Africa Comparison 700 600 500 400 300 200 100 0 Reading Mathematics Source: Notes: SACMEQ (III) SACMEQ III was undertaken from 2005 to 2010, targeted all pupils in Grade 6 level (at the first week of the eighth month of the school year) who were attending registered mainstream primary school. The desired target population definition for the project was based on a grade-based description and not age based description of pupils.
Policy Challenges for Growth Convergence: Education: Average Grade Test Scores 60 50 40 30 20 Grade 3 Grade 6 Grade 9 10 0 Mathematics Home Language Source: Development Indicators 2012, The Presidency, based on SACMEQ III project results
Policy Challenges for Growth Convergence: Education: Production Function Estimates of Schooling Variables Coefficient None Primary -0.024-0.023 Secondary 0.145 Matric 0.159 Certificate -0.05 Degree 0.104** Source: Notes: PALMS, 1995-2012. Authors own calculations. Standard errors in parentheses, ** p<0.05
Policy Challenges for Growth Convergence: Education: Production Function Estimates of Schooling These Learning Deficits are located in the Arts and Sciences. Tend to Increase Over Time. Shapes the Economic Growth Opportunities and Outcomes for the Country. Creates the Market to Reduce Such Deficits. Shows clear failure of the entire schooling pipeline and FET system to contribute significantly to long-run economic growth. TVET System: Grade-Hiring Inflation The quality of both the schooling as well as the FET college system is hampering labour market absorption of those qualified with less than a university degree. Fiscal investment into FET institutions has not paid off given the poor growth and welfare results found for certificate holders.
Policy Challenges for Growth Convergence Labour and Capital: Annual growth in Capital Investment by Sub-Sector, 1990-2012 Source: A12112: Wearing apparel [313-315] A12111: Textiles [311-312] A12182: Other transport equipment [384-387] A12153: Metal products excluding machinery [353-355] A12113: Leather and leather products [316] A1122: Gold and uranium ore mining [23] A12134: Rubber products [337] A12142: Non-metallic minerals [342] A12101: Food [301-304] A12154: Machinery and equipment [356-359] A1332: Business services [83-88] A1312: Catering and accommodation services [64] A1343: General government services [99] A12133: Other chemicals and man-made fibers [335-336] A12123: Printing, publishing and recorded media [324-326] A1221: Electricity, gas and steam [41] A12141: Glass and glass products [341] A12193: Other manufacturing [392-393] A1231: Building construction [51] A12152: Basic non-ferrous metals [352] A1123: Other mining [22/24/25/29] A13412: Excluding medical, dental and veterinary services [94-96] A13411: Medical, dental and veterinary services [93] -8.0% -6.0% -4.0% -2.0% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% Quantec
Policy Challenges for Growth Convergence: Transport: A Case of the Policy Trap and Growth Path Dependency Source: National Ports Regulator, 2012
Policy Challenges for Growth Convergence: Transport: A Case of the Policy Trap and Growth Path Dependency 120 100 80 60 40 City of Cape Town: Subsidy per passenger 110.05 20 0 7.95 0.2 Bus Taxi MyCiTi Source: M. Eichhorn (2014) Building a pro-poor public transport subsidy for urban Cape Town, Unpublished Masters Thesis. University of Cape Town, Cape Town.
Policy Challenges for Growth Convergence: A Study in Sectoral Contrasts I Automotive Sector Subsidies under Automotive Production Development Programme (APDP) constitute 20% of total industrial support in South Africa. Highly capital-intensive; very poor job generator. Investments of R12 billion since 2000 have resulted in virtually no job growth in vehicle assembly. Employment in components production (including tires) has grown by barely over 1% p.a. over the same five-year period. Technical, skills and knowledge spillover effects? Repatriation of profits?
Industrial Policy Revisited An industrial strategy focused on K-intensive industries. Symptomatic of the policy trap and the growth path dependency? Where is employment creation and skills development as targets and inputs respectively in industrial policy? The role of microenterprise growth as a target in industrial policy?
Conclusions South Africa is the poster child for the middle income country growth trap analogy Can we: Increase savings and investment? Diversify exports? Generate light-manufacturing jobs? Some of our Growth Path Dependency Constraints Reinforced by: Political Economy Issues which lead and shape wage and investment decisions Sub-optimal Human Capital Investment with negative returns for economic growth Wrong decisions in numerous areas related microeconomic policy which reinforce our growth trap
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