Economies in the southern Africa region face thorny challenges when it comes to the transformation of their economies, job creation, and the need to share the benefits of growth. For the past three years, more than 100 researchers have engaged in a collaborative research programme with the ultimate aim of spurring economic growth and improving development prospects in the southern Africa region.

This UNU-WIDER and National Treasury conference was organised to interrogate these research findings and vigorously debate their implications. The conference featured two major themes. The first theme focused on South Africa with an emphasis on positive policy steps for rekindling growth with equity. The second theme focused on regional growth and development with an emphasis on “win-win” responses to regional challenges and opportunities. In addition to conference presentations, the event featured special poster sessions in the afternoons of both conference days.

The conference brought together researchers, technical experts and policy makers from UNU-WIDER, the National Treasury and several other partners. It took place at the Protea Hotel Fire & Ice! in Pretoria on 30 November-1 December 2016.

Regional growth and development in southern Africa project

This project aims to develop, in conjunction with important research/policy institutions in the region, regional growth and development initiatives that generate economic transformation and widely shared development benefits.

The project focuses on two principal elements: (i) firm-level analysis with initial focus on South Africa and (ii) regional growth and development with particular focus, at least initially, on two identified opportunities: agricultural trade including bioenergy and leveraging natural resource investments for inclusive growth.

New insights are generated with new data including a time series of real and nominal social accounting matrices from 1993-2013, comprehensive administrative tax record data compiled in collaboration with SARS, and original data on regional trade.

---

Growth and development policy: New data, new approaches, and new evidence

Part I: South Africa

The Republic of South Africa faces the imperative of escaping economic stagnation. The broad-level economic ills besetting South Africa are well known but bear brief repetition: real GDP per capita has hardly grown for nine years; productivity growth has been slow and appears to be slowing; the unemployment rate has recently been increasing from already extraordinarily high levels; and inequality remains stubbornly very high. This first note of a two part series focuses on domestic policies that take the external economic environment largely as given.

A series of broad implications emerged:

1. Openness, without doubt, poses challenges; nevertheless, openness also provides substantial growth opportunities through links to global demand and technical advances. Democratic elections in 1994 initiated a still ongoing process of re-engagement with the global community pushing up demand for imports and opening opportunities for export. Secular stagnation in mining placed the onus on other exporting sectors to grow. This onus remains as mining still represents around 30 per cent of exports. To exploit the opportunities present in international markets and to facilitate transition away from dependence on mining exports, export oriented policies are required. Access to high-quality imported intermediate inputs is an important component of an export orientation. There also appears to be space for enhanced competition from imports to reduce markups and spur firm productivity and growth.

2. In manufactures, South Africa’s most productive firms are larger and much more likely to engage in direct importing and/or exporting. In terms of breaking out of the current economic malaise, large, productive firms with existing links to international markets likely have the highest near term growth potential.

3. South Africa has a revealed comparative advantage in services exports. The past two decades also illustrate that South Africa has done relatively well in supplying rapidly growing African markets more generally (see Part II of this note series). These two features interact as in the examples of servicing mining equipment and the sale of consumer goods in South African supermarkets located abroad.

4. Economic growth in South Africa appears to be powerfully skills-constrained. Wage trends strongly indicate that demand for skilled labour has chronically exceeded supply causing highlyskilled wages to rise dramatically. Part of this rise can be explained by global forces, notably skillsbiased technical advance. However, the extraordinary rapidity of the rate of change in highly-skilled versus lower-skilled wage ratios over the past two decades points to local factors as well. Growth in services exports and high-quality manufactures, both of which frequently require substantial inputs of highly-skilled labour, has almost surely contributed to the relative rise in highly-skilled wages. The post-apartheid expansion of government provided public services and concomitant skilled labour requirements to design and manage these services within the public sector are a second likely contributing factor.

5. The skills constraint is pernicious. As noted, it constrains growth, most obviously in sectors that require substantial inputs of skilled labour. Because exporting requires skills, the skills constraint applies with particular force to exporters, who have already been identified as particularly important. The skills constraint is likely a part of the explanation for the coexistence of increased productivity and declining employment in manufacturing firms since 1994. Skills constraints are currently limiting services exports to rapidly growing markets in Africa and beyond.

In addition, the very high degree of formality of the South African economy implies a need for skilled labour in management, supervisory, technical, and administrative capacities in order to employ unskilled labour. Hence, the paucity of skilled labour is very plausibly constraining broad employment growth and thus playing a part in sustaining very high rates of unemployment.

Part II: Southern Africa

In contrast to South Africa, most of the other economies in the southern Africa region have grown reasonably rapidly over the past two decades. Recent experience has, however, highlighted the vulnerability of these economies to shocks, sometimes external and sometimes of their own making. For example, for two decades, Mozambique posted one of the fastest economic growth rates in the world. In 2016, a combination of governance failures, political instability (not unrelated to the governance failures), and lower commodity prices for coal and natural gas has generated an ongoing macroeconomic crisis. Per capita GDP growth in Mozambique is expected to be close to zero in 2016.

This note takes stock of the experience of the past two decades and seeks to chart realistic paths forward from a regional growth and development perspectives. It considers six specific areas where a regional growth and development perspective may have particular promise. These areas are: the spread of regional supermarket chains; the poultry value chain; trucking; mining equipment and related services; energy including bioenergy; and confronting climate change.

Background and motivation

Improved growth dynamics in Africa in general and the Southern African Development Community (SADC) in particular combined with an improved political and economic environment within the region has led to rapid growth in trade in the region. Beginning from very small volumes in the immediate post-apartheid period, regional trade has grown rapidly and has now reached levels that imply considerable macroeconomic significance. Africa, driven principally by SADC, has become the largest destination for diversified manufactured exports from South Africa, surpassing the European Union in 2011. This growth in trade is consistent with the objectives of the SADC free trade area (FTA) and the success that member states have realized in the implementation of the tariff phase downs agreed to within the framework of the FTA (Hartzenberg and Kalenga 2015).

As noted in Part I of this series of notes, the growth in trade in goods has been accompanied by rapid growth in trade in services alongside very significant foreign direct investment in Africa in general and SADC in particular (notably by South African firms) in sectors such as retail, banking, insurance, transport, and business support services. Despite this growth, a series of concerns emerge with respect to the regional integration agenda.